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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Quarter Ended March 31, 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 May 4, 1999, there were 8,144,879 shares of the registrant's Common
Stock outstanding.
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CERPROBE CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1999
TABLE OF CONTENTS
Page
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets -
March 31, 1999 and December 31, 1998.......................... 3
Condensed Consolidated Statements of Operations -
Three months Ended March 31, 1999 and 1998.................... 4
Condensed Consolidated Statements of Cash flows -
Three months Ended March 31, 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
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS............................................. 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.............................. 14
SIGNATURE .............................................................. 16
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CERPROBE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31,
Assets 1999 1998
----------- -------------
(unaudited)
Current assets:
Cash $ 6,851,725 $ 4,753,696
Short-term investment securities 13,032,153 14,305,400
Accounts receivable, net of allowance of $337,364
in 1999 and $333,364 in 1998 9,096,054 8,951,680
Inventories, net 5,196,764 5,303,631
Accrued interest receivable 46,399 102,093
Prepaid expenses 1,208,411 869,382
Income taxes receivable 1,144,871 714,811
Deferred tax asset 566,662 446,092
Net assets of discontinued operations 907,978 1,481,903
------------ ------------
Total current assets 38,051,017 36,928,688
Property, plant, and equipment, net 24,003,397 22,698,509
Intangible assets, net 3,188,567 3,050,460
Other assets 1,186,347 1,007,917
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Total assets $ 66,429,328 $ 63,685,574
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,909,187 $ 2,534,997
Accrued expenses 2,805,855 3,075,894
Current portion of notes payable 1,102,157 138,985
Current portion of capital lease obligations 654,970 660,192
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Total current liabilities 7,472,169 6,410,068
Notes payable, less current portion 2,627,059 731,555
Capital lease obligations, less current portion 2,189,607 2,472,563
Other liabilities 4,546 7,073
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Total liabilities 12,293,381 9,621,259
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Minority interest 579,519 590,465
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 8,144,879 and outstanding 7,658,726 shares at
March 31, 1999 and issued 8,131,279 and outstanding 7,645,126
shares at December 31, 1998 407,244 406,564
Additional paid-in capital 55,415,245 55,271,200
Retained earnings 3,650,767 3,505,734
Accumulated other comprehensive income:
Foreign currency translation (395,311) (188,131)
------------ ------------
59,077,945 58,995,367
Treasury stock, at cost, 486,153 shares at March 31, 1999
and December 31, 1998 (5,521,517) (5,521,517)
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Total stockholders' equity 53,556,428 53,473,850
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Total liabilities and stockholders' equity $ 66,429,328 $ 63,685,574
============ ============
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 MARCH 31,
----------------------------
1999 1998
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Net sales $ 15,605,894 $ 22,952,817
Costs of goods sold 10,045,546 13,074,050
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Gross profit 5,560,348 9,878,767
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Expenses:
Selling, general, and administrative 4,427,431 4,756,010
Engineering and product development 798,264 678,205
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Total expenses 5,225,695 5,434,215
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Operating income 334,653 4,444,552
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Other income (expense):
Interest income 229,410 284,202
Interest expense (90,486) (60,933)
Other, net (39,631) (4,257)
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Total other income 99,293 219,012
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Income from continuing operations before
minority interest and income taxes 433,946 4,663,564
Minority interest (66,302) 17,730
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Income from continuing operations before income taxes 367,644 4,681,294
Income taxes (217,289) (1,933,233)
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Income from continuing operations 150,355 2,748,061
Discontinued operations:
Loss from operations of SVTR, Inc., net of taxes (5,322) (402,631)
------------ ------------
Net income $ 145,033 $ 2,345,430
============ ============
Net income (loss) per common share:
Basic:
From continuing operations $ 0.02 $ 0.34
From discontinued operations (0.00) (0.05)
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Net income per common share $ 0.02 $ 0.29
============ ============
Weighted average number of common
shares outstanding 7,655,304 8,101,001
============ ============
Diluted:
From continuing operations $ 0.02 $ 0.33
From discontinued operations (0.00) (0.05)
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Net income per common share $ 0.02 $ 0.28
============ ============
Weighted average number of common and
common equivalent shares outstanding 8,049,086 8,482,243
============ ============
See accompanying notes to condensed consolidated financial statements.
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CERPROBE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
THREE MONTHS ENDED MARCH 31,
------------------------------
1999 1998
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Cash flows from operating activities:
Net income from continuing operations $ 150,355 $ 2,748,061
Adjustments to reconcile net income from continuing operations
to net cash provided by continuing operations:
Depreciation and amortization 1,355,681 1,067,059
Loss on sale of equipment -- 107,186
Tax benefit from exercise of nonqualified stock options -- 9,000
Deferred income taxes (250,178) (89,994)
Provision for losses on accounts receivable 4,000 6,000
Provision for obsolete inventory 180,000 40,000
Income (loss) applicable to minority interest 66,302 (17,730)
Changes in working capital of continuing operations, net of
acquisitions:
Accounts receivable (148,374) (2,487,871)
Inventories (73,133) (964,949)
Prepaid expenses and other assets (340,741) (344,261)
Income taxes receivable (430,060) 471,046
Accounts payable and accrued expenses 104,151 482,679
Accrued income taxes -- 466,080
Other liabilities (2,527) (1,857)
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Net cash provided by continuing operations 615,476 1,490,449
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Net cash provided by (used in) discontinued operations 568,603 (208,545)
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Net cash provided by operating activities 1,184,079 1,281,904
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Cash flows from investing activities:
Purchase of property, plant, and equipment (2,798,676) (2,625,400)
Purchase of investment securities 1,273,247 1,659,193
Investment in CRPB Investors, L.L.C. 8,584 35,965
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Net cash used in investing activities (1,516,845) (930,242)
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Cash flows from financing activities:
Issuance of notes payable and capital lease obligations 2,570,498 601,665
Expenses from issuance of common stock -- (176,436)
Net proceeds from exercise of stock options 144,725 46,000
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Net cash provided by financing activities 2,715,223 471,229
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Effect of exchange rates on cash (284,428) (6,139)
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Net increase in cash 2,098,029 816,752
Cash, beginning of period 4,753,696 2,715,490
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Cash, end of period $ 6,851,725 $ 3,532,242
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Supplemental disclosures of cash flow information from continuing operations:
Interest paid $ 90,486 $ 60,933
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Income taxes paid $ 99,000 $ 322,500
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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 March
31, 1999 and for the three months ended March 31, 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.
On September 30, 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
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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 have filed a motion to dismiss
the amended complaint for which oral argument is scheduled mid May 1999.
It is not anticipated that this 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 claims that such liability arose out of
the Company's operations at its former facility located at 600 S.
Rockford Drive, Tempe, Arizona. The Company has been named with four
other potentially responsible parties. The EPA alleges that it has
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, will require that additional remediation be
undertaken by the potentially responsible parties. The EPA has requested
that the named parties provide an offer to perform the remediation and
pay the EPA's past costs on or before May 31, 1999 and that if no such
offer is made, the EPA shall consider pursuing other remedies, including
litigation. The Company does not believe that it in any way caused or
contributed to the contamination at the Superfund Site and therefore does
not believe there is any basis upon which to hold the Company liable for
costs associated with the Superfund Site. Despite the Company's belief,
given the uncertain nature of litigation, the Company can not guarantee a
favorable outcome. The Company will vigorously pursue a defense of the
matter.
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 three months ended March 31, 1999 and 1998 as follows:
Three months ended March 31,
----------------------------
1999 1998
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Net income $ 145,033 $ 2,345,430
Other comprehensive loss, net of tax:
Foreign currency translation
adjustment (345,300) (10,233)
Tax benefit from foreign currency
translation 138,120 4,093
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Net other comprehensive loss (207,180) (6,140)
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Comprehensive income (loss) $ (62,147) $ 2,339,290
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(4) DISCONTINUED OPERATIONS
In the third quarter of 1998, the Company discontinued operations of
SVTR, a wafer prober refurbishing and upgrading subsidiary. The
discontinuance resulted from questions regarding the origins of certain
software necessary for SVTR's business. In March 1999, Cerprobe sold
certain SVTR assets for $500,000. No gain of loss was recognized on the
sale.
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:
Three Months Ended March 31,
----------------------------
1999 1998
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Net sales $ -- $ 1,637,520
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Loss from operations $(8,869) $ (754,827)
Income tax benefit 3,547 352,196
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Loss from operations, net $(5,322) $ (402,631)
======= ===========
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 of SVTR, as reclassified in the accompanying consolidated
balance sheets, include the following:
March 31, December 31,
------------------------------
1999 1998
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Current assets $ 2,756,784 $ 3,445,737
Other assets 63,607 46,865
Current liabilities (1,897,457) (1,990,852)
Long-term debt (14,956) (19,847)
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$ 907,978 $ 1,481,903
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Selected Consolidated Financial Data and the Consolidated Financial
Statements and related Notes thereto of the Company appearing in the Company's
Annual Report on Form 10-K for the year ended December 31, 1998.
OVERVIEW
Cerprobe offers comprehensive solutions for semiconductor test
integration and is a leading manufacturer of probe cards, ATE interface
assemblies, and ATE test boards. The Company's products address critical
functions to assure IC quality, reduce manufacturing costs, improve the accuracy
of manufacturing yield data, and identify repairable memory IC's.
The semiconductor industry is characterized as cyclical, with capacity
boom cycles followed by bust cycles that create tremendous 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 from continuing
operations 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 semiconductor industry is in a downturn driven by excess
capacity pricing pressures and the economic crisis in Asia, 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 Scotland and
France and a sales office in Germany to serve the European market. The Company
also maintains full service facilities in Singapore and Taiwan to serve the
Southeast Asian market. Additionally, the company is in the process of
establishing a full service facility in Japan. Each of the Company's facilities
is located in proximity to semiconductor manufacturing centers.
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RESULTS OF OPERATIONS
Three Months Ended March 31, 1999 Compared to Three Months Ended March 31, 1998.
Net Sales. Net sales for the three months ended March 31, 1999 were $15.6
million, a decrease of 32.0% over net sales of $23.0 million for the three
months ended March 31, 1998. The decrease was primarily a result of the softness
in the worldwide demand for semiconductors.
Gross Profit. The gross profit for the three months ended March 31, 1999
was $5.6 million, a decrease of 43.7% from the gross profit of $9.9 million for
the three months ended March 31, 1998. Gross margin decreased from 43.0% in the
three months ended March 31, 1998, to 35.6% 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 $4.4 million, or 28.4% of net sales, for the three months ended
March 31, 1999, compared to $4.8 million, or 20.7% of net sales, for the three
months ended March 31, 1998. This represents a decrease of $328,579, or 6.9%,
primarily as a result of cost containment during the softness in the worldwide
demand for semiconductors as well as the reversal of accrued bonuses from the
Company's incentive compensation program offset by increases in depreciation
related to the Company's Enterprise Resource Planning ("ERP") system and
increases in insurance expense.
Engineering and Product Development. Engineering and product development
expenses were $798,264, or 5.1% of net sales, for the three months ended March
31, 1999, an increase of 17.7% over $678,205, or 3.0% of net sales, for the
three months ended March 31, 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 $229,410 for the three months ended
March 31, 1999, compared to $284,202 for the three months ended March 31, 1998.
This decrease is attributable to the investment of a lower average cash balance.
Minority Interest. The minority interest share of income of $66,302 for the
three months ended March 31, 1999 and share of loss of $17,730 for the three
months ended March 31, 1998 represented the Company's joint venture partners'
share of income (loss) from the Company's Asian operations (40%) and the Upsys
Joint Venture, which has terminated.
Income Taxes. Income taxes decreased to $217,289, which represented an
effective tax rate of 59.1% for the three months ended March 31, 1999, as
compared to $1.9 million, which represented an effective tax rate of 41.3% for
the three months ended March 31, 1998. The increase in the effective tax rate is
due primarily to a change in the foreign tax rate of Cerprobe Europe, S.A.S.
Discontinued Operations. The Company recorded $5,322 and $402,631 in losses
from discontinued operations from the disposal of its wafer prober refurbishing
and upgrading subsidiary, SVTR, Inc. for the three months ended March 31, 1999,
and 1998, respectively. The Company
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disposed of the operations of SVTR through sale of equipment, inventory, and
technology in March 1999.
Net Income. Net income for the three months ended March 31, 1999 was
$145,033 or .9% of sales, compared to the income of $2.3 million or 10.2% of
sales for the three months ended March 31, 1998. This decrease is primarily a
result of slower sales in the later part of 1998 and beginning of 1999 due to
the softness in the worldwide demand for semiconductors. 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 March 31, 1999, cash and short-term investment
securities were $19.9 million compared to $19.1 million at December 31, 1998.
Cerprobe generated $1.2 million in cash flows from operating activities for
the three months ended March 31, 1999. Accounts receivable increased by $144,374
net of allowance, or 1.6%, to $9.1 million at March 31, 1999. Inventories
decreased $106,867 net of reserve, or 2.0%, over December 31, 1998, to $5.2
million at March 31, 1999. Accounts payable and accrued expenses increased
$104,151, or 1.9%, to $5.7 million at March 31, 1999.
Working capital decreased $60,228, or .2%, to $30.6 million at March 31,
1999. The current ratio decreased from 5.8, at December 31, 1998, to 5.1, at
March 31, 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.
Cerprobe increased its investment in property, plant, and equipment during
the three months ended March 31, 1999, by $1.3 million, or 5.7%, to $24.0
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 secondary offering.
Cerprobe believes that its working capital, together with the loan and
lease commitments described above 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 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
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approximately $3.5 million. The Company estimates the status of progress on
these internal systems as of March 31, 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 first 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 Scotland, France, Singapore, and Taiwan, 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.
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.
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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. 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 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 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.
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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 have filed a motion to dismiss the amended
complaint for which oral argument is scheduled mid May 1999.
It is not anticipated that this 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 claims that such liability
arose out of the Company's operations at its former facility
located at 600 S. Rockford Drive, Tempe, Arizona. The Company
has been named with four other potentially responsible
parties. The EPA alleges that it has incurred 11 million
dollars 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, will require that
additional remediation be undertaken by the potentially
responsible parties. The EPA has requested that the named
parties provide an offer to perform the remediation and pay
the EPA's past costs on or before May 31, 1999 and that if no
such offer is made, the EPA shall consider pursuing other
remedies, including litigation. The Company does not believe
that it in any way caused or contributed to the contamination
at the Superfund Site and therefore does not believe there is
any basis upon which to hold the Company liable for costs
associated with the Superfund Site. Despite the Company's
belief, given the uncertain nature of litigation, the Company
can not guarantee a favorable outcome. The Company will
vigorously pursue a defense of the matter.
Item 6 Exhibits and Reports on Form 8-K
a. Exhibits
10(kkk) Employment Agreement between the Company and
Randal L. Buness effective January 1, 1999.
10(jjj) Employment Agreement between the Company and
Michael K. Bonham effective January 1, 1999.
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15
10(iii) Employment Agreement between the Company and C.
Zane Close effective January 1, 1999.
10(lll) Change of Control Agreement between the Company
and C. Zane Close dated January 28, 1999.
10(mmm) Change of Control Agreement between the Company
and Michael K. Bonham dated 26, 1999.
10(nnn) Change of Control Agreement between the Company
and Randal L. Buness dated January 26, 1999.
10(ooo) First Amendment to the Cerprobe Corporation 1997
Employee Stock Purchase Plan dated
February 15, 1999.
11 Computation of Net Income Per Share.
27.1 Financial Data Schedule - March 31, 1999
27.2 Financial Data Schedule - March 31, 1998
b. Reports on Form 8-K
No reports on Form 8-K were filed by the Company during
the quarter ended March 31, 1999.
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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
Senior Vice President -
Chief Financial Officer
May 5, 1999
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EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
----------- -----------
a. Exhibits
10(kkk) Employment Agreement between the Company and
Randal L. Buness effective January 1, 1999.
10(jjj) Employment Agreement between the Company and
Michael K. Bonham effective January 1, 1999.
10(iii) Employment Agreement between the Company and C.
Zane Close effective January 1, 1999.
10(lll) Change of Control Agreement between the Company
and C. Zane Close dated January 28, 1999.
10(mmm) Change of Control Agreement between the Company
and Michael K. Bonham dated 26, 1999.
10(nnn) Change of Control Agreement between the Company
and Randal L. Buness dated January 26, 1999.
10(ooo) First Amendment to the Cerprobe Corporation 1997
Employee Stock Purchase Plan dated
February 15, 1999.
11 Computation of Net Income Per Share.
27.1 Financial Data Schedule - March 31, 1999
27.2 Financial Data Schedule - March 31, 1998