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, 1998
or
Transition report pursuant to Section 13 or 15(d) of the Securities
- --- Exchange Act of 1934
For the transition period from __________ to ___________.
Commission File Number 0-11370
CERPROBE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 86-0312814
(State or other 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 12, 1998, there were 8,127,728 shares of the registrant's
common stock outstanding.
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CERPROBE CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1998
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Page
----
ITEM 1. FINANCIAL STATEMENTS:
Condensed Consolidated Balance Sheets -
June 30, 1998 and December 31, 1997...................................3
Condensed Consolidated Statements of Operations -
Three and Six Months Ended June 30, 1998 and 1997.....................4
Condensed Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1998 and 1997...............................5
Notes to Condensed Consolidated Financial Statements..................6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS...................................9
PART II - OTHER INFORMATION
ITEM 2. SALES OF UNREGISTERED SECURITIES.....................................15
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS....................15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.....................................16
SIGNATURE....................................................................17
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CERPROBE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31,
ASSETS 1998 1997
------------ ------------
(UNAUDITED)
Current assets:
Cash and short-term investments $ 25,318,979 $ 30,347,173
Accounts receivable, net of allowance of $280,247
in 1998 and $292,000 in 1997 10,635,997 10,341,428
Inventories, net 10,476,668 8,483,141
Accrued interest receivable 79,207 202,939
Prepaid expenses 756,284 388,692
Income taxes receivable 1,002,299 624,574
Deferred tax asset 606,514 518,778
------------ ------------
Total current assets 48,875,948 50,906,725
Property, plant and equipment, net 18,639,795 15,141,902
Intangibles, net 2,762,708 2,396,301
Other assets 735,848 1,009,916
------------ ------------
Total assets $ 71,014,299 $ 69,454,844
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,863,467 $ 4,346,039
Accrued expenses 3,407,092 3,286,304
Current portion of notes payable 1,073,169 139,661
Current portion of capital leases 684,492 629,798
------------ ------------
Total current liabilities 7,028,220 8,401,802
Notes payable, less current portion 71,491 148,985
Capital leases, less current portion 1,410,887 1,165,722
Deferred tax liability 423,179 377,701
Other liabilities 11,718 16,700
------------ ------------
Total liabilities 8,945,495 10,110,910
------------ ------------
Minority interest 332,973 132,437
Commitments and contingencies -- --
Stockholders' equity:
Common stock, $.05 par value; authorized 25,000,000
shares; issued and outstanding 8,127,728 shares at
June 30, 1998 and 8,097,979 shares at December 31, 1997 406,464 404,899
Additional paid-in capital 55,212,822 55,136,307
Retained earnings 6,813,849 4,001,642
Foreign currency translation adjustment (617,716) (331,351)
------------ ------------
61,815,419 59,211,497
Less: Treasury stock (79,588) --
------------ ------------
Total stockholders' equity 61,735,831 59,211,497
------------ ------------
Total liabilities and stockholders' equity $ 71,014,299 $ 69,454,844
============ ============
See accompanying notes to condensed consolidated financial statements.
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CERPROBE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
----------------------------- -----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
Net sales $ 18,831,468 $ 18,683,829 $ 43,421,805 $ 34,582,921
Costs of goods sold 12,057,053 11,008,957 26,470,077 20,403,329
------------ ------------ ------------ ------------
Gross profit 6,774,415 7,674,872 16,951,728 14,179,592
------------ ------------ ------------ ------------
Expenses:
Selling, general and administrative 5,615,591 4,954,862 11,271,351 9,127,311
Engineering and product development 796,149 164,455 1,626,236 617,774
Acquisition related expenses -- -- -- 6,164,156
------------ ------------ ------------ ------------
Total expenses 6,411,740 5,119,317 12,897,587 15,909,241
------------ ------------ ------------ ------------
Operating income (loss) 362,675 2,555,555 4,054,141 (1,729,649)
------------ ------------ ------------ ------------
Other income (expense):
Interest income 452,113 32,504 736,848 67,664
Interest expense (61,655) (162,242) (122,588) (296,853)
Other income 41,363 55,955 34,832 114,846
------------ ------------ ------------ ------------
Total other income (expense) 431,821 (73,783) 649,092 (114,343)
------------ ------------ ------------ ------------
Income (loss) before income taxes and
minority interest 794,496 2,481,772 4,703,233 (1,843,992)
Minority interest share of (income) loss (43,123) 41,554 (25,393) 28,985
------------ ------------ ------------ ------------
Income (loss) before income taxes 751,373 2,523,326 4,677,840 (1,815,007)
Provision for income taxes (284,595) (934,000) (1,865,632) (1,490,300)
------------ ------------ ------------ ------------
Net income (loss) $ 466,778 $ 1,589,326 $ 2,812,208 $ (3,305,307)
============ ============ ============ ============
Net income (loss) per share:
Basic $ 0.06 $ 0.25 $ 0.35 $ (0.52)
============ ============ ============ ============
Weighted average number of common
shares outstanding 8,109,950 6,353,047 8,105,700 6,321,399
============ ============ ============ ============
Diluted $ 0.06 $ 0.24 $ 0.33 $ (0.52)
============ ============ ============ ============
Weighted average number of common and
common equivalent shares outstanding 8,386,794 6,596,069 8,432,402 6,321,399
============ ============ ============ ============
See accompanying notes to condensed consolidated financial statements.
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CERPROBE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED JUNE 30,
-----------------------------
1998 1997
------------ ------------
Cash flows from operating activities:
Net income (loss) $ 2,812,208 $ (3,305,307)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 2,284,993 1,657,746
Purchased research and development -- 5,664,156
Loss on sale of equipment 144,484 426
Tax benefit from exercise of nonqualified stock options 71,000 --
Deferred income taxes (42,258) 72,819
Provision for losses on accounts receivable 12,000 (14,605)
Provision for obsolete inventory 330,613 167,132
Income (loss) applicable to minority interest in consolidated subsidiaries 25,393 (28,985)
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable (306,569) (3,255,550)
Inventories (2,324,140) 528,436
Prepaid expenses and other assets 127,029 (57,474)
Income taxes receivable (377,725) 539,904
Accounts payable and accrued expenses (2,253,136) 820,689
Accrued income taxes (108,648) 60,329
Other liabilities (4,982) 48,240
------------ ------------
Net cash provided by operating activities 390,262 2,897,956
------------ ------------
Cash flows from investing activities: --
Purchase of property, plant and equipment (5,917,413) (3,195,310)
Investment in CRPB Investors, L.L.C 78,322 (607)
Investment in Upsys-Cerprobe, L.L.C -- (21,892)
Purchase of Upsys-Cerprobe, L.L.C (376,366) --
Supplemental acquisition costs for CompuRoute -- (80,102)
Purchase of SVTR, net of cash acquired -- (2,565,697)
Proceeds from sale of equipment -- 71,183
Payment of notes receivable -- 250,000
Purchase of treasury stock (284,638) --
------------ ------------
Net cash used in investing activities (6,500,095) (5,542,425)
------------ ------------
Cash flows from financing activities:
Issuance of (payments on) notes payable and capital leases 1,155,874 (1,537,284)
Expenses from issuance of common stock (176,436) --
Net proceeds from employee stock purchase plan 203,703 --
Net proceeds from exercise of stock options 184,863 154,332
------------ ------------
Net cash provided by (used in) financing activities 1,368,004 (1,382,952)
------------ ------------
Effect of exchange rates on cash and short-term investments (286,365) (54,691)
------------ ------------
Net decrease in cash and short-term investments (5,028,194) (4,082,112)
Cash and short-term investments, beginning of period 30,347,173 5,564,557
------------ ------------
Cash and short-term investments, end of period $ 25,318,979 $ 1,482,445
============ ============
Supplemental schedule of non-cash financing activities
Equipment acquired under capital leases $ 620,509 $ 4,144
------------ ------------
Supplemental disclosures of cash flow information:
Interest paid $ 122,588 $ 296,853
------------ ------------
Income taxes paid $ 1,886,729 $ 1,315,096
------------ ------------
Supplemental disclosures of non-cash investing activities:
The Company acquired Silicon Valley Test & Repair, Inc. for $5.7 million in
the period ended June 30, 1997. The purchase price was allocated to
the assets acquired and the liabilities assumed based on their fair values as
indicated in the notes to the condensed consolidated financial statements
The Company acquired Upsys-Cerprobe. L.L.C for $376,366 in the period
ended June 30, 1998
A summary of the acquisition is as follows:
Purchase price $ 376,366 $ 5,715,263
Less cash acquired -- (285,316)
Common stock issued -- (2,864,250)
------------ ------------
Cash invested $ 376,366 $ 2,565,697
============ ============
See accompanying notes to condensed consolidated financial statements.
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CERPROBE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF PREPARATION
The accompanying condensed consolidated financial statements as of June
30, 1998 and for the three and six months ended June 30, 1998, and 1997,
are unaudited and reflect all adjustments (consisting only of normal
recurring adjustments) which are, in the opinion of management, necessary
for a fair presentation of financial position and operating results for
the interim periods. The condensed consolidated balance sheet as of
December 31, 1997 was derived from the audited consolidated financial
statements at such date.
Pursuant to accounting requirements of the Securities and Exchange
Commission applicable to quarterly reports on Form 10-Q, the accompanying
condensed consolidated financial statements and notes do not include all
disclosures required by generally accepted accounting principles for
complete financial statements. Accordingly, these statements should be
read in conjunction with Cerprobe Corporation's (the "Company") annual
financial statements and notes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1997.
Results of operations for interim periods are not necessarily indicative
of those to be achieved for full fiscal years.
PRINCIPLES OF CONSOLIDATION
The condensed consolidated financial statements include the accounts of
Cerprobe Corporation and its subsidiaries: Cerprobe Europe Limited,
Cerprobe Asia Holdings PTE LTD, CompuRoute, Inc., SVTR, Inc.,
Upsys-Cerprobe, L.L.C., and Cobra Venture Management, Inc.
Cerprobe Asia Holdings PTE LTD is a 60% (70% prior to August 18, 1997)
owner of Cerprobe Asia PTE LTD; the balance is owned by Asian investors.
Cerprobe Asia PTE LTD's wholly owned subsidiaries, Cerprobe Singapore PTE
LTD and Cerprobe Taiwan Co. LTD, operate full service sales and
manufacturing plants. All significant intercompany transactions have been
eliminated in consolidation.
On May 30, 1997, the Company entered into a joint venture with Upsys
Reseau Eurisys ("Upsys"), a French company owned by IBM and GAME COGEMA
Group, a French testing and engineering company. The joint venture,
called Upsys-Cerprobe, L.L.C., assembled and repaired Upsys's vertical
probe card that had been distributed by Cerprobe throughout the United
States and Asia. Cerprobe owned 55% of the joint venture and Upsys owned
45%. Accordingly, the condensed consolidated financial statements include
the activities of Upsys-Cerprobe, L.L.C. since the date of inception of
the joint venture. On June 25, 1998, the Company terminated its
distribution agreement with Upsys, and in connection therewith Upsys's
45% interest in Upsys-Cerprobe, L.L.C. was purchased. (See Note 6)
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(2) COMMITMENTS AND CONTINGENCIES
LETTER OF INTENT
On April 20, 1998, Cerprobe Corporation signed a letter of intent to
purchase the probe card operation of Upsys for approximately $8,000,000
in cash. On July 14, 1998, the Company terminated negotiations.
EMPLOYEE STOCK PURCHASE PLAN
On December 17, 1997, the Board of Directors approved the Employee Stock
Purchase Plan (the "ESPP"). The ESPP provides for purchases by employees
of up to 150,000 shares. The Company may from time to time purchase
shares on the open market or through negotiated transactions, which
shares would be held for purchases by employees under the ESPP.
LEGAL CLAIM
The Company is involved in various claims and legal actions arising in
the ordinary course of business. In the opinion of management, ultimate
disposition of these matters would not have a material adverse effect on
the Company.
(3) COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" (SFAS 130), effective January 1, 1998.
SFAS 130 establishes standards for the reporting and presentation of
comprehensive income and its components in financial statements.
Comprehensive income encompasses net income and "other comprehensive
income," which includes all other non-owner transactions and events which
change stockholders' equity.
The Company recognized comprehensive income of $2,640,389 for the six
months ended June 30, 1998 and comprehensive loss of $(3,338,120) for the
six months ended June 30, 1997 as follows:
Six months ended June 30,
---------------------------
1998 1997
----------- -----------
Net income (loss) $ 2,812,208 $(3,305,307)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment (286,365) (54,689)
Tax benefit from foreign currency translation 114,546 21,876
----------- -----------
Net other comprehensive loss (171,819) (32,813)
----------- -----------
Comprehensive income (loss) $ 2,640,389 $(3,338,120)
=========== ===========
(4) NEW CAPITAL LEASES
On May 7, 1998, the Company financed $389,290 of manufacturing equipment
under its current $3 million lease line of credit with Banc One Leasing
Corporation. The lease accrues interest at 7.2% annually with monthly
payments for 60 months of principal and interest of $7,745. As of June
30, 1998, there was $383,881 outstanding under the capital lease
obligation.
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On June 17, 1998, the Company financed an additional $231,219 of
manufacturing equipment with Banc One Leasing Corporation. The lease
accrues interest at 7.24% annually with monthly payments for 60 months of
principal and interest of $4,605. As of June 30, 1998, there was $228,010
outstanding under the capital lease obligation.
(5) TREASURY STOCK
In June 1998, the Company purchased on the open market 21,800 shares of
its common stock at an average purchase price of $13.06 per share. The
shares were held as common stock in treasury and were reserved to satisfy
the Company's obligation under the ESPP. Of these shares, 18,259 were
purchased by employees through the ESPP offering which ended June 30,
1998. The remaining 3,541 shares purchased, at $13.125, are being held to
satisfy future obligations.
In addition, a holder of the Company's warrants exercised 2,000 warrants
in a cash-less transaction. This resulted in the Company receiving 1,551
shares of its common stock at a price of $21.35.
A summary of treasury stock as of June 30, 1998, is as follows:
Number
Of Shares Price Value
--------- ----- -----
3,541 $ 13.125 $ 46,475
1,551 21.350 33,113
----------
$ 79,588
==========
On August 5, 1998, the Company announced a stock repurchase program
whereby up to 500,000 shares, or approximately 6%, of the Company's
common stock may be purchased from time to time in the open market. The
Company intends to utilize a portion of the reacquired shares for
reissuance in connection with its newly adopted aforementioned Employee
Stock Purchase Plan as well as to reduce dilution from the Company's
existing stock option plans.
6) UPSYS-CERPROBE L.L.C.
On June 25, 1998, Upsys's 45% interest in Upsys-Cerprobe L.L.C. was
purchased by the Company. The acquisition resulted in $376,365 of
Goodwill which will be amortized on a straight-line basis over eight
years.
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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, 1997.
OVERVIEW
Cerprobe offers comprehensive solutions for semiconductor test integration
and is a leading manufacturer of probe cards, ATE interface assemblies, and ATE
test boards. The Company's products and services enable semiconductor
manufacturers to test integrated circuits ("ICs") in wafer form and as packaged
ICs.
The Company has grown substantially over the last five years as the Company
has increased its market share and has benefited from the substantial growth in
the worldwide demand for ICs. Net sales have increased from $11.2 million for
1993 to $77.1 million for 1997. Similarly, the Company's net income has
increased from $1.5 million for 1993 to $6.7 million for 1997 (before a one-time
acquisition related expenses charge). Until 1995, substantially all of the
Company's growth was from the existing probe card product line.
Beginning with the April 1995 acquisition of Fresh Test Technology
Corporation ("Fresh Test"), acquisitions have contributed to the Company's
growth. Fresh Test expanded the Company's product line to include ATE interface
assemblies. The Company acquired CompuRoute in December 1996, which enabled the
Company to offer ATE test boards. The Company acquired SVTR in January 1997,
which added wafer prober remanufacturing and upgrading services. Net sales from
these acquired products and services together approximated $28 million, $7
million, and $4 million in 1997, 1996, and 1995, respectively.
The Company believes that it is positioned to continue its long term growth
as a result of its strength in designing, producing, and delivering, on a timely
and cost-efficient basis, a broad range of custom or customized, high quality
test products and services for semiconductor manufacturers in the United States,
Europe, and Asia. Beginning in the second quarter of 1998, however, the
worldwide demand for ICs fell dramatically due to excess inventory of older IC
designs, and slower transition to new IC designs resulting generally from
softening worldwide demand for end user products, especially personal computers.
Current Asian economic instability exacerbated the semiconductor industry
downturn. The Company's financial performance was negatively impacted by these
industry conditions. Net sales fell from $24.6 million for the first quarter of
1998 to $18.8 million, or a decline of 23.6%, for the second quarter of 1998.
Net income declined 79.7% from $2.3 million to $467,000. The more significant
percentage decrease in net income was a result of excess production capacity and
under-absorption of overhead costs. The Company is cautious about sales and net
income for the balance of 1998 due to the continued uncertainty in the industry.
The Company has reduced its workforce and has implemented other cost reduction
measures to improve its profitability at the current sales levels.
The Company maintains regional full service facilities in Arizona,
California, and Texas as well as sales offices in Colorado, Florida,
Massachusetts, and Oregon to service the U.S. market for its products and
services. The Company continues to expand into international markets, and
maintains a full service facility in Scotland to serve the European market and
full service facilities in Singapore and Taiwan to serve the Southeast Asia
market. Each of the Company's facilities is located in proximity to
semiconductor manufacturing centers.
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RESULTS OF OPERATIONS
Three Months Ended June 30, 1998 Compared to Three Months Ended June 30, 1997.
Net Sales. Net sales for the three months ended June 30, 1998 were $18.8
million, an increase of 0.5% over net sales of $18.7 million for the three
months ended June 30, 1997. The flat second quarter 1998 sales were a result of
the current softness in the worldwide demand for semiconductors along with
weaker business conditions in Asia.
Gross Profit. Gross profit for the three months ended June 30, 1998 was
$6.8 million, a decrease of 11.7% from the gross profit of $7.7 million for the
same period in 1997. Gross margin decreased to 36.2% for the three months ended
June 30, 1998, from 41.2% for the same period of 1997. The decrease in gross
margin was primarily a result of lower sales from the recent softness in the
worldwide demand for semiconductors. The Company's production infrastructure was
capable of higher production run rates, thereby resulting in over capacity and
under-absorption of overhead. Revenues from the Company's core products, probe
cards and interfaces, were 76.8% of sales. Approximately 23.2% of net sales were
attributed to ATE test boards from the Company's CompuRoute subsidiary and wafer
prober products and services from the Company's SVTR subsidiary. This product
mix ratio was approximately the same for the period ended June 30, 1997.
Selling, General and Administrative. Selling, general and administrative
expenses were $5.6 million, or 29.8% of net sales, for the three months ended
June 30, 1998 as compared to $5.0 million, or 26.7% of net sales, for the same
period of 1997, an increase of $0.6 million. The increase in selling, general
and administrative expenses resulted primarily from domestic expansion occurring
in the latter part of 1997 and the first quarter of 1998.
Engineering and Product Development. Engineering and product development
expenses were $796,149 for the three months ended June 30, 1998, an increase of
384.1% over $164,455 for the same period of 1997. This increase resulted
primarily from Cerprobe's continued emphasis on engineering and product
development. Additionally, during the three months ended June 30, 1997, expenses
were offset by increased project funding receipts from collaborations on
engineering and product development with certain customers.
Interest Income. Interest income was $452,113 for the three months ended
June 30, 1998 as compared to $32,504 for the same period in 1997. The increase
was due to the investment of the net proceeds of the Company's 1997 common stock
offering.
Interest Expense. Interest expense was $61,655 for the three months ended
June 30, 1998 as compared to $162,242 for the same period in 1997, a decrease of
62.0%. A portion of the net proceeds from the Company's 1997 common stock
offering was used to repay the Company's short-term debt.
Minority Interest Share of (Income) Loss. The minority interest share of
income from operations of $43,123 for the three months ended June 30, 1998
represents the Company's joint venture partners' share (40.0%) of the income
from Cerprobe Asia PTE LTD and the Company's joint venture partner's share
(45.0%) of the loss from Upsys-Cerprobe, L.L.C. For the three months ended June
30, 1997, the minority interest share of loss from operations of $41,554
represents the Company's joint venture partner's share (40.0%, 30.0% prior to
August 18, 1997) of income from Cerprobe Asia PTE LTD and the Company's joint
venture partner's share (45.0%) of the loss from Upsys-Cerprobe, L.L.C.
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Provision for Income Taxes. The provision for income taxes was $284,595,
which represents an effective tax rate of 37.9% for the three months ended June
30, 1998, compared to the provision for income taxes for the three months ended
June 30, 1997 of $934,000, which represented an effective tax rate of 37.0%.
Net Income. Net income for the three months ended June 30, 1998 was
$466,778, a decrease of $1.1 million, or 68.8%, from net income of $1.6 million
for the same period of 1997. Net income for the three months ended June 30, 1998
was 2.7% of net sales compared to 8.6% for the same period of 1997. The
reduction in net income was due to lower sales with a production infrastructure
capable of higher production run rates resulting in over capacity.
Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997.
Net Sales. Net sales for the six months ended June 30, 1998 were $43.4
million, an increase of 25.4% over net sales of $34.6 million for the six months
ended June 30, 1997. This increase, which occurred in the first quarter of 1998,
was a result of higher order rates for Cerprobe's probe card and interface
products. However, in the second quarter of 1998, slower sales rates resulted
from the softness in the worldwide demand for the semiconductors along with
weaker business in Asia.
Gross Profit. Gross profit for the six months ended June 30, 1998 was $17.0
million, an increase of 19.7% from the gross profit of $14.2 million for the
same period in 1997. Gross margin decreased to 39.2% for the six months ended
June 30, 1998, from 41.0% for the same period of 1997. The decrease in gross
margin primarily resulted from second quarter lower sales due to the softness in
the worldwide demand for semiconductors. The Company's production infrastructure
was capable of higher production run rates thereby resulting in over capacity.
Selling, General and Administrative. Selling, general and administrative
expenses were $11.3 million, or 26.0% of net sales, for the six months ended
June 30, 1998 as compared to $9.1 million, or 26.3% of net sales, for the same
period of 1997, an increase of $2.2 million. The increase in selling, general
and administrative expenses resulted primarily from domestic expansion occurring
in the later part of 1997 and first quarter of 1998.
Engineering and Product Development. Engineering and product development
expenses were $1.6 million for the six months ended June 30, 1998, an increase
of 166.7% over $617,774 for the same period of 1997. This increase resulted
primarily from Cerprobe's continued emphasis on engineering and product
development. Additionally, during the six months ended June 30, 1997, expenses
were offset by increased project funding receipts from collaborations on
engineering and product development with certain customers.
Interest Income. Interest income was $736,848 for the six months ended June
30, 1998 as compared to $67,664 for the same period in 1997. The increase was
due to the investment of the net proceeds of the Company's 1997 secondary
offering.
Interest Expense. Interest expense was $122,588 for the six months ended
June 30, 1998 as compared to $296,853 for the same period in 1997, a decrease of
58.7%. A portion of the net proceeds from the Company's 1997 secondary offering
was used to repay the Company's short-term debt.
Minority Interest Share of (Income) Loss. The minority interest share of
income from operations of $25,393 for the six months ended June 30, 1998
represents the Company's joint venture partners' share (40.0%) of the income
from Cerprobe Asia PTE LTD and the Company's joint venture partner's share
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(45.0%) of the loss from Upsys-Cerprobe, L.L.C. For the six months ended June
30, 1997, the minority interest share of loss from operations of $28,985
represents the Company's joint venture partner's share (40.0%, 30.0% prior to
August 18, 1997) of income from Cerprobe Asia PTE LTD and the Company's joint
venture partner's share (45.0%) of the loss from Upsys-Cerprobe, L.L.C.
Provision for Income Taxes. The provision for income taxes was $1.9
million, which represents an effective tax rate of 40.4% for the six months
ended June 30, 1998, compared to the provision for income taxes for the six
months ended June 30, 1997 of $1.5 million, which represented an effective tax
rate of 38.6%, excluding acquisition related expenses of $6.2 million.
Net Income. Net income for the six months ended June 30, 1998 was $2.8
million, an increase of $0.1 million, or 3.7%, from net income of $2.7 million,
before acquisition related expenses, for the same period of 1997. Net income for
the six months ended June 30, 1998 was 6.5% of net sales compared to 7.8% for
the same period of 1997. This reduction of net income as a percentage of sales
is due to lower sales with a production infrastructure capable of higher
production run rates resulting in over capacity.
LIQUIDITY AND CAPITAL RESOURCES
Cerprobe has financed its operations and capital requirements primarily
through cash flow from operations, equipment lease financing arrangements, and
sales of equity securities. At June 30, 1998, cash and short-term investments
were $25.3 million compared to $30.3 million at December 31, 1997.
Cerprobe generated approximately $390,262 in cash flow from operating
activities for the six months ended June 30, 1998. Net accounts receivable
increased by $294,569, or 2.9%, to $10.6 million at June 30, 1998. Net
inventories increased $2.0 million, or 23.5%, over December 31, 1997 to $10.5
million at June 30, 1998. Inventory levels were increased in anticipation of
continued growing demand for the Company's probe card and interface products.
Beginning with the second quarter of 1998, however, demand for the Company's
products fell sharply due to the onset of worldwide softness in semiconductor
demand.
Accounts payable and accrued expenses decreased $2.3 million, or 30.3%, to
$5.3 million at June 30, 1998. The decrease resulted from Cerprobe's short-term
financing of capital equipment purchased from vendors.
The current portions of notes payable and capital leases increased to $1.7
million at June 30, 1998, from $769,459 at December 31, 1997, primarily as a
result of financing capital equipment purchases.
Working capital decreased $657,000, or 1.6%, to $41.8 million at June 30,
1998 from December 31, 1997. The current ratio increased from 6.1 at December
31, 1997 to 7.0 at June 30, 1998. This increase was due to the longer term
financing of capital equipment.
Cerprobe increased its net investment in property, plant, and equipment
during the six months ended June 30, 1998 by $3.5 million, or 23.2%, to $18.6
million. This increase was attributable to the Company's first quarter 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
secondary offering.
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In April 1998, the Company signed a letter of intent to purchase the probe
card operation of Upsys, a French testing and engineering company owned by IBM
and GAME COGEMA Group for approximately $8,000,000 in cash. On July 14, 1998,
the Company terminated negotiations.
On December 17, 1997, the Board of Directors approved the Employee Stock
Purchase Plan. The ESPP, was approved by the shareholders on May 29, 1998, at
the Company's annual shareholder meeting.
On August 5, 1998, the Company announced a stock repurchase program whereby
up to 500,000 shares, or approximately 6%, of the Company's common stock may be
purchased from time to time in the open market. The Company intends to utilize a
portion of the reacquired shares for reissuance in connection with its newly
adopted aforementioned Employee Stock Purchase Plan as well as to reduce
dilution from the Company's existing stock option plans.
Cerprobe believes that its working capital, together with the loan
commitments, 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. There can be no assurance that any such financing will be available
on acceptable terms and that any additional equity financing, if available,
would not result in additional dilution to existing investors.
YEAR 2000 ISSUE
The Company is in the process of performing a comprehensive review of its
Year 2000 issues and has completed its review of internal systems (information
technology ("IT") and non-IT). The majority of the Company's application
software programs are currently being replaced with Oracle applications which
are Year 2000 compliant. The Company estimates the status of progress on these
internal systems as follows:
IT Systems 20%
Non-IT Systems 50%
The Company presently believes that with modifications and updates to existing
software and the implementation of the Oracle applications, the Year 2000
problem will not pose significant operational problems for the Company's
internal systems. The Company also believes that remediation costs to become
Year 2000 compliant, excluding the costs associated with the replacement Oracle
applications, are not material.
The Company is also continuing to verify the Year 2000 readiness of third
parties (vendors and customers) with whom the Company has material
relationships. The Company is not able to determine the effect on the Company's
results of operations, liquidity, and financial condition in the event the
Company's material vendors and customers are not Year 2000 compliant. The
Company will continue to monitor the progress of its material vendors and
customers and formulate a contingency plan at that point in time when the
Company believes a material vendor or customer will not be compliant.
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BUSINESS OUTLOOK
The Company's business depends substantially on both the volume of IC
production by semiconductor manufacturers as well as new IC designs, which in
turn depend on the demand of ICs and products utilizing ICs. The semiconductor
industry is highly cyclical and historically has experienced periods of
oversupply, resulting in reduced demand for IC testing products, including the
products manufactured by the Company. Based on lower production rates among many
of the Company's customers, the Company is very cautious about net sales for the
remainder of 1998. In response to those lower sales, the Company analyzed its
current cost structure and in early July undertook a restructuring to bring its
production and overhead costs in line with the anticipated industry demand for
its products in the second half of this year.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
Statements in this section regarding the Company's prospects for growth and
adequacy of sources of capital are forward-looking statements. Words such as
"believes," "expects," "anticipates," "intends," "may," "estimates," "should,"
"will likely," and similar expressions are intended to identify such
forward-looking statements. Actual results, however, could differ materially
from those anticipated for a number of reasons, including product demand and
development, technological advances, impact of competitive products and pricing,
growth in targeted markets and other factors identified under "Special
Considerations" of the Company's 1997 Form 10-K which has been filed with the
Securities and Exchange Commission. Additional risk factors are identified from
time to time in the Company's 1998 financial press releases. The cautionary
statements made in this Report should be read as being applicable to all related
forward-looking statements wherever they appear in this Report.
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PART II - OTHER INFORMATION
Item 2 Sales of Unregistered Securities
In June 1998, the Company issued upon exercise of a warrant 2,000 shares
of its Common Stock at $16.55 per share to a representative of the sales
agent that placed the Company's Series A Convertible Preferred in January
of 1996. Payment was made in a cash-less exercise by surrender of 1,551
shares of the Company's Common Stock valued at $21.35 per share. The
offering was made pursuant to Section 4(2) of the Securities Act of 1933.
Item 4 Submission of Matters to Vote of Security Holders
a. An annual meeting of stockholders of the Company was held on May 29,
1998.
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:
Votes For Votes Withheld
Ross J. Mangano 6,246,463 212,857
C. Zane Close 6,248,901 210,419
Kenneth W. Miller 6,246,501 212,819
Donald F. Walter 6,145,981 313,339
William A. Fresh 6,249,401 209,919
2. An amendment to the Company's First Restated Certificate of
Incorporation to increase the number of authorized shares of
common stock from 10,000,000 to 25,000,000 was approved at the
annual meeting pursuant to the following vote:
Votes For 4,766,963
Votes Against 1,659,659
Votes Abstaining 32,698
3. An amendment to the Company's 1995 Stock Option Plan to increase
the number of shares of common stock that may be issued pursuant
to the plan from 800,000 to 1,400,000 was approved at the annual
meeting pursuant to the following vote:
Votes For 2,625,307
Votes Against 1,791,944
Votes Abstaining 35,721
Not Voted 2,006,348
4. An amendment to the Company's 1995 Stock Option Plan (a) to
increase the number of options granted to non-employee members of
the Board of Directors pursuant to annual automatic options from
options to acquire 2,000 shares to 3,000 shares, (b) to provide
that annual automatic options shall vest at the time of grant, and
(c) to eliminate the granting of initial automatic options to new
members of the Board of Directors was approved at the annual
meeting pursuant to the following vote:
Votes For 4,765,590
Votes Against 1,613,347
Votes Abstaining 37,545
Not Voted 42,838
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5. The Company's Employee Stock Purchase Plan was approved at
the annual meeting pursuant to the following vote:
Votes For 4,369,885
Votes Against 47,220
Votes Abstaining 35,867
Not Voted 2,006,348
6. 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 6,077,618
Votes Against 18,714
Votes Abstaining 362,988
Item 6 Exhibits and Reports on Form 8-K
a. Exhibits
10(fff) Lease agreement between CompuRoute and BancOne
Leasing Corporation dated May 7, 1998.
10(ggg) Lease agreement between CompuRoute and BancOne
Leasing Corporation dated June 17, 1998.
10(hhh) Lease agreement between Cerprobe Corporation and
Jackson-Shaw El Dorado Tech I Limited Partnership
dated May 15, 1998.
3(a) Second Restated Certificate of Incorporation of
Cerprobe Corporation, filed with the Delaware
Secretary of State on June 23, 1998.
(11) Computation of Net Income (Loss) Per Share.
(27.1) Financial Data Schedule - June 30, 1998
(27.2) Financial Data Schedule - June 30, 1997
b. No reports on Form 8-K were filed by the Company during the
quarter ended June 30, 1998.
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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
August 14, 1998
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10(fff) Lease agreement between CompuRoute and BancOne Leasing Corporation
dated May 7, 1998.
10(ggg) Lease agreement between CompuRoute and BancOne Leasing Corporation
dated June 17, 1998.
10(hhh) Lease agreement between Cerprobe Corporation and Jackson-Shaw El
Dorado Tech I Limited Partnership dated May 15, 1998.
3(a) Second Restated Certificate of Incorporation of Cerprobe Corporation,
filed with the Delaware Secretary of State on June 23, 1998.
(11) Computation of Net Income (Loss) Per Share.
(27.1) Financial Data Schedule - June 30, 1998
(27.2) Financial Data Schedule - June 30, 1997