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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the fiscal year ended SEPTEMBER 30, 1999
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _______ to _______
Commission file number 0-121
KULICKE AND SOFFA INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-1498399
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2101 BLAIR MILL ROAD, WILLOW GROVE, PA 19090
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (215) 784-6000
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, WITHOUT PAR VALUE
(Title of Class)
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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |X|
The aggregate market value of the Registrant's common stock (its only voting
stock) held by non-affiliates of the Registrant as of DECEMBER 1, 1999 was
approximately $822,190,000. (Reference is made to the final paragraph of Part
II, Item 5 herein for a statement of assumptions upon which this calculation is
based).
As of DECEMBER 1, 1999, there were 23,568,851 shares of the Registrant's common
stock, without par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the 2000 Annual Shareholders'
Meeting to be filed prior to January 8, 2000 are incorporated by reference into
Part III, Items 10, 11, 12 and 13 of this Report. Such Proxy Statement, except
for the parts therein which have been specifically incorporated by reference,
shall not be deemed "filed" for the purposes of this Report on Form 10-K.
[THIS PAGE INTENTIONALLY LEFT BLANK]
KULICKE AND SOFFA INDUSTRIES, INC.
1999 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
Page
----
PART I
Item 1. Business 2
Item 2. Properties 10
Item 3. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of Security Holders 11
PART II
Item 5. Market for the Registrants' Common Equity and Related Stockholder Matters 11
Item 6. Selected Financial Data 12
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 14
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 28
Item 8. Financial Statements and Supplementary Data 28
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 64
PART III
Item 10. Directors and Executive Officers of the Registrant 64
Item 11. Executive Compensation 64
Item 12. Security Ownership of Certain Beneficial Owners and Management 64
Item 13. Certain Relationships and Related Transactions 64
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 65
1
PART I
In addition to historical information, this report contains statements relating
to future events or our future results. These statements are forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Act of 1934, as amended (the "Exchange Act"), and
are subject to the Safe Harbor provisions created by statute. Such
forward-looking statements include, but are not limited to, statements that
relate to our future revenue, product development, demand forecasts,
competitiveness, gross margins, operating expenses, cost savings expected from
the transfer of our automatic ball bonder manufacturing to Singapore and
benefits expected as a result of:
o The projected growth rates in the overall semiconductor industry,
the semiconductor assembly equipment market and the market for
semiconductor packaging materials;
o the anticipated development, production and licensing of our
advanced packaging technology;
o the projected continuing demand for wire bonders; and
o the anticipated growing importance of the flip chip assembly process
in high-end market segments.
Generally words such as "may," "will," "should," "could," "anticipate,"
"expect," "intend," "estimate," "plan," "continue," and "believe," or the
negative of or other variation on these and other similar expressions identify
forward-looking statements. These forward-looking statements are made only as of
the date of this report. We do not undertake to update or revise the
forward-looking statements, whether as a result of new information, future
events or otherwise.
Forward-looking statements are based on current expectations and involve risks
and uncertainties and our future results could differ significantly from those
expressed or implied by our forward-looking statements. These risks and
uncertainties include, without limitation those described under Item 1. Business
and Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
ITEM 1. BUSINESS.
We design, manufacture and market capital equipment and packaging materials for
sale to companies that manufacture and assemble semiconductor devices. We also
service, maintain, repair and upgrade assembly equipment. Today, we are the
world's largest supplier of semiconductor assembly equipment, according to VLSI
Research, Inc. Our business is divided into three segments: equipment, packaging
materials and advanced packaging technology.
Historically, the demand for semiconductors and our semiconductor assembly
equipment has been volatile from period to period. A downturn in the
semiconductor industry began in fiscal 1998 and continued through the first half
of fiscal 1999, contributing to our net losses for fiscal years 1998 and 1999.
The semiconductor industry began to rebound in the second half of 1999, and we
reported strong fourth quarter results, with net sales of $153.4 million and net
income of $7.4 million, compared to net sales of $76.2 million and a net loss of
$18.3 million in the fourth quarter of 1998, and net sales of $110.8 million and
a net loss of $0.7 million in the third quarter of 1999.
Kulicke and Soffa Industries, Inc. was incorporated in Pennsylvania in 1956. Our
principal offices are located at 2101 Blair Mill Road, Willow Grove,
Pennsylvania 19090 and our telephone number is (215) 784-6000.
PRODUCTS AND SERVICES
We offer a broad range of semiconductor assembly equipment, packaging materials,
advanced packaging technologies and complementary services and spare parts used
in the semiconductor assembly process. Set forth below is a table listing the
approximate percentage of our net sales by principal product for our fiscal
years ended September 30, 1999, 1998 and 1997.
FISCAL YEAR ENDED
SEPTEMBER 30,
------------------------
1999 1998 1997
---- ---- ----
Wire bonders 55% 58% 65%
Additional assembly equipment 7 7 7
Services and spare parts 6 8 6
Packaging materials 31 27 22
Advanced packaging technologies 1 -- --
--- --- ---
100% 100% 100%
=== === ===
2
See Note 11 to our Consolidated Financial Statements for financial results by
Business segment.
WIRE BONDERS
Our principal product line is our family of wire bonders, which are used to
connect extremely fine wires, typically made of gold or aluminum, between the
bonding pads on the die and the leads on the integrated circuit (IC) package to
which the die has been bonded. We offer both ball and wedge bonders in automatic
and manual configurations. Ball bonders typically are used for leadframe-based
and laminate-based packages, while wedge bonders typically are used for ceramic
packages. We believe that our wire bonders offer competitive advantages based on
high productivity and superior process control, enabling fine pitch bonding and
long, low wire loops, which are needed to assemble advanced IC packages. The
selling prices for our automatic wire bonders range from $60,000 to over
$200,000 and from $8,000 to $40,000 for manual wire bonders, in each case
depending on system configuration and purchase volume.
Our current generation of wire bonders, the 8000 family, is based on an entirely
new platform and required us to develop new software and many subassemblies that
were not part of our prior series of wire bonders. The first products in the
8000 family were the Model 8020 ball bonder and Model 8060 wedge bonder. In the
third quarter of fiscal 1999, we introduced the Model 8028 ball bonder and began
to shift production capacity from the Model 8020 ball bonder. By the end of the
fourth quarter of fiscal 1999, the Model 8028 accounted for the majority of ball
bonders we sold due to its superior technical performance and productivity.
We continue to market the Model 8060 wedge bonder, which we introduced during
the fiscal 1997 fourth quarter and began shipping in volume in the first quarter
of fiscal 1998, the Model 8090, a large area wedge bonder we introduced during
the first quarter of fiscal 1998 and the 4500 digital series of manual wire
bonders. We also continue to develop a new wire bonder platform to meet expected
customer requirements.
As part of our strategy to reduce the manufacturing costs of our wire bonders,
we plan to transfer our automatic ball bonder manufacturing from Willow Grove,
Pennsylvania to a 74,000 square foot facility in Singapore. We expect the
Singapore facility to be fully operational in late fiscal 2000.
ADDITIONAL SEMICONDUCTOR ASSEMBLY EQUIPMENT
In addition to wire bonders, we produce and distribute other types of
semiconductor assembly equipment, including wafer dicing saws and die bonders,
flip chip assembly systems and factory automation and integration systems.
Dicing Saws. Dicing saws use diamond-embedded saw blades to cut silicon
wafers into individual semiconductor die. We presently produce and market
two dicing saws: the Model 7500, an automatic dicing saw, and the Model
7700 twin spindle dicing saw, which was introduced during the fourth
quarter of fiscal 1999. These dicing saws range in price from $150 to more
than $400.
Die Bonders. Die bonders are used to attach a semiconductor die to a
leadframe or other package before wire bonding. We have a 5 year
distribution agreement with DATACON Semiconductor Equipment GmbH, an
Austrian company, principally to market their multi chip module and flip
chip die bonder product line worldwide, excluding Europe. The die bonders
range in price from $200,000 to more than $500,000, depending on
configuration. In the fourth quarter of fiscal 1999, we began marketing
the 2200 apm, an extremely accurate multi chip bonder developed by
DATACON. We have received several orders for the 2200 apm.
Flip Chip Assembly Systems. Flip chip is an alternative assembly technique
in which the die is inverted and attached to the package or board using
conductive bumps, thereby eliminating the need for conventional die or
wire bonding. The Model 2200 apm, manufactured by DATACON Semiconductor
Equipment GmbH and distributed by us, can be configured to support flip
chip applications. Selling prices for flip chip applications exceed
$300,000.
Factory Automation and Integration Systems. Factory systems include
products and services designed to automate data collection and material
flow between process steps in semiconductor assembly. We are
3
successfully marketing the Knet, a PC-based information management system,
as well as several software products for factory simulation and lot
management.
We also offer different configurations of some of our products for
non-semiconductor applications. For instance, our Model 980 saw can be
configured for cutting and grinding hard and brittle materials, such as ceramic,
glass and ferrite, that are used in the fabrication of chip capacitors or disk
drive heads.
PACKAGING MATERIALS
We offer a range of packaging materials to semiconductor device assemblers which
we sell under the brand names "American Fine Wire," "Micro-Swiss," "Semitec" and
"Advanced Polymer Solutions." We have integrated these operating units with our
equipment groups, and intend to expand this business in an effort to increase
our revenues from materials used in the assembly of ICs. We also sell our
packaging materials for use with competitors' assembly equipment. Our principal
packaging materials are:
Bonding Wire. American Fine Wire is a manufacturer of very fine (typically
0.001 inches in diameter) gold, aluminum and copper wire used in the wire
bonding process. American Fine Wire produces wire to a wide range of
specifications, which can satisfy most wire bonding applications.
Expendable Tools. The Micro-Swiss family of expendable tools includes
capillaries, wedges, die collets, saw blades and microspheres. Capillaries
and wedges are used to feed out, attach and cut the wires used in wire
bonding. Die collets are used to pick up and place die into packages.
Micro-Swiss brand hubless saw blades are used to cut hard and brittle
materials. Semitec, which we acquired in October 1996, manufactures hub
blades that are used to cut silicon wafers into semiconductor die.
Die Attach Adhesives. Advanced Polymer Solutions, a joint venture company
that we established in the first quarter of fiscal 1999 with Polyset,
Inc., currently offers two die attach adhesive formulations based on epoxy
siloxane chemistry. The first is a fast curing adhesive that can eliminate
the need for oven curing, reducing handling and processing time during the
assembly of semiconductors. The second provides a high degree of moisture
resistance for increased package reliability. Additional products planned
for introduction in fiscal 2000 include flip chip underfills and liquid
encapsulants.
SERVICES AND SPARE PARTS
We believe that our knowledge and experience have positioned us to deliver
innovative, customer-specific services that reduce the cost of owning our
equipment. Historically, our offerings in this area were limited to spare parts,
customer training and extended warranty contracts. In response to customer
trends in outsourcing packaging requirements, we are focusing on providing
repair and maintenance services, a variety of equipment upgrades, machine and
component rebuild activities and expanded customer training through a
Value-Added Products and Services Organization. These services are generally
priced on a time and materials basis. The service and maintenance arrangements
are typically subject to bi-annual or multi-year contracts.
INVESTMENT IN ADVANCED PACKAGING TECHNOLOGIES
In February 1996, we entered into a joint venture agreement with Delco
Electronics Corporation to license flip chip technology and to provide wafer
bumping services on a contract basis through Flip Chip Technologies, LLC. Flip
Chip Technologies intends to focus primarily on licensing its flip chip
technology to customers. As of September 30, 1999, Flip Chip Technologies had
sold one license and we expect it to sell additional licenses in fiscal 2000. In
addition, Flip Chip Technologies completed construction of its manufacturing
facility in Phoenix, Arizona during fiscal 1997, has commenced production and
currently is providing contract bump services to customers and is working with
other customers to have its manufacturing processes qualified. In March of 1998,
Flip Chip Technologies introduced a new wafer level chip scale package, named
the Ultra CSP(TM), aimed at the chip scale packaging market. A chip scale device
has a surface area no larger than 1.2 times the area of the die. Flip Chip
Technologies' Ultra CSP package has been qualified and is currently being
shipped to customers.
On May 31, 1999, we increased our ownership interest in Flip Chip Technologies
to 73.6% by converting all of our outstanding loans and accrued interest into
equity units. Under various operating agreements, we manage Flip Chip
Technologies jointly with Delco and have agreed not to compete with the joint
venture. Flip Chip Technologies has also entered into various agreements with
Delco that are customary in similar joint venture
4
arrangements.
We continuously evaluate investments in advanced packaging technologies. To that
end, in February 1999, we acquired the X-LAM technology of MicroModule
Systems(TM), a Cupertino, California company, to enable production of high
performance ball grid array substrates, daughter cards and multi-layer boards.
In the fourth quarter of fiscal 1999, we leased a 35,000 square foot
manufacturing/research and development facility in Milpitas, California and are
building a staff to fully develop and market the technology.
To date our Advanced Packaging Technology business has experienced losses. We
expect these losses to continue at least through fiscal 2000.
CUSTOMERS
Our major customers include large semiconductor manufacturers and
subcontract assemblers worldwide. Some of these major customers are:
Advanced Micro Devices Lucent Technologies
Advanced Semiconductor Engineering Micron Technology
Amkor Technologies Motorola
Anam National Semiconductor
ChipPAC Orient Semiconductor Electronics
Fujitsu Philips Electronics
IBM ST Microelectronics
Infineon Technologies Siliconware Precision
Intel Texas Instruments
Sales to a relatively small number of customers have accounted for a significant
percentage of our net sales. In fiscal 1999, no customer accounted for more than
10% of net sales, but in fiscal 1998 sales to Intel accounted for 17.6% of our
net sales, and in fiscal 1997 sales to Anam accounted for 12.5% of our net sales
and sales to Intel accounted for 10.2% of our net sales.
We believe that developing long-term relationships with our customers is
critical to our success. By establishing these relationships with semiconductor
manufacturers and subcontract assemblers, we gain insight into our customers'
future IC packaging strategies. This information assists us in our efforts to
develop material, equipment and process solutions that address our customers'
future assembly requirements.
INTERNATIONAL OPERATIONS
We sell our products to semiconductor device manufacturers and contract
manufacturers, which are primarily located in or have operations in the
Asia/Pacific region. Approximately 83% of our fiscal 1999 net sales, 80% of our
fiscal 1998 net sales and 85% of our fiscal 1997 net sales were for delivery to
customer locations outside of the United States. The majority of these foreign
sales were destined to customer locations in the Asia/Pacific region, including
Taiwan, Korea, Malaysia, the Philippines, Singapore, Hong Kong and Japan. We
expect sales outside of the United States to continue to represent a substantial
portion of our future revenues.
In addition, we maintain manufacturing operations in countries other than the
United States, including operations located in Israel, Singapore and
Switzerland. Risks associated with our international operations include risks of
foreign currency and foreign financial market fluctuations, international
exchange restrictions, changing political conditions and monetary policies of
foreign governments, war, civil disturbances, expropriation, or other events
which may limit or disrupt markets.
SALES AND CUSTOMER SUPPORT
We established a single sales management team in the third quarter of fiscal
1999 to coordinate activities and improve customer support. Our direct sales
force, consisting of approximately 80 individuals at September 30, 1999, is
responsible for the sale of all product lines, including those of our equipment,
packaging materials and advanced packaging technology businesses, to customers
in the United States and the Asia/Pacific region, including Japan. Lower volume
product lines, as well as all equipment sales to customers in Europe, are sold
through a network of manufacturers' representatives.
We believe that providing comprehensive worldwide sales, service, training and
support are important competitive factors in the semiconductor equipment
industry, and we have combined these functions into a customer operations group.
In order to support our U.S. and foreign customers whose semiconductor assembly
operations are located in the Asia/Pacific region, we maintain a significant
presence in the region, with sales facilities in Hong Kong, Japan, Korea,
Taiwan, Malaysia, the Philippines and Singapore, a technology center in Japan
and application labs in
5
Singapore. We also maintain customer resource centers in Taiwan, the Philippines
and Singapore. We support our assembly equipment customers worldwide with over
175 customer service and support personnel as of September 30, 1999, located in
the United States, Hong Kong, Japan, Korea, Malaysia, the Philippines,
Singapore, Taiwan and Thailand. Our local presence in the Asia/Pacific countries
enables us to provide more timely customer service and support by positioning
our service representatives and spare parts near customer facilities, and
affords customers the ability to place orders locally and to deal with service
and support personnel who speak the customer's language and are familiar with
local country practices.
BACKLOG
At September 30, 1999, our backlog of orders approximated $93.0 million,
compared to approximately $54.0 million at September 30, 1998. Our backlog
consists of product orders for which we have received confirmed purchase orders,
and which are scheduled for shipment within 12 months. Virtually all orders are
subject to cancellation, deferral or rescheduling by the customer with limited
or no penalties. Because of the possibility of customer changes in delivery
schedules or cancellations and potential delays in product shipments, our
backlog as of any particular date may not be indicative of revenues for any
succeeding quarterly period.
MANUFACTURING
Equipment. Our assembly equipment manufacturing activities consist
primarily of integrating components and subassemblies to create finished systems
configured to customer specifications. During fiscal 1999, we performed system
design, assembly and testing in-house at our Willow Grove, Pennsylvania and
Haifa, Israel facilities, utilizing an outsourcing strategy for the manufacture
of many of our major subassemblies. We believe that outsourcing enables us to
minimize our fixed costs and capital expenditures and allows us to focus on
product differentiation through system design and quality control. Our
just-in-time inventory management strategy has reduced our manufacturing cycle
times and limited our on-hand inventory. This strategy will continue at our new
facility in Singapore, sourced largely by local suppliers. We have obtained ISO
9001 certification for operations in our Willow Grove, Pennsylvania facility and
for our Haifa, Israel equipment manufacturing facility, and will apply for ISO
9001 certification of our new facility in Singapore.
Packaging Materials. We manufacture our Micro-Swiss expendable tools at
our facility in Yokneam, Israel and our American Fine Wire product line,
consisting of gold and aluminum bonding wire, at facilities in Selma, Alabama,
Singapore and Thalwil, Switzerland. We manufacture our Semitec hub blades in
Santa Clara, California. We manufacture our Advanced Polymer Solutions adhesives
in our Willow Grove, Pennsylvania facility. All three American Fine Wire
facilities, as well as the Semitec facility, have received ISO 9002
certification and the Micro-Swiss facility has received ISO 9001 certification.
Advanced Packaging Technology. We also maintain manufacturing facilities
in Phoenix, Arizona for Flip Chip Technologies and in Milpitas, California for
our X-LAM technology.
RESEARCH AND PRODUCT DEVELOPMENT
Because technological change occurs rapidly in the semiconductor industry, we
devote substantial resources to our research and development programs to
maintain our competitiveness. We employed approximately 380 individuals in
research and development at September 30, 1999. We pursue the continuous
improvement and enhancement of existing products while simultaneously developing
next generation products. For example, while the performance of current
generations of wire bonders is being enhanced in accordance with a specific
continuous improvement plan, we are simultaneously developing the next
generation wire bonders. Much of the next generation equipment we are presently
developing is based on modular, interchangeable subsystems, including the 8000
control platform, which we believe will promote more efficient and
cost-effective manufacturing operations, lower inventory levels, improved field
service capabilities and shorter product development cycles, and allow us to
introduce new products more quickly. In fiscal 1999, we introduced two new
bonders based on technology developed for earlier models of the 8000 family, the
Model 8028, an automatic ball bonder that offers increased accuracy and
productivity over its predecessor, the Model 8020, and the Model 8098, which is
used for large area ball bonding and wafer level ball bumping.
Our net expenditures for research and development totaled approximately $37.2
million, $48.7 million and $46.0 million during the fiscal years ended September
30, 1999, 1998 and 1997, respectively. We have received funding from certain
customers and government agencies pursuant to contracts or other arrangements
for the performance
6
of specified research and development activities. Such amounts are recognized as
a reduction of research and development expense when specified activities have
been performed. During the fiscal years ended September 30, 1999, 1998 and 1997,
such funding totaled approximately $1.3 million, $1.7 million and $2.0 million,
respectively.
COMPETITION
The semiconductor equipment and packaging materials industries are intensely
competitive. Significant competitive factors in the semiconductor equipment
market include performance quality, customer support and price. Our major
equipment competitors include:
o ASM Pacific Technology, Shinkawa, Kaijo and ESEC in wire bonders;
o ESEC, Nichiden, ASM Pacific Technology and Alphasem in die bonders;
and
o Disco Corporation in dicing saws.
Competitive factors in the semiconductor packaging materials industry include
price, delivery and quality. Our significant packaging materials competitors
with respect to expendable tools and blades include:
o Gaiser Tool Co. and Small Precision Tools, Inc. in expendable tools;
and
o Disco Corporation in blades;
and in the bonding wire market:
o Tanaka Electronic Industries and Sumitomo Metal Mining.
In each of the markets we serve, we face competition and the threat of
competition from established competitors and potential new entrants, some of
which may have greater financial, engineering, manufacturing and marketing
resources than we have. Some of these competitors are Japanese or Korean
companies that have had and may continue to have an advantage over us in
supplying products to local customers because many of these customers appear to
prefer to purchase from local suppliers, without regard to other considerations.
We expect our competitors to improve their current products' performance, and to
introduce new products with improved price and performance characteristics. New
product introductions by our competitors or by new market entrants could hurt
our sales. If a particular semiconductor manufacturer or subcontract assembler
selects a competitor's product for a particular assembly operation, we may not
be able to sell a product to that manufacturer or assembler for a significant
period of time because manufacturers and assemblers sometimes develop lasting
relations with suppliers, and products in our industry often go years without
requiring replacement. In addition, we may have to lower our prices in response
to price-cuts by our competitors, which could materially and adversely affect
our business, financial condition and operating results. We cannot assure you
that we will be able to continue to compete in these or other areas in the
future.
INTELLECTUAL PROPERTY
Where circumstances warrant, we seek to obtain patents on inventions governing
new products and processes developed as part of our ongoing research,
engineering and manufacturing activities. We currently hold a number of United
States patents some of which have foreign counterparts. We believe that the
duration of our patents generally exceeds the life cycles of the technologies
disclosed and claimed in the patents. Although the patents we hold and may
obtain in the future may be of value, we believe that our success will depend
primarily on our engineering, manufacturing, marketing and service skills.
In addition, we believe that much of our important technology resides in our
proprietary software and trade secrets. As long as we rely on trade secrets and
unpatented knowledge, including software, to maintain our competitive position,
there is no assurance that competitors may not independently develop similar
technologies and possibly obtain patents containing claims applicable to our
products and processes. The sale of our products covered by such patents could
require licenses that may not be available on acceptable terms, or at all. In
addition, although we execute non-disclosure and non-competition agreements with
certain of our employees, customers,
7
consultants, selected vendors and others, there is no assurance that such
secrecy agreements will not be breached.
ENVIRONMENTAL MATTERS
We are subject to various federal, state, local and foreign laws and regulations
governing, among other things, the generation, storage, use, emission,
discharge, transportation and disposal of hazardous materials and the health and
safety of our employees. In addition, we are subject to environmental laws which
may require investigation and cleanup of any contamination at facilities we own
or operate or at third party waste disposal sites we use or have used. These
laws could impose liability even if we did not know of, or were not responsible
for, the contamination.
We have in the past and will in the future incur costs to comply with
environmental laws. We are not, however, currently aware of any costs or
liabilities relating to environmental matters, including any claims or actions
under environmental laws or obligations to perform any cleanups at any of our
facilities or any third party waste disposal sites, that we expect to have a
material adverse effect on our business, financial condition or operating
results. It is possible, however, that material environmental costs or
liabilities may arise in the future.
EMPLOYEES
At September 30, 1999, we had 2,239 permanent employees, 33 temporary employees
and 145 contract personnel worldwide. Our only employees represented by a labor
union are America Fine Wire's employees in Singapore. Most of the employees at
our new automatic ball bonder manufacturing facility in Singapore will also be
members of that union. Generally, we believe our employee relations to be good.
Competition in the recruiting of personnel in the semiconductor and
semiconductor equipment industry is intense, particularly with respect to
software engineering. We believe that our future success will depend in part on
our continued ability to hire and retain qualified management, marketing and
technical employees.
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EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information regarding the executive
officers of the Company.
First Became
an Officer
Name Age (calendar year) Position
---- --- --------------- --------
C. Scott Kulicke 50 1976 Chairman of the Board of Directors and Chief Executive Officer
Morton K. Perchick 62 1982 Executive Vice President
David A. Leonhardt 41 1997 Senior Vice President
Charles Salmons 44 1992 Senior Vice President
Clifford G. Sprague 56 1989 Senior Vice President and Chief Financial Officer
Walter Von Seggern 59 1992 Senior Vice President
Laurence P. Wagner 39 1998 Senior Vice President
C. Scott Kulicke has been Chief Executive Officer since 1979 and Chairman of the
Board since 1984. Prior to that he held a number of executive positions with us.
Mr. Kulicke is the son of Frederick W. Kulicke, Jr., a member of the Board of
Directors. Mr. Kulicke also serves on the Board of Directors of General
Semiconductor, Inc.
Morton K. Perchick joined us in 1980 and has served in various executive
positions, most recently as Senior Vice President, prior to being appointed
Executive Vice President in July 1995.
David A. Leonhardt joined us in 1982 as an engineer in wedge bonder development
and was promoted to various positions in engineering, product management and new
product development. In 1997 he was appointed Vice President of Strategic
Marketing and then Vice President of the Ball Bonder Division and in March 1998
was named Vice President and General Manager, Sales and Marketing, for the
Equipment Group. Mr. Leonhardt was promoted to his current position of Senior
Vice President, as co-head of our equipment and materials businesses, in
September 1999.
Charles Salmons joined us in 1978 as an accountant and was promoted to various
positions in accounting, production and operations. In 1992 he was appointed
Vice President Manufacturing, in 1994 he was appointed Vice President
Operations, in 1996 he was appointed Vice President Product Development Programs
and in March 1998 was named Vice President and General Manager, Operations, for
the Equipment Group. Mr. Salmons was promoted to his current position of Senior
Vice President Customer Operations in September 1999.
Clifford G. Sprague joined us in March 1989 as Vice President and Chief
Financial Officer and was promoted to Senior Vice President in 1990. Prior to
joining us, he served for more than five years as Vice President and Controller
of the Oilfield Equipment Group of NL Industries, Inc., an oilfield equipment
and service company.
Walter E. Von Seggern joined us in September 1992 as Vice President of
Engineering and Technology. He was appointed Senior Vice President in December
1996, and was in charge of Marketing from April 1997 until early 1998 when he
was placed in charge of new equipment business opportunities. Mr. Von Seggern
has also served as President of Advanced Polymer Solutions LLC, a joint venture
of ours, since December 1998. From April 1988 to April 1992, he worked for
M/A-Com, Inc. He was General Manager of M/A-Com's ANZAC, RGH and Eurotec
Divisions from 1990 to 1992, and from 1988 to 1990 he was General Manager of
M/A-Com's Radar Products Division.
Laurence P. Wagner joined us in July 1998 as Senior Vice President and President
of Packaging Materials and is currently serving as Senior Vice President, as
co-head of our equipment and materials businesses. From March 1996 until the
time he joined us, Mr. Wagner was Vice President and General Manager of Emcore
Electronic Materials, a compound semiconductor materials manufacturer. Before
Emcore, Mr. Wagner was the Operating Unit Manager of Shipley Company LLC, a
division of Rohm and Haas Company, where he had worked since 1989.
9
ITEM 2. PROPERTIES.
Our major facilities are described in the table below:
LEASE
APPROXIMATE PRODUCTS EXPIRATION
FACILITY SIZE FUNCTION MANUFACTURED DATE
-------- ----------- -------- ------------ ----------
Willow Grove, 214,000 sq.ft.(1) Corp. headquarters, Wire bonders N/A
Pennsylvania manufacturing,
technology center, sales
and service
Singapore 73,700 sq.ft. (2) Manufacturing, Wire bonders September 2002
technology center,
sales and service
Haifa, Israel 46,100 sq.ft. (2) Manufacturing, Manual wire bonders, April 2002
technology center, dicing saws and
assembly systems automatic multi-process
assembly systems
Yokneam, Israel 48,400 sq.ft. (1) Manufacturing, Micro- Capillaries, wedges and N/A
Swiss operations die collets
Yokneam, Israel 12,000 sq.ft. (2) Manufacturing, Micro- Hard material blades April 2003
Swiss operations
Milpitas, California 35,000 sq.ft. (2) Technology center Laminate substrates July 2006
Phoenix, Arizona 45,000 sq.ft. (2) Technology center, Wafer bumping services April 2006
Manufacturing
Tokyo, Japan 10,700 sq.ft. (2) Technology center, N/A (3)
sales and service
Singapore 35,100 sq.ft. (2) Manufacturing, American Bonding wire May 2000
Fine Wire
operations
Selma, Alabama 25,600 sq.ft. (2) Manufacturing, American Bonding wire October 2017
Fine Wire
operations
Thalwil, 15,100 sq.ft. (2) Manufacturing, American Bonding wire (3)
Switzerland Wire Fine
operations
Santa Clara, 13,600 sq.ft. (2) Manufacturing Dicing saw blades October 2003
California
- ----------
(1) Owned.
(2) Leased.
(3) Cancellable semi-annually upon six months notice.
We also rent space for sales and service offices in Horsham, Pennsylvania;
Santa Clara, California; Mesa, Arizona; Korea; Taiwan; Malaysia; the
Philippines; Singapore; and Hong Kong. We believe that our facilities generally
are in good condition.
10
ITEM 3. LEGAL PROCEEDINGS.
From time to time, we are a plaintiff or defendant in various cases arising out
of our usual and customary business. We cannot assure you of the results of
pending or future litigation, but we do not believe that resolution of these
matters will materially and adversely affect our business , financial condition
or operating results.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
Our common stock is traded on the Nasdaq National Market under the symbol
"KLIC." The following table lists the high and low per share sale prices for our
common stock for the periods indicated:
HIGH LOW
---- ---
Fiscal 1998:
First Quarter $48 1/4 $16 1/2
Second Quarter 29 5/8 16 1/4
Third Quarter 24 13/16 13 7/8
Fourth Quarter 19 1/2 11 1/2
Fiscal 1999:
First Quarter 21 7/8 9 3/8
Second Quarter 35 1/4 17 5/8
Third Quarter 29 19
Fourth Quarter 29 19 1/8
On December 1, 1999, there were 664 holders of record of the shares of
outstanding common stock.
The payment of dividends on our common stock is within the discretion of our
board of directors. We do not currently pay cash dividends on our common stock
and we do not expect to declare cash dividends on our common stock in the near
future. We intend to retain earnings to finance the growth of our business. Our
Gold Supply Agreement between American Fine Wire and its subsidiaries and their
gold supplier contains certain financial covenants and prohibits American Fine
Wire from paying any dividends or making any distributions without the consent
of the supplier if, following the payment of the dividend or distribution, the
net worth of American Fine Wire is less than $7.0 million.
During fiscal 1999, we contributed 24,461 shares of unregistered common stock,
valued at its fair market value, as our matching contribution to our employee
401(k) Plan. Registration of such shares was not required because the
transaction did not constitute a "sale" under Section 2(3) of the Securities Act
of 1933 or the transaction was exempt pursuant to the private offering
provisions of that Act.
For the purposes of calculating the aggregate market value of the shares of our
common stock held by nonaffiliates, as shown on the cover page of this report,
we have assumed that all the outstanding shares were held by nonaffiliates
except for the shares held by our directors and executive officers. However,
this does not necessarily mean that all directors and executive officers of the
Company are, in fact, affiliates of the Company, or that there are not other
persons who may be deemed to be affiliates of the Company. Further information
concerning shareholdings of executive officers, directors and principal
shareholders is included in our proxy statement relating to our 2000 Annual
Meeting of Shareholders filed or to be filed with the Securities and Exchange
Commission.
11
ITEM 6. SELECTED FINANCIAL DATA.
The following selected consolidated financial data should be read in
conjunction with our consolidated financial statements, related notes and other
financial information included elsewhere herein.
FISCAL YEARS ENDED SEPTEMBER 30,
------------------------------------------------------------
1999 1998 1997 1996(1) 1995
---- ---- ---- ------- ----
STATEMENT OF OPERATIONS DATA: (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net sales:
Equipment $ 269,854 $ 302,107 $ 391,721 $ 287,234 $ 283,835
Packaging materials 124,450 108,933 110,186 93,942 20,674
Advanced packaging technology 4,613 -- -- -- --
--------- --------- --------- --------- ---------
Total net sales 398,917 411,040 501,907 381,176 304,509
--------- --------- --------- --------- ---------
Cost of goods sold:
Equipment 188,958 191,948 228,854 163,844 155,195
Packaging materials 90,326 82,259 89,148 75,270 12,262
Advanced packaging technology 6,098 -- -- -- --
--------- --------- --------- --------- ---------
Total cost of goods sold 285,382 274,207 318,002 239,114 167,457
--------- --------- --------- --------- ---------
Operating expenses:
Equipment 92,157 107,083 97,143 102,515 71,880
Packaging materials 23,500 24,553 21,029 14,563 3,278
Advanced packaging technology 5,314 -- -- -- --
Corporate (2) 12,296 9,353 8,070 7,566 6,454
--------- --------- --------- --------- ---------
Total operating expenses (3) 133,267 140,989 126,242 124,644 81,612
--------- --------- --------- --------- ---------
Income (loss) from operations:
Equipment (11,261) 3,076 65,724 20,875 56,760
Packaging materials 10,624 2,121 9 4,109 5,134
Advanced packaging technology (6,799) -- -- -- --
Corporate (2) (12,296) (9,353) (8,070) (7,566) (6,454)
--------- --------- --------- --------- ---------
Total income (loss) from operations (19,732) (4,156) 57,663 17,418 55,440
--------- --------- --------- --------- ---------
Interest, net 3,547 5,514 820 (164) 173
Equity in loss of joint ventures (4) (10,000) (8,715) (6,701) (994) --
Other expenses -- -- -- (630) --
--------- --------- --------- --------- ---------
Income (loss) before taxes (26,185) (7,357) 51,782 15,630 55,613
Provision (benefit) for income taxes (8,221) (1,917) 13,463 3,783 12,791
Minority interest 1,018 -- -- -- --
--------- --------- --------- --------- ---------
Net income (loss) $ (16,946) $ (5,440) $ 38,319 $ 11,847 $ 42,822
========= ========= ========= ========= =========
Basic net income (loss) per common share (5) $ (0.72) $ (0.23) $ 1.84 $ 0.61 $ 2.44
========= ========= ========= ========= =========
Diluted net income (loss) per common share (5) $ (0.72) $ (0.23) $ 1.79 $ 0.60 $ 2.23
========= ========= ========= ========= =========
Shares used in per common share calculations:(5)
Basic 23,423 23,301 20,871 19,375 17,563
Diluted 23,423 23,301 21,428 19,788 19,590
AS OF SEPTEMBER 30,
-----------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments (7) $ 39,345 $ 106,900 $ 115,587 $ 58,422 $ 38,214
Working capital 167,131 182,181 190,220 113,804 103,909
Total assets 378,145 342,584 376,819 249,554 191,029
Long-term debt (6) (7) -- -- 220 50,712 156
Shareholders' equity 274,776 287,910 291,927 147,489 133,647
12
(1) The fiscal 1996 Consolidated Statement of Operations was reclassified for
comparative purposes. Also, in October 1995, we acquired American Fine
Wire Corporation through the acquisition of all of the common stock of
Circle "S" Industries, Inc., the parent corporation of American Fine Wire.
American Fine Wire is a manufacturer of fine gold and aluminum wire used
in the wire bonding process.
(2) In January 1999, we purchased the X-LAM technology and fixed assets used
in the design, development and manufacture of laminate substrates for $8.0
million. As a result of this purchase, we recorded a pre-tax charge of
approximately $3.9 million for the writeoff of in-process research and
development.
(3) During fiscal 1999, we announced plans to relocate our automatic ball
bonder manufacturing to Singapore. As a result, we recorded a pre-tax
charge for severance of approximately $4.0 million for the elimination of
approximately 230 positions and asset writeoff costs of approximately $1.6
million. In fiscal 1999, we also recorded approximately $0.4 million for
severance related to the reduction in workforce begun in fiscal 1998.
During fiscal 1998, we recorded a pre-tax charge of approximately $8.4
million for severance and product discontinuance as a result of a slowdown
in the semiconductor industry. Of this amount $6.0 million was associated
with the equipment business, $1.7 million with the packaging materials
business and $0.7 million was recorded in corporate expense. During fiscal
1996, we recorded a pre-tax charge in the equipment business of
approximately $3.0 million for severance and the writeoff of costs
incurred in connection with the suspended Willow Grove facility expansion
as a result of a slowdown in the semiconductor industry.
(4) Effective May 31, 1999 we increased our ownership interest in Flip Chip
Technologies, LLC, from 51.0% to 73.6% by converting all of our
outstanding loans to Flip Chip Technologies and accrued interest totaling
$32.8 million into equity units. We accounted for the increase in
ownership by the purchase method of accounting and began consolidating the
results of Flip Chip Technologies into our financial statements on June 1,
1999. We recognized pre-tax losses of approximately $12.2 million, $8.7
million, $6.7 million and $1.0 million, representing our share of the
losses from our investment in Flip Chip Technologies during fiscal 1999,
1998, 1997 and 1996, respectively. Our financial statements for fiscal
1999 reflect pre-tax losses at Flip Chip Technologies of $3.0 million for
the four months after we began reporting Flip Chip Technologies on a
consolidated basis and a loss of $9.2 million for the eight months when
Flip Chip Technologies was accounted for by the equity method of
accounting and reflected in Equity in Loss of Joint Ventures.
(5) Because we had a net loss for each of the fiscal years ended September 30,
1999 and 1998, only the common shares outstanding have been used to
calculate both the basic earnings per common share and diluted earnings
per common share for these years because the inclusion of the potential
common shares would be anti-dilutive.
(6) Does not include letters of credit or foreign exchange contract
obligations.
(7) In May 1997, we completed the sale of 3,450,000 shares of our common stock
in an underwritten offering, resulting in net proceeds of approximately
$101 million. A portion of these proceeds was used to repay the $50
million outstanding balance under the Company's existing bank revolving
credit facility.
13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
In addition to historical information, this report contains statements relating
to future events or our future results. These statements are forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Act of 1934, as amended (the "Exchange Act"), and
are subject to the Safe Harbor provisions created by statute. Such
forward-looking statements include, but are not limited to, statements that
relate to our future revenue, product development, demand forecasts,
competitiveness, gross margins, operating expenses, cost savings expected from
the transfer of our automatic ball bonder manufacturing to Singapore and
benefits expected as a result of:
o the projected growth rates in the overall semiconductor industry,
the semiconductor assembly equipment market and the market for
semiconductor packaging materials;
o the anticipated development, production and licensing of our
advanced packaging technology;
o the projected continuing demand for wire bonders; and
o the anticipated growing importance of the flip chip assembly process
in high-end market segments.
Generally words such as "may," "will," "should," "could," "anticipate,"
"expect," "intend," "estimate," "plan," "continue," and "believe," or the
negative of or other variation on these and other similar expressions identify
forward-looking statements. These forward-looking statements are made only as of
the date of this report. We do not undertake to update or revise the
forward-looking statements, whether as a result of new information, future
events or otherwise.
Forward-looking statements are based on current expectations and involve risks
and uncertainties and our future results could differ significantly from those
expressed or implied by our forward-looking statements. These risks and
uncertainties include, without limitation, those described under Item 1.
Business and Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations of this report.
OVERVIEW
We design, manufacture and market capital equipment and packaging materials for
sale to companies that manufacture and assemble semiconductor devices. We also
service, maintain, repair and upgrade assembly equipment. Today, we are the
world's largest supplier of semiconductor assembly equipment, according to VLSI
Research Inc. We sell our products to semiconductor device manufacturers and
contract manufacturers, which are primarily located in or have operations in the
Asia/Pacific region. Sales to customers outside of the United States accounted
for 83% of net sales for fiscal 1999 and are expected to continue to represent a
substantial portion of our future revenues. To support our international sales,
we currently have major manufacturing operations in the United States, Israel
and Singapore, sales facilities in Hong Kong, Japan, Korea, Taiwan, Malaysia,
the Philippines and Singapore, a technology center in Japan and applications
labs in Singapore. We also maintain customer resource centers in Taiwan, the
Philippines and Singapore.
Our business is divided into the following three segments:
Equipment
Through our equipment business we design, manufacture and market semiconductor
assembly equipment. Our principal product line is our family of wire bonders,
which are used to connect extremely fine wires, typically made of gold or
aluminum, between the bonding pads on the die and the leads on the IC package to
which the die has been bonded. We are the world's largest manufacturer of wire
bonders, according to VLSI. In fiscal 1999, we successfully introduced the Model
8028 automatic ball bonder which, by the fourth quarter, accounted for the
majority of ball bonders we sold due to its superior technical performance and
productivity.
Earlier in 1999, we announced plans to relocate our automatic ball bonder
manufacturing from the United States to Singapore. We expect the new
manufacturing operation in Singapore to be fully operational in late fiscal
2000. Automatic ball bonders are our primary product and accounted for 48.0% of
our total sales in fiscal 1999. We anticipate cost savings as a result of this
move from reductions in the cost of shipping, labor and production materials. In
addition, we expect to receive favorable tax treatment from Singapore in
connection with the move. We incurred start up costs associated with the move of
$1.6 million in fiscal 1999 and expect additional start up costs in the first
half of fiscal 2000 of approximately $6.8 million.
14
Packaging Materials
Through our packaging materials business we design, manufacture and market a
range of packaging materials to semiconductor device assemblers including very
fine (typically 0.001 inches in diameter) gold, aluminum and copper wire,
capillaries, wedges, die collets and saw blades. We expect to expand this
business in an effort to increase our revenues from materials used in the
assembly of ICs.
Advanced Packaging Technology
We established this business segment in fiscal 1999 to reflect the operating
results of our strategic initiative to develop new technologies for advanced
semiconductor packaging. This new business unit is comprised of Flip Chip
Technologies, LLC, a joint venture with Delco Electronics Corporation, and our
X-LAM business unit.
Through Flip Chip Technologies we license our flip chip technology and provide
wafer bumping services. On May 31, 1999, we increased our ownership interest in
Flip Chip Technologies from 51.0% to 73.6% by converting all of our outstanding
loans and accrued interest, which totaled $32.8 million, into equity units. We
accounted for the increase in ownership by the purchase method of accounting and
began consolidating the results of Flip Chip Technologies into our financial
statements on June 1, 1999. For the first eight months of fiscal 1999, we
recognized 100% of Flip Chip Technologies' pre-tax loss and did not recognize
interest income on loans to Flip Chip Technologies due to the existence of these
loans and uncertainties about Flip Chip Technologies' ability to obtain
additional financing from Delco and its ability to generate short-term positive
cash flow. The pre-tax loss of Flip Chip Technologies for fiscal 1999 was $14.6
million compared to $17.1 million in fiscal 1998. Our share of the Flip Chip
Technologies pre-tax loss, reflected in our financial statements, was $12.2
million in fiscal 1999 and $8.7 million in fiscal 1998. The $12.2 million
pre-tax loss in fiscal 1999 consists of $3.0 million of losses for the four
months after we began reporting Flip Chip Technologies on a consolidated basis
(after giving effect to Delco's minority interest and the elimination of
inter-company interest), and a loss of $9.2 million for the eight months when
Flip Chip Technologies was accounted for by the equity method of accounting and
reflected in Equity in Loss of Joint Ventures.
We established our X-LAM business unit to develop, manufacture and market high
density interconnect substrates using either flip chip or advanced wire bonding
interconnection schemes. We purchased the X-LAM technology for $8.0 million in
the second quarter of fiscal 1999, have leased a research/manufacturing facility
and are building a staff to fully develop and market the technology. In fiscal
1999, we recorded an operating loss for the X-LAM business of $3.0 million and a
charge for the writeoff of in-process research and development of $3.9 million.
Neither Flip Chip Technologies nor X-LAM has been profitable to date. With a
full year of X-LAM operations in fiscal 2000 and our anticipated increased
selling, general and administrative expenses and development spending, we expect
losses at X-LAM to increase in fiscal 2000. We do not expect our X-LAM
operations to generate any sales until fiscal 2001.
The following table sets forth the percentage of our net sales from each
business segment for the past three years:
FISCAL YEAR ENDED
SEPTEMBER 30,
------------------------
SEGMENT 1999 1998 1997
------- ---- ---- ----
Equipment 68% 73% 78%
Packaging Materials 31 27 22
Advanced Packaging Technology 1 -- --
--- --- ---
Total 100% 100% 100%
=== === ===
Net sales. We recognize net sales upon the shipment of products or performance
of services.
Our equipment sales depend on the capital expenditures of semiconductor
manufacturers and subcontract assemblers worldwide which, in turn, depend on the
current and anticipated market demand for semiconductors and products using
semiconductors. The semiconductor industry historically has been highly volatile
and has experienced periodic downturns and slowdowns which have had a severe
negative effect on the semiconductor industry's demand for capital equipment.
These downturns and slowdowns, coupled with the effect of the Asian
15
economic crisis, adversely affected our sales during the latter half of fiscal
1998 and the first half of fiscal 1999. However, the semiconductor business
cycle appears to have turned up, as evidenced by our sales results in the fourth
quarter of fiscal 1999.
Our packaging materials sales depend on the same semiconductor manufacturers and
subcontract assemblers as our equipment sales. However, the volatility in demand
for our packaging materials is less than that of our equipment sales due to the
consumable nature of the packaging materials. We expect to expand this portion
of our business to help offset the volatility of the equipment segment, and
because the worldwide market for consumable packaging materials is larger than
the market for our semiconductor assembly equipment.
Our advanced packaging technology sales represent the sales from Flip Chip
Technologies for the four months that we reported the results of Flip Chip
Technologies on a consolidated basis. We will report Flip Chip Technologies'
sales on a consolidated basis in all twelve months of fiscal 2000. Therefore, we
expect our advanced packaging technology sales to be higher than in fiscal 1999.
Cost of goods sold. Our equipment cost of goods sold consists mainly of
subassemblies, materials, direct and indirect labor costs and other overhead. We
rely on subcontractors to manufacture many of the components and subassemblies
for our products and we rely on sole source suppliers for some material
components.
Packaging materials cost of goods sold consists primarily of gold, aluminum,
direct labor and other materials used in the manufacture of bonding wire,
capillaries, wedges and other company products, with gold making up the majority
of the cost. Gold bonding wire is generally priced based on a fabrication charge
per 1,000 feet of wire, plus the value of the gold. To minimize our exposure to
gold price fluctuations, we obtain gold for fabrication under a contract with
our gold supplier and only purchase the gold when we ship and sell the finished
product to the customer. Accordingly, fluctuations in the price of gold are
generally absorbed by our gold supplier or passed on to our customers. Since
gold makes up a significant portion of the cost of goods sold by the packaging
materials segment, the gross profit margins will be lower than can be expected
in the equipment business.
Cost of goods sold in our Advanced Packaging Technology segment is currently
comprised of material, labor and overhead at Flip Chip Technologies. Our X-LAM
operations will not report cost of goods sold until they begin to generate
revenues, which is expected to occur in fiscal 2001.
Selling, general and administrative expense. Our selling, general and
administrative expense is comprised primarily of personnel costs, professional
costs, management information systems, facility and depreciation expenses. We
expect our selling, general and administrative expenses to increase in fiscal
2000 as we build the staff in the X-LAM operation, report the results of Flip
Chip Technologies on a consolidated basis for a full year and incur additional
start up costs in Singapore.
Research and development expense. Our research and development costs consist
primarily of labor, prototype material and other costs associated with our
developmental efforts to strengthen our product lines and develop new products.
Our research and development costs decreased in fiscal 1999 due to the reduction
of our workforce in response to the market downturn. We expect our research and
development costs to increase in fiscal 2000 as the semiconductor business cycle
improves, we devote a full year to building the X-LAM operation and we report
the results of Flip Chip Technologies on a consolidated basis for a full year.
RESULTS OF OPERATIONS
The table below shows principal line items from our historical consolidated
statements of operations, as a percentage of our net sales, for the three years
ended September 30, 1999:
FISCAL YEAR ENDED
SEPTEMBER 30,
---------------------------
1999 1998 1997
---- ---- ----
Net sales 100.0% 100.0% 100.0%
Costs of goods sold 71.5 66.7 63.3
----- ----- -----
Gross margin 28.5 33.3 36.7
Selling general and administrative 21.6 20.4 16.0
Research and development, net 9.3 11.9 9.2
Resizing costs 1.5 2.0 --
Purchased in-process research and development 1.0 -- --
----- ----- -----
Income (loss) from operations (4.9)% (1.0)% 11.5%
===== ===== =====
16
FISCAL YEARS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998
During the 1999 fiscal year ended September 30, 1999, we recorded bookings of
$438.0 million compared to $347.0 million during fiscal 1998. The $91.0 million
increase in fiscal 1999 bookings occurred in the second half of fiscal 1999 and
primarily reflected a significant improvement in demand for semiconductor
assembly equipment. At September 30, 1999, total backlog of customer orders
approximated $93.0 million compared to $54.0 million at September 30, 1998.
Since the timing of deliveries may vary and orders are generally subject to
cancellation, our backlog as of any date may not be indicative of net sales for
any succeeding period.
Net sales for the 1999 fiscal year decreased by $12.1 million to $398.9 million
from $411.0 million in fiscal 1998. During the first half of fiscal 1999, net
sales totaled $134.7 million, or $108.5 million lower than the same six month
period of fiscal 1998, reflecting the impact of the slowdown in the
semiconductor industry which started in 1998. However, as the semiconductor
business cycle turned up in the second half of fiscal 1999, net sales increased
over the prior year in the third and fourth quarters by 20.8% and 101.3%,
respectively. Net sales in our equipment segment decreased by $32.3 million to
$269.9 million in fiscal 1999 compared to $302.1 million in fiscal 1998. The
lower equipment segment sales were primarily due to significantly reduced demand
for wedge bonders. We sold 117 wedge bonders in fiscal 1999, a 71% or $48.1
million decline from the fiscal 1998 level. This was partially offset by higher
automatic ball bonder sales (approximately 2,000 machines sold in fiscal 1999
versus approximately 1,800 machines sold in fiscal 1998). The increase in ball
bonder sales primarily occurred in the second half of fiscal 1999, reflecting
the increased industry demand for semiconductor assembly equipment as well as
the introduction of the new Model 8028 ball bonder. The lower equipment segment
sales in fiscal 1999 also reflect reduced average selling prices for our Model
1488 and Model 8020 ball bonders partially offset by improved pricing for the
Model 8028. Packaging materials segment net sales increased $15.6 million to
$124.5 million in fiscal 1999 from $108.9 million in fiscal 1998. The higher
packaging material segment net sales were due primarily to a higher volume of
gold wire and capillary shipments during the second half of fiscal 1999. Net
sales of our new advanced packaging technology segment reflect the sales of Flip
Chip Technologies for the four months ended September 30, 1999.
International sales (shipments of our products with ultimate foreign
destinations) comprised 83% and 80% of our total sales during fiscal 1999 and
1998, respectively. Sales to customers in the Asia/Pacific region, including
Korea, Taiwan, Malaysia, the Philippines, Japan, Singapore, Thailand and Hong
Kong, accounted for approximately 74% and 73% of our total sales in fiscal 1999
and 1998, respectively. During fiscal 1999, shipments to customers located in
Taiwan, Singapore, the Philippines and Malaysia accounted for approximately 23%,
11%, 11% and 10% of net sales, compared to 20%, 5%, 17% and 16%, respectively,
for the 1998 fiscal year.
Gross profit decreased to $113.5 million for fiscal 1999 from $136.8 million in
fiscal 1998 due primarily to the lower volume of equipment segment sales in
fiscal 1999. Gross profit margin decreased to 28.5% in fiscal 1999 from 33.3% in
fiscal 1998, due to lower gross profit margin in the equipment segment partially
offset by higher gross profit margin in the packaging materials segment. The
gross profit margin in fiscal 1999 was also negatively impacted by a $1.5
million negative gross profit recorded by our newly created advanced packaging
technology segment. The equipment segment gross profit margin decreased to 30.0%
in fiscal 1999 from 36.5% in fiscal 1998 due primarily to the lower average
selling price for the segment's Model 1488 and 8020 ball bonders due to pricing
competition and higher manufacturing costs associated with the Model 8020 and a
sharp decline in sales of our higher margin wedge bonder. The packaging
materials segment gross profit margin increased to 27.4% in fiscal 1999 from
24.5% in fiscal 1998 due primarily to operating efficiencies resulting from the
impact of cost improvement programs implemented in fiscal 1998, the favorable
impact of higher unit volumes of materials and higher margins on fine pitch
products.
Selling, general and administrative expenses increased to $86.2 million in
fiscal 1999 from $83.9 million in fiscal 1998. The $2.3 million increase was due
to $3.8 million of expenses associated with our new advanced packaging
technology business units and $1.6 million of start up expenses for our new
Singapore manufacturing facility, partially offset by lower selling, general and
administrative expenses in our equipment segment. The lower selling, general and
administrative expenses in our equipment segment were due to lower payroll and
related costs resulting from our resizing efforts to reduce our workforce in
late fiscal 1998 and early fiscal 1999.
Research and development costs decreased to $37.2 million in fiscal 1999 from
$48.7 million in the prior fiscal
17
year. Our lower research and development expense was due to lower payroll and
related costs resulting from our efforts to reduce our workforce in late fiscal
1998 and early fiscal 1999. We focused our research and development efforts on
new product introductions (e.g., the Model 8028 ball bonder) and new product
development. Gross research and development expenditures were partially offset
by funding received from customers and governmental subsidies totaling $1.3
million in fiscal 1999 compared to $1.7 million in fiscal 1998.
We recorded resizing costs of $5.9 million in fiscal 1999 reflecting provisions
for severance and asset write-off costs resulting from the announced move of our
automatic ball bonder manufacturing to Singapore and additional severance in
connection with the reduction in our workforce. At September 30, 1999, we had
accrued liabilities of $4.0 million in connection with these severance costs,
the majority of which will be paid in fiscal 2000. We also recorded resizing
costs of $8.4 million in fiscal 1998 for severance, asset write-offs and other
costs in response to the industry-wide slowdown in orders for semiconductor
assembly equipment and to a lesser extent semiconductor packaging materials.
In January 1999, we purchased the X-LAM technology and fixed assets used in the
design, development and manufacture of laminate substrates for $8.0 million. In
fiscal 1999, we recorded a charge of approximately $3.9 million for in-process
research and development representing the appraised value of products still in
the development stage that had not reached technological feasibility and an
operating loss of $3.0 million.
Loss from operations in fiscal 1999 was $19.7 million compared to a loss of $4.2
million in fiscal 1998. The unfavorable variance in fiscal 1999 was due
primarily to an operating loss at our equipment business of $11.3 million
compared to operating income of $3.1 million in the prior year and a loss at our
new advanced packaging technology business of $6.8 million. The operating loss
in our equipment business was due to lower net sales and gross profit margin and
one-time charges for the move to Singapore and workforce reductions. The
operating losses in our equipment and advanced packaging technology businesses
were partially offset by an increase of $8.5 million in operating income in the
packaging materials business. Additionally, as described previously, we recorded
a $3.9 million write-off of in-process research and development relating to the
acquisition of the X-LAM technology.
Interest income, net of interest expense, decreased by $2.0 million in fiscal
1999 compared to fiscal 1998, primarily due to lower short-term investments
resulting from the use of cash throughout fiscal 1999 to fund the net loss,
working capital, capital expenditures and investments in new business
initiatives. See "Liquidity and Capital Resources."
Equity in Loss of Joint Ventures increased from $8.7 million in fiscal 1998 to
$10.0 million in fiscal 1999. Our share of the pre-tax loss in Flip Chip
Technologies for the eight months ended May 31, 1999 was $9.2 million versus
$8.7 million for all of 1998. In fiscal 1999 we recognized 100% of the loss at
Flip Chip Technologies for the eight months ended May 31, 1999 compared to
recognizing only 51.0% of the Flip Chip Technologies loss in fiscal 1998, for
reasons previously discussed. During fiscal 1999, we also recognized a $0.8
million loss from our 50% equity interest in Advanced Polymer Solutions, LLC, a
joint venture established in fiscal 1999 to develop, manufacture and market
advanced polymer materials for semiconductor and microelectronic packaging end
users.
We recorded a tax benefit of $8.2 million in fiscal 1999. The effective tax rate
of this benefit was 33%. We increased our valuation allowance on foreign tax
credit carryforwards, and continue to maintain a valuation allowance for
deferred tax assets related to the acquired domestic American Fine Wire net
operating loss and net operating loss carryforwards of our Japanese subsidiary,
because we cannot reasonably forecast sufficient future earnings by these
subsidiaries to fully utilize the net operating losses during the carryforward
period. If we realize the benefits of the American Fine Wire acquired net
operating loss carryforward, the benefits would reduce the recorded amount of
American Fine Wire goodwill. We believe that all of the net operating loss
benefits generated during the year will be realized in the foreseeable future.
We recorded a minority interest in the net loss of Flip Chip Technologies of
$1.0 million. The minority interest reflects the portion (26.4%) of Flip Chip
Technologies that is owned by Delco, our joint venture partner.
Our net loss for fiscal 1999 was $16.9 million compared to a net loss of $5.4
million in fiscal 1998, for the reasons enumerated above.
FISCAL YEARS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
18
During the 1998 fiscal year ended September 30, 1998, we recorded bookings
totaling $347.0 million compared to $550.0 million during fiscal 1997. The
$203.0 million decrease in fiscal 1998 bookings primarily reflected an
industry-wide slowdown in orders for semiconductor assembly equipment. At
September 30, 1998, total backlog of customer orders approximated $54.0 million
compared to $118.0 million at September 30, 1997.
Net sales for the 1998 fiscal year decreased by $90.9 million to $411.0 million
from $501.9 million in fiscal 1997. The lower sales volume generally reflected
the slowdown in the semiconductor industry, resulting in reduced demand for
semiconductor assembly equipment and to a lesser extent packaging materials. The
majority of the reduction in net sales was in our equipment segment where net
sales decreased $89.6 million to $302.1 million in fiscal 1998 from $391.7
million in fiscal 1997. Fewer unit sales of ball bonders (approximately 1,800
ball bonders were sold in fiscal 1998 compared to over 3,000 in fiscal 1997)
were partially offset by higher unit sales of wedge bonders resulting in the
lower equipment segment sales in fiscal 1998. Packaging materials segment net
sales decreased $1.3 million to $108.9 million in fiscal 1998 from $110.2
million in fiscal 1997. The lower packaging material segment net sales was due
primarily to lower average selling prices of bonding wire as the result of lower
prevailing gold prices in fiscal 1998 compared to fiscal 1997.
International sales (shipments of our products with ultimate foreign
destinations) comprised 80% and 85% of our total sales during fiscal 1998 and
1997, respectively. Sales to customers in the Asia/Pacific region, including
Korea, Taiwan, Malaysia, the Philippines, Japan, Singapore, Thailand and Hong
Kong, accounted for approximately 73% and 76% of our total sales in fiscal 1998
and 1997, respectively. During fiscal 1998, shipments to customers located in
Taiwan, the Philippines, Malaysia and Korea accounted for approximately 20%,
17%, 16% and 4% of net sales, compared to 22%, 8%, 13% and 19%, respectively,
for the 1997 fiscal year. The most significant change in foreign destination
sales occurred in Korea, where Korean based customers, which have historically
accounted for a significant percentage of our sales, were adversely affected by
the financial turmoil in that country and as a result, reduced their orders from
us.
Gross profit decreased to $136.8 million for fiscal 1998 from $183.9 million in
fiscal 1997 due primarily to the lower unit volume of equipment segment sales in
fiscal 1998. Gross profit as a percentage of net sales decreased to 33.3% in
fiscal 1998 compared to 36.6% in fiscal 1997, due to lower gross profit margin
in the equipment segment partially offset by higher gross profit margin in the
packaging materials segment. The equipment segment gross profit margin decreased
to 36.5% in fiscal 1998 from 41.6% in fiscal 1997 due primarily to the lower
unit volume, which resulted in the absorption of manufacturing overhead costs by
fewer units. Our packaging materials segment gross profit margin increased to
24.5% in fiscal 1998 compared to 19.1% in fiscal 1997 due primarily to improved
manufacturing efficiencies at our bonding wire and saw blade facilities.
Selling, general and administrative expenses increased to $83.9 million in
fiscal 1998 from $80.2 million in fiscal 1997. This increase of $3.7 million
consisted of approximately $3.1 million related to the equipment segment, $0.4
million related to the packaging materials segment and $0.2 million of
incremental corporate costs. The increase in the equipment segment selling,
general and administrative expenses was due primarily to increased selling,
marketing and customer support costs associated with the launch of our new Model
8020 and 8060 wire bonders and increased spending in connection with the 1999
implementation of our new Enterprise Resource Planning System, which replaced
the segment's business and accounting systems. The slight increase in the
package materials selling, general and administrative expenses costs in fiscal
1998 was due to higher sales and distribution infrastructure costs.
Research and development costs increased to $48.7 million in fiscal 1998 from
$46.0 million in the prior fiscal year. The majority of the research and
development costs incurred were in the equipment segment and were due to
increased internal labor, higher outside contract development costs and
increased expenditures for prototype materials as we continued development of
additional products in the 8000 family of wire bonders. We also continued to
invest in new technologies, which may eventually lead to improved and
alternative semiconductor assembly technologies. Gross research and development
expenditures were partially offset by funding received from customers and
governmental subsidies totaling $1.7 million in fiscal 1998 compared to $2.0
million in fiscal 1997.
We recorded resizing costs of $8.4 million in the fourth quarter of fiscal 1998
reflecting our efforts to reduce our workforce and discontinue products in
response to the industry-wide slowdown in orders for semiconductor assembly
equipment and, to a lesser extent, semiconductor packaging materials. The
resizing costs consisted of $5.0 million of severance, $2.8 million of asset
writeoffs associated with discontinued products and $0.6 million of
19
other liabilities associated with the resizing. At September 30, 1998, we had
accrued liabilities of $3.7 million in connection with the resizing charges, the
majority of which were paid in fiscal 1999.
Loss from operations in fiscal 1998 was $4.2 million compared to operating
income of $57.7 million in fiscal 1997. The unfavorable variance to fiscal 1997
was due primarily to lower unit sales volume and gross profit in our equipment
segment and to resizing charges, both resulting from the slowdown in the
semiconductor industry. Partially off setting the lower operating income in the
equipment segment was a $3.8 million improvement in operating income in our
packaging materials segment, excluding resizing charges.
Interest income, net of interest expense, increased by $4.7 million in fiscal
1998 compared to fiscal 1997, primarily due to the investment of net proceeds
from our May 1997 public offering of common stock for a full year in fiscal
1998, compared to a partial year in fiscal 1997, and to the paydown of all
outstanding bank debt with a portion of the proceeds of the public offering in
May 1997.
During fiscal 1998, we recognized an $8.7 million pre-tax loss from our 51%
equity interest in Flip Chip Technologies compared to a pre-tax loss of $6.7
million in fiscal 1997. The increase in the loss in fiscal 1998 resulted from
delays in potential customers' evaluations of Flip Chip Technologies'
manufacturing process and the generally soft business environment in the
semiconductor industry, along with a ramp-up of Flip Chip Technologies'
production facility.
We recorded a tax benefit of $1.9 million in fiscal 1998. The effective tax rate
of this benefit was 26%, resulting from U.S. pre-tax losses exceeding foreign
pre-tax income that was taxed at lower rates.
Our net loss for fiscal 1998 was $5.4 million compared to net income of $38.3
million in fiscal 1997, for the reasons enumerated above.
QUARTERLY RESULTS OF OPERATIONS
The table below shows our quarterly net sales, gross profit and operating income
(loss) by quarter for fiscal 1999 and 1998:
FIRST SECOND THIRD FOURTH
FISCAL 1999 QUARTER QUARTER QUARTER QUARTER TOTAL
----------- ------- ------- ------- ------- -----
Net sales $ 61,175 $ 73,561 $ 110,806 $ 153,375 $ 398,917
Gross profit 16,176 21,025 30,374 45,960 113,535
Income (loss) from operations (10,282) (17,087) (776) 8,413 (19,732)
FIRST SECOND THIRD FOURTH
FISCAL 1998 QUARTER QUARTER QUARTER QUARTER TOTAL
----------- ------- ------- ------- ------- -----
Net sales $ 123,111 $ 120,060 $ 91,693 $ 76,176 $ 411,040
Gross profit 45,345 45,987 30,185 15,316 136,833
Income (loss) from operations 10,630 12,987 (3,202) (24,571) (4,156)
The effect of the semiconductor industry downturn on our operating results is
reflected in the quarterly results throughout fiscal 1998 and the first half of
fiscal 1999. The turnaround in the industry cycle is reflected in the second
half of fiscal 1999.
EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities" ("SFAS 133") was issued. SFAS
133 establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. This Statement is effective for all fiscal quarters for financial
statements for fiscal years commencing after June 15, 2000. We do not believe
that the adoption of SFAS 133 will have a material impact on our financial
statements.
20
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1999, our cash, cash equivalents and investments totaled
$39.3 million compared to $106.9 million at September 30, 1998. Additionally, we
have a $60.0 million bank revolving credit facility, which expires in March
2003. Borrowings are subject to our compliance with financial and other
covenants set forth in the revolving credit documents. At September 30, 1999, we
were in compliance with the covenants of the credit facility and had no cash
borrowings outstanding under that facility, but had utilized $1.0 million of
availability under the credit facility to support letters of credit issued as
security deposits for our new manufacturing facility in Singapore and our new
X-LAM facility. The revolving credit facility provides for borrowings
denominated in either U.S. dollars or foreign currencies. Borrowings in U.S.
dollars bear interest either at a Base Rate (defined as the greater of the prime
rate minus 1/4% or the federal funds rate plus 1/2%) or, at a LIBOR Rate
(defined as LIBOR plus 0.4% to 0.8%, depending on our leverage ratio). Foreign
currency borrowings bear interest at a LIBOR Rate, as defined above, applicable
to the foreign currency.
On December 13, 1999, we issued $150.0 million of convertible subordinated
notes. On December 15, 1999 we issued an additional $25.0 million of convertible
subordinated notes in connection with the exercise of the initial purchasers'
over-allotment option. The notes are general obligations of our company and
subordinated to all senior debt. The notes bear interest at 4 3/4%, are
convertible into our common stock at $45.7993 per share and mature on December
15, 2006. There are no financial covenants associated with the notes and there
are no restrictions on paying dividends, incurring additional debt or issuing or
repurchasing our securities. Interest on the notes will be paid on June 15 and
December 15 of each year beginning June 15, 2000. We may redeem the notes in
whole or in part at any time after December 18, 2002 at prices ranging from
102.714% at December 19, 2002 to 100.0% at December 15, 2006.
Cash used in operating activities totaled $37.9 million during fiscal 1999
compared to cash generated by operating activities of $21.7 million during
fiscal 1998 and $42.0 million in fiscal 1997. The use of cash from operating
activities was primarily the result of the net loss we recorded in fiscal 1999
and the increase in accounts receivable and inventory, partially offset by a
significant increase in accounts payable, due to the ramp up in business in the
fourth quarter.
At September 30, 1999, our working capital was $167.1 million compared to $182.2
million at September 30, 1998. Our lower working capital was due primarily to a
$67.6 million reduction in cash and short term investments and an increase in
accounts payable, partially offset by higher accounts receivable and inventory.
The higher non-cash working capital assets were the result of the ramp up in
business in the fourth quarter of fiscal 1999.
During fiscal 1999, we invested approximately $10.9 million in property and
equipment, primarily for leasehold improvements and tooling for our new
Singapore facility and our advanced packaging technology business, an increase
in capacity for the packaging and materials business and an upgrade of our
computer hardware and software systems in connection with the implementation of
a new Enterprise Resource Planning System that became operational in fiscal
1999. We presently expect fiscal 2000 capital spending to more than double as we
continue investing in the projects listed above.
During fiscal 1999, we loaned $10.5 million to Flip Chip Technologies, then, as
mentioned above, converted all outstanding loans and interest (including the
$10.5 million invested in fiscal 1999) into equity units of Flip Chip
Technologies, thereby increasing our ownership interest in Flip Chip
Technologies to 73.6% from 51.0%.
In September 1998, we entered into a joint venture agreement to develop,
manufacture and market advanced polymer materials for semiconductor and
microelectronic packaging end users. Through September 30, 1999, we have
invested $3.8 million in this joint venture and have committed to invest an
additional $2.2 million.
We purchased the X-LAM technology for $8.0 million in the second quarter of
fiscal 1999. Through September 30, 1999, we have invested an additional $4.0
million for operational and capital expenditures, and we expect additional
funding requirements will be necessary in future years.
The Israeli government has funded a portion of the research and development
costs related to some of our products. We are contingently liable to repay this
funding through royalties to the Israeli government. Royalty payments are due
only after sale of the funded products, are computed at varying rates from 2% to
5% of the sales and are
21
limited to the amounts received from the Israeli government. At September 30,
1999, we estimate that contingent liabilities for royalties related to potential
future product sales are less than $3.0 million.
We believe that anticipated cash flows from operations, the proceeds from the
sale of $175.0 million of the 4 3/4% convertible subordinated notes described
above, our working capital and amounts available under our revolving credit
facilities will be sufficient to meet our liquidity and capital requirements for
at least the next 12 months. However, we may seek, as required, equity or debt
financing to provide capital for corporate purposes and/or to fund strategic
business opportunities, including possible acquisitions, joint ventures,
alliances or other business arrangements that could require substantial capital
outlays. We cannot determine the timing and amount of these potential capital
requirements at this time because they will depend on a number of factors,
including demand for our products, semiconductor and semiconductor capital
equipment industry conditions and competitive factors and the nature and size of
strategic business opportunities that we may elect to pursue.
RISKS RELATED TO OUR BUSINESS
OUR QUARTERLY OPERATING RESULTS FLUCTUATE SIGNIFICANTLY AND MAY CONTINUE TO DO
SO IN THE FUTURE
In the past, our quarterly operating results have fluctuated significantly.
Although these fluctuations are partly due to the volatile nature of the
semiconductor industry, they also reflect the impact of other factors, some of
which are outside of our control.
Some of the factors that could cause our revenues and/or operating margins to
fluctuate significantly from period to period are:
o the mix of products that we sell because, for example:
- packaging materials generally have lower margins than assembly
equipment,
- some lines of equipment are more profitable than others, and
- some sales arrangements have higher margins than others;
o the volume and timing of orders for our products and any order
postponements and cancellations by our customers;
o adverse changes in our pricing, or that of our competitors;
o higher than anticipated costs of development or production of new
equipment models;
o the availability and cost of key components for our products;
o market acceptance of our new products and upgraded versions of our
products;
o our announcement of, or perception by others that we will introduce,
new or upgraded products, which could delay customers from
purchasing our products;
o the timing of acquisitions; and
o our competitors' introduction of new products.
Many of our expenses, such as research and development and selling, general and
administrative expenses, do not vary directly with our net sales. As a result, a
decline in our net sales would adversely affect our operating results. In
addition, if we were to incur additional expenses in a quarter in which we did
not experience comparable increased net sales, our operating results would
decline. Factors that could cause our expenses to fluctuate from period to
period include:
o the timing and extent of our research and development efforts;
o severance and other costs of relocating facilities or resizings in
market downturns; and
22
o inventory writeoffs due to obsolesence.
Because our revenues and operating results are volatile and difficult to
predict, we believe that period-to-period comparisons of our operating results
are not a good indication of our future performance.
THE SEMICONDUCTOR INDUSTRY AS A WHOLE IS VOLATILE, AS ARE OUR FINANCIAL RESULTS
Our operating results are significantly affected by the capital expenditures of
semiconductor manufacturers and assemblers worldwide. Expenditures by
semiconductor manufacturers and assemblers depend on the current and anticipated
market demand for semiconductors and products that use semiconductors, such as
personal computers, telecommunications, consumer electronics and automotive
goods. Any significant downturn in the market for semiconductor devices or in
general economic conditions would likely reduce demand for our products and
adversely affect our business, financial condition and operating results.
Historically, the semiconductor industry has been volatile with sharp periodic
downturns and slowdowns. These downturns have been characterized by, among other
things, diminished product demand, excess production capacity and accelerated
erosion of selling prices. This has severely and negatively affected the
industry's demand for capital equipment, including the assembly equipment that
we manufacture and market and, to a lesser extent, the packaging materials that
we sell. These downturns and slowdowns have adversely affected our operating
results. In the 1998 downturn, for example, our net sales declined from
approximately $501.9 million in fiscal 1997 to $411.0 million in fiscal 1998 and
continued to decline in the first half of fiscal 1999. Downturns in the future
could similarly adversely affect our business, financial condition and operating
results.
WE ARE IN THE PROCESS OF TRANSFERING OUR AUTOMATIC BALL BONDER MANUFACTURING TO
SINGAPORE, WHICH COULD DISRUPT OUR ABILITY TO SUPPLY OUR CUSTOMERS AND MAY NOT
RESULT IN THE COST SAVINGS WE ANTICIPATE
The proposed move of our automatic ball bonder manufacturing to Singapore will
require us to relocate equipment, hire and train production, engineering and
management personnel, qualify suppliers and develop a purchasing and delivery
infrastructure. In addition, we expect to experience increased selling, general
and administrative expenses in fiscal 2000 in connection with start up costs. We
plan to source a significantly higher percentage of materials from suppliers in
Singapore. To the extent we experience availability, reliability or quality
problems as a result of this shift in supply source, our business would be
adversely affected. In addition, we do not intend to move our research and
development function from Willow Grove to the Singapore facility. If we are
unable to accomplish the move efficiently and commence full production as
scheduled, our ability to fill orders could be hurt, which could damage our
relationships with customers. In addition, our ability to meet production
requirements may be adversely affected by any problems associated with the start
up of this facility. We also anticipate cost savings from the transfer of our
automatic ball bonder manufacturing as a result of reduced costs of labor,
shipping and materials. However, we cannot assure you that we will realize these
savings.
OUR BUSINESS DEPENDS ON ATTRACTING AND RETAINING MANAGEMENT, MARKETING AND
TECHNICAL EMPLOYEES WHO ARE IN GREAT DEMAND
As is the case with all technology companies, our future success depends on our
ability to hire and retain qualified management, marketing and technical
employees. Competition is intense in personnel recruiting in the semiconductor
and semiconductor equipment industries, particularly with respect to some
engineering disciplines. In particular, we have experienced periodic shortages
of software engineers. If we are unable to continue to attract and retain the
technical and managerial personnel we require, our business, financial condition
and operating results could be adversely affected.
WE MAY NOT BE ABLE TO RAPIDLY DEVELOP AND MANUFACTURE NEW AND ENHANCED PRODUCTS
REQUIRED TO MAINTAIN OR EXPAND OUR BUSINESS
We believe that our continued success will depend on our ability to continuously
develop and manufacture or acquire new products and product enhancements on a
timely and cost-effective basis. We also must introduce these products and
product enhancements into the market in response to customers' demands for
higher performance assembly equipment. Our competitors may develop enhancements
to or future generations of competitive products that will offer superior
performance, features and lower prices that may render our products
noncompetitive. We may not be able to develop and introduce products
incorporating new technologies in a timely manner or at a price that will
satisfy future customers' needs or achieve market acceptance. For example, the
introduction of the Model
23
8020 wire bonder in 1998 was less successful than we had hoped because of higher
than anticipated design and production costs and lower than anticipated sales
prices.
WE MAY NOT BE ABLE TO ACCURATELY FORECAST DEMAND FOR OUR PRODUCT LINES
We typically operate our business with a relatively short backlog and order
supplies and otherwise plan production based on internal forecasts of demand.
Due to these factors, we have in the past, and may again in the future, fail to
accurately forecast demand, in terms of both volume and configuration for either
our current or next-generation wire bonders. This has led to and may in the
future lead to delays in product shipments or, alternatively, an increased risk
of inventory obsolescence. For example, we inaccurately forecasted demand for
the Model 8020 wire bonder in 1998 and consequently recorded writeoffs for
excess inventory. Also, we underestimated the magnitude of the improvement in
the semiconductor industry at the end of fiscal 1999 and the demand for the new
Model 8028 ball bonder; as a result some customer shipments may be delayed in
fiscal 2000.
If we fail to accurately forecast demand for our products, our business,
financial condition and operating results could be materially and adversely
affected.
ADVANCED PACKAGING TECHNOLOGIES OTHER THAN WIRE BONDING MAY RENDER SOME OF OUR
PRODUCTS OBSOLETE AND OUR STRATEGY FOR PURSUING THESE OTHER TECHNOLOGIES MAY BE
COSTLY AND INEFFECTIVE
Advanced packaging technologies have emerged that may improve device performance
or reduce the size of an integrated circuit or IC package, as compared to
traditional die and wire bonding. These technologies include flip chip, chip
scale packaging and tape automated bonding. In general, these advanced
technologies eliminate the need for wires to establish the electrical connection
between a die and its package. For some assemblies, these advanced technologies
have largely replaced wire bonding. However, today most ICs still employ die and
wire bonding technology, and the possible extent, rate and timing of change is
difficult, if not impossible, to predict. In fact, wire bonding has proved more
durable than we originally anticipated, largely because of its reliability and
cost. However, we cannot assure you that the semiconductor industry will not, in
the future, shift a significant part of its volume into advanced packaging
technologies, such as those discussed above. Presently, Intel, Motorola, IBM and
Advanced Micro Devices, for example, have developed flip chip technologies for
internal use, and a number of other companies are also increasing their
investments in advanced packaging technologies. If a significant shift to
advanced technologies were to occur, demand for our wire bonders and related
packaging materials would diminish.
One component of our strategy is to develop the capacity to use advanced
technologies to allow us to compete in those portions of the market that
currently use these advanced technologies and to prepare for any eventual
decline in the use of wire bonding technology. There are a number of risks
associated with our strategy to diversify into new technologies:
o The technologies that we have invested in represent only some of the
advanced technologies that may one day supercede wire bonding;
o Other companies are developing similar or alternative advanced
technologies;
o Wire bonding may continue as the dominant technology for longer than
we anticipate;
o The cost of developing advanced technologies may be significantly
greater than we expect; and
o We may not be able to develop the necessary technical, research,
managerial and other related skills to develop, produce, market and
support these advanced technologies.
As a result of these risks, we cannot assure you that any of our attempts to
develop alternative technologies will be profitable or that we will be able to
realize the benefits that we anticipate from them.
BECAUSE WE HAVE A SMALL NUMBER OF PRODUCTS, A DECLINE IN DEMAND FOR, OR THE
PRICE OF, ANY OF OUR PRODUCTS COULD CAUSE OUR REVENUES TO DECLINE SIGNIFICANTLY
Historically, our wire bonders have comprised at least 55% of our net sales. If
demand for, or pricing of, our wire bonders declines because our competitors
introduce superior or lower cost systems, the semiconductor industry
24
changes or because of other occurrences beyond our control, our business,
financial condition and operating results would be materially and adversely
affected.
BECAUSE A SMALL NUMBER OF CUSTOMERS ACCOUNT FOR NEARLY ALL OUR SALES, OUR
REVENUES COULD DECLINE IF WE LOSE ANY SIGNIFICANT CUSTOMER
The semiconductor manufacturing industry is highly concentrated, with a
relatively small number of large semiconductor manufacturers and subcontract
assemblers purchasing a substantial portion of semiconductor assembly equipment
and packaging materials. Sales to our five largest customers accounted for
approximately 45.2% of our fiscal 1997 net sales, 41.4% of our fiscal 1998 net
sales and 31.7% of our fiscal 1999 net sales. In fiscal 1997, our sales to Anam
accounted for 12.5% of our net sales, and sales to Intel accounted for 10.2% of
our net sales. In fiscal 1998, sales to Intel accounted for 17.6% of our net
sales. During fiscal 1999, no customer accounted for more than 10% of our net
sales.
We expect that sales of our products to a limited number of customers will
continue to account for a high percentage of our net sales for the foreseeable
future. If we lose orders from a significant customer, or if a significant
customer reduces its orders substantially, these losses or reductions will
adversely affect our business, financial condition and operating results.
WE DEPEND ON A SMALL NUMBER OF SUPPLIERS FOR MATERIALS AND, IF OUR SUPPLIERS DO
NOT DELIVER THEIR PRODUCTS TO US, WE MAY BE UNABLE TO DELIVER OUR PRODUCTS TO
OUR CUSTOMERS
Our products are complex and require materials, components and subassemblies of
an exceptionally high degree of reliability, accuracy and performance. We rely
on subcontractors to manufacture many of the components and subassemblies for
our products and we rely on sole source suppliers for some material components.
Our reliance involves a number of significant risks, including:
o loss of control over the manufacturing process;
o changes in our manufacturing processes, dictated by changes in the
market, that have delayed our shipments;
o our inadvertent use of defective or contaminated materials;
o the relatively small operations and limited manufacturing resources
of some of our contractors and suppliers, which may limit their
ability to manufacture and sell subassemblies, components or parts
in the volumes we require and at quality levels and prices we can
accept;
o reliability and quality problems we experience with certain key
subassemblies provided by single source suppliers; and
o delays in the delivery of subassemblies, which, in turn, have caused
delays in some of our shipments.
If we are unable to deliver products to our customers on time for these or any
other reasons, or if we do not maintain acceptable product quality or
reliability in the future, our business, financial condition and operating
results would be materially and adversely affected.
WE ARE EXPANDING AND DIVERSIFYING OUR OPERATIONS, AND IF WE FAIL TO MANAGE OUR
EXPANDING AND MORE DIVERSE OPERATIONS SUCCESSFULLY, OUR BUSINESS AND FINANCIAL
RESULTS MAY BE MATERIALLY AND ADVERSELY AFFECTED
In recent years, we have broadened our product offerings to include
significantly more packaging materials. Although our strategy is to diversify
our products and services, we may not be able to develop, acquire, introduce or
market new products in a timely or cost-effective manner and the market may not
accept any new or improved products we develop, acquire, introduce or market.
Our diversification into new lines of business and our expansion through
acquisitions and alliances has increased, and is expected to continue to
increase, demand on our management, financial resources and information and
internal control systems. Our success depends in significant part on our ability
to manage and integrate
25
acquisitions, joint ventures and other alliances and to continue to implement,
improve and expand our systems, procedures and controls. If we fail to do this
at a pace consistent with the development of our business, our business,
financial condition and operating results would be materially and adversely
affected.
As we seek to expand our operations, we expect to encounter a number of risks,
which will include:
o risks associated with hiring additional management and other
critical personnel;
o risks associated with adding equipment and capacity; and
o risks associated with increasing the scope, geographic diversity and
complexity of our operations.
In addition, sales and servicing of packaging materials and advanced
technologies require different organizational and managerial skills than sales
of traditional wire bonding technology. We cannot assure you that we will be
able to develop the necessary skills to successfully produce and market these
different products.
WE SELL MOST OF OUR PRODUCTS TO CUSTOMERS LOCATED OUTSIDE OF THE U.S. AND WE
HAVE SUBSTANTIAL MANUFACTURING OPERATIONS LOCATED OUTSIDE OF THE U.S., BOTH OF
WHICH SUBJECT US TO RISKS FROM CHANGES IN TRADE REGULATIONS, CURRENCY
FLUCTUATIONS, POLITICAL INSTABILITY AND WAR
Approximately 85% of our net sales for fiscal 1997, 80% of our net sales for
fiscal 1998 and 83% of our net sales for fiscal 1999 were attributable to sales
to customers for delivery outside of the United States. We expect our sales
outside of the United States to continue to represent a substantial portion of
our future revenues. Our future performance will depend, in significant part, on
our ability to continue to compete in foreign markets, particularly in Asia.
Asian economies have been highly volatile, resulting in significant fluctuation
in local currencies, and political and economic instability. These conditions
may continue or worsen, which could materially and adversely affect our
business, financial condition and operating results. In addition, we rely on
non-U.S. suppliers for materials and components used in the equipment that we
sell. We also maintain substantial manufacturing operations in countries other
than the United States, including operations in Israel and Singapore. As a
result, a major portion of our business is subject to the risks associated with
international commerce such as, risks of war and civil disturbances or other
events that may limit or disrupt markets; expropriation of our foreign assets;
longer payment cycles in foreign markets; international exchange restrictions;
the difficulties of staffing and managing dispersed international operations;
tariff and currency fluctuations; changing political conditions; foreign
governments' monetary policies; and less protective foreign intellectual
property laws.
Because most of our foreign sales are denominated in United States dollars, an
increase in value of the United States dollar against foreign currencies,
particularly the Japanese yen, will make our products more expensive than those
offered by some of our foreign competitors. Our ability to compete overseas in
the future could be materially and adversely affected by a strengthening of the
United States dollar against foreign currencies.
The ability of our international operations to prosper also will depend, in
part, on a continuation of current trade relations between the United States and
foreign countries in which our customers operate and in which our subcontractors
have assembly operations. A change toward more protectionist trade legislation
in either the United States or foreign countries in which we do business, such
as a change in the current tariff structures, export compliance or other trade
policies, could adversely affect our ability to sell our products in foreign
markets.
OUR SUCCESS DEPENDS IN PART ON OUR INTELLECTUAL PROPERTY, WHICH WE MAY BE UNABLE
TO PROTECT
Our success depends in part on our proprietary technology. To protect this
technology, we rely principally on contractual restrictions (such as
nondisclosure and confidentiality agreements) in our agreements with employees,
vendors, consultants and customers and on the common law of trade secrets and
proprietary "know-how." We secondarily rely, in some cases, on patent and
copyright protection, which may become more important to us as we expand our
investment in advanced packaging technologies. We may not be successful in
protecting our technology for a number of reasons, including:
o Our competitors may independently develop technology that is similar
to or better than ours;
26
o Employees, vendors, consultants and customers may not abide by their
contractual agreements, and the cost of enforcing those agreements
may be prohibitive, or those agreements may prove to be
unenforceable or more limited than we anticipate;
o Foreign intellectual property laws may not adequately protect our
intellectual property rights; and
o Our patent and copyright claims may not be sufficiently broad to
effectively protect our technology; patents or copyrights may be
challenged, invalidated or circumvented; and we may otherwise be
unable to obtain adequate protection for our technology.
In addition, our partners in joint ventures and alliances may also have rights
to technology we develop through those joint ventures and alliances. If we are
unable to protect our technology, we could weaken our competitive position or
face significant expense to protect or enforce our intellectual property rights.
THIRD PARTIES MAY CLAIM WE ARE INFRINGING ON THEIR INTELLECTUAL PROPERTY, WHICH
COULD CAUSE US TO INCUR SIGNIFICANT LITIGATION COSTS OR OTHER EXPENSES, OR
PREVENT US FROM SELLING SOME OF OUR PRODUCTS
The semiconductor industry is characterized by rapid technological change, with
frequent introductions of new products and technologies. As a result, industry
participants often develop products and features similar to those introduced by
others, increasing the risk that their products and processes may give rise to
claims that they infringe on the intellectual property of others. We may
unknowingly infringe on the intellectual property rights of others and incur
significant liability for that infringement. If we are found to infringe on the
intellectual property rights of others, we could be enjoined from continuing to
manufacture, market or use the affected product, or be required to obtain a
license to continue manufacturing or using the affected product. A license could
be very expensive to obtain or may not be available at all. Similarly, changing
our products or processes to avoid infringing the rights of others may be costly
or impractical.
Occasionally, third parties assert that we are, or may be, infringing on or
misappropriating their intellectual property rights. In these cases, we will
defend against claims or negotiate licenses where we consider these actions
appropriate. Intellectual property cases are uncertain and involve complex legal
and factual questions. If we become involved in this type of litigation, it
could consume significant resources and divert our attention from our business.
Some of our customers have received notices of infringement from the Lemelson
Medical, Education and Research Foundation Limited Partnership (the "Lemelson
Foundation"), alleging that equipment we have supplied to our customers, and
processes this equipment performs, infringes on patents held by the Lemelson
Foundation. These notices increased substantially in 1998, the year in which the
Lemelson Foundation settled its suit against the Ford Motor Company, and entered
into license agreements with Ford, GM and Chrysler. Since the settlement, a
number of our customers, including Intel, have been sued by the Lemelson
Foundation.
Some of our customers have requested that we defend and indemnify them against
the Lemelson Foundation's claims or contribute to any settlement the customer
reaches with the Lemelson Foundation. We have received opinions from our outside
patent counsel with respect to various Lemelson Foundation patents. We are not
aware that any equipment we market or that any process performed by our
equipment infringes on the Lemelson Foundation patents and we do not believe
that the Lemelson Foundation matter or any other pending intellectual property
claim against us will materially and adversely affect our business, financial
condition or operating results. The ultimate outcome of any infringement or
misappropriation claim affecting us is uncertain, however, and we cannot assure
you that our resolution of this litigation will not materially and adversely
affect our business, financial condition and operating results.
OTHER RISKS
YEAR 2000
If our products or our internal data management, accounting, manufacturing or
operating software and systems do not adequately or accurately process or manage
day or date information beyond the year 1999, our operations could be affected
adversely. To address the issue, we created an internal task force to assess our
state of readiness for possible "Year 2000" issues and to take the necessary
actions to ensure our Year 2000 compliance. The taskforce has evaluated and
continues to evaluate:
27
o our products and our internal business systems and software; and
o our vulnerability to possible Year 2000 exposure due to suppliers'
and other third parties' lack of preparedness for the year 2000.
To evaluate equipment that we sell and equipment, tools or software that we use,
we employed Year 2000 Readiness Test scenarios established by SEMATECH, an
industry group comprised of U.S. semiconductor manufacturers. Based on this
assessment, we do not believe the operation of the equipment that we sell or the
equipment, tools and software that we use will be affected by the transition to
the year 2000. We completed our review, material corrective measures and
contingency planning in September 1999.
In connection with our review and corrective measures, we replaced the business
and accounting systems of our U.S. and Israeli equipment manufacturing sites
with a new Enterprise Resource Planning System that was represented to us to be
Year 2000 compliant. We spent approximately $9.8 million in hardware, software,
consulting costs and internal expenses to implement this new system.
In addition, we have been in contact with our suppliers and other third parties
to determine the extent to which they may be vulnerable to Year 2000 issues. We
have received representations as to the Year 2000 compliance of our major
suppliers.
We believe that the reasonably anticipated worst case scenario for our business
resulting from Year 2000 problems would be unexpected delays of supplier
deliveries and customer shipments. If these delays are significant, customers
may cancel orders and long-term customer relationships could be damaged. We
believe that we have developed appropriate contingency plans for any Year 2000
delays, including carrying larger inventory of products from a small number of
suppliers that we believe may be vulnerable to year 2000 disruptions.
ANTI-TAKEOVER PROVISIONS IN OUR ARTICLES OF INCORPORATION AND BYLAWS AND
PENNSYLVANIA LAW MAY DISCOURAGE OTHER COMPANIES FROM ATTEMPTING TO ACQUIRE US
Some provisions of our articles of incorporation and bylaws and of Pennsylvania
law may discourage some transactions where we would otherwise experience a
change in control. For example, our articles of incorporation and bylaws contain
provisions that:
o classify our Board of Directors into four classes, with one class
being elected each year;
o permit our Board to issue "blank check" preferred stock without
shareholder approval; and
o prohibit us from engaging in some types of business combinations
with a holder of 20% or more of our voting securities without
super-majority board or shareholder approval.
Further, under the Pennsylvania Business Corporation Law, because our bylaws
provide for a classified Board of Directors, shareholders may only remove
directors for cause. These provisions and some provisions of the Pennsylvania
Business Corporation Law could delay, defer or prevent us from experiencing a
change in control and may adversely affect our common stockholders' voting and
other rights.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
At September 30, 1999, we had a non-trading investment portfolio of fixed income
securities, excluding those classified as cash and cash equivalents, of $2.1
million (see Note 5 of the Company's Consolidated Financial Statements). At
September 30, 1999, we also were obligated, under a foreign exchange contract,
to purchase 1.6 million Swiss Francs in March 2000 for $1.079 million. These
securities, like all fixed income instruments, are subject to interest rate and
exchange rate risk and may fall in value if market rates change. If market
interest rates were to increase immediately and uniformly by 100 basis points
and we experienced an adverse move in the Swiss currency rate of 10% there would
be no material or adverse affect on our business, financial condition or
operating results.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated Financial Statements of Kulicke and Soffa Industries, Inc. and
its subsidiaries and Flip Chip Technologies, LLC, listed in the index appearing
under Item 14 (a)(1)(a) and (b) herein are filed as part of this Report.
28
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
Kulicke and Soffa Industries, Inc.
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14 (a) (1) (a) on page 65 of this Annual Report on Form
10-K present fairly, in all material respects, the financial position of Kulicke
and Soffa Industries, Inc and its subsidiaries at September 30, 1999 and
September 30, 1998, and the results of their operations and their cash flows for
each of the three years in the period ended September 30, 1999, in conformity
with accounting principles generally accepted in the United States. In addition,
in our opinion, the financial statement schedule listed in the index appearing
under Item 14 (a) (2) on page 65 presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements. These financial statements and financial
statement schedule are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
December 6, 1999, except as to Note 15, which is as of December 15, 1999
29
KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
SEPTEMBER 30,
-----------------------
1999 1998
--------- ---------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (including time
deposits: 1999 - $ 912; 1998 - $2,166) $ 37,155 $ 76,478
Short-term investments 2,190 30,422
Accounts and notes receivable (less allowance for doubtful
accounts: 1999 - $ 1,727; 1998 - $1,677) 136,047 66,137
Inventories, net 61,782 47,573
Prepaid expenses and other current assets 9,906 5,303
Refundable income taxes 2,934 5,270
Deferred income taxes 11,071 2,608
--------- ---------
TOTAL CURRENT ASSETS 261,085 233,791
Property, plant and equipment, net 67,485 48,269
Intangible assets, primarily goodwill (net of amortization:
1999 - $10,276; 1998 - $7,391) 44,637 38,765
Investments in and loans to joint ventures 2,940 19,920
Other assets 1,998 1,839
--------- ---------
TOTAL ASSETS $ 378,145 $ 342,584
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable and current portion of long-term debt $ 1,178 $ 192
Accounts payable 61,962 24,223
Accrued expenses 27,210 23,549
Income taxes payable 3,604 3,646
--------- ---------
TOTAL CURRENT LIABILITIES 93,954 51,610
Other liabilities 4,373 3,064
Minority interest 5,042 --
--------- ---------
TOTAL LIABILITIES 103,369 54,674
--------- ---------
COMMITMENTS AND CONTINGENCIES (Note 13) -- --
SHAREHOLDERS' EQUITY:
Preferred stock, without par value:
Authorized - 5,000 shares; issued - none -- --
Common stock, without par value:
Authorized - 100,000 shares; issued and
outstanding: 1999 - 23,489; 1998 - 23,367 160,108 157,986
Retained earnings 117,018 133,964
Accumulated other comprehensive loss (2,350) (4,040)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 274,776 287,910
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 378,145 $ 342,584
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
30
KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FISCAL YEAR ENDED SEPTEMBER 30,
-------------------------------------
1999 1998 1997
--------- --------- ---------
Net sales $ 398,917 $ 411,040 $ 501,907
Cost of goods sold 285,382 274,207 318,002
--------- --------- ---------
Gross profit 113,535 136,833 183,905
Selling, general and administrative 86,226 83,854 80,212
Research and development, net 37,188 48,715 46,030
Resizing costs 5,918 8,420 --
Purchased in-process research and development 3,935 -- --
--------- --------- ---------
Income (loss) from operations (19,732) (4,156) 57,663
Interest income 3,762 5,776 3,151
Interest expense (215) (262) (2,331)
Equity in loss of joint ventures (10,000) (8,715) (6,701)
--------- --------- ---------
Income (loss) before taxes (26,185) (7,357) 51,782
Provision (benefit) for income taxes (8,221) (1,917) 13,463
--------- --------- ---------
Income (loss) before minority interest (17,964) (5,440) 38,319
Minority interest in net loss of subsidiary 1,018 -- --
--------- --------- ---------
Net income (loss) $ (16,946) $ (5,440) $ 38,319
========= ========= =========
Net income (loss) per share:
Basic $ (0.72) $ (0.23) $ 1.84
Diluted $ (0.72) $ (0.23) $ 1.79
Weighted average shares outstanding:
Basic 23,423 23,301 20,871
Diluted 23,423 23,301 21,428
The accompanying notes are an integral part of these consolidated financial
statements.
31
KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
FISCAL YEAR ENDED SEPTEMBER 30,
-------------------------------------
1999 1998 1997
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (16,946) $ (5,440) $ 38,319
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation and amortization 15,989 13,250 11,329
Provision for doubtful accounts 812 29 1,065
Provision for impairment of goodwill -- 948 --
Deferred taxes (8,463) (1,087) 244
Provision for inventory reserves 1,200 4,132 2,593
Equity in loss of joint ventures 10,000 8,715 6,701
Minority interest in net loss of subsidiary (1,018) -- --
Purchased in-process research and development 3,935 -- --
Loss on write off and disposal of property and equipment 1,566 1,484 --
Non-cash employee benefits 1,662 2,240 1,793
Changes in working capital accounts, net of effect of acquired businesses:
Accounts receivable (66,833) 38,937 (57,960)
Inventories (14,700) (6,103) (3,201)
Prepaid expenses and other assets (4,801) (912) (35)
Refundable income taxes 2,336 (5,270) 6,212
Accounts payable and accrued expenses 36,182 (24,568) 30,668
Taxes payable 138 (4,446) 3,527
Other, net 1,012 (185) 726
--------- --------- ---------
Net cash provided by (used in) operating activities (37,929) 21,724 41,981
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of net assets of Semitec;
net of cash acquired -- -- (4,510)
Purchases of investments classified
as available-for-sale (29,379) (108,482) (4,451)
Proceeds from sales or maturities of investments
classified as available-for-sale 57,454 86,199 9,967
Purchases of plant and equipment (10,891) (16,062) (13,516)
Purchase of X-LAM technology (8,000) -- --
Proceeds from sale of property and equipment -- 436 --
Investments in and loans to joint ventures (10,912) (14,500) (19,280)
--------- --------- ---------
Net cash used in investing activities (1,728) (52,409) (31,790)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on borrowings, including capitalized leases (192) (808) (51,065)
Proceeds from issuances of common stock 280 385 103,112
--------- --------- ---------
Net cash provided by (used in) financing activities 88 (423) 52,047
--------- --------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS 246 (19) 23
--------- --------- ---------
CHANGE IN CASH AND CASH EQUIVALENTS (39,323) (31,127) 62,261
CASH AND CASH EQUIVALENTS AT:
BEGINNING OF YEAR 76,478 107,605 45,344
--------- --------- ---------
END OF YEAR $ 37,155 $ 76,478 $ 107,605
========= ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
32
KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS)
ACCUMULATED
COMMON STOCK OTHER TOTAL
----------------- RETAINED COMPREHENSIVE SHAREHOLDERS'
SHARES AMOUNT EARNINGS INCOME (LOSS) EQUITY
------ ------ -------- ------------- ------
Balances at September 30, 1996 19,433 $ 48,733 $ 101,085 $ (2,329) $ 147,489
Common stock sold 3,450 101,103 -- -- 101,103
Employer contribution to the
401(k) plan 92 1,793 -- -- 1,793
Exercise of stock options 262 2,009 -- -- 2,009
Tax benefit from exercise of
stock options -- 1,608 -- -- 1,608
Components of comprehensive income:
Net income -- -- 38,319 -- 38,319
Translation adjustment -- -- -- (394) (394)
---------
Total comprehensive income 37,925
------ --------- --------- --------- ---------
Balances at September 30, 1997 23,237 155,246 139,404 (2,723) 291,927
Employer contribution to the
401(k) plan 89 2,240 -- -- 2,240
Exercise of stock options 41 385 -- -- 385
Tax benefit from exercise of
stock options -- 115 -- -- 115
Components of comprehensive loss:
Net loss -- -- (5,440) -- (5,440)
Translation adjustment -- -- -- (1,433) (1,433)
Unrealized gain on investments, net -- -- -- 116 116
---------
Total comprehensive loss (6,757)
------ --------- --------- --------- ---------
Balances at September 30, 1998 23,367 157,986 133,964 (4,040) 287,910
EMPLOYER CONTRIBUTION TO THE
401(K) PLAN 84 1,662 -- -- 1,662
EXERCISE OF STOCK OPTIONS 38 280 -- -- 280
TAX BENEFIT FROM EXERCISE OF
STOCK OPTIONS -- 180 -- -- 180
COMPONENTS OF COMPREHENSIVE LOSS:
NET LOSS -- -- (16,946) -- (16,946)
TRANSLATION ADJUSTMENT -- -- -- 2,622 2,622
UNREALIZED LOSS ON INVESTMENTS, NET -- -- -- (115) (115)
REALIZED GAIN ON INVESTMENTS INCLUDED IN
NET LOSS, NET -- -- -- (49) (49)
MINIMUM PENSION LIABILITY ( NET OF TAXES
OF $413) -- -- -- (768) (768)
---------
TOTAL COMPREHENSIVE LOSS (15,256)
------ --------- --------- --------- ---------
BALANCES AT SEPTEMBER 30, 1999 23,489 $ 160,108 $ 117,018 $ (2,350) $ 274,776
====== ========= ========= ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
33
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These consolidated financial statements include the accounts of Kulicke and
Soffa Industries, Inc. and its subsidiaries (the "Company"), with appropriate
elimination of intercompany balances and transactions.
Nature of Business - The Company manufactures capital equipment and packaging
materials used in the assembly of semiconductors. The Company's operating
results primarily depend upon the capital expenditures of semiconductor
manufacturers and subcontract assemblers worldwide which, in turn, depend on the
current and anticipated market demand for semiconductors and products utilizing
semiconductors. The semiconductor industry historically has been highly volatile
and experienced periodic downturns and slowdowns which have had a severe
negative effect on the semiconductor industry's demand for semiconductor capital
equipment, including assembly equipment manufactured and marketed by the Company
and, to a lesser extent, packaging materials such as those sold by the Company.
These downturns and slowdowns have also adversely affected the Company's
operating results. The Company believes such volatility will continue to
characterize the industry and the Company's operations in the future.
The semiconductor and semiconductor equipment industries are subject to rapid
technological change and frequent new product introductions and enhancements.
The Company invests substantial amounts in research and development to
continuously develop and manufacture new products and product enhancements in
response to demands for higher performance assembly equipment. In addition, the
Company continuously pursues investments in alternative packaging technologies.
The Company's inability to successfully develop new products and product
enhancements or to effectively manage the introduction of new products into the
marketplace could have a material adverse effect on the Company's results of
operations, financial condition and liquidity.
Management Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. The more significant areas involving the use of
estimates in these financial statements include allowances for uncollectible
accounts receivable, reserves for excess and obsolete inventory, carrying value
and lives of fixed assets, goodwill and intangibles assets, valuation allowances
for deferred tax assets and deferred tax liabilities for unrepatriated earnings.
Actual results could differ from those estimated.
Vulnerability to Certain Concentrations - Financial instruments which may
subject the Company to concentration of credit risk at September 30, 1999 and
1998 consist primarily of investments and trade receivables. The Company manages
credit risk associated with investments by investing its excess cash in
investment grade debt instruments of the U.S. Government, financial institutions
and corporations. The Company has established investment guidelines relative to
diversification and maturities designed to maintain safety and liquidity. These
guidelines are periodically reviewed and modified to take advantage of trends in
yields and interest rates. The Company's trade receivables result primarily from
the sale of semiconductor equipment, related accessories and replacement parts
and packaging materials to a relatively small number of large manufacturers in a
highly concentrated industry. The Company continually assesses the financial
strength of its customers to reduce the risk of loss. Accounts receivable at
September 30, 1999 and 1998 included notes receivable of $10 and $524
respectively. Write-offs of uncollectible accounts have historically been
insignificant.
Sales to a relatively small number of customers account for a significant
percentage of the Company's net sales. In fiscal 1999 no customer accounted for
more than 10% of net sales but in fiscal 1998, sales to Intel accounted for
17.6% of the Company's net sales and in fiscal 1997, sales to Anam (a
Korea-based customer) and Intel accounted for approximately 12.5% and 10.2%,
respectively, of net sales. The Company expects sales of its products to a
limited number of customers will continue to account for a high percentage of
net sales for the foreseeable future. The reduction or loss of orders from a
significant customer could adversely affect the Company's business, financial
condition, operating results and cash flows.
34
The Company relies on subcontractors to manufacture to the Company's
specifications many of the components or subassemblies used in its products.
Certain of the Company's products require components or parts of an
exceptionally high degree of reliability, accuracy and performance for which
there are only a limited number of suppliers or for which a single supplier has
been accepted by the Company as a qualified supplier. If supplies of such
components or subassemblies were not available from any such source and a
relationship with an alternative supplier could not be promptly developed,
shipments of the Company's products could be interrupted and re-engineering of
the affected product could be required. Such disruptions could have a material
adverse effect on the Company's results of operations.
Cash Equivalents - The Company considers all highly liquid investments with
original maturities of three months or less when purchased to be cash
equivalents.
Investments - Investments, other than cash equivalents, are classified as
"trading," "available-for-sale" or "held-to-maturity," depending upon the nature
of the investment, its ultimate maturity date in the case of debt securities,
and management's intentions with respect to holding the securities. Investments
classified as "trading" are reported at fair market value, with unrealized gains
or losses included in earnings. Investments classified as available-for-sale are
reported at fair market value, with net unrealized gains or losses reflected as
a separate component of shareholders' equity (accumulated other comprehensive
income (loss)). Investments classified as held-to-maturity are reported at
amortized cost. Realized gains and losses are determined on the basis of
specific identification of the securities sold.
Inventories - Inventories are stated at the lower of cost (determined on the
basis of first-in, first-out) or market. Due to the volatility of demand for
capital equipment and the rapid technological change in the semiconductor
industry, the Company is vulnerable to risks of excess and obsolete inventory.
The Company generally provides reserves for inventory considered to be in excess
of 18 months of forecasted future demand.
Property, Plant and Equipment - Property, plant and equipment are carried at
cost. The cost of additions and those improvements which increase the capacity
or lengthen the useful lives of assets are capitalized while repair and
maintenance costs are expensed as incurred. Depreciation and amortization are
provided on a straight-line basis over the estimated useful lives as follows:
buildings 25 to 40 years; machinery and equipment 3 to 8 years; and leasehold
improvements are based on the shorter of the life of lease or life of asset.
Purchased computer software costs related to business and financial systems are
amortized over a five year period on a straight-line basis. In accordance with
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," the carrying value of long-lived assets,
including goodwill, is evaluated whenever changes in circumstances indicate the
carrying amount of such assets may not be recoverable. In performing such review
for recoverability, the Company compares the expected future cash flows to the
carrying value of long-lived assets and identifiable intangibles. If the
anticipated undiscounted future cash flows are less than the carrying amount of
such assets, the Company recognizes an impairment loss for the difference
between the carrying amount of the assets and their estimated fair value. If an
asset being tested for recoverability was acquired in a business combination
accounted for using the purchase method, the excess of cost over fair value of
net assets that arose in that transaction is allocated to the assets being
tested for recoverability on a pro rata basis using the relative fair values of
the long-lived assets and identifiable intangibles acquired at the acquisition
date.
Depreciation expense was $13,104, $10,896 and $8,945 for the fiscal years ended
September 30, 1999, 1998 and 1997, respectively. When assets are retired or
otherwise disposed of, the assets and related accumulated depreciation accounts
are adjusted accordingly, and any resulting gain or loss is recorded in current
operations.
Intangible Assets - Goodwill resulting from acquisitions accounted for using the
purchase method is amortized on a straight-line basis over the estimated period
to be benefited by the acquisitions ranging from five to twenty years. The
Company accounts for impairment of goodwill in accordance with SFAS No. 121, as
discussed above. In connection with the Company's resizing efforts in fiscal
1998, the Company discontinued certain die bonder products which the Company had
acquired in 1994, and recorded an impairment of goodwill of $948.
Foreign Currency Translation - The U.S. dollar is the functional currency for
all subsidiaries except the Company's subsidiaries in Japan, Korea, Singapore,
Switzerland and Taiwan. Unrealized translation gains and losses resulting from
the translation of functional currency financial statement amounts into U.S.
dollars are not included in
35
determining net income but are accumulated in the cumulative translation
adjustment account as a separate component of shareholders' equity (accumulated
other comprehensive income (loss)), in accordance with SFAS No. 52. Cumulative
translation adjustments are not adjusted for income taxes as they relate to
indefinite investments in non-U.S. subsidiaries. Gains and losses resulting from
foreign currency transactions are included in the determination of net income.
Net exchange and transaction gains (losses) were $13, ($147) and ($135), for the
fiscal years ended September 30, 1999, 1998 and 1997, respectively.
Revenue Recognition - Sales are recorded upon shipment of products or
performance of services. Provisions for estimated product returns, warranty and
installation costs are accrued in the period of sale recognition.
Research and Development Arrangements - The Company receives funding from
certain customers and government agencies pursuant to contracts or other
arrangements for the performance of specified research and development
activities. Such amounts are recognized as a reduction of research and
development expense when specified activities have been performed. During fiscal
1999, 1998 and 1997, reductions to research and development expense related to
such funding totaled $1,269, $1,655 and $2,018, respectively.
Income Taxes - Deferred income taxes are determined using the liability method
in accordance with SFAS No. 109, "Accounting for Income Taxes." No provision is
made for U.S. income taxes on the portion of undistributed earnings of foreign
subsidiaries which are indefinitely reinvested in foreign operations.
Environmental Expenditures - Future environmental remedial expenditures are
recorded in operating expenses when it is probable that a liability has been
incurred and the amount of the liability can be reasonably estimated. Accrued
liabilities do not include claims against third parties and are not discounted.
Earnings Per Share - In the fiscal 1998 first quarter ended December 31, 1997,
the Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings Per Share," ("SFAS 128"). Under SFAS 128, basic earnings per share
includes only the weighted average number of common shares outstanding during
the period. Diluted earnings per share includes the weighted average number of
common shares and the dilutive effect of stock options and other potentially
dilutive securities outstanding during the period. All prior period earnings per
share amounts have been restated to reflect the requirements of SFAS 128. See
Note 12.
Accounting for Stock-based Compensation - In 1995, Statement of Financial
Accounting Standards No. 123 - "Accounting for Stock-Based Compensation" ("SFAS
123") was issued. SFAS 123 defines the "fair value method" of accounting for
stock options or similar equity instruments, pursuant to which compensation cost
is measured at the grant date based on the value of the award and is recognized
over the service period. SFAS 123 permits companies to continue to account for
stock option grants using the "intrinsic value method" prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB No. 25"), and disclose the pro forma effect on net income and earnings per
share as if the fair value method had been applied to stock option grants. The
Company has elected to follow the disclosure basis only, as permitted by SFAS
123.
Reporting Comprehensive Income - In fiscal 1999, the Company adopted Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS 130"), which establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general purpose financial statements. The comprehensive income
and related cumulative equity impact of comprehensive income items are required
to be reported in a financial statement that is displayed with the same
prominence as other financial statements. The impact of foreign currency
translation adjustments, minimum pension liability adjustments and unrealized
gains or losses on securities available for sale are considered to be components
of the Company's comprehensive income under the requirements of SFAS 130.
Segment Disclosure - In fiscal 1998, the Company adopted Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" ("SFAS 131"). SFAS 131 supersedes SFAS 14, Financial
Reporting for Segments of a Business Enterprise, replacing the "industry
segment" approach with the "management" approach. The management approach
designates the internal organization that is used by management for making
operating decisions and assessing performance as the source of the Company's
reportable segments. SFAS 131 also requires disclosure about products and
services, geographic areas, and major customers. The adoption of SFAS 131 did
not affect results of operations or financial position but did affect the
disclosure of
36
segment information (see "Segment Information" Note 11).
Derivative Instruments and Hedging Activities - In June 1998, Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133") was issued. SFAS 133 establishes accounting
and reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. This Statement is
effective for all fiscal quarters for financial statements for fiscal years
commencing after June 15, 2000. Management does not believe that the adoption of
SFAS 133 will have a material impact on the financial statements.
Reclassifications - Certain amounts in the Company's prior year financial
statements have been reclassified to conform to their presentation in the
current fiscal year.
NOTE 2: RESIZING COSTS
During fiscal 1999, the Company announced plans to relocate its automatic ball
bonder manufacturing from Willow Grove, Pennsylvania to Singapore. As a result,
the Company recorded a charge for severance of $3,955 for the elimination of
approximately 230 positions and asset writeoffs of $1,566. In fiscal 1999, the
Company also recorded a charge of $397 for severance for an additional 30
employees related to the reduction in workforce that began in fiscal 1998.
Write-downs of property, plant and equipment were made where carrying values
exceeded the Company's estimate of proceeds from abandonment or disposal. These
estimates were based principally on past experience of comparable asset
disposals. Cash payments for severance and the disposition of assets identified
are expected to be substantially paid or completed by the end of fiscal 2000.
During fiscal 1998, the Company announced plans to resize its workforce and
discontinue products due to a slowdown in orders for its semiconductor assembly
capital equipment and to a lesser extent for its semiconductor packaging
materials. As a result of the resizing activities, the Company reduced it
worldwide workforce by approximately 21% or 500 employees. The Company recorded
a total resizing charge of $8,420 in 1998 for severance ($4,953), impairment of
goodwill associated with the 1994 acquisition of certain assets from Assembly
Technologies ($948), product discontinuation costs ($1,891; primarily write-off
of fixed assets and excess inventory) and other costs ($628).
Concurrent with the resizing charge in fiscal 1998 of $8,420, the Company
recorded in 1998 charges in its cost of goods sold of $2,362 for excess and
obsolete inventory and $1,426 for excess purchase commitments resulting from the
slowdown in orders for its semiconductor assembly equipment.
The balance of the severance and other resizing reserves is included within
accrued liabilities. The components of these resizing reserves and movements
within these components during 1999 were as follows:
Severance Other Total
--------- ----- -----
Balance at September 30, 1998 $ 3,088 $ 628 $ 3,716
Provision in fiscal 1999 4,352 -- 4,352
Payments made (3,296) (147) (3,443)
------- ------- -------
Balance at September 30, 1999 $ 4,144 $ 481 $ 4,625
======= ======= =======
The severance resizing reserve at September 30, 1999 is comprised of the
elimination of approximately 230 positions associated with the move of the ball
bonder manufacturing to Singapore and expensed in fiscal 1999 and 3 employees
terminated in association with the fiscal 1998 reduction in workforce and
expensed in fiscal 1998.
During fiscal 1999, payments of $3,296 were made related to the termination of
approximately 285 employees.
37
NOTE 3: INVESTMENTS IN JOINT VENTURES
In February 1996, the Company entered into a joint venture agreement with Delco
Electronics Corporation ("Delco") providing for the formation and management of
Flip Chip Technologies, LLC ("FCT"). FCT was formed to license related
technologies and to provide wafer bumping services on a contract basis. The
Company owned a 51.0% equity interest in FCT but participated equally with Delco
in the management of FCT through an Executive Committee. Accordingly, the
Company accounted for its investment in FCT using the equity method, and
recognized its proportionate share of the operating results of the joint venture
on the basis of its ownership interest through September 30, 1998. For the first
eight months of fiscal 1999, the Company recognized 100% of the FCT pre-tax loss
and did not recognize interest income on loans to FCT due to the existence of
these loans and uncertainties about FCT's ability to obtain additional financing
from Delco and its ability to generate short-term positive cash flow.
Effective May 31, 1999 the Company increased its ownership interest in FCT, from
51.0% to 73.6% by converting all of its outstanding loans and accrued interest
to FCT, which totaled $32,832, into equity units and gained operating control of
FCT. The Company accounted for the increase in ownership by the purchase method
of accounting and began consolidating the results of FCT into the Company's
financial statements on June 1, 1999. The pre-tax loss of FCT for fiscal 1999
was $14,583 compared to $17,087 in fiscal 1998. The Company's share of the FCT
pre-tax loss, reflected in its financial statements, was $12,166 in fiscal 1999,
$8,715 in fiscal 1998 and $6,701 in fiscal 1997. The $12,166 pre-tax loss in
fiscal 1999 consists of $3,003 of losses for the four months after the Company
began reporting FCT on a consolidated basis and a loss of $9,163 for the eight
months when FCT was accounted for by the equity method of accounting and
reflected in Equity in Loss of Joint Ventures.
The Company recorded goodwill of $5,205 associated with the increase in
ownership of FCT and is amortizing the goodwill over 10 years. For income tax
purposes, FCT is treated as a partnership, accordingly, no provision for income
tax is included in FCT's separate financial statements. Rather, the Company's
share of the results of FCT were reported on a pre-tax basis until May 31, 1999.
Through September 30, 1999, the Company had contributed $49,662 to FCT.
Unaudited pro forma operating results of the Company, assuming the increase in
ownership of FCT took place at the beginning of fiscal 1998, are as follows:
FISCAL YEAR ENDED
SEPTEMBER 30,
-------------------
1999 1998
---- ----
(UNAUDITED)
Net sales $ 418,157 $ 415,382
Net loss (16,268) (8,719)
Net loss per share - diluted (0.69) (0.37)
The pro forma operating results reflected above are not necessarily indicative
of the future operating results of the Company.
Selectedassets and liabilities of FCT, which are consolidated in the Company's
balance sheet at September 30, 1999, are:
SEPTEMBER 30, 1999
------------------
Cash $ 839
Current assets 3,711
Property, plant and equipment, net 20,844
Total assets 24,946
Current liabilities 5,873
Total liabilities 5,873
In September 1998, the Company entered into a joint venture agreement with
Polyset Company, Inc. ("Polyset")
38
providing for the formation and management of Advanced Polymer Solutions, LLC
("APS") to develop, manufacture and market advanced polymer materials for
semiconductor and microelectronic packaging end users. The Company owns a 50%
equity interest in APS and participates equally with Polyset in the management
of APS through an Executive Committee. Accordingly, the Company accounts for its
investment in APS using the equity method, and recognizes its proportionate
share of the operating results of the joint venture on the basis of its
ownership interest. For income tax purposes, APS is treated as a partnership.
Accordingly, no provision for income taxes is included in APS's separate
financial statements. Rather, the Company's proportionate share of the results
of APS are reported on a pre-tax basis. For the fiscal year ended September 30,
1999, the Company reported a pre-tax loss of $837 on its investment in APS.
Through September 30, 1999, the company had contributed approximately $3,800 to
APS and has committed to contribute up to $6,000.
NOTE 4: PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT
Purchased in-process research and development represents the value assigned in a
purchase business combination to research and development projects of the
acquired business that were commenced but not yet completed at the date of
acquisition, for which technological feasibility has not been established and
which have no alternative future use in research and development activities or
otherwise. In accordance with Statement of Financial Accounting Standards No. 2,
"Accounting for Research and Development Costs," as interpreted by
Interpretation No. 4, amounts assigned to purchased in-process research and
development meeting the above criteria must be charged to expense at the date of
consummation of the purchase business combination.
In January 1999, the Company purchased enabling technology and fixed assets used
in the design, development, manufacture, marketing and sale of laminate
substrates (the "X-LAM technology") for $8.0 million. The Company has allocated
the majority of the purchase price to intangible assets, including in-process
research and development. The portion of the purchase price allocated to
in-process research and development was charged to expense in fiscal 1999. The
other purchased intangibles include core technology and assembled workforce.
These intangibles are being amortized over their estimated useful lives of 1 - 5
years.
The Company allocated the purchase price as follows:
In-process research and development $3,935
Core technology 3,447
Property, plant and equipment 513
Assembled workforce 105
------
Total $8,000
======
The Company obtained an independent valuation of the purchased in-process
research and development. The income valuation approach was used to determine
the fair value of the in-process research and development. The Company estimated
that the purchased technology was 60% complete and the technology would be
marketable in fiscal 2000 and would generate positive cash flow beginning in
fiscal 2001. These estimates are subject to change, given uncertainties of the
development process, and no assurance can be given that deviations from these
estimates will not occur.
NOTE 5: INVESTMENTS
At September 30, 1999 and 1998, no short-term investments were classified as
trading or held-to-maturity. Investments, excluding cash equivalents, consisted
of the following at September 30, 1999 and 1998:
SEPTEMBER 30, 1999 September 30, 1998
---------------------------- ----------------------------
UNREALIZED Unrealized
FAIR GAINS/ COST Fair Gains/ Cost
Available-for-sale: VALUE (LOSSES) BASIS Value (Losses) Basis
----- -------- ----- ----- -------- -----
U.S. Treasuries $ -- $ -- $ -- $ 2,355 $ 21 $ 2,334
Corporate debt securities -- -- -- 28,067 136 27,931
Adjustable rate notes 2,190 (74) 2,264 -- -- --
------- ------- ------- ------- ------- -------
Short-term investments
classified as available
for sale $ 2,190 $ (74) $ 2,264 $30,422 $ 157 $30,265
======= ======= ======= ======= ======= =======
An after-tax unrealized loss of $48 (net of taxes of $26) and an after-tax
unrealized gain of $116 (net of taxes of $41) were recorded as direct
adjustments to shareholders' equity at September 30, 1999 and September 30,
1998, respectively.
39
NOTE 6: BALANCE SHEET COMPONENTS
SEPTEMBER 30,
---------------------------
INVENTORIES: 1999 1998
-------- --------
Raw materials and supplies $ 35,981 $ 28,062
Work in process 24,033 11,381
Finished goods 16,696 23,788
-------- --------
76,710 63,231
Inventory reserves (14,928) (15,658)
-------- --------
$ 61,782 $ 47,573
======== ========
SEPTEMBER 30,
---------------------------
1999 1998
PROPERTY, PLANT AND EQUIPMENT: ------ --------
Land $ 1,453 $ 1,453
Buildings and building improvements 21,608 21,124
Machinery and equipment 105,148 72,992
Leasehold improvements 15,960 4,289
-------- --------
144,169 99,858
Accumulated depreciation (76,684) (51,589)
-------- --------
$ 67,485 $ 48,269
======== ========
Accrued expenses at September 30, 1999 and 1998 include $12,100 and $10,981,
respectively, for accrued wages, incentives and vacations.
NOTE 7: DEBT OBLIGATIONS
At September 30, 1999, the Company recorded a short-term debt obligation of
$1,178 reflecting debt due to Delco, the 26.4% owner of FCT, by FCT. At
September 30, 1998 the Company's debt obligations consisted entirely of capital
lease obligations which matured in fiscal 1999. Interest paid on the Company's
debt obligations totaled $215, $262 and $2,331, in fiscal 1999, 1998 and 1997,
respectively.
The Company has a $60,000 revolving credit facility expiring on March 26, 2003.
At September 30, 1999, the Company had no cash borrowings outstanding under the
credit facility, but had utilized $960 of availability under the credit facility
to support letters of credit issued as security deposits for its new
manufacturing facility in Singapore and its new X-LAM facility. The revolving
credit facility provides for borrowings denominated in either U.S. dollars or
foreign currencies. Borrowings in U.S. dollars bear interest either at a Base
Rate (defined as the greater of the prime rate minus 1/4% or the federal funds
rate plus 1/2%) or, at a LIBOR Rate (defined as LIBOR plus .4% to .8%, depending
on the Company's leverage ratio). Foreign currency borrowings bear interest at a
LIBOR Rate, as defined above, applicable to the foreign currency.
The Amended and Restated Loan Agreement is guaranteed by certain of the
Company's domestic subsidiaries and requires the Company maintain certain
financial covenants including a leverage ratio and an interest coverage ratio or
liquidity ratio. The Amended and Restated Loan Agreement also limits the
Company's ability to mortgage, pledge or dispose of a material portion of its
assets and imposes restrictions on the Company's investments and acquisitions.
There were no borrowings under this bank credit facility during fiscal 1999. The
Company was in compliance with the covenants of the Amended and Restated Loan
Agreement as of September 30, 1999.
40
NOTE 8: SHAREHOLDERS' EQUITY
Common Stock
In May 1997, the Company completed the sale of 3,450,000 shares of its common
stock in an underwritten offering, resulting in net proceeds to the Company
approximating $101,103. A portion of these proceeds was used to repay the
$50,000 outstanding balance under the Company's existing bank revolving credit
facility.
Stock Option Plans
The Company has six employee stock option plans covering substantially all
employees (the "Employee Plans") pursuant to which options have been or may be
granted at 100% of the market price of the Company's Common Stock on the date of
grant. Options may no longer be granted under three of the plans. Options
granted under the Employee Plans are exercisable at such dates as are determined
in connection with their issuance, but not later than ten years after the date
of grant.
The following summarizes all employee stock option activity for the three years
ended September 30, 1999:
SEPTEMBER 30,
-----------------------------------------------------------
1999 1998 1997
-----------------------------------------------------------
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------- ----- ------- ----- ------- -----
(SHARE AMOUNTS IN THOUSANDS)
Options outstanding at
beginning of period 2,180 $17.98 1,072 $15.05 815 $15.08
Granted or reissued 835 25.79 1,300 20.64 552 12.00
Exercised (38) 7.54 (41) 9.62 (231) 7.72
Terminated or canceled (111) 19.61 (151) 22.36 (64) 15.94
----- ----- -----
Options outstanding at
end of period 2,866 20.33 2,180 17.98 1,072 15.05
===== ===== =====
Options exercisable at
end of period 702 16.58 317 13.79 132 12.35
===== ===== ===
The Company also maintains two stock option plans for non-officer directors (the
"Director Plans") pursuant to which options to purchase 5,000 shares of the
Company's Common Stock at an exercise price of 100% of the market price on the
date of grant are issued to each non-officer director each year. Options can no
longer be granted under one of these plans. Options to purchase 201,000 shares
at an average exercise price of $19.87 were outstanding under the Director Plans
at September 30, 1999, of which options to purchase 97,000 shares were currently
exercisable. No options under the Director Plans were exercised during 1999.
At September 30, 1999, 4,664,000 shares were reserved for issuance and 1,798,000
shares were available for grant in connection with the Employee Plans and
626,000 shares were reserved for issuance and 425,000 shares were available for
grant in connection with the Director Plans.
The following table summarizes information concerning currently outstanding and
exercisable options at September 30, 1999:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------- ----------------------------
(SHARE AMOUNTS IN THOUSANDS) (SHARE AMOUNTS IN THOUSANDS)
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
------ ----------- ---- ----- ----------- -----
$ 2.62 - $10.00 220 4.4 $ 7.04 168 $ 6.72
$10.01 - $20.00 1,289 8.2 $12.94 361 $12.63
$20.01 - $30.00 839 9.9 $25.78 2 $23.63
$30.01 - $39.00 518 7.3 $35.55 171 $34.56
----- ---
2,866 8.2 $20.33 702 $16.58
41
As permitted under Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), the Company has elected
to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB 25"), in accounting for stock options granted to
employees. Under APB 25, the Company generally recognizes no compensation
expense in the income statement with respect to such grants.
Unaudited pro forma information regarding net income and earnings per share is
required by SFAS 123 for options granted after October 1, 1995 as if the Company
had accounted for its stock option grants to employees under the fair value
method of SFAS 123. The fair value of the Company's stock option grants to
employees was estimated using a Black-Scholes option pricing model.
The following assumptions were employed to estimate the fair value of stock
options granted to employees:
FISCAL YEAR ENDED
SEPTEMBER 30,
---------------------------------------
1999 1998 1997
---------- ---------- ----------
Expected dividend yield $ 0.00 $ 0.00 $ 0.00
Expected stock price volatility 74.00% 73.00% 71.00%
Risk-free interest rate 5.84% 5.40% 6.16%
Expected life (years) 8 7 6
For pro forma purposes, the estimated fair value of the Company's stock options
to employees is amortized over the options' vesting period. The Company's pro
forma information follows:
FISCAL YEAR ENDED
SEPTEMBER 30,
---------------------------------------
1999 1998 1997
---------- ---------- ----------
Weighted average fair value of options granted $ 19.92 $ 15.18 $ 8.22
Net income (loss) - as reported (16,946) (5,440) 38,319
Net income (loss) - unaudited pro forma (20,499) (8,040) 37,069
Net income (loss) per share - as reported, diluted (.72) (0.23) 1.79
Net income (loss) per share - unaudited pro forma, diluted (.88) (0.35) 1.72
NOTE 9: EMPLOYEE BENEFIT PLANS
The Company has a non-contributory defined benefit pension plan covering
substantially all U.S. employees who were employed on September 30, 1995. The
benefits for this plan were based on the employees' years of service and the
employees' compensation during the three years before retirement. The Company's
funding policy is consistent with the funding requirements of Federal law and
regulations. Effective December 31, 1995, the benefits under the Company's
pension plan were frozen. As a consequence, accrued benefits no longer change as
a result of an employee's length of service or compensation. In fiscal 1999, the
Company adopted SFAS No. 132, "Employers' Disclosures about Pension and Other
Post-retirement Benefits." The disclosures for fiscal 1998 and 1997 have been
restated for comparative purposes.
Detailed information regarding the Company's defined benefit pension is as
follows:
FISCAL YEAR ENDED SEPTEMBER 30,
------------------------------------
1999 1998 1997
-------- -------- --------
Change in benefit obligation:
Benefit obligations at beginning of year: $ 11,802 $ 11,198 $ 10,340
Interest cost 885 840 776
Benefits paid (407) (405) (399)
Actuarial (gain) loss (324) 169 481
-------- -------- --------
Benefit obligation at end of year $ 11,956 $ 11,802 $ 11,198
======== ======== ========
42
FISCAL YEAR ENDED SEPTEMBER 30,
------------------------------------
1999 1998 1997
-------- -------- --------
Change in plan assets:
Fair value of plan assets at beginning of year: $ 10,542 $ 10,372 $ 9,770
Actual return on plan assets 1,066 490 980
Employer contributions -- 85 21
Benefits paid (407) (405) (399)
-------- -------- --------
Fair value of assets at end of year $ 11,201 $ 10,542 $ 10,372
======== ======== ========
Reconciliation of funded status:
Funded status $ (755) $ (1,260) $ (826)
Unrecognized actuarial loss 1,181 1,749 1,245
-------- -------- --------
Net amount recognized at year-end $ 426 $ 489 $ 419
======== ======== ========
Amount recognized in the statement of financial position consists of:
Accrued benefit liability $ (755) $ (1,260) $ (826)
Accumulated other comprehensive income/unrecognized net loss 1,181 1,749 1,245
-------- -------- --------
Net amount recognized at year-end $ 426 $ 489 $ 419
======== ======== ========
Components of net periodic benefit cost:
Interest cost $ 885 $ 840 $ 776
Expected return on plan assets (858) (833) (720)
Recognized actuarial loss 36 8 --
-------- -------- --------
Net periodic benefit cost $ 63 $ 15 $ 56
======== ======== ========
Weighted-average assumptions as of September 30:
Discount rate 7.75% 7.50% 7.50%
Expected long-term rate of return on plan assets 8.00% 8.00% 7.00%
Rate of compensation increase * * *
* Not applicable due to the December 31, 1995 benefit freeze.
The Company's foreign subsidiaries have retirement plans that are integrated
with and supplement the benefits provided by laws of the various countries. They
are not required to report nor do they determine the actuarial present value of
accumulated benefits or net assets available for plan benefits. The Company
believes these plans are substantially fully funded as to vested benefits. On a
consolidated basis, pension expense was $998, $914 and $991, in fiscal 1999,
1998 and 1997, respectively.
The Company has a 401(k) Employee Incentive Savings Plan. This plan allows for
employee contributions and matching Company contributions in varying
percentages, depending on employee age and years of service, ranging from 30% to
175% of the employees' contributions. The Company's contributions under this
plan totaled $1,662, $2,240 and $1,793 in fiscal 1999, 1998 and 1997,
respectively, and were satisfied by contributions of shares of Company common
stock, valued at the market price on the date of the matching contribution.
NOTE 10: INCOME TAXES
Income (loss) before income taxes and after minority interest in net loss
consisted of the following:
FISCAL YEAR ENDED SEPTEMBER 30,
----------------------------------------
1999 1998 1997
-------- -------- --------
United States operations $(43,663) $(17,953) $ 32,879
Foreign operations 18,496 10,596 18,903
-------- -------- --------
$(25,167) $ (7,357) $ 51,782
======== ======== ========
43
The provision (benefit) for income taxes included the following:
FISCAL YEAR ENDED SEPTEMBER 30,
----------------------------------------
1999 1998 1997
-------- -------- --------
Current:
Federal $ (2,218) $ (7,210) $ 8,722
State 50 50 700
Foreign 2,410 4,155 3,797
Deferred:
Federal (8,613) 840 244
Foreign 150 248 --
-------- -------- --------
$ (8,221) $ (1,917) $ 13,463
======== ======== ========
The provision (benefit) for income taxes differed from the amount computed by
applying the statutory federal income tax rate as follows:
FISCAL YEAR ENDED SEPTEMBER 30,
----------------------------------
1999 1998 1997
-------- -------- --------
Computed income tax expense (benefit) based on
U.S. statutory rate $ (8,808) $ (2,575) $ 18,124
Effect of earnings of foreign subsidiaries
subject to different tax rates 603 (289) (1,212)
Benefits from Israeli Approved Enterprise Zones (4,509) (1,532) (1,049)
Benefits of net operating loss and tax credit
carryforwards and change in valuation allowance 4,200 (951) (1,819)
Non-deductible goodwill amortization 677 677 659
Provision for repatriation of certain foreign
earnings, including foreign withholding taxes 150 3,298 --
Effect of revisions of prior year's estimated taxes (533) (779) (205)
Benefits of Foreign Sales Corporation -- -- (985)
Other, net (1) 234 (50)
-------- -------- --------
$ (8,221) $ (1,917) $ 13,463
======== ======== ========
Undistributed earnings of certain foreign subsidiaries for which taxes have not
been provided approximate $40,447 at September 30, 1999. Such undistributed
earnings are intended to be indefinitely reinvested in foreign operations.
Undistributed earnings approximating $73,000 are not considered to be
indefinitely reinvested in foreign operations. Accordingly, as of September 30,
1999, deferred tax liabilities of $12,414 including withholding taxes but net of
estimated foreign tax credits, have been provided.
Deferred income taxes are determined based on the differences between the
financial reporting and tax basis of assets and liabilities as measured by the
current tax rates. The net deferred tax balance is composed of the tax effects
of cumulative temporary differences, as follows:
SEPTEMBER 30,
---------------------------
1999 1998
-------- --------
Repatriation of foreign earnings,
including foreign withholding taxes $ 12,414 $ 12,264
Depreciable assets 2,592 2,073
Prepaid expenses and other 1,541 831
-------- --------
Total deferred tax liability 16,547 15,168
-------- --------
44
SEPTEMBER 30,
---------------------------
1999 1998
-------- --------
Inventory reserves 2,291 3,299
Warranty accrual 655 750
Other accruals and reserves 2,298 3,621
Intangible assets 1,446 --
Domestic NOL carryforwards 19,430 3,894
Foreign NOL carryforwards 6,359 4,436
Domestic tax credit carryforwards 5,409 6,730
Deferred intercompany profit 1,945 2,137
-------- --------
39,833 24,867
Valuation allowance (12,215) (7,091)
-------- --------
Total deferred tax asset 27,618 17,776
-------- --------
Net deferred tax asset $ 11,071 $ 2,608
======== ========
Realization of deferred tax assets associated with the net operating loss and
tax credit carryforwards is dependent upon generating sufficient taxable income
prior to their expiration in the respective tax jurisdictions. The Company
believes there is a risk that certain of these tax credits carryforwards may
expire unused and, accordingly, has established certain valuation allowances.
The valuation allowance at September 30, 1999 relates to U.S. foreign tax credit
carryforwards expiring through the year 2014, acquired domestic net operating
loss carryforwards expiring through the year 2010 whose realization is limited
to the U.S. earnings of the acquired company, and foreign net operating loss
carryforwards which are scheduled to expire through the 2004 fiscal year.
Although realization is not assured for the remaining deferred tax assets, the
Company believes it is more likely than not that they will be realized through
future taxable earnings or alternative tax strategies. However, the net deferred
tax assets could be reduced in the near term if the Company's estimates of
taxable income during the carryforward period are significantly reduced or
alternative tax strategies are no longer viable. In the event the tax benefits
relating to acquired net operating loss carryforwards are realized, such
benefits would reduce the recorded amount of goodwill.
The IRS is currently auditing the Company's federal income tax returns for
fiscal 1995, 1996, 1997 and 1998. Management believes sufficient taxes have been
provided in prior years and that the ultimate outcome of the IRS audits will not
have a material adverse impact on the Company's financial position, results of
operations or cash flows.
The Company paid income taxes of $3,753, $8,817 and $9,965, in fiscal 1999, 1998
and 1997, respectively.
NOTE 11: SEGMENT INFORMATION
The Company evaluates performance of its segments and allocates resources to
them based on income from operations before interest, allocations of corporate
expenses and income taxes.
The Company operates primarily in three industry segments: equipment, packaging
materials and advanced packaging technologies. The equipment business unit
designs, manufactures and markets capital equipment and related spare parts for
use in the semiconductor assembly process. Equipment also services, maintains,
repairs and upgrades assembly equipment. The packaging materials business
designs, manufactures and markets consumable packaging materials for use on the
equipment the company markets as well as on competitors' equipment. The
packaging materials products have different manufacturing processes,
distribution channels and a less volatile revenue pattern than the Company's
capital equipment. The advanced packaging technology business unit was
established is fiscal 1999 to reflect the Company's strategic initiative to
develop new technologies for advanced semiconductor packaging. This segment is
comprised of FCT and the Company's X-LAM business unit. The products of all
segments are, or will be, for sale to semiconductor device manufacturers. The
Company's equity method investment in APS is considered part of the packaging
materials segment.
45
The table below presents information about reported segments:
ADVANCED
PACKAGING PACKAGING CORPORATE,
EQUIPMENT MATERIALS TECHNOLOGY OTHER AND
FISCAL YEAR ENDED SEPTEMBER 30, 1999 SEGMENT SEGMENT SEGMENT ELIMINATIONS CONSOLIDATED
------- ------- ------- ------------ ------------
NET SALES $ 269,854 124,450 $ 4,613 $ -- $ 398,917
COST OF GOODS SOLD 188,958 90,326 6,098 -- 285,382
--------- --------- --------- --------- ---------
GROSS PROFIT 80,896 34,124 (1,485) -- 113,535
OPERATING EXPENSES 86,239 23,500 5,314 8,361 123,414
RESIZING COSTS 5,918 -- -- -- 5,918
PURCHASED IN-PROCESS RESEARCH
AND DEVELOPMENT -- -- -- 3,935 3,935
--------- --------- --------- --------- ---------
INCOME (LOSS) FROM OPERATIONS $ (11,261) $ 10,624 $ (6,799) $ (12,296) $ (19,732)
========= ========= ========= ========= =========
EQUITY IN LOSS OF JOINT VENTURES $ -- $ (837) $ (9,163) $ -- $ (10,000)
========= ========= ========= ========= =========
SEGMENT ASSETS $ 200,837 $ 86,398 $ 37,560 $ 53,350 $ 378,145
CAPITAL EXPENDITURES 6,522 2,136 2,233 10,891
DEPRECIATION EXPENSE 7,339 3,951 1,814 13,104
PACKAGING CORPORATE,
EQUIPMENT MATERIALS OTHER AND
FISCAL YEAR ENDED SEPTEMBER 30, 1998 SEGMENT SEGMENT ELIMINATIONS CONSOLIDATED
------- ------- ------------ ------------
Net sales $ 302,107 $ 108,933 $ -- $ 411,040
Cost of goods sold 191,948 82,259 -- 274,207
--------- --------- --------- ---------
Gross profit 110,159 26,674 -- 136,833
Operating expenses 101,099 22,829 8,641 132,569
Resizing costs 5,984 1,724 712 8,420
--------- --------- --------- ---------
Income (loss) from operations $ 3,076 $ 2,121 $ (9,353) $ (4,156)
========= ========= ========= =========
Equity in loss of joint ventures $ -- $ -- $ (8,715) $ (8,715)
========= ========= ========= =========
Segment assets $ 129,568 $ 78,318 $ 134,698 $ 342,584
Capital expenditures 12,809 3,253 -- 16,062
Depreciation expense 7,285 3,611 -- 10,896
PACKAGING CORPORATE,
EQUIPMENT MATERIALS OTHER AND
FISCAL YEAR ENDED SEPTEMBER 30, 1997 SEGMENT SEGMENT ELIMINATIONS CONSOLIDATED
------- ------- ------------ ------------
Net sales $ 391,721 $ 110,186 $ -- $ 501,907
Cost of goods sold 228,854 89,148 -- 318,002
--------- --------- --------- ---------
Gross profit 162,867 21,038 -- 183,905
Operating expenses 97,143 21,029 8,070 126,242
--------- --------- --------- ---------
Income (loss) from operations $ 65,724 $ 9 $ (8,070) $ 57,663
========= ========= ========= =========
Equity in loss of joint ventures $ -- $ -- $ (6,701) $ (6,701)
========= ========= ========= =========
Segment assets $ 159,124 $ 87,973 $ 129,722 $ 376,819
Capital expenditures 7,749 5,767 -- 13,516
Depreciation expense 5,977 2,968 -- 8,945
Intersegment sales are immaterial. Operating expenses identified as Corporate,
Other and Eliminations consist entirely of corporate expenses. Assets identified
as Corporate, Other and Eliminations consist of all cash and short-term
investments of the Company and corporate income tax assets.
46
The Company's market for its products is worldwide. The table below presents
destination sales to unaffiliated customers and long-lived assets by country:
DESTINATION LONG-LIVED
FISCAL YEAR ENDED SEPTEMBER 30, 1999 SALES ASSETS
- ------------------------------------ ----------- ---------
TAIWAN $ 93,317 $ 606
UNITED STATES 69,353 230,337
SINGAPORE 44,642 48,653
PHILIPPINES 42,607 656
MALAYSIA 40,172 127
JAPAN 19,262 13,738
HONG KONG 19,096 4,875
ISRAEL 1,007 20,300
ALL OTHER 69,461 5,503
-------- --------
$398,917 $324,795
======== ========
DESTINATION LONG-LIVED
FISCAL YEAR ENDED SEPTEMBER 30, 1998 SALES ASSETS
- ------------------------------------ ----------- ---------
Taiwan $ 82,957 $ 660
United States 82,053 123,308
Philippines 70,675 796
Malaysia 63,817 149
Singapore 18,932 39,095
Korea 15,205 309
Hong Kong(1) 14,815 6,863
Israel 1,397 24,834
All other 61,189 11,872
-------- --------
$411,040 $207,886
======== ========
(1) The reduction in assets from $44,526 in fiscal 1997 to $6,863
in fiscal 1998 was due to lower accounts receivable resulting
from the centralization of the Company's invoicing practices,
for equipment sales, to the US.
DESTINATION LONG-LIVED
FISCAL YEAR ENDED SEPTEMBER 30, 1998 SALES ASSETS
- ------------------------------------ ----------- ---------
Taiwan $109,822 $ 424
Korea 97,370 185
United States 74,817 122,061
Malaysia 66,231 127
Philippines 39,435 --
Singapore 26,825 42,762
Hong Kong 13,990 44,526
Israel 731 25,872
All other 72,686 11,140
-------- --------
$501,907 $247,097
======== ========
Sales to a relatively small number of customers account for a significant
percentage of the Company's net sales. In fiscal 1999 no customer accounted for
more than 10% of total net sales but in fiscal 1998, sales to Intel accounted
for 17.6% of the Company's net sales and in fiscal 1997, sales to Anam (a
Korea-based customer) and Intel accounted for approximately 12.5% and 10.2%,
respectively, of net sales. The Company expects that sales of its products to a
limited number of customers will continue to account for a high percentage of
net sales for the foreseeable future.
47
NOTE 12: OTHER FINANCIAL DATA
In July 1998, the Company decided to discontinue the manufacture and sale of a
line of products acquired in July 1994 from Assembly Technologies. As a
consequence, no future cash flows from this product line were anticipated and
$948 of goodwill arising from this acquisition was written off in the Company's
fiscal 1998 fourth quarter, in accordance with the provisions of SFAS 121.
Maintenance and repairs expense totaled $2,551, $3,582 and $4,316 for fiscal
1999, 1998 and 1997, respectively. Warranty and retrofit expense was $4,586,
$4,796 and $5,788 for fiscal 1999, 1998 and 1997, respectively.
Rent expense for fiscal 1999, 1998 and 1997 was $3,216, $2,997 and $3,191,
respectively.
A reconciliation of weighted average shares outstanding-basic to the weighted
average shares outstanding-diluted appears below:
(Shares in thousands)
Fiscal Year Ended September 30,
-------------------------------
1999 1998 1997
------ ------ ------
Weighted average shares outstanding - Basic 23,423 23,301 20,871
Potentially dilutive securities:
Employee stock options * * 557
------ ------ ------
Weighted average shares outstanding - Diluted 23,423 23,301 21,428
====== ====== ======
* Due to the Company's net loss for the fiscal years ended September 30,
1999 and September 30, 1998, all potentially dilutive securities are deemed to
be antidilutive. The weighted average number of shares for potentially dilutive
securities (employee and director stock options) was 666,000 in fiscal 1999 and
366,000 in fiscal 1998.
NOTE 13: COMMITMENTS AND CONTINGENCIES
The Company has obligations under various operating leases, primarily for
manufacturing and office facilities, which expire periodically through 2006.
Minimum rental commitments under these leases (excluding taxes, insurance,
maintenance and repairs, which are also paid by the Company), are as follows:
$3,970 in 2000; $3,107 in 2001; $2,642 in 2002; $1,376 in 2003; $1,237 in 2004
and $2,312 thereafter.
The Company entered into a joint venture agreement, in September 1998, to
develop, manufacture and market advanced polymer materials for semiconductor and
microelectronic packaging end users. The Company has invested approximately
$3,800 in this joint venture and has committed to invest an additional $2,200.
From time to time, third parties assert that the Company is, or may be,
infringing or misappropriating their intellectual property rights. In such
cases, the Company will defend against claims or negotiate licenses where
considered appropriate. In addition, certain of the Company's customers have
received notices of infringement from the Lemelson Medical, Education and
Research Foundation Limited Partnership (the "Lemelson Foundation"), alleging
that equipment supplied by the Company, and processes performed by such
equipment, infringe on patents held by the Lemelson Foundation. This activity
increased substantially in 1998, the year in which the Lemelson Foundation
settled its suit against the Ford Motor Company, and entered into License
Agreements with Ford, GM and Chrysler. Since the settlement a number of the
Company's customers, including Intel, have been sued by the Lemelson Foundation.
Certain customers have requested that the Company defend and indemnify them
against the claims of the Lemelson Foundation or to contribute to any settlement
the customer reaches with the Lemelson Foundation. The Company has received
opinions from its outside patent counsel with respect to certain of the Lemelson
Foundation patents. The Company is not aware that any equipment marketed by the
Company, or process performed by such equipment, infringe on the Lemelson
Foundation patents in question and does not believe that the Lemelson Foundation
matter or any other pending intellectual property claim will have a material
adverse effect on its business, financial condition, operating results or cash
flows. However, the ultimate outcome of any infringement or misappropriation
claim affecting the Company is uncertain, and there can be no assurances that
the resolution of these matters will not have a material adverse effect on the
Company's business, financial condition, operating results or cash flows.
48
The Israeli government has funded a portion of the research and development
costs related to certain products. The Company is contingently liable to repay
such funding through royalties to the Israeli government. Royalty payments are
due only upon sale of the funded products, are computed at varying rates from 2%
to 5% of such sales and are limited to the amounts received from the Israeli
government. Royalty payments to the Israeli government for the fiscal years
ended September 30, 1999, 1998 and 1997 totaled $4, $286 and $148, respectively.
At September 30, 1999, the Company was contingently liable for royalties
approximating $2,302 related to potential future product sales.
The Company is obligated, under a foreign exchange contract, to purchase 1,600
Swiss Francs in March 2000 for $1,079. Based on the year-end exchange rate the
fair value of the obligation approximates the contract value.
The U.S. Customs is currently conducting as assessment of the Company's
compliance with Customs Regulations for the fiscal year ended September 30,
1998. Management believes that the ultimate outcome of this assessment will not
materially and adversely affect the Company's business, financial condition,
operating results or cash flows.
NOTE 14: SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Financial information pertaining to quarterly results of operations follows:
YEAR ENDED FIRST SECOND THIRD FOURTH
SEPTEMBER 30, 1999: QUARTER QUARTER QUARTER QUARTER TOTAL
------- ------- ------- ------- -----
NET SALES $ 61,175 $ 73,561 $ 110,806 $ 153,375 $ 398,917
GROSS PROFIT 16,176 21,025 30,374 45,960 113,535
INCOME (LOSS) FROM OPERATIONS (1)(3) (10,282) (17,087) (776) 8,413 (19,732)
INCOME (LOSS) BEFORE MINORITY INTEREST
AND INCOME TAXES (12,663) (21,109) (1,224) 8,811 (26,185)
INCOME TAX EXPENSE (BENEFIT) (3,800) (6,333) (283) 2,195 (8,221)
MINORITY INTEREST IN NET LOSS -- -- 282 736 1,018
NET INCOME (LOSS) $ (8,863) $ (14,776) $ (659) $ 7,352 $ (16,946)
NET INCOME (LOSS) PER SHARE: ========= ========= ========= ========= =========
BASIC $ (0.38) $ (0.63) $ (0.03) $ .31 $ (0.72)
DILUTED $ (0.38) $ (0.63) $ (0.03) $ .30 $ (0.72)
Year ended First Second Third Fourth
September 30, 1998: Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- -----
Net sales $ 123,111 $ 120,060 $ 91,693 $ 76,176 $ 411,040
Gross profit 45,345 45,987 30,185 15,316 136,833
Income (loss) from operations (2) (3) 10,630 12,987 (3,202) (24,571) (4,156)
Income (loss) before income taxes $ 9,748 $ 11,894 $ (4,222) $ (24,777) $ (7,357)
Income tax expense (benefit) 2,924 2,703 (1,098) (6,446) (1,917)
--------- --------- --------- --------- ---------
Net income (loss) $ 6,824 $ 9,191 $ (3,124) $ (18,331) $ (5,440)
========= ========= ========= ========= =========
Net income (loss) per share:
Basic $ 0.29 $ 0.39 $ (0.13) $ (0.79) $ (0.23)
Diluted $ 0.29 $ 0.39 $ (0.13) $ (0.79) $ (0.23)
49
(1) Results for the first quarter of fiscal 1999 include a charge of $397 for
severance in connection with the resizing of the Company's work-force
begun in fiscal 1998. Results of the second quarter include a one-time
charge of $5,521 for severance and asset write-off in connection with the
move of ball bonder manufacturing to Singapore and a charge of $3,935 for
purchased in-process research and development in connection with the
purchase of the X-LAM technology.
(2) Results for the fourth quarter of fiscal 1998 include a charge of $8,420
consisting of $4,953 of severance, $1,891 of product discontinuation
costs, $948 of goodwill write-off and $628 of other costs, in connection
with the resizing of the Company's work force and product lines resulting
from a slowdown in customer orders.
(3) Represents net sales less costs and expenses but before net interest
expense, equity in loss of joint ventures and other expense.
NOTE 15: SUBSEQUENT EVENT
On December 13, 1999, the Company issued $150.0 million of convertible
subordinated notes. On December 15, 1999 the Company issued an additional $25.0
million of convertible subordinated notes in connection with the exercise of the
initial purchasers' over-allotment option. The notes are general obligations of
the Company and subordinated to all senior debt. The notes bear interest at 4
3/4%, are convertible into the Company's common stock at $45.7993 per share and
mature on December 15, 2006. There are no financial covenants associated with
the notes and there are no restrictions on paying dividends, incurring
additional debt or issuing or repurchasing the Company's securities. Interest on
the notes will be paid on June 15 and December 15 of each year beginning June
15, 2000. The Company may redeem the notes in whole or in part at any time after
December 18, 2002 at prices ranging from 102.714% at December 19, 2002 to 100.0%
at December 15, 2006.
50
Report of Independent Accountants
To the Members of Flip Chip Technologies, LLC:
In our opinion, the accompanying balance sheet and the related statements of
operations, members' equity and of cash flows present fairly, in all material
respects, the financial position of Flip Chip Technologies, LLC at September 30,
1999, and the results of its operations and its cash flows for the year ended
September 30,1999 in conformity with accounting principles generally accepted in
the United States. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
December 6, 1999
51
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Flip Chip Technologies, LLC:
We have audited the accompanying balance sheet of FLIP CHIP TECHNOLOGIES, LLC
(the Company; a Delaware limited liability company) as of September 30, 1998,
and the related statements of operations, members' equity and cash flows for
each of the two years in the period ended September 30, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Flip Chip Technologies, LLC at
September 30, 1998, and the results of its operations and its cash flows for
each of the two years in the period ended September 30, 1998, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Phoenix, Arizona,
November 19, 1998
52
FLIP CHIP TECHNOLOGIES, LLC
BALANCE SHEETS
SEPTEMBER 30, 1999 AND 1998
- --------------------------------------------------------------------------------
1999 1998
ASSETS
Current Assets:
Cash and cash equivalents $ 839,122 $ 1,269,566
Accounts receivable (net of allowance for bad debts
of $14,309 in 1999 and $0 in 1998) 2,483,074 1,052,161
Due from Member -- 58,583
Materials inventory 67,140 89,091
Deposits 200,667 91,200
Prepaid expenses 121,236 35,464
------------ ------------
Total current assets 3,711,239 2,596,065
Property and equipment, net 20,843,846 22,317,827
Deposits 390,470 680,603
------------ ------------
$ 24,945,555 $ 25,594,495
============ ============
LIABILITIES AND MEMBERS' EQUITY
Current Liabilities
Accounts payable $ 2,042,123 $ 1,721,686
Accrued compensation and related taxes 559,827 742,438
Accrued interest 151,962 559,966
Other accrued expenses 1,760,984 511,249
Due to members 332,118 --
Notes payable to members, current portion 1,025,805 5,000,000
------------ ------------
Total current liabilities 5,872,819 8,535,339
Accrued interest -- 757,423
Notes payable to members, net of current portion -- 15,478,142
------------ ------------
Total liabilities 5,872,819 24,770,904
Commitments and contingencies
Members' Equity
Members' contributions 65,832,294 33,000,000
Accumulated deficit (46,759,558) (32,176,409)
------------ ------------
Total members' equity 19,072,736 823,591
------------ ------------
$ 24,945,555 $ 25,594,495
============ ============
The accompanying notes are an integral part of these financial statements.
53
FLIP CHIP TECHNOLOGIES, LLC
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
1999 1998 1997
Wafer processing and engineering $ 12,853,027 $ 4,342,133 $ 887,332
Licensing 1,000,000 -- --
------------ ------------ ------------
Net revenues 13,853,027 4,342,133 887,332
Cost of wafer processing, engineering
and licensing 19,379,453 15,409,290 9,264,540
------------ ------------ ------------
Gross margin (5,526,426) (11,067,157) (8,377,208)
Operating expenses:
Research and development 709,159 530,816 507,467
Sales and marketing 3,168,417 2,524,974 2,574,042
General and administrative 3,149,922 1,805,229 1,735,161
Resizing expense 475,000 -- --
------------ ------------ ------------
7,502,498 4,861,019 4,816,670
Loss from operations (13,028,924) (15,928,176) (13,193,878)
Other income (expense)
Interest income 112,643 55,865 118,095
Other income -- 53,023 --
Interest expense (1,666,868) (1,268,118) (63,685)
------------ ------------ ------------
(1,554,225) (1,159,230) 54,410
------------ ------------ ------------
Net loss $(14,583,149) $(17,087,406) $(13,139,468)
============ ============ ============
The accompanying notes are an integral part of these financial statements.
54
STATEMENTS OF MEMBERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
MEMBERS' ACCUMULATED
CONTRIBUTIONS DEFICIT TOTAL
Balance, September 30, 1996 $ 5,000,000 $ (1,949,535) $ 3,050,465
Cash contributions 28,000,000 -- 28,000,000
Net loss -- (13,139,468) (13,139,468)
------------ ------------ ------------
Balance, September 30, 1997 33,000,000 (15,089,003) 17,910,997
Net loss -- (17,087,406) (17,087,406)
------------ ------------ ------------
Balance, September 30, 1998 33,000,000 (32,176,409) 823,591
Conversion of member notes and interest 32,832,294 -- 32,832,294
Net loss -- (14,583,149) (14,583,149)
------------ ------------ ------------
Balance, September 30, 1999 $ 65,832,294 $(46,759,558) $ 19,072,736
============ ============ ============
The accompanying notes are an integral part of these financial statements.
55
FLIP CHIP TECHNOLOGIES, LLC
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
1999 1998 1997
Cash flows from operating activities:
Net Loss $(14,583,149) $(17,087,406) $(13,139,468)
Adjustments to reconcile net loss to
cash used in operating activities:
Depreciation and amortization 4,698,451 3,964,021 2,146,314
Interest expense converted to equity 1,572,290 -- --
Provision for doubtful accounts 14,309 -- --
Changes in assets and liabilities:
Accounts receivable (1,445,222) (753,342) (231,176)
Due from Members 58,583 (58,583) --
Materials inventory 21,951 (26,515) (62,576)
Prepaid expenses (85,772) 3,454 (9,706)
Deposits 180,666 (339,265) (229,038)
Accounts payable 320,437 916,468 89,979
Accrued compensation and related costs (182,611) (136,063) 714,588
Accrued interest 94,577 1,257,389 60,000
Other accrued expenses 1,249,735 284,172 208,798
Due to members 332,118 (726,231) 564,333
Accrued construction costs -- -- (2,504,737)
------------ ------------ ------------
Net cash used in operating activities (7,753,637) (12,701,901) (12,392,689)
------------ ------------ ------------
Cash flows from investing activities:
Purchase of fixed assets (3,224,470) (3,330,474) (20,433,227)
------------ ------------ ------------
Net cash used in investing activities (3,224,470) (3,330,474) (20,433,227)
------------ ------------ ------------
Cash flows from financing activities:
Member contributions -- -- 28,000,000
Member loans 10,547,663 15,478,142 5,000,000
------------ ------------ ------------
Net cash provided by investing activities 10,547,663 15,478,142 33,000,000
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents (430,444) (554,233) 174,084
Cash and cash equivalents, beginning of year 1,269,566 1,823,799 1,649,715
------------ ------------ ------------
Cash and cash equivalents, end of year $ 839,122 $ 1,269,566 $ 1,823,799
============ ============ ============
Supplemental disclosures of cash flow information
and non cash financingactivities:
Cash paid during the year for interest $ -- $ 10,730 $ --
Conversion of Member notes and interest 32,832,294 -- --
The accompanying notes are an integral part of these financial statements.
56
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS:
COMPANY PROFILE
Flip Chip Technologies, LLC (the" Company"), a Delaware limited liability
company formed on February 28, 1996, operates under an operating agreement
(the Operating Agreement) between members Delphi-Delco Electronics System
("Delco") and Kulicke & Soffa Holdings, Inc. ("K&S") as described in Note
4.
The Company entered into a technology transfer agreement (the Technology
Transfer Agreement) with Delco which permits the Company to use and
sublicense Delco's Flex-On-Cap bumping technology to provide wafer
solder-bumping and related services. The Company's manufacturing facility
and corporate offices are located in Phoenix, Arizona.
COMMENCEMENT OF OPERATIONS
The Company incurred significant expenses to commence manufacturing
operations, which has resulted in an accumulated deficit of $46,759,558 at
September 30, 1999. The Company's forecast for the year ended September
30, 2000, indicates that additional funding will be needed to meet
forecasted cash requirements. Management expects, and has obtained written
representation indicating, that K&S will fund the Company's additional
cash requirements.
STRATEGY
The markets for the Company's technology are presently served by many
companies utilizing different wafer technologies which have significant
investments in their respective technologies. The Company's operating
results will depend to a significant extent on its ability to attract new
customers to use the Company's wafer bumping and finishing technology. The
Company provides wafer bumping and finishing services to customers and
sublicenses the technology to those customers who desire to use the
technology in-house. The Company believes that its technology will be
accepted by a sufficient number of customers to sustain future profitable
operations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Revenue is recognized on the accrual basis after the wafer bumping process
has been completed and the product has been shipped to the customer.
Licensing income is recognized as revenue in accordance with the specific
terms of the licensing agreement.
RESEARCH AND DEVELOPMENT
The Company is involved with developing new wafer bumping technologies. In
addition, Delco, under the Technology Transfer Agreement, is obligated to
provide certain technologies to the Company. Expenses to develop new
technology are included in research and development in the accompanying
statements of operations.
CASH AND CASH EQUIVALENTS
Cash equivalents consist of investments in a money market account. The
cash equivalents are recorded at cost, which approximates market value of
$838,522 and $1,163,325 at September 30, 1999 and 1998, respectively.
MATERIALS INVENTORY
Materials inventory are recorded at cost and consist of raw materials used
in the wafer bumping process. Materials are expensed on consumption during
the wafer bumping process.
SIGNIFICANT CUSTOMERS
One customer represented 30% and 26% of total revenue for the years ended
September 30, 1999 and 1998, respectively, and 11% and 38% of total
accounts receivable at September 30, 1999 and 1998, respectively. Another
customer represented 27% of total revenue for the years ended September
30, 1999 and 1998, respectively, and 28% and 25% of total accounts
receivable at September 30, 1999 and 1998, respectively.
57
COMPREHENSIVE INCOME
The Company has adopted SFAS No. 130 "Reporting Comprehensive Income." The
Company's comprehensive loss for 1999, 1998 and 1997 is equal to its net
loss as reported in the accompanying statements of operations.
PROPERTY AND EQUIPMENT
Property, plant and equipment is recorded at cost and is depreciated using
the straight-line method over the estimated useful lives of the respective
assets, which range from three to five years for machinery and equipment.
Building improvements consist of costs incurred related to the design and
construction of leasehold improvements on the Company's manufacturing and
corporate headquarters in Phoenix, Arizona. The improvements are being
depreciated using the straight-line method over the initial term of the
lease, which is ten years. Depreciation expense was $4,698,451, $3,964,021
and $2,146,314 in fiscal years 1999, 1998 and 1997, respectively. When
assets are retired or otherwise disposed of, the assets and related
accumulated depreciation accounts are adjusted accordingly, and any
resulting gain or loss is recorded in current operations.
Property and equipment consisted of the following at September 30:
1999 1998
Furniture, fixtures aned computer equipment $ 680,322 $ 595,101
Building improvements 11,908,208 11,815,757
Machinery and equipment 19,068,349 16,021,551
------------ ------------
31,656,879 28,432,409
Accumulated depreciation (10,813,033) (6,114,582)
------------ ------------
$ 20,843,846 $ 22,317,827
------------ ------------
In accordance with SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," the
carrying value of long-lived assets is evaluated whenever changes in
circumstances indicate the carrying amount of such assets may not be
recoverable. In performing such review for recoverability, the Company
compares the expected future cash flows to the carrying value of
long-lived assets and identifiable intangibles. If the anticipated
undiscounted future cash flows are less than the carrying amount of such
assets, the Company recognizes an impairment loss for the difference
between the carrying amount of the assets and their estimated fair value.
If an asset being tested for recoverability was acquired in a business
combination accounted for using the purchase method, the excess of cost
over fair value of net assets that arose in that transaction is allocated
to the assets being tested for recoverability on a pro rata basis using
the relative fair values of the long-lived assets and identifiable
intangibles acquired at the acquisition date. The Company has not
identified any impairments as of September 30, 1999.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, cash equivalents, accounts receivable,
accounts payable and accrued expenses are stated at cost, which
approximates fair value, because of the short maturity of these financial
instruments. The Company's long-term debt bears interest at average
interest rates which approximate market rates at September 30, 1999.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
58
INCOME TAXES
The Company, with the consent of its members, is a limited liability
company which qualifies for tax treatment as a partnership for federal and
state income tax purposes. As a result, the Company's results of
operations are included in the income tax returns of its members.
Therefore, the accompanying financial statements do not include any
provisions for income taxes.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133") was issued. SFAS 133 establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives) and
for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. This Statement is
effective for fiscal years commencing after June 15, 2000. Management does
not believe that the adoption of SFAS 133 will have a material impact on
the financial statements.
3. NOTES PAYABLE TO MEMBERS
Through May 1999, the Company had entered into four separate loan
agreements with K&S. The Company had borrowed $30 million under these
agreements. On May 31, 1999, K&S converted these loans and accrued
interest of $2,832,294 to capital contributions based upon the fair market
value of the Company, as determined by independent appraisers pursuant to
the Loan Agreements and the Operating Agreement.
In February 1998, the Company entered into a loan agreement with Delco,
pursuant to which Delco will continue to provide and perform ongoing
engineering support services in accordance with the Technology Transfer
Agreement. The amount owed to Delco for past engineering support costs as
of the agreement date was included in this loan agreement. Subsequent
billings for engineering support services through May 31, 1999 have been
added to the loan amount. The note carries an interest rate of prime
(8.25% as of September 30, 1999) plus 1.5%. The loan's principal and
accrued interest balances as of September 30, 1999, are $1,025,805 and
$151,962, respectively. Delco has the option to convert this note plus
accrued interest to a capital contribution, but on July 14, 1999 requested
that this loan and its related interest be paid in full. The Company is
presently in default of this loan as it has not repaid this loan or any of
the related accrued interest, as a result the note is classified as a
current liability at September 30, 1999.
4. OPERATING AGREEMENT
As stated above, the Company operates under the Operating Agreement, which
was entered into on February 28, 1996, between Delco and K&S. The Company
registered in Delaware as a limited liability company to obtain a license
to use technology and to engage in the business of providing wafer bumping
services and licensing or sublicensing technology related to such
services.
K&S and Delco had made initial capital contributions of $16,830,000 and
$16,170,000, respectively. During 1999, K&S converted its notes payable
and related accrued interest of $32,832,294 into equity units. The
ownership units, associated with the conversion, were based upon the fair
market value of the Company determined by an independent appraisal.
The members have agreed not to compete with the Company while being a
member of the Company or for a period of 24 months thereafter.
The Company shall continue until such time of dissolution. Dissolution
will occur upon the following: the agreement of both Members to dissolve
and terminate the Company; the sale, abandonment or other disposition of
all or substantially all of the assets of the Company; or the dissociation
of any Member unless the remaining Member elects to continue the business.
5. TECHNOLOGY TRANSFER AGREEMENT
On February 28, 1996, the Company entered into the Technology Transfer
Agreement with Delco, allowing
59
the Company to use and sublicense Flex-On-Cap (FOC) technology owned by
Delco. The Technology Transfer Agreement also gives the Company exclusive
rights to future bumping technology developed by Delco.
For a period of up to five years, Delco shall provide ongoing engineering
support, at the request of the Company, in accordance with the terms in
the Technology Transfer Agreement.
The Company pays a royalty to Delco through February 27, 2001 equal to 10%
of gross profit, as defined in the Technology Transfer Agreement, derived
from the sale, service or transfer of licensed products made using the
existing FOC technology and technological improvements. Thereafter, the
royalty rate shall be decreased by 1% annually for each succeeding year
through February 27, 2006. Beginning February 27, 2006, no further royalty
shall be due.
Sublicensing profit is divided between Delco and the Company. Delco
receives 30% of the profit, as defined by the technology Transfer
Agreement, and the Company retains the remaining 70%.
6. STOCK OPTION PLAN
There is a stock option plan for officers and key employees pursuant to
which options to purchase Kulicke and Soffa Industries, Inc common stock
have been or may be granted at 100% of the market price of Kulicke and
Soffa Industries, Inc. common stock on the date of the grant. Options
granted under the Employee Plans are exercisable at such dates as are
determined in connection with their issuance, but not later than ten years
after the date of grant. Effective September 28, 1999, the Company's
officers and key employees participated in the plan.
The following summarizes employee stock option activity for the year ended
September 30, 1999:
SEPTEMBER 30, 1999
------------------
AVERAGE
EXERCISE
OPTIONS PRICE
------- -----
(SHARE AMOUNTS
IN THOUSANDS)
Options outstanding at beginning of period -- N/A
Granted 29 25.88
Exercised -- N/A
Terminated or canceled -- N/A
----
Options outstanding at end of period 29 25.88
====
Options exercisable at end of period -- N/A
====
The following table summarizes information concerning currently
outstanding and exercisable options at September 30, 1999:
60
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------- ----------------------------
(Share amounts in thousands) (Share amounts in thousands)
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
------ ----------- ---- ----- ----------- -----
$ 25.88 29 10 $ 25.88 -- N/A
As permitted under Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), the Company has
elected to follow Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" ("APB 25"), in accounting for stock options
granted to employees. Under APB 25, the Company generally recognizes no
compensation expense in the statements of operations with respect to such
grants.
Unaudited pro forma information regarding net income (loss) and earnings
(loss) per share is required by SFAS 123 for options granted after October
1, 1995 as if the Company had accounted for the stock option grants to
employees under the fair value method of SFAS 123. The fair value of the
Company's stock option grants to employees was estimated using a
Black-Scholes option pricing model.
The following assumptions were employed to estimate the fair value of
stock options granted to employees:
FISCAL
YEAR ENDED
SEPTEMBER 30,
1999
Expected dividend yield $ --
Expected stock price volatility 74.00%
Risk-free interest rate 5.84%
Expected life (years) 8
For pro forma purposes, the estimated fair value of the Kulicke and Soffa
Industries, Inc. stock options to employees is amortized over the options'
vesting period. The Company's pro forma information follows:
FISCAL
YEAR ENDED
SEPTEMBER 30,
1999
Weighted average fair value of options granted $ 19.92
Net loss - as reported (14,583,149)
Net loss - unaudited pro forma (14,583,743)
61
7. RELATED PARTY TRANSACTIONS
The Company incurred the following costs to Delco and K&S:
1999 1998 1997
DELCO
Salaries and burden $ -- $ -- $ 145,177
Royalty 270,000 -- --
Equipment cancellation fees -- -- 243,662
Engineering and development support 65,981 93,979 214,801
Materials, qualification and other costs 109,193 151,606 142,650
Manufacturing services -- 34,508 289,477
-------- -------- ----------
$445,174 $280,093 $1,035,767
======== ======== ==========
K&S
Marketing expenses $ 20,000 $ -- $ --
======== ======== ==========
The Company had the following related party receivables and payables at
September 30, 1999 and 1998:
1999 1998
Sales to Delco $ -- $ 72,144
Due from Delco -- 58,583
Due to Delco 312,118 --
Due to K&S 20,000 --
8. COMMITMENTS AND CONTINGENCIES
COMMITMENTS
In December 1996, the Company entered into an agreement to purchase water
treatment services for its wafer processing facility. The term of the
agreement is ten years from March 1997. The base water service fee is
approximately $35,000 per month, adjusted annually based on the producer
price index-commodities for materials, supplies and labor.
The Company has a ten year agreement to purchase nitrogen through March
2007, and is renewable for an additional five years. The base facility
charge is approximately $15,000 per month, adjusted annually for increases
in labor and utility costs.
Effective October 1996, the Company entered into a ten year agreement for
information technology services. The agreement provides for the hardware,
software and human resources to implement and support the information
technology needs of the manufacturing facility. The current base charge is
approximately $110,000 per month, adjusted annually based on the consumer
price index.
62
OPERATING LEASES
The Company has entered into a lease agreement to occupy its manufacturing
and corporate headquarters facility. In addition, the Company leases
manufacturing and other equipment. Operating lease expense for the periods
ended September 30, 1999, 1998 and 1997 was approximately $994,000,
$909,000 and $612,000, respectively. At September 30, 1999, future minimum
rental commitments under the noncancelable operating lease obligations are
as follows:
YEAR ENDING
SEPTEMBER 30,
2000 $ 744,983
2001 673,828
2002 553,629
2003 361,482
2004 372,326
Thereafter 778,498
----------
Total future minimum lease payments $3,484,746
==========
LITIGATION
In the normal course of its business, the Company is subject to certain
contractual guarantees and litigation. In management's opinion, upon
consultation with legal counsel, there is no current litigation which will
have a material adverse effect on the Company's business, financial
condition and operating results.
9. EMPLOYEE BENEFIT PLAN
Substantially all employees of the Company are covered by a qualified
401(k) plan. The plan is funded by voluntary employee contributions with
the Company matching 50% of employee contributions up to 6% of employee
contributions. For the years ended September 30, 1999, 1998 and 1997, the
Company's matching contribution was approximately $137,000, $103,000 and
$53,000, respectively.
10. RESIZING
In April 1999, the Company executed a resizing plan to align its workforce
with current market conditions and reduce costs. Under the plan, 21
employees were involuntarily terminated. Severance and benefits totaling
$475,000 were paid to the employees in the year ended September 30, 1999.
No amounts remained accrued at September 30, 1999.
63
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information required hereunder with respect to the directors will appear under
the heading "ELECTION OF DIRECTORS" in the Company's Proxy Statement for the
2000 Annual Meeting, which information is incorporated herein by reference.
The information required by Item 401(b) of Regulation S-K appears at the end of
Part I, Item 1 of this report under the heading "Executive Officers of the
Company."
ITEM 11. EXECUTIVE COMPENSATION.
The information required hereunder will appear under the heading "ADDITIONAL
INFORMATION" in the Company's Proxy Statement for the 2000 Annual Meeting, which
information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required hereunder will appear under the heading "ELECTION OF
DIRECTORS" in the Company's Proxy Statement for the 2000 Annual Meeting, which
information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required hereunder will appear under the heading "ADDITIONAL
INFORMATION" in the Company's Proxy Statement for the 2000 Annual Meeting, which
information is incorporated herein by reference.
64
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
(1)(a) Financial Statements - Kulicke and Soffa Industries, Inc.:
Report of Independent Accountants 29
Consolidated Balance Sheet at September 30, 1999 and 1998 30
Consolidated Statement of Operations for the fiscal years
ended September 30, 1999, 1998 and 1997 31
Consolidated Statement of Cash Flows for the fiscal years
ended September 30, 1999, 1998 and 1997 32
Consolidated Statement of Changes in Shareholders' Equity
for the fiscal years ended September 30, 1999, 1998 and
1997 33
Notes to Consolidated Financial Statements 34 - 50
(b) Financial Statements - Flip Chip Technologies, LLC:
Report of Independent Accountants 51
Report of Independent Public Accountants 52
Balance Sheets at September 30, 1999 and 1998 53
Statements of Operations for the years ended September
30, 1999, 1998 and 1997 54
Statements of Members' Equity for the years ended
September 30, 1999. 1998 and 1997 55
Statements of Cash Flows for the years ended September
30, 1999, 1998 and 1997 56
Notes to Financial Statements 57 - 63
(2) Financial Statement Schedules:
II - Valuation and Qualifying Accounts 68
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes
thereto.
(3) Exhibits:
EXHIBIT
NUMBER ITEM
- ------- --------------------------------------------------------------------
2.1(a) Agreement and Plan of Acquisition dated September 14, 1995, between
the Company, Circle "S" Industries, Inc. and Certain Stockholders of
Circle "S" Industries, Inc., filed as Exhibit 2.1(a) to the
Company's Form 8-K dated October 2, 1995, is incorporated herein by
reference.
2.1(b) Agreement and Plan of Merger dated October 2, 1995, between the
Company, Kulicke and Soffa Acquisition Corporation and Circle "S"
Industries, Inc., filed as Exhibit 2.1(b) to the Company's Form 8-K
dated October 2, 1995, is incorporated herein by reference.
2.1(c) Escrow Agreement dated October 2, 1995, between the Company, Larry
D. Striplin, Jr. and Mellon Bank, N.A., filed as Exhibit 2.1(c) to
the Company's Form 8-K dated October 2, 1995, is incorporated
herein by reference.
65
3(i) The Company's Amended and Restated Articles of Incorporation as of
March 3, 1998, filed as Exhibit 3(i) to the Company's quarterly
report on Form 10-Q for the quarterly period ended March 31, 1998
and Form of Amendment of Articles of Incorporation effective March
12, 1999, filed as Exhibit 3(i), to the Company's quarterly report
on Form 10-Q for the quarterly period ended March 31, 1999, are
incorporated herein by reference.
3(ii) The Company's By-Laws, as amended through June 26, 1990, filed as
Exhibit 2.2 to the Company's Form 8-A12G dated September 8, 1995, is
incorporated herein by reference.
4(i) Amended and Restated Loan Agreement between the Company and PNC
Bank, N.A. dated March 26, 1998, filed as Exhibit 10(a) to the
Company's quarterly report on Form 10-Q for the quarterly period
ended March 31, 1998, is incorporated herein by reference.
4(ii) Indenture dated as of December 13, 1999 between the Company and
Chase Manhattan Trust Company, National Association, as Trustee,
filed as Exhibit 4.1 to the Company's Form 8-K dated December 13,
1999, is incorporated herein by reference.
4(iii) Registration Rights Agreement dated as of December 13, 1999 between
the Company and Morgan Stanley & Co. Incorporated, filed as Exhibit
4.2 to the Company's Form 8-K dated December 13, 1999, is
incorporated herein by reference.
10(i) Form of Termination of Employment Agreement signed by Mr. Kulicke
(Section 2(a) - 30 months), and Messrs. Perchick, Sprague, Von
Seggern, Jacobi, Wagner, DeSouza, Furhovden, Lendner, Leonhardt,
May, Salmons, Sawachi, Spooner, Wolf, Belani, Chylak, Cristallo,
Greenberger, Oscilowski and Torton (Section 2(a) - 18 months), filed
as Exhibit 10(vii) to the Company's quarterly report on Form 10-Q
for the quarterly period ended March 31, 1998, is incorporated
herein by reference.*
10(ii) Agreement between the Company and Frederick W. Kulicke, Jr., filed
as Exhibit 10(iii) to Company's Annual Report on Form 10-K for the
year ended September 30, 1989, is incorporated herein by reference.*
10(iii) The Company's 1980 Employee Incentive Stock Option Plan, filed as
Exhibit 10(iv) to the Company's Annual Report on Form 10-K for the
year ended September 30, 1989, is incorporated herein by reference.*
10(iv) The Company's 1983 Employee Incentive Stock Option Plan, filed as
Exhibit 10(v) to the Company's Annual Report on Form 10-K for the
year ended September 30, 1989, is incorporated herein by reference.*
10(v) The Company's 1988 Employee Incentive Stock Option and Non-Qualified
Stock Option Plan (as amended and restated effective October 8,
1996) filed as Exhibit 10(vi) to the Company's Annual Report on Form
10-K for the year ended September 30, 1996, is incorporated herein
by reference.*
10(vi) The Company's 1988 Non-Qualified Stock Option Plan for Non-Officer
Directors (as amended and restated effective February 9, 1999).*
10(vii) The Company's 1994 Employee Incentive Stock Option and Non-Qualified
Stock Option Plan (as amended and restated effective October 8,
1996), filed as Exhibit 10(viii) to the Company's Annual Report on
Form 10-K for the year ended September 30, 1996, is incorporated
herein by reference.*
10(viii) The Company's 1997 Non-Qualified Stock Option Plan for Non-Employee
Directors (as amended and restated effective February 9, 1999).*
10(ix) The Company's Executive Incentive Compensation Plan, As Amended
Through October 14, 1997, filed as Exhibit 10(ix) to the Company's
Annual Report on Form 10-K for the year ended September 30, 1997, is
incorporated herein by reference.*
66
10(x) Gold Supply Agreement, as amended October 2, 1995 between American
Fine Wire Corporation, et al, and Rothschild Australia Limited,
filed as Exhibit 10.1 to the Company's Form 8-K dated September 14,
1995 as amended by Form 8-K/A on October 26, 1995, is incorporated
herein by reference.
10(xi) Agreement of Employment between Circle "S" Industries, Inc. and
Larry D. Striplin, Jr. dated January 2, 1990, filed as Exhibit 10
(xiii) to the Company's Annual Report on Form 10-K for the year
ended September 30, 1995, is incorporated herein by reference.*
10(xii) Amendment No. 1 to Agreement of Employment between Circle "S"
Industries, Inc. and Larry D. Striplin, Jr. dated May 1, 1995, filed
as Exhibit 10 (xiv) to the Company's Annual Report on Form 10-K for
the year ended September 30, 1995, is incorporated herein by
reference.*
10(xiii) Agreement between Circle "S" Industries, Inc. and Larry D. Striplin,
Jr. dated September 30, 1995, filed as Exhibit 10 (xv) to the
Company's Annual Report on Form 10-K for the year ended September
30, 1995, is incorporated herein by reference.*
10(xiv) The Company's Executive Deferred Compensation Plan (As Amended and
restated Effective October 1, 1999).*
10(xv) Operating Agreement of Flip Chip Technologies, LLC dated February
28, 1996, filed as Exhibit 10 to the Company's Quarterly Report on
Form 10-Q for the quarterly period ended December 31, 1996, is
incorporated herein by reference.
10(xvi) Convertible Loan Agreements between the Company, Flip Chip
Technologies, LLC and Delco Electronics Corporation dated June 16,
1997, October 30, 1997, February 18, 1998 and November 19, 1998
filed as Exhibit 10(xviii) to the Company's Annual Report on Form
10-K for the year ended September 30, 1998, is incorporated herein
by reference.
10(xvii) The Company's 1998 Employee Incentive Stock Option and Non-Qualified
Stock Option Plan filed as Exhibit 10(a) to the Company's quarterly
report on Form 10-Q for the quarterly period ended March 31, 1999,
is incorporated herein by reference.*
10(xiii) Amendment No. 1 to the Company's 1998 Employee Incentive Stock
Option and Non-Qualified Stock Option Plan.*
10(xix) Amendment No. 1 to the Company's 1994 Employee Incentive Stock
Option and Non-Qualified Stock Option Plan (as amended and restated
effective October 8, 1996).*
10(xx) Amendment No. 1 to the Company's 1988 Employee Incentive Stock
Option and Non-Qualified Stock Option Plan (as amended and restated
effective October 8, 1996).*
21 Subsidiaries of the Company.
23.1 Consent of PricewaterhouseCoopers LLP (Independent Accountants).
23.2 Consent of PricewaterhouseCoopers LLP (Independent Accountants).
23.3 Consent of Arthur Andersen LLP (Independent Public Accountants).
27 Financial Data Schedule.
* Indicates a Management Contract or Compensatory Plan.
(b) Reports on Form 8-K:
None
67
KULICKE AND SOFFA INDUSTRIES, INC.
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
Charged
Balance Charged to to other Balance
at beginning costs and accounts- Deductions- at end
Description of period expenses describe describe of period
- ----------------------------- --------- -------- -------- -------- ---------
Year ended September 30, 1997
- -----------------------------
Allowance for doubtful accounts $ 1,227 $ 1,065 $ -- $ 143(1) $ 2,149
======== ======== ======== ======== ========
Inventory reserve $ 11,755 $ 2,593 $ -- $ 1,503(2) $ 12,845
======== ======== ======== ======== ========
Valuation allowance for
deferred taxes $ 5,115 $ 623(3) $ -- $ 1,084(4) $ 4,654
======== ======== ======== ======== ========
Year ended September 30, 1998
- -----------------------------
Allowance for doubtful accounts $ 2,149 $ 29 $ -- $ 501(1) $ 1,677
======== ======== ======== ======== ========
Inventory reserve $ 12,845 $ 4,132 $ -- $ 1,319(2) $ 15,658
======== ======== ======== ======== ========
Valuation allowance for
deferred taxes $ 4,654 $ 2,437(5) $ -- $ -- $ 7,091
======== ======== ======== ======== ========
YEAR ENDED SEPTEMBER 30, 1999
- -----------------------------
ALLOWANCE FOR DOUBTFUL ACCOUNTS $ 1,677 $ 812 $ -- $ 762(1) $ 1,727
======== ======== ======== ======== ========
INVENTORY RESERVE $ 15,658 $ 1,200 $ -- $ 1,930(2) $ 14,928
======== ======== ======== ======== ========
VALUATION ALLOWANCE FOR
DEFERRED TAXES $ 7,091 $ 5,124(5) $ -- $ -- $ 12,215
======== ======== ======== ======== ========
(1) Bad debts written off.
(2) Disposal of excess and obsolete inventory.
(3) Reflects the increase in the valuation allowance associated with net
operating losses of the Company's Japanese subsidiary.
(4) Reversal of the valuation allowance related to US tax credits.
(5) Reflects the increase in the valuation allowance associated with net
operating losses of the Company's Japanese subsidiary plus an increase in
the valuation allowance related to US tax credits.
68
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
KULICKE and SOFFA INDUSTRIES, INC.
By: /s/ C. SCOTT KULICKE
-------------------------
C. Scott Kulicke
Chairman of the Board and
Chief Executive Officer
Dated: December 20, 1999
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, this Report has been signed by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
Signature Title Date
- ----------------------------- --------------------- -----------------
/s/ C. SCOTT KULICKE
- -----------------------------
C. Scott Kulicke Chairman of the Board December 20, 1999
(Principal Executive Officer) and Director
/s/ CLIFFORD G. SPRAGUE
- -----------------------------
Clifford G. Sprague Senior Vice President December 20, 1999
(Principal Financial Officer) and Chief Financial
Officer
/s/ JAMES W. BAGLEY
- -----------------------------
James W. Bagley Director December 20, 1999
/s/ FREDERICK W. KULICKE, JR
- -----------------------------
Frederick W. Kulicke, Jr. Director December 20, 1999
/s/ JOHN A. O'STEEN
- -----------------------------
John A. O'Steen Director December 20, 1999
/s/ ALLISON F. PAGE
- -----------------------------
Allison F. Page Director December 20, 1999
/s/ MACDONELL ROEHM, JR.
- -----------------------------
MacDonell Roehm, Jr. Director December 20, 1999
/s/ LARRY D. STRIPLIN, JR.
- -----------------------------
Larry D. Striplin, Jr. Director December 20, 1999
/s/ C. WILLIAM ZADEL
- -----------------------------
C. William Zadel Director December 20, 1999
69
[THIS PAGE INTENTIONALLY LEFT BLANK]
EXHIBIT INDEX
EXHIBIT
NUMBER ITEM
- -------- ------------------------------------------------------------------
10(vi) The Company's 1988 Non-Qualified Stock Option Plan for Non-Officer
Directors (as amended and restated effective February 9, 1999).*
10(viii) The Company's 1997 Non-Qualified Stock Option Plan for Non-Employee
Directors (as amended and restated effective February 9, 1999).*
10(xiv) The Company's Executive Deferred Compensation Plan (As Amended and
restated Effective October 1, 1999).*
10(xiii) Amendment No. 1 to the Company's 1998 Employee Incentive Stock
Option and Non-Qualified Stock Option Plan.*
10(xix) Amendment No. 1 to the Company's 1994 Employee Incentive Stock
Option and Non-Qualified Stock Option Plan (as amended and restated
effective October 8, 1996).*
10(xx) Amendment No. 1 to the Company's 1988 Employee Incentive Stock
Option and Non-Qualified Stock Option Plan (as amended and restated
effective October 8, 1996).*
21 Subsidiaries of the Company.
23.1 Consent of PricewaterhouseCoopers LLP (Independent Accountants).
23.2 Consent of PricewaterhouseCoopers LLP (Independent Accountants).
23.3 Consent of Arthur Andersen LLP (Independent Public Accountants).
27 Financial Data Schedule.