UNITED STATES
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, 1997
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
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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)
600 South Rockford Drive, Tempe, Arizona 85281
----------------------------------------------
(Former address, if changed since last report)
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 and 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 July 31, 1997, there were 6,371,580 shares of the Registrant's common
stock outstanding.
CERPROBE CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1997
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Page
----
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets -
June 30, 1997 and December 31, 1996................................3
Condensed Consolidated Statements of Operations -
Three and Six Months Ended June 30, 1997 and 1996..................4
Condensed Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1997 and 1996............................5
Notes to Condensed Consolidated Financial Statements...............7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...............................13
PART II - OTHER INFORMATION
Item 2. Changes in Securities.............................................19
Item 4. Submission of Matters to Vote of Security Holders.................19
Item 6. Exhibits and Reports on Form 8-K..................................19
Signatures ..................................................................21
2
CERPROBE CORPORATION
Condensed Consolidated Balance Sheets
June 30, December 31,
ASSETS 1997 1996
------------ -------------
(unauadited)
Current assets:
Cash and cash equivalents $ 1,482,445 $ 5,564,557
Accounts receivable, net of allowance of $218,278
in 1997 and $223,000 in 1996 9,718,798 5,564,203
Inventories, net 6,525,933 3,862,753
Note receivable -- 250,000
Prepaid expenses 230,344 377,003
Income taxes receivable -- 214,097
Deferred tax asset 220,676 202,476
------------ ------------
Total current assets 18,178,196 16,035,089
Property, plant and equipment, net 13,769,965 11,446,291
Intangibles, net 2,481,121 2,602,812
Other assets 1,802,681 1,326,592
------------ ------------
Total assets $ 36,231,963 $ 31,410,784
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,532,211 $ 2,739,064
Accrued expenses 3,124,388 1,600,120
Demand note payable 1,000,000 1,030,000
Current portion of notes payable 2,135,585 128,180
Current portion of capital leases 581,760 634,755
------------ ------------
Total current liabilities 11,373,944 6,132,119
Notes payable, less current portion 452,312 278,645
Capital leases, less current portion 1,139,279 1,462,799
Other liabilities 477,485 394,011
------------ ------------
Total liabilities 13,443,020 8,267,574
------------ ------------
Minority interest -- 12,851
------------ ------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.05 par value; authorized
10,000,000 shares; issued and outstanding 330
shares of Series A Convertible Preferred Stock,
liquidation preference of $10,875 per share 16 16
Common stock, $.05 par value; authorized, 10,000,000
shares; issued and outstanding 6,353,047 shares at
June 30, 1997 and 6,027,714 at December 31, 1996 317,652 301,386
Additional paid-in capital 23,654,605 20,652,290
Retained earnings (accumulated deficit) (1,199,634) 2,105,674
Foreign currency translation adjustment 16,304 70,993
------------ ------------
Total stockholders' equity 22,788,943 23,130,359
------------ ------------
Total liabilities and stockholders' equity $ 36,231,963 $ 31,410,784
============ ============
See accompanying notes to condensed consolidated financial statements.
3
CERPROBE CORPORATION
Condensed Consolidated Statement of Operations
Three Months Ended June 30, Six Months Ended June 30,
------------------------------ ------------------------------
1997 1996 1997 1996
------------------------------ ------------------------------
Net sales $ 18,683,829 $ 9,659,883 $ 34,582,921 $ 19,359,822
Costs of goods sold 11,008,957 5,174,844 20,403,329 10,347,795
------------ ------------ ------------ ------------
Gross margin 7,674,872 4,485,039 14,179,592 9,012,027
------------ ------------ ------------ ------------
Expenses:
Selling, general and administrative 4,954,862 2,666,893 9,127,311 5,274,831
Engineering and product development 164,455 275,583 617,774 378,267
Acquisition related costs -- -- 6,164,156 --
------------ ------------ ------------ ------------
Total expenses 5,119,317 2,942,476 15,909,241 5,653,098
------------ ------------ ------------ ------------
Operating income (loss) 2,555,555 1,542,563 (1,729,649) 3,358,929
------------ ------------ ------------ ------------
Other income (expense):
Interest income 32,504 108,751 67,664 168,243
Interest expense (162,242) (57,601) (296,853) (116,457)
Other income, net 55,955 46,624 114,846 87,482
------------ ------------ ------------ ------------
Total other income (expense) (73,783) 97,774 (114,343) 139,268
------------ ------------ ------------ ------------
Income (loss) before income taxes and
minority interest 2,481,772 1,640,337 (1,843,992) 3,498,197
Minority interest share of (income) loss 41,554 36,927 28,985 62,288
------------ ------------ ------------ ------------
Income (loss) before income taxes 2,523,326 1,677,264 (1,815,007) 3,560,485
Provision for income taxes (934,000) (816,000) (1,490,300) (1,693,000)
------------ ------------ ------------ ------------
Net income (loss) $ 1,589,326 $ 861,264 $ (3,305,307) $ 1,867,485
============ ============ ============ ============
Net income (loss) per common and common
equivalent share:
Primary $ 0.24 $ 0.16 $ (0.52) $ 0.35
============ ============ ============ ============
Weighted average number of common
and common equivalent shares
outstanding 6,546,069 5,393,166 6,321,399 5,262,320
============ ============ ============ ============
Fully diluted $ 0.24 $ 0.15 $ (0.52) $ 0.32
============ ============ ============ ============
Weighted average number of common
and common equivalent shares
outstanding 6,645,677 5,878,399 6,321,399 5,797,680
============ ============ ============ ============
See accompanying notes to condensed consolidated financial statements.
4
CERPROBE CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended June 30,
----------------------------
1997 1996
----------------------------
Cash flows from operating activities:
Net income (loss) $(3,305,307) $ 1,867,485
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization 1,657,746 854,628
Purchased research and development 5,664,156 --
Loss on sale of fixed assets 426 --
Tax benefit from stock options excercised -- 182,000
Deferred income taxes 72,819 111,465
Provision for losses on accounts receivable, net (14,605) 2,000
Provision for obsolete inventory, net 167,132 31,000
Compensation expense -- 51,398
Income (loss) applicable to minority interest in consolidated subsidiaries (28,985) (62,288)
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable (3,255,550) (1,472,922)
Inventories 528,436 (630,129)
Prepaid expenses 175,651 151,241
Other assets (233,125) 36,366
Income taxes receivable 539,904 --
Accounts payable and accrued expenses 820,689 (204,403)
Accrued income taxes 60,329 272,762
Other liabilities 48,240 6,996
----------- -----------
Net cash provided by operating activities 2,897,956 1,197,599
----------- -----------
Cash flows from investing activities:
Purchase of property, plant and equipment (3,195,310) (2,091,021)
Purchase of marketable securities -- (2,279,188)
Investment in CRPB Investors, L.L.C (607) --
Investment in Upsys-Cerprobe, L.L.C (21,892) --
Supplemental acquisition costs for CompuRoute (80,102) --
Purchase of SVTR, net of cash acquired (2,565,697) --
Proceeds from sale of equipment 71,183 --
Decrease in note receivable 250,000 --
----------- -----------
Net cash used in investing activities (5,542,425) (4,370,209)
----------- -----------
Cash flows from financing activities:
Principal payments on notes payable and capital leases (3,539,072) (178,322)
Net proceeds from note payable 2,001,788 --
Net proceeds from issuance of convertible preferred stock -- 9,400,000
Net proceeds from issuance of common stock -- 528,574
Net proceeds from stock options exercised 154,332 --
----------- -----------
Net cash provided by (used in) financing activities (1,382,952) 9,750,252
----------- -----------
Effect of exchange rates on cash and cash equivalents (54,691) 26,913
----------- -----------
Net increase (decrease) in cash and cash equivalents (4,082,112) 6,604,555
Cash and cash equivalents, beginning of period 5,564,557 263,681
----------- -----------
Cash and cash equivalents, end of period $ 1,482,445 $ 6,868,236
=========== ===========
See accompanying notes to condensed consolidated financial statements.
5
CERPROBE CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Supplemental schedule of noncash investing and financing activities:
Conversion of subordinated debentures to common stock $ -- $ 110,000
----------- -----------
Conversion of preferred stock to common stock $ -- $ 64,000
----------- -----------
Equipment acquired under capital leases and issuances of notes payable $ 4,144 $ --
----------- -----------
Supplemental disclosures of cash flow information:
Interest paid $ 296,853 $ 93,833
----------- -----------
Income taxes paid $ 1,315,096 $ 1,128,016
----------- -----------
Supplemental disclosures of noncash investing activities:
The Company acquired Silicon Valley Test & Repair, Inc.
for $5.7 million in the period ended March 31, 1997.
The purchase price was allocated to the assets acquired and liabilities assumed
based on their fair values as indicated in notes to the consolidated financial
statements. A summary of the acquisition is as follows:
Purchase price $ 5,715,263
Less cash acquired (285,316)
Common stock issued (2,864,250)
--
-----------
Cash invested $ 2,565,697
===========
See accompanying notes to condensed consolidated financial statements.
6
CERPROBE CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(1) Basis of Preparation
The accompanying condensed consolidated financial statements as of June
30, 1997 and for the six months ended June 30, 1997 and June 30, 1996
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, 1996 was derived from the audited consolidated
financial statements at such date.
Pursuant to accounting requirements of the Securities and Exchange
Commission applicable to quarterly reports on Form 10-Q, the
accompanying condensed consolidated financial statements and notes do
not include all disclosures required by generally accepted accounting
principles for complete financial statements. Accordingly, these
statements should be read in conjunction with Cerprobe Corporation's
(the "Company") annual financial statements and notes thereto included
in the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1996.
Results of operations for interim periods are not necessarily
indicative of those to be achieved for full fiscal years.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries: CompuRoute, Inc.
("CompuRoute"), Cerprobe Europe Limited, and Cerprobe Asia Holdings PTE
LTD. Cerprobe Asia Holdings PTE LTD together with Asian investors,
formed Cerprobe Asia PTE LTD in 1995. Cerprobe Asia Holdings PTE LTD is
a 70% owner of Cerprobe Asia PTE LTD. Cerprobe Asia PTE LTD created
wholly-owned subsidiaries, Cerprobe Singapore PTE LTD and Cerprobe
Taiwan Co. LTD, to operate full service sales and manufacturing plants.
Singapore became operational in April of 1996 and Taiwan in January of
1997. All significant intercompany transactions have been eliminated in
consolidation.
On January 15, 1997, the Company acquired all of the outstanding stock
of Silicon Valley Test & Repair, Inc. ("SVTR"), a company that
refurbishes, reconfigures, and services wafer probing equipment.
Accordingly, the condensed consolidated financial statements as of June
30, 1997 and for the six months ended June 30, 1997 include SVTR's
activities since the date of acquisition.
On June 2, 1997, the Company entered into a joint venture with Upsys
Reseau Eurisys ("Upsys"), a French company owned by IBM and GAME, a
French test and engineering company. The joint venture, called
Upsys-Cerprobe, L.L.C., will assemble and repair the Cobra Probe in
Arizona for distribution by Cerprobe throughout the U.S. and Asia.
Cerprobe owns 55% of the joint venture and Upsys owns 45%.
7
The Company manages the joint venture and established a wholly owned
subsidiary called Cobra Venture Management, Inc. to function as manager
of Upsys-Cerprobe, L.L.C. Accordingly, the condensed consolidated
financial statements as of June 30, 1997 and for the six months ended
June 30, 1997 include the activities of both organizations.
(2) Inventories
Inventories consist of the following:
June 30, December 31,
1997 1996
------------- -------------
Raw materials $ 5,747,767 $ 3,328,422
Work-in-process 1,058,158 615,360
Finished goods 98,010 47,971
Reserve for obsolete inventory (378,002) (129,000)
------------- ------------
Total $ 6,525,933 $ 3,862,753
============= ============
(3) Property, Plant and Equipment
Property, plant and equipment consist of the following:
June 30, December 31,
1997 1996
----------- ------------
Land $ 364,017 $ 359,253
Building 1,973,704 1,947,877
Manufacturing tools and equipment 10,551,767 8,789,140
Office furniture and equipment 1,697,900 1,063,547
Leasehold improvements 1,770,813 1,112,576
Construction in progress 567,727 483,591
Computer hardware and software 2,823,245 2,402,551
Accumulated depreciation and amortization (5,979,208) (4,712,244)
------------ ------------
Total $13,769,965 $11,446,291
============ ============
(4) Intangibles
Goodwill from the acquisition of Fresh Test Technology and CompuRoute,
is $2,120,505 and $969,235, respectively.
8
(5) Related Party Transactions
Effective May 1, 1991, the Company entered into an agreement with a
former director and officer of the Company, whereby this officer left
the employ of the Company and agreed not to compete with the Company
for a two-year period. The agreement required the Company to pay $3,125
per month from May 1, 1991 through April 30, 1993 and to provide
certain other benefits to this individual. This agreement was extended
for an additional year, through April 30, 1994, and is presently on a
month-to-month basis. Beginning July 1, 1997 the monthly payment will
be reduced to $1,563 and the agreement will terminate on December 31,
1997, except for certain life insurance and health care benefits which
will continue under the terms of the original agreement.
(6) Commitments and Contingencies
Lease Line of Credit
In May of 1997, Cerprobe entered into a $3,000,000 lease line of
credit, which matures February 28, 1998, with Banc One Leasing
Corporation. The maximum term for each lease schedule will not exceed
60 months. Pricing will be indexed to like term treasuries plus 170
basis points. The advances will be collateralized by the underlying
leased manufacturing equipment, furniture, fixtures, software and/or
hardware.
Convertible Preferred Stock
If the holders of all outstanding shares of convertible preferred stock
had elected to convert their shares on June 30, 1997, Cerprobe
estimates that it would have been required to pay approximately
$3,600,000 to have redeemed all shares of Convertible Preferred Stock
that, if converted, would have resulted in the issuance of more than
800,000 shares of common stock.
The Company has received a notice of conversion from the holders of the
remaining issued and outstanding shares of Convertible Preferred Stock.
The Company has sent notices of redemption to such holders. A dispute
has arisen between the Company and such holders regarding the
redemption price and redemption date with respect to the remaining
issued and outstanding shares of Convertible Preferred Stock. The
Company does not believe that the amount in dispute is material to the
financial condition of the Company.
Upsys
On June 2, 1997, Cerprobe Corporation entered into a joint venture with
Upsys Reseau Eurisys ("Upsys"), a French company owned by IBM and GAME,
a French test and engineering company. The joint venture, managed by
Cerprobe, assembles and repairs the Cobra Probe in Arizona for
distribution by Cerprobe throughout the U.S. and Asia. Cerprobe owns
55% of the joint venture and Upsys owns 45%. The joint venture is
operational.
9
(7) Acquisitions
CompuRoute, Inc.
On December 27, 1996, the Company acquired all of the outstanding stock
of CompuRoute, Inc., a manufacturer of printed circuit boards, for
$7,037,797. The purchase price consisted of $4,437,797 in cash and
400,000 shares of common stock.
The acquisition has been accounted for by the purchase method of
accounting. Accordingly, the purchase price has been allocated to the
assets acquired and the liabilities assumed based upon the fair value
at the date of acquisition. The excess of the purchase price over the
fair value of the net assets acquired was $969,235 and has been
recorded as goodwill, which is being amortized on a straight-line basis
over eight years. The results of operations of CompuRoute are included
in the Company's financial statements since the date of acquisition.
At acquisition, the state of the research and development products was
not yet at a technologically or commercially viable stage. 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 one-time charge of $4,584,000 on December 27,
1996 for the full value of the purchased in-process research and
development.
Silicon Valley Test & Repair, Inc.
On January 15, 1997, the Company acquired all of the outstanding stock
of SVTR. The purchase price paid by the Company consisted of $2,753,217
in cash and 300,000 shares of common stock.
Under the terms of the acquisition, the Company has agreed to pay up to
an additional $500,000 in cash and up to 50,000 additional shares of
common stock if certain sales and operating profit targets for calendar
year 1997 are achieved by SVTR.
The acquisition has been accounted for using the purchase method.
Accordingly, the purchase price has been allocated to assets acquired
and liabilities assumed based upon their estimated fair values at the
date of acquisition.
10
The purchase price of $5,617,467 plus acquisition costs of $97,796 was
allocated as follows.
Purchase price:
Cash $ 2,753,217
Common stock 2,864,250
Costs of acquisition 97,796
------------
$ 5,715,263
============
Assets acquired and liabilities assumed:
Current assets $ 4,979,145
Property, plant and equipment 651,781
Other assets 185,007
Purchased research and development 5,664,156
Current liabilities (4,795,473)
Noncurrent liabilities (969,353)
============
$ 5,715,263
============
At acquisition, the state of the research and development products was
not yet at a technologically or commercially viable stage. The Company
does not believe that the research and development products have any
future alternative use because if these products are not finished and
brought to ultimate product completion, they have no other value.
Therefore, consistent with generally accepted accounting principles,
the Company recorded a one-time charge of $5,664,156 on January 15,
1997 for the full value of the purchased research and development.
11
Pro forma Results
The following summary, prepared on a pro forma basis, excluding the
charges for purchased research and development, presents the results of
operations as if the acquisitions of CompuRoute and SVTR had occurred
January 1, 1996:
Six months ended
June 30,
-------------------------------
1997 1996
-------------------------------
(unaudited)
Net sales $ 34,636,301 $ 34,075,886
Net income $ 2,218,781 $ 2,598,523
Primary net income per share $ .35 $ .44
Fully diluted net income per share $ .35 $ .40
The pro forma results are not necessarily indicative of what the actual
consolidated results of operations might have been if the acquisitions
had been effective at the beginning of 1996 or as a projection of
future results.
(8) Recent Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per
Share" (statement 128). This Statement establishes standards for
computing and presenting earnings per share ("EPS"), and supersedes APB
Opinion No. 15. The Statement replaces primary EPS with basic EPS and
requires dual presentation of basic and diluted EPS. The Statement is
effective for both interim and annual periods ending after December 15,
1997. Earlier application is not permitted. After adoption, all
prior-period EPS data shall be restated to conform to Statement 128.
Basic and diluted EPS, as calculated under Statement No. 128 would have
been $.25 and $.24 for the fiscal three months ended June 30, 1997 and
$(.52) and $(.52) for the six months ended June 30, 1997.
12
CERPROBE CORPORATION
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Introduction and General Development of Business
Cerprobe was incorporated in California in 1976 and reincorporated in Delaware
in May 1987. The Company designs, manufactures, markets, and services high
performance products and equipment for use in the testing of integrated circuits
("ICs") for the semiconductor industry. Cerprobe's products and services enable
semiconductor manufacturers to test the integrity of their ICs during the batch
fabrication stage of the manufacturing process used in manufacturing ICs in
wafer form.
The Company has grown substantially over the last three years as the Company has
benefited from the substantial growth in the worldwide demand for ICs. Net sales
have increased from $14.3 million for 1994, to $26.1 million for 1995, and to
$37.3 million for 1996. Similarly, the Company's net income has increased from
$1.2 million for 1994, to $2.4 million for 1995, and to $3.2 million for 1996
(before a one-time charge for purchased in-process research and development of
$4.6 million, resulting in a net loss of $1.4 million). This growth resulted
primarily from internal product development and strategies. However, the Company
also benefited from its acquisition in April 1995 of Fresh Test Technology
Corporation, whose complementary products contributed approximately $4.0 million
to 1995 net sales, approximately $7.0 million to 1996 net sales and
approximately $3.6 million to net sales for the first six months of 1997. To
further expand its semiconductor test product and service offerings, Cerprobe
acquired CompuRoute, Inc. ("CompuRoute"), a company engaged in the design,
manufacture, and marketing of complex, multilayer printed circuit boards
("PCBs") primarily for use in semiconductor testing applications, in December
1996 and Silicon Valley Test & Repair, Inc. ("SVTR"), a company that
refurbishes, reconfigures, and services wafer probers, in January 1997.
Together, these recent acquisitions contributed approximately $8.6 million to
net sales for the first six months of 1997. Continuing this expansion, on June
2, 1997, the Company entered into a joint venture with Upsys Reseau Euresys
("Upsys"), a French company owned by IBM and GAME, a French test and engineering
company. The joint venture, called Upsys-Cerprobe, L.L.C., will assemble and
repair the Cobra Probe for distribution by Cerprobe in the U.S. and Asia.
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 the U.S., Europe, and
Asia. The Company maintains regional full service facilities in Arizona,
California, and Texas as well as sales offices in Oregon, Colorado, Florida, and
Massachusetts to service the U.S. market for its products and services. The
Company maintains a full service facility in Scotland to serve the European
market, and opened full service facilities in Singapore and Taiwan in April 1996
and January 1997, respectively, to serve the Southeast Asia market. Each of the
Company's facilities is located in proximity to semiconductor manufacturing
centers.
13
Results of Operations
Three Months Ended June 30, 1997 Compared to Three Months Ended June 30, 1996.
Net sales for the three months ended June 30, 1997 were $18,683,829, an increase
of 93% over net sales of $9,659,883 for the three months ended June 30, 1996.
This increase in net sales is a result of Cerprobe's two recent acquisitions,
higher order rates for Cerprobe's probe card and interface products, and
increased sales from Cerprobe's international operations.
For the three months ended June 30, 1997, the gross margin was $7,674,872, an
increase of 71% over the gross margin of $4,485,039 for the same period in 1996.
Gross margin as a percentage of sales decreased from 46% for the three months
ended June 30, 1996 to 41% for the same period in 1997. The decrease in gross
margin, as a percentage of sales, is primarily a result of a change in product
mix due to the recent acquisitions. Approximately 25% of net sales within the
period were attributed to ATE test boards from the Company's CompuRoute
subsidiary and wafer prober products and services from the Company's SVTR
subsidiary. Both product lines currently have lower gross margins than the
Company's core products of probe cards and ATE interfaces.
Selling, general and administrative expenses were $4,954,862, or 27% of sales,
for the three months ended June 30, 1997 as compared to $2,666,893, or 28% of
sales, for the same period in 1996, an increase of 86%. The increase in selling,
general and administrative expenses resulted primarily from the two recent
acquisitions, the start up of the joint venture with Upsys, and the continued
domestic and international facilities expansion. Of the increase, $1,370,223, or
60%, was attributable to CompuRoute, SVTR, and the Upsys-Cerprobe, L.L.C. start
up.
Engineering and product development expenses were $164,455 for the three months
ended June 30, 1997, a decrease of 40% over $275,583 for the same period in
1996. This decrease resulted from the offset of engineering and product
development costs by project funding receipts from Cerprobe's collaboration with
certain customers and the re-assignment of personnel and other resources to
Upsys-Cerprobe, L.L.C. Cerprobe intends to replace these re-assigned resources
and continue to emphasize engineering and product development in an effort to
anticipate and address technological advances in semiconductor testing.
Interest income was $32,504 for the three months ended June 30, 1997 as compared
to $108,751 for the same period in 1996. The decrease was a result of utilizing
the net proceeds of the Convertible Preferred Stock offering for the CompuRoute
and SVTR acquisitions in the fourth quarter of 1996 and in the first quarter of
1997, respectively.
Interest expense was $162,242 for the three months ended June 30, 1997 as
compared to $57,601 for the same period in 1996, an increase of 182%. The
majority of the 1997 increase in interest expense was due to the debt acquired
in the acquisition of CompuRoute and SVTR.
The minority interest share of loss from operations of $41,554, for the three
months ended June 30, 1997, represents the Company's joint venture partners'
share (30%) of the income from Cerprobe Asia PTE LTD of $8,174 and the Company's
joint venture partner's share (45%) of the loss from Upsys-Cerprobe, L.L.C. of
$49,728.
14
The provision for income taxes was $934,000, which represents an effective tax
rate of 37% for the three months ended June 30, 1997, versus $816,000, which
represents an effective rate of 49% for the same period in 1996. The decreased
effective tax rate resulted from the benefit of CompuRoute's net operating loss
carryforward of $140,000 and partial use of previous nondeductible losses from
foreign subsidiaries.
Net income for the three months ended June 30, 1997 was $1,589,326, an increase
of $728,062, or 85%, from the net income of $861,264 for the same period in
1996. This increase is due to the increase in sales resulting from Cerprobe's
two recent acquisitions, higher order rates for Cerprobe's probe card and
interface products, and increased sales from Cerprobe's international
operations.
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996.
Net sales for the six months ended June 30, 1997 were $34,582,921, an increase
of 79% over net sales of $19,359,822 for the six months ended June 30, 1996.
This increase in net sales is a result of Cerprobe's two recent acquisitions,
higher order rates for Cerprobe's probe card and interface products, and
increased sales from Cerprobe's international operations.
For the six months ended June 30, 1997, the gross margin was $14,179,592, an
increase of 57% over the gross margin of $9,012,027 for the same period in 1996.
Gross margin as a percentage of sales decreased from 47% for the six months
ended June 30, 1996 to 41% for the same period in 1997. The decrease in gross
margin, as a percentage of sales, is primarily a result of a change in product
mix due to the recent acquisitions. Approximately 25% of net sales within the
period were attributed to ATE test boards from the Company's CompuRoute
subsidiary and wafer prober products and services from the Company's SVTR
subsidiary. Both product lines currently have lower gross margins than the
Company's core products of probe cards and ATE interfaces.
Selling, general and administrative expenses were $9,127,311, or 26% of sales,
for the six months ended June 30, 1997 as compared to $5,274,831, or 27% of
sales, for the same period in 1996. The increase of $3,852,480 or 73% resulted
primarily from the two recent acquisitions, the start up of the joint venture
with Upsys, and the continued domestic and international facilities expansion.
Of the increase, $2,316,723, or 60%, was attributable to CompuRoute, SVTR, and
the joint venture with Upsys.
Engineering and product development expenses were $617,774 for the six months
ended June 30, 1997, an increase of 63% over $378,267 for the same period in
1996. This increase resulted from Cerprobe's recent acquisitions and from
Cerprobe's continued emphasis on engineering and product development in an
effort to anticipate and address technological advances in semiconductor
testing.
Acquisition related costs totaled $6,164,156 and are related to the acquisition
of SVTR on January 15, 1997. The acquisition was accounted for using the
purchase method of accounting. Accordingly, the purchase price was allocated to
the assets acquired and the liabilities assumed based upon their estimated fair
values. The value of the purchased research and development in connection with
the acquisition was $5,664,156. The current state of the research and
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development products/processes is not yet at a technologically feasible or
commercially viable stage. Cerprobe does not believe that the research and
development products/processes have any future alternative use because if they
are not finished and brought to ultimate product or process completion they have
no value. Therefore, consistent with generally accepted accounting principles,
Cerprobe took a one-time charge for the full value of the purchased research and
development. The remaining $500,000 of acquisition related costs is the
estimated cost to move SVTR's manufacturing operations to Arizona during 1997.
Interest income was $67,664 for the six months ended June 30, 1997 as compared
to $168,243 for the same period on 1996. The decrease was a result of utilizing
the net proceeds of the Convertible Preferred Stock offering in the CompuRoute
and SVTR acquisitions in the fourth quarter of 1996 and in the first quarter of
1997, respectively.
Interest expense was $296,853 for the six months ended June 30, 1997 as compared
to $116,457 for the same period in 1996, an increase of 155%. The majority of
the 1997 increase in interest expense was due to the debt acquired in the
acquisition of CompuRoute and SVTR.
The minority interest share of loss from operations of $28,985 for the six
months ended June 30, 1997, represents the Company's joint venture partners'
share (30%) of the income from Cerprobe Asia PTE LTD of $20,743 and the
Company's joint venture partner's share (45%) of the loss from Upsys-Cerprobe,
L.L.C. of $49,728.
The provision for income taxes was $1,490,300, which represents an effective tax
rate of 39%, excluding the acquisition costs of $6,164,156, for the six months
ended June 30, 1997, versus $1,693,000, which represents an effective rate of
48% for 1996. The decreased effective tax rate, as adjusted for 1997, resulted
from the benefit of CompuRoute's net operating loss carryforward of $140,000 and
partial use of previous nondeductible losses from foreign subsidiaries.
Net loss for the six months ended June 30, 1997 was $3,305,307, a decrease of
$5,172,792, or 277%, from the net income of $1,867,485 for the same period in
1996. This decrease is primarily due to the recording of approximately $500,000
of costs associated with the relocation of SVTR's manufacturing operations and
the write-off of the purchased research and development of $5,664,156 from the
SVTR acquisition. Excluding the acquisition related expenses, net income for the
six months ended June 30, 1997 would have been $2,658,849 or 8% of net sales as
compared to 10% of net sales for the six months ended June 30, 1996.
Liquidity and Capital Resources
Cerprobe has financed its operations and capital requirements primarily through
cash flow from operations, equipment lease financing arrangements, and sales of
equity securities. In January 1996, Cerprobe completed a private placement of
Convertible Preferred Stock, which raised net proceeds of $9,400,000. The net
proceeds have been used in domestic and international expansion and acquisition
of companies and/or technologies. At June 30, 1997, cash and cash equivalents
were $1,482,445, compared to $5,564,557 at December 31, 1996.
Cerprobe generated $2,897,956 in cash flow from operating activities for the six
months ended June 30, 1997. Accounts receivable increased by $4,154,595, or 75%,
to $9,718,798 at June 30,
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1997. Of this increase, $884,440 resulted from the acquisition of SVTR with the
balance a result of increased sales. Inventories increased $2,663,180, or 69%,
over December 31, 1996 to $6,525,933 at June 30, 1997. The increase resulted
primarily from the acquisition of SVTR.
Accounts payable and accrued expenses increased $3,317,415, or 76%, to
$7,656,599 at June 30, 1997. The increase resulted from the acquisition of SVTR
and Cerprobe's continued expansion activities.
The current portions of notes payable and capital leases increased to $2,717,345
at June 30, 1997 from $762,935 at December 31, 1996, primarily as a result of
Cerprobe's recent acquisition of SVTR. Cerprobe borrowed approximately $2
million from its revolving line of credit during the second quarter to payoff
notes payable and capital lease obligations of CompuRoute and SVTR whose
obligation interest rates were higher than Cerprobe's borrowing rate.
Working capital decreased $3,098,718, or 31%, to $6,804,252 at June 30, 1997
from December 31, 1996. The current ratio decreased from 2.6 to 1 at December
31, 1996 to 1.6 to 1 at June 30, 1997. These decreases were due to the use of
the net proceeds from the private placement of the Convertible Preferred Stock
in the two recent acquisitions. The acquisition of CompuRoute and SVTR used
$4,437,797 and $2,753,217, respectively.
Cerprobe increased its investment in property, plant, and equipment during the
six months ended June 30, 1997 by $2,323,674, or 20%, to $13,769,965. This
increase was attributable to the acquisition of SVTR and the Company's efforts
to expand capacity to meet customer demand for its products. These capital
expenditures were funded from cash flow from operations and proceeds from the
private placement of the Convertible Preferred Stock.
If the holders of all outstanding shares of Convertible Preferred Stock had
elected to convert their shares on June 30, 1997, Cerprobe estimates that it
would have been required to pay approximately $3,600,000 to have redeemed all
shares of Convertible Preferred Stock, that if converted, would have resulted in
the issuance of more than 800,000 shares of Cerprobe common stock. The Company
has received a notice of conversion from the holders of the remaining issued and
outstanding shares of Convertible Preferred Stock. The Company has sent notices
of redemption to such holders. A dispute has arisen between the Company and such
holders regarding the redemption price and redemption date with respect to the
remaining issued and outstanding shares of Convertible Preferred Stock. The
Company does not believe that the amount in dispute is material to the financial
condition of the Company.
In February 1997, Cerprobe entered into a $10,000,000 unsecured revolving line
of credit, which matures August 15, 1998, with its primary lender, Wells Fargo
Bank. Advances under the revolving line may be made as prime rate advances,
which accrue interest payable monthly, at the Bank's prime lending rate, or as
LIBOR rate advances, which bear interest at 175 basis points in excess of the
LIBOR base rate. At June 30, 1997, Cerprobe had approximately $2,000,000
outstanding from LIBOR rate advances with an interest rate of 7.625%.
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In May 1997, Cerprobe entered into a $3,000,000 lease line of credit, which
matures February 28, 1998, with Banc One Leasing Corporation. The maximum term
for each lease schedule will not exceed 60 months. Pricing will be indexed to
like term treasuries plus 170 basis points. The advances will be collateralized
by the underlying leased manufacturing equipment, furniture, fixtures, software
and/or hardware. At June 30, 1997, no advances had been made under the
agreement.
Cerprobe believes that its working capital, together with the loan commitments
described above and anticipated cash flow from operations, will provide adequate
sources to fund operations for at least the next 12 months. Cerprobe anticipates
that any additional cash requirements for operations or capital expenditures
will be financed through cash flow from operations, by borrowing from Cerprobe's
primary lender, by lease financing arrangements, or by sales of equity
securities.
"Safe Harbor" Statement Under the Private Securities Litigation Reform Act of
1995
Statements in this section regarding the Company's prospects for continued
growth and the adequacy of sources of capital are forward-looking statements.
Words such as "intends," "adequate," "believes," and "anticipates," also
identify forward-looking statements. Actual results, however, could differ
materially from those anticipated for a number of reasons, including product
demand and development, technological advancements, impact of competitive
products and pricing, growth in targeted markets and other factors identified
under "Special Considerations" of the Company's 1996 Form 10-KSB as filed with
the Securities and Exchange Commission, as well as those reasons identified in
the Company's 1997 press releases.
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PART II - OTHER INFORMATION
Item 4 Submission of Matters to Vote of Security Holders
a. An annual meeting of stockholders of the Company was held on
June 4, 1997.
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:
1. The following five persons were elected as Directors at the
annual meeting pursuant to the following vote:
Vote For Votes Withheld
Ross J. Mangano 5,440,171 101,260
C. Zane Close 5,440,896 100,535
Kenneth W. Miller 5,440,171 101,260
Donald F. Walter 5,250,071 291,360
William A. Fresh 5,432,771 103,660
2. Amendments to and Restatement of the Company's 1995 Stock
Option Plan were approved at the annual meeting pursuant to
the following vote:
Votes for 4,779,921
Votes Against 609,426
Votes Abstaining 70,780
3. The appointment of KPMG Peat Marwick LLP as the independent
auditors of the Company was ratified at the annual meeting
pursuant to the following vote:
Votes for 5,501,451
Votes Against 16,162
Votes Abstaining 22,818
Item 6 Exhibits and Reports on Form 8-K
a. Exhibits
10(aaa) Master Lease Agreement between the Company and
Banc One Leasing Corporation, dated May 16, 1997.
10(bbb) Lease Agreement between Silicon Valley Test and
Repair, Inc. and Reynolds Development Company,
dated May 29, 1997.
10(ccc) Amended and Restated Operating Agreement, by and
between the Company and Upsys, dated February 12,
1997.
10(ddd) Distribution Agreement by and among
Upsys-Cerprobe, L.L.C., the Company, and Upsys,
dated June 2, 1997.
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10(eee) Supply Agreement by and among Upsys Reseau
Euresys, Upsys-Cerprobe, L.L.C., and the Company,
dated June 2, 1997.
10(ll) 1995 Stock Option Plan, as amended through
February 18, 1997.
(11) Statement regarding computation of net earnings
(loss) per share.
(27) Financial Data Schedule.
b. No reports on Form 8-K were filed by the Company during the
quarter ended June 30, 1997
20
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigning
thereunto duly authorized.
CERPROBE CORPORATION
/s/Randal L. Buness
-----------------------------------
Randal L. Buness
Vice President - Chief Financial Officer
July 31, 1997
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