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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the fiscal year ended September 30, 1997
------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ------- to -------
Commission file number 0-121
KULICKE AND SOFFA INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 23-1498399
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2101 Blair Mill Road, Willow Grove, PA 19090
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code): (215) 784-6000
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, WITHOUT PAR VALUE
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the Registrant's Common Stock (its only voting
stock) held by non-affiliates of the Registrant as of December 1, 1997 was
approximately $604,303,000. (Reference is made to the final paragraph of Part
II, Item 5 herein for a statement of assumptions upon which this calculation
is based).
As of December 1, 1997, there were 23,242,287 shares of the Registrant's
Common Stock, Without Par Value, outstanding.
Documents Incorporated by Reference
Portions of the Registrant's Proxy Statement for the 1998 Annual
Shareholders' Meeting to be filed prior to January 6, 1998 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.
PART I
Certain statements contained in this report are forward looking statements
and are subject to risks and uncertainties that could cause actual results to
differ materially. These risks and uncertainties include, but are not limited
to the following: the upward and downward volatility in demand for
semiconductors and for the Company's products and services; the risk of order
postponements or cancellations; the Company's ability to manufacture and ship
its products on a timely basis; competitive pricing pressures; the risk that
certain customers may adopt alternate semiconductor assembly processes; the
risks associated with a substantial foreign customer base; and the risks
associated with recent instability in foreign capital markets and foreign
currency fluctuations. Reference is made to a more detailed discussion of
risk factors affecting the Company's business in other Company reports filed
with the Securities and Exchange Commission, and "Risk Factors" and other
sections of the Company's Registration Statement on Form S-3 (33-69734).
Item 1. BUSINESS
Kulicke and Soffa Industries, Inc. (the "Company" or "K&S") designs,
manufactures and markets capital equipment, related spare parts and packaging
materials used to assemble semiconductor devices ("semiconductors" or
"IC's"). The Company also services, maintains, repairs and upgrades assembly
equipment. The equipment offered by the Company addresses a broad range of
applications in the semiconductor assembly process, including wire bonding
systems, wafer dicing saws and die, TAB and flip-chip bonders. Today, K&S is
the world's largest supplier of semiconductor assembly equipment, according
to VLSI Research, Inc.
Through its American Fine Wire Corporation ("AFW"), Micro-Swiss, Ltd.
("Micro-Swiss") and Semitec subsidiaries, the Company offers packaging
materials, including bonding wire, capillaries, wedges, die collets and saw
blades. Packaging materials products have different manufacturing processes,
distribution channels and a less volatile revenue pattern than the Company's
capital equipment business. See Note 11 to the Company's fiscal 1997
Consolidated Financial Statements, included herein, for financial results by
business segment.
The Company was founded in 1951 and is a Pennsylvania Corporation. Its
principal offices are located at 2101 Blair Mill Road, Willow Grove,
Pennsylvania, and its telephone number is (215) 784-6000.
Products
K&S offers a broad range of semiconductor assembly equipment, packaging
materials and complementary services and spare parts used in the
semiconductor assembly process. Set forth below is a table listing the
approximate percentage of the Company's net sales by principal product area
for its fiscal years ended September 30, 1997, 1996 and 1995.
Fiscal Year Ended
September 30,
--------------------
1997 1996 1995
---- ---- ----
Wire bonders 65% 57% 74%
Additional assembly equipment 7% 10% 9%
Packaging materials 22% 25% 7%
Services and spare parts 6% 8% 10%
---- ---- ----
100% 100% 100%
==== ==== ====
Wire Bonders
The Company's principal product line is its family of wire bonders, which are
used to connect extremely fine wires, typically made of gold or aluminum,
between the bonding pads on the die and the leads on the IC package to which
the die has been bonded. The Company offers both ball and wedge bonders in
automatic and manual configurations. Ball bonders typically are used for
leadframe-based and laminate-based packages, while wedge bonders typically
are used for ceramic packages. Through fiscal 1997, the Company's principal
wire bonders were its Model 1488 plus ball bonder and Model 1474fp wedge
bonder. The Company believes that its wire bonders offer competitive
advantages based on high throughput and superior process control enabling
fine pitch bonding and long, low wire loops, which are needed to assemble
advanced IC packages. The selling prices for the Company's automatic wire
bonders range from $60,000 to over $200,000 and from $8,000 to $40,000 for
manual wire bonders, in each case depending upon system configuration and
purchase volume.
The Company has developed and is in the process of transitioning to a new
generation of wire bonders, the 8000 family, which is based on an entirely
new platform and has required the development of new software and many
subassemblies not part of the Company's current wire bonders. The first
products in the 8000 family are the Model 8020 ball bonder and Model 8060
wedge bonder. The Model 8020 will replace the Model 1488 plus ball bonder.
Through fiscal 1997, the Company experienced delays in the development and
introduction of the Model 8020. Such delays, which are typical in the
development of new technological products, included hardware, software and
process related issues and changes in functional specifications based on
input from customers. The Company is shifting production capacity from the
Model 1488 plus to Model 8020 ball bonders in response to growing backlog for
Model 8020's, and expects Model 8020 sales to exceed 10% of total ball bonder
sales for the fiscal 1998 first quarter. The Model 8060, which will replace
the Model 1474fp, was introduced during the fiscal 1997 fourth quarter with
the sale of the four production units. While development and technical risks
exist which have the potential to further affect the transition to the 8000
family wire bonders, the Company expects the transition to volume production
and sales of Model 8020 and 8060 machines to continue through the first half
of fiscal 1998.
The Company has incurred incremental costs to date and may incur substantial
additional costs during the customer evaluation and qualification process to
ensure the functionality and reliability of these new products. The Company's
inability to successfully qualify new products, or its inability to
manufacture and ship these products in volume and on a timely basis, could
adversely affect the Company's competitive position.
Furthermore, the transition to the Model 8020 and 8060 platforms involves
numerous risks, including the possibility that customers will defer purchases
of Model 1488 plus and 1474fp wire bonders in anticipation of the
availability of the Model 8020 or 8060, or that the Model 8020 or 8060 will
fail to meet customer needs or achieve market acceptance. To the extent that
the Company fails to accurately forecast demand in volume and configuration
for both its current and next-generation wire bonders and generally to manage
product transitions successfully, it could experience reduced orders, delays
in product shipments and increased risk of inventory obsolescence. There can
be no assurance that the Company will successfully introduce and manufacture
new products, including the Model 8020 and 8060, that new products introduced
by the Company will be accepted in the marketplace or that the Company will
manage its product transitions successfully. The Company's failure to do any
of the foregoing could materially adversely affect the Company's business,
financial condition and operating results.
Additional Semiconductor Assembly Equipment
In addition to wire bonders, the Company produces other types of
semiconductor assembly equipment, including wafer dicing saws, die bonders,
TAB bonders and flip-chip bonders, which allows the Company to leverage its
significant investment in customer relationships by offering its customers a
broad range of assembly equipment. Principal products offered by the Company
consist of the following:
Dicing Saws. Dicing saws use diamond-embedded saw blades to cut silicon
wafers into individual semiconductor die. Dicing saws range in price
from $60,000 to more than $230,000. In October 1995, the Company entered
into a Manufacturing License and Supply Agreement with Tokyo Seimitsu
Co. Ltd. ("TSK"). Under terms of this agreement, the Company
manufacturers and distributes TSK's automatic dicing saw as the
Company's Model 7500 and manufactures that saw for sale to and for
distribution by TSK as TSK's Model 5000. This product is produced in
the Company's Israeli machine manufacturing facility.
Die Bonders. Die bonders are used to attach a semiconductor die to a
leadframe or other package before wire bonding. The Company's product
line includes the Model 6900, an automatic multi-process assembly system
which can be configured to support either conventional die bonding
applications or alternate semiconductor assembly technologies, and
Models 4206 and 5408 machines. Die bonders range in price from $100,000
to more than $300,000.
Tape Automated Bonding (TAB). TAB is an alternate assembly method which
uses a thin, flexible film of laminated copper and polyamide in place of
a conventional package. In a TAB assembled device, the die is bonded
directly to copper leads, thereby eliminating the need for wire bonding.
The Company's principal TAB bonder is the Model SP2100. TAB bonders
range in price from $375,000 to over $400,000.
Flip-Chip Assembly Systems. Flip-chip is an alternate assembly technique
in which the die is mounted face down in a package or other electronic
system using conductive bumps, thereby eliminating the need for either
conventional die or wire bonding. The Company's Model 6900 can be
configured to support flip-chip applications. Selling prices for
flip-chip assembly systems exceed $300,000.
The Company also offers different configurations of certain of its products
for non-semiconductor applications, including the Company's Model 980 saw for
use in cutting and grinding hard and brittle materials, such as ceramic,
glass and ferrite, that are used in the fabrication of chip capacitors or
disk drive heads. Similarly, a variant of the Model 2100 TAB bonder is used
to assemble ink jet printer cartridges.
Packaging Materials
The Company currently offers a range of packaging materials to semiconductor
device assemblers which it sells under the brand names "American Fine Wire,"
"Micro-Swiss" and "Semitec." The Company intends to expand this business in
an effort to increase its revenues from materials used in the manufacture of
IC's as opposed to equipment for the expansion of IC manufacturing capacity.
The Company sells its packaging materials for use with competitors' assembly
equipment as well as its own equipment. The Company's principal packaging
materials products consist of the following:
Bonding Wire. AFW is a manufacturer of very fine (typically 0.001 inches
in diameter) gold and aluminum wire used in the wire bonding process.
AFW produces wire to a wide range of specifications, which can satisfy
most wire bonding applications. 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 AFW's financial exposure to gold price
fluctuations, AFW obtains gold for fabrication pursuant to a contract
with its gold supplier, Rothschild Australia Limited ("RAL"), and only
purchases the gold upon shipment and sale of the finished product to the
customer. Accordingly, fluctuations in the price of gold are generally
absorbed by RAL or passed on to AFW's customers.
Expendable Tools. The Micro-Swiss 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, place and bond die to packages. Saw blades
are used for cutting hard and brittle materials. Hub blades,
manufactured by Semitec which was acquired October 1, 1996, are used to
cut silicon wafers into semiconductor die.
Services and Spare Parts
The Company believes that its knowledge and experience have positioned it to
deliver innovative, customer-specific services that reduce the cost of
ownership associated with the Company's equipment. Historically, the
Company's offerings in this area were limited to spare parts, customer
training and extended warranty contracts. In response to customer trends in
outsourcing equipment-related services, the Company is focusing on providing
repair and maintenance services, a variety of equipment upgrades, machine and
component rebuild activities and expanded customer training. These services
are generally priced on a time and materials basis. The service and
maintenance arrangements are typically subject to bi-annual or multi-year
contracts.
Investment in Flip-Chip Technologies, L.L.C.
The Company continuously evaluates investments in alternative packaging
technologies. To that end, in February 1996, the Company entered into a joint
venture agreement with Delco Electronics Corporation ("Delco") to provide
wafer bumping services on a contract basis and to license related
technologies through Flip Chip Technologies, L.L.C. ("FCT"). FCT completed
construction of its manufacturing facility in Phoenix, Arizona during fiscal
1997, has commenced production runs involving limited quantities of wafers
and is currently working with additional customers to have its manufacturing
processes qualified. This qualification process is expected to continue into
fiscal 1998. FCT has experienced losses since its inception. The Company
recognizes its proportionate share of such losses, based on its 51% equity
interest.
Customers
The Company's customers include large semiconductor manufacturers and
subcontract assemblers worldwide, among which are the following:
Advanced Micro Devices Micron Technology
Advanced Semiconductor Engineering Motorola
Anam Electronics National Semiconductor
Ceasar Technology NEC
Hyundai Electronics Industries Orient Semiconductor Electronics
IBM Philips Electronics
Intel Corporation SGS-Thomson Microelectronics
Lexmark International Siemens
Lucent Technologies
Sales to a relatively small number of customers have accounted for a
significant percentage of the Company's net sales. During fiscal 1997, sales
to Anam (a Korean-based customer) and Intel accounted for 12.5% and 10.2%,
respectively, of the Company's net sales. During fiscal 1996, sales to Anam
and Intel accounted for approximately 14.3% and 11.2%, respectively, of the
Company's net sales. In fiscal 1995, sales to Intel and Anam accounted for
19.8% and 16.3%, respectively, of the Company's net sales.
The Company believes that developing long-term relationships with its
customers is critical to its success. By establishing these relationships
with semiconductor manufacturers and subcontract assemblers, the Company
gains insight into its customers' future IC packaging strategies. This
information assists the Company in its efforts to develop process and
equipment solutions that address its customers' future assembly requirements.
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. The loss or reduction of orders from a significant
customer, including losses or reductions due to manufacturing, reliability or
other difficulties associated with the Company's products, changes in
customer buying patterns, market, economic or competitive conditions in the
semiconductor or subcontract assembly industries, could adversely affect the
Company's business, financial condition and operating results.
International Operations
The Company sells its products to semiconductor device manufacturers and
contract manufacturers, which are primarily located or have operations in the
Asia/Pacific region. Approximately 85%, 79% and 78% of the Company's net
sales for fiscal 1997, 1996 and 1995, respectively, were for delivery to
customer locations outside of the United States, with the majority of such
foreign sales destined to customer locations in the Asia/Pacific region,
including Taiwan, Korea, Malaysia, Philippines, Singapore, Hong Kong and
Japan. The Company expects sales outside of the United States to continue to
represent a substantial portion of its future revenues.
In addition, the Company maintains manufacturing operations in countries
other than the United States, including operations located in Israel,
Singapore and Switzerland. Risks associated with the Company's international
operations include risks of foreign currency and foreign financial market
fluctuations, international exchange restrictions, changing political
conditions and monetary policies of foreign governments, war, civil
disturbances, expropriation, or other events which may limit or disrupt
markets.
Sales and Customer Support
The Company markets its semiconductor assembly equipment and its packaging
materials through separate sales organizations. With respect to semiconductor
assembly equipment, the Company's direct sales force, consisting of
approximately 100 individuals at September 30, 1997, is principally
responsible for sales of major product lines to customers in the United
States and the Asia/Pacific region, including Japan. Lower volume product
lines, as well as all equipment sales to customers in Europe, are sold
through a network of manufacturer's representatives. The Company sells its
packaging materials product lines through a separate direct sales force and
through manufacturers' representatives.
The Company believes that providing comprehensive worldwide sales, service
and customer support are important competitive factors in the semiconductor
equipment industry. In order to support its U.S. and foreign customers whose
semiconductor assembly operations are located in the Asia/Pacific region, the
Company maintains a significant presence in the region, with sales facilities
in Hong Kong, Japan, Korea, Taiwan, Malaysia and Singapore, a technology
center in Japan and an applications lab in Singapore. The Company supports
its assembly equipment customers worldwide with over 260 customer service and
support personnel at September 30, 1997, located in the United States, Hong
Kong, Japan, Korea, Malaysia, the Philippines, Singapore, Taiwan and
Thailand. The Company's local presence in these Asia/Pacific countries
enables it to provide more timely customer service and support as service
representatives and spare parts are positioned near customer facilities, and
affords customers the ability to place orders locally and to deal with
service and support personnel who speak the same language and are familiar
with local country practices.
Backlog
At September 30, 1997, the Company's backlog was approximately $118.0
million, compared to approximately $69.0 million at September 30, 1996. The
Company's backlog consists of product orders for which confirmed purchase
orders have been received and which are scheduled for shipment within 12
months. In addition, the Company may allocate production capacity to
customers for anticipated purchases for which a confirmed purchase order has
not yet been received. 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, the Company's
backlog as of any particular date may not be indicative of revenues for any
succeeding quarterly period.
Manufacturing
The Company's assembly equipment manufacturing activities consist primarily
of integrating components and subassemblies to create finished systems
configured to customer specifications. The Company performs system design,
assembly and testing in-house at its Willow Grove, Pennsylvania and Haifa,
Israel facilities, but utilizes an outsourcing strategy for the manufacture
of many of its major subassemblies. K&S believes that outsourcing enables it
to minimize its fixed costs and capital expenditures and allows the Company
to focus on product differentiation through system design and quality
control. The Company's just-in-time inventory management strategy has reduced
manufacturing cycle times and has limited on-hand inventory. The Company has
obtained ISO 9001 certification for most operations in its Willow Grove,
Pennsylvania facility and for both of its Israeli manufacturing facilities.
Additionally, the AFW manufacturing facility in Selma, Alabama has received
ISO 9002 certification.
The Company manufactures its Micro-Swiss expendable tools at its recently
constructed facility in Yokneam, Israel and its AFW product line, consisting
of gold and aluminum bonding wire, at facilities in Alabama, Singapore and
Switzerland. Semitec hub blades are manufactured in Santa Clara, California.
The Company relies on subcontractors to produce to the Company's
specifications many of the materials, components or subassemblies used in its
products. Certain of the Company's products, however, require components or
assemblies of an exceptionally high degree of reliability, accuracy and
performance. Currently there are a number of such items for which there are
only a single or limited number of suppliers which have been accepted by the
Company as a qualified supplier. The Company generally does not maintain
long-term contracts with its subcontractors and suppliers. While the Company
does not believe that its business is substantially dependent on any contract
or arrangement with any of its subcontractors or suppliers, the Company's
reliance on subcontractors and single source suppliers involves a number of
significant risks, including the loss of control over the manufacturing
process, the potential absence of adequate capacity and the reduced control
over delivery schedules, manufacturing yields, quality and costs. Further,
certain of the Company's subcontractors and suppliers are relatively small
operations and have limited financial and manufacturing resources. In the
event that any significant subcontractor or single source supplier were to
become unable or unwilling to continue to manufacture or sell subassemblies,
components or parts to the Company in required volumes and of acceptable
quality levels and prices, the Company would have to identify and qualify
acceptable replacements. The process of qualifying subcontractors and
suppliers could be lengthy, and no assurance can be given that any additional
sources would be available to the Company on a timely basis.
The Company has, from time to time, experienced reliability and quality
problems with certain key subassemblies provided by single source suppliers.
The Company also has experienced delays in the delivery of subassemblies from
these and other subcontractors in the past, which caused delays in Company
shipments. If supplies of such items were not available from any such source
at acceptable quality levels and prices and a relationship with an
alternative supplier could not be developed, shipments of the Company's
products could be interrupted and re-engineering of the affected product
could be required with resulting delays. In addition, from time to time, the
Company has experienced manufacturing difficulties and problems in its own
operations which have caused delays and have required remedial measures. Such
delays, interruption and re-engineering could damage the Company's
relationships with its customers and have a material adverse effect on the
Company's business, financial condition and operating results.
Research and Product Development
Because technological change occurs rapidly in the semiconductor industry,
the Company devotes substantial resources to its research and development
programs to maintain its competitiveness. The Company employed approximately
380 individuals in research and development at September 30, 1997. The
Company pursues the continuous improvement and enhancement of existing
products while simultaneously developing next generation products. For
example, while the performance of current generations of wire bonders is
being enhanced in accordance with a specific continuous improvement plan, the
Company is simultaneously developing the series 8000 family of next
generation wire bonders, the first models of which were introduced in the
fourth quarter of fiscal 1997 and first quarter of fiscal 1998. Most of the
next generation equipment presently being developed by the Company is based
on modular, interchangeable subsystems, including the 8000 control platform,
which management believes will promote more efficient and cost-effective
manufacturing operations, lower inventory levels, improved field service
capabilities and shorter product development cycles, which will allow the
Company to introduce new products more quickly.
The Company's net expenditures for research and development totaled
approximately $46.0 million, $52.4 million and $30.9 million during the
fiscal years ended September 30, 1997, 1996 and 1995, respectively. The
Company has 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, 1997, 1996 and
1995, such funding totaled approximately $2.0 million, $2.5 million and $2.8
million, respectively.
Competition
The semiconductor equipment and packaging materials industries are intensely
competitive. Significant competitive factors in the semiconductor equipment
market include process capability and repeatability, quality and flexibility,
and cost of ownership, including throughput, reliability and automation,
customer support and price. The Company's major equipment competitors include
Shinkawa, Kaijo and ESEC in wire bonders; ESEC, Nichiden, ASM Pacific
Technology and Alphasem in die bonders; and Disco Corporation in dicing saws.
Significant competitive factors in the semiconductor packaging materials
industry include price, delivery and quality. Major competitors in the
packaging materials line include Gaiser Tool Co. and Small Precision Tools,
Inc. with respect to expendable tools Tanaka Electronic Industries and
Sumitomo Metal Mining in the bonding wire market, and Disco Corporation with
respect to dicing blades.
In each of the markets it serves, the Company faces competition and the
threat of competition from established competitors and potential new
entrants, some of which may have greater financial, engineering,
manufacturing and marketing resources than the Company. Some of these
competitors are Japanese companies that have had and may continue to have an
advantage over the Company in supplying products to Japan-based companies due
to their preferences to purchase equipment from Japanese suppliers.
Additionally, certain competitors may have pricing advantages as a result of
recent currency fluctuations in relation to the U.S. dollar. The Company
expects its competitors to continue to improve the performance of their
current products and to introduce new products with improved price and
performance characteristics. New product introductions by the Company's
competitors or by new market entrants could cause a decline in sales or loss
of market acceptance of the Company's existing products. If a particular
semiconductor manufacturer or subcontract assembler selects a competitor's
product for a particular assembly operation, the Company may experience
difficulty in selling a product to that company for a significant period of
time. Increased competitive pressure could also lead to intensified
price-based competition, resulting in lower prices which could adversely
affect the Company's business, financial condition and operating results. The
Company believes that to remain competitive it must invest significant
financial resources in new product development and expand its customer
service and support worldwide. There can be no assurance that the Company
will be able to compete successfully in the future.
Intellectual Property
Where circumstances warrant, the Company seeks to obtain patents on
inventions governing new products and processes developed as part of its
ongoing research, engineering and manufacturing activities. The Company
currently holds a number of United States patents some of which have foreign
counterparts. The Company believes that the duration of its patents generally
exceeds the life cycles of the technologies disclosed and claimed therein.
Although the patents it holds and may obtain in the future may be of value,
the Company believes that its success will depend primarily on its
engineering, manufacturing, marketing and service skills.
The Company also believes that much of its important technology resides in
its proprietary software and trade secrets. Insofar as the Company relies on
trade secrets and unpatented knowledge, including software, to maintain its
competitive position, there is no assurance that others may not independently
develop similar technologies and possibly obtain patents containing claims
applicable to the Company's products and processes. The sale of Company
products covered by such patents could require licenses that may not be
available on acceptable terms, or at all. In addition, although the Company
executes non-disclosure and non-competition agreements with certain of its
employees, customers, consultants, selected vendors and others, there is no
assurance that such secrecy agreements will not be breached.
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 Jerome H. Lemelson, alleging that
equipment supplied by the Company, and processes performed by such equipment,
infringe on patents held by Mr. Lemelson. A number of the Company's customers
have been sued by Mr. Lemelson. Certain customers have requested that the
Company defend and indemnify them against the claims of Mr. Lemelson, but, to
date, no customer who has settled with Mr. Lemelson has sought contribution
from the Company. The Company has received opinions from its outside patent
counsel with respect to certain of the Lemelson patents. The Company is not
aware that any equipment marketed by the Company, or process performed by
such equipment infringe on the Lemelson patents in question and does not
believe that the Lemelson matter or any other pending intellectual property
claim will have a material adverse effect on its business, financial
condition or operating results. 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 and
operating results.
Employees
At September 30, 1997, K&S had 2,229 permanent employees, 90 temporary
employees and 64 contract personnel worldwide. The only Company employees
represented by a labor union are AFW's employees in Singapore. K&S considers
its employee relations to be good. Competition in the recruiting of personnel
in the semiconductor and semiconductor equipment industry is intense,
particularly with respect to certain engineering disciplines. The Company
believes that its future success will depend in part on its 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 48 1976 Chairman of the Board of Directors
and Chief Executive Officer
Morton K. Perchick 60 1982 Executive Vice President
Clifford G. Sprague 54 1989 Senior Vice President and Chief
Financial Officer
Moshe Jacobi 55 1992 Senior Vice President and President
Packaging Materials Group
Asuri Raghavan 44 1991 Senior Vice President and President
Equipment Group
Walter Von Seggern 57 1992 Senior Vice President Marketing
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 the Company. Mr. Kulicke is the son of Frederick W. Kulicke, Jr., a
member of the Board of Directors.
Morton K. Perchick joined the Company in 1980 and has served in various
executive positions, most recently as Senior Vice President, prior to his
being appointed Executive Vice President in July 1995.
Clifford G. Sprague joined the Company in March 1989 as Vice President and
Chief Financial Officer and was promoted to Senior Vice President in 1990.
Prior to joining the Company, 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.
Moshe Jacobi has served as the Company's Senior Vice President and President,
Packaging Materials Group since November 1996. Prior to that, he served as
Senior Vice President Expendable Tools and Materials from July 1995 and as
Vice President of the Company and Managing Director of Micro-Swiss Ltd., a
wholly-owned subsidiary of the Company from November 1992. He was Division
Director and General Manager of the Micro-Swiss Division from July to
November 1992, and, from August 1986 to July 1992, he was Deputy Managing
Director of Kulicke and Soffa (Israel) Ltd., a wholly-owned subsidiary of the
Company.
Asuri Raghavan was promoted to Senior Vice President and President, Equipment
Group in November 1996, having served as Senior Vice President, Marketing
from July 1995 and Vice President of the Wire Bonder Business from December
1993, as Vice President, Strategic Development from June 1991 to 1993, and in
various other management capacities since joining the Company in 1980, except
for the period from December 1985 until November 1987 when he was Director,
Research and Technology of American Optical.
Walter Von Seggern joined the Company in September 1992 as Vice President of
Engineering and Technology. He was appointed Senior Vice President in
December 1996 and became Senior Vice President, Marketing in April 1997. From
April 1988 to April 1992, he worked for M/A-Com, Inc. He was General Manager
of M/A-Com's ANZAC, RGH and Eurotec Divisions from 1990 to 1992 and from 1988
to 1990, he was General Manager of M/A-Com's Radar Products Division.
Item 2. PROPERTIES
The Company's major facilities are described in the table below:
Lease
Products Expiration
Facility Approximate Size Function Manufactured Date
- ----------- ---------------- -------------- ------------ ----------
Willow Grove, 214,000 sq.ft. (1) Corporate Wire bonders, N/A
Pennsylvania headquarters die bonders
manufacturing, and TAB bonders
technology center,
sales and service
Haifa, Israel 46,100 sq.ft. (2) Manufacturing, Manual wire April 2002
technology bonders,
center, dicing saws and
assembly systems automatic multi-
process assembly
systems
Yokneam, Israel 48,400 sq.ft. (1) Manufacturing, Capillaries, N/A
Micro-Swiss wedges and die
operations collets
Hong Kong, 19,600 sq.ft. (2) Sales and service N/A November 1998
China
Tokyo, Japan 10,700 sq.ft. (2) Technology center, N/A November 1998
sales and service
Singapore 35,111 sq.ft. (2) Manufacturing, Bonding wire May 2000
AFW operations
Selma, Alabama 25,600 sq.ft. (2) Manufacturing, Bonding October 2017
AFW operations wire
Thalwil, 15,100 sq.ft. (2) Manufacturing, Bonding wire (3)
Switzerland AFW operations
Santa Clara, 13,600 sq.ft. (2) Manufacturing Dicing Saw October 2003
California Blades
(1) Owned.
(2) Leased.
(3) Cancelable semi-annually upon six months' notice.
The Company also rents space for sales and service offices in Santa Clara,
California; Mesa, Arizona; Zug, Switzerland; Korea; Taiwan; Malaysia;
Philippines; and Singapore. The Company believes that its facilities are
generally in good condition.
Item 3. LEGAL PROCEEDINGS
The Company is not aware of any material pending legal matters involving the
Company or its subsidiaries. See the discussion of certain legal
contingencies in Note 13 to the Company's fiscal 1997 consolidated financial
statements included herein.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock trades on the Nasdaq National Market under the
symbol KLIC. The following table sets forth for the periods indicated the
high and low sale prices for the Common Stock, as reported on the Nasdaq
National Market.
High Low
------- -------
Fiscal 1997:
First Quarter $22 1/4 $10 1/2
Second Quarter 30 18 3/4
Third Quarter 35 5/8 20 3/4
Fourth Quarter 58 3/8 31
Fiscal 1996:
First Quarter $36 3/4 $22
Second Quarter 25 1/2 15 1/8
Third Quarter 20 1/2 13 1/4
Fourth Quarter 14 5/8 8 3/4
On December 1, 1997, there were 703 holders of record of the shares of
outstanding Common Stock.
The Company currently does not pay cash dividends on its Common Stock. The
Company presently intends to retain any future earnings for use in its
business and does not anticipate paying any cash dividends on the Common
Stock in the foreseeable future. The amended Gold Supply Agreement dated
October 2, 1995 between AFW and its subsidiaries (collectively, the "AFW
Companies") and their gold supplier contains certain financial covenants and
prohibits the AFW Companies from paying any dividends or making any
distributions without the consent of the supplier if, following any such
dividend or distribution, the net worth of the AFW Companies would be less
than $7.0 million.
During fiscal 1997, the Company contributed 91,505 shares of unregistered
common stock, valued at its fair market value, as its matching contribution
to its Section 401(k) Employee Incentive Savings Plan. Registration for such
shares was not required because the transaction did not constitute a "sale"
under Section 2(3) of the Securities Act of 1933, or, alternatively, the
transaction was exempt pursuant to the private offering provisions of that
Act and the rules thereunder.
For the purposes of calculating the aggregate market value of the shares of
common stock of the Company held by nonaffiliates, as shown on the cover page
of this report, it has been assumed that all the outstanding shares were held
by nonaffiliates except for the shares held by directors and executive
officers of the Company. However, this should not be deemed to constitute an
admission 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 the Company's definitive proxy statement relating to its 1998
Annual Meeting of Shareholders filed or to be filed with the Securities and
Exchange Commission.
Item 6. SELECTED FINANCIAL DATA
The selected financial data presented below should be read in conjunction
with the Company's Consolidated Financial Statements and notes thereto, which
are included elsewhere herein.
Income Statement Data:
Fiscal Year Ended September 30,
-------------------------------------------------
1997 1996(a) 1995 1994 1993
-------- -------- -------- -------- --------
(in thousands, except per share amounts)
Net sales $501,907 $381,176 $304,509 $173,302 $140,880
Gross profit 183,905 141,685 137,052 71,968 61,675
Income from operations 57,663 17,418 55,440 13,930 14,280
Net income (b) 38,319 11,847 42,822 10,418 10,831
Net income per share:
Primary $1.78 $0.60 $2.38 $0.63 $0.66
Fully diluted $1.78 $0.60 $2.22 $0.63 $0.66
Weighted average
shares outstanding:
Primary 21,551 19,773 18,028 16,665 16,342
Fully diluted 21,551 19,773 19,693 16,665 16,342
Balance Sheet Data:
September 30,
-------------------------------------------------
1997 1996(a) 1995 1994 1993
------- ------- ------- ------- --------
(in thousands)
Working capital $190,220 $113,804 $103,833 $ 61,459 $ 58,190
Total assets 376,819 249,554 191,029 121,198 105,278
Long-term debt, less
current portion 220 50,712 156 26,474 26,708
Shareholders' equity (c) 291,927 147,489 133,647 63,234 51,481
(a) See footnote 2 of the Notes to the Consolidated Financial Statements
for a detailed discussion of the October 2, 1995 AFW acquisition.
(b) In fiscal 1997, net income included a loss of $6.7 million representing
the Company's proportionate share of the loss from its equity investment
in FCT. In 1996, net income included a $1.0 million loss from FCT and
the write-off of $630,000 of costs incurred in connection with a
proposed but withdrawn public offering of common stock. In fiscal 1993,
the Company incurred $1.1 million in costs associated with a failed
acquisition.
(c) In fiscal 1997, the Company completed the sale of 3,450,000 shares of
its common stock in an underwritten offering, resulting in net proceeds
to the Company approximating $101.1 million. In fiscal 1995, the Company
called for redemption its 8% Convertible Subordinated Debentures (the
"Debentures") then outstanding, resulting in the conversion of
approximately $26.2 million of such Debentures into shares of the
Company's common stock.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Introduction and Company Outlook
The Company's operating results primarily depend upon the capital
expenditures of semiconductor manufacturers and subcontract assemblers
worldwide which, in turn, depend on the current and anticipated market demand
for semiconductors and products 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, including assembly
equipment manufactured and marketed by the Company and, to a lesser extent,
packaging materials such as those sold by the Company. These downturns and
slowdowns have also adversely affected the Company's operating results, in
particular, during the latter half of fiscal 1996. The Company does not
consider its business to be seasonal in nature.
A significant portion of the Company's revenue is derived from sales of a
relatively small number of machines, most with selling prices ranging from
$60,000 to over $400,000. A delay in the shipment of a limited quantity of
machines, either due to manufacturing delays or to rescheduling or
cancellations of customer orders, could have a material adverse effect on the
results of the operations for any particular quarter. The Company believes
that such volatility will continue to characterize the industry and the
Company's operations in the future.
The semiconductor and semiconductor equipment industries are subject to rapid
technological change and frequent new product introductions and enhancements.
The Company believes that its continued success will depend upon its ability
to continuously develop and manufacture new products and product enhancements
and to introduce them into the market in response to demands for higher
performance assembly equipment.
The Company has developed and is in the process of transitioning to a new
generation of wire bonders, the 8000 family, which is based on an entirely
new platform and has required the development of new software and many
subassemblies not part of the Company's current wire bonders. The first
products in the 8000 family are the Model 8020 ball bonder and Model 8060
wedge bonder. Through fiscal 1997, the Company experienced delays in the
development and introduction of the Model 8020. Such delays, which are
typical in the development of new technological products, included hardware,
software and process related issues and changes in functional specifications
based on input from customers. The Company is shifting production capacity
from the Model 1488 plus to Model 8020 ball bonders in response to growing
backlog for Model 8020's, and expects Model 8020 sales to exceed 10% of total
ball bonder sales for the fiscal 1998 first quarter. The Model 8060 was
introduced during the fiscal 1997 fourth quarter with the sale of four
production units. Additional Model 8060 units have been sold during the
fiscal 1998 first quarter, although recent delays in the production ramp up
have been experienced. While development and technical risks exist which have
the potential to further affect the transition to the 8000 family wire
bonders, the Company expects the transition to volume production and sales of
Model 8020 and 8060 machines to continue through the first half of fiscal
1998.
The Company has incurred incremental costs to date and may incur substantial
additional costs during the customer evaluation and qualification process to
ensure the functionality and reliability of these new products. The Company's
inability to successfully qualify new products, or its inability to
manufacture and ship these products in volume and on a timely basis, could
adversely affect the Company's competitive position.
Furthermore, the transition to the Model 8020 and 8060 platforms involves
numerous risks, including the possibility that customers will defer purchases
of Model 1488 plus and 1474fp wire bonders in anticipation of the
availability of the Model 8020 or 8060, or that the Model 8020 or 8060 will
fail to meet customer needs or achieve market acceptance. To the extent that
the Company fails to accurately forecast demand in volume and configuration
for both its current and next-generation wire bonders and generally to manage
product transitions successfully, it could experience reduced orders, delays
in product shipments and increased risk of inventory obsolescence. There can
be no assurance that the Company will successfully introduce and manufacture
new products, including the Model 8020 and 8060, that new products introduced
by the Company will be accepted in the marketplace or that the Company will
manage its product transitions successfully. The Company's failure to do any
of the foregoing could materially adversely affect the Company's business,
financial condition and operating results.
During fiscal 1997, approximately 76% of the Company's sales were delivered
to customer locations in the Asia/Pacific region, including Korea, Taiwan,
Malaysia, Japan, Singapore and Hong Kong. Sales to customer locations in
Taiwan, Korea and Malaysia accounted for 22%, 19% and 13%, respectively, of
consolidated net sales in fiscal 1997. In recent months, certain of these
countries have experienced significant instability in their financial markets
and fluctuations in their local currencies relative to the U.S. dollar. The
Company does not believe these foreign financial market and currency
fluctuations impacted its operations during fiscal 1997. However, certain
Korean-based customers recently pushed out deliveries of machines originally
scheduled for the Company's fiscal 1998 first quarter, adversely affecting
expected revenues and earnings for the period. In addition, because most of
the Company's foreign sales are denominated in U.S. dollars, the Company
believes that the increase in value of the U.S. dollar relative to certain
foreign currencies in recent months has made the Company's products more
expensive in relation to products offered by certain of the Company's foreign
competitors. While pricing pressures associated with currency fluctuations
have not been significant to date, there can be no assurance that selling
prices in future orders will not be adversely impacted by these currency
fluctuations.
In February 1996, the Company entered into a joint venture agreement with
Delco to provide wafer bumping services on a contract basis and to license
related technologies through FCT. FCT completed construction of its
manufacturing facility in Phoenix, Arizona during fiscal 1997, has commenced
production runs involving limited quantities of wafers, and is currently
working with additional customers to have its manufacturing processes
qualified. This qualification process is expected to continue into fiscal
1998. FCT has experienced losses since its inception. The Company has
recognized its proportionate share of such losses based on its 51% equity
interest, including a $1.0 million loss during fiscal 1996 and a $6.7 million
loss in fiscal 1997. The Company currently expects FCT will incur additional
losses during the first nine months of fiscal 1998, but expects FCT's
operations to turn profitable by the fourth quarter of fiscal 1998.
As previously announced by the Company, sales and earnings for the Company's
first quarter of fiscal 1998 will be significantly lower than amounts
reported for the fiscal 1997 fourth quarter. This expected reduction reflects
the effect of customers needing to assimilate the record number of machines
purchased during fiscal 1997, the longer than anticipated transition to the
new Model 8020 platform, rescheduling of shipments by certain Korean-based
customers and delays in the Model 8060 ramp up. While the longer term effect
of the Asia/Pacific region's recent financial market instability on
underlying demand for semiconductor devices and for semiconductor capital
equipment, or its potential impact, if any, on future selling prices cannot
currently be determined with certainty, the Company's present outlook for the
remainder of fiscal 1998 remains optimistic.
Results of Operations
Fiscal Years Ended September 30, 1997 and September 30, 1996
During the 1997 fiscal year ended September 30, 1997, the Company recorded
bookings totaling $550.0 million compared to $358.4 million during fiscal
1996. The $191.6 million increase in fiscal 1997 equipment bookings primarily
reflected a significant improvement in demand for semiconductor assembly
equipment, principally gold ball bonders, compared to the declining demand
experienced throughout fiscal 1996. At September 30, 1997, total backlog of
customer orders approximated $118.0 million compared to $69.0 million at
September 30, 1996. Since the timing of deliveries may vary and orders are
generally subject to cancellation, the Company's backlog as of any date may
not be indicative of net sales for any succeeding period.
Net sales for the 1997 fiscal year increased by $120.7 million to $501.9
million from $381.2 million in fiscal 1996. This improvement generally
reflected a reversal of the fiscal 1996 trend of declining quarterly sales.
Equipment segment net sales increased to $391.7 million in fiscal 1997
compared to $287.2 million in fiscal 1996. During fiscal 1997, the Company
sold more than 3,000 ball bonders compared to slightly more than 1,800 units
during fiscal 1996. Additionally, increased unit sales of automatic dicing
saws contributed to the fiscal 1997 increase. These volume increases were
offset, in part, by lower selling prices for the Model 1488 plus ball bonder
line compared to the average selling prices realized on ball bonders during
fiscal 1996, and by reduced unit sales of the Model SP2100 Tab bonder in
fiscal 1997 compared to fiscal 1996.
Packaging materials segment net sales increased to $110.2 million in fiscal
1997 from $93.9 million in fiscal 1996. Of this increase, $6.3 million was
attributable to sales of hub blades following the October 1, 1996 Semitec
acquisition and $8.8 million was due to increased sales volume of bonding
wire, which was offset, in part, by the effect on revenues of declining gold
prices.
International sales (shipments of the Company's products with ultimate
foreign destinations) comprised 85% and 79% of the Company's total sales
during fiscal 1997 and 1996, respectively. Sales to customers in the
Asia/Pacific region, including Korea, Taiwan, Malaysia, Philippines, Japan,
Singapore, Thailand and Hong Kong, accounted for approximately 76% and 72% of
the Company's total sales in fiscal 1997 and 1996, respectively. During
fiscal 1997, total shipments (including export sales) to customers located in
Taiwan, Korea and Malaysia accounted for approximately 22%, 19% and 13% of
net sales, compared to 14%, 16% and 14%, respectively, for the 1996 fiscal
year.
Gross profit increased to $183.9 million for fiscal 1997 from $141.7 million
for fiscal 1996 due primarily to the fiscal 1997 increased unit volume of
equipment sales. Gross profit as a percentage of net sales decreased slightly
to 36.6% in fiscal 1997 compared to 37.2% in fiscal 1996, with declines being
experienced in both the equipment and packaging materials segments. The
equipment segment gross profit margin decreased to 41.6% in fiscal 1997 from
42.8% in fiscal 1996, due primarily to lower average selling prices on ball
bonders and reduced fiscal 1997 sales of higher margin upgrade kits and
accessories compared to fiscal 1996 levels. The packaging materials segment
gross profit margin declined to 19.1% in fiscal 1997 compared to 19.9% in
fiscal 1996. A shift in sales mix to lower margin wire products in fiscal
1997 was the primary reason for this decline.
Selling, general and administrative expenses ("SG&A") increased to $80.2
million in fiscal 1997 from $71.9 million in fiscal 1996. This increase of
$8.3 million consisted of approximately $1.9 million related to the equipment
segment, $5.9 million related to the packaging materials segment and $.5
million of incremental corporate costs. Fiscal 1997 SG&A costs included
incremental costs resulting from the October 1996 Semitec acquisition,
generally higher employment costs related to the increased sales volume,
higher sales and management incentive compensation costs due to improved
fiscal 1997 sales and profitability and costs incurred to relocate the
Company's Micro-Swiss and AFW Singapore manufacturing operations into new
facilities during the year. The impact of these increases was offset, in
part, by certain non-recurring equipment segment and corporate costs incurred
in connection with the Company's August 1996 resizing initiatives.
Research and development costs ("R&D") decreased to $46.0 million in fiscal
1997 from $52.4 million for the prior fiscal year. The majority of the R&D
costs incurred were in the equipment segment, and reflected lower outside
contract development costs and lower expenditures for prototype materials.
During fiscal 1997, the Company continued to invest heavily in the
development of the 8000 series wire bonders and the enhancement of many of
its existing products, including, but not limited to, the Model 1488 plus
ball bonder and Model 1474fp wedge bonder, to enable them to meet customer
requirements for higher lead count devices with finer pitch requirements at
faster bonding speeds. The Company also continues to invest in new
technologies which may eventually lead to improved and alternative
semiconductor assembly technologies. Gross R&D expenditures were partially
offset by funding received from customers and governmental subsidies totaling
$2.0 million in fiscal 1997 compared to $2.5 million in fiscal 1996.
Operating income increased to $57.7 million in fiscal 1997 from $17.4 million
in fiscal 1996. This improvement resulted principally from the higher net
sales and gross profit in the equipment segment, offset, in part, by the
increased operating expenses noted above. The packaging materials segment
operating income declined to a break-even level in fiscal 1997 from $4.1
million in fiscal 1996, primarily reflecting costs incurred in fiscal 1997 to
relocate the Micro-Swiss and AFW Singapore operations to new facilities,
severance costs and incremental costs to expand the packaging materials
marketing and distribution organizations.
Interest income, net of interest expense increased by approximately $1.0
million in fiscal 1997 compared to fiscal 1996, primarily due to the
investment of net proceeds from the Company's May 1997 public offering of
common stock. During fiscal 1997, the Company recognized a $6.7 million loss
from its equity interest in FCT compared to a loss of $1.0 million in fiscal
1996. The increase in the loss in fiscal 1997 resulted from a full year of
start up activities during fiscal 1997 compared to only a partial year of
early start up activities during fiscal 1996.
The Company's effective tax rate increased to 26% for fiscal 1997 from 24.2%
in fiscal 1996. The increase resulted largely from an increase in income
attributable to operations in the United States. This increase was offset in
part by the reversal of valuation allowances established in prior years
related to U.S. tax credits. The Company continues to maintain a valuation
allowance for deferred tax assets related to the acquired domestic AFW net
operating loss ("NOL") and NOL carryforwards of the Company's Japanese
subsidiary, since the Company cannot reasonably forecast sufficient future
earnings by these subsidiaries to fully utilize the NOL's during the
carryforward period. If benefits of the acquired NOL carryforward are
realized, such tax benefits would reduce the recorded amount of AFW goodwill.
Net income increased to $38.3 million in fiscal 1997 compared to $11.8
million in fiscal 1996, for the reasons enumerated above.
Fiscal Years Ended September 30, 1996 and September 30, 1995
During the 1996 fiscal year ended September 30, 1996, the Company recorded
bookings totaling $358.4 million, including approximately $66.0 million
related to AFW, compared to $342.4 million during fiscal 1995 which excluded
AFW's operating results. The $50.0 million decline in fiscal 1996 equipment
bookings primarily reflected a significant reduction in demand for
semiconductor assembly equipment, principally ball and wedge bonders, in the
latter half of fiscal 1996 compared to the record levels experienced
throughout fiscal 1995 and the first several months of fiscal 1996. The
Company believes that this decline reflected a high level of uncertainty and
concern among the Company's customers about then forecasted declines in
personal computer sales, a significant drop in selling prices of memory
chips, and with regard to the Company's Taiwan-based customers, geopolitical
uncertainty regarding China's reaction to elections in Taiwan. At September
30, 1996 total backlog of customer orders approximated $69.0 million,
including $6.7 million relating to AFW, compared to $84.7 million at
September 30, 1995.
Net sales for the 1996 fiscal year increased by $76.7 million to $381.2
million from $304.5 million in fiscal 1995. The acquisition of AFW
contributed $66.9 million to fiscal 1996 net sales. Equipment segment net
sales increased to $287.2 million in fiscal 1996 from $283.8 million in
fiscal 1995. Total unit sales in fiscal 1996 were essentially flat compared
to unit sales for fiscal 1995. However, sales of ball bonders, non-
semiconductor dicing saws and wire bonder upgrade kits increased in fiscal
1996, while sales of aluminum wedge bonders declined in relation to the
amounts sold in fiscal 1995. During fiscal 1996, slightly improved selling
prices were realized on the Model 1488 ball bonder line compared to the
average selling prices realized on ball bonders during fiscal 1995. On a
quarterly basis, net sales declined sharply throughout fiscal 1996, primarily
in the equipment segment. The decline generally reflected an industry-wide
slowdown in capital equipment purchases during 1996 as compared to the record
levels experienced during 1995.
Packaging materials segment net sales increased to $93.9 million in fiscal
1996 from $20.7 million in fiscal 1995. The increase was due to $66.9 million
of sales of bonding wire products following the AFW acquisition and $6.4
million due to increased sales volumes of expendable tools.
International sales (shipments of the Company's products with ultimate
foreign destinations) comprised 79% and 78% of the Company's total sales
during fiscal 1996 and 1995, respectively. Sales to customers in the
Asia/Pacific region (including Korea, Taiwan, Malaysia, Philippines, Japan,
Singapore, Thailand and Hong Kong) accounted for approximately 72% of the
Company's total sales in both fiscal 1996 and 1995. In fiscal 1996, sales to
customers located in Malaysia, Korea and Philippines increased compared to
fiscal 1995 levels, while sales to Taiwan-based customers declined
significantly in fiscal 1996. The decline in Taiwan, in part, reflected the
impact of geopolitical uncertainty concerning China's reaction to the 1996
elections in Taiwan.
Gross profit as a percentage of net sales declined to 37.2% in fiscal 1996
from 45.0% in fiscal 1995. Gross margin declines were experienced in both the
equipment segment and the packaging materials segment. As a result of the
rapid and substantial decline in customer demand for the Company's equipment
in the second half of fiscal 1996, the Company experienced unfavorable
overhead absorption during the third and fourth quarters of fiscal 1996.
Provisions for excess and obsolete inventory totaled $4.5 million in fiscal
1996 compared to $2.8 million in the prior year. The rapid decline in
customer demand in fiscal 1996, particularly for the Model 1488 turbo ball
bonders, and the anticipated transition to the new generation Model 8020
gold ball bonders, caused the Company to recognize approximately $2.8 million
of the 1996 provision for excess and obsolete inventory in the fourth
quarter. Thus, equipment segment gross profit as a percentage of net sales
decreased to 42.5% for fiscal 1996 from to 45.3% for fiscal 1995.
Gross profit as a percentage of net sales in the packaging materials segment
decreased to 19.6% for fiscal 1996 compared to 40.7% for fiscal 1995. This
decrease principally reflected the effect of the AFW acquisition as sales of
bonding wire products have historically had a substantially lower gross
profit margin than the Company's other products.
SG&A expenses increased to $71.9 million in fiscal 1996 from to $50.7 million
in fiscal 1995. This increase of $21.2 million consisted of approximately
$9.4 million related to the equipment segment, $10.6 million related to the
packaging materials segment, and $1.1 million of incremental corporate costs.
In the equipment segment, higher employment and travel related costs,
primarily in connection with the Company's worldwide customer support
activities during the first half of fiscal 1996, contributed to the increase.
Incremental goodwill amortization of $2.1 million and other SG&A costs of
$5.8 million associated with the AFW operation accounted for the majority of
the increase in the packaging materials segment. Higher sales commissions
related to increased sales of expendable tools, increased travel costs
related to AFW integration activities and increased administrative costs to
support the expanded worldwide activities of the packaging materials segment
also contributed to the fiscal 1996 increase. Corporate costs grew
principally as a result of implementation activities related to a new
worldwide computer system.
In response to the rapid decline in customer demand for the Company's
products during the latter half of fiscal 1996, the Company reduced its
world-wide work force, primarily in the equipment segment, suspended the
planned expansion of its Willow Grove, Pennsylvania, facility, and deferred
the implementation of a new worldwide integrated computer system. As a result
of these actions, in the fourth quarter of fiscal 1996, the Company incurred
severance costs totaling $1.2 million and a $1.8 million charge to write-off
costs incurred in connection with the suspended Willow Grove facility
expansion.
R&D costs increased to $52.4 million in fiscal 1996 from $30.9 million for
the prior fiscal year. The majority of the R&D costs incurred were in the
equipment segment. Approximately $13.0 million of the increase was due to
engineering activities associated with the 8000 family of products,
principally the Model 8020 development program. The fiscal 1996 increase also
included approximately $1.0 million related to the write-down of certain
engineering prototype machines to their net realizable value. The remaining
R&D spending increases related to development activities for other products
and continuous improvements of existing products.
Packaging materials segment R&D costs increased to $1.0 million as compared
to fiscal 1995 levels. Substantially all of the R&D spending in the packaging
materials segment related to continuous improvement activities for existing
products. Gross R&D expenditures were partially offset by funding received
from customers and governmental subsidies totaling $2.5 million in fiscal
1996 compared to $2.8 million in fiscal 1995.
Operating income declined to $17.4 million in fiscal 1996 from $55.4 million
in fiscal 1995. This decline largely resulted from higher operating costs in
the equipment segment and to the decline in equipment segment gross profits
during the latter half of fiscal 1996. Most of the decline in operating
income was realized in the United States as the United States operation
incurred the majority of the Company's R&D expenses and corporate costs and
recognized the majority of the fiscal 1996 fourth quarter charges.
The increase in interest expense in fiscal 1996 was primarily attributable to
borrowings of $50.0 million under the Company's bank credit facility related
to the financing of the Company's October 1995 AFW acquisition. Fiscal 1996
first quarter results included the write-off of approximately $630,000 of
costs incurred in connection with a proposed public offering of the Company's
common stock. Also, during fiscal 1996, the Company contributed $2.6 million
of capital to FCT, and recognized a $1.0 million loss as its proportionate
share of the joint venture's operating results.
The Company's effective tax rate increased to 24% for fiscal 1996 compared to
23% in fiscal 1995. The increase was due primarily to the amount and
geographic distribution of taxable income in fiscal 1996. In connection with
the AFW acquisition, the Company acquired a $7.1 million U.S. federal NOL
carryforward. During fiscal 1996, AFW's U.S. manufacturing operation
experienced a small loss. Since the Company could reasonably forecast
sufficient future U.S. earnings by this subsidiary to fully utilize the
acquired NOL during the carryforward period, a valuation allowance was
established for the full amount of this potential tax benefit. If realized,
such tax benefits would reduce the recorded amount of AFW goodwill.
Effect of Recent Accounting Pronouncements
In February 1997, Statement of Financial Accounting Standards No. 128
"Earnings Per Share" ("SFAS 128") was issued by the Financial Accounting
Standard Board ("FASB"). SFAS 128 redefines earnings per share under
generally accepted accounting principles and is effective for the Company's
fiscal 1998 first quarter ended December 31, 1997. Under the new Statement,
primary earnings per share is replaced by basic earnings per share and fully
diluted earnings per share is replaced by diluted earnings per share. See
Note 1 of Notes to Consolidated Financial Statements for the effect of SFAS
No. 128.
In June 1997, the FASB also issued SFAS No. 130, "Reporting Comprehensive
Income," 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 will be required to be reported in a financial statement that is
displayed with the same prominence as other financial statements. Only the
impact of foreign currency translation adjustments and unrealized gains or
losses on securities available for sale are expected to be disclosed as
potential additional components of the Company's income under the
requirements of SFAS No. 130. This statement is effective for fiscal years
beginning after December 15, 1997.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which revises disclosure requirements
related to operating segments, products and services, the geographic areas in
which the Company operates, and major customers. The Company intends to adopt
this Statement in the first quarter of fiscal 1998 and does not presently
anticipate any material change in its disclosures following adoption of SFAS
131.
Liquidity and Capital Resources
During the past three fiscal years, the Company has financed its operations
principally through cash flows from operations. Cash generated by operating
activities totaled $40.2 million during fiscal 1997 compared to $38.9 million
during fiscal 1996. Cash and total investments increased to $115.6 million at
September 30, 1997 from $58.9 at September 30, 1996. The increase in total
cash and investments in fiscal 1997 was due largely to proceeds approximating
$101.1 million from the Company's May 1997 sale of 3,450,000 shares of common
stock, net of repayment of the $50.0 million outstanding balance on the
Company's bank revolving credit facility.
At September 30, 1997, working capital increased to $190.2 million compared
to $113.8 million at September 30, 1996. The accounts receivable balance
increased by $57.6 million during fiscal 1997 reflecting the significantly
improved sales volumes throughout the latter half of the year. Gross
inventory increased $5.2 million at September 30, 1997, compared to the prior
year end due to increased levels of work in process. This increase in work in
process was consistent with the growth in backlog.
Trade accounts payable and accrued expenses at September 30, 1997 increased
by $30.9 million to $72.3 million compared to the amounts at the end of
fiscal 1996. The increases primarily resulted from increased inventory
purchases associated with improved sales levels in fiscal 1997 and increased
management incentive compensation accruals due to improved fiscal 1997
profitability.
During fiscal 1997, the Company invested approximately $13.5 million in
property and equipment, primarily to complete the construction of its Micro-
Swiss manufacturing facility in Yokneam, Israel, and to upgrade equipment
used in the Company's manufacturing and R&D activities. The Company presently
expects fiscal 1998 capital spending to approximate $18.0 million. The
principal capital projects planned for fiscal 1998 include the purchase of
additional tooling and equipment necessary to manufacture the 8000 series of
machines, the purchase of equipment necessary to expand manufacturing
capacity, primarily in the United States and Israel, and additional
investments in a new global management information system.
The Company has initiated a project to replace existing business and
accounting systems with an enterprise-wide business system which is "Year
2000" compliant. The Company expects to incur capital expenditures, primarily
for computer hardware and software, related to this system implementation
project. Such amounts are included in the estimated capital expenditures
discussed above. Internal staffing costs and reengineering costs, if any,
associated with this system implementation project will be expensed as
incurred. The Company's business system implementation plan currently
anticipates conversion to the new enterprise business system by the beginning
of its 1999 fiscal year. Accordingly, the Company does not currently
anticipate any material disruption in its business operations as a
consequence of the year 2000 issue.
Pursuant to the terms of the FCT joint venture agreement, the Company
contributed to FCT an aggregate of $16.8 million through the end of fiscal
1997. In addition, the Company loaned FCT $5.0 million during fiscal 1997
and, in October 1997, agreed to provide an additional $5.0 million in loans.
The Company currently expects that an additional $5 million to $10 million of
funding will be required by FCT during fiscal 1998, although the amount which
may be funded by the Company and its timing are presently uncertain. The
joint venture is subject to numerous risks common to business arrangements of
this nature. There can be no assurance that FCT will ever become profitable,
that the Company will not make additional capital contributions and loans to
FCT or that the anticipated benefits of the joint venture will ever be
realized. If the joint venture were to not realize such benefits, the
Company's business, financial condition and operating results could be
materially adversely affected.
A significant portion of the Company's consolidated earnings are attributable
to undistributed earnings of certain of its foreign subsidiaries. Deferred
income taxes have not been provided on that portion of undistributed foreign
earnings which is expected to be indefinitely reinvested in foreign
operations. If funds were required to be repatriated to fund the Company's
operations or other financial obligations, substantial additional United
States federal income tax expense could be required to be recognized.
The Company currently has available the entire amount of a $10.0 million
revolving credit facility expiring February 28, 1998, which it expects to
renew under comparable terms, and a $50.0 million revolving credit facility
expiring March 30, 2001. There were no borrowings under the $10.0 million
credit line during fiscal 1997. The Company had outstanding the entire amount
of the $50.0 million revolving credit facility through May 19, 1997, at which
time the loan was repaid from proceeds received in connection with the stock
issuance. The Company intends to retain both of these revolving credit
facilities.
The Company believes that anticipated cash flows from operations, its working
capital and amounts available under its revolving credit facilities will be
sufficient to meet the Company's liquidity and capital requirements for at
least the next 12 months. However, the Company may seek, as required, equity
or debt financing to provide capital for corporate purposes and/or to fund
strategic business opportunities, including possible acquisitions, joint
ventures, alliances or other business arrangements which 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 the Company's products, semiconductor and
semiconductor capital equipment industry conditions and competitive factors
and the nature and size of strategic business opportunities which the Company
may elect to pursue.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated Financial Statements of Kulicke and Soffa Industries, Inc.
and its subsidiaries, listed in the index appearing under Item 14 (a)(1) and
(2) herein are filed as part of this Report.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
Kulicke and Soffa Industries, Inc.
In our opinion, based upon our audits, the consolidated financial statements
listed in the index appearing under Item 14(a)(1) and (2) on page 41 of this
Annual Report on Form 10-K present fairly, in all material respects, the
financial position of Kulicke and Soffa Industries, Inc. and its subsidiaries
at September 30, 1997 and 1996, and the results of their operations and their
cash flows for each of the three years in the period ended September 30,
1997, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
- ------------------------
Philadelphia, Pennsylvania
November 13, 1997
KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
(in thousands)
September 30,
-------------------
1997 1996
-------- -------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
(including time deposits;
1997 - $723; 1996 - $2,925) $107,605 $ 45,344
Short-term investments 7,982 13,078
Accounts and notes receivable
(less allowance for doubtful
accounts; 1997 - $2,149;
1996 - $1,227) 105,103 47,456
Inventories, net 45,602 44,519
Prepaid expenses and other current assets 4,391 4,277
Refundable income taxes -- 6,212
Deferred income taxes 1,521 1,765
------- -------
TOTAL CURRENT ASSETS 272,204 162,651
Property, plant and equipment, net 45,648 41,143
Intangible assets, primarily goodwill, net 42,724 42,049
Long-term investments -- 449
Investment in and loans to joint venture 14,135 1,556
Other assets 2,108 1,706
------- -------
TOTAL ASSETS $376,819 $249,554
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 780 $ 491
Accounts payable 47,408 23,032
Accrued expenses 24,932 18,389
Income taxes payable 8,864 6,935
------- -------
TOTAL CURRENT LIABILITIES 81,984 48,847
Long-term debt 220 50,712
Other liabilities 2,688 2,506
------- -------
TOTAL LIABILITIES 84,892 102,065
Commitments and contingencies (Notes 6 and 13) -- --
SHAREHOLDERS' EQUITY:
Preferred stock, without par value:
Authorized - 5,000 shares; issued - none -- --
Common stock, without par value:
Authorized - 50,000 shares; issued and
outstanding: 1997 - 23,237; 1996 - 19,433 155,246 48,733
Retained earnings 139,404 101,085
Cumulative translation adjustment (2,723) (2,329)
------- -------
TOTAL SHAREHOLDERS' EQUITY 291,927 147,489
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $376,819 $249,554
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED INCOME STATEMENT
(in thousands, except per share amounts)
Fiscal Year Ended September 30,
------------------------------------
1997 1996 1995
--------- --------- ---------
Net sales $501,907 $381,176 $304,509
Cost of goods sold 318,002 239,491 167,457
------- ------- -------
Gross profit 183,905 141,685 137,052
Selling, general and administrative 80,212 71,863 50,728
Research and development, net 46,030 52,404 30,884
------- ------- -------
Income from operations 57,663 17,418 55,440
Interest income 3,151 3,124 1,580
Interest expense (2,331) (3,288) (1,407)
Equity in loss of joint venture (6,701) (994) --
Other expense -- (630) --
------- ------- -------
Income before taxes 51,782 15,630 55,613
Provision for income taxes 13,463 3,783 12,791
------- ------- -------
Net income $ 38,319 $ 11,847 $ 42,822
======= ======= =======
Net income per share:
Primary $1.78 $0.60 $2.38
Fully diluted $1.78 $0.60 $2.22
Weighted average shares outstanding:
Primary 21,551 19,773 18,028
Fully diluted 21,551 19,773 19,693
The accompanying notes are an integral part of these consolidated financial
statements.
KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
Fiscal Year Ended September 30,
-------------------------------
1997 1996 1995
--------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 38,319 $ 11,847 $ 42,822
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 11,329 9,658 4,947
Provision for doubtful accounts 1,065 178 826
Deferred taxes on income 244 (2,125) (718)
Provision for inventory reserves 4,153 4,547 2,758
Equity in loss of joint venture 6,701 994 --
Changes in components of working
capital, excluding effects of
business acquisitions:
Decrease (increase)
in accounts receivable (57,960) 38,959 (37,995)
Decrease (increase) in inventories (4,761) (6,358) (16,390)
Increase in prepaid expenses and
other current assets (35) (483) (1,107)
Collection of refundable income taxes 6,212 -- --
Increase (decrease) in accounts
payable and accrued expenses 30,668 (11,632) 20,903
Increase (decrease) in net
taxes payable 3,527 (8,076) 5,158
Other, net 726 1,364 844
------- ------- -------
Net cash provided by operating activities 40,188 38,873 22,048
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of net assets of Semitec in 1997;
AFW in 1996, net of cash acquired (4,510) (43,020) --
Purchases of investments classified
as available-for-sale (4,451) (28,512) (12,612)
Proceeds from sales or
maturities of investments:
Classified as available-for-sale 9,967 26,802 16,631
Classified as held-to-maturity -- 505 2,082
Purchases of plant and equipment (13,516) (18,028) (10,777)
Proceeds from sale of property
and equipment -- 781 1,067
Investments in and loans to
joint venture (19,280) (2,550) --
------- ------- -------
Net cash used by investing
activities (31,790) (64,022) (3,609)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on borrowings,
including capitalized leases (51,065) (8,537) (60)
Proceeds from borrowings -- 50,000 --
Proceeds from issuances
of common stock 104,905 394 1,484
------- ------- -------
Net cash provided by
financing activities 53,840 41,857 1,424
------- ------- -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 23 12 7
------- ------- -------
CHANGE IN CASH AND CASH EQUIVALENT 62,261 16,720 19,870
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 45,344 28,624 8,754
------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR $107,605 $ 45,344 $ 28,624
======= ======= =======
The accompanying notes are an integral part of these consolidated financial
statements. See Note 7 for disclosure of non-cash financing activities.
KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(in thousands)
Unrealized
Cumulative Gain/ Total
Common Stock Retained Translation (Loss) on Shareholders'
Shares Amount Earnings Adjustment Investments Equity
------ ------ -------- ----------- ----------- ----------
Balances at
September 30,
1994 16,499 $ 17,839 $ 46,416 $ (841) $ (180) $ 63,234
Purchases under
the employee stock
purchase plan 119 556 -- -- -- 556
Employer
contributions to
the 401(k) plan 12 118 -- -- -- 118
Exercise of stock
options 217 928 -- -- -- 928
Tax benefit from
exercise of
stock options -- 154 -- -- -- 154
Shares issued upon
conversion of
subordinated debt 2,463 26,162 -- -- -- 26,162
Translation
adjustment -- -- -- (507) -- (507)
Unrealized gain
on investments -- -- -- -- 180 180
Net income -- -- 42,822 -- -- 42,822
------ ------ ------- ------ -------- -------
Balances at
September 30,
1995 19,310 45,757 89,238 (1,348) -- 133,647
Employer
contribution to
the 401(k) plan 84 1,580 -- -- -- 1,580
Exercise of
stock options 39 394 -- -- -- 394
Tax benefit from
exercise of
stock options -- 1,002 -- -- -- 1,002
Translation
adjustment -- -- -- (981) -- (981)
Net income -- -- 11,847 -- -- 11,847
------ ------ ------- ------ -------- -------
Balances at
September 30,
1996 19,433 48,733 101,085 (2,329) -- 147,489
Shares sold 3,450 101,103 -- -- -- 101,103
Employer
contributions to
the 401(k) plan 92 1,793 -- -- -- 1,793
Exercise of
stock options 262 2,009 -- -- -- 2,009
Tax benefit from
exercise of
stock options -- 1,608 -- -- -- 1,608
Translation
adjustment -- -- -- (394) -- (394)
Net income -- -- 38,319 -- -- 38,319
------ ------ ------- ------ -------- -------
Balances at
September 30,
1997 23,237 $155,246 $139,404 $(2,723) $ -- $291,927
====== ======= ======= ====== ======== =======
The accompanying notes are an integral part of these consolidated financial
statements.
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These consolidated financial statements include the accounts of Kulicke and
Soffa Industries, Inc. and its subsidiaries (the "Company"), with appropriate
elimination of intercompany balances and transactions.
Nature of Business - The Company manufactures capital equipment and packaging
materials used in the assembly of semiconductors. The Company's operating
results primarily depend upon the capital expenditures of semiconductor
manufacturers and subcontract assemblers worldwide which, in turn, depend on
the current and anticipated market demand for semiconductors and products
utilizing semiconductors. The semiconductor industry historically has been
highly volatile and experienced periodic downturns and slowdowns which have
had a severe negative effect on the semiconductor industry's demand for
semiconductor capital equipment, including assembly equipment manufactured
and marketed by the Company and, to a lesser extent, packaging materials such
as those sold by the Company. These downturns and slowdowns have also
adversely affected the Company's operating results. The Company believes that
such volatility will continue to characterize the industry and the Company's
operations in the future.
The semiconductor and semiconductor equipment industries are subject to rapid
technological change and frequent new product introductions and enhancements.
The Company invests substantial amounts in research and development to
continuously develop and manufacture new products and product enhancements in
response to demands for higher performance assembly equipment. In addition,
the Company continuously pursues investments in alternative packaging
technologies. The Company's inability to successfully develop new products
and product enhancements or to effectively manage the introduction of new
products into the marketplace could have a material adverse effect on the
Company's results of operations, financial condition and liquidity.
Cash Equivalents - The Company considers all highly liquid investments with
original maturities of three months or less when purchased to be cash
equivalents.
Investments - The Company's investments other than cash equivalents are
classified as "trading," "available-for-sale" or "held-to-maturity,"
depending upon the nature of the investment, its ultimate maturity date in
the case of debt securities, and management's intentions with respect to
holding the securities. Investments classified as "trading" are reported at
fair market value, with unrealized gains or losses included in earnings.
Investments classified as available-for-sale are reported at fair market
value, with net unrealized gains or losses reflected as a separate component
of shareholders' equity. 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.
Vulnerability to Certain Concentrations - Financial instruments which may
subject the Company to concentration of credit risk at September 30, 1997 and
1996 consist primarily of investments and trade receivables. The Company
manages credit risk associated with investments by investing its excess cash
in investment grade debt instruments of the U.S. Government, financial
institutions and corporations. The Company has established investment
guidelines relative to diversification and maturities designed to maintain
safety and liquidity. These guidelines are periodically reviewed and modified
to take advantage of trends in yields and interest rates. The Company's trade
receivables result primarily from the sale of semiconductor equipment,
related accessories and replacement parts and packaging materials to a
relatively small number of large manufacturers in a highly concentrated
industry. The Company continually assesses the financial strength of its
customers to reduce the risk of loss. Accounts receivable at September 30,
1997 and 1996 include notes receivable of $50 and $1,120, respectively.
Write-offs of uncollectible accounts have historically been insignificant.
Sales to a relatively small number of customers account for a significant
percentage of the Company's net sales. During fiscal 1997, sales to Anam (a
Korea-based customer) and Intel accounted for approximately 12.5% and 10.2%,
respectively, of the Company's net sales. In fiscal 1996, sales to Intel and
Anam accounted for 14.3% and 11.2%, respectively. In fiscal 1995, sales to
Anam and Intel accounted for 19.8% and 16.3%, respectively, of the Company's
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. The reduction or loss of orders from a significant
customer could adversely affect the Company's business, financial condition
and operating results.
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.
Inventories - Inventories are stated at the lower of cost (determined on the
basis of first-in, first-out) or market. Due to the volatility of demand for
capital equipment and the rapid technological change in the semiconductor
industry, the Company is vulnerable to risks of excess and obsolete
inventory. The Company generally provides reserves for inventory considered
to be in excess of 18 months of forecasted future demand.
Property, Plant and Equipment - Property, plant and equipment are carried at
cost. The cost of additions and those improvements which increase the
capacity or lengthen the useful lives of assets are capitalized while repair
and maintenance costs are expensed as incurred. Depreciation and amortization
is 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;
leasehold improvements are based on 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.
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 fifteen to twenty
years (see Note 2). 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.
Postemployment Benefits - Post employment benefits are recognized over the
employees' periods of service if such benefits vest ratably, or upon
termination in certain instances.
Foreign Currency Translation - The U.S. dollar is the functional currency for
all subsidiaries except the Company's operations in Japan, Korea, Singapore,
Switzerland and Taiwan. Unrealized translation gains and losses resulting
from the translation of functional currency financial statement amounts into
U.S. dollars in accordance with SFAS No. 52 are not included in determining
net income but are accumulated in the cumulative translation adjustment
account as a separate component of shareholders' equity. Gain and losses
resulting from foreign currency transactions are included in the
determination of net income. Net exchange and transaction gains (losses) were
($135), $57 and ($281) for the years ended September 30, 1997, 1996 and 1995,
respectively.
Revenue Recognition - Sales are recorded upon shipment of products or
performance of services. Expenses for estimated product returns, warranty and
installation costs are accrued in the period of sale recognition.
Research and Development Arrangements - The Company receives funding from
certain customers and government agencies pursuant to contracts or other
arrangements for the performance of specified research and development
activities. Such amounts are recognized as a reduction of research and
development expense when specified activities have been performed. During
fiscal 1997, 1996 and 1995, reductions to research and development expense
related to such funding totaled $2,018, $2,473 and $2,843, 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 undistributed earnings of foreign
subsidiaries which are indefinitely reinvested in foreign operations.
Earnings Per Share - Through the fiscal year ended September 30, 1997, the
Company computed earnings per share in accordance with Accounting Principles
Board Opinion No. 15, "Earnings Per Share." Primary earnings per share was
computed using the weighted average number of common shares outstanding,
giving recognition to the assumed exercise of stock options, if dilutive.
Fully diluted earnings per share was computed based on the weighted average
number of shares outstanding plus those shares assumed to be issued upon the
exercise of stock options and, in fiscal 1995, the conversion of the
subordinated debentures, after giving effect to the elimination of interest
expense, net of income taxes, applicable to the debentures. In the first
quarter of fiscal 1998, the Company will implement Statement of Financial
Accounting Standards No. 128, "Earnings Per Share," ("SFAS 128"). If the
Company had adopted SFAS No. 128 for the year ended September 30, 1997, the
Company's pro forma earnings per share for the fiscal years ended September
30, 1997, 1996 and 1995 would have been as follows:
Fiscal Year Ended September 30,
-------------------------------
1997 1996 1995
-------- -------- --------
Pro forma earnings per share:
Basic $1.84 $0.61 $2.44
Diluted $1.78 $0.60 $2.23
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 and valuation
allowances for deferred tax assets. Actual results could differ from those
estimates.
Accounting for Stock-based Compensation - In 1995, Statement of Financial
Accounting Standards No. 123 - "Accounting for Stock-Based Compensation"
("SFAS No. 123") was issued. SFAS No. 123 defines the "fair value method" of
accounting for stock options or similar equity instruments, pursuant to which
compensation cost is measured at the grant date based on the value of the
award and is recognized over the service period. SFAS No. 123 permits
companies to continue to account for stock option grants using the "intrinsic
value method" prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB No. 25"), and disclose the
pro forma effect on net income and earnings per share as if the fair value
method had been applied to stock option grants. The Company has elected to
implement SFAS No. 123 on a disclosure basis only (see Note 8).
NOTE 2: ACQUISITIONS
On October 2, 1995, the Company acquired American Fine Wire Corporation
("AFW") through the acquisition of all of the common stock of Circle "S"
Industries, Inc. ("Circle S"), the parent corporation of AFW. AFW is a
manufacturer of fine gold and aluminum wire used in the wire bonding process,
and has manufacturing facilities in Singapore; Selma, Alabama; and Thalwil,
Switzerland. The acquisition was accounted for using the purchase method.
Accordingly, AFW's operating results were included in the Company's
consolidated financial statements commencing October 2, 1995. The purchase
price was initially financed by borrowings under a new bank credit facility
and by issuance of promissory notes to the former Circle "S" shareholders
(see Note 7). The excess of the total purchase price over the estimated fair
value of acquired tangible net assets was $43,099, consisting primarily of
goodwill and a favorable operating lease, both of which are being amortized
over a twenty-year period.
Unaudited pro forma income statement data reflecting the combined operating
results of the Company and AFW for the fiscal year ended September 30, 1995,
as if the acquisition had occurred on October 1, 1994, after giving effect to
certain pro forma adjustments, are as follows:
Pro forma
----------
(unaudited)
Revenue $ 376,956
Net income 40,994
Net income per share $2.13
On October 1, 1996, the Company acquired the common stock of Semitec
Corporation ("Semitec") for a purchase price of approximately $4,901,
including transaction related costs. The acquisition was accounted for using
the purchase method. Accordingly, Semitec's operating results are included in
the Company's consolidated financial statements commencing October 1, 1996.
Goodwill resulting from this acquisition is being amortized on a straight-
line basis over a twenty-year period.
The Semitec purchase price was allocated to the assets acquired and
liabilities assumed based upon their estimated fair market values, as
follows:
Total current assets $1,447
Property and equipment 1,260
Goodwill 3,059
Total current liabilities (442)
Total long term liabilities (423)
-----
Total purchase price $4,901
=====
NOTE 3: INVESTMENTS IN AND LOANS TO JOINT VENTURE
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, L.L.C. ("FCT"). FCT was formed to
provide wafer bumping services on a contract basis and to license related
technologies.
The Company owns a 51% equity interest in FCT but participates equally with
Delco in the management of FCT through an Executive Committee. Accordingly,
the Company accounts for its investment in FCT using the equity method, and
recognizes its proportionate share of the operating results of the joint
venture on the basis of its ownership interest. For income tax purposes, FCT
is treated as a partnership. Accordingly, no provision for income taxes is
included in FCT's separate financial statements. Rather, the reported results
of FCT, and the Company's proportionate share of such results are on a pre-
tax basis.
During fiscal 1997, the Company loaned FCT $5,000 pursuant to a revolving
loan agreement. The loan bears interest at prime plus 1 1/2% (10% at
September 30, 1997) and is secured by accounts receivable, inventory and
machinery and equipment. The loan is due on June 16, 1999 with interest
payable semi-annually. The loan is convertible, at the Company's option, into
additional shares of FCT common stock, subject to Delco's right to purchase
additional shares to maintain its current proportionate ownership interest.
On October 30, 1997, the Company agreed to loan an additional $5,000 to FCT
under similar terms to the initial $5,000 loan.
Summary financial information of FCT for the period from formation (February
28, 1996) to September 30, 1996 and for the fiscal year ended September 30,
1997, are as follows:
September 30,
-------------------
1997 1996
-------- --------
Current assets $ 2,224 $ 1,747
Property, plant and equipment, net 22,951 4,664
Total assets 25,608 6,615
Current liabilities 2,697 3,564
Note payable 5,000 --
Members' equity 17,911 3,050
Period from
February 28, 1996
Fiscal Year Ended (inception) to
September 30, 1997 September 30, 1996
------------------ ------------------
Net sales $ 887 $ 99
Net loss (13,139) (1,950)
NOTE 4: INVESTMENTS
At September 30, 1997 and 1996, no short-term investments were classified as
trading. Investments, excluding cash equivalents, consisted of the following
at September 30, 1997 and 1996:
September 30, 1997 September 30, 1996
------------------------- -----------------------
Unrealized Unrealized
Fair Gains/ Cost Fair Gains/ Cost
Value (Losses) Basis Value (Losses) Basis
----- -------- ----- ----- -------- -----
Available-for-sale:
U.S. Treasury bills
maturing in less
than one year $ -- $ -- $ -- $ 5,969 $ -- $ 5,969
Adjustable rate notes 5,062 -- 5,062 4,808 -- 4,808
----- ------ ----- ------ ---- ------
Short-term investments
classified as
available for sale $5,062 $ -- $5,062 $10,777 $ -- $10,777
===== ====== ===== ====== ==== ======
Held-to-maturity:
Corporate bonds with
weighted average
maturity less than
three years $2,898 $ (22) $2,920 $ 2,690 $ (60) $ 2,750
===== ====== ====== ====
Less: Short-term
investments
classified as
held-to maturity 2,920 2,301
----- -----
Held-to-maturity
investments maturing
after one year,
within five years $ -- $ 449
===== ======
NOTE 5: INVENTORIES
September 30,
-------------------
1997 1996
-------- --------
Raw materials and supplies $ 28,237 $ 29,985
Work in process 16,028 9,862
Finished goods 17,245 16,427
------- -------
61,510 56,274
Inventory reserves (15,908) (11,755)
------- -------
$ 45,602 $ 44,519
======= =======
NOTE 6: PROPERTY, PLANT AND EQUIPMENT
September 30,
-------------------
1997 1996
-------- --------
Land $ 1,453 $ 1,442
Buildings and building improvements 19,583 16,457
Machinery and equipment 63,187 56,524
Leasehold improvements 4,039 2,767
------- -------
88,262 77,190
Accumulated depreciation (42,614) (36,047)
------- -------
$ 45,648 $ 41,143
======= =======
The Company has obligations under various operating leases, primarily for
manufacturing and office facilities, which expire periodically through 2002.
In addition, in connection with the October 2, 1995 acquisition of AFW, the
Company assumed certain leases associated with AFW's facilities. Minimum
rental commitments under these leases (excluding taxes, insurance,
maintenance and repairs, which are also paid by the Company), are as follows:
$1,955 in 1998; $1,390 in 1999; $1,122 in 2000; $538 in 2001; $298 in 2002
and $32 thereafter.
Rent expense for fiscal 1997, 1996 and 1995 was $3,191, $2,540 and $2,355,
respectively.
NOTE 7: DEBT OBLIGATIONS
Debt obligations include the following:
September 30,
-------------------
1997 1996
-------- --------
Revolving credit facility $ -- $ 50,000
Capital lease obligations 1,000 1,203
------- -------
Total debt obligations 1,000 51,203
Less - current portion 780 491
------- -------
Debt due after one year $ 220 $ 50,712
======= =======
The Company borrowed $15,000 under its bank credit facility on October 2,
1995 to fund the cash portion of the AFW purchase price and issued promissory
notes totaling $34,395 to certain selling shareholders of Circle "S." The
promissory notes were repaid in full on January 5, 1996, together with
accrued interest thereon. To finance the repayment of the promissory notes,
on January 5, 1996, the Company borrowed the remaining $35,000 available
under a term credit facility. Borrowings under the $50,000 term credit
facility bore interest at the LIBOR rate plus 50 basis points.
On April 10, 1996, the Company renegotiated the terms of its bank credit
facilities resulting in a new Restated Loan Agreement providing for a $10,000
revolving credit facility expiring February 28, 1998, which the Company
expects to renew under comparable terms, and a $50,000 revolving credit
facility expiring March 30, 2001. The $10,000 revolving loan bears interest
at the prime rate less 1/4%. The $50,000 revolving loan bears interest at the
Company's option, either at a Base Rate (defined as the lesser of the prime
rate minus 1/2% or the Federal Funds rate plus 1/2%) or, at a LIBOR Rate
(defined as LIBOR plus .4% to 1.0%, depending on maintenance of certain
financial covenants). The Company repaid the $50,000 outstanding under the
revolving credit facility in May 1997 (see Note 8).
The Restated Loan Agreement is unsecured and requires that the Company
maintain certain covenants including a leverage ratio, an interest ratio and
working capital of not less than $50,000. Additionally, the Restated Loan
Agreement also limits the Company's ability to mortgage, pledge, or dispose
of material assets, engage in certain transactions with affiliates and
imposes restrictions as to the type and quality of the Company's investments.
The Company was in compliance with all covenants of the Restated Loan
Agreement during fiscal 1997.
During fiscal 1995, a portion of the Company's 8% Convertible Subordinated
Debentures (the "Debentures") were outstanding. The Debentures were
convertible at any time prior to maturity into shares of the Company's common
stock at a conversion rate of $10.66 per share. The Debentures were called
for redemption in fiscal 1995 at a redemption price of 101.60% of the
principal amount of the Debentures, plus accrued interest thereon, resulting
in the conversion of approximately $26,162 of such Debentures into shares of
the Company's common stock.
Maturities of long-term debt subsequent to September 30, 1997, are $780 in
1998 and $220 in 1999. Interest paid on the Company's debt obligations
totaled $2,331, $3,288 and $1,407 in fiscal 1997, 1996 and 1995,
respectively.
NOTE 8: SHAREHOLDERS' EQUITY
Common Stock
In May 1997, the Company completed the sale of 3,450,000 shares of its common
stock in an underwritten offering, resulting in net proceeds to the Company
approximating $101,103. A portion of these proceeds was used to repay the
$50,000 outstanding balance under the Company's existing bank revolving
credit facility.
Stock Option Plans
The Company has four employee stock option plans for officers and key
employees (the "Employee Plans") pursuant to which options may be granted at
100% of the market price of the Company's Common Stock on the date of grant.
Options may no longer be granted under two of the plans. Options granted
under the Employee Plans are exercisable at such dates as are determined in
connection with their issuance, but not later than ten years after the date
of grant.
The following summarizes all employee stock option activity for the three
years ended September 30, 1997:
September 30,
----------------------------------------------
1997 1996 1995
-------------- -------------- -------------
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------- ----- ------- ----- ------ -----
(Share amounts in thousands)
Options outstanding at
beginning of period 815 $15.08 618 $ 6.93 472 $ 5.30
Granted or reissued 552 12.00 259 32.84 350 8.06
Exercised (231) 7.72 (37) 6.24 (130) 4.21
Terminated or canceled (64) 15.94 (25) 10.60 (74) 6.66
----- ----- ---- ----- ---- -----
Options outstanding at
end of period 1,072 $15.05 815 $15.08 618 $ 6.93
====== ===== ==== ===== ==== =====
Options exercisable at
end of period 132 $12.35 223 $ 6.47 147 $ 4.52
====== ===== ====
The Company also maintains a stock option plan for non-officer directors (the
"Director Plan") pursuant to which options to purchase 5,000 shares of the
Company's Common Stock at an exercise price of 100% of the market price on
the date of grant are issued to each non-officer director each year. Options
to purchase 132,000 shares at an average exercise price of $16.20 were
outstanding under the Director Plan at September 30, 1997, of which options
to purchase 34,000 shares were currently exercisable. Options to purchase
39,000 shares under the Director Plan were exercised during 1997.
At September 30, 1997, a total of 2,496,428 shares of the Company's Common
Stock were reserved for issuance in connection with the Company's stock
option plans.
Stock-Based Compensation
As permitted under Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123"), the Company has
elected to follow Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB No. 25"), in accounting for stock options
granted to employees. Under APB No. 25, the Company generally recognizes no
compensation expense in the income statement with respect to such grants.
Pro forma information regarding net income and earnings per share is required
by SFAS No. 123 for options granted after October 1, 1995 as if the Company
had accounted for its stock option grants to employees under the fair value
method of SFAS No. 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,
-----------------
1997 1996
------- -------
Expected dividend yield $0.00 $0.00
Expected stock price volatility 71.00% 71.00%
Risk-free interest rate 6.16% 6.16%
Expected life (years) 6 6
For pro forma purposes, the estimated fair value of the Company's stock
options to employees is amortized over the options' vesting period. The
Company's pro forma information follows:
Fiscal Year Ended
September 30,
-----------------
1997 1996
------- -------
(in thousands except
per share amounts)
Weighted average fair value of options granted $8.22 $22.47
Net income - as reported $38,319 $11,847
Net income - pro forma 37,069 11,120
Earnings per share - as reported $1.78 $0.60
Earnings per share - pro forma $1.72 $0.56
SFAS No. 123 is effective for stock options granted by the Company commencing
October 1, 1995. Options granted before October 1, 1995 have not been valued
and no pro forma compensation expense has been recognized.
Employee Stock Purchase Plan
Through March 31, 1995, the Company maintained an Employee Stock Purchase
Plan which allowed employees to purchase the Company's Common Stock at 85% of
the market value on the first or last day of the offering period, whichever
was lower. On March 31, 1995, 119,016 shares were sold to employees at a
price of $4.675 per share, pursuant to this plan. Effective April 1, 1995
this Plan was discontinued.
NOTE 9: EMPLOYEE BENEFIT PLANS
The Company has a non-contributory defined benefit pension plan covering
substantially all U.S. employees. 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 will no longer change as a result of an
employee's length of service or compensation. The benefit freeze resulted in
the recognition of a $1,050 net curtailment gain in fiscal 1996, which was
offset by recognition of a $1,050 prior unrecognized loss.
Net pension cost for the U.S. plan comprises the following:
Fiscal Year Ended September 30,
-------------------------------
1997 1996 1995
------ ------ ------
Service cost-benefits earned
during the period $ -- $ 151 $ 563
Interest cost on projected
benefit obligations 776 760 797
Recognition of prior unrecognized loss -- 1,050 --
Recognition of net curtailment gain -- (1,050) --
Actual return on plan assets (980) (570) (859)
Net amortization and deferral 260 (250) (226)
Recognition of past service costs -- 75 --
--- ------ -----
Net pension expense of U.S. plan $ 56 $ 166 $ 275
=== ====== ====
Weighted average discount rate 7.50% 7.50% 7.75%
Rate of increase in future compensation * * 4.00%
Expected long-term return on assets 7.00% 7.00% 9.00%
* Not applicable due to the December 31, 1995 benefit freeze.
The funded status of the U.S. plan follows:
September 30,
-------------------
1997 1996
------- -------
Accumulated benefit obligation, including
vested benefits of $11,198 and $10,002,
respectively $11,198 $10,340
====== ======
Projected benefit obligation for service
rendered to date $11,198 $10,340
Plan assets at fair value, primarily mutual
fund investments and U.S. Treasury bills 10,372 9,770
------ ------
Excess of projected benefit obligation
over plan assets (826) (570)
Unrecognized net implementation asset -- --
Unrecognized net loss 1,245 1,025
Unrecognized prior service cost -- --
------ ------
Prepaid pension cost $ 419 $ 455
====== ======
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 that these plans are substantially fully funded as to vested
benefits. On a consolidated basis, pension expense was $991, $629 and $618 in
fiscal 1997, 1996 and 1995, 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 $1,793, $1,580 and $118 in fiscal 1997, 1996 and 1995,
respectively, and were satisfied by contribution of shares of Company common
stock, valued at the market price on the date of the matching contribution.
NOTE 10: INCOME TAXES
Income before income taxes consisted of the following:
Fiscal Year Ended September 30,
-------------------------------
1997 1996 1995
------- ------- -------
United States operations $32,879 $ (361) $31,249
Foreign operations 18,903 15,991 24,364
------ ------ ------
$51,782 $15,630 $55,613
====== ====== ======
The provision for income taxes included the following:
Fiscal Year Ended September 30,
-------------------------------
1997 1996 1995
------- ------- -------
Current:
Federal $ 8,722 $ 2,523 $ 9,470
State 700 25 600
Foreign 3,797 3,360 3,439
Deferred:
Federal 244 (2,625) (898)
Foreign -- 500 180
------ ------- ------
$13,463 $ 3,783 $12,791
====== ======= ======
The provision for income taxes differed from the amount computed by applying
the statutory federal income tax rate as follows:
Fiscal Year Ended September 30,
-------------------------------
1997 1996 1995
------- ------- -------
Computed income tax expense based on
U.S. statutory rate $18,124 $ 5,471 $19,465
Effect of earnings of foreign
subsidiaries subject to
different tax rates (1,212) (1,017) (811)
Benefits from Israeli Approved
Enterprise Zones (1,049) (1,660) (1,470)
Benefits of net operating
loss and tax credit carryforwards
and change in valuation allowance (1,819) -- (3,493)
Non-deductible goodwill amortization 659 613 --
Provision for repatriation of
certain foreign earnings, including
foreign withholding taxes -- 500 180
Effect of revisions of prior year's
estimated taxes (205) 562 (505)
Benefits of Foreign Sales Corporation (985) (1,027) (533)
Other, net (50) 341 (42)
------ ------- ------
$13,463 $ 3,783 $12,791
====== ======= ======
Undistributed earnings of certain foreign subsidiaries for which taxes have
not been provided approximate $75,026 at September 30, 1997. Such
undistributed earnings are intended to be indefinitely reinvested in foreign
operations.
Deferred income taxes are determined based on the differences between the
financial reporting and tax bases of assets and liabilities as measured by
the current tax rates. The net deferred tax balance is comprised of the tax
effects of cumulative temporary differences, as follows:
September 30,
----------------
1997 1996
------ ------
Repatriation of foreign earnings,
including foreign withholding taxes $ 3,711 $ 3,711
Depreciable assets 1,832 1,870
Prepaid expenses and other 906 226
------ ------
Total deferred tax liability 6,449 5,807
------ ------
Inventory reserves 2,846 2,755
Warranty accrual 1,461 980
Other accruals and reserves 1,875 1,828
Acquired domestic NOL carryforwards 2,162 2,512
Foreign NOL carryforwards 2,492 1,519
Domestic tax credit carryforward -- 1,084
Deferred intercompany profit 1,788 2,009
------ ------
12,624 12,687
Valuation allowance (4,654) (5,115)
------ ------
Total deferred tax asset 7,970 7,572
------ ------
Net deferred tax asset $ 1,521 $ 1,765
====== ======
Realization of deferred tax assets associated with the net operating loss
carryforwards is dependent upon generating sufficient taxable income prior to
their expiration in the respective tax jurisdictions. The Company believes
there is a risk that certain of these net operating loss carryforwards may
expire unused and, accordingly, has established certain valuation allowances.
The valuation allowance at September 30, 1997 relates to acquired domestic
net operating loss carryforwards expiring through the year 2010 whose
realization is limited to the U.S. earnings of the acquired company and
foreign net operating loss carryforwards which are scheduled to expire
through the 2002 fiscal year. Although realization is not assured for the
remaining deferred tax assets, the Company believes it is more likely than
not that they will be realized through future taxable earnings or alternative
tax strategies. However, the net deferred tax assets could be reduced in the
near term if the Company's estimates of taxable income during the
carryforward period are significantly reduced or alternative tax strategies
are no longer viable. In the event that the tax benefits relating to acquired
net operating loss carryforwards are realized, such benefits would reduce the
recorded amount of goodwill.
The Company paid income taxes of $9,965, $11,699 and $8,109 in fiscal 1997,
1996 and 1995, respectively.
NOTE 11 - OPERATIONS BY GEOGRAPHIC AREA AND BUSINESS SEGMENT
The Company's market for its products is worldwide. Export sales (sales from
U.S. based operations directly to foreign based customers and sales to
foreign locations of U.S. based customers) totaled $122,490, $93,318 and
$78,435 for the fiscal years ended September 30, 1997, 1996 and 1995,
respectively. Export sales to Korean based customers accounted for
approximately 9% and 12% of total sales during fiscal 1997 and 1996,
respectively. In addition, a substantial portion of the Company's products
are sold to the Company's foreign subsidiaries which, in turn, sell to
foreign based customers. Total shipments of the Company's products with
ultimate foreign destinations (including export sales) comprised 85%, 79% and
78% of consolidated sales during the fiscal years ended September 30, 1997,
1996 and 1995, respectively. During fiscal 1997, total shipments to customers
located in Taiwan, Korea and Malaysia accounted for approximately 22%, 19%
and 13% of consolidated net sales, compared to 14%, 16% and 14%,
respectively, for the 1996 fiscal year.
Additional information by geographic area for the fiscal years ended
September 30, 1997, 1996 and 1995 is as follows:
Fiscal Year Ended September 30,
-------------------------------
1997 1996 1995
-------- -------- --------
Sales to unaffiliated customers:
United States $194,700 $173,110 $146,577
Hong Kong 223,421 138,859 143,429
Israel 1,582 1,312 773
Singapore 62,472 48,600 572
Rest of world 19,732 19,295 13,158
------- ------- -------
Consolidated $501,907 $381,176 $304,509
======= ======= =======
Transfers between geographic areas:
United States $256,222 $167,933 $158,543
Hong Kong 459 327 51
Israel 61,573 51,603 38,646
Singapore 406 76 --
Rest of world 401 392 24
Adjustments and eliminations (319,061) (220,331) (197,264)
------- ------- -------
Consolidated $ -- $ -- $ --
======= ======= =======
Total net sales:
United States $450,922 $341,043 $305,120
Hong Kong 223,880 139,186 143,480
Israel 63,155 52,915 39,419
Singapore 62,878 48,676 572
Rest of world 20,133 19,687 13,182
Adjustments and eliminations (319,061) (220,331) (197,264)
------- ------- -------
Consolidated $501,907 $381,176 $304,509
======= ======= =======
Operating income (loss):
United States $ 47,350 $ 7,704 $ 37,530
Hong Kong 13,873 11,672 14,841
Israel 8,658 10,531 9,004
Singapore (756) (789) (261)
Rest of world (1,782) (1,048) 3,125
Adjustments and eliminations (1,610) (3,086) (2,345)
------- ------- -------
Consolidated operating income (loss) 65,733 24,984 61,894
General corporate expenses (8,070) (7,566) (6,454)
Interest income (expense), net 820 (164) 173
Other expenses (6,701) (1,624) --
------- ------- -------
Income before taxes $ 51,782 $ 15,630 $ 55,613
======= ======= =======
Identifiable assets:
United States $122,061 $ 94,842 $ 95,989
Hong Kong 44,526 21,855 42,653
Israel 25,872 27,430 15,289
Singapore 42,762 42,096 238
Rest of world 16,441 10,489 11,991
Corporate assets 129,772 60,427 29,368
Adjustments and eliminations (4,615) (7,585) (4,499)
------- ------- -------
Total assets $376,819 $249,554 $191,029
======= ======= =======
Transfers between geographic areas were primarily sales of finished products
and spare parts and generally were priced at end customer selling prices,
with intercompany commissions paid to the selling subsidiary in the case of
machines, and at a discount off list price in the case of spare parts. Such
sales were primarily from the United States to the Company's sales and
service operations in Hong Kong and Japan, and from Israel to the United
States, and were eliminated in consolidation. Operating income (loss) by
geographic area did not include an allocation of general corporate expenses.
Corporate expenses consisted primarily of general and administrative expenses
which were not attributable to geographic regions. Identifiable assets were
those that could be directly associated with a particular geographic area.
Corporate assets consisted principally of cash, investments and the Company's
equity investment in FCT.
The Company operates primarily in two industry segments, its equipment
segment and its packaging materials segment. Packaging materials products
have different manufacturing processes, distribution channels and a less
volatile revenue pattern than the Company's capital equipment.
Operating results by business segment for the fiscal years ended September
30, 1997, 1996 and 1995 were as follows:
Packaging Corporate
Equipment Materials and
Segment Segment Eliminations Total
--------- --------- ------------ --------
September 30, 1997:
Fiscal Year Ended
- -------------------
Net sales $391,721 $110,186 $501,907
Cost of goods sold 228,854 89,148 318,002
------- ------ -------
Gross profit 162,867 21,038 183,905
Operating expenses 97,143 21,029 $ 8,070 126,242
------- ------ ------- -------
Operating profit (loss) $ 65,724 $ 9 ($8,070) $ 57,663
======= ====== ======= =======
Identifiable assets $159,124 $ 87,973 $129,722 $376,819
Capital expenditures 7,749 5,767 -- 13,516
Depreciation expense 5,977 2,968 -- 8,945
Packaging Corporate
Equipment Materials and
Segment Segment Eliminations Total
--------- --------- ------------ --------
September 30, 1996:
Fiscal Year Ended
- -------------------
Net sales $287,234 $ 93,942 $381,176
Cost of goods sold 164,221 75,270 239,491
------- ------- -------
Gross profit 123,013 18,672 141,685
Operating expenses 102,138 14,563 $ 7,566 124,267
------- ------- ------- -------
Operating profit (loss) $ 20,875 $ 4,109 $ (7,566) $ 17,418
======= ====== ====== =======
Identifiable assets $112,762 $ 76,365 $ 60,427 $249,554
Capital expenditures 9,669 8,359 -- 18,028
Depreciation expense 5,379 1,800 -- 7,179
Packaging Corporate
Equipment Materials and
Segment Segment Eliminations Total
--------- --------- ------------ --------
September 30, 1995:
Fiscal Year Ended
- -------------------
Net sales $283,835 $ 20,674 $304,509
Cost of goods sold 155,195 12,262 167,457
------- ------- -------
Gross profit 128,640 8,412 137,052
Operating expenses 71,880 3,278 $ 6,454 81,612
------- ------- ------- -------
Operating profit (loss) $ 56,760 $ 5,134 $ (6,454) $ 55,440
======= ======= ======= =======
Identifiable assets $155,962 $ 5,699 $ 29,368 $191,029
Capital expenditures 7,294 3,483 -- 10,777
Depreciation expense 4,265 465 -- 4,730
Intersegment sales are immaterial. Corporate assets principally comprised
cash, investments and the Company's equity investment in FCT. Capital
expenditures and depreciation expense for the corporate segment were
immaterial.
NOTE 12: OTHER FINANCIAL DATA
Accrued expenses at September 30, 1997 and 1996 include $13,455 and $8,990,
respectively, for accrued wages, incentives and vacations.
Maintenance and repairs expense totaled $4,316, $5,185 and $3,737 for fiscal
1997, 1996 and 1995, respectively. Warranty and retrofit expense was $5,788,
$2,326 and $5,085 for fiscal 1997, 1996 and 1995, respectively.
NOTE 13: COMMITMENTS AND CONTINGENCIES
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 Jerome H. Lemelson, alleging that
equipment supplied by the Company, and processes performed by such equipment,
infringe on patents held by Mr. Lemelson. A number of the Company's customers
have been sued by Mr. Lemelson. Certain customers have requested that the
Company defend and indemnify them against the claims of Mr. Lemelson, but, to
date, no customer who has settled with Mr. Lemelson has sought contribution
from the Company. The Company has received opinions from its outside patent
counsel with respect to certain of the Lemelson patents. The Company is not
aware that any equipment marketed by the Company, or process performed by
such equipment infringe on the Lemelson patents in question and does not
believe that the Lemelson matter or any other pending intellectual property
claim will have a material adverse effect on its business, financial
condition or operating results. 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 and
operating results.
The Israeli government has funded a portion of the research and development
costs related to certain products. The Company is contingently liable to
repay such funding through royalties to the Israeli government. Royalty
payments are due only upon sale of the funded products, are computed at
varying rates from 2% to 5% of such sales, and are limited to the amounts
received from the Israeli government. Royalty payments to the Israeli
government for the fiscal years ended September 30, 1997, 1996 and 1995
totaled $148, $351 and $192, respectively. At September 30, 1997, the Company
was contingently liable for royalties approximating $2,696 related to
potential future product sales.
NOTE 14: SELECTED QUARTERLY FINANCIAL DATA (unaudited)
Financial information pertaining to quarterly results of operations follows:
Year ended First Second Third Fourth
September 30, 1997: Quarter Quarter Quarter Quarter Total
- -------------------- ------- ------- ------- ------- ---------
Net sales $ 81,844 $121,491 $146,380 $152,192 $501,907
Gross profit 28,781 45,235 53,836 56,053 183,905
Income from operations (2) 1,861 14,727 19,901 21,174 57,663
Income before
income taxes $ 598 $ 12,904 $ 18,100 $ 20,180 $ 51,782
Income tax expense 179 3,602 4,571 5,111 13,463
------- ------- ------- ------- -------
Net income $ 419 $ 9,302 $ 13,529 $ 15,069 $ 38,319
======= ======= ======= ======= =======
Net income per share $ .02 $ .46 $ .62 $ .63 $ 1.78
======= ======= ======= ======= =======
Year ended First Second Third Fourth
September 30, 1996: Quarter Quarter Quarter Quarter(1) Total
- -------------------- ------- ------- ------- ------- ---------
Net sales $127,189 $115,374 $ 76,912 $ 61,701 $381,176
Gross profit 52,076 45,497 27,801 16,311 141,685
Income (loss) from
operations (2) 23,812 15,086 (3,328) (18,152) 17,418
Income (loss) before
income taxes $ 23,010 $ 15,078 $ (3,504) $(18,954) $ 15,630
Income tax
expense (benefit) 6,673 4,373 (1,016) (6,247) 3,783
------- ------- ------- ------- -------
Net income (loss) $ 16,337 $ 10,705 $ (2,488) $(12,707) $ 11,847
======= ======= ======= ======= =======
Net income (loss)
per share $ 0.82 $ 0.54 $ (0.13) $ (0.65) $ 0.60
======= ======= ======= ======= =======
(1) Results for the fourth quarter of fiscal 1996 include charges of
approximately $6.9 million, including the write-off of approximately
$2.8 million of excess and obsolete inventories, $1.2 million in
severance and benefit costs associated with the Company's August
1996 reduction in its worldwide work force, the write-off of
approximately $1.8 million of costs incurred in connection with the
discontinuation of the Willow Grove, PA facility expansion project,
and the $1.0 million write-down of the value of certain engineering
prototype machines to their net realizable value.
(2) Represents net sales less costs and expenses but before net interest
expense and other expense.
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 1998 Annual Meeting, which information is incorporated herein by
reference.
The information required by Item 401(b) of Regulation S-K appears in Part I
hereof 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 1998 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 on page one and under the
heading "ELECTION OF DIRECTORS" in the Company's Proxy Statement for the 1998
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 1998 Annual Meeting,
which information is incorporated herein by reference.
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:
Report of Independent Accountants 20
Consolidated Balance Sheet at September 30, 1997 and 1996 21
Consolidated Income Statement for the fiscal years
ended September 30, 1997, 1996 and 1995 22
Consolidated Statement of Cash Flows for the fiscal years
ended September 30, 1997, 1996 and 1995 23
Consolidated Statement of Changes in Shareholders' Equity
for the fiscal years ended September 30, 1997,
1996 and 1995 24
Notes to Consolidated Financial Statements 25 - 39
(2) Financial Statement Schedules:
II - Valuation and Qualifying Accounts 44
All other schedules are omitted because they are not applicable or
the required information is shown in the financial statements or
notes thereto.
(3) Exhibits:
EXHIBIT
NUMBER ITEM
- ------- -------------------------------------------------------------------
2.1(a) Agreement and Plan of Acquisition dated September 14, 1995, between
the Company, Circle "S" Industries, Inc. and Certain Stockholders of
Circle "S" Industries, Inc., filed as Exhibit 2.1(a) to the
Company's Form 8-K dated October 2, 1995, is incorporated herein by
reference.
2.1(b) Agreement and Plan of Merger dated October 2, 1995, between the
Company, Kulicke and Soffa Acquisition Corporation and Circle "S"
Industries, Inc., filed as Exhibit 2.1(b) to the Company's Form 8-K
dated October 2, 1995, is incorporated herein by reference.
2.1(c) Escrow Agreement dated October 2, 1995, between the Company, Larry
D. Striplin, Jr. and Mellon Bank, N.A., filed as Exhibit 2.1(c) to
the Company's Form 8-K dated October 2, 1995, is incorporated herein
by reference.
3(i) The Company's Amended and Restated Articles of Incorporation, filed
as Exhibit 3(i) to the Company's Form 10-Q for the quarterly period
ended June 30, 1996, is incorporated herein by reference.
3(ii) The Company's By-Laws, as amended through June 26, 1990, filed as
Exhibit 2.2 to the Company's Form 8-A12G dated September 8, 1995, is
incorporated herein by reference.
4(i) Restated Loan Agreement between the Company and Midlantic Bank, N.A.
dated April 10, 1996, filed as Exhibit 4 to the Company's Form 10-Q
for the quarterly period ended March 31, 1996, is incorporated
herein by reference.
4(ii) Amendment dated December 16, 1996 to the Restated Loan Agreement
dated April 10, 1996 between the Company and PNC Bank, National
Association, successor by merger to Midlantic Bank, N.A.
10(i) Form of Officer's Loan Agreement, Note and Stock Pledge Agreement,
filed as Exhibit 13(a) to Registration Statement No. 2-65612 filed
September 28, 1979, is incorporated herein by reference.
10(ii) Form of Termination of Employment Agreement between the Company and
certain of its officers, filed as Exhibit 10(ii) to the Company's
Annual Report on Form 10-K for the fiscal year ended September 30,
1994, is incorporated herein by reference.*
10(iii) Agreement between the Company and Frederick W. Kulicke, Jr., filed
as Exhibit 10(iii) to Company's Annual Report on Form 10-K for the
year ended September 30, 1989, is incorporated herein by reference.*
10(iv) The Company's 1980 Employee Incentive Stock Option Plan, filed as
Exhibit 10(iv) to the Company's Annual Report on Form 10-K for the
year ended September 30, 1989, is incorporated herein by
reference.*
10(v) The Company's 1983 Employee Incentive Stock Option Plan, filed as
Exhibit 10(v) to the Company's Annual Report on Form 10-K for the
year ended September 30, 1989, is incorporated herein by reference.*
10(vi) The Company's 1988 Employee Incentive Stock Option and Non-Qualified
Stock Option Plan (as amended and restated effective October 8,
1996).*
10(vii) The Company's 1988 Non-Qualified Stock Option Plan for Non-Officer
Directors, as amended, filed as Exhibit 10(vii) to the Company's
Annual Report on Form 10-K for the year ended September 30, 1989, is
incorporated herein by reference.*
10(viii) The Company's 1994 Employee Incentive Stock Option and Non-Qualified
Stock Option Plan (as amended and restated effective October 8,
1996).*
10(ix) The Company's Executive Incentive Compensation Plan, As Amended
Through October 14, 1997.*
10(x) Gold Supply Agreement, as amended October 2, 1995 between American
Fine Wire Corporation, et al, and Rothschild Australia Limited,
filed as Exhibit 10.1 to the Company's Form 8-K dated September 14,
1995 as amended by Form 8-K/A on October 26, 1995, is incorporated
by reference.
10(xi) Agreement of Employment between Circle "S" Industries, Inc. and
Larry D. Striplin, Jr. dated January 2, 1990, filed as Exhibit 10
(xiii) to the Company's Annual Report on Form 10-K for the year
ended September 30, 1995, is incorporated herein by reference.*
10(xii) Amendment No. 1 to Agreement of Employment between Circle "S"
Industries, Inc. and Larry D. Striplin, Jr. dated May 1, 1995, filed
as Exhibit 10 (xiv) to the Company's Annual Report on Form 10-K for
the year ended September 30, 1995, is incorporated herein by
reference.*
10(xiii) Agreement between Circle "S" Industries, Inc. and Larry D. Striplin,
Jr. dated September 30, 1995, filed as Exhibit 10 (xv) to the
Company's Annual Report on Form 10-K for the year ended September
30, 1995, is incorporated herein by reference.*
10(xiv) The Company's November 1994 Officers' Deferred Compensation Plan*
10(xv) Operating Agreement of Flip-Chip Technologies, L.L.C. dated as of
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.
21 Subsidiaries of the Company.
23 Consent of Price Waterhouse LLP (Independent Accountants).
27 Financial Data Schedule.
* Indicates a Management Contract or Compensatory Plan.
(b) Reports on Form 8-K:
None
NOTICE
Item 14(a)3 lists and describes the Exhibits filed as a part of the Company's
Annual Report on Form 10-K for the fiscal year ended September 30, 1997. The
Company will provide to any shareholder copies of any such Exhibits upon
payment of a fee of $.50 per page. Requests for copies of such Exhibits
should be made to: Director of Investor Relations, Kulicke and Soffa
Industries, Inc., 2101 Blair Mill Road, Willow Grove, PA 19090.
KULICKE AND SOFFA INDUSTRIES, INC.
Schedule II-Valuation and Qualifying Accounts
(in thousands)
Charged
Balance Charged to to other Balance
at beginning costs and accounts- Deductions- at end
Description of period expenses describe describe of period
- ---------------- ------------ --------- -------- ---------- ---------
Year ended
September 30, 1995:
- --------------------
Allowance for
doubtful accounts $ 422 $ 826 $ -- $ 154(1) $ 1,094
======== ======= ===== ====== ======
Inventory reserve $ 6,636 $ 3,075(2) $ -- $ 1,958(3) $ 7,753
======== ======= ===== ====== ======
Valuation allowance
for deferred taxes $ 3,854 $ -- $ -- $ 3,247(4) $ 607
======== ======= ===== ====== ======
Year ended
September 30, 1996:
- --------------------
Allowance for
doubtful accounts $ 1,094 $ 178 $ -- $ 45(1) $ 1,227
======== ====== ===== ====== ======
Inventory reserve $ 7,753 $ 6,058(5) $ -- $ 2,056(3) $11,755
======== ====== ===== ====== ======
Valuation allowance
for deferred taxes $ 607 $ 1,996 $2,512(6) $ -- $ 5,115
======== ====== ===== ====== ======
Year ended
September 30, 1997:
- --------------------
Allowance for
doubtful accounts $ 1,227 $ 1,065 $ -- $ 143(1) $ 2,149
======== ====== ===== ====== ======
Inventory reserve $ 11,755 $ 4,153(6) $ -- $ -- $15,908
======== ====== ===== ====== ======
Valuation allowance
for deferred taxes $ 5,115 $ 623(7) $ -- $ 1,084(8) $ 4,654
======== ====== ===== ====== ======
(1) Bad debts written off.
(2) Amount includes $2,758 provision for excess and obsolete inventory.
(3) Disposal of excess and obsolete equipment and sales of demonstration
and evaluation inventory.
(4) Net change in valuation allowance for deferred tax assets.
(5) Amount includes $4,547 provision for excess and obsolete inventory.
(6) Represents the valuation allowance established for U.S. net
operating loss carryforwards acquired in connection with the AFW
acquisition.
(7) Reflects the increase in the valuation allowance associated with net
operating losses of the Company's Japanese subsidiary.
(8) Reversal of the valuation allowance related to US tax credits.
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 18, 1997
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 18, 1997
(Principal Executive Officer) and Director
/s/ CLIFFORD G. SPRAGUE
- ----------------------------
Clifford G. Sprague Senior Vice President December 18, 1997
(Principal Financial Officer) and Chief Financial
Officer
/s/ CURTIS A. MASSEY
- ----------------------------
Curtis A. Massey Vice President and December 18, 1997
(Principal Accounting Officer) Corporate Controller
/s/ JAMES W. BAGLEY
- ----------------------------
James W. Bagley Director December 18, 1997
/s/ FREDERICK W. KULICKE, JR
- ----------------------------
Frederick W. Kulicke, Jr. Director December 18, 1997
/s/ JOHN A. O'STEEN
- ----------------------------
John A. O'Steen Director December 18, 1997
/s/ ALLISON F. PAGE
- ----------------------------
Allison F. Page Director December 18, 1997
/s/ MACDONELL ROEHM, JR.
- ----------------------------
MacDonell Roehm, Jr. Director December 18, 1997
/s/ LARRY D. STRIPLIN, JR.
- ----------------------------
Larry D. Striplin, Jr. Director December 18, 1997
/s/ C. WILLIAM ZADEL
- ----------------------------
C. William Zadel Director December 18, 1997
EXHIBIT INDEX
EXHIBIT
NUMBER ITEM
- ------- -------------------------------------------------------------------
10(ix) The Company's Executive Incentive Compensation Plan, As Amended
Through October 14, 1997
10(xiv) The Company's November 1994 Officers' Deferred Compensation Plan
21 Subsidiaries of the Company
23 Consent of Price Waterhouse LLP (Independent Accountants)
27 Financial Data Schedule
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
Name Jurisdiction of Incorporation
- --------------------------------------- -----------------------------
Kulicke and Soffa AG Switzerland
Kulicke & Soffa (Asia) Limited Hong Kong
Kulicke and Soffa (Japan) Ltd. Japan and Delaware
Kulicke and Soffa (Israel) Ltd. Israel
Kulicke and Soffa Investments, Inc. Delaware
Micro-Swiss Limited Israel
Kulicke and Soffa Leasing, Inc. Delaware
Kulicke & Soffa Singapore, Inc. Delaware
Kulicke & Soffa Export, Inc. Barbados
AFWH Sub, Inc.
(Formerly Circle "S" Industries, Inc.) Alabama
American Fine Wire Corporation Alabama
American Fine Wire, Limited Cayman Islands
Dr. Muller Feindraht AG Switzerland
Semitec California
Certain subsidiaries are omitted; however, such subsidiaries, even if
combined into one subsidiary, would not constitute a "significant subsidiary"
within the meaning of Regulation S-X.
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses
constituting part of the Registration Statements on Form S-8 (Nos. 2-68488,
33-12453, 33-13577, 33-30884, 33-39265 and 333-0567) of Kulicke and Soffa
Industries, Inc. of our report dated November 13, 1997 appearing on page 20
of this Annual Report on Form 10-K.
/s/ PRICE WATERHOUSE LLP
- --------------------------
Philadelphia, Pennsylvania
December 18, 1997