UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[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, 2001
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 (IRS Employer
Incorporation) Identification No.)
2101 BLAIR MILL ROAD, WILLOW GROVE, PENNSYLVANIA 19090
(Address of Principal Executive Offices) (Zip Code)
(215) 784-6000
(Registrant's Telephone Number)
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 and common equity) held by non-affiliates of the Registrant as of December
1, 2001 was approximately $756,933,926. (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, 2001, there were 49,085,428 shares of the Registrant's common
stock, without par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the 2002 Annual Shareholders'
Meeting to be filed prior to January 7, 2002 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.
2001 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
Page
----
PART I
Item 1. Business 2
Item 2. Properties 11
Item 3. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of Security Holders 12
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters 12
Item 6. Selected Financial Data 13
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 15
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 33
Item 8. Financial Statements and Supplementary Data 33
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 62
PART III
Item 10. Directors and Executive Officers of the Registrant 62
Item 11. Executive Compensation 62
Item 12. Security Ownership of Certain Beneficial Owners and Management 62
Item 13. Certain Relationships and Related Transactions 62
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 63
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 expense and benefits expected as a
result of:
- The projected growth rates in the overall semiconductor industry,
the semiconductor assembly equipment market and the market for
semiconductor packaging materials and test interconnect solutions;
- the anticipated development, production and licensing of our
advanced packaging technology;
- the projected continuing demand for wire bonders; and
- 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, packaging materials and
test interconnect solutions and provide semiconductor wafer solder-bumping
interconnect (flip chip bumping) services for sale to companies that manufacture
and assemble semiconductor devices. We also service, maintain, repair and
upgrade assembly equipment, license our flip chip bumping process technology and
market high density interconnect substrates. Today, we are the world's largest
supplier of semiconductor assembly equipment, according to VLSI Research, Inc.
Our business is currently divided into four segments: equipment, packaging
materials, test interconnect solutions and advanced packaging technology.
Historically, the demand for semiconductors and our semiconductor assembly
equipment has been volatile, with sharp periodic downturns and slowdowns. For
instance, a strong upturn in the semiconductor industry for the majority of
fiscal 2000 resulted in record revenues and earnings in that year. This industry
upturn was followed by a severe industry downturn in fiscal 2001 and we reported
a 38% reduction in sales and a record net loss for that year. The current
downturn in the semiconductor industry is expected to continue to negatively
impact our business in fiscal 2002.
To keep pace with the constant advance of technology in the semiconductor
industry, we have continuously added to our product and technology portfolio
through acquisitions and internal development so as to offer a broad range of
packaging solutions to our customers. We believe this strategy has positioned us
to enhance our leading position in traditional wire bonding methodologies while
also establishing leadership in advanced packaging technologies such as flip
chip and wafer level packaging. These newer technologies offer the superior
performance characteristics required to support the latest, most sophisticated
semiconductor designs.
We believe our expanding portfolio of packaging and test interconnect solutions
enables us to better balance our revenues between products that are capacity
driven, and thus more cyclically purchased primarily during industry expansions,
and those that are run-rate or technology driven and are thus more likely to be
purchased throughout the semiconductor cycle. We believe we are the only major
supplier to the semiconductor assembly industry that can provide customers with
semiconductor assembly equipment along with a broad range of complimentary
packaging materials and test interconnect solutions that are optimized for use
with our assembly equipment.
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.
2
PRODUCTS AND SERVICES
We offer a broad range of semiconductor assembly equipment, packaging materials,
test interconnect solutions and flip chip bumping 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, 2000 and 2001.
FISCAL YEAR ENDED
SEPTEMBER 30,
--------------------------------
1999 2000 2001
---- ---- ----
Wire bonders 55% 69% 38%
Additional semiconductor assembly equipment 7 4 2
Services and spare parts 6 4 5
Packaging materials 31 21 27
Test interconnect -- -- 21
Advanced packaging technologies 1 2 7
--- --- ---
100% 100% 100%
=== === ===
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 very fine wires, typically made of gold, aluminum or copper, between the
bond pads on the die and the leads on the integrated circuit (IC) package to
which the die has been attached. We offer both ball and wedge bonders in
automatic and manual configurations. 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.
In the third quarter of fiscal 1999, we introduced the Model 8028 ball bonder, a
continuation of the 8000 series, which accounted for the majority of ball
bonders we sold during fiscal 2000. In fiscal 2001 we began selling two enhanced
Models - the 8028-S and the 8028-PPS. The 8028-S offers approximately 10% more
productivity while the 8028-PPS combines further productivity enhancements with
robust fine pitch capability. In May 2001, we introduced the Maxum, our latest
generation IC ball bonder, which offers up to 20% more productivity than the
Model 8028-PPS. The Maxum has been tested and qualified by several of our
customers and will be available for shipment in the latter part of fiscal 2002.
In the first quarter of fiscal 2000 we introduced the Model 8098, a large area
ball bonder designed for processing large panels used for hybrids, chip-on-board
and multi-chip modules. The 8098 also supports wafer level bumping for flip chip
and other area array applications. We continue to market the Model 8060 and
Model 8068 wedge bonder, the Model 8090, a large area wedge bonder and the 4500
digital series of manual wire bonders.
As part of our strategy to reduce the manufacturing costs of our wire bonders,
we transferred our automatic ball bonder manufacturing from Willow Grove,
Pennsylvania to Singapore in 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, die bonders,
solder sphere attachment systems and flip chip assembly systems.
Dicing Saws. Dicing saws use diamond-embedded saw blades to cut silicon
wafers into individual semiconductor die. We produce and market the Model
7500, an automatic dicing saw, and the Model 7700 (introduced in fiscal
2000) a twin spindle dicing saw which is capable of dicing 300 mm wafers.
Die Bonders. Die bonders are used to attach a semiconductor die to a
leadframe or other package before wire bonding. We have a 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. We also market
3
the 2200 apm, an extremely accurate multi chip bonder developed by
DATACON.
Solder Sphere Attachment Systems. During the fourth quarter of fiscal 2000,
we introduced LaserPro, a solder sphere attachment system, which combines
the accuracy of the 8000 wire bonder platform with a laser and proprietary
ball placement system. LaserPro is used primarily for high volume, ultra
fine pitch plastic ball grid array and chip scale package production.
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.
We also offer different configurations of some of our products for
non-semiconductor applications. For instance, our Model 7100 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, disk
drive heads and optoelectronic materials.
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 Customer
Operations Group. 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.
PACKAGING MATERIALS
We design, manufacture and market a wide range of packaging materials to
semiconductor device assemblers, including very fine gold, aluminum and copper
wire, capillaries, wedges, die collets and saw blades, all of which are used in
the semiconductor packaging process. Our packaging materials are designed for
use on our assembly equipment as well as our competitors' assembly equipment.
Our principal packaging materials are:
Bonding Wire. We manufacture very fine gold, aluminum and copper wire used
in the wire bonding process. We produce wire to a wide range of
specifications, which can satisfy most wire bonding applications.
Expendable Tools. Our family of expendable tools includes capillaries,
wedges, die collets and saw blades. 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. Our hubless saw blades are used to cut
hard and brittle materials. Our hub blades are used to cut silicon wafers
into semiconductor die.
TEST INTERCONNECT
We offer a broad range of fixtures used to temporarily connect automatic test
equipment to the semiconductor device under test during wafer fabrication (wafer
probing) and after they have been assembled and packaged (package or final
testing). Our principal test interconnect products are:
Probe cards. Probe cards consist of a complex, multilayer printed circuit
board (PCB) and numerous probes designed to make temporary electrical
connections to each of the bond pads or bumps on a die while it is still in
a wafer format.
Automatic Test Equipment (ATE) interface assemblies. ATE interface
assemblies, typically consisting of mechanical docking hardware and two
intricate, multilayer PCBs, mechanically connect the ATE to the wafer prober
and carry the electrical signal to the semiconductor device under test.
ATE test boards. ATE test boards are complex, multilayer PCBs that mount
directly to the ATE and transfer the electrical signal from the ATE to the
test socket/contactor.
4
Test sockets/contactors. Test sockets/contactors consist of numerous
miniaturized spring-loaded contacts that touch down on the electrical
contacts of a packaged semiconductor.
Changes in the design of a semiconductor require changes in the probe card, test
socket/contactor and, in certain cases, the ATE test board used to test that
semiconductor. Customers generally purchase new versions of these custom
designed products each time there is a design change in the semiconductor being
tested.
ADVANCED PACKAGING TECHNOLOGIES
Our Flip Chip business unit focuses primarily on licensing its flip chip
technology and providing flip chip bumping and wafer level packaging services to
customers. In February 1996, we entered into a joint venture agreement with
Delco Electronic Corporation (Delco) to license flip chip technology and to
provide wafer bumping services on a contract basis. In March 2001, we purchased
all of Delco's interest in the Flip Chip venture not previously owned by us. We
now own 100% of Flip Chip. We are currently providing contract bump services to
more than 20 customers. We also developed and market a wafer level package,
named the UltraCSP(R), which is in production and has been licensed to
customers. As of September 30, 2001, we had sold nine licenses, for wafer
solder-bumping and wafer level packaging applications, and we expect to sell
additional licenses in the future.
In January 1999, we acquired advanced substrate technology from MicroModule
Systems, a Cupertino, California company, to enable production of high density
substrates (referred to as our substrate business unit). We are currently
shipping UltraVia((TM)) high density substrates for production to one of our
customers and samples to other customers for qualification.
Neither our Flip Chip nor our substrate business units have been profitable to
date. However, we expect operating income from our Flip Chip business unit in
fiscal 2002 to partially offset the expected loss at the substrate business
unit.
CUSTOMERS
Our major customers include large semiconductor manufacturers and their
subcontract assemblers and vertically integrated manufacturers of electronic
systems. Some of these major customers are:
Advanced Micro Devices Lexmark
Advanced Semiconductor Engineering LSI Logic
Agere Micron
Agilent Motorola
Amkor Technologies National Semiconductor
Atmel NEC International
ChipPAC Orient Semiconductor Electronics
Conexant Philips Electronics
General Dynamics Seagate
Infineon Technologies Siliconware Precision Industries Co., LTD
Intel ST Microelectronics
International Business Machines Texas Instruments
JDS Uniphase
Sales to a relatively small number of customers have accounted for a significant
percentage of our net sales. In fiscal 2001, no customer accounted for more than
10% of our net sales. In fiscal 2000, sales to Advanced Semiconductor
Engineering accounted for 15% of our total sales and sales to Amkor Technologies
accounted for 10% of our total sales. In fiscal 1999, no customer accounted for
more than 10% of 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 their subcontract assemblers and vertically integrated
manufacturers of electronic systems, 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.
5
INTERNATIONAL OPERATIONS
We sell our products to semiconductor manufacturers and their subcontract
assemblers and vertically integrated manufacturers of electronic systems, which
are primarily located in or have operations in the Asia/Pacific region.
Approximately 62% of our fiscal 2001 net sales, 91% of our fiscal 2000 net sales
and 83% of our fiscal 1999 net sales were for delivery to customer locations
outside of the United States. The majority of these foreign sales were destined
for customer locations in the Asia/Pacific region, including Hong Kong, Japan,
Korea, Malaysia, the Philippines, Singapore and Taiwan. Our shipments to
customers in China have historically been a small portion of our sales, however
we expect this portion to increase as some of our customers increase their
production capacity in China. We expect sales outside of the United States to
continue to represent a substantial portion of our future revenues.
In addition, we maintain substantial manufacturing operations in countries other
than the United States, including operations located in Israel and Singapore and
other smaller facilities in France, Japan, Scotland, Switzerland and Taiwan.
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 that may
limit or disrupt markets.
SALES AND CUSTOMER SUPPORT
We operate a single sales management team to coordinate activities and improve
customer support. Our direct sales force, consisting of approximately 110
individuals at September 30, 2001, is responsible for the sale of all product
lines, including those of our equipment, packaging materials, test interconnect
solutions and advanced packaging technology businesses, to customers in the
United States, Europe and the Asia/Pacific region, including Japan. Lower volume
product lines 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 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, Malaysia, the
Philippines, Singapore and Taiwan, a technology center in Japan and an
application lab in Singapore. We also maintain sales facilities in Europe. We
support our assembly equipment customers worldwide with approximately 220
customer service and support personnel, located in Europe, Hong Kong, Israel,
Japan, Korea, Malaysia, the Philippines, Singapore, Taiwan, Thailand and the
United States. 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, 2001, our backlog of orders approximated $49.0 million,
compared to approximately $143.0 million at September 30, 2000. 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.
6
MANUFACTURING
Equipment. Our assembly equipment manufacturing activities consist primarily of
integrating components and subassemblies to create finished systems configured
to customer specifications. During fiscal 2001, we performed system design,
assembly and testing in-house at our Willow Grove, Pennsylvania, Singapore 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. We have obtained ISO 9001 certification
for our equipment manufacturing facilities in Willow Grove, Pennsylvania,
Singapore, and Haifa, Israel.
Packaging Materials. We manufacture our bonding tools at our facility in
Yokneam, Israel and our bonding wire, consisting of gold, aluminum and copper
wire, at facilities in Singapore and Thalwil, Switzerland. We manufacture our
hub blades in Santa Clara, California. Both bonding wire facilities, as well as
the hub blade facility have received ISO 9002 certification and the bonding
tools facility has received ISO 9001 certification.
Test Interconnect Solutions. We manufacture probe cards in various facilities
located in Arizona, California, Texas, Taiwan, Scotland, Singapore and France,
ATE test boards in Dallas, Texas, ATE interface assemblies in Gilbert, Arizona
and test socket/contactors in Hayward, California.
Advanced Packaging Technology. We maintain manufacturing/research facilities in
Phoenix, Arizona for our Flip Chip business unit and in Milpitas, California for
our high density substrates business unit.
RESEARCH AND PRODUCT DEVELOPMENT
Because technological change occurs rapidly in the semiconductor industry, we
devote substantial resources to our research and development programs in order
to maintain our competitiveness. We pursue the continuous improvement and
enhancement of existing products while simultaneously developing next generation
products. For example, our continuous improvement and enhancement programs
enabled us to begin shipping, in fiscal 2001, our Model 8028-S and Model
8028-PPS automatic ball bonders, which combine productivity enhancements with
robust fine pitch capability.
As part of our development of next generation products, in fiscal 2001 we
optimized the process and improved the yield of our high density substrates
enabling us to ship substrates to several customers for pre-product
qualification, we demonstrated 300mm process capability for our flip chip
bumping technology, we qualified our flip chip wafer probe cards for 150 micron
pitch testing and introduced the Maxum, our next generation automatic ball
bonder which provides up to 20% more productivity than the Model 8028-PPS ball
bonder and supports 45 micron production level process capability. We also
continued the development of wire bonding products and test capabilities to
achieve 35 micron production processes.
Much of the next generation equipment we are presently developing is based on
modular, interchangeable subsystems, including the Maxum, which is promoting
more efficient and cost-effective manufacturing operations, lowering inventory
levels, improving field service capabilities and reducing product development
cycles, and allowing us to introduce new products more quickly.
Our net expenditures for research and development totaled approximately $62.7
million, $50.1 million and $37.2 million during the fiscal years ended September
30, 2001, 2000 and 1999, respectively. We have received 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 the fiscal years ended
September 30, 2001, 2000 and 1999, such funding totaled approximately $1.0
million, $1.1 million and $1.3 million, respectively. We employed approximately
330 individuals in research and development at September 30, 2001.
7
COMPETITION
The semiconductor equipment, packaging materials, and test interconnect
solutions industries are intensely competitive. Significant competitive factors
in the semiconductor equipment market include performance, quality, customer
support and price. Our major equipment competitors include:
- ASM Pacific Technology, Shinkawa, Kaijo and ESEC in wire bonders;
- ESEC, Nichiden, ASM Pacific Technology and Alphasem in die bonders;
and
- Disco Corporation and TSK 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:
- Gaiser Tool Co. and Small Precision Tools, Inc. in expendable tools;
and
- Disco Corporation in blades;
and in the bonding wire market:
- Tanaka Electronic Industries and Sumitomo Metal Mining.
The test products face competition from a few large international firms as well
as many small regional firms. Some competitors include:
- MJC, Japan Electronic Materials, SV Probe, and Microprobe in wafer
test; and
- Everett Charles Technologies, Loranger International Corporation,
Delta Design and Gold Technologies in package test.
Our Flip Chip competitors include:
- Fujitsu, Unitive and Chipboard.
In each of the markets we serve, we face competition and the threat of
competition from established competitors and potential new entrants, a few of
which may have greater financial, engineering, manufacturing and marketing
resources than we have. Some of these competitors are Asian and European
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.
However, none of our competitors offer the broad range of packaging solutions
that we offer.
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 or 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
trade secrets and proprietary software. 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. Our ability to defend ourselves against these claims may
be limited. In addition, although we execute non-disclosure and non-competition
agreements with certain of our employees, customers, consultants, selected
vendors and others, there is no assurance that such secrecy agreements will not
be breached.
8
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, 2001, we had 3,651 permanent employees and 59 temporary
employees worldwide. Our only employees represented by a labor union are the
bonding wire employees in Singapore. 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.
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 52 1976 Chairman of the Board of Directors and Chief
Executive Officer
Morton K. Perchick 64 1982 Executive Vice President, Office of the
President
Alexander A. 42 1999 Senior Vice President, Office of the President
Oscilowski
David A. Leonhardt 43 1997 Senior Vice President
Charles Salmons 46 1992 Senior Vice President
Clifford G. Sprague 58 1989 Senior Vice President and Chief Financial
Officer
Laurence P. Wagner 41 1998 Senior Vice President
Jagdish (Jack) G. 48 2000 Vice President
Belani
C. Zane Close 51 2000 Vice President
James P. Spooner 54 2000 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 also serves on the Board of Directors of Xetel
Corporation.
Morton K. Perchick holds the position of Executive Vice President, is a member
of the Office of the President and the acting President of our Test Division. He
was appointed acting President of our Test Division in October 2001. He was
appointed to the Office of the President in May 2000. He joined us in September
1980 as Director, Quality and Reliability. He became Vice President in 1982 and
moved to general management in 1986, when he assumed responsibility for
operations. In 1990, he was appointed Senior Vice President/General Manager and
in 1995, he was named Executive Vice President.
Alexander A. Oscilowski holds the position of Senior Vice President and is a
member of the Office of the President. He joined us in 1999 as Vice President of
Strategic Marketing. In May 2000, he was appointed to the Office of the
President. He joined SEMATECH in 1993 as Director of Assembly & Packaging and
was promoted to positions of increasing responsibility, including his
appointment as Chief Operating Officer in January 1999. Previously, he served as
semiconductor packaging manager in the semiconductor operations unit for Digital
Equipment and was an assembly manager, packaging supervisor and process engineer
at Texas Instruments.
9
David A. Leonhardt holds the position of Senior Vice President in charge of
Global Account Management. He served as Senior Vice President and Co-President
of our Advanced Bonding Systems Group from November 1999 until January 2001. In
March 1998, he became Vice President and General Manager of the Equipment Group,
after serving as Vice President of Strategic Marketing since December 1996.
Prior to that, he spent four years as a Director of our Ball Bonder Division and
a year as Product Manager for Wedge Bonder Products.
Charles Salmons holds the position of Senior Vice President, Customer
Operations. He was appointed Senior Vice President, Customer Operations in 1999.
He joined us in 1978, and has held positions of increasing responsibility
throughout the accounting, engineering and manufacturing organization. In 1994
he became Vice President of Operations and was named General Manager, Wire
Bonder Operations in 1998.
Clifford G. Sprague holds the positions of Senior Vice President and Chief
Financial Officer. He joined us as Vice President and Chief Financial Officer in
March 1989. In May 1990 he was promoted to Senior Vice President. 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.
Laurence P. Wagner served as Senior Vice President and Co-President of the
Advanced Bonding Systems Group from November 1999 until January 2001 when he
left the Company. He joined us in July 1998 as Senior Vice President and
President of Packaging Materials. Previously, he was with Emcore Corporation,
where he was vice president of Emcore Electronic Materials. Prior to 1996, he
worked for Shipley Company LLC, a Division of Rohm and Haas Company in a number
of progressively responsible positions.
Jack G. Belani holds the position of Vice President and is President of our Wire
Bonding Division. He was appointed to these positions in February 2001. He
joined us in April 1999 as Vice President and President of our high density
substrate group. Prior to joining us, he served for more than three years as
Vice President of Assembly & Packaging in the Worldwide Manufacturing Group of
Cypress Semiconductor Corporation. Before Cypress he was with National
Semiconductor Corporation for approximately 18 years in a variety of technical
and managerial positions.
C. Zane Close served as Vice President and President of the Test Division from
November 2000, when he joined us, until October 2001. He served as President and
Chief Executive Officer and as director of Cerprobe Corporation from July 1990
until we acquired Cerprobe. Before Cerprobe he had been a Vice President of
Probe Technology for over 5 years.
James P. Spooner holds the position of Vice President, Corporate Development. He
was appointed to this position when he joined us in August 1997. From October
1998 to March 1999 he also served as President of our Flip Chip business unit.
From September 1990 until he joined us in 1997, Mr. Spooner served as the
Director of Corporate Development for Rhone-Poulenc, Inc., a chemical and
pharmaceutical company.
10
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. Corp. headquarters, Wedge and large area N/A
Pennsylvania (1) manufacturing, bonders
technology center, sales
and service
Gilbert, Arizona 83,000 sq.ft. (4) Manufacturing, sales and Probe cards ATE May 2012
53,000 sq.ft. (2) service interface assemblies July 2008
Singapore 73,700 sq.ft. (2) Manufacturing, Wire bonders August 2002
technology center,
assembly systems
Haifa, Israel 49,000 sq.ft. (2) Manufacturing, Manual wire bonders, April 2012
technology center, dicing saws and
assembly systems automatic
multi-process
assembly systems
Yokneam, Israel 48,400 sq.ft. (1) Manufacturing Capillaries, wedges N/A
and die collets
Singapore 38,400 sq.ft. (2) Manufacturing Bonding wire May 2003
Dallas, Texas 35,000 sq.ft. (1) Manufacturing, sales and ATE test boards September 2012
service
Milpitas, California 35,000 sq.ft. (2) Technology center Laminate substrates June 2006
San Jose, California 34,000 sq.ft. (2) Manufacturing, sales and Probe cards July 2007
service
Kaohsuing, 28,417 sq.ft. (2) Sales and service N/A August 2010
Taiwan
Hayward, California 26,800 sq.ft. (2) Manufacturing, sales and Test sockets / February 2009
service contactors
Thalwil, 15,100 sq.ft. (2) Manufacturing Bonding wire (3)
Switzerland
Santa Clara, 13,600 sq.ft. (2) Manufacturing Dicing saw blades October 2003
California
Yokneam, Israel 12,000 sq.ft. (2) Manufacturing Hard material blades January 2003
Tokyo, Japan 10,900 sq.ft. (2) Technology center, N/A (3)
sales and service
(1) Owned.
(2) Leased.
(3) Cancellable semi-annually upon six months notice.
(4) This facility is owned by CRPB Investors, LLC ("CRPB"). Our subsidiary, K&S
Interconnect, Inc. (f/k/a Cerprobe Corporation), owns a 36% interest in
CRPB. K&S Interconnect, Inc. has entered into a long-term lease with CRPB,
the initial term of which expires in May 2012, with seven options to extend
the lease for successive five-year terms.
We also rent space for manufacturing facilities and sales and service offices in
Mesa, Arizona; Santa Clara, California; Southbury, Connecticut; Horsham,
Pennsylvania; Austin, Richardson and Dallas, Texas; France; Hong Kong; Japan;
Korea; Malaysia; the Philippines; Scotland; Singapore; Taiwan; and Thailand. We
believe that our facilities generally are in good condition.
11
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:
COMMON STOCK PRICE
-------------------
HIGH LOW
------ ------
YEAR ENDED SEPTEMBER 30, 2001:
First Quarter 15.375 9.000
Second Quarter 17.000 11.000
Third Quarter 18.700 11.250
Fourth Quarter 18.300 8.160
YEAR ENDED SEPTEMBER 30, 2000:
First Quarter 22.625 11.500
Second Quarter 43.656 19.594
Third Quarter 40.313 19.938
Fourth Quarter 33.125 13.125
On December 1, 2001, there were 603 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 contains certain financial covenants and prohibits our
bonding wire manufacturing subsidiary 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 our bonding wire subsidiary is
less than $7.0 million.
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 2002 Annual
Meeting of Shareholders filed or to be filed with the Securities and Exchange
Commission.
12
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.
(in thousands, except per share amounts)
FISCAL YEARS ENDED SEPTEMBER 30,
---------------------------------------------------------------------
1997 1998 1999 2000 2001
--------- --------- --------- --------- ---------
STATEMENT OF OPERATIONS DATA:
Net sales:
Equipment $ 391,721 $ 302,107 $ 269,854 $ 692,062 $ 249,952
Packaging materials 110,186 108,933 124,450 185,570 150,945
Test (1) -- -- -- -- 116,890
Advanced packaging technology -- -- 4,613 21,641 37,216
--------- --------- --------- --------- ---------
Total net sales 501,907 411,040 398,917 899,273 555,003
--------- --------- --------- --------- ---------
Cost of goods sold:
Equipment 228,854 191,948 188,958 419,732 166,359
Packaging materials 89,148 82,259 90,326 130,548 110,570
Test (1) -- -- -- -- 84,401
Advanced packaging technology -- -- 6,098 22,897 31,274
--------- --------- --------- --------- ---------
Total cost of goods sold (1) 318,002 274,207 285,382 573,177 392,604
--------- --------- --------- --------- ---------
Operating expenses:
Equipment 97,143 107,083 92,157 120,244 105,609
Packaging materials 21,029 24,553 23,500 32,876 31,088
Test -- -- -- -- 66,148
Advanced packaging technology -- -- 5,314 19,096 25,395
Corporate 8,070 9,353 12,296 15,421 15,723
--------- --------- --------- --------- ---------
Total operating expenses (1) (2) 126,242 140,989 133,267 187,637 243,963
--------- --------- --------- --------- ---------
Income (loss) from operations:
Equipment 65,724 3,076 (11,261) 152,086 (22,016)
Packaging materials 9 2,121 10,624 22,146 9,287
Test -- -- -- -- (33,659)
Advanced packaging technology -- -- (6,799) (20,352) (19,453)
Corporate (8,070) (9,353) (12,296) (15,421) (15,723)
--------- --------- --------- --------- ---------
Total income (loss) from operations (1) (2) 57,663 (4,156) (19,732) 138,459 (81,564)
--------- --------- --------- --------- ---------
Interest income (expense), net 820 5,514 3,547 4,719 (5,535)
Equity in loss of joint ventures (3) (6,701) (8,715) (10,000) (1,221) --
Other income (1) -- -- -- -- 8,016
--------- --------- --------- --------- ---------
Income (loss) before taxes, cumulative effect of
change in accounting principle and minority interest 51,782 (7,357) (26,185) 141,957 (79,083)
Provision (benefit) for income taxes 13,463 (1,917) (8,221) 40,149 (21,643)
Cumulative effect of change in accounting principle,
net of taxes (1) -- -- -- -- (8,163)
Minority interest -- -- 1,018 1,437 352
--------- --------- --------- --------- ---------
Net income (loss) $ 38,319 $ (5,440) $ (16,946) $ 103,245 $ (65,251)
========= ========= ========= ========= =========
Basic net income (loss) per common share (4) $ 0.92 $ (0.12) $ (0.36) $ 2.15 $ (1.34)
========= ========= ========= ========= =========
Diluted net income (loss) per common share (4) $ 0.90 $ (0.12) $ (0.36) $ 1.90 $ (1.34)
========= ========= ========= ========= =========
Shares used in per common share calculations:(4)
Basic 41,742 46,602 46,846 47,932 48,877
Diluted 42,856 46,602 46,846 56,496 48,877
13
(in thousands)
AS OF SEPTEMBER 30,
----------------------------------------------------------------
1997 1998 1999 2000 2001
-------- -------- -------- -------- --------
Balance Sheet Data:
Cash, cash equivalents and short-term investments $115,587 $106,900 $ 39,345 $316,619 $202,928
Working capital 190,220 182,181 167,131 471,338 265,355
Total assets 376,819 342,584 378,145 731,502 777,426
Long-term debt (5) (6) 220 -- -- 175,000 301,511
Shareholders' equity 291,927 287,910 274,776 405,342 338,547
(1) During the first quarter of fiscal 2001, we purchased all the outstanding
stock of Cerprobe Corporation and Probe Technology Corporation. As a result
of these acquisitions, during the year ended September 30, 2001, we recorded
a pre-tax charge of approximately $11.7 million for the write-off of
in-process research and development.
We also recorded charges of $19.9 million for inventory write-downs, $4.2
million for severance for the elimination of 511 positions and other related
charges associated with a resizing of our workforce, $800 thousand for asset
impairment charges, and non-recurring other income of $8.0 million as the
result of an insurance settlement. In fiscal 2001, we also adopted SAB 101,
resulting in a cumulative effect of an accounting change charge of $8.2
million, net of tax. Additionally, cost of goods sold for the year ended
September 30, 2001 reflects $4.2 million of acquisition related inventory
step-up costs.
(2) In fiscal 2000, operating expense included the write-off of our investment
in our Advanced Polymer Solutions joint venture in the amount of $3.9
million and the reversal into income of $2.5 million of the severance
reserve that we established in fiscal 1999 for the elimination of
approximately 230 positions associated with the relocation of our automatic
ball bonder manufacturing from the United States to Singapore. In fiscal
1999, we purchased the advanced substrate 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 write-off of in-process research and
development. During fiscal 1999, we also recorded a pre-tax charge for
severance of approximately $4.0 million and asset write-off costs of
approximately $1.6 million in connection with the above mentioned move to
Singapore. In fiscal 1999, we also recorded approximately $0.4 million for
severance related to the reduction in workforce that began in fiscal 1998.
During fiscal 1998, we recorded pre-tax charges of $8.4 million for
severance and product discontinuance as a result of a slowdown in the
semiconductor industry.
(3) Equity in loss of joint ventures in fiscal 2000 consists solely of our share
of the loss of Advanced Polymer Solutions, LLC, a 50% owned joint venture
which has been dissolved. Equity in loss of joint ventures in fiscal 1999
consists of $9.2 million of our share of the loss of Flip Chip Technologies
and $800 thousand of our share of the loss of Advanced Polymer Solutions.
Fiscal 1997 and 1998 consist solely of our share of the loss of Flip Chip
Technologies. Effective May 31, 1999, we increased our ownership interest in
Flip Chip from 51% to 73.6% by converting all our outstanding loans and
accrued interest to Flip Chip, which totaled $32.8 million, into equity
units and gained operating control of Flip Chip. We accounted for the
increase in our ownership by the purchase method of accounting and began
consolidating the results of Flip Chip into our financial statements on June
1, 1999. In March 2001, we purchased the remaining equity units of Flip Chip
not previously owned by us. We currently own 100% of Flip Chip.
(4) On June 26, 2000, the Company's Board of Directors approved a two-for-one
stock split of its common stock. Pursuant to the stock split, each
shareholder of record at the close of business on July 17, 2000 received one
additional share for each common share held at the close of business on that
date. The additional shares were distributed on July 31, 2000. All prior
period earnings per share amounts have been restated to reflect the
two-for-one stock split. For fiscal years 1998, 1999 and 2001 only the
common shares outstanding have been used to calculate both the basic
earnings per common share and diluted earnings per common share because the
inclusion of potential common shares would be anti-dilutive due to the net
losses reported in those years. The after-tax interest expense recognized in
fiscal 2000 associated with the 4-3/4% Convertible Subordinated Notes due
2006 that was added back to net income in order to compute diluted net
income per share was $4.3 million.
(5) Does not include letters of credit or foreign exchange contract
obligations.
(6) In August 2001, we issued $125.0 million in principal amount of 5-1/4%
Convertible Subordinated Notes due 2006. In December 1999, we issued $175.0
million in principal amount of 4-3/4% Convertible Subordinated Notes due
2006.
14
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 expense and benefits expected as a
result of:
- The projected growth rates in the overall semiconductor industry, the
semiconductor assembly equipment market and the market for semiconductor
packaging materials and test interconnect solutions;
- the anticipated development, production and licensing of our advanced
packaging technology;
- the projected continuing demand for wire bonders; and
- 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.
OVERVIEW
We design, manufacture and market capital equipment, packaging materials and
test interconnect solutions and provide flip chip bumping services for sale to
companies that manufacture and assemble semiconductor devices. We also service,
maintain, repair and upgrade assembly equipment, license our flip chip bumping
process technology and are developing high density interconnect substrates. 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 62% and 91% of net sales for fiscal 2001 and 2000, respectively, and are
expected to continue to represent a substantial portion of our future revenues.
To support our international sales, we currently have significant manufacturing
operations in the United States, Israel and Singapore, sales facilities in the
United States, France, Germany, Hong Kong, Japan, Korea, Malaysia, the
Philippines, Scotland, Singapore, Taiwan and Thailand, and applications labs in
Japan, Singapore and Taiwan.
Due to a weak economy and a worldwide decline in demand for semiconductors, the
semiconductor industry has experienced excess capacity and a severe contraction
in demand for semiconductor manufacturing equipment. As a result, our net sales
for fiscal 2001 were significantly below the record sales reported in fiscal
2000. In addition, as a result of the reduction in sales, our gross margins
declined throughout the fiscal year. Our backlog of customer orders at September
30, 2001 was $49.0 million, as compared to $143.0 million at September 30, 2000.
The current downturn in the semiconductor industry is expected to continue to
negatively impact our business in fiscal 2002.
In the first quarter of fiscal 2001, we took a step forward in our strategy to
offer a broad range of cost-effective interconnect solutions by acquiring 100%
of the stock of Cerprobe Corporation (Cerprobe) and 100% of the stock of Probe
Technology Corporation (Probe Tech). Both Cerprobe and Probe Tech design and
manufacture semiconductor test interconnect solutions. These acquisitions have
been recorded using the purchase method of accounting and have been consolidated
with our operating results beginning on the date of acquisition. The combined
operations of these two companies comprise our test interconnect segment.
In March 2001, we purchased the 19.6% equity share of our Flip Chip business
unit previously owned by Delco Electronics Corporation (Delco) for $5.0 million
in cash, with a contingent future cash payment of up to $3.0 million, depending
on the future operations of Flip Chip, of which $95 thousand is due for fiscal
2001. We now own 100% of Flip Chip.
15
Our business is currently divided into four segments:
Equipment
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, aluminum or copper, 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 Research, Inc. In fiscal 2001, we began selling the Models 8028-S and
8028-PPS automatic ball bonders which, with their improved technical performance
and productivity, accounted for the majority of ball bonders we sold in fiscal
2001. In fiscal 2001, we also introduced the Maxum, our latest generation IC
ball bonder, which offers up to 20% more productivity than the Model 8028-PPS
ball. The Maxum has been tested and qualified by several of our customers and
will be available for shipment in the latter part of fiscal 2002.
In fiscal 2000 we relocated our automatic ball bonder manufacturing from the
United States to Singapore.
Packaging Materials
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, all of which are used in the semiconductor packaging process. Our
packaging materials are optimized for use with our wire bonders, to provide
leading edge efficiencies and capabilities, as well as with our competitors
assembly equipment.
Test Interconnect
Our test interconnect solutions provide a broad range of fixtures used to
temporarily connect automatic test equipment to the semiconductor device under
test during wafer fabrication (wafer probing) and after they have been assembled
and packaged (package or final testing). Our products include probe cards,
automatic test equipment interface assemblies, ATE test boards, and test
socket/contactors. Most of the test interconnect products we offer are custom
designed or customized for a specific semiconductor or application.
Advanced Packaging Technology
This business segment reflects the operating results of our strategic initiative
to develop new technologies for advanced semiconductor packaging. It is
comprised of our Flip Chip business unit and our high density substrate business
unit.
Through our Flip Chip business unit we license flip chip technology and provide
wafer bumping services and market a wafer level chip scale package named
"UltraCSP(R)." In February 1996, we entered into a joint venture agreement with
Delco to commercialize the bump technology they developed. In March 2001, we
purchased the remaining interest in the joint venture held by Delco. We now own
100% of Flip Chip.
We established our substrate business unit to develop, manufacture and market
high density interconnect substrates using either flip chip or advanced wire
bonding interconnection schemes. We purchased advanced substrate technology for
$8.0 million in fiscal 1999 and operate a research/manufacturing facility in
Milpitas, California to fully develop and market the technology. In fiscal 2001,
we recorded an operating loss for the substrate business of $17.9 million and an
operating loss for fiscal 2000 of $13.8 million. In fiscal 2001, we began
shipping high density substrates to one customer for production and samples to
other customers for qualification.
Neither our Flip Chip nor our substrate business units have been profitable to
date. However, we expect operating income from our Flip Chip business unit in
fiscal 2002 to partially offset the expected loss at the substrate business
unit.
16
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,
------------------------------------
1999 2000 2001
------ ------ ------
Equipment 67.6% 77.0% 45.0%
Packaging materials 31.2 20.6 27.2
Test interconnect -- -- 21.1
Advanced packaging technologies 1.2 2.4 6.7
------ ------ ------
100.0% 100.0% 100.0%
====== ====== ======
Net sales. We recognize revenue when persuasive evidence of an arrangement
exists, delivery has occurred or services have been rendered, the price is fixed
or determinable, collectibility is reasonably assured, and we have completed our
equipment installation obligations and received customer acceptance, or are
otherwise released from installation or customer acceptance obligations. Revenue
related to services is generally recognized upon performance of the services
requested by a customer order or upon satisfaction of certain deliverables under
the contract. Revenue related to license agreements is recognized in accordance
with the specific contract terms, generally prorated over the life of the
agreement.
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. For example, a downturn in the semiconductor industry in fiscal 1998
and the first half of fiscal 1999 contributed to our net losses in those fiscal
years. The semiconductor industry rebounded in the second half of fiscal 1999
and continued to grow through the majority of fiscal 2000, and we reported the
best results in the history of our company in fiscal 2000, with net sales of
$899.3 million and net income of $103.2 million. The semiconductor industry
experienced a severe downturn in fiscal 2001, resulting in a reduction in net
sales of 38.3% and a net loss of $65.3 million for the year.
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 these products. We plan to further 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 test interconnect solutions sales depend on the operating expenditures of
some of the same semiconductor manufacturers and subcontractors as our equipment
and packaging materials sales. Because of the consumable and customized nature
of most of our test products, however, the volatility in demand for these test
products is less than that of our equipment sales.
Our advanced packaging technology sales represent the sales from Flip Chip. We
did not have significant sales from our substrate business unit in fiscal 2001.
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 on consignment and only purchase the gold when we ship 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
17
significant portion of the cost of goods sold of the bonding wire business unit,
the gross profit margins of that business unit and therefore the packaging
materials segment will be lower than can be expected in the equipment business.
We rely on one supplier for our gold requirements.
Test interconnect cost of goods sold consists primarily of direct labor,
indirect labor for engineering design and materials used in the manufacture of
wafer and IC package testing cards and devices.
Cost of goods sold in our advanced packaging technology segment is currently
comprised of material, labor and overhead at Flip Chip. Our substrate operation
will not report cost of goods sold until they begin to generate revenues from
commercial production, which is expected to occur in fiscal 2002.
Selling, general and administrative expense. Our selling, general and
administrative expense is comprised primarily of personnel costs, professional
costs, information technology and depreciation expenses. Our selling, general
and administrative expenses increased in fiscal 2001 as a result of the
acquisition of the operations of our test division.
As a result of the current downturn in the semiconductor industry, we reduced
our workforce by approximately 500 employees and announced the closure of a wire
facility, resulting in charges for resizing and asset impairment amounting to
$5.0 million in fiscal 2001. We may incur similar resizing charges in the near
term.
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.
For example, in fiscal 2001, we optimized the process and improved the yield of
our high density substrates enabling us to ship substrates to several customers
for pre-product qualification, we demonstrated 300mm process capability for our
flip chip bumping technology, we qualified our flip chip wafer probe cards for
150 micron pitch testing and introduced the Maxum, our next generation automatic
ball bonder. Our research and development costs increased in fiscal 2001 as a
result of the acquisition of the operations of our test division and R&D costs
at our substrate business unit. In addition, we expect to continue to incur
significant research and development costs as we introduce and complete the
development of next generation bonding process solutions.
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:
FISCAL YEAR ENDED
SEPTEMBER 30,
-------------------------------------
1999 2000 2001
------ ------ ------
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 71.5 63.7 70.7
Gross margin 28.5 36.3 29.3
Selling, general and administrative 20.9 14.7 25.5
Research and development, net 9.3 5.6 11.3
Amortization of goodwill and intangibles 0.7 0.5 4.1
Write-off of in-process research and development 1.0 -- 2.1
Other costs 1.5 0.1 1.0
------ ------ ------
Income (loss) from operations (4.9)% 15.4% (14.7%)
====== ====== ======
18
FISCAL YEARS ENDED SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2000
Bookings and Backlog. During the fiscal year ended September 30, 2001 we
recorded bookings of $412.0 million compared to $949.0 million in fiscal 2000.
The decrease in fiscal 2001 bookings reflected the significant downturn in the
semiconductor industry, which severely reduced overall demand for semiconductor
assembly equipment and associated packaging and test products. At September 30,
2001, the backlog of customer orders totaled $49.0 million, compared to $143.0
million at September 30, 2000. 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.
Sales. Net sales for the year ended September 30, 2001 were $555.0 million, down
38.3% from the $899.3 million reported for fiscal 2000. The decrease in sales
for the year reflects the downturn in the semiconductor industry, which
significantly impacted sales of our semiconductor assembly equipment, and to a
lesser extent, sales of our consumable products. The lower sales were partially
offset by sales from our newly acquired Test Interconnect business unit.
In fiscal 2001, we adopted the Securities and Exchange Commission's Staff
Accounting Bulletin No. 101 (`SAB 101') which resulted in a change in our
revenue recognition policy relating to certain customer sales. Net sales for the
year of $555.0 million included revenue of $19.3 million for sales that were
previously reported in the prior fiscal year but were deferred upon adoption of
the standard effective October 1, 2000. The fiscal 2001 quarterly results
presented in this annual report have been restated to give effect to the
adoption of the standard as required by generally accepted accounting
principles.
Fiscal 2001 sales in the equipment segment were down 63.9%, due primarily to
lower unit sales of automatic ball bonders. Net sales in the packaging materials
segment were down 18.7%, due to reduced demand for gold wire and capillaries.
Sales for the test division were $116.9 million for the period from the dates of
acquisition through September 30, 2001. Higher bumping service revenues and
license income at our Flip Chip business unit contributed to a 72.0% increase in
net sales for our advanced packaging segment.
International sales (shipments of our products with ultimate foreign
destinations) comprised 62% and 91% of our total sales during fiscal 2001 and
2000, respectively. The lower percentage of international sales in fiscal 2001
was due to primarily to the sales of the newly acquired test interconnect
segment which are more concentrated in the United States. Sales to customers in
the Asia/Pacific region, including Korea, Taiwan, Malaysia, the Philippines,
Japan, Singapore, Thailand and Hong Kong accounted for approximately 52% and 83%
of our total sales in fiscal 2001 and 2000, respectively. During fiscal 2001,
shipments to customers located in Taiwan, Singapore, Malaysia and the
Philippines accounted for 12%, 11%, 8% and 5% as compared to 31%, 10%, 9% and
11%, respectively, for fiscal 2000.
Gross Profit. Gross profit decreased to $162.4 million in fiscal 2001 from
$326.1 million in fiscal 2000 due primarily to the lower volume of equipment and
packaging material sales. The fiscal 2001 gross profit also reflected a
write-down of $19.9 million for excess and obsolete inventory and an acquisition
related inventory step-up charge of $4.2 million. The lower gross profit in
fiscal 2001 was partially offset by gross profit from our newly acquired Test
Interconnect business unit. Gross profit as a percentage of sales (referred to
as gross margin) in fiscal 2001 decreased to 29.3% from 36.3% in the prior year.
The lower gross margin in fiscal 2001 was due primarily to lower gross margin in
the equipment segment due to a higher average cost of production resulting from
inefficiencies from manufacturing fewer machines than in the prior year. The
gross margin in fiscal 2001 was also negatively impacted by a lower gross margin
at our newly acquired test division than our equipment and packaging materials
businesses.
Selling, General and Administrative Expenses. Selling, general and
administrative (referred to as SG&A) expenses increased $28.4 million or 20.8%
from $136.2 million in fiscal 2000 to $164.6 in fiscal 2001. The increase in
SG&A expenses for the full year was due to $30.0 million of SG&A expenses
incurred in the test division, from the dates of acquisition through September
30, 2001, and additional amortization expense of $19.1 million associated with
the acquisition of the test division. Excluding these additional expenses
associated with the test division, SG&A expense was $20.7 million or 15.2% below
the prior year due partially to salary and headcount reductions and other cost
containment actions initiated in fiscal 2001.
19
Research and Development. Because technological change occurs rapidly in the
semiconductor industry, we devote substantial resources to our research and
development ("R&D") programs to maintain our technological leadership. This
commitment to new product introductions and product development resulted in an
increase in R&D expense of $12.6 million or 25.1% for fiscal 2001 as compared to
fiscal 2000. The increase is primarily the result of $4.3 million of R&D
expenses associated with the test division from the dates of acquisition through
September 30, 2001 and R&D expenses at our substrate business unit.
Resizing Costs and Asset Impairment. The resizing costs in fiscal 2001 consisted
of a charge of $4.2 million for severance associated with the elimination of 511
positions in connection with our cost containment program and the closure of a
wire facility. We also recorded an asset impairment charge of $0.8 million
related to the closure of the wire facility and the disposition of associated
equipment. These programs are ongoing and continuing as planned. The programs
are expected to be complete in fiscal 2002, with certain payments relating to
contractual obligations remaining throughout fiscal 2003. At September 30, 2001,
55 of the 511 individuals identified in the fiscal 2001 resizing programs remain
to be terminated in fiscal 2002. In connection with our acquisition of Probe
Tech, we eliminated its duplicate operations and increased goodwill by $1.5
million for costs associated with this integration program.
The table below details the spending and activity related to these programs:
(in thousands)
SEVERANCE COMMITMENTS TOTAL
--------- ----------- -----
Balance, September 30, 2000 $ 71 $ -- $ 71
Additions during fiscal 2001
Resizing costs 4,166 -- 4,166
Acquisition restructuring 84 1,402
1,486
Spending under programs (2,172) (213) (2,385)
------- ------- -------
Balance, September 30, 2001 $ 2,149 $ 1,189 $ 3,338
======= ======= =======
Purchased In-Process Research and Development. In fiscal 2001, we recorded a
charge of $11.7 million for in-process R&D associated with the acquisitions of
Cerprobe and Probe Tech representing the appraised value of products still in
the development stage that did not have a future alternative use and have not
reached technological feasibility.
Income (loss) from Operations. Loss from operations for the year ended September
30, 2001 was $81.6 million compared to income from operations of $138.5 million
for the prior year. The operating loss was due primarily to the lower sales and
associated gross profit, additional expenses associated with the acquisitions,
higher R&D expenses, inventory write-offs and resizing costs.
Interest. To fund the Cerprobe and Probe Tech acquisitions, we increased our
borrowings and reduced our investment portfolio in the latter portion of the
first quarter. This resulted in higher interest expense for fiscal 2001 and
lower interest income for the same period, as compared to fiscal 2000. We also
issued $125 million of 5 -1/4% convertible subordinated notes in August of 2001,
which increased our net interest expense in fiscal 2001. Part of the proceeds
from this offering were used to repay and terminate our then existing revolving
credit facility.
Other Income. Results for fiscal 2001 include other income of $8.0 million
associated with the cash settlement of an insurance claim associated with a fire
in our bonding tools facility.
Equity in Loss of Joint Ventures. In fiscal 2000, we recorded losses of $1.2
million on our equity interest in Advanced Polymer Solutions, LLC ("APS"), a
joint venture with Polyset Company, Inc. The joint venture was dissolved in
September 2000.
Tax Expense. Our effective tax rate for fiscal 2001 is 27.3%, compared to 28.0%
in the prior year. The lower effective tax rate for fiscal 2001 is due primarily
to the mix of foreign earnings, offset by tax benefits associated with losses
from United States based operations. In fiscal 2001 we did not record an income
tax benefit on the $11.7 million charge for in-process research and development.
20
Minority Interest in Net Loss of Subsidiary. In fiscal 2001, we recorded
minority interest of $352 thousand. The results for 2001 include minority
interest in a foreign Probe Tech subsidiary from the date of our acquisition of
Probe Tech and Delco's interest in the loss incurred at Flip Chip prior to our
purchases of all remaining outstanding Flip Chip equity units.
Cumulative Effect of Change in Accounting Principle. In fiscal 2001, we adopted
SAB 101. The cumulative effect represents the net income associated with $26.5
million of sales that were deferred upon adoption of the standard.
Net Loss. Our net loss for fiscal 2001 was $65.3 million compared to net
income of $103.2 million in fiscal 2000, for the reasons enumerated above.
FISCAL YEARS ENDED SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999
Bookings and Backlog. During the fiscal year ended September 30, 2000, we
recorded record bookings of $949.0 million compared to $438.0 million in fiscal
1999. The $511.0 million increase in fiscal 2000 bookings reflected a
significant improvement in demand for semiconductor assembly equipment. At
September 30, 2000, total backlog of customer orders approximated $143.0 million
compared to $93.0 million at September 30, 1999. 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.
The upturn in the semiconductor business cycle throughout most of fiscal 2000
resulted in record net sales of $899.3 million, an increase of $500.4 million or
125.4% above the prior fiscal year. Net sales increased sequentially each
quarter beginning in the third quarter of fiscal 1999 through the third quarter
of fiscal 2000, however, due to customer order deferrals, net sales in the
fourth quarter of fiscal 2000 were below third quarter sales.
Net Sales. Net sales in our equipment segment benefited the most from the upturn
in the semiconductor business cycle and increased by $422.2 million to $692.1
million in fiscal 2000 compared to $269.9 million in fiscal 1999, an increase of
156.5%. The increase in equipment segment sales was driven by a strong demand
for our automatic ball bonders. The higher equipment segment sales in fiscal
2000 also reflected an increase in the average selling prices for our Model
8028, which was the primary bonder sold in fiscal 2000, compared to the model
8020, which was the primary bonder sold in fiscal 1999. Packaging materials
segment net sales increased $61.1 million to $185.6 million in fiscal 2000 from
$124.5 million in fiscal 1999. The higher packaging material segment net sales
were due primarily to a higher volume of gold wire and capillary shipments. Net
sales of our advanced packaging technology segment reflect the sales of Flip
Chip Technologies for all of fiscal 2000 compared to sales of Flip Chip
Technologies for only four months in fiscal 1999.
International sales (shipments of our products with ultimate foreign
destinations) comprised 91% and 83% of our total sales during fiscal 2000 and
1999, respectively. Sales to customers in the Asia/Pacific region including
Korea, Taiwan, Malaysia, the Philippines, Japan, Singapore, Thailand and Hong
Kong accounted for approximately 83% and 74% of our total sales in fiscal 2000
and 1999, respectively. During fiscal 2000, shipments to customers located in
Taiwan, the Philippines, Singapore, and Malaysia accounted for approximately
31%, 11%, 10% and 9% of net sales, compared to 23%, 11%, 11% and 10%,
respectively, for the 1999 fiscal year.
Gross Profit. Gross profit increased to $326.1 million in fiscal 2000 from
$113.5 million in fiscal 1999 due primarily to the higher volume of equipment
segment sales in fiscal 2000. The higher gross profit in fiscal 2000 was also
partially due to an increase in gross profit as a percentage of sales (referred
to as gross margin) of 7.8 percentage points to 36.3%. The equipment segment
contributed the majority of the improvement in gross profit and gross margin.
Equipment segment gross profit increased $191.4 million from the prior year to
$272.3 million and its gross margin increased from 30.0% in fiscal 1999 to 39.4%
in fiscal 2000. The increase in equipment segment gross profit was primarily due
to a 168% increase in unit sales of automatic ball bonders. The improved
equipment segment gross margin was due to a higher average selling price of the
automatic bonders sold in fiscal 2000 compared to fiscal 1999 due to the higher
performance levels of the Model 8028 compared to the Model 8020. Also, the
average cost of a Model 8028 was less than the average cost of a Model 8020
primarily due to the move of the manufacturing operation of our automatic ball
bonders from the United States to Singapore. The packaging materials segment
gross profit and gross margin increased in fiscal 2000. The higher gross profit
was primarily due to the higher volume of gold wire and capillary shipments. The
higher gross margin was due to
21
lower average cost of production resulting primarily from operating efficiencies
from the higher unit volume and a shift in production mix to higher margin fine
pitch products. The overall gross profit and gross margin in fiscal 2000 were
negatively impacted by a $1.3 million negative gross profit recorded by Flip
Chip Technologies in our advanced packaging technology segment.
Selling, General and Administrative Expenses. SG&A expenses increased to $136.2
million in fiscal 2000 from $86.2 million in fiscal 1999. The $50.0 million
increase was due primarily to additional personnel and compensation expenses
associated with the growth in the size of the business in fiscal 2000
particularly in the equipment segment, the ramp-up of the X-LAM research
facility and the inclusion of the operating results of Flip Chip Technologies
for a full fiscal year in 2000 compared to four months in the prior year.
Research and Development. Research and development costs increased to $50.1
million in fiscal 2000 from $37.2 million in the prior fiscal year. The higher
research and development expense resulted from increasing expenditures for new
product development in our equipment and packaging materials segments and
reporting Flip Chip Technologies operations for a full year in 2000 compared to
four months in the prior year and ramping up the X-LAM research capabilities.
Gross research and development expenditures were partially offset by funding
received from customers and governmental subsidies totaling $1.1 million in
fiscal 2000 compared to $1.3 million in fiscal 1999.
Resizing. In the fourth quarter of fiscal 2000, we reversed into income $2.5
million of the $5.6 million reserve which we established in fiscal 1999 for the
relocation of our automatic ball bonder manufacturing from Willow Grove,
Pennsylvania to Singapore. The reserve was established to reflect provisions for
severance and asset write-off costs resulting from the move. However, due to the
significant increase in demand for microelectronics products we have retained
engineering and marketing positions which were planned for downsizing. In
addition, the majority of the direct and indirect manufacturing positions were
eliminated through attrition in the workforce. The decision to retain the
engineering and marketing positions in the U.S. and attrition in the workforce
reduced the amount of severance required to be paid compared to the original
estimate and resulted in the reversal of $2.5 million of the reserve. These
relocation activities are now complete.
In the fourth quarter of fiscal 2000, we decided not to devote additional
capital to our joint venture with Polyset Company, Inc., which was established
to develop, manufacture and market advanced polymer materials for semiconductor
and microelectronic packaging end users. This decision resulted in a write-off
of $3.9 million representing our remaining investment in this venture. We have
no further obligations or commitments to the joint venture.
Income from Operations. Income from operations in fiscal 2000 was a record
$138.5 million compared to a loss of $19.7 million in fiscal 1999. The favorable
results in fiscal 2000 were due primarily to the significant improvement in net
sales resulting from our capability to ramp-up our production with
technologically superior bonding machines to take advantage of the demand for
our products created by the upturn in the semiconductor business cycle. Income
from operations in fiscal 2000 was also favorably impacted by an increase in
gross profit as a percentage of net sales which was due primarily to the
benefits of the move of our automatic ball bonder manufacturing from the United
States to Singapore.
Interest Income. Interest income increased by $8.6 million and interest expense
increased by $7.5 million, both increases resulted primarily from the issuance
of $175.0 million of convertible subordinated notes in December 1999. Interest
income was also favorably impacted by an increase in short term investments
resulting from cash generated by our record level of income from operations and
higher interest rates.
Equity in Loss of Joint Venture. Equity in loss of joint ventures decreased from
$10.0 million in fiscal 1999 to $1.2 million in fiscal 2000 due primarily to not
recording Flip Chip Technologies under the equity method of accounting but
rather reporting the operating results of Flip Chip Technologies with the
operating results of the company. In fiscal 2000, equity in loss of joint
ventures consists solely of our share of the loss from our 50% equity interest
in Advanced Polymer Solutions, LLC which, as mentioned above, we dissolved and
wrote-off our remaining investment.
Income Taxes. Our provision for income taxes in fiscal 2000 was $40.1 million
compared to a benefit of $8.2 million in fiscal 1999. The provision for income
tax in fiscal 2000 was due to record pretax income reported in fiscal 2000. The
effective tax rate of the fiscal 2000 provision was 28%. The effective tax rate
was favorably impacted by significant tax incentives we received from Singapore
as an incentive for us to relocate our automatic ball bonder manufacturing
operation to Singapore and from Israel for maintaining research and
manufacturing facilities in Israel.
22
Minority Interest. We recorded a minority interest in the net loss of Flip Chip
Technologies of $1.4 million. The minority interest reflects the portion of Flip
Chip Technologies that is owned by Delco, our joint venture partner.
Net Income. Our net income for fiscal 2000 was $103.2 million compared to a net
loss of $16.9 million in fiscal 1999, 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 2001 and 2000:
(in thousands)
FIRST (1) SECOND (1) THIRD (1) FOURTH
Fiscal 2001 QUARTER QUARTER QUARTER QUARTER TOTAL
------------------------------------ ------------ ------------ ------------ ------------ -------------
Net sales $153,429 $149,425 $134,358 $117,791 $ 555,003
Gross profit 53,604 42,021 42,010 24,764 162,399
Loss from operations (13,639) (24,558) (11,654) (31,713) (81,564)
FIRST SECOND THIRD FOURTH
Fiscal 2000 Quarter Quarter Quarter Quarter Total
------------------------------------ ------------ ------------ ------------ ------------ -------------
Net sales $179,849 $222,153 $268,258 $229,013 $ 899,273
Gross profit 59,912 75,600 101,278 89,306 326,096
Income from operations 17,116 29,834 52,348 39,161 138,459
(1) Restated for the adoption of SAB 101.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
SFAS 142. In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) 142, Goodwill and Other
Intangible Assets. This standard requires that goodwill no longer be amortized
to earnings, but instead be reviewed for impairment. This change is expected to
provide investors with greater information regarding the economic value of
goodwill and its impact on earnings. We expect to adopt the standard effective
October 1, 2001. We do not expect an impairment of goodwill or intangibles upon
adoption of this standard.
SFAS 143. In August 2001, the FASB issued SFAS 143, Accounting for Obligations
Associated with the Retirement of Long-Lived Assets which is effective for
fiscal years beginning after June 15, 2002. The standard provides guidance for
financial reporting for obligations associated with the retirement of tangible
long-lived assets and the associated asset retirement costs. The Standard
applies to legal obligations associated with the retirement of long-lived assets
that result from the acquisition, construction, development, and/or the normal
operation of a long-lived asset, except for certain obligations of lessors. We
do not expect that the adoption of SFAS 143 will have a significant impact on
our financial position and results of operations.
SFAS 144. In October 2001, the FASB issued SFAS 144, Accounting for the
Impairment or Disposal of Long-Lived Assets which supersedes FASB 121,
Accounting for the Impairment of Long-Lived Assets and for Assets to Be Disposed
Of and the accounting and reporting provisions of APB Opinion No. 30, Reporting
the Results of Operations - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions. The Statement is effective for fiscal years beginning after
December 15, 2001 and interim periods within those fiscal years. This Statement
applies to all long-lived assets and requires that the assets to be disposed of
by sale be measured at the lower of book value or fair value less costs to sell.
We are currently reviewing the provisions of this Statement but do not expect
that the adoption of SFAS 144 will have a significant impact on our financial
position and results of operations.
23
CHANGES IN ACCOUNTING PRINCIPLES AND POLICIES
Accounting for Derivative Instruments and Hedging Activities. In fiscal
2001, we adopted SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities. SFAS No. 133, as amended by SFAS No. 138. The standard
requires that all derivative instruments be recorded on the balance sheet at
fair value. Changes in the fair value of derivatives are recorded in earnings
or other comprehensive income, based on whether the instrument is designated
as part of a hedge transaction and, if so, the type of hedge transaction.
The cumulative effect of adoption was not material. The impact of SFAS No.
133 on our future results will be dependent upon the fair values of our
derivatives and related financial instruments and could result in increased
volatility.
Revenue Recognition. We changed our revenue recognition policy in the fourth
quarter of fiscal 2001, effective October 1, 2000, based upon guidance provided
in the Securities and Exchange Commission (SEC) Staff Accounting Bulletin No.
101 (SAB 101), Revenue Recognition in Financial Statements. We recognize revenue
when persuasive evidence of an arrangement exists, delivery has occurred or
services have been rendered, the price is fixed or determinable, the
collectibility is reasonably assured, and we have completed our equipment
installation obligations and received customer acceptance, or are otherwise
released from our installation or customer acceptance obligations. In the event
terms of the sale provide for a lapsing customer acceptance period, we recognize
revenue based upon the expiration of the lapsing acceptance period or customer
acceptance, whichever occurs first. Revenue related to services is generally
recognized upon performance of the services requested by a customer order.
Revenue for extended maintenance service contracts with a term more than one
month is recognized on a prorated straight-line basis over the term of the
contract. Revenue from royalty arrangements and license agreements is recognized
in accordance with the contract terms, generally prorated over the life of the
contract or based upon specific deliverables.
In accordance with the guidance provided in SAB 101, the deferred revenue
balance as of October 1, 2000 was $26.5 million. This amount consists of
equipment that was shipped and recorded as revenue in fiscal 2000 but had not
met the customer acceptance criteria required by SAB 101. In fiscal 2001, we
recorded an after-tax non-cash charge of $8.2 million or $0.17 per fully diluted
share, associated with the $26.5 million of deferred revenue, to reflect the
cumulative effect of the accounting change as of the beginning of the fiscal
year.
In fiscal 2001, we received customer acceptances for $19.3 million of the $26.5
million that was deferred as of the beginning of the fiscal year and accordingly
recognized $19.3 million of revenue. Also in fiscal 2001, we recorded after-tax
non-cash profit of $5.7 million or $0.12 per fully diluted share associated with
the $19.3 million of deferred revenue. At September 30, 2001, deferred revenue
was approximately $7.2 million, which will be recognized in future periods as
the revenue recognition criteria are met.
Our pro-forma net loss for fiscal 2001, assuming we did not adopt SAB 101, was
$62.8 million or $1.29 per fully diluted share.
The unaudited consolidated statements of operations for the quarters ended
December 31, 2000, March 31, 2001 and June 30, 2001 have been restated to
reflect the application of SAB 101.
Shipping and Handling Revenues and Costs. In September 2000, the Emerging Issues
Task Force (EITF) reached a final consensus on issue EITF No. 00-10, Accounting
for Shipping and Handling Revenues and Costs. The Task Force concluded that
amounts billed to customers related to shipping and handling should be
classified as revenue. We adopted the consensus in fiscal 2001, and the impact
to the financial statements is immaterial.
24
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2001, our cash, cash equivalents and investments totaled
$202.9 million compared to $316.6 million at September 30, 2000.
Cash generated from operating activities totaled $71.9 million during fiscal
2001 compared to cash generated of $134.1 million in fiscal 2000 and cash used
in operating activities of $37.9 million in fiscal 1999. The cash generated from
our operating activities in fiscal 2001 was primarily due to the collection of
customer accounts receivable, partially offset by the paydown of accounts
payable and the net loss. The cash generated from operating activities in fiscal
2000 was primarily the result of our record net income partially offset by an
increase in accounts receivable and inventory to support the record sales
volume.
Net cash used for investing activities for the year ended September 30, 2001 was
$268.6 million. Cash outflows for investing activities consisted primarily of
the purchase of two companies that design and manufacture semiconductor test
interconnect solutions. We paid $217.4 million for Cerprobe and $62.5 million
for Probe Tech, net of cash acquired. Also in fiscal 2001, we purchased the
remaining interest in Flip Chip that was owned by Delco for $5.0 million. We now
own 100.0% of Flip Chip. During fiscal 2001, we also invested $48.6 million in
property and equipment, compared to $38.3 million in fiscal 2000. The capital
spending in fiscal 2001 was primarily for information technology to develop
corporate-wide e-business capabilities, increased capacity at Flip Chip and
continued expansion of the manufacturing capabilities in our existing packaging
materials facilities.
Net cash provided by financing activities in fiscal 2001 was $140.2 million,
principally due to the proceeds from our $125.0 million convertible subordinated
note offering which was completed in August 2001. The notes are general
obligations of our company and are subordinated to all senior debt. The notes
rank equally with the convertible notes issued in December 1999, bear interest
at 5-1/4%, are convertible into our common stock at $19.75 per share and mature
on August 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 is payable on
February 15 and August 15 each year. We may redeem the notes in whole or in part
at any time on or after August 19, 2004 at prices ranging from 102.1% at August
19, 2004 to 100.0% at August 15, 2006. Part of the proceeds from this offering
were used to repay and terminate our then existing revolving credit facility.
In April 2001, we entered into a receivable securitization program in which we
transferred all domestic account receivables to KSI Funding Corporation, a
"bankruptcy remote" special purpose corporation and our wholly owned subsidiary.
Under the facility, KSI Funding Corporation can sell up to a $40.0 million
interest in all of our domestic receivables. This facility was structured as a
revolving securitization, whereby an interest in additional account receivables
can be sold as collections reduce the previously sold interest. At September 30,
2001, we have sold receivables under this agreement amounting to $20.0 million.
In December 1999, we issued $175.0 million of convertible subordinated notes.
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 $22.8997 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 is payable on June 15 and December 15 of each year. 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.
At September 30, 2001, working capital was $265.4 million compared to $471.3
million at September 30, 2000. The lower working capital was due primarily to
lower cash, short-term investments and accounts receivable.
We believe that anticipated cash flows from operations, our working capital and
accounts receivable securitization program will be sufficient to meet our
liquidity and capital requirements for at least the next 12 months. However, we
may seek, as we believe appropriate, additional 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. The
timing and amount of such potential capital requirements cannot be determined at
this time and will depend on a number of factors, including demand for our
products, semiconductor and semiconductor capital equipment industry conditions,
competitive factors and the nature and size of strategic business opportunities
that we may elect to pursue.
25
RISKS RELATED TO OUR BUSINESS
THE SEMICONDUCTOR INDUSTRY AS A WHOLE IS VOLATILE AND IS CURRENTLY EXPERIENCING
A SIGNIFICANT DOWNTURN
Our operating results are significantly affected by the capital expenditures of
large semiconductor manufacturers and their subcontract assemblers and
vertically integrated manufacturers of electronic systems. Expenditures by
semiconductor manufacturers and their subcontract assemblers and vertically
integrated manufacturers of electronic systems depend on the current and
anticipated market demand for semiconductors and products that use
semiconductors, such as personal computers, telecommunications equipment,
consumer electronics and automotive goods. Significant downturns in the market
for semiconductor devices or in general economic conditions reduce demand for
our products and materially 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 and
test interconnect solutions that we sell. The semiconductor industry is in a
downturn and we expect conditions to remain weak in fiscal 2002. This downturn
is among the worst we have experienced: orders have been pushed out or
cancelled, significantly reducing our backlog, sales have declined rapidly and
we have, among other things, undertaken a significant resizing and have deferred
capital expenditures. We cannot assure you as to when the current downturn will
end or that it will not continue to worsen. This current downturn, like past
downturns, has materially and adversely affected our operating results and we
expect that it will continue to materially and adversely affect our business,
financial condition and operating results in the near term. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
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,
which we expect will continue to be the case. Although these fluctuations are
partly due to the volatile nature of the semiconductor industry, they also
reflect the impact of other factors. Many of the factors that affect our
operating results 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:
- market downturns;
- the mix of products that we sell because, for example:
- some packaging materials have lower margins than assembly equipment
and test interconnect solutions;
- some lines of equipment are more profitable than others; and
- some sales arrangements have higher margins than others;
- the volume and timing of orders for our products and any order
postponements and cancellations by our customers;
- the cancellation, deferral or rescheduling of orders, because virtually
all orders are subject to cancellation, deferral or rescheduling by the
customer without prior notice and with limited or no penalties;
- adverse changes in our pricing, or that of our competitors;
- higher than anticipated costs of development or production of new
equipment models;
- the availability and cost of key components for our products;
- market acceptance of our new products and upgraded versions of our
products;
26
- our announcement, or perception by others, that we will introduce new or
upgraded products, which could cause customers to delay purchasing our
products;
- the timing of acquisitions; and
- our competitors' introduction of new products.
Many of our expenses, such as research and development, selling, general and
administrative expenses and interest expense, 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:
- the timing and extent of our research and development efforts;
- severance, resizing and other costs of relocating facilities;
- inventory write-offs due to obsolescence; and
- inflationary increases in the cost of labor or materials.
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.
OUR BUSINESS DEPENDS ON ATTRACTING AND RETAINING MANAGEMENT, MARKETING AND
TECHNICAL EMPLOYEES WHO ARE IN GREAT DEMAND
As is the case with many other 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, specifically 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 materially and 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, leading-edge materials and for test
interconnect solutions customized to address rapid technological advances in IC
and capital equipment designs. 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 non-competitive. The
development of new products may require significant capital expenditures over an
extended period of time, and some products that we seek to develop may never
become profitable. In fiscal 2001, for example, we have incurred significant
losses in connection with our efforts to develop and commercialize high density
substrate technology, and we anticipate continuing to incur such losses in the
near term. In addition, the commercialization of high density substrates may
require substantial capital investments for production facilities. In addition,
we may not be able to develop and introduce products incorporating new
technologies in a timely manner or at a price that will satisfy our customers'
future needs or achieve market acceptance.
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. If we fail to
27
accurately forecast demand for our products, including assembly equipment,
packaging materials, test interconnect solutions and advanced packaging
technologies, 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 IC package, as compared to traditional die and wire
bonding. These technologies include flip chip and wafer scale packaging. In
general, these advanced technologies eliminate the need for wires to establish
the electrical connection between a die and its package. For some devices, these
advanced technologies have largely replaced wire bonding. 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. If a significant shift to advanced technologies were to occur, demand for
our wire bonders and related packaging materials and test interconnect solutions
would diminish.
One component of our strategy is to develop next-generation technologies to
allow us 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:
- the technologies that we have invested in represent only some of the
advanced technologies that may one day supersede wire bonding;
- other companies are developing similar or alternative advanced
technologies;
- wire bonding may continue as the dominant technology for longer than we
anticipate;
- the cost of developing advanced technologies may be significantly
greater than we expect; and
- 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.
A DECLINE IN DEMAND FOR ANY OF OUR PRODUCTS COULD CAUSE OUR REVENUES TO
DECLINE SIGNIFICANTLY
Prior to our recent acquisitions of businesses in the test interconnect segment,
our wire bonders comprised over 50% 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 changes or because of other
events beyond our control, our business, financial condition and operating
results could be materially and adversely affected. Advanced packaging
technologies and test interconnect solutions are less significant as a
percentage of our revenues than wire bonders, but any deterioration in the
demand for, or prices of, these products would materially and adversely affect
our business, financial condition and operating results.
BECAUSE A SMALL NUMBER OF CUSTOMERS ACCOUNT FOR MOST OF 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 their
subcontract assemblers and vertically integrated manufacturers of electronic
systems purchasing a substantial portion of semiconductor assembly equipment,
packaging materials, test interconnect solutions and flip chip bumping services
and technology. Sales to a relatively small number of customers account for a
significant percentage of our net sales. In fiscal 2001, no customer accounted
for more than 10% of our net sales. In fiscal 2000, sales to Advanced
Semiconductor Engineering and Amkor Technologies accounted for 15% and 10% of
our net sales, respectively. In fiscal 1999 no customer accounted for more than
10% of total 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
28
substantially, these losses or reductions will materially and adversely affect
our business, financial condition and operating results.
WE DEPEND ON A SMALL NUMBER OF SUPPLIERS FOR RAW MATERIALS, COMPONENTS AND
SUBASSEMBLIES 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 raw 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 important
components and raw materials, including gold. As a result, we are exposed to a
number of significant risks, including:
- loss of control over the manufacturing process;
- changes in our manufacturing processes, dictated by changes in the
market, that may delay our shipments;
- our inadvertent use of defective or contaminated raw materials;
- 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;
- reliability and quality problems we experience with certain key
subassemblies provided by single source suppliers;
- the exposure of our suppliers and subcontractors to disruption for a
variety of reasons, including work stoppage, fire, earthquake, flooding
or other natural disasters;
- delays in the delivery of raw materials or subassemblies, which, in
turn, may cause delays in some of our shipments; and
- the loss of suppliers as a result of the consolidation of suppliers in
the industry.
If we are unable to deliver products to our customers on time for these or any
other reasons, if we are unable to meet customer expectations as to cycle time
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 and advanced packaging services and
technology. Additionally, during fiscal 2001, we acquired two companies that
design and manufacture test interconnect solutions, Cerprobe Corporation and
Probe Technology Corporation, and we have combined their operations to create
our test division. Although our strategy is to diversify and expand 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, demands on our management, financial resources and information and
internal control systems. Our success depends in significant part on our ability
to manage and integrate 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 could be materially and
adversely affected.
As we expand our operations, we expect to encounter a number of risks, which
will include:
- risks associated with hiring additional management and other critical
personnel;
29
- risks associated with adding equipment and capacity; and
- risks associated with increasing the scope, geographic diversity and
complexity of our operations.
In addition, sales and servicing of packaging materials, test interconnect
solutions and advanced packaging technologies often 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 MAY BE UNABLE TO CONTINUE TO COMPETE SUCCESSFULLY IN THE HIGHLY
COMPETITIVE SEMICONDUCTOR EQUIPMENT, PACKAGING MATERIALS, TEST INTERCONNECT
AND ADVANCED PACKAGING TECHNOLOGY INDUSTRIES
The semiconductor equipment, packaging materials, test interconnect solutions
and advanced packaging technology industries are intensely competitive. In the
semiconductor equipment, test interconnect solutions and advanced packaging
technology markets, the significant competitive factors include performance,
quality, customer support and price, and in the semiconductor packaging
materials industry include price, delivery and quality.
In each of our markets, we face competition and the threat of competition from
established competitors and potential new entrants, some of which have
significantly greater financial, engineering, manufacturing and marketing
resources than we have. Some of these competitors are Asian and European
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 and materials with improved price and performance
characteristics. New product and materials 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 or
materials for a particular assembly operation, we may not be able to sell
products or materials to that manufacturer or assembler for a significant period
of time because manufacturers and assemblers sometimes develop lasting relations
with suppliers, and assembly equipment in our industry often goes 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.
WE SELL MOST OF OUR PRODUCTS TO CUSTOMERS THAT ARE LOCATED OUTSIDE OF THE UNITED
STATES, WE HAVE SUBSTANTIAL MANUFACTURING OPERATIONS LOCATED OUTSIDE OF THE
UNITED STATES, AND WE RELY ON INDEPENDENT FOREIGN DISTRIBUTION CHANNELS FOR
CERTAIN PRODUCT LINES, ALL OF WHICH SUBJECT US TO RISKS FROM CHANGES IN TRADE
REGULATIONS, CURRENCY FLUCTUATIONS, POLITICAL INSTABILITY AND WAR
Approximately 62% of our net sales for fiscal 2001, 91% of our net sales for
fiscal 2000 and 83% of our net sales for fiscal 1999 were attributable to sales
to customers for delivery outside of the United States. The lower percentage of
international sales in fiscal 2001 was due primarily to the sales of the newly
acquired test interconnect segment which was more concentrated in the United
States. We expect our sales outside of the United States to continue to
represent a large 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. We also rely on non-U.S. suppliers for materials and components used in
the equipment that we sell and we maintain substantial manufacturing operations
in countries other than the United States, including operations in Israel and
Singapore. We manufacture substantially all of our automatic ball bonders in
Singapore. In addition, we rely on independent foreign distribution channels for
certain product lines. 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
30
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
and materials suppliers have 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 materially and 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 also 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:
- our competitors may independently develop technology that is similar to
or better than ours;
- 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;
- foreign intellectual property laws may not adequately protect our
intellectual property rights; and
- 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 and alliances may also have rights to technology that
we develop through these alliances. We may incur significant expense to protect
or enforce our intellectual property rights. If we are unable to protect our
intellectual property rights, our competitive position may be weakened.
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.
31
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 any such claim will not materially and adversely
affect our business, financial condition and operating results.
WE MAY BE MATERIALLY AND ADVERSELY AFFECTED BY ENVIRONMENTAL AND SAFETY LAWS
AND REGULATIONS
We are subject to various and frequently changing federal, state, local and
foreign laws and regulations governing, among other things, the generation,
storage, use, emission, discharge, transportation and disposal of hazardous
material, investigation and remediation of contaminated sites and the health and
safety of our employees. Increasingly, public attention has focused on the
environmental impact of manufacturing operations and the risk to neighbors of
chemical releases from such operations.
Proper waste disposal plays an important role in the operation of our
manufacturing plants. In many of our facilities we maintain wastewater treatment
systems that remove metals and other contaminants from process wastewater. These
facilities operate under effluent discharge permits that must be renewed
periodically. A violation of those permits may lead to revocation of the
permits, fines, penalties or the incurrence of capital or other costs to comply
with the permits.
In the future, applicable land use and environmental regulations may: (1) impose
upon us the need for additional capital equipment or other process requirements,
(2) restrict our ability to expand our operations, (3) subject us to liability,
and/or (4) cause us to curtail our operations. We cannot assure you that any
costs or liabilities associated with complying with these environmental laws
will not materially and adversely affect our business, financial condition and
operating results. See "Business -- Environmental Matters."
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:
- classify our board of directors into four classes, with one class being
elected each year;
- permit our board to issue "blank check" preferred stock without
shareholder approval; and
- 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.
32
WE MAY BE UNABLE TO GENERATE ENOUGH CASH TO SERVICE OUR DEBT
Our ability to make payments on our indebtedness, and to fund planned capital
expenditures and other activities will depend on our ability to generate cash in
the future. This, to some extent, is subject to the volatile nature of our
business, and general economic, competitive and other factors that are beyond
our control. Accordingly, we cannot assure you that our business will generate
sufficient cash flow to service our debt. In addition, our gold supply agreement
contains restrictions on its ability to declare and pay dividends to us.
Based on our current level of operations, we believe our cash flows from
operations, working capital, the accounts receivable securitization program will
be adequate to meet our liquidity and capital requirements for at least the next
twelve months.
We may need to refinance all or a portion of our indebtedness on or before
maturity. We cannot assure you that we will be able to refinance any of our
indebtedness on commercially reasonable terms, if at all.
TERRORIST ATTACKS, SUCH AS THE ATTACKS THAT OCCURRED IN NEW YORK AND
WASHINGTON, D.C. ON SEPTEMBER 11, 2001, AND OTHER ACTS OF VIOLENCE OR WAR MAY
AFFECT THE MARKETS IN WHICH WE OPERATE AND OUR PROFITABILITY
Terrorist attacks may negatively effect our operations and your investment.
There can be no assurance that there will not be further terrorist attacks
against the United States or United States businesses. These attacks or armed
conflicts may directly impact our physical facilities or those of our suppliers
or customers. Our primary facilities include administrative, sales and R&D
facilities in the United States of America and manufacturing facilities in the
United States, Israel and Singapore. Also, these attacks have disrupted the
global insurance and reinsurance industries with the result that we may not be
able to obtain insurance at historical terms and levels for all of our
facilities. Furthermore, these attacks may make travel and the transportation of
our supplies and products more difficult and more expensive and ultimately
effect the sales of our products in the United States and overseas. As a result
of terrorism, the United States has entered into an armed conflict which could
have a further impact on our domestic and internal sales, our supply chain, our
production capability and our ability to deliver product to our customers.
Political and economic instability in some regions of the world may also result
and could negatively impact our business. The consequences of any of these armed
conflicts are unpredictable, and we may not be able to foresee events that could
have an adverse effect on our business or your investment.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
At September 30, 2001, we had a non-trading investment portfolio of fixed income
securities, excluding those classified as cash and cash equivalents, of $47.9
million (see Note 5 of the Company's Consolidated Financial Statements). 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 10% from levels as
of September 30, 2001, the fair market value of the portfolio would decline by
approximately $100,000. We also had investments in equity securities of $1.2
million at September 30, 2001 of which 100% of the portfolio is vulnerable to
market risk.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated Financial Statements of Kulicke and Soffa Industries, Inc.
listed in the index appearing under Item 14 (a)(1) herein are filed as part of
this Report.
33
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34
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Kulicke and Soffa Industries, Inc.:
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) present fairly, in all material respects, the
financial position of Kulicke and Soffa Industries, Inc. and its subsidiaries at
September 30, 2001 and September 30, 2000, and the results of their operations
and their cash flows for each of the three years in the period ended September
30, 2001 in conformity with accounting principles generally accepted in the
United States of America. In addition, in our opinion, the financial statement
schedule listed in the index appearing under Item 14(a)(2) 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 of America, 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 our opinion.
As discussed in Note 1 to the consolidated financial statements, the Company
adopted Staff Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in
Financial Statements," in fiscal 2001.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
November 14, 2001
35
KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
SEPTEMBER 30,
-----------------------
2000 2001
--------- ---------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (including time
deposits: 2000 - $503; 2001 - $1,053) $ 211,489 $ 155,036
Short-term investments 105,130 47,892
Accounts and notes receivable (less allowance for doubtful
accounts: 2000 - $4,355; 2001 - $6,242) 188,485 79,305
Inventories, net 74,034 74,364
Prepaid expenses and other current assets 9,748 9,013
Deferred income taxes 8,650 15,282
--------- ---------
TOTAL CURRENT ASSETS 597,536 380,892
Property, plant and equipment, net 83,867 127,952
Intangible assets, primarily goodwill (net of accumulated
amortization: 2000 - $13,781; 2001 - $36,920) 41,724 253,999
Other assets 8,375 14,583
--------- ---------
TOTAL ASSETS $ 731,502 $ 777,426
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable and current portion of long-term debt $ 1,026 $ 753
Accounts payable 62,513 51,420
Accrued expenses 51,935 48,965
Income taxes payable 10,724 14,399
--------- ---------
TOTAL CURRENT LIABILITIES $ 126,198 $ 115,537
Long term debt 175,000 301,511
Other liabilities 7,967 13,736
Deferred taxes 12,798 8,054
Minority interest 4,197 41
--------- ---------
TOTAL LIABILITIES $ 326,160 $ 438,879
--------- ---------
COMMITMENTS AND CONTINGENCIES (Note 13) -- --
SHAREHOLDERS' EQUITY:
Preferred stock, without par value:
Authorized - 5,000 shares; issued - none -- --
Common stock, without par value:
Authorized - 200,000 shares; issued and
outstanding: 2000 - 48,716; 2001 - 49,034 189,766 193,058
Retained earnings 220,263 155,012
Accumulated other comprehensive loss (4,687) (9,523)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY $ 405,342 $ 338,547
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 731,502 $ 777,426
========= =========
The accompanying notes are an integral part of these consolidated
financial statements.
36
KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
FISCAL YEAR ENDED SEPTEMBER 30,
-------------------------------------
1999 2000 2001
--------- --------- ---------
Net sales $ 398,917 $ 899,273 $ 555,003
Cost of goods sold 285,382 573,177 392,604
--------- --------- ---------
Gross profit 113,535 326,096 162,399
Selling, general and administrative 86,226 136,179 164,561
Research and development, net 37,188 50,135 62,727
Resizing (recovery) costs 5,918 (2,548) 4,166
Asset impairment -- 3,871 800
Purchased in-process research and development 3,935 -- 11,709
--------- --------- ---------
Income (loss) from operations (19,732) 138,459 (81,564)
Interest income 3,762 12,418 8,398
Interest expense (215) (7,699) (13,933)
Equity in loss of joint ventures (10,000) (1,221) --
Other Income -- -- 8,016
--------- --------- ---------
Income (loss) before income taxes (26,185) 141,957 (79,083)
Provision (benefit) for income taxes (8,221) 40,149 (21,643)
--------- --------- ---------
Income (loss) before minority interest and cumulative
effect of change in accounting principle (17,964) 101,808 (57,440)
Cumulative effect of change in accounting principle,
net of tax of $4,395 -- -- (8,163)
Minority interest in net loss of subsidiary 1,018 1,437 352
--------- --------- ---------
NET INCOME (LOSS) $ (16,946) $ 103,245 $ (65,251)
========= ========= =========
NET INCOME (LOSS) EXCLUDING CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE PER SHARE:
Basic $ (0.36) $ 2.15 $ (1.17)
Diluted $ (0.36) $ 1.90 $ (1.17)
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE,
NET OF TAX PER SHARE:
Basic $ -- $ -- $ (0.17)
Diluted $ -- $ -- $ (0.17)
NET INCOME (LOSS) PER SHARE:
Basic $ (0.36) $ 2.15 $ (1.34)
Diluted $ (0.36) $ 1.90 $ (1.34)
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 46,846 47,932 48,877
Diluted 46,846 56,496 48,877
The accompanying notes are an integral part of these consolidated
financial statements.
37
KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Fiscal Year Ended September 30,
-------------------------------------
1999 2000 2001
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (16,946) $ 103,245 $ (65,251)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 15,989 24,260 53,849
Tax benefit from exercise of stock options 180 12,444 248
Provision for doubtful accounts 812 2,758 1,406
Impairment of assets 1,566 3,871 800
Deferred taxes (8,463) 15,219 (37,556)
Provision for inventory reserves 1,200 6,978 18,095
Equity in loss of joint ventures 10,000 1,221 --
Minority interest in net loss of subsidiary (1,018) (1,437) (352)
Purchased in-process research and development 3,935 -- 11,709
Non-cash employee benefits 1,662 2,437 1,942
Changes in working capital accounts, net of effect
of acquired businesses:
Accounts receivable (66,833) (55,490) 110,469
Inventories (14,700) (19,267) 2,572
Prepaid expenses and other assets (4,801) 153 (1,734)
Refundable income taxes 2,336 2,934 --
Accounts payable and accrued expenses 36,182 25,289 (30,918)
Taxes payable (42) 7,120 3,226
Other, net 1,012 2,362 3,364
--------- --------- ---------
Net cash provided by (used in) operating activities (37,929) 134,097 71,869
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Purchases) proceeds from investments classified
as available-for-sale, net 28,075 (103,046) 56,640
Purchases of plant and equipment (10,891) (38,304) (48,636)
Purchase of Flip Chip -- -- (5,000)
Purchase of Probe Tech, net of cash acquired -- -- (62,512)
Purchase of Cerprobe, net of cash acquired -- -- (217,415)
Purchase of X-LAM technology (8,000) -- --
Proceeds from sale of property and equipment -- -- 8,338
Investments in and loans to joint ventures (10,912) (2,152) --
--------- --------- ---------
Net cash used in investing activities (1,728) (143,502) (268,585)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from debt offering -- 168,985 120,749
Proceeds from sale of receivables -- -- 20,000
Payments on borrowings, including capitalized leases (192) -- (1,652)
Proceeds from issuances of common stock 280 14,777 1,102
--------- --------- ---------
Net cash provided by (used in) financing activities 88 183,762 140,199
--------- --------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS 246 (23) 64
--------- --------- ---------
CHANGE IN CASH AND CASH EQUIVALENTS (39,323) 174,334 (56,453)
CASH AND CASH EQUIVALENTS AT:
BEGINNING OF YEAR 76,478 37,155 211,489
--------- --------- ---------
END OF YEAR $ 37,155 $ 211,489 $ 155,036
========= ========= =========
The accompanying notes are an integral part of these consolidated
financial statements.
38
KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(in thousands)
Accumulated
Common Stock Other
---------------- Comprehensive
Retained Income Shareholders'
Shares Amount Earnings (Loss) Equity
--------- --------- --------- --------- ---------
Balances at September 30, 1998 46,734 $ 157,986 $ 133,964 $ (4,040) $ 287,910
Employer contribution to the 401K plan 168 1,662 -- -- 1,662
Exercise of stock options 76 280 -- -- 280
Tax benefit from exercise of stock options -- 180 -- -- 180
Components of comprehensive income:
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 taxes of $413) -- -- -- (768) (768)
---------
Total comprehensive loss (15,256)
--------- --------- --------- --------- ---------
Balances at September 30, 1999 46,978 160,108 117,018 (2,350) 274,776
Employer contribution to the 401K Plan 94 2,437 -- -- 2,437
Exercise of stock options 1,644 14,777 -- -- 14,777
Tax benefit from exercise of stock options -- 12,444 -- -- 12,444
Components of comprehensive income:
Net income -- -- 103,245 -- 103,245
Translation adjustment -- -- -- (884) (884)
Unrealized loss on investments, net -- -- -- (20) (20)
Minimum pension liability (net of taxes
of $772) -- -- -- (1,433) (1,433)
---------
Total comprehensive income 100,908
--------- --------- --------- --------- ---------
Balances at September 30, 2000 48,716 189,766 220,263 (4,687) 405,342
EMPLOYER CONTRIBUTION TO THE 401K PLAN 153 1,942 -- -- 1,942
Exercise of stock options 165 1,102 -- -- 1,102
Tax benefit from exercise of stock options -- 248 -- -- 248
Components of comprehensive income:
Net loss -- -- (65,251) -- (65,251)
Translation adjustment -- -- -- (2,226) (2,226)
Unrealized gain on investments, net -- -- -- 280 280
Minimum pension liability (net of taxes
of $1,556) -- -- -- (2,890) (2,890)
---------
Total comprehensive loss (70,087)
--------- --------- --------- --------- ---------
Balances at September 30, 2001 49,034 $ 193,058 $ 155,012 $ (9,523) $ 338,547
========= ========= ========= ========= =========
The accompanying notes are an integral part of these consolidated
financial statements.
39
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
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 designs, manufactures, and markets capital
equipment, packaging materials and test interconnect solutions and provides flip
chip bumping services for sale to companies that manufacture and assemble
semiconductor devices. We also service, maintain, repair and upgrade assembly
equipment, license our flip chip bumping process technology and are marketing
high density interconnect substrates. The Company's operating results depend
upon the capital and operating 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 and test interconnect solutions
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.
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, warranties,
carrying value and lives of fixed assets, goodwill and intangible 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, 2001 and
2000 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,
packaging materials and test interconnect products 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, 2001 and 2000 included notes
receivable of $16 thousand and $4.0 million respectively. Writeoffs 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 2001, no customer accounted for
more than 10% of the Company's net sales. In fiscal 2000, sales to Advanced
Semiconductor Engineering accounted for 15% of the Company's net sales and sales
to Amkor Technologies accounted for 10% of the Company's net sales. In fiscal
1999, no customer accounted for more than 10% 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. At September 30,
2001 and 2000, Advanced Semiconductor Engineering accounted for 13% and 14%,
respectively, of total accounts receivable. No other customer accounted for more
than 10% of total accounts receivable at September 30, 2001 and 2000. The
reduction or loss of orders from a significant customer could adversely affect
the Company's business, financial condition, operating results and cash flows.
40
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", in accordance with SFAS
115, and 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 equipment inventory considered to be
in excess of 6 months of forecasted future demand and provides reserves for
spare part and consumables 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 $30.1 million, $20.1 million and $13.1 million for the
fiscal years ended September 30, 2001, 2000 and 1999, 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
weighted average life of the goodwill recorded by the Company on September 30,
2001 was 9.72 years. The Company accounts for impairment of goodwill in
accordance with SFAS No. 121, as discussed above and expects to adopt the
provisions of SFAS 142 effective October 1, 2001.
41
Foreign Currency Translation - The U.S. dollar is the functional currency for
all subsidiaries except the Company's subsidiaries in Japan, Korea, the
Philippines, Thailand, Switzerland and Taiwan. Gains and losses resulting from
the translation of functional currency financial statement amounts into U.S.
dollars are not included in 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 ($700) thousand, $1.0 million and $13 thousand, for the fiscal
years ended September 30, 2001, 2000 and 1999, respectively.
Revenue Recognition - The Company changed its revenue recognition policy in the
fourth quarter of fiscal 2001, effective October 1, 2000, based upon guidance
provided in the Securities and Exchange Commission (SEC) Staff Accounting
Bulletin No. 101 (SAB 101), Revenue Recognition in Financial Statements. The
Company recognizes revenue when persuasive evidence of an arrangement exists,
delivery has occurred or services have been rendered, the price is fixed or
determinable, the collectibility is reasonably assured, and it has completed its
equipment installation obligations and received customer acceptance, or are
otherwise released from our installation or customer acceptance obligations. In
the event terms of the sale provide for a lapsing customer acceptance period,
revenue is recognized based upon the expiration of the lapsing acceptance period
or customer acceptance, whichever occurs first. Revenue related to services is
generally recognized upon performance of the services requested by a customer
order. Revenue for extended maintenance service contracts with a term more than
one month is recognized on a prorated straight-line basis over the term of the
contract. Revenue from royalty arrangements and license agreements is recognized
in accordance with the contract terms, generally prorated over the life of the
contract or based upon specific deliverables.
In accordance with the guidance provided in SAB 101, the deferred revenue
balance as of October 1, 2000 was $26.5 million. This amount consists of
equipment that was shipped and recorded as revenue in fiscal 2000 but had not
met the customer acceptance criteria required by SAB 101. In fiscal 2001, the
Company recorded an after-tax non-cash charge of $8.2 million or $0.17 per fully
diluted share, associated with the $26.5 million of deferred revenue, to reflect
the cumulative effect of the accounting change as of the beginning of the fiscal
year.
In fiscal 2001, the Company received customer acceptances for $19.3 million of
the $26.5 million that was deferred as of the beginning of the fiscal year and
accordingly recognized $19.3 million of revenue. Also in fiscal 2001, the
Company recorded after-tax non-cash profit of $5.7 million or $0.12 per fully
diluted share associated with the $19.3 million of deferred revenue. At
September 30, 2001, deferred revenue was approximately $7.2 million, which will
be recognized in future periods as the revenue recognition criteria are met.
Our pro-forma net loss for fiscal 2001, assuming the Company did not adopt
SAB 101, was $62.8 million or $1.29 per fully diluted share.
The unaudited consolidated statements of operations for the quarters ended
December 31, 2000, March 31, 2001 and June 30, 2001 have been restated to
reflect the application of SAB 101.
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
2001, 2000 and 1999, reductions to research and development expense related to
such funding totaled $1.0 million, $1.1 million and $1.3 million, 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.
42
Environmental Expenditures - Future environmental remediation 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 - Earnings per share is calculated in accordance with SFAS
No. 128, Earnings Per Share. 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. On June 26, 2000, the Company's Board of Directors approved a
two-for-one stock split of its common stock. Pursuant to the stock split, each
shareholder of record at the close of business on July 17, 2000 received one
additional share for each common share held at the close of business on that
date. The additional shares were distributed on July 31, 2000. All prior period
earnings per share amounts have been restated to reflect the two-for-one stock
split.
Accounting for Stock-based Compensation - The Company accounts 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 discloses the pro forma effect on net income and earnings per share as if
the fair value method had been applied to stock option grants, in accordance
with SFAS 123, Accounting For Stock-Based Compensation.
Reporting Comprehensive Income - The Company reports comprehensive income and
its components in accordance with SFAS 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.
Derivative Instruments and Hedging Activities - In fiscal 2001, the Company
adopted Statement of Financial Accounting Standards (SFAS) No. 133, Accounting
for Derivative Instruments and Hedging Activities. SFAS No. 133, as amended by
SFAS No. 138. The standard requires that all derivative instruments be recorded
on the balance sheet at fair value. Changes in the fair value of derivatives are
recorded in earnings or other comprehensive income, based on whether the
instrument is designated as part of a hedge transaction and, if so, the type of
hedge transaction. The cumulative effect of adoption was not material. The
impact of SFAS No. 133 on the company's future results will be dependent upon
the fair values of the company's derivatives and related financial instruments
and could result in increased volatility.
Coupons, Rebates and Discounts - In May 2000, the Emerging Issues Task Force
("EITF") issued EITF No. 00-14, Accounting for Coupons, Rebates and Discounts
that addressed accounting for sales incentives. The Task Force concluded that in
accounting for cash sales incentives a manufacturer should recognize the
incentive as a reduction of revenue on the later date of the manufacturer's sale
or the date the offer is made to the public. The reduction of revenues should be
measured based on the estimated amount of incentives to be claimed by the
ultimate customers. The Company adopted this pronouncement in the fourth quarter
of fiscal 2001. The adoption did not have a material impact on the Company's
financial statements.
Shipping and Handling - In September 2000, the EITF reached a final consensus
on issue EITF No. 00-10, Accounting for Shipping and Handling Revenues and
Costs. The Task Force concluded that amounts billed to customers related to
shipping and handling should be classified as revenue. The Company adopted this
pronouncement in the fourth quarter of fiscal 2001. The adoption did not have a
material impact on the Company's financial statements.
43
Stock Compensation - In March 2000, FASB Interpretation, or FIN, No. 44,
"Accounting for Certain Transactions Involving Stock Compensation - An
Interpretation of APB Opinion No. 25," was issued. FIN 44 clarifies the
application of APB No. 25 for certain issues. FIN 44 clarifies the definition of
employee for purposes of applying APB No. 25, the criteria for determining
whether a plan qualifies as a non-compensatory plan, the accounting consequences
of various modifications to the terms of a previously fixed option or award, and
the accounting for an exchange of share compensation awards in a business
combination, among others. FIN 44 was effective July 1, 2000 but certain
conclusions in this interpretation cover specific events that occurred after
either December 15, 1998 or January 12, 2000. FIN 44 did not have a significant
effect on the Company's financial position or results of operations.
Goodwill and Other Intangibles - In July 2001, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS)
142, Goodwill and Other Intangible Assets. This standard requires that goodwill
no longer be amortized to earnings, but instead be reviewed for impairment. This
change is expected to provide investors with greater information regarding the
economic value of goodwill and its impact on earnings. We expect to adopt the
standard effective October 1, 2001 and will reclassify the intangible assets
relating to acquired workforces as goodwill in accordance with the provisions of
SFAS 142. We do not expect an impairment of goodwill or intangibles upon
adoption of this standard.
Asset Retirement Obligations - In August 2001, the FASB issued SFAS 143,
Accounting for Obligations Associated with the Retirement of Long-Lived Assets
which is effective for fiscal years beginning after June 15, 2002. The standard
provides guidance for financial reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. The Standard applies to legal obligations associated with the retirement
of long-lived assets that result from the acquisition, construction,
development, and/or the normal operation of a long-lived asset, except for
certain obligations of lessors. We do not expect that the adoption of SFAS 143
will have a significant impact on our financial position and results of
operations.
Impairment and Disposal of Long-Lived Assets - In October 2001, the FASB issued
SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets which
supersedes FASB 121, Accounting for the Impairment of Long-Lived Assets and for
Assets to Be Disposed Of and the accounting and reporting provisions of APB
Opinion No. 30, Reporting the Results of Operations - Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions. The Statement is effective for fiscal years
beginning after December 15, 2001 and interim periods within those fiscal years.
This Statement applies to all long-lived assets and requires that the assets to
be disposed of by sale be measured at the lower of book value or fair value less
costs to sell. We are currently reviewing the provisions of this Statement but
do not expect that the adoption of SFAS 144 will have a significant impact on
our financial position and results of operations.
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: ACQUISITIONS AND PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT
In November 2000, the Company completed a tender offer for 100.0% of the
outstanding shares of Cerprobe Corporation ("Cerprobe") for $20 per share. The
total purchase price of Cerprobe, including transaction costs, the assumption of
acquisition related liabilities and debt repayment, was approximately $225.0
million, payable in cash. In December 2000 the Company purchased all the
outstanding shares of Probe Technology Corporation ("Probe Tech") for
approximately $65.0 million, including transaction costs and the assumption of
acquisition related liabilities, payable in cash. The acquired assets of Probe
Tech include a minority interest in a foreign subsidiary. Both Cerprobe and
Probe Tech design and manufacture semiconductor test interconnect solutions. The
acquisitions have been recorded using the purchase method of accounting and
accordingly, the purchase price has been allocated to the tangible and
intangible assets acquired and liabilities assumed on the basis of their fair
values on the acquisition dates. The Company has allocated a portion of the
purchase price for each acquisition to intangible assets valued using a discount
rate of 25.0% for Cerprobe and 18.0% for Probe Tech. The portion of the purchase
price allocated to in-process R&D projects that did not have future alternative
use and to which technological
44
feasibility had not been established totaled $11.3 million for Cerprobe and $0.4
million for Probe Tech. These amounts were charged to expense as of the
acquisition dates. The purchase price allocation may change upon resolution of
certain items relating to purchase price adjustments. The Company received a
waiver of a bank covenant under its then existing bank revolving credit
facility, which limited the amount the Company could spend on acquisitions, in
order to complete the Cerprobe and Probe Tech acquisitions. The Company borrowed
$55.0 million under its bank revolving credit facility to partially fund the
purchase of Probe Tech. The operations of these two companies have been combined
to create a test division, which is disclosed as a separate business segment for
financial reporting purposes.
Unaudited pro forma operating results for years ended September 30, 2001 and
2000 assuming the acquisitions of Cerprobe and Probe Tech were consummated on
October 1, 1999 appear below. The unaudited pro forma information is presented
for illustrative purposes only and is not necessarily indicative of the
operating results that would have occurred if the transaction had been
consummated at the date indicated, nor is it necessarily indicative of the
future operating results of the combined businesses.
(unaudited)
(in thousands, except per share data)
FISCAL YEAR ENDED SEPTEMBER 30,
-------------------------------
2000(1) 2001
---------- ----------
Net Sales $1,009,809 $ 582,426
Net Income (loss) $ 79,880 $ (67,732)
Diluted net income (loss) per share $ 1.49 $ (1.39)
(1) The results of Cerprobe for the fiscal year ended September 30, 2000
included a charge of $8.8 million for in-process R&D associated with its
acquisition of OZ Technologies, Inc.
The components of the purchase price allocation for the acquisitions of Cerprobe
and Probe Tech are as follows:
(in thousands)
CERPROBE PROBE TECH
----------- ----------
Current assets $ 44,223 $ 12,180
Property, plant, equipment and other long term assets 27,241 8,948
Acquired intangibles 80,800 30,253
Acquired in-process research and development 11,295 414
Goodwill 105,510 16,298
Less: Liabilities assumed (75,573) (3,432)
--------- ---------
Total $ 193,496 $ 64,661
========= =========
The goodwill and intangible assets resulting from the acquisitions are being
amortized on a straight-line basis over a 10-year period.
A lawsuit between Cerprobe and the former President, Director and shareholder of
Silicon Valley Test & Repair, Inc. (a company acquired by Cerprobe Corporation
in January 1997) was settled and dismissed in June 2001, with Cerprobe paying
$280 thousand in attorney's fees to opposing counsel. This amount has been
allocated to goodwill in the opening balance sheet, as a cost of the Cerprobe
acquisition.
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
45
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 connection with the acquisitions of Cerprobe and Probe Tech, the Company
assigned a value of $11.7 million to the purchased in-process research and
development of these entities. The portion of the purchase price assigned to the
in-process research and development activities was charged to expense in fiscal
2001 and was comprised of several research and development projects that were
scheduled to reach completion in 2001 and 2002. At the acquisition date,
research and development projects ranged in completion from 10% to 90% complete.
In January 1999, the Company purchased enabling technology and fixed assets used
in the design, development, manufacture, marketing and sale of laminate
substrates 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 to 5 years.
The Company allocated the enabling technology purchase price as follows:
(in thousands)
In-process research and development $3,935
Core technology 3,447
Property, plant and equipment 513
Assembled workforce 105
------
Total $8,000
======
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.
NOTE 3: RESIZING COSTS
In the fourth quarter of fiscal 2001, we announced a resizing plan to close a
bonding wire facility, and recorded a charge of $3.2 million related to this
plan. The charge includes $2.4 million for severance associated with the
elimination of 215 positions and asset impairment charges of $800 thousand
related to facilities and equipment that will be disposed of in connection with
the closure of the wire facility. In the second quarter, we began a resizing
plan for the elimination of 296 positions and recorded a resizing charge for
severance of $1.7 million. These programs are ongoing and continuing as planned.
Of the 511 positions identified during fiscal 2001 for elimination under both
programs, 55 individuals remain to be terminated in the first half of fiscal
2002. The severance accrual will be paid out during fiscal 2002, and the
commitments will be substantially completed in fiscal 2002 but will continue
into future years as a result of the contractual arrangements. In connection
with the acquisition of Probe Tech, we eliminated its duplicate operations, and
increased goodwill by $1.5 million during the fiscal year for costs associated
with this program.
46
The table below details the spending and activity related to these programs.
(in thousands)
Severance Commitments Total
--------- ---------- -------
Balance, September 30, 2000 $ 71 $ -- $ 71
Additions during fiscal 2001
Resizing costs 4,166 -- 4,166
Acquisition restructuring 84 1,402 1,486
Spending under programs (2,172) (213) (2,385)
------- ------- -------
Balance, September 30, 2001 $ 2,149 $ 1,189 $ 3,338
======= ======= =======
In the fourth quarter of fiscal 2000, the Company reversed into income $2.5
million of the $5.6 million reserve which it established in fiscal 1999 for the
relocation of its automatic ball bonder manufacturing from Willow Grove,
Pennsylvania to Singapore. The reserve was established to reflect provisions for
severance and asset write-off costs resulting from the move. However, due to the
significant increase in demand for microelectronics products the Company
retained engineering and marketing positions which were planned for downsizing.
In addition, the majority of the direct and indirect manufacturing positions
were eliminated through attrition in the workforce. The decision to retain the
engineering and marketing positions in the U.S. and attrition in the workforce
reduced the amount of severance required to be paid compared to the original
estimate and resulted in the reversal of $2.5 million of the reserve. These
relocation activities are now complete.
During fiscal 1999, the Company announced plans to relocate its automatic ball
bonder manufacturing from Willow Grove, Pennsylvania to Singapore. As a result,
in fiscal 1999 the Company recorded a charge for severance of $4.0 million for
the elimination of approximately 230 positions and asset write-offs of $1.6
million. In fiscal 1999, the Company also recorded a charge of $397 thousand 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.
NOTE 4: INVESTMENTS IN JOINT VENTURES
Flip Chip Technologies, LLC
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. In March
2001, the Company purchased the remaining interest in the joint venture owned by
Delco for $5.0 million, with a contingent future cash payment of up to $3.0
million, depending on the future operations of Flip Chip, of which $95 thousand
is due for fiscal 2001. The Company now owns 100% of Flip Chip.
The Company has recorded goodwill, since May 31, 1999, of $6.9 million
associated with the increase in ownership of FCT and continues to amortize the
goodwill over 10 years.
47
The Company recorded a pretax loss from FCT operations for the fiscal year ended
September 30, 1999 as follows:
(in thousands)
1999(1)
------
Equity in loss of joint venture $ 9,163
Consolidated with operations of the Company 3,003
-------
Pretax loss from FCT operations $12,166
=======
(1) After minority interest
Advanced Polymer Solutions
In September 1998, the Company entered into a joint venture agreement with
Polyset Company, Inc. ("Polyset") 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. In the fourth quarter of fiscal 2000, the Company and its joint venture
partner decided not to devote additional capital to this venture and to dissolve
the joint venture. The Company recorded an asset impairment of $3.9 million
representing the write-off of the Company's remaining investment in APS. The
Company invested $6.0 million in APS and reported pre-tax losses of $837
thousand in fiscal 1999 and $1.2 million in fiscal 2000. The Company has no
further obligations or commitments to the joint venture.
NOTE 5: INVESTMENTS
At September 30, 2001 and 2000, no short-term investments were classified as
held-to-maturity. Investments, excluding cash equivalents, classified as
available-for-sale, consisted of the following at September 30, 2000 and 2001:
(in thousands)
September 30, 2000 SEPTEMBER 30, 2001
--------------------------------------------------------------------------------
Unrealized UNREALIZED
Fair Gains/ Cost FAIR GAINS/ COST
Available-for-sale: Value (Losses) Basis VALUE (LOSSES) BASIS
----------------------------- -------- -------- -------- -------- -------- --------
Corporate debt securities $101,494 $ (105) $101,599 $ 44,472 $ 284 $ 44,188
Adjustable rate notes 2,370 -- 2,370 2,226 46 2,180
-------- -------- -------- -------- -------- --------
Short-term investments
classified as available
for sale $103,864 $ (105) $103,969 $ 46,698 $ 330 $ 46,368
======== ======== ======== ======== ======== ========
An after-tax unrealized gain of $212 thousand (net of taxes of $118 thousand)
and an after tax unrealized loss of $68 thousand (net of taxes of $37 thousand)
were recorded as direct adjustments to shareholders' equity at September 30,
2001 and September 30, 2000, respectively. Investments in equity securities are
held-for-sale with changes in market value recorded in the Statement of
Operations. A loss of $639 thousand and a gain of $53 thousand were recorded
during fiscal 2001 and 2000, respectively. Held-for-sale investments were $1.2
million at September 30, 2001 and 2000. In fiscal 2001, the Company purchased
$158.1 million of securities it classified as available-for-sale and sold $214.8
million of available-for-sale securities.
48
NOTE 6: BALANCE SHEET COMPONENTS
(in thousands)
SEPTEMBER 30,
-------------------------
Inventories 2000 2001
--------- ---------
Raw materials and supplies $ 50,394 $ 60,870
Work in process 22,687 21,185
Finished goods 17,194 21,418
--------- ---------
90,275 103,473
Inventory reserves (16,241) (29,109)
--------- ---------
$ 74,034 $ 74,364
========= =========
(in thousands)
SEPTEMBER 30,
-------------------------
Property, Plant and Equipment 2000 2001
--------- ---------
Land $ 1,602 $ 1,636
Buildings and building improvements 23,481 32,364
Machinery and equipment 129,684 190,132
Leasehold improvements 20,496 21,144
--------- ---------
175,263 245,276
Accumulated depreciation (91,396) (117,324)
--------- ---------
$ 83,867 $ 127,952
========= =========
Accrued expenses at September 30, 2001 included $18.0 million for accrued wages,
incentives and vacations and $5.6 million for customer advances for the future
delivery of parts and services. Accrued expenses at September 30, 2000 included
$16.4 million for accrued wages, incentives and vacations and $13.0 million for
customer advances for the future delivery of parts and services. No other
accrued expenses were significant.
NOTE 7: DEBT OBLIGATIONS
At September 30, 2001, the Company had capital lease debt obligations of $2.2
million, of which $753 thousand was due within one year. The capital lease
obligations, including interest are payable as follows: $1.1 million in 2002,
$747 thousand in 2003, $365 thousand in 2004, $88 thousand in 2005, $38 thousand
in 2006 and $209 thousand thereafter. At September 30, 2000, the Company had a
short-term debt obligation of $1.0 million reflecting debt due to Delco, the
former minority owner of FCT.
In August 2001, the Company issued $125.0 million of convertible subordinated
notes. The notes are general obligations of the Company and are subordinated to
all senior debt. The notes rank equally with the convertible notes issued in
December 1999. The notes bear interest at 5-1/4%, are convertible into our
common stock at $19.75 per share and mature on August 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 is payable on February 15 and August 15 each
year. We may redeem the notes in whole or in part at any time on or after August
19, 2004 at prices ranging from 102.1% at August 19, 2004 to 100.0% at August
15, 2006.
In April 2001, we entered into a receivable securitization program in which we
transferred all domestic account receivables to KSI Funding Corporation, a
"bankruptcy remote" special purpose corporation and our wholly owned subsidiary.
Under the facility, KSI Funding Corporation can sell up to a $40.0 million
interest in all of our domestic receivables. This facility was structured as a
revolving securitization, whereby an interest in additional account
49
receivables can be sold as collections reduce the previously sold interest. At
September 30, 2001, we have sold receivables under this agreement amounting to
$20.0 million.
In December 2000, the Company entered into a $60.0 million (reducing to $40.0
million over a three-year period) bank revolving credit facility. Part of the
proceeds from the August 2001 note offering were used to repay and terminate
this credit facility.
In December 1999, the Company issued $175.0 million of convertible subordinated
notes. 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 $22.8997 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. 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.
Interest paid on the Company's debt obligations totaled $11.3 million, $4.3
million and $215 thousand in fiscal 2001, 2000 and 1999, respectively.
NOTE 8: SHAREHOLDERS' EQUITY
Common Stock
In fiscal 2001, the Company's common stock increased by $1.1 million reflecting
the proceeds from the exercise of employee and director stock options and
increased by $248 thousand due to a tax benefit associated with the exercise of
the stock options. The Company's common stock also increased due to the issuance
of common stock as matching contributions to the Company's 401(k) saving plan by
$1.9 million, $2.4 million and $1.7 million in fiscal 2001, 2000 and 1999,
respectively.
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 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.
50
The following summarizes all employee stock option activity for the three years
ended September 30, 2001:
(Option amounts in thousands)
SEPTEMBER 30,
-----------------------------------------------------------------------
1999(1) 2000 2001
---------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------- ------- ------- ----- ------- -----
Options outstanding at
beginning of period 4,360 $ 8.99 5,732 $ 10.17 4,109 $10.82
Granted or reissued 1,670 12.90 106 27.78 2,544 14.23
Exercised (76) 3.77 (1,480) 9.16 (141) 7.07
Terminated or canceled (222) 9.81 (249) 12.57 (433) 12.82
------ ------ ------
Options outstanding at
end of period 5,732 10.17 4,109 10.82 6,079 12.17
====== ====== ======
Options exercisable at
end of period 1,404 8.29 1,250 9.13 1,963 10.13
====== ====== ======
(1) Adjusted for stock split in fiscal 2000.
The following table summarizes information concerning currently outstanding and
exercisable employee options at September 30, 2001:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
(Option amounts in thousands) (Option amounts in thousands)
----------------------------- -----------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Options Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
--------------- ----------- ---- ----- ----------- -------
$ 1.44 - $ 4.14 168 2.5 $ 3.48 168 $ 3.48
$ 4.15 - $ 8.28 1,526 6.2 6.52 879 6.48
$ 8.29 - $12.43 104 8.4 11.15 21 11.47
$12.44 - $16.57 3,823 8.4 13.90 694 13.67
$16.58 - $20.71 389 5.7 18.39 187 18.40
$20.72 - $29.00 56 8.6 28.50 11 28.50
$29.01 - $32.06 13 7.5 32.06 3 32.06
------ ------
6,079 7.5 12.17 1,963 10.13
====== ======
The Company also maintains two stock option plans for non-officer directors (the
"Director Plans") pursuant to which options to purchase 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 to purchase
334,000 shares at an average exercise price of $16.45 were outstanding under the
Director Plans at September 30, 2001, of which options to purchase 142,000
shares were currently exercisable. In fiscal 2001, there were 24,000 options
exercised under the Director Plans at an average exercise price of $4.21.
Unaudited pro forma information regarding net income and earnings per share is
required by SFAS 123 for options
51
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 2000 2001
------- ------- -------
Expected dividend yield -- -- --
Expected stock price volatility 74.00% 73.00% 76.90%
Risk-free interest rate 5.84% 5.87% 5.99%
Expected life (years) 8 8 7
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 is as follows:
(net income (loss) in thousands)
FISCAL YEAR ENDED SEPTEMBER 30,
-----------------------------------------------
1999 2000 2001
------------- ------------- -------------
Weighted average fair value of options granted $ 19.92 $ 21.27 $ 10.70
Net income (loss) - as reported $ (16,946) $ 103,245 $ (65,251)
Net income (loss) - unaudited pro forma $ (20,499) $ 94,634 $ (78,964)
Net income (loss) per share- as reported, diluted $ (0.36) $ 1.90 $ (1.34)
Net income (loss) per share- unaudited pro forma, diluted $ (0.44) $ 1.75 $ (1.62)
At September 30, 2001, 13.1 million shares were reserved for issuance and 7.1
million shares were available for grant in connection with the Employee Plans
and 944,000 shares were reserved for issuance and 610,000 shares were available
for grant in connection with a Director Plan.
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.
52
Detailed information regarding the Company's defined benefit pension is as
follows:
(in thousands)
FISCAL YEAR ENDED SEPTEMBER 30,
----------------------------------------
1999 2000 2001
-------- -------- --------
Change in benefit obligation:
Benefit obligations at beginning of year: $ 11,802 $ 11,956 $ 13,763
Interest cost 885 1,008 1,051
Benefit paid (407) (497) (548)
Actuarial (gain) loss (324) 1,296 1,093
-------- -------- --------
Benefit obligation at end of year $ 11,956 $ 13,763 $ 15,359
======== ======== ========
Change in plan assets:
Fair value of plan assets at beginning of year: $ 10,542 $ 11,201 $ 12,394
Actual return on plan assets 1,066 (92) (2,520)
Employer contributions -- 1,782 1,855
Benefits paid (407) (497) (548)
-------- -------- --------
Fair value of assets at end of year $ 11,201 $ 12,394 $ 11,181
======== ======== ========
Reconciliation of funded status:
Funded status $ (755) $ (1,369) $ (4,178)
Unrecognized actuarial loss 1,181 3,387 7,832
-------- -------- --------
Net amount recognized at year-end $ 426 $ 2,018 $ 3,654
======== ======== ========
Amount recognized in the statement of
financial position consists of:
Accrued benefit liability $ (755) $ (1,369) (4,178)
Accumulated other comprehensive income/
Unrecognized net loss 1,181 3,387 7,832
-------- -------- --------
Net amount recognized at year-end $ 426 $ 2,018 $ 3,654
======== ======== ========
Components of net periodic benefit cost:
Interest Cost $ 885 $ 1,008 1,051
Expected return on plan assets (858) (922) (1,018)
Recognized actuarial loss 36 104 186
-------- -------- --------
Net periodic benefit cost $ 63 $ 190 $ 219
======== ======== ========
Weighted-average assumptions as of September 30:
Discount rate 7.75% 7.75% 7.25%
Expected long-term rate of return on plan assets 8.00% 8.00% 8.00%
Rate of compensaton 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 $1.2 million, $1.3 million and $998
thousand, in fiscal 2001, 2000 and 1999, 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 $1.9 million,
53
$2.4 million and $1.7 million in fiscal 2001, 2000 and 1999, 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), including minority interest in net income (loss), before income
taxes and cumulative effect of a change in accounting principle consisted of the
following:
(in thousands)
FISCAL YEAR ENDED SEPTEMBER 30,
-----------------------------------------
1999 2000 2001
--------- --------- ---------
United States operation $ (43,663) $ 76,851 $(116,113)
Foreign operations 18,496 66,543 37,382
--------- --------- ---------
$ (25,167) $ 143,394 $ (78,731)
========= ========= =========
The provision (benefit) for income taxes included the following:
(in thousands)
FISCAL YEAR ENDED SEPTEMBER 30,
--------------------------------------
1999 2000 2001
-------- -------- --------
Current:
Federal $ (2,218) $ 19,988 $ 9,017
State 50 500 300
Foreign 2,410 4,442 6,596
Deferred:
Federal (8,613) 15,219 (37,556)
Foreign 150 -- --
-------- -------- --------
$ (8,221) $ 40,149 $(21,643)
======== ======== ========
The provision (benefit) for income taxes differed from the amount computed by
applying the statutory federal income tax rate as follows:
(in thousands)
FISCAL YEAR ENDED SEPTEMBER 30,
--------------------------------------
1999 2000 2001
-------- -------- --------
Computed income tax expense (benefit) based on
U.S. statutory rate $ (8,808) $ 50,188 $(27,556)
Effect of earnings of foreign subsidiaries
subject to different tax rates 603 (206) 3,263
Benefits from Israeli and Singapore Approved Enterprise Zones (4,509) (12,817) (2,870)
Benefits of net operating loss and tax credit
carryforwards and change in valuation allowance 4,200 1,566 (178)
Non-deductible goodwill amortization 677 871 3,499
Foreign dividends 150 -- 1,137
Write off of In-Process Research and Development -- -- 3,953
Effect of revisions of permanent items (533) -- (2,015)
Other, net (1) 547 (876)
-------- -------- --------
$ (8,221) $ 40,149 $(21,643)
======== ======== ========
54
In fiscal 2001, the Company recorded a cumulative effect of a change in
accounting principle associated with the adoption of SAB 101, resulting in a
charge to earnings of $8.2 million, net of taxes of $4.4 million.
Undistributed earnings of certain foreign subsidiaries for which taxes have not
been provided approximate $130.0 million at September 30, 2001. Such
undistributed earnings are considered to be indefinitely reinvested in foreign
operations.
Undistributed earnings approximating $73.2 million are not considered to be
indefinitely reinvested in foreign operations. Accordingly, as of September 30,
2001, deferred tax liabilities of $16.4 million including withholding taxes 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:
(in thousands)
SEPTEMBER 30,
-----------------------
2000 2001
-------- --------
Inventory reserves 2,813 3,962
Warranty accrual 1,126 312
Other accruals and reserves 4,711 9,699
Revenue recognition -- 1,309
-------- --------
Total short-term deferred tax asset $ 8,650 $ 15,282
======== ========
Intangible assets $ 1,515 $ 2,208
Domestic tax credit carryforwards 6,241 7,019
Foreign tax credit carryforwards 4,000 4,000
Deferred intercompany profit 706 1,946
Domestic NOL carryforwards 1,855 40,184
Foreign NOL carryforwards 6,869 9,293
-------- --------
21,186 64,650
Valuation allowance (12,724) (20,724)
-------- --------
Total long-term deferred tax asset $ 8,462 $ 43,926
-------- --------
Repatriation of foreign earnings,
including foreign withholding taxes $ 16,414 $ 16,414
Depreciable assets 2,748 2,738
Intangible assets -- 30,798
Prepaid expenses and other 2,098 2,030
-------- --------
Total long-term deferred tax liability $ 21,260 $ 51,980
-------- --------
Net long-term deferred liability $ 12,798 $ 8,054
======== ========
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. In fiscal 2001,
the Company recorded additional deferred tax liabilities in the amount of $26.2
million associated with the acquisition of Cerprobe. 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 addition to the current year federal operating loss of approximately $112
million, which is scheduled to expire in 2021, the company has also generated
various state tax loss carryovers totaling approximately $18.7 million. These
55
losses are scheduled to expire in years 2005 through 2020. With regard to the
state loss carryovers, the Company can not be assured of realizing the benefit
associated with these losses and therefore has established a valuation allowance
to reduce such benefit. The Company also has generated losses in certain foreign
tax jurisdictions totaling approximately $17 million. Realization of the benefit
associated with these foreign loss carryforwards can not be assured and a full
valuation allowance has been provided for the portion of these deferred tax
assets related to these carryovers.
During the year ended September 30, 2001, the Company through acquisition of
Cerprobe, acquired additional federal tax loss carryforwards of approximately
$5.5 million which expire in 2020. Additionally, as part of the Cerprobe
acquisition, the company acquired approximately $3.9 million in state loss
carryforwards. As utilization of these losses is not assured, more likely than
not, the company has provided a full valuation allowance on the benefit
associated with them. In the event the tax benefits related to these acquired
net operating losses are realized, such benefit would reduce the recorded amount
of goodwill.
During fiscal 2001, the IRS concluded its audit of the Company's federal income
tax returns for the fiscal years ended September 30, 1995, 1996, and 1997. The
outcome of these audits did not have a material impact on the Company's
financial position, results of operations or cash flows.
The Company paid income taxes of $7.8 million, $6.3 million, and $3.8 million,
in fiscal 2001, 2000 and 1999, 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 four industry segments: equipment, packaging
materials, test interconnect solutions 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 test interconnect business
unit was established in fiscal 2001, following the acquisitions of Cerprobe and
Probe Tech. The business provides a broad range of products used to test
semiconductors during wafer fabrication and after they have been assembled and
packaged. The advanced packaging technology business unit was established in
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 high density substrate business. The products and services of all
segments are, or will be, for sale to semiconductor device manufacturers.
56
The table below presents information about reported segments:
(in thousands)
PACKAGING ADVANCED CORPORATE,
FISCAL YEAR ENDED EQUIPMENT MATERIALS PACKAGING TEST OTHER AND
SEPTEMBER 30, 2001 SEGMENT SEGMENT SEGMENT SEGMENT ELIMINATIONS CONSOLIDATED
---------------------------- --------- --------- --------- --------- --------- ---------
Net revenue $ 249,952 $ 150,945 $ 37,216 $ 116,890 $ -- $ 555,003
Cost of sales 166,359 110,570 31,274 84,401 -- 392,604
--------- --------- --------- --------- --------- ---------
Gross profit 83,593 40,375 5,942 32,489 -- 162,399
Operating costs 103,386 28,667 25,395 54,169 15,671 227,288
Resizing and asset impairment 2,223 2,421 -- 270 52 4,966
Purchased in-process research
and development -- -- -- 11,709 -- 11,709
--------- --------- --------- --------- --------- ---------
Income (loss) from operations $ (22,016) $ 9,287 $ (19,453) $ (33,659) $ (15,723) $ (81,564)
========= ========= ========= ========= ========= =========
Segment Assets $ 155,220 $ 86,113 $ 38,260 $ 270,506 $ 214,039 $ 764,138
Captial Expenditures 24,754 8,028 9,396 6,458 -- 48,636
Depreciation expense 10,760 3,973 8,057 7,302 -- 30,092
PACKAGING ADVANCED CORPORATE,
FISCAL YEAR ENDED EQUIPMENT MATERIALS PACKAGING OTHER AND
SEPTEMBER 30, 2000 SEGMENT SEGMENT SEGMENT ELIMINATIONS CONSOLIDATE
---------------------------- --------- --------- --------- ------------ ------------
Net revenue $ 692,062 $ 185,570 $ 21,641 $ -- $ 899,273
Cost of sales 419,732 130,548 22,897 -- 573,177
--------- --------- --------- --------- ---------
Gross profit 272,330 55,022 (1,256) -- 326,096
Operating costs 122,792 29,005 19,096 15,421 186,314
Resizing and asset impairment (2,548) 3,871 -- 1,323
--------- --------- --------- --------- ---------
Income (loss) from operations $ 152,086 $ 22,146 $ (20,352) $ (15,421) $ 138,459
========= ========= ========= ========= =========
Segment Assets $ 258,529 $ 97,366 $ 44,957 $ 322,000 $ 722,852
Captial Expenditures 13,830 8,021 16,453 -- 38,304
Depreciation expense 9,923 3,897 6,301 -- 20,121
PACKAGING ADVANCED CORPORATE,
FISCAL YEAR ENDED EQUIPMENT MATERIALS PACKAGING OTHER AND
SEPTEMBER 30, 1999 SEGMENT SEGMENT SEGMENT ELIMINATIONS CONSOLIDATED
--------- --------- --------- ------------- -------------
Net revenue $ 269,854 $ 124,450 $ 4,613 $ -- $ 398,917
Cost of sales 188,958 90,326 6,098 -- 285,382
--------- --------- --------- --------- ---------
Gross profit 80,896 34,124 (1,485) -- 113,535
Operating costs 86,239 23,500 5,314 8,361 123,414
Resizing and asset impairment 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)
========= ========= ========= ========= =========
Segment Assets $ 200,837 $ 86,398 $ 37,560 $ 53,350 $ 378,145
Captial Expenditures 6,522 2,136 2,233 -- 10,891
Depreciation expense 7,339 3,951 1,814 -- 13,104
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.
57
The Company's market for its products is worldwide. The table below presents
destination sales to unaffiliated customers and long-lived assets by country:
(in thousands)
DESTINATION LONG-LIVED
Fiscal year ended September 30, 2001 Sales Assets
----------------------------------- -------- --------
United States $209,273 $445,279
Taiwan 66,078 8,221
Singapore 59,749 44,561
Malaysia 42,656 97
Japan 31,810 8,886
Philippines 29,613 269
Korea 11,041 186
Hong Kong 15,690 214
Israel 3,504 28,774
All other 85,589 13,612
-------- --------
$555,003 $550,099
======== ========
DESTINATION LONG-LIVED
Fiscal year ended September 30, 2000 Sales Assets
----------------------------------- --------- ---------
Taiwan $282,395 $ 1,316
Philippines 102,517 683
Singapore 90,438 81,939
United States 83,480 242,322
Malaysia 78,002 147
Korea 74,696 264
Japan 58,962 27,834
Hong Kong 40,079 691
Israel 4,066 31,411
All other 84,638 14,245
-------- --------
$899,273 $400,852
======== ========
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
======== ========
Sales to a relatively small number of customers account for a significant
percentage of the Company's net sales. In fiscal 2001, no customer accounted for
more than 10% of net sales. In fiscal 2000, sales to Advanced Semiconductor
Engineering accounted for 15% of the Company's net sales and sales to Amkor
Technologies accounted for 10% of the Company's net sales. In fiscal 1999 no
customer accounted for more than 10% of total 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.
58
NOTE 12: OTHER FINANCIAL DATA
The Company recorded other income of $8.0 million in fiscal 2001 as the result
of a cash settlement of an insurance claim associated with a fire in our
expendable tool facility.
Maintenance and repairs expense totaled $5.6 million, $3.1 million and $2.6
million for fiscal 2001, 2000 and 1999, respectively. Warranty and retrofit
expense was $3.5 million, $8.8 million and $4.6 million for fiscal 2001, 2000
and 1999, respectively.
Rent expense for fiscal 2001, 2000 and 1999 was $7.8 million, $3.6 million and
$3.2 million, 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 2000 2001
------ ------ ------
Weighted average shares outstanding - Basic 46,846 47,932 48,877
Potentially dilutive securities:
Employee stock options * 2,469 *
4 3/4% Convertible Subordinated Debt N/A 6,095 *
5 1/4% Convertible Subordinated Debt N/A N/A *
------ ------ ------
Weighted average shares outstanding - Diluted 46,846 56,496 48,877
====== ====== ======
The after-tax interest expense recognized by the Company in fiscal 2000
associated with the convertible subordinated notes that was added back to net
income in order to compute diluted net income per share was $4.3 million.
* Due to the Company's net loss for the fiscal years ended September 30,
2001 and September 30, 1999, all potentially dilutive securities are deemed to
be antidilutive. The weighted average number of shares for potentially dilutive
securities (convertible notes and employee and director stock options) was
9,382,000 in fiscal 2001, and the weighted average number of shares for
potentially dilutive securities (employee and director stock options) was
666,000 in fiscal 1999.
59
NOTE 13: COMMITMENTS AND CONTINGENCIES
The Company has obligations under various operating leases, primarily for
manufacturing and office facilities, which expire periodically through 2012.
Minimum rental commitments under these leases (excluding taxes, insurance,
maintenance and repairs, which are also paid by the Company), are as follows:
$11.2 million in 2002; $9.5 million in 2003; $7.9 million in 2004; $7.3 million
in 2005; $5.2 million in 2006 and $14.4 million thereafter.
The Israeli government has continued to fund 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 limited to the amounts received from the
Israeli government. Royalty payments to the Israeli government for the fiscal
years ended September 30, 2001, 2000 and 1999 totaled $490 thousand, $9 thousand
and $4 thousand, respectively. At September 30, 2001, we estimate that
contingent liabilities for royalties related to potential future product sales
are approximately $4.6 million.
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.
The U.S. Customs Service has conducted an assessment of the Company's compliance
with Customs Regulations for the fiscal year ended September 30, 1998 and has
concluded that $201 thousand of duty was not paid. They also concluded that for
the fiscal years ended September 30, 1996, 1997 and 1999 unpaid duty amounted to
$584 thousand. The Company has paid the total assessed duty of $785 thousand and
may be assessed a penalty on the unpaid duty. The amount ultimately to be paid
is unknown at this time, but could range from 0 to 8 times the assessed duty.
60
NOTE 14: SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Financial information pertaining to quarterly results of operations follows:
(in thousands, except per share amounts)
FISCAL YEAR ENDED SEPTEMBER 30, 2001:
FIRST (1) SECOND (1) THIRD (1) FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
--------- --------- --------- --------- ---------
Net sales $ 153,429 $ 149,425 $ 134,358 $ 117,791 $ 555,003
Gross profit 53,604 42,021 42,010 24,764 162,399
Loss from operations(2)(3) (13,639) (24,558) (11,654) (31,713) (81,564)
Loss before minority interest, cumulative
effect of change in accounting principle
and income tax (12,403) (18,198) (13,828) (34,654) (79,083)
Income tax benefit (162) (6,418) (4,691) (10,372) (21,643)
Cumulative effect of change in accounting
principle, net of tax (8,163) (8,163)
Minority interest in net loss 242 86 15 9 352
--------- --------- --------- --------- ---------
Net income $ (20,162) $ (11,694) $ (9,122) $ (24,273) $ (65,251)
========= ========= ========= ========= =========
Net income per share:
Basic $ (0.41) $ (0.24) $ (0.19) $ (0.50) $ (1.34)
Diluted $ (0.41) $ (0.24) $ (0.19) $ (0.50) $ (1.34)
FISCAL YEAR ENDED SEPTEMBER 30, 2000:
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
-------- -------- -------- -------- --------
Net sales $179,849 $222,153 $268,258 $229,013 $899,273
Gross profit 59,912 75,600 101,278 89,306 326,096
Income from operations(2)(3) 17,116 29,834 52,348 39,161 138,459
Income before minority interest
and income taxes 17,346 30,417 52,628 41,566 141,957
Income tax expense 4,978 8,564 14,858 11,749 40,149
Minority interest in net loss 433 169 437 398 1,437
-------- -------- -------- -------- --------
Net income $ 12,801 $ 22,022 $ 38,207 $ 30,215 $103,245
======== ======== ======== ======== ========
Net income per share:
Basic $ 0.27 $ 0.47 $ 0.79 $ 0.62 $ 2.15
Diluted $ 0.26 $ 0.40 $ 0.67 $ 0.54 $ 1.90
(1) Restated to give effect to the adoption of SAB 101.
(2) Represents net sales less costs and expenses but before net interest
expense, equity in loss of joint ventures and other expense.
(3) Results for fiscal 2001 include the resizing charges recorded in the
second and fourth quarter of $1.7 million and $2.5 million,
respectively, established for the termination of 511 employees and
the closure of a wire facility. Results for the fourth quarter of
fiscal 2000 include the benefit from the reversal of $2.5 million of
the severance reserve established in fiscal 1999 for the termination
of employees in the United States as a result of the move of the
manufacturing of the Company's automatic ball bonders to Singapore
and a charge of $3.9 million for the write-off of the Company's
investment in Advanced Polymer Solutions, LLC.
61
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
2002 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 2002 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 2002 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 2002 Annual Meeting, which
information is incorporated herein by reference.
62
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) Financial Statements - Kulicke and Soffa Industries, Inc.:
Report of Independent Accountants 35
Consolidated Balance Sheets at September 30, 2001 and 2000 36
Consolidated Statements of Operations for the fiscal years
ended September 30, 2001, 2000 and 1999 37
Consolidated Statements of Cash Flows for the fiscal years
ended September 30, 2001, 2000 and 1999 38
Consolidated Statements of Changes in Shareholders' Equity
for the fiscal years ended September 30, 2001, 2000 and 1999 39
Notes to Consolidated Financial Statements 40-61
(2) Financial Statement Schedules:
II - Valuation and Qualifying Accounts 67
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(i) Agreement and Plan of Merger, dated as of October 11, 2000, by and
among Kulicke and Soffa Industries, Inc., Cardinal Merger Sub.,Inc.
and Cerprobe Corporation is incorporated herein by reference from
Exhibit D(1) to the Company's Form TO filed on October 25, 2000.
2(ii) Stock Option Agreement, dated October 11, 2000, by and among Kulicke
and Soffa Industries, Inc., Cardinal Merger Sub., Inc. and Cerprobe
Corporation, is incorporated herein by reference from Exhibit D(2) to
the Company's Form TO filed on October 25, 2000.
2(iii) Form of Affiliate Tender Agreement, dated as of October 11, 2000,
between Kulicke and Soffa Industries, Inc. and certain stockholders
of Cerprobe Corporation, filed as Exhibit 4 to Kulicke and Soffa
Industries, Inc.'s Schedule 13D filed on October 23, 2000 is
incorporated herein by reference.
3(i) The Company's Form of Amended and Restated Articles of Incorporation
July 5, 2000, filed as Exhibit 3(i), to the Company's Registration
Statement, as amended, filed October 2, 2001, 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, SEC
file No. 000-00121, is incorporated herein by reference.
4(i) 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.
63
4(ii) 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.
4(iii) Indenture dated as of August 15, 2001 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 August 24, 2001, is
incorporated herein by reference.
4(iv) Registration Rights Agreement dated as of August 15, 2001 between the
Company and Morgan Stanley & Co. Incorporated, filed as Exhibit 4.2
to the Company's Form 8-K dated August 24, 2001, 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, Jacobi,
Lendner, Leonhardt, May, Salmons, Sawachi, Spooner, Wolf, Belani,
Chylak, Cristallo, Greenberger, Oscilowski, Torton, Amweg, Camarda,
Hartigan, Kish, Mak, Marrs, Rheault and Strittmatter (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 December 31, 2000,
is incorporated herein by reference.*
10(ii) 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, SEC file No.
000-00121, is incorporated herein by reference.*
10(iii) The Company's 1997 Non-Qualified Stock Option Plan for Non-Employee
Directors (as amended and restated effective February 9, 1999), filed
as Exhibit 10(viii) to the Company's Annual Report on Form 10-K for
the year ended September 30, 1999, is incorporated herein by
reference.*
10(iv) 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.*
10(v) 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, SEC file No. 000-00121, is
incorporated herein by reference.
10(vi) The Company's Executive Deferred Compensation Plan (As Amended and
restated Effective October 1, 1999), as Exhibit 10(xiv) to the
Company's Annual Report on Form 10-K for the year ended September 30,
1999, is incorporated herein by reference.*
10(vii) 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(viii) 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.
64
10(ix) 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(x) Amendment No. 1 to the Company's 1998 Employee Incentive Stock Option
and Non-Qualified Stock Option Plan, filed as Exhibit 10(xiii) to the
Company's Annual Report on Form 10-K for the year ended September 30,
1999, is incorporated by reference.*
10(xi) 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), as Exhibit 10(xix) to the Company's
Annual Report on Form 10-K for the year ended September 30, 1999, is
incorporated by reference.*
10(xii) 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), as Exhibit 10(xx) to the Company's Annual
Report on Form 10-K for the year ended September 30, 1999 is
incorporated by reference.*
10(xiii) Amendment No. 2 to 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(a) to the Company's
quarterly report on Form 10-Q for the quarterly period ended June 30,
2000, is incorporated by reference.*
10(xiv) Amendment No. 2 to the Company's 1998 Employee Incentive Stock Option
and Non-Qualified Stock Option Plan , filed as Exhibit 10(b) to the
Company's quarterly report on Form 10-Q for the quarterly period
ended June 30, 2000, is incorporated by reference.*
10(xv) Receivables purchase agreement among KSI Funding Corporation, Kulicke
and Soffa Industries, Inc., Market Street Funding Corporation, and
PNC Bank, National Association dated April 17, 2001, as filed as
Exhibit 10.1 to the Company's Quarterly Report on Form 10Q for the
quarterly period ended June 30, 2001, is incorporated herein by
reference.
10(xvi) Purchase and sale agreement between American Fine Wire Corporation,
Cerprobe Corporation, Kulicke and Soffa Industries, Inc., Probe
Technology Corporation and Semitec, as the Originators, and KSI
Funding Corporation, dated April 17, 2001, as filed as Exhibit 10.2
to the Company's Quarterly Report on Form 10Q for the quarterly
period ended June 30, 2001, is incorporated herein by reference.
10(xvii) The Company's 2001 Employee Incentive Stock Option and Non-Qualified
Stock Option Plan, as filed as Appendix A to the Company's Proxy
Statement dated January 8, 2001, is incorporated herein by
reference.*
10(xviii) Amendment No. 3 to the Company's 1994 Employee Incentive Stock Option
and Non-Qualified Stock Option Plan (as amended and restated
effective October 8, 1996).*
10(xix) Amendment No. 4 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. 5 to the Company's 1994 Employee Incentive Stock Option
and Non-Qualified Stock Option Plan (as amended and restated
effective October 8, 1996).*
10(xxi) Amendment No. 3 to the Company's 1998 Employee Incentive Stock Option
and Non-Qualified Stock Option Plan.*
65
10(xxii) Amendment No. 4 to the Company's 1998 Employee Incentive Stock Option
and Non-Qualified Stock Option Plan.*
10(xxiii) Amendment No. 5 to the Company's 1998 Employee Incentive Stock Option
and Non-Qualified Stock Option Plan.*
10(xxiv) Amendment No. 1 to the Company's 2001 Employee Incentive Stock Option
and Non-Qualified Stock Option Plan.*
10(xxv) Amendment No. 2 to the Company's 2001 Employee Incentive Stock Option
and Non-Qualified Stock Option Plan.*
10(xxvi) Amendment No. 1 to the Company's Executive Deferred Compensation Plan
(as amended and restated effective October 1, 1999).*
10(xxvii) Amendment No. 2 to the Company's Executive Deferred Compensation Plan
(as amended and restated effective October 1, 1999).*
21 Subsidiaries of the Company.
23 Consent of PricewaterhouseCoopers LLP (Independent Accountants).
* Indicates a Management Contract or Compensatory Plan.
(b) Reports on Form 8-K:
The Company filed a Form 8-K on August 9, 2001 making an Item 5 disclosure
announcing its intention, subject to market and other conditions, to raise
approximately $100 million (excluding proceeds of the over-allotment option, if
any) through a private placement of convertible subordinated notes due 2006 to
certain qualified institutional investors. A copy of the press release was filed
as Exhibit 99 and incorporated in this report by reference.
The Company filed a Form 8-K on August 10, 2001 making an Item 5 disclosure
announcing the private placement of $125 million of 5-1/4% Convertible
Subordinated Notes due 2006 through Rule 144A to qualified institutional
investors. A copy of the press release was filed as Exhibit 99.1 and
incorporated in this report by reference.
The Company filed a Form 8-K on August 24, 2001 making an Item 5 disclosure
announcing the private placement of $125 million of 5-1/4% Convertible
Subordinated Notes due 2006 through Rule 144A to qualified institutional
investors. Also on the Form 8-K was an Item 7 disclosure of the Indenture dated
as of August 15, 2001 between the Company and Chase Manhattan Trust Company,
National Association, as Trustee and a copy of the Registration Rights Agreement
dated as of August 15, 2001 between the Company as Issuer and Morgan Stanley &
Co. Incorporated as Initial Purchaser.
66
KULICKE AND SOFFA INDUSTRIES, INC.
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
BALANCE CHARGED TO OTHER BALANCE
AT BEGINNING COSTS AND ADDITIONS DEDUCTIONS AT END
OF PERIOD EXPENSES (DESCRIBE) (DESCRIBE) OF PERIOD
------------- ------------ ------------ ------------- ------------
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(3) $ -- $ -- $12,215
======= ======= ======= ======= =======
YEAR ENDED SEPTEMBER 30, 2000
------------------------------------
Allowance for doubtful accounts $ 1,727 $ 2,758 $ -- $ 130(1) $ 4,355
======= ======= ======= ======= =======
Inventory reserve $14,928 $ 6,978 $ -- $ 5,665(2) $16,241
======= ======= ======= ======= =======
Valuation allowance for deferred taxes $12,215 $ 509(3) $ -- $ -- $12,724
======= ======= ======= ======= =======
YEAR ENDED SEPTEMBER 30, 2001
------------------------------------
Allowance for doubtful accounts $ 4,355 $ 1,406 $ 816(4) $ 335(1) $ 6,242
======= ======= ======= ======= =======
Inventory reserve $16,241 $18,095 $ 1,003(4) $ 6,230(2) $29,109
======= ======= ======= ======= =======
Valuation allowance for deferred taxes $12,724 $ 7,926(5) $ 1,929(4) $ 1,855(6) $20,724
======= ======= ======= ======= =======
(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 plus an
increase in the valuation allowance related to U.S. tax credits.
(4) Reflects adjustment for reserves acquired.
(5) Reflects the increase in the valuation allowance associated with net
operating losses of certain of the Company's subsidiaries.
(6) Reversal of valuation allowance provided for a domestic subsidiary of
the Company.
67
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 21, 2001
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 21, 2001
(Principal Executive Officer) and Director
/s/ CLIFFORD G. SPRAGUE
----------------------------------
Clifford G. Sprague Senior Vice President December 21, 2001
(Principal Financial and Chief Financial
and Accounting Officer Officer
/s/ PHILIP V. GERDINE
----------------------------------
Philip V. Gerdine Director December 21, 2001
/s/ JOHN A. O'STEEN
----------------------------------
John A. O'Steen Director December 21, 2001
/s/ ALLISON F. PAGE
----------------------------------
Allison F. Page Director December 21, 2001
/s/ MACDONELL ROEHM, JR.
---------------------------------
MacDonell Roehm, Jr. Director December 21, 2001
/s/ LARRY D. STRIPLIN, JR.
----------------------------------
Larry D. Striplin, Jr . Director December 21, 2001
/s/ C. WILLIAM ZADEL
----------------------------------
C. William Zadel Director December 21, 2001
68
EXHIBIT INDEX
EXHIBIT
NUMBER ITEM
10(xviii) Amendment No. 3 to the Company's 1994 Employee Incentive Stock Option
and Non-Qualified Stock Option Plan (as amended and restated
effective October 8, 1996).
10(xix) Amendment No. 4 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. 5 to the Company's 1994 Employee Incentive Stock Option
and Non-Qualified Stock Option Plan (as amended and restated
effective October 8, 1996).
10(xxi) Amendment No. 3 to the Company's 1998 Employee Incentive Stock Option
and Non-Qualified Stock Option Plan.
10(xxii) Amendment No. 4 to the Company's 1998 Employee Incentive Stock Option
and Non-Qualified Stock Option Plan.
10(xxiii) Amendment No. 5 to the Company's 1998 Employee Incentive Stock Option
and Non-Qualified Stock Option Plan.
10(xxiv) Amendment No. 1 to the Company's 2001 Employee Incentive Stock Option
and Non-Qualified Stock Option Plan.
10(xxv) Amendment No. 2 to the Company's 2001 Employee Incentive Stock Option
and Non-Qualified Stock Option Plan.
10(xxvi) Amendment No. 1 to the Company's Executive Deferred Compensation Plan
(as amended and restated effective October 1, 1999).
10(xxvii) Amendment No. 2 to the Company's Executive Deferred Compensation Plan
(as amended and restated effective October 1, 1999).
21 Subsidiaries of the Company.
23 Consent of PricewaterhouseCoopers LLP (Independent Accountants)