A N D
2 0 0 0
R E P O R T
A N N U A L
F O R M 10 K
20
00
Your
Complete
ConnectionSM
Five Year Review
Fiscal Year Ended September 30,
Statement of Operations Data:
Net sales
Research and development expense, net
Research and development expense, net
as a percentage of sales
Interest income (expense), net
Net income (loss) (2)
Net Income as a percentage of sales
Net return on average equity
Net Income (Loss) Per Share: (3) *
Basic
Diluted
Average Shares Outstanding: *
Basic
Diluted
Balance Sheet Data:
Working Capital
Property, plant and equipment, net
Total assets
Long-term debt
Shareholders' equity
Other Selected Data:
Backlog
Current ratio
Capital expenditures
Depreciation expense
Book value per share
Total shares outstanding
Number of employees
1996 (1)
1997
1998
1999
2000
$381,176,000
$52,404,000
$501,907,000
$46,030,000
$411,040,000
$48,715,000
$398,917,000
$37,188,000
$899,273,000
$50,135,000
13.7%
$(164,000)
$11,847,000
3.1%
8.4%
$0.305
$0.30
9.2%
$820,000
$38,319,000
7.6%
17.4%
$.92
$.895
11.9%
9.3%
$5,514,000
$3,547,000
$(5,440,000)
(1.3%)
(1.9%)
$(16,946,000)
(4.2%)
(6.0%)
5.6%
$4,719,000
$103,245,000
11.5%
30.4%
$(.115)
$(.115)
$(0.36)
$(0.36)
$2.15
$1.90
38,750,616
39,576,292
41,742,222
42,856,070
46,602,888
46,602,888
46,846,574
46,846,574
47,932,000
56,496,000
$113,804,000
$41,143,000
$249,554,000
50,712,000
$147,489,000
$69,000,000
3.33/1
$18,028,000
$7,179,000
$7.59
38,865,918
1,897
$190,220,000
$45,648,000
$376,819,000
220,000
$291,927,000
$118,000,000
3.32/1
$13,516,000
$8,945,000
$12.56
46,474,346
2,229
$182,181,000
$48,269,000
$342,584,000
0
$167,131,000
$67,485,000
$378,145,000
0
$287,910,000
$274,776,000
$54,000,000
4.53/1
$16,062,000
$10,896,000
$12.32
46,734,186
2,057
$93,000,000
2.78/1
$10,891,000
$13,104,000
$11.70
46,978,360
2,239
$462,688,000
$83,867,000
$722,852,000
$175,000,000
$405,342,000
$143,000,000
4.67/1
$38,304,000
$20,121,000
$8.32
48,715,543
2,805
(1) IN FISCAL 1996, THE COMPANY ACQUIRED AMERICAN FINE WIRE COPRORATION.
(2) IN FISCAL 1997 AND 1996, THE COMPANY RECORDED PRETAX LOSSES OF $6,701,000 AND $994,000, RESPECTIVELY, REPRESENTING ITS PROPORTIONATE SHARE OF THE LOSS FROM ITS EQUITY
INVESTMENT IN FLIP CHIP TECHNOLOGIES, LLC ("FCT").
IN FISCAL 1998, THE COMPANY RECORDED A PRETAX LOSS OF $8,715,000 REPRESENTING ITS PROPORTIONATE SHARE OF THE LOSS FROM ITS EQUITY INVESTMENT IN FCT, THE COMPANY
ALSO INCURRED A ONE TIME RESIZING CHARGE OF $8,420,000 FOR SEVERANCE AND ASSET WRITE-OFFS AND A CHARGE OF $3,788,000 FOR INVENTORY RELATED ITEMS. SEE NOTE 2 TO
THE COMPANY’S CONSOLIDATED FINANCIAL STATEMENTS FOR A DETAILED DISCUSSION.
IN FISCAL 1999 THE COMPANY RECORDED PRETAX LOSSES AS FOLLOWS: $12,166,000 REPRESENTING ITS SHARE OF THE LOSS FROM FCT; $5,918,000 FOR SEVERENCE AND ASSET
WRITE-OFFS IN CONNECTION WITH THE MOVE OF IC BALL BONDER MANUFACTURING TO SINGAPORE AND RESIZING EFFORTS; $3,935,000 OF IN-PROCESS R&D IN CONNECTION WITH
THE PURCHASE OF THE X-LAM TECHNOLOGY; AND $837,000 FOR ITS PROPORTIONATE SHARE OF THE LOSS FROM ADVANCED POLYMER SOLUTIONS.
IN FISCAL 2000, THE COMPANY RECORDED THE REVERSAL OF A RESIZING RESERVE OF $2,548,000 ASSOCIATED WITH THE 1999 MOVE OF BALL BONDER MANUFACTURING TO SINGAPORE AND
A ONE-TIME CHARGE OF $3,871,000 ASSOCIATED WITH THE TERMINATION OF, AND WRITE-OFF OF THE REMAINING INVESTMENT IN, THE ADVANCED POLYMER SOLUTIONS JOINT VENTURE.
(3) FISCAL YEARS 1997 AND 1996 RESTATED TO REFLECT REQUIREMENT OF SFAS 128.
Per Share Price Of Common Stock*
Traded on the NASDAQ National Market System, NASDAQ Symbol-KLIC
Fiscal Year
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
High
18.375
12.750
10.250
7.313
1996
Low
11.000
7.563
6.625
4.375
High
11.125
15.000
17.813
29.188
1997
Low
5.250
9.375
10.375
15.500
1998
High
24.125
14.813
12.406
9.750
Low
8.250
8.125
6.938
5.750
1999
High
10.938
17.625
14.500
14.500
Low
4.688
8.813
9.500
9.563
High
22.625
43.656
40.313
33.125
2000
Low
9.906
19.594
19.938
13.125
The Company has not paid dividends since the 3rd Quarter of 1985.
At December 1, 2000, there were 620 shareholders of record.
* ADJUSTED FOR STOCK SPLIT EFFECTIVE JULY 31, 2000
In addition to historical information, this report contains statements relating to future events or our future results. These statements are forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Act of 1934 and are subject to the safe har-
bor provisions created by these statutes. See Item 1. “Business” and Item 7. “Management’s Analysis of Financial Condition and Results of Operations”
of our Annual Report on Form 10-K for the fiscal year ended September 30, 2000 for a discussion of important factors that could cause actual results to
differ significantly from those expressed or implied by forward-looking statements contained in this report.
To Our Shareholders
A Letter From the Chairman
After 20 years as CEO, you might think that writing this letter has become formalized; just plug in
last year’s numbers. But this last year denies a simplistic approach. On the one hand, the Company had a
truly fantastic year:
• Sales were a record $899,273,000, up 125% from 1999’s $398,917,000.
• Net income was another record at $103,245,000 or $1.90 per fully diluted share, compared
to a net loss of ($16,946,000) or ($0.36) per fully diluted share in 1999.
• Cash flow from operations exceeded $100,000,000.
• We successfully transferred ball bonder manufacturing to Singapore, all the while ramping
shipments, and delivering the cost reductions projected for this move.
• The strength of the semiconductor cycle drove capacity additions at almost all our other
business units, including Flip Chip Technologies, our joint venture involved with wafer
bumping and related technologies.
• Our product development activities continued apace, with new or upgraded product
offerings in most business units, most notably two new IC ball bonders – the 8028S and
8028PPS – replacing the highly successful 8028. Also significant is the market segmentation
inherent in the two models (the S and the PPS) replacing a single machine, reflecting
increasing sophistication in our marketing.
• We raised $175,000,000 through the issuance of convertible notes, which combined with
our internal cash flow, allowed us to make a pair of strategic acquisitions after the end of
the fiscal year: Cerprobe Corporation and Probe Technology Corporation. These two
acquisitions firmly positioned K&S in the semiconductor test interface business, and will
allow us to drive technology in that market in synch with our developments in assembly
interconnect.
On the other hand, and all these accomplishments notwithstanding, lately we’ve all seen the
seemingly daily earnings warnings from many high technology companies – K&S included – testifying to a
slowing economy and macro economic forces which none of us are immune to – not even businesses at the
infrastructure end of the so-called “New Economy”.
continued on next page
Our incoming order rate peaked in the summer, and has steadily declined since then, consistent
with lower semiconductor growth rates. Most forecasters predict a reacceleration in semiconductor activity in
the second half of 2001, but we’re not passively waiting for an order pick-up. Instead, our management team
(experienced in semiconductor industry cyclicality) is going through a well known drill: cut manufacturing
schedules, and make corresponding reductions in both direct and indirect labor, cut planned new hires, squeeze
G&A, but protect R&D and infrastructure development spending driven by the Company’s strategic plan.
Especially in times like these, that plan, with its implicit vision of what K&S can become, is the
foundation of our decision making process. That vision focuses on the idea of semiconductor assembly
interconnect – those technologies that connect an IC chip to the PC board it’s mounted to. We intend to
dominate this market space by providing the high leverage bits and pieces that go together to connect the
chip to the board. Our actual deliverables are diverse – capital equipment such as wire bonders, key materials
such as bonding wire or substrates, expendables like probe cards, services like wafer bumping, or even licensable
know-how – but will be unified by the idea of bringing to our customers solutions to their problem of building
smaller, more cost effective electronic systems with higher and higher levels of electronic functionality.
Unlike our order rate, these challenges are not cyclical, but create ever-increasing business
opportunities for K&S. We believe our successes this last year testify to our ability to meet these challenges,
and that our ongoing investment in R&D and in infrastructure development will create the foundation for
our next fantastic year.
C. Scott Kulicke
Chairman and Chief Executive Officer
December 18, 2000
A New Year.
A New Kulicke & Soffa.
Over the past six months, several significant changes have taken place at K&S — changes that
will dramatically affect the direction in the coming years.
With a combination of innovative internal development, key acquisitions, strategic partnerships
and joint ventures, we’re growing into much more than just the world’s leading wire bonder company.
We’re evolving into a complete chip assembly interconnect company. Even our new company tagline —
“Your Complete Connection” — is a symbol of our new direction.
This new corporate direction reflects the accelerating evolution of the various interconnect
technologies — wire bonding, flip chip and CSP — as well as the increasing need to combine those
different technologies to create novel, application-specific solutions maximizing system performance while
minimizing cost and size. And on top of all this, the next trend we need to turn to our advantage is the
convergence of chip level and board level assembly.
Adding More Value to Our Customer Relationships
We believe K&S is uniquely positioned to meet these challenges for our customers. We are using
our expertise and resources to create solutions which will allow our customers to get to market faster, with
lower cost, higher performance products — products which will drive their revenue and profitability.
Only K&S can deliver this added value to our industry. We do this three ways:
1) We’re continuing to extend and enhance the primary interconnect technologies — wire bonding,
flip chip, and CSP.
2) In part, through our recent acquisitions, we’re able to develop, in synch with the primary
interconnect technologies, critical enabling technologies such as high density substrates, probe
cards, and test sockets.
3) As the only company with this breadth of technologies, K&S can uniquely, and efficiently,
combine them as complete solutions for our customers.
Restructuring and Reorganizing for Easier Access
Everything we do at K&S is designed to deliver value to our customers. This includes making
our products and solutions easily and cost effectively accessible by our customer. That’s why we’ve recently
consolidated all the areas of the company that have customer contact into one group. This new Customer
Operations Group combines all our sales, service and distribution functions as well as customer support
and training.
Plus, we’re in the process of developing our eBusiness capabilities to streamline the availability
of all of K&S deliverables — machinery, assembly materials, expendables, services, and know-how —
to our customer base.
To maintain this position at the forefront of the industry, we’re continuing to make substantial
R&D initiatives. In fact, we invested over $50 million in R&D in 2000.
Expanding Our Role in the Industry
The coming years hold great promise for Kulicke & Soffa. We look forward to continuously
expanding our role as the leading supplier of assembly interconnect technology to the semiconductor
industry. As always, our over-arching mission is to provide customers with the most effective assembly
interconnect solutions.
It all comes down to being “Your Complete Connection.”
Your
Complete
ConnectionSM
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FORM 10-K
For the fiscal year ended September 30, 2000
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
(State or other jurisdiction of
incorporation or organization)
2101 Blair Mill Road, Willow Grove, PA
(Address of principal executive offices)
Registrant's telephone number, including area code: (215) 784-6000
Securities registered pursuant to Section 12(b) of the Act:
Securities registered pursuant to Section 12(g) of the Act:
None
23-1498399
(I.R.S. Employer
Identification No.)
19090
(zip code)
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, 2000 was approximately $442,379,000. (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, 2000, there were 48,763,663 shares of the Registrant's common stock, without par value, outstanding.
Documents Incorporated by Reference
Portions of the Registrant's Proxy Statement for the 2001 Annual Shareholders' Meeting to be filed prior to January 8, 2001
are incorporated by reference into Part III, Items 10, 11, 12 and 13 of this Report. Such Proxy Statement, except for the parts
therein which have been specifically incorporated by reference, shall not be deemed "filed" for the purposes of this Report on
Form 10-K.
[This page intentionally left blank]
90
KULICKE AND SOFFA INDUSTRIES, INC.
2000 Annual Report on Form 10-K
Table of Contents
Part I
Item 1.
Business
Item 2.
Properties
Item 3.
Legal Proceedings
Item 4.
Submission of Matters to a Vote of Security Holders
Part II
Item 5.
Market for the Registrants' Common Equity and Related Stockholder Matters
Item 6.
Selected Financial Data
Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Financial Statements and Supplementary Data
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 10.
Directors and Executive Officers of the Registrant
Item 11.
Executive Compensation
Part III
Item 12.
Security Ownership of Certain Beneficial Owners and Management
Item 13.
Certain Relationships and Related Transactions
Item 14.
Exhibits, Financial Statement Schedules and Reports on Form 8-K
Part IV
Page
2
10
11
11
11
12
14
30
30
85
85
85
85
85
86
1
PART I
In addition to historical information, this report contains statements relating to future events or our future results. These
statements are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Act of 1934, as amended (the “Exchange Act”), and are subject to the Safe Harbor provisions created by
statute. Such forward-looking statements include, but are not limited to, statements that relate to our future revenue, product
development, demand forecasts, competitiveness, gross margins, operating expense and benefits expected as a result of:
• The projected growth rates in the overall semiconductor industry, the semiconductor assembly equipment
market and the market for semiconductor packaging materials;
the anticipated development, production and licensing of our advanced packaging technology;
the successful integration of recent acquisitions into our company’s operating structure and expected growth
rates for these companies;
the projected continuing demand for wire bonders; and
the anticipated growing importance of the flip chip assembly process in high-end market segments.
•
•
•
•
Generally words such as “may,” “will,” “should,” “could,” “anticipate,” “expect,” “intend,” “estimate,” “plan,”
“continue,” and “believe,” or the negative of or other variation on these and other similar expressions identify forward-
looking statements. These forward-looking statements are made only as of the date of this report. We do not undertake to
update or revise the forward-looking statements, whether as a result of new information, future events or otherwise.
Forward-looking statements are based on current expectations and involve risks and uncertainties and our future results
could differ significantly from those expressed or implied by our forward-looking statements. These risks and uncertainties
include, without limitation those described under Item 1. Business and Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations.
Item 1. BUSINESS.
We design, manufacture and market capital equipment and packaging materials for sale to companies that manufacture
and assemble semiconductor devices. We also service, maintain, repair and upgrade assembly equipment. Today, we are
the world's largest supplier of semiconductor assembly equipment, according to VLSI Research, Inc. Our business is
currently divided into three segments: equipment, packaging materials and advanced packaging technology.
In November 2000 we acquired 100% of the stock of Cerprobe Corporation (referred to as Cerprobe) and in December
2000 we acquired 100% of the stock of Probe Technology Corporation (referred to as Probe Tech). Both Cerprobe and
Probe Tech design and manufacture semiconductor test interconnect solutions. The acquisitions are a step forward in the
Company’s strategy to offer the most complete, capable and cost-effective interconnect solutions. These two companies
will be merged together to create a test division and will be disclosed as a separate business segment for financial
reporting purposes.
Historically, the demand for semiconductors and our semiconductor assembly equipment has been volatile from period to
period. An upturn in the semiconductor industry that began in fiscal 1999 contributed to record revenues of $899.3
million, for fiscal year 2000. This represents an increase of 125% over revenues of $398.9 million for fiscal year 1999.
However, in early August and again in early November, we announced that customer order deferrals and push-outs would
impact financial performance in the fourth quarter of fiscal 2000 and the first half of fiscal 2001.
Kulicke and Soffa Industries, Inc. was incorporated in Pennsylvania in 1956. Our principal offices are located at 2101
Blair Mill Road, Willow Grove, Pennsylvania 19090 and our telephone number is (215) 784-6000.
Products and Services
We offer a broad range of semiconductor assembly equipment, packaging materials, advanced packaging technologies
and complementary services and spare parts used in the semiconductor assembly process. Set forth below is a table listing
the approximate percentage of our net sales by principal product for our fiscal years ended September 30, 1998, 1999 and
2000.
2
Wire bonders
Additional assembly equipment
Services and spare parts
Packaging materials
Advanced packaging technologies
Fiscal Year Ended
September 30,
1998
58%
7
8
27
--
100%
1999
2000
55% 69%
7
6
31
1
4
4
21
2
100% 100%
See Note 11 to our Consolidated Financial Statements for financial results by business segment.
Wire Bonders
Our principal product line is our family of wire bonders, which are used to connect extremely fine wires, typically made
of gold or aluminum, between the bond pads on the die and the leads on the integrated circuit (IC) package to which the
die has been bonded. We offer both ball and wedge bonders in automatic and manual configurations. Ball bonders
typically are used for leadframe-based and laminate-based packages, while wedge bonders typically are used for ceramic
packages. We believe that our wire bonders offer competitive advantages based on high productivity and superior process
control, enabling fine pitch bonding and long, low wire loops, which are needed to assemble advanced IC packages. The
selling prices for our automatic wire bonders range from $95,000 to over $200,000 and from $15,000 to $35,000 for
manual wire bonders, in each case depending on system configuration and purchase volume.
Our current generation of wire bonders, the 8000 family, required us to develop new software and many subassemblies
that were not part of our prior series of wire bonders. The first products in the 8000 family were the Model 8020 ball
bonder and Model 8060 wedge bonder. In the third quarter of fiscal 1999, we introduced the Model 8028 ball bonder,
which accounted for the majority of ball bonders we sold during fiscal 2000. In the third quarter of fiscal 2000 we
introduced two enhanced models – the 8028-S and 8028-PPS. The 8028-S offers approximately 10% more productivity,
while the 8028-PPS combines productivity enhancements with robust fine pitch capability. In the first quarter of fiscal
2000, we introduced the 8098, a large area ball bonder designed for processing large panels used for hybrids, chip-on-
board and multi-chip modules. The 8098 also supports wafer level bumping for flip chip and other area array
applications. We continue to market the Model 8060 wedge bonder, the Model 8090, a large area wedge bonder and the
4500 digital series of manual wire bonders.
As part of our strategy to reduce the manufacturing costs of our wire bonders, we transferred our automatic ball bonder
manufacturing from Willow Grove, Pennsylvania to Singapore in fiscal 2000.
Additional Semiconductor Assembly Equipment
In addition to wire bonders, we produce and distribute other types of semiconductor assembly equipment, including wafer
dicing saws, die bonders, solder sphere attachment systems, flip chip assembly systems and factory automation and
integration systems.
Dicing Saws. Dicing saws use diamond-embedded saw blades to cut silicon wafers into individual semiconductor
die. We produce and market the Model 7500, an automatic dicing saw, and the Model 7700 (introduced in fiscal
2000) twin spindle dicing saw which is capable of dicing 300 mm wafers. These dicing saws range in price from
$150,000 to more than $400,000.
Die Bonders. Die bonders are used to attach a semiconductor die to a leadframe or other package before wire
bonding. We have a 5 year distribution agreement with DATACON Semiconductor Equipment GmbH, an Austrian
company, principally to market their multi-chip module and flip chip die bonder product line worldwide, excluding
Europe. The die bonders range in price from $200,000 to more than $500,000, depending on configuration. We also
market the 2200 apm, an extremely accurate multi chip bonder developed by DATACON which range in price from
$300,000 to more than $600,000.
3
Solder Sphere Attachment Systems. During the fourth quarter of fiscal 2000, we introduced LaserPro, a solder
sphere attachment system, which combines the accuracy of the 8000 wire bonder platform with a laser and
proprietary ball placement system. LaserPro is used primarily for high volume, ultra fine pitch plastic ball grid array
and chip scale package production. It ranges in price from $300,000 to $350,000 including ball size kits.
Flip Chip Assembly Systems. Flip chip is an alternative assembly technique in which the die is inverted and
attached to the package or board using conductive bumps, thereby eliminating the need for conventional die or wire
bonding. The Model 2200 apm, manufactured by DATACON Semiconductor Equipment GmbH and distributed by
us, can be configured to support flip chip applications.
Factory Automation and Integration Systems. Factory systems include products and services designed to automate
data collection and material flow between process steps in semiconductor assembly. We are successfully marketing
the Knet, a PC-based information management system, as well as several software products for factory simulation
and lot management.
We also offer different configurations of some of our products for non-semiconductor applications. For instance, our
Model 7100 and Model 980 saws can be configured for cutting and grinding hard and brittle materials, such as ceramic,
glass and ferrite, that are used in the fabrication of chip capacitors, disk drive heads and optoelectronic materials and
range in price from $70,000 to more than $150,000.
Packaging Materials
We offer a range of packaging materials to semiconductor device assemblers which we sell under the brand names
''American Fine Wire,'' ''Micro-Swiss'' and ''Semitec.'' We have integrated these operating units with our equipment
groups, and intend to expand this business in an effort to increase our revenues from materials used in the assembly of
ICs. We also sell our packaging materials for use with competitors' assembly equipment. Our principal packaging
materials are:
Bonding Wire. American Fine Wire is a manufacturer of very fine (typically 0.001 inches in diameter) gold,
aluminum and copper wire used in the wire bonding process. American Fine Wire produces wire to a wide range of
specifications, which can satisfy most wire bonding applications.
Expendable Tools. The Micro-Swiss family of expendable tools includes capillaries, wedges, die collets, saw
blades and microspheres. Capillaries and wedges are used to feed out, attach and cut the wires used in wire bonding.
Die collets are used to pick up and place die into packages. Micro-Swiss brand hubless saw blades are used to cut
hard and brittle materials. Semitec manufactures hub blades that are used to cut silicon wafers into semiconductor
die.
In the fourth quarter of fiscal 2000, we decided not to devote additional capital to Advanced Polymer Solutions, a joint
venture with Polyset Company, Inc. which was established to develop, manufacture and market advanced polymer
materials for semiconductor and microelectronic packaging end users. This decision resulted in a write-off of $3.9
million representing our remaining investment in this venture. We have no further obligations or commitments to the joint
venture.
Services and Spare Parts
We believe that our knowledge and experience have positioned us to deliver innovative, customer-specific services that
reduce the cost of owning our equipment. Historically, our offerings in this area were limited to spare parts, customer
training and extended warranty contracts. In response to customer trends in outsourcing packaging requirements, we are
focusing on providing repair and maintenance services, a variety of equipment upgrades, machine and component rebuild
activities and expanded customer training through a Customer Solutions Group. These services are generally priced on a
time and materials basis. The service and maintenance arrangements are typically subject to bi-annual or multi-year
contracts.
4
Advanced Packaging Technologies
In February 1996, we entered into a joint venture agreement with Delco Electronics Corporation to license flip chip
technology and to provide wafer bumping services on a contract basis through Flip Chip Technologies, LLC. Flip Chip
Technologies intends to focus primarily on licensing its flip chip technology to customers. As of September 30, 2000,
Flip Chip Technologies had sold three bumping licenses, and we expect it to sell additional licenses in fiscal 2001. In
addition, Flip Chip Technologies is currently providing contract bump services to more than 20 customers, and continues
to ramp capacity at its Phoenix facility. Flip Chip Technologies also developed and markets a wafer level chip scale
package, named the Ultra CSPTM, aimed at the chip scale packaging market. A chip scale device has a surface area no
larger than 1.2 times the area of the die.
As of September 30, 2000, we owned 76.9% of Flip Chip Technologies. Under various operating agreements, we manage
Flip Chip Technologies jointly with Delco and have agreed not to compete with the joint venture. Flip Chip Technologies
has also entered into various agreements with Delco that are customary in similar joint venture arrangements.
We continuously evaluate investments in advanced packaging technologies. To that end, in fiscal 1999, we acquired the
X-LAM technology of MicroModule SystemsTM, a Cupertino, California company, to enable production of high density
substrates. We lease a 35,000 square foot manufacturing/research and development facility in Milpitas, California and are
currently shipping UltraViaTM high density substrate samples to customers for qualification.
To date, our Advanced Packaging Technology business has experienced losses. We expect these losses to continue as we
continue to develop our X-LAM technology, however, we expect the Flip Chip Technologies operation to be profitable in
fiscal 2001.
Investment in Test Products
In November 2000 we acquired 100% of the stock of Cerprobe for approximately $225.0 million in cash, including
transaction costs, and in December 2000 we acquired 100% of the stock of Probe Tech for approximately $65.0 million
in cash, including transactions costs. Both Cerprobe and Probe Tech design and manufacture semiconductor test
interconnect solutions. The acquisitions are a step forward in the Company’s strategy to offer the most complete, capable
and cost-effective interconnect solutions. These two companies will be merged together to create a test division and will
be disclosed as a separate business segment for financial reporting purposes.
Customers
Our major customers include large semiconductor manufacturers and subcontract assemblers worldwide. Some of these
major customers are:
Advanced Micro Devices
Advanced Semiconductor Engineering
Amkor Technologies
ChipPAC
Fujitsu
IBM
Infineon Technologies
Intel
Lucent Technologies
Micron Technology
Motorola
National Semiconductor
Orient Semiconductor Electronics
Philips Electronics
ST Microelectronics
Siliconware Precision
Texas Instruments
Sales to a relatively small number of customers have accounted for a significant percentage of our net sales. In fiscal
2000, sales to Advanced Semiconductor Engineering accounted for 15.3% of our total sales and sales to Amkor
Technologies accounted for 10.1% of our total sales. In fiscal 1999, no customer accounted for more than 10% of net
sales, but in fiscal 1998 sales to Intel accounted for 17.6% of our net sales.
5
We believe that developing long-term relationships with our customers is critical to our success. By establishing these
relationships with semiconductor manufacturers and subcontract assemblers, we gain insight into our customers' future IC
packaging strategies. This information assists us in our efforts to develop material, equipment and process solutions that
address our customers' future assembly requirements.
International Operations
We sell our products to semiconductor device manufacturers and contract manufacturers, which are primarily located in
or have operations in the Asia/Pacific region. Approximately 91% of our fiscal 2000 net sales, 83% of our fiscal 1999 net
sales and 80% of our fiscal 1998 net sales were for delivery to customer locations outside of the United States. The
majority of these foreign sales were destined to customer locations in the Asia/Pacific region, including Taiwan, Korea,
Malaysia, the Philippines, Singapore, Hong Kong and Japan. We expect sales outside of the United States to continue to
represent a substantial portion of our future revenues.
In addition, we maintain manufacturing operations in countries other than the United States, including operations located
in Israel, Singapore and Switzerland. Risks associated with our international operations include risks of foreign currency
and foreign financial market fluctuations, international exchange restrictions, changing political conditions and monetary
policies of foreign governments, war, civil disturbances, expropriation, or other events which may limit or disrupt
markets.
Sales and Customer Support
We operate a single sales management team to coordinate activities and improve customer support. Our direct sales
force, consisting of approximately 70 individuals at September 30, 2000, is responsible for the sale of all product lines,
including those of our equipment, packaging materials and advanced packaging technology businesses, to customers in
the United States and the Asia/Pacific region, including Japan. Lower volume product lines, as well as all equipment
sales to customers in Europe, are sold through a network of manufacturers' representatives.
We believe that providing comprehensive worldwide sales, service, training and support are important competitive
factors in the semiconductor equipment industry, and we have combined these functions into a customer operations
group. In order to support our U.S. and foreign customers whose semiconductor assembly operations are located in the
Asia/Pacific region, we maintain a significant presence in the region, with sales facilities in Hong Kong, Japan, Korea,
Taiwan, Malaysia, the Philippines and Singapore, a technology center in Japan and application labs in Singapore. We
also maintain customer resource centers in Taiwan, the Philippines and Singapore. We support our assembly equipment
customers worldwide with over 220 customer service and support personnel as of September 30, 2000, located in the
United States, Hong Kong, Japan, Korea, Malaysia, the Philippines, Singapore, Taiwan and Thailand. Our local presence
in the Asia/Pacific countries enables us to provide more timely customer service and support by positioning our service
representatives and spare parts near customer facilities, and affords customers the ability to place orders locally and to
deal with service and support personnel who speak the customer's language and are familiar with local country practices.
Backlog
At September 30, 2000, our backlog of orders approximated $143.0 million, compared to approximately $93.0 million at
September 30, 1999. Our backlog consists of product orders for which we have received confirmed purchase orders, and
which are scheduled for shipment within 12 months. Virtually all orders are subject to cancellation, deferral or
rescheduling by the customer with limited or no penalties. Because of the possibility of customer changes in delivery
schedules or cancellations and potential delays in product shipments, our backlog as of any particular date may not be
indicative of revenues for any succeeding quarterly period.
Manufacturing
Equipment. Our assembly equipment manufacturing activities consist primarily of integrating components and
subassemblies to create finished systems configured to customer specifications. During fiscal 2000, we performed system
design, assembly and testing in-house at our Willow Grove, Pennsylvania, Singapore and Haifa, Israel facilities, utilizing
an outsourcing strategy for the manufacture of many of our major subassemblies. We believe that outsourcing enables us
to minimize our fixed costs and capital expenditures and allows us to focus on product differentiation through system
6
design and quality control. Our just-in-time inventory management strategy has reduced our manufacturing cycle times
and limited our on-hand inventory. We have obtained ISO 9001 certification for our equipment manufacturing facilities
in Willow Grove, Pennsylvania, Singapore, and Haifa, Israel.
Packaging Materials. We manufacture our Micro-Swiss expendable tools at our facility in Yokneam, Israel and
our American Fine Wire product line, consisting of gold and aluminum bonding wire, at facilities in Selma, Alabama,
Singapore, and Thalwil, Switzerland. We plan to add a fourth American Fine Wire facility in Taiwan in fiscal 2001. We
manufacture our Semitec hub blades in Santa Clara, California. All three American Fine Wire facilities, as well as the
Semitec facility, have received ISO 9002 certification and the Micro-Swiss facility has received ISO 9001 certification.
Advanced Packaging Technology. We maintain manufacturing facilities in Phoenix, Arizona for Flip Chip
Technologies and in Milpitas, California for our X-LAM technology.
Research and Product Development
Because technological change occurs rapidly in the semiconductor industry, we devote substantial resources to our
research and development programs to maintain our competitiveness. We employed approximately 370 individuals in
research and development at September 30, 2000. We pursue the continuous improvement and enhancement of existing
products while simultaneously developing next generation products. For example, while the performance of current
generations of wire bonders is being enhanced in accordance with a specific continuous improvement plan, we are
simultaneously developing the next generation wire bonders. Much of the next generation equipment we are presently
developing is based on modular, interchangeable subsystems, including the 8000 control platform, which is promoting
more efficient and cost-effective manufacturing operations, lowering inventory levels, improving field service capabilities
and reducing product development cycles, and allowing us to introduce new products more quickly. In fiscal 2000, we
introduced two new bonders based on technology developed for earlier models of the 8000 family, the Model 8028-S, an
automatic ball bonder that offers increased accuracy and productivity over its predecessor, the Model 8028, and the
Model 8028-PPS, which combines productivity enhancements with robust fine pitch capability.
Our net expenditures for research and development totaled approximately $50.1 million, $37.2 million and $48.7 million
during the fiscal years ended September 30, 2000, 1999 and 1998, respectively. We have received funding from certain
customers and government agencies pursuant to contracts or other arrangements for the performance of specified research
and development activities. Such amounts are recognized as a reduction of research and development expense when
specified activities have been performed. During the fiscal years ended September 30, 2000, 1999 and 1998, such
funding totaled approximately $1.1 million, $1.3 million and $1.7 million, respectively.
Competition
The semiconductor equipment and packaging materials industries are intensely competitive. Significant competitive
factors in the semiconductor equipment market include performance, quality, customer support and price. Our major
equipment competitors include:
• ASM Pacific Technology, Shinkawa, Kaijo and ESEC in wire bonders;
• ESEC, Nichiden, ASM Pacific Technology and Alphasem in die bonders; and
• Disco Corporation in dicing saws.
Competitive factors in the semiconductor packaging materials industry include price, delivery and quality. Our significant
packaging materials competitors with respect to expendable tools and blades include:
• Gaiser Tool Co. and Small Precision Tools, Inc. in expendable tools; and
• Disco Corporation in blades;
and in the bonding wire market:
• Tanaka Electronic Industries and Sumitomo Metal Mining.
7
In each of the markets we serve, we face competition and the threat of competition from established competitors and
potential new entrants, some of which may have greater financial, engineering, manufacturing and marketing resources
than we have. Some of these competitors are Japanese or Korean companies that have had and may continue to have an
advantage over us in supplying products to local customers because many of these customers appear to prefer to purchase
from local suppliers, without regard to other considerations.
We expect our competitors to improve their current products' performance, and to introduce new products with improved
price and performance characteristics. New product introductions by our competitors or by new market entrants could
hurt our sales. If a particular semiconductor manufacturer or subcontract assembler selects a competitor's product for a
particular assembly operation, we may not be able to sell a product to that manufacturer or assembler for a significant
period of time because manufacturers and assemblers sometimes develop lasting relations with suppliers, and products in
our industry often go years without requiring replacement. In addition, we may have to lower our prices in response to
price-cuts by our competitors, which could materially and adversely affect our business, financial condition and operating
results. We cannot assure you that we will be able to continue to compete in these or other areas in the future.
Intellectual Property
Where circumstances warrant, we seek to obtain patents on inventions governing new products and processes developed as
part of our ongoing research, engineering and manufacturing activities. We currently hold a number of United States patents
some of which have foreign counterparts. We believe that the duration of our patents generally exceeds the life cycles of the
technologies disclosed and claimed in the patents. Although the patents we hold and may obtain in the future may be of
value, we believe that our success will depend primarily on our engineering, manufacturing, marketing and service skills.
In addition, we believe that much of our important technology resides in our proprietary software and trade secrets. As long
as we rely on trade secrets and unpatented knowledge, including software, to maintain our competitive position, there is no
assurance that competitors may not independently develop similar technologies and possibly obtain patents containing claims
applicable to our products and processes. The sale of our products covered by such patents could require licenses that may
not be available on acceptable terms, or at all. In addition, although we execute non-disclosure and non-competition
agreements with certain of our employees, customers, consultants, selected vendors and others, there is no assurance that
such secrecy agreements will not be breached.
Environmental Matters
We are subject to various federal, state, local and foreign laws and regulations governing, among other things, the
generation, storage, use, emission, discharge, transportation and disposal of hazardous materials and the health and safety
of our employees. In addition, we are subject to environmental laws which may require investigation and cleanup of any
contamination at facilities we own or operate or at third party waste disposal sites we use or have used. These laws could
impose liability even if we did not know of, or were not responsible for, the contamination.
We have in the past and will in the future incur costs to comply with environmental laws. We are not, however, currently
aware of any costs or liabilities relating to environmental matters, including any claims or actions under environmental
laws or obligations to perform any cleanups at any of our facilities or any third party waste disposal sites, that we expect
to have a material adverse effect on our business, financial condition or operating results. It is possible, however, that
material environmental costs or liabilities may arise in the future.
Employees
At September 30, 2000, we had 2,805 permanent employees, 34 temporary employees and 513 contract personnel
worldwide. Our only employees represented by a labor union are America Fine Wire's employees in Singapore.
Generally, we believe our employee relations to be good. Competition in the recruiting of personnel in the semiconductor
and semiconductor equipment industry is intense, particularly with respect to software engineering. We believe that our
future success will depend in part on our continued ability to hire and retain qualified management, marketing and
technical employees.
8
Executive Officers of the Company
The following table sets forth certain information regarding the executive officers of the Company.
Name
C. Scott Kulicke
Morton K. Perchick
Alexander A. Oscilowski
David A. Leonhardt
Charles Salmons
Clifford G. Sprague
Laurence P. Wagner
Age
51
63
41
42
45
57
40
First Became
an Officer
(calendar year) Position
1976
1982
1999
1997
1992
1989
1998
Chairman of the Board of Directors and Chief Executive Officer
Executive Vice President, Office of the President
Senior Vice President, Office of the President
Senior Vice President
Senior Vice President
Senior Vice President and Chief Financial Officer
Senior Vice President
C. Scott Kulicke: Chief Executive Officer since 1979 and Chairman of the Board since 1984. Prior to that he held a number of
executive positions with us. Mr. Kulicke also serves on the Board of Directors of General Semiconductor, Inc. and Xetel
Corporation.
Morton K. Perchick: Executive Vice President, Office of the President. He was appointed to our newly created Office of the
President in May 2000. Named Executive Vice President in July 1995. He joined us in September 1980 as Director, Quality
and Reliability. He became Vice President in 1982 and moved to general management in 1986, when he assumed responsibility
for operations. In 1990, he was appointed Senior Vice President/General Manager.
Alexander A. Oscilowski: Senior Vice President, Office of the President. He joined us in 1999 as Vice President of Strategic
Marketing. In May 2000, he was appointed to the newly created Office of the President. He joined SEMATECH in 1993 as
director of Assembly & Packaging and was director of Advanced Technology until January 1999. Previously, he served as
semiconductor packaging manager in the semiconductor operations unit for Digital Equipment and was an assembly manager,
packaging supervisor and process engineer at Texas Instruments.
David A. Leonhardt: Senior Vice President. He was promoted to Senior Vice President and Co-President of our Advanced
Bonding Systems Group in November 1999. In March 1998, he became Vice President and General Manager of the Equipment
Group, after serving as Vice President of Strategic Marketing since December of 1996. Prior to that, he spent four years as a
Director of our Ball Bonder Division and a year as Product Manager for Wedge Bonder Products.
Charles Salmons: Senior Vice President, Customer Operations. He was appointed Senior Vice President, Customer Operations
in 1999. He joined us in 1978, and has held positions of increasing responsibility throughout the accounting, engineering and
manufacturing organization. In 1994 he became Vice President of Operations and was named General Manager, Wire Bonder
Operations in 1998.
Clifford G. Sprague: Senior Vice President and Chief Financial Officer. He joined us as Vice President and Chief Financial
Officer in March 1989. In May 1990 he was promoted to Senior Vice President. Prior to joining us, he served for more than
five years as Vice President and Controller of the Oilfield Equipment Group of NL Industries, Inc., an oilfield equipment and
service company.
Laurence P. Wagner: Senior Vice President: He joined us in July 1998 as Senior Vice President and President of Packaging
Materials. In November 1999, he was promoted to Senior Vice President and Co-President of the Advanced Bonding Systems
Group. Previously he was with Emcore Corporation, where he was vice president of Emcore Electronic Materials. Prior to
1996, he worked for Shipley Company LLC, a Division of Rohm and Haas Company in a number of progressively responsible
positions.
9
Item 2. PROPERTIES.
Our major facilities are described in the table below:
Facility
Willow Grove,
Pennsylvania
Phoenix, Arizona
45,000 sq.ft. (2)
Approximate
Size
214,000 sq.ft. (1) Corp. headquarters,
Function
Products
Manufactured
Wire bonders
Lease
Expiration
Date
N/A
manufacturing, technology
center, sales and service
Technology center,
Manufacturing
Wafer bumping services
April 2006
Milpitas, California
35,000 sq.ft. (2)
Technology center
Laminate substrates
July 2006
Selma, Alabama
25,600 sq.ft. (2) Manufacturing, American
Bonding wire
October 2017
Fine Wire operations
Santa Clara,
California
13,600 sq.ft. (2) Manufacturing
Dicing saw blades
October 2003
Singapore
73,700 sq.ft (2) Manufacturing,
Wire bonders
September 2002
technology center,
assembly systems
Singapore
35,100 sq.ft. (2) Manufacturing, American
Bonding wire
May 2003
Fine Wire operations
Haifa, Israel
46,100 sq.ft. (2) Manufacturing,
technology center,
assembly systems
Manual wire bonders,
dicing saws and
automatic multi-process
assembly systems
April 2002
Yokneam, Israel
48,400 sq.ft. (1) Manufacturing, Micro-
Swiss operations
Capillaries, wedges and
die collets
N/A
Yokneam, Israel
12,000 sq.ft. (2) Manufacturing, Micro-
Hard material blades
April 2003
Tokyo, Japan
10,700 sq.ft. (2)
Swiss operations
Technology center,
sales and service
N/A
(3)
(3)
Thalwil,
Switzerland
Kaohsuing,
Taiwan
15,100 sq.ft. (2) Manufacturing, American
Bonding wire
28,406 sq.ft.
Fine Wire operations
Manufacturing, American
Fine Wire operations and
sales and service
Bonding wire
August 1, 2010
(1) Owned.
(2) Leased.
(3) Cancellable semi-annually upon six months notice.
We also rent space for sales and service offices in Horsham, Pennsylvania; Santa Clara, California; Mesa, Arizona;
Korea; Taiwan; Malaysia; the Philippines; and Hong Kong. We believe that our facilities generally are in good condition.
10
Item 3. LEGAL PROCEEDINGS.
From time to time, we are a plaintiff or defendant in various cases arising out of our usual and customary business. We cannot
assure you of the results of pending or future litigation, but we do not believe that resolution of these matters will materially and
adversely affect our business, financial condition or operating results.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Our common stock is traded on the Nasdaq National Market under the symbol ''KLIC.'' The following table lists the high and
low per share sale prices for our common stock for the periods indicated:
Fiscal 2000:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Fiscal 1999:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
High
Low
$ 22 5/8
43 21/32
40 5/16
33 1/8
$ 11 1 /2
19 19/32
19 15/16
13 1/8
$10 15/16
17 5/8
14 1/ 2
14 1/ 2
$ 4 11/16
8 13/16
9 1/ 2
9 9/16
On December 1, 2000, there were 620 holders of record of the shares of outstanding common stock.
The payment of dividends on our common stock is within the discretion of our board of directors. We do not currently pay cash
dividends on our common stock and we do not expect to declare cash dividends on our common stock in the near future. We
intend to retain earnings to finance the growth of our business. Our Gold Supply Agreement between American Fine Wire and its
subsidiaries and their gold supplier contains certain financial covenants and prohibits American Fine Wire from paying any
dividends or making any distributions without the consent of the supplier if, following the payment of the dividend or distribution,
the net worth of American Fine Wire is less than $7.0 million.
For the purposes of calculating the aggregate market value of the shares of our common stock held by nonaffiliates, as shown on
the cover page of this report, we have assumed that all the outstanding shares were held by nonaffiliates except for the shares held
by our directors and executive officers. However, this does not necessarily mean that all directors and executive officers of the
Company are, in fact, affiliates of the Company, or that there are not other persons who may be deemed to be affiliates of the
Company. Further information concerning shareholdings of executive officers, directors and principal shareholders is included in
our proxy statement relating to our 2001 Annual Meeting of Shareholders filed or to be filed with the Securities and Exchange
Commission.
11
Item 6. SELECTED FINANCIAL DATA.
The following selected consolidated financial data should be read in conjunction with our consolidated financial
statements, related notes and other financial information included elsewhere herein.
Statement of Operations Data:
Net sales:
Equipment
Packaging materials
Advanced packaging technology
Total net sales
Cost of goods sold:
Equipment
Packaging materials
Advanced packaging technology
Total cost of goods sold
Operating expenses:
Equipment(3)
Packaging materials(3)
Advanced packaging technology
Corporate (2)
Total operating expenses (3)
Income (loss) from operations:
Equipment
Packaging materials
Advanced packaging technology
Corporate (2)
Total income (loss) from operations
Interest, net
Equity in loss of joint ventures (4)
Other expenses
Income (loss) before taxes
Provision (benefit) for income taxes
Minority interest
Net income (loss)
Basic net income (loss) per common share (5)
Diluted net income (loss) per common share (5)
Shares used in per common share calculations:(5)
Basic
Diluted
Fiscal Years Ended September 30,
1996(1) 1997
1998
(in thousands, except per share amounts)
1999 2000
$287,234
93,942
--
$391,721 $302,107 $269,854 $ 692,062
185,570
21,641
108,933 124,450
4,613
-- --
110,186
381,176
501,907
411,040
398,917 899,273
163,844
75,270
228,854
89,148
-- --
318,002
239,114
191,948
82,259
--
274,207
188,958
90,326
6,098
285,382
102,515
14,563
97,143
21,029
107,083
24,553
92,157
23,500
--
7,566
8,070
124,644 126,242
--
-- 5,314
9,353
140,989
12,296
133,267
419,732
130,548
22,897
573,177
120,244
32,876
19,096
15,421
187,637
20,875 65,724
9
4,109
--
(7,566)
17,418
(164)
(994)
(630)
15,630
--
(8,070)
57,663
820
(6,701)
--
51,782
152,086
(11,261)
3,076
22,146
10,624
2,121
--
(20,352)
(6,799)
(9,353) (12,296) (15,421)
(4,156) (19,732) 138,459
4,719
3,547
5,514
(8,715) (10,000) (1,221)
-- --
141,957
--
(7,357)
(26,185)
3,783
--
$11,847
40,149
(8,221)
1,437
1,018
$ (5,440) $ (16,946) $103,245
$ 0.31 $ 0.92 $ (0.12) $ (0.36) $2.15
$ 0.30 $ 0.90 $ (0.12) $ (0.36) $1.90
13,463
--
$ 38,319
(1,917)
--
38,750
39,576
41,742 46,602
42,856 46,602
46,846
46,846
47,932
56,496
As of September 30,
1996 1997 1998 1999 2000
(in thousands)
Balance Sheet Data:
Cash, cash equivalents and short-term investments (7)
Working capital
Total assets
Long-term debt (6) (7)
Shareholders’ equity
$115,587 $106,900
190,220 182,181
376,819 342,584
220 --
291,927 287,910
$39,345
167,131
378,145
--
274,776
$58,422
113,804
249,554
50,712
147,489
$316,619
462,688
722,852
175,000
405,342
12
(1) The fiscal 1996 Consolidated Statement of Operations was reclassified for comparative purposes.
(2) In January 1999, we purchased the X-LAM technology and fixed assets used in the design, development and
manufacture of laminate substrates for $8.0 million. As a result of this purchase, we recorded a pre-tax charge of
approximately $3.9 million for the write-off of in-process research and development.
(3) In fiscal 2000, operating expense includes the write-off of $3.9 million, representing our remaining investment in
our Advanced Polymer Solutions joint venture and the reversal into income of $2.5 million of the severance reserve
which we established in fiscal 1999 for the elimination of approximately 230 positions associated with the relocation
of our automatic ball bonder manufacturing from the United States to Singapore. During fiscal 1999, we recorded a
pre-tax charge for severance of approximately $4.0 million and asset write-off costs of approximately $1.6 million
in connection with the above mentioned move to Singapore. In fiscal 1999, we also recorded approximately $0.4
million for severance related to the reduction in workforce that began in fiscal 1998. During fiscal 1998, we
recorded pre-tax charges of $8.4 million for severance and product discontinuance as a result of a slowdown in the
semiconductor industry. Of this amount $6.0 million was associated with the equipment business, $1.7 million with
the packaging materials business and $0.7 million was recorded in corporate expense. During fiscal 1996, we
recorded a pre-tax charge in the equipment business of approximately $3.0 million for severance and the write-off of
costs incurred in connection with the suspended Willow Grove facility expansion as a result of a slowdown in the
semiconductor industry.
(4) Equity in loss of joint ventures in fiscal 2000 consists solely of our share of the loss of Advanced Polymer
Solutions, LLC a 51% owned joint venture. Equity in loss of joint ventures in fiscal 1999 consists of $9.2 million of
our share of the loss of Flip Chip Technologies and $0.8 million of our share of the loss of Advanced Polymer
Solutions. Fiscal 1996, 1997 and 1998 consist solely of our share of the loss of Flip Chip Technologies.
(5) On June 26, 2000, the Company’s Board of Directors approved a two-for-one stock split of its common stock. Pursuant
to the stock split, each shareholder of record at the close of business on July 17, 2000 received one additional share for
each common share held at the close of business on that date. The additional shares were distributed on July 31, 2000.
All prior period earnings per share amounts have been restated to reflect the two-for-one stock split. For fiscal years
1998 and 1999 only the common shares outstanding have been used to calculate both the basic earnings per common
share and diluted earnings per common share because the inclusion of potential common shares would be anti-
dilutive due to the net losses reported in those years.
(6) Does not include letters of credit or foreign exchange contract obligations.
(7) In December 1999, we issued $175.0 million of convertible subordinated notes. In May 1997, we completed the sale
of 3,450,000 shares of our common stock in an underwritten offering, resulting in net proceeds of approximately
$101.0 million. A portion of these proceeds was used to repay the $50.0 million outstanding balance under the
Company's existing bank revolving credit facility.
13
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
In addition to historical information, this report contains statements relating to future events or our future results. These
statements are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Act of 1934, as amended (the “Exchange Act”), and are subject to the Safe Harbor provisions created by
statute. Such forward-looking statements include, but are not limited to, statements that relate to our future revenue, product
development, demand forecasts, competitiveness, gross margins, operating expense and benefits expected as a result of:
• The projected growth rates in the overall semiconductor industry, the semiconductor assembly equipment
market and the market for semiconductor packaging materials;
the anticipated development, production and licensing of our advanced packaging technology;
the successful integration of recent acquisitions into our company’s operating structure and expected growth
rates for these companies;
the projected continuing demand for wire bonders; and
the anticipated growing importance of the flip chip assembly process in high-end market segments.
•
•
•
•
Generally words such as “may,” “will,” “should,” “could,” “anticipate,” “expect,” “intend,” “estimate,” “plan,”
“continue,” and “believe,” or the negative of or other variation on these and other similar expressions identify forward-
looking statements. These forward-looking statements are made only as of the date of this report. We do not undertake to
update or revise the forward-looking statements, whether as a result of new information, future events or otherwise.
Forward-looking statements are based on current expectations and involve risks and uncertainties and our future results
could differ significantly from those expressed or implied by our forward-looking statements. These risks and uncertainties
include, without limitation those described under Item 1. Business and Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations.
Overview
We design, manufacture and market capital equipment and packaging materials for sale to companies that manufacture
and assemble semiconductor devices. We also service, maintain, repair and upgrade assembly equipment. Today, we are
the world's largest supplier of semiconductor assembly equipment, according to VLSI Research Inc. We sell our products
to semiconductor device manufacturers and contract manufacturers, which are primarily located in or have operations in
the Asia/Pacific region. Sales to customers outside of the United States accounted for 91% of net sales for fiscal 2000 and
are expected to continue to represent a substantial portion of our future revenues. To support our international sales, we
currently have major manufacturing operations in the United States, Israel and Singapore, sales facilities in Hong Kong,
Japan, Korea, Taiwan, Malaysia, the Philippines and Singapore, a technology center in Japan and applications labs in
Singapore. We also maintain customer resource centers in Taiwan, the Philippines and Singapore. We plan to open a new
manufacturing facility in Taiwan in fiscal 2001 to produce bonding wire.
In November 2000 we acquired 100% of the stock of Cerprobe Corporation (referred to as Cerprobe) and in December
2000 we acquired 100% of the stock of Probe Technology Corporation (referred to as Probe Tech). Both Cerprobe and
Probe Tech design and manufacture semiconductor test interconnect solutions. The acquisitions are a step forward in the
Company’s strategy to offer the most complete, capable and cost-effective interconnect solutions. These two companies
will be merged together to create a test division.
Historically, the demand for semiconductors and our semiconductor assembly equipment has been volatile from period to
period. An upturn in the semiconductor industry that began in fiscal 1999 contributed to record revenues of $899.3
million for fiscal year 2000. This represents an increase of 125% over revenues of $398.9 in fiscal 1999. However, in
early August and again in early November, we announced that customer order deferrals and push-outs would impact
financial performance in the fourth quarter of fiscal 2000 and the first half of fiscal 2001.
Our business is currently divided into three segments, with a fourth segment comprised of the operations of Cerprobe and
Probe Tech to be added in fiscal 2001.
14
Equipment
Through our equipment business we design, manufacture and market semiconductor assembly equipment. Our principal
product line is our family of wire bonders, which are used to connect extremely fine wires, typically made of gold or
aluminum, between the bonding pads on the die and the leads on the IC package to which the die has been bonded. We
are the world's largest manufacturer of wire bonders, according to VLSI. In fiscal 1999, we successfully introduced the
Model 8028 automatic ball bonder and with its superior technical performance and productivity accounted for the
majority of ball bonders we sold in fiscal 2000.
In fiscal 2000 we relocated our automatic ball bonder manufacturing from the United States to Singapore and were able
to ramp up production to historically high levels to meet the record demand.
Packaging Materials
Through our packaging materials business we design, manufacture and market a range of packaging materials to
semiconductor device assemblers including very fine (typically 0.001 inches in diameter) gold, aluminum and copper
wire, capillaries, wedges, die collets and saw blades. We expect to expand this business in an effort to increase our
revenues from materials used in the assembly of ICs.
In the fourth quarter of fiscal 2000, we decided not to devote additional capital to Advanced Polymer Solutions, a joint
venture with Polyset Company, Inc. which was established to develop, manufacture and market advanced polymer
materials for semiconductor and microelectronic packaging end users. This decision resulted in a write-off of $3.9
million representing our remaining investment in this venture. We have no further obligations or commitments to the joint
venture.
Advanced Packaging Technology
This business segment reflects the operating results of our strategic initiative to develop new technologies for advanced
semiconductor packaging. It is comprised of Flip Chip Technologies, LLC, a joint venture with Delco Electronics
Corporation, and our X-LAM business unit.
Through Flip Chip Technologies we license our flip chip technology and provide wafer bumping services. As of September
30, 2000, we owned 76.9% of Flip Chip Technologies. Under various operating agreements, we manage Flip Chip
Technologies jointly with Delco and have agreed not to compete with the joint venture. Flip Chip Technologies has also
entered into various agreements with Delco that are customary in similar joint venture arrangements.
We established our X-LAM business unit to develop, manufacture and market high density interconnect substrates using
either flip chip or advanced wire bonding interconnection schemes. We purchased the X-LAM technology for $8.0
million in fiscal 1999 and operate a research/manufacturing facility in Milpitas, California to fully develop and market
the technology. In fiscal 2000, we recorded an operating loss for the X-LAM business of $13.8 million and expect to
report a similar loss in fiscal 2001.
Neither Flip Chip Technologies nor X-LAM has been profitable to date. However, we expect operating income from Flip
Chip Technologies in fiscal 2001 to partially offset the expected losses at the X-LAM business unit.
15
The following table sets forth the percentage of our net sales from each business segment for the past three years:
Segment
Equipment
Packaging Materials
Advanced Packaging Technology
Total
Fiscal Year Ended
September 30,
1998
73 %
27
0
100 %
1999
2000
68 %
31
1
100 %
77 %
21
2
100 %
Net sales. We recognize net sales upon the shipment of products or performance of services. Provisions for estimated
product returns, warranty and installation costs are accrued in the period of sale recognition.
Our equipment sales depend on the capital expenditures of semiconductor manufacturers and subcontract assemblers
worldwide which, in turn, depend on the current and anticipated market demand for semiconductors and products using
semiconductors. The semiconductor industry historically has been highly volatile and has experienced periodic
downturns and slowdowns which have had a severe negative effect on the semiconductor industry's demand for capital
equipment. These downturns and slowdowns, coupled with the effect of the Asian economic crisis, adversely affected our
sales during the latter half of fiscal 1998 and the first half of fiscal 1999. However, the semiconductor business cycle
turned up in the second half of fiscal 1999 and resulted in record orders and shipments in fiscal 2000. Then in early
August and again in early November, we announced that customer order deferrals and push-outs would impact financial
performance in the fourth quarter of fiscal 2000 and the first half of fiscal 2001.
Our packaging materials sales depend on the same semiconductor manufacturers and subcontract assemblers as our
equipment sales. However, the volatility in demand for our packaging materials is less than that of our equipment sales
due to the consumable nature of the packaging materials. We expect to expand this portion of our business to help offset
the volatility of the equipment segment, and because the worldwide market for consumable packaging materials is larger
than the market for our semiconductor assembly equipment.
Our advanced packaging technology sales represent the sales from Flip Chip Technologies. We do not expect sales from
our X-LAM business unit in fiscal 2001.
Cost of goods sold. Our equipment cost of goods sold consists mainly of subassemblies, materials, direct and indirect
labor costs and other overhead. We rely on subcontractors to manufacture many of the components and subassemblies for
our products and we rely on sole source suppliers for some material components.
Packaging materials cost of goods sold consists primarily of gold, aluminum, direct labor and other materials used in the
manufacture of bonding wire, capillaries, wedges and other company products, with gold making up the majority of the
cost. Gold bonding wire is generally priced based on a fabrication charge per 1,000 feet of wire, plus the value of the
gold. To minimize our exposure to gold price fluctuations, we obtain gold for fabrication under a contract with our gold
supplier on consignment and only purchase the gold when we ship the finished product to the customer. Accordingly,
fluctuations in the price of gold are generally absorbed by our gold supplier or passed on to our customers. Since gold
makes up a significant portion of the cost of goods sold by the packaging materials segment, the gross profit margins will
be lower than can be expected in the equipment business.
Cost of goods sold in our Advanced Packaging Technology segment is currently comprised of material, labor and
overhead at Flip Chip Technologies. Our X-LAM operations will not report cost of goods sold until they begin to
generate revenues, which is not expected to occur until fiscal 2002.
Selling, general and administrative expense. Our selling, general and administrative expense is comprised primarily of
personnel costs, professional costs, information technology and depreciation expenses. We expect our selling, general
and administrative expenses to increase in fiscal 2001 as we include the operations of Cerprobe and Probe Tech and
increase spending on information technology to develop and implement corporate-wide e-business capabilities.
16
As a result of customer order deferrals and push-outs in the fourth quarter of fiscal 2000 and the first quarter of fiscal
2001, we are resizing our workforce by eliminating approximately 110 positions. We will record a resizing charge of
approximately $3.0 million in the first quarter of fiscal 2001 for severance and related costs associated with the
eliminated positions.
Research and development expense. Our research and development costs consist primarily of labor, prototype material and
other costs associated with our developmental efforts to strengthen our product lines and develop new products. For example
we introduced two new bonders, the Model 8028-S, an automatic ball bonder that offers increased accuracy and
productivity over its predecessor, and the Model 8028-PPS, which combines productivity enhancements with robust fine
pitch capability. Our research and development costs increased in fiscal 2000 and will increase further in fiscal 2001 as we
include the operations of Cerprobe and Probe Tech and we introduce our 35 micron bonding process solution.
Results of Operations
The table below shows principal line items from our historical consolidated statements of operations, as a percentage of
our net sales, for the three years ended September 30:
Fiscal Year Ended
Net sales
Costs of goods sold
Gross margin
Selling general and administrative
Research and development, net
Other costs
Income (loss) from operations
2000
September 30,
1999
100.0%
71.5
28.5
21.6
9.3
2.5
(4.9)%
1998
100.0%
66.7
33.3
20.4
11.9
2.0
(1.0)%
100.0%
63.7
36.3
15.2
5.6
.1
15.4%
Fiscal Years Ended September 30, 2000 and September 30, 1999
During the fiscal year ended September 30, 2000, we recorded record bookings of $949.0 million compared to $438.0
million in fiscal 1999. The $511.0 million increase in fiscal 2000 bookings reflected a significant improvement in
demand for semiconductor assembly equipment. At September 30, 2000, total backlog of customer orders approximated
$143.0 million compared to $93.0 million at September 30, 1999. Since the timing of deliveries may vary and orders are
generally subject to cancellation, our backlog as of any date may not be indicative of net sales for any succeeding period.
The upturn in the semiconductor business cycle throughout most of fiscal 2000 resulted in record net sales of $899.3 million,
an increase of $500.4 million or 125.4% above the prior fiscal year. Net sales increased sequentially each quarter beginning
in the third quarter of fiscal 1999 through the third quarter of fiscal 2000, however, due to customer order deferrals, net sales
in the fourth quarter of fiscal 2000 were below third quarter sales. We expect net sales in the first quarter of fiscal 2001 to be
between $140 million and $165 million.
Net sales in our equipment segment benefited the most from the upturn in the semiconductor business cycle and increased
by $422.2 million to $692.1 million in fiscal 2000 compared to $269.9 million in fiscal 1999, an increase of 156.5%. The
increase in equipment segment sales was driven by a strong demand for our automatic ball bonders. The higher
equipment segment sales in fiscal 2000 also reflected an increase in the average selling prices for our Model 8028, which
was the primary bonder sold in fiscal 2000, compared to the model 8020, which was the primary bonder sold in fiscal
1999. Packaging materials segment net sales increased $61.1 million to $185.6 million in fiscal 2000 from $124.5 million
in fiscal 1999. The higher packaging material segment net sales were due primarily to a higher volume of gold wire and
capillary shipments. Net sales of our advanced packaging technology segment reflect the sales of Flip Chip Technologies
for all of fiscal 2000 compared to sales of Flip Chip Technologies for only four months in fiscal 1999.
International sales (shipments of our products with ultimate foreign destinations) comprised 91% and 83% of our total
sales during fiscal 2000 and 1999, respectively. Sales to customers in the Asia/Pacific region, including Korea, Taiwan,
17
Malaysia, the Philippines, Japan, Singapore, Thailand and Hong Kong, accounted for approximately 83% and 74% of
our total sales in fiscal 2000 and 1999, respectively. During fiscal 2000, shipments to customers located in Taiwan, the
Philippines, Singapore, and Malaysia accounted for approximately 31%, 11%, 10% and 9% of net sales, compared to
23%, 11%, 11% and 10%, respectively, for the 1999 fiscal year.
Gross profit increased to $326.1 million in fiscal 2000 from $113.5 million in fiscal 1999 due primarily to the higher
volume of equipment segment sales in fiscal 2000. The higher gross profit in fiscal 2000 was also partially due to an
increase in gross profit as a percentage of sales (referred to as gross margin) of 7.8 percentage points to 36.3%. The
equipment segment contributed the majority of the improvement in gross profit and gross margin. Equipment segment
gross profit increased $191.4 million from the prior year to $272.3 million and its gross margin increased from 30.0% in
fiscal 1999 to 39.4% in fiscal 2000. The increase in equipment segment gross profit was primarily due to a 168%
increase in unit sales of automatic ball bonders. The improved equipment segment gross margin was due to a higher
average selling price of the automatic bonders sold in fiscal 2000 compared to fiscal 1999 due to the higher performance
levels of the Model 8028 compared to the Model 8020. Also, the average cost of a Model 8028 was less than the average
cost of a Model 8020 primarily due to the move of the manufacturing operation of our automatic ball bonders from the
United States to Singapore. The packaging materials segment gross profit and gross margin increased in fiscal 2000. The
higher gross profit was primarily due to the higher volume of gold wire and capillary shipments. The higher gross margin
was due to lower average cost of production resulting primarily from operating efficiencies from the higher unit volume
and a shift in production mix to higher margin fine pitch products. The overall gross profit and gross margin in fiscal
2000 were negatively impacted by a $1.3 million negative gross profit recorded by Flip Chip Technologies in our
advanced packaging technology segment.
Selling, general and administrative (referred to as SG&A) expenses increased to $136.2 million in fiscal 2000 from $86.2
million in fiscal 1999. The $50.0 million increase was due primarily to additional personnel and compensation expenses
associated with the growth in the size of the business in fiscal 2000 particularly in the equipment segment, the ramp-up of
the X-LAM research facility and the inclusion of the operating results of Flip Chip Technologies for a full fiscal year in
2000 compared to four months in the prior year.
Research and development costs increased to $50.1 million in fiscal 2000 from $37.2 million in the prior fiscal year. The
higher research and development expense resulted from increasing expenditures for new product development in our
equipment and packaging materials segments and reporting Flip Chip Technologies operations for a full year in 2000
compared to four months in the prior year and ramping up the X-LAM research capabilities. Gross research and
development expenditures were partially offset by funding received from customers and governmental subsidies totaling
$1.1 million in fiscal 2000 compared to $1.3 million in fiscal 1999.
In the fourth quarter of fiscal 2000, we reversed into income $2.5 million of the $5.6 million reserve which we
established in fiscal 1999 for the relocation of our automatic ball bonder manufacturing from Willow Grove,
Pennsylvania to Singapore. The reserve was established to reflect provisions for severance and asset write-off costs
resulting from the move. However, due to the significant increase in demand for microelectronics products we have
retained engineering and marketing positions which were planned for downsizing. In addition, the majority of the direct
and indirect manufacturing positions were eliminated through attrition in the workforce. The decision to retain the
engineering and marketing positions in the U.S. and attrition in the workforce reduced the amount of severance required
to be paid compared to the original estimate and resulted in the reversal of $2.5 million of the reserve. These relocation
activities are now complete.
In the fourth quarter of fiscal 2000, we decided not to devote additional capital to our joint venture with Polyset
Company, Inc. which was established to develop, manufacture and market advanced polymer materials for semiconductor
and microelectronic packaging end users. This decision resulted in a write-off of $3.9 million representing our remaining
investment in this venture. We have no further obligations or commitments to the joint venture.
Income from operations in fiscal 2000 was a record $138.5 million compared to a loss of $19.7 million in fiscal 1999.
The favorable results in fiscal 2000 were due primarily to the significant improvement in net sales resulting from our
capability to ramp-up our production with technologically superior bonding machines to take advantage of the demand
for our products created by the upturn in the semiconductor business cycle. Income from operations in fiscal 2000 was
also favorably impacted by an increase in gross profit as a percentage of net sales which was due primarily to the benefits
18
of the move of our automatic ball bonder manufacturing from the United States to Singapore.
Interest income increased by $8.6 million and interest expense increased by $7.5 million, both increases resulted
primarily from the issuance of $175.0 million of convertible subordinated notes in December 1999. Interest income was
also favorably impacted by an increase in short term investments resulting from cash generated by our record level of
income from operations and higher interest rates. See ''Liquidity and Capital Resources.''
Equity in loss of joint ventures decreased from $10.0 million in fiscal 1999 to $1.2 million in fiscal 2000 due primarily to
not recording Flip Chip Technologies under the equity method of accounting but rather reporting the operating results of
Flip Chip Technologies with the operating results of the company. In fiscal 2000, equity in loss of joint ventures consists
solely of our share of the loss from our 50% equity interest in Advanced Polymer Solutions, LLC which, as mentioned
above, we dissolved and wrote-off our remaining investment.
Our provision for income taxes in fiscal 2000 was $40.1 million compared to a benefit of $8.2 million in fiscal 1999.
The provision for income tax in fiscal 2000 was due to record pretax income reported in fiscal 2000. The effective tax
rate of the fiscal 2000 provision was 28%. The effective tax rate was favorably impacted by significant tax incentives we
received from Singapore as an incentive for us to relocate our automatic ball bonder manufacturing operation to
Singapore and from Israel for maintaining research and manufacturing facilities in Israel.
We recorded a minority interest in the net loss of Flip Chip Technologies of $1.4 million. The minority interest reflects
the portion of Flip Chip Technologies that is owned by Delco, our joint venture partner.
Our net income for fiscal 2000 was $103.2 million compared to a net loss of $16.9 million in fiscal 1999, for the reasons
enumerated above.
Fiscal Years Ended September 30, 1999 and September 30, 1998
During the 1999 fiscal year ended September 30, 1999, we recorded bookings of $438.0 million compared to $347.0
million during fiscal 1998. The $91.0 million increase in fiscal 1999 bookings occurred in the second half of fiscal 1999
and primarily reflected a significant improvement in demand for semiconductor assembly equipment. At September 30,
1999, total backlog of customer orders approximated $93.0 million compared to $54.0 million at September 30, 1998.
Since the timing of deliveries may vary and orders are generally subject to cancellation, our backlog as of any date may
not be indicative of net sales for any succeeding period.
Net sales for the 1999 fiscal year decreased by $12.1 million to $398.9 million from $411.0 million in fiscal 1998.
During the first half of fiscal 1999, net sales totaled $134.7 million, or $108.5 million lower than the same six month
period of fiscal 1998, reflecting the impact of the slowdown in the semiconductor industry which started in 1998.
However, as the semiconductor business cycle turned up in the second half of fiscal 1999, net sales increased over the
prior year in the third and fourth quarters by 20.8% and 101.3%, respectively. Net sales in our equipment segment
decreased by $32.3 million to $269.9 million in fiscal 1999 compared to $302.1 million in fiscal 1998. The lower
equipment segment sales were primarily due to significantly reduced demand for wedge bonders. We sold 117 wedge
bonders in fiscal 1999, a 71% or $48.1 million decline from the fiscal 1998 level. This was partially offset by higher
automatic ball bonder sales (approximately 2,000 machines sold in fiscal 1999 versus approximately 1,800 machines sold
in fiscal 1998). The increase in ball bonder sales primarily occurred in the second half of fiscal 1999, reflecting the
increased industry demand for semiconductor assembly equipment as well as the introduction of the new Model 8028 ball
bonder. The lower equipment segment sales in fiscal 1999 also reflect reduced average selling prices for our Model 1488
and Model 8020 ball bonders partially offset by improved pricing for the Model 8028. Packaging materials segment net
sales increased $15.6 million to $124.5 million in fiscal 1999 from $108.9 million in fiscal 1998. The higher packaging
material segment net sales were due primarily to a higher volume of gold wire and capillary shipments during the second
half of fiscal 1999. Net sales of our new advanced packaging technology segment reflect the sales of Flip Chip
Technologies for the four months ended September 30, 1999.
International sales (shipments of our products with ultimate foreign destinations) comprised 83% and 80% of our total
sales during fiscal 1999 and 1998, respectively. Sales to customers in the Asia/Pacific region, including Korea, Taiwan,
Malaysia, the Philippines, Japan, Singapore, Thailand and Hong Kong, accounted for approximately 74% and 73% of our
total sales in fiscal 1999 and 1998, respectively. During fiscal 1999, shipments to customers located in Taiwan,
19
Singapore, the Philippines and Malaysia accounted for approximately 23%, 11%, 11% and 10% of net sales, compared to
20%, 5%, 17% and 16%, respectively, for the 1998 fiscal year.
Gross profit decreased to $113.5 million for fiscal 1999 from $136.8 million in fiscal 1998 due primarily to the lower
volume of equipment segment sales in fiscal 1999. Gross profit margin decreased to 28.5% in fiscal 1999 from 33.3% in
fiscal 1998, due to lower gross profit margin in the equipment segment partially offset by higher gross profit margin in
the packaging materials segment. The gross profit margin in fiscal 1999 was also negatively impacted by a $1.5 million
negative gross profit recorded by our newly created advanced packaging technology segment. The equipment segment
gross profit margin decreased to 30.0% in fiscal 1999 from 36.5% in fiscal 1998 due primarily to the lower average
selling price for the segment's Model 1488 and 8020 ball bonders due to pricing competition and higher manufacturing
costs associated with the Model 8020 and a sharp decline in sales of our higher margin wedge bonder. The packaging
materials segment gross profit margin increased to 27.4% in fiscal 1999 from 24.5% in fiscal 1998 due primarily to
operating efficiencies resulting from the impact of cost improvement programs implemented in fiscal 1998, the favorable
impact of higher unit volumes of materials and higher margins on fine pitch products.
Selling, general and administrative expenses increased to $86.2 million in fiscal 1999 from $83.9 million in fiscal 1998.
The $2.3 million increase was due to $3.8 million of expenses associated with our new advanced packaging technology
business units and $1.6 million of start up expenses for our new Singapore manufacturing facility, partially offset by
lower selling, general and administrative expenses in our equipment segment. The lower selling, general and
administrative expenses in our equipment segment were due to lower payroll and related costs resulting from our resizing
efforts to reduce our workforce in late fiscal 1998 and early fiscal 1999.
Research and development costs decreased to $37.2 million in fiscal 1999 from $48.7 million in the prior fiscal year. Our
lower research and development expense was due to lower payroll and related costs resulting from our efforts to reduce
our workforce in late fiscal 1998 and early fiscal 1999. We focused our research and development efforts on new product
introductions (e.g., the Model 8028 ball bonder) and new product development. Gross research and development
expenditures were partially offset by funding received from customers and governmental subsidies totaling $1.3 million
in fiscal 1999 compared to $1.7 million in fiscal 1998.
We recorded resizing costs of $5.9 million in fiscal 1999 reflecting provisions for severance and asset writeoff costs
resulting from the announced move of our automatic ball bonder manufacturing to Singapore and additional severance in
connection with the reduction in our workforce. At September 30, 1999, we had accrued liabilities of $4.0 million in
connection with these severance costs, the majority of which will be paid in fiscal 2000. We also recorded resizing costs
of $7.4 million and an impairment of goodwill of $1.0 million in fiscal 1998 for severance, asset writeoffs and other costs
in response to the industry-wide slowdown in orders for semiconductor assembly equipment and to a lesser extent
semiconductor packaging materials.
In January 1999, we purchased the X-LAM technology and fixed assets used in the design, development and manufacture
of laminate substrates for $8.0 million. In fiscal 1999, we recorded a charge of approximately $3.9 million for in-process
research and development representing the appraised value of products still in the development stage that had not reached
technological feasibility and an operating loss of $3.0 million.
Loss from operations in fiscal 1999 was $19.7 million compared to a loss of $4.2 million in fiscal 1998. The unfavorable
variance in fiscal 1999 was due primarily to an operating loss at our equipment business of $11.3 million compared to
operating income of $3.1 million in the prior year and a loss at our new advanced packaging technology business of $6.8
million. The operating loss in our equipment business was due to lower net sales and gross profit margin and one-time
charges for the move to Singapore and workforce reductions. The operating losses in our equipment and advanced
packaging technology businesses were partially offset by an increase of $8.5 million in operating income in the packaging
materials business. Additionally, as described previously, we recorded a $3.9 million write-off of in-process research and
development relating to the acquisition of the X-LAM technology.
Interest income, net of interest expense, decreased by $2.0 million in fiscal 1999 compared to fiscal 1998, primarily due
to lower short-term investments resulting from the use of cash throughout fiscal 1999 to fund the net loss, working
capital, capital expenditures and investments in new business initiatives.
20
Equity in Loss of Joint Ventures increased from $8.7 million in fiscal 1998 to $10.0 million in fiscal 1999. Our share of
the pre-tax loss in Flip Chip Technologies for the eight months ended May 31, 1999 was $9.2 million versus $8.7 million
for all of 1998. In fiscal 1999 we recognized 100% of the loss at Flip Chip Technologies for the eight months ended May
31, 1999 compared to recognizing only 51.0% of the Flip Chip Technologies loss in fiscal 1998, for reasons previously
discussed. During fiscal 1999, we also recognized a $0.8 million loss from our 50% equity interest in Advanced Polymer
Solutions, LLC, a joint venture established in fiscal 1999 to develop, manufacture and market advanced polymer
materials for semiconductor and microelectronic packaging end users.
We recorded a tax benefit of $8.2 million in fiscal 1999. The effective tax rate of this benefit was 33%. We increased our
valuation allowance on foreign tax credit carryforwards, and continue to maintain a valuation allowance for deferred tax
assets related to the acquired domestic American Fine Wire net operating loss and net operating loss carry-forwards of
our Japanese subsidiary, because we cannot reasonably forecast sufficient future earnings by these subsidiaries to fully
utilize the net operating losses during the carryforward period. If we realize the benefits of the American Fine Wire
acquired net operating loss carryforward, the benefits would reduce the recorded amount of American Fine Wire
goodwill. We believe that all of the net operating loss benefits generated during the year will be realized in the
foreseeable future.
We recorded a minority interest in the net loss of Flip Chip Technologies of $1.0 million. The minority interest reflects
the portion (26.4%) of Flip Chip Technologies that was owned by Delco, our joint venture partner.
Our net loss for fiscal 1999 was $16.9 million compared to a net loss of $5.4 million in fiscal 1998, for the reasons
enumerated above.
Quarterly Results of Operations
The table below shows our quarterly net sales, gross profit and operating income (loss) by quarter for fiscal 2000 and
1999:
Fiscal 2000
Net sales
Gross profit
Income from operations
Fiscal 1999
Net sales
Gross profit
Income (loss) from operations
First
Quarter
$179,849
59,912
17,116
(in thousands)
Third
Quarter
$268,258
101,278
52,348
Second
Quarter
$222,153
75,600
29,834
Fourth
Quarter Total
$899,273
326,096
138,459
$229,013
89,306
39,161
First
Quarter
$61,175
16,176
(10,282)
Second
Quarter
Third
Quarter
Fourth
Quarter Total
$73,561 $110,806 $153,375 $398,917
113,535
(19,732)
21,025
(17,087)
45,960
8,413
30,374
(776)
The effect of the semiconductor industry upturn on our operating results is reflected in the quarterly results in the second half
of fiscal 1999 and fiscal 2000. The customer order deferrals and push-outs we announced in August and November of
2000 are reflected in the lower sales in the fourth quarter of fiscal 2000 compared to the third quarter of fiscal 2000.
Effect of Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS)
No. 133, “Accounting for Derivative Instruments and Hedging Activities.” SFAS No. 133, as amended by SFAS No.
138, is effective for fiscal years beginning after June 15, 2000. The standard requires that all derivative instruments be
recorded on the balance sheet at fair value. Changes in the fair value of derivatives are recorded in earnings or other
comprehensive income, based on whether the instrument is designated as part of a hedge transaction and, if so, the type
of hedge transaction. The company adopted this statement in the first quarter of 2001. The cumulative effect of adoption
was not material. The impact of SFAS No. 133 on the company’s future results will be dependent upon the fair values of
the company’s derivatives and related financial instruments and could result in increased volatility.
21
In December 1999, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 101 (“SAB
101”), “Revenue Recognition in Financial Statements”. The SAB summarizes certain of the Staff’s views in applying
generally accepted accounting principles to revenue recognition in the financial statements. We are required to begin
reporting changes to our revenue recognition policy in the fourth quarter of fiscal year 2001. Accordingly, any shipments
previously reported as revenue, including revenue reported for the first three quarters of fiscal 2001, that do not meet
SAB 101’s guidance will be recorded as revenue in future periods. Changes in our revenue recognition policy resulting
from the interpretation of SAB 101 would not involve the restatement of prior fiscal year statements, but would, to the
extent applicable, be reported as a change in accounting principle in the fiscal year ended September 30, 2001, with the
appropriate restatement of interim periods as required by SFAS No. 3 “Reporting Accounting Changes in Interim
Financial Statements.” Our reported results of operations for the 12 months ending September 30, 2001 may include a
cumulative adjustment for all prior annual and interim periods including an adjustment for revenue in the first quarter of
fiscal 2001 as if SAB 101 had been adopted on October 1, 2000. We believe that SAB 101, to the extent that it will
impact us, will not affect the underlying strength or weakness of our business operations as measured by the dollar value
of our product shipments and cash flows. We are currently assessing the full impact of SAB 101 on our reported financial
results.
In May 2000, the Emerging Issues Task Force (EITF) issued EITF No. 00-14, “Accounting for Coupons, Rebates and
Discounts” that addressed accounting for sales incentives. The Task Force concluded that in accounting for cash sales
incentives a manufacturer should recognize the incentive as a reduction of revenue on the later date of the manufacturer’s
sale or the date the offer is made to the public. The reduction of revenues should be measured based on the estimated
amount of incentives to be claimed by the ultimate customers. We must adopt this pronouncement in our fourth quarter
of fiscal 2001. We do not believe the adoption of this pronouncement will have a material impact on the Company’s
financial statements.
In September 2000, the EITF reached a final consensus on issue EITF No. 00-10, “Accounting for Shipping and
Handling Revenues and Costs.” The Task Force concluded that amounts billed to customers related to shipping and
handling should be classified as revenue. We currently classify shipping and handling revenue as a reduction of cost of
products sold. Further, the Task Force stated that shipping and handling cost related to this revenue should either be
recorded in costs of goods sold or the Company should disclose where these costs are recorded and the amount of these
costs. We must adopt this pronouncement in the fourth quarter of fiscal 2001. We do not believe adoption of this
pronouncement will have a material impact on our financial statements.
In March 2000, FASB Interpretation, or FIN, No. 44, “Accounting for Certain Transactions Involving Stock
Compensation - An Interpretation of APB Opinion No. 25,” was issued. FIN 44 clarifies the application of APB No. 25
for certain issues. FIN 44 clarifies the definition of employee for purposes of applying APB No. 25, the criteria for
determining whether a plan qualifies as a non-compensatory plan, the accounting consequences of various modifications
to the terms of a previously fixed option or award, and the accounting for an exchange of share compensation awards in a
business combination, among others. FIN 44 was effective July 1, 2000 but certain conclusions in this interpretation
cover specific events that occurred after either December 15, 1998 or January 12, 2000. FIN 44 did not have a
significant effect on our financial position or results of operations.
Liquidity and Capital Resources
As of September 30, 2000, our cash, cash equivalents and investments totaled $316.6 million compared to $39.3 million
at September 30, 1999. Additionally, on December 22, 2000 we entered into a new $60.0 million (reducing to $40
million over a three year period) bank revolving credit facility which replaced the revolving credit facility that had been
in place for several years. The new facility expires in December 2003. The borrowings are subject to our compliance with
financial and other covenants set forth in the revolving credit documents. At September 30, 2000, we had no cash
borrowings outstanding under the then existing facility, but had utilized $1.1 million of availability under that credit
facility to support letters of credit issued as security deposits for our manufacturing facility in Singapore and our X-LAM
facility. The terms of the credit facility in place at September 30, 2000, as well as the new credit facility, contain
limitations on the amount we can spend on acquisitions. The bank waived this limitation to permit the acquisitions of
Cerprobe and Probe Tech for which we paid approximately, $225.0 million and $65.0 million, in cash, respectively.
Borrowings bear interest either at a Base Rate (defined as the prime rate or the federal funds rate plus 1/2%) or, at a
LIBOR Rate (defined as LIBOR plus 1.0% to 2.0%, depending on our ratio of senior debt to earnings before interest,
22
taxes, depreciation and amortization).
In December 1999, we issued $175.0 million of convertible subordinated notes. The notes are general obligations of our
company and subordinated to all senior debt. The notes bear interest at 4 3/4%, are convertible into our common stock at
$22.8997 per share and mature on December 15, 2006. There are no financial covenants associated with the notes and
there are no restrictions on paying dividends, incurring additional debt or issuing or repurchasing our securities. Interest
on the notes is payable on June 15 and December 15 of each year. We may redeem the notes in whole or in part at any
time after December 18, 2002 at prices ranging from 102.714% at December 19, 2002 to 100.0% at December 15, 2006.
Cash generated from operating activities totaled $134.1 million during fiscal 2000 compared to cash used in operating
activities of $37.9 million in fiscal 1999 and cash generated of $21.7 in fiscal 1998. The cash generated from operating
activities in fiscal 2000 was primarily the result of our record net income partially offset by an increase in accounts
receivable and inventory to support the record sales volume.
At September 30, 2000, working capital was $462.7 million compared to $167.1 million at September 30, 1999. The
higher working capital was due primarily to the cash generated from the issuance of the $175.0 million of convertible
subordinated notes and cash generated from operations partially offset by higher accounts receivable and inventory to
support the higher sales volume.
During fiscal 2000, we invested approximately $38.3 million in property and equipment, primarily for leasehold
improvements and tooling for our new X-LAM manufacturing and research facility, our new Singapore ball bonder
facility and to increase manufacturing capacity for the packaging materials business. We presently expect fiscal 2001
capital spending to more than double as we upgrade and improve our information systems to develop and implement
corporate-wide e-business capabilities, increase our capacity at Flip Chip Technologies and X-LAM, open a new wire
manufacturing facility in Taiwan and continue to expand our manufacturing capabilities in our package materials
business. We will also invest capital in our newly acquired Cerprobe and Probe Tech businesses.
During fiscal 2000, we invested an additional $5.0 million in Flip Chip Technologies and increased our ownership
percentage from 73.6% to 76.9%. We expect to invest between $10 million and $15 million in additional capital in Flip
Chip Technologies in fiscal 2001 and to purchase Delphi Automotive Systems’ (Delco) share of Flip Chip Technologies.
In fiscal 2000, we contributed $2.2 million to our Advanced Polymer Solutions joint venture which we dissolved in the
fourth quarter of fiscal 2000. Our total investment in the joint venture was $6.0 million. We do not expect to make any
future investments in this business and are not obligated to do so.
The Israeli government has funded a portion of the research and development costs related to some of our products. We
are contingently liable to repay this funding through royalties to the Israeli government. Royalty payments are due only
after sale of the funded products, are computed at varying rates from 2% to 5% of the sales and are limited to the amounts
received from the Israeli government. At September 30, 2000, we estimate that contingent liabilities for royalties related
to potential future product sales are approximately $3.4 million.
We believe that anticipated cash flows from operations, our working capital, amounts available under our revolving
credit facility and the availability of additional credit facilities will provide sufficient cash required for the purchase of
Cerprobe and Probe Tech and to meet our liquidity and capital requirements for at least the next 12 months. However, we
may seek, as required, equity or debt financing to provide capital for corporate purposes and/or to fund strategic business
opportunities, including possible acquisitions, joint ventures, alliances or other business arrangements that could require
substantial capital outlays. We cannot determine the timing or amount of these potential capital requirements at this time
since they will depend on a number of factors, including demand for our products, semiconductor and semiconductor
capital equipment industry conditions, competitive factors and the nature and size of strategic business opportunities that
we may elect to pursue.
23
Risks Related to Our Business
Our quarterly operating results fluctuate significantly and may continue to do so in the future
In the past, our quarterly operating results have fluctuated significantly. Although these fluctuations are partly due to the
volatile nature of the semiconductor industry, they also reflect the impact of other factors, some of which are outside of
our control.
Some of the factors that could cause our revenues and/or operating margins to fluctuate significantly from period to
period are:
•
the mix of products that we sell because, for example:
- packaging materials generally have lower margins than assembly equipment,
- some lines of equipment are more profitable than others, and
- some sales arrangements have higher margins than others;
•
•
•
•
the volume and timing of orders for our products and any order postponements and cancellations by our
customers;
adverse changes in our pricing, or that of our competitors;
higher than anticipated costs of development or production of new equipment models;
the availability and cost of key components for our products;
• market acceptance of our new products and upgraded versions of our products;
•
•
•
our announcement of, or perception by others that we will introduce, new or upgraded products, which could
delay customers from purchasing our products;
the timing of acquisitions; and
our competitors' introduction of new products.
Many of our expenses, such as research and development and selling, general and administrative expenses, do not vary
directly with our net sales. As a result, a decline in our net sales would adversely affect our operating results. In addition,
if we were to incur additional expenses in a quarter in which we did not experience comparable increased net sales, our
operating results would decline. Factors that could cause our expenses to fluctuate from period to period include:
•
•
•
the timing and extent of our research and development efforts;
severance and other costs of relocating facilities or resizings in market downturns; and
inventory writeoffs due to obsolesence.
Because our revenues and operating results are volatile and difficult to predict, we believe that period-to-period
comparisons of our operating results are not a good indication of our future performance.
The semiconductor industry as a whole is volatile, as are our financial results
Our operating results are significantly affected by the capital expenditures of semiconductor manufacturers and
assemblers worldwide. Expenditures by semiconductor manufacturers and assemblers depend on the current and
anticipated market demand for semiconductors and products that use semiconductors, such as personal computers,
telecommunications, consumer electronics and automotive goods. Any significant downturn in the market for
24
semiconductor devices or in general economic conditions would likely reduce demand for our products and adversely
affect our business, financial condition and operating results.
Historically, the semiconductor industry has been volatile with sharp periodic downturns and slowdowns. These
downturns have been characterized by, among other things, diminished product demand, excess production capacity and
accelerated erosion of selling prices. This has severely and negatively affected the industry's demand for capital
equipment, including the assembly equipment that we manufacture and market and, to a lesser extent, the packaging
materials that we sell. These downturns and slowdowns have adversely affected our operating results. In the 1998
downturn, for example, our net sales declined from approximately $501.9 million in fiscal 1997 to $411.0 million in
fiscal 1998 and continued to decline in the first half of fiscal 1999. Downturns in the future could similarly adversely
affect our business, financial condition and operating results.
The integration of the acquisitions of Cerprobe Corporation and Probe Technology Corporation into our company’s
operating structure and expected growth rates for these companies may not be realized and our expected benefits
may not occur
In November 2000 we acquired 100% of the stock of Cerprobe Corporation for approximately $225.0 million in cash and
in December 2000 we acquired 100% of the stock of Probe Technology Corporation for approximately $65.0 million in
cash. Both Cerprobe and Probe Tech design and manufacture semiconductor test interconnect solutions. While the test
interconnect solutions that Cerprobe and Probe Tech design, manufacture and market are complimentary to our product lines,
we do not have in-house expertise or knowledge of these products or markets. We have invested a significant amount of cash
to acquire these companies and will invest a significant amount of management time and effort to integrate them into the
company’s operating structure, however, if we are unable to integrate them successfully or the expected growth rates for
these companies do not occur our business, financial condition and operating results could be materially affected.
Our business depends on attracting and retaining management, marketing and technical employees who are in
great demand
As is the case with all technology companies, our future success depends on our ability to hire and retain qualified
management, marketing and technical employees. Competition is intense in personnel recruiting in the semiconductor and
semiconductor equipment industries, particularly with respect to some engineering disciplines. In particular, we have
experienced periodic shortages of software engineers. If we are unable to continue to attract and retain the technical and
managerial personnel we require, our business, financial condition and operating results could be adversely affected.
We may not be able to rapidly develop and manufacture new and enhanced products required to maintain or
expand our business
We believe that our continued success will depend on our ability to continuously develop and manufacture or acquire
new products and product enhancements on a timely and cost-effective basis. We also must introduce these products and
product enhancements into the market in response to customers' demands for higher performance assembly equipment.
Our competitors may develop enhancements to, or future generations of, competitive products that will offer superior
performance, features and lower prices that may render our products noncompetitive. We may not be able to develop and
introduce products incorporating new technologies in a timely manner or at a price that will satisfy future customers'
needs or achieve market acceptance.
We may not be able to accurately forecast demand for our product lines
We typically operate our business with a relatively short backlog and order supplies and otherwise plan production based
on internal forecasts of demand. Due to these factors, we have in the past, and may again in the future, fail to accurately
forecast demand, in terms of both volume and configuration for either our current or next-generation wire bonders. This
has led to and may in the future lead to delays in product shipments or, alternatively, an increased risk of inventory
obsolescence. For example, we inaccurately forecasted demand for the Model 8020 wire bonder in 1998 and
consequently recorded writeoffs for excess inventory. Also, we underestimated the magnitude of the improvement in the
semiconductor industry at the end of fiscal 1999 and the demand for the new Model 8028 ball bonder; as a result some
customer shipments were delayed in fiscal 2000.
25
If we fail to accurately forecast demand for our products, our business, financial condition and operating results could be
materially and adversely affected.
Advanced packaging technologies other than wire bonding may render some of our products obsolete and our
strategy for pursuing these other technologies may be costly and ineffective
Advanced packaging technologies have emerged that may improve device performance or reduce the size of an integrated
circuit or IC package, as compared to traditional die and wire bonding. These technologies include flip chip, chip scale
packaging and tape automated bonding. In general, these advanced technologies eliminate the need for wires to establish
the electrical connection between a die and its package. For some assemblies, these advanced technologies have largely
replaced wire bonding. However, today most ICs still employ die and wire bonding technology, and the possible extent,
rate and timing of change is difficult, if not impossible, to predict. In fact, wire bonding has proved more durable than we
originally anticipated, largely because of its reliability and cost. However, we cannot assure you that the semiconductor
industry will not, in the future, shift a significant part of its volume into advanced packaging technologies, such as those
discussed above. Presently, Intel, Motorola, IBM and Advanced Micro Devices, for example, have developed flip chip
technologies for internal use, and a number of other companies are also increasing their investments in advanced
packaging technologies. If a significant shift to advanced technologies were to occur, demand for our wire bonders and
related packaging materials would diminish.
One component of our strategy is to develop the capacity to use advanced technologies to allow us to compete in those
portions of the market that currently use these advanced technologies and to prepare for any eventual decline in the use of
wire bonding technology. There are a number of risks associated with our strategy to diversify into new technologies:
• The technologies that we have invested in represent only some of the advanced technologies that may one day
supercede wire bonding;
• Other companies are developing similar or alternative advanced technologies;
• Wire bonding may continue as the dominant technology for longer than we anticipate;
• The cost of developing advanced technologies may be significantly greater than we expect; and
• We may not be able to develop the necessary technical, research, managerial and other related skills to develop,
produce, market and support these advanced technologies.
As a result of these risks, we cannot assure you that any of our attempts to develop alternative technologies will be
profitable or that we will be able to realize the benefits that we anticipate from them.
Because we have a small number of products, a decline in demand for, or the price of, any of our products could
cause our revenues to decline significantly
Historically, our wire bonders have comprised at least 55% of our net sales. If demand for, or pricing of, our wire
bonders declines because our competitors introduce superior or lower cost systems, the semiconductor industry changes
or because of other occurrences beyond our control, our business, financial condition and operating results would be
materially and adversely affected.
Because a small number of customers account for nearly all our sales, our revenues could decline if we lose any
significant customer
The semiconductor manufacturing industry is highly concentrated, with a relatively small number of large semiconductor
manufacturers and subcontract assemblers purchasing a substantial portion of semiconductor assembly equipment and
packaging materials. Sales to our five largest customers accounted for approximately 41.4% of our fiscal 1998 net sales,
31.7% of our fiscal 1999 net sales and 41.9% of our fiscal 2000 net sales. In fiscal 2000, sales to Advanced Semiconductor
Engineering accounted for 15.3 % of the Company’s net sales and sales to Amkor Technologies accounted for 10.1% of the
Company’s net sales. In fiscal 1999 no customer accounted for more than 10% of total net sales but in fiscal 1998, sales to
Intel accounted for 17.6% of the Company's net sales
26
We expect that sales of our products to a limited number of customers will continue to account for a high percentage of
our net sales for the foreseeable future. If we lose orders from a significant customer, or if a significant customer reduces
its orders substantially, these losses or reductions will adversely affect our business, financial condition and operating
results.
We depend on a small number of suppliers for materials and, if our suppliers do not deliver their products to us,
we may be unable to deliver our products to our customers
Our products are complex and require materials, components and subassemblies of an exceptionally high degree of
reliability, accuracy and performance. We rely on subcontractors to manufacture many of the components and
subassemblies for our products and we rely on sole source suppliers for some material components. Our reliance involves
a number of significant risks, including:
•
•
•
•
•
•
loss of control over the manufacturing process;
changes in our manufacturing processes, dictated by changes in the market, that have delayed our shipments;
our inadvertent use of defective or contaminated materials;
the relatively small operations and limited manufacturing resources of some of our contractors and suppliers,
which may limit their ability to manufacture and sell subassemblies, components or parts in the volumes we
require and at quality levels and prices we can accept;
reliability and quality problems we experience with certain key subassemblies provided by single source
suppliers; and
delays in the delivery of subassemblies, which, in turn, have caused delays in some of our shipments.
If we are unable to deliver products to our customers on time for these or any other reasons, or if we do not maintain
acceptable product quality or reliability in the future, our business, financial condition and operating results would be
materially and adversely affected.
We are expanding and diversifying our operations, and if we fail to manage our expanding and more diverse
operations successfully, our business and financial results may be materially and adversely affected
In recent years, we have broadened our product offerings to include significantly more packaging materials. Although our
strategy is to diversify our products and services, we may not be able to develop, acquire, introduce or market new
products in a timely or cost-effective manner and the market may not accept any new or improved products we develop,
acquire, introduce or market.
Our diversification into new lines of business and our expansion through acquisitions and alliances has increased, and is
expected to continue to increase, demand on our management, financial resources and information and internal control
systems. Our success depends in significant part on our ability to manage and integrate acquisitions, joint ventures and
other alliances and to continue to implement, improve and expand our systems, procedures and controls. If we fail to do
this at a pace consistent with the development of our business, our business, financial condition and operating results
would be materially and adversely affected.
As we seek to expand our operations, we expect to encounter a number of risks, which will include:
•
•
•
risks associated with hiring additional management and other critical personnel;
risks associated with adding equipment and capacity; and
risks associated with increasing the scope, geographic diversity and complexity of our operations.
In addition, sales and servicing of packaging materials and advanced technologies require different organizational and
managerial skills than sales of traditional wire bonding technology. We cannot assure you that we will be able to develop
27
the necessary skills to successfully produce and market these different products.
We sell most of our products to customers located outside of the U.S. and we have substantial manufacturing
operations located outside of the U.S., both of which subject us to risks from changes in trade regulations,
currency fluctuations, political instability and war
Approximately 80% of our net sales for fiscal 1998, 83% of our net sales for fiscal 1999 and 91% of our net sales for
fiscal 2000 were attributable to sales to customers for delivery outside of the United States. We expect our sales outside
of the United States to continue to represent a substantial portion of our future revenues. Our future performance will
depend, in significant part, on our ability to continue to compete in foreign markets, particularly in Asia. Asian
economies have been highly volatile, resulting in significant fluctuation in local currencies, and political and economic
instability. These conditions may continue or worsen, which could materially and adversely affect our business, financial
condition and operating results. In addition, we rely on non-U.S. suppliers for materials and components used in the
equipment that we sell. We also maintain substantial manufacturing operations in countries other than the United States,
including operations in Israel and Singapore. As a result, a major portion of our business is subject to the risks associated
with international commerce such as, risks of war and civil disturbances or other events that may limit or disrupt markets;
expropriation of our foreign assets; longer payment cycles in foreign markets; international exchange restrictions; the
difficulties of staffing and managing dispersed international operations; tariff and currency fluctuations; changing
political conditions; foreign governments' monetary policies; and less protective foreign intellectual property laws.
Because most of our foreign sales are denominated in United States dollars, an increase in value of the United States
dollar against foreign currencies, particularly the Japanese yen, will make our products more expensive than those offered
by some of our foreign competitors. Our ability to compete overseas in the future could be materially and adversely
affected by a strengthening of the United States dollar against foreign currencies.
The ability of our international operations to prosper also will depend, in part, on a continuation of current trade relations
between the United States and foreign countries in which our customers operate and in which our subcontractors have
assembly operations. A change toward more protectionist trade legislation in either the United States or foreign countries
in which we do business, such as a change in the current tariff structures, export compliance or other trade policies, could
adversely affect our ability to sell our products in foreign markets.
Our success depends in part on our intellectual property, which we may be unable to protect
Our success depends in part on our proprietary technology. To protect this technology, we rely principally on contractual
restrictions (such as nondisclosure and confidentiality agreements) in our agreements with employees, vendors,
consultants and customers and on the common law of trade secrets and proprietary ''know-how.'' We secondarily rely, in
some cases, on patent and copyright protection, which may become more important to us as we expand our investment in
advanced packaging technologies. We may not be successful in protecting our technology for a number of reasons,
including:
• Our competitors may independently develop technology that is similar to or better than ours;
• Employees, vendors, consultants and customers may not abide by their contractual agreements, and the cost of
enforcing those agreements may be prohibitive, or those agreements may prove to be unenforceable or more
limited than we anticipate;
• Foreign intellectual property laws may not adequately protect our intellectual property rights; and
• Our patent and copyright claims may not be sufficiently broad to effectively protect our technology; patents or
copyrights may be challenged, invalidated or circumvented; and we may otherwise be unable to obtain adequate
protection for our technology.
In addition, our partners in joint ventures and alliances may also have rights to technology we develop through those joint
ventures and alliances. If we are unable to protect our technology, we could weaken our competitive position or face
significant expense to protect or enforce our intellectual property rights.
Third parties may claim we are infringing on their intellectual property, which could cause us to incur significant
28
litigation costs or other expenses, or prevent us from selling some of our products
The semiconductor industry is characterized by rapid technological change, with frequent introductions of new products
and technologies. As a result, industry participants often develop products and features similar to those introduced by
others, increasing the risk that their products and processes may give rise to claims that they infringe on the intellectual
property of others. We may unknowingly infringe on the intellectual property rights of others and incur significant
liability for that infringement. If we are found to infringe on the intellectual property rights of others, we could be
enjoined from continuing to manufacture, market or use the affected product, or be required to obtain a license to
continue manufacturing or using the affected product. A license could be very expensive to obtain or may not be
available at all. Similarly, changing our products or processes to avoid infringing the rights of others may be costly or
impractical.
Occasionally, third parties assert that we are, or may be, infringing on or misappropriating their intellectual property
rights. In these cases, we will defend against claims or negotiate licenses where we consider these actions appropriate.
Intellectual property cases are uncertain and involve complex legal and factual questions. If we become involved in this
type of litigation, it could consume significant resources and divert our attention from our business.
Some of our customers have received notices of infringement from the Lemelson Medical, Education and Research
Foundation Limited Partnership (the ''Lemelson Foundation''), alleging that equipment we have supplied to our
customers, and processes this equipment performs, infringes on patents held by the Lemelson Foundation. These notices
increased substantially in 1998, the year in which the Lemelson Foundation settled its suit against the Ford Motor
Company, and entered into license agreements with Ford, GM and Chrysler. Since the settlement, a number of our
customers, including Intel, have been sued by the Lemelson Foundation.
Some of our customers have requested that we defend and indemnify them against the Lemelson Foundation's claims or
contribute to any settlement the customer reaches with the Lemelson Foundation. We have received opinions from our
outside patent counsel with respect to various Lemelson Foundation patents. We are not aware that any equipment we
market or that any process performed by our equipment infringes on the Lemelson Foundation patents and we do not
believe that the Lemelson Foundation matter or any other pending intellectual property claim against us will materially
and adversely affect our business, financial condition or operating results. The ultimate outcome of any infringement or
misappropriation claim affecting us is uncertain, however, and we cannot assure you that our resolution of this litigation
will not materially and adversely affect our business, financial condition and operating results.
Other Risks
Anti-takeover provisions in our Articles of Incorporation and Bylaws and Pennsylvania law may discourage other
companies from attempting to acquire us
Some provisions of our articles of incorporation and bylaws and of Pennsylvania law may discourage some transactions
where we would otherwise experience a change in control. For example, our articles of incorporation and bylaws contain
provisions that:
•
•
•
classify our Board of Directors into four classes, with one class being elected each year;
permit our Board to issue ''blank check'' preferred stock without shareholder approval; and
prohibit us from engaging in some types of business combinations with a holder of 20% or more of our voting
securities without super-majority board or shareholder approval.
Further, under the Pennsylvania Business Corporation Law, because our bylaws provide for a classified Board of
Directors, shareholders may only remove directors for cause. These provisions and some provisions of the Pennsylvania
Business Corporation Law could delay, defer or prevent us from experiencing a change in control and may adversely
affect our common stockholders' voting and other rights.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
29
At September 30, 2000, we had a non-trading investment portfolio of fixed income securities, excluding those classified as
cash and cash equivalents, of $101.5 million (see Note 5 of the Company’s Consolidated Financial Statements). These
securities, like all fixed income instruments, are subject to interest rate and exchange rate risk and may fall in value if market
rates change. If market interest rates were to increase immediately and uniformly by 10% from levels as of September 30,
2000, the fair market value of the portfolio would decline by approximately $600,000. We also had investments in equity
securities of $1.3 million at September 30, 2000 of which 100% of the portfolio is vulnerable to market risk.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated Financial Statements of Kulicke and Soffa Industries, Inc. and Cerprobe Corporation listed in the index appearing
under Item 14 (a)(1)(a), (b) and (c) herein are filed as part of this Report.
30
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Kulicke and Soffa Industries, Inc.:
In our opinion, the consolidated financial statements listed in the index appearing under Item 14 (a) (1) (a) on page 86
present fairly, in all material respects, the financial position of Kulicke and Soffa Industries, Inc. and its subsidiaries at
September 30, 2000 and September 30, 1999, and the results of their operations and their cash flows for each of the three
years in the period ended September 30, 2000 in conformity with accounting principles generally accepted in the United
States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item
14 (a) (2) on page 86 presents fairly, in all material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements. These financial statements and financial statement schedule are the
responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
November 16, 2000, except
as to Note 15, which is as of
November 30, 2000 and
December 8, 2000, and Note
16, which is as of December
22, 2000
31
KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
(in thousands)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (including time
deposits: 1999- $912; 2000 -$503)
Short-term investments
Accounts and notes receivable (less allowance for doubtful
accounts: 1999 - $1,727; 2000-$4,355)
Inventories, net
Prepaid expenses and other current assets
Refundable income taxes
Deferred income taxes
TOTAL CURRENT ASSETS
Property, plant and equipment, net
Intangible assets, primarily goodwill (net of accumulated amortization:
1999 - $10,276; 2000 - $13,781)
Investments in and loans to joint ventures
Other assets
TOTAL ASSETS
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable and current portion of long-term debt
Accounts payable
Accrued expenses
Income taxes payable
TOTAL CURRENT LIABILITIES
Long term debt
Other liabilities
Deferred Taxes
Minority interest
TOTAL LIABILITIES
COMMITMENTS AND CONTINGENCIES (Note 13)
SHAREHOLDERS' EQUITY:
Preferred stock, without par value:
Authorized - 5,000 shares; issued - none
Common stock, without par value:
Authorized - 200,000 shares; issued and
outstanding: 1999- 46,978; 2000- 48,716
Retained earnings
Accumulated other comprehensive loss
TOTAL SHAREHOLDERS' EQUITY
September 30,
2000
1999
$ 37,155
2,190
$211,489
105,130
136,047
61,782
9,906
2,934
11,071
261,085
188,485
74,034
9,748
--
--
588,886
67,485
83,867
44,637
2,940
1,998
$ 378,145
41,724
--
8,375
$722,852
$ 1,178
61,962
27,210
3,604
93,954
--
4,373
--
5,042
103,369
$1,026
62,513
51,935
10,724
126,198
175,000
7,967
4,148
4,197
317,510
--
--
160,108
189,766
117,018
220,263
(2,350) (4,687)
274,776
405,342
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$378,145
$722,852
The accompanying notes are an integral part of these consolidated financial statements.
32
KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share amounts)
Fiscal Year Ended September 30,
1998 1999 2000
Net sales
Cost of goods sold
Gross profit
Selling, general and administrative
Research and development, net
Resizing costs
Asset impairment
Purchased in-process research and development
$411,040
$398,917
$899,273
274,207
285,382
573,177
136,833
113,535
326,096
83,854
48,715
7,472
948
--
86,226
37,188
5,918
--
3,935
136,179
50,135
(2,548)
3,871
--
Income (loss) from operations
(4,156) (19,732)
138,459
Interest income
Interest expense
Equity in loss of joint ventures
Income (loss) before taxes
Provision (benefit) for income tax
Income (loss) before minority interest
Minority interest in net loss of subsidiary
Net income (loss)
5,776
(262)
(8,715)
(7,357)
(1,917)
(5,440)
--
$ (5,440)
3,762
(215)
12,418
(7,699)
(10,000) (1,221)
(26,185)
141,957
40,149
(8,221)
(17,964)
101,808
1,437
$103,245
$(16,946)
1,018
Net income (loss) per share:
Basic
Diluted
Weighted average shares outstanding:
Basic
Diluted
$(0.12)
$(0.12)
$(0.36)
$(0.36)
46,602
46,602
46,846
46,846
$2.15
$1.90
47,932
56,496
The accompanying notes are an integral part of these consolidated financial statements.
33
KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
Fiscal Year Ended September 30,
$103,245
$(16,946)
$ (5,440)
1998 1999 2000
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation and amortization
Tax benefit from exercise of stock options
Provision for doubtful accounts
Provision for impairment of assets
Deferred taxes
Provision for inventory reserves
Equity in loss of joint ventures
Minority interest in net loss of subsidiary
Purchased in-process research and development
Loss on write off and disposal of property and equipment
Non-cash employee benefits
Changes in working capital accounts, net of effect
of acquired businesses:
Accounts receivable
Inventories
Prepaid expenses and other assets
Refundable income taxes
Accounts payable and accrued expenses
Taxes payable
Other, net
Net cash provided by (used in) operating activities
(66,833) (55,490)
(14,700)
(19,267)
(4,801)
153
2,336
2,934
36,182
25,289
(42)
7,120
1,012
2,362
(37,929)
134,097
15,989
180
812
--
(8,463)
1,200
10,000
(1,018)
3,935
1,566
1,662
24,260
12,444
2,758
3,871
15,219
6,978
1,221
(1,437)
--
--
2,437
13,250
115
29
948
(1,087)
4,132
8,715
--
--
1,484
2,240
38,937
(6,103)
(912)
(5,270)
(24,568)
(4,561)
(185)
21,724
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases (proceeds) from investments classified
as available-for-sale, net
Purchases of plant and equipment
Purchase of X-LAM technology
Proceeds from sale of property and equipment
Investments in and loans to joint ventures
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Proceeds from debt offering
Payments on borrowings, including capitalized leases
Proceeds from issuances of common stock
Net cash provided by (used in) financing activities
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS
CHANGE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS AT:
BEGINNING OF YEAR
END OF YEAR
(22,283)
(16,062)
--
436
(14,500)
(52,409)
--
(808)
385
(423)
(19)
(31,127)
107,605
$ 76,478
28,075
(10,891)
(8,000)
--
(10,912)
(1,728)
--
(192)
280
88
246
(39,323)
76,478
$ 37,155
(103,046)
(38,304)
--
--
(2,152)
(143,502)
168,985
--
14,777
183,762
(23)
174,334
37,155
$211,489
The accompanying notes are an integral part of these consolidated financial statements.
34
KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(in thousands)
Balances at September 30, 1997
Employer contribution to the 401K plan
Exercise of stock options
Tax benefit from exercise of stock options
Components of comprehensive income:
Net loss
Translation adjustment
Unrealized gain on investments, net
Total comprehensive loss
Accumulated
Other
Common Stock
Shares
46,474
Amount
$155,246
Retained
Comprehensive Shareholders’
Earnings Income(Loss) Equity
$(2,723)
$139,404
$291,927
178
82
--
--
--
--
2,240
385
115
--
--
--
--
--
--
(5,440)
--
--
--
--
--
--
(1,433)
116
2,240
385
115
(5,440)
(1,433)
116
(6,757)
Balances at September 30, 1998
46,734
157,986
133,964
(4,040)
287,910
Employer contribution to the 401K plan
Exercise of stock options
Tax benefit from exercise of stock options
Components of comprehensive income:
Net loss
Translation adjustment
Unrealized loss on investments, net
Realized gain on investments included in
net loss, net
Minimum pension liability (net taxes of $413)
Total comprehensive loss
168
76
--
--
--
--
--
--
1,662
280
180
--
--
--
--
--
--
--
--
(16,946)
--
--
--
--
--
--
--
--
2,622
(115)
(49)
(768)
1,662
280
180
(16,946)
2,622
(115)
(49)
(768)
(15,256)
Balances at September 30, 1999
46,978
160,108
117,018
(2,350)
274,776
Employer contribution to the 401K Plan
Exercise of stock options
Tax benefit from exercise of stock options
Components of comprehensive income:
Net income
Translation adjustment
Unrealized loss on investments, net
Minimum pension liability (net of taxes
of $772)
Total comprehensive income
94
1,644
--
2,437
14,777
12,444
--
--
--
--
--
--
--
--
--
--
--
103,245
--
--
--
--
--
--
(884)
(20)
--
(1,433)
2,437
14,777
12,444
103,245
(884)
(20)
(1,433)
100,908
Balances at September 30, 2000
48,716
$189,766
$220,263
$(4,687)
$405,342
The accompanying notes are an integral part of these consolidated financial statements.
35
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These consolidated financial statements include the accounts of Kulicke and Soffa Industries, Inc. and its subsidiaries (the
"Company"), with appropriate elimination of intercompany balances and transactions.
Nature of Business - The Company manufactures capital equipment and packaging materials used in the assembly of
semiconductors. The Company's operating results primarily depend upon the capital expenditures of semiconductor manufacturers
and subcontract assemblers worldwide which, in turn, depend on the current and anticipated market demand for semiconductors
and products utilizing semiconductors. The semiconductor industry historically has been highly volatile and experienced periodic
downturns and slowdowns which have had a severe negative effect on the semiconductor industry's demand for semiconductor
capital equipment, including assembly equipment manufactured and marketed by the Company and, to a lesser extent, packaging
materials such as those sold by the Company. These downturns and slowdowns have also adversely affected the Company's
operating results. The Company believes such volatility will continue to characterize the industry and the Company's operations in
the future.
The semiconductor and semiconductor equipment industries are subject to rapid technological change and frequent new product
introductions and enhancements. The Company invests substantial amounts in research and development to continuously develop
and manufacture new products and product enhancements in response to demands for higher performance assembly equipment. In
addition, the Company continuously pursues investments in alternative packaging technologies. The Company's inability to
successfully develop new products and product enhancements or to effectively manage the introduction of new products into the
marketplace could have a material adverse effect on the Company's results of operations, financial condition and liquidity.
Management Estimates - The preparation of financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during
the reporting period. The more significant areas involving the use of estimates in these financial statements include allowances for
uncollectible accounts receivable, reserves for excess and obsolete inventory, warranties, carrying value and lives of fixed assets,
goodwill and intangible assets, valuation allowances for deferred tax assets and deferred tax liabilities for unrepatriated earnings.
Actual results could differ from those estimated.
Vulnerability to Certain Concentrations - Financial instruments which may subject the Company to concentration of credit risk at
September 30, 2000 and 1999 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, 2000 and 1999 included notes receivable of $4.0 million and $10,000 respectively. Writeoffs of uncollectible
accounts have historically been insignificant.
Sales to a relatively small number of customers account for a significant percentage of the Company's net sales. In fiscal 2000,
sales to Advanced Semiconductor Engineering accounted for 15.3 % of the Company’s net sales and sales to Amkor Technologies
accounted for 10.1% of the Company’s net sales. In fiscal 1999, no customer accounted for more than 10% of net sales. However,
in fiscal 1998, sales to Intel accounted for 17.6% of the Company's net sales. The Company expects sales of its products to a
limited number of customers will continue to account for a high percentage of net sales for the foreseeable future. At September
30, 2000, Advanced Semiconductor Engineering accounted for 14.4% of total accounts receivable. No other customer accounted
for more than 10% of total accounts receivable at September 30, 2000. The reduction or loss of orders from a significant customer
could adversely affect the Company's business, financial condition, operating results and cash flows.
36
The Company relies on subcontractors to manufacture to the Company's specifications many of the components or subassemblies
used in its products. Certain of the Company's products require components or parts of an exceptionally high degree of reliability,
accuracy and performance for which there are only a limited number of suppliers or for which a single supplier has been accepted
by the Company as a qualified supplier. If supplies of such components or subassemblies were not available from any such source
and a relationship with an alternative supplier could not be promptly developed, shipments of the Company's products could be
interrupted and re-engineering of the affected product could be required. Such disruptions could have a material adverse effect on
the Company's results of operations.
Cash Equivalents - The Company considers all highly liquid investments with original maturities of three months or less when
purchased to be cash equivalents.
Investments - Investments, other than cash equivalents, are classified as "trading," "available-for-sale" or "held-to-maturity", in
accordance with SFAS 115, and depending upon the nature of the investment, its ultimate maturity date in the case of debt
securities, and management's intentions with respect to holding the securities. Investments classified as "trading" are reported at fair
market value, with unrealized gains or losses included in earnings. Investments classified as available-for-sale are reported at fair
market value, with net unrealized gains or losses reflected as a separate component of shareholders' equity (accumulated other
comprehensive income (loss)). Investments classified as held-to-maturity are reported at amortized cost. Realized gains and losses
are determined on the basis of specific identification of the securities sold.
Inventories - Inventories are stated at the lower of cost (determined on the basis of first-in, first-out) or market. Due to the volatility
of demand for capital equipment and the rapid technological change in the semiconductor industry, the Company is vulnerable to
risks of excess and obsolete inventory. The Company generally provides reserves for equipment inventory considered to be in
excess of 6 months of forecasted future demand and provides reserves for spare part and consumables inventory considered to be in
excess of 18 months of forecasted future demand.
Property, Plant and Equipment - Property, plant and equipment are carried at cost. The cost of additions and those improvements
which increase the capacity or lengthen the useful lives of assets are capitalized while repair and maintenance costs are expensed as
incurred. Depreciation and amortization are provided on a straight-line basis over the estimated useful lives as follows: buildings
25 to 40 years; machinery and equipment 3 to 8 years; and leasehold improvements are based on the shorter of the life of lease or
life of asset. Purchased computer software costs related to business and financial systems are amortized over a five year period on a
straight-line basis.
In accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of," the carrying value of long-lived assets, including goodwill, is evaluated whenever changes in circumstances indicate
the carrying amount of such assets may not be recoverable. In performing such review for recoverability, the Company compares
the expected future cash flows to the carrying value of long-lived assets and identifiable intangibles. If the anticipated undiscounted
future cash flows are less than the carrying amount of such assets, the Company recognizes an impairment loss for the difference
between the carrying amount of the assets and their estimated fair value. If an asset being tested for recoverability was acquired in a
business combination accounted for using the purchase method, the excess of cost over fair value of net assets that arose in that
transaction is allocated to the assets being tested for recoverability on a pro rata basis using the relative fair values of the long-lived
assets and identifiable intangibles acquired at the acquisition date.
Depreciation expense was $20.1 million, $13.1 million, and $10.9 million for the fiscal years ended September 30, 2000, 1999 and
1998, respectively. When assets are retired or otherwise disposed of, the assets and related accumulated depreciation accounts are
adjusted accordingly, and any resulting gain or loss is recorded in current operations.
Intangible Assets - Goodwill resulting from acquisitions accounted for using the purchase method is amortized on a straight-line
basis over the estimated period to be benefited by the acquisitions ranging from five to twenty years. The weighted average life of
the goodwill recorded by the Company on September 30, 2000 was 15.5 years. The Company accounts for impairment of goodwill
in accordance with SFAS No. 121, as discussed above. In connection with the Company’s resizing efforts in fiscal 1998, the
Company discontinued certain die bonder products which the Company had acquired in 1994, and recorded an impairment to
goodwill of $948,000.
Foreign Currency Translation - The U.S. dollar is the functional currency for all subsidiaries except the Company's subsidiaries in
Japan, Korea, the Philippines, Thailand, Switzerland and Taiwan. Gains and losses resulting from the translation of functional
currency financial statement amounts into U.S. dollars are not included in determining net income but are accumulated in the
cumulative translation adjustment account as a separate component of shareholders' equity (accumulated other comprehensive
37
income (loss)), in accordance with SFAS No. 52. Cumulative translation adjustments are not adjusted for income taxes as they
relate to indefinite investments in non-U.S. subsidiaries. Gains and losses resulting from foreign currency transactions are included
in the determination of net income. Net exchange and transaction gains (losses) were $1.0 million, $13,000 and ($147,000), for the
fiscal years ended September 30, 2000, 1999 and 1998, respectively.
Revenue Recognition - Sales are recorded upon shipment of products or performance of services. Provisions for estimated product
returns, warranty and installation costs are accrued in the period of sale recognition. In December 1999, the Securities and
Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 101 (“SAB 101”), “Revenue Recognition in
Financial Statements”. The SAB summarizes certain of the Staff’s views in applying generally accepted accounting
principles to revenue recognition in the financial statements. The Company is required to begin reporting changes to our
revenue recognition policy in the fourth quarter of fiscal year 2001. Accordingly, any shipments previously reported as
revenue, including revenue reported for the first three quarters of fiscal 2001, that do not meet SAB 101’s guidance will
be recorded as revenue in future periods. Changes in our revenue recognition policy resulting from the interpretation of
SAB 101 would not involve the restatement of prior fiscal year statements, but would, to the extent applicable, be
reported as a change in accounting principle in the fiscal year ended September 30, 2001, with the appropriate
restatement of interim periods as required by SFAS No. 3 “Reporting Accounting Changes in Interim Financial
Statements.” The Company’s reported results of operations for the 12 months ending September 30, 2001 may include a
cumulative adjustment for all prior annual and interim periods including an adjustment for revenue in the first quarter of
fiscal 2001 as if SAB 101 had been adopted on October 1, 2000. The Company is currently assessing the full impact of
SAB 101 on its reported financial results.
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 2000,
1999 and 1998, reductions to research and development expense related to such funding totaled $1.1 million, $1.3 million and $1.7
million, respectively.
Income Taxes - Deferred income taxes are determined using the liability method in accordance with SFAS No. 109, "Accounting
for Income Taxes." No provision is made for U.S. income taxes on the portion of undistributed earnings of foreign subsidiaries
which are indefinitely reinvested in foreign operations.
Environmental Expenditures – Future environmental remediation expenditures are recorded in operating expenses when it is
probable that a liability has been incurred and the amount of the liability can be reasonably estimated. Accrued liabilities do not
include claims against third parties and are not discounted.
Earnings Per Share - Earnings per share is calculated in accordance with SFAS No. 128, "Earnings Per Share". Basic earnings per
share includes only the weighted average number of common shares outstanding during the period. Diluted earnings per share
includes the weighted average number of common shares and the dilutive effect of stock options and other potentially dilutive
securities outstanding during the period. On June 26, 2000, the Company’s Board of Directors approved a two-for-one stock split
of its common stock. Pursuant to the stock split, each shareholder of record at the close of business on July 17, 2000 received one
additional share for each common share held at the close of business on that date. The additional shares were distributed on July
31, 2000. All prior period earnings per share amounts have been restated to reflect the two-for-one stock split. See Note 12.
Accounting for Stock-based Compensation – The Company accounts for stock option grants using the "intrinsic value method"
prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25"), and
discloses the pro forma effect on net income and earnings per share as if the fair value method had been applied to stock option
grants, in accordance with SFAS 123, “Accounting For Stock-Based Compensation”. See Note 8.
Reporting Comprehensive Income - In fiscal 1999, the Company adopted SFAS 130, "Reporting Comprehensive Income" ("SFAS
130"), which establishes standards for reporting and display of comprehensive income and its components (revenues, expenses,
gains and losses) in a full set of general purpose financial statements. The comprehensive income and related cumulative equity
impact of comprehensive income items are required to be reported in a financial statement that is displayed with the same
prominence as other financial statements. The impact of foreign currency translation adjustments, minimum pension liability
adjustments and unrealized gains or losses on securities available-for-sale are considered to be components of the Company's
comprehensive income under the requirements of SFAS 130.
38
Segment Disclosure - In fiscal 1998, the Company adopted SFAS No. 131, “Disclosures about Segments of an Enterprise and
Related Information” (“SFAS 131”). SFAS 131 supersedes SFAS No. 14, Financial Reporting for Segments of a Business
Enterprise, replacing the “industry segment” approach with the “management” approach. The management approach designates the
internal organization that is used by management for making operating decisions and assessing performance as the source of the
Company’s reportable segments. SFAS 131 also requires disclosure about products and services, geographic areas, and major
customers. The adoption of SFAS 131 did not affect results of operations or financial position but did affect the disclosure of
segment information (see “Segment Information” Note 11).
Derivative Instruments and Hedging Activities - In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, “Accounting for Derivative Instruments and Hedging Activities.”
SFAS No. 133, as amended by SFAS No. 138, is effective for fiscal years beginning after June 15, 2000. The standard
requires that all derivative instruments be recorded on the balance sheet at fair value. Changes in the fair value of
derivatives are recorded in earnings or other comprehensive income, based on whether the instrument is designated as
part of a hedge transaction and, if so, the type of hedge transaction. The Company will adopt this statement in the first
quarter of 2001. The cumulative effect of adoption was not material. The impact of SFAS No. 133 on the company’s
future results will be dependent upon the fair values of the company’s derivatives and related financial instruments and
could result in increased volatility.
Coupons, Rebates and Discounts - In May 2000, the Emerging Issues Task Force (“EITF”) issued EITF No. 00-14,
“Accounting for Coupons, Rebates and Discounts” that addressed accounting for sales incentives. The Task Force
concluded that in accounting for cash sales incentives a manufacturer should recognize the incentive as a reduction of
revenue on the later date of the manufacturer’s sale or the date the offer is made to the public. The reduction of revenues
should be measured based on the estimated amount of incentives to be claimed by the ultimate customers. The Company
must adopt this pronouncement in our fourth quarter of fiscal 2001. Management does not believe the adoption of this
pronouncement will have a material impact on the Company’s financial statements.
Shipping and Handling - In September 2000, the Emerging Issues Task Force (“EITF”) reached a final consensus on
issue EITF No. 00-10, “Accounting for Shipping and Handling Revenues and Costs.” The Task Force concluded that
amounts billed to customers related to shipping and handling should be classified as revenue. The Company currently
classifies shipping and handling revenue as a reduction of cost of products sold. Further, the Task Force stated that
shipping and handling cost related to this revenue should either be recorded in costs of goods sold or the Company
should disclose where these costs are recorded and the amount of these costs. The Company must adopt this
pronouncement in the fourth quarter of fiscal 2001. Management does not believe adoption of this pronouncement will
have a material impact on our financial statements.
Stock Compensation - In March 2000, FASB Interpretation, or FIN, No. 44, “Accounting for Certain Transactions
Involving Stock Compensation - An Interpretation of APB Opinion No. 25,” was issued. FIN 44 clarifies the application
of APB No. 25 for certain issues. FIN 44 clarifies the definition of employee for purposes of applying APB No. 25, the
criteria for determining whether a plan qualifies as a non-compensatory plan, the accounting consequences of various
modifications to the terms of a previously fixed option or award, and the accounting for an exchange of share
compensation awards in a business combination, among others. FIN 44 was effective July 1, 2000 but certain
conclusions in this interpretation cover specific events that occurred after either December 15, 1998 or January 12, 2000.
FIN 44 did not have a significant effect on the Company’s financial position or results of operations
Reclassifications - Certain amounts in the Company’s prior year financial statements have been reclassified to conform to their
presentation in the current fiscal year.
NOTE 2: RESIZING COSTS
During fiscal 1999, the Company announced plans to relocate its automatic ball bonder manufacturing from Willow Grove,
Pennsylvania to Singapore. As a result, in fiscal 1999 the Company recorded a charge for severance of $4.0 million for the
elimination of approximately 230 positions and asset writeoffs of $1.6 million. In fiscal 1999, the Company also recorded a
charge of $397,000 for severance for an additional 30 employees related to the reduction in workforce that began in fiscal
1998. Write-downs of property, plant and equipment were made where carrying values exceeded the Company’s estimate of
proceeds from abandonment or disposal. These estimates were based principally on past experience of comparable asset
disposals.
39
In the fourth quarter of fiscal 2000, the Company reversed into income $2.5 million of the $5.6 million reserve which it
established in fiscal 1999 for the relocation of its automatic ball bonder manufacturing from Willow Grove, Pennsylvania
to Singapore. The reserve was established to reflect provisions for severance and asset write-off costs resulting from the
move. However, due to the significant increase in demand for microelectronics products the Company retained
engineering and marketing positions which were planned for downsizing. In addition, the majority of the direct and
indirect manufacturing positions were eliminated through attrition in the workforce. The decision to retain the
engineering and marketing positions in the U.S. and attrition in the workforce reduced the amount of severance required
to be paid compared to the original estimate and resulted in the reversal of $2.5 million of the reserve. These relocation
activities are now complete.
During fiscal 1998, the Company announced plans to resize its workforce and discontinue products due to a slowdown in
orders for its semiconductor assembly capital equipment and to a lesser extent for its semiconductor packaging materials. As a
result of the resizing activities, the Company reduced it worldwide workforce by approximately 21% or 500 employees. The
Company recorded a resizing charge of $7.4 million in 1998 for severance ($4.9 million), product discontinuation costs ($1.9
million, primarily writeoff of fixed assets and excess inventory) and other costs ($628,000) and recorded an impairment of
goodwill of $948,000, associated with the 1994 acquisition of certain assets from Assembly Technologies.
Concurrent with the resizing charge and impairment of goodwill in fiscal 1998, the Company recorded in 1998 charges in its
cost of goods sold of $2.4 million for excess and obsolete inventory and $1.4 million for excess purchase commitments
resulting from the slowdown in orders for its semiconductor assembly equipment.
NOTE 3: INVESTMENTS IN JOINT VENTURES
Flip Chip Technologies, LLC
In February 1996, the Company entered into a joint venture agreement with Delco Electronics Corporation ("Delco") providing
for the formation and management of Flip Chip Technologies, LLC ("FCT"). FCT was formed to license related technologies
and to provide wafer bumping services on a contract basis. The Company owned a 51.0% equity interest in FCT but
participated equally with Delco in the management of FCT through an Executive Committee. Accordingly, the Company
accounted for its investment in FCT using the equity method, and recognized its proportionate share of the operating results of
the joint venture on the basis of its ownership interest through September 30, 1998. For the first eight months of fiscal 1999,
the Company recognized 100% of the FCT pre-tax loss due to the existence of these loans and did not recognize interest
income on loans to FCT due to uncertainties about FCT’s ability to obtain additional financing from Delco and its ability to
generate short-term positive cash flow.
Effective May 31, 1999 the Company increased its ownership interest in FCT, from 51.0% to 73.6% by converting all of
its outstanding loans and accrued interest to FCT, which totaled $32.8 million, into equity units and gained operating
control of FCT. The Company accounted for the increase in ownership by the purchase method of accounting and began
consolidating the results of FCT into the Company’s financial statements on June 1, 1999. In fiscal 2000, the Company
invested an additional $5.0 million in FCT and increased its percentage of ownership to 76.9%.
The Company has recorded goodwill, since May 31, 1999, of $5.8 million associated with the increase in ownership of FCT
and is amortizing the goodwill over 10 years.
The Company recorded a pretax loss from FCT operations for the two fiscal years ended September 30, 1999 as follows:
(in thousands)
Fiscal Year Ended September 30,
Equity in loss of joint venture
Consolidated with operations
of the Company
1998
$8,715
1999(1)
$9,163
--
3,003
Pretax loss from FCT operations
$8,715
$12,166
(1) After minority interest
40
Unaudited pro forma operating results of the Company for fiscal 1998 and 1999, assuming the increase in ownership of FCT
took place at the beginning of fiscal 1998, are as follows:
(in thousands)
Fiscal Year ended September 30,
1998 1999
(unaudited)
Net sales
Net loss
Net loss per share - diluted
(8,719) (16,268)
$415,382
(0.19)
(0.35)
$ 418,157
The pro forma operating results reflected above are not necessarily indicative of the future operating results of the Company.
Advanced Polymer Solutions
In September 1998, the Company entered into a joint venture agreement with Polyset Company, Inc. (“Polyset”) providing for
the formation and management of Advanced Polymer Solutions, LLC (“APS”) to develop, manufacture and market advanced
polymer materials for semiconductor and microelectronic packaging end users. In the fourth quarter of fiscal 2000, the
Company and its joint venture partner decided not to devote additional capital to this venture and to dissolve the joint venture.
The Company recorded an asset impairment of $3.9 million representing the write-off of the Company’s remaining investment
in APS. The Company invested $6.0 million in APS and reported pre-tax losses of $837,000 in fiscal 1999 and $1.2 million in
fiscal 2000. The Company has no further obligations or commitments to the joint venture.
NOTE 4: PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT
Purchased in-process research and development represents the value assigned in a purchase business combination to research
and development projects of the acquired business that were commenced but not yet completed at the date of acquisition, for
which technological feasibility has not been established and which have no alternative future use in research and development
activities or otherwise. In accordance with Statement of Financial Accounting Standards No. 2, “Accounting for Research and
Development Costs,” as interpreted by Interpretation No. 4, amounts assigned to purchased in-process research and
development meeting the above criteria must be charged to expense at the date of consummation of the purchase business
combination.
In January 1999, the Company purchased enabling technology and fixed assets used in the design, development, manufacture,
marketing and sale of laminate substrates (the “X-LAM technology”) for $8.0 million. The Company has allocated the majority
of the purchase price to intangible assets, including in-process research and development. The portion of the purchase price
allocated to in-process research and development was charged to expense in fiscal 1999. The other purchased intangibles
include core technology and assembled workforce. These intangibles are being amortized over their estimated useful lives of 1
to 5 years.
The Company allocated the purchase price as follows:
(in thousands)
In-process research and development
Core technology
Property, plant and equipment
Assembled workforce
Total
$ 3,935
3,447
513
105
$ 8,000
The Company obtained an independent valuation of the purchased in-process research and development. The income valuation
approach was used to determine the fair value of the in-process research and development. The Company estimated that the
purchased technology was 60% complete and the technology would be marketable in fiscal 2000 and would generate positive
cash flow beginning in fiscal 2001. These estimates are subject to change, given uncertainties of the development process, and
no assurance can be given that deviations from these estimates will not occur.
41
NOTE 5: INVESTMENTS
At September 30, 2000 and 1999, no short-term investments were classified as trading or held-to-maturity. Investments, excluding
cash equivalents, consisted of the following at September 30, 1999 and 2000:
(in thousands)
September 30, 1999
Unrealized
Gains/
(Losses)
$ --
--
2,190 (74)
Available-for-sale:
Equity securities
Corporate debt securities
Adjustable rate notes
Short-term investments
classified as available
for sale $ 2,190 $ (74)
Fair
Value
$ --
--
September 30, 2000
Cost
Basis
$ --
--
2,264
Fair
Value
$ 1,266
101,494
2,370
Unrealized
Gains/
(Losses)
$ 53
(105)
--
Cost
Basis
$ 1,213
101,599
2,370
$ 2,264
$105,130
$ (52)
$ 105,182
After-tax unrealized losses of $68,000 (net of taxes of $37,000) and $48,000 (net of taxes of $26,000) were recorded as direct
adjustments to shareholders’ equity at September 30, 2000 and September 30, 1999, respectively. In fiscal 2000 the Company
purchased $196.5 million of securities it classified as available-for-sale and sold $93.4 million of available-for-sale securities.
NOTE 6: BALANCE SHEET COMPONENTS
Inventories
Raw materials and supplies
Work in process
Finished goods
Inventory reserves
(in thousands)
September 30,
2000
$50,394
22,687
17,194
90,275
(16,241)
$ 74,034
1999
$35,981
24,033
16,696
76,710
(14,928)
$ 61,782
(in thousands)
Property, Plant and Equipment:
Land
Buildings and building improvements
Machinery and equipment
Leasehold improvements
Accumulated depreciation
September 30,
2000
$1,602
23,481
129,684
20,496
175,263
(91,396)
$83,867
1999
$ 1,453
21,608
105,148
15,960
144,169
(76,684)
$67,485
Accrued expenses at September 30, 2000 included $16.4 million for accrued wages, incentives and vacations and $13.0 million for
customer advances for the future delivery of parts and services. Accrued expenses at September 30, 1999 included $12.1 million
for accrued wages, incentives and vacations. No other accrued expenses were significant.
NOTE 7: DEBT OBLIGATIONS
At September 30, 2000, the Company had a short-term debt obligation of $1.0 million reflecting debt due to Delco, the 23.1%
owner of FCT.
At September 30 2000, the Company had a $60.0 million revolving credit facility which expires on March 26, 2003. At
September 30, 2000, the Company had no cash borrowings outstanding under the credit facility, but had utilized $1.1 million
42
of availability under the credit facility to support letters of credit issued as security deposits for its new manufacturing
facility in Singapore and its new X-LAM facility. The revolving credit facility provided for borrowings denominated in either
U.S. dollars or foreign currencies. Borrowings in U.S. dollars bear interest either at a Base Rate (defined as the greater of the
prime rate minus 1/4% or the federal funds rate plus 1/2%) or, at a LIBOR Rate (defined as LIBOR plus 0.4% to 0.8%,
depending on the Company's leverage ratio). Foreign currency borrowings bear interest at a LIBOR Rate, as defined above,
applicable to the foreign currency.
The revolving credit facility was guaranteed by certain of the Company's domestic subsidiaries and required the Company to
maintain certain financial covenants including a leverage ratio and an interest coverage ratio or liquidity ratio. The revolving
credit facility also limited the Company's ability to mortgage, pledge or dispose of a material portion of its assets and imposes
restrictions on the Company's investments and acquisitions. There were no borrowings under this bank credit facility during
fiscal 2000.
In December 1999, the Company issued $175.0 million of convertible subordinated notes. The notes are general
obligations of the Company and subordinated to all senior debt. The notes bear interest at 4 3/4%, are convertible into the
Company’s common stock at $22.8997 per share and mature on December 15, 2006. There are no financial covenants
associated with the notes and there are no restrictions on paying dividends, incurring additional debt or issuing or
repurchasing the Company’s securities. Interest on the notes will be paid on June 15 and December 15 of each year. The
Company may redeem the notes in whole or in part at any time after December 18, 2002 at prices ranging from
102.714% at December 19, 2002 to 100.0% at December 15, 2006.
Interest paid on the Company’s debt obligations totaled $4.3 million, $215,000 and $262,000 in fiscal 2000, 1999 and 1998,
respectively.
NOTE 8: SHAREHOLDERS' EQUITY
Common Stock
In fiscal 2000, the Company’s common stock increased by $14.8 million reflecting the proceeds from the exercise of employee and
director stock options and increased by $12.4 million due to a tax benefit associated with the exercise of the stock options. The
Company’s common stock increased due to the issuance of common stock as matching contributions to the Company’s 401 (k)
saving plan by $2.4 million, $1.7 million and $2.2 million in fiscal 2000, 1999 and 1998, respectively.
Stock Option Plans
The Company has six employee stock option plans covering substantially all employees (the "Employee Plans") pursuant to which
options have been or may be granted at 100% of the market price of the Company's Common Stock on the date of grant. Options
may no longer be granted under three of the plans. Options granted under the Employee Plans are exercisable at such dates as are
determined in connection with their issuance, but not later than ten years after the date of grant.
The following summarizes all employee stock option activity for the three years ended September 30, 2000:
(option amounts in thousands)
September 30,
1998 1999 2000
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
(Share amounts in thousands)
2,600 10.32
Options outstanding at
beginning of period 2,144 $ 7.53 4,360
Granted or reissued
1,670
Exercise (82) 4.81 (76)
Terminated or canceled (302) 11.18
Options outstanding at
end of period
Options exercisable at
end of period
4,360
6.90 1,404
5,732
8.99
634
$8.99
12.90
3.77
(222) 9.81
5,732
106
$10.17
27.78
(1,480) 9.16
(249) 12.57
10.17
4,109
10.82
8.29
1,250
9.13
43
The following table summarizes information concerning currently outstanding and exercisable employee options at September 30,
2000:
(option amounts in thousands)
Options Outstanding Options Exercisable
(Share amounts in thousands) (Share amounts in thousands)
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
$ 1.31 - $ 1.97
$ 1.98 - $ 4.42
$ 4.43 - $ 6.63
$ 6.64 - $ 9.95
$ 9.96 - $14.92
$14.93 - $22.38
$22.39 - $32.06
53 1.3
$1.52 53
$1.52
469
1,258
1,552
559
130 4.0 4.03
5.99
6.72
12.89
17.89
$29.23 0
$10.82 1,250
88 8.9
4,109 7.4
130
188
392
318
169
5.5
7.5
8.8
6.2
4.03
5.97
6.72
12.89
17.42
$ 0.00
$ 9.13
The Company also maintains two stock option plans for non-officer directors (the "Director Plans") pursuant to which
options to purchase 5,000 shares of the Company's Common Stock at an exercise price of 100% of the market price on
the date of grant are issued to each non-officer director each year. Options can no longer be granted under one of these
plans. Options to purchase 298,000 shares at an average exercise price of $16.46 were outstanding under the Director
Plans at September 30, 2000, of which options to purchase 97,000 shares were currently exercisable. In fiscal 2000,
there were 164,000 options exercised under the Director Plans at an average exercise price of $8.98.
The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25"), in accounting for stock options granted to employees. Under APB 25, the Company generally
recognizes no compensation expense in the income statement with respect to such grants.
Unaudited pro forma information regarding net income and earnings per share is required by SFAS 123 for options granted after
October 1, 1995 as if the Company had accounted for its stock option grants to employees under the fair value method of SFAS
123. The fair value of the Company's stock option grants to employees was estimated using a Black-Scholes option pricing model.
The following assumptions were employed to estimate the fair value of stock options granted to employees:
Expected dividend yield
Expected stock price volatility
Risk-free interest rate
Expected life (years)
Fiscal Year Ended
September 30,
1998 1999
$0.00 $0.00
2000
$0.00
73.00% 74.00% 73.00%
5.40% 5.84% 5.87%
7 8 8
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:
(net income(loss) in thousands)
Fiscal Year Ended
September 30,
1998 1999 2000
Weighted average fair value of options granted $15.18 $19.92 $21.27
Net income (loss) – as reported $(5,440) $(16,946) $103,245
Net income (loss) – unaudited pro forma $(8,040) $(20,499) $94,634
Net income (loss) per share- as reported, diluted $(0.12) $(.36) $ 1.90
Net income (loss) per share- unaudited pro forma, diluted $(0.18) $(.44) $ 1.75
44
At September 30, 2000, 7.9 million shares were reserved for issuance and 3.7 million shares were available for grant in
connection with the Employee Plans and 968,000 shares were reserved for issuance and 670,000 shares were available for
grant in connection with a Director Plan.
NOTE 9: EMPLOYEE BENEFIT PLANS
The Company has a non-contributory defined benefit pension plan covering substantially all U.S. employees who were
employed on September 30, 1995. The benefits for this plan were based on the employees' years of service and the
employees' compensation during the three years before retirement. The Company's funding policy is consistent with the
funding requirements of Federal law and regulations. Effective December 31, 1995, the benefits under the Company's
pension plan were frozen. As a consequence, accrued benefits no longer change as a result of an employee's length of service
or compensation.
Detailed information regarding the Company’s defined benefit pension is as follows:
Fiscal Year Ended September 30,
1998 1999 2000
(in thousands)
Change in benefit obligation:
$11,198 $11,802 $11,956
Benefit obligations at beginning of year:
840 885 1,008
Interest cost
Benefits paid
(405) (407) (497)
Actuarial (gain) loss 169 (324) 1,296
$11,802 $11,956 $13,763
Benefit obligation at end of year
Change in plan assets:
Fair value of plan assets at beginning of year:
Actual return on plan assets
Employer contributions
Benefits paid
Fair value of assets at end of year
Reconciliation of funded status:
Funded status
Unrecognized actuarial loss
Net amount recognized at year –end
$10,372 $10,542 $11,201
490 1,066 (92)
85 -- 1,782
(405) (407) (497)
$10,542 $11,201 $12,394
$(1,260) $(755) $(1,369)
1,749 1,181 3,387
$ 489 $ 426 $ 2,018
Amount recognized in the statement of financial position consists of:
Accrued benefit liability
$(1,260) $ (755) $(1,369)
Accumulated other comprehensive income/ unrecognized net loss 1,749 1,181 3,387
$ 489 $ 426 $ 2,018
Net amount recognized at year-end
Components of net periodic benefit cost:
Interest Cost
Expected return on plan assets
Recognized actuarial loss
Net periodic benefit cost
Weighted-average assumptions as of September 30:
Discount rate
Expected long-term rate of return on plan assets
Rate of compensation increase
$ 840 $885 $1,008
(833) (858) (922)
8 36 104
$ 15 $ 63 $ 190
7.75%
8.00%
* * *
7.50%
8.00%
7.75%
8.00%
* Not applicable due to the December 31, 1995 benefit freeze.
The Company's foreign subsidiaries have retirement plans that are integrated with and supplement the benefits provided by laws of
the various countries. They are not required to report nor do they determine the actuarial present value of accumulated benefits or
net assets available for plan benefits. The Company believes these plans are substantially fully funded as to vested benefits. On a
45
consolidated basis, pension expense was $1.3 million, $998,000 and $914,000, in fiscal 2000, 1999 and 1998, 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 $2.4 million, $1.7 million, and $2.2 million in fiscal
2000, 1999, and 1998, respectively, and were satisfied by contributions of shares of Company common stock, valued at the market
price on the date of the matching contribution.
NOTE 10: INCOME TAXES
Income (loss), including minority interest in net income (loss), before income taxes consisted of the following:
(in thousands)
Fiscal Year Ended September 30,
2000
1999
1998
United States operation
Foreign operations
$ (17,953)
10,596
$ (7,357)
$(43,663)
18,496
$(25,167)
$76,851
66,543
$143,394
The provision (benefit) for income taxes included the following:
Current:
Federal
State
Foreign
Deferred:
Federal
Foreign
Fiscal Year Ended September 30,
2000
1998
1999
$(7,210)
50
4,155
840
248
$(1,917)
$(2,218)
50
2,410
$19,988
500
4,442
(8,613)
150
$(8,221)
15,219
--
$40,149
The provision (benefit) for income taxes differed from the amount computed by applying the statutory federal income tax rate as
follows:
Fiscal Year Ended September 30,
2000
1998
1999
Computed income tax expense (benefit) based on
U.S. statutory rate
Effect of earnings of foreign subsidiaries
subject to different tax rates
Benefits from Israeli and Singapore Approved Enterprise Zones
Benefits of net operating loss and tax credit
carryforwards and change in valuation allowance
Non-deductible goodwill amortization
Provision for repatriation of certain foreign
earnings , including foreign withholding taxes
Effect of revisions of prior year’s estimated taxes
Other, net
$(2,575)
$(8,808)
$50,188
(289)
(1,532)
(951)
677
3,298
(779)
234
$(1,917)
603
(4,509)
4,200
677
150
(533)
(1)
$(8,221)
(206)
(12,817)
1,566
871
--
--
547
$40,149
Undistributed earnings of certain foreign subsidiaries for which taxes have not been provided approximate $95.0 million at
September 30, 2000. Such undistributed earnings are considered to be indefinitely reinvested in foreign operations.
46
Undistributed earnings approximating $73.2 million are not considered to be indefinitely reinvested in foreign operations.
Accordingly, as of September 30, 2000, deferred tax liabilities of $16.4 million including withholding taxes but net of estimated
foreign tax credits, have been provided.
Deferred income taxes are determined based on the differences between the financial reporting and tax basis of assets and liabilities
as measured by the current tax rates. The net deferred tax balance is composed of the tax effects of cumulative temporary
differences, as follows:
(in thousands)
September 30,
1999
2000
Repatriation of foreign earnings,
including foreign withholding taxes
Depreciable assets
Prepaid expenses and other
Total deferred tax liability
Inventory reserves
Warranty accrual
Other accruals and reserves
Intangible assets
Domestic NOL carryforwards
Foreign NOL carryforwards
Domestic tax credit carryforwards
Deferred intercompany profit
Valuation allowance
Total deferred tax asset
Net deferred tax asset (liability)
$16,414
2,592
1,541
20,547
2,291
655
2,298
1,446
19,430
6,359
5,409
1,945
39,833
(8,215)
$16,414
2,748
2,098
$21,260
2,813
1,126
4,711
1,515
1,855
6,869
6,241
706
25,836
(8,724)
31,618
17,112
$ 11,071 $ (4,148)
Realization of deferred tax assets associated with the net operating loss and tax credit carryforwards is dependent upon generating
sufficient taxable income prior to their expiration in the respective tax jurisdictions. The Company believes there is a risk that
certain of these tax credit carryforwards may expire unused and, accordingly, has established certain valuation allowances. The
valuation allowance at September 30, 2000 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 2005 fiscal year. Although realization is not assured for the remaining deferred tax assets, the
Company believes it is more likely than not that they will be realized through future taxable earnings or alternative tax strategies.
However, the net deferred tax assets could be reduced in the near term if the Company's estimates of taxable income during the
carryforward period are significantly reduced or alternative tax strategies are no longer viable. In the event the tax benefits relating
to acquired net operating loss carryforwards are realized, such benefits would reduce the recorded amount of goodwill.
The IRS is currently auditing the Company’s federal income tax returns for fiscal 1995, 1996, 1997 and 1998. Management
believes sufficient taxes have been provided in prior years and that the ultimate outcome of the IRS audits will not have a material
adverse impact on the Company’s financial position, results of operations or cash flows.
The Company paid income taxes of $6.3 million, $3.8 million, and $8.8 million, in fiscal 2000, 1999 and 1998, respectively.
NOTE 11: SEGMENT INFORMATION
The Company evaluates performance of its segments and allocates resources to them based on income from operations before
interest, allocations of corporate expenses and income taxes.
The Company operates primarily in three industry segments: equipment, packaging materials and advanced packaging
technologies. The equipment business unit designs, manufactures and markets capital equipment and related spare parts for use in
the semiconductor assembly process. Equipment also services, maintains, repairs and upgrades assembly equipment. The
packaging materials business designs, manufactures and markets consumable packaging materials for use on the equipment the
company markets as well as on competitors’ equipment. The packaging materials products have different manufacturing processes,
47
distribution channels and a less volatile revenue pattern than the Company's capital equipment. The Company’s investment in APS,
recorded under the equity method of accounting, was considered part of the packaging materials segment. The advanced packaging
technology business unit was established in fiscal 1999 to reflect the Company’s strategic initiative to develop new technologies
for advanced semiconductor packaging. This segment is comprised of FCT and the Company’s X-LAM business unit. The
products and services of all segments are, or will be, for sale to semiconductor device manufacturers.
The table below presents information about reported segments:
(in thousands)
Advanced
Packaging Packaging Corporate,
Equipment Materials Technology Other and
Fiscal Year Ended September 30, 2000 Segment Segment
$185,570
Net sales
130,548
Cost of goods sold
55,022
Gross profit
29,005
Operating expenses
Resizing costs
--
Asset impairment
3,871
Income from operations
Equity in loss of joint ventures
Segment Eliminations Consolidated
$ 899,273
$ --
$ 21,641
573,177
--
22,897
326,096
--
(1,256)
186,314
15,421
19,096
(2,548)
--
--
3,871
--
--
$ 138,459
$ (15,421)
$ 22,146 $ (20,352)
$ (1,221)
$ --
$ (1,221) $ --
$692,062
419,732
272,330
122,792
(2,548)
--
$152,086
$ --
Segment assets
Capital expenditures
Depreciation expense
$258,529
13,830
9,923
$97,366
8,021
3,897
$44,957
16,453
6,301
$322,000
--
--
$722,852
38,304
20,121
Advanced
Packaging Packaging
Corporate,
Equipment Materials Technology Other and
Segment
124,450
90,326
34,124
23,500
--
Fiscal Year Ended September 30, 1999 Segment
Segment
$ 4,613
$269,854
Net sales
6,098
188,958
Cost of goods sold
(1,485)
80,896
Gross profit
5,314
86,239
Operating expenses
Resizing costs
--
5,918
Purchased in-process research and development -- -- --
$ (6,799)
Income (loss) from operations
$ (9,163) $ --
Equity in loss of joint ventures
$ --
--
--
8,361
--
3,935
$(12,296)
$(11,261)
$ --
$10,624
$ (837)
Eliminations Consolidated
$398,917
285,382
113,535
123,414
5,918
3,935
$(19,732)
$(10,000)
$378,145
10,891
13,104
Segment assets
Capital expenditures
Depreciation expense
$37,560
2,233
7,339 3,951 1,814
$200,837
6,522
$86,398
2,136
$53,350
--
--
48
Fiscal Year Ended September 30, 1998
Net sales
Cost of goods sold
Gross profit
Operating expenses
Resizing costs
Income (loss) from operations
Equity in loss of joint ventures
Equipment
Segment
$302,107
191,948
110,159
101,099
5,984
$ 3,076
Packaging Corporate,
Materials Other and
Segment Eliminations Consolidated
$108,933 $ --
82,259
--
26,674 --
8,641
22,829
1,724
712
$ 2,121 $ (9,353)
$ (8,715)
$411,040
274,207
136,833
132,569
8,420
$ (4,156)
$ (8,715)
$ -- $ --
Segment assets
Capital expenditures
Depreciation expense
$ 129,568
12,809
7,285
$ 78,318
$134,698
3,253 --
3,611 --
$342,584
16,062
10,896
Intersegment sales are immaterial. Operating expenses identified as Corporate, Other and Eliminations consist entirely of corporate
expenses. Assets identified as Corporate, Other and Eliminations consist of all cash and short-term investments of the Company
and corporate income tax assets.
The Company's market for its products is worldwide. The table below presents destination sales to unaffiliated customers and long-
lived assets by country:
(in thousands)
Destination Long-Lived
Fiscal year ended September 30, 2000
Taiwan
Philippines
Singapore
United States
Malaysia
Korea
Japan
Hong Kong
Israel
All other
Fiscal year ended September 30, 1999
Taiwan
United States
Singapore
Philippines
Malaysia
Japan
Hong Kong
Israel
All other
Assets
$ 1,316
683
81,939
242,322
147
264
27,834
691
31,411
14,245
$400,852
Long-Lived
Assets
$ 606
230,337
48,653
656
127
13,738
4,875
20,300
5,503
$324,795
Sales
$282,395
102,517
90,438
83,480
78,002
74,696
58,962
40,079
4,066
84,638
$899,273
Destination
Sales
$93,317
69,353
44,642
42,607
40,172
19,262
19,096
1,007
69,461
$398,917
49
Fiscal year ended September 30, 1998
United States
Taiwan
Philippines
Malaysia
Singapore
Korea
Hong Kong
Israel
All other
Destination
Sales
Long-Lived
Assets
$82,957
82,053
70,675
63,817
18,932
15,205
14,815
1,397
61,189
$411,040
$ 660
123,308
796
149
39,095
309
6,863
24,834
11,872
$207,886
Sales to a relatively small number of customers account for a significant percentage of the Company's net sales. In fiscal 2000,
sales to Advanced Semiconductor Engineering accounted for 15.3% of the Company’s net sales and sales to Amkor Technologies
accounted for 10.1% of the Company’s net sales. In fiscal 1999 no customer accounted for more than 10% of total net sales.
However, in fiscal 1998, sales to Intel accounted for 17.6% 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.
NOTE 12: OTHER FINANCIAL DATA
Maintenance and repairs expense totaled $3.1 million, $2.6 million, and $3.6 million for fiscal 2000, 1999, and 1998, respectively.
Warranty and retrofit expense was $8.8 million, $4.6 million, and $4.8 million for fiscal 2000, 1999 and 1998, respectively.
Rent expense for fiscal 2000, 1999 and 1998 was $3.6 million, $3.2 million, and $3.0 million, respectively.
A reconciliation of weighted average shares outstanding-basic to the weighted average shares outstanding-diluted appears below:
Weighted average shares outstanding – Basic
Potentially dilutive securities:
(shares in thousands)
Fiscal Year Ended September 30,
2000
1998
47,932
46,602
1999
46,846
*
Employee stock options
4 ¾% Convertible Subordinate Debt N/A
Weighted average shares outstanding – Diluted 46,602
*
N/A
46,846
2,469
6,095
56,496
The after-tax interest expense recognized by the Company in fiscal 2000 associated with the convertible subordinated notes that
was added back to net income in order to compute diluted net income per share was $4.3 million.
* Due to the Company’s net loss for the fiscal years ended September 30, 1999 and September 30, 1998, all potentially
dilutive securities are deemed to be antidilutive. The weighted average number of shares for potentially dilutive securities
(employee and director stock options) was 666,000 in fiscal 1999 and 366,000 in fiscal 1998.
NOTE 13: COMMITMENTS AND CONTINGENCIES
The Company has obligations under various operating leases, primarily for manufacturing and office facilities, which expire
periodically through 2006. Minimum rental commitments under these leases (excluding taxes, insurance, maintenance and repairs,
which are also paid by the Company), are as follows: $5.7 million in 2001; $4.9 million in 2002; $3.0 million in 2003; $1.9
million in 2004; $2.0 million in 2005 and $1.2 million thereafter.
From time to time, third parties assert that the Company is, or may be, infringing or misappropriating their intellectual property
rights. In such cases, the Company will defend against claims or negotiate licenses where considered appropriate. In addition,
certain of the Company's customers have received notices of infringement from the Lemelson Medical, Education and Research
Foundation Limited Partnership (the "Lemelson Foundation"), alleging that equipment supplied by the Company, and processes
performed by such equipment, infringe on patents held by the Lemelson Foundation. This activity increased substantially in 1998,
50
the year in which the Lemelson Foundation settled its suit against the Ford Motor Company, and entered into License Agreements
with Ford, GM and Chrysler. Since the settlement, a number of the Company's customers, including Intel, have been sued by the
Lemelson Foundation. Certain customers have requested that the Company defend and indemnify them against the claims of the
Lemelson Foundation or to contribute to any settlement the customer reaches with the Lemelson Foundation. The Company has
received opinions from its outside patent counsel with respect to certain of the Lemelson Foundation patents. The Company is not
aware that any equipment marketed by the Company, or process performed by such equipment, infringe on the Lemelson
Foundation patents in question and does not believe that the Lemelson Foundation matter or any other pending intellectual property
claim will have a material adverse effect on its business, financial condition, operating results or cash flows. However, the ultimate
outcome of any infringement or misappropriation claim affecting the Company is uncertain, and there can be no assurances that the
resolution of these matters will not have a material adverse effect on the Company's business, financial condition, operating results
or cash flows.
The 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, 2000, 1999 and 1998
totaled $9,000, $4,000, and $286,000, respectively. At September 30, 2000, the Company was contingently liable for royalties
approximating $3.4 million related to potential future product sales.
The U.S. Customs Service has conducted an assessment of the Company’s compliance with Customs Regulations for the fiscal
year ended September 30, 1998 and has concluded that $201,000 of duty was not paid. They also concluded that for the fiscal
years ended September 30, 1996, 1997 and 1999 unpaid duty amounted to $568,000. The Company has paid the total assessed
duty of $769,000 and may be assessed a penalty on the unpaid duty. The amount of the assessed penalty and amount ultimately
to be paid is unknown at this time, but could range from 0 to 8 times the assessed duty.
51
NOTE 14: SELECTED QUARTERLY FINANCIAL DATA (unaudited)
Financial information pertaining to quarterly results of operations follows:
(in thousands, except per share amounts)
Year ended
September 30, 2000:
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Total
Net sales
Gross profit
$179,849
59,912
$222,153
75,600
$268,258
101,278
$229,013
89,306
$899,273
326,096
Income from operations(1)(2)
Income before minority interest
and income taxes
Income tax expense
Minority interest in net loss
Net income
Net income per share:
Basic
Diluted
17,116
29,834
52,348
39,161
138,459
17,346
4,978
433
30,417
8,564
169
52,628
14,858
437
41,566
11,749
398
141,957
40,149
1,437
$12,801
$22,022
$38,207
$30,215
$103,245
$0.27
$0.26
$0.47
$0.40
$0.79
$0.67
$0.62
$0.54
$2.15
$1.90
Year ended
September 30, 1999:
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Total
Net sales
Gross profit
Income (loss) from operations (1)(3)
Income (loss) before minority interest
and income taxes
Income tax expense (benefit)
Minority interest in net loss
$61,175 $ 73,561 $110,806 $153,375
21,025 30,374 45,960
(17,087)
16,176
(10,282)
$398,917
113,535
8,413 (19,732)
(776)
(12,663)
(3,800)
_____
(21,109) (1,224) 8,811 (26,185)
(283) 2,195 (8,221)
(6,333)
282 736 1,018
_____
Net income (loss)
Net income (loss) per share:
Basic
$(0.36)
Diluted $ (0.19) $ (0.32) $ (0.01) $ .15 $(0.36)
$ (0.19) $ (0.32) $ (0.01) $ .16
$ (659) $7,352 $(16,946)
$(8,863) $(14,776)
(1) Represents net sales less costs and expenses but before net interest expense, equity in loss of joint ventures and other
expense.
(2) Results for the fourth quarter of fiscal 2000 include the benefit from the reversal of $2.5 million of the severance reserve
established in fiscal 1999 for the termination of employees in the United States as a result of the move of the manufacturing
of the Company’s automatic ball bonders to Singapore and a charge of $3.9 million for the write-off of the Company’s
investment in Advanced Polymer Solutions, LLC
(3) Results for the first quarter of fiscal 1999 include a charge of $397,000 for severance in connection with the resizing of the
Company’s work-force begun in fiscal 1998. Results of the second quarter include a one-time charge of $5.6 million for
severance and asset write-offs in connection with the move of ball bonder manufacturing to Singapore and a charge of $3.9
million for purchased in-process research and development in connection with the purchase of the X-LAM technology.
52
NOTE 15: SUBSEQUENT EVENT – Acquisitions (unaudited)
On November 30, 2000, the Company completed its tender offer for 100% of the outstanding shares of Cerprobe
Corporation (“Cerprobe”) for $20 per share. The total purchase price, including transaction costs, of Cerprobe was
approximately $225.0 million, payable in cash. On December 8, 2000 the Company purchased all the outstanding shares
of Probe Technology Corporation (“Probe Tech”) for approximately $65.0 million, including transaction costs, payable
in cash. Both Cerprobe and Probe Tech design and manufacture semiconductor test interconnect solutions. The
acquisitions will be recorded using the purchase method of accounting and accordingly the purchase price will be
allocated to the tangible and intangible assets acquired and liabilities assumed on the basis of their fair values on the
acquisition dates, as determined by management. The Company received a waiver of a bank covenant under its bank
revolving credit facility, which limited the amount the Company could spend on acquisitions, in order to complete the
Cerprobe and Probe Tech acquisitions. The Company borrowed $55.0 million under its bank revolving credit facility to
partially fund the purchase of Probe Tech. These two companies will be merged together to create a test division and will
be disclosed as a separate business segment for financial reporting purposes.
Pro forma operating results for the twelve months ended September 30, 2000 assuming the acquisition of Cerprobe was
consummated on October 1, 1999 appear below. This unaudited pro forma information is presented for illustrative purposes
only and is not necessarily indicative of the operating results that would have occurred if the transaction had been
consummated at the date indicated, nor is it necessarily indicative of the future operating results of the combined businesses.
The proforma results do not give effect to the acquisition of Probe Tech as the impact is not material. The pro forma results of
operations combine the Company’s audited results with Cerprobe’s results for the twelve months ended September 30, 2000,
and give effect to the preliminary allocation of the purchase price, which may subsequently change.
Combined Operating Results
Unaudited ProForma
Twelve months ended September 30, 2000
(in thousands, except per share amount)
Net sales
Net income
Diluted net income per share
$1,009,809
$ 79,880
$1.49
NOTE 16: SUBSEQUENT EVENT – Bank Financing (unaudited)
On December 22, 2000, the Company entered into a new $60.0 million (reducing to $40.0 million over a three year
period) bank revolving credit facility which replaced the revolving credit facility that had been in place for several years.
The new facility expires in December 2003. The borrowings are subject to compliance with financial and other covenants
set forth in the revolving credit documents. Borrowings bear interest either at a Base Rate (defined as the higher of the
prime rate or the federal funds rate plus 1/2%) or, at a LIBOR Rate (defined as LIBOR plus 1.0% to 2.0%, depending on
the ratio of senior debt to earning before interest, taxes, depreciation and amortization). The new revolving credit facility
is guaranteed by certain of the Company's domestic subsidiaries and requires the Company maintain certain financial
covenants including a leverage ratio, a liquidity ratio and a minimum net worth requirement. The new revolving credit
facility also limits the Company's ability to mortgage, pledge or dispose of a material portion of its assets and imposes
restrictions on the Company's investments and acquisitions.
53
Independent Auditors’ Report
The Board of Directors and Stockholders of
Cerprobe Corporation:
We have audited the accompanying consolidated balance sheets of Cerprobe Corporation and subsidiaries as of
December 31, 1999 and 1998 and the related consolidated statements of operations, stockholders’ equity and
comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 1999. These
consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America.
Those standards 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. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of Cerprobe Corporation and subsidiaries as of December 31, 1999 and 1998 and the results of their operations
and their cash flows for each of the years in the three-year period ended December 31, 1999 in conformity with
accounting principles generally accepted in the United States of America.
Phoenix, Arizona
February 15, 2000
KPMG LLP
54
CERPROBE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Assets
December 31,
1999
1998
Current assets:
Cash
Short-term investment securities
Accounts receivable, net of allowance of $331,009
in 1999 and $333,364 in 1998
Inventories, net
Accrued interest receivable
Prepaid expenses
Income taxes receivable
Deferred tax asset
Net assets of discontinued operations
Total current assets
Property, plant, and equipment, net
Intangible assets, net
Other assets
Total assets
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
Accrued expenses
Current portion of notes payable
Current portion of capital lease obligations
Net liabilities of discontinued operations
Total current liabilities
Notes payable, less current portion
Capital lease obligations, less current portion
Deferred tax and other liabilities
Total liabilities
Minority interest
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $.05 par value; authorized 10,000,000
shares; issued and outstanding none
Common stock, $.05 par value; authorized 25,000,000
shares; issued 9,863,245 and outstanding 9,419,052 shares at
December 31, 1999 and issued 8,131,279 and outstanding
7,645,126 shares at December 31, 1998
Additional paid-in capital
Retained earnings (deficit)
Accumulated other comprehensive loss:
Foreign currency translation
Treasury stock, at cost, 444,193 shares at December 31, 1999
and 486,153 shares at December 31, 1998
Notes receivable from related parties
Total stockholders' equity
$
3,484,045
$
-
12,313,053
9,728,500
22,157
1,107,378
4,041,140
2,123,609
-
4,753,696
14,305,400
8,951,680
5,303,631
102,093
869,382
714,811
446,092
1,481,903
32,819,882
36,928,688
23,537,021
26,334,157
676,485
21,169,934
4,579,035
1,007,917
$
83,367,545
$
63,685,574
$
3,687,143
5,584,724
10,334,878
954,957
446,629
21,008,331
5,200,034
2,454,637
472,158
29,135,160
1,115,545
$
2,534,997
3,075,894
138,985
660,192
-
6,410,068
731,555
2,472,563
7,073
9,621,259
590,465
-
-
493,162
67,830,701
(9,074,938)
(236,534)
59,012,391
(5,027,278)
(868,273)
53,116,840
406,564
55,271,200
3,505,734
(188,131)
58,995,367
(5,521,517)
-
53,473,850
Total liabilities and stockholders’ equity
$
83,367,545
$
63,685,574
See accompanying notes to consolidated financial statements.
55
C E RP R OB E C O R P O RATIO N A N D S U B SI D I A R IE S
C ONS OL IDA TE D ST A TE M EN TS O F OP E RATIO N S
Years ended December 31,
Net sales
Costs of goods sold
Gross profit
Expenses:
Selling, general, and administrative
Engineering and product development
In-process research and development
Goodwill amortization
Total expenses
Operating income (loss)
Other income (expense):
Interest income
Interest expense
Other, net
Total other income (expense)
Income (loss) from continuing operations before
minority interest and income taxes
Minority interest
$
1999
62,655,751
41,637,001
21,018,750
$
21,214,773
4,806,971
8,815,000
785,981
35,622,725
(14,603,975)
881,769
(582,135)
(527,138)
(227,504)
(14,831,479)
(454,450)
Income (loss) from continuing operations before income taxes
(15,285,929)
1998
76,207,477
45,052,300
31,155,177
18,316,839
3,101,082
1,568,000
461,301
23,447,222
7,707,955
1,323,918
(269,115)
542,839
1,597,642
9,305,597
(383,637)
8,921,960
$
1997
69,012,395
39,251,446
29,760,949
16,218,709
996,253
-
386,467
17,601,429
12,159,520
348,816
(388,025)
323,065
283,856
12,443,376
29,715
12,473,091
Income tax (expense) benefit
2,710,579
(3,685,308)
(4,810,167)
Income (loss) from continuing operations
(12,575,350)
5,236,652
7,662,924
Discontinued operations:
Loss from operations of SVTR, Inc., net of taxes
Loss on disposal of SVTR, Inc., net of taxes
Loss from discontinued operations
(5,322)
-
(5,322)
Net income (loss)
$
(12,580,672)
Net income (loss) per common share:
Basic:
From continuing operations
From discontinued operations
Net income (loss) per common share
Weighted average number of common
shares outstanding
Diluted:
From continuing operations
From discontinued operations
Net income (loss) per common share
Weighted average number of common and
common equivalent shares outstanding
(1,924,820)
(3,807,740)
(5,732,560)
(495,908)
0.66
(0.72)
(0.06)
7,963,747
0.63
(0.69)
(0.06)
$
$
$
$
$
(5,766,956)
-
(5,766,956)
1,895,968
1.14
(0.86)
0.28
6,690,265
1.10
(0.83)
0.27
$
$
$
$
$
$
$
$
$
(1.60)
-
(1.60)
7,884,628
(1.60)
-
(1.60)
7,884,628
8,251,373
6,982,368
See accompanying notes to consolidated financial statements.
56
CERPROBE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME
Number of
Number of Preferred
Notes
Accumulated
Common Shares Number of
Shares Issued and Treasury Common Preferred Treasury Paid-in Earnings from Related Comprehensive St ockholders’
Issued Outstanding Shares Stock Stock Stock Capital (Deficit) Parties Income(loss)
Equity
Balance, December 31, 1996 6027,714 330 -- $301,386 $ 16 $ -- $20,652,290 $2,105,674 $ -- $42,596
Additional Retained Receivable Other Total
$23,101,962
Exercise of stock options
95,265
Issuance of common stock
for acquisition
Issuance of common stock
in secondary offering,
net of issuance cost
of $226,764
Redemption of preferred stock
Tax benefit from exercise of
nonqualified stock options
Comprehensive income(loss):
Foreign currency
translation , net of taxes
Net income
175,000
1,800,000
--
--
--
--
--
--
--
(330)
--
--
--
--
--
--
--
--
--
--
4,763
8,750
90,000
--
--
--
--
--
--
--
(16)
--
--
--
--
--
--
--
--
--
--
811,702
1,662,062
37,015,237
(5,249,984)
245,000
--
--
--
--
--
--
--
--
1,895,968
--
--
--
--
--
--
--
-- 816,465
--
--
--
--
1,670,812
37,105,237
(5,250,000)
245,000
(241,406)
(241,406)
--
1,895,968
Total comprehensive income 1,654,562
$59,344,038
Balance, December 31, 1997
$55,136,307
$4,001,642
$(198,810)
8,097,979
$404,899
$ --
$ --
$ --
--
--
Exercise of stock options
31,300
Expenses of Issuance of
common stock
Issuance of common stock
for employee stock
purchase plan
--
--
Exercise of warrants
2,000
Purchse of treasury stock
Tax benefit from exercise of
nonqualified stock options
Comprehensive income(loss):
Foreign currency
translation , net of taxes
Net loss
--
--
--
--
--
--
--
--
--
--
--
--
--
--
37,198
(1,551)
(521,800)
--
--
--
1,565
--
--
100
--
--
--
--
--
--
--
--
--
--
--
--
--
--
204,048
(178,650)
408,454
(74,519)
(33,114)
33,014
(5,968,857)
--
--
--
--
151,000
--
--
--
--
--
--
--
--
--
(495,908)
--
--
--
--
--
--
--
--
--
--
--
--
--
--
205,613
(178,650)
405,935
--
(5,968,857)
151,000
10,679
--
10,679
(495,908)
Total comprehensive loss (485,229)
$53,473,850
Balance, December 31, 1998
$(5,521,517)
55,271,200
$3,505,734
$(188,131)
8,131,279
(486,153)
$406,564
$ --
$ --
--
Exercise of stock options
231,966
Issuance of common stock
for acquisition
1,500,000
Issuance of common stock
for employee stock
purchase plan
Tax benefit from exercise of
nonqualified stock options
Notes receivable from
related parties
Comprehensive income(loss):
Foreign currency
translation , net of taxes
Net loss
--
--
--
--
--
--
--
--
--
--
--
--
--
--
11,598
75,000
41,960
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
1,387,065
11,263,000
494,239
(184,564)
--
--
--
--
94,000
--
--
--
--
--
--
--
--
--
(12,580,672)
--
--
--
--
(868,273)
--
--
--
--
--
1,398,663
11,338,000
309,675
94,000
(868,273)
--
--
(48,403)
(48,403)
--
(12,580,672)
Total comprehensive loss (12,629,075
Balance, December 31, 1999
9,863,245 -- (444,193) $493,162 $ -- $(5,027,278) $67,830,701 $(9,074,938) $(868,273) $(236,534) $53,116,840
See accompanying notes to consolidated financial statements.
57
CERPROBE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash flows from operating activities:
Income (loss) from continuing operations
Adjustments to reconcile net income (loss) from continuing operations
to net cash provided by (used in) continuing operations:
Years ended December 31,
1999
1998
1997
$
(12,575,350)
$
5,236,652
$
7,662,924
Depreciation and amortization
In-process research and development
Loss on sale of equipment
Tax benefit from exercise of nonqualified stock options
Deferred income taxes
Provision for losses on accounts receivable
Provision for obsolete inventory
Compensation expense
Income (loss) applicable to minority interest
Changes in working capital of continuing operations
Accounts receivable
Inventories
Prepaid expenses and other assets
Income taxes receivable
Accounts payable and accrued expenses
Accrued income taxes
Other liabilities
Net cash provided by continuing operations
Net cash used in discontinued operations
Net cash provided by operating activities
Cash flows from investing activities:
Purchase of property, plant, and equipment
Redemption (purchase) of investment securities
Investment in CRPB Investors, L.L.C.
Purchase of OZ Technologies, Inc., net of cash acquired
Purchase of Upsys-Cerprobe, L.L.C., net of cash acquired
Purchase of Cerprobe Europe S.A.S., net of cash acquired
Purchase of Cerprobe Interconnect Solutions, Inc., net of cash acquired
Purchase of SVTR, net of cash acquired
Proceeds from sale of equipment
Payment (issuance) of notes receivable
Net cash used in investing activities
Cash flows from financing activities:
Issuance of notes payable
Redemption of convertible preferred stock
Payments on notes payable
Net proceeds (costs) from issuance of common stock
Purchase of treasury stock
Net proceeds from employee stock purchase plan
Net proceeds from exercise of stock options
Capital contribution by minority interest partners
Net cash provided by (used in) financing activities
Effect of exchange rates on cash
Net increase (decrease) in cash
Cash, beginning of period
Cash, end of period
6,068,223
8,815,000
184,763
94,000
(596,951)
4,000
180,000
-
454,450
499,745
(1,248,621)
(42,877)
(1,224,804)
369,742
-
(7,073)
974,247
(51,500)
922,747
(6,339,844)
14,305,400
213,620
(19,696,966)
-
(31,135)
-
-
11,487
(560,448)
(12,097,886)
14,436,555
-
(6,261,632)
-
-
309,675
1,398,663
-
9,883,261
22,227
(1,269,651)
4,753,696
3,484,045
4,676,110
1,568,000
373,245
151,000
(509,174)
186,585
534,000
-
383,637
571,725
(736,703)
(72,967)
(243,765)
(1,359,857)
(108,648)
(9,627)
10,640,213
(1,161,467)
9,478,746
(11,900,133)
12,695,298
88,455
-
(376,366)
(3,230,230)
-
-
15,267
-
(2,707,709)
1,661,310
-
(768,110)
(178,650)
(5,968,857)
405,935
205,613
-
(4,642,759)
(90,072)
2,038,206
2,715,490
4,753,696
$
3,546,154
-
12,583
245,000
8,062
24,000
621,000
(33,536)
(29,715)
(2,689,975)
(1,728,051)
(236,085)
(256,949)
2,075,238
-
-
9,220,650
(7,558,443)
1,662,207
(6,302,918)
(24,019,378)
107,293
-
-
-
(80,102)
(2,590,697)
74,683
250,000
(32,561,119)
357,010
(5,250,000)
(1,856,141)
37,105,237
-
-
816,465
100,000
31,272,571
(241,406)
132,253
2,583,237
2,715,490
$
$
58
CERPROBE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
Supplemental disclosures of cash flow information from continuing operations:
Interest paid
Income taxes paid
Supplemental disclosures of non-cash investing activities:
The Company made acquisitions for $37.9 million, $3.6 million, and $4.5
million in the years ended December 31, 1999, 1998, and 1997,
respectively. The purchase prices were allocated to the assets
acquired and liabilities assumed based on their fair values as
indicated in the notes to the consolidated financial statements. A
summary of the acquisitions is as follows:
Purchase price
Less cash acquired
Notes payable issued
Common stock issued
Cash invested
Notes receivable from the exercise of stock options from related parties
$
$
$
$
$
582,135
482,597
37,899,135
(1,203,034)
(5,630,000)
(11,338,000)
19,728,101
868,273
$
$
$
$
$
182,133
2,049,282
$
$
221,248
2,060,000
3,626,366
(19,770)
-
-
3,606,596
-
$
$
$
4,546,825
(285,316)
-
(1,670,812)
2,590,697
-
See accompanying notes to consolidated financial statements.
59
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
Description of Business
The Company offers comprehensive solutions principally in one segment of the semiconductor industry -
semiconductor test interconnect. The Company is a leading manufacturer of probe cards, ATE interface assemblies,
ATE test boards, and test sockets/contactors. The Company believes it is the only company that designs, manufactures,
and assembles each of the electromechanical components that assure the integrity of the electrical test signal that passes
from the ATE to the IC DUT. The Company’s products address critical functions to assure IC quality, reduce
manufacturing costs, improve the accuracy of manufacturing yield data, and identify repairable memory ICs.
Unless the context indicates otherwise, all references to “Cerprobe” or the “Company” refer to Cerprobe Corporation
and its subsidiaries.
Principles of Consolidation
The consolidated financial statements include the accounts of Cerprobe Corporation and its subsidiaries: Cerprobe
Europe Limited, Cerprobe Europe S.A.S., Cerprobe Asia Holdings Pte Ltd, Cerprobe Interconnect Solutions, Inc.
(“CIS”), SVTR, Inc. (“SVTR”), Cerprobe Japan Co., Ltd, and OZ Technologies, Inc (“OZ”). All significant
intercompany transactions have been eliminated in consolidation.
Cerprobe Asia Holdings Pte Ltd is a 60% owner of Cerprobe Asia Pte Ltd; the balance is owned by Asian investors.
Cerprobe Asia Pte Ltd’s wholly owned subsidiaries, Cerprobe Singapore Pte Ltd and Cerprobe Taiwan Co., Ltd.,
operate full service sales and manufacturing plants.
In January 1997, the Company acquired all of the outstanding stock of SVTR, Inc., a company that refurbishes,
reconfigures, and services wafer probing equipment. In the third quarter of 1998, the Company discontinued operations
of SVTR. See Note 17.
In May 1997, the Company entered into a joint venture with Upsys Reseau Eurisys (“Upsys”), a French company owned
by IBM and GAME COGEMA Group, a French testing and engineering company. The joint venture, called Upsys-
Cerprobe, L.L.C., assembled and repaired Upsys’s vertical probe card that had been distributed by Cerprobe throughout
the United States and Asia. Cerprobe owned 55% of the joint venture and Upsys owned 45%. On June 25, 1998, the
Company terminated its distribution agreement with Upsys, and in connection therewith, Cerprobe purchased Upsys’s
45% interest in Upsys-Cerprobe, L.L.C. Accordingly, the consolidated financial statements as of and for the years ended
December 31, 1999, 1998 and 1997 include the activities of Upsys-Cerprobe, L.L.C.as a consolidated entity with a
minority interest through June 25, 1998.
In September 1998, the Company acquired France-based Cerprobe Europe S.A.S. The Company designs,
manufactures and distributes probe cards at its manufacturing plant near Marseilles. Accordingly, the consolidated
financial statements as of and for the year ended December 31, 1998 include Cerprobe Europe S.A.S.’s activities since
the date of acquisition. See Note 18.
In March 1999, the Company formed Cerprobe Japan Co., Ltd. to operate a sales and distribution facility in Tokyo,
Japan.
In December 1999, the Company acquired California-based OZ Technologies, Inc. The Company offers systems
solutions for IC package test and is a leading designer and producer of high performance test sockets and contactors.
OZ also designs and distributes ATE test boards and burn-in interfaces and systems. Accordingly, the consolidated
financial statements as of December 31, 1999 and for the year ended December 31, 1999 include OZ Technologies,
Inc.’s activities since the date of acquisition. See Note 18.
60
Use of Estimates
Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and
liabilities and the disclosure of contingent assets and liabilities at the balance sheet dates and reporting of revenues and
expenses during the reporting periods to prepare these financial statements in conformity with generally accepted
accounting principles. Actual results could differ from those estimates.
Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or market.
Property, Plant and Equipment
Property, plant and equipment are stated at cost and depreciated using the straight-line method over the following
estimated useful lives:
Building
Manufacturing tools and equipment
Office furniture and equipment
Computer hardware and software
Leasehold improvements
Intangibles
39 years
3-7 years
3-7 years
3-5 years
Life of lease
Intangibles consist of a license, goodwill, assembled workforce, patents and technology.
Goodwill represents the amount by which the cost of businesses purchased exceeds the fair value of the net assets
acquired. Goodwill is amortized over a period of seven to ten years using the straight-line method. Assembled
workforce represents the amount allocated to an acquired company’s existing personnel infrastructure and is being
amortized over four years using the straight-line method. Patents and technology are stated at fair market value at the
date of acquisition and are amortized over a period of five to eight years using the straight-line method. Research and
development costs and any costs associated with internally developed patents, formulas or other proprietary technology
are expensed in the year incurred. The Company continually evaluates whether events and circumstances have
occurred that indicate the remaining estimated useful lives of intangibles may warrant revision or that the remaining
balances may not be recoverable. When factors indicate that the assets should be evaluated for possible impairment,
the Company uses an estimate of the undiscounted net cash flows over the remaining life of the assets in measuring
whether the asset is recoverable.
In November 1998, the Company entered into a 10 year manufacturing license agreement with Feinmetall GmbH to
acquire an exclusive non-transferrable royalty bearing license to manufacture, use, sell, distribute, and repair
ViProbe® products. This license covers worldwide territories except Europe. The license will be amortized over the
period in which products are produced and will not exceed the ten year license term.
Income Taxes
The Company uses the asset and liability method of accounting for income taxes. Under the asset and liability method,
deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the enactment date.
Foreign Currency Translation
The financial statements of the Company’s Europe, France, and Asia subsidiaries are translated into U.S. dollars in
accordance with Statement of Financial Accounting Standards (“SFAS”) No. 52, “Foreign Currency Translation”.
Assets and liabilities of the subsidiaries are translated into U.S. dollars at current exchange rates. Income and expense
items are translated at the average exchange rate for the year. The resulting translation adjustments are recorded
61
directly as a separate component of stockholders’ equity and minority interest. All transaction gains or losses are
recorded in the statement of operations.
Revenue Recognition
The Company records revenue when goods are shipped.
Stock Based Compensation
In accordance with the provisions of Accounting Principals Board Opinion No. 25, “Accounting for Stock Issued to
Employees,” the Company measures stock-based compensation expense as the excess of the market price at the grant
date over the amount the employee must pay for the stock. The Company’s policy is to grant stock options at fair
market value at the date of grant; accordingly, no compensation expense is recognized. As permitted, the Company has
elected to adopt the pro forma disclosure provisions only of SFAS No. 123, “Accounting for Stock-Based
Compensation.”
Concentration of Credit Risk
Financial instruments which potentially subject the Company to concentrations of credit risk consists principally of
cash, investment securities, forward currency contracts, and accounts receivable. The Company invests primarily in
U.S. Treasury and government agency securities and corporate debt securities rated A1 or higher which have minimal
credit risk. The Company places forward currency contracts with high credit-quality financial instruments in order to
minimize credit risk exposure. Concentrations of credit risk with respect to accounts receivable are limited due to the
Company’s large semiconductor industry customer base.
Derivative Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 133, “ Accounting for Derivative
Instruments and Hedging Activities”, which established standards for the accounting and reporting for derivative
instruments, including certain derivative instruments embedded in other contracts, and hedging activities. This
statement generally requires recognition of gains and losses on hedging transactions. As issued, SFAS No. 133 is
effective for all fiscal quarters of all fiscal years beginning after June 15, 1999. In June 1999, the FASB issued SFAS
No. 137, “Accounting for Derivative Instruments and Hedging Activities –Deferral of the Effective Date of FASB
Statement No. 133- An Amendment of FASB Statement No. 133, “ which deferred the effective date of SFAS No. 133
until June 15, 2000”. The company is currently evaluating the impact of SFAS No. 133.
Reclassifications
Certain amounts in the 1997 and 1998 financial statements have been reclassified to conform with the 1999
presentation.
(2)
Inventories
Inventories consist of the following:
Raw materials
Work-in-process
Finished goods
Reserve for obsolete inventories
1999
1998
$8,313,504
1,257,863
288,053
9,859,420
(130,920)
$5,147,311
416,409
4,567
5,568,287
(264,656)
$9,728,500
$5,303,631
62
(3)
Property, Plant and Equipment
Property, plant and equipment consists of the following:
Land
Building
Manufacturing tools and equipment
Office furniture and equipment
Leasehold improvements
Computer hardware and software
Construction in progress
Accumulated depreciation and amortization
(4)
Intangible Assets
Intangible assets consist of the following:
Licenses
Goodwill and assembled workforce
Patents and technology
Accumulated amortization
(5)
Other Assets
Other assets consist of the following:
1999
1998
$ 587,433
2,340,887
17,479,305
3,372,043
4,615,870
9,523,321
1,956,360
39,875,219
(16,338,198)
$ 589,950
2,394,679
15,385,727
2,489,523
2,380,259
4,675,543
3,816,557
31,732,238
(10,562,304)
$23,537,021
$21,169,934
1999
$ 1,650,000
26,296,245
613,057
28,559,302
(2,225,145)
1998
$ 1,528,575
4,072,156
340,840
5,941,571
(1,362,536)
$26,334,157
$4,579,035
1999
1998
Investment in CRPB Investors, L.L.C.
Other assets and deposits
$ 249,865
426,620
$ 463,845
544,072
$676,485
$1,007,917
In September 1996, the Company acquired a 36% interest in CRPB Investors, L.L.C., for $659,233. CRPB Investors,
L.L.C., an Arizona limited liability company, was formed for the purpose of owning and operating the 83,000 square
foot facility which serves as Cerprobe’s worldwide headquarters. The investment is accounted for by the equity
method of accounting. In 1999 and 1998, $(116,870) and $100,721, respectively, was recorded by Cerprobe as
income (loss) from CRPB Investors, L.L.C.
63
(6)
Accrued Expenses
Accrued expenses consist of the following:
Accrued payroll and related taxes
Other accrued expenses
Accrued acquisition costs
Lease termination costs
(7)
Notes Payable and Line of Credit
1999
$2,579,820
2,279,484
513,275
212,145
1998
$2,390,522
685,372
--
--
$5,584,724
$3,075,894
In December 1999, the Company entered into a three-year senior secured credit facility with Bank of America, N.A.
(the “Loan and Security Agreement”). The Loan and Security Agreement includes a revolving credit facility in the
amount of $15,000,000 subject to borrowing base requirements providing for advances of up to 85% of eligible
accounts receivable. Advances on the revolving credit facility bear interest at prime rate plus 0.50%. The facility also
includes an inventory term loan in the amount of approximately $5,800,000 and a machinery and equipment term loan
in the amount of $2,000,000, both of which bear interest at prime rate plus 2.00%. The inventory term loan shall be
repaid based upon a 24-month amortization with a balloon payment of the outstanding principal balance at the end of
12 months. The machinery and equipment term loan shall be repaid based upon a 60-month amortization with a
balloon payment of the outstanding principal balance at the end of 36 months. All loans, advances, and other
obligations, liabilities, and indebtedness of the Company shall be secured by valid, perfected, and enforceable first
priority liens upon and security interest in substantially all of the Company’s present and future assets, including all
accounts, contract rights, inventory instruments, documents, fixtures, chattel paper, general intangibles, patents,
trademarks, copyrights, trade names, deposit accounts, vehicles, equipment, and pledge of stock of all domestic
subsidiaries of Cerprobe and OZ and 65% of the stock of each wholly-owned foreign subsidiary of Cerprobe. The
facility is also guaranteed by all wholly-owned subsidiaries of Cerprobe and OZ. Advances under the revolving credit
facility, the inventory term loan, and the machinery and equipment term loan were $1,300,878, $5,834,000, and
$2,000,000 respectively, at December 31, 1999. The inventory term loan and the equipment term loan are at the
maximum currently available under the terms of these loans.
The Loan and Security Agreement contains a number of covenants that, among other things, restrict the ability of the
Company to dispose of assets, incur additional indebtedness, incur guaranty obligations, prepay indebtedness except in
accordance with relevant subordination provisions, pay dividends or make capital distribution (other than distributions
in capital stock), create liens on assets, engage in mergers or consolidations (except that any subsidiary which is
acquired solely for the Company’s Common Stock and that any subsidiary of the Company may voluntarily merge into
another subsidiary), engage in certain transactions with subsidiaries and affiliates, make any change in accounting
policies or reporting practices except as required or permitted by generally accepted accounting principles and
otherwise restrict corporate activities. In addition, the Loan and Security Agreement requires the Company to comply
with certain financial covenants, including the maintenance of a consolidated Tangible Net Worth (as defined in the
Loan and Security Agreement). At December 31, 1999, the Company was in violation of the Tangible Net Worth
covenant under the line of credit agreement which was waived by the lender.
The Loan and Security Agreement contains customary events of default, including the failure to pay principal when due
or any interest or other amount that becomes due, any representation or warranty being made by the Company that is
incorrect in any material respect on or as of the date made, a default in the performance of any covenant which
continues for more than thirty days, default in certain other indebtedness, certain insolvency events, certain ERISA
events, and certain change of control events.
In addition pursuant to the OZ Technologies, Inc. acquisition, the Company issued to Selling Stockholders Notes in the
64
amount of $2,830,000 (the “Subordinated Promissory Note”) and $2,800,000 (the “Promissory Note”).
The Subordinated Promissory Note accrues interest at a rate of 10% per annum and matures December 3, 2002.
The Promissory Note accrues interest at a rate of 10% per annum and was to have matured on February 3, 2000. The
Selling Stockholders have agreed to extend maturity on this note until June 30, 2000. The Company may satisfy the
Promissory Note on June 30, 2000 by paying in cash all amounts then due under the Promissory Note or by transferring
its real property located at 10365 Sanden Drive, Dallas, Texas (the “Real Property”) to the Selling Stockholders’ agent,
unencumbered except for minor liens and any mortgage that is executed by the Company in favor of the Selling
Stockholders with respect to the Real Property. In the event that the Company satisfies the Promissory Note by
transferring the Real Property to the Selling Stockholders’ agent on June 30, 2000, the Stock Purchase Agreement
provides that the Company and the Selling Stockholders’ agent shall assign a value (the “Appraised Value”) to the Real
Property equal to the appraised value for the Real Property as determined by a mutually agreed-upon real estate
appraiser. The Stock Purchase Agreement further provides that (1) to the extent the Appraised Value is less than
$2,800,000 plus interest due under the Promissory Note, the amount of the difference shall be added to the principal
amount of the Subordinated Promissory Note and (2) to the extent the Appraised Value is more than $2,800,000 plus
interest due under the Promissory Note, the amount of the difference may be applied to reduce the principal amount of
the Subordinated Promissory Note if doing so does not cause the Company to violate any covenant in any loan
document to which it is a party.
The Company also has various demand loans outstanding with minority shareholders of Cerprobe Asia Holdings, Pte
Ltd. Interest is accrued at the five year Treasury Rate plus 1.50% per anum. These loans are not contractually due or
not expected to be paid within the next 12 months, and accordingly, are classified as long-term debt. The outstanding
balances, including interest at December 31, 1999 totaled $770,034
Long-term debt consists of the following:
Notes payable
Less current portion
Notes payable, less current portion
1999
1998
$15,534,912
(10,334,878)
$5,200,034
$870,540
(138,985)
$731,555
Annual maturities of long-term debt are as follows:
2000
2001
2002
Thereafter
$ 10,334,878
400,000
4,030,000
770,034
$15,534,912
(8)
Leases
The Company leases certain equipment under capital leases. These assets have been capitalized at the present value of
the future minimum lease payments and are included with manufacturing tools and equipment and office furniture at a
cost of $5,547,998 and $4,710,745 with related accumulated amortization of $2,090,492 and $1,454,205 as of
December 31, 1999 and 1998, respectively. In addition, the Company is obligated under certain noncancelable
operating leases for the Company’s manufacturing and office space. Certain operating lease agreements provide for
annual rent escalations and renewal options.
65
The following is a schedule of the future minimum lease payments for the years ending December 31:
2000
2001
2002
2003
2004
Thereafter
Total future minimum lease payments
Less amounts representing interest
(at rates ranging from 6.0% to 9.82%)
Present value of net minimum capital
lease payments
Less current portion
Capital
Leases
$1,140,177
904,016
709,554
527,421
308,613
248,837
Operating
Leases
$ 2,334,323
2,154,005
1,807,902
1,417,884
1,342,071
9,340,323
Rentals
Receivable
Under
Subleases
$ 47,600
-
-
-
-
-
3,838,618
$18,396,508
$ 47,600
(429,024)
3,409,594
(954,957)
Capital lease obligations, less current
portion
$2,454,637
Depreciation expense for assets under capital leases is charged to depreciation and amortization expense.
Rental expense for the years ended December 31, 1999, 1998, and 1997 was $1,959,970, $1,663,829, and $1,640,272,
respectively.
(9)
Income Taxes
Income tax expense (benefit) consists of the following:
Foreign
Federal
State
Current
Deferred
1999
1998
1997
$ 805,988
(3,177,178)
(339,389)
$ 549,245
2,488,841
647,222
$ 115,763
3,643,959
1,050,445
$(2,710,579)
$ 3,685,308
$ 4,810,167
$(1,734,320)
(976,259)
$(2,710,579)
$ 4,194,482
(509,174)
$ 3,685,308
$ 4,802,105
8,062
$ 4,810,167
66
A reconciliation of actual income taxes to income taxes at the “expected” United States federal corporate income tax
rate of 34% is as follows:
Income tax expense at “expected”
federal corporate rate
State income taxes, net of federal tax
benefit
In-process research and
development expense not benefited
Foreign income taxed at lower
than U.S. federal rate
Amortization of intangibles
Foreign sales corporation benefit
Utilization of federal tax credit
Nontaxable income
Utilization of net operating loss
carryforwards
Change in foreign and state valuation
allowance
Other
1999
1998
1997
$ (5,042,763)
$ 3,033,466
$ 4,240,851
(223,997)
427,167
693,294
2,996,420
-
-
(151,450)
240,307
-
(703,642)
-
(3,326)
156,843
(106,236)
-
-
(79,408)
131,406
(82,501)
-
(79,013)
-
-
(47,706)
143,514
31,032
171,810
5,584
-
33,244
$(2,710,579)
$ 3,685,308
$ 4,810,167
The tax effects of temporary differences that give rise to significant portions of the deferred tax asset and deferred tax liability
are as follows:
Deferred tax assets:
Foreign tax loss carryforward
Acquisition costs not currently deductible
Amortization not currently deductible
Currency translation not currently deductible
Reserves and accruals not currently deductible
Net operating loss carry forward
Income tax credits
Deferred tax assets
1999
1998
$ 86,738
581,902
253,024
120,399
1,024,801
1,125,339
379,609
$3,571,812
$ 349,364
616,747
1,693
192,589
446,092
-
-
$ 1,606,485
Less valuation allowance
(492,878)
(349,364)
Deferred tax assets
Deferred tax liabilities:
$ 3,078,934
$ 1,257,121
Difference between book and tax depreciation of
property, plant and equipment
Net deferred tax asset
(1,427,483)
$ 1,651,451
(581,930)
$ 675,191
67
Summary of current and long- term portion of deferred tax items are as follows:
Current asset
Long-term asset (included in other assets)
Long-term liability ( included in other liabilities)
1999 1998
$ 2,123,609 $ 446,092
229,099
--
$ 675,191
--
(472,158)
$1,651,451
The valuation allowance increased by $143,514 in 1999 and $171,810 in 1998, and is due to state and foreign losses for
which there is no assurance of realizing a tax benefit. A valuation allowance has not been provided for the other deferred tax
assets since management believes realization of the deferred tax assets is considered more likely than not.
(10) Stockholder’s Equity
Shareholder Rights Plan
On October 8, 1998, each shareholder of record received one Preferred Share Purchase Right (“Right”) on each
outstanding share of Common Stock owned. Each Right entitled shareholders to buy one one-thousandth of a share of
newly created Series A Junior Participating Preferred Stock of the Company at an exercise price of $110. The Rights
will be exercisable if a person or group hereafter acquires 15% or more of the Common Stock of the Company or
announces a tender offer for 15% or more of the Common Stock. Should this occur, the Right will entitle its holder to
purchase, at the Right’s exercise price, a number of shares of Common Stock having a market value at the time of
twice the Right’s exercise price. Rights held by the 15% holder will become void and will not be exercisable to
purchase shares at the bargain purchase price. If the Company is acquired in a merger or other business combination
transaction after a person acquires 15% or more of the Company’s Common Stock, each Right will entitle its holder to
purchase, at the Right’s then current exercise price, a number of the acquiring company’s common shares having a
market value at that time of twice the Right’s exercise price.
Treasury Stock
During 1998, the Company repurchased 503,541 shares, or approximately 6%, of the Company’s Common Stock in the
open market at an approximate price of $11.37 per share. The Company has utilized 60,899 shares of the reacquired
shares for reissuance in connection with its Employee Stock Purchase Plan.
Warrants and Non-Employee Stock Option
Additionally, the Company issued 39,275 Common Stock warrants in January 1996. These warrants give the holder
the right to purchase from the Company not more than 39,275 fully paid and non-assessable shares of the Company’s
Common Stock, $.05 par value, at a price of $16.55 per share on or after January 16, 1997, with expiration in January
2001. In 1998, 2,000 warrants were exercised.
(11) Stock Option Plans
The Company adopted in 1983, 1989, 1995, respectively, an incentive stock option plan, a non-qualified stock option
plan, and a combination stock option plan. In 1999 the Company adopted an additional non-qualified stock option
plan with a maximum of 1,000,000 shares of Common Stock to be issued under the plan. The combined plans provide
for the issuance of options to purchase 3,585,000 shares of the Company’s Common Stock, of which 1,126,600 were
available for grant as of December 31, 1999. In accordance with the plans, options are to be granted at no less than
100% of the fair market value of the shares at the date of grant. The options become exercisable on a basis as
established by the Company’s Compensation Advisory Committee of the Board of Directors and are exercisable for a
period of 5 to 10 years.
The Company has elected to follow Accounting Principal Board (“APB”) Opinion No. 25, “Accounting for Stock
68
Issued to Employees,” and related Interpretations in accounting for its plans. Under APB No. 25, because the exercise
price of the Company’s employee stock options equals the market price of the underlying stock on the date of the grant,
no compensation expense is recognized. Pro forma information regarding net income (loss) and earnings (loss) per
share is required by SFAS No. 123 and it has been determined as if the Company had accounted for its employee stock
options under the fair value method. The fair value of each option granted for 1999, 1998, and 1997 was estimated as
of the date of the grant using the Black-Scholes option pricing model with the following weighted average assumptions
for 1999, 1998, and 1997, respectively; risk-free interest rates of 5.2%, 5.1%, and 5.6%; dividend yields of zero for all
years; volatility factors of the expected market price of the Company’s Common Stock of 60%, 52%, and 52%,
respectively; and weighted average expected lives of the options of 5 years for 1999 and 3 years for 1998 and 1997.
Pro forma net income (loss) reflects only options granted in years 1995 through 1999. Therefore, the full impact of
calculating compensation cost for employee stock options under SFAS No. 123 is not reflected in the pro forma
amounts presented below because compensation cost is reflected over the options' vesting periods of generally between
3 and 4 years and the compensation cost for options granted before January 1, 1995 is not considered. The Company’s
pro forma information follows:
(Unaudited)
1999
1998
1997
Net income (loss)
As reported
Pro forma
$(12,580,672)
$(13,196,904)
$ (495,908)
$ (708,146)
Basic net income (loss) per share
As reported
Pro forma
$ (1.60)
$ (1.67)
$ (0.06)
$ (0.09)
Diluted net income (loss) per share
As reported
Pro forma
$ (1.60)
$ (1.67)
$ (0.06)
$ (0.09)
$ 1,895,968
$ 1,784,019
$ 0.28
$ 0.27
$ 0.27
$ 0.26
summary of the Company’s employee stock option activity and related information for the years ended December 31
follows:
1999
1998
1997
Weighted
Average
Exercise
Price
Weighted
Average
Exercise
Price
Shares
Shares
1,199,566
423,000
(231,966)
(199,300)
$10.19
$ 8.43
$ 6.03
$10.86
639,866
984,000
(31,300)
(393,000)
$ 8.81
$13.44
$ 6.57
$16.37
Weighted
Average
Exercise
Price
$ 8.46
$10.38
$ 8.57
$12.88
Shares
593,631
153,000
(95,265)
(11,500)
1,191,300
$10.27
1,199,566
$10.19
639,866
$ 8.81
540,196
$10.70
569,898
$ 9.01
367,320
$ 7.45
$4.76
$5.35
$4.16
69
Outstanding at
beginning of year
Granted
Exercised
Expired/canceled
Outstanding at end
of year
Exercisable at
end of year
Weighted average
fair value of
options granted
during the year
The following table summarizes information about stock options outstanding at December 31, 1999:
Options Outstanding
Options Exercisable
Weighted-
Average
Remaining
Contractual
Life
9.80
10.00
9.24
7.31
8.26
8.72
9.13
8.59
Number
Outstanding
at 12/31/99
100,000
150,000
70,000
263,800
303,000
243,500
61,000
1,191,300
Weighted-
Average
Exercise
Price
5.50
$
7.00
$
$
8.34
$ 10.38
$ 11.15
$ 12.34
$ 15.13
$ 10.26
Number
Exercisable
at 12/31/99
20,000
30,000
30,000
180,500
152,664
114,832
12,200
540,196
Weighted-
Average
Exercise
Price
5.50
$
7.00
$
$
8.77
$ 10.37
$ 11.24
$ 12.44
$ 15.13
$ 10.26
$5.50
$7.00
$8.00 to $9.75
$10.25 to $10.50
$11.00 to $11.875
$12.250 to $13.125
$15.125
(12)
Comprehensive Income
The Company recognized comprehensive income (loss) for the years ended December 31, as follows:
1999
$ (12,580,672)
Year ended December 31,
1998
$(495,908)
1997
$1,895,968
Net income (loss)
Other comprehensive income
(loss), net of tax:
Foreign currency translation
adjustment
(80,672)
Tax benefit (expense) from
foreign currency translation
Net other comprehensive
32,269
17,798
(7,119)
(402,344)
160,938
income (loss)
Comprehensive income (loss)
(48,403)
$ (12,629,075)
10,679
$ (485,229)
(241,406)
$1,654,562
(13)
Related Party Transactions
In August 1999, the Company and certain of its Directors and Officers entered into Secured Promissory Notes and
Stock Pledge Agreements, which totaled $841,465. The purpose of the loans was to exercise stock options scheduled
to expire. Interest on the notes is at 6% per annum with note maturities in August 2002. The notes are fully recourse
to the borrowers and are also collateralized by the Company’s Common Stock.
(14)
Segment Information
The Company operates principally in one industry segment; the design, development, manufacture and market of
semiconductor integrated circuit test products and services. The Company’s principal customers are North American,
European, and Asian-based semiconductor manufacturing companies.
Two of the Company’s customers exceeded 10% of net sales. The first customer accounted for 14%, 17%, and 17%
of net sales for the years ended December 31, 1999, 1998, and 1997, respectively. The accounts receivable from that
70
customer were $327,118, $586,318, and $1,081,424 at December 31, 1999, 1998, and 1997, respectively. The second
customer accounted for 13%, 12%, and 10% of net sales for the years ended December 31, 1999, 1998, and 1997,
respectively, with accounts receivable of $639,091, $451,766, and $654,015 at December 31, 1999, 1998, and 1997,
respectively.
International sales represented 23%, 18%, and 18% of the Company’s net sales in 1999, 1998, and 1997, respectively.
The following is a summary of the Company’s geographic operations:
1999
Customer sales
Intercompany sales
Total sales
North
America
Europe
and Asia
Eliminations
Consolidated
$48,288,270
673,472
$48,961,742
$14,367,481
3,162,820
$17,530,301
$ -
(3,836,292)
$(3,836,292)
$62,655,751
-
$62,655,751
Long-lived assets
$60,059,515
$3,537,614
$(13,049,467)
$50,547,662
1998
Customer sales
Intercompany sales
Total sales
$62,412,140
494,987
$62,907,127
$13,795,337
3,304,021
$17,099,358
$ -
(3,799,008)
$(3,799,008)
$76,207,477
-
$76,207,477
Long-lived assets
$28,134,572
$4,375,940
$(5,753,626)
$26,756,886
1997
Customer sales
Intercompany sales
Total sales
$56,670,599
864,575
$57,535,174
$12,341,796
2,110,599
$14,452,395
$ -
(2,975,174)
$ (2,975,174)
$69,012,395
-
$69,012,395
Long-lived assets
$18,514,131
$1,967,317
$(2,805,672)
$17,675,776
Management does not believe significant credit risk existed at December 31, 1999. The Company monitors its
customers’ financial condition and does not require collateral. Historically, the Company has not experienced
significant losses related to receivables from any individual or groups of customers.
(15)
Commitments and Contingencies
In October 1998, the Company filed an action against the former President, Director and shareholder of Silicon Valley
Test & Repair, Inc., which was acquired by the Company by way of a merger into its wholly-owned subsidiary, SVTR,
Inc., in January 1997. The suit seeks rescission of the acquisition and/or monetary damages arising from failure of the
defendants to disclose material facts regarding the origins of certain software necessary for SVTR, Inc.’s business. In
February 1999, the defendants filed a counter claim against the Company alleging conversion, interference with
contractual relations, unfair business practices, breach of contract, and specific performance allegedly arising from the
Company’s actions to preclude the defendants from selling the Company stock received by defendants as part of the
purchase price of Silicon Valley Test & Repair, Inc.; the Company seeks to recover this stock and the balance of the
purchase price through its claims for rescission. In March 1999, the Company and SVTR filed an amended complaint.
The defendants have responded and the action is proceeding to trial. While the Company intends to vigorously
prosecute this action, it is impossible to predict the outcome of this or any litigation. It is not anticipated that this suit
will have a material adverse impact on the Company’s financial condition or results of operations.
The Company is involved in other legal actions arising in the ordinary course of business. In the opinion of
management, the disposition of these actions would not have a material adverse effect on the Company.
71
(16)
Employee Benefit Plans
In December 1997, the Board of Directors approved the Employee Stock Purchase Plan (the “ESPP”) which provides
employees the means to acquire an equity interest in the Company. Eligible employees of the Company can purchase
Common Stock through payroll deductions at the lower of 85% of the closing price of the Common Stock on the
offering commencement date or the offering termination date. Payroll deductions for the purchase of the stock may not
exceed 10% of the employee’s base compensation or $25,000. As of December 31, 1999, 60,899 shares had been
purchased under this plan. The maximum number of shares that may be issued under this plan is 150,000.
The Company established the Cerprobe Corporation 401(k) Plan (“the Plan”) in 1993. Employees who have reached
18 years of age and who have completed 90 days of service for the Company are eligible to participate in the Plan.
Participants may elect to defer up to 15% of their salary.
Any contribution by the Company is at its discretion and only for those participants who have completed one year of
service for the Company. The Company expensed discretionary contributions pursuant to the Plan in the approximate
amounts of $264,778, $324,000, and $241,000 for the years ended December 31, 1999, 1998, and 1997, respectively.
The participants are fully vested in their and the Company’s contributions.
(17)
Discontinued Operations
In the third quarter of 1998, the Company discontinued operations of SVTR, a wafer prober refurbishing and
upgrading subsidiary acquired by the Company in January 1997. The discontinuance resulted from questions regarding
the origins of certain software necessary for SVTR’s business. In March 1999, Cerprobe sold certain SVTR assets for
$500,000. No gain or loss was recognized on the sale.
SVTR has been accounted for as a discontinued operation and accordingly, its results of operations and financial
position are segregated for all periods presented in the accompanying consolidated financial statements. Net sales,
related losses and income taxes associated with the discontinued operations are as follows:
Net sales
Loss from operations
Income tax benefit
Loss from operations, net
Loss on disposal
Income tax benefit
Loss on disposal, net
Years Ended December 31,
1999
$ -
1998
$ 3,871,292
$ (8,869)
3,547
$ (5,322)
$ -
-
$ -
$(3,550,636)
1,625,816
$(1,924,820)
$(6,346,233)
2,538,493
$(3,807,740)
The effective tax rate used in calculating the income tax benefit from discontinued operations is approximately the
same as the Company’s effective tax rate for continuing operations.
The Company recorded a pretax charge of $4,597,034 to write down its assets to estimated net realizable value and to
record additional liabilities in the shut down period. A charge of $1,749,199 was also recorded to reflect the estimated
phase out costs and losses from operations associated with SVTR. The tax benefit associated with these charges was
$2,538,493.
72
The net assets (liabilities) of SVTR, as reclassified in the accompanying consolidated balance sheets, include the
following:
Current assets
Property, plant and equipment, net
Intangibles, net
Other assets
Current liabilities
Long term debt
Other long term liabilities
(18)
Acquisitions
Upsys-Cerprobe L.L.C.
December 31,
1999
$554,585
-
-
63,011
(289,358)
(5,286)
(769,581)
$(446,629)
1998
$3,445,737
-
-
46,865
(931,913)
(19,847)
(1,058,939)
$1,481,903
On June 25, 1998, the Company purchased Upsys’s 45% interest in Upsys-Cerprobe L.L.C. The acquisition resulted in
$376,366 of goodwill, which is being amortized on a straight-line basis over eight years.
Cerprobe Europe S.A.S. (formerly SemiConducteur Services S.A. )
On September 30, 1998, the Company acquired France-based Cerprobe Europe S.A.S. for $3.0 million in cash and
$250,000 in acquisition related expenses. Cerprobe Europe S.A.S. designs, manufactures and distributes probe cards.
The acquisition resulted in $1,568,000 in-process research and development, which was charged to operations upon
acquisition, and $508,051 in goodwill, which is being amortized on a straight-line basis over 10 years, and $98,000 in
assembled workforce, which is being amortized on a straight line basis over 4 years.
The acquisition was accounted for as a purchase and, accordingly, the accompanying consolidated balance sheet
includes the assets purchased and liabilities assumed of Cerprobe Europe S.A.S. at December 31, 1998 and the
accompanying consolidated statements of operations include the results of Cerprobe Europe S.A.S. since the date of
acquisition.
OZ Technologies, Inc. (“OZ”)
In December 1999, the Company acquired all of the outstanding stock of OZ, a manufacturer of systems solutions for
IC package testing and a leading designer and producer of high performance test sockets and contactors for
$36,000,000. OZ also designs and distributes ATE test boards and burn-in interfaces and systems. The purchase price
consisted of $19,000,000 in cash, notes payable of $5,600,000, and 1.5 million shares of Common Stock. Of the 1.5
million shares of common stock, up to 554,089 can be sold during the 180-day period on or after the effective date of
the registration statement on Form S-3 with the Securities and Exchange Commission. If the selling shareholders sell
the common stock during the 180-day period and the average proceeds per share after selling expenses are less than
$7.58 per share and the average proceeds per share and the number of shares of Cerprobe Common Stock sold during
the 180-day period shall be added to the Subordinated Promissory Note.
The acquisition has been accounted for as a purchase and, accordingly, the purchase price has been allocated to the
assets acquired and the liabilities assumed based upon the estimated fair values at the date of acquisition. The
acquisition resulted in $8,815,000 in-process research and development, which was charged to operations upon
acquisition, $21,183,864 in goodwill which is being amortized on a straight-line basis over seven years and $1,009,091
in assembled workforce which is being amortized on a straight-line basis over four years. The purchase price of
$36,000,000 plus acquisition costs of $1,900,000 was allocated as follows:
73
Purchase price:
Cash
Note payable
Common Stock and additional paid in
capital
Costs of acquisition
Assets acquired and liabilities assumed:
Current assets
Property, plant and equipment
Other assets
In-process research and development
Goodwill and assembled workforce
Current liabilities
$ 19,000,000
5,630,000
11,338,000
1,900,000
$ 37,868,000
$ 8,945,021
1,822,749
87,209
8,815,000
22,192,955
(3,994,934)
$ 37,868,000
At acquisition, the state of the research and development products was not yet at a technological or commercially
viable state. The Company did not believe that the research and development products had any future alternative use
because if these products were not finished and brought to ultimate product completion, they would have no other
value. Therefore, consistent with generally accepted accounting principles, the Company recorded a charge for the full
value of the in-process research and development.
The consolidated balance sheet as of December 13, 1999 includes the accounts of OZ and results of operations since
the date of the acquisition. The following summary, prepared on a pro forma basis, excluding the charge for in-process
research and development, present the results of operations as if the acquisition had occurred on January 1, 1998.
Net sales
Net income (loss)
Basic net income (loss) per share
Diluted net income (loss) per share
Years ended December 31,
1999 1998
(unaudited)
(unaudited)
$89,292,000 $97,082,000
2,944,600
0.31
0.30
(938,400)
(0.10)
(0.10)
The pro forma results are not necessarily indicative of what the actual consolidated results of operations might have
been if the acquisition had been effective at the beginning of 1998 or as a projection of future results.
(19)
Fair Value of Financial Instruments
SFAS No. 107, “Disclosures about Fair Value of Financial Instruments,” requires that the Company disclose estimated
fair values for its financial instruments. The following summary presents a description of the methodologies and
assumptions used to determine the amounts.
The carrying amount of investment securities, receivables, accounts payable, and accrued expenses approximates fair
value because of the short term nature of these items. The fair value of notes payable and capital lease obligations
approximate the terms in the marketplace at which they could be replaced. Therefore, the fair value approximates the
carrying value of these financial instruments.
74
(20)
Supplemental Financial Information
A summary of additions and deductions related to the allowances for accounts receivable and inventories for the years
ended December 31, 1999, 1998 and 1997 follows:
Balance at
beginning
of year
Additions
Deductions
Balance at
end of
year
Allowance for doubtful accounts:
Year ended December 31, 1999
Year ended December 31, 1998
Year ended December 31, 1997
$333,364
$215,179
$223,000
$ 4,000
$186,585
$ 24,000
$ 6,355
$ 68,400
$31,821
$331,009
$333,364
$215,179
Allowance for obsolescence of inventories:
Year ended December 31, 1999
Year ended December 31, 1998
Year ended December 31, 1997
$264,656
$244,000
$129,000
$180,000
$534,000
$621,000
$313,736
$513,344
$506,000
$130,920
$264,656
$244,000
(21) Net Income (Loss) Per Share
The following table sets forth the computation of basic and diluted net income (loss) per share:
1999
1998
1997
Net income (loss)
$(12,580,672)
$ (495,908)
$ 1,895,968
Weighted average outstanding common
shares
Effect of dilutive securities:
Stock options
Antidilutive effect of
dilutive securities
Weighted average and common
equivalent shares outstanding
Basic net income (loss) per share
Diluted net income (loss) per share
7,884,628
7,963,747
6,690,265
62,768
287,626
292,103
(62,768)
-
-
7,884,628
$
(1.60)
$ (1.60)
8,251,373
$ (0.06)
$ (0.06)
6,982,368
$ 0.28
0.27
75
(22) Quarterly Results of Operations (Unaudited)
First
Quarter
Second
Quarter
Third
Quarter (1)
Fourth
Quarter (2)
(in thousands, except per share data)
Year ended December 31, 1999
Net sales
Gross profit
Operating income (loss)
Income (loss) from continuing
operations
Net income (loss)
Basic net income (loss) per share
Diluted net income (loss) per share
Year ended December 31, 1998
Net sales
Gross profit
Operating income
Income from continuing operations
Net income (loss)
Basic net income (loss) per share
Diluted net income (loss) per share
$ 15,606
5,560
335
150
145
0.02
0.02
$ 22,953
9,879
4,445
2,748
2,345
0.29
0.28
$ 14,103
4,246
(2,556)
(1,659)
(1,659)
(0.22)
(0.22)
$ 18,139
7,253
1,686
1,202
467
0.06
0.06
$ 14,932
5,189
(1,070)
(878)
(878)
(0.11)
(0.11)
$ 20,107
8,593
1,354
1,036
(3,557)
(0.46)
(0.45)
$ 18,015
6,023
(11,313)
(10,189)
(10,189)
(1.22)
(1.22)
$ 15,008
5,430
223
251
249
0.03
0.03
(1) 1998 includes a write-off of in-process research and development of $1.6 million, or $0.11 per diluted share, related to
the acquisition of Cerprobe Europe S.A.S.
(2) 1999 includes a write-off of in-process research and development of $8.8 million and $ 1.05 per diluted share, related
to the acquisition of OZ Technologies, Inc.
76
CERPROBE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
Assets
Current assets:
Cash
Accounts receivable, net of allowance of $362,102
in 2000 and $397,763 in 1999
Inventories, net
Accrued interest receivable
Prepaid expenses
Income taxes receivable
Deferred tax asset
Total current assets
Property, plant, and equipment, net
Intangible assets, net
Other assets
Total assets
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
Accrued expenses
Current portion of notes payable
Current portion of capital lease obligations
Net liabilities of discontinued operations
Total current liabilities
Notes payable, less current portion
Capital lease obligations, less current portion
Deferred tax and other liabilities
Total liabilities
Minority interest
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $.05 par value; authorized 10,000,000
shares; issued and outstanding none
Common stock, $.05 par value; authorized 25,000,000
shares; issued 9,897,897 and outstanding 9,489,732 shares at
September 30, 2000 and issued 9,863,245 and outstanding
9,419,052 shares at December 31, 1999
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive loss:
Foreign currency translation
Treasury stock, at cost, 408,165 shares at September 30, 2000
and 444,193 shares at December 31, 1999
Notes receivable from related parties
Total stockholders' equity
September 30,
2000
(unaudited)
December 31,
1999
$
4,312,393
$
3,484,045
21,557,294
12,597,563
68,925
1,540,601
36,101
437,982
40,550,859
21,613,746
23,531,386
732,094
12,313,053
9,728,500
22,157
1,107,378
4,041,140
2,123,609
32,819,882
23,537,021
26,334,157
676,485
$ 86,428,085
$ 83,367,545
$
5,199,021
6,547,356
6,604,179
1,108,469
336,322
19,795,347
4,143,975
2,271,452
939,875
27,150,649
-
-
-
$
3,687,143
5,584,724
10,334,878
954,957
446,629
21,008,331
5,200,034
2,454,637
472,158
29,135,160
1,115,545
-
-
494,895
68,021,279
(3,212,876)
493,162
67,830,701
(9,074,938)
(582,670)
64,720,628
(236,534)
59,012,391
(4,616,169)
(827,023)
59,277,436
(5,027,278)
(868,273)
53,116,840
Total liabilities and stockholders’ equity
$ 86,428,085
$ 83,367,545
See accompanying notes to condensed consolidated financial statements.
77
CERPROBE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended September 30,
Nine Months Ended September 30,
2000
1999
2000
$ 34,773,473
18,901,569
15,871,904
$
14,932,031
9,742,588
5,189,443
$
92,521,191
51,229,896
41,291,295
$
1999
44,640,667
29,644,646
14,996,021
Net sales
Costs of goods sold
Gross profit
Expenses:
Selling, general, and administrative
Engineering and product development
Goodwill amortization
Total expenses
Operating income (loss)
Other income (expense):
Interest income
Interest expense
Other, net
Total other income (expense)
Income (loss) from continuing operations before
minority interest and income taxes
Minority interest
8,480,325
1,359,765
916,284
10,756,374
5,115,530
105,404
(460,726)
91,608
(263,714)
4,851,816
(158,478)
4,939,049
1,186,108
134,214
6,259,371
(1,069,928)
192,831
(105,286)
(80,087)
7,458
23,138,915
3,649,132
2,824,314
29,612,361
11,678,934
317,020
(1,588,897)
365,494
(906,383)
(1,062,470)
10,772,551
(84,978)
(1,147,448)
269,310
(878,138)
(873,147)
9,899,404
(4,037,342)
5,862,062
Income (loss) from continuing operations before income taxes 4,693,338
Income tax (provision) benefit
Income (loss) from continuing operations
Discontinued operations:
(1,608,404)
3,084,934
Loss from operations of SVTR, Inc., net of taxes
-
-
-
Net income (loss)
$
3,084,934
Net income (loss) per common share:
Basic:
Net income (loss) per common share
Weighted average number of common
shares outstanding
Diluted:
Net income (loss) per common share
Weighted average number of common and
common equivalent shares outstanding
$
$
$
(878,138)
$
5,862,062
(0.11)
$
0.62
7,836,237
9,444,969
(0.11)
$
0.59
$
$
$
$
$
0.33
9,486,424
0.31
10,053,426
7,836,237
9,887,542
7,740,136
14,647,956
3,248,051
390,987
18,286,994
(3,290,973)
623,670
(309,268)
(81,163)
233,239
(3,057,734)
(273,494)
(3,331,228)
944,480
(2,386,748)
(5,322)
(2,392,070)
(0.31)
7,740,136
(0.31)
See accompanying notes to condensed consolidated financial statements.
78
CERPROBE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash flows from operating activities:
Income (loss) from continuing operations
Adjustments to reconcile net income (loss) from continuing operations
to net cash provided by (used in) continuing operations:
Nine Months Ended September 30,
2000
1999
$
5,862,062
$
(2,386,748)
Depreciation and amortization
Gain on sale of equipment
Tax benefit from exercise of nonqualified stock options
Deferred income taxes
Provision for losses on accounts receivable
Provision for obsolete inventory
Income applicable to minority interest
Changes in working capital of continuing operations:
Accounts receivable
Inventories
Prepaid expenses and other assets
Income taxes receivable
Accounts payable and accrued expenses
Other liabilities
Net cash provided by (used in) continuing operations
Net cash provided by (used in) discontinued operations
Net cash provided by (used in) operating activities
Cash flows from investing activities:
Purchase of property, plant, and equipment
Redemption of investment securities
Net distributions from CRPB Investors, L.L.C.
Purchase of Minority Interest in Cerprobe Asia Pte Ltd
Proceeds from sale of property, plant, and equipment
Net cash provided by (used in) investing activities
Cash flows from financing activities:
Issuance of notes payable
Payments on notes payable
(Issuance) payment of notes receivable
Net proceeds from employee stock purchase plan
Net proceeds from exercise of stock options
Net cash provided by (used in) financing activities
Effect of exchange rates on cash
Net increase in cash
Cash, beginning of period
Cash, end of period
Supplemental disclosures of cash flow information from continuing operations:
Interest paid
Income taxes paid
7,538,325
(527,271)
50,000
1,605,813
15,979
479,180
873,147
(9,260,220)
(3,348,243)
(578,725)
4,154,799
2,474,509
547,531
9,886,886
(260,067)
9,626,819
(6,081,855)
-
43,126
(914,237)
2,692,270
(4,260,696)
5,117,187
(9,933,618)
41,250
254,718
298,702
(4,221,761)
(316,014)
828,348
3,484,045
4,312,393
1,588,896
1,522,148
4,279,538
(3,176)
71,000
(17,168)
4,000
180,000
273,494
(174,435)
(1,594,055)
(293,052)
(1,963,188)
562,730
(7,073)
(1,068,133)
96,335
(971,798)
(4,745,100)
5,471,541
178,649
-
11,487
916,577
3,000,000
(1,414,546)
(841,465)
177,674
1,398,665
2,320,328
(143,659)
2,121,448
4,753,696
6,875,144
309,268
371,619
$
$
$
$
$
$
See accompanying notes to condensed consolidated financial statements.
79
CERPROBE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(1)
Basis of Preparation
The accompanying condensed consolidated financial statements as of September 30, 2000 and for the three and nine
months ended September 30, 2000 and 1999 are unaudited, but reflect all adjustments (consisting only of normal
recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of financial position
and operating results for the interim periods. The condensed consolidated balance sheet as of December 31, 1999 was
derived from the audited consolidated financial statements at such date.
Pursuant to accounting requirements of the Securities and Exchange Commission applicable to quarterly reports on
Form 10-Q, the accompanying consolidated financial statements and notes do not include all disclosures required by
generally accepted accounting principles for complete financial statements. Accordingly, these statements should be
read in conjunction with Cerprobe Corporation’s (the “Company”) annual financial statements and notes thereto
included in the Company’s Annual Report on Form 10-K for the year ended December 31, 1999.
Results of operations for interim periods are not necessarily indicative of those to be achieved for full fiscal years.
Principles of Consolidation
The condensed consolidated financial statements include the accounts of Cerprobe Corporation and its subsidiaries:
Cerprobe Europe Limited, Cerprobe Europe S.A.S., Cerprobe Asia Holdings Pte Ltd, Cerprobe Interconnect Solutions,
Inc. (“CIS”), SVTR, Inc. (“SVTR”), Cerprobe Japan Co., Ltd, OZ Technologies, Inc. (“OZ”), OZTEK (M) Sdn. Bhd,
Cerprobe International Holdings, Inc. and Cerprobe Foreign Sales Corporation. All significant intercompany
transactions have been eliminated in consolidation.
Prior to July 31, 2000 Cerprobe Asia Holdings Pte Ltd was a 60% owner of Cerprobe Asia Pte Ltd; the balance was
owned by Asian investors. Cerprobe Asia Pte Ltd's wholly owned subsidiaries, Cerprobe Singapore Pte Ltd and
Cerprobe Taiwan Co., Ltd., operate full service sales and manufacturing plants. As of July 31, 2000, Cerprobe
Corporation purchased the minority ownership in Cerprobe Asia Pte Ltd resulting in 100% ownership by Cerprobe
Corporation.
In the third quarter of 1998, the Company discontinued operations of SVTR, a company that refurbished, reconfigured,
and serviced wafer probing equipment. See Note 4.
In March 1999, the Company formed Cerprobe Japan Co., Ltd. to operate a sales and distribution facility in
Yokohama, Japan.
In December 1999, the Company acquired California-based OZ Technologies, Inc. Accordingly, the consolidated
financial statements as of December 31, 1999, and for the year ended December 31, 1999 include OZ’s activities since
the date of acquisition. See Note 5.
In March 2000, the Company merged OZ and CIS into Cerprobe Corporation. As a result, OZ and CIS are no longer
considered separate legal entities.
Reclassifications
Certain amounts in the 1999 financial statements have been reclassified to conform with the 2000 presentation.
(2)
Commitments and Contingencies
In October 1998, the Company filed an action against the former President, Director, and shareholder of Silicon Valley
Test & Repair, Inc., which was acquired by the Company by way of merger into its wholly-owned subsidiary, SVTR,
Inc., in January 1997. The suit seeks rescission of the acquisition and/or monetary damages arising from failure of the
80
defendants to disclose material facts regarding the origins of certain software necessary for SVTR, Inc.'s business. In
February 1999, the defendants filed a counter claim against the Company alleging conversion, interference with
contractual relations, unfair business practices, breach of contract, and specific performance allegedly arising from the
Company's actions to preclude the defendants from selling the Company stock received by defendants as part of the
purchase price of Silicon Valley Test & Repair, Inc.; the Company sought to recover this stock and the balance of the
purchase price through its claims for rescission. In March 1999, the Company and SVTR filed an amended complaint.
In July 2000, the defendants were granted Summary Judgement in their favor on all of Cerprobe and SVTR, Inc.’s
claims. On September 5, 2000, the Company moved for summary judgement seeking dismissal of the majority of
Defendants' counterclaims. On September 19, 2000, Defendants responded to the Company's motion and filed a cross-
motion for summary judgement on each of their counterclaims. On October 19, 2000, the Court heard arguments on the
Company's motion and the Defendants' cross-motion and took the matter under advisement. At present, the Court has
not rendered its ruling on the matter. While the Company intends to vigorously defend the defendants’ counter claim, it
is impossible to predict the outcome of this or any other litigation. It is not anticipated that the suit will have a material
adverse impact on the Company’s financial condition or results of operations.
The Company is involved in other legal actions arising in the ordinary course of business. In the opinion of
management, the disposition of these actions would not have a material adverse effect on the Company.
(3)
Comprehensive Income (Loss)
Comprehensive income (loss) encompasses net income and “other comprehensive loss”, which includes all other non-
owner transactions and events which change stockholders’ equity. The Company recognized comprehensive income
(loss) for the nine months ended September 30, 2000 and 1999 as follows:
Net income (loss)
Other comprehensive loss, net of tax benefit:
Foreign currency translation
adjustment
Tax benefit from foreign currency
translation
Net other comprehensive loss
Comprehensive income (loss)
Discontinued Operations
(4)
Nine months ended September 30,
1999
2000
$ 5,862,062
$
(2,392,070)
(971,117)
388,447
(582,670)
5,279,392
$
(209,767)
83,907
(125,860)
(2,517,930)
$
In the third quarter of 1998, the Company discontinued operations of SVTR, a wafer prober refurbishing and
upgrading subsidiary. The discontinuance resulted from questions regarding the origins of certain software necessary
for SVTR's business.
SVTR has been accounted for as a discontinued operation and, accordingly, its results of operations and financial
position are segregated for all periods presented in the accompanying consolidated financial statements. Net sales,
related losses, and income taxes associated with the discontinued operations are as follows:
Net sales
Loss from operations
Income tax benefit
Loss from operations, net
Nine months ended
September 30, 1999
$ –
$ (8,869)
3,547
$ (5,322)
81
The effective tax rate used in calculating the income tax benefit from discontinued operations is approximately the
same as the Company's effective tax rate for continuing operations.
The net liabilities of SVTR, as reclassified in the accompanying consolidated balance sheets, include the following:
Current assets
Other assets
Current liabilities
Long-term debt
Other long-term liabilities
September 30, 2000
$
December 31, 1999
$
297,383
41,855
(35,055)
(208)
(640,297)
(336,322)
554,585
63,011
(289,358)
(5,286)
(769,581)
(446,629)
$
(5)
Acquisitions
$
In December 1999, the Company acquired all of the outstanding stock of OZ, a manufacturer of systems solutions for
IC package testing and a leading designer and producer of high performance test sockets and contactors, for $36
million. OZ also designs and distributes ATE test boards and burn-in interfaces and systems. The purchase price
consisted of $19 million in cash, notes payable of $5.6 million, and 1.5 million shares of the Company’s Common
Stock. The acquisition has been accounted for as a purchase and, accordingly, the purchase price has been allocated to
the assets acquired and the liabilities assumed based upon the estimated fair values at the date of acquisition. As a
result of the acquisition, $8.8 million of in-process research and development was charged to operations. Goodwill of
$21.2 million is being amortized on a straight-line basis over seven years and $1.0 million of assembled workforce is
being amortized on a straight-line basis over four years. The purchase price of $36 million plus acquisition costs of
$1.9 million was allocated as follows:
Purchase price:
Cash
Notes payable
Common stock and additional paid in
capital
Costs of acquisition
Assets acquired and liabilities assumed:
Current assets
Property, plant, and equipment
Other assets
In-process research and development
Goodwill and assembled workforce
Current liabilities
$
$
$
$
19,000,000
5,630,000
11,338,000
1,900,000
37,868,000
8,945,021
1,822,749
87,209
8,815,000
22,192,955
(3,994,934)
37,868,000
At acquisition, the state of the research and development products was not yet at a technological or commercially
viable state. The Company did not believe that the research and development products had any future alternative use
because if these products were not finished and brought to ultimate product completion, they would have no other
value. Therefore, consistent with generally accepted accounting principles, the Company recorded a charge for the full
value of the in-process research and development.
The condensed consolidated balance sheets as of September 30, 2000 and December 31, 1999 include the accounts of
OZ and results of operations since the date of acquisition. The following summary, prepared on a pro forma basis,
excluding the charge for in-process research and development, presents the results of operations as if the acquisition
had occurred on January 1, 1999.
82
Net sales
Net loss
Basic net loss per share
Diluted net loss per share
Nine months ended
September 30, 1999
(unaudited)
$
65,764,000
(2,788,000)
(0.30)
(0.30)
The pro forma results are not necessarily indicative of what the actual consolidated results of operations might have
been if the acquisition had been effective at the beginning of 1999 or as a projection of future results.
(6)
Related Party Transactions
In August 1999, the Company and certain of its Directors and Officers entered into Secured Promissory Notes and
Stock Pledge Agreements. The purpose of the loans was to exercise stock options scheduled to expire. Interest on the
notes is at 6% per annum with note maturities in August 2002. The notes are fully recourse to the borrowers and are
also collateralized by shares of the Company’s Common Stock beneficially owned by the borrowers.
In June 2000, the Company and Daniel J. Hill entered into an unsecured Promissory Note. The principal amount of the
loan was $45,000, with a maturity of December 31, 2000. Interest on the note was 6% per annum. As of September
30, 2000 and December 31, 1999, the balance on all notes was $827,023 and $868,273, respectively.
(7) Segment Information
The Company operates principally in one industry segment: the design, development, manufacture, and marketing of
semiconductor integrated circuit test products and services. The Company’s principal customers are North American,
European, and Asian semiconductor manufacturing companies.
One of the Company’s customers exceeded 10% of net sales. This customer accounted for 17.8% and 15.5% of net
sales for the nine months ended September 30, 2000 and 1999, respectively. The accounts receivable from the
customer were $4,679,129 and $893,638 at September 30, 2000 and 1999, respectively.
International sales represented 25.4% and 21.7% of the Company’s net sales for the nine months ended September 30,
2000 and 1999, respectively.
The following is a summary of the Company’s geographic operations for the nine months ended September 30:
North America
Europe & Asia
Eliminations
Consolidated
2000
Customer sales
Intercompany sales
Total sales
Long-lived assets
1999
Customer sales
Intercompany sales
Total sales
Long-lived assets
$
$
$
$
$
$
69,052,782
1,581,576
70,634,358
42,627,582
34,948,903
362,944
35,311,847
23,196,751
$
$
$
$
$
$
23,468,409
$
-
$
92,521,921
4,062,517
(5,644,093)
-
27,530,926
$ (5,644,093)
2,677,118
$
(159,568)
$
$
92,521,921
45,145,132
9,691,764
$
-
$
44,640,667
2,093,333
(2,456,277)
-
11,785,097
$ (2,456,277)
3,133,246
$
(123,777)
$
$
44,640,667
26,206,220
83
(8)
Subsequent Events
On October 11, 2000, Cerprobe Corporation and Kulicke and Soffa Industries, Inc. (“K&S”) signed a definitive
agreement whereby, subject to the terms and conditions of the agreement, K&S will acquire Cerprobe. The
acquisition, if consummated, will be made by means of a cash tender offer by a wholly-owned subsidiary of K&S for
each share of Cerprobe common stock at a price of $20.00 per share. This will be followed by a back-end merger of
Cerprobe with that subsidiary, with Cerprobe to remain as the surviving corporation and a subsidiary of K&S. The total
purchase price, which also includes other acquisition-related costs, is expected to be approximately $225 million. The
agreement has been unanimously approved by the boards of directors of both companies.
The consummation of the tender offer is subject to customary closing conditions, including that a majority of the
outstanding Cerprobe shares are tendered and the expiration or termination of the Hart-Scott-Rodino waiting period.
The expiration of the Hart-Scott-Rodino waiting period has occurred. K&S commenced the tender offer on October
25, 2000, which, under the Securities and Exchange Commission rules, must be held open for a minimum of twenty
business days.
If K&S acquires at least 90% of the outstanding shares in the tender offer, it is expected that the back-end merger will
be effected promptly after the consummation of the tender offer without a special meeting of shareholders. If less than
90% of the shares are acquired by K&S, a special meeting would be required for approval of the back-end merger,
which would be assured if K&S acquires a majority of the outstanding shares in the tender offer. Cerprobe shareholders
who do not tender their shares in the tender offer and who do not otherwise seek to have the value of their shares
appraised under the applicable appraisal procedures under Delaware Law would receive $20.00 for each of their shares
of common stock in the back-end merger.
84
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 2001 Annual Meeting, which information is incorporated herein by reference.
The information required by Item 401(b) of Regulation S-K appears at the end of Part I, Item 1 of this report under the heading
"Executive Officers of the Company."
Item 11. EXECUTIVE COMPENSATION.
The information required hereunder will appear under the heading "ADDITIONAL INFORMATION" in the Company's Proxy
Statement for the 2001Annual Meeting, which information is incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required hereunder will appear under the heading "ELECTION OF DIRECTORS" in the Company's Proxy Statement
for the 2001 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 2001 Annual Meeting, which information is incorporated herein by reference.
85
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)
The following documents are filed as part of this report:
(1)(a) Financial Statements - Kulicke and Soffa Industries, Inc.:
Report of Independent Accountants
Consolidated Balance Sheet at September 30, 2000 and 1999
Consolidated Statement of Operations for the fiscal years
ended September 30, 2000, 1999 and 1998
Consolidated Statement of Cash Flows for the fiscal years
ended September 30, 2000, 1999 and 1998
Consolidated Statement of Changes in Shareholders' Equity
for the fiscal years ended September 30, 2000, 1999 and 1998
Notes to Consolidated Financial Statements
(b) Financial Statements - Cerprobe Corporation:
Report of Independent Accountants
Consolidated Balance Sheets at December 31, 1999 and 1998
Consolidated Statements of Operations for the years ended December 31,
1999, 1998 and 1997
31
32
33
34
35
36 - 53
54
55
56
Consolidated Statements of Stockholders’ Equity and Comprehensive Income
for the years ended December 31, 1999, 1998 and 1997 57
Consolidated Statements of Cash Flows for the years ended December 31,
1999, 1998 and 1997 58 -59
60 - 76
Notes to Consolidated Financial Statements
(c) Financial Statements - Cerprobe Corporation:
Condensed Consolidated Balance Sheets at September 30, 2000 (unaudited)
and December 31, 1999
77
Condensed Consolidated Statements of Operations for the three and nine months ended
September 30, 2000 (unaudited) and 1999
78
Condensed Consolidated Statements of Cash Flows for the nine months ended
September 30, 2000 (unaudited) and 1999 79
80 - 84
Notes to Condensed Consolidated Financial Statements
(2) Financial Statement Schedules:
II - Valuation and Qualifying Accounts
89
All other schedules are omitted because they are not applicable or the required information is shown in the
financial statements or notes thereto.
(3)
Exhibits:
EXHIBIT
NUMBER ITEM
2(i)
Agreement and Plan of Merger, dated as of October 11, 2000, by and among Kulicke and Soffa Industries, Inc.,
Cardinal Merger Sub.,Inc. and Cerprobe Corporation is incorporated herein by reference from Exhibit D(1) to the
Company's Form TO filed on October 25, 2000.
86
2(ii)
2(iii)
3(i)
3(ii)
4(i)
4(ii)
4(iii)
4(iv)
10(i)
10(ii)
10(iii)
10(iv)
10(v)
10(vi)
Stock Option Agreement, dated October 11, 2000, by and among Kulicke and Soffa Industries, Inc., Cardinal
Merger Sub., Inc. and Cerprobe Corporation, is incorporated herein by reference from Exhibit D(2) to the
Company's Form TO filed on October 25, 2000.
Form of Affiliate Tender Agreement, dated as of October 11, 2000, between Kulicke and Soffa Industries, Inc. and
certain stockholders of Cerprobe Corporation, filed as Exhibit 4 to Kulicke and Soffa Industries, Inc.'s Schedule
13D filed on October 23, 2000 is incorporated herein by reference.
The Company's Amended and Restated Articles of Incorporation as of March 3, 1998, filed as Exhibit 3(i) to the
Company's quarterly report on Form 10-Q for the quarterly period ended March 31, 1998 and Form of Amendment of
Articles of Incorporation effective March 12, 1999, filed as Exhibit 3(i), to the Company’s quarterly report on Form 10-Q
for the quarterly period ended March 31, 1999, are incorporated herein by reference.
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.
Amended and Restated Loan Agreement between the Company and PNC Bank, N.A. dated March 26, 1998, filed as
Exhibit 10(a) to the Company's quarterly report on Form 10-Q for the quarterly period ended March 31, 1998, is
incorporated herein by reference.
Indenture dated as of December 13, 1999 between the Company and Chase Manhattan Trust Company, National
Association, as Trustee, filed as Exhibit 4.1 to the Company’s Form 8-K dated December 13, 1999, is incorporated herein
by reference.
Registration Rights Agreement dated as of December 13, 1999 between the Company and Morgan Stanley & Co.
Incorporated, filed as Exhibit 4.2 to the Company’s Form 8-K dated December 13, 1999, is incorporated herein by
reference.
Credit Agreement dated December 21, 2000 between the Company and several Banks and PNC Bank, National
Association, as agent for the Banks.
Form of Termination of Employment Agreement signed by Mr. Kulicke (Section 2(a) - 30 months), and Messrs. Perchick,
Sprague, Jacobi, Wagner, Lendner, Leonhardt, May, Salmons, Sawachi, Spooner, Wolf, Belani, Chylak, Cristallo,
Greenberger, Oscilowski, Torton, Amweg, Camarda, Hartigan, Kish, Mak, Marrs, Rheault and Strittmatter (Section 2(a) -
18 months), filed as Exhibit 10(vii) to the Company's quarterly report on Form 10-Q for the quarterly period ended March
31, 1998, is incorporated herein by reference.*
The Company's 1994 Employee Incentive Stock Option and Non-Qualified Stock Option Plan (as amended and restated
effective October 8, 1996), filed as Exhibit 10(viii) to the Company's Annual Report on Form 10-K for the year ended
September 30, 1996, is incorporated herein by reference.*
The Company's 1997 Non-Qualified Stock Option Plan for Non-Employee Directors (as amended and restated effective
February 9, 1999), is incorporated herein by reference.*
The Company's Executive Incentive Compensation Plan, As Amended Through October 14, 1997, filed as Exhibit 10(ix) to
the Company's Annual Report on Form 10-K for the year ended September 30, 1997, is incorporated herein by reference.*
Gold Supply Agreement, as amended October 2, 1995 between American Fine Wire Corporation, et al, and Rothschild
Australia Limited, filed as Exhibit 10.1 to the Company's Form 8-K dated September 14, 1995 as amended by Form 8-K/A
on October 26, 1995, is incorporated herein by reference.
The Company's Executive Deferred Compensation Plan (As Amended and restated Effective October 1, 1999), is
incorporated herein by reference.*
10(vii)
Operating Agreement of Flip Chip Technologies, LLC dated February 28, 1996, filed as Exhibit 10 to the Company's
87
Quarterly Report on Form 10-Q for the quarterly period ended December 31, 1996, is incorporated herein by reference.
10(viii)
Convertible Loan Agreements between the Company, Flip Chip Technologies, LLC and Delco Electronics Corporation
dated June 16, 1997, October 30, 1997, February 18, 1998 and November 19, 1998 filed as Exhibit 10(xviii) to the
Company’s Annual Report on Form 10-K for the year ended September 30, 1998, is incorporated herein by reference.
10(ix)
10(x)
10(xi)
10(xii)
The Company’s 1998 Employee Incentive Stock Option and Non-Qualified Stock Option Plan filed as Exhibit 10(a) to the
Company's quarterly report on Form 10-Q for the quarterly period ended March 31, 1999, is incorporated herein by
reference.*
Amendment No. 1 to the Company’s 1998 Employee Incentive Stock Option and Non-Qualified Stock Option Plan., is
incorporated by reference.*
Amendment No. 1 to the Company's 1994 Employee Incentive Stock Option and Non-Qualified Stock Option Plan (as
amended and restated effective October 8, 1996), is incorporated by reference.*
Amendment No. 1 to the Company's 1988 Employee Incentive Stock Option and Non-Qualified Stock Option Plan (as
amended and restated effective October 8, 1996), is incorporated by reference.*
21
Subsidiaries of the Company.
23.1
Consent of PricewaterhouseCoopers LLP (Independent Accountants).
23.2
27
99(i)
*
(b)
Consent of KPMG LLP (Independent Public Accountants).
Financial Data Schedule.
Kulicke and Soffa Industries, Inc. and Cerprobe Corporation Unaudited Pro Forma Combined Statement of Operations
and Balance Sheet
Indicates a Management Contract or Compensatory Plan.
Reports on Form 8-K:
None
88
KULICKE AND SOFFA INDUSTRIES, INC.
Schedule II-Valuation and Qualifying Accounts
(in thousands)
Balance
at beginning
of period
Charged to
costs and
expenses
Charged
to other
accounts- Deductions-
describe
describe
Balance
at end
of period
$ 2,149
$ 29 $ -- $ 501(1)
$ 1,677
$ 12,845
$ 4,132
$ --
$1,319(2)
$15,658
$ 4,654
$ 2,437(3)
$ --
$ --
$ 7,091
$ 1,677
$ 812
$ --
$ 762(1)
$ 1,727
$ 15,658
$ 1,200
$ --
$1,930(2)
$14,928
$ 7,091
$ 5,124(3)
$ --
$ --
$12,215
$ 1,727
$ 2,758
$ -- $130(1)
$ 4,355
Description
Year ended September 30, 1998
Allowance for doubtful
accounts
Inventory reserve
Valuation allowance for
deferred taxes
Year ended September 30, 1999
Allowance for doubtful
accounts
Inventory reserve
Valuation allowance for
deferred taxes
Year ended September 30, 2000
Allowance for doubtful
accounts
Inventory reserve
$ 14,928 $ 6,978 $ -- $ 5,665(2) $16,241
Valuation allowance for
deferred taxes
$ 12,215
$ 509 (3) $ -- $ --
$ 12,724
(1) Bad debts written off.
(2) Disposal of excess and obsolete inventory.
(3) Reflects the increase in the valuation allowance associated with net operating losses of the Company's Japanese subsidiary plus
an increase in the valuation allowance related to U.S. tax credits.
89
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.
SIGNATURES
KULICKE and SOFFA INDUSTRIES, INC.
By: /s/ C. SCOTT KULICKE
C. Scott Kulicke
Chairman of the Board and
Chief Executive Officer
Dated: December 27, 2000
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
(Principal Executive Officer)
/s/ CLIFFORD G. SPRAGUE
Clifford G. Sprague
(Principal Financial Officer)
Chairman of the Board
and Director
December 27, 2000
Senior Vice President
and Chief Financial
Officer
December 27, 2000
/s/ PHILIP V. GERDINE
Philip V. Gerdine
Director
December 27, 2000
/s/ JOHN A. O’STEEN
John A. O'Steen
Director
/s/ ALLISON F. PAGE
Allison F. Page
Director
December 27, 2000
December 27, 2000
/s/ MACDONELL ROEHM, JR.
MacDonell Roehm, Jr.
Director
December 27, 2000
/s/ LARRY D. STRIPLIN, JR.
Larry D. Striplin, Jr.
Director
December 27, 2000
/s/ C. WILLIAM ZADEL
C. William Zadel
Director
December 27, 2000
90
Company Information
BOARD OF
DIRECTORS
C. Scott Kulicke
Chairman of the Board
Kulicke & Soffa
Industries, Inc.
Philip V. Gerdine, Ph.D.
Independent
Consultant
John A. O’Steen
Executive Vice
President of Operations
Cornerstone Brands, Inc.
Allison F. Page
Retired Partner
Pepper Hamilton LLP
MacDonell Roehm, Jr.
Chairman and CEO
Crooked Creek
Capital LLC
Larry D. Striplin, Jr.
Chairman and CEO
Nelson-Brantley Glass
Contractors, Inc. and
Circle “S” Industries
C. William Zadel
Chairman, President
and CEO
Millipore Corporation
OFFICERS
C. Scott Kulicke
Chief Executive Officer
OFFICE OF THE
PRESIDENT
Morton K. Perchick
Executive Vice
President
Alexander A.
Oscilowski
Senior Vice President
CHIEF FINANCIAL
OFFICER
Clifford G. Sprague
Senior Vice President
SENIOR VICE
PRESIDENTS
Moshe Jacobi
David A. Leonhardt
Charles Salmons
Laurence P. Wagner
VICE PRESIDENTS
Robert F. Amweg
Jack Belani
Joel Camarda
Robert Chylak
C. Zane Close
Peter P. Cristallo
Ofer Greenberger
Jeffrey Hartigan
Peter Kish
Oded Lendner
T.C. Mak
Robert Marrs
Donald R. May, III
Christian Rheault
Teruhiko Sawachi
James P. Spooner
Dennis Strittmatter
Shay Torton
Michael H. Wolf
EQUIPMENT
MANUFACTURING
FACILITIES
Kulicke & Soffa
Industries, Inc.
2101 Blair Mill Road
Willow Grove, PA
19090
Kulicke & Soffa
(Israel) Ltd.
Advanced Technology
Center
P. O. Box 875
Haifa, Israel 31008
Kulicke & Soffa
(Japan) Ltd.
No. 5 Koike Bldg. 1F
1-3-12 Kita-Shinagawa
Shinagawa-ku, Tokyo
140 Japan
Kulicke & Soffa Pte.,
Ltd.
6 Serangoon North
Avenue 5 #03-16
North Industrial Estate
Singapore 554910
Kulicke & Soffa
(Taiwan) Ltd.
No. 1 4F
5F Hsin Du Rd
Kaohsuing, Taiwan
PACKAGING
MATERIALS
MANUFACTURING
FACILITIES
Micro-Swiss Ltd.
P. O. Box 90
Yokneam Elite 20692
Israel
American Fine Wire, Ltd.
5002 Ang Mo Kio
Avenue 5
#04-05 Techplace II
Singapore 569871
American Fine Wire
Corporation
907 Ravenwood Drive
P. O. Box 966
Selma, AL 36701
Dr. Muller Feindraht AG
Zurcherstrasse 73
CH-8800 Thalwil-Zurich
Switzerland
Semitec
3025 Stender Way
Santa Clara, CA 95054
ADVANCED
PACKAGING
MANUFACTURING
FACILITIES
X-LAM Technologies
1504 McCarthy
Boulevard
Milpitas, CA 95035
Flip Chip
Technologies, LLC
3701 E. University Dr.
Phoenix, AZ 85034
TEST
MANUFACTURING
FACILITIES
Cerprobe Corporation
Headquarters:
1150 North Fiesta
Boulevard
Gilbert, AZ 85233
Manufacturing
Facilities:
Hayward, CA
San Jose, CA
Austin, TX
Dallas, TX
Singapore
Hsin Chu, Taiwan
Kaohsiung, Taiwan
Meyreuil, France
East Kilbride, Scotland
Probe Technology
Corporation
Headquarters:
2424 Walsh Avenue
Santa Clara, CA 95051
Manufacturing
Facilities:
Austin, TX
Tempe, AZ
East Kilbride, Scotland
Corbeil, France
Singapore
BANK
PNC Bank, N.A.
Philadelphia, PA
REGISTRAR AND
TRANSFER AGENT
Common Stock
American Stock
Transfer & Trust Co.
40 Wall Street
New York, NY 10005
1-800-937-5449
STOCK TRADING
Traded on the
NASDAQ National
Market System
NASDAQ Symbol –
KLIC
An electronic copy of the
2000 Annual Report and
2001 Annual Meeting Proxy
Statement is available
online at:
http://www.kns.com/
investors/financials/
secreports.asp
Copies of the Company’s
10Q’s, recent news releases
and Investor Packages may
be obtained by contacting:
Investor Relations
Kulicke & Soffa Industries, Inc.
Phone: 215-784-6750
Fax: 215-784-6167
Or request information
online at:
http://www.kns.com
K&S is an equal
opportunity employer.
Our consistent manage-
ment philosophy has
been to provide maximum
opportunities for all of
our employees without
regard to race, color,
religion, sex, age, or
national origin.
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INDEPENDENT
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Philadelphia, PA
2101 Blair Mill Road, Willow Grove, PA 19090, USA
215-784-6000 phone 215-659-7588 fax
www.kns.com