XNAS:CSCD Cascade Microtech Inc Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2012 March 31, 2012

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 No. 000-51072

 

 

CASCADE MICROTECH, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Oregon   93-0856709

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

9100 S.W. Gemini Drive
Beaverton, Oregon
  97008
(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code: (503) 601-1000

 

 

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  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company   x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes  ¨    No  x

The number of shares of common stock outstanding as of May 8, 2012 was 14,194,386.

 

 

 


Table of Contents

CASCADE MICROTECH, INC.

INDEX TO FORM 10-Q

 

          Page  

PART I - FINANCIAL INFORMATION

     2   

Item 1.

  

Financial Statements

     2   
  

Condensed Consolidated Balance Sheets (unaudited) - March 31, 2012 and December 31, 2011

     2   
  

Condensed Consolidated Statements of Operations (unaudited) - Three Months Ended March 31, 2012 and 2011

     3   
  

Condensed Consolidated Statements of Comprehensive Income (unaudited) - Three Months Ended March 31, 2012 and 2011

     4   
  

Condensed Consolidated Statements of Cash Flows (unaudited) - Three Months Ended March 31, 2012 and 2011

     5   
  

Notes to Condensed Consolidated Financial Statements (unaudited)

     6   

Item 2.

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     11   

Item 3.

  

Quantitative and Qualitative Disclosures About Market Risk

     17   

Item 4.

  

Controls and Procedures

     17   

PART II - OTHER INFORMATION

     18   

Item 1A.

   Risk Factors      18   

Item 2.

   Unregistered Sales of Equity Securities and Use of Proceeds      18   

Item 6.

   Exhibits      18   

Signatures

     19   

 

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Table of Contents

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

Cascade Microtech, Inc.

Condensed Consolidated Balance Sheets

(Unaudited, In thousands)

 

     March 31,
2012
    December 31,
2011
 

Assets

    

Current Assets:

    

Cash and cash equivalents

   $ 13,460      $ 10,656   

Short-term marketable securities

     6,488        2,656   

Restricted cash

     1,097        1,470   

Accounts receivable, net of allowances of $231 and $266

     19,492        23,882   

Inventories

     25,345        23,607   

Prepaid expenses and other

     4,505        4,086   
  

 

 

   

 

 

 

Total Current Assets

     70,387        66,357   

Long-term marketable securities

     —          1,834   

Fixed assets, net of accumulated depreciation of $22,667 and $21,757

     8,164        9,003   

Goodwill

     1,001        971   

Purchased intangible assets, net of accumulated amortization of $3,470 and $3,267

     2,126        2,329   

Other assets, net of accumulated amortization of $3,804 and $3,703

     2,444        2,570   
  

 

 

   

 

 

 

Total Assets

   $ 84,122      $ 83,064   
  

 

 

   

 

 

 

Liabilities and Shareholders' Equity

    

Current Liabilities:

    

Accounts payable

   $ 6,548      $ 6,033   

Deferred revenue

     4,547        5,516   

Accrued liabilities

     8,160        7,745   
  

 

 

   

 

 

 

Total Current Liabilities

     19,255        19,294   

Deferred revenue

     177        228   

Other long-term liabilities

     3,927        4,245   
  

 

 

   

 

 

 

Total Liabilities

     23,359        23,767   

Shareholders' Equity:

    

Common stock, $0.01 par value. Authorized 100,000 shares; issued and outstanding: 14,183 and 14,165

     142        142   

Additional paid-in capital

     90,941        90,711   

Accumulated other comprehensive loss

     (556     (1,052

Accumulated deficit

     (29,764     (30,504
  

 

 

   

 

 

 

Total Shareholders' Equity

     60,763        59,297   
  

 

 

   

 

 

 

Total Liabilities and Shareholders' Equity

   $ 84,122      $ 83,064   
  

 

 

   

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

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Table of Contents

Cascade Microtech, Inc.

Condensed Consolidated Statements of Operations

(Unaudited, In thousands, except per share amounts)

 

     For the Three Months Ended March 31,  
     2012     2011  

Revenue

   $ 27,543      $ 27,013   

Cost of sales

     15,592        16,218   
  

 

 

   

 

 

 

Gross profit

     11,951        10,795   

Operating expenses:

    

Research and development

     2,779        3,075   

Selling, general and administrative

     7,911        7,403   
  

 

 

   

 

 

 

Total operating expenses

     10,690        10,478   
  

 

 

   

 

 

 

Income from operations

     1,261        317   

Other income (expense):

    

Interest income, net

     10        19   

Other, net

     (407     (17
  

 

 

   

 

 

 

Total other income (expense), net

     (397     2   
  

 

 

   

 

 

 

Income from continuing operations before income taxes

     864        319   

Income tax expense

     124        103   
  

 

 

   

 

 

 

Income from continuing operations

     740        216   

Loss from discontinued operations, net of tax

     —          (110
  

 

 

   

 

 

 

Net income

     740        106   
  

 

 

   

 

 

 

Basic income per share from continuing operations

   $ 0.05      $ 0.02   

Basic loss per share from discontinued operations

     —          (0.01
  

 

 

   

 

 

 

Basic net income per share

   $ 0.05      $ 0.01   
  

 

 

   

 

 

 

Diluted income per share from continuing operations

   $ 0.05      $ 0.01   

Diluted loss per share from discontinued operations

     —          (0.00
  

 

 

   

 

 

 

Diluted net income per share

   $ 0.05      $ 0.01   
  

 

 

   

 

 

 

Shares used in per share calculations:

    

Basic

     14,188        14,528   
  

 

 

   

 

 

 

Diluted

     14,301        14,947   
  

 

 

   

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

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Table of Contents

Cascade Microtech, Inc.

Condensed Consolidated Statements of Comprehensive Income

(Unaudited, In thousands)

 

     For the Three Months Ended March 31,  
     2012     2011  

Net income

   $ 740      $ 106   

Unrealized holding gains (losses)

     (1     4   

Change in cumulative translation adjustment

     497        1,110   
  

 

 

   

 

 

 

Comprehensive income

   $ 1,236      $ 1,220   
  

 

 

   

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

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Table of Contents

Cascade Microtech, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited, In thousands)

 

     For the Three Months Ended March 31,  
     2012     2011  

Cash flows from operating activities:

    

Net income

   $ 740      $ 106   

Adjustments to reconcile net income to net cash flows provided by operating activities:

    

Depreciation and amortization

     1,192        1,098   

Depreciation and amortization within discontinued operations

     —          67   

Stock-based compensation

     377        474   

Stock-based compensation within discontinued operations

     —          6   

Loss on write-down or disposal of long-lived assets

     56        25   

Deferred income taxes

     20        (16

(Increase) decrease in:

    

Accounts receivable, net

     4,409        (487

Inventories

     (1,401     (888

Prepaid expenses and other

     (368     538   

Increase (decrease) in:

    

Accounts payable

     450        998   

Deferred revenue

     (1,031     (40

Accrued and other long-term liabilities

     4        (1,102
  

 

 

   

 

 

 

Net cash provided by operating activities

     4,448        779   

Cash flows from investing activities:

    

Purchase of marketable securities

     (3,404     (5,756

Proceeds from sale of marketable securities

     1,405        875   

Purchase of fixed assets

     (82     (794

(Increase) decrease in restricted cash

     412        (132
  

 

 

   

 

 

 

Net cash used in investing activities

     (1,669     (5,807

Cash flows from financing activities:

    

Principal payments on capital lease obligations

     (5     (4

Witholding taxes paid on net settlement of vested restricted stock units

     (72     (188

Proceeds from issuances of common stock

     22        —     

Cash paid for repurchase of common stock

     (97     —     
  

 

 

   

 

 

 

Net cash used in financing activities

     (152     (192

Effect of exchange rate changes on cash

     177        434   
  

 

 

   

 

 

 

Increase (decrease) in cash and cash equivalents

     2,804        (4,786

Cash and cash equivalents:

    

Beginning of period

     10,656        21,871   
  

 

 

   

 

 

 

End of period

   $ 13,460      $ 17,085   
  

 

 

   

 

 

 

Supplemental disclosure of cash flow information:

    

Refunds received for income taxes, net

   $ —        $ 1,178   

See accompanying Notes to Condensed Consolidated Financial Statements.

 

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Table of Contents

CASCADE MICROTECH, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Basis of Presentation

The condensed consolidated financial information included herein has been prepared by Cascade Microtech, Inc. without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). However, such information reflects all adjustments, consisting only of normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods. The financial information as of December 31, 2011 is derived from our 2011 Annual Report on Form 10-K. Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation. The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in our 2011 Annual Report on Form 10-K. The results of operations for the interim period presented are not necessarily indicative of the results to be expected for the full year.

Note 2. Inventories

Inventories are stated at the lower of standard cost, which approximates cost computed on a first-in, first-out basis, or market, and include materials, labor and manufacturing overhead. Demonstration goods, which are included as a component of finished goods, represent inventory that is used for customer demonstration purposes. This inventory is typically sold after 12 to 18 months. We analyze the carrying value of our inventory quarterly, considering a combination of factors including, but not limited to, the following: forecasted sales or usage, historical usage rates, estimated service period, product end-of-life dates, estimated current and future market values, service inventory requirements and new product introductions. We estimate market value based on factors including, but not limited to, replacement cost and estimated resale value. Based on these analyses, we recorded inventory charges of $0.5 million and $0.3 million, respectively, in the first quarter of 2012 and 2011.

Inventories consisted of the following (in thousands):

 

     March 31,
2012
     December 31
2011
 

Raw materials

   $ 15,586       $ 14,827   

Work-in-process

     3,538         3,034   

Finished goods

     6,221         5,746   
  

 

 

    

 

 

 
   $ 25,345       $ 23,607   
  

 

 

    

 

 

 

Note 3. Net Income Per Share

The following table reconciles the shares used in calculating basic net income per share and diluted net income per share (in thousands):

 

Three Months Ended March 31,

   2012      2011  

Shares used to calculate basic net income per share

     14,188         14,528   

Dilutive effect of outstanding stock options and restricted stock units (“RSUs”)

     113         419   
  

 

 

    

 

 

 

Shares used to calculate diluted net income per share

     14,301         14,947   
  

 

 

    

 

 

 

Securities not considered as they would have been antidilutive

     1,377         659   
  

 

 

    

 

 

 

Note 4. Product Warranty

We estimate a liability for costs to repair or replace products under warranty for a period of approximately twelve months when the related product revenue is recognized. The liability for product warranties is calculated as a percentage of sales. The percentage is based on historical product repair costs. The liability for product warranties is included in accrued liabilities on our Condensed Consolidated Balance Sheets.

 

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Table of Contents

Product warranty activity was as follows (in thousands):

 

Three Months Ended March 31,

   2012     2011  

Warranty accrual, beginning of period

   $ 729      $ 701   

Reductions for warranty charges

     (271     (398

Additions to warranty reserve

     338        395   
  

 

 

   

 

 

 

Warranty accrual, end of period

   $ 796      $ 698   
  

 

 

   

 

 

 

Note 5. Goodwill and Purchased Intangible Assets

Goodwill

The change in goodwill was as follows (in thousands):

 

     Three Months
Ended

March  31, 2012
     Year Ended
December 31,
2011
 

Balance, beginning of period

   $ 971       $ 985   

Effect of exchange rate changes

     30         (14
  

 

 

    

 

 

 

Balance, end of period

   $ 1,001       $ 971   
  

 

 

    

 

 

 

Purchased Intangible Assets

Purchased intangible assets, net included the following (in thousands):

 

     March 31,
2012
    December 31,
2011
 

Customer relationships

   $ 3,265      $ 3,265   

Other

     2,331        2,331   
  

 

 

   

 

 

 
     5,596        5,596   

Less accumulated amortization

     (3,470     (3,267
  

 

 

   

 

 

 
   $ 2,126      $ 2,329   
  

 

 

   

 

 

 

Purchased intangible asset amortization totaled $0.2 million in the first quarter of 2012 and 2011.

The estimated amortization of purchased intangible assets is as follows over the next five years and thereafter (in thousands):

 

Remainder of 2012

   $ 517   

2013

     572   

2014

     378   

2015

     287   

2016

     88   

Thereafter

     284   
  

 

 

 
   $ 2,126   
  

 

 

 

Note 6. Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):

 

     March 31,
2012
     December 31,
2011
 

Accrued compensation and benefits

   $ 2,096       $ 2,378   

Accrued sales taxes and VAT

     1,909         1,285   

Accrued income taxes

     1,041         907   

Accrued warranty

     796         729   

Accrued commissions

     397         433   

Accrued restructuring costs

     1,105         1,112   

Other

     816         901   
  

 

 

    

 

 

 
   $ 8,160       $ 7,745   
  

 

 

    

 

 

 

 

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Table of Contents

Note 7. Stock-Based Compensation and Stock-Based Plans

Stock-based compensation was included in our Condensed Consolidated Statements of Operations as follows (in thousands):

 

Three Months Ended March 31,

   2012      2011  

Cost of sales

   $ 46       $ 46   

Research and development

     73         107   

Selling, general and administrative

     258         321   

Discontinued operations

     —           6   
  

 

 

    

 

 

 
   $ 377       $ 480   
  

 

 

    

 

 

 

Stock Incentive Plans

Stock option activity for the first three months of 2012 was as follows:

 

     Options
Outstanding
    Weighted
Average
Exercise Price
 

Outstanding at December 31, 2011

     960,228      $ 6.01   

Granted

     100,000        3.63   

Exercised

     (7,204     3.11   

Forfeited

     (1,116     4.30   
  

 

 

   

Outstanding at March 31, 2012

     1,051,908        5.81   
  

 

 

   

RSU activity for the first three months of 2012 was as follows:

 

     Restricted
Stock
Units
    Weighted
Average
Grant Date
Per Share
Fair Value
 

Outstanding at December 31, 2011

     497,827      $ 6.91   

Granted

     3,000        3.63   

Vested

     (52,414     5.45   

Forfeited

     (10,580     4.77   
  

 

 

   

Outstanding at March 31, 2012

     437,833        7.12   
  

 

 

   

As of March 31, 2012, total unrecognized stock-based compensation related to outstanding, but unvested, options and RSUs was $2.4 million, which will be recognized over the weighted average remaining vesting period of 2.8 years.

Employee Stock Purchase Plan

In January 2012, pursuant to the terms of our 2004 Employee Stock Purchase Plan (“ESPP”), and upon approval by our Board of Directors, the number of shares of our common stock available for purchase under the 2004 ESPP was increased from 800,000 to 850,000. There were no purchases of stock in the first quarter of 2012 under the ESPP.

Note 8. Stock Repurchase Plan

In February 2012, our board of directors authorized a stock repurchase program under which up to $1.0 million of our common stock could be repurchased from time to time in the open market or in privately negotiated transactions during the period through June 30, 2012. As of March 31, 2012, a total of 21,959 shares had been repurchased at an average price of $4.44 per share, for a total purchase price of $97,000. As of May 8, 2012, a total of 119,426 shares had been repurchased at an average price of $4.76, for a total purchase price of $568,000.

Note 9. Acquisition Related Information

In February 2012, we released the remaining 1.5 million Euros from escrow related to our acquisition of SUSS Microtech Test Systems GmbH in January 2010. No claims were made against the escrow.

 

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Table of Contents

Note 10. Segment Reporting

The segment data below is presented in the same manner that management currently organizes the segments for assessing certain performance trends. Our Chief Operating Decision Maker monitors the revenue streams and the operating income of our Systems sales and our Probes sales. We do not track our assets on a segment level, and, accordingly, that information is not provided. The sale of our Sockets operations in September 2011 was accounted for as discontinued operations and, accordingly, the results of operations related to the Sockets operations have been eliminated from prior period amounts.

Revenue and operating income information by segment was as follows (dollars in thousands):

 

     Systems     Probes     Corporate
Unallocated
    Total  

Three Months Ended March 31, 2012

        

Revenue

   $ 18,226      $ 9,317      $ —        $ 27,543   

Gross profit

   $ 7,220      $ 4,731      $ —        $ 11,951   

Gross margin

     39.6     50.8     —          43.4

Income (loss) from operations

   $ 2,785      $ 1,875      $ (3,399   $ 1,261   

Three Months Ended March 31, 2011

        

Revenue

   $ 19,532      $ 7,481      $ —        $ 27,013   

Gross profit

   $ 7,269      $ 3,526      $ —        $ 10,795   

Gross margin

     37.2     47.1     —          40.0

Income (loss) from operations

   $ 3,190      $ (111   $ (2,762   $ 317   

In preparing this financial information, certain expenses were allocated between the segments based on management estimates, while others were based on specific factors such as headcount. These factors can have a significant impact on the amount of income (loss) from operations for each segment. While we believe we have applied a reasonable methodology, assignment of other reasonable cost allocations to each segment could result in materially different segment income (loss) from operations.

No customer accounted for 10% or greater of our total revenue in the three-month periods ended March 31, 2012 or 2011.

Note 11. Fair Value Measurements

Various inputs are used in determining the fair value of our financial assets and liabilities and are summarized into three broad categories:

 

   

Level 1 – quoted prices in active markets for identical securities;

 

   

Level 2 – other significant observable inputs, including quoted prices for similar securities, interest rates, prepayment speeds, and credit risk; and

 

   

Level 3 – significant unobservable inputs, including our own assumptions in determining fair value.

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

Following are the disclosures related to our financial assets that are reported at fair value on a recurring basis (in thousands):

 

     March 31, 2012      December 31, 2011  
     Fair Value      Input Level      Fair Value      Input Level  

Marketable securities – corporate obligations

   $ 1,945         Level 2       $ 1,651         Level 2   

Marketable securities – corporate equities

   $ 1         Level 1       $ 11         Level 1   

Marketable securities – U.S. agencies

   $ 4,542         Level 2       $ 2,828         Level 2   

Forward sale contracts for Japanese yen

   $ 1,509         Level 2       $ 1,028         Level 2   

The fair value of our marketable securities is determined based on quoted market prices for similar securities. The fair value of our forward contracts is based on quoted market prices for similar securities and is used for the purpose of determining any gain or loss on our foreign currency positions. We do not record the full value of the forward contracts on our balance sheet. We record the net unrealized gain or loss on our balance sheet and as a component of other income (expense).

 

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The carrying value of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate fair value due to their short maturities.

No changes were made to our valuation techniques during the first quarter of 2012.

Note 12. Restructuring

In the first quarter of 2011, we recorded a net reversal of restructuring charges related to the integration and consolidation of our manufacturing operations and sales organization. Manufacturing operations for our Systems business were consolidated at our Dresden, Germany facility and manufacturing operations for our Probes business were consolidated at one of our Beaverton, Oregon facilities. These restructuring activities were completed as of December 31, 2011.

Restructuring costs (reversals) were included in our Condensed Consolidated Statements of Operations as follows (in thousands):

 

Three Months Ended March 31,

   2012      2011  

Cost of sales

   $ —         $ 59   

Selling, general and administrative

     —           (166
  

 

 

    

 

 

 
   $ —         $ (107
  

 

 

    

 

 

 

The following table summarizes the charges, expenditures, write-offs and adjustments related to our restructuring accruals (in thousands):

 

Three Months Ended March 31, 2012

   Beginning
Accrued
Liability
     Charged to
Expense,
Net
     Expend-
itures
    Write-Offs
and
Adjust-
ments
     Ending
Accrued
Liability
 

Termination and severance related

   $ 10       $ —         $ (10   $ —         $ —     

Lease abandonment

     4,137         —           (277     —           3,860   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 
   $ 4,147       $ —         $ (287   $ —         $ 3,860   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

We expect the lease abandonment costs will be paid by the end of 2015.

Note 13. Recent Accounting Guidance

ASU 2011-05

In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-05, “Presentation of Comprehensive Income,” which eliminates the option of reporting other comprehensive income and its components in the statement of changes in equity. While the new guidance changes the presentation of comprehensive income, there are no changes to the components that are recognized in net income or other comprehensive income under current accounting guidance. We adopted ASU 2011-05 in the first quarter of 2012 and, accordingly, comprehensive income (loss) is reported in a separate financial statement immediately following the Condensed Consolidated Statements of Operations. Since ASU 2011-05 relates to presentation of comprehensive income, the adoption did not have an impact on our financial position, results of operations or cash flows.

ASU 2011-08

In September 2011, the FASB issued ASU No. 2011-08, “Testing Goodwill for Impairment.” ASU 2011-08 simplifies the goodwill impairment assessment by permitting a company to make a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount before applying the two-step goodwill impairment test. If the conclusion is that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the company would be required to conduct the current two-step goodwill impairment test. Otherwise, it would not need to apply the two-step test. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011 and early adoption is permitted. The adoption of ASU 2011-08 will not have a material impact on our financial position, results of operations, or cash flows.

 

10


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Note 14. Subsequent Events

We have considered all events that have occurred subsequent to March 31, 2012 and through May 8, 2012 and determined that no disclosure is required.

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact made in this Quarterly Report on Form 10-Q are forward-looking including, among others, statements regarding: industry prospects; future results of operations, including estimated revenue for the quarter ending June 30, 2012 or future financial position; our expectations and beliefs regarding future revenue growth and the results of our restructuring efforts; the future capabilities and functionality of our products and services, our strategies and intentions regarding acquisitions; our accounting and tax policies; our dividend policies and share repurchase program; and our future capital requirements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology, including “intend,” “could,” “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “future,” or “continue,” the negative of these terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially from those expressed or implied in such forward-looking statements. In evaluating these statements, you should specifically consider various factors, including: changes in demand for our products; changes in product mix; the timing of shipments and customer orders; constraints on supplies of components; excess or shortage of production capacity; potential failure of expected market opportunities to materialize; changes in foreign exchange rates; and other risks included in Item 1A to our Annual Report on Form 10-K as filed with the Securities and Exchange Commission on March 5, 2012.

General

We design, develop, manufacture and market advanced wafer probing solutions for the electrical measurement and testing of high performance semiconductor chips. Our products enable precision on-wafer measurement of integrated circuits. We design, manufacture and assemble our products in Beaverton, Oregon and Dresden, Germany and maintain global sales, service and support centers in North America, Germany, Japan, Taiwan, China and Singapore.

We operate in two business segments: Systems and Probes. Sales of our probe stations are included in the Systems segment and sales of our analytical probes and production probe cards are included in the Probes segment.

Probe stations provide precise and accurate measurement of semiconductor electrical characteristics during chip design or when optimizing the chip fabrication process. Our probe stations are highly configurable and are typically sold with various accessories, including our analytical probes, as well as accessories from third parties. In addition, we design and build custom probe stations to address the specific requirements of our customers and generate revenue through the sales of service contracts.

Our analytical probes are sold to serve as components of our probe stations, or less often, to serve as components of test equipment manufactured by third parties. Our production probe cards are designed and sold for high-volume production test applications, ranging from very low current parametric testing to sophisticated, high speed radio frequency testing.

Overview

Revenue in the first quarter of 2012 increased $0.5 million, or 2.0%, to $27.5 million compared to revenue of $27.0 million in the first quarter of 2011 primarily as a result of increased sales in our Probes segment, partially offset by lower revenue from our Systems segment. Income from continuing operations in the first quarter of 2012 was $0.7 million compared to $0.2 million in the first quarter of 2011, primarily due to the increase in revenue and an increase in gross profit.

 

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Outlook

Based on our current backlog, projected bookings and scheduled shipments, we anticipate revenues will be in the range of $26 million to $29 million for the second quarter of 2012.

Critical Accounting Policies and the Use of Estimates

Management’s discussion and analysis of financial condition and results of operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On an on-going basis we evaluate our estimates, including those related to revenue recognition, bad debts, inventory, lives and recoverability of equipment and other long-lived assets, warranty obligations, deferred income tax assets, unrecognized income tax benefits, contingencies and litigation. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We reaffirm the critical accounting policies and estimates as reported in our Annual Report on Form 10-K for the year ended December 31, 2011, which was filed with the Securities and Exchange Commission on March 5, 2012.

Discontinued Operations

On September 22, 2011, we sold substantially all of the assets and liabilities related to our Sockets operations to R&D Sockets, Inc. for $525,000 in cash and a note receivable from the buyer for $25,000 due September 23, 2012. In connection with the transaction, the buyer assumed all of our obligations under the lease agreement covering administrative offices and a manufacturing facility related to our Sockets business. Prior period financial results have been reclassified to present the results of operations related to our Sockets business as discontinued operations.

Results of Continuing Operations

The following table sets forth our consolidated statement of operations data for the periods indicated as a percentage of revenue.(1)

 

     For the Three Months
Ended March 31,
 
     2012     2011  

Revenue

     100.0     100.0

Cost of sales

     56.6        60.0   
  

 

 

   

 

 

 

Gross profit

     43.4        40.0   

Operating expenses:

    

Research and development

     10.1        11.4   

Selling, general and administrative

     28.7        27.4   
  

 

 

   

 

 

 

Total operating expenses

     38.8        38.8   
  

 

 

   

 

 

 

Income from operations

     4.6        1.2   

Other income (expense), net

     (1.4     0.0   
  

 

 

   

 

 

 

Income from continuing operations before income taxes

     3.1        1.2   

Income tax expense

     0.5        0.4   
  

 

 

   

 

 

 

Income from continuing operations

     2.7        0.8   

Loss from discontinued operations, net of tax

     —          (0.4
  

 

 

   

 

 

 

Net income

     2.7     0.4
  

 

 

   

 

 

 

 

(1) Percentages may not add due to rounding.

 

12


Table of Contents

Revenue and operating income information by segment was as follows (dollars in thousands):

 

      Systems     Probes     Corporate
Unallocated
    Total  

Three Months Ended March 31, 2012

        

Revenue

   $ 18,226      $ 9,317      $ —        $ 27,543   

Gross profit

   $ 7,220      $ 4,731      $ —        $ 11,951   

Gross margin

     39.6     50.8     —          43.4

Income (loss) from operations

   $ 2,785      $ 1,875      $ (3,399   $ 1,261   

Three Months Ended March 31, 2011

        

Revenue

   $ 19,532      $ 7,481      $ —        $ 27,013   

Gross profit

   $ 7,269      $ 3,526      $ —        $ 10,795   

Gross margin

     37.2     47.1     —          40.0

Income (loss) from operations

   $ 3,190      $ (111   $ (2,762   $ 317   

Revenue

Revenue information was as follows (dollars in thousands):

 

     Three Months Ended March 31,      Dollar
Change
    % Change  

Revenue

   2012      2011       

Systems

   $ 18,226       $ 19,532       $ (1,306     (6.7 )% 

Probes

     9,317         7,481         1,836        24.5
  

 

 

    

 

 

    

 

 

   

Total

   $ 27,543       $ 27,013       $ 530        2.0
  

 

 

    

 

 

    

 

 

   

Systems

Certain financial information which contributed to the Systems revenue results was as follows:

 

     First quarter of 2012
compared to first
quarter of 2011

Percentage change in station unit sales

   None

Percentage decrease in average sales price (“ASP”)

   (10.6)%

The decrease in Systems revenue in the first quarter of 2012 compared to the first quarter of 2011 was primarily due to the decrease in ASP. ASP in the first quarter of 2012 compared to the first quarter of 2011 was negatively affected by sales mix, as fewer higher-end 300mm and special application systems were sold.

Probes

The increase in Probes revenue in the first quarter of 2012 compared to the first quarter of 2011 was primarily the result of increased unit sales of our engineering probes and production probe cards due to customer demand.

Cost of Sales and Gross Margin

Cost of sales includes purchased materials, fabrication, assembly, test, installation labor, overhead, customer-specific engineering costs, warranty costs, royalties and provision for inventory valuation reserves.

Cost of sales information was as follows (dollars in thousands):

 

     Three Months Ended March 31,      Dollar
Change
    % Change  

Cost of Sales

   2012      2011       

Systems

   $ 11,006       $ 12,263       $ (1,257     (10.3 )% 

Probes

     4,586         3,955         631        16.0
  

 

 

    

 

 

    

 

 

   

Total

   $ 15,592       $ 16,218       $ (626     (3.9 )% 
  

 

 

    

 

 

    

 

 

   

Cost of sales was affected by changes in sales as discussed above combined with the factors that caused fluctuations in our gross margin (gross profit as a percentage of revenue), as discussed below.

 

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Table of Contents

Gross margins were as follows:

 

     Three Months Ended March 31,  

Gross Margins

   2012     2011  

Systems

     39.6     37.2

Probes

     50.8     47.1

Overall

     43.4     40.0

Systems

The increase in Systems gross margins in the first quarter of 2012 compared to the first quarter of 2011 was primarily due to decreased factory costs following our factory consolidation and restructuring activities during the second and third quarters of 2011.

Probes

The increase in Probes gross margins in the first quarter of 2012 compared to the first quarter of 2011 was primarily due to higher sales volumes, which resulted in lower unallocated fixed overhead costs recorded as period expenses in cost of sales.

Overall

The overall increase in gross margins in the first quarter of 2012 compared to the first quarter of 2011 is attributable to the increases in gross margin of both operating segments.

Research and Development

Research and development costs are expensed as incurred and include compensation and related expenses for personnel, materials, consultants and overhead.

Information regarding our research and development expense was as follows (dollars in thousands):

 

     Three Months Ended March 31,      Dollar
Change
    % Change  
     2012      2011       

Research and development

   $ 2,779       $ 3,075       $ (296     (9.6 )% 

The decrease in research and development in the first quarter of 2012 compared to the first quarter of 2011 was primarily due to a decrease in project-related costs.

Selling, General and Administrative

Selling, general and administrative, or SG&A, expense includes compensation and related expenses for personnel, travel, outside services, manufacturers’ representative commissions, purchased intangible asset amortization and overhead incurred in our sales, marketing, customer support, management, legal and other professional and administrative support functions, as well as costs to operate as a public company.

Information regarding our SG&A expense was as follows (dollars in thousands):

 

     Three Months Ended March 31,      Dollar
Change
     % Change  
     2012      2011        

Selling, general and administrative

   $ 7,911       $ 7,403       $ 508         6.9

SG&A in the first quarter of 2011 included a $0.2 million benefit related to the reversal of restructuring charges. In addition, sales demo expenses increased by $0.2 million and depreciation expense increased by $0.1 million in the first quarter of 2012 compared to the first quarter of 2011.

Other Income (Expense)

Other income (expense) typically includes interest income, interest expense, gains and losses on foreign currency forward contracts and foreign currency gains and losses. Other income (expense) may also include other miscellaneous non-operating gains and losses.

 

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Table of Contents

Other income (expense), net was comprised of the following (in thousands):

 

      Three Months Ended March 31,  
     2012     2011  

Interest income, net

   $ 10      $ 19   

Foreign currency gains (losses)

     (457     29   

Gains (losses) on foreign currency forward contracts

     62        (59

Other

     (12     13   
  

 

 

   

 

 

 
   $ (397   $ 2   
  

 

 

   

 

 

 

Interest income represents interest earned on cash and cash equivalents and investments in marketable securities. The decrease is primarily attributable to lower yields on investments.

Foreign currency gains and losses primarily result from a combination of changes in foreign currency exchange rates and the net value of monetary assets and liabilities denominated in yen, euro and other foreign currencies.

Income Taxes

Information regarding our income tax expense was as follows:

 

     Three Months Ended March 31,  
     2012     2011  

Income tax provision related to continuing operations

   $ 124      $ 103   

Income tax provision as a percentage of income from continuing operations

     14.4     32.3

Our income tax expense in the first quarters of 2012 and 2011 primarily related to estimated tax expense on income in foreign tax jurisdictions.

Liquidity and Capital Resources

Net cash provided by operating activities in the first quarter of 2012 was $4.4 million and consisted of our net income of $0.7 million, net non-cash expenses of $1.6 million and net changes in our operating assets and liabilities as described below.

Accounts receivable, net decreased by $4.4 million to $19.5 million at March 31, 2012, compared to $23.9 million at December 31, 2011. The decrease in accounts receivable was primarily due to improved collections of customer receivables.

Inventories increased by $1.7 million to $25.3 million at March 31, 2012, compared to $23.6 million at December 31, 2011. The increase in inventory was primarily due to increased purchases of raw materials in preparation for orders expected to ship in the remainder of 2012. This increase was partially offset by inventory reserve charges of $0.5 million in the first quarter of 2012 as compared to $0.3 million of inventory reserve charges in the first quarter of 2011. If our actual results are significantly different than our current expectations for 2012, we may incur additional charges to write down inventory in future periods.

Prepaid expenses and other assets decreased by $0.4 million to $4.5 million at March 31, 2012, compared to $4.1 million at December 31, 2011 primarily due to collection of VAT receivable.

Accrued liabilities increased by $0.4 million to $8.2 million at March 31, 2012, compared to $7.8 million at December 31, 2011 primarily due to an increase in accrued sales taxes and VAT payable of $0.6 million, an increase in accrued income taxes of $0.1 million and a decrease in accrued compensation and benefits of $0.3 million.

Deferred revenue decreased by $1.0 million to $4.5 million at March 31, 2012, compared to $5.5 million at December 31, 2011 primarily due to a decrease in customer deposits.

 

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Table of Contents

Other long-term liabilities decreased by $0.3 million to $3.9 million at March 31, 2012, compared to $4.2 million at December 31, 2011 primarily due to the decrease in accrued lease abandonment costs.

Fixed asset purchases of $0.1 million in the first quarter of 2012 primarily related to improvements to our research and development tools. We anticipate fixed asset additions for all of 2012 to be approximately $2.5 million, primarily for production-related equipment, facility improvements, research and development tools, business information systems and information technology equipment.

In February 2012, our board of directors authorized a stock repurchase program under which up to $1.0 million of our common stock could be repurchased from time to time in the open market or in privately negotiated transactions during the period through June 30, 2012. As of March 31, 2012, a total of 21,959 shares had been repurchased at an average price of $4.44 per share, for a total purchase price of $97,000. As of May 8, 2012, a total of 119,426 shares had been repurchased at an average price of $4.76, for a total purchase price of $568,000.

Changes in our assets and liabilities as presented on our Condensed Consolidated Statements of Cash Flows do not equal the changes in such assets and liabilities as calculated for our Condensed Consolidated Balance Sheets due to the effects of fluctuating foreign exchange rates.

We anticipate meeting our cash requirements for the next 12 months and for the foreseeable future from existing cash and cash equivalents and short-term marketable securities, which totaled $19.9 million at March 31, 2012.

We continue to evaluate opportunities for acquisition and expansion and any such transactions, if consummated, may use a portion of our cash and marketable securities.

Recent Accounting Guidance

See Note 13 of Notes to Condensed Consolidated Financial Statements.

Contractual Commitments

The following is a summary of our contractual commitments and obligations as of March 31, 2012 (in thousands):

 

     Payments Due By Period  

Contractual Obligation

   Total      Remainder of
2012
     2013 and
2014
     2015 and
2016
     2017 and
beyond
 

Operating leases

   $ 11,588       $ 2,498       $ 6,585       $ 2,163       $ 342   

Capital leases

     14         11         3         —           —     

Purchase order commitments(1)

     7,796         7,552         244         —           —     

Forward contracts

     1,509         1,509         —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 20,907       $ 11,570       $ 6,832       $ 2,163       $ 342   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Purchase order commitments primarily represent open orders for inventory.

Seasonality

Typically, our first quarter revenues are lower than our revenues from the preceding fourth quarter. In addition, as is typical in our industry, we recognize a large percentage of our quarterly revenue in the last month of the quarter. However, our seasonality can be affected by general economic trends and it should not be expected that historical revenue patterns will continue.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources.

 

16


Table of Contents
Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in our reported market risks or risk management policies since the filing of our 2011 Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission on March 5, 2012.

 

Item 4. Controls and Procedures

Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Disclosure Controls and Procedures

Our management has evaluated, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (the “Exchange Act”). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective in ensuring that information required to be disclosed in our Exchange Act reports is (1) recorded, processed, summarized and reported in a timely manner, and (2) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Limitation on Effectiveness of Controls

Our management, including our Chief Executive Officer and Chief Financial Officer, do not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all occurrences of fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control systems are met. In addition, the design of a control system must reflect the fact that there are resource constraints, and the benefits of all controls must be considered relative to their costs. Control systems can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. In addition, over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that the control systems will detect all control issues, including instances of fraud, if any.

 

17


Table of Contents

PART II – OTHER INFORMATION

 

Item 1A. Risk Factors

Our Annual Report on Form 10-K for the year ended December 31, 2011 includes a detailed discussion of our risk factors. There have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K. Accordingly, the information in this Form 10-Q should be read in conjunction with the risk factors and information disclosed in our Annual Report on Form 10-K for the year ended December 31, 2011, which was filed with the Securities and Exchange Commission on March 5, 2012.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Repurchases of Equity Securities

We made the following repurchases of our common stock during the first quarter of 2012:

 

     Total number
of shares
purchased
     Average
price paid
per share
     Total number of
shares purchased

as part of publicly
announced plan
     Maximum dollar
amount of shares
that may yet be
purchased under
the plan
 

January 1 to January 31

     —           —           —           —     

February 1 to February 29

     —           —           —         $ 1.0 million   

March 1, to March 31

     21,959       $ 4.44         21,959       $ 0.9 million   
  

 

 

       

 

 

    

Total

     21,959       $ 4.44         21,959       $ 0.9 million   
  

 

 

       

 

 

    

On February 8, 2012, we announced the approval of a new share repurchase program for up to $1.0 million of our common stock during the period through June 30, 2012.

 

Item 6. Exhibits

The following exhibits are filed herewith or incorporated by reference hereto and this list is intended to constitute the exhibit index:

 

  31.1   Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934.
  31.2   Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934.
  32.1   Certification of Chief Executive Officer pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.
  32.2   Certification of Chief Financial Officer pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.
101.INS**   XBRL Instance Document.
101.SCH**   XBRL Taxonomy Extension Schema Document.
101.CAL**   XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB**   XBRL Taxonomy Extension Label Linkbase Document.
101.PRE**   XBRL Taxonomy Extension Presentation Linkbase Document.

 

** Pursuant to Rule 406T of Regulation S-T, the Interactive data Files on Exhibit 101, submitted electronically herewith, are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

 

18


Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

Date:May 8, 2012    

CASCADE MICROTECH, INC.

(Registrant)

    By:  

/s/ MICHAEL D. BURGER

    Michael D. Burger
   

Director, President and Chief Executive Officer

(Principal Executive Officer)

    By:  

/s/ JEFF KILLIAN

    Jeff Killian
   

Chief Financial Officer and Treasurer

(Principal Financial and Accounting Officer)

 

19

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