Cohu, Inc. — FY2015 Form 10-K
Reporting period: Fiscal year ended December 26, 2015 (52 weeks). Although the request references Q4, this is an annual filing; fourth-quarter results are also summarized below. Unless noted, financial results are from continuing operations. Cohu supplies semiconductor test handlers, MEMS test modules, contactors, thermal subsystems, spares and services. The company sold its BMS microwave business in June 2015 and its video camera business in 2014; both are reported as discontinued operations.
Key financial results
| Metric | FY2015 | FY2014 |
|---|---|---|
| Net sales | $269.7 million | $316.6 million |
| Gross profit / margin | $89.0 million / 33.0% | $106.0 million / 33.5% |
| Operating income / margin | $8.0 million / 2.9% | $19.4 million / 6.1% |
| Income from continuing operations | $5.8 million | $14.8 million |
| Net income, including discontinued operations | $0.3 million | $8.7 million |
| Diluted earnings per share | $0.01 | $0.33 |
| Cash from operating activities | $21.5 million | $19.7 million |
Fourth quarter: Net sales were $63.5 million, gross profit $20.4 million, income from continuing operations $2.3 million, and net income $1.9 million.
Liquidity and balance sheet: Cash, cash equivalents and short-term investments totaled $117.0 million at year-end, up from $72.0 million; working capital was $171.3 million, up from $142.2 million. Total assets were $345.3 million and stockholders’ equity $238.1 million. The balance sheet reports no funded debt; the Ismeca credit lines were unused. Operating lease commitments totaled $25.4 million, including $3.6 million due in 2016. Cash dividends paid were $6.2 million, or $0.24 per share.
Material changes versus FY2014
- Sales fell 14.8%, reflecting lower customer demand for back-end semiconductor test and assembly equipment. Quarterly sales declined from $90.6 million in Q4 2014 to $63.5 million in Q4 2015.
- Gross margin eased by 0.5 percentage points. Inventory-related charges were $2.4 million, compared with $2.6 million in 2014.
- Operating income declined to $8.0 million from $19.4 million; SG&A rose slightly to $51.2 million and increased to 19.0% of sales. R&D expense declined to $33.1 million from $36.0 million.
- Net income included a $5.5 million after-tax loss from discontinued operations, including a $3.6 million loss on the BMS sale. The corresponding discontinued-operations loss in 2014 was $6.1 million.
- The Poway headquarters sale-leaseback generated $33.3 million of net cash proceeds and an $18.5 million total gain, of which $3.2 million was recognized in 2015; the remaining $15.3 million is deferred over the 10-year lease term.
Outlook, commentary and risks
Management reported that back-end equipment demand weakened through most of 2015, with a rebound in November and December. Customer equipment utilization was below levels that typically prompt capacity additions, although management cited relatively high utilization at IDM customers. Management expressed long-term optimism based on semiconductor content growth in mobile, automotive, consumer and industrial applications, while noting near-term caution tied to macroeconomic uncertainty in Europe and China. No specific financial guidance was provided.
- Customer concentration: Intel represented 18.0% of FY2015 sales and NXP/Freescale 11.4%. Loss or reduced orders from major customers could materially affect results.
- Industry cyclicality, intense price competition and limited demand visibility may pressure sales, pricing and margins. Backlog was $66.5 million versus $66.8 million a year earlier; orders may be rescheduled or cancelled.
- Manufacturing is transitioning toward Asia. Reliance on limited-source suppliers and risks involving supply continuity, quality and execution could delay shipments.
- Foreign currency translation reduced stockholders’ equity by $11.0 million in 2015. Approximately $68.0 million of cash was held by foreign subsidiaries; repatriation could trigger taxes.
- A $42.3 million valuation allowance was recorded against deferred tax assets. Management cited cumulative U.S. pretax losses of about $27.3 million over three years and planned to reassess realizability quarterly in 2016.
- Other exposures include product transitions and inventory obsolescence, acquisition-related goodwill and intangibles, tax examinations, and ordinary-course legal claims. Management did not expect current legal matters to have a material adverse effect.
Ernst & Young issued an unqualified opinion on the financial statements and internal controls; management also concluded disclosure controls and internal control over financial reporting were effective at year-end.
Investor verification points
- Track demand, quarterly sales and margins against the company’s description of cautious customers and improving late-year orders.
- Assess whether the $117.0 million liquidity position is sustainable after separating operating cash generation from the one-time facility and BMS sale proceeds.
- Review the Poway lease obligations and timing of recognition of the deferred sale-leaseback gain.
- Monitor customer concentration, backlog conversion or cancellations, and supplier/manufacturing-transition execution.
- Verify future inventory reserve requirements and the recoverability of deferred tax assets, including potential changes to the $42.3 million valuation allowance.