-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NQhLWjGQsTvxDQU6oNivPjdBCaB5n0K6kTpK6CjQvyl1Bp3OBIOcOav/JXk9Adxe I1YB8+uM2QIjrb5lGGx8iA== 0000950153-99-001055.txt : 19990816 0000950153-99-001055.hdr.sgml : 19990816 ACCESSION NUMBER: 0000950153-99-001055 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CERPROBE CORP CENTRAL INDEX KEY: 0000725259 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPONENTS, NEC [3679] IRS NUMBER: 860312814 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-11370 FILM NUMBER: 99689202 BUSINESS ADDRESS: STREET 1: 1150 NORTH FIESTA BLVD CITY: GILBERT STATE: AZ ZIP: 85233-2237 BUSINESS PHONE: 6029677885 MAIL ADDRESS: STREET 1: 600 S ROCKFORD DR CITY: TEMPE STATE: AZ ZIP: 85281 10-Q 1 10-Q 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 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. 2 CERPROBE CORPORATION QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1999 TABLE OF CONTENTS
Page ---- 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
2 3 CERPROBE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31, ASSETS 1999 1998 ---- ---- (UNAUDITED) 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 ============ ============
See accompanying notes to condensed consolidated financial statements. 3 4 CERPROBE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, 1999 1998 1999 1998 ---- ---- ---- ---- 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 =========== ========== =========== ===========
See accompanying notes to condensed consolidated financial statements. 4 5 CERPROBE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1999 1998 ---- ---- 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 =========== ===========
See accompanying notes to condensed consolidated financial statements. 5 6 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 6 7 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:
Six Months Ended June 30, 1999 1998 ---- ---- 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 =========== ===========
7 8 (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:
Six Months Ended June 30, 1999 1998 ---- ---- 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) =========== ===========
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:
June 30, 1999 December 31, 1998 ------------- ----------------- 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 =========== ===========
8 9 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. 9 10 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 10 11 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. 11 12 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 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:
IT Systems 100% Non-IT Systems 80%
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 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 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 16 1. The following five persons were elected as Directors at the annual meeting pursuant to the following vote:
Votes For Votes Withheld 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
2. An amendment to the Company's 1997 Employee Stock Purchase Plan to reduce the employment eligibility requirement from one year to 90 days.
Votes For 6,085,937 Votes Against 321,200 Votes Abstaining 32,841
Item 6 Exhibits and Reports on Form 8-K a. Exhibits
11 Computation of Net Income Per Share. 27.1 Financial Data Schedule - June 30, 1999 27.2 Financial Data Schedule - June 30, 1998
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 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 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 EX-11 2 EX-11 1 CERPROBE CORPORATION COMPUTATION OF NET INCOME (LOSS) PER SHARE Exhibit 11 (unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, 1999 1998 1999 1998 ---- ---- ---- ---- 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 =========== =========== =========== ===========
EX-27.1 3 EX-27.1
5 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. 6-MOS DEC-31-1999 JUN-30-1999 5,630,086 11,152,823 9,111,244 341,963 5,711,314 36,788,174 35,994,251 12,864,345 63,997,255 6,444,134 4,345,278 0 0 410,579 52,035,529 63,997,255 29,708,636 29,708,636 19,902,058 12,027,623 205,059 8,600 203,982 (1,995,264) 675,170 (1,508,610) (5,322) 0 0 (1,513,932) (0.20) (0.20)
EX-27.2 4 EX-27.2
5 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. 6-MOS DEC-31-1998 JUN-30-1998 3,822,000 21,493,980 10,011,717 228,204 5,981,518 49,431,654 26,593,275 8,739,273 70,427,736 6,223,934 1,453,015 0 0 406,464 61,576,454 70,427,736 41,092,008 41,092,008 23,959,734 11,001,234 83,772 12,000 122,588 6,782,984 (2,808,024) 3,949,567 (1,137,359) 0 0 2,812,208 0.35 0.33
-----END PRIVACY-ENHANCED MESSAGE-----