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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 June, 30 1999
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 jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
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 August 10, 1999, there were 8,328,245 shares of the registrant's
Common Stock outstanding.
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CERPROBE CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1999
TABLE OF CONTENTS
<TABLE>
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Page
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<S> <C> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets -
June 30, 1999 and December 31, 1998.............................................................3
Condensed Consolidated Statements of Operations -
Three and Six Months Ended June 30, 1999 and 1998...............................................4
Condensed Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1999 and 1998.........................................................5
Notes to Condensed Consolidated Financial Statements............................................6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.............................................................9
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK......................................9
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS..............................................................................15
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS..............................................15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K...............................................................16
SIGNATURE ...............................................................................................17
</TABLE>
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CERPROBE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
ASSETS 1999 1998
---- ----
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash $ 5,630,086 $ 4,753,696
Short-term investment securities 11,152,823 14,305,400
Accounts receivable, net of allowance of $341,963
in 1999 and $333,364 in 1998 8,769,281 8,951,680
Inventories, net 5,711,314 5,303,631
Accrued interest receivable 76,015 102,093
Prepaid expenses 1,288,624 869,382
Income taxes receivable 3,659,728 714,811
Deferred tax asset 500,303 446,092
Net assets of discontinued operations -- 1,481,903
------------ ------------
Total current assets 36,788,174 36,928,688
Property, plant, and equipment, net 23,129,906 22,698,509
Intangible assets, net 3,058,115 3,050,460
Other assets 1,021,060 1,007,917
------------ ------------
Total assets $ 63,997,255 $ 63,685,574
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,804,089 $ 2,534,997
Accrued expenses 2,605,355 3,075,894
Current portion of notes payable 1,064,531 138,985
Current portion of capital lease obligations 643,226 660,192
Net liabilities of discontinued operations 326,933 --
------------ ------------
Total current liabilities 6,444,134 6,410,068
Notes payable, less current portion 2,399,546 731,555
Capital lease obligations, less current portion 1,945,732 2,472,563
Other liabilities 2,231 7,073
------------ ------------
Total liabilities 10,791,643 9,621,259
------------ ------------
Minority interest 759,504 590,465
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.05 par value; authorized 10,000,000
shares; issued and outstanding none -- --
Common stock, $.05 par value; authorized 25,000,000
shares; issued 8,211,579 and outstanding 7,746,329 shares at
June 30, 1999 and issued 8,131,279 and outstanding 7,645,126
shares at December 31, 1998 410,579 406,564
Additional paid-in capital 55,725,657 55,271,200
Retained earnings 1,991,802 3,505,734
Accumulated other comprehensive income:
Foreign currency translation (407,867) (188,131)
------------ ------------
57,720,171 58,995,367
Treasury stock, at cost, 465,250 shares at June 30, 1999
and 486,153 shares at December 31, 1998 (5,274,063) (5,521,517)
------------ ------------
Total stockholders' equity 52,446,108 53,473,850
------------ ------------
Total liabilities and stockholders' equity $ 63,997,255 $ 63,685,574
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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CERPROBE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $14,102,742 $18,139,191 $29,708,636 $41,092,008
Costs of goods sold 9,856,512 10,885,684 19,902,058 23,959,734
----------- ---------- ----------- -----------
Gross profit 4,246,230 7,253,507 9,806,578 17,132,274
----------- ---------- ----------- -----------
Expenses:
Selling, general, and administrative 5,538,249 4,899,531 9,965,680 9,655,541
Engineering and product development 1,263,679 667,488 2,061,943 1,345,693
----------- ---------- ----------- -----------
Total expenses 6,801,928 5,567,019 12,027,623 11,001,234
----------- ---------- ----------- -----------
Operating income (loss) (2,555,698) 1,686,488 (2,221,045) 6,131,040
----------- ---------- ----------- -----------
Other income (expense):
Interest income 201,430 451,514 430,840 735,716
Interest expense (113,496) (61,655) (203,982) (122,588)
Other, net 38,554 43,073 (1,077) 38,816
----------- ---------- ----------- -----------
Total other income 126,488 432,932 225,781 651,944
----------- ---------- ----------- -----------
Income (loss) from continuing operations before
minority interest and income taxes (2,429,210) 2,119,420 (1,995,264) 6,782,984
Minority interest (122,213) (43,123) (188,516) (25,393)
----------- ---------- ----------- -----------
Income (loss) from continuing operations before
income taxes (2,551,423) 2,076,297 (2,183,780) 6,757,591
Income tax (expense) benefit 892,459 (874,791) 675,170 (2,808,024)
----------- ---------- ----------- -----------
Income (loss) from continuing operations (1,658,964) 1,201,506 (1,508,610) 3,949,567
Discontinued operations:
Loss from operations of SVTR, Inc., net of
taxes -- (734,728) (5,322) (1,137,359)
----------- ---------- ----------- -----------
Net income (loss) $(1,658,964) $ 466,778 $(1,513,932) $ 2,812,208
=========== ========== =========== ===========
Net income (loss) per common share:
Basic:
From continuing operations $ (0.22) $ 0.15 $ (0.20) 0.49
From discontinued operations 0.00 (0.09) (0.00) (0.14)
----------- ---------- ----------- -----------
Net income (loss) per common share $ (0.22) $ 0.06 $ (0.20) $ 0.35
=========== ========== =========== ===========
Weighted average number of common
shares outstanding 7,686,180 8,109,950 7,670,742 8,105,700
=========== ========== =========== ===========
Diluted:
From continuing operations $ (0.22) $ 0.15 $ (0.20) 0.47
From discontinued operations 0.00 (0.09) (0.00) (0.14)
----------- ---------- ----------- -----------
Net income (loss) per common share $ (0.22) $ 0.06 $ (0.20) $ 0.33
=========== ========== =========== ===========
Weighted average number of common and
common equivalent shares outstanding 7,686,180 8,386,794 7,670,742 8,432,402
=========== ========== =========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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CERPROBE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) from continuing operations $(1,508,610) $ 3,949,567
Adjustments to reconcile net income (loss) from continuing operations
to net cash provided by (used in) continuing operations:
Depreciation and amortization 2,797,204 2,175,837
Loss on sale of equipment 347,977 123,602
Tax benefit from exercise of nonqualified stock options -- 71,000
Deferred income taxes (183,590) (111,426)
Provision for losses on accounts receivable 8,600 12,000
Provision for obsolete inventory 180,000 80,000
Income applicable to minority interest 188,516 25,393
Changes in working capital of continuing operations:
Accounts receivable 173,799 (1,565,335)
Inventories (587,683) (1,091,714)
Prepaid expenses and other assets (387,472) 118,484
Income taxes receivable (1,135,812) (331,794)
Accounts payable and accrued expenses (1,201,447) (1,749,421)
Accrued income taxes -- (108,648)
Other liabilities (4,842) (4,982)
----------- -----------
Net cash provided by (used in) continuing operations (1,313,360) 1,592,563
----------- -----------
Net cash used in discontinued operations (5,591) (1,103,438)
----------- -----------
Net cash provided by (used in) operating activities (1,318,951) 489,125
----------- -----------
Cash flows from investing activities:
Purchase of property, plant, and equipment (3,584,233) (5,512,413)
Redemption of investment securities 3,152,577 5,506,718
Distribution from subsidiaries 110,544 78,322
Purchase of Upsys-Cerprobe, L.L.C -- (376,366)
----------- -----------
Net cash used in investing activities (321,112) (303,739)
----------- -----------
Cash flows from financing activities:
Issuance of notes payable and capital lease obligations 2,049,740 1,165,451
Expenses from issuance of common stock -- (176,436)
Purchase of treasury stock -- (284,638)
Net proceeds from employee stock purchase plan 177,676 203,703
Net proceeds from exercise of stock options 528,250 184,863
----------- -----------
Net cash provided by financing activities 2,755,666 1,092,943
----------- -----------
Effect of exchange rates on cash (239,213) (171,819)
----------- -----------
Net increase in cash 876,390 1,106,510
Cash, beginning of period 4,753,696 2,715,490
----------- -----------
Cash, end of period $ 5,630,086 $ 3,822,000
=========== ===========
Supplemental disclosures of cash flow information from continuing operations:
Interest paid $ 203,982 $ 122,588
=========== ===========
Income taxes paid $ 99,000 $ 1,886,729
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
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CERPROBE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF PREPARATION
The accompanying condensed consolidated financial statements as of June
30, 1999 and for the three and six months ended June 30, 1999 and 1998
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, 1998 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
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, 1998.
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 Europe S.A.S., Cerprobe Asia Holdings Pte Ltd, Cerprobe
Interconnect Solutions, Inc. ("CIS"), and SVTR, Inc. ("SVTR"). All
significant intercompany transactions have been eliminated in
consolidation.
Cerprobe Asia Holdings Pte Ltd is a 60% 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.
In the third quarter of 1998, the Company discontinued operations of
SVTR, a company that refurbished, reconfigured, and serviced wafer
probing equipment. See Note 4.
In September 1998, the Company acquired France based Cerprobe Europe
S.A.S. The Company designs, manufactures, and distributes probe cards at
its manufacturing plant near Marseilles.
Presently, the Company is in the process of establishing a full service
facility in Yokohama, Japan.
(2) COMMITMENTS AND CONTINGENCIES
In October 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, in January 1997. The suit seeks
rescission of the acquisition and/or monetary damages arising from
failure of the defendants to disclose material facts regarding the
origins of certain software necessary for SVTR, Inc.'s business. In
February 1999, the defendants filed a counter claim
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against the Company alleging conversion, interference with contractual
relations, unfair business practices, breach of contract, and specific
performance allegedly arising from the Company's actions to preclude the
defendants from selling the Company stock received by defendants as part
of the purchase price of Silicon Valley Test & Repair, Inc.; the Company
seeks to recover this stock through its claims for rescission. In March
1999, the Company and SVTR filed an amended complaint. The defendants
filed a motion to dismiss the amended complaint, which was denied. At
present the parties are engaging in discovery. It is not anticipated that
the suit will have a material adverse impact on the Company's financial
condition or results of operations.
In April 1999, the Company received a Notice Letter from the United
States Environmental Protection Agency ("EPA") indicating that the EPA
considered the Company to be potentially responsible for costs associated
with the remediation of the Indian Bend Wash Superfund Site ("Superfund
Site") in Tempe, Arizona. The EPA claimed that such liability arose out
of the Company's operations at its former facility located at 600 S.
Rockford Drive, Tempe, Arizona. The Company had been named with four
other potentially responsible parties. The EPA alleges that it had
incurred $11 million in costs to date for investigation and remediation
at the Superfund Site and, pursuant to a Record of Decision issued by the
EPA in September 1998, required that additional remediation be undertaken
by the potentially responsible parties. The Company did not believe that
it in any way caused or contributed to the contamination at the Superfund
Site and therefore did not believe there was any basis upon which to hold
the Company liable for costs associated with the Superfund Site. In May
1999, the Company met with the EPA to explain its position and has been
verbally informed by the EPA that the EPA has decided not to pursue
Cerprobe for clean-up costs at this time. The Company has requested
written confirmation of this decision from the EPA. There is no guarantee
the EPA will not change its position.
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
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 comprehensive income
(loss) for the six months ended June 30, 1999 and 1998 as follows:
<TABLE>
<CAPTION>
Six Months Ended June 30,
1999 1998
---- ----
<S> <C> <C>
Net income (loss) $(1,513,932) $ 2,812,208
Other comprehensive loss, net of tax:
Foreign currency translation
adjustment (366,225) (286,365)
Tax benefit from foreign currency
translation 146,489 114,546
----------- -----------
Net other comprehensive loss (219,736) (171,819)
----------- -----------
Comprehensive income (loss) $(1,733,668) $ 2,640,389
=========== ===========
</TABLE>
7
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(4) 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.
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 consolidated financial statements.
Net sales, related losses, and income taxes associated with the
discontinued operations are as follows:
<TABLE>
<CAPTION>
Six Months Ended June 30,
1999 1998
---- ----
<S> <C> <C>
Net sales $ -- $ 2,329,797
----------- -----------
Loss from operations $ (8,869) $(2,079,751)
Income tax benefit 3,547 942,392
----------- -----------
Loss from operations, net $ (5,322) $(1,137,359)
=========== ===========
</TABLE>
The effective tax rate used in calculating the income tax benefit from
discontinued operations is approximately the same as the Company's
effective tax rate for continuing operations.
The net assets (liabilities) of SVTR, as reclassified in the accompanying
consolidated balance sheets, include the following:
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
------------- -----------------
<S> <C> <C>
Current assets $ 1,194,090 $ 3,445,737
Other assets 63,011 46,865
Current liabilities (1,572,669) (1,990,852)
Long-term debt (11,365) (19,847)
----------- -----------
$ (326,933) $ 1,481,903
=========== ===========
</TABLE>
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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, 1998.
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 address critical functions to assure
integrated circuit ("IC") quality, reduce manufacturing costs, improve the
accuracy of manufacturing yield data, and identify repairable memory ICs.
The semiconductor industry is characterized as cyclical, with capacity boom
cycles followed by bust cycles that create significant pricing pressures. For
the past several years, the IC market has been a high volume, high growth
commodity market characterized by rapid technological change. Cerprobe has
benefited from this and has grown substantially over the last five years as the
Company has increased its market share. Net sales have increased from $14.3
million for 1994 to $76.2 million for 1998, representing an average annualized
growth rate of approximately 52%. Similarly, the Company's net income has
increased from $1.2 million for 1994 to $6.2 million for 1998 (before a one-time
charge for purchased research and development of $1.6 million, resulting in a
tax benefit of $627,000 and the loss from discontinued operations of SVTR of
$5.7 million, net of taxes, which together reduced net income by $6.7 million).
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 Cerprobe Interconnect Solutions ("CIS") in
December 1996, which enabled the Company to offer ATE test boards. In May 1997,
the Company established an international joint development agreement with
Mitsubishi Materials Corporation to develop next generation probe card
technology based upon the Company's proprietary P4(TM) technology. In September
1998, the Company acquired France based Cerprobe Europe S.A.S. which expanded
the Company's presence in the European market. In November 1998, the Company
acquired an exclusive license to design, manufacture, and distribute the
Vertical integrated Probe (ViProbe(R)) products worldwide, except Europe.
The Company believes that it is positioned to continue its 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 North America, Europe,
and Asia. Presently the probe card industry is in a downturn driven by excess
capacity, pricing pressures, and the better probe card utilization by customers,
therefore, there can be no assurance that the Company can continue the growth
exhibited the past five years. 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, including Europe and Asia. The Company maintains full service
facilities in France and Scotland and a sales office in Germany to serve the
European market. The Company also maintains full service facilities in Taiwan
and Singapore to serve the Southeast Asian market. Additionally, the Company is
in the process of establishing a full service facility in Japan. Each of the
Company's facilities is located in proximity to semiconductor manufacturing
centers.
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RESULTS OF OPERATIONS
Three Months Ended June 30, 1999 Compared to Three Months Ended June 30, 1998.
Net Sales. Net sales for the three months ended June 30, 1999 were $14.1
million, a decrease of 22.3% over net sales of $18.1 million for the three
months ended June 30, 1998. The decrease was primarily a result of significantly
lower demand for the Company's products from two of the Company's largest
customers due to product transition and production delays by those customers.
Additionally the Company has experienced substantial pricing pressures for its
products as a result of over capacity in the worldwide probe card industry.
Gross Profit. The gross profit for the three months ended June 30, 1999 was
$4.2 million, a decrease of 41.5% from the gross profit of $7.3 million for the
three months ended June 30, 1998. Gross margin decreased from 40.0% in the three
months ended June 30, 1998 to 30.1% in 1999. The decrease in gross margin is a
result of the Company's production infrastructure capable of higher production
run rates, resulting in over capacity and under-absorption of overhead and
efforts to increase or at least maintain market share resulting in aggressive
pricing, particularly to the Company's largest customers.
Selling, General, and Administrative. Selling, general, and administrative
expenses were $5.5 million, or 39.3% of net sales, for the three months ended
June 30, 1999, compared to $4.9 million, or 27.0% of net sales, for the three
months ended June 30, 1998. This represents an increase of $638,718, or 13.0%,
primarily as a result of increases in depreciation related to the Company's
Enterprise Resource Planning ("ERP") system and start-up costs associated with
the new full service facility in Japan.
Engineering and Product Development. Engineering and product development
expenses were $1.3 million or 9.0% of net sales, for the three months ended June
30, 1999, an increase of 89.3% over $667,488, or 3.7% of net sales, for the
three months ended June 30, 1998. 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 IC's, and
those that have pad pitch architecture of less than 60 microns.
Interest Income. Interest income was $201,430 for the three months ended
June 30, 1999, compared to $451,514 for the three months ended June 30, 1998.
This decrease is attributable to the investment of a lower average cash balance.
Minority Interest. The minority interest share of income of $122,213 for
the three months ended June 30, 1999 and $43,123 for the three months ended June
30, 1998 represented the Company's joint venture partners' share of income from
the Company's Asian operations (40%) and the Upsys Joint Venture, which has
terminated.
Income Taxes. Income taxes decreased to a benefit of $892,459, which
represented an effective tax benefit rate of 35% for the three months ended June
30, 1999, as compared to $874,791, which represented an effective tax rate of
42.1% for the three months ended June 30, 1998.
Discontinued Operations. The Company recorded $734,728 in losses from
discontinued operations from the disposal of its wafer prober refurbishing and
upgrading subsidiary, SVTR, Inc. for the three
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months ended June 30, 1998. The Company disposed of the operations of SVTR
through the sale of equipment, inventory, and technology in March 1999.
Net Income. Net loss for the three months ended June 30, 1999 was $1.7
million or (11.8)% of sales, compared to the income of $466,778 or 2.6% of sales
for the three months ended June 30, 1998. This decrease is primarily a result of
significantly lower demand for the Company's products from two of the Company's
largest customers due to product transition and production delays by those
customers. Additionally the Company has experienced substantial pricing
pressures for its products as a result of over capacity in the worldwide probe
card industry. The Company's production infrastructure was capable of higher
production run rates, resulting in over capacity and under-absorption of
overhead.
Six months Ended June 30, 1999, Compared to Six months Ended June 30, 1998.
Net Sales. Net sales for the six months ended June 30, 1999 were $29.7
million, a decrease of 27.7% over net sales of $41.1 million for the six months
ended June 30, 1998. The decrease was primarily a result of significantly lower
demand for the Company's products from two of the Company's largest customers
due to product transition and production delays by those customers. Additionally
the Company has experienced substantial pricing pressures for its products as a
result of over capacity in the worldwide probe card industry.
Gross Profit. Gross profit for the six months ended June 30, 1999 was $9.8
million, a decrease of 42.8% from the gross profit of $17.1 million for the same
period in 1998. Gross margin decreased to 33.0% of sales for the six months
ended June 30, 1999, from 41.7% for the same period of 1998. The decrease in
gross margin primarily resulted from the Company's production infrastructure
capable of higher production run rates thereby resulting in over capacity and
under-absorption of overhead and efforts to increase or at least maintain market
share resulting in aggressive pricing, particularly to the Company's largest
customers.
Selling, General, and Administrative. Selling, general, and administrative
expenses were $10.0 million, or 33.5% of net sales, for the six months ended
June 30, 1999, as compared to $9.7 million, or 23.5% of net sales, for the same
period of 1998, an increase of $310,139. The increase in selling, general, and
administrative expenses resulted primarily from depreciation related to the
Company's Enterprise Resource Planning ("ERP") system and start-up costs
associated with the new full service facility in Japan.
Engineering and Product Development. Engineering and product development
expenses were $2.1 million for the six months ended June 30, 1999, an increase
of 53.2% over $1.3 million for the same period of 1998. The Company has added
substantial resources to its product development team to address emerging and
next generation probing requirements for gird 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 $430,840 for the six months ended June
30, 1999, as compared to $735,716 for the same period in 1998. The decrease is
attributable to the investment of a lower average cash balance.
Minority Interest. The minority interest share of income of $188,516 for
the six months ended June 30, 1999 and $25,393 for the six months ended June 30,
1998, represented the Company's joint venture partners' share of the income from
the Company's Asian operations (40.0%) and the Upsys Joint Venture which has
been terminated.
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Income Taxes. Income tax benefit was $675,170, which represented an
effective tax benefit rate of 30.9% for the six months ended June 30, 1999, as
compared to income taxes for the six months ended June 30, 1998 of $2.8 million,
which represented an effective tax rate of 41.6%.
Discontinued operations. The Company recorded $5,322 and $1,137,359 in
losses from discontinued operations from the disposal of its wafer prober
refurbishing and upgrading subsidiary, SVTR, Inc. for the six months ended June
30, 1999 and 1998, respectively. The Company disposed of the operations of SVTR,
Inc. through the sale of equipment, inventory, and technology in March 1999.
Net Income. Net loss for the six months ended June 30, 1999, was $1.5
million, as compared to net income of $2.8 million for the same period of 1998.
This decrease is primarily a result of significantly lower demand for the
Company's products from two of the Company's largest customers due to product
transition and production delays by those customers. Additionally the Company
has experienced substantial pricing pressures for its products as a result of
over capacity in the worldwide probe card industry. The Company's production
infrastructure was capable of higher production run rates, resulting in over
capacity and under-absorption of overhead.
LIQUIDITY AND CAPITAL RESOURCES
Cerprobe has financed its operations and capital requirements primarily
through cash flows from operations, equipment lease financing arrangements, and
sales of equity securities. At June 30, 1999, cash and short-term investment
securities were $16.8 million compared to $19.1 million at December 31, 1998.
Cerprobe used $1.3 million in cash flows for operating activities for the
six months ended June 30, 1999. Accounts receivable decreased by $182,399, net
of allowance, or 2.0%, to $8.8 million at June 30, 1999. Inventories increased
$407,683, net of reserve, or 7.7%, over December 31, 1998, to $5.7 million at
June 30, 1999. Accounts payable and accrued expenses decreased $1.2 million, or
21.4%, to $4.4 million at June 30, 1999. Income taxes receivable increased $2.9
million, or 412%, at June 30, 1999 over December 31, 1998. Approximately $1.7
million of the increase was due to the current recognition of previously
recorded deferred losses associated with the sale of equipment and inventory
from discontinued operations of SVTR. The remaining amount was a result of
losses from current operations.
Working capital decreased $174,580, or 0.6%, to $30.3 million at June 30,
1999. The current ratio decreased from 5.8 at December 31, 1998, to 5.7, at June
30, 1999. This decrease was due primarily to the increase in current portion
long-term obligations from financing the Company's recently implemented Oracle
based ERP system and the use of cash for operating activities.
Cerprobe increased its investment in property, plant, and equipment during
the six months ended June 30, 1999 by $431,397, or 1.9%, to $23.1 million. This
increase was attributable to the build out of the additional facility located
near the Company's worldwide headquarters and additional costs associated with
the Company's recently implemented Oracle based ERP system. These capital
expenditures were funded primarily from capital leases, cash flows from
operations, and net proceeds from the sale of equity securities.
Cerprobe believes that its working capital and anticipated cash flows 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 through cash flows
12
<PAGE> 13
from operations, 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 COSTS
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). Most of the Company's application software
programs have been replaced with Oracle applications which are Year 2000
compliant. The Oracle project budget, including software, hardware, and
implementation was approximately $3.5 million. The Company estimates the status
of progress on these internal systems as of June 30, 1999 was as follows:
<TABLE>
<CAPTION>
<S> <C>
IT Systems 100%
Non-IT Systems 80%
</TABLE>
The Company presently believes that with modifications and updates to
existing software and the recent 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 its 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 the point in time when the Company believes a
material vendor or customer will not be compliant.
INFLATION AND CHANGING PRICES
Cerprobe is impacted by inflationary trends and business trends within the
semiconductor industry and by the general condition of the worldwide
semiconductor markets. Market price pressures are exerted on semiconductor
manufacturers by the global marketplace and global competition. Such pressures
mandate that semiconductor manufacturers closely scrutinize the prices they pay
for goods and services purchased from Cerprobe and other suppliers. Accordingly,
the price structure for Cerprobe's products must be competitive.
Changes in Cerprobe's supplier prices did not have a significant impact on
cost of sales during the second quarter of 1999 or for the same period in 1998.
As a result of Cerprobe's operation of the manufacturing, repair, and sales
facilities in Europe and Asia, Cerprobe's foreign transactions may be
denominated in currencies other than the U.S. dollar. Such transactions may
expose Cerprobe to exchange rate fluctuations for the period of time from
inception of the transaction until it is settled. The Company monitors its
foreign currency exposure and from time to time enters hedging transactions to
manage this exposure. There can be no assurance that fluctuations in the
currency exchange rate in the future will not have an adverse impact on
Cerprobe's foreign operations.
13
<PAGE> 14
In addition, Cerprobe may purchase a substantial portion of its raw
materials and equipment from foreign suppliers and will incur labor costs in a
foreign currency. The foreign manufacture and sale of products and the purchase
of raw material and equipment from foreign suppliers may be adversely affected
by political and economic conditions abroad. Protective trade legislation in
either the United States or foreign countries, such as a change in the current
tariff structures, export compliance laws, or other trade policies, could
adversely affect Cerprobe's ability to manufacture or sell its products in
foreign markets and purchase materials or equipment from foreign suppliers. In
countries in which Cerprobe conducts business in local currency, currency
exchange rate fluctuations could adversely affect Cerprobe's net sales or costs.
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. The Company continues to analyze its
current cost structure to bring its production and overhead costs in line with
the anticipated industry demand for its products for the rest of this year.
However, the Company's need to invest in engineering and product development,
marketing, and customer service and support capabilities will limit its ability
to reduce expenses in response to such downturns or slow downs.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
Statements in this section regarding the Company's prospects for growth,
adequacy of sources of capital, and business out-look 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, ability to maintain customer diversity
and relationships, technological advances, impact of competitive products and
pricing, growth in targeted markets and other factors identified under "Special
Considerations" of the Company's 1998 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 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has been no change since the Form 10K for the year ended December 31,
1998, see Part II Item 7A, Quantitative and Qualitative Disclosures About Market
Risk, in the Company's Annual Report on Form 10K for the year ended December 31,
1998.
15
<PAGE> 15
PART II - OTHER INFORMATION
Item 1 Legal Proceedings
In October 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, in
January 1997. The suit seeks rescission of the acquisition
and/or monetary damages arising from failure of the defendants
to disclose material facts regarding the origins of certain
software necessary for SVTR, Inc.'s business. In February
1999, the defendants filed a counter claim against the Company
alleging conversion, interference with contractual relations,
unfair business practices, breach of contract, and specific
performance allegedly arising from the Company's actions to
preclude the defendants from selling the Company stock
received by defendants as part of the purchase price of
Silicon Valley Test & Repair, Inc.; the Company seeks to
recover this stock through its claims for rescission. In March
1999, the Company and SVTR filed an amended complaint. The
defendants filed a motion to dismiss the amended complaint,
which was denied. At present the parties are engaging in
discovery. It is not anticipated that the suit will have a
material adverse impact on the Company's financial condition
or results of operations.
In April 1999, the Company received a Notice Letter from the
United States Environmental Protection Agency ("EPA")
indicating that the EPA considered the Company to be
potentially responsible for costs associated with the
remediation of the Indian Bend Wash Superfund Site ("Superfund
Site") in Tempe, Arizona. The EPA claimed that such liability
arose out of the Company's operations at its former facility
located at 600 S. Rockford Drive, Tempe, Arizona. The Company
had been named with four other potentially responsible
parties. The EPA alleges that it had incurred $11 million in
costs to date for investigation and remediation at the
Superfund Site and, pursuant to a Record of Decision issued by
the EPA in September 1998, required that additional
remediation be undertaken by the potentially responsible
parties. The Company did not believe that it in any way caused
or contributed to the contamination at the Superfund Site and
therefore did not believe there was any basis upon which to
hold the Company liable for costs associated with the
Superfund Site. The Company met with the EPA in May 1999, to
explain its position and has been verbally informed by the EPA
that the EPA has decided not to pursue Cerprobe for clean-up
costs at this time. The Company has requested written
confirmation of this decision from the EPA. There is no
guarantee the EPA will not change its position.
Item 4 Submission of Matters to Vote of Security Holders
a. An annual meeting of stockholders of the Company was held
on May 25, 1999.
b. The name of each director elected at the meeting is as
follows: Ross J. Mangano, C. Zane Close, Kenneth W. Miller,
Donald F. Walter, and William A. Fresh.
c. The matters voted upon and the results of the voting were
as follows:
15
<PAGE> 16
1. The following five persons were elected as Directors at the
annual meeting pursuant to the following vote:
<TABLE>
<CAPTION>
Votes For Votes Withheld
<S> <C> <C>
Ross J. Mangano 6,305,446 134,532
C. Zane Close 6,304,076 135,902
Kenneth W. Miller 6,309,616 130,362
Donald F. Walter 6,151,776 288,202
William A. Fresh 6,309,066 130,912
</TABLE>
2. An amendment to the Company's 1997 Employee Stock Purchase
Plan to reduce the employment eligibility requirement from
one year to 90 days.
<TABLE>
<CAPTION>
<S> <C>
Votes For 6,085,937
Votes Against 321,200
Votes Abstaining 32,841
</TABLE>
Item 6 Exhibits and Reports on Form 8-K
a. Exhibits
<TABLE>
<CAPTION>
<S> <C>
11 Computation of Net Income Per Share.
27.1 Financial Data Schedule - June 30, 1999
27.2 Financial Data Schedule - June 30, 1998
</TABLE>
b. Reports on Form 8-K
No reports on Form 8-K were filed by the Company during
the quarter ended June 30, 1999.
16
<PAGE> 17
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
Senior Vice President - Chief
Financial Officer
August 13, 1999
17
<PAGE> 18
EXHIBIT INDEX
-------------
Exhibit
No. Description
- ------- -----------
11 Computation of Net Income Per Share.
27.1 Financial Data Schedule - June 30, 1999
27.2 Financial Data Schedule - June 30, 1998
<PAGE> 1
CERPROBE CORPORATION
COMPUTATION OF NET INCOME (LOSS) PER SHARE
Exhibit 11
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) $(1,658,964) $ 466,778 $(1,513,932) $ 2,812,208
=========== =========== =========== ===========
Weighted average number of
common shares outstanding 7,686,180 8,109,950 7,670,742 8,105,700
Common equivalent shares representing shares
issuable upon exercise of stock options 86,061 276,844 217,712 326,702
Convertible preferred stock -- -- -- --
Subtraction of common equivalent shares due to
antidilutive nature (86,061) -- (217,712) --
----------- ----------- ----------- -----------
Dilutive adjusted weighted average shares
and assumed conversions 7,686,180 8,386,794 7,670,742 8,432,402
=========== =========== =========== ===========
Basic net income (loss) per share $ (0.22) $ 0.06 $ (0.20) $ 0.35
=========== =========== =========== ===========
Diluted net income (loss) per share $ (0.22) $ 0.06 $ (0.20) $ 0.33
=========== =========== =========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AT JUNE 30, 1999 AND THE CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 5,630,086
<SECURITIES> 11,152,823
<RECEIVABLES> 9,111,244
<ALLOWANCES> 341,963
<INVENTORY> 5,711,314
<CURRENT-ASSETS> 36,788,174
<PP&E> 35,994,251
<DEPRECIATION> 12,864,345
<TOTAL-ASSETS> 63,997,255
<CURRENT-LIABILITIES> 6,444,134
<BONDS> 4,345,278
0
0
<COMMON> 410,579
<OTHER-SE> 52,035,529
<TOTAL-LIABILITY-AND-EQUITY> 63,997,255
<SALES> 29,708,636
<TOTAL-REVENUES> 29,708,636
<CGS> 19,902,058
<TOTAL-COSTS> 12,027,623
<OTHER-EXPENSES> 205,059
<LOSS-PROVISION> 8,600
<INTEREST-EXPENSE> 203,982
<INCOME-PRETAX> (1,995,264)
<INCOME-TAX> 675,170
<INCOME-CONTINUING> (1,508,610)
<DISCONTINUED> (5,322)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,513,932)
<EPS-BASIC> (0.20)
<EPS-DILUTED> (0.20)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AT JUNE 30, 1998 AND THE CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 3,822,000
<SECURITIES> 21,493,980
<RECEIVABLES> 10,011,717
<ALLOWANCES> 228,204
<INVENTORY> 5,981,518
<CURRENT-ASSETS> 49,431,654
<PP&E> 26,593,275
<DEPRECIATION> 8,739,273
<TOTAL-ASSETS> 70,427,736
<CURRENT-LIABILITIES> 6,223,934
<BONDS> 1,453,015
0
0
<COMMON> 406,464
<OTHER-SE> 61,576,454
<TOTAL-LIABILITY-AND-EQUITY> 70,427,736
<SALES> 41,092,008
<TOTAL-REVENUES> 41,092,008
<CGS> 23,959,734
<TOTAL-COSTS> 11,001,234
<OTHER-EXPENSES> 83,772
<LOSS-PROVISION> 12,000
<INTEREST-EXPENSE> 122,588
<INCOME-PRETAX> 6,782,984
<INCOME-TAX> (2,808,024)
<INCOME-CONTINUING> 3,949,567
<DISCONTINUED> (1,137,359)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,812,208
<EPS-BASIC> 0.35
<EPS-DILUTED> 0.33
</TABLE>
