COHU INC
10-Ks and 10-Qs
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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
| þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 25, 2010
OR
| o | 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) | ||
| 12367 Crosthwaite Circle, Poway, California | 92064-6817 | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (858) 848-8100
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Name of Exchange on Which Registered | |
| Common Stock, $1.00 par value | The NASDAQ Stock Market LLC | |
| Preferred Share Purchase Rights, $1.00 par value | The NASDAQ Stock Market LLC |
Securities registered pursuant to Section 12(g) of the Act:
None
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act. Yes
o
No
þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Act. Yes
o
No
þ
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
þ
No
o
Indicate by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes
o
No
o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s
knowledge, in definitive proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K.
þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large
accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):
|
Large accelerated filer
o
|
Accelerated filer þ | Non-accelerated filer o | Smaller reporting company o | |||
|
|
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Act). Yes
o
No
þ
The aggregate market value of voting stock held by nonaffiliates of the registrant was
approximately $195,000,000 based on the closing stock price as reported by the NASDAQ Stock Market
LLC as of June 25, 2010. Shares of common stock held by each officer and director and by each
person or group who owns 5% or more of the outstanding common stock have been excluded in that such
persons or groups may be deemed to be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.
As
of January 21, 2011 the Registrant had 24,002,993 shares of its $1.00 par value common
stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for Cohu, Inc.’s 2011 Annual Meeting of Stockholders to be
held on May 11, 2011, and to be filed pursuant to Regulation 14A within 120 days after registrant’s
fiscal year ended December 25, 2010, are incorporated by reference into Part III of this Report.
COHU, INC.
FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 25, 2010
TABLE OF CONTENTS
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| EX-32.1 | ||||||||
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Table of Contents
The following discussion should be read in conjunction with the consolidated financial statements
and notes thereto included elsewhere in this Annual Report on Form 10-K. This Annual Report on
Form 10-K contains certain forward-looking statements including expectations of market conditions,
challenges and plans, within the meaning of Section 21E of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), and is subject to the Safe Harbor provisions created by that statute.
These forward-looking statements are based on management’s current expectations and beliefs,
including estimates and projections about our industries. Statements concerning financial position,
business strategy, and plans or objectives for future operations are forward-looking statements.
These statements are not guarantees of future performance and are subject to certain risks,
uncertainties, and assumptions that are difficult to predict and may cause actual results to differ
materially from management’s current expectations. Such risks and uncertainties include those set
forth in this Annual Report on Form 10-K under the heading “Item 1A. Risk Factors”. The
forward-looking statements in this report speak only as of the time they are made and do not
necessarily reflect management’s outlook at any other point in time. We undertake no obligation to
update publicly any forward-looking statements, whether as a result of new information, future
events, or for any other reason. However, readers should carefully review the risk factors set
forth in other reports or documents we file from time to time with the Securities and Exchange
Commission (“SEC”) after the date of this Annual Report.
Cohu, Inc. (“Cohu”, “we”, “our” and “us”) was incorporated under the laws of California in 1947, as
Kalbfell Lab, Inc. and commenced active operations in the same year. Our name was changed to Kay
Lab in 1954. In 1957, Cohu was reincorporated under the laws of the State of Delaware as Cohu
Electronics, Inc. and in 1972, our name was changed to Cohu, Inc.
We have three reportable segments: semiconductor equipment, mobile microwave communication systems
and video cameras. Our semiconductor equipment segment is comprised of our wholly owned
subsidiaries Delta Design, Inc. (“Delta”) and Rasco GmbH (“Rasco”). Delta develops, manufactures
and sells pick-and-place semiconductor test handlers, burn-in related equipment and thermal
sub-systems to semiconductor manufacturers and semiconductor test subcontractors throughout the
world. Rasco develops, manufactures and sells gravity-feed and test-in-strip semiconductor test
handling equipment used in final test operations by semiconductor manufacturers and test
subcontractors. Our microwave communication systems segment is comprised of our wholly owned
subsidiary Broadcast Microwave Services, Inc. (“BMS”). BMS develops, manufactures and sells
microwave communications equipment to government agencies, law enforcement and public safety
organizations, unmanned air vehicle program contractors, television broadcasters, entertainment
companies, professional sports teams and other commercial entities. Our video camera segment
(“Electronics Division”) develops, manufactures and sells a wide selection of video cameras and
related products, specializing in video solutions for security, surveillance and traffic
monitoring. Customers for these products are distributed among security, surveillance, traffic
control/management, scientific imaging and machine vision.
Sales by reportable segment, expressed as a percentage of total consolidated net sales, for the
last three years were as follows:
| 2010 | 2009 | 2008 | ||||||||||
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Semiconductor equipment
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85 | % | 70 | % | 76 | % | ||||||
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Microwave communications
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10 | % | 20 | % | 15 | % | ||||||
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Video cameras
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5 | % | 10 | % | 9 | % | ||||||
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100 | % | 100 | % | 100 | % | ||||||
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Additional financial information on industry segments for each of the last three years is included
in Note 7, “Segment and Related Information” in part IV, Item 15(a) of this Form 10-K.
1
Table of Contents
Semiconductor Equipment
We are a worldwide supplier of semiconductor test handling systems, micro electro mechanical
systems (“MEMS”) test modules, burn-in equipment and thermal sub-systems. Our semiconductor
equipment companies develop, manufacture, sell and service a broad line of equipment capable of
handling a wide range of integrated circuit packages. Test handlers are electromechanical systems
used to automate testing of the packaged integrated circuit in the “backend” of the semiconductor
manufacturing process. Testing determines the quality and performance of the integrated circuit
prior to shipment to customers. Testers are designed to verify the performance of the integrated
circuit, such as microprocessors, logic, DRAM or mixed signal devices. Handlers are engineered to
thermally condition and present for testing the packages that protect the integrated circuit. The
majority of test handlers use either pick-and-place, gravity-feed or test-in-strip technologies.
The integrated circuit package type normally determines the appropriate handling approach.
Gravity-feed handling is the predominant solution for temperature testing of small outline leaded
and non-leaded packages, as well as for packages with leads on only two sides. In gravity-feed
handlers, integrated circuits are unloaded from plastic tubes, metal magazines or a bowl at the top
of the machine and flow through the system, from top to bottom, propelled by the force of gravity.
After testing, the integrated circuits are sorted and reloaded into tubes, magazines, bulk or tape
for additional process steps or for shipment.
Integrated circuits with leads on all four sides, such as the quad flat pack, or with balls or pads
on the bottom or sides of the package, such as ball grid array packages, and quad flat no-lead
packages as well as certain low profile integrated circuits with leads on two sides, such as the
thin small outline package, are predominately handled in pick-and-place systems. Pick-and-place
handlers use robotic mechanisms to move integrated circuits from waffle-like trays and place them
in precision transport boats or carriers for processing through the system. After testing,
integrated circuits are sorted and reloaded into designated trays, based on test results.
Test-in-strip handlers test integrated circuits in strips or panels prior to the final singulation
step in the semiconductor manufacturing process flow and are typically used for high-parallel
testing applications. MEMS test modules are independent physical stimuli assemblies for testing of
sensor integrated circuits typically used in the automotive and consumer electronics industries.
These MEMS modules can be integrated to our gravity-feed, pick & place, or test-in-strip handlers
for testing a variety of integrated circuits, including pressure sensors, acoustic sensors,
magnetic field hall effect sensors, optical sensors and others.
To ensure quality, semiconductor manufacturers typically test integrated circuits at hot and/or
cold temperatures, which can accelerate failures. Our test handler products are designed to
provide a precisely controlled test environment, often over the range of -60 degrees Celsius to
+175 degrees Celsius. In recent years, the speed and power of certain integrated circuits, such as
microprocessors has increased, resulting in a substantial increase in the amount of heat that is
generated within these high performance integrated circuits during the test process. This heat is
capable of damaging or destroying the integrated circuit and can result in speed downgrading, when
devices self-heat and fail to successfully test at their maximum possible speed. Device yields are
extremely important and speed grading directly affects the selling price of the integrated circuit
and the profitability of the semiconductor manufacturer. In addition to temperature capability,
other key factors in the design of test handlers are cost, handling speed, flexibility, parallel
test capability, system size and reliability.
Delta provides thermal sub-systems for use in advanced burn-in applications. These thermal
sub-systems maintain and control the temperature of the integrated circuit during the burn-in
testing process. Burn-in stresses devices for detection of early failures (infant mortality) prior
to distribution. The burn-in process is also used by semiconductor manufacturers to develop
reliability models of newly introduced devices. The objective of reliability testing is to
determine a device’s fault-free operation and estimated useful life by exposing the device to
various electrical and thermal conditions that impact its performance.
Our products are complex, electromechanical systems, that are used in high-volume production
environments and many are in service twenty-four hours per day, seven days a week. Customers
continuously strive to increase the utilization of their production test equipment and expect high
reliability from test handling and burn-in equipment. The availability of trained technical support
personnel is an important competitive factor in the marketplace. Our semiconductor equipment
companies deploy service engineers worldwide, often within customer production facilities, who work
with customer personnel to maintain, repair and continuously improve the performance of our
equipment.
2
Table of Contents
Our Semiconductor Equipment Products
We offer products for the pick-and-place, gravity-feed, and strip semiconductor test handler, and
burn-in markets. We currently sell the following products in the semiconductor equipment market:
Pick-and-place
The Delta
Castle
is a pick-and-place test handler capable of thermally conditioning devices from
-60 degrees Celsius to +160 degrees Celsius. The Castle can position from one to nine devices for
testing. Its large thermal soak chamber provides a continuous flow of thermally conditioned
devices to the test site allowing the handler to process parts at high speed when running at
temperature. The Castle incorporates an innovative vertical tray storage system that saves space
on the test floor by minimizing the handler’s footprint.
The Delta
EDGE
™ is a pick-and-place handler that combines an economical design with a small
footprint and fast index time (processing speed of the contactor placement mechanism). The
EDGE
™
handler is designed to meet the needs of integrated circuit manufacturers and subcontractors who
test at ambient and hot temperatures.
The Delta
MATRiX
is a high performance pick-and-place handler capable of thermally conditioning
devices from -60 degrees Celsius to +175 degrees Celsius. It provides increased productivity in
several dimensions of performance: up to three times higher throughput and four times higher
parallelism than our previous generation products, and active thermal control per test site. With
an adjustable test site configuration, customers can reuse existing load-boards, including those
made for gravity handlers. The system also provides flexibility with field upgradeable options
including a chamberless tri-temperature test site and auto contactor cleaning.
Delta’s
Summit
series of pick-and-place thermal handlers are designed to meet the requirements of
manufacturers of microprocessors, graphic processors and other high speed, high power integrated
circuits. The Summit handlers incorporate Delta’s proprietary thermal control technology. The
Summit PTC, or Passive Thermal Control, and ATC, or Active Thermal Control, models dissipate the
heat generated during test enabling the integrated circuit to be tested successfully at its maximum
speed and performance.
The Delta
Pyramid
is our next generation thermal handler providing high throughput / high parallel
test capabilities for microprocessors and graphics processors. The system is highly configurable
and is capable of adapting to various customer requirements ranging from small netbook
microprocessor testing up to high-end server product testing.
Gravity-Feed
Rasco’s
SO1x00
is a high throughput gravity-feed platform that provides an economical solution for
testing up to 8 devices in parallel. These handlers can be configured for tube-to-tube or metal
magazine input and output, ambient-hot or tri-temperature testing and are easily kit-able for a
wide range of integrated circuit packages.
Rasco’s
SO2x00
is a modular platform that offers a reliable solution for testing small integrated
circuit packages and up to 8 devices in parallel. The base platform can be configured with various
input and output modules: tube, metal magazine, bowl, bulk, tape and reel, and an optional laser
marking unit. These handlers can be configured for ambient-hot or tri-temperature testing.
Test-in-strip
Rasco’s
SO3000
, test-in-strip handler, can process an entire strip at once or index the strip for
single/multiple device testing. The system has tri-temperature capability, accommodates either
stacked or slotted input/output media and can be configured with optional, automated vision
alignment.
Micro Electro Mechanical Systems (“MEMS”)
Rasco’s
SO7000
MEMS series are modules that generate a physical stimuli for testing of sensor
integrated circuits typically used in the automotive (tire pressure, airbag sensors) and consumer
electronics (tilt, motion and light sensors) industries. The SO7000 modules are stand-alone units
that can be integrated into Delta’s or Rasco’s pick-and-place, test-in-strip, or gravity-feed
handlers.
Burn-in
Delta’s
VTS300
, is an automated burn-in system that supports asynchronous loading and unloading of
devices without system interruption to transform the burn-in process from a traditional
batch-oriented process to a more efficient continuous-flow process.
3
Table of Contents
Thermal Sub-Systems
Delta has developed custom thermal sub-systems that incorporate our proprietary thermal control
technology which are used by integrated circuit manufacturers in high performance burn-in and
system level test. These thermal sub-system products maintain and control the temperature of the
integrated circuit during the testing process.
Spares
Delta and Rasco provide consumable and non-consumable items that are used to maintain, sustain or
otherwise enable purchased equipment to meet or exceed its performance, availability and production
requirements.
Tooling (kits)
Delta and Rasco design and manufacture a wide range of device dedication kits that enable their
handler products to process different semiconductor packages.
Validation and Characterization
Delta’s
ETC 2000
is used in engineering and device characterization applications. The ETC 2000
conditions semiconductors to desired test temperature and maintains temperature set point by
efficiently dissipating the heat generated during device test.
Delta’s
ETC 3000
is our next generation engineering and device characterization system. The ETC
3000 features fast and accurate thermal control technology for high precision characterization of
high-power logic devices such as microprocessors and graphics processing units. The ETC 3000 uses
the same thermal control technology as the Pyramid handler.
Sales by Product Line
In December, 2008 we purchased Rasco, which expanded our product line to include gravity-feed and
test-in-strip semiconductor test handling equipment. During the year ended December 25, 2010,
sales of our semiconductor equipment segment were distributed as follows: semiconductor test
handler systems - 64%; thermal sub-systems and burn-in equipment - 1%; and spares, tooling (kits)
and service - 35%. During the same period semiconductor test handler system sales were comprised
of approximately 63% pick-and-place handlers with the balance attributed to gravity-feed and
test-in-strip products. For the year ended December 26, 2009, sales of our semiconductor equipment
segment were distributed as follows: semiconductor test handler
systems - 24%; thermal sub-systems
and burn-in equipment - 8%; and spares, tooling (kits) and
service - 68%. During the same period
semiconductor test handler system sales were comprised of approximately 76% pick-and-place handlers
with the balance attributed to gravity-feed products and test-in-strip products.
Microwave Communications
BMS develops, manufactures and sells microwave communications equipment, antenna systems and
associated equipment. These products are used in the transmission of video, audio and telemetry.
Applications for these microwave data-links include unmanned aerial vehicles (UAVs), law
enforcement, security and surveillance and electronic news gathering. Customers include government
agencies, law enforcement and public safety organizations, unmanned air vehicle program
contractors, television broadcasters, entertainment companies, professional sports teams and other
commercial entities.
Video Cameras
The Electronics Division has developed, manufactured and sold closed circuit video or CCTV cameras,
equipment and systems for over 50 years. The customer base for these products is distributed among
traffic control and management, scientific imaging, security/surveillance and machine vision. The
product line consists of a wide selection of video cameras and related products, specializing in
video solutions for security, surveillance and traffic monitoring. Its products are
high-performance, high-resolution cameras that meet the most demanding performance requirements and
are resistant to harsh environments. To support its camera products, the Electronics Division also
offers accessories including monitors, lenses and camera test equipment.
4
Table of Contents
Customers
Semiconductor Equipment
Our customers include semiconductor manufacturers and subcontractors that perform test services for
semiconductor manufacturers. Repeat sales to existing customers represent a significant portion of
our sales. We rely on a limited number of customers for a substantial percentage of our net sales.
During the last three years, two customers from our semiconductor equipment segment have comprised
10% or greater of our consolidated net sales as follows:
| 2010 | 2009 | 2008 | ||||||||||
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Intel
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26 | % | 30 | % | 30 | % | ||||||
|
Texas Instruments
|
14 | % | * | * | ||||||||
|
Advanced Micro Devices
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* | 11 | % | 15 | % | |||||||
| * | Less than 10% of net sales |
The loss of, or a significant reduction in, orders by these or other significant customers,
including reductions due to market, economic or competitive conditions or the outsourcing of final
integrated circuit test to subcontractors that are not our customers would adversely affect our
financial condition and results of operations and as a result, we believe that our customer
concentration is a significant business risk.
Additional financial information on revenues from external customers by geographic area for each of
the last three years is included in Note 7, “Segment and Related Information” in part IV, Item
15(a) of this Form 10-K.
Microwave Communications
Our customer base for microwave communications equipment is diverse and includes government
agencies, law enforcement and public safety organizations, unmanned air vehicle program
contractors, television broadcasters, entertainment companies, professional sports teams and other
commercial entities throughout the world. No single customer of this segment accounted for 10% or
more of our consolidated net sales in 2010, 2009 or 2008.
Video Cameras
Our customer base in the video camera industry segment is also diverse and includes end-users,
government agencies, original equipment manufacturers, contractors and value-added resellers. No
single customer of this segment accounted for 10% or more of our consolidated net sales in 2010,
2009 or 2008.
Sales and Marketing
We market our products worldwide through a combination of a direct sales force and independent
sales representatives. In geographic areas where we believe there is sufficient sales potential,
we generally employ our own personnel. The U.S. sales office for our semiconductor equipment
businesses is located at Delta’s Poway, California facility. In 1993, a foreign subsidiary was
formed in Singapore to handle the sales and service of our test handling products to customers
located in Southeast Asia. In 1995, a branch of the Singapore sales and service subsidiary was
opened in Taipei, Taiwan. As a result of our acquisition of Rasco in December 2008 we have a
direct sales force in Europe. Sales in Japan and Korea are made primarily through independent
sales representatives.
Competition
Semiconductor Equipment
The semiconductor equipment industry is intensely competitive and is characterized by rapid
technological change and demanding worldwide service requirements. Significant competitive factors
include product performance, price, reliability, customer support and installed base of products.
While we are a leading worldwide supplier of semiconductor test handling equipment, we face
substantial competition and there are a large number of competitors for a relatively small
worldwide market. The Japanese and Korean markets for test handling equipment are large and
represent a significant percentage of the worldwide market. During each of the last three years
our sales to Japanese and Korean customers, who have historically purchased test handling equipment
from Asian suppliers, have represented less than 10% of our total sales. Some of our current and
potential competitors have substantially greater financial, engineering, manufacturing and customer
support capabilities and offer more extensive product offerings than Cohu. To remain competitive
we believe we will require significant financial resources to offer a broad range of products,
maintain customer support and service centers worldwide and to invest in research and development
of new products. Failure to introduce new products in a timely manner or the introduction by
competitors of products with actual or perceived advantages could result in a loss of competitive
position and reduced sales of existing products. No assurance can be given that we will continue
to compete successfully in the U.S. or throughout the world.
5
Table of Contents
Microwave Communications and Video Camera
Our products in the microwave communications and video camera segments are sold in highly
competitive markets throughout the world, where competition is on the basis of price, product
performance and integration with customer requirements, service, product quality and reliability.
Many of our competitors are divisions or segments of large, diversified companies with
substantially greater financial, engineering, marketing, manufacturing and customer support
capabilities than Cohu. No assurance can be given that we will continue to compete successfully in
these market segments.
Backlog
Our backlog of unfilled orders for products, by segment, at December 25, 2010 and December 26,
2009, was as follows:
| (in millions) | 2010 | 2009 | ||||||
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Semiconductor equipment
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$ | 86.8 | $ | 59.9 | ||||
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Microwave communications
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9.9 | 15.4 | ||||||
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Video cameras
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2.9 | 3.8 | ||||||
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Total consolidated backlog
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$ | 99.6 | $ | 79.1 | ||||
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Backlog is generally expected to be shipped within the next twelve months. Our backlog at any
point in time may not be representative of actual sales in any future period due to the possibility
of customer changes in delivery schedules, cancellation of orders, potential delays in product
shipments, difficulties in obtaining parts from suppliers, failure to satisfy customer acceptance
requirements and the inability to recognize revenue under accounting requirements. Furthermore,
many orders are subject to cancellation or rescheduling by the customer with limited or no penalty.
A reduction in backlog during any particular period could have a material adverse effect on our
business, financial condition and results of operations. There is no significant seasonal aspect
to our business.
Manufacturing and Raw Materials
Our manufacturing operations are currently located in Poway, California (BMS, Delta and Electronics
Division); Tijuana, B.C. Mexico (Delta); Laguna, the Philippines (Delta); Kolbermoor, Germany
(Rasco); and Kemel, Germany (BMS). Our microwave communications and video camera businesses
perform internal assembly, final integration and test. Rasco relies on contract manufacturers for
sub-assemblies while performing final integration and test in their Kolbermoor facility and Delta
is in the process of transitioning certain portions of its handler manufacturing model to an
outsourced model that utilizes contract manufacturers.
Many of the components and subassemblies we utilize are standard products, although certain items
are made to our specifications. Certain components, particularly in our semiconductor equipment
businesses, are obtained or are available from a limited number of suppliers. We seek to reduce
our dependence on sole and limited source suppliers, however in some cases the complete or partial
loss of certain of these sources could have a material adverse effect on our operations while we
attempt to locate and qualify replacement suppliers.
Patents and Trademarks
Our proprietary technology is protected by various intellectual property laws including patents,
licenses, trademarks, copyrights and trade secrets. In addition, we believe that, due to the rapid
pace of technological change in the semiconductor equipment industry and our other business
segments, the successful manufacture and sale of our products also depends upon our experience,
technological know-how, manufacturing and marketing skills and speed of response to sales
opportunities. In the absence of patent protection, we would be vulnerable to competitors who
attempt to copy or imitate our products or processes. We believe our intellectual property has
value and we have in the past and will in the future take actions we deem appropriate to protect
such property from misappropriation. However, there can be no assurance such actions will provide
meaningful protection from competition. Protecting our intellectual property rights or defending
against claims brought by other holders of such rights, either directly against us or against
customers we have agreed to indemnify, would likely be expensive and time consuming and could have
a material adverse effect on our operations.
6
Table of Contents
Research and Development
Certain of the markets in which we compete, particularly the semiconductor equipment industry, are
characterized by rapid technological change. Research and development activities are carried on in
our various subsidiaries and division and are directed toward development of new products and
equipment, as well as enhancements to existing products and equipment. Our total research and
development expense was $36.2 million in 2010, $32.0 million in 2009 and $38.1 million in 2008.
We work closely with our customers to make improvements to our existing products and in the
development of new products. 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 of existing products.
Environmental Laws
Our business is subject to numerous federal, state, local and international environmental laws. On
occasion, we have been notified by local authorities of instances of noncompliance with local
and/or state environmental laws. We believe we are in compliance with applicable federal, state,
local and international regulations. Compliance with foreign, federal, state and local laws which
have been enacted or adopted regulating the discharge of materials into the environment or
otherwise relating to the protection of the environment and the prevention of climate change have
not had a material effect and is not expected to have a material effect upon the capital
expenditures, results of operations or our competitive position. However, future changes in
regulations may require expenditures that could adversely impact earnings in future years.
Executive Officers of the Registrant
The following sets forth the names, ages, positions and offices held by all executive officers of
Cohu as of February 11, 2011. Executive Officers serve at the discretion of the Board of
Directors, until their successors are appointed.
| Name | Age | Position | ||||
|
Cohu:
|
||||||
|
James A. Donahue
|
62 | Chairman, President and Chief Executive Officer | ||||
|
Jeffrey D. Jones
|
49 | Vice President, Finance and Chief Financial Officer | ||||
|
|
||||||
|
Cohu wholly owned subsidiaries:
|
||||||
|
Luis A. Müller
|
41 | President – Cohu Semiconductor Equipment Group | ||||
|
James G. McFarlane
|
60 | Senior Vice President – Delta Design | ||||
|
Roger J. Hopkins
|
61 | Vice President, Sales and Service – Delta – Rasco | ||||
|
Thomas G. Lightner
|
66 | Vice President, Operations – Delta Design | ||||
Mr. Donahue has been employed by Delta Design since 1978 and has been President of Delta Design
since May, 1983. In October, 1999, Mr. Donahue was named to the position of President and Chief
Operating Officer of Cohu and was appointed to Cohu’s Board of Directors. In June, 2000, Mr.
Donahue was promoted to Chief Executive Officer.
Mr. Jones joined Delta Design in 2005 as Vice President Finance. In November 2007, Mr. Jones was
named to the position of Vice President, Finance and Chief Financial Officer of Cohu. Prior to
joining Delta Design, Mr. Jones, was a consultant from 2004 to June, 2005 and Vice President and
General Manager of the Systems Group at SBS Technologies, Inc., a designer and manufacturer of
embedded computer products, from 1998 to 2003.
Mr. Müller joined Delta Design in 2005 as Director of Engineering.
In July 2008, Mr. Müller was promoted to the position of Vice President of the High Speed
Handling Group for Delta Design and in January 2009 he was named Managing Director of
Rasco GmbH. In January 2011, Mr. Müller was appointed President of Cohu’s newly-formed
Semiconductor Equipment Group which encompasses Cohu subsidiaries Delta Design, Inc. and Rasco
GmbH.
Mr. McFarlane has been employed by Delta Design since 1989. He was Director of Engineering from
1992 to 1998 and was promoted to Vice President of Engineering in 1998. In 2000, Mr. McFarlane was
promoted to Senior Vice President.
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Mr. Hopkins has been employed by Delta Design since April 2008 as Vice President, Sales and
Service. Prior to joining Delta, from January, 2003 until April, 2008 Mr. Hopkins was the Asian
and Western Regional Manager at Aetrium, Incorporated, a supplier of semiconductor test handlers
and reliability test systems. Additionally, Mr. Hopkins worked as Delta’s Director of Sales from
April, 2001 until December, 2002.
Mr. Lightner was promoted to Vice President, Operations of Delta in January 2011 and has been
employed by Delta Design since July 2000 and has served as Delta’s Vice President, Manufacturing
from April 2001 to October 2007, Vice President, Operations, of BMS, Inc., the Company’s
wholly-owned microwave communications subsidiary from October 2007 to June 2010 and as Delta’s Vice
President, Quality from June 2010 to January 2011.
Employees
At December 25, 2010, we had approximately 1,100 employees. Our employee headcount has fluctuated
in the last five years primarily due to the volatile business conditions in the semiconductor
equipment industry. None of our employees are covered by collective bargaining agreements. We
believe that a great part of our future success will depend on our continued ability to attract and
retain qualified employees. Competition for the services of certain personnel, particularly those
with technical skills, is intense. There can be no assurance that we will be able to attract,
hire, assimilate and retain a sufficient number of qualified employees.
Available Information
Our web site address is
www.cohu.com
. We make available free of charge, on or through our
web site, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
8-K, and all amendments to those reports, as soon as reasonably practicable after such material is
electronically filed with the Securities and Exchange Commission. Our Code of Business Conduct and
Ethics and other documents related to our corporate governance is also posted on our web site at
www.cohu.com/investors/corporategovernance
. Information contained on our web site is not deemed
part of this report.
Set forth below and elsewhere in this report on Form 10-K and in other documents we file with the
SEC, are risks and uncertainties that could cause actual results to differ materially from the
results expressed or implied by the forward-looking statements contained in this Annual Report.
Before deciding to purchase, hold or sell our common stock, you should carefully consider the risks
described below in addition to the other cautionary statements and risks described elsewhere, and
the other information contained, in this Annual Report on Form 10-K. The risks and uncertainties
described below are not the only ones we face. Additional risks and uncertainties not presently
known to us or that we currently deem immaterial may also affect our business. If any of these
known or unknown risks or uncertainties actually occurs with material adverse effects on Cohu, our
business, financial condition and results of operations could be seriously harmed. The trading
price of our common stock could decline due to any of these risks, and you may lose all or part of
your investment.
The semiconductor industry we serve is highly volatile and unpredictable.
Visibility into our markets is limited. Our 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 we manufacture and market. We anticipate that the markets for newer
generations of semiconductors and semiconductor equipment may also be subject to similar cycles and
severe downturns. Any significant reductions in capital equipment investment by semiconductor
manufacturers and semiconductor test subcontractors will materially and adversely affect our
business, financial position and results of operations. In addition, the volatile and
unpredictable nature of semiconductor equipment demand has in the past and may in the future expose
us to significant excess and obsolete and lower of cost or market inventory write-offs and reserve
requirements. In 2010, 2009 and 2008, we recorded pre-tax inventory-related charges of
approximately $1.7 million, $4.4 million, and $6.2 million, respectively, primarily as a result of
changes in customer forecasts.
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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. The test handler industry, while
relatively small in terms of worldwide market size compared to other segments of the semiconductor
equipment industry, has an inordinately large number of participants resulting in intense
competitive pricing pressures. Future competition may include companies that do not currently
supply test handlers. Some of our competitors have substantially greater financial, engineering,
manufacturing and customer support capabilities and provide more extensive product offerings. In
addition, there are emerging semiconductor equipment companies that provide or may provide
innovative technology incorporated in products that may compete successfully against our products.
We expect our competitors to continue to improve the design and performance of their current
products and introduce new products with 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 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. We believe that competitive conditions in the semiconductor test handler
market have intensified over the last several years. This intense competition has adversely
impacted our product average selling prices and gross margins on certain products. If we are
unable to reduce the cost of our existing products and successfully introduce new lower cost
products we expect these competitive conditions to negatively impact our gross margin and operating
results in the foreseeable future.
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, including the products obtained in our acquisitions, may adversely impact sales and/or
margins of existing products. In addition, the introduction of new products by us or by our
competitors, the concentration of our revenues in a limited number of large customers, the
migration to new semiconductor testing methodologies and the custom nature of our inventory parts
increases the risk that our established products and related inventory may become obsolete,
resulting in significant excess and obsolete inventory exposure. This increased exposure resulted
in significant charges to operations during each of the years in the three-year period ended
December 25, 2010. Future inventory write-offs and increased inventory reserve requirements could
have a material adverse impact on our results of operations and financial condition.
The design, development, commercial introduction and manufacture of new semiconductor equipment is
an inherently complex process that involves a number of risks and uncertainties. These risks
include potential problems in meeting customer acceptance and performance requirements, integration
of the equipment 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 semiconductor
equipment is heavily influenced by changes in integrated circuit assembly, test and final
manufacturing processes and integrated circuit package design changes. We believe that the rate of
change in such processes and integrated circuit packages is accelerating. As a result of these
changes and other factors, assessing the market potential and commercial viability of handling and
burn-in test equipment is extremely difficult and subject to a great deal of risk. In addition,
not all integrated circuit manufacturers employ the same manufacturing processes. Differences in
such processes make it difficult to design standard test products that are capable of achieving
broad market acceptance. As a result, we might not accurately assess the semiconductor industry’s
future equipment requirements and fail to 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 products may have a material adverse impact on our operations,
financial condition and results of operations.
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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 equipment. In addition, as is common with semiconductor equipment,
our after sale support and warranty costs have typically been significantly higher with new
products 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.
Global economic conditions may have an impact on our business and financial condition in ways that
we currently cannot predict.
Our operations and financial results depend on worldwide economic conditions and their impact on
levels of business spending, which have deteriorated significantly in many countries and regions
and may remain depressed for the foreseeable future. Continued uncertainties may reduce future
sales of our products and services. While we believe we have a strong customer base and have
experienced strong collections in the past, if the current market conditions deteriorate, we may
experience increased collection times and greater write-offs, either of which could have a material
adverse effect on our cash flow.
In addition, the tightening of credit markets and concerns regarding the availability of credit may
make it more difficult for our customers to raise capital, whether debt or equity, to finance their
purchases of capital equipment, including the products we sell. Delays in our customers’ ability
to obtain such financing, or the unavailability of such financing, would adversely affect our
product sales and revenues and therefore harm our business and operating results. We cannot
predict the timing, duration of or effect on our business of the economic slowdown or the timing or
strength of a subsequent recovery.
A limited number of customers account for a substantial percentage of our net sales.
A small number of customers historically have been responsible for a significant portion of our net
sales. In the year ended December 25, 2010, two customers of the semiconductor equipment segment
each represented more than 10% of our consolidated net sales and, combined, they accounted for 40%
(41% in 2009, and 45% in 2008) of our net sales. During the past five years, the percentage of our
sales derived from each of these and other significant customers has varied greatly. Such
variations are due to changes in the customers’ business and their purchase of products from our
competitors. It is common in the semiconductor test handler industry for customers to purchase
equipment from more than one equipment supplier, increasing the risk that our competitive position
with a specific customer may deteriorate. No assurance can be given that we will continue to
maintain our competitive position with these or other significant customers. Furthermore, we
expect the percentage of our revenues derived from significant customers will vary greatly in
future periods. 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 semiconductor
test to test subcontractors that are not our customers or other factors, would have a material
adverse impact on our business, financial condition and results of operations. Furthermore, the
concentration of our revenues in a limited number of large customers is likely to cause significant
fluctuations in our future annual and quarterly operating results.
We do not participate in the DRAM test handler market.
Pick-and-place handlers used in DRAM applications account for a significant portion of the
worldwide test handler market. We do not participate in the DRAM market segment; therefore our
total available sales market is limited.
If we cannot continue to develop, manufacture and market products and services that meet customer
requirements for innovation and quality, our revenue and gross margin may suffer.
The process of developing new high technology products and services and enhancing existing products
and services is complex, costly and uncertain, and any failure by us to anticipate customers’
changing needs and emerging technological trends accurately could significantly harm our market
share and results of operations. In addition, in the course of conducting our business, we must
adequately address quality issues associated with our products and services, including defects in
our engineering, design and manufacturing processes, as well as defects in third-party components
included in our products. In order to address quality issues, we work extensively with our
customers and suppliers and engage in product testing to determine the cause of quality problems
and to determine appropriate solutions. Finding solutions to quality issues can be expensive and
may result in additional
warranty, replacement and other costs, adversely affecting our profits. In addition, quality
issues can impair our relationships with new or existing customers and adversely affect our
reputation, which could lead to a material adverse effect on our operating results.
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The cyclical nature of the semiconductor equipment industry places enormous demands on our
employees, 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 continually changing and unpredictable capacity requirements and changes
in integrated circuit design and packaging. Sudden changes in demand for semiconductor equipment
have a significant impact on our operations. Typically, we reduce and increase our workforce,
particularly in manufacturing, based on customer demand for our products. These changes in
workforce levels place enormous demands on our employees, operations and infrastructure since newly
hired personnel rarely possess the expertise and level of experience of current employees.
Additionally, these transitions divert management time and attention from other activities and
adversely impact employee morale. We have in the past and may in the future experience
difficulties, particularly in manufacturing, in training and recruiting the large number of
additions to our workforce. The volatility in headcount and business levels, combined with the
cyclical nature of the semiconductor industry, may require that we invest substantial amounts in
new operational and financial systems, procedures and controls. We may not be able to successfully
adjust our systems, facilities and production capacity to meet our customers’ changing
requirements. The inability to meet such requirements will have an adverse impact on our business,
financial position and results of operations.
The loss of key personnel could adversely impact our business.
Certain key personnel are critical to our business. Our future operating results depend
substantially upon the continued service of our key personnel, many of whom are not bound by
employment or non-competition agreements. Our future operating results also depend in significant
part upon our ability to attract and retain qualified management, manufacturing, technical,
engineering, marketing, sales and support personnel. Competition for qualified personnel,
particularly those with technical skills, is intense, and we cannot ensure success in attracting or
retaining qualified personnel. In addition, the cost of living in the San Diego, California area,
where the majority of our personnel are located, is very high and we have had difficulty in
recruiting prospective employees from other locations. There may be only a limited number of
persons with the requisite skills and relevant industry experience to serve in these positions and
it may become increasingly difficult for us to hire personnel over time. Our business, financial
condition and results of operations could be materially adversely affected by the loss of any of
our key employees, by the failure of any key employee to perform in his or her current position, or
by our inability to attract and retain skilled employees.
Compliance with regulations may impact sales to foreign customers.
Certain products and services that we offer require compliance with United States export and other
regulations. Compliance with complex U.S. laws and regulations that apply to our international
sales activities increases our cost of doing business in international jurisdictions and could
expose us or our employees to fines and penalties. These laws and regulations include import and
export requirements, the U.S. State Department International Traffic in Arms Regulations (ITAR) and
U.S. laws such as the Foreign Corrupt Practices Act (FCPA), and local laws prohibiting corrupt
payments to governmental officials. Violations of these laws and regulations could result in
fines, criminal sanctions against us, our officers or our employees, prohibitions on the conduct of
our business and damage to our reputation. Although we have implemented policies and procedures
designed to ensure compliance with these laws, there can be no assurance that our employees,
contractors or agents will not violate our policies, or that our policies will be effective in
preventing all potential violations. Any such violations could include prohibitions on our ability
to offer our products and services to one or more countries, and could also materially damage our
reputation, our brand, our international expansion efforts, our ability to attract and retain
employees, our business and our operating results. Further, defending against claims of violations
of these laws and regulations, even if we are successful, could be time-consuming, result in costly
litigation, divert management’s attention and resources and cause us to incur significant expenses.
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We are exposed to the risks of operating a global business.
We are a global corporation with offices and subsidiaries in certain foreign locations to support
our sales and services to the global semiconductor industry and, as such, we face risks in doing
business abroad that we do not face domestically. Certain aspects inherent in transacting business
internationally could negatively impact our operating results, including:
| • | costs and difficulties in staffing and managing international operations; | ||
| • | unexpected changes in regulatory requirements; | ||
| • | difficulties in enforcing contractual and intellectual property rights; | ||
| • | longer payment cycles; | ||
| • | local political and economic conditions; | ||
| • | potentially adverse tax consequences, including restrictions on repatriating earnings and the threat of “double taxation”; and | ||
| • | fluctuations in currency exchange rates, which can affect demand and increase our costs. |
Additionally, managing geographically dispersed operations presents difficult challenges associated
with organizational alignment and infrastructure, communications and information technology,
inventory control, customer relationship management, terrorist threats and related security matters
and cultural diversities. If we are unsuccessful in managing such operations effectively, our
business and results of operations will be adversely affected.
We utilize contract manufacturers and changes to those relationships, expected or unexpected, may
result in delays or disruptions that could cause us to lose revenue and damage our customer
relationships.
Our reliance on contract manufacturers gives us less control over the manufacturing process and
exposes us to significant risks, including limited control over capacity, late delivery, quality
and costs. In addition, it is time consuming and costly to qualify and implement additional
contract manufacturer relationships. Therefore, if we should fail to effectively manage our
contract manufacturer relationships or if one or more of them should experience delays, disruptions
or quality control problems, or if we had to change or add additional contract manufacturers or
contract manufacturing sites, our ability to ship products to our customers could be delayed. Also,
the addition of manufacturing locations or contract manufacturers may increase the complexity of
our supply chain management. We cannot be certain that existing or future contract manufacturers
will be able to manufacture our products on a timely and cost-effective basis, or to our quality
and performance specifications. If our contract manufacturers are unable to meet our manufacturing
requirements in a timely manner, our ability to ship products and to realize the related revenues
when anticipated could be materially 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. On
occasion, we have 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 risks associated with acquisitions and investments.
We have made, and may in the future make, acquisitions of, or significant investments in,
businesses with complementary products, services and/or technologies. Acquisitions and investments
involve numerous risks, including, but not limited to:
| • | difficulties and increased costs in connection with integration of the personnel, operations, technologies and products of acquired businesses; | ||
| • | diversion of management’s attention from other operational matters; | ||
| • | the potential loss of key employees of acquired businesses; | ||
| • | lack of synergy, or the inability to realize expected synergies, resulting from the acquisition; | ||
| • | failure to commercialize purchased technology; and | ||
| • | the impairment of acquired intangible assets and goodwill that could result in significant charges to operating results in future periods. |
Mergers, acquisitions and investments are inherently risky and the inability to effectively manage
these risks could materially and adversely affect our business, financial condition and results of
operations. At December 25, 2010 we had goodwill and net purchased intangible assets balances of
$58.5 million and $26.5 million, respectively.
12
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Third parties may violate our proprietary rights or accuse us of infringing upon their proprietary
rights.
We rely 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 expire due to patent
life, or be challenged, invalidated or circumvented. In addition, from 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 us to incur significant expenses. In the event of a successful
claim of infringement against us and our failure or inability to license the infringed technology
or to substitute similar non-infringing technology, our business, 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 and political instability and we compete against a number of Asian test
handling equipment suppliers.
The majority of our export sales are made to destinations in Asia. Political or economic
instability, particularly in Asia, may adversely impact the demand for capital equipment, including
equipment of the type we manufacture and market. In addition, we face intense competition from a
number of Asian suppliers that have certain advantages over U.S. suppliers, including us. 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.
The occurrence of natural disasters in Asia and geopolitical instability caused by terrorist
attacks and other threats may adversely impact our operations and sales.
Our Asian sales and service headquarters is located in Singapore and the majority of our sales are
made to destinations in Asia. In addition, we have a location in the Philippines which fabricates
certain component parts used in our products. These regions are known for being vulnerable to
natural disasters and other risks, such as earthquakes, tsunamis, fires, and floods, which at times
have disrupted the local economies. A significant earthquake or tsunami could materially affect
operating results. We are not insured for most losses and business interruptions of this kind, and
do not presently have redundant, multiple site capacity in the event of a natural disaster. In the
event of such disaster, our business would suffer. Furthermore, we have customers throughout the
Middle East and terrorist attacks or other threats in this region may cause geopolitical
instability which may have an adverse impact on our business, results of operations and financial
condition.
Our financial and operating results may vary and may fall below analysts’ estimates, which may
cause the price of our common stock to decline.
Our operating results may fluctuate from quarter to quarter due to a variety of factors including,
but not limited to:
| • | timing and amount of orders from customers and shipments to customers; | ||
| • | inability to recognize revenue due to accounting requirements; | ||
| • | inventory writedowns; | ||
| • | inability to deliver solutions as expected by our customers; and | ||
| • | intangible and deferred tax asset writedowns. |
Due to these factors or other unanticipated events, quarter-to-quarter comparisons of our operating
results may not be reliable indicators of our future performance. In addition, from time to time
our quarterly financial results may fall below the expectations of the securities and industry
analysts who publish reports on our company or of investors in general. This could cause the
market price of our stock to decline, perhaps significantly.
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We have experienced significant volatility in our stock price.
A variety of factors may cause the price of our stock to be volatile. In recent years, the stock
market in general, and the market for shares of high-technology companies in particular, including
ours, have experienced extreme price fluctuations, which have often been unrelated to the operating
performance of affected companies. During the last three years the price of our common stock has
ranged from $7.00 to $20.52. The price of our stock may be more volatile than the stock of other
companies due to, among other factors, the unpredictable and cyclical nature of the semiconductor
industry, our significant customer concentration, intense competition in the test handler industry,
our limited backlog making earnings predictability difficult and our relatively low daily stock
trading volume. The market price of our common stock is likely to continue to fluctuate
significantly in the future, including fluctuations related and unrelated to our performance.
None.
Certain information concerning our principal properties at December 25, 2010, identified by
business segment is set forth below:
| Approximate | ||||||||
|
Location
|
Sq. Footage | Ownership | ||||||
|
Poway, California (1) (2) (3) (4)
|
338,000 | Owned | ||||||
|
Kolbermoor, Germany (1)
|
40,000 | Owned | ||||||
|
Calamba City, Laguna, Philippines (1)
|
37,000 | Leased | ||||||
|
Singapore (1)
|
24,000 | Leased | ||||||
|
Chandler, Arizona (1)
|
10,000 | Owned | ||||||
|
Heidenrod — Kemel, Germany (3)
|
5,000 | Leased | ||||||
| (1) | Semiconductor equipment | |
| (2) | Video cameras | |
| (3) | Microwave Communications | |
| (4) | Cohu Corporate offices |
In addition to the locations listed above, we lease other properties primarily for sales and
service offices in various locations. We believe our facilities are suitable for their respective
uses and are adequate for our present needs.
From time-to-time we are involved in various legal proceedings, examinations by various tax
authorities and claims that have arisen in the ordinary course of our businesses. Although the
outcome of such legal proceedings, claims and examinations cannot be predicted with certainty, we
do not believe any such matters exist at this time that will have a material adverse effect on our
financial position or results of our operations.
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(a) Market Information
Cohu, Inc. stock is traded on the NASDAQ Global Select Market under the symbol “COHU”. The
following table sets forth the high and low sales prices as reported on the NASDAQ Global Select
Market during the last two years.
| Fiscal 2010 | Fiscal 2009 | |||||||||||||||
| High | Low | High | Low | |||||||||||||
|
First Quarter
|
$ | 14.89 | $ | 11.85 | $ | 12.37 | $ | 7.05 | ||||||||
|
Second Quarter
|
$ | 17.11 | $ | 12.56 | $ | 10.48 | $ | 7.00 | ||||||||
|
Third Quarter
|
$ | 16.00 | $ | 11.16 | $ | 13.94 | $ | 8.22 | ||||||||
|
Fourth Quarter
|
$ | 16.30 | $ | 11.86 | $ | 14.19 | $ | 10.80 | ||||||||
Holders
At February 11, 2011, Cohu had 647 stockholders of record.
Dividends
We have paid consecutive quarterly dividends since 1977 and, as discussed below, expect to continue
doing so. Cash dividends, per share, declared in 2010 and 2009 were as follows:
| Fiscal 2010 | Fiscal 2009 | |||||||
|
First Quarter
|
$ | 0.06 | $ | 0.06 | ||||
|
Second Quarter
|
$ | 0.06 | $ | 0.06 | ||||
|
Third Quarter
|
$ | 0.06 | $ | 0.06 | ||||
|
Fourth Quarter
|
$ | 0.06 | $ | 0.06 | ||||
|
|
||||||||
|
Total
|
$ | 0.24 | $ | 0.24 | ||||
|
|
||||||||
We intend to continue to pay quarterly dividends subject to capital availability and periodic
determinations by our Board of Directors that cash dividends are in the best interests of our
stockholders. Our dividend policy may be affected by, among other items, our views on potential
future capital requirements, including those related to research and development, investments and
acquisitions, legal risks and stock repurchases.
Equity Compensation Plan Information
The following table summarizes information with respect to equity awards under Cohu’s equity
compensation plans at December 25, 2010
(in thousands, except per share amounts)
:
| Number of securities | Weighted average | Number of securities | ||||||||||
| to be issued upon | exercise price of | available for future issuance | ||||||||||
| exercise of outstanding | outstanding options, | under equity compensation | ||||||||||
| options, warrants and | warrants and rights | plans (excluding securities | ||||||||||
| Plan category | rights (a) (1) | (b) (2) | reflected in column (a)) (c) | |||||||||
|
Equity compensation plans
approved by security holders
|
3,583 | $ | 12.89 | 1,511 | (3) | |||||||
|
Equity compensation plans not
approved by security holders
|
— | — | — | |||||||||
|
|
||||||||||||
|
|
3,583 | $ | 12.89 | 1,511 | ||||||||
|
|
||||||||||||
| (1) | Includes options and restricted stock units (RSUs) outstanding under Cohu’s equity incentive plans, as no stock warrants or other rights were outstanding as of December 25, 2010. | |
| (2) | The weighted average exercise price of outstanding options, warrants and rights does not take RSUs into account as RSUs have a de minimus purchase price. | |
| (3) | Includes 257,594 shares of common stock reserved for future issuance under the Cohu 1997 Employee Stock Purchase Plan. |
For further details regarding Cohu’s equity compensation plans, see Note 5, “Employee
Benefit Plans”, included
in Part IV, Item 15(a) of this Form 10-K.
15
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Comparative Stock Performance Graph
The information contained in this Stock Performance Graph section shall not be deemed to be
“soliciting material” or “filed” with the SEC or subject to the liabilities of Section 18 of the
Exchange Act except to the extent that Cohu specifically incorporates it by reference into a
document filed under the Securities Act or the Exchange Act.
The graph below compares the cumulative total stockholder return on the common stock of Cohu for
the last five fiscal years with the cumulative total return on a Peer Group Index and a NASDAQ
Market Index over the same period (assuming the investment of $100 in Cohu’s common stock, Peer
Group Index and NASDAQ Market Index on January 1, 2006 and reinvestment of all dividends). The
Peer Group Index set forth on the Performance Graph is the index for Hemscott, Inc., Industry Group
834 “Semiconductor Equipment/Material”. Industry Group 834 is comprised of approximately 60
publicly-held semiconductor equipment and other related companies. Historical stock price
performance is not necessarily indicative of future stock price performance.
| 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | |||||||||||||||||||
|
Cohu, Inc.
|
$ | 100 | $ | 89 | $ | 69 | $ | 55 | $ | 65 | $ | 76 | ||||||||||||
|
NASDAQ Index
|
$ | 100 | $ | 110 | $ | 123 | $ | 71 | $ | 107 | $ | 126 | ||||||||||||
|
Peer Group
|
$ | 100 | $ | 113 | $ | 107 | $ | 57 | $ | 83 | $ | 90 | ||||||||||||
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The following selected financial data should be read in conjunction with Cohu’s Consolidated
Financial Statements and Notes thereto included in Part IV, Item 15(a) and with Management’s
Discussion and Analysis of Financial Condition and Results of Operations, included in Part II, Item
7. In December, 2008, we purchased Rasco. The results of Rasco’s operations have been included in
our consolidated financial statements since that date. In March, 2007, we purchased Tandberg
Television AVS GmbH (“AVS”). The results of AVS’ operations have been included in our consolidated
financial statements since that date. In May 2006, we sold substantially all the
assets of FRL, Incorporated (“FRL”), which comprised our metal detection equipment segment. As a
result of the divestiture of FRL, we are reporting FRL as a discontinued operation for all periods
presented. In March, 2006, we purchased certain intellectual property, fixed assets, inventory and
a customer contract of Unisys’ Unigen operation (“Unigen”). The results of Unigen’s operations
have been included in our consolidated financial statements since that date.
| Years Ended, | Dec. 25 | Dec. 26 | Dec. 27 | Dec. 29 | Dec. 30 | |||||||||||||||
| (in thousands, except per share data) | 2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||||||
|
Consolidated Statement of Operations Data:
|
||||||||||||||||||||
|
Net sales
|
$ | 322,667 | $ | 171,261 | $ | 199,659 | $ | 241,389 | $ | 270,106 | ||||||||||
|
|
||||||||||||||||||||
|
Income (loss) from continuing operations
(1)
|
$ | 24,644 | $ | (28,168 | ) | $ | (5,443 | ) | $ | 8,021 | $ | 18,626 | ||||||||
|
|
||||||||||||||||||||
|
Net income
(loss)
(1)
|
$ | 24,644 | $ | (28,168 | ) | $ | (5,443 | ) | $ | 7,978 | $ | 17,681 | ||||||||
|
|
||||||||||||||||||||
|
Income (loss) from continuing operations per
common share — basic
|
$ | 1.04 | $ | (1.20 | ) | $ | (0.23 | ) | $ | 0.35 | $ | 0.82 | ||||||||
|
|
||||||||||||||||||||
|
Income (loss) from continuing operations per
common share — diluted
|
$ | 1.02 | $ | (1.20 | ) | $ | (0.23 | ) | $ | 0.34 | $ | 0.81 | ||||||||
|
|
||||||||||||||||||||
|
Net income (loss) per common share — basic
|
$ | 1.04 | $ | (1.20 | ) | $ | (0.23 | ) | $ | 0.35 | $ | 0.78 | ||||||||
|
|
||||||||||||||||||||
|
Net income (loss) per common share — diluted
|
$ | 1.02 | $ | (1.20 | ) | $ | (0.23 | ) | $ | 0.34 | $ | 0.77 | ||||||||
|
|
||||||||||||||||||||
|
Cash dividends per share, paid quarterly
|
$ | 0.24 | $ | 0.24 | $ | 0.24 | $ | 0.24 | $ | 0.24 | ||||||||||
|
|
||||||||||||||||||||
|
Consolidated Balance Sheet Data:
|
||||||||||||||||||||
|
Total consolidated assets
|
$ | 366,043 | $ | 330,118 | $ | 344,169 | $ | 340,379 | $ | 326,339 | ||||||||||
|
Working Capital
|
$ | 168,683 | $ | 139,597 | $ | 155,589 | $ | 234,345 | $ | 225,520 | ||||||||||
| (1) | The year ended December 26, 2009 includes a charge of $19.6 million for an increase in the valuation allowance against our deferred tax assets. The year ended December 27, 2008 includes a charge for excess inventory of $5.5 million at Delta and a charge of $2.6 million for acquired in-process research and development from the acquisition of Rasco. |
OVERVIEW
Cohu operates in three business segments. Our primary business is the development, manufacture,
sale and servicing of test handling and burn-in related equipment, and thermal sub-systems for the
global semiconductor industry through our wholly-owned subsidiaries, Delta Design, Inc. and Rasco
GmbH. This business is significantly dependent on capital expenditures by semiconductor
manufacturers and test subcontractors, which in turn is dependent on the current and anticipated
market demand for semiconductors that is subject to cyclical trends. We expect that the
semiconductor equipment industry will continue to be cyclical and volatile in part because consumer
electronics, the principal end market for integrated circuits, is a highly dynamic industry and
demand is difficult to accurately predict. Our other businesses produce mobile microwave
communications equipment (Broadcast Microwave Services, Inc.) and video cameras and accessories
(Cohu Electronics Division).
Orders for semiconductor test and assembly equipment as reported by Semiconductor Equipment and
Materials International (SEMI) declined in August, following seventeen months of sequential
increases and continued to decline through November until increasing again in December. Despite
the industry-wide slowdown in orders, industry analysts Gartner and VLSI believe that 2010 was the
strongest growth year ever for the semiconductor equipment industry, following the biggest decline
ever in 2009. Strong demand for our products driven by high rates of equipment utilization in
customers’ test facilities resulted in record orders and sales levels in 2010. Our orders
increased sequentially since the first quarter of fiscal 2009 and were at their highest level ever
in the second quarter of fiscal 2010. After this period of rapid growth, we began to see
indications of reduced near term
demand from some customers and, as a result, orders for our semiconductor equipment decreased
during the second half of fiscal 2010.
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Inventory exposure is common in the semiconductor equipment industry due to the narrow customer
base, the custom nature of the products we provide, and the shortened product life cycles that are
caused by rapid changes in semiconductor manufacturing technology. Our operating results in the
last three years have been impacted by charges to cost of sales related to excess, obsolete and
lower of cost or market inventory issues. These charges totaled approximately $12.3 million during
the three-year period ended December 25, 2010 and were primarily the result of decreases or
frequent changes in customer forecasts and, to a lesser extent, changes in our sales product mix.
Our non-semiconductor equipment businesses comprised approximately 21% of our consolidated revenues
during the last three years (15% for the year ended December 25, 2010). Our microwave
communications business develops, manufactures and sells mobile microwave communications equipment,
antenna systems and associated equipment. These products are used in the transmission of video,
audio, and telemetry. Applications for these microwave data-links include unmanned aerial vehicles
(“UAVs”), public safety, security, surveillance, and electronic news gathering. Customers for
these products are government agencies, public safety organizations, UAV program contractors,
television broadcasters, and other commercial entities. Operating results for our microwave
communications segment were strong again in 2010, and opportunities and prospects for this business
continue to grow, especially in the law enforcement, government surveillance and combat tactical
UAV markets.
Our video camera segment develops, manufactures and sells a wide selection of video cameras
and related products, specializing in video solutions for security, surveillance and traffic
monitoring. Customers for these products are distributed among security, surveillance, traffic
control/management, scientific imaging and machine vision. This business was profitable again in
2010 and we expect the future operating results of this segment to improve as we introduce our new
High Definition, Internet Protocol (“IP”) cameras for the traffic and high end security and
surveillance markets.
Our management team uses several performance metrics to manage our businesses. These
metrics mainly focus on near-term forecasts due to the short-term nature of our backlog and include
(i) orders and backlog for the most recently completed quarter and the forecast for the next
quarter; (ii) inventory levels and related excess exposures typically based on the forecast for the
next twelve months; (iii) gross margin and other operating expense trends; (iv) cash flow; (v)
industry data and trends noted in various publicly available sources; and (vi) competitive factors
and information. Due to the short-term nature of our order backlog that historically has
represented about three months of business and the inherent volatility of the semiconductor
equipment business, our past performance is frequently not indicative of future near term operating
results or cash flows.
Application of Critical Accounting Estimates and Policies
Our discussion and analysis of our financial condition and results of operations are based upon our
consolidated financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States of America. The preparation of these financial
statements requires us to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.
We base our estimates on historical experience, forecasts and on various other assumptions that are
believed to be reasonable under the circumstances, however actual results may differ from those
estimates under different assumptions or conditions. The methods, estimates and judgments we use
in applying our accounting policies have a significant impact on the results we report in our
financial statements. Some of our accounting policies require us to make difficult and subjective
judgments, often as a result of the need to make estimates of matters that are inherently
uncertain. Our most critical accounting estimates that we believe are the most important to an
investor’s understanding of our financial results and condition and require complex management
judgment include:
| • | revenue recognition, including the deferral of revenue on sales to customers, which impacts our results of operations; | ||
| • | estimation of valuation allowances and accrued liabilities, specifically product warranty, inventory reserves and allowance for bad debts, which impact gross margin or operating expenses; |
18
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| • | the recognition and measurement of current and deferred income tax assets and liabilities, unrecognized tax benefits and the valuation allowance on deferred tax assets, which impact our tax provision; | ||
| • | the assessment of recoverability of long-lived assets including goodwill and other intangible assets, which primarily impacts gross margin or operating expenses if we are required to record impairments of assets or accelerate their depreciation; and | ||
| • | the valuation and recognition of share-based compensation, which impacts gross margin, research and development expense, and selling, general and administrative expense. |
Below, we discuss these policies further, as well as the estimates and judgments involved. We also
have other policies that we consider key accounting policies; however, these policies typically do
not require us to make estimates or judgments that are difficult or subjective.
Revenue Recognition:
We generally recognize revenue upon shipment and title passage for established
products (i.e., those that have previously satisfied customer acceptance requirements) that provide
for full payment tied to shipment. Revenue for products that have not previously satisfied
customer acceptance requirements or from sales where customer payment dates are not determinable is
recognized upon customer acceptance. For arrangements containing multiple elements, the revenue
relating to the undelivered elements is deferred at estimated fair value until delivery of the
deferred elements.
Accounts Receivable:
We maintain an allowance for bad debts for estimated losses resulting from the
inability of our customers to make required payments. If the financial condition of our customers
deteriorates, resulting in an impairment of their ability to make payments, additional allowances
may be required.
Warranty:
We provide for the estimated costs of product warranties in the period sales are
recognized. Our warranty obligation estimates are affected by historical product shipment levels,
product performance and material and labor costs incurred in correcting product performance
problems. Should product performance, material usage or labor repair costs differ from our
estimates, revisions to the estimated warranty liability would be required.
Inventory:
The valuation of inventory requires us to estimate obsolete or excess inventory as well
as inventory that is not of saleable quality. The determination of obsolete or excess inventory
requires us to estimate the future demand for our products. The demand forecast is a direct input
in the development of our short-term manufacturing plans. We record valuation reserves on our
inventory for estimated excess and obsolete inventory and lower of cost or market concerns equal to
the difference between the cost of inventory and the estimated market value based upon assumptions
about future product demand, market conditions and product selling prices. If future product
demand, market conditions or product selling prices are less than those projected by management or
if continued modifications to products are required to meet specifications or other customer
requirements, increases to inventory reserves may be required which would have a negative impact on
our gross margin.
Income Taxes:
We estimate our liability for income taxes based on the various jurisdictions where
we conduct business. This requires us to estimate our (i) current taxes; (ii) temporary
differences that result from differing treatment of certain items for tax and accounting purposes
and (iii) unrecognized tax benefits. Temporary differences result in deferred tax assets and
liabilities that are reflected in the consolidated balance sheet. The deferred tax assets are
reduced by a valuation allowance if, based upon all available evidence, it is more likely than not
that some or all of the deferred tax assets will not be realized. Establishing, reducing or
increasing a valuation allowance in an accounting period generally results in an increase or
decrease in tax expense in the statement of operations. We must make significant judgments to
determine the provision for income taxes, deferred tax assets and liabilities, unrecognized tax
benefits and any valuation allowance to be recorded against deferred tax assets. Our gross
deferred tax asset balance as of December 25, 2010 was approximately $29.1 million, with a
valuation allowance of approximately $23.3 million. Our deferred tax assets consist primarily of
reserves and accruals that are not yet deductible for tax and tax credit and net operating loss
carryforwards.
Goodwill, Purchased Intangible Assets and Other Long-lived Assets:
We evaluate goodwill for
impairment annually and when an event occurs or circumstances change that indicate that the
carrying value may not be recoverable. We test goodwill for impairment by first comparing the book
value of net assets to the fair value of the reporting units. If the fair value is determined to
be less than the book value, a second step is performed to compute the amount of impairment as the
difference between the estimated fair value of goodwill and the
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carrying value. We estimated the
fair values of our reporting units primarily using the income approach valuation
methodology that includes the discounted cash flow method, taking into consideration the market
approach and certain market multiples as a validation of the values derived using the discounted
cash flow methodology. Forecasts of future cash flows are based on our best estimate of future net
sales and operating expenses, based primarily on customer forecasts, industry trade organization
data and general economic conditions. We conduct our annual impairment test as of October 1 of
each year, and have determined there to be no impairment. There were no events or circumstances
from the date of our assessment through December 25, 2010 that would impact this conclusion. In a
future period, should an event occur that leads us to determine that an interim goodwill impairment
review is required, the facts and estimates utilized at that time may differ resulting in an
impairment charge which could have a significant negative impact on our operating results.
Long-lived assets, other than goodwill, are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets might not be recoverable. Conditions
that would necessitate an impairment assessment include a significant decline in the observable
market value of an asset, a significant change in the extent or manner in which an asset is used,
or any other significant adverse change that would indicate that the carrying amount of an asset or
group of assets may not be recoverable. For long-lived assets, impairment losses are only recorded
if the asset’s carrying amount is not recoverable through its undiscounted, probability-weighted
future cash flows. We measure the impairment loss based on the difference between the carrying
amount and estimated fair value.
Contingencies:
We are subject to certain contingencies that arise in the ordinary course of our
businesses which require us to assess the likelihood that future events will confirm the existence
of a loss or an impairment of an asset. If a loss or asset impairment is probable and the amount
of the loss or impairment is reasonably estimable, we accrue a charge to operations in the period
such conditions become known.
Share-based Compensation:
Share-based compensation expense related to stock options is recorded
based on the fair value of the award on its grant date which we estimate using the Black-Scholes
valuation model. Share-based compensation expense related to restricted stock unit awards is
calculated based on the market price of our common stock on the grant date, reduced by the present
value of dividends expected to be paid on our common stock prior to vesting of the restricted stock
unit.
Recent Accounting Pronouncements
For a description of accounting changes and recent accounting pronouncements, including the
expected dates of adoption and estimated effects, if any, on our consolidated financial statements,
see Note 1, “Recent Accounting Pronouncements” in Part IV, Item 15(a) of this Form 10-K.
RESULTS OF OPERATIONS
The following table summarizes certain operating data from continuing operations as a percentage of
net sales in each of the last three years.
| 2010 | 2009 | 2008 | ||||||||||
|
Net sales
|
100.0 | % | 100.0 | % | 100.0 | % | ||||||
|
Cost of sales
|
(65.9 | ) | (69.4 | ) | (67.5 | ) | ||||||
|
|
||||||||||||
|
Gross margin
|
34.1 | 30.6 | 32.5 | |||||||||
|
Research and development
|
(11.2 | ) | (18.7 | ) | (19.1 | ) | ||||||
|
Selling, general and administrative
|
(13.7 | ) | (20.7 | ) | (18.3 | ) | ||||||
|
Acquired in-process research and development
|
— | — | (1.3 | ) | ||||||||
|
|
||||||||||||
|
Income (loss) from operations
|
9.2 | % | (8.8 | )% | (6.2 | )% | ||||||
|
|
||||||||||||
In December 2008, we purchased Rasco. The results of Rasco’s operations have been included in our
consolidated financial statements since that date. The portion of the purchase price allocated to
in-process research and development (“IPR&D”) was expensed immediately upon the closing of the
acquisition and therefore, $2.6 million related to IPR&D was included as an operating expense in
our results of operations for the year ended December 27, 2008.
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2010 Compared to 2009
Net Sales
During 2010, our consolidated net sales were approximately $322.7 million, an increase of 88.4%
from the prior year. Sales of semiconductor equipment increased 128.0% to $273.6 million and
accounted for 84.8% of consolidated net sales in 2010 versus 70.1% in 2009. During fiscal 2010 the
sales of our semiconductor equipment business improved significantly as a result of high rates of
equipment utilization on customer test floors that required investment in additional capacity,
market share gains, capacity additions on new test floors and the sales synergies of our broad
product line.
Sales of microwave communications equipment accounted for approximately $31.7 million or 9.8% of
consolidated net sales in 2010, a decrease of 7.0% when compared to 2009. The decrease during 2010
was primarily a result of lower sales to customers in the government surveillance market.
Additionally, 2009 sales included approximately $4.6 million of revenue previously deferred
compared to approximately $3.1 million of revenue deferred from 2010 to a future year, in
accordance with our revenue recognition policy.
Sales of video cameras accounted for 5.4% of consolidated net sales in 2010 and increased $0.2
million or 1.3% when compared 2009.
Gross Margin
Gross margin consists of net sales less cost of sales. Cost of sales consists primarily of the cost
of materials, assembly and test labor, and overhead from operations. Our gross margin can fluctuate
due to a number of factors, including, but not limited to, the mix of products sold, product
support costs, inventory reserve adjustments, and utilization of manufacturing capacity. Our gross
margin, as a percentage of net sales, increased to 34.1% in 2010 from 30.6% in 2009. While higher
than 2009, due to the leverage generated by increased business volume and lower charges for excess
and obsolete inventory, our gross margin in 2010 was impacted by higher costs due to the
unforecasted production of our new test handlers in our Poway plant, rather than at lower cost
subcontractors, to meet customer delivery requirements and other new product start-up costs.
Our gross margin has been impacted by charges to cost of sales related to excess, obsolete and
lower of cost or market inventory issues. We compute the majority of our excess and obsolete
inventory reserve requirements using a one-year inventory usage forecast. During 2010 and 2009, we
recorded net charges to cost of sales of approximately $1.7 million and $4.4 million, respectively,
for excess and obsolete inventory. While we believe our reserves for excess and obsolete inventory
and lower of cost or market concerns are adequate to cover known exposures at December 25, 2010,
reductions in customer forecasts or continued modifications to products, as a result of our failure
to meet specifications or other customer requirements, may result in additional charges to
operations that could negatively impact our gross margin in future periods. Conversely, if our
actual inventory usage is greater than our forecasted usage, our gross margin in future periods may
be favorably impacted.
Research and Development Expense (“R&D Expense”)
R&D expense consists primarily of salaries and related costs of employees engaged in ongoing
research, product design and development activities, costs of engineering materials and supplies,
and professional consulting expenses. During 2010 R&D expense as a percentage of net sales was
11.2% compared to 18.7% in 2009, increasing in absolute dollars from $32.0 million in 2009 to $36.2
million in 2010. During 2010, R&D spending increased, primarily within our semiconductor equipment
business, as a result of reinstating employee pay cuts that were in effect during 2009 and
increased material costs related to product development.
Selling, General and Administrative Expense (“SG&A Expense)
SG&A expense consists primarily of salaries and benefit costs of employees, commission expense for
independent sales representatives, product promotion and costs of professional services. SG&A
expense as a percentage of net sales decreased to 13.7% in 2010, from 20.7% in 2009, increasing in
absolute dollars to $44.1 million in 2010 from $35.5 million in 2009 due primarily to higher
variable selling expenses as a result of increased sales within our semiconductor equipment segment
and reinstating employee pay cuts that were in effect through 2009. During 2009 SG&A spending
across all our segments was reduced as a result of lower business volume and through cost control
measures implemented in response to the global economic crisis which included head count and pay
reductions.
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Interest and other, net
Interest and other, net was approximately $0.6 million and $1.3 million in 2010 and 2009,
respectively. Our interest income was lower in 2010 due to lower short-term interest rates.
Income Taxes
The provision for income taxes expressed as a percentage of pre-tax income or loss was 18.5% in
2010 and 104.2% in 2009. The provision for income taxes for the year ended December 25, 2010
differs from the U.S. federal statutory rate primarily due to a decrease in the valuation allowance
on our deferred tax assets, foreign income taxed at different rates and other factors. The
provision for income taxes for the year ended December 26, 2009 differs from the U.S. federal
statutory rate primarily due to an increase in the valuation allowance on our deferred tax assets.
Companies are required to assess whether a valuation allowance should be recorded against their
deferred tax assets (“DTAs”) based on the consideration of all available evidence, using a “more
likely than not” realization standard. The four sources of taxable income that must be considered
in determining whether DTAs will be realized are, (1) future reversals of existing taxable
temporary differences (i.e. offset of gross deferred tax assets against gross deferred tax
liabilities); (2) taxable income in prior carryback years, if carryback is permitted under the tax
law; (3) tax planning strategies and (4) future taxable income exclusive of reversing temporary
differences and carryforwards.
In assessing whether a valuation allowance is required, significant weight is to be given to
evidence that can be objectively verified. We have evaluated our DTAs each reporting period,
including an assessment of our cumulative income or loss over the prior three-year period and
future periods, to determine if a valuation allowance was required. A significant negative factor
in our assessment was Cohu’s three-year cumulative U.S. loss history at the end of the 2009 and
2010 fiscal year periods.
After a review of the four sources of taxable income described above and in view of our three-year
cumulative U.S. loss, we recorded an increase in our valuation allowance on U.S. DTAs, with a
corresponding charge to our income tax provision, of approximately $19.6 million in the second
quarter of fiscal 2009. Our valuation allowance on DTAs at December 25, 2010 and December 26, 2009
was approximately $23.3 million and $24.9 million, respectively. The remaining gross DTAs for
which a valuation allowance was not recorded are realizable through future reversals of existing
taxable temporary differences or loss carryback. As the realization of DTAs is determined by tax
jurisdiction, the significant deferred tax liability recorded as part of the 2008 acquisition of
Rasco, a German corporation, was not a source of taxable income in assessing the realization of our
DTAs in the U.S.
For a full reconciliation of our effective tax rate to the U.S. federal statutory rate and further
explanation of our provision for income taxes, see Note 6, “Income Taxes”, included in Part IV,
Item 15(a) of this Form 10-K, which is incorporated herein by reference.
As a result of the factors set forth above, our net income was $24.6 million in 2010, compared to a
net loss of $28.2 million in 2009.
2009 Compared to 2008
Net Sales
During 2009, our consolidated net sales were approximately $171.3 million, a decrease of 14.2% from
the prior year. Sales of semiconductor equipment decreased 21.1% to $120.0 million and accounted
for 70.1% of consolidated net sales in 2009 versus 76.2% in 2008. Sales recorded by our
semiconductor equipment segment during 2009 include twelve months of sales activity for Rasco.
Total semiconductor equipment sales generated by Rasco, during 2009, were approximately $18.5
million. The 2009 worldwide demand for semiconductors was dramatically reduced due to the global
recession resulting in significant idle capacity for semiconductor manufacturers and lower demand
for semiconductor equipment which impacted our sales. During the second half of 2009 demand
increased for semiconductor test handlers, device kits, spares, equipment upgrades and repairs, as
our customers adjusted their production to respond to increased demand from their customers.
Sales of microwave communications equipment accounted for approximately $34.1 million or 19.9% of
consolidated net sales in 2009, an increase of 16.7% when compared to 2008. The increase during
2009 was primarily a result of increased sales to unmanned air vehicle program contractors.
Additionally, 2009 sales
included the recognition of approximately $4.6 million of revenue previously deferred in accordance
with our revenue recognition policy.
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Table of Contents
Sales of video cameras accounted for 10.0% of consolidated net sales in 2009 and decreased $1.1
million or 6.2% when compared 2008. The decreased sales in 2009 were a result of delayed funding
for certain state and local government projects as a result of the economic recession.
Additionally, video camera sales in 2008 benefitted from the recognition of $0.5 million in
deferred revenue upon the receipt of customer acceptance on a contract with a government
subcontractor.
Gross Margin
Our gross margin, as a percentage of net sales, decreased to 30.6% in 2009 from 32.5% in 2008 as a
result of lower sales volume in our semiconductor equipment segment and increased costs from the
initial production of next generation handler products in our California plant. During 2008 our
gross margin was favorably impacted by approximately $4.5 million when we sold certain inventory
for a semiconductor burn-in system that had been previously reserved due to a decline in customer
forecasts.
During 2009 and 2008, we recorded net charges to cost of sales of approximately $4.4 million and
$6.2 million, respectively, for excess and obsolete inventory.
Research and Development Expense
R&D expense in 2009 includes twelve months of costs for Rasco. During 2009 R&D expense as a
percentage of net sales was 18.7% compared to 19.1% in 2008, decreasing from $38.1 million in 2008
to $32.0 million in 2009. During 2009, R&D spending was reduced by approximately $10.1 million
primarily within our semiconductor equipment business through cost control measures. Additionally,
as our new pick-in-place test handler systems began to make the transition into production we
incurred lower labor and material costs associated with product development. These reductions were
partially offset by $4.0 million in incremental R&D expense that resulted from the acquisition of
Rasco.
Selling, General and Administrative Expense
SG&A expense in 2009 includes twelve months of costs for Rasco. SG&A expense as a percentage of
net sales increased to 20.7% in 2009, from 18.3% in 2008 yet decreased, in absolute dollars, to
$35.5 million in 2009 from $36.6 million in 2008. During 2009 SG&A spending, across all our
segments was reduced by approximately $6.6 million primarily as a result of lower business volume
and through cost control measures implemented in response to the global economic crisis which
included head count and pay reductions and suspension of the matching contribution to our 401(k)
plan. These reductions were partially offset by $5.5 million in incremental SG&A expense resulting
from the acquisition of Rasco.
Interest and other, net
Interest and other, net was approximately $1.3 million and $5.5 million in 2009 and 2008,
respectively. Our interest income was lower in 2009 due to a decrease in our cash and investment
balances as a result of the Rasco acquisition which occurred in December, 2008 and lower short-term
interest rates.
Income Taxes
The provision (benefit) for income taxes expressed as a percentage of pre-tax income was 104.2% in
2009 and (20.2)% in 2008. The provision for income taxes for the year ended December 26, 2009
differs from the U.S. federal statutory rate primarily due to an increase in the valuation
allowance on our DTAs of approximately $19.6 million recorded in the second fiscal quarter. The
benefit for income taxes for the year ended December 27, 2008 differs from the U.S. federal
statutory rate primarily due to state taxes, research and development tax credits, settlement of
prior year tax returns, IPR&D with no tax benefit and changes in the valuation allowance on
deferred tax assets and the liability for unrecognized tax benefits, by the effects of accounting
guidance that does not allow deferred tax benefits to be initially recognized on compensation
expense related to incentive stock options and employee stock purchase plans and interest expense
recorded on unrecognized tax benefits.
As a result of the factors set forth above, our net loss was $28.2 million in 2009, compared to a
net loss of $5.4 million in 2008.
23
Table of Contents
LIQUIDITY AND CAPITAL RESOURCES
Our business is dependent on capital expenditures by semiconductor manufacturers and test
subcontractors that are, in turn, dependent on the current and anticipated market demand for
semiconductors. The cyclical and volatile nature of demand for semiconductor equipment, our
primary industry, makes estimates of future revenues, results of operations and net cash flows
difficult.
Our primary historical source of liquidity and capital resources has been cash flow generated by
our operations and we manage our businesses to maximize operating cash flows as our primary source
of liquidity. We use cash to fund growth in our operating assets and to fund new products and
product enhancements primarily through research and development.
Liquidity
Working Capital:
The following summarizes our cash, cash equivalents, short-term investments and
working capital at December 25, 2010 and December 26, 2009:
| Percentage | ||||||||||||||||
| (in thousands) | 2010 | 2009 | Increase | Change | ||||||||||||
|
Cash, cash
equivalents and
short-term
investments
|
$ | 98,175 | $ | 84,906 | $ | 13,269 | 16 | % | ||||||||
|
Working capital
|
$ | 168,683 | $ | 139,597 | $ | 29,086 | 21 | % | ||||||||
Cash Flows
Operating Activities:
Cash generated from operating activities consists of net income or loss,
adjusted for non-cash expenses and changes in operating assets and liabilities. Non-cash items
include depreciation and amortization; share-based compensation expense; and deferred income taxes.
Our net cash flows provided from operating activities in 2010 totaled $19.5 million compared to
$2.8 million in 2009. The increase in cash provided by operating activities was primarily due to a
significant increase in business volume and profitability, primarily within our semiconductor
equipment segment, in 2010. Cash provided by operating activities was impacted by
changes in current assets and liabilities and included increases in: accounts receivable of $23.4
million; inventories of $13.9 million; deferred profit of $9.5 million and income tax payable of
$7.3 million. The increases in accounts receivable and inventories were driven primarily by our
semiconductor equipment operations and resulted from increased business volume and inventory
purchases made to support production requirements. The increase in deferred profit was primarily
due to the deferral of revenue related to certain semiconductor test handlers and microwave
communication equipment in accordance with our revenue recognition policy. The increase in income
taxes payable is a result of increased profitability and the timing of tax payments.
Investing Activities:
Investing cash flows consist primarily of cash used for capital
expenditures in support of our businesses, proceeds from investment maturities, and cash used for
purchases of investments and business acquisitions. Our net cash used for investing activities in
2010 totaled $9.8 million and was primarily the result of $52.5 million in cash used for purchases
of short-term investments, offset by $47.0 million in net proceeds from sales and maturities of
short-term investments. We invest our excess cash, in an attempt to seek the highest available
return while preserving capital, in short-term investments since excess cash is only temporarily
available and may be required for a business-related purpose. Other expenditures in 2010 included
purchases of property, plant and equipment of $4.6 million. The purchases of property, plant and
equipment were primarily made to support activities in our semiconductor equipment and microwave
communications equipment businesses and consisted primarily of equipment used in engineering,
manufacturing and related functions.
Financing Activities:
Cash provided by financing activities consisted of net proceeds from
the issuance of common stock under our equity incentive and employee stock purchase plans, which
totaled $3.6 million during 2010. We issue stock options and maintain an employee stock purchase
plan as components of our overall employee compensation. Cash used in financing activities
consisted of amounts distributed to our stockholders in the form of cash dividends. We declared
and paid dividends totaling $5.7 million, or $0.24 per common share, during 2010. On January 26,
2011, we announced a cash dividend of $0.06 per share on our common stock, payable on, April 22,
2011 to stockholders of record as of March 8, 2011. We intend to continue to pay quarterly
dividends subject to capital availability and periodic determinations by our Board of Directors
that cash dividends are in the best interests of our stockholders.
24
Table of Contents
Capital Resources
We have a secured letter of credit facility (the “Secured Facility”) under which Bank of America,
N.A., has agreed to administer the issuance of letters of credit on behalf of Cohu and our
subsidiaries. The Secured Facility requires us to maintain deposits of cash or other approved
investments, which serve as collateral, in amounts that approximate our outstanding standby letters
of credit. As of December 25, 2010, we had approximately $0.7 million of standby letters of credit
outstanding.
We expect that we will continue to make capital expenditures to support our business and we
anticipate that present working capital will be sufficient to meet our operating requirements for
at least the next twelve months.
Contractual Obligations
The following table summarizes our significant contractual obligations at December 25, 2010, and
the effect such obligations are expected to have on our liquidity and cash flows in future periods.
This table excludes amounts already recorded on our balance sheet as current liabilities at
December 25, 2010. Amounts excluded include our liability for unrecognized tax benefits that
totaled approximately $5.1 million at December 25, 2010. We are currently unable to provide a
reasonably reliable estimate of the amount or periods cash settlement of this liability may occur.
| (in thousands) | 2011 | 2012 | 2013 | 2014 | 2015 | Thereafter | Total | |||||||||||||||||||||
|
Non-cancelable
operating
leases
|
$ | 796 | $ | 427 | $ | 285 | $ | 175 | $ | — | $ | — | $ | 1,683 | ||||||||||||||
Commitments to contract manufacturers and suppliers.
From time to time, we enter into commitments
with our suppliers to purchase inventory and contract manufacturers to provide manufacturing
services for our products at fixed prices or in guaranteed quantities. During the normal course of
business, we issue purchase orders with estimates of our requirements several months ahead of the
delivery dates. However, our agreements with these suppliers usually allow us the option to
reschedule or adjust our requirements based on our business needs. Typically purchase orders
outstanding with delivery dates within 30 days are non-cancelable. We are not able to determine the
aggregate amount of such purchase orders that represent contractual obligations, as purchase orders
may represent authorizations to purchase rather than binding agreements. We typically do not have
significant agreements for the purchase of raw materials or other goods specifying minimum
quantities or set prices that exceed our expected requirements for the next six to twelve months.
Off-Balance Sheet Arrangements.
During the ordinary course of business, we provide standby letters
of credit instruments to certain parties as required. As of December 25, 2010, the maximum
potential amount of future payments that we could be required to make under these standby letters
of credit was approximately $0.7 million. No liability has been recorded in connection with these
arrangements beyond those required to appropriately account for the underlying transaction being
guaranteed. Based on historical experience and information currently available, we do not believe
it is probable that any amounts will be required to be paid under these arrangements.
Investment and Interest Rate Risk.
At December 25, 2010, our investment portfolio included short-term, fixed-income investment
securities with a fair value of approximately $52.3 million. These securities are subject to
interest rate risk and will likely decline in value if interest rates increase. Our future
investment income may fall short of expectations due to changes in interest rates or we may suffer
losses in principal if we are forced to sell securities that decline in market value due to changes
in interest rates. As we classify our short-term securities as available-for-sale, no gains or
losses are recognized due to changes in interest rates unless such securities are sold prior to
maturity or declines in fair value are determined to be other-than-temporary. Due to the relatively
short duration of our investment portfolio, an immediate ten percent change in interest rates would
have no material impact on our financial condition or results of operations.
25
Table of Contents
We evaluate our investments periodically for possible other-than-temporary impairment by reviewing
factors such as the length of time and extent to which fair value has been below cost basis, the
financial condition of the issuer and our ability and intent to hold the investment for a period of
time sufficient for anticipated recovery of market value. As of December 25, 2010 we evaluated our
investments with loss positions and determined that these losses were temporary.
Foreign Currency Exchange Risk.
We conduct business on a global basis in a number of major international currencies. As such, we
are exposed to adverse as well as beneficial movements in foreign currency exchange rates. The
majority of our sales are denominated in U.S. dollars except for certain of our revenues that are
denominated in Euros. Certain expenses incurred by our non-U.S. operations, such as employee
payroll and benefits as well as some raw materials purchases and other expenses are denominated and
paid in local currency.
We considered a hypothetical ten percent adverse movement in foreign exchange rates to the
underlying exposures described above and believe that these hypothetical market movements would not
have a material effect on our consolidated financial position, results of operations or cash flows.
The information required by this Item is included in Part IV, Item 15(a).
None.
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures —
Under the
supervision and with the participation of our management, including our principal executive officer
and principal financial officer, we conducted an evaluation of our disclosure controls and
procedures, as such term is defined under Rules 13a-15(e) and 15d-15(e) promulgated under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on this evaluation, our
principal executive officer and our principal financial officer concluded that our disclosure
controls and procedures were effective as of December 25, 2010, the end of the period covered by
this annual report.
Management’s Annual Report on Internal Control Over Financial Reporting —
Our management is
responsible for establishing and maintaining adequate internal control over financial reporting, as
such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with
the participation of our management, including our principal executive officer and principal
financial officer, we conducted an evaluation of the effectiveness of our internal control over
financial reporting based on the framework in
Internal Control — Integrated Framework
issued by the
Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under
the framework in
Internal Control — Integrated Framework
, our management concluded that our
internal control over financial reporting was effective as of December 25, 2010.
Ernst & Young LLP, the independent registered public accounting firm that audited the consolidated
financial statements included in this Annual Report on Form 10-K, has also audited the
effectiveness of our internal control over financial reporting as of December 25, 2010, as stated
in their report which is included herein.
26
Table of Contents
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Cohu, Inc.
We have audited Cohu, Inc.’s internal control over financial reporting as of December 25, 2010,
based on criteria established in Internal Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (the COSO criteria). Cohu, Inc.’s management is
responsible for maintaining effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over financial reporting included in the
accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our
responsibility is to express an opinion on the company’s internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
company’s internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Cohu, Inc. maintained, in all material respects, effective internal control over
financial reporting as of December 25, 2010, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of Cohu, Inc. as of December 25, 2010 and
December 26, 2009, and the related consolidated statements of operations, stockholders’ equity, and
cash flows for each of the three years in the period ended December 25, 2010 of Cohu, Inc. and our
report dated February 23, 2011 expressed an unqualified opinion thereon.
/s/ ERNST & YOUNG LLP
San Diego, California
February 23, 2011
February 23, 2011
27
Table of Contents
Changes in Internal Control Over Financial Reporting —
There have been no changes in our internal
control over financial reporting that occurred during the fourth quarter of 2010 that have
materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.
None.
Information regarding Directors and Executive Officers of the Registrant, is hereby incorporated by
reference to the Company’s definitive proxy statement, which will be filed with the Securities and
Exchange Commission (“SEC”) within 120 days after the close of fiscal 2010.
Information regarding Executive Compensation is hereby incorporated by reference to the Company’s
definitive proxy statement, which will be filed with the SEC within 120 days after the close of
fiscal 2010.
Information regarding Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters is hereby incorporated by reference to the Company’s definitive proxy
statement, which will be filed with the SEC within 120 days after the close of fiscal 2010.
Information regarding Certain Relationships and Related Transactions is hereby incorporated by
reference to the Company’s definitive proxy statement, which will be filed with the SEC within 120
days after the close of fiscal 2010.
Information regarding the Principal Accounting Fees and Services is hereby incorporated by
reference to the Company’s definitive proxy statement, which will be filed with the SEC within 120
days after the close of fiscal 2010.
28
Table of Contents
| (a) | The following documents are filed as part of, or incorporated by reference into, this Annual Report on Form 10-K. |
| (1) | Financial Statements |
The following Consolidated Financial Statements of Cohu, Inc., including the report
thereon of Ernst & Young LLP, are included in this Annual Report on Form 10-K beginning on
page 30:
| Form 10-K | ||||
| Description | Page Number | |||
| 30 | ||||
|
|
||||
| 31 | ||||
|
|
||||
| 32 | ||||
|
|
||||
| 33 | ||||
|
|
||||
| 34 | ||||
|
|
||||
| 52 | ||||
|
|
||||
|
(2) Financial Statement Schedule
|
||||
|
|
||||
| 56 | ||||
All other financial statement schedules have been omitted because the required
information is not applicable or not present in amounts sufficient to require submission of
the schedule, or because the information required is included in the consolidated financial
statements or the notes thereto.
| (3) | Exhibits |
The exhibits listed under Item 15(b) hereof are filed with, or incorporated by
reference into, this Annual Report on Form 10-K.
29
Table of Contents
COHU, INC.
(in thousands, except par value)
| December 25, | December 26, | |||||||
| 2010 | 2009 | |||||||
|
ASSETS
|
||||||||
|
Current assets:
|
||||||||
|
Cash and cash equivalents
|
$ | 45,921 | $ | 38,247 | ||||
|
Short-term investments
|
52,254 | 46,659 | ||||||
|
Accounts receivable, net
|
66,801 | 43,389 | ||||||
|
Inventories:
|
||||||||
|
Raw materials and purchased parts
|
34,922 | 25,660 | ||||||
|
Work in process
|
17,470 | 16,148 | ||||||
|
Finished goods
|
10,832 | 10,620 | ||||||
|
|
||||||||
|
|
63,224 | 52,428 | ||||||
|
Deferred income taxes
|
5,991 | 3,703 | ||||||
|
Other current assets
|
6,026 | 9,124 | ||||||
|
|
||||||||
|
Total current assets
|
240,217 | 193,550 | ||||||
|
Property, plant and equipment, at cost:
|
||||||||
|
Land and land improvements
|
12,057 | 11,938 | ||||||
|
Buildings and building improvements
|
31,117 | 29,538 | ||||||
|
Machinery and equipment
|
41,630 | 36,875 | ||||||
|
|
||||||||
|
|
84,804 | 78,351 | ||||||
|
Less accumulated depreciation and amortization
|
(45,000 | ) | (40,345 | ) | ||||
|
|
||||||||
|
Net property, plant and equipment
|
39,804 | 38,006 | ||||||
|
Goodwill
|
58,498 | 61,764 | ||||||
|
Intangible assets, net
|
26,523 | 35,483 | ||||||
|
Other assets
|
1,001 | 1,315 | ||||||
|
|
||||||||
|
|
$ | 366,043 | $ | 330,118 | ||||
|
|
||||||||
|
|
||||||||
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
||||||||
|
Current liabilities:
|
||||||||
|
Accounts payable
|
$ | 18,198 | $ | 22,600 | ||||
|
Accrued compensation and benefits
|
16,944 | 10,715 | ||||||
|
Accrued warranty
|
5,016 | 3,747 | ||||||
|
Customer advances
|
767 | 1,046 | ||||||
|
Deferred profit
|
14,834 | 5,322 | ||||||
|
Income taxes payable
|
8,802 | 1,486 | ||||||
|
Other accrued liabilities
|
6,973 | 9,037 | ||||||
|
|
||||||||
|
Total current liabilities
|
71,534 | 53,953 | ||||||
|
Other accrued liabilities
|
5,931 | 4,725 | ||||||
|
Deferred income taxes
|
13,853 | 14,191 | ||||||
|
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, 23,989
shares issued and outstanding in 2010 and 23,547 shares in 2009
|
23,989 | 23,547 | ||||||
|
Paid-in capital
|
71,799 | 64,847 | ||||||
|
Retained earnings
|
179,134 | 160,193 | ||||||
|
Accumulated other comprehensive income (loss)
|
(197 | ) | 8,662 | |||||
|
|
||||||||
|
Total stockholders’ equity
|
274,725 | 257,249 | ||||||
|
|
||||||||
|
|
$ | 366,043 | $ | 330,118 | ||||
|
|
||||||||
The accompanying notes are an integral part of these statements.
30
Table of Contents
COHU, INC.
(in thousands, except per share amounts)
| Years ended | ||||||||||||
| December 25, | December 26, | December 27, | ||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Net sales
|
$ | 322,667 | $ | 171,261 | $ | 199,659 | ||||||
|
Cost and expenses:
|
||||||||||||
|
Cost of sales
|
212,672 | 118,873 | 134,691 | |||||||||
|
Research and development
|
36,201 | 31,964 | 38,084 | |||||||||
|
Selling, general and administrative
|
44,117 | 35,519 | 36,612 | |||||||||
|
Acquired in-process research and development
|
— | — | 2,577 | |||||||||
|
|
||||||||||||
|
|
292,990 | 186,356 | 211,964 | |||||||||
|
|
||||||||||||
|
Income (loss) from operations
|
29,677 | (15,095 | ) | (12,305 | ) | |||||||
|
Interest and other income
|
561 | 1,300 | 5,483 | |||||||||
|
|
||||||||||||
|
Income (loss) before income taxes
|
30,238 | (13,795 | ) | (6,822 | ) | |||||||
|
Income tax provision (benefit)
|
5,594 | 14,373 | (1,379 | ) | ||||||||
|
|
||||||||||||
|
Net income (loss)
|
$ | 24,644 | $ | (28,168 | ) | $ | (5,443 | ) | ||||
|
|
||||||||||||
|
|
||||||||||||
|
Income (loss) per share:
|
||||||||||||
|
Basic
|
$ | 1.04 | $ | (1.20 | ) | $ | (0.23 | ) | ||||
|
|
||||||||||||
|
Diluted
|
$ | 1.02 | $ | (1.20 | ) | $ | (0.23 | ) | ||||
|
|
||||||||||||
|
|
||||||||||||
|
Weighted average shares used in computing
income (loss) per share:
|
||||||||||||
|
Basic
|
23,732 | 23,412 | 23,179 | |||||||||
|
|
||||||||||||
|
Diluted
|
24,097 | 23,412 | 23,179 | |||||||||
|
|
||||||||||||
The accompanying notes are an integral part of these statements.
31
Table of Contents
COHU, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except par value and per share amounts)
| Accumulated | ||||||||||||||||||||
| Common | other | |||||||||||||||||||
| stock | Paid-in | Retained | comprehensive | |||||||||||||||||
| $1 par value | capital | earnings | income (loss) | Total | ||||||||||||||||
|
Balance at December 29, 2007
|
$ | 23,045 | $ | 54,940 | $ | 204,997 | $ | 486 | $ | 283,468 | ||||||||||
|
Components of comprehensive income (loss):
|
||||||||||||||||||||
|
Net loss
|
— | — | (5,443 | ) | — | (5,443 | ) | |||||||||||||
|
Changes in cumulative translation adjustment
|
— | — | — | 6,929 | 6,929 | |||||||||||||||
|
Adjustments related to postretirement
benefits, net of income taxes
|
— | — | — | 102 | 102 | |||||||||||||||
|
Changes in unrealized gains and losses on
investments, net of income taxes
|
— | — | — | (383 | ) | (383 | ) | |||||||||||||
|
|
||||||||||||||||||||
|
Comprehensive income
|
1,205 | |||||||||||||||||||
|
Cash dividends — $0.24 per share
|
— | — | (5,569 | ) | — | (5,569 | ) | |||||||||||||
|
Exercise of stock options
|
133 | 1,566 | — | — | 1,699 | |||||||||||||||
|
Shares issued under employee stock purchase plan
|
96 | 1,100 | — | — | 1,196 | |||||||||||||||
|
Shares issued for restricted stock units vested
|
105 | (105 | ) | — | — | — | ||||||||||||||
|
Repurchase and retirement of stock
|
(35 | ) | (461 | ) | — | — | (496 | ) | ||||||||||||
|
Share-based compensation expense
|
— | 3,949 | — | — | 3,949 | |||||||||||||||
|
Tax benefit from equity awards
|
— | 87 | — | — | 87 | |||||||||||||||
|
Balance at December 27, 2008
|
23,344 | 61,076 | 193,985 | 7,134 | 285,539 | |||||||||||||||
|
Components of comprehensive income (loss):
|
||||||||||||||||||||
|
Net loss
|
— | — | (28,168 | ) | — | (28,168 | ) | |||||||||||||
|
Changes in cumulative translation adjustment
|
— | — | — | 1,538 | 1,538 | |||||||||||||||
|
Adjustments related to postretirement
benefits, net of income taxes
|
— | — | — | (444 | ) | (444 | ) | |||||||||||||
|
Changes in unrealized gains and losses on
investments, net of income taxes
|
— | — | — | 434 | 434 | |||||||||||||||
|
|
||||||||||||||||||||
|
Comprehensive loss
|
(26,640 | ) | ||||||||||||||||||
|
Cash dividends — $0.24 per share
|
— | — | (5,624 | ) | — | (5,624 | ) | |||||||||||||
|
Shares issued under employee stock purchase plan
|
136 | 992 | — | — | 1,128 | |||||||||||||||
|
Shares issued for restricted stock units vested
|
102 | (102 | ) | — | — | — | ||||||||||||||
|
Repurchase and retirement of stock
|
(35 | ) | (384 | ) | — | — | (419 | ) | ||||||||||||
|
Share-based compensation expense
|
— | 3,378 | — | — | 3,378 | |||||||||||||||
|
Tax deficiency from equity awards
|
— | (113 | ) | — | — | (113 | ) | |||||||||||||
|
Balance at December 26, 2009
|
23,547 | 64,847 | 160,193 | 8,662 | 257,249 | |||||||||||||||
|
Components of comprehensive income (loss):
|
||||||||||||||||||||
|
Net income
|
— | — | 24,644 | — | 24,644 | |||||||||||||||
|
Changes in cumulative translation adjustment
|
— | — | — | (7,270 | ) | (7,270 | ) | |||||||||||||
|
Adjustments related to postretirement
benefits, net of income taxes
|
— | — | — | (1,506 | ) | (1,506 | ) | |||||||||||||
|
Changes in unrealized gains and losses on
investments, net of income taxes
|
— | — | — | (83 | ) | (83 | ) | |||||||||||||
|
|
||||||||||||||||||||
|
Comprehensive income
|
15,785 | |||||||||||||||||||
|
Cash dividends — $0.24 per share
|
— | — | (5,703 | ) | — | (5,703 | ) | |||||||||||||
|
Exercise of stock options
|
263 | 2,606 | — | — | 2,869 | |||||||||||||||
|
Shares issued under employee stock purchase plan
|
112 | 1,101 | — | — | 1,213 | |||||||||||||||
|
Shares issued for restricted stock units vested
|
101 | (101 | ) | — | — | — | ||||||||||||||
|
Repurchase and retirement of stock
|
(34 | ) | (431 | ) | — | — | (465 | ) | ||||||||||||
|
Share-based compensation expense
|
— | 3,543 | — | — | 3,543 | |||||||||||||||
|
Tax benefit from equity awards
|
— | 234 | — | — | 234 | |||||||||||||||
|
Balance at December 25, 2010
|
$ | 23,989 | $ | 71,799 | $ | 179,134 | $ | (197) $ | 274,725 | |||||||||||
The accompanying notes are an integral part of these statements.
32
Table of Contents
COHU, INC.
(in thousands)
| Years ended | ||||||||||||
| December 25, | December 26, | December 27, | ||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Cash flows from operating activities:
|
||||||||||||
|
Net income (loss)
|
$ | 24,644 | $ | (28,168 | ) | $ | (5,443 | ) | ||||
|
Adjustments to reconcile net income (loss) to net cash
provided from operating activities:
|
||||||||||||
|
Depreciation and amortization
|
10,988 | 11,029 | 6,943 | |||||||||
|
Share-based compensation expense
|
3,543 | 3,378 | 3,949 | |||||||||
|
Deferred income taxes
|
(1,971 | ) | 17,360 | 1,573 | ||||||||
|
Accrued retiree benefits
|
(222 | ) | 348 | 867 | ||||||||
|
Excess tax benefit from stock options exercised
|
(234 | ) | — | (87 | ) | |||||||
|
Loss on investment write-down
|
— | 79 | 350 | |||||||||
|
Acquired in-process research and development
|
— | — | 2,577 | |||||||||
|
Changes in current assets and liabilities, excluding effects
from acquisitions and divestitures:
|
||||||||||||
|
Accounts receivable
|
(23,434 | ) | (11,226 | ) | 20,878 | |||||||
|
Inventories
|
(13,866 | ) | 708 | (7,854 | ) | |||||||
|
Accounts payable
|
(4,402 | ) | 10,757 | (7,021 | ) | |||||||
|
Other current assets
|
2,958 | (522 | ) | 616 | ||||||||
|
Income taxes
payable, including excess stock option exercise benefits
|
7,334 | (514 | ) | (2,758 | ) | |||||||
|
Customer advances
|
(279 | ) | (1,590 | ) | (725 | ) | ||||||
|
Deferred profit
|
9,512 | 888 | (434 | ) | ||||||||
|
Accrued compensation, warranty and other liabilities
|
4,944 | 235 | (5,588 | ) | ||||||||
|
|
||||||||||||
|
Net cash provided from operating activities
|
19,515 | 2,762 | 7,843 | |||||||||
|
Cash flows from investing activities, excluding effects
from acquisitions and divestitures:
|
||||||||||||
|
Purchases of short-term investments
|
(52,491 | ) | (44,562 | ) | (122,517 | ) | ||||||
|
Sales and maturities of short-term investments
|
46,979 | 56,458 | 156,196 | |||||||||
|
Purchases of property, plant and equipment
|
(4,579 | ) | (2,507 | ) | (3,870 | ) | ||||||
|
Payment for purchase of Rasco, net of cash received
|
— | — | (80,823 | ) | ||||||||
|
Other assets
|
314 | 42 | (102 | ) | ||||||||
|
|
||||||||||||
|
Net cash (used for) provided from investing activities
|
(9,777 | ) | 9,431 | (51,116 | ) | |||||||
|
Cash flows from financing activities:
|
||||||||||||
|
Issuance of stock, net
|
3,617 | 709 | 2,399 | |||||||||
|
Excess tax benefit from stock options exercised
|
234 | — | 87 | |||||||||
|
Cash dividends paid
|
(5,679 | ) | (5,610 | ) | (5,554 | ) | ||||||
|
|
||||||||||||
|
Net cash used for financing activities
|
(1,828 | ) | (4,901 | ) | (3,068 | ) | ||||||
|
Effect of exchange rate changes on cash and cash equivalents
|
(236 | ) | 761 | (746 | ) | |||||||
|
|
||||||||||||
|
Net increase (decrease) in cash and cash equivalents
|
7,674 | 8,053 | (47,087 | ) | ||||||||
|
Cash and cash equivalents at beginning of year
|
38,247 | 30,194 | 77,281 | |||||||||
|
|
||||||||||||
|
Cash and cash equivalents at end of year
|
$ | 45,921 | $ | 38,247 | $ | 30,194 | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
Supplemental disclosure of cash flow information:
|
||||||||||||
|
Cash refunded during the year for:
|
||||||||||||
|
Income taxes
|
$ | 2,138 | $ | 4,201 | $ | 262 | ||||||
|
Inventory capitalized as capital assets
|
$ | 2,990 | $ | 578 | $ | 855 | ||||||
|
Dividends declared but not yet paid
|
$ | 1,434 | $ | 1,410 | $ | 1,398 | ||||||
The accompanying notes are an integral part of these statements.
33
Table of Contents
Cohu, Inc.
Notes to Consolidated Financial Statements
| 1. | Summary of Significant Accounting Policies |
| Basis of Presentation | ||
| Cohu, Inc. (“Cohu”, “we”, “our” and “us”), through our wholly owned subsidiaries, is a provider of semiconductor test equipment, microwave communication systems and video cameras. Our Consolidated Financial Statements include the accounts of Cohu and our wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. |
| Our fiscal years are based on a 52- or 53-week period ending on the last Saturday in December. Our current fiscal year ended on December 25, 2010 and consisted of 52 weeks. Our fiscal years ended December 26, 2009 and December 27, 2008 also consisted of 52 weeks. |
| Risks and Uncertainties | ||
| We are subject to a number of risks and uncertainties that may significantly impact our future operating results. These risks and uncertainties are discussed under Part I, Item 1A. “Risk Factors” included in this Annual Report on Form 10-K. Understanding these risks and uncertainties is integral to the review of our consolidated financial statements. |
| Income (Loss) Per Share | ||
| Basic income (loss) per common share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding during the reporting period. Diluted income (loss) per share includes the dilutive effect of common shares potentially issuable upon the exercise of stock options, vesting of outstanding restricted stock units and issuance of stock under our employee stock purchase plan using the treasury stock method. In loss periods, potentially dilutive securities are excluded from the per share computations due to their anti-dilutive effect. For purposes of computing diluted income per share, stock options with exercise prices that exceed the average fair market value of our common stock for the period are excluded. For the year ended December 25, 2010 approximately 1,724,000 shares of our common stock were excluded from the computation. |
| The following table reconciles the denominators used in computing basic and diluted income (loss) per share: |
| (in thousands) | 2010 | 2009 | 2008 | |||||||||
|
Weighted average common shares outstanding
|
23,732 | 23,412 | 23,179 | |||||||||
|
Effect of dilutive stock options and restricted stock units
|
365 | — | — | |||||||||
|
|
||||||||||||
|
|
24,097 | 23,412 | 23,179 | |||||||||
|
|
||||||||||||
| Cash, Cash Equivalents and Short-term Investments | ||
| Highly liquid investments with insignificant interest rate risk and original maturities of three months or less are classified as cash and cash equivalents. Investments with maturities greater than three months are classified as short-term investments. All of our short-term investments are classified as available-for-sale and are reported at fair value, with any unrealized gains and losses, net of tax, recorded as a separate component of accumulated other comprehensive income in stockholders’ equity. We manage our cash equivalents and short-term investments as a single portfolio of highly marketable securities. We have the ability and intent, if necessary, to liquidate any of our investments in order to meet the liquidity needs of our current operations during the next 12 months. Accordingly, investments with contractual maturities greater than one year from December 25, 2010 have been classified as current assets in the accompanying consolidated balance sheets. |
| Fair Value of Financial Instruments | ||
| The carrying amounts of our financial instruments, including cash and cash equivalents, short-term investments, accounts receivable, accounts payable and accrued expenses, approximate fair value due to the short maturities of these financial instruments. |
| Concentration of Credit Risk | ||
| Financial instruments that potentially subject us to significant credit risk consist principally of cash equivalents, short-term investments and trade accounts receivable. We invest in a variety of financial instruments and, by policy, limit the amount of credit exposure with any one issuer. |
34
Table of Contents
Cohu, Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
| Trade accounts receivable are presented net of allowance for doubtful accounts of $0.6 million at December 25, 2010 and $1.0 million at December 26, 2009. Our customers include semiconductor manufacturers and semiconductor test subcontractors and other customers located throughout many areas of the world. While we believe that our allowance for doubtful accounts is adequate and represents our best estimate at December 25, 2010, we will continue to monitor customer liquidity and other economic conditions, which may result in changes to our estimates regarding collectability. |
| Inventories | ||
| Inventories are stated at the lower of cost, determined on a current average or first-in, first-out basis, or market. Cost includes labor, material and overhead costs. Determining market value of inventories involves numerous estimates and judgments including projecting average selling prices and sales volumes for future periods and costs to complete and dispose of inventory. As a result of these analyses, we record a charge to cost of sales in advance of the period when the inventory is sold when market values are below our costs. Charges to cost of sales for excess and obsolete inventories aggregated $1.7 million, $4.4 million, and $6.2 million in 2010, 2009 and 2008, respectively. During 2008 we sold certain inventory that was reserved in 2006 and our gross margin was favorably impacted by approximately $4.5 million. |
| Property, Plant and Equipment | ||
| Depreciation and amortization of property, plant and equipment is calculated principally on the straight-line method based on estimated useful lives of thirty to forty years for buildings, five to fifteen years for building improvements and three to ten years for machinery, equipment and software. |
| Goodwill, Purchased Intangible Assets and Other Long-lived Assets | ||
| We evaluate goodwill for impairment annually and when an event occurs or circumstances change that indicate that the carrying value may not be recoverable. We test goodwill for impairment by first comparing the book value of net assets to the fair value of the reporting units. If the fair value is determined to be less than the book value, a second step is performed to compute the amount of impairment as the difference between the estimated fair value of goodwill and the carrying value. We estimated the fair values of our reporting units primarily using the income approach valuation methodology that includes the discounted cash flow method, taking into consideration the market approach and certain market multiples as a validation of the values derived using the discounted cash flow methodology. Forecasts of future cash flows are based on our best estimate of future net sales and operating expenses, based primarily on customer forecasts, industry trade organization data and general economic conditions. |
| We conduct our annual impairment test as of October 1 of each year, and have determined there to be no impairment for any of the periods presented. There were no events or circumstances from the date of our assessment through December 25, 2010 that would impact this conclusion. |
| Long-lived assets, other than goodwill, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable. Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which an asset is used, or any other significant adverse change that would indicate that the carrying amount of an asset or group of assets may not be recoverable. For long-lived assets, impairment losses are only recorded if the asset’s carrying amount is not recoverable through its undiscounted, probability-weighted future cash flows. We measure the impairment loss based on the difference between the assets carrying amount and estimated fair value. |
| Product Warranty | ||
| Product warranty costs are accrued in the period sales are recognized. Our products are generally sold with standard warranty periods, which differ by product, ranging from 12- to 36-months. Parts and labor are typically covered under the terms of the warranty agreement. Our warranty expense accruals are based on historical and estimated costs by product and configuration. From time-to-time we offer customers extended warranties beyond the standard warranty period. In those situations the revenue relating to the extended warranty is deferred at its estimated fair value and recognized on a straight-line basis over the contract period. Costs associated with our extended warranty contracts are expensed as incurred. |
| Income Taxes | ||
| We assess our income tax positions and record tax benefits for all years subject to examination based upon management’s evaluation of the facts, circumstances and information available at the reporting dates. For those tax positions where it is more-likely-than-not that a tax benefit will be sustained, we have recorded the largest amount of tax benefit with a greater than 50 percent likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those income tax positions where it is not more-likely-than-not that a tax benefit will be sustained, no tax benefit has been recognized in the financial statements. Where applicable, associated interest has also been recognized and recorded, net of federal and state tax benefits, in income tax expense. |
35
Table of Contents
Cohu, Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
| Contingencies and Litigation | ||
| We assess the probability of adverse judgments in connection with current and threatened litigation. We would accrue the cost of an adverse judgment if, in our estimation, the adverse outcome is probable and we can reasonably estimate the ultimate cost. |
| Revenue Recognition | ||
| Our net sales are derived from the sale of products and services and are adjusted for estimated returns and allowances, which historically have been insignificant. We recognize revenue when there is persuasive evidence of an arrangement, title and risk of loss have passed, delivery has occurred or the services have been rendered, the sales price is fixed or determinable and collection of the related receivable is reasonably assured. Title and risk of loss generally pass to our customers upon shipment. In circumstances where either title or risk of loss pass upon destination or acceptance, we defer revenue recognition until such events occur. |
| Revenue for established products that have previously satisfied a customer’s acceptance requirements and provide for full payment tied to shipment is generally recognized upon shipment and passage of title. In certain instances, customer payment terms may provide that a minority portion (e.g. 20%) of the equipment purchase price be paid only upon customer acceptance. In those situations, the majority portion (e.g. 80%) of revenue where payment is tied to shipment and the entire product cost of sale are recognized upon shipment and passage of title and the minority portion of the purchase price related to customer acceptance is deferred and recognized upon receipt of customer acceptance. In cases where a prior history of customer acceptance cannot be demonstrated or from sales where customer payment dates are not determinable and in the case of new products, revenue is deferred until customer acceptance has been received. Our post-shipment obligations typically include installation and standard warranties. The estimated fair value of installation related revenue is recognized in the period the installation is performed. Service revenue is recognized ratably over the period of the related contract. Spares and kit revenue is generally recognized upon shipment. |
| Certain of our equipment sales are accounted for as multiple-element arrangements. A multiple-element arrangement is a transaction which may involve the delivery or performance of multiple products, services, or rights to use assets, and performance may occur at different points in time or over different periods of time. For arrangements containing multiple elements, the revenue relating to the undelivered elements is deferred at estimated fair value until delivery of the deferred elements. |
| On shipments where sales are not recognized, gross profit is generally recorded as deferred profit in our consolidated balance sheet representing the difference between the receivable recorded and the inventory shipped. In certain instances where customer payments are received prior to product shipment, the customer’s payments are recorded as customer advances in our consolidated balance sheet. At December 25, 2010, we had total deferred revenue of approximately $36.9 million and deferred profit of $14.8 million. At December 26, 2009, we had total deferred revenue of approximately $20.2 million and deferred profit of $5.3 million. |
| Advertising Costs | ||
| Advertising costs are expensed as incurred and were not material for all periods presented. |
| Share-based Compensation | ||
| We measure and recognize all share-based compensation under the fair value method. Our estimate of share-based compensation expense requires a number of complex and subjective assumptions including our stock price volatility, employee exercise patterns (expected life of the options), future forfeitures and related tax effects. The assumptions used in calculating the fair value of share-based awards represent our best estimates, but these estimates involve inherent uncertainties and the application of management judgment. Although we believe the assumptions and estimates we have made are reasonable and appropriate, changes in assumptions could materially impact our reported financial results. |
| Foreign Currency Translation | ||
| Assets and liabilities of those subsidiaries that use the U.S. dollar as their functional currency are translated using exchange rates in effect at the end of the period, except for nonmonetary assets, such as inventories and property, plant and equipment, which are translated using historical exchange rates. Revenues and costs are translated using average exchange rates for the period, except for costs related to those balance sheet items that are translated using historical exchange rates. Gains and losses on foreign currency transactions are recognized as incurred. Our subsidiaries located in Germany, designated the Euro as their functional currency and, as a result, their assets and liabilities are translated at the rate of exchange at the balance sheet date, while revenue and expenses are translated using the average exchange rate for the period. Cumulative translation adjustments resulting from the translation of the financial statements are included as a separate component of stockholders’ equity. Foreign currency gains and losses were not significant in any period and are included in the consolidated statements of operations. |
36
Table of Contents
Cohu, Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Recent Accounting Pronouncements
| Recently Adopted Accounting Pronouncements | ||
| In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2010-06, “Improving Disclosures about Fair Value Measurements (Topic 820)—Fair Value Measurements and Disclosures” to add additional disclosures about the different classes of assets and liabilities measured at fair value, the valuation techniques and inputs used, the activity in Level 3 fair value measurements, and the transfers between Levels 1, 2, and 3. Levels 1, 2 and 3 of fair value measurements are defined in Note 3 below. We adopted the accounting standards update on December 27, 2009, the first day of our 2010 fiscal year except for the provisions of this update that will not be effective until our fiscal 2011. The adoption of the accounting update did not have a material impact on our consolidated financial statements. |
| In June 2009, the FASB issued new accounting guidance on consolidation of variable interest entities, which include: (1) the elimination of the exemption for qualifying special purpose entities, (2) a new approach for determining who should consolidate a variable-interest entity, and (3) changes to when it is necessary to reassess who should consolidate a variable-interest entity. This new guidance was effective as of the beginning of interim and annual reporting periods that begin after November 15, 2009, which for us was December 27, 2009, the first day of our 2010 fiscal year. The adoption of this new guidance did not impact our consolidated financial position or results of operations or cash flows as we do not have any variable interest entities. |
| Recently Issued Accounting Standards | ||
| In October 2009, the FASB amended the guidance for allocating revenue to multiple deliverables in a contract. This new guidance is effective as of the first day of our 2011 fiscal year, with early adoption permitted. In accordance with the amendment, companies can allocate consideration in a multiple element arrangement in a manner that better reflects the transaction economics. When vendor specific objective evidence or third party evidence for deliverables in an arrangement cannot be determined, companies will now be allowed to develop a best estimate of the selling price to separate deliverables and allocate arrangement consideration using the relative selling price method. Additionally, use of the residual method has been eliminated. Adoption of this new guidance is not expected to have a material impact on our consolidated financial position or results of operations. |
| In October 2009, the FASB issued new accounting guidance for the accounting for certain revenue arrangements that include software elements. The new guidance amends the scope of pre-existing software revenue guidance by removing from the guidance non-software components of tangible products and certain software components of tangible products. The new guidance will be effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, and will be effective for us in the first quarter of fiscal year 2011, however early adoption is permitted. Adoption of this new guidance is not expected to have a material impact on our consolidated financial position or results of operations. |
| 2. | Strategic Technology Transactions, Goodwill and Purchased Intangible Assets |
| Rasco |
| On December 9, 2008, our wholly owned semiconductor equipment subsidiary, Delta Design, Inc., and certain subsidiaries of Delta acquired all of the outstanding share capital of Rasco GmbH, Rosenheim Automation Systems Corporation, and certain assets of Rasco Automation Asia (collectively “Rasco”). The results of Rasco’s operations have been included in our consolidated financial statements since that date. Rasco, develops, manufactures and sells gravity-feed and strip semiconductor test handlers used in final test operations by semiconductor manufacturers and test subcontractors. |
37
Table of Contents
Cohu, Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
| The purchase price of this acquisition was approximately $81.6 million, and was funded primarily by cash reserves ($80.0 million), other acquisition costs ($1.6 million) and certain liabilities assumed ($18.6 million, which included approximately $8.2 million of deferred tax liabilities and $3.7 million of contractual obligations to purchase inventory). The acquisition was considered a business and the total cost of the acquisition was allocated to the assets acquired and liabilities assumed based on their estimated respective fair values. The Rasco acquisition resulted in the recognition of goodwill of approximately $41.3 million. The acquisition was nontaxable and certain of the assets acquired, including goodwill and intangibles, will generally not be deductible for tax purposes. The goodwill has been assigned to our semiconductor equipment segment. |
| The allocation of purchase price to the acquired assets and assumed liabilities was as follows (in thousands) : |
|
Current assets
|
$ | 14,173 | ||
|
Fixed assets
|
8,375 | |||
|
Other assets
|
636 | |||
|
Intangible assets
|
33,360 | |||
|
In-process research and development (IPR&D)
|
2,400 | |||
|
Goodwill
|
41,336 | |||
|
|
||||
|
Total assets acquired
|
100,280 | |||
|
Liabilities assumed
|
(18,643 | ) | ||
|
|
||||
|
Net assets acquired
|
$ | 81,637 | ||
|
|
||||
| The allocation of the other intangible assets was as follows (in thousands) : |
| Fair Value | ||||
|
Unpatented complete technology
|
$ | 26,300 | ||
|
Customer relationships
|
4,860 | |||
|
Trade name
|
2,200 | |||
|
|
||||
|
|
$ | 33,360 | ||
|
|
||||
| As required by accounting guidance effective at the time acquisition was completed, the portion of the purchase price allocated to IPR&D was expensed immediately upon the closing of the acquisition. The amount of the IPR&D charge in our results of operations for the year ended December 27, 2008 differs from the amount presented above solely due to changes in the Euro vs. the U.S. dollar exchange rate. Fluctuations in the exchange rate of the Euro, the functional currency of Rasco, impact the U.S. dollar value of the goodwill and intangible assets in our consolidated financial statements and, as a result, the future gross carrying value and amortization of the acquired intangible assets may differ from the amounts presented herein. | ||
| Goodwill and Purchased Intangible Assets |
| Changes in the carrying value of goodwill by reportable segment during the years ended December 25, 2010 and December 26, 2009 was as follows ( in thousands ): |
| Semiconductor | Microwave | |||||||||||
| Equipment | Communications | Total Goodwill | ||||||||||
|
Balance, December 27, 2008
|
$ | 57,435 | $ | 3,385 | $ | 60,820 | ||||||
|
Impact of currency exchange
|
883 | 61 | 944 | |||||||||
|
|
||||||||||||
|
Balance, December 26, 2009
|
58,318 | 3,446 | 61,764 | |||||||||
|
|
||||||||||||
|
Impact of currency exchange
|
(3,038 | ) | (228 | ) | (3,266 | ) | ||||||
|
|
||||||||||||
|
Balance, December 25, 2010
|
$ | 55,280 | $ | 3,218 | $ | 58,498 | ||||||
|
|
||||||||||||
38
Table of Contents
Cohu, Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
| Our purchased intangible assets, subject to amortization, were as follows (in thousands) : |
| December 25, 2010 | December 26, 2009 | |||||||||||||||||||
| Gross Carrying | Accumulated | Remaining | Gross Carrying | Accumulated | ||||||||||||||||
| Amount | Amortization | Useful Life | Amount | Amortization | ||||||||||||||||
|
Rasco technology
|
$ | 32,154 | $ | 8,290 | 6.0 years | $ | 35,257 | $ | 4,679 | |||||||||||
|
Unigen technology
|
7,020 | 6,779 | 0.3 years | 7,020 | 5,358 | |||||||||||||||
|
AVS technology
|
2,156 | 2,008 | 0.3 years | 2,365 | 1,611 | |||||||||||||||
|
|
||||||||||||||||||||
|
|
$ | 41,330 | $ | 17,077 | $ | 44,642 | $ | 11,648 | ||||||||||||
|
|
||||||||||||||||||||
| The amounts included in the table above for the years ended December 25, 2010 and December 26, 2009 exclude approximately $2.3 million and $2.5 million, respectively, related to the Rasco trade name which has an indefinite life and is not being amortized. |
| Expense related to purchased intangible assets, subject to amortization, was approximately $6.1 million, $6.3 million and $2.5 million in 2010, 2009 and 2008, respectively. As of December 25, 2010, we expect amortization expense in future periods to be as follows: 2011 – $4.4 million; 2012 – $4.0 million; 2013 – $4.0 million; 2014 – $4.0 million; 2015 – $4.0 million; and thereafter $3.8 million. |
| 3. | Cash, Cash Equivalents and Short-term Investments |
| Our cash, cash equivalents, and short-term investments consisted primarily of cash, corporate debt securities, government and government agency securities, state and municipal securities, money market funds and other investment grade securities. We do not hold investment securities for trading purposes. All short-term investments are classified as available-for-sale and recorded at fair value. Investment securities are exposed to market risk due to changes in interest rates and credit risk and we monitor credit risk and attempt to mitigate exposure by making high-quality investments and through investment diversification. |
| Gains and losses on investments are calculated using the specific-identification method and are recognized during the period in which the investment is sold or when an investment experiences an other-than-temporary decline in value. Factors that could indicate an impairment exists include, but are not limited to: earnings performance, changes in credit rating or adverse changes in the regulatory or economic environment of the asset. Gross realized gains and losses on sales of short-term investments are included in interest income. During the years ended December 26, 2009 and December 27, 2008 we had realized losses of approximately $0.1 million and $0.4 million, respectively. Realized losses for the year ended December 25, 2010 were not significant. |
| Investments that we have classified as short-term, by security type, are as follows (in thousands) : |
| 2010 | ||||||||||||||||
| Gross | Gross | Estimated | ||||||||||||||
| Amortized | Unrealized | Unrealized | Fair | |||||||||||||
| Cost | Gains | Losses (1) | Value | |||||||||||||
|
U.S. Treasury securities
|
$ | 6,778 | $ | 9 | $ | — | $ | 6,787 | ||||||||
|
Corporate debt securities
(2)
|
18,010 | 28 | 4 | 18,034 | ||||||||||||
|
Municipal securities
|
11,102 | 1 | — | 11,103 | ||||||||||||
|
Government-sponsored
enterprise securities
|
15,105 | 8 | 20 | 15,093 | ||||||||||||
|
Bank certificates of deposit
|
1,000 | — | — | 1,000 | ||||||||||||
|
Asset-backed securities
|
236 | 1 | — | 237 | ||||||||||||
|
|
||||||||||||||||
|
|
$ | 52,231 | $ | 47 | $ | 24 | $ | 52,254 | ||||||||
|
|
||||||||||||||||
39
Table of Contents
Cohu, Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
| 2009 | ||||||||||||||||
| Gross | Gross | Estimated | ||||||||||||||
| Amortized | Unrealized | Unrealized | Fair | |||||||||||||
| Cost | Gains | Losses | Value | |||||||||||||
|
U.S. Treasury securities
|
$ | 5,492 | $ | 12 | $ | — | $ | 5,504 | ||||||||
|
Corporate debt securities
(2)
|
24,055 | 102 | 7 | 24,150 | ||||||||||||
|
Municipal securities
|
9,045 | 15 | 8 | 9,052 | ||||||||||||
|
Government-sponsored
enterprise securities
|
4,262 | 13 | — | 4,275 | ||||||||||||
|
Bank certificates of deposit
|
1,500 | — | — | 1,500 | ||||||||||||
|
Asset-backed securities
|
2,147 | 31 | — | 2,178 | ||||||||||||
|
|
||||||||||||||||
|
|
$ | 46,501 | $ | 173 | $ | 15 | $ | 46,659 | ||||||||
|
|
||||||||||||||||
| (1) | As of December 25, 2010, the cost and fair value of investments with loss positions was approximately $16.1 million. We evaluated the nature of these investments, credit worthiness of the issuer and the duration of these impairments to determine if an other-than-temporary decline in fair value had occurred and concluded that these losses were temporary and we have the ability and intent to hold these investments to maturity. | |
| (2) | Corporate debt securities include investments in financial, insurance, and other corporate institutions. No single issuer represents a significant portion of the total corporate debt securities portfolio. |
| Effective maturities of short-term investments at December 25, 2010, were as follows: |
| Amortized | Estimated | |||||||
| (in thousands) | Cost | Fair Value | ||||||
|
Due in one year or less
|
$ | 34,891 | $ | 34,918 | ||||
|
Due after one year through two years
|
17,104 | 17,099 | ||||||
|
Asset-backed securities not due at a single maturity date
|
236 | 237 | ||||||
|
|
||||||||
|
|
$ | 52,231 | $ | 52,254 | ||||
|
|
||||||||
| Our municipal securities include variable rate demand notes which can be put (sold at par) typically on a daily basis with settlement periods ranging from the same day to one week and have varying contractual maturities through 2037. These securities can be used for short-term liquidity needs and are held for limited periods of time. At December 25, 2010 these securities had amortized cost and fair value of $7.5 million and are included in “Due in one year or less” in the table above . |
| Accounting standards pertaining to fair value measurements establish a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. When available, we use quoted market prices to determine the fair value of our investments, and they are included in Level 1. When quoted market prices are unobservable, we use quotes from independent pricing vendors based on recent trading activity and other relevant information. |
40
Table of Contents
Cohu, Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
| The following table summarizes, by major security type, our assets that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy (in thousands) : |
| Fair value measurements at December 25, 2010 using: | ||||||||||||||||
| Total estimated | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | fair value | |||||||||||||
|
Cash
|
$ | 18,842 | $ | — | $ | — | $ | 18,842 | ||||||||
|
U.S. Treasury securities
|
6,787 | — | — | 6,787 | ||||||||||||
|
Corporate debt securities
|
— | 21,432 | — | 21,432 | ||||||||||||
|
Municipal securities
|
— | 11,852 | — | 11,852 | ||||||||||||
|
Government-sponsored enterprise securities
|
— | 15,093 | — | 15,093 | ||||||||||||
|
Money market funds
|
— | 22,932 | — | 22,932 | ||||||||||||
|
Bank certificates of deposit
|
— | 1,000 | — | 1,000 | ||||||||||||
|
Asset-backed securities
|
— | 237 | — | 237 | ||||||||||||
|
|
||||||||||||||||
|
|
$ | 25,629 | $ | 72,546 | $ | — | $ | 98,175 | ||||||||
|
|
||||||||||||||||
| Fair value measurements at December 26, 2009 using: | ||||||||||||||||
| Total estimated | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | fair value | |||||||||||||
|
Cash
|
$ | 12,371 | $ | — | $ | — | $ | 12,371 | ||||||||
|
U.S. Treasury securities
|
5,504 | — | — | 5,504 | ||||||||||||
|
Money market funds
|
— | 22,751 | — | 22,751 | ||||||||||||
|
Corporate debt securities
|
— | 26,525 | — | 26,525 | ||||||||||||
|
Municipal securities
|
— | 9,052 | — | 9,052 | ||||||||||||
|
Government-sponsored enterprise securities
|
— | 4,275 | — | 4,275 | ||||||||||||
|
Bank certificates of deposit
|
— | 2,250 | — | 2,250 | ||||||||||||
|
Asset-backed securities
|
— | 2,178 | — | 2,178 | ||||||||||||
|
|
||||||||||||||||
|
|
$ | 17,875 | $ | 67,031 | $ | — | $ | 84,906 | ||||||||
|
|
||||||||||||||||
| 4. | Comprehensive Income (Loss) |
| Our accumulated other comprehensive income (loss) totaled approximately $(0.2) million and $8.7 million at December 25, 2010 and December 26, 2009, respectively, and was attributed to, net of income taxes where applicable, foreign currency adjustments resulting from the translation of certain accounts into U.S. dollars where the functional currency is the Euro, unrealized losses and gains on investments and adjustments to accumulated postretirement benefit obligations. |
| Amounts included in accumulated other comprehensive income (loss) are as follows: |
| Unrealized | Foreign | Accumulated | ||||||||||||||
| Investment | Currency | Other | ||||||||||||||
| Gains and | Postretirement | Translation | Comprehensive | |||||||||||||
| (in thousands) | Losses | Obligations | Adjustments | Income (Loss) | ||||||||||||
|
Balance, December 29, 2007
|
$ | 47 | $ | (261 | ) | $ | 700 | $ | 486 | |||||||
|
Fiscal 2008 activity
|
(383 | ) | 102 | 6,929 | 6,648 | |||||||||||
|
|
||||||||||||||||
|
Balance, December 27, 2008
|
(336 | ) | (159 | ) | 7,629 | 7,134 | ||||||||||
|
Fiscal 2009 activity
|
434 | (444 | ) | 1,538 | 1,528 | |||||||||||
|
|
||||||||||||||||
|
Balance, December 26, 2009
|
98 | (603 | ) | 9,167 | 8,662 | |||||||||||
|
Fiscal 2010 activity
|
(83 | ) | (1,506 | ) | (7,270 | ) | (8,859 | ) | ||||||||
|
|
||||||||||||||||
|
Balance, December 25, 2010
|
$ | 15 | $ | (2,109 | ) | $ | 1,897 | $ | (197 | ) | ||||||
|
|
||||||||||||||||
41
Table of Contents
Cohu, Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
| 5. | Employee Benefit Plans |
| Retirement Plans | ||
| We have a voluntary defined contribution retirement 401(k) plan whereby we match contributions up to 4% of employee compensation. During 2010 and 2009, to control costs and preserve cash in response to the economic uncertainty caused by the global economic crisis, we suspended the matching contribution to our employee 401(k) plan. In 2008 our contributions to the plan were approximately $1.5 million. Certain of our foreign employees participate in defined benefit pension plans. The related expense and benefit obligation of these plans were not significant for any period presented. |
| Retiree Medical Benefits | ||
| We provide post-retirement health benefits to certain executives and directors under a noncontributory plan. The net periodic benefit cost was $0.3 million, $0.2 million and $0.2 million in 2010, 2009 and 2008, respectively. We fund benefits as costs are incurred and as a result there are no plan assets. |
| The weighted average discount rate used in determining the accumulated post-retirement benefit obligation was 5.4% in 2010, 5.8% in 2009 and 6.2% in 2008. Annual rates of increase of the cost of health benefits were assumed to be 10.5% in 2010. These rates were then assumed to decrease 0.5% per year to 5.0% in 2021 and remain level thereafter. A one percent increase (decrease) in health care cost trend rates would increase (decrease) the 2010 net periodic benefit cost by approximately $24,000 ($20,000) and the accumulated post-retirement benefit obligation as of December 25, 2010, by approximately $603,000 ($502,000). |
| The following table sets forth the post-retirement benefit obligation to the funded status of the plan which approximates the liability we have recorded in our consolidated balance sheets: |
| (in thousands) | 2010 | 2009 | ||||||
|
Accumulated benefit obligation at beginning of year
|
$ | 2,839 | $ | 2,128 | ||||
|
Service cost
|
18 | 21 | ||||||
|
Interest cost
|
155 | 132 | ||||||
|
Actuarial loss
|
1,022 | 668 | ||||||
|
Benefits paid
|
(125 | ) | (110 | ) | ||||
|
|
||||||||
|
Accumulated benefit obligation at end of year
|
3,909 | 2,839 | ||||||
|
Plan assets at end of year
|
— | — | ||||||
|
|
||||||||
|
Funded status
|
$ | (3,909 | ) | $ | (2,839 | ) | ||
|
|
||||||||
| The total unrecognized net actuarial loss that will be amortized over the future service period, excluding the effect of income taxes, was approximately $2.1 million at December 25, 2010. |
| Deferred Compensation | ||
| The Cohu, Inc. Deferred Compensation Plan allows certain of our officers to defer a portion of their current compensation. We have purchased life insurance policies on the participants with Cohu as the named beneficiary. Participant contributions, distributions and investment earnings and losses are accumulated in a separate account for each participant. At December 25, 2010 and December 26, 2009, the payroll liability to participants, included in accrued compensation and benefits in the consolidated balance sheet, was approximately $2.1 million and $1.9 million, respectively and the cash surrender value of the related life insurance policies included in other current assets was approximately $1.6 million and $1.8 million, respectively. |
| Employee Stock Purchase Plan | ||
| The Cohu, Inc. 1997 Employee Stock Purchase Plan (“the Plan”) provides for the issuance of a maximum of 1,400,000 shares of our common stock. Under the Plan, eligible employees may purchase shares of common stock through payroll deductions. The price paid for the common stock is equal to 85% of the fair market value of our common stock on specified dates. In 2010, 2009, and 2008, 112,745, 136,228 and 95,452 shares, respectively, were issued under the Plan. At December 25, 2010, there were 257,594 shares reserved for issuance under the Plan. |
|
Stock Options
Under our equity incentive plans, stock options may be granted to employees, consultants and outside directors to purchase a fixed number of shares of our common stock at prices not less than 100% of the fair market value at the date of grant. Options generally vest and become exercisable after one year or in four annual increments beginning one year after the grant date and expire five to ten years from the grant date. At December 25, 2010, 1,253,280 shares were available for future equity grants under the Cohu, Inc. 2005 Equity Incentive Plan. We have historically issued new shares of Cohu common stock upon share option exercise. |
42
Table of Contents
Cohu, Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
| Stock option activity under our share-based compensation plans was as follows: |
| 2010 | 2009 | 2008 | ||||||||||||||||||||||
| Wt. Avg. | Wt. Avg. | Wt. Avg. | ||||||||||||||||||||||
| (in thousands, except per share data) | Shares | Ex. Price | Shares | Ex. Price | Shares | Ex. Price | ||||||||||||||||||
|
Outstanding, beginning of year
|
3,221 | $ | 12.87 | 2,193 | $ | 15.91 | 2,356 | $ | 15.97 | |||||||||||||||
|
Granted
|
380 | $ | 13.77 | 1,229 | $ | 7.45 | 113 | $ | 13.20 | |||||||||||||||
|
Exercised
|
(263 | ) | $ | 10.92 | — | $ | — | (133 | ) | $ | 12.77 | |||||||||||||
|
Canceled
|
(128 | ) | $ | 19.06 | (201 | ) | $ | 12.94 | (143 | ) | $ | 17.74 | ||||||||||||
|
|
||||||||||||||||||||||||
|
Outstanding, end of year
|
3,210 | $ | 12.89 | 3,221 | $ | 12.87 | 2,193 | $ | 15.91 | |||||||||||||||
|
|
||||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Options exercisable at year end
|
1,857 | $ | 15.26 | 1,766 | $ | 16.40 | 1,764 | $ | 16.03 | |||||||||||||||
| The aggregate intrinsic value of options exercised during 2010 and 2008 was approximately $0.8 million, and $0.3 million, respectively. There were no options exercised during 2009. At December 25, 2010, the aggregate intrinsic value of options outstanding, vested and expected to vest were each approximately $11.4 million and the aggregate intrinsic value of options exercisable was approximately $2.8 million. |
| Information about stock options outstanding at December 25, 2010 is as follows (options in thousands) : |
| Options Outstanding | Options Exercisable | |||||||||||||||||||
| Approximate | ||||||||||||||||||||
| Wt. Avg. | ||||||||||||||||||||
| Range of | Number | Remaining | Wt. Avg. | Number | Wt. Avg. | |||||||||||||||
| Exercise Prices | Outstanding | Life (Years) | Ex. Price | Exercisable | Ex. Price | |||||||||||||||
|
$ 7.32 - $10.98
|
1,081 | 8.2 | $ | 7.41 | 200 | $ | 7.46 | |||||||||||||
|
$10.99 - $16.49
|
1,429 | 6.0 | $ | 14.53 | 964 | $ | 14.91 | |||||||||||||
|
$16.50 - $24.75
|
685 | 3.2 | $ | 17.82 | 678 | $ | 17.82 | |||||||||||||
|
$24.76
- $37.14
|
15 | 2.5 | $ | 25.60 | 15 | $ | 25.60 | |||||||||||||
|
|
||||||||||||||||||||
|
|
3,210 | 6.1 | $ | 12.89 | 1,857 | $ | 15.26 | |||||||||||||
|
|
||||||||||||||||||||
| Restricted Stock Units | ||
| Under our equity incentive plans, restricted stock units may be granted to employees, consultants and outside directors. Restricted stock units vest over either a one-year or a four-year period from the date of grant. Prior to vesting, restricted stock units do not have dividend equivalent rights, do not have voting rights and the shares underlying the restricted stock units are not considered issued and outstanding. Shares of our common stock will be issued on the date the restricted stock units vest. |
| Restricted stock unit activity under our share-based compensation plans was as follows: |
| 2010 | 2009 | 2008 | ||||||||||||||||||||||
| Wt. Avg. | Wt. Avg. | Wt. Avg. | ||||||||||||||||||||||
| (in thousands, except per share data) | Units | Fair Value | Units | Fair Value | Units | Fair Value | ||||||||||||||||||
|
Outstanding, beginning of year
|
155 | $ | 14.60 | 253 | $ | 15.40 | 373 | $ | 15.39 | |||||||||||||||
|
Granted
|
323 | $ | 12.90 | 11 | $ | 9.28 | 23 | $ | 16.63 | |||||||||||||||
|
Vested
|
(101 | ) | $ | 14.68 | (102 | ) | $ | 15.30 | (105 | ) | $ | 15.57 | ||||||||||||
|
Canceled
|
(4 | ) | $ | 15.40 | (7 | ) | $ | 14.74 | (38 | ) | $ | 15.59 | ||||||||||||
|
|
||||||||||||||||||||||||
|
Outstanding, end of year
|
373 | $ | 13.35 | 155 | $ | 14.60 | 253 | $ | 15.40 | |||||||||||||||
|
|
||||||||||||||||||||||||
43
Table of Contents
Cohu, Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
| Share-based Compensation | ||
| We estimate the fair value of each share-based award on the grant date using the Black-Scholes valuation model. Option valuation models, including Black-Scholes, require the input of highly subjective assumptions, and changes in the assumptions used can materially affect the grant date fair value of an award. These assumptions include the risk-free rate of interest, expected dividend yield, expected volatility, and the expected life of the award. The risk-free rate of interest is based on the U.S. Treasury rates appropriate for the expected term of the award as of the grant date. Expected dividends are based, primarily, on historical factors related to our common stock. Expected volatility is based on historic, weekly stock price observations of our common stock during the period immediately preceding the share-based award grant that is equal in length to the award’s expected term. We believe that historical volatility is the best estimate of future volatility. Expected life of the award is based on historical option exercise data. Estimated forfeitures are required to be included as a part of the grant date expense estimate. We used historical data to estimate expected employee behaviors related to option exercises and forfeitures. |
| Share-based compensation expense related to restricted stock unit awards is calculated based on the market price of our common stock on the date of grant, reduced by the present value of dividends expected to be paid on our common stock prior to vesting of the restricted stock unit. |
| The following weighted average assumptions were used to value share-based awards granted: |
| Employee Stock Purchase Plan | 2010 | 2009 | 2008 | |||||||||
|
Dividend yield
|
1.8 | % | 2.1 | % | 1.6 | % | ||||||
|
Expected volatility
|
48.2 | % | 54.7 | % | 53.5 | % | ||||||
|
Risk-free interest rate
|
0.2 | % | 0.8 | % | 3.0 | % | ||||||
|
Expected term of options
|
0.5 | years | 0.5 | years | 0.5 | years | ||||||
|
Weighted-average grant date fair
value per share
|
$ | 3.90 | $ | 3.57 | $ | 4.65 | ||||||
| Employee Stock Options | 2010 | 2009 | 2008 | |||||||||
|
Dividend yield
|
1.6 | % | 3.1 | % | 1.9 | % | ||||||
|
Expected volatility
|
46.6 | % | 45.0 | % | 44.2 | % | ||||||
|
Risk-free interest rate
|
1.6 | % | 1.8 | % | 2.5 | % | ||||||
|
Expected term of options
|
5.9 | years | 5.5 | years | 4.5 | years | ||||||
|
Weighted-average grant date fair
value per share
|
$ | 5.39 | $ | 2.41 | $ | 4.51 | ||||||
| Restricted Stock Units | 2010 | 2009 | 2008 | |||||||||
|
Dividend yield
|
1.7 | % | 2.5 | % | 1.4 | % | ||||||
| Reported share-based compensation is classified in the consolidated financial statements as follows: |
| (in thousands) | 2010 | 2009 | 2008 | |||||||||
|
Cost of sales
|
$ | 297 | $ | 347 | $ | 343 | ||||||
|
Research and development
|
1,121 | 1,145 | 1,189 | |||||||||
|
Selling, general and administrative
|
2,125 | 1,886 | 2,417 | |||||||||
|
|
||||||||||||
|
Total share-based compensation
|
3,543 | 3,378 | 3,949 | |||||||||
|
Income tax benefit
|
— | — | (1,015 | ) | ||||||||
|
|
||||||||||||
|
Total share-based compensation, net of tax
|
$ | 3,543 | $ | 3,378 | $ | 2,934 | ||||||
|
|
||||||||||||
| At December 25, 2010, excluding a reduction for forfeitures, we had approximately $3.9 million of pre-tax unrecognized compensation cost related to unvested stock options which is expected to be recognized over a weighted-average period of approximately 2.4 years. |
| At December 25, 2010, excluding a reduction for forfeitures, we had approximately $4.6 million of pre-tax unrecognized compensation cost related to unvested restricted stock units which is expected to be recognized over a weighted-average period of approximately 2.4 years. |
44
Table of Contents
Cohu, Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
| 6. | Income Taxes |
| Significant components of the provision (benefit) for income taxes are as follows: |
| (in thousands) | 2010 | 2009 | 2008 | |||||||||
|
Current:
|
||||||||||||
|
U.S. Federal
|
$ | 1,239 | $ | (4,025 | ) | $ | (3,689 | ) | ||||
|
U.S. State
|
(71 | ) | 47 | 68 | ||||||||
|
Foreign
|
6,397 | 991 | 669 | |||||||||
|
|
||||||||||||
|
Total current
|
7,565 | (2,987 | ) | (2,952 | ) | |||||||
|
Deferred:
|
||||||||||||
|
U.S. Federal
|
(1,519 | ) | 17,285 | 64 | ||||||||
|
U.S. State
|
(207 | ) | 2,590 | 2,074 | ||||||||
|
Foreign
|
(245 | ) | (2,515 | ) | (565 | ) | ||||||
|
|
||||||||||||
|
Total deferred
|
(1,971 | ) | 17,360 | 1,573 | ||||||||
|
|
||||||||||||
|
|
$ | 5,594 | $ | 14,373 | $ | (1,379 | ) | |||||
|
|
||||||||||||
| Income (loss) before income taxes consisted of the following: |
| (in thousands) | 2010 | 2009 | 2008 | |||||||||
|
U.S.
|
$ | 7,059 | $ | (8,430 | ) | $ | (4,806 | ) | ||||
|
Foreign
|
23,179 | (5,365 | ) | (2,016 | ) | |||||||
|
|
||||||||||||
|
Total
|
$ | 30,238 | $ | (13,795 | ) | $ | (6,822 | ) | ||||
|
|
||||||||||||
| Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting and tax purposes. Significant components of our deferred tax assets and liabilities were as follows: |
| (in thousands) | 2010 | 2009 | ||||||
|
Deferred tax assets:
|
||||||||
|
Inventory, receivable and warranty reserves
|
$ | 10,446 | $ | 11,626 | ||||
|
Net operating loss carryforwards
|
1,077 | 2,006 | ||||||
|
Tax credit carryforwards
|
6,135 | 6,939 | ||||||
|
Accrued employee benefits
|
2,672 | 2,321 | ||||||
|
Deferred profit
|
3,842 | 1,589 | ||||||
|
Stock-based compensation
|
1,887 | 1,764 | ||||||
|
Acquisition basis differences
|
2,593 | 2,446 | ||||||
|
Capitalized research expenses, accrued interest and other
|
316 | 462 | ||||||
|
Book over tax depreciation
|
135 | 825 | ||||||
|
|
||||||||
|
Gross deferred tax assets
|
29,103 | 29,978 | ||||||
|
Less valuation allowance
|
(23,295 | ) | (24,890 | ) | ||||
|
|
||||||||
|
Total deferred tax assets
|
5,808 | 5,088 | ||||||
|
Deferred tax liabilities:
|
||||||||
|
Gain on facilities sale
|
2,788 | 2,929 | ||||||
|
Acquisition basis differences
|
10,584 | 12,239 | ||||||
|
Prepaid and other
|
299 | 408 | ||||||
|
|
||||||||
|
Total deferred tax liabilities
|
13,671 | 15,576 | ||||||
|
|
||||||||
|
Net deferred tax liabilities
|
$ | (7,863 | ) | $ | (10,488 | ) | ||
|
|
||||||||
45
Table of Contents
Cohu, Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
| Companies are required to assess whether a valuation allowance should be recorded against their deferred tax assets (“DTAs”) based on the consideration of all available evidence, using a “more likely than not” realization standard. The four sources of taxable income that must be considered in determining whether DTAs will be realized are, (1) future reversals of existing taxable temporary differences (i.e. offset of gross deferred tax assets against gross deferred tax liabilities); (2) taxable income in prior carryback years, if carryback is permitted under the tax law; (3) tax planning strategies and (4) future taxable income exclusive of reversing temporary differences and carryforwards. |
| In assessing whether a valuation allowance is required, significant weight is to be given to evidence that can be objectively verified. We have evaluated our DTAs each reporting period, including an assessment of our cumulative income or loss over the prior three-year period and future periods, to determine if a valuation allowance was required. A significant negative factor in our assessment was Cohu’s three-year cumulative U.S. loss history at the end of the 2009 and 2010 fiscal year periods. |
| After a review of the four sources of taxable income described above and in view of our three-year cumulative U.S. loss, we recorded an increase in our valuation allowance on U.S. DTAs, with a corresponding charge to our income tax provision, of approximately $19.6 million in the second quarter of fiscal 2009. Our valuation allowance on DTAs at December 25, 2010 and December 26, 2009 was approximately $23.3 million and $24.9 million, respectively. The remaining gross DTAs for which a valuation allowance was not recorded are realizable through future reversals of existing taxable temporary differences or loss carryback. As the realization of DTAs is determined by tax jurisdiction, the significant deferred tax liability recorded as part of the 2008 acquisition of Rasco, a German corporation, was not a source of taxable income in assessing the realization of our DTAs in the U.S. |
| The reconciliation of income tax computed at the U.S. federal statutory tax rate to the provision (benefit) for income taxes is as follows: |
| (in thousands) | 2010 | 2009 | 2008 | |||||||||
|
Tax at U.S. 35% statutory rate
|
$ | 10,583 | $ | (4,828 | ) | $ | (2,388 | ) | ||||
|
State income taxes, net of federal tax benefit
|
95 | (1,051 | ) | (296 | ) | |||||||
|
Change in valuation allowance
|
(2,027 | ) | 20,562 | 1,917 | ||||||||
|
Foreign income taxed at different rates
|
(1,740 | ) | (130 | ) | (17 | ) | ||||||
|
Settlements, adjustments and releases from statute expirations
|
(712 | ) | (166 | ) | (1,000 | ) | ||||||
|
Federal tax credits
|
(688 | ) | (375 | ) | (1,000 | ) | ||||||
|
Change in effective tax rate for state and federal deferred
balances
|
638 | — | — | |||||||||
|
Stock-based compensation on which no tax benefit provided
|
55 | 157 | 327 | |||||||||
|
In process research and development charge with no tax benefit
|
— | — | 902 | |||||||||
|
Other, net
|
(610 | ) | 204 | 176 | ||||||||
|
|
||||||||||||
|
|
$ | 5,594 | $ | 14,373 | $ | (1,379 | ) | |||||
|
|
||||||||||||
| State income taxes, net of federal benefit, have been reduced by research tax credits totaling approximately $0.6 million, $0.6 million and $0.8 million in 2010, 2009 and 2008, respectively. |
| At December 25, 2010, we had state and foreign net operating loss carryforwards of approximately $19.8 million and $0.2 million, respectively, that expire in various tax years through 2031. We also have federal and state tax credit carryforwards at December 25, 2010 of approximately $1.6 million and $8.7 million, respectively, certain of which expire in various tax years beginning in 2014 through 2030 or have no expiration date. |
46
Table of Contents
Cohu, Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
| U.S. income taxes have not been provided on approximately $15 million of accumulated undistributed earnings of certain foreign subsidiaries, as we currently intend to indefinitely reinvest these earnings in operations outside the U.S. It is not practicable to estimate the amount of tax that might be payable if some or all of such earnings were to be remitted. |
| A reconciliation of our gross unrecognized tax benefits is as follows: |
| (in thousands) | 2010 | 2009 | 2008 | |||||||||
|
Balance at beginning of year
|
$ | 4,886 | $ | 4,562 | $ | 4,802 | ||||||
|
Gross additions based on tax positions related to the current
year
|
578 | 964 | 761 | |||||||||
|
Gross additions (reductions) for tax positions of prior years
|
(23 | ) | 22 | (60 | ) | |||||||
|
Reductions as a result of a lapse of the statute of limitations
|
(372 | ) | (527 | ) | (790 | ) | ||||||
|
Reductions as a result of settlements with tax authorities
|
— | (135 | ) | (151 | ) | |||||||
|
|
||||||||||||
|
Balance at end of year
|
$ | 5,069 | $ | 4,886 | $ | 4,562 | ||||||
|
|
||||||||||||
| If the unrecognized tax benefits at December 25, 2010 are ultimately recognized, approximately $3.0 million would result in a reduction in our income tax expense and effective tax rate. We do not expect that the total amount of unrecognized tax benefits will significantly change over the next 12 months. |
| We recognize interest and penalties related to unrecognized tax benefits in income tax expense. Cohu had approximately $0.6 million and $0.6 million accrued for the payment of interest at December 25, 2010 and December 26, 2009, respectively. Interest expense recognized in 2010, 2009 and 2008 was approximately $0.1 million, $0.1 million and $0.1 million, respectively. |
| In 2009 and 2010 we concluded routine examinations by the Internal Revenue Service of our 2005 to 2008 U.S. income tax returns without any material adjustments. In 2010 the Internal Revenue Service commenced a routine examination of our 2009 U.S. income tax return as a result of our net operating loss carryback. This examination was concluded in 2010 without any material adjustments. |
| Our U.S. federal and state income tax returns for years after 2005 remain open to examination, subject to the statute of limitations. The statute of limitations for the assessment and collection of income taxes related to our foreign tax returns varies by country. In the foreign countries where we have significant operations these time periods generally range from four to six years after the year for which the tax is due. |
47
Table of Contents
Cohu, Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
| 7. | Segment and Related Information |
| Our reportable segments are business units that offer different products and are managed separately because each business requires different technology and marketing strategies. Our three segments are: semiconductor equipment, microwave communications and video cameras. As discussed in Note 2, in December 2008, we purchased Rasco, which has been included in our semiconductor equipment segment since that date. |
| The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies. We allocate resources and evaluate the performance of segments based on profit or loss from operations, excluding interest, corporate expenses and unusual gains or losses. Intersegment sales were not significant for any period. |
| Financial information by industry segment is presented below : |
| (in thousands) | 2010 | 2009 | 2008 | |||||||||
|
Net sales by segment:
|
||||||||||||
|
Semiconductor equipment
|
$ | 273,566 | $ | 119,998 | $ | 152,136 | ||||||
|
Microwave communications
|
31,705 | 34,093 | 29,224 | |||||||||
|
Video cameras
|
17,396 | 17,170 | 18,299 | |||||||||
|
|
||||||||||||
|
Total consolidated net sales and net sales for
reportable segments
|
$ | 322,667 | $ | 171,261 | $ | 199,659 | ||||||
|
|
||||||||||||
|
Segment profit (loss):
|
||||||||||||
|
Semiconductor equipment
|
$ | 29,654 | $ | (17,704 | ) | $ | (4,612 | ) | ||||
|
Microwave communications
|
3,679 | 5,868 | 242 | |||||||||
|
Video cameras
|
561 | 773 | (1,242 | ) | ||||||||
|
|
||||||||||||
|
Profit (loss) for reportable segments
|
33,894 | (11,063 | ) | (5,612 | ) | |||||||
|
Other unallocated amounts:
|
||||||||||||
|
Corporate expenses
|
(4,217 | ) | (4,032 | ) | (4,116 | ) | ||||||
|
Interest income
|
561 | 1,300 | 5,483 | |||||||||
|
Acquired in-process research and development
|
— | — | (2,577 | ) | ||||||||
|
|
||||||||||||
|
Income (loss) from continuing operations before
income taxes
|
$ | 30,238 | $ | (13,795 | ) | $ | (6,822 | ) | ||||
|
|
||||||||||||
| (in thousands) | 2010 | 2009 | 2008 | |||||||||
|
Depreciation and amortization by segment deducted in arriving at profit (loss):
|
||||||||||||
|
Semiconductor equipment
|
$ | 3,596 | $ | 3,248 | $ | 3,088 | ||||||
|
Microwave communications
|
1,096 | 1,299 | 1,154 | |||||||||
|
Video cameras
|
237 | 227 | 184 | |||||||||
|
|
||||||||||||
|
|
4,929 | 4,774 | 4,426 | |||||||||
|
Intangible amortization
|
6,059 | 6,255 | 2,517 | |||||||||
|
|
||||||||||||
|
Total depreciation and amortization for
reportable segments
|
$ | 10,988 | $ | 11,029 | $ | 6,943 | ||||||
|
|
||||||||||||
|
Capital expenditures by segment:
|
||||||||||||
|
Semiconductor equipment
|
$ | 3,973 | $ | 1,911 | $ | 3,251 | ||||||
|
Microwave communications
|
440 | 454 | 1,181 | |||||||||
|
Video cameras
|
166 | 142 | 611 | |||||||||
|
|
||||||||||||
|
Total consolidated capital expenditures
|
$ | 4,579 | $ | 2,507 | $ | 5,043 | ||||||
|
|
||||||||||||
48
Table of Contents
Cohu, Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
| (in thousands) | 2010 | 2009 | 2008 | |||||||||
|
Total assets by segment:
|
||||||||||||
|
Semiconductor equipment
|
$ | 255,246 | $ | 216,818 | $ | 206,199 | ||||||
|
Microwave communications
|
27,812 | 20,937 | 22,793 | |||||||||
|
Video cameras
|
11,092 | 10,082 | 10,458 | |||||||||
|
|
||||||||||||
|
Total assets for reportable segments
|
294,150 | 247,837 | 239,450 | |||||||||
|
Corporate, principally cash and investments
and deferred taxes
|
71,893 | 82,281 | 104,719 | |||||||||
|
|
||||||||||||
|
Total consolidated assets
|
$ | 366,043 | $ | 330,118 | $ | 344,169 | ||||||
|
|
||||||||||||
| Customers from the semiconductor equipment segment comprising 10% or greater of our consolidated net sales are summarized as follows: |
| 2010 | 2009 | 2008 | ||||||||||
|
Intel
|
26 | % | 30 | % | 30 | % | ||||||
|
Texas Instruments
|
14 | % | * | * | ||||||||
|
Advanced Micro Devices
|
* | 11 | % | 15 | % | |||||||
| * | Less than 10% of net sales |
| Net sales to customers, attributed to countries based on product shipment destination, were as follows: |
| (in thousands) | 2010 | 2009 | 2008 | |||||||||
|
United States
|
$ | 64,992 | $ | 57,935 | $ | 70,659 | ||||||
|
Malaysia
|
52,539 | 22,099 | 26,254 | |||||||||
|
Philippines
|
51,659 | 10,617 | 9,940 | |||||||||
|
China
|
50,454 | 21,076 | 26,650 | |||||||||
|
Singapore
|
21,186 | 18,148 | 22,442 | |||||||||
|
Rest of the World
|
81,837 | 41,386 | 43,714 | |||||||||
|
|
||||||||||||
|
Total
|
$ | 322,667 | $ | 171,261 | $ | 199,659 | ||||||
|
|
||||||||||||
| Geographic location of our property, plant and equipment and other long-lived assets was as follows: |
| (in thousands) | 2010 | 2009 | ||||||
|
Property, plant and equipment:
|
||||||||
|
United States
|
$ | 26,440 | $ | 24,930 | ||||
|
Germany
|
9,207 | 9,888 | ||||||
|
Asia (Singapore, Taiwan and the Philippines)
|
4,157 | 3,188 | ||||||
|
|
||||||||
|
Total, net
|
$ | 39,804 | $ | 38,006 | ||||
|
|
||||||||
|
|
||||||||
|
Goodwill and other intangible assets:
|
||||||||
|
Germany
|
$ | 60,981 | $ | 71,785 | ||||
|
United States
|
17,482 | 18,904 | ||||||
|
Singapore
|
6,558 | 6,558 | ||||||
|
|
||||||||
|
Total, net
|
$ | 85,021 | $ | 97,247 | ||||
|
|
||||||||
49
Table of Contents
Cohu, Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
| 8. | Stockholder Rights Plan |
| In November, 1996, we adopted a Stockholder Rights Plan (“Rights Plan”) and declared a dividend distribution of one Preferred Stock Purchase Right (“Right”) for each share of common stock, payable to holders of record on December 3, 1996. Under the Rights Plan, each stockholder received one Right for each share of common stock owned. Each Right entitled the holder to buy one one-hundredth (1/100) of a share of Cohu’s Series A Preferred Stock for $90. As a result of the two-for-one stock split in September, 1999, each share of common stock was associated with one-half of a Right entitling the holder to purchase one two-hundredth (1/200) of a share of Series A Preferred Stock for $45. In November, 2006, we amended and restated our existing Rights Plan to extend its term to November 9, 2016 and make certain other changes. Pursuant to the amendment, to reflect the increase in the price of our common stock since the adoption of the Rights Plan, the exercise price of each Right was increased to $190. Consequently, each one-half of a Right entitles the holder to purchase one two-hundredth (1/200) of a share of Series A Preferred Stock for $95. The Rights are not presently exercisable and will only become exercisable following the occurrence of certain specified events. If these specified events occur, each Right will be adjusted to entitle its holder to receive, upon exercise, common stock having a value equal to two times the exercise price of the Right, or each Right will be adjusted to entitle its holder to receive common stock of the acquiring company having a value equal to two times the exercise price of the Right, depending on the circumstances. The Rights expire on November 9, 2016, and we may redeem them for $0.001 per Right. The Rights do not have voting or dividend rights and, until they become exercisable, have no dilutive effect on our earnings per share. |
| 9. | Commitments and Contingencies |
| We lease certain of our facilities and equipment under non-cancelable operating leases. Rental expense for the years 2010, 2009 and 2008 was approximately $1.3 million, $1.1 million and $1.7 million, respectively. Future minimum lease payments at December 25, 2010 are as follows: |
| (in thousands) | 2011 | 2012 | 2013 | 2014 | 2015 | Thereafter | Total | |||||||||||||||||||||
|
Non-cancelable
operating
leases
|
$ | 796 | $ | 427 | $ | 285 | $ | 175 | $ | — | $ | — | $ | 1,683 | ||||||||||||||
| From time-to-time we are involved in various legal proceedings, examinations by various tax authorities and claims that have arisen in the ordinary course of our businesses. Although the outcome of such legal proceedings, claims and examinations cannot be predicted with certainty, we do not believe any such matters exist at this time that will have a material adverse effect on our financial position or results of our operations. |
| 10. | Guarantees |
| Changes in accrued warranty during the three-year period ended December 25, 2010 were as follows: |
| (in thousands) | 2010 | 2009 | 2008 | |||||||||
|
Beginning balance
|
$ | 3,747 | $ | 4,924 | $ | 6,760 | ||||||
|
Warranty accruals
|
6,071 | 3,383 | 7,467 | |||||||||
|
Warranty payments
|
(4,802 | ) | (4,560 | ) | (10,215 | ) | ||||||
|
Warranty liability assumed
|
— | — | 912 | |||||||||
|
|
||||||||||||
|
Ending balance
|
$ | 5,016 | $ | 3,747 | $ | 4,924 | ||||||
|
|
||||||||||||
| During the ordinary course of business, we provide standby letters of credit instruments to certain parties as required. At December 25, 2010, the maximum potential amount of future payments that we could be required to make under these standby letters of credit was approximately $0.7 million. We have not recorded any liability in connection with these arrangements beyond that required to appropriately account for the underlying transaction being guaranteed. We do not believe, based on historical experience and information currently available, that it is probable that any amounts will be required to be paid under these arrangements. |
50
Table of Contents
Cohu, Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
| 11. | Related Party Transactions |
| James A. Donahue, Chairman, President and CEO of Cohu, and Steven J. Bilodeau, a member of the Cohu Board of Directors, are both members of the Board of Directors of Standard Microsystems Corporation (“SMSC”), a customer of our semiconductor equipment segment. During 2010, 2009 and 2008, total sales to SMSC were approximately $0.4 million, $1.0 million, and $1.1 million, respectively. |
| 12. | Quarterly Financial Data (Unaudited) |
| Quarter | First (a) | Second (a) | Third (a) | Fourth (a) | Year | |||||||||||||||||||
| (in thousands, except per share data) | ||||||||||||||||||||||||
|
Net sales:
|
2010 | $ | 64,830 | $ | 74,869 | $ | 86,066 | $ | 96,902 | $ | 322,667 | |||||||||||||
|
|
2009 | $ | 36,582 | $ | 38,424 | $ | 44,062 | $ | 52,193 | $ | 171,261 | |||||||||||||
|
|
||||||||||||||||||||||||
|
Gross profit:
|
2010 | $ | 19,999 | $ | 27,428 | $ | 30,077 | $ | 32,491 | $ | 109,995 | |||||||||||||
|
|
2009 | $ | 7,395 | $ | 12,328 | $ | 16,217 | $ | 16,448 | $ | 52,388 | |||||||||||||
|
|
||||||||||||||||||||||||
|
Net income (loss) (b):
|
2010 | $ | 907 | $ | 6,698 | $ | 7,611 | $ | 9,428 | $ | 24,644 | |||||||||||||
|
|
2009 | $ | (6,262 | ) | $ | (22,605 | ) | $ | (71 | ) | $ | 770 | $ | (28,168 | ) | |||||||||
|
|
||||||||||||||||||||||||
|
Net income (loss) per share (c):
|
||||||||||||||||||||||||
|
Basic
|
2010 | $ | 0.04 | $ | 0.28 | $ | 0.32 | $ | 0.39 | $ | 1.04 | |||||||||||||
|
|
2009 | $ | (0.27 | ) | $ | (0.97 | ) | $ | (0.00 | ) | $ | 0.03 | $ | (1.20 | ) | |||||||||
|
|
||||||||||||||||||||||||
|
Diluted
|
2010 | $ | 0.04 | $ | 0.28 | $ | 0.32 | $ | 0.39 | $ | 1.02 | |||||||||||||
|
|
2009 | $ | (0.27 | ) | $ | (0.97 | ) | $ | (0.00 | ) | $ | 0.03 | $ | (1.20 | ) | |||||||||
| (a) | Each of the four quarters during 2010 and 2009 was comprised of 13 weeks. | |
| (b) | The second quarter of 2009 includes a charge of $19.6 million, for an increase in the valuation allowance against our deferred tax assets. | |
| (c) | The sum of the four quarters may not agree to the year total due to rounding within a quarter. |
51
Table of Contents
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Cohu, Inc.
Cohu, Inc.
We have audited the accompanying consolidated balance sheets of Cohu, Inc. as of December 25, 2010
and December 26, 2009, and the related consolidated statements of operations, stockholders’ equity,
and cash flows for each of the three years in the period ended December 25, 2010. Our audits also
included the financial statement schedule listed in the Index at Item 15(a). These financial
statements and schedule are the responsibility of the Company’s management. Our responsibility is
to express an opinion on these financial statements and the schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Cohu, Inc. at December 25, 2010 and December 26,
2009, and the consolidated results of its operations and its cash flows for each of the three years
in the period ended December 25, 2010, in conformity with U.S. generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly, in all material
respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), Cohu, Inc.’s internal control over financial reporting as of December 25,
2010, based on criteria established in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 23,
2011 expressed an unqualified opinion thereon.
/s/ ERNST & YOUNG LLP
San Diego, California
February 23, 2011
February 23, 2011
52
Table of Contents
Index to Exhibits
| 15. | (b) The following exhibits are filed as part of, or incorporated into, the 2010 Cohu, Inc. Annual Report on Form 10-K: |
| Exhibit No. | Description | |
|
3.1
|
Amended and Restated Certificate of Incorporation of Cohu, Inc. incorporated herein by reference to Exhibit 3.1(a) from the Cohu, Inc. Form 10-Q for the quarterly period ended June 30, 1999 | |
|
|
||
|
3.1(a)
|
Certificate of Amendment of Amended and Restated Certificate of Incorporation of Cohu, Inc. incorporated herein by reference from the Cohu, Inc. Form S-8 filed June 30, 2000, Exhibit 4.1(a) | |
|
|
||
|
3.2
|
Amended and Restated Bylaws of Cohu, Inc. incorporated herein by reference to Exhibit 3.2 from the Cohu, Inc. Current Report on Form 8-K filed with the Securities and Exchange Commission on December 12, 1996 | |
|
|
||
|
4.1
|
Amended and Restated Rights Agreement dated November 10, 2006, between Cohu, Inc. and Mellon Investor Services LLC, as Rights Agent, incorporated herein by reference from the Cohu, Inc. Current Report on Form 8-K, filed with the Securities and Exchange Commission on November 13, 2006, Exhibit 99.1 | |
|
|
||
|
10.1
|
Cohu, Inc. 2005 Equity Incentive Plan, incorporated herein by reference from the Cohu, Inc. Current Report on Form 8-K filed with the Securities and Exchange Commission on May 13, 2009, Exhibit 10.1* | |
|
|
||
|
10.2
|
Amended Cohu, Inc. 1997 Employee Stock Purchase Plan, incorporated herein by reference from the Cohu, Inc. Current Report on Form 8-K filed with the Securities and Exchange Commission on May 10, 2006, Exhibit 10.2* | |
|
|
||
|
10.3
|
Cohu, Inc. Deferred Compensation Plan (as amended and restated) incorporated herein by reference from the Cohu, Inc. Current Report on Form 8-K filed with the Securities and Exchange Commission on December 29, 2008, Exhibit 10.1* | |
|
|
||
|
10.4
|
Form of stock option agreement for use with stock options granted pursuant to the Cohu, Inc. 2005 Equity Incentive Plan incorporated herein by reference from the Cohu, Inc. Current Report on Form 8-K filed with the Securities and Exchange Commission on August 7, 2006* | |
|
|
||
|
10.5
|
Restricted stock unit agreement for use with restricted stock units granted pursuant to the Cohu, Inc. 2005 Equity Incentive Plan incorporated herein by reference from the Cohu, Inc. Current Report on Form 8-K filed with the Securities and Exchange Commission on April 20, 2006* | |
|
|
||
|
10.6
|
Share Purchase and Transfer Agreement dated December 5, 2008 by and among Delta Design, Inc. (and certain of its subsidiaries) and Dover Electronic Technologies, Inc. (and certain of its subsidiaries), incorporated herein by reference from the Cohu, Inc. Current Report on Form 8-K filed with the Securities and Exchange Commission on December 11, 2008, Exhibit 10.1 |
53
Table of Contents
| Exhibit No. | Description | |
|
10.7
|
Asset Purchase Agreement dated December 9, 2008 by and between a subsidiary of Delta Design, Inc. and certain subsidiaries of Dover Electronic Technologies, Inc., incorporated herein by reference from the Cohu, Inc. Current Report on Form 8-K filed with the Securities and Exchange Commission on December 11, 2008, Exhibit 10.2 | |
|
|
||
|
10.8
|
Capital Equipment, Goods and Services Agreement, dated January 10, 2007, by and between Delta and Intel Corporation, incorporated by reference from the Cohu, Inc. Current Report on Form 8-K filed April 25, 2007, Exhibit 99.1 | |
|
|
||
|
10.9
|
Business Agreement and Addendum by and between Advanced Micro Devices, Inc. and Delta Design, Inc. incorporated by reference from the Cohu, Inc. Current Report on Form 8-K filed February 22, 2006, Exhibit 99.1 | |
|
|
||
|
10.10
|
Cohu, Inc. Retiree Health Benefits Agreement (as amended) incorporated herein by reference from the Cohu, Inc. Current Report on Form 8-K filed with the Securities and Exchange Commission on December 29, 2008, Exhibit 10.2* | |
|
|
||
|
10.11
|
Cohu, Inc. Change in Control Agreement incorporated herein by reference from the Cohu, Inc. Current Report on Form 8-K filed with the Securities and Exchange Commission on December 29, 2008, Exhibit 10.3* | |
|
|
||
|
14
|
Cohu, Inc. Code of Business Conduct and Ethics, incorporated herein by reference from the Cohu 2003 Annual Report on Form 10-K, Exhibit 14 | |
|
|
||
|
21
|
Subsidiaries of Cohu, Inc. | |
|
|
||
|
23
|
Consent of Independent Registered Public Accounting Firm | |
|
|
||
|
31.1
|
Certification pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002 for James A. Donahue | |
|
|
||
|
31.2
|
Certification pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002 for Jeffrey D. Jones | |
|
|
||
|
32.1
|
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for James A. Donahue | |
|
|
||
|
32.2
|
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Jeffrey D. Jones |
| * | Management contract or compensatory plan or arrangement |
54
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
|
||||
| Date: February 23, 2011 | By: | /s/ James A. Donahue | ||
| James A. Donahue | ||||
| President and Chief Executive Officer | ||||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
| Signature | Title | Date | ||
|
|
||||
|
/s/ James A. Donahue
|
President and Chief Executive
Officer, Director
(Principal Executive Officer) |
February 23, 2011 | ||
|
|
||||
|
/s/ Jeffrey D. Jones
|
Vice President, Finance and Chief
Financial Officer
(Principal Financial and Accounting Officer) |
February 23, 2011 | ||
|
|
||||
|
/s/ Steven J. Bilodeau
|
Director | February 23, 2011 | ||
|
|
||||
|
|
||||
|
/s/ Harry L. Casari
|
Director | February 23, 2011 | ||
|
|
||||
|
|
||||
|
/s/ Robert L. Ciardella
|
Director | February 23, 2011 | ||
|
|
||||
|
|
||||
|
/s/ Harold Harrigian
|
Director | February 23, 2011 | ||
|
|
55
Table of Contents
COHU, INC.
SECHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
| Additions | ||||||||||||||||||||
| Additions | (Reductions) | |||||||||||||||||||
| Balance at | Not | Charged | Balance | |||||||||||||||||
| Beginning | Charged | (Credited) | Deductions/ | at End | ||||||||||||||||
| Description | of Year | to Expense | to Expense | Write-offs | of Year | |||||||||||||||
|
Allowance for doubtful
accounts:
|
||||||||||||||||||||
|
Year ended December 27,
2008
|
$ | 1,555 | $ | 136 | (1) | $ | 68 | $ | 149 | $ | 1,610 | |||||||||
|
Year ended December 26,
2009
|
$ | 1,610 | $ | 10 | (2) | $ | 107 | $ | 714 | $ | 1,013 | |||||||||
|
Year ended December 25,
2010
|
$ | 1,013 | $ | (22 | ) (2) | $ | (429 | ) | $ | 6 | $ | 556 | ||||||||
|
|
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|
Reserve for excess and obsolete inventories:
|
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|
Year ended December 27,
2008
|
$ | 31,537 | $ | 1,512 | (3) | $ | 1,693 | (5) | $ | 4,449 | $ | 30,293 | ||||||||
|
Year ended December 26,
2009
|
$ | 30,293 | $ | 129 | (4) | $ | 4,439 | $ | 9,181 | $ | 25,680 | |||||||||
|
Year ended December 25,
2010
|
$ | 25,680 | $ | 167 | (4) | $ | 1,743 | $ | 3,807 | $ | 23,783 | |||||||||
| (1) | Includes $127 resulting from Rasco acquisition in December, 2008 and foreign currency impact. | |
| (2) | Changes in reserve balances resulting from foreign currency impact. | |
| (3) | Addition resulting from Rasco acquisition in December, 2008 and foreign currency impact. | |
| (4) | Changes in reserve balances resulting from foreign currency impact. | |
| (5) | Includes $4.5 million credited to expense for products sold in 2008 that were reserved in 2006. |
56
TABLE OF CONTENTS
Part IItem 1. BusinessItem 1A. Risk FactorsItem 1B. Unresolved Staff CommentsItem 2. PropertiesItem 3. Legal ProceedingsItem 4. (removed and Reserved)Part IIItem 5. Market For Registrant S Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity SecuritiesItem 6. Selected Financial DataItem 7. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 7A. Quantitative and Qualitative Disclosures About Market RiskItem 8. Financial Statements and Supplementary DataItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A. Controls and ProceduresItem 9B. Other InformationPart IIIItem 10. Directors, Executive Officers and Corporate GovernanceItem 11. Executive CompensationItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13. Certain Relationships and Related Transactions, and Director IndependenceItem 14. Principal Accounting Fees and ServicesPart IVItem 15. Exhibits, Financial Statement Schedules