<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 March, 31 2000
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)
(480) 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 May 5, 2000, there were 9,426,353 shares of the registrant's Common
Stock outstanding.
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CERPROBE CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets -
March 31, 2000 and December 31, 1999 ........................... 3
Condensed Consolidated Statements of Operations -
Three Months Ended March 31, 2000 and 1999 ..................... 4
Condensed Consolidated Statements of Cash Flows -
Three Months Ended March 31, 2000 and 1999 ..................... 5
Notes to Condensed Consolidated Financial Statements ........... 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ............................ 11
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ..... 15
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS .............................................. 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ............................... 16
SIGNATURE .............................................................. 17
</TABLE>
2
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CERPROBE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
ASSETS 2000 1999
------------ ------------
(unaudited)
<S> <C> <C>
Current assets:
Cash $ 3,878,332 $ 3,484,045
Accounts receivable, net of allowance of $411,642
in 2000 and $397,763 in 1999 16,478,219 12,313,053
Inventories, net 10,189,229 9,728,500
Accrued interest receivable 34,915 22,157
Prepaid expenses 1,088,662 1,107,378
Income taxes receivable 4,941,493 4,041,140
Deferred tax asset 786,339 2,123,609
------------ ------------
Total current assets 37,397,189 32,819,882
Property, plant, and equipment, net 23,301,596 23,537,021
Intangible assets, net 25,358,709 26,334,157
Other assets 615,052 676,485
------------ ------------
Total assets $ 86,672,546 $ 83,367,545
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,489,408 $ 3,687,143
Accrued expenses 5,169,717 5,584,724
Current portion of notes payable 12,555,792 10,334,878
Current portion of capital lease obligations 939,429 954,957
Net liabilities of discontinued operations 511,887 446,629
------------ ------------
Total current liabilities 23,666,233 21,008,331
Notes payable, less current portion 5,090,293 5,200,034
Capital lease obligations, less current portion 2,431,545 2,454,637
Deferred tax and other liabilities 440,785 472,158
------------ ------------
Total liabilities 31,628,856 29,135,160
------------ ------------
Minority interest 1,302,748 1,115,545
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 9,867,245 and outstanding 9,422,853 shares at
March 31, 2000 and issued 9,863,245 and outstanding
9,419,052 shares at December 31, 1999 493,362 493,162
Additional paid-in capital 67,866,504 67,830,701
Retained deficit (8,559,116) (9,074,938)
Accumulated other comprehensive loss:
Foreign currency translation (248,255) (236,534)
------------ ------------
59,552,495 59,012,391
Treasury stock, at cost, 444,393 shares at March 31, 2000
and 444,193 shares at December 31, 1999 (5,029,529) (5,027,278)
Notes receivable from related parties (782,024) (868,273)
------------ ------------
Total stockholders' equity 53,740,942 53,116,840
------------ ------------
Total liabilities and stockholders' equity $ 86,672,546 $ 83,367,545
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
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CERPROBE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Net sales $ 26,777,418 $ 15,605,894
Costs of goods sold 15,883,166 10,045,546
------------ ------------
Gross profit 10,894,252 5,560,348
------------ ------------
Expenses:
Selling, general, and administrative 7,077,101 4,300,210
Engineering and product development 1,055,097 798,264
Goodwill amortization 947,633 127,221
------------ ------------
Total expenses 9,079,831 5,225,695
------------ ------------
Operating income 1,814,421 334,653
------------ ------------
Other income (expense):
Interest income 91,883 229,410
Interest expense (546,219) (90,486)
Other, net 166,248 (39,631)
------------ ------------
Total other income (expense) (288,088) 99,293
------------ ------------
Income from continuing operations before
minority interest and income taxes 1,526,333 433,946
Minority interest (206,581) (66,302)
------------ ------------
Income from continuing operations before income taxes 1,319,752 367,644
Income tax (803,930) (217,289)
------------ ------------
Income from continuing operations 515,822 150,355
Discontinued operations:
Loss from operations of SVTR, Inc., net of taxes -- (5,322)
------------ ------------
Net income $ 515,822 $ 145,033
============ ============
Net income per common share:
Basic:
Net income per common share $ 0.05 $ 0.02
============ ============
Weighted average number of common
shares outstanding 9,419,755 7,655,304
============ ============
Diluted:
Net income per common share $ 0.05 $ 0.02
============ ============
Weighted average number of common and
common equivalent shares outstanding 9,733,103 8,049,086
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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CERPROBE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------
2000 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Income from continuing operations $ 515,822 $ 150,355
Adjustments to reconcile net income from continuing operations
to net cash provided by (used in) continuing operations:
Depreciation and amortization 2,537,798 1,355,681
Gain on sale of equipment (1,106) --
Deferred income taxes 1,305,897 (250,178)
Provision for losses on accounts receivable 16,340 4,000
Provision for obsolete inventory 55,500 180,000
Income applicable to minority interest 206,581 66,302
Changes in working capital of continuing operations
Accounts receivable (4,181,506) (148,374)
Inventories (516,229) (73,133)
Prepaid expenses and other assets 47,602 (340,741)
Income taxes receivable (783,220) (430,060)
Accounts payable and accrued expenses 387,258 104,151
Other liabilities -- (2,527)
----------- -----------
Net cash provided by (used in) continuing operations (409,263) 615,476
----------- -----------
Net cash provided by (used in) discontinued operations (51,875) 568,603
----------- -----------
Net cash provided by (used in) operating activities (461,138) 1,184,079
----------- -----------
Cash flows from investing activities:
Purchase of property, plant, and equipment (1,326,925) (2,798,676)
Redemption of investment securities -- 1,273,247
Investment in CRPB Investors, L.L.C 19,789 8,584
Proceeds from sale of equipment 1,106 --
Payment of notes receivable 86,249 --
----------- -----------
Net cash used in investing activities (1,219,781) (1,516,845)
----------- -----------
Cash flows from financing activities:
Issuance of notes payable 3,226,945 3,000,000
Payments on notes payable (1,154,392) (429,502)
Net proceeds from exercise of stock options 33,752 144,725
----------- -----------
Net cash provided by financing activities 2,106,305 2,715,223
----------- -----------
Effect of exchange rates on cash (31,099) (284,428)
----------- -----------
Net increase in cash 394,287 2,098,029
Cash, beginning of period 3,484,045 4,753,696
----------- -----------
Cash, end of period $ 3,878,332 $ 6,851,725
=========== ===========
Supplemental disclosures of cash flow information from continuing operations:
Interest paid $ 546,219 $ 90,486
=========== ===========
Income taxes paid $ 421,050 $ 99,000
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
CERPROBE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF PREPARATION
The accompanying condensed consolidated financial statements as of March
31, 2000 and for the three months ended March 31, 2000 and 1999 are
unaudited, but reflect all adjustments (consisting only of normal
recurring adjustments) that 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, 1999 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, 1999.
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"), SVTR, Inc. ("SVTR"), Cerprobe Japan
Co., Ltd, and OZ Technologies, Inc. ("OZ"). 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 March 1999, the Company formed Cerprobe Japan Co., Ltd. to operate a
sales and distribution facility in Yokohama, Japan.
In December 1999, the Company acquired California-based OZ Technologies,
Inc. Accordingly, the consolidated financial statements as of December
31, 1999 and for the year ended December 31, 1999 include OZ's activities
since the date of acquisition. See Note 5.
In March 2000, the Company merged OZ and CIS into Cerprobe Corporation.
As a result, OZ and CIS are not considered separate legal entities.
6
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RECLASSIFICATIONS
Certain amounts in the 1999 financial statements have been reclassified
to conform with the 2000 presentation.
(2) COMMITMENTS AND CONTINGENCIES
In October 1998, the Company filed an action against the former
President, Director, and shareholder of Silicon Valley Test & Repair,
Inc., which was acquired by the Company by way of merger into its
wholly-owned subsidiary, SVTR, Inc., 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 and the balance of the purchase price through its
claims for rescission. In March 1999, the Company and SVTR filed an
amended complaint. The defendants have responded and the action is
proceeding to trial. While the Company intends to vigorously prosecute
this action, it is impossible to predict the outcome of this or any other
litigation. It is not anticipated that the 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 (LOSS)
Comprehensive income (loss) encompasses net income and "other
comprehensive loss", which includes all other non-owner transactions and
events which change stockholders' equity. The Company recognized
comprehensive income (loss) for the three months ended March 31, 2000 and
1999 as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31,
---------------------------
2000 1999
---------- -----------
<S> <C> <C>
Net income $ 515,822 $ 145,033
Other comprehensive loss, net of tax benefit:
Foreign currency translation
adjustment (19,535) (345,300)
Tax benefit from foreign currency
translation 7,814 138,120
---------- ------------
Net other comprehensive loss (11,721) (207,180)
---------- -----------
Comprehensive income (loss) $ 504,101 $ (62,147)
========== ===========
</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>
Three Months Ended
March 31, 1999
--------------
<S> <C>
Net sales $ -
--------------
Loss from operations $ (8,869)
Income tax benefit 3,547
--------------
Loss from operations, net $ (5,322)
==============
</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 liabilities of SVTR, as reclassified in the accompanying
consolidated balance sheets, include the following:
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
-------------- -----------------
<S> <C> <C>
Current assets $ 381,396 $ 554,585
Other assets 41,855 63,011
Current liabilities (221,919) (289,358)
Long-term debt (2,095) (5,286)
Other long-term liabilities (711,124) (769,581)
-------------- -----------------
$ (511,887) $ (446,629)
============== =================
</TABLE>
(5) ACQUISITIONS
In December 1999, the Company acquired all of the outstanding stock of OZ
a manufacturer of systems solutions for IC package testing and a leading
designer and producer of high performance test sockets and contactors,
for $36 million. OZ also designs and distributes ATE test boards and
burn-in interfaces and systems. The purchase price consisted of $19
million in cash, notes payable of $5.6 million, and 1.5 million shares of
the Company's Common Stock. The acquisition has been accounted for as a
purchase and, accordingly, the purchase price has been allocated to the
assets acquired and the liabilities assumed based upon the estimated fair
values at the date of acquisition. As a result of the acquisition, $8.8
million of in-process research and development was charged to operations.
Goodwill of $21.2 million is being amortized on a straight-line basis
over seven years and $1.0 million of assembled workforce is being
amortized over four years. The purchase price of $36 million plus
acquisition costs of $1.9 million was allocated as follows:
8
<PAGE> 9
<TABLE>
<S> <C>
Purchase price:
Cash $ 19,000,000
Note payable 5,630,000
Common Stock and additional paid in
capital 11,338,000
Costs of acquisition 1,900,000
=============
$ 37,868,000
=============
Assets acquired and liabilities assumed:
Current assets $ 8,945,021
Property, plant, and equipment 1,822,749
Other assets 87,209
In-process research and development 8,815,000
Goodwill and assembled workforce 22,192,955
Current liabilities (3,994,934)
-------------
$ 37,868,000
=============
</TABLE>
At acquisition, the state of the research and development products was
not yet at a technological or commercially viable state. The Company did
not believe that the research and development products had any future
alternative use because if these products were not finished and brought
to ultimate product completion, they would have no other value.
Therefore, consistent with generally accepted accounting principles, the
Company recorded a charge for the full value of the in-process research
and development.
The condensed consolidated balance sheets as of March 31, 2000 and
December 31, 1999 include the accounts of OZ and results of operations
since the date of acquisition. The following summary, prepared on a pro
forma basis, excluding the charge for in-process research and
development, present the results of operations as if the acquisition had
occurred on January 1, 1999.
<TABLE>
<CAPTION>
Three months ended
March 31, 1999
------------------
(unaudited)
<S> <C>
Net sales $22,035,000
Net loss (97,000)
Basic net loss per share (0.01)
Diluted net loss per share (0.01)
</TABLE>
The pro forma results are not necessarily indicative of what the actual
consolidated results of operations might have been if the acquisition had
been effective at the beginning of 1999 or as a projection of future
results.
(6) RELATED PARTY TRANSACTIONS
In August 1999, the Company and certain of its Directors and Officers
entered into Secured Promissory Notes and Stock Pledge Agreements, which
totaled $841,465. The purpose of the loans was to exercise stock options
scheduled to expire. Interest on the notes is at 6% per annum with note
maturities in August 2002. The notes are fully recourse to the borrowers
and are also collateralized by Cerprobe Corporation Common Stock
beneficially owned by the borrowers. As of March 31, 2000, the balance on
the notes was $782,024.
9
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(7) SEGMENT INFORMATION
The Company operates principally in one industry segment: the design,
development, manufacture, and marketing of semiconductor integrated
circuit test products and services. The Company's principal customers are
North American, European, and Asian semiconductor manufacturing
companies.
One of the Company's customers exceeded 10% of net sales. This customer
accounted for 19.0% and 19.2% of net sales for the three months ended
March 31, 2000 and 1999, respectively. The accounts receivable from the
customer were $3,238,532 and $893,638 at March 31, 2000 and 1999,
respectively.
International sales represented 26.4% and 20.6% of the Company's net
sales for the three months ended March 31, 2000 and 1999, respectively.
The following is a summary of the Company's geographic operations for the
three months ended March 31:
<TABLE>
<CAPTION>
NORTH AMERICA EUROPE & ASIA ELIMINATIONS CONSOLIDATED
------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
2000
Customer sales $ 19,706,514 $ 7,070,904 $ - $ 26,777,418
Intercompany sales 439,023 1,247,910 (1,686,933) -
------------- ------------- -------------- -------------
Total sales $ 20,145,537 $ 8,318,814 $ (1,686,933) $ 26,777,418
============= ============= ============== =============
Long-lived assets $ 58,610,510 $ 3,318,690 $ (12,653,844) $ 49,275,356
============= ============= ============== =============
1999
Customer sales $ 12,394,182 $ 3,211,710 $ - $ 15,605,892
Intercompany sales 93,927 592,272 (686,199) -
------------- ------------- -------------- -------------
Total sales $ 12,488,109 $ 3,803,982 $ (686,199) $ 15,605,892
============= ============= ============== =============
Long-lived assets $ 30,014,449 $ 3,797,314 $ (5,433,452) $ 28,378,311
============= ============= ============== =============
</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, 1999.
OVERVIEW
The Company offers comprehensive solutions principally in one segment of the
semiconductor industry-semiconductor test interconnect. The Company is a leading
manufacturer of probe cards, ATE interface assemblies, ATE test boards, and test
sockets/contactors. The Company believes it is the only company that designs,
manufactures, and assembles each of the electromechanical components that assure
the integrity of the electrical test signal that passes from the ATE to the IC
DUT. The Company's products address critical functions to assure 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 tremendous pricing pressures. Despite
these cycles, the IC market has generally been a high volume, high growth
commodity market characterized by rapid technological change. The Company 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 $26.1
million for 1995 to $62.7 million for 1999, representing a five year average
annualized growth rate of approximately 35%.
The Company has grown its business and expanded its product lines through
internal product development, strategic acquisitions, joint
development/ventures, and licensing of technologies. In 1990, the foundation for
the growth of the Company's core probe card business was the development of the
Company's CerCard(TM) technology. In April 1995, the Company acquired Fresh Test
Technology Corporation ("Fresh Test"), which enabled the Company to expand its
product line to include ATE interface assemblies. In December 1996, the Company
acquired Cerprobe Interconnect Solutions, Inc. ("CIS"), formerly CompuRoute,
Inc., which enabled the Company to offer ATE test boards, the Company's first
packaged IC testing product. In May 1997, the Company established a joint
development agreement with Japan-based Mitsubishi Materials Corporation. This
joint development has resulted in the company's first probe card based upon the
Company's proprietary P4(TM) (Photolithographic Pattern Plated Probe)
technology. In September 1998, the Company acquired France-based Cerprobe Europe
S.A.S., formerly SemiConducteur Services, S.A., a probe card company, which
enabled the Company to further expand in and service the European market.
Additionally, in November 1998, the Company signed an agreement with Feinmetall
GmbH, a German contact technology company, which provided the Company with an
exclusive license to design, manufacture, and distribute Vertical integrated
Probe (ViProbe(R)) products worldwide, except Europe. Finally, in December 1999,
the Company acquired OZ Technologies, Inc. ("OZ"), which enabled the Company to
offer test sockets, test contactors, and test boards used for testing packaged
ICs.
From 1996 through 1998, the semiconductor industry was in the worst
recession in its history. The IC test interconnect segment of the semiconductor
industry generally lags the industry cycle by six months or more. Because of
this lag and market share gains by the Company, its business was not
significantly impacted by the recession in the semiconductor industry until the
second quarter of 1998. During 1998, certain customers of the Company began
processing a portion of their ICs in a manner that required vertical probing
products that were not manufactured by the Company. This exacerbated the already
difficult business conditions the Company was experiencing and the Company
reported a loss from continuing
11
<PAGE> 12
operations before income taxes in the second quarter of 1999, which was the
first such quarterly loss by the Company (excluding acquisition related costs)
in 29 consecutive quarters. In the third and fourth quarter of 1999, the Company
began to experience some positive signs of a gradual recovery. In the first
quarter of 2000, sales increased significantly over the fourth quarter of 1999.
Due to implementation of several important operational initiatives and
significantly increased demand from its customers, the Company also returned to
profitability in the first quarter 2000.
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 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, as well as sales and distribution offices in Japan and Malaysia,
to serve the Asian market. Each of the Company's facilities is located in
proximity to semiconductor manufacturing centers.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999.
Net Sales. Net sales for the three months ended March 31, 2000 were $26.8
million, an increase of 71.6% over net sales of $15.6 million for the three
months ended March 31, 1999. Of the increase, 79% was a result of the
acquisition of OZ and 21% was a result of increased demand for the Company's
legacy products.
Gross Profit. Gross profit for the three months ended March 31, 2000 was
$10.9 million, an increase of 95.9% from gross profit of $5.6 million for the
three months ended March 31, 1999. The increase in gross profit was a result of
the acquisition of OZ and increased sales for the Company's legacy products.
Gross margin increased from 35.6% of net sales in the three months ended March
31, 1999 to 40.7% in 2000. The increase in gross margin was a result of the
Company's increased sales overcoming the fixed cost base associated with the
production infrastructure.
Selling, General, and Administrative. Selling, general, and administrative
expenses were $7.1 million, or 26.4% of net sales, for the three months ended
March 31, 2000, compared to $4.3 million, or 27.6% of net sales, for the three
months ended March 31, 1999. Of this increase, $1.8 million was a result of the
acquisition of OZ, $100,000 was due to increased marketing expenses, $115,000
was due to international expenses, and the remainder was due to the reversal of
$500,000 incentive management programs in the three months ended March 31, 1999.
Engineering and Product Development. Engineering and product development
expenses were $1.1 million, or 3.9% of net sales, for the three months ended
March 31, 2000, an increase of 32.2% over $798,264, or 5.1% of net sales, for
the three months ended March 31, 1999. The increase was primarily due to the
acquisition of OZ.
Interest Income. Interest income was $91,883 for the three months ended
March 31, 2000, compared to $229,410 for the three months ended March 31, 1999.
This decrease was attributable to the investment of a lower average cash
balance.
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<PAGE> 13
Minority Interest. The minority interest share of income of $206,581 for
the three months ended March 31, 2000 and $66,302 for the three months ended
March 31, 1999 represented the Company's joint venture partners' share of income
from the Company's Asian operations (40%).
Income Taxes. Income taxes increased from $217,289 for March 31, 1999 to
$803,930 for March 31, 2000. This represented an effective tax rate of 35.5% and
43.9% for March 31, 2000 and 1999, respectively. The decrease in the effective
tax rate for March 31, 2000 was due to state net operating loss carryforwards
from 1999.
Net Income. Net income for the three months ended March 31, 2000 was
$515,822 or 1.9% of sales, compared to net income of $145,033 or 0.9% of sales
for the three months ended March 31, 1999. The increase in net income was due to
the acquisition of OZ and higher sales from the Company's legacy product.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations and capital requirements primarily
through cash flows from operations, equipment lease financing arrangements, and
sales of equity securities. At March 31, 2000, cash was $3.9 million compared to
$3.5 million at December 31, 1999.
The Company used $461,138 of cash to support its operating activities for
the three months ended March 31, 2000. Accounts receivable increased by $4.2
million, net of allowance, or 33.8%, to $16.5 million at March 31, 2000 compared
to the balance at December 31, 1999. This increase was due primarily to
increased customer demand for the Company's products. Inventories increased
$460,729, net of reserve, or 4.7%, from $9.7 million at December 31, 1999 to
$10.2 million at March 31, 2000. Approximately $1.3 million of equipment was
purchased during the three months ended March 31, 2000, of which approximately
$300,000 was financed; the remainder was acquired primarily through cash flow
from operations and usage of the Company's revolving line of credit. Income
taxes receivable increased $900,353, or 22.3%, from $4.0 million at December 31,
1999 to $4.9 million at March 31, 2000. The increase was due to the current
recognition of previously recorded deferred tax assets. Accounts payable and
accrued expenses increased $387,258, or 4.2%, to $9.7 million at March 31, 2000.
Working capital increased $1.9 million, or 16.3%, to $13.7 million at March
31, 2000. The current ratio remained at approximately 1.6 for March 31, 2000
and December, 31, 1999.
The Company believes that its working capital, together with the available
loan and lease commitments and anticipated cash flow from operations, will
provide adequate sources to fund operations for at least the next 12 months. The
Company anticipates that any additional cash requirements for operations or
capital expenditures will be financed through cash flow from operations, by
borrowing from the Company's primary lender, by lease financing arrangements, or
by sales of equity securities. Any such financing may not be available on
acceptable terms and any additional equity financing, if available, would result
in additional dilution to existing investors.
YEAR 2000
In prior periods, the Company discussed the nature and progress of its
plans to become Year 2000 ready. In late 1999, the Company completed the
remediation and testing of its critical dependent systems. Through April 14,
2000, the Company has experienced no disruptions in critical information
technology and non-information technology systems and believes those systems
successfully responded to
13
<PAGE> 14
the Year 2000 date change. The Company is not aware of any material problems
resulting from Year 2000 issues, either with its products, its internal systems,
or the products and services of third parties. The Company will continue to
monitor its mission critical computer applications and those of our suppliers
and vendors throughout the year 2000.
If significant yet to be identified Year 2000 issues arise, the Company may
experience significant problems that could have an adverse affect on its
financial condition and results of operations. Litigation regarding Year 2000
issues is possible. It is uncertain whether, or to what extent, the Company may
be affected by such litigation.
INFLATION AND CHANGING PRICES
The Company 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 the Company and other suppliers.
Accordingly, the price structure for the Company's products must be competitive.
Changes in the Company's supplier prices did not have a significant impact
on cost of sales during the first quarter of 2000 or 1999.
As a result of the Company's operation of manufacturing, repair, and sales
facilities in Scotland, France, Singapore, and Taiwan, the Company's foreign
transactions may be denominated in currencies other than the U.S. Dollar. Such
transactions may expose the Company to exchange rate fluctuations for the period
of time from inception of the transaction until it is settled. Fluctuations in
the currency exchange rate in the future may have an adverse impact on the
Company's foreign operations.
In addition, the Company 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 the Company's ability to manufacture or sell its products in
foreign markets and purchase materials or equipment from foreign suppliers. In
countries in which the Company conducts business in local currency, currency
exchange rate fluctuations could adversely affect the Company'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
14
<PAGE> 15
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 a decrease in demand or slower than anticipated growth in the
semiconductor industry, 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 1999 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 10-K for the year ended December
31, 1999. See Part II Item 7A, Quantitative and Qualitative Disclosures About
Market Risk, in the Company's Annual Report on Form 10-K for the year ended
December 31, 1999.
15
<PAGE> 16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In October 1998, the Company filed an action against the
former President, Director, and shareholder of Silicon Valley
Test & Repair, Inc., which was acquired by the Company by way
of merger into its wholly-owned subsidiary, SVTR, Inc., 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 and the balance of the purchase price
through its claims for rescission. In March 1999, the Company
and SVTR filed an amended complaint. The defendants have
responded and the action is proceeding to trial. While the
company intends to vigorously prosecute this action, it is
impossible to predict the outcome of this or any other
litigation. It is not anticipated that this suit will have an
adverse impact on the Company's financial condition or results
of operations.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
None
11 Computation of Net Income Per Share.
27.1 Financial Data Schedule - March 31, 2000
b. Reports on Form 8-K
Form 8-K, filed on March 7, 2000 to publish the
Company's financial statements for the year ended
December 31, 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
May 11, 2000
17
<PAGE> 18
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- -------- ---------------------------
11 Cerprobe Corporation computation of
net income per share
27 Financial Data Schedule
<PAGE> 1
CERPROBE CORPORATION
COMPUTATION OF NET INCOME PER SHARE
EXHIBIT 11
THREE MONTHS ENDED
MARCH 31,
-----------------------
2000 1999
---------- ----------
Net income $ 515,822 $ 145,033
========== ==========
Weighted average number of
common shares outstanding 9,419,755 7,655,304
Common equivalent shares representing shares
issuable upon exercise of stock options 313,348 393,782
Convertible preferred stock -- --
Subtraction of common equivalent shares due to
antidilutive nature -- --
---------- ----------
Dilutive adjusted weighted average shares
and assumed conversions 9,733,103 8,049,086
========== ==========
Basic net income per share $ 0.05 $ 0.02
========== ==========
Diluted net income per share $ 0.05 $ 0.02
========== ==========
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the
Condensed Consolidated Balance Sheet at March 31, 2000 and the Condensed
Consolidated Statements of Operations for the three months ended March 31, 2000
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 3,878,332
<SECURITIES> 0
<RECEIVABLES> 16,889,861
<ALLOWANCES> 411,642
<INVENTORY> 10,189,229
<CURRENT-ASSETS> 37,397,189
<PP&E> 41,065,921
<DEPRECIATION> 17,764,325
<TOTAL-ASSETS> 86,672,546
<CURRENT-LIABILITIES> 23,666,233
<BONDS> 7,521,838
0
0
<COMMON> 493,362
<OTHER-SE> 53,247,580
<TOTAL-LIABILITY-AND-EQUITY> 86,672,546
<SALES> 26,777,418
<TOTAL-REVENUES> 26,777,418
<CGS> 15,883,166
<TOTAL-COSTS> 15,883,166
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 546,219
<INCOME-PRETAX> 1,526,333
<INCOME-TAX> (803,930)
<INCOME-CONTINUING> 515,822
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 515,822
<EPS-BASIC> 0.05
<EPS-DILUTED> 0.05
</TABLE>
