<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarter Ended September 30, 1998
or
___ Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from __________ to
___________.
Commission File Number 0-11370
CERPROBE CORPORATION
(Exact name of registrant as specified in
its charter)
DELAWARE 86-0312814
(State or other (I.R.S. Employer
jurisdiction of Identification
incorporation or Number)
organization)
1150 NORTH FIESTA BOULEVARD, GILBERT, ARIZONA 85233
(Address of principal executive offices) (Zip Code)
(602) 333-1500
(Registrant's telephone number,
including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __
As of November 12, 1998, there were 7,714,736 shares of the registrant's
Common Stock outstanding.
<PAGE> 2
CERPROBE CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Page
----
ITEM 1. FINANCIAL STATEMENTS:
Condensed Consolidated Balance Sheets -
September 30, 1998 and December 31, 1997.........................3
Condensed Consolidated Statements of Operations -
Three and Nine months Ended September 30, 1998 and 1997..........4
Condensed Consolidated Statements of Cash Flows -
Nine months Ended September 30, 1998 and 1997....................5
Notes to Condensed Consolidated Financial Statements.............7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.............................12
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES ..........................................18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ...............................18
SIGNATURE ..................................................................19
2
<PAGE> 3
CERPROBE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
ASSETS 1998 1997
---- ----
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and short-term investments $ 21,449,467 $ 29,716,188
Accounts receivable, net of allowance of $234,559
in 1998 and $215,179 in 1997 11,013,101 8,230,178
Inventories, net 5,516,599 4,969,804
Accrued interest receivable 120,457 202,939
Prepaid expenses 919,753 377,799
Income taxes receivable 313,091 471,046
Deferred tax asset 1,226,879 411,177
Net assets of discontinued operations 1,809,012 5,220,343
------------ ------------
Total current assets 42,368,359 49,599,474
Property, plant and equipment, net 19,038,019 14,439,254
Intangibles, net 2,809,766 2,279,347
Other assets 853,625 957,175
Net assets of discontinued operations -- 832,653
------------ ------------
Total assets $ 65,069,769 $ 68,107,903
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,447,596 $ 3,502,561
Accrued expenses 4,205,446 2,831,759
Current portion of notes payable 401,541 139,661
Current portion of capital leases 630,560 620,570
------------ ------------
Total current liabilities 7,685,143 7,094,551
Notes payable, less current portion 736,196 138,985
Capital leases, less current portion 2,301,861 1,136,032
Deferred tax liability 422,001 377,701
Other liabilities 9,600 16,700
------------ ------------
Total liabilities 11,154,801 8,763,969
------------ ------------
Minority interest 191,227 132,437
Commitments and contingencies -- --
Stockholders' equity:
Common stock, $.05 par value; authorized
25,000,000 shares; issued 8,127,728
shares at September 30, 1998
and 8,097,979 shares at December 31, 1997 406,464 404,899
Additional paid-in capital 55,213,526 55,136,307
Retained earnings 3,028,648 4,001,642
Foreign currency translation adjustment (348,840) (331,351)
------------ ------------
58,299,798 59,211,497
Treasury stock, at cost, 412,992 shares
at September 30, 1998 (4,576,057) --
------------ ------------
Total stockholders' equity 53,723,741 59,211,497
------------ ------------
Total liabilities and stockholders' equity $ 65,069,769 $ 68,107,903
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
CERPROBE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net sales $ 20,107,096 $ 17,562,150 $ 61,199,104 $ 49,134,074
Costs of goods sold 11,513,959 9,989,751 35,473,693 27,494,242
------------ ------------ ------------ ------------
Gross profit 8,593,137 7,572,399 25,725,411 21,639,832
------------ ------------ ------------ ------------
Expenses:
Selling, general and administrative 4,714,758 3,968,620 14,370,299 11,787,189
Engineering and product development 955,978 250,803 2,301,671 545,121
Acquisition related expenses 1,948,000 -- 1,948,000 --
------------ ------------ ------------ ------------
Total expenses 7,618,736 4,219,423 18,619,970 12,332,310
------------ ------------ ------------ ------------
Operating income 974,401 3,352,976 7,105,441 9,307,522
------------ ------------ ------------ ------------
Other income (expense):
Interest income 328,161 9,697 1,063,877 75,125
Interest expense (59,546) (164,913) (182,133) (344,110)
Other income 219,379 109,190 258,195 224,878
------------ ------------ ------------ ------------
Total other income (expense) 487,994 (46,026) 1,139,939 (44,107)
------------ ------------ ------------ ------------
Income before income taxes and
minority interest 1,462,395 3,306,950 8,245,380 9,263,415
Minority interest share of (income) loss (86,147) 67,394 (111,540) 96,379
------------ ------------ ------------ ------------
Income before income taxes 1,376,248 3,374,344 8,133,840 9,359,794
Provision for income taxes (568,613) (1,442,284) (3,376,637) (3,816,184)
------------ ------------ ------------ ------------
Income from continuing operations 807,635 1,932,060 4,757,203 5,543,610
Discontinued operations:
Income (loss) from operations of
SVTR, Inc., net of taxes (785,097) 1,030,036 (1,922,457) (5,886,822)
Loss on disposal of SVTR, Inc., net of taxes (3,807,740) -- (3,807,740) --
------------ ------------ ------------ ------------
Income (loss) from discontinued operations (4,592,837) 1,030,036 (5,730,197) (5,886,822)
------------ ------------ ------------ ------------
Net income (loss) $ (3,785,202) $ 2,962,096 $ (972,994) $ (343,212)
============ ============ ============ ============
Net income (loss) per common share:
Basic:
From continuing operations before
acquisition related expenses $ 0.25 $ 0.31 $ 0.74 $ 0.89
Acquisition related expenses (0.15) -- (0.15) --
------------ ------------ ------------ ------------
From continuing operations 0.10 0.31 0.59 0.89
From discontinued operations (0.59) 0.16 (0.71) (0.95)
------------ ------------ ------------ ------------
Net income (loss) per common share $ (0.49) $ 0.47 $ (0.12) $ (0.06)
============ ============ ============ ============
Weighted average number of common
shares outstanding 7,768,874 6,246,825 8,058,011 6,219,800
============ ============ ============ ============
Diluted:
From continuing operations before
acquisition related expenses $ 0.25 $ 0.29 $ 0.74 $ 0.89
Acquisition related expenses (0.15) -- (0.15) --
------------ ------------ ------------ ------------
From continuing operations 0.10 0.29 0.59 0.89
From discontinued operations (0.59) 0.16 (0.71) (0.95)
------------ ------------ ------------ ------------
Net income (loss) per common share $ (0.49) $ 0.45 $ (0.12) $ (0.06)
============ ============ ============ ============
Weighted average number of common and
common equivalent shares outstanding 7,768,874 6,637,665 8,058,011 6,219,800
============ ============ ============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
CERPROBE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Income from continuing operations $ 4,757,203 $ 5,543,611
Adjustments to reconcile net income from continuing operations
to net cash provided by continuing operations:
Depreciation and amortization 3,378,441 2,621,681
Acquisition related expenses 1,948,000 --
Loss on sale of equipment 435,996 1,396
Loss on disposal of discontinued operations, net of taxes 3,807,740 --
Tax benefit from exercise of nonqualified stock options 106,000 28,000
Deferred income taxes (771,402) (303,553)
Provision for losses on accounts receivable 19,920 18,000
Provision for obsolete inventory 315,000 204,997
Income applicable to minority interest in consolidated subsidiaries 111,540 96,379
Changes in working capital of continuing operations, net of acquisitions:
Accounts receivable (1,323,031) (2,738,299)
Inventories (730,671) 2,640,183
Prepaid expenses and other assets (175,710) 228,378
Income taxes receivable 157,955 214,097
Accounts payable and accrued expenses (317,706) (300,740)
Accrued income taxes (108,648) 2,118,521
Other liabilities (7,100) 20,140
------------ ------------
Net cash provided by continuing operations 11,603,527 10,392,791
Net cash used in discontinued operations (5,293,953) (6,989,699)
------------ ------------
Net cash provided by operating activities 6,309,574 3,403,092
------------ ------------
Cash flows from investing activities:
Purchase of property, plant and equipment (7,128,764) (4,273,852)
Investment in CRPB Investors, L.L.C 47,656 (607)
Investment in Upsys-Cerprobe, L.L.C -- 19,333
Purchase of Upsys-Cerprobe, L.L.C (376,366) --
Purchase of SemiConducteur Services S.A., net of cash acquired (3,230,230) --
Supplemental acquisition costs for CompuRoute -- (80,102)
Purchase of SVTR, Inc. net of cash acquired -- (2,590,697)
Proceeds from sale of equipment -- 71,183
Payment of notes receivable -- 250,000
------------ ------------
Net cash used in investing activities (10,687,704) (6,604,742)
------------ ------------
Cash flows from financing activities:
Issuance of (payments on) notes payable and capital leases 960,063 (3,765,841)
Net proceeds (expenses) from issuance of common stock (245,093) 30,710,000
Redemption of convertible preferred stock -- (5,250,000)
Purchase of treasury stock (4,781,107) --
Net proceeds from employee stock purchase plan 238,164 --
Net proceeds from exercise of stock options 184,763 506,936
------------ ------------
Net cash provided by (used in) financing activities (3,643,210) 22,201,095
------------ ------------
Effect of exchange rates on cash and short-term investments (245,381) (138,965)
------------ ------------
Net increase (decrease) in cash and short-term investments (8,266,721) 18,860,480
Cash and short-term investments, beginning of period 29,716,188 5,564,557
============ ============
Cash and short-term investments, end of period $ 21,449,467 $ 24,425,037
============ ============
</TABLE>
5
<PAGE> 6
CERPROBE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1998 1997
---- ----
<S> <C> <C>
Supplemental schedule of non-cash financing activities from continuing operations:
Equipment acquired under capital leases $ 620,509 $ 4,144
----------- -----------
Warrants $ 33,114 $ --
----------- -----------
Supplemental disclosures of cash flow information from continuing operations:
Interest paid $ 182,133 $ 344,110
----------- -----------
Income taxes paid $ 2,049,282 $ 1,917,596
----------- -----------
Supplemental disclosures of non-cash investing activities:
The Company acquired SVTR, Inc. for $4.5 million in the nine months
ended September 30, 1997. The purchase price was allocated to the
assets acquired and the liabilities assumed based on their fair values.
The Company acquired Upsys-Cerprobe. L.L.C. for $376,366 in the nine
months ended September 30, 1998.
The Company acquired SemiConducteur Services S.A. for approximately $3.3 million
in the nine months ended September 30, 1998. The purchase price was
allocated to the assets acquired and the liabilities assumed based on
their fair values.
A summary of the acquisitions is as follows:
Purchase price $ 3,626,366 $ 4,546,825
Less cash acquired (19,770) (285,316)
Common stock issued -- (1,670,812)
----------- -----------
Cash invested $ 3,606,596 $ 2,590,697
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE> 7
CERPROBE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF PREPARATION
The accompanying condensed consolidated financial statements as of
September 30, 1998, and for the three and nine months ended September 30,
1998, and 1997, are unaudited and reflect all adjustments (consisting only
of normal recurring adjustments) which are, in the opinion of management,
necessary for a fair presentation of financial position and operating
results for the interim periods. The condensed consolidated balance sheet
as of December 31, 1997, was derived from the audited consolidated
financial statements at such date.
Pursuant to accounting requirements of the Securities and Exchange
Commission applicable to quarterly reports on Form 10-Q, the accompanying
condensed consolidated financial statements and notes do not include all
disclosures required by generally accepted accounting principles for
complete financial statements. Accordingly, these statements should be read
in conjunction with Cerprobe Corporation's (the "Company") annual financial
statements and notes thereto included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1997.
Results of operations for interim periods are not necessarily indicative of
those to be achieved for full fiscal years.
PRINCIPLES OF CONSOLIDATION
The condensed consolidated financial statements include the accounts of
Cerprobe Corporation and its subsidiaries: Cerprobe Europe Limited,
Cerprobe Asia Holdings PTE LTD, CompuRoute, Inc., SVTR, Inc., ("SVTR")
Upsys-Cerprobe, L.L.C., and Cobra Venture Management, Inc.
Cerprobe Asia Holdings PTE LTD is a 60% (70% prior to August 18, 1997)
owner of Cerprobe Asia PTE LTD; the balance is owned by Asian investors.
Cerprobe Asia PTE LTD's wholly owned subsidiaries, Cerprobe Singapore PTE
LTD and Cerprobe Taiwan Co. LTD, operate full service sales and
manufacturing plants. All significant intercompany transactions have been
eliminated in consolidation.
On May 30, 1997, the Company entered into a joint venture with Upsys Reseau
Eurisys ("Upsys"), a French company owned by IBM and GAME COGEMA Group, a
French testing and engineering company. The joint venture, called
Upsys-Cerprobe, L.L.C., assembled and repaired Upsys's vertical probe card
that had been distributed by Cerprobe throughout the United States and
Asia. Cerprobe owned 55% of the joint venture and Upsys owned 45%.
Accordingly, the condensed consolidated financial statements include the
activities of Upsys-Cerprobe, L.L.C. since the date of inception of the
joint venture. On June 25, 1998, the Company terminated its distribution
agreement with Upsys, and in connection therewith, Upsys's 45% interest in
Upsys-Cerprobe, L.L.C. was purchased. (See Note 5)
On September 30, 1998, the Company acquired France-based SemiConducteur
Services S.A. ("SCS") for $3.0 million in cash plus $250,000 in acquisition
related expenses. SCS designs and manufactures probe cards at its
manufacturing plant near Marseilles. Accordingly, the condensed
7
<PAGE> 8
consolidated balance sheet at September 30, 1998 includes the assets
purchased and the liabilities assumed of SCS.
In the third quarter of 1998, the Company discontinued operations of SVTR,
a wafer prober refurbishing and upgrading subsidiary. As a result, the
Company plans to dispose of SVTR's assets by the end of 1998. SVTR has been
accounted for as a discontinued operation and, accordingly, its results of
operations and financial position are segregated for all periods presented
in the accompanying financial statements.
(2) COMMITMENTS AND CONTINGENCIES
LEGAL CLAIM
On October 20, 1998, the Company filed an action against the former
President, Director and shareholders of Silicon Valley Test & Repair, Inc.,
which was acquired by the Company by way of a merger into its wholly-owned
subsidiary, SVTR, Inc. in January, 1997. The suit seeks rescission of the
merger transaction and/or money damages arising from the failure of the
defendants to disclose material facts regarding the origins of certain
software necessary for SVTR, Inc.'s business. While the Company intends to
vigorously prosecute this action, it is impossible to predict the outcome
of this or any litigation. Regardless of the outcome, it is not anticipated
that this suit will have a material adverse impact on the Company's
financial condition or results of operations.
The Company is involved in other legal actions arising in the ordinary
course of business. In the opinion of management, the disposition of these
actions would not have a material adverse effect on the Company.
(3) COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" (SFAS 130), effective January 1, 1998.
SFAS 130 establishes standards for the reporting and presentation of
comprehensive income and its components in financial statements.
Comprehensive income encompasses net income and "other comprehensive
income," which includes all other non-owner transactions and events which
change stockholders' equity.
The Company recognized a comprehensive loss of $962,501 for the nine months
ended September 30, 1998 and a comprehensive loss of $426,590 for the nine
months ended September 30, 1997 as follows:
<TABLE>
<CAPTION>
Nine months ended
September 30,
-------------
1998 1997
---- ----
<S> <C> <C>
Net loss $(972,994) $(343,212)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment 17,489 (138,963)
Tax (expense) benefit from foreign
currency translation (6,996) 55,585
--------- ---------
Net other comprehensive income (loss) 10,493 (83,378)
--------- ---------
Comprehensive loss
$(962,501) $(426,590)
========= =========
</TABLE>
(4) TREASURY STOCK
In the third quarter of 1998, the Company purchased on the open market
407,900 shares of its Common Stock at an average purchase price of $11.02
per share. The Company currently holds 412,992 shares in treasury.
8
<PAGE> 9
(5) UPSYS-CERPROBE L.L.C.
On June 25, 1998, the Company purchased Upsys's 45% interest in
Upsys-Cerprobe L.L.C. The acquisition resulted in $376,366 of Goodwill,
which will be amortized on a straight-line basis over eight years.
(6) DISCONTINUED OPERATIONS
In the third quarter of 1998, the Company discontinued operations of SVTR,
a wafer prober refurbishing and upgrading subsidiary. The discontinuance
resulted from questions regarding the origins of certain software necessary
for SVTR's business. As a result, the Company plans disposition of the
operations by sale or closure by the end of 1998.
SVTR has been accounted for as a discontinued operation and accordingly,
its results of operation and financial position are segregated for all
periods presented in the accompanying consolidated financial statements.
Net sales, related losses and income taxes associated with the discontinued
operations are as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 740,682 $2,324,297 $ 3,070,479 $ 5,335,294
Discontinued
operations:
Income (loss) from
operations $(1,308,495) $ 836,564 $(3,204,095) $(6,963,894)
Income tax benefit 523,398 193,472 1,281,638 1,077,072
----------- ---------- ----------- -----------
Income (loss) from
operations, net
of taxes $ (785,097) $1,030,036 $(1,922,457) $(5,886,822)
=========== ========== =========== ===========
Loss on disposal $(6,346,233) -- $(6,346,233) --
Income tax benefit 2,538,493 -- 2,538,493 --
----------- ---------- ----------- -----------
Loss on disposal,
net of taxes $(3,807,740) $ -- $(3,807,740) $ --
=========== ========== =========== ===========
</TABLE>
The effective income tax benefit (expense) from discontinued operations is
approximately the same as the Company's effective tax rate.
The Company recorded a pretax charge of $4,597,034 to write down inventory,
equipment, and
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<PAGE> 10
intangibles to estimated net realizable value and to record additional
liabilities in the shut down period. A charge of $1,749,199 was also
recorded to reflect the estimated phase out costs and losses from
operations associated with SVTR. The tax benefit associated with these
charges was $2,538,493.
The net assets of the discontinued operations have been reclassified in the
accompanying consolidated balance sheet as follows:
<TABLE>
<CAPTION>
September 30,
-------------
1998 1997
---- ----
<S> <C> <C>
Current assets $ 4,693,906 $ 6,527,594
Property, plant and equipment, net 64,160 702,648
Intangibles, net -- 116,954
Other assets 47,315 52,741
Current liabilities (2,971,721) (1,307,251)
Long term debt (24,648) (39,690)
----------- -----------
$ 1,809,012 $ 6,052,996
=========== ===========
</TABLE>
(7) ACQUISITION
On September 30, 1998, the Company acquired France-based SemiConducteur
Services S.A. ("SCS") for $3.0 million in cash and approximately $250,000
in acquisition related expenses. SCS designs and manufactures probe cards
at its manufacturing plant near Marseilles. The acquisition resulted in
$1,948,000 in purchased research and development, which was charged to
operations upon acquisition, and $226,051 in goodwill which will be
amortized on a straight-line basis over 8 years.
The acquisition was accounted for as a purchase and accordingly the
accompanying condensed consolidated balance sheet include the assets
purchased and liabilities assumed of SCS at September 30, 1998.
(8) SUBSEQUENT EVENTS
CAPITAL LEASES
In October 1998, the Company financed an additional $505,575 of
manufacturing equipment with BancOne Leasing Corporation. The lease accrues
interest at 6.33% annually with monthly payments for 60 months of principal
and interest of $9,853.
SHAREHOLDER RIGHTS PLAN
On October 8, 1998, each shareholder of record received one Preferred Share
Purchase Right on each outstanding share of Common Stock owned. Each right
entitled shareholders to buy one one-thousandth of a share of newly created
Series A Junior Participating Preferred Stock of the Company at an exercise
price of $110. The Rights will be exercisable if a person or group
hereafter acquires 15% or more of the Common Stock of the Company or
announces a tender offer for 15% or more of the Common Stock. Should this
occur, the Right will entitle its holder to purchase, at the Right's
exercise price, a number of shares of Common Stock having a market value at
the time of twice the Right's exercise price. Rights held by the 15% holder
will become
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<PAGE> 11
void and will not be exercisable to purchase shares at the bargain purchase
price. If the Company is acquired in a merger or other business combination
transaction after a person acquires 15% or more of the Company's Common
Stock, each Right will entitle its holder to purchase, at the Right's then
current exercise price, a number of the acquiring company's common shares
having a market value at that time of twice the Right's exercise price.
LICENSE AGREEMENT
In November 1998 the Company signed a 10-year agreement with Feinmetall
GmbH, a German contact technology company. The agreement gives Cerprobe
exclusive license to manufacture, distribute, and repair vertical
integrated probe (ViProbe(R)) products worldwide, except Europe.
11
<PAGE> 12
ITEM 1. LEGAL PROCEEDINGS
On October 20, 1998, the Company filed an action entitled Cerprobe Corporation
and SVTR, Inc. v. William E. Mayer, et al (No. C 98-4034), in the U.S. District
Court for the Northern District of California, against the former President,
Director and shareholders of Silicon Valley Test & Repair, Inc., which was
acquired by the Company by way of a merger into its wholly-owned subsidiary,
SVTR, Inc. in January, 1997. The suit seeks rescission of the merger transaction
and/or money damages arising from the failure of the defendants to disclose
material facts regarding the origins of certain software necessary for SVTR,
Inc.'s business.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Selected Consolidated Financial Data and the Consolidated Financial Statements
and related Notes thereto of the Company appearing in the Company's Annual
Report on Form 10-K for the year ended December 31, 1997.
OVERVIEW
Cerprobe offers comprehensive solutions for semiconductor test integration
and is a leading manufacturer of probe cards, ATE interface assemblies, and ATE
test boards. The Company's products and services enable semiconductor
manufacturers to test integrated circuits ("ICs") in wafer form and as packaged
ICs.
The Company has grown substantially over the last five years as the Company
has increased its market share and has benefited from the substantial growth in
the worldwide demand for ICs. Net sales from continuing operations have
increased from $11.2 million for 1993 to $69.0 million for 1997. Similarly, the
Company's income from continuing operations has increased from $1.5 million for
1993 to $7.7 million for 1997 (before a one-time acquisition related expenses
charge). Until 1995, substantially all of the Company's growth was from the
existing probe card product line.
Beginning with the April 1995 acquisition of Fresh Test Technology
Corporation ("Fresh Test"), acquisitions have contributed to the Company's
growth. Fresh Test expanded the Company's product line to include ATE interface
assemblies. The Company acquired CompuRoute in December 1996, which enabled the
Company to offer ATE test boards. The Company acquired SVTR in January 1997,
which added wafer prober remanufacturing and upgrading services. Net sales from
these acquired products and services together approximated $28 million, $7
million, and $4 million in 1997, 1996, and 1995, respectively.
In the third quarter of 1998, the Company discontinued operations of SVTR. As
a result, the Company plans disposition of the operation by sale or closure by
the end of 1998. SVTR has been accounted for as a discontinued operation and,
accordingly, its results of operation and financial position are segregated for
all periods presented.
In September 1998, the Company acquired France-based SemiConducteur Services
S.A. ("SCS") for $3.0 million in cash plus $250,000 in acquisition related
expenses. SCS designs and manufactures probe cards at its manufacturing plant
near Marsielle. Accordingly, the condensed consolidated balance sheet at
September 30, 1998 includes the assets purchased and the liabilities assumed of
SCS.
The Company believes that it is positioned to continue its long term growth
as a result of its strength in designing, producing, and delivering, on a timely
and cost-efficient basis, a broad range of custom or customized, high quality
test products and services for semiconductor manufacturers in the United States,
Europe, and Asia. Beginning in the second quarter of 1998, however, the
worldwide demand for ICs fell dramatically due to excess inventory of older IC
designs, and slower transition to new IC designs resulting generally from
softening worldwide demand for end user products, especially personal computers.
Current Asian economic instability exacerbated the semiconductor industry
downturn. The Company's financial performance was negatively impacted by these
industry conditions. Net sales fell from $23.0 million, restated for
discontinued operation of SVTR, Inc, for the first quarter of 1998 to $20.1
million for the third quarter of 1998, or a decline of 12.6%. For the same
periods net income from continuing operations was $2.7 million compared to $2.0
million, prior to acquisition related expenses.
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<PAGE> 13
The Company is cautious about sales and net income for the balance of 1998 due
to the continued uncertainty in the industry.
The Company maintains regional full service facilities in Arizona,
California, and Texas as well as sales offices in Colorado, Florida,
Massachusetts, and Oregon to service the U.S. market for its products and
services. The Company continues to expand into international markets, and
maintains full service facilities in Scotland and France to serve the European
market and full service facilities in Singapore and Taiwan to serve the
Southeast Asia market. Each of the Company's facilities is located in proximity
to semiconductor manufacturing centers.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1998 Compared to Three Months Ended September
30, 1997.
Net Sales. Net sales for the three months ended September 30, 1998 were $20.1
million, an increase of 14.2% over net sales of $17.6 million for the three
months ended September 30, 1997.
Gross Profit. Gross profit for the three months ended September 30, 1998 was
$8.6 million, an increase of 13.2% from the gross profit of $7.6 million for the
same period in 1997. Gross margin decreased to 42.8% for the three months ended
September 30, 1998, from 43.2% for the same period of 1997. The decrease in
gross margin was primarily a result of the Company's production infrastructure
capable of higher production run rates, resulting in over capacity and
under-absorption of overhead.
Selling, General and Administrative. Selling, general and administrative
expenses were $4.7 million, or 23.4% of net sales, for the three months ended
September 30, 1998 as compared to $4.0 million, or 22.7% of net sales, for the
same period of 1997, an increase of $0.7 million.
Engineering and Product Development. Engineering and product development
expenses were $955,978 for the three months ended September 30, 1998, an
increase of 281.2% over $250,803 for the same period of 1997. The Company has
added substantial resources to its product development team to address emerging
and next generation probing requirements for grid array, multi-chip testing,
very high frequency ICs, and those that have pad pitch architectures of less
than 60 microns.
Interest Income. Interest income was $328,161 for the three months ended
September 30, 1998 as compared to $9,697 for the same period in 1997. The
increase was due to the investment of the net proceeds of the Company's 1997
Common Stock offering.
Interest Expense. Interest expense was $59,546 for the three months ended
September 30, 1998 as compared to $164,913 for the same period in 1997, a
decrease of $105,367. A portion of the net proceeds from the Company's 1997
Common Stock offering was used to repay the Company's short-term debt.
Minority Interest Share of (Income) Loss. The minority interest share of
income from operations of $86,147 for the three months ended September 30, 1998
represents the Company's joint venture partners' share (40.0%) of the income
from Cerprobe Asia PTE LTD. For the three months ended
13
<PAGE> 14
September 30, 1997, the minority interest share of loss from operations of
$67,394 represents the Company's joint venture partner's share (40.0%, 30.0%
prior to August 18, 1997) of income from Cerprobe Asia PTE LTD and the Company's
joint venture partner's share (45.0%) of the loss from Upsys-Cerprobe, L.L.C.
Provision for Income Taxes. The provision for income taxes was $568,613,
which represents an effective tax rate of 41.3% for the three months ended
September 30, 1998, compared to the provision for income taxes for the three
months ended September 30, 1997 of $1.4 million, which represented an effective
tax rate of 41.2%.
Discontinued operations. For the three months ended September 30, 1998, the
Company has recorded approximately $4.6 million in loss from operations and loss
from disposal of its wafer prober refurbishing and upgrading subsidiary, SVTR,
Inc. The Company plans disposition of the operations by sale or closure by the
end of 1998.
Net Income. Net loss for the three months ended September 30, 1998 was $3.8
million, an increased loss of $6.8 million, or 227%, from net income of $3.0
million for the same period of 1997. Prior to acquisition costs and discontinued
operations, net income for the three months ended September 30, 1998 was $2
million as compared to $1.9 million for the same period of 1997.
Nine months Ended September 30, 1998 Compared to Nine months Ended September 30,
1997.
Net Sales. Net sales for the nine months ended September 30, 1998 were $61.2
million, an increase of 24.6% over net sales of $49.1 million for the nine
months ended September 30, 1997. The majority of this increase occurred in the
first quarter of 1998 as a result of higher order rates for Cerprobe's probe
card and interface products. However, in the second and third quarters of 1998,
slower sales have resulted from the softness in the worldwide demand for
semiconductors.
Gross Profit. Gross profit for the nine months ended September 30, 1998 was
$25.7 million, an increase of 19.0% from the gross profit of $21.6 million for
the same period in 1997. Gross margin decreased to 42.0% for the nine months
ended September 30, 1998, from 44.0% for the same period of 1997. The decrease
in gross margin primarily resulted from second and third quarter lower sales due
to the softness in the worldwide demand for semiconductors. The Company's
production infrastructure was capable of higher production run rates thereby
resulting in over capacity.
Selling, General and Administrative. Selling, general and administrative
expenses were $14.4 million, or 23.5% of net sales, for the nine months ended
September 30, 1998 as compared to $11.8 million, or 24.0% of net sales, for the
same period of 1997, an increase of $2.6 million. The increase in selling,
general and administrative expenses resulted primarily from domestic expansion
occurring in the later part of 1997 and first quarter of 1998.
Engineering and Product Development. Engineering and product development
expenses were $2.3 million for the nine months ended September 30, 1998, an
increase of 360.0% over $545,000 for the same period of 1997. The Company has
added substantial resources to its product development team to address
multi-chip testing, very high frequency ICs, and those that have pad pitch
architectures of less than 60 microns. Additionally, during the nine months
ended September 30,
14
<PAGE> 15
1997, expenses were offset by increased project funding receipts from
collaborations on engineering and product development with certain customers.
Interest Income. Interest income was $1.1 million for the nine months ended
September 30, 1998 as compared to $75,125 for the same period in 1997. The
increase was due to the investment of the net proceeds of the Company's 1997
secondary offering.
Interest Expense. Interest expense was $182,133 for the nine months ended
September 30, 1998 as compared to $344,110 for the same period in 1997, a
decrease of 47.1%. A portion of the net proceeds from the Company's 1997
secondary offering was used to repay the Company's short-term debt.
Minority Interest Share of (Income) Loss. The minority interest share of
income from operations of $111,540 for the nine months ended September 30, 1998
represents the Company's joint venture partners' share (40.0%) of the income
from Cerprobe Asia PTE LTD and the Company's joint venture partner's share
(45.0%) of the loss from Upsys-Cerprobe, L.L.C. For the nine months ended
September 30, 1997, the minority interest share of loss from operations of
$96,379 represents the Company's joint venture partner's share (40.0%, 30.0%
prior to August 18, 1997) of income from Cerprobe Asia PTE LTD and the Company's
joint venture partner's share (45.0%) of the loss from Upsys-Cerprobe, L.L.C.
Provision for Income Taxes. The provision for income taxes was $3.4 million,
which represents an effective tax rate of 42.0% for the nine months ended
September 30, 1998, compared to the provision for income taxes for the nine
months ended September 30, 1997 of $3.8 million, which represented an effective
tax rate of 40.4%.
Discontinued operations. For the nine months ended September 30, 1998, the
Company has recorded approximately $4.6 million in loss from operations and loss
from disposal of its wafer prober refurbishing and upgrading subsidiary, SVTR,
Inc. The Company plans disposition of the operations by sale or closure by the
end of 1998.
Net Income. Net loss for the nine months ended September 30, 1998 was $1.0
million, an increased loss of $.7 million, or 2.33%, from net loss of $343,212
for the same period of 1997. Prior to acquisition costs and discontinued
operations, net income for the nine months ended September 30, 1998 was $5.9
million as compared to $5.5 million for the same period of 1997.
LIQUIDITY AND CAPITAL RESOURCES
Cerprobe has financed its operations and capital requirements primarily
through cash flow from operations, equipment lease financing arrangements, and
sales of equity securities. At September 30, 1998, cash and short-term
investments were $21.4 million compared to $29.7 million at December 31, 1997.
Cerprobe generated approximately $6.3 million in cash flow from operating
activities for the nine months ended September 30, 1998. Net accounts receivable
increased by $2.8 million, or 34.1%, to $11.0 million at September 30, 1998.
Approximately $1.5 million was due to the acquisition of SCS. Net inventories
increased $546,795, or 11.0%, over December 31, 1997 to $5.5 million at
September 30, 1998. Approximately $131,000 was due to the acquisition of SCS.
15
<PAGE> 16
Accounts payable and accrued expenses increased $383,722, or 6.1%, to $6.7
million at September 30, 1998. The increase resulted from the acquisition of
SCS.
The current portions of notes payable and capital leases increased to $1.0
million at September 30, 1998, from $760,231 at December 31, 1997, primarily as
a result of financing capital equipment purchases.
Working capital decreased $7.8 million, or 18.4, to $34.7 million at
September 30, 1998 from December 31, 1997. The current ratio decreased from 7.0
at December 31, 1997 to 5.5 at September 30, 1998. This decrease was due to the
reduction of cash from the acquisition of SCS and the stock repurchase program.
Cerprobe increased its net investment in property, plant, and equipment
during the nine months ended September 30, 1998 by $4.6 million, or 31.9%, to
$19.0 million. This increase was attributable to the Company's first quarter
efforts to expand capacity to meet customer demand for its products and the
acquisition of SCS. These capital expenditures were funded from cash flow from
operations and capital bases.
On August 5, 1998, the Company announced a stock repurchase program whereby
up to 500,000 shares, or approximately 6%, of the Company's Common Stock may be
purchased from time to time in the open market. The Company intends to utilize a
portion of the reacquired shares for reissuance in connection with its Employee
Stock Purchase Plan as well as to reduce dilution from the Company's existing
stock option plans. As of September 30, 1998 the Company had purchased 412,992
shares at an approximate cost of $4.6 million.
On September 30, 1998, the Company acquired France-based SemiConducteur
Services S.A. for $3.0 million in cash and approximately $250,000 in acquisition
related expenses. SCS designs and manufactures probe cards at its manufacturing
plant near Marseilles.
On October 22, 1998, the Company financed an additional $505,575 of
manufacturing equipment with BancOne Leasing Corporation. The lease accrues
interest at 6.33% annually with monthly payments for 60 months of principal and
interest of $9,853.10.
Cerprobe believes that its working capital, together with its credit
facilities, and anticipated cash flow from operations, will provide adequate
sources to fund operations for at least the next 12 months. Cerprobe anticipates
that any additional cash requirements for operations or capital expenditures
will be financed by borrowing from Cerprobe's primary lender, by lease financing
arrangements, or by sales of equity securities. There can be no assurance that
any such financing will be available on acceptable terms and that any additional
equity financing, if available, would not result in additional dilution to
existing investors.
YEAR 2000 ISSUE
The Company is in the process of performing a comprehensive review of its
Year 2000 issues and has completed its review of internal systems (information
technology ("IT") and non-IT). The majority of the Company's application
software programs are currently being replaced with Oracle applications which
are Year 2000 compliant. The Oracle project budget, including software,
hardware, and implementation is expected to be approximately $3.0 million. The
Company estimates the status of progress on these internal systems as of
September 30, 1998 was as follows:
IT Systems 50%
Non-IT Systems 50%
16
<PAGE> 17
The Company presently believes that with modifications and updates to existing
software and the implementation of the Oracle applications, the Year 2000
problem will not pose significant operational problems for the Company's
internal systems. The Company also believes that remediation costs to become
Year 2000 compliant, excluding the costs associated with the replacement Oracle
applications, are not material.
The Company is also continuing to verify the Year 2000 readiness of third
parties (vendors and customers) with whom the Company has material
relationships. The Company is not able to determine the effect on the Company's
results of operations, liquidity, and financial condition in the event the
Company's material vendors and customers are not Year 2000 compliant. The
Company will continue to monitor the progress of its material vendors and
customers and formulate a contingency plan at that point in time when the
Company believes a material vendor or customer will not be compliant.
BUSINESS OUTLOOK
The Company's business depends substantially on both the volume of IC
production by semiconductor manufacturers as well as new IC designs, which in
turn depend on the demand of ICs and products utilizing ICs. The semiconductor
industry is highly cyclical and historically has experienced periods of
oversupply, resulting in reduced demand for IC testing products, including the
products manufactured by the Company. Based on lower production rates among many
of the Company's customers, the Company is very cautious about net sales for the
remainder of 1998. In response to those lower sales, the Company analyzed its
current cost structure and in early July undertook a restructuring to bring its
production and overhead costs in line with the anticipated industry demand for
its products in the second half of this year.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995
Statements in this section regarding the Company's prospects for growth and
adequacy of sources of capital are forward-looking statements. Words such as
"believes," "expects," "anticipates," "intends," "may," "estimates," "should,"
"will likely," and similar expressions are intended to identify such
forward-looking statements. Actual results, however, could differ materially
from those anticipated for a number of reasons, including product demand and
development, technological advances, impact of competitive products and pricing,
growth in targeted markets and other factors identified under "Special
Considerations" of the Company's 1997 Form 10-K which has been filed with the
Securities and Exchange Commission. Additional risk factors are identified from
time to time in the Company's 1998 financial press releases. The cautionary
statements made in this Report should be read as being applicable to all related
forward-looking statements wherever they appear in this Report.
17
<PAGE> 18
PART II - OTHER INFORMATION
Item 2 Changes in Securities
On October 8, 1998, each shareholder of record will receive one
Preferred Share Purchase Right on each outstanding share of Common
Stock owned. Each Right will entitle shareholders to buy one
one-thousandth of a share of newly created Series A Junior
Participating Preferred Stock of the Company at an exercise price of
$110. The Rights will be exercisable if a person or group hereafter
acquires 15% or more of the Common Stock of the Company or announces
a tender offer for 15% or more of the Common Stock. Should this
occur, the Right will entitle its holder to purchase, at the Right's
then current exercise price, a number of the acquiring company's
common shares having a market value at that time of twice the
Right's exercise price. Rights held by the 15% holder will become
void and will not be exercisable to purchase shares at the bargain
purchase price. If the Company is acquired in a merger or other
business combination transaction after a person acquired 15% or more
of the Company's Common Stock, each Right will entitle its holder to
purchase, at the Right's then current exercise price, a number of
the acquiring company's Common Shares having a market value at that
time of twice the Right's exercise price.
Item 6 Exhibits and Reports on Form 8-K
a. Exhibits
10(iii) Lease agreement between Cerprobe Corporation and BancOne
Leasing Corporation dated October 22, 1998.
(11) Computation of Net Income (Loss) Per Share.
(27.1) Financial Data Schedule - September 30, 1998
(27.2) Financial Data Schedule - September 30, 1997
b. Reports on Form 8-K
Form 8-K, filed on October 2, 1998, to report the approval of the
declaration of a dividend distribution of one Preferred Share
Purchase Right on each outstanding share of Cerprobe's Common
Stock.
18
<PAGE> 19
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigning
thereunto duly authorized.
CERPROBE CORPORATION
/s/ Randal L. Buness
--------------------------------------------
Randal L. Buness
Vice President - Chief Financial Officer
November 12, 1998
19
<PAGE> 20
Exhibit Index
10(iii) Lease agreement between Cerprobe Corporation and BancOne
Leasing Corporation dated October 22, 1998.
(11) Computation of Net Income (Loss) Per Share.
(27.1) Financial Data Schedule - September 30, 1998
(27.2) Financial Data Schedule - September 30, 1997
<PAGE> 1
LEASE SCHEDULE NO. 1000090043 FINANCING LEASE
(Contract Rate Interim Rent)
Master Lease Agreement dated 11/17/97
Lessor: Banc One Leasing Corporation
Lessee: COMPUROUTE, INC.
1. GENERAL. This Lease Schedule is signed and delivered under the Master Lease
Agreement identified above, as amended from time to time ("Master Lease"),
between Lessee and Lessor. Capitalized terms defined in the Master Lease will
have the same meanings when used in this Schedule.
2. FINANCING. Lessor finances for Lessee, and Lessee finances with Lessor, all
of the property ("Equipment") described in Schedule A-1 attached hereto (and
Lessee represents that all Equipment is new unless specifically identified as
used).
3. AMOUNT FINANCED. EQUIPMENT COST: $505,200.00
SET-UP/FILING FEE: 375.00
MISCELLANEOUS: N/A
SALES TAX: N/A
TOTAL: $505,575.00
4. FINANCING TERM. The Base Term of this Schedule shall be SIXTY (60) months and
the Base Term shall commence on __________________________________("Commencement
Date"). The total Lease Term consists of the Interim Term plus the Base Term.
The Interim Term begins on the date that Lessor accepts this Schedule as stated
below Lessor's signature ("Acceptance Date") and continues up to the
Commencement Date.
5. INSTALLMENT PAYMENTS/FEES. As financing for the Equipment, Lessee shall pay
to Lessor all amounts stated below on the due dates stated below. There shall be
added to each installment payment all applicable Taxes as in effect from time to
time.
(a) During the Lease Term, the above Amount Financed shall bear interest at the
rate of 6.3349% per annum ("Contract Rate").
(b) For the Interim Term, Lessee shall pay to Lessor on the Commencement Date an
amount equal to the Per Diem Payment multiplied by the number of days in the
Interim Term. "Per Diem Payment" means an amount equal to the product of the
Amount Financed of the Equipment and the Daily Rate. "Daily Rate" means the
Contract Rate divided by 360.
(c) During the Base Term, Lessee shall pay to Lessor installment payments in the
amounts and according to the timing set forth below, provided however, that
notwithstanding the following, the final installment payment due hereunder shall
be equal to the remaining principal balance hereunder together with all accrued
interest and fees.
(1) Amount of each installment payment during the Base Term (including
principal interest): $9,853.10
(2) Frequency of installment payments during Base Term: MONTHLY
(3) Timing of installment payments during the Base Term: IN ARREARS
<PAGE> 2
(d) Lessee shall pay Lessor a Set-Up/Filing Fee as follows:
(1) N/A shall be paid on the Acceptance Date, or
(2) $375.00 has been included in the above Amount Financed of the
Equipment.
(e) Security Deposit: $ N/A. On the Acceptance Date, Lessee shall pay Lessor
said Security Deposit which shall be held in accordance with paragraph 6 below.
6. SECURITY INTEREST. This Schedule is intended to be a secured debt financing
transaction, NOT a true lease. See Paragraph 7 below regarding Lessee's
ownership of the Equipment. As collateral security for payment and performance
of all Secured Obligations (defined in Paragraph 8 below) and to induce Lessor
to extend credit from time to time to Lessee (under the Lease or otherwise),
Lessee hereby grants to Lessor a first priority security interest in all of
Lessee's right, title and interest in the Equipment, whether now existing or
hereafter acquired, any sums specified in this Schedule as a Security Deposit,
and in all Proceeds (defined in Paragraph 8 below). At its option, Lessor may
apply all or any part of any Security Deposit to cure any default of Lessee
under the Lease. If upon final termination of this Schedule, Lessee has
fulfilled all of the terms and conditions hereof, then Lessor shall pay to
Lessee upon Lessee's written request any remaining balance of the Security
Deposit for this Schedule, without interest.
7. TITLE TO EQUIPMENT; FIRST PRIORITY LIEN. Lessee represents, warrants and
agrees: that Lessee currently is the lawful owner of the Equipment; that good
and marketable title to the Equipment shall remain with Lessee at all times;
that Lessee has granted to Lessor a first priority security interest in the
Equipment and all Proceeds; and that the Equipment and all Proceeds are, and at
all times shall be, free and clear of any Liens other than Lessor's security
interest therein. Lessee at its sole expense will protect and defend Lessor's
first priority security interest in the Equipment against all claims and demands
whatsoever.
8. CERTAIN DEFINITIONS. "Secured Obligations" means (a) all payments and other
obligations of Lessee under or in connection with this Schedule, and (b) all
payments and other obligations of Lessee (whether now existing or hereafter
incurred) under or in connection with the Master Lease and all present and
future Lease Schedules thereto, and (c) all other leases, indebtedness,
liabilities and/or obligations of any kind (whether now existing or hereafter
incurred, absolute or contingent, direct or indirect) of Lessee to Lessor or to
any affiliate of either Lessor or BANK ONE CORPORATION. "Proceeds" means all
cash and non-cash proceeds of the Equipment including, without limitation,
proceeds of insurance, indemnities and/or warranties.
9. AMENDMENTS TO MASTER LEASE. FOR PURPOSES OF THIS SCHEDULE ONLY, Lessee and
Lessor agree to amend the Master Lease as follows: (a) public liability or
property insurance as described in the second sentence of Section 8 will not be
required; (b) the definition of "Stipulated Loss Value" in clause (b) of Section
9 is deleted and replaced by Paragraph 10 below; (c) the text of Section 10 is
deleted in its entirety; (d) Subsections 23(a) and 23(c) are deleted; (e)
subsection 23(b) and the last sentence of section 4 will apply only if an event
of default occurs; (f) Lessor and Lessee hereby agree that any and all
references to "Bank One Corporation" in the Lease, wherever located, are amended
to refer to "BANK ONE CORPORATION", and (g) all references in the Lease as it
relates to this Schedule to "Lessee" and "Lessor" shall be changed to "Borrower"
and "Lender" respectively.
10. STIPULATED LOSS VALUE. FOR PURPOSES OF THIS SECTION ONLY, the "Stipulated
Loss Value" of any item of Equipment during its Lease Term equals the aggregate
of the following as of the date specified by Lessor: (a) all accrued and unpaid
interest, late charges and other amounts due under this Schedule and the Master
Lease to the extent it relates to this Schedule as of such specified date, plus
(b) the remaining principal balance due and payable by Lessee under this
Schedule as of such specified date, plus (c) interest on the amount described in
the foregoing clauses (a) and (b) at the Overdue Rate commencing with the
specified date; provided, that the foregoing calculation shall not exceed the
maximum amount
<PAGE> 3
which may be collected by Lessor from Lessee under applicable law in connection
with enforcement of Lessor's rights under this Schedule and the Master Lease to
the extent it relates to this Schedule.
11. LESSEE TO PAY ALL TAXES. FOR PURPOSES OF THIS SCHEDULE AND ITS EQUIPMENT
ONLY: Lessee shall pay any and all Taxes relating to this Schedule and its
Equipment directly to the applicable taxing authority; Lessee shall prepare and
file all reports or returns concerning any such Taxes as may be required by
applicable law or regulation (provided, that Lessor shall not be identified as
the owner of the Equipment in such reports or returns); and Lessee shall, upon
Lessor's request, send Lessor evidence of payment of such Taxes and copies of
any such reports or returns.
12. LESSEE'S ASSURANCES. Lessee irrevocably and unconditionally: (a) reaffirms
all of the terms and conditions of the Master Lease and agrees that the Master
Lease remains in full force and effect; (b) agrees that the Equipment is and
will be used at all times solely for commercial purposes, and not for personal,
family or household purposes; and (c) incorporates all of the terms and
conditions of the Master Lease as if fully set forth in this Schedule.
13. REPRESENTATIONS AND WARRANTIES: Lessee represents and warrants that;
(a) Lessee is a corporation, partnership or proprietorship duly organized,
validly existing and in good standing under the laws of the state of its
organization and is qualified to do business and is in good standing under the
laws of each other state in which the Equipment is or will be located; (b)
Lessee has full power, authority and legal right to sign, deliver and perform
the Master Lease, this Schedule and all related documents and such actions have
been duly authorized by all necessary corporate/partnership/proprietorship
action; and (c) the Master Lease, this Schedule and each related document has
been duly signed and delivered by Lessee and each such document constitutes a
legal, valid and binding obligation of Lessee enforceable in accordance with its
terms.
14. CONDITIONS. No lease of Equipment under this Schedule shall be binding on
Lessor, and Lessor shall have no obligation to purchase the Equipment covered
hereby, unless: (a) Lessor has received evidence of all required insurance; (b)
in Lessor's sole judgment, there has been no material adverse change in the
financial condition or business of Lessee or any guarantor; (c) Lessee has
signed and delivered to Lessor this Schedule, which must be satisfactory to
Lessor, and Lessor has signed and accepted this Schedule; (d) no change in the
Code or any regulation thereunder, which in Lessor's sole judgment would
adversely affect the economics to Lessor of the lease transaction, shall have
occurred or shall appear to be imminent, (e) Lessor has received, in form and
substance satisfactory to Lessor, such other documents and information as Lessor
shall reasonably request, and (f) Lessee has satisfied all other reasonable
conditions established by Lessor.
15. OTHER DOCUMENTS: EXPENSES: Lessee agrees to sign and deliver to Lessor
any additional documents deemed desirable by Lessor to effect the terms of the
Master Lease or this Schedule including, without limitation, Uniform Commercial
Code financing statements which Lessor is authorized to file with the
appropriate filing officers. Lessee hereby irrevocably appoints Lessor as
Lessee's attorney-in-fact with full power and authority in the place of Lessee
and in the name of Lessee to prepare, sign, amend, file or record any Uniform
Commercial Code financing statements or other documents deemed desirable by
Lessor to perfect, establish or give notice of Lessor's interests in the
Equipment or in any collateral as to which Lessee has granted Lessor a security
interest. Lessee shall pay upon Lessor's written request any actual
out-of-pocket costs and expenses paid or incurred by Lessor in connection with
the above terms of this section or the funding and closing of this Schedule.
<PAGE> 4
16. PURCHASE ORDERS AND ACCEPTANCE OF EQUIPMENT. Lessee agrees that (i) Lessor
has not selected, manufactured, sold or supplied any of the Equipment, (ii)
Lessee has selected all of the Equipment and its suppliers, and (iii) Lessee has
received a copy of, and approved, the purchase orders or purchase contracts for
the Equipment. AS BETWEEN LESSEE AND LESSOR, LESSEE AGREES THAT: (a) LESSEE HAS
RECEIVED, INSPECTED AND APPROVED ALL OF THE EQUIPMENT; (b) ALL EQUIPMENT IS IN
GOOD WORKING ORDER AND COMPLIES WITH ALL PURCHASE ORDERS OR CONTRACTS AND ALL
APPLICABLE SPECIFICATIONS; (c) LESSEE IRREVOCABLY ACCEPTS ALL EQUIPMENT FOR
PURPOSES OF THE LEASE "AS-IS, WHERE-IS" WITH ALL FAULTS; AND (d) LESSEE
UNCONDITIONALLY WAIVES ANY RIGHT THAT IT MAY HAVE TO REVOKE ITS ACCEPTANCE OF
THE EQUIPMENT.
LESSEE HAS READ AND UNDERSTOOD ALL OF THE TERMS OF THIS SCHEDULE. LESSEE AGREES
THAT THERE ARE NO ORAL OR UNWRITTEN AGREEMENTS WITH LESSOR REGARDING THE
EQUIPMENT OR THIS SCHEDULE.
<TABLE>
<CAPTION>
<S> <C>
BANC ONE LEASING CORPORATION COMPUROUTE, INC.
-----------------------------------
(Lessor) (Lessee)
By: By: /s/ Randal L. Buness
------------------------- -------------------------------
Title: Title: CFO
--------------------- ----------------------------
Acceptance Date: Witness:
----------- ---------------------------
</TABLE>
<PAGE> 5
CORPORATE LEASE ACKNOWLEDGEMENT
State of Arizona :
: SS
County of Maricopa :
The above mentioned foregoing instrument, was acknowledged before me this 10/22,
1990 by (Officers' Name) Randal L. Buness, (Officer's Title) VP & CFO, of
Cerprobe Corporation, a Delaware corporation, on behalf of the corporation.
/s/ Laura M. Back
----------------------------
[Notary Seal] Notary Public
OFFICIAL SEAL Commission Expires 7-14-01
LAURA M. BACK
NOTARY PUBLIC - STATE OF ARIZONA
MARICOPA COUNTY
MY COMM. EXPIRES JULY 14, 2001
<PAGE> 6
BANC ONE LEASING CORPORATION
SCHEDULE A-1 EQUIPMENT LEASED HEREUNDER
QUANTITY DESCRIPTION PAGE 1
===============================================================================
LOCATION: 10365 SANDEN ROAD
DALLAS, TX 75238
COUNTY: DALLAS
EQUIPMENT COST: $505,200.00
1 A01 System (Model #PC-1411) with Serial No. SR8129
1 Xpress Photoploter (Model #LP5008X) with Serial No. P12
1 CAM Engineering Software (Model #V1-ENG-SW)
TOGETHER WITH ALL ATTACHMENTS, ADDITIONS, ACCESSIONS, PARTS, REPAIRS,
IMPROVEMENTS, REPLACEMENTS AND SUBSTITUTIONS THERETO.
This Schedule A-1 is attached to and made a part of Lease Number 1000090043 and
constitutes a true and accurate description of the equipment.
Lessee:
COMPUROUTE, INC.
By: /s/ Randal L. Buness
---------------------------
Randal L. Buness
Date: 10/22/98
-------------------------
<PAGE> 7
PREPAYMENT SCHEDULE ADDENDUM
(For Prepayment of a Financing Lease Schedule)
Dated 10/22/98
--------------------------
Lease Schedule No. 1000090043 Dated 10/22/98
-------------------- ---------------------------------
Lessee: Compuroute, Inc.
Reference is made to the above Lease Schedule as previously amended
("Schedule") and to the Master Lease Agreement as previously amended ("Master
Lease") identified in the Schedule, which are by and between Banc One Leasing
Corporation ("Lessor") and the above lessee ("Lessee"). As used herein: "Lease"
shall mean the Schedule and the Master Lease, but only to the extent that the
Master Lease relates to the Schedule; and "Equipment" shall mean the equipment
covered by the Schedule. This Schedule Addendum amends and supplements the terms
and conditions of the Lease. Unless otherwise defined herein, capitalized terms
defined in the Lease shall have the same meaning when used herein. SOLELY FOR
PURPOSES OF THE SCHEDULE, LESSOR AND LESSEE AGREE AS FOLLOWS:
1. Notwithstanding anything to the contrary in the Lease, Lessee and Lessor
agree that so long as Lessee gives Lessor at least 20 days prior written notice
(the "Notice Period"), Lessee may elect to prepay the outstanding principal
balance of the Schedule, in whole or in part, on the rent payment date (a
"Prepayment Date") following the Notice Period by paying to Lessor (whether made
voluntarily or involuntarily as a result of an acceleration of the Maturity Date
or otherwise), the total of the following: (a) all accrued rent or installment
payments, interest, Taxes, late charges and other amounts then due and payable
under the Schedule and the Master Lease to the extent it relates to the
Schedule; plus (b) the principal amount selected by Lessee for prepayment in the
notice of prepayment (hereinafter, the "Prepaid Principal"); plus (c) a
prepayment premium, if any, equal to the product of (i) a Average Lost Monthly
Interest Income and (ii) the number of months from the Prepayment Date to the
Maturity Date (with any fraction of a month counted as a month), discounted to
present value at the Discount Rate. At the option of Lessor, in its absolute and
sole discretion, any prepayment shall be applied to installments coming due
hereunder in the inverse order of their due dates.
2. Solely for purposes of this Addendum, the following definitions in this
paragraph 2 shall apply to this Addendum. "Maturity Date" means the scheduled
expiration of the Lease Term of the Schedule as set forth in the Schedule.
"Average Lost Monthly Interest Income" means the amount determined by dividing
(i) the product of the Average Principal and the Lost Rate, by (ii) twelve (12).
"Average Principal" is the amount equal to either (i) one-half of the sum of (A)
the amount of Prepaid Principal and (B) the amount of principal that is
scheduled to be due on the Maturity Date ("Balloon Amount"), or (ii) the amount
of
Page 1
<PAGE> 8
Prepaid Principal, if such amount is less than the Balloon Amount. "Lost Rate"
is the rate per annum equal to the percentage, if any, by which (i) the yield
to maturity of United States Treasury debt obligations having a maturity date
nearest to the Maturity Date ("Treasury Obligations") determined on the date
hereof exceeds (ii) the yield to maturity of Treasury Obligations determined on
the date of prepayment. "Discount Rate" is the rate per annum equal to the
yield to maturity of Treasury Obligations determined on the date of prepayment.
The maturity date and yield to maturity of the Treasury Obligations shall be
determined by Lessor, in its absolute and sole discretion, on the basis of
quotations published in The Wall Street Journal, or other comparable sources.
Treasury Obligations shall exclude any stripped U.S. Treasury obligations and
any U.S. Treasury obligations which have multiple maturity or call dates, and
if more than one issue of U.S. Treasury obligations has the applicable maturity
month, then the U.S. Treasury obligation with the highest yield to maturity
shall be used.
3. Except as expressly amended or supplemented by this Addendum and other
instruments signed by Lessor, the Lease remains unchanged and in full force and
effect.
IN WITNESS WHEREOF, the parties hereto have executed this Addendum as of
the date referenced above.
COMPUROUTE, INC. Banc One Leasing Corporation
(Lessee) (Lessor)
By:/s/ Randal L Buness By:
------------------------------- --------------------------------------
Title: CFO Title:
---------------------------- -----------------------------------
Page 2
<PAGE> 9
AGREEMENT CONCERNING YEAR 2000 COMPLIANCE
Dated As Of 10/22/98
THIS AGREEMENT CONCERNING YEAR 2000 COMPLIANCE (the "Year 2000 Agreement")
is made and entered by and among the Obligors identified below (hereinafter,
jointly and severally referred to as "Obligor" whether or not there is one or
more parties) and Banc One Leasing Corporation ("Banc One").
Obligors: COMPUROUTE, INC.
WHEREAS, Banc One has extended credit to Obligor and/or has committed to
extend credit to Obligor (one or more such extensions of credit, now existing or
hereafter arising, jointly and severally the "Credit Facility" whether or not
there are one or more facilities) pursuant to the terms and conditions of
certain commercial loan documentation, commercial lease documentation, and/or
guarantees by and between or among Banc One and Obligor (and, possibly others)
(the "Credit Documents"); and
WHEREAS, Obligor utilizes information technology, software and other data
support in the conduct of its business operations, and;
WHEREAS, the successful continuation of Obligor's business operations
depends on Obligor's information technology, software and data support used in
its operations becoming and being maintained as Year 2000 Compliant as such term
is defined herein; and
WHEREAS, Banc One has requested that Obligor enter into this Year 2000
Agreement as additional consideration for Banc One's current or future
extensions of credit to Obligor and/or other financial transactions with Obligor
under the Credit Facility.
NOW THEREFORE, by mutual agreement of the parties and in mutual
consideration of the premises and for other good and valuable consideration, the
receipt of which is hereby acknowledged, the parties hereby agree as follows:
Section 1. Representations and Warranties. Obligor represents and warrants as
follows to Banc One: (a) as of the date of this Year 2000 Agreement; (b) as of
the date of any request for advance under the Credit Facility, (c) as of the
date of any renewal, extension or modification of the Credit Facility, and (d)
at all times the Credit Facility or Banc One's commitment to make advances
under the Credit Facility is outstanding:
1.1 Year 2000 Compliance. All devices, systems, machinery, information
technology, computer software and hardware, and other date sensitive technology
(jointly and severally the "Systems") necessary for Obligor to carry on its
business as presently conducted and as contemplated to be conducted in the
future are Year 2000 Compliant or will be Year 2000 Compliant within a period
of time calculated to result in no material disruption of any of Obligor's
business operations. For purposes of this Year 2000 Agreement, "Year 2000
Compliant" means that such Systems are designed to be used prior to, during and
after the Gregorian calendar year 2000 A.D. and will operate during each such
time period without error relating to date data, specifically including any
error relating to, or the product of, date data which represents or references
different centuries or more than one century.
1.2 Compliance Process. Obligor has:
1.2.1 undertaken a detailed inventory, review, and assessment of all
areas within its business and operations that could be adversely
affected by the failure of Obligor to be Year 2000 Compliant on a
timely basis; and
<PAGE> 10
1.2.2 developed a detailed plan and timeline for becoming Year 2000
Compliant on a timely basis, and
1.2.3 to date, implemented that plan in accordance with that timetable
in all material respects.
1.3 Compliance by Third Parties. Obligor has made written inquiry of each of its
key suppliers, vendors, and customers, and has obtained in writing confirmations
from all such persons, as to whether such persons have initiated programs to
become Year 2000 Compliant and on the basis of such confirmations, Obligor
reasonably believes that all such persons will be or become so compliant. For
purposes hereof, "key suppliers, vendors, and customers" refers to those
suppliers, vendors, and customers of Obligor whose business failure would, with
reasonable probability, result in a material adverse change in the business,
properties, condition (financial or otherwise), or prospects of Obligor. For
purposes of this paragraph, Banc One, as a party to the Credit Facility,
confirms to Obligor that Banc One has initiated its own corporate-wide Year 2000
program with respect to its extension of credit activities.
1.4 Value of Collateral. The fair market value of all real and
personal property, if any, pledged to Banc One as collateral to secure the
Credit Facility and/or the fair market value of all real or personal property
leased from Banc One pursuant to the Credit Facility is not and shall not be
less than currently anticipated or subject to substantial deterioration in
value because of the failure of such collateral or leased property to be Year
2000 Compliant.
Section 2. Affirmative Covenants. Obligor covenants and agrees with Banc One
that, while any Credit Facility is in effect, Obligor will:
2.1 Additional Information. Furnish such additional information, statements
and other reports with respect to Obligor's compliance (and its approach to and
progress towards achieving compliance) with this Year 2000 Agreement as Banc
One may request from time to time.
2.2 Notice of Changes. In the event of any change in circumstances that
causes or will likely cause any of Obligor's representations and warranties set
forth in Section 1 of this Year 2000 Agreement ("Year 2000 Compliance") to no
longer be true (hereinafter, referred to as a "Change in Circumstances"), then
Obligor shall promptly, and in any event within ten (10) days of receipt of
information regarding a Change in Circumstances, provide Banc One with written
notice (the "Notice") that describes in reasonable detail the Change in
Circumstances and how such Change in Circumstances caused or will likely cause
Obligor's representations and warranties set forth in Section 1 hereof to no
longer by true. Obligor shall, with ten (10) days of a request, also provide
Banc One with any additional information Banc One requests of Obligor in
connection with the Notice and/or a Change in Circumstances.
2.3 SEC and Other Reports. Promptly upon its becoming available, furnish to
Banc One a copy of each financial statement, report, notice, or proxy statement
sent by Obligor to stockholders generally and of each regular or periodic
report, registration statement or prospectus filed by Obligor with any
securities exchange or the Securities and Exchange Commission or any successor
agency, and of any order issued by any Governmental Authority in any proceeding
to which Obligor is a party. For purposes of this Year 2000 Agreement,
"Governmental Authority" shall mean any government (or any political
subdivision or jurisdiction thereof), court, bureau, agency or other
governmental entity having or asserting jurisdiction over Obligor or any of its
business, operations or properties.
2.4 Audits. Give any representative of Banc One access during all business
hours to,
<PAGE> 11
and permit such representative to examine, copy or make excerpts from, any
and all books, records and documents in the possession of Obligor and
relating to its affairs, and to inspect any of the properties and Systems of
Obligor, and to project test the Systems to determine if they are Year 2000
Compliant in an integrated environment, all at the sole cost and expense of
Banc One.
Section 3. Default. Notwithstanding anything to the contrary which may be set
forth in the Credit Documents, failure to comply with any term or condition set
forth in this Year 2000 Agreement, and breach of any representation and
warranty set forth in this Year 2000 Agreement, which failure or breach shall
not have been cured to Banc One's satisfaction within thirty (30) days of the
date written notice is given by Banc One to Obligor of such failure or
breach, shall thereupon be deemed as an event of default under the Credit
Documents, and shall permit Banc One to immediately (without any entitlement by
Obligor to further cure such default) exercise any of Banc One's rights or
remedies set forth in the Credit Documents or available under applicable law.
COMPUROUTE, INC. BANC ONE LEASING CORPORATION
- ------------------------------------- ----------------------------
(Obligor)
By: /s/ Randal L. Buness By:
- ------------------------------------- -------------------------
Title: CFO Title:
- ------------------------------------- ----------------------
<PAGE> 1
CERPROBE CORPORATION
COMPUTATION OF NET INCOME (LOSS) PER SHARE
EXHIBIT 11
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------------- ---------------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) $ (3,785,202) $ 2,962,096 $ (972,994) $ (343,212)
=============== =============== =============== ===============
Weighted average number of
common shares outstanding 7,768,874 6,246,825 8,058,011 6,219,800
Common equivalent shares representing shares
issuable upon exercise of stock options 157,694 390,840 286,833 390,840
Subtraction of common equivalent shares due to
antidilutive nature (157,694) - (286,833) (390,840)
------------- ------------- ------------- -------------
Dilutive adjusted weighted average shares
and assumed conversions 7,768,874 6,637,665 8,058,011 6,219,800
============= ============= ============= =============
Basic net income (loss) per share $ (0.49) $ 0.47 $ (0.12) $ (0.06)
=============== =============== =============== ===============
Diluted net income (loss) per share $ (0.49) $ 0.45 $ (0.12) $ (0.06)
=============== =============== =============== ===============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 1998 AND THE CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 21,449,467
<SECURITIES> 0
<RECEIVABLES> 11,247,660
<ALLOWANCES> 234,559
<INVENTORY> 5,516,599
<CURRENT-ASSETS> 42,368,359
<PP&E> 28,694,352
<DEPRECIATION> 9,656,333
<TOTAL-ASSETS> 65,069,769
<CURRENT-LIABILITIES> 7,685,143
<BONDS> 3,038,057
0
0
<COMMON> 406,464
<OTHER-SE> 53,317,277
<TOTAL-LIABILITY-AND-EQUITY> 65,069,769
<SALES> 61,199,104
<TOTAL-REVENUES> 61,199,104
<CGS> 35,473,693
<TOTAL-COSTS> 18,619,970
<OTHER-EXPENSES> 182,133
<LOSS-PROVISION> 19,920
<INTEREST-EXPENSE> 182,133
<INCOME-PRETAX> 8,245,380
<INCOME-TAX> (3,376,637)
<INCOME-CONTINUING> 4,757,203
<DISCONTINUED> (5,730,197)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (972,994)
<EPS-PRIMARY> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 1997 AND THE CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 24,425,037
<SECURITIES> 0
<RECEIVABLES> 9,343,980
<ALLOWANCES> 235,278
<INVENTORY> 4,376,321
<CURRENT-ASSETS> 43,283,128
<PP&E> 20,150,500
<DEPRECIATION> 6,182,536
<TOTAL-ASSETS> 61,813,482
<CURRENT-LIABILITIES> 9,854,433
<BONDS> 1,154,125
0
0
<COMMON> 388,255
<OTHER-SE> 49,925,677
<TOTAL-LIABILITY-AND-EQUITY> 61,813,482
<SALES> 49,134,074
<TOTAL-REVENUES> 49,134,074
<CGS> 27,494,242
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 12,332,310
<LOSS-PROVISION> 344,110
<INTEREST-EXPENSE> 18,000
<INCOME-PRETAX> 344,110
<INCOME-TAX> 9,263,415
<INCOME-CONTINUING> 3,816,184
<DISCONTINUED> 5,543,610
<EXTRAORDINARY> 5,886,822
<CHANGES> 0
<NET-INCOME> (343,212)
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.06
</TABLE>
