Cohu, Inc. — 2012 Form 10-K Summary
Business context and reporting period. Cohu designs, manufactures and services semiconductor test-handling equipment, microwave communications systems and video cameras. This 10-K covers the 52-week fiscal year ended December 29, 2012; fourth quarter was 13 weeks. Unless noted, figures exclude Ismeca, acquired December 31, 2012, after year-end.
Financial performance and liquidity
| Metric | FY 2012 | FY 2011 |
|---|---|---|
| Net sales | $221.2 million | $309.0 million |
| Gross profit / margin | $68.0 million / 30.7% | $100.1 million / 32.4% |
| Operating income (loss) | ($14.1 million) | $17.3 million |
| Net income (loss) | ($12.2 million) | $15.7 million |
| Diluted EPS | ($0.50) | $0.64 |
| Cash from operations | $13.2 million | $12.2 million |
- Fourth-quarter 2012 sales were $50.7 million, gross profit was $16.6 million, net loss was $5.2 million and diluted loss per share was $0.21.
- Year-end cash and cash equivalents were $102.8 million; short-term investments were $7.4 million. Working capital was $184.7 million, down from $191.9 million.
- Capital expenditures were $3.3 million. The balance sheet reports no borrowings or other debt. Management said working capital should be sufficient for operating needs for at least 12 months.
- Cash dividends were $0.24 per share declared for 2012; the company said it intended to continue quarterly dividends, subject to capital availability and Board approval.
Material changes and drivers
- Sales fell 28.4% year over year. Semiconductor-equipment sales declined 31.2% to $179.4 million; microwave communications sales fell 10.4% to $26.9 million; video-camera sales declined 19.1% to $14.9 million.
- Management attributed weaker semiconductor-equipment demand to global economic weakness, political uncertainty, excess customer chip inventories and lower equipment utilization. Microwave and camera sales were also affected by delayed government-security and traffic-infrastructure orders.
- Gross margin declined to 30.7%, reflecting unfavorable product mix, lower volume and higher inventory charges. Excess and obsolete inventory charges were $8.9 million, versus $5.8 million in 2011.
- R&D remained approximately $36.2 million; as a share of sales it increased to 16.4% from 11.7%. SG&A was $45.9 million and included $2.3 million of Ismeca acquisition costs.
- Semiconductor segment operating profit turned to a $5.3 million loss from $20.0 million profit in 2011; all three reportable segments recorded losses in 2012.
- Year-end backlog was $44.7 million, down from $51.9 million. Semiconductor-equipment backlog declined to $30.6 million from $38.2 million. Management cautioned that orders may be canceled or rescheduled and backlog may not predict future sales.
Outlook, risks and unusual items
- Management described near-term market conditions as weak and uncertain but remained optimistic about long-term industry prospects, citing expanding semiconductor applications and potential LED adoption in general lighting. The filing provides no quantitative earnings or revenue guidance.
- On December 31, 2012, Cohu completed its acquisition of Ismeca for approximately $57.1 million, funded in part with $54.5 million of cash. Ismeca expands Cohu’s test-handler offerings and adds turret handling and LED-market exposure. Purchase-price allocation was preliminary; the company expected goodwill and intangible assets to increase significantly.
- Customer concentration is material: Intel represented 39% of 2012 consolidated sales, up from 36% in 2011. A reduction in Intel orders could significantly affect results.
- Other principal risks include semiconductor-industry cyclicality, intense competition and pricing pressure, product-transition and inventory-obsolescence exposure, reliance on limited-source suppliers, international and currency risks, and acquisition integration and impairment risks.
- The company recorded a $0.9 million income-tax benefit, but maintained a $24.9 million valuation allowance against deferred tax assets because realization was not considered more likely than not. It said future reversals would depend on future taxable income.
- Management and the independent auditor concluded that internal controls over financial reporting were effective. The auditor issued an unqualified opinion on the financial statements. Ordinary-course legal matters were not expected to have a material adverse effect.
Important facts for investors to verify
- Whether semiconductor-equipment orders, utilization and backlog stabilized or recovered after the year-end downturn.
- Whether Intel’s 39% sales concentration changed and whether customer diversification improved.
- Ismeca’s subsequent-period contribution, integration costs, purchase-price allocation, goodwill and intangible-asset estimates, and acquisition financing/cash effects.
- Whether inventory reserves adequately reflect demand and product obsolescence, and whether gross margins recover.
- Whether deferred tax assets become realizable and how the valuation allowance affects future tax expense.
- Whether cash generation can support operations, R&D, the dividend and acquisition integration through the semiconductor cycle.