Cohu, Inc. — FY2014 Form 10-K
Reporting period: Fiscal year ended December 27, 2014 (52 weeks). The filing is an annual report, not a standalone fourth-quarter filing; quarterly figures are provided below where relevant. Cohu supplies semiconductor test-handling equipment and mobile microwave communications systems. In June 2014, it sold substantially all assets of its video-camera segment, which is reported as discontinued operations; comparisons below generally reflect continuing operations.
Financial performance
| Metric | FY2014 | FY2013 |
|---|---|---|
| Net sales | $333.3 million | $231.6 million |
| Gross profit / margin | $112.2 million / 33.7% | $63.4 million / 27.4% |
| Operating income (loss) | $9.1 million | $(37.1) million |
| Continuing-operations income (loss) | $5.8 million | $(34.3) million |
| Net income (loss), including discontinued operations | $8.7 million | $(33.4) million |
| Diluted EPS | $0.33 | $(1.34) |
| Cash from operating activities | $19.7 million | $3.4 million |
- Revenue rose 43.9%. Semiconductor-equipment sales increased 47.6% to $316.6 million; microwave-communications sales declined 2.2% to $16.7 million.
- Gross margin improved 6.3 percentage points, reflecting higher volume and operating leverage, manufacturing and supply-chain transition benefits, favorable mix, and lower inventory charges. Inventory-related charges were $3.9 million versus $7.8 million in 2013.
- FY2014 included a $5.0 million non-cash, pretax impairment in microwave communications: $3.1 million of goodwill and $1.9 million of other assets. The segment reported a $10.0 million operating loss, including the impairment; semiconductor equipment reported $26.7 million of segment profit.
- Cash, cash equivalents and short-term investments totaled $72.0 million; working capital was $145.3 million. Cash and equivalents alone were $70.9 million. Total assets were $348.8 million and stockholders’ equity was $247.1 million.
- The filing reports no outstanding borrowings under the Ismeca credit line at year-end; available capacity was 0.5 million Swiss francs. Standby letters of credit were approximately $0.4 million. Operating-lease commitments totaled $5.6 million. FY2014 capital expenditures were $1.7 million.
- The company paid $0.24 per share in dividends during 2014 and stated it intended to continue quarterly dividends, subject to capital availability and Board review.
Material changes and fourth-quarter results
- FY2014 quarterly sales increased through the year: fourth-quarter sales were $96.2 million, gross profit $31.4 million, continuing-operations income $1.3 million, and net income $0.4 million. Fourth-quarter results included the microwave-segment impairment.
- Semiconductor-equipment order activity weakened in the second half; segment orders fell approximately 32% sequentially in Q4. Management attributed this partly to customers absorbing recent capacity additions and a large customer order delayed into Q1 2015.
- Consolidated backlog fell to $75.4 million at year-end from $85.5 million a year earlier. Orders may be rescheduled or cancelled, so backlog is not a reliable measure of future sales.
- The Cohu Electronics asset sale generated $10.3 million in net cash proceeds. The discontinued segment recorded $2.9 million of income after tax in 2014, including a $4.4 million disposal gain; its 2014 sales were $5.5 million.
- Cash from operations increased year over year, while receivables rose $15.5 million, primarily reflecting higher second-half shipments and collection timing. Currency translation reduced stockholders’ equity by $14.1 million.
Outlook, commentary and risks
- Management remained optimistic about long-term semiconductor-equipment demand, citing mobile-device functionality, increasing semiconductor content in automotive, consumer and industrial applications, and LED adoption. It also described the industry as cyclical, with limited market visibility and weaker order momentum in the second half of 2014.
- No quantified full-year 2015 revenue or earnings guidance is provided in the filing. Management expected the delayed large customer order in Q1 2015, while noting seasonal winter softness in automotive and industrial markets.
- Key risks include semiconductor-industry cyclicality; intense competition and pricing pressure; customer concentration (Intel accounted for 15% of 2014 sales); customer order cancellations or delays; inventory obsolescence; dependence on limited-source suppliers; and execution risks from shifting manufacturing to Asia.
- Microwave communications sales depend substantially on government programs and funding. The segment also underwent geographic consolidation, relocating German functions to Poway; $0.5 million of 2014 restructuring charges were recorded.
- Tax assets remain uncertain: the company maintained a $37.0 million valuation allowance against gross deferred tax assets of $44.2 million, citing its cumulative U.S. pretax loss history. Unrecognized tax benefits were approximately $10.8 million, with settlement timing not reasonably estimable.
- Management said existing liquidity should cover operating and working-capital requirements for at least the next 12 months. It reported effective disclosure controls and internal control over financial reporting; the independent auditor issued unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- Whether the delayed customer order was received in Q1 2015 and how the 32% sequential order decline affected subsequent revenue and backlog.
- Whether the 2014 gross-margin improvement is sustainable as product mix, manufacturing transitions, capacity utilization and inventory charges change.
- Future performance and carrying-value assumptions for the microwave segment and remaining goodwill and intangible assets.
- Customer concentration, particularly Intel’s share of sales, and any changes in major customers’ purchasing or outsourcing patterns.
- Realizability of deferred tax assets, potential tax settlements, and any change in the company’s dividend policy or liquidity needs.