Kulicke and Soffa Industries Annual Report 2001

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FY2001 Annual Report · Kulicke and Soffa Industries

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FIVE YEAR REVIEW

$(000) except per share data

Fiscal Year Ended September 30,

1997

1998

1999

2000

2001

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)
Net Income (loss) as a percentage of sales
Net return on average equity

Net Income (Loss) Per Share:*
Basic
Diluted

Average Shares Outstanding (000)*
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 (000)*
Number of employees

$501,907
$46,030

9.2%
$820
$38,319
7.6%
17.4%

$0.92
$0.90

41,742
42,856

$190,220
$45,648
$376,819
$220
$291,927

$118,000
3.32/1
$13,516
$8,945
$6.28
46,474
2,229

$411,040
$48,715

11.9%
$5,514

$(5,440)
(1.3%)
(1.9%)

$(0.12)
$(0.12)

46,602
46,602

$182,181
$48,269
$342,584

$398,917
$37,188

9.3%
$3,547

$(16,946)
(4.2%)
(6.0%)

$(0.36)
$(0.36)

46,846
46,846

$167,131

$67,485
$378,145

$287,910

$274,776

$54,000
4.53/1
$16,062
$10,896
$6.16
46,734
2,057

$93,000
2.78/1
$10,891
$13,104
$5.85
46,978
2,239

$899,273
$50,135

5.6%
$4,719
$103,245
11.5%
30.4%

$2.15
$1.90

47,932
56,496

$471,338
$83,867
$731,502
$175,000
$405,342

$143,000
4.73/1
$38,304
$20,121
$8.32
48,716
2,805

$555,003
$62,727

11.3%
$(5,535)
$(65,251)
(11.8%)
(17.8%)

$(1.34)
$(1.34)

48,877
48,877

$265,355
$127,952
$777,426
$301,511
$338,547

$49,000
3.30/1
$48,636
$30,092
$6.90
49,034
3,710

IN FISCAL 1997 THE COMPANY RECORDED A PRETAX LOSS OF $6,701 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 REPRESENTING ITS PROPORTIONATE SHARE OF THE LOSS FROM ITS EQUITY INVESTMENT IN FCT, THE COMPANY ALSO INCURRED A RESIZING
CHARGE OF $8,420 FOR SEVERANCE AND ASSET WRITE-OFFS AND A CHARGE OF $3,788 FOR INVENTORY RELATED ITEMS.

IN FISCAL 1999 THE COMPANY RECORDED PRETAX LOSSES AS FOLLOWS: $12,166 REPRESENTING ITS SHARE OF THE LOSS FROM FCT; $5,918 FOR SEVERENCE AND ASSET WRITE-OFFS IN CONNECTION WITH THE MOVE
OF IC BALL BONDER MANUFACTURING TO SINGAPORE AND RESIZING EFFORTS; $3,935 OF IN-PROCESS R&D IN CONNECTION WITH THE PURCHASE OF THE ADVANCED SUBSTRATE TECHNOLOGY; AND $837 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 ASSOCIATED WITH THE 1999 MOVE OF BALL BONDER MANUFACTURING TO SINGAPORE AND A ONE-TIME CHARGE OF $3,871
ASSOCIATED WITH THE TERMINATION OF AND WRITE-OFF OF THE REMAINING INVESTMENT IN, THE ADVANCED POLYMER SOLUTIONS JOINT VENTURE.

IN FISCAL 2001, THE COMPANY PURCHASED CERPROBE CORPORATION AND PROBE TECHNOLOGY CORPORATION FOR APPROXIMATELY $290 MILLION IN CASH. RESULTS OF OPERATIONS REFLECT THE RESULTS OF THE
ACQUIRED COMPANIES FROM THE DATE OF ACQUISITION THROUGH SEPTEMBER 30, 2001. THE COMPANY ALSO RECORDED ADDITIONAL AMORTIZATION EXPENSE OF $22,810, THE WRITE-OFF OF PURCHASED IPR&D OF
$11,709 AND AN INVENTORY SET-UP CHARGE OF $4,195 ASSOCIATED WITH THE ACQUISITIONS. IN ADDITION, THE COMPANY RECORDED INVENTORY WRITE-DOWNS OF $19,900, RESIZING COSTS ASSOCIATED WITH
REDUCTIONS IN WORKFORCE AND THE CLOSURE OF A BONDING WIRE FACILITY OF $4,966 AND A CHARGE OF $8,165 FOR THE ADOPTION OF SAB 101, NET OF TAXES.

PER SHARE PRICE OF COMMON STOCK*
Traded on the NASDAQ National Market System, NASDAQ Symbol-KLIC
1998
1997
Fiscal Year

1st Quarter
2nd Quarter
3rd Quarter
4th Quarter

High
$11.125
15.000
17.813
29.188

Low
$5.250
9.375
10.375
15.500

High
$24.125
14.813
12.406
9.750

Low
$8.250
8.125
6.938
5.750

High
$10.938
17.625
14.500
14.500

1999
Low
$4.688
8.813
9.500
9.563

The Company has not paid dividends since the 3rd Quarter of 1985. At December 1, 2001, there were 603 shareholders of record.

* ADJUSTED FOR STOCK SPLIT EFFECTIVE JULY 31, 2000

2000

2001

High

Low
$22.625 $11.500
19.594
19.938
13.125

43.656
40.313
33.125

High
$15.375
17.000
18.700
18.300

Low
$9.000
11.000
11.250
8.160

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 harbor 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, 2001 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.

anaging a company in as

no reason why this formula for success won’t

To Our Shareholders

volatile a business as the

semiconductor industry requires an

especial focus on technology trends

and a company’s long term strategy.

We’d like to think that we maintained

that focus throughout the turmoil of

be equally effective going forward.

The only caveat to this statement of confi-

dence has to do with possible technology

limits imposed by process steps upstream or

downstream of the wire bonder. In 2000 we

identified one such limit in the wafer probe

step: would probe card technology evolve in

such a way as to support the very fine pitch

wire bonding processes we’re delivering to

our customers? Our lack of confidence in

various probe card suppliers caused us, early

2001’s semiconductor contraction.

in the fiscal year, to acquire two of those

companies – Cerprobe and Probe Technology –

K&S’ strategy is to dominate the technolo-

and to merge them into K&S as our new Test

gies used to connect semiconductor devices –

Interconnect Division. Not only do these

chips – to the systems in which they are

acquisitions now make us the largest supplier

housed. We call these collected technologies

of probe cards in the world, more importantly,

“chip interconnect.” We’re executing that strat-

it gives us a market position in another of the

egy by building market positions for those key

key enabling technologies associated with

pieces of machinery or materials, or the

chip interconnect.

processes that enable connection.

Wire bonding’s large share of chip intercon-

Since a large majority of all chips use

nects notwithstanding, we also recognize that

traditional wire bonding for interconnection,

other forms of interconnect are emerging.

extending K&S’ dominant position in the wire

The appeal of these alternate technologies –

bonder market is one of our top priorities. But

especially Flip Chip and Wafer Level Packaging

advances in wire bond technology are not just

– will only grow because of issues such as

a function of machine performance. The wire

electrical performance, interconnect density,

bond process is equally dependent on the

and packing density. Therefore, K&S has

expendable tools and the wire that are used.

been equally aggressive in investing in these

K&S is uniquely positioned as the only compa-

technologies as well.

ny with all three of these product lines in its

The heart of the flip chip process is the

portfolio, allowing us to aggressively drive

solder bump which forms the actual

wire bond performance. This has been key

connection between a chip and its package.

to our dominance in this area, and we see

Several years ago we formed a joint venture

with the Delco Electronics subsidiary of General

by the middle of the decade. Accordingly, we’ve

Motors to commercialize the bump technology

been developing alternate substrate technology,

they developed for automotive applications.

which, we believe, will allow us to leapfrog

In 2001, we purchased their interest in that joint

today’s suppliers, and establish K&S as a

venture, forming our Flip Chip Division. That

“supplier of choice” of substrates for these

division has successfully established its bump

technology as an industry standard, available

not only from K&S acting as a bump service

provider, but more importantly, from several of

the industry’s top subcontract assemblers who

have licensed the technology from us. Looking

forward, we’re continuing to drive the evolution

of bump technology, enabling successively

higher levels of electrical performance at lower

and lower costs. Recent rollouts of improved

bumps testify to our ability in this area.

We’ve also developed a variant of our

bump technology targeting low pin count

applications, our Ultra CSP®, which has been

adopted by several semiconductor companies,

and licensed by subcontractor assemblers

as well.

Looking beyond bumps, we see an industry

challenge in the scalability of the substrate tech-

nology used to assemble most high-end chips.

As those chips evolve, with denser and denser

connections, operating at higher and higher

levels of electrical performance, the substrate

must also evolve. However, we believe the

advanced chips. Already we’re in qualification

with several suppliers and expect pilot level

production in 2002.

These are only the highlights of the various

steps we’re taking in pursuit of our strategic

goal of dominating the technologies used to

connect chip to system. Given more space,

I could go on about equally exciting activities

in our microelectronic group, or in the dicing

division, or among those engineers formulating

polymers for chip assembly, or in a dozen

other parts of K&S.

Through these various efforts K&S is invest-

ing more, and across a wider range of technolo-

gies, than any of our competitors. That’s

because we believe that success will not be

just a function of excellence in individual prod-

ucts, but that customers will disproportionately

reward suppliers who have gone the extra step

of solving the problems of how to actually use

their products in real applications. This gets

to what we call “solutions,” and refers to a

customer being able to easily use our different

products together in his factory, to solve his

basic technologies used by today’s suppliers

chip interconnect problems, and to ultimately

to the multi-billion dollar substrate market will

help him make money.

hit technical barriers limiting their applicability

This added distinction of K&S as a chip

relative to the requirements of the 100 nanome-

assembly solutions supplier, not just a machine

ter, copper, low k chips that will be produced

builder, or material supplier, is K&S’ ultimate

differentiator; which should allow us to

down. New designs, especially for higher per-

increase our role in the semiconductor industry,

formance chips using 130 nanometer processes,

in both the up and down phases of the next

are gaining momentum. These are the precondi-

semiconductor cycle.

tions for a semiconductor recovery, which, in

Speaking of the semiconductor cycle, 2001

more normal times, would be imminent. On

was, by all accounts, record setting in the

the other hand, the domestic economy is still

rapidity of business contraction. K&S was not

wobbly, the European electronics industry

immune to those trends, with revenue of $555

seems to be slowing, and Japan continues to

million, down from $899 million in 2000, and

be stuck in their decade-long funk. Add to

with an EPS loss of ($1.34), down from fully

this all the uncertainty of September 11 and

diluted EPS of $1.90 in fiscal 2000.

the War on Terrorism, and we’re not quite as

2001 was an ugly year, marked by declining

confident of an early recovery.

revenues and subsequent retrenchment and

But whether the recovery is in early 2002,

layoffs. We’ve protected the core of the

or in the latter part of the year, we do believe –

organization, and continued to invest in those

strongly – that K&S is well positioned to prosper

technologies that are key to our strategy.

from the inevitable semiconductor recovery.

Because of this, and through our acquisitions,

Our success will be a function of a strategy that

K&S now has a broader product portfolio,

establishes K&S as the dominant supplier of

and higher revenue potential than ever before.

technologies used to connect chips into systems.

Our prospects for 2002 are unclear. On

And we’ll measure that success through the

the one hand, IC unit volume is improving.

earnings we generate by effectively delivering

Customers’ inventories have been worked

goods and services that satisfy our customers.

C. Scott Kulicke
Chairman and Chief Executive Officer
December 14, 2001

Advanced Interconnect Technology –
A Journey Through a Computer Chip

Semiconductor devices –
chips – are an integral part
of our daily experience.
Modern life as we know it,
characterized by instant
telecommunications, high
degrees of personal mobility,
and absolutely saturated with
information, depends on the
chip. Yet few of us understand
much about chips, except
they’re small, incredibly com-
plicated, and that today’s
miracle of technology will be
old hat in just a few months,
replaced by something even
better, or faster, or cheaper.

We don’t have near enough

space on these pages to fully
explain how chips work, or
are made. Nonetheless, a brief
overview of semiconductor
technology is necessary to
evaluate K&S’ strategy. What
follows is that overview.

Today’s chips – more prop-
erly called Integrated Circuits
or IC’s – are built using the
transistor as their basic build-
ing block. Transistors are just
switches, each with an ON and
OFF position. Wiring the tran-
sistors together in particular
patterns creates the ability of
the chip to perform its particu-
lar function: memory, logic,
etc. Conceptually, this is
straightforward and not at all
different from the vacuum
tube days. What makes today’s
chips so marvelous is the huge

numbers of transis-
tors involved, the tiny
amount of space in
which they’ve been
crammed, and the
speed with which
they turn on and off.

On the next page you’ll see
a schematic of today’s typical
high performance logic chip. It
might be a microprocessor, or
a DSP, or a large ASIC (other
specific kinds of logic chips).
Manufacturing of this chip
means starting with a silicon
wafer – a thin disc of pure sili-
con. On the surface of this
wafer, chips are created by
first fabricating the individual
transistors – lots and lots of
them. In fact, today’s high per-
formance logic chips will have
millions, sometimes a few tens
of millions of transistors, all in
an area about 5/8’s of an inch
square, or about the size of a
postage stamp.

Next these millions of tran-
sistors are “wired” together to
create the logic function of that
chip. By logic, we mean that
given a certain pattern of
incoming electrical signals, the
chip responds with a pro-
grammed pattern of output
signals. This is done by “inter-
connect layers” – thin metal
grids, separated by insulating
layers. The individual metal
lines that connect the various
transistors are as thin as 130

nanometers (or about 5 ten
millionths of an inch) wide.
Vertical connections between
layers are called “via’s.” These
layers route electrical signals
from transistor to transistor, as
the transistor switches on and
off at speeds measured in bil-
lionths of a second. Our exam-
ple chip might have as many
as 8 of these interconnect lay-
ers, which have organized the
chip’s millions of transistors so
that the chip ends up with a
few thousand electrical con-
nections on its top surface.

The collected manufactur-
ing steps that created this chip
– that is the processes that
formed the transistors and
then connected them using
the various metal layers –
are called wafer fabrication.
There’s one last step in wafer
fabrication – to test each chip
by temporarily connecting to
the contacts on its surface and
running electrical signals to
the chip to see that it functions

continued

Advanced Interconnect Technology

A typical high performance logic chip

importantly, to
create electrical
connections
between the chip
and the circuit
board on which
it’s ultimately
mounted.

The process
steps involved in
assembly are prima-
rily mechanical in
nature: the wafer is
sawn (or “diced”)
into individual chips,
the chip is mounted
and then connected to
the “package,” the pack-

age is somehow sealed, then
the whole assembly is retest-
ed. Traditionally, chips were
assembled on a stamped
metal “leadframe,” and the
electrical connections made
by stringing fine wires from
the connections on the chip
to corresponding “leads” on
the frame – wire bonding. In
fact, this is still the most cost-
effective method for the vast
majority of IC’s made today.

But with ever increasing
transistor counts, traditional
assembly is beginning to give
way to an alternate process –
flip chip. Our example chip is
assembled using a typical flip
chip process. The few thou-
sand electrical connections on
the surface of the chip each

receive a small bump of sol-
der which simultaneously
mount the chip on to its pack-
age and create electrical con-
nections between the chip and
the package. Rather than use a
leadframe, high performance
chips are almost always built
on a “substrate.” Typically,
substrates are small, very fine-
ly wired circuit boards which
take the chip’s very dense pat-
tern of electrical connections
and expand them to the lower
densities of a typical circuit
board. Along the way, the
substrate, through its several
additional interconnect layers,
further reduces the connection
count from a few thousand
down to several hundred.
In this regard, the substrate
becomes an active part of the
system, with direct impact
especially on how fast the chip
processes electrical signals.

K&S’ place in this complex
manufacturing flow starts with
the fabricated wafer. From
probe on, K&S has a position
– often the leading position –
in most of the key process
steps associated with
assembling the chip in its
package. And our strategy
is to expand those positions,
taking advantage of technolo-
gy shifts so as to dominate
chip assembly – what we
call the K&S market space.

properly, and
at the correct
speeds. This step
is called “wafer probe” after
the name of the temporary
contacts used.

Having fabricated our
wafer, and probed it to find
which chips are good, a semi-
conductor manufacturer still
doesn’t have a useful part. The
chip is fragile, and the few
thousand connections are too
small and too densely packed
to be easily, or affordably, con-
nected in a typical electronics
system – a computer, or a cell
phone, or an automotive
engine control unit, or a video
game, or any of the thousands
of other kinds of electronic
systems. First, the chip must
be “assembled” in its pack-
age, the purpose of which is
to protect the chip, and more

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the fiscal year ended September 30, 2001

[ ] 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)

23-1498399
(IRS Employer
Identification No.)

2101 BLAIR MILL ROAD, WILLOW GROVE, PENNSYLVANIA

(Address of Principal Executive Offices)

19090
(Zip Code)

(215) 784-6000
(Registrant's Telephone Number)

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

None

COMMON STOCK, WITHOUT PAR VALUE
(Title of Class)

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes X No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]

The aggregate market value of the Registrant's common stock (its only voting stock and common equity) held by non-affiliates
of the Registrant as of December 1, 2001 was approximately $756,933,926. (Reference is made to the final paragraph of Part
II, Item 5 herein for a statement of assumptions upon which this calculation is based).

As of December 1, 2001, there were 49,085,428 shares of the Registrant's common stock, without par value, outstanding.

Documents Incorporated by Reference

Portions of the Registrant's Proxy Statement for the 2002 Annual Shareholders' Meeting to be filed prior to January 7, 2002
are incorporated by reference into Part III, Items 10, 11, 12 and 13 of this Report. Such Proxy Statement, except for the parts
therein which have been specifically incorporated by reference, shall not be deemed "filed" for the purposes of this Report on
Form 10-K.

[This page intentionally left blank]

KULICKE AND SOFFA INDUSTRIES, INC.
2001 Annual Report on Form 10-K

Table of Contents

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 Registrant’s 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

PART I

In addition to historical information, this report contains statements relating to future events or our future results. These
statements are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Act of 1934, as amended (the “Exchange Act”), and are subject to the Safe Harbor provisions created by statute. Such
forward-looking statements include, but are not limited to, statements that relate to our future revenue, product development,
demand forecasts, competitiveness, gross margins, operating expense and benefits expected as a result of:

• The projected growth rates in the overall semiconductor industry, the semiconductor assembly equipment market

and the market for semiconductor packaging materials and test interconnect solutions;
the anticipated development, production and licensing of our advanced packaging technology;
the projected continuing demand for wire bonders; and
the anticipated growing importance of the flip chip assembly process in high-end market segments.

•
•
•

Generally words such as “may,” “will,” “should,” “could,” “anticipate,” “expect,” “intend,” “estimate,” “plan,” “continue,”
and “believe,” or the negative of or other variation on these and other similar expressions identify forward-looking statements.
These forward-looking statements are made only as of the date of this report. We do not undertake to update or revise the
forward-looking statements, whether as a result of new information, future events or otherwise.

Forward-looking statements are based on current expectations and involve risks and uncertainties and our future results could
differ significantly from those expressed or implied by our forward-looking statements. These risks and uncertainties include,
without limitation, those described under Item 1. Business and Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations.

Item 1. BUSINESS.

We design, manufacture and market capital equipment, packaging materials and test interconnect solutions and provide
semiconductor wafer solder-bumping interconnect (flip chip bumping) services for sale to companies that manufacture and
assemble semiconductor devices. We also service, maintain, repair and upgrade assembly equipment, license our flip chip
bumping process technology and market high density interconnect substrates. Today, we are the world's largest supplier of
semiconductor assembly equipment, according to VLSI Research, Inc. Our business is currently divided into four segments:
equipment, packaging materials, test interconnect solutions and advanced packaging technology.

Historically, the demand for semiconductors and our semiconductor assembly equipment has been volatile, with sharp
periodic downturns and slowdowns. For instance, a strong upturn in the semiconductor industry for the majority of fiscal 2000
resulted in record revenues and earnings in that year. This industry upturn was followed by a severe industry downturn in
fiscal 2001 and we reported a 38% reduction in sales and a record net loss for that year. The current downturn in the
semiconductor industry is expected to continue to negatively impact our business in fiscal 2002.

To keep pace with the constant advance of technology in the semiconductor industry, we have continuously added to our
product and technology portfolio through acquisitions and internal development so as to offer a broad range of packaging
solutions to our customers. We believe this strategy has positioned us to enhance our leading position in traditional wire
bonding methodologies while also establishing leadership in advanced packaging technologies such as flip chip and wafer
level packaging. These newer technologies offer the superior performance characteristics required to support the latest, most
sophisticated semiconductor designs.

We believe our expanding portfolio of packaging and test interconnect solutions enables us to better balance our revenues
between products that are capacity driven, and thus more cyclically purchased primarily during industry expansions, and those
that are run-rate or technology driven and are thus more likely to be purchased throughout the semiconductor cycle. We
believe we are the only major supplier to the semiconductor assembly industry that can provide customers with semiconductor
assembly equipment along with a broad range of complimentary packaging materials and test interconnect solutions that are
optimized for use with our assembly equipment.

Kulicke and Soffa Industries, Inc. was incorporated in Pennsylvania in 1956. Our principal offices are located at 2101 Blair
Mill Road, Willow Grove, Pennsylvania 19090 and our telephone number is (215) 784-6000.

Products and Services

We offer a broad range of semiconductor assembly equipment, packaging materials, test interconnect solutions and flip chip
bumping services and spare parts used in the semiconductor assembly process. Set forth below is a table listing the
approximate percentage of our net sales by principal product for our fiscal years ended September 30, 1999, 2000 and 2001.

Wire bonders
Additional semiconductor assembly equipment
Services and spare parts
Packaging materials
Test interconnect
Advanced packaging technologies

Fiscal Year Ended
September 30,

1999

2000

2001

55
%
7
6
31
-
1

100

69
%
4
4
21
-
2

100

38
%
2
5
27
21
7

100

See Note 11 to our Consolidated Financial Statements for financial results by business segment.

Wire Bonders

Our principal product line is our family of wire bonders, which are used to connect very fine wires, typically made of gold,
aluminum or copper, between the bond pads on the die and the leads on the integrated circuit (IC) package to which the die
has been attached. We offer both ball and wedge bonders in automatic and manual configurations. We believe that our wire
bonders offer competitive advantages based on high productivity and superior process control, enabling fine pitch bonding
and long, low wire loops, which are needed to assemble advanced IC packages.

In the third quarter of fiscal 1999, we introduced the Model 8028 ball bonder, a continuation of the 8000 series, which
accounted for the majority of ball bonders we sold during fiscal 2000. In fiscal 2001 we began selling two enhanced Models –
the 8028-S and the 8028-PPS. The 8028-S offers approximately 10% more productivity while the 8028-PPS combines further
productivity enhancements with robust fine pitch capability. In May 2001, we introduced the Maxµm, our latest generation IC
ball bonder, which offers up to 20% more productivity than the Model 8028-PPS. The Maxµm has been tested and qualified
by several of our customers and will be available for shipment in the latter part of fiscal 2002.

In the first quarter of fiscal 2000 we introduced the Model 8098, a large area ball bonder designed for processing large panels
used for hybrids, chip-on-board and multi-chip modules. The 8098 also supports wafer level bumping for flip chip and other
area array applications. We continue to market the Model 8060 and Model 8068 wedge bonder, the Model 8090, a large area
wedge bonder and the 4500 digital series of manual wire bonders.

As part of our strategy to reduce the manufacturing costs of our wire bonders, we transferred our automatic ball bonder
manufacturing from Willow Grove, Pennsylvania to Singapore in fiscal 2000.

Additional Semiconductor Assembly Equipment

In addition to wire bonders, we produce and distribute other types of semiconductor assembly equipment, including wafer
dicing saws, die bonders, solder sphere attachment systems and flip chip assembly systems.

Dicing Saws. Dicing saws use diamond-embedded saw blades to cut silicon wafers into individual semiconductor die.
We produce and market the Model 7500, an automatic dicing saw, and the Model 7700 (introduced in fiscal 2000) a twin
spindle dicing saw which is capable of dicing 300 mm wafers.

Die Bonders. Die bonders are used to attach a semiconductor die to a leadframe or other package before wire bonding.
We have a distribution agreement with DATACON Semiconductor Equipment GmbH, an Austrian company, principally
to market their multi-chip module and flip chip die bonder product line worldwide, excluding Europe. We also market
the 2200 apm, an extremely accurate multi chip bonder developed by DATACON.

Solder Sphere Attachment Systems. During the fourth quarter of fiscal 2000, we introduced LaserPro, a solder sphere
attachment system, which combines the accuracy of the 8000 wire bonder platform with a laser and proprietary ball
placement system. LaserPro is used primarily for high volume, ultra fine pitch plastic ball grid array and chip scale
package production.

Flip Chip Assembly Systems. Flip chip is an alternative assembly technique in which the die is inverted and attached to
the package or board using conductive bumps, thereby eliminating the need for conventional die or wire bonding. The
Model 2200 apm, manufactured by DATACON Semiconductor Equipment GmbH and distributed by us, can be
configured to support flip chip applications.

We also offer different configurations of some of our products for non-semiconductor applications. For instance, our Model
7100 saw can be configured for cutting and grinding hard and brittle materials, such as ceramic, glass and ferrite, that are used
in the fabrication of chip capacitors, disk drive heads and optoelectronic materials.

Services and Spare Parts

We believe that our knowledge and experience have positioned us to deliver innovative, customer-specific services that reduce
the cost of owning our equipment. Historically, our offerings in this area were limited to spare parts, customer training and
extended warranty contracts. In response to customer trends in outsourcing packaging requirements, we are focusing on
providing repair and maintenance services, a variety of equipment upgrades, machine and component rebuild activities and
expanded customer training through a Customer Operations Group. These services are generally priced on a time and
materials basis. The service and maintenance arrangements are typically subject to bi-annual or multi-year contracts.

Packaging Materials

We design, manufacture and market a wide range of packaging materials to semiconductor device assemblers, including very
fine gold, aluminum and copper wire, capillaries, wedges, die collets and saw blades, all of which are used in the
semiconductor packaging process. Our packaging materials are designed for use on our assembly equipment as well as our
competitors’ assembly equipment. Our principal packaging materials are:

Bonding Wire. We manufacture very fine gold, aluminum and copper wire used in the wire bonding process. We
produce wire to a wide range of specifications, which can satisfy most wire bonding applications.

Expendable Tools. Our family of expendable tools includes capillaries, wedges, die collets and saw blades. Capillaries
and wedges are used to feed out, attach and cut the wires used in wire bonding. Die collets are used to pick up and place
die into packages. Our hubless saw blades are used to cut hard and brittle materials. Our hub blades are used to cut
silicon wafers into semiconductor die.

Test Interconnect

We offer a broad range of fixtures used to temporarily connect automatic test equipment to the semiconductor device under
test during wafer fabrication (wafer probing) and after they have been assembled and packaged (package or final testing). Our
principal test interconnect products are:

Probe cards. Probe cards consist of a complex, multilayer printed circuit board (PCB) and numerous probes designed to
make temporary electrical connections to each of the bond pads or bumps on a die while it is still in a wafer format.

Automatic Test Equipment (ATE) interface assemblies. ATE interface assemblies, typically consisting of mechanical
docking hardware and two intricate, multilayer PCBs, mechanically connect the ATE to the wafer prober and carry the
electrical signal to the semiconductor device under test.

ATE test boards. ATE test boards are complex, multilayer PCBs that mount directly to the ATE and transfer the
electrical signal from the ATE to the test socket/contactor.

Test sockets/contactors. Test sockets/contactors consist of numerous miniaturized spring-loaded contacts that touch
down on the electrical contacts of a packaged semiconductor.

Changes in the design of a semiconductor require changes in the probe card, test socket/contactor and, in certain cases, the
ATE test board used to test that semiconductor. Customers generally purchase new versions of these custom designed
products each time there is a design change in the semiconductor being tested.

Advanced Packaging Technologies

Our Flip Chip business unit focuses primarily on licensing its flip chip technology and providing flip chip bumping and wafer
level packaging services to customers. In February 1996, we entered into a joint venture agreement with Delco Electronic
Corporation (Delco) to license flip chip technology and to provide wafer bumping services on a contract basis. In March
2001, we purchased all of Delco’s interest in the Flip Chip venture not previously owned by us. We now own 100% of Flip
Chip. We are currently providing contract bump services to more than 20 customers. We also developed and market a wafer
level package, named the UltraCSP®, which is in production and has been licensed to customers. As of September 30, 2001,
we had sold nine licenses, for wafer solder-bumping and wafer level packaging applications, amd we expect to sell additional
licenses in the future.

In January 1999, we acquired advanced substrate technology from MicroModule Systems, a Cupertino, California company,
to enable production of high density substrates (referred to as our substrate business unit). We are currently shipping
UltraVia™ high density substrates for production to one of our customers and samples to other customers for qualification.

Neither our Flip Chip nor our substrate business units have been profitable to date. However, we expect operating income
from our Flip Chip business unit in fiscal 2002 to partially offset the expected loss at the substrate business unit.

Customers

Our major customers include large semiconductor manufacturers and their subcontract assemblers and vertically integrated
manufacturers of electronic systems. Some of these major customers are:

Advanced Micro Devices
Advanced Semiconductor Engineering
Agere
Agilent
Amkor Technologies
Atmel
ChipPAC
Conexant
General Dynamics
Infineon Technologies
Intel
International Business Machines
JDS Uniphase

Lexmark
LSI Logic
Micron
Motorola
National Semiconductor
NEC International
Orient Semiconductor Electronics
Philips Electronics
Seagate
Siliconware Precision Industries Co., LTD
ST Microelectronics
Texas Instruments

Sales to a relatively small number of customers have accounted for a significant percentage of our net sales. In fiscal 2001, no
customer accounted for more than 10% of our net sales. In fiscal 2000, sales to Advanced Semiconductor Engineering
accounted for 15% of our total sales and sales to Amkor Technologies accounted for 10% of our total sales. In fiscal 1999, no
customer accounted for more than 10% of net sales.

We believe that developing long-term relationships with our customers is critical to our success. By establishing these
relationships with semiconductor manufacturers and their subcontract assemblers and vertically integrated manufacturers of
electronic systems, we gain insight into our customers' future IC packaging strategies. This information assists us in our efforts
to develop material, equipment and process solutions that address our customers' future assembly requirements.

International Operations

We sell our products to semiconductor manufacturers and their subcontract assemblers and vertically integrated manufacturers
of electronic systems, which are primarily located in or have operations in the Asia/Pacific region. Approximately 62% of our
fiscal 2001 net sales, 91% of our fiscal 2000 net sales and 83% of our fiscal 1999 net sales were for delivery to customer
locations outside of the United States. The majority of these foreign sales were destined for customer locations in the
Asia/Pacific region, including Hong Kong, Japan, Korea, Malaysia, the Philippines, Singapore and Taiwan. Our shipments to
customers in China have historically been a small portion of our sales, however we expect this portion to increase as some of
our customers increase their production capacity in China. We expect sales outside of the United States to continue to
represent a substantial portion of our future revenues.

In addition, we maintain substantial manufacturing operations in countries other than the United States, including operations
located in Israel and Singapore and other smaller facilities in France, Japan, Scotland, Switzerland and Taiwan. Risks
associated with our international operations include risks of foreign currency and foreign financial market fluctuations,
international exchange restrictions, changing political conditions and monetary policies of foreign governments, war, civil
disturbances, expropriation, or other events that may limit or disrupt markets.

Sales and Customer Support

We operate a single sales management team to coordinate activities and improve customer support. Our direct sales force,
consisting of approximately 110 individuals at September 30, 2001, is responsible for the sale of all product lines, including
those of our equipment, packaging materials, test interconnect solutions and advanced packaging technology businesses, to
customers in the United States, Europe and the Asia/Pacific region, including Japan. Lower volume product lines are sold
through a network of manufacturers' representatives.

We believe that providing comprehensive worldwide sales, service, training and support are important competitive factors in
the semiconductor equipment industry, and we have combined these functions into a customer operations group. In order to
support our customers whose semiconductor assembly operations are located in the Asia/Pacific region, we maintain a
significant presence in the region, with sales facilities in Hong Kong, Japan, Korea, Malaysia, the Philippines, Singapore and
Taiwan, a technology center in Japan and an application lab in Singapore. We also maintain sales facilities in Europe. We
support our assembly equipment customers worldwide with approximately 220 customer service and support personnel,
located in Europe, Hong Kong, Israel, Japan, Korea, Malaysia, the Philippines, Singapore, Taiwan, Thailand and the United
States. Our local presence in the Asia/Pacific countries enables us to provide more timely customer service and support by
positioning our service representatives and spare parts near customer facilities, and affords customers the ability to place
orders locally and to deal with service and support personnel who speak the customer's language and are familiar with local
country practices.

Backlog

At September 30, 2001, our backlog of orders approximated $49.0 million, compared to approximately $143.0 million at
September 30, 2000. Our backlog consists of product orders for which we have received confirmed purchase orders, and
which are scheduled for shipment within 12 months. Virtually all orders are subject to cancellation, deferral or rescheduling
by the customer with limited or no penalties. Because of the possibility of customer changes in delivery schedules or
cancellations and potential delays in product shipments, our backlog as of any particular date may not be indicative of
revenues for any succeeding quarterly period.

Manufacturing

Equipment. Our assembly equipment manufacturing activities consist primarily of integrating components and subassemblies
to create finished systems configured to customer specifications. During fiscal 2001, we performed system design, assembly
and testing in-house at our Willow Grove, Pennsylvania, Singapore and Haifa, Israel facilities, utilizing an outsourcing
strategy for the manufacture of many of our major subassemblies. We believe that outsourcing enables us to minimize our
fixed costs and capital expenditures and allows us to focus on product differentiation through system design and quality
control. Our just-in-time inventory management strategy has reduced our manufacturing cycle times and limited our on-hand
inventory. We have obtained ISO 9001 certification for our equipment manufacturing facilities in Willow Grove,
Pennsylvania, Singapore, and Haifa, Israel.

Packaging Materials. We manufacture our bonding tools at our facility in Yokneam, Israel and our bonding wire, consisting
of gold, aluminum and copper wire, at facilities in Singapore and Thalwil, Switzerland. We manufacture our hub blades in
Santa Clara, California. Both bonding wire facilities, as well as the hub blade facility have received ISO 9002 certification
and the bonding tools facility has received ISO 9001 certification.

Test Interconnect Solutions. We manufacture probe cards in various facilities located in Arizona, California, Texas, Taiwan,
Scotland, Singapore and France, ATE test boards in Dallas, Texas, ATE interface assemblies in Gilbert, Arizona and test
socket/contactors in Hayward, California.

Advanced Packaging Technology. We maintain manufacturing/research facilities in Phoenix, Arizona for our Flip Chip
business unit and in Milpitas, California for our high density substrates business unit.

Research and Product Development

Because technological change occurs rapidly in the semiconductor industry, we devote substantial resources to our research
and development programs in order to maintain our competitiveness. We pursue the continuous improvement and
enhancement of existing products while simultaneously developing next generation products. For example, our continuous
improvement and enhancement programs enabled us to begin shipping, in fiscal 2001, our Model 8028-S and Model 8028-
PPS automatic ball bonders, which combine productivity enhancements with robust fine pitch capability.

As part of our development of next generation products, in fiscal 2001 we optimized the process and improved the yield of our
high density substrates enabling us to ship substrates to several customers for pre-product qualification, we demonstrated
300mm process capability for our flip chip bumping technology, we qualified our flip chip wafer probe cards for 150 micron
pitch testing and introduced the Maxµm, our next generation automatic ball bonder which provides up to 20% more
productivity than the Model 8028-PPS ball bonder and supports 45 micron production level process capability. We also
continued the development of wire bonding products and test capabilities to achieve 35 micron production processes.

Much of the next generation equipment we are presently developing is based on modular, interchangeable subsystems,
including the Maxµm, which is promoting more efficient and cost-effective manufacturing operations, lowering inventory
levels, improving field service capabilities and reducing product development cycles, and allowing us to introduce new
products more quickly.

Our net expenditures for research and development totaled approximately $62.7 million, $50.1 million and $37.2 million
during the fiscal years ended September 30, 2001, 2000 and 1999, respectively. We have received funding from certain
customers and government agencies pursuant to contracts or other arrangements for the performance of specified research and
development activities. Such amounts are recognized as a reduction of research and development expense when specified
activities have been performed. During the fiscal years ended September 30, 2001, 2000 and 1999, such funding totaled
approximately $1.0 million, $1.1 million and $1.3 million, respectively. We employed approximately 330 individuals in
research and development at September 30, 2001.

Competition

The semiconductor equipment, packaging materials, and test interconnect solutions industries are intensely competitive.
Significant competitive factors in the semiconductor equipment market include performance, quality, customer support and price.
Our major equipment competitors include:

• ASM Pacific Technology, Shinkawa, Kaijo and ESEC in wire bonders;

• ESEC, Nichiden, ASM Pacific Technology and Alphasem in die bonders; and

• Disco Corporation and TSK in dicing saws.

Competitive factors in the semiconductor packaging materials industry include price, delivery and quality. Our significant
packaging materials competitors with respect to expendable tools and blades include:

• Gaiser Tool Co. and Small Precision Tools, Inc. in expendable tools; and

• Disco Corporation in blades;

and in the bonding wire market:

• Tanaka Electronic Industries and Sumitomo Metal Mining.

The test products face competition from a few large international firms as well as many small regional firms. Some
competitors include:

• MJC, Japan Electronic Materials, SV Probe, and Microprobe in wafer test; and

• Everett Charles Technologies, Loranger International Corporation, Delta Design and Gold Technologies in package

test.

Our Flip Chip competitors include:

• Fujitsu, Unitive and Chipboard.

In each of the markets we serve, we face competition and the threat of competition from established competitors and potential
new entrants, a few of which may have greater financial, engineering, manufacturing and marketing resources than we have.
Some of these competitors are Asian and European companies that have had and may continue to have an advantage over us in
supplying products to local customers because many of these customers appear to prefer to purchase from local suppliers,
without regard to other considerations. However, none of our competitors offer the broad range of packaging solutions that
we offer.

Intellectual Property

Where circumstances warrant, we seek to obtain patents on inventions governing new products and processes developed as part of
our ongoing research, engineering and manufacturing activities. We currently hold a number of United States patents, some of
which have foreign counterparts. We believe that the duration of our patents generally exceeds the life cycles of the technologies
disclosed and claimed in the patents. Although the patents we hold or may obtain in the future may be of value, we believe that
our success will depend primarily on our engineering, manufacturing, marketing and service skills.

In addition, we believe that much of our important technology resides in our trade secrets and proprietary software. As long as we
rely on trade secrets and unpatented knowledge, including software, to maintain our competitive position, there is no assurance
that competitors may not independently develop similar technologies and possibly obtain patents containing claims applicable to
our products and processes. Our ability to defend ourselves against these claims may be limited. In addition, although we execute
non-disclosure and non-competition agreements with certain of our employees, customers, consultants, selected vendors and
others, there is no assurance that such secrecy agreements will not be breached.

Environmental Matters

We are subject to various federal, state, local and foreign laws and regulations governing, among other things, the generation,
storage, use, emission, discharge, transportation and disposal of hazardous materials and the health and safety of our
employees. In addition, we are subject to environmental laws which may require investigation and cleanup of any
contamination at facilities we own or operate or at third party waste disposal sites we use or have used. These laws could
impose liability even if we did not know of, or were not responsible for, the contamination.

We have in the past and will in the future incur costs to comply with environmental laws. We are not, however, currently
aware of any costs or liabilities relating to environmental matters, including any claims or actions under environmental laws or
obligations to perform any cleanups at any of our facilities or any third party waste disposal sites, that we expect to have a
material adverse effect on our business, financial condition or operating results. It is possible, however, that material
environmental costs or liabilities may arise in the future.

Employees

At September 30, 2001, we had 3,651 permanent employees and 59 temporary employees worldwide. Our only employees
represented by a labor union are the bonding wire employees in Singapore. Generally, we believe our employee relations to be
good. Competition in the recruiting of personnel in the semiconductor and semiconductor equipment industry is intense,
particularly with respect to software engineering. We believe that our future success will depend in part on our continued
ability to hire and retain qualified management, marketing and technical employees.

Executive Officers of the Company

The following table sets forth certain information regarding the executive officers of the Company.

Name
C. Scott Kulicke
Morton K. Perchick
Alexander A. Oscilowski
David A. Leonhardt
Charles Salmons
Clifford G. Sprague
Laurence P. Wagner
Jagdish (Jack) G. Belani
C. Zane Close
James P. Spooner

Age
52
64
42
43
46
58
41
48
51
54

First Became
an Officer
(calendar year)
1976
1982
1999
1997
1992
1989
1998
2000
2000
2000

Position
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
Vice President
Vice President
Vice President

C. Scott Kulicke has been Chief Executive Officer since 1979 and Chairman of the Board since 1984. Prior to that he held a
number of executive positions with us. Mr. Kulicke also serves on the Board of Directors of Xetel Corporation.

Morton K. Perchick holds the position of Executive Vice President, is a member of the Office of the President and the acting
President of our Test Division. He was appointed acting President of our Test Division in October 2001. He was appointed to
the Office of the President in May 2000. He joined us in September 1980 as Director, Quality and Reliability. He became
Vice President in 1982 and moved to general management in 1986, when he assumed responsibility for operations. In 1990,
he was appointed Senior Vice President/General Manager and in 1995, he was named Executive Vice President.

Alexander A. Oscilowski holds the position of Senior Vice President and is a member of the Office of the President. He joined
us in 1999 as Vice President of Strategic Marketing. In May 2000, he was appointed to the Office of the President. He joined
SEMATECH in 1993 as Director of Assembly & Packaging and was promoted to positions of increasing responsibility,
including his appointment as Chief Operating Officer in January 1999. Previously, he served as semiconductor packaging
manager in the semiconductor operations unit for Digital Equipment and was an assembly manager, packaging supervisor and
process engineer at Texas Instruments.

David A. Leonhardt holds the position of Senior Vice President in charge of Global Account Management. He served as
Senior Vice President and Co-President of our Advanced Bonding Systems Group from November 1999 until January 2001.
In March 1998, he became Vice President and General Manager of the Equipment Group, after serving as Vice President of
Strategic Marketing since December 1996. Prior to that, he spent four years as a Director of our Ball Bonder Division and a
year as Product Manager for Wedge Bonder Products.

Charles Salmons holds the position of Senior Vice President, Customer Operations. He was appointed Senior Vice President,
Customer Operations in 1999. He joined us in 1978, and has held positions of increasing responsibility throughout the
accounting, engineering and manufacturing organization. In 1994 he became Vice President of Operations and was named
General Manager, Wire Bonder Operations in 1998.

Clifford G. Sprague holds the positions of Senior Vice President and Chief Financial Officer. He joined us as Vice President
and Chief Financial Officer in March 1989. In May 1990 he was promoted to Senior Vice President. Prior to joining us, he
served for more than five years as Vice President and Controller of the Oilfield Equipment Group of NL Industries, Inc., an
oilfield equipment and service company.

Laurence P. Wagner served as Senior Vice President and Co-President of the Advanced Bonding Systems Group from
November 1999 until January 2001 when he left the Company. He joined us in July 1998 as Senior Vice President and
President of Packaging Materials. Previously, he was with Emcore Corporation, where he was vice president of Emcore
Electronic Materials. Prior to 1996, he worked for Shipley Company LLC, a Division of Rohm and Haas Company in a
number of progressively responsible positions.

Jack G. Belani holds the position of Vice President and is President of our Wire Bonding Division. He was appointed to these
positions in February 2001. He joined us in April 1999 as Vice President and President of our high density substrate group.
Prior to joining us, he served for more than three years as Vice President of Assembly & Packaging in the Worldwide
Manufacturing Group of Cypress Semiconductor Corporation. Before Cypress he was with National Semiconductor
Corporation for approximately 18 years in a variety of technical and managerial positions.

C. Zane Close served as Vice President and President of the Test Division from November 2000, when he joined us, until
October 2001. He served as President and Chief Executive Officer and as director of Cerprobe Corporation from July 1990
until we acquired Cerprobe. Before Cerprobe he had been a Vice President of Probe Technology for over 5 years.

James P. Spooner holds the position of Vice President, Corporate Development. He was appointed to this position when he
joined us in August 1997. From October 1998 to March 1999 he also served as President of our Flip Chip business unit. From
September 1990 until he joined us in 1997, Mr. Spooner served as the Director of Corporate Development for Rhone-Poulenc,
Inc., a chemical and pharmaceutical company.

Item 2. PROPERTIES.

Our major facilities are described in the table below:

Facility

Willow Grove,
Pennsylvania

Gilbert, Arizona

Singapore

Approximate
Size

214,000 sq.ft. (1)

83,000 sq.ft. (4)
53,000 sq.ft. (2)

73,700 sq.ft. (2)

Haifa, Israel

49,000 sq.ft. (2)

Function

Corp. headquarters,
manufacturing, technology
center, sales and service

Products
Manufactured

Lease
Expiration
Date

Wedge and large area
bonders

N/A

Manufacturing, sales and
service

Probe cards ATE
interface assemblies

May 2012
July 2008

August 2002

April 2012

N/A

Wire bonders

Manual wire bonders,
dicing saws and
automatic multi-process
assembly systems

Capillaries, wedges and
die collets

Manufacturing, technology
center, assembly systems

Yokneam, Israel

48,400 sq.ft. (1)

Manufacturing

Singapore

Dallas, Texas

38,400 sq.ft. (2)

Manufacturing

Bonding wire

May 2003

35,000 sq.ft. (1)

Manufacturing, sales and
service

ATE test boards

September 2012

Milpitas, California

35,000 sq.ft. (2)

Technology center

Laminate substrates

San Jose, California

34,000 sq.ft. (2)

Manufacturing, sales and
service

Probe cards

June 2006

July 2007

Kaohsuing,
Taiwan

28,417 sq.ft. (2)

Sales and service

N/A

August 2010

Hayward, California

26,800 sq.ft. (2)

Manufacturing, sales and
service

15,100 sq.ft. (2)

Manufacturing

Test sockets /
contactors

Bonding wire

February 2009

(3)

13,600 sq.ft. (2)

Manufacturing

Dicing saw blades

October 2003

Thalwil,

Switzerland

Santa Clara,
California

Yokneam, Israel

12,000 sq.ft. (2)

Manufacturing

Hard material blades

January 2003

Tokyo, Japan

10,900 sq.ft. (2)

Technology center, sales
and service

N/A

(3)

(1) Owned.
(2) Leased.
(3) Cancellable semi-annually upon six months notice.
(4) This facility is owned by CRPB Investors, LLC (“CRPB”). Our subsidiary, K&S Interconnect, Inc. (f/k/a Cerprobe Corporation),
owns a 36% interest in CRPB. K&S Interconnect, Inc. has entered into a long-term lease with CRPB, the initial term of which
expires in May 2012, with seven options to extend the lease for successive five-year terms.

We also rent space for manufacturing facilities and sales and service offices in Mesa, Arizona; Santa Clara, California;
Southbury, Connecticut; Horsham, Pennsylvania; Austin, Richardson and Dallas, Texas; France; Hong Kong; Japan; Korea;
Malaysia; the Philippines; Scotland; Singapore; Taiwan; and Thailand. We believe that our facilities generally are in good
condition.

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:

Year ended September 30, 2001:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter

Year ended September 30, 2000:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter

Common Stock Price

High

Low

15.375
17.000
18.700
18.300

22.625
43.656
40.313
33.125

9.000
11.000
11.250
8.160

11.500
19.594
19.938
13.125

On December 1, 2001, there were 603 holders of record of the shares of outstanding common stock.

The payment of dividends on our common stock is within the discretion of our board of directors. We do not currently pay cash
dividends on our common stock and we do not expect to declare cash dividends on our common stock in the near future. We
intend to retain earnings to finance the growth of our business. Our Gold Supply Agreement contains certain financial covenants
and prohibits our bonding wire manufacturing subsidiary from paying any dividends or making any distributions without the
consent of the supplier if, following the payment of the dividend or distribution, the net worth of our bonding wire subsidiary is
less than $7.0 million.

For the purposes of calculating the aggregate market value of the shares of our common stock held by nonaffiliates, as shown on
the cover page of this report, we have assumed that all the outstanding shares were held by nonaffiliates except for the shares held
by our directors and executive officers. However, this does not necessarily mean that all directors and executive officers of the
Company are, in fact, affiliates of the Company, or that there are not other persons who may be deemed to be affiliates of the
Company. Further information concerning shareholdings of executive officers, directors and principal shareholders is included in
our proxy statement relating to our 2002 Annual Meeting of Shareholders filed or to be filed with the Securities and Exchange
Commission.

Item 6: SELECTED FINANCIAL DATA.

The following selected consolidated financial data should be read in conjunction with our consolidated financial statements, related note
and other financial information included elsewhere herein.

Statement of Operations Data:
Net sales:
Equipment
Packaging materials
Test (1)
Advanced packaging technology

Total net sales
Cost of goods sold:
Equipment
Packaging materials
Test (1)
Advanced packaging technology

Total cost of goods sold (1)
Operating expenses:
Equipment
Packaging materials
Test
Advanced packaging technology
Corporate

Total operating expenses (1) (2)
Income (loss) from operations:
Equipment
Packaging materials
Test
Advanced packaging technology
Corporate

Total income (loss) from operations (1) (2)

Interest income (expense), net
Equity in loss of joint ventures (3)
Other income (1)
Income (loss) before taxes, cumulative effect of
change in accounting principle and minority interest
Provision (benefit) for income taxes
Cumulative effect of change in accounting principle,
net of taxes (1)
Minority interest

(in thousands, except per share amounts)

Fiscal Years Ended September 30,

1997

1998

1999

2000

2001

391,721
110,186
-
-

501,907

302,107
108,933
-
-

411,040

269,854
124,450
-
4,613

398,917

692,062
185,570
-
21,641

899,273

249,952
150,945
116,890
37,216

555,003

228,854
89,148
-
-

318,002

97,143
21,029
-
-
8,070

126,242

65,724
9

-
-
(8,070)

57,663

820
(6,701)
-

51,782
13,463

-
-

191,948
82,259
-
-

274,207

107,083
24,553
-
-
9,353

140,989

3,076
2,121
-
-
(9,353)

(4,156)

5,514
(8,715)
-

(7,357)
(1,917)

-
-

188,958
90,326
-
6,098

285,382

92,157
23,500
-
5,314
12,296

133,267

(11,261)
10,624
-
(6,799)
(12,296)

(19,732)

3,547
(10,000)
-

419,732
130,548
-
22,897

573,177

120,244
32,876
-
19,096
15,421

187,637

152,086
22,146
-
(20,352)
(15,421)

138,459

4,719
(1,221)
-

(26,185)
(8,221)

141,957
40,149

-
1,018

-
1,437

166,359
110,570
84,401
31,274

392,604

105,609
31,088
66,148
25,395
15,723

243,963

(22,016)
9,287
(33,659)
(19,453)
(15,723)

(81,564)

(5,535)
-
8,016

(79,083)
(21,643)

(8,163)
352

Net income (loss)

38,319

(5,440)

(16,946)

103,245

(65,251)

Basic net income (loss) per common share (4)

0.92

(0.12)

(0.36)

2.15

(1.34)

Diluted net income (loss) per common share (4)

0.90

(0.12)

(0.36)

1.90

(1.34)

Shares used in per common share calculations:(4)
Basic
Diluted

41,742
42,856

46,602
46,602

46,846
46,846

47,932
56,496

48,877
48,877

(in thousands)
As of September 30,

Balance Sheet Data:
Cash, cash equivalents and short-term investments
Working capital
Total assets
Long-term debt (5) (6)
Shareholders’ equity

1997

1998

1999

2000

2001

115,587
190,220
376,819
220
291,927

106,900
182,181
342,584
-
287,910

39,345
167,131
378,145

274,776

316,619
471,338
731,502
175,000
405,342

202,928
265,355
777,426
301,511
338,547

(1) During the first quarter of fiscal 2001, we purchased all the outstanding stock of Cerprobe Corporation and Probe Technology
Corporation. As a result of these acquisitions, during the year ended September 30, 2001, we recorded a pre-tax charge of
approximately $11.7 million for the write-off of in-process research and development.

We also recorded charges of $19.9 million for inventory write-downs, $4.2 million for severance for the elimination of 511
positions and other related charges associated with a resizing of our workforce, $800 thousand for asset impairment charges, and
non-recurring other income of $8.0 million as the result of an insurance settlement. In fiscal 2001, we also adopted SAB 101,
resulting in a cumulative effect of an accounting change charge of $8.2 million, net of tax. Additionally, cost of goods sold for the
year ended September 30, 2001 reflects $4.2 million of acquisition related inventory step-up costs.

(2) In fiscal 2000, operating expense included the write-off of our investment in our Advanced Polymer Solutions joint venture in the
amount of $3.9 million and the reversal into income of $2.5 million of the severance reserve that we established in fiscal 1999 for
the elimination of approximately 230 positions associated with the relocation of our automatic ball bonder manufacturing from the
United States to Singapore. In fiscal 1999, we purchased the advanced substrate technology and fixed assets used in the design,
development and manufacture of laminate substrates for $8.0 million. As a result of this purchase, we recorded a pre-tax charge of
approximately $3.9 million for the write-off of in-process research and development. During fiscal 1999, we also recorded a pre-tax
charge for severance of approximately $4.0 million and asset write-off costs of approximately $1.6 million in connection with the
above mentioned move to Singapore. In fiscal 1999, we also recorded approximately $0.4 million for severance related to the
reduction in workforce that began in fiscal 1998. During fiscal 1998, we recorded pre-tax charges of $8.4 million for severance and
product discontinuance as a result of a slowdown in the semiconductor industry.

(3) Equity in loss of joint ventures in fiscal 2000 consists solely of our share of the loss of Advanced Polymer Solutions, LLC, a 50%
owned joint venture which has been dissolved. Equity in loss of joint ventures in fiscal 1999 consists of $9.2 million of our share of
the loss of Flip Chip Technologies and $800 thousand of our share of the loss of Advanced Polymer Solutions. Fiscal 1997 and
1998 consist solely of our share of the loss of Flip Chip Technologies. Effective May 31, 1999, we increased our ownership interest
in Flip Chip from 51% to 73.6% by converting all our outstanding loans and accrued interest to Flip Chip, which totaled $32.8
million, into equity units and gained operating control of Flip Chip. We accounted for the increase in our ownership by the
purchase method of accounting and began consolidating the results of Flip Chip into our financial statements on June 1, 1999. In
March 2001, we purchased the remaining equity units of Flip Chip not previously owned by us. We currently own 100% of Flip
Chip.

(4) On June 26, 2000, the Company’s Board of Directors approved a two-for-one stock split of its common stock. Pursuant to the stock
split, each shareholder of record at the close of business on July 17, 2000 received one additional share for each common share held at
the close of business on that date. The additional shares were distributed on July 31, 2000. All prior period earnings per share amounts
have been restated to reflect the two-for-one stock split. For fiscal years 1998, 1999 and 2001 only the common shares outstanding
have been used to calculate both the basic earnings per common share and diluted earnings per common share because the inclusion
of potential common shares would be anti-dilutive due to the net losses reported in those years. The after-tax interest expense
recognized in fiscal 2000 associated with the 4¾% Convertible Subordinated Notes due 2006 that was added back to net income in
order to compute diluted net income per share was $4.3 million.

(5) Does not include letters of credit or foreign exchange contract obligations.

(6) In August 2001, we issued $125.0 million in principal amount of 5¼% Convertible Subordinated Notes due 2006. In December

1999, we issued $175.0 million in principal amount of 4¾% Convertible Subordinated Notes due 2006.

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

•
•
•

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.

Overview

We design, manufacture and market capital equipment, packaging materials and test interconnect solutions and provide flip
chip bumping services for sale to companies that manufacture and assemble semiconductor devices. We also service,
maintain, repair and upgrade assembly equipment, license our flip chip bumping process technology and are developing
high density interconnect substrates. We sell our products to semiconductor device manufacturers and contract
manufacturers, which are primarily located in or have operations in the Asia/Pacific region. Sales to customers outside of
the United States accounted for 62% and 91% of net sales for fiscal 2001 and 2000, respectively, and are expected to
continue to represent a substantial portion of our future revenues. To support our international sales, we currently have
significant manufacturing operations in the United States, Israel and Singapore, sales facilities in the United States, France,
Germany, Hong Kong, Japan, Korea, Malaysia, the Philippines, Scotland, Singapore, Taiwan and Thailand, and
applications labs in Japan, Singapore and Taiwan.

Due to a weak economy and a worldwide decline in demand for semiconductors, the semiconductor industry has
experienced excess capacity and a severe contraction in demand for semiconductor manufacturing equipment. As a result,
our net sales for fiscal 2001 were significantly below the record sales reported in fiscal 2000. In addition, as a result of the
reduction in sales, our gross margins declined throughout the fiscal year. Our backlog of customer orders at September 30,
2001 was $49.0 million, as compared to $143.0 million at September 30, 2000. The current downturn in the semiconductor
industry is expected to continue to negatively impact our business in fiscal 2002.

In the first quarter of fiscal 2001, we took a step forward in our strategy to offer a broad range of cost-effective interconnect
solutions by acquiring 100% of the stock of Cerprobe Corporation (Cerprobe) and 100% of the stock of Probe Technology
Corporation (Probe Tech). Both Cerprobe and Probe Tech design and manufacture semiconductor test interconnect
solutions. These acquisitions have been recorded using the purchase method of accounting and have been consolidated with
our operating results beginning on the date of acquisition. The combined operations of these two companies comprise our
test interconnect segment.

In March 2001, we purchased the 19.6% equity share of our Flip Chip business unit previously owned by Delco Electronics
Corporation (Delco) for $5.0 million in cash, with a contingent future cash payment of up to $3.0 million, depending on the
future operations of Flip Chip, of which $95 thousand is due for fiscal 2001. We now own 100% of Flip Chip.

Our business is currently divided into four segments:

Equipment

We design, manufacture and market semiconductor assembly equipment. Our principal product line is our family of wire
bonders, which are used to connect extremely fine wires, typically made of gold, aluminum or copper, between the bonding
pads on the die and the leads on the IC package to which the die has been bonded. We are the world's largest manufacturer of
wire bonders, according to VLSI Research, Inc. In fiscal 2001, we began selling the Models 8028-S and 8028-PPS automatic
ball bonders which, with their improved technical performance and productivity, accounted for the majority of ball bonders we
sold in fiscal 2001. In fiscal 2001, we also introduced the Maxµm, our latest generation IC ball bonder, which offers up to
20% more productivity than the Model 8028-PPS ball. The Maxµm has been tested and qualified by several of our
customers and will be available for shipment in the latter part of fiscal 2002.

In fiscal 2000 we relocated our automatic ball bonder manufacturing from the United States to Singapore.

Packaging Materials

We design, manufacture and market a range of packaging materials to semiconductor device assemblers including very fine
(typically 0.001 inches in diameter) gold, aluminum and copper wire, capillaries, wedges, die collets and saw blades, all of
which are used in the semiconductor packaging process. Our packaging materials are optimized for use with our wire
bonders, to provide leading edge efficiencies and capabilities, as well as with our competitors assembly equipment.

Test Interconnect

Our test interconnect solutions provide a broad range of fixtures used to temporarily connect automatic test equipment to the
semiconductor device under test during wafer fabrication (wafer probing) and after they have been assembled and packaged
(package or final testing). Our products include probe cards, automatic test equipment interface assemblies, ATE test
boards, and test socket/contactors. Most of the test interconnect products we offer are custom designed or customized for a
specific semiconductor or application.

Advanced Packaging Technology

This business segment reflects the operating results of our strategic initiative to develop new technologies for advanced
semiconductor packaging. It is comprised of our Flip Chip business unit and our high density substrate business unit.

Through our Flip Chip business unit we license flip chip technology and provide wafer bumping services and market a wafer
level chip scale package named “UltraCSP®.” In February 1996, we entered into a joint venture agreement with Delco to
commercialize the bump technology they developed. In March 2001, we purchased the remaining interest in the joint venture
held by Delco. We now own 100% of Flip Chip.

We established our substrate business unit to develop, manufacture and market high density interconnect substrates using
either flip chip or advanced wire bonding interconnection schemes. We purchased advanced substrate technology for $8.0
million in fiscal 1999 and operate a research/manufacturing facility in Milpitas, California to fully develop and market the
technology. In fiscal 2001, we recorded an operating loss for the substrate business of $17.9 million and an operating loss
for fiscal 2000 of $13.8 million. In fiscal 2001, we began shipping high density substrates to one customer for production
and samples to other customers for qualification.

The following table sets forth the percentage of our net sales from each business segment for the past three years:

Equipment
Packaging materials
Test interconnect
Advanced packaging technologies

Fiscal Year Ended
September 30,

1999
67.6
31.2
-
1.2

2000
77.0
20.6
-
2.4

2001
45.0 %
27.2
21.1
6.7

100.0

100.0 %

Net sales. We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have
been rendered, the price is fixed or determinable, collectibility is reasonably assured, and we have completed our equipment
installation obligations and received customer acceptance, or are otherwise released from installation or customer acceptance
obligations. Revenue related to services is generally recognized upon performance of the services requested by a customer
order or upon satisfaction of certain deliverables under the contract. Revenue related to license agreements is recognized in
accordance with the specific contract terms, generally prorated over the life of the agreement.

Our equipment sales depend on the capital expenditures of semiconductor manufacturers and subcontract assemblers
worldwide which, in turn, depend on the current and anticipated market demand for semiconductors and products using
semiconductors. The semiconductor industry historically has been highly volatile, and has experienced periodic downturns
and slowdowns, which have had a severe negative effect on the semiconductor industry's demand for capital equipment. For
example, a downturn in the semiconductor industry in fiscal 1998 and the first half of fiscal 1999 contributed to our net
losses in those fiscal years. The semiconductor industry rebounded in the second half of fiscal 1999 and continued to grow
through the majority of fiscal 2000, and we reported the best results in the history of our company in fiscal 2000, with net
sales of $899.3 million and net income of $103.2 million. The semiconductor industry experienced a severe downturn in
fiscal 2001, resulting in a reduction in net sales of 38.3% and a net loss of $65.3 million for the year.

Our packaging materials sales depend on the same semiconductor manufacturers and subcontract assemblers as our
equipment sales. However, the volatility in demand for our packaging materials is less than that of our equipment sales due
to the consumable nature of these products. We plan to further expand this portion of our business to help offset the
volatility of the equipment segment, and because the worldwide market for consumable packaging materials is larger than
the market for our semiconductor assembly equipment.

Our test interconnect solutions sales depend on the operating expenditures of some of the same semiconductor
manufacturers and subcontractors as our equipment and packaging materials sales. Because of the consumable and
customized nature of most of our test products, however, the volatility in demand for these test products is less than that of
our equipment sales.

Our advanced packaging technology sales represent the sales from Flip Chip. We did not have significant sales from our
substrate business unit in fiscal 2001.

Cost of goods sold. Our equipment cost of goods sold consists mainly of subassemblies, materials, direct and indirect labor
costs and other overhead. We rely on subcontractors to manufacture many of the components and subassemblies for our
products and we rely on sole source suppliers for some material components.

Packaging materials cost of goods sold consists primarily of gold, aluminum, direct labor and other materials used in the
manufacture of bonding wire, capillaries, wedges and other company products, with gold making up the majority of the cost.
Gold bonding wire is generally priced based on a fabrication charge per 1,000 feet of wire, plus the value of the gold. To
minimize our exposure to gold price fluctuations, we obtain gold for fabrication under a contract with our gold supplier on
consignment and only purchase the gold when we ship the finished product to the customer. Accordingly, fluctuations in the
price of gold are generally absorbed by our gold supplier or passed on to our customers. Since gold makes up a significant

portion of the cost of goods sold of the bonding wire business unit, the gross profit margins of that business unit and
therefore the packaging materials segment will be lower than can be expected in the equipment business. We rely on one
supplier for our gold requirements.

Test interconnect cost of goods sold consists primarily of direct labor, indirect labor for engineering design and materials
used in the manufacture of wafer and IC package testing cards and devices.

Cost of goods sold in our advanced packaging technology segment is currently comprised of material, labor and overhead at
Flip Chip. Our substrate operation will not report cost of goods sold until they begin to generate revenues from commercial
production, which is expected to occur in fiscal 2002.

Selling, general and administrative expense. Our selling, general and administrative expense is comprised primarily of
personnel costs, professional costs, information technology and depreciation expenses. Our selling, general and
administrative expenses increased in fiscal 2001 as a result of the acquisition of the operations of our test division.

As a result of the current downturn in the semiconductor industry, we reduced our workforce by approximately 500
employees and announced the closure of a wire facility, resulting in charges for resizing and asset impairment amounting to
$5.0 million in fiscal 2001. We may incur similar resizing charges in the near term.

Research and development expense. Our research and development costs consist primarily of labor, prototype material and
other costs associated with our developmental efforts to strengthen our product lines and develop new products. For example, in
fiscal 2001, we optimized the process and improved the yield of our high density substrates enabling us to ship substrates to
several customers for pre-product qualification, we demonstrated 300mm process capability for our flip chip bumping
technology, we qualified our flip chip wafer probe cards for 150 micron pitch testing and introduced the Maxµm, our next
generation automatic ball bonder. Our research and development costs increased in fiscal 2001 as a result of the acquisition of
the operations of our test division and R&D costs at our substrate business unit. In addition, we expect to continue to incur
significant research and development costs as we introduce and complete the development of next generation bonding process
solutions.

Results of Operations

The table below shows principal line items from our historical consolidated statements of operations, as a percentage of our net
sales, for the three years ended September 30:

Net sales
Cost of goods sold

Gross margin
Selling, general and administrative
Research and development, net
Amortization of goodwill and intangibles
Write-off of in-process research and development
Other costs

Income (loss) from operations

Fiscal Year Ended
September 30,
2000

2001

1999

100.0
71.5

100.0
63.7

100.0
70.7

28.5
20.9
9.3
0.7
1.0
1.5

36.3
14.7
5.6
0.5
-
0.1

29.3
25.5
11.3
4.1
2.1
1.0

(4.9)

15.4

(14.7)

Fiscal Years Ended September 30, 2001 and September 30, 2000

Bookings and Backlog. During the fiscal year ended September 30, 2001 we recorded bookings of $412.0 million compared
to $949.0 million in fiscal 2000. The decrease in fiscal 2001 bookings reflected the significant downturn in the
semiconductor industry, which severely reduced overall demand for semiconductor assembly equipment and associated
packaging and test products. At September 30, 2001, the backlog of customer orders totaled $49.0 million, compared to
$143.0 million at September 30, 2000. Since the timing of deliveries may vary and orders are generally subject to
cancellation, our backlog as of any date may not be indicative of net sales for any succeeding period.

Sales. Net sales for the year ended September 30, 2001 were $555.0 million, down 38.3% from the $899.3 million
reported for fiscal 2000. The decrease in sales for the year reflects the downturn in the semiconductor industry, which
significantly impacted sales of our semiconductor assembly equipment, and to a lesser extent, sales of our consumable
products. The lower sales were partially offset by sales from our newly acquired Test Interconnect business unit.

In fiscal 2001, we adopted the Securities and Exchange Commission’s Staff Accounting Bulletin No. 101 (‘SAB 101’)
which resulted in a change in our revenue recognition policy relating to certain customer sales. Net sales for the year of
$555.0 million included revenue of $19.3 million for sales that were previously reported in the prior fiscal year but were
deferred upon adoption of the standard effective October 1, 2000. The fiscal 2001 quarterly results presented in this annual
report have been restated to give effect to the adoption of the standard as required by generally accepted accounting
principles.

Fiscal 2001 sales in the equipment segment were down 63.9%, due primarily to lower unit sales of automatic ball bonders.
Net sales in the packaging materials segment were down 18.7%, due to reduced demand for gold wire and capillaries. Sales
for the test division were $116.9 million for the period from the dates of acquisition through September 30, 2001. Higher
bumping service revenues and license income at our Flip Chip business unit contributed to a 72.0% increase in net sales for
our advanced packaging segment.

International sales (shipments of our products with ultimate foreign destinations) comprised 62% and 91% of our total sales
during fiscal 2001 and 2000, respectively. The lower percentage of international sales in fiscal 2001 was due to primarily to
the sales of the newly acquired test interconnect segment which are more concentrated in the United States. Sales to
customers in the Asia/Pacific region, including Korea, Taiwan, Malaysia, the Philippines, Japan, Singapore, Thailand and
Hong Kong accounted for approximately 52% and 83% of our total sales in fiscal 2001 and 2000, respectively. During
fiscal 2001, shipments to customers located in Taiwan, Singapore, Malaysia and the Philippines accounted for 12%, 11%,
8% and 5% as compared to 31%, 10%, 9% and 11%, respectively, for fiscal 2000.

Gross Profit. Gross profit decreased to $162.4 million in fiscal 2001 from $326.1 million in fiscal 2000 due primarily to the
lower volume of equipment and packaging material sales. The fiscal 2001 gross profit also reflected a write-down of $19.9
million for excess and obsolete inventory and an acquisition related inventory step-up charge of $4.2 million. The lower
gross profit in fiscal 2001 was partially offset by gross profit from our newly acquired Test Interconnect business unit.
Gross profit as a percentage of sales (referred to as gross margin) in fiscal 2001 decreased to 29.3% from 36.3% in the prior
year. The lower gross margin in fiscal 2001 was due primarily to lower gross margin in the equipment segment due to a
higher average cost of production resulting from inefficiencies from manufacturing fewer machines than in the prior year.
The gross margin in fiscal 2001 was also negatively impacted by a lower gross margin at our newly acquired test division
than our equipment and packaging materials businesses.

Selling, General and Administrative Expenses. Selling, general and administrative (referred to as SG&A) expenses
increased $28.4 million or 20.8% from $136.2 million in fiscal 2000 to $164.6 in fiscal 2001. The increase in SG&A
expenses for the full year was due to $30.0 million of SG&A expenses incurred in the test division, from the dates of
acquisition through September 30, 2001, and additional amortization expense of $19.1 million associated with the
acquisition of the test division. Excluding these additional expenses associated with the test division, SG&A expense was
$20.7 million or 15.2% below the prior year due partially to salary and headcount reductions and other cost containment
actions initiated in fiscal 2001.

Research and Development. Because technological change occurs rapidly in the semiconductor industry, we devote
substantial resources to our research and development (“R&D”) programs to maintain our technological leadership. This
commitment to new product introductions and product development resulted in an increase in R&D expense of $12.6
million or 25.1% for fiscal 2001 as compared to fiscal 2000. The increase is primarily the result of $4.3 million of R&D
expenses associated with the test division from the dates of acquisition through September 30, 2001 and R&D expenses at
our substrate business unit.

Resizing Costs and Asset Impairment. The resizing costs in fiscal 2001 consisted of a charge of $4.2 million for severance
associated with the elimination of 511 positions in connection with our cost containment program and the closure of a wire
facility. We also recorded an asset impairment charge of $0.8 million related to the closure of the wire facility and the
disposition of associated equipment. These programs are ongoing and continuing as planned. The programs are expected to be
complete in fiscal 2002, with certain payments relating to contractual obligations remaining throughout fiscal 2003. At
September 30, 2001, 55 of the 511 individuals identified in the fiscal 2001 resizing programs remain to be terminated in fiscal
2002. In connection with our acquisition of Probe Tech, we eliminated its duplicate operations and increased goodwill by $1.5
million for costs associated with this integration program.

The table below details the spending and activity related to these programs:

Balance, September 30, 2000
Additions during fiscal 2001
Resizing costs
Acquisition restructuring
Spending under programs

Balance, September 30, 2001

(in thousands)

Severance

Commitments

Total

$
-

4,166
84
(2,172)

-
1,402
(213)

4,166
1,486
(2,385)

2,149

1,189

3,338

Purchased In-Process Research and Development. In fiscal 2001, we recorded a charge of $11.7 million for in-process
R&D associated with the acquisitions of Cerprobe and Probe Tech representing the appraised value of products still in the
development stage that did not have a future alternative use and have not reached technological feasibility.

Income (loss) from Operations. Loss from operations for the year ended September 30, 2001 was $81.6 million compared
to income from operations of $138.5 million for the prior year. The operating loss was due primarily to the lower sales and
associated gross profit, additional expenses associated with the acquisitions, higher R&D expenses, inventory write-offs and
resizing costs.

Interest. To fund the Cerprobe and Probe Tech acquisitions, we increased our borrowings and reduced our investment
portfolio in the latter portion of the first quarter. This resulted in higher interest expense for fiscal 2001 and lower interest
income for the same period, as compared to fiscal 2000. We also issued $125 million of 5 ¼% convertible subordinated
notes in August of 2001, which increased our net interest expense in fiscal 2001. Part of the proceeds from this offering
were used to repay and terminate our then existing revolving credit facility.

Other Income. Results for fiscal 2001 include other income of $8.0 million associated with the cash settlement of an
insurance claim associated with a fire in our bonding tools facility.

Equity in Loss of Joint Ventures. In fiscal 2000, we recorded losses of $1.2 million on our equity interest in Advanced
Polymer Solutions, LLC (“APS”), a joint venture with Polyset Company, Inc. The joint venture was dissolved in September
2000.

Tax Expense. Our effective tax rate for fiscal 2001 is 27.3%, compared to 28.0% in the prior year. The lower effective tax
rate for fiscal 2001 is due primarily to the mix of foreign earnings, offset by tax benefits associated with losses from United
States based operations. In fiscal 2001 we did not record an income tax benefit on the $11.7 million charge for in-process
research and development.

Minority Interest in Net Loss of Subsidiary. In fiscal 2001, we recorded minority interest of $352 thousand. The results for
2001 include minority interest in a foreign Probe Tech subsidiary from the date of our acquisition of Probe Tech and
Delco’s interest in the loss incurred at Flip Chip prior to our purchases of all remaining outstanding Flip Chip equity units.

Cumulative Effect of Change in Accounting Principle. In fiscal 2001, we adopted SAB 101. The cumulative effect
represents the net income associated with $26.5 million of sales that were deferred upon adoption of the standard.

Net Loss. Our net loss for fiscal 2001 was $65.3 million compared to net income of $103.2 million in fiscal 2000, for the
reasons enumerated above.

Fiscal Years Ended September 30, 2000 and September 30, 1999

Bookings and Backlog. During the fiscal year ended September 30, 2000, we recorded record bookings of $949.0 million
compared to $438.0 million in fiscal 1999. The $511.0 million increase in fiscal 2000 bookings reflected a significant
improvement in demand for semiconductor assembly equipment. At September 30, 2000, total backlog of customer orders
approximated $143.0 million compared to $93.0 million at September 30, 1999. Since the timing of deliveries may vary and
orders are generally subject to cancellation, our backlog as of any date may not be indicative of net sales for any succeeding
period.

The upturn in the semiconductor business cycle throughout most of fiscal 2000 resulted in record net sales of $899.3 million, an
increase of $500.4 million or 125.4% above the prior fiscal year. Net sales increased sequentially each quarter beginning in the
third quarter of fiscal 1999 through the third quarter of fiscal 2000, however, due to customer order deferrals, net sales in the
fourth quarter of fiscal 2000 were below third quarter sales.

Net Sales. Net sales in our equipment segment benefited the most from the upturn in the semiconductor business cycle and
increased by $422.2 million to $692.1 million in fiscal 2000 compared to $269.9 million in fiscal 1999, an increase of
156.5%. The increase in equipment segment sales was driven by a strong demand for our automatic ball bonders. The
higher equipment segment sales in fiscal 2000 also reflected an increase in the average selling prices for our Model 8028,
which was the primary bonder sold in fiscal 2000, compared to the model 8020, which was the primary bonder sold in fiscal
1999. Packaging materials segment net sales increased $61.1 million to $185.6 million in fiscal 2000 from $124.5 million in
fiscal 1999. The higher packaging material segment net sales were due primarily to a higher volume of gold wire and
capillary shipments. Net sales of our advanced packaging technology segment reflect the sales of Flip Chip Technologies
for all of fiscal 2000 compared to sales of Flip Chip Technologies for only four months in fiscal 1999.

International sales (shipments of our products with ultimate foreign destinations) comprised 91% and
83% of our total sales during fiscal 2000 and 1999, respectively. Sales to customers in the Asia/Pacific
region including Korea, Taiwan, Malaysia, the Philippines, Japan, Singapore, Thailand and Hong Kong
accounted for approximately 83% and 74% of our total sales in fiscal 2000 and 1999, respectively.
During fiscal 2000, shipments to customers located in Taiwan, the Philippines, Singapore, and
Malaysia accounted for approximately 31%, 11%, 10% and 9% of net sales, compared to 23%, 11%,
11% and 10%, respectively, for the 1999 fiscal year.

Gross Profit. Gross profit increased to $326.1 million in fiscal 2000 from $113.5 million in fiscal 1999 due primarily to the
higher volume of equipment segment sales in fiscal 2000. The higher gross profit in fiscal 2000 was also partially due to an
increase in gross profit as a percentage of sales (referred to as gross margin) of 7.8 percentage points to 36.3%. The
equipment segment contributed the majority of the improvement in gross profit and gross margin. Equipment segment gross
profit increased $191.4 million from the prior year to $272.3 million and its gross margin increased from 30.0% in fiscal
1999 to 39.4% in fiscal 2000. The increase in equipment segment gross profit was primarily due to a 168% increase in unit
sales of automatic ball bonders. The improved equipment segment gross margin was due to a higher average selling price of
the automatic bonders sold in fiscal 2000 compared to fiscal 1999 due to the higher performance levels of the Model 8028
compared to the Model 8020. Also, the average cost of a Model 8028 was less than the average cost of a Model 8020
primarily due to the move of the manufacturing operation of our automatic ball bonders from the United States to

Singapore. The packaging materials segment gross profit and gross margin increased in fiscal 2000. The higher gross profit
was primarily due to the higher volume of gold wire and capillary shipments. The higher gross margin was due to lower
average cost of production resulting primarily from operating efficiencies from the higher unit volume and a shift in
production mix to higher margin fine pitch products. The overall gross profit and gross margin in fiscal 2000 were
negatively impacted by a $1.3 million negative gross profit recorded by Flip Chip Technologies in our advanced packaging
technology segment.

Selling, General and Administrative Expenses. SG&A expenses increased to $136.2 million in fiscal 2000 from $86.2
million in fiscal 1999. The $50.0 million increase was due primarily to additional personnel and compensation expenses
associated with the growth in the size of the business in fiscal 2000 particularly in the equipment segment, the ramp-up of
the X-LAM research facility and the inclusion of the operating results of Flip Chip Technologies for a full fiscal year in
2000 compared to four months in the prior year.

Research and Development. Research and development costs increased to $50.1 million in fiscal 2000 from $37.2 million in
the prior fiscal year. The higher research and development expense resulted from increasing expenditures for new product
development in our equipment and packaging materials segments and reporting Flip Chip Technologies operations for a full
year in 2000 compared to four months in the prior year and ramping up the X-LAM research capabilities. Gross research
and development expenditures were partially offset by funding received from customers and governmental subsidies totaling
$1.1 million in fiscal 2000 compared to $1.3 million in fiscal 1999.

Resizing. In the fourth quarter of fiscal 2000, we reversed into income $2.5 million of the $5.6 million reserve which we
established in fiscal 1999 for the relocation of our automatic ball bonder manufacturing from Willow Grove, Pennsylvania
to Singapore. The reserve was established to reflect provisions for severance and asset write-off costs resulting from the
move. However, due to the significant increase in demand for microelectronics products we have retained engineering and
marketing positions which were planned for downsizing. In addition, the majority of the direct and indirect manufacturing
positions were eliminated through attrition in the workforce. The decision to retain the engineering and marketing positions
in the U.S. and attrition in the workforce reduced the amount of severance required to be paid compared to the original
estimate and resulted in the reversal of $2.5 million of the reserve. These relocation activities are now complete.

In the fourth quarter of fiscal 2000, we decided not to devote additional capital to our joint venture with Polyset Company,
Inc., which was established to develop, manufacture and market advanced polymer materials for semiconductor and
microelectronic packaging end users. This decision resulted in a write-off of $3.9 million representing our remaining
investment in this venture. We have no further obligations or commitments to the joint venture.

Income from Operations. Income from operations in fiscal 2000 was a record $138.5 million compared to a loss of $19.7
million in fiscal 1999. The favorable results in fiscal 2000 were due primarily to the significant improvement in net sales
resulting from our capability to ramp-up our production with technologically superior bonding machines to take advantage
of the demand for our products created by the upturn in the semiconductor business cycle. Income from operations in fiscal
2000 was also favorably impacted by an increase in gross profit as a percentage of net sales which was due primarily to the
benefits of the move of our automatic ball bonder manufacturing from the United States to Singapore.

Interest Income. Interest income increased by $8.6 million and interest expense increased by $7.5 million, both increases
resulted primarily from the issuance of $175.0 million of convertible subordinated notes in December 1999. Interest income
was also favorably impacted by an increase in short term investments resulting from cash generated by our record level of
income from operations and higher interest rates.

Equity in Loss of Joint Venture. Equity in loss of joint ventures decreased from $10.0 million in fiscal 1999 to $1.2 million
in fiscal 2000 due primarily to not recording Flip Chip Technologies under the equity method of accounting but rather
reporting the operating results of Flip Chip Technologies with the operating results of the company. In fiscal 2000, equity in
loss of joint ventures consists solely of our share of the loss from our 50% equity interest in Advanced Polymer Solutions,
LLC which, as mentioned above, we dissolved and wrote-off our remaining investment.

Income Taxes. Our provision for income taxes in fiscal 2000 was $40.1 million compared to a benefit of $8.2 million in
fiscal 1999. The provision for income tax in fiscal 2000 was due to record pretax income reported in fiscal 2000. The
effective tax rate of the fiscal 2000 provision was 28%. The effective tax rate was favorably impacted by significant tax
incentives we received from Singapore as an incentive for us to relocate our automatic ball bonder manufacturing operation

to Singapore and from Israel for maintaining research and manufacturing facilities in Israel.

Minority Interest. We recorded a minority interest in the net loss of Flip Chip Technologies of $1.4 million. The minority
interest reflects the portion of Flip Chip Technologies that is owned by Delco, our joint venture partner.

Net Income. Our net income for fiscal 2000 was $103.2 million compared to a net loss of $16.9 million in fiscal 1999, for
the reasons enumerated above.

Quarterly Results of Operations

The table below shows our quarterly net sales, gross profit and operating income (loss) by quarter for fiscal 2001 and 2000:

Fiscal 2001

Net sales
Gross profit
Loss from operations

Fiscal 2000

First (1)
Quarter

153,429
53,604
(13,639)

First
Quarter

Net sales 179,849
59,912
Gross profit
17,116
Income from operations

(1) Restated for the adoption of SAB 101.

Recently Issued Accounting Pronouncements

Second (1)
Quarter

149,425
42,021
(24,558)

Second
Quarter

222,153
75,600
29,834

(in thousands)
Third (1)
Quarter

134,358
42,010
(11,654)

Third
Quarter

268,258
101,278
52,348

Fourth
Quarter

117,791
24,764
(31,713)

Fourth
Quarter

229,013
89,306
39,161

Total

555,003
162,399
(81,564)

Total

899,273
326,096
138,459

SFAS 142. In July 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting
Standards (SFAS) 142, Goodwill and Other Intangible Assets. This standard requires that goodwill no longer be amortized
to earnings, but instead be reviewed for impairment. This change is expected to provide investors with greater information
regarding the economic value of goodwill and its impact on earnings. We expect to adopt the standard effective October 1,
2001. We do not expect an impairment of goodwill or intangibles upon adoption of this standard.

SFAS 143. In August 2001, the FASB issued SFAS 143, Accounting for Obligations Associated with the Retirement of
Long-Lived Assets which is effective for fiscal years beginning after June 15, 2002. The standard provides guidance for
financial reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset
retirement costs. The Standard applies to legal obligations associated with the retirement of long-lived assets that result
from the acquisition, construction, development, and/or the normal operation of a long-lived asset, except for certain
obligations of lessors. We do not expect that the adoption of SFAS 143 will have a significant impact on our financial
position and results of operations.

SFAS 144. In October 2001, the FASB issued SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets
which supersedes FASB 121, Accounting for the Impairment of Long-Lived Assets and for Assets to Be Disposed Of and the
accounting and reporting provisions of APB Opinion No. 30, Reporting the Results of Operations – Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions.
The Statement is effective for fiscal years beginning after December 15, 2001 and interim periods within those fiscal years.
This Statement applies to all long-lived assets and requires that the assets to be disposed of by sale be measured at the
lower of book value or fair value less costs to sell. We are currently reviewing the provisions of this Statement but do not
expect that the adoption of SFAS 144 will have a significant impact on our financial position and results of operations.

Changes in Accounting Principles and Policies

Accounting for Derivative Instruments and Hedging Activities. In fiscal 2001, we adopted SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. SFAS No. 133, as amended by SFAS No. 138. The standard requires that all
derivative instruments be recorded on the balance sheet at fair value. Changes in the fair value of derivatives are recorded in
earnings or other comprehensive income, based on whether the instrument is designated as part of a hedge transaction and,
if so, the type of hedge transaction. The cumulative effect of adoption was not material. The impact of SFAS No. 133 on
our future results will be dependent upon the fair values of our derivatives and related financial instruments and could result
in increased volatility.

Revenue Recognition. We changed our revenue recognition policy in the fourth quarter of fiscal 2001, effective October 1,
2000, based upon guidance provided in the Securities and Exchange Commission (SEC) Staff Accounting Bulletin No. 101
(SAB 101), Revenue Recognition in Financial Statements. We recognize revenue when persuasive evidence of an
arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable, the
collectibility is reasonably assured, and we have completed our equipment installation obligations and received customer
acceptance, or are otherwise released from our installation or customer acceptance obligations. In the event terms of the
sale provide for a lapsing customer acceptance period, we recognize revenue based upon the expiration of the lapsing
acceptance period or customer acceptance, whichever occurs first. Revenue related to services is generally recognized upon
performance of the services requested by a customer order. Revenue for extended maintenance service contracts with a
term more than one month is recognized on a prorated straight-line basis over the term of the contract. Revenue from
royalty arrangements and license agreements is recognized in accordance with the contract terms, generally prorated over
the life of the contract or based upon specific deliverables.

In accordance with the guidance provided in SAB 101, the deferred revenue balance as of October 1, 2000 was $26.5
million. This amount consists of equipment that was shipped and recorded as revenue in fiscal 2000 but had not met the
customer acceptance criteria required by SAB 101. In fiscal 2001, we recorded an after-tax non-cash charge of $8.2 million
or $0.17 per fully diluted share, associated with the $26.5 million of deferred revenue, to reflect the cumulative effect of the
accounting change as of the beginning of the fiscal year.

In fiscal 2001, we received customer acceptances for $19.3 million of the $26.5 million that was deferred as of the
beginning of the fiscal year and accordingly recognized $19.3 million of revenue. Also in fiscal 2001, we recorded after-tax
non-cash profit of $5.7 million or $0.12 per fully diluted share associated with the $19.3 million of deferred revenue. At
September 30, 2001, deferred revenue was approximately $7.2 million, which will be recognized in future periods as the
revenue recognition criteria are met.

Our pro-forma net loss for fiscal 2001, assuming we did not adopt SAB 101, was $62.8 million or $1.29 per fully diluted
share.

The unaudited consolidated statements of operations for the quarters ended December 31, 2000, March 31, 2001 and June
30, 2001 have been restated to reflect the application of SAB 101.

Shipping and Handling Revenues and Costs. In September 2000, the Emerging Issues Task Force (EITF) reached a final
consensus on issue EITF No. 00-10, Accounting for Shipping and Handling Revenues and Costs. The Task Force
concluded that amounts billed to customers related to shipping and handling should be classified as revenue. We adopted
the consensus in fiscal 2001, and the impact to the financial statements is immaterial.

Liquidity and Capital Resources

As of September 30, 2001, our cash, cash equivalents and investments totaled $202.9 million compared to $316.6 million at
September 30, 2000.

Cash generated from operating activities totaled $71.9 million during fiscal 2001 compared to cash generated of $134.1 million
in fiscal 2000 and cash used in operating activities of $37.9 million in fiscal 1999. The cash generated from our operating
activities in fiscal 2001 was primarily due to the collection of customer accounts receivable, partially offset by the paydown of
accounts payable and the net loss. The cash generated from operating activities in fiscal 2000 was primarily the result of our
record net income partially offset by an increase in accounts receivable and inventory to support the record sales volume.

Net cash used for investing activities for the year ended September 30, 2001 was $268.6 million. Cash outflows for
investing activities consisted primarily of the purchase of two companies that design and manufacture semiconductor test
interconnect solutions. We paid $217.4 million for Cerprobe and $62.5 million for Probe Tech, net of cash acquired. Also in
fiscal 2001, we purchased the remaining interest in Flip Chip that was owned by Delco for $5.0 million. We now own 100.0%
of Flip Chip. During fiscal 2001, we also invested $48.6 million in property and equipment, compared to $38.3 million in fiscal
2000. The capital spending in fiscal 2001 was primarily for information technology to develop corporate-wide e-business
capabilities, increased capacity at Flip Chip and continued expansion of the manufacturing capabilities in our existing packaging
materials facilities.

Net cash provided by financing activities in fiscal 2001 was $140.2 million, principally due to the proceeds from our $125.0
million convertible subordinated note offering which was completed in August 2001. The notes are general obligations of
our company and are subordinated to all senior debt. The notes rank equally with the convertible notes issued in December
1999, bear interest at 5¼%, are convertible into our common stock at $19.75 per share and mature on August 15, 2006.
There are no financial covenants associated with the notes and there are no restrictions on paying dividends, incurring
additional debt or issuing or repurchasing our securities. Interest on the notes is payable on February 15 and August 15
each year. We may redeem the notes in whole or in part at any time on or after August 19, 2004 at prices ranging from
102.1% at August 19, 2004 to 100.0% at August 15, 2006. Part of the proceeds from this offering were used to repay and
terminate our then existing revolving credit facility.

In April 2001, we entered into a receivable securitization program in which we transferred all domestic account receivables to
KSI Funding Corporation, a “bankruptcy remote” special purpose corporation and our wholly owned subsidiary. Under the
facility, KSI Funding Corporation can sell up to a $40.0 million interest in all of our domestic receivables. This facility was
structured as a revolving securitization, whereby an interest in additional account receivables can be sold as collections reduce
the previously sold interest. At September 30, 2001, we have sold receivables under this agreement amounting to $20.0 million.

In December 1999, we issued $175.0 million of convertible subordinated notes. The notes are general obligations of our
company and subordinated to all senior debt. The notes bear interest at 4¾%, are convertible into our common stock at
$22.8997 per share and mature on December 15, 2006. There are no financial covenants associated with the notes and there are
no restrictions on paying dividends, incurring additional debt or issuing or repurchasing our securities. Interest on the notes is
payable on June 15 and December 15 of each year. We may redeem the notes in whole or in part at any time after December 18,
2002 at prices ranging from 102.714% at December 19, 2002 to 100.0% at December 15, 2006.

At September 30, 2001, working capital was $265.4 million compared to $471.3 million at September 30, 2000. The lower
working capital was due primarily to lower cash, short-term investments and accounts receivable.

We believe that anticipated cash flows from operations, our working capital and accounts receivable securitization program
will be sufficient to meet our liquidity and capital requirements for at least the next 12 months. However, we may seek, as
we believe appropriate, additional equity or debt financing to provide capital for corporate purposes and/or to fund strategic
business opportunities, including possible acquisitions, joint ventures, alliances or other business arrangements that could
require substantial capital outlays. The timing and amount of such potential capital requirements cannot be determined at
this time and will depend on a number of factors, including demand for our products, semiconductor and semiconductor
capital equipment industry conditions, competitive factors and the nature and size of strategic business opportunities that we
may elect to pursue.

Risks Related to Our Business

The semiconductor industry as a whole is volatile and is currently experiencing a significant downturn

Our operating results are significantly affected by the capital expenditures of large semiconductor manufacturers and their
subcontract assemblers and vertically integrated manufacturers of electronic systems. Expenditures by semiconductor
manufacturers and their subcontract assemblers and vertically integrated manufacturers of electronic systems depend on the
current and anticipated market demand for semiconductors and products that use semiconductors, such as personal computers,
telecommunications equipment, consumer electronics and automotive goods. Significant downturns in the market for
semiconductor devices or in general economic conditions reduce demand for our products and materially and adversely affect
our business, financial condition and operating results.

Historically, the semiconductor industry has been volatile, with sharp periodic downturns and slowdowns. These downturns
have been characterized by, among other things, diminished product demand, excess production capacity and accelerated
erosion of selling prices. This has severely and negatively affected the industry’s demand for capital equipment, including the
assembly equipment that we manufacture and market and, to a lesser extent, the packaging materials and test interconnect
solutions that we sell. The semiconductor industry is in a downturn and we expect conditions to remain weak in fiscal 2002.
This downturn is among the worst we have experienced: orders have been pushed out or cancelled, significantly reducing our
backlog, sales have declined rapidly and we have, among other things, undertaken a significant resizing and have deferred
capital expenditures. We cannot assure you as to when the current downturn will end or that it will not continue to worsen. This
current downturn, like past downturns, has materially and adversely affected our operating results and we expect that it will
continue to materially and adversely affect our business, financial condition and operating results in the near term. See
‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations.’’

Our quarterly operating results fluctuate significantly and may continue to do so in the future

In the past, our quarterly operating results have fluctuated significantly, which we expect will continue to be the case. Although
these fluctuations are partly due to the volatile nature of the semiconductor industry, they also reflect the impact of other factors.
Many of the factors that affect our operating results are outside of our control.

Some of the factors that could cause our revenues and/or operating margins to fluctuate significantly from period to period are:

! market downturns;

the mix of products that we sell because, for example:

- some packaging materials have lower margins than assembly equipment and test interconnect solutions;

- some lines of equipment are more profitable than others; and

- some sales arrangements have higher margins than others;

the volume and timing of orders for our products and any order postponements and cancellations by our customers;

the cancellation, deferral or rescheduling of orders, because virtually all orders are subject to cancellation, deferral or
rescheduling by the customer without prior notice and with limited or no penalties;

adverse changes in our pricing, or that of our competitors;

! higher than anticipated costs of development or production of new equipment models;

the availability and cost of key components for our products;

! market acceptance of our new products and upgraded versions of our products;

! our announcement, or perception by others, that we will introduce new or upgraded products, which could cause

customers to delay purchasing our products;

the timing of acquisitions; and

! our competitors’ introduction of new products.

Many of our expenses, such as research and development, selling, general and administrative expenses and interest expense, do
not vary directly with our net sales. As a result, a decline in our net sales would adversely affect our operating results. In
addition, if we were to incur additional expenses in a quarter in which we did not experience comparable increased net sales,
our operating results would decline. Factors that could cause our expenses to fluctuate from period to period include:

the timing and extent of our research and development efforts;

severance, resizing and other costs of relocating facilities;

inventory write-offs due to obsolescence; and

inflationary increases in the cost of labor or materials.

Because our revenues and operating results are volatile and difficult to predict, we believe that period-to-period comparisons of
our operating results are not a good indication of our future performance.

Our business depends on attracting and retaining management, marketing and technical employees who are in great
demand

As is the case with many other technology companies, our future success depends on our ability to hire and retain qualified
management, marketing and technical employees. Competition is intense in personnel recruiting in the semiconductor and
semiconductor equipment industries, specifically with respect to some engineering disciplines. In particular, we have
experienced periodic shortages of software engineers. If we are unable to continue to attract and retain the technical and
managerial personnel we require, our business, financial condition and operating results could be materially and adversely
affected.

We may not be able to rapidly develop and manufacture new and enhanced products required to maintain or expand our
business

We believe that our continued success will depend on our ability to continuously develop and manufacture or acquire new
products and product enhancements on a timely and cost-effective basis. We also must introduce these products and product
enhancements into the market in response to customers’ demands for higher performance assembly equipment, leading-edge
materials and for test interconnect solutions customized to address rapid technological advances in IC and capital equipment
designs. Our competitors may develop enhancements to or future generations of competitive products that will offer superior
performance, features and lower prices that may render our products non-competitive. The development of new products may
require significant capital expenditures over an extended period of time, and some products that we seek to develop may never
become profitable. In fiscal 2001, for example, we have incurred significant losses in connection with our efforts to develop and
commercialize high density substrate technology, and we anticipate continuing to incur such losses in the near term. In addition,
the commercialization of high density substrates may require substantial capital investments for production facilities. In
addition, we may not be able to develop and introduce products incorporating new technologies in a timely manner or at a price
that will satisfy our customers’ future needs or achieve market acceptance.

We may not be able to accurately forecast demand for our product lines

We typically operate our business with a relatively short backlog and order supplies and otherwise plan production based on
internal forecasts of demand. Due to these factors, we have in the past, and may again in the future, fail to accurately forecast
demand, in terms of both volume and configuration for either our current or next-generation wire bonders. This has led to and
may in the future lead to delays in product shipments or, alternatively, an increased risk of inventory obsolescence. If we fail to

accurately forecast demand for our products, including assembly equipment, packaging materials, test interconnect solutions
and advanced packaging technologies, our business, financial condition and operating results could be materially and adversely
affected.

Advanced packaging technologies other than wire bonding may render some of our products obsolete and our strategy for
pursuing these other technologies may be costly and ineffective

Advanced packaging technologies have emerged that may improve device performance or reduce the size of an IC package, as
compared to traditional die and wire bonding. These technologies include flip chip and wafer scale packaging. In general, these
advanced technologies eliminate the need for wires to establish the electrical connection between a die and its package. For
some devices, these advanced technologies have largely replaced wire bonding. We cannot assure you that the semiconductor
industry will not, in the future, shift a significant part of its volume into advanced packaging technologies, such as those
discussed above. If a significant shift to advanced technologies were to occur, demand for our wire bonders and related
packaging materials and test interconnect solutions would diminish.

One component of our strategy is to develop next-generation technologies to allow us to prepare for any eventual decline in the
use of wire bonding technology. There are a number of risks associated with our strategy to diversify into new technologies:

the technologies that we have invested in represent only some of the advanced technologies that may one day
supersede wire bonding;

! other companies are developing similar or alternative advanced technologies;

! wire bonding may continue as the dominant technology for longer than we anticipate;

the cost of developing advanced technologies may be significantly greater than we expect; and

! we may not be able to develop the necessary technical, research, managerial and other related skills to develop,

produce, market and support these advanced technologies.

As a result of these risks, we cannot assure you that any of our attempts to develop alternative technologies will be profitable or
that we will be able to realize the benefits that we anticipate from them.

A decline in demand for any of our products could cause our revenues to decline significantly

Prior to our recent acquisitions of businesses in the test interconnect segment, our wire bonders comprised over 50% of our net
sales. If demand for, or pricing of, our wire bonders declines because our competitors introduce superior or lower cost systems,
the semiconductor industry changes or because of other events beyond our control, our business, financial condition and
operating results could be materially and adversely affected. Advanced packaging technologies and test interconnect solutions
are less significant as a percentage of our revenues than wire bonders, but any deterioration in the demand for, or prices of, these
products would materially and adversely affect our business, financial condition and operating results.

Because a small number of customers account for most of our sales, our revenues could decline if we lose any significant
customer

The semiconductor manufacturing industry is highly concentrated, with a relatively small number of large semiconductor
manufacturers and their subcontract assemblers and vertically integrated manufacturers of electronic systems purchasing a
substantial portion of semiconductor assembly equipment, packaging materials, test interconnect solutions and flip chip
bumping services and technology. Sales to a relatively small number of customers account for a significant percentage of our net
sales. In fiscal 2001, no customer accounted for more than 10% of our net sales. In fiscal 2000, sales to Advanced
Semiconductor Engineering and Amkor Technologies accounted for 15% and 10% of our net sales, respectively. In fiscal 1999
no customer accounted for more than 10% of total net sales.

We expect that sales of our products to a limited number of customers will continue to account for a high percentage of our net
sales for the foreseeable future. If we lose orders from a significant customer, or if a significant customer reduces its orders

substantially, these losses or reductions will materially and adversely affect our business, financial condition and operating
results.

We depend on a small number of suppliers for raw materials, components and subassemblies and, if our suppliers do not
deliver their products to us, we may be unable to deliver our products to our customers

Our products are complex and require raw materials, components and subassemblies of an exceptionally high degree of
reliability, accuracy and performance. We rely on subcontractors to manufacture many of the components and subassemblies for
our products and we rely on sole source suppliers for some important components and raw materials, including gold. As a
result, we are exposed to a number of significant risks, including:

loss of control over the manufacturing process;

changes in our manufacturing processes, dictated by changes in the market, that may delay our shipments;

! our inadvertent use of defective or contaminated raw materials;

the relatively small operations and limited manufacturing resources of some of our contractors and suppliers, which
may limit their ability to manufacture and sell subassemblies, components or parts in the volumes we require and at
quality levels and prices we can accept;

reliability and quality problems we experience with certain key subassemblies provided by single source suppliers;

the exposure of our suppliers and subcontractors to disruption for a variety of reasons, including work stoppage, fire,
earthquake, flooding or other natural disasters;

! delays in the delivery of raw materials or subassemblies, which, in turn, may cause delays in some of our shipments;

and

the loss of suppliers as a result of the consolidation of suppliers in the industry.

If we are unable to deliver products to our customers on time for these or any other reasons, if we are unable to meet customer
expectations as to cycle time or if we do not maintain acceptable product quality or reliability in the future, our business,
financial condition and operating results would be materially and adversely affected.

We are expanding and diversifying our operations, and if we fail to manage our expanding and more diverse operations
successfully, our business and financial results may be materially and adversely affected

In recent years, we have broadened our product offerings to include significantly more packaging materials and advanced
packaging services and technology. Additionally, during fiscal 2001, we acquired two companies that design and manufacture
test interconnect solutions, Cerprobe Corporation and Probe Technology Corporation, and we have combined their operations
to create our test division. Although our strategy is to diversify and expand our products and services, we may not be able to
develop, acquire, introduce or market new products in a timely or cost-effective manner and the market may not accept any new
or improved products we develop, acquire, introduce or market.

Our diversification into new lines of business and our expansion through acquisitions and alliances has increased, and is
expected to continue to increase, demands on our management, financial resources and information and internal control
systems. Our success depends in significant part on our ability to manage and integrate acquisitions, joint ventures and other
alliances and to continue to implement, improve and expand our systems, procedures and controls. If we fail to do this at a pace
consistent with the development of our business, our business, financial condition and operating results could be materially and
adversely affected.

As we expand our operations, we expect to encounter a number of risks, which will include:

risks associated with hiring additional management and other critical personnel;

risks associated with adding equipment and capacity; and

risks associated with increasing the scope, geographic diversity and complexity of our operations.

In addition, sales and servicing of packaging materials, test interconnect solutions and advanced packaging technologies often
require different organizational and managerial skills than sales of traditional wire bonding technology. We cannot assure you
that we will be able to develop the necessary skills to successfully produce and market these different products.

We may be unable to continue to compete successfully in the highly competitive semiconductor equipment, packaging
materials, test interconnect and advanced packaging technology industries

The semiconductor equipment, packaging materials, test interconnect solutions and advanced packaging technology industries
are intensely competitive. In the semiconductor equipment, test interconnect solutions and advanced packaging technology
markets, the significant competitive factors include performance, quality, customer support and price, and in the semiconductor
packaging materials industry include price, delivery and quality.

In each of our markets, we face competition and the threat of competition from established competitors and potential new
entrants, some of which have significantly greater financial, engineering, manufacturing and marketing resources than we have.
Some of these competitors are Asian and European companies that have had and may continue to have an advantage over us in
supplying products to local customers because many of these customers appear to prefer to purchase from local suppliers,
without regard to other considerations.

We expect our competitors to improve their current products’ performance, and to introduce new products and materials with
improved price and performance characteristics. New product and materials introductions by our competitors or by new market
entrants could hurt our sales. If a particular semiconductor manufacturer or subcontract assembler selects a competitor’s product
or materials for a particular assembly operation, we may not be able to sell products or materials to that manufacturer or
assembler for a significant period of time because manufacturers and assemblers sometimes develop lasting relations with
suppliers, and assembly equipment in our industry often goes years without requiring replacement. In addition, we may have to
lower our prices in response to price cuts by our competitors, which could materially and adversely affect our business, financial
condition and operating results. We cannot assure you that we will be able to continue to compete in these or other areas in the
future.

We sell most of our products to customers that are located outside of the United States, we have substantial manufacturing
operations located outside of the United States, and we rely on independent foreign distribution channels for certain product
lines, all of which subject us to risks from changes in trade regulations, currency fluctuations, political instability and war

Approximately 62% of our net sales for fiscal 2001, 91% of our net sales for fiscal 2000 and 83% of our net sales for fiscal
1999 were attributable to sales to customers for delivery outside of the United States. The lower percentage of international
sales in fiscal 2001 was due primarily to the sales of the newly acquired test interconnect segment which was more concentrated
in the United States. We expect our sales outside of the United States to continue to represent a large portion of our future
revenues. Our future performance will depend, in significant part, on our ability to continue to compete in foreign markets,
particularly in Asia. Asian economies have been highly volatile, resulting in significant fluctuation in local currencies, and
political and economic instability. These conditions may continue or worsen, which could materially and adversely affect our
business, financial condition and operating results. We also rely on non-U.S. suppliers for materials and components used in the
equipment that we sell and we maintain substantial manufacturing operations in countries other than the United States, including
operations in Israel and Singapore. We manufacture substantially all of our automatic ball bonders in Singapore. In addition, we
rely on independent foreign distribution channels for certain product lines. As a result, a major portion of our business is subject
to the risks associated with international commerce, such as risks of war and civil disturbances or other events that may limit or
disrupt markets; expropriation of our foreign assets; longer payment cycles in foreign markets; international exchange
restrictions; the difficulties of staffing and managing dispersed international operations; tariff and currency fluctuations;
changing political conditions; foreign governments’ monetary policies; and less protective foreign intellectual property laws.

Because most of our foreign sales are denominated in United States dollars, an increase in value of the United States dollar
against foreign currencies, particularly the Japanese yen, will make our products more expensive than those offered by some of

our foreign competitors. Our ability to compete overseas in the future could be materially and adversely affected by a
strengthening of the United States dollar against foreign currencies.

The ability of our international operations to prosper also will depend, in part, on a continuation of current trade relations
between the United States and foreign countries in which our customers operate and in which our subcontractors and materials
suppliers have operations. A change toward more protectionist trade legislation in either the United States or foreign countries
in which we do business, such as a change in the current tariff structures, export compliance or other trade policies, could
materially and adversely affect our ability to sell our products in foreign markets.

Our success depends in part on our intellectual property, which we may be unable to protect

Our success depends in part on our proprietary technology. To protect this technology, we rely principally on contractual
restrictions (such as nondisclosure and confidentiality agreements) in our agreements with employees, vendors, consultants and
customers and on the common law of trade secrets and proprietary ‘‘know-how.’’ We also rely, in some cases, on patent and
copyright protection, which may become more important to us as we expand our investment in advanced packaging
technologies. We may not be successful in protecting our technology for a number of reasons, including:

! our competitors may independently develop technology that is similar to or better than ours;

employees, vendors, consultants and customers may not abide by their contractual agreements, and the cost of
enforcing those agreements may be prohibitive, or those agreements may prove to be unenforceable or more limited
than we anticipate;

foreign intellectual property laws may not adequately protect our intellectual property rights; and

! our patent and copyright claims may not be sufficiently broad to effectively protect our technology; patents or
copyrights may be challenged, invalidated or circumvented; and we may otherwise be unable to obtain adequate
protection for our technology.

In addition, our partners and alliances may also have rights to technology that we develop through these alliances. We may incur
significant expense to protect or enforce our intellectual property rights. If we are unable to protect our intellectual property
rights, our competitive position may be weakened.

Third parties may claim we are infringing on their intellectual property, which could cause us to incur significant litigation
costs or other expenses, or prevent us from selling some of our products

The semiconductor industry is characterized by rapid technological change, with frequent introductions of new products and
technologies. As a result, industry participants often develop products and features similar to those introduced by others,
increasing the risk that their products and processes may give rise to claims that they infringe on the intellectual property of
others. We may unknowingly infringe on the intellectual property rights of others and incur significant liability for that
infringement. If we are found to infringe on the intellectual property rights of others, we could be enjoined from continuing to
manufacture, market or use the affected product, or be required to obtain a license to continue manufacturing or using the
affected product. A license could be very expensive to obtain or may not be available at all. Similarly, changing our products or
processes to avoid infringing the rights of others may be costly or impractical.

Occasionally, third parties assert that we are, or may be, infringing on or misappropriating their intellectual property rights. In
these cases, we will defend against claims or negotiate licenses where we consider these actions appropriate. Intellectual
property cases are uncertain and involve complex legal and factual questions. If we become involved in this type of litigation, it
could consume significant resources and divert our attention from our business.

Some of our customers have received notices of infringement from the Lemelson Medical, Education and Research Foundation
Limited Partnership (the ‘‘Lemelson Foundation’’), alleging that equipment we have supplied to our customers, and processes
this equipment performs, infringes on patents held by the Lemelson Foundation. These notices increased substantially in 1998,
the year in which the Lemelson Foundation settled its suit against the Ford Motor Company, and entered into license agreements
with Ford, GM and Chrysler. Since the settlement, a number of our customers, including Intel, have been sued by the Lemelson
Foundation.

Some of our customers have requested that we defend and indemnify them against the Lemelson Foundation’s claims or
contribute to any settlement the customer reaches with the Lemelson Foundation. We have received opinions from our outside
patent counsel with respect to various Lemelson Foundation patents. We are not aware that any equipment we market or that
any process performed by our equipment infringes on the Lemelson Foundation patents and we do not believe that the
Lemelson Foundation matter or any other pending intellectual property claim against us will materially and adversely affect our
business, financial condition or operating results. The ultimate outcome of any infringement or misappropriation claim affecting
us is uncertain, however, and we cannot assure you that our resolution of any such claim will not materially and adversely affect
our business, financial condition and operating results.

We may be materially and adversely affected by environmental and safety laws and regulations

We are subject to various and frequently changing federal, state, local and foreign laws and regulations governing, among other
things, the generation, storage, use, emission, discharge, transportation and disposal of hazardous material, investigation and
remediation of contaminated sites and the health and safety of our employees. Increasingly, public attention has focused on the
environmental impact of manufacturing operations and the risk to neighbors of chemical releases from such operations.

Proper waste disposal plays an important role in the operation of our manufacturing plants. In many of our facilities we maintain
wastewater treatment systems that remove metals and other contaminants from process wastewater. These facilities operate
under effluent discharge permits that must be renewed periodically. A violation of those permits may lead to revocation of the
permits, fines, penalties or the incurrence of capital or other costs to comply with the permits.

In the future, applicable land use and environmental regulations may: (1) impose upon us the need for additional capital
equipment or other process requirements, (2) restrict our ability to expand our operations, (3) subject us to liability, and/or (4)
cause us to curtail our operations. We cannot assure you that any costs or liabilities associated with complying with these
environmental laws will not materially and adversely affect our business, financial condition and operating results. See
‘‘Business—Environmental Matters.’’

Anti-takeover provisions in our articles of incorporation and bylaws and Pennsylvania law may discourage other companies
from attempting to acquire us

Some provisions of our articles of incorporation and bylaws and of Pennsylvania law may discourage some transactions where
we would otherwise experience a change in control. For example, our articles of incorporation and bylaws contain provisions
that:

! classify our board of directors into four classes, with one class being elected each year;

! permit our board to issue ‘‘blank check’’ preferred stock without shareholder approval; and

! prohibit us from engaging in some types of business combinations with a holder of 20% or more of our voting

securities without super-majority board or shareholder approval.

Further, under the Pennsylvania Business Corporation Law, because our bylaws provide for a classified board of directors,
shareholders may only remove directors for cause. These provisions and some provisions of the Pennsylvania Business
Corporation Law could delay, defer or prevent us from experiencing a change in control and may adversely affect our common
stockholders’ voting and other rights.

We may be unable to generate enough cash to service our debt

Our ability to make payments on our indebtedness, and to fund planned capital expenditures and other activities will depend on
our ability to generate cash in the future. This, to some extent, is subject to the volatile nature of our business, and general
economic, competitive and other factors that are beyond our control. Accordingly, we cannot assure you that our business will
generate sufficient cash flow to service our debt. In addition, our gold supply agreement contains restrictions on its ability to
declare and pay dividends to us.

Based on our current level of operations, we believe our cash flows from operations, working capital, the accounts receivable
securitization program will be adequate to meet our liquidity and capital requirements for at least the next twelve months.

We may need to refinance all or a portion of our indebtedness on or before maturity. We cannot assure you that we will be able
to refinance any of our indebtedness on commercially reasonable terms, if at all.

Terrorist attacks, such as the attacks that occurred in New York and Washington, D.C. on September 11, 2001, and
other acts of violence or war may affect the markets in which we operate and our profitability

Terrorist attacks may negatively effect our operations and your investment. There can be no assurance that there will not be
further terrorist attacks against the United States or United States businesses. These attacks or armed conflicts may directly
impact our physical facilities or those of our suppliers or customers. Our primary facilities include administrative, sales and
R&D facilities in the United States of America and manufacturing facilities in the United States, Israel and Singapore. Also,
these attacks have disrupted the global insurance and reinsurance industries with the result that we may not be able to obtain
insurance at historical terms and levels for all of our facilities. Furthermore, these attacks may make travel and the
transportation of our supplies and products more difficult and more expensive and ultimately effect the sales of our products
in the United States and overseas. As a result of terrorism, the United States has entered into an armed conflict which could
have a further impact on our domestic and internal sales, our supply chain, our production capability and our ability to
deliver product to our customers. Political and economic instability in some regions of the world may also result and could
negatively impact our business. The consequences of any of these armed conflicts are unpredictable, and we may not be
able to foresee events that could have an adverse effect on our business or your investment.

Item 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

At September 30, 2001, we had a non-trading investment portfolio of fixed income securities, excluding those classified as cash
and cash equivalents, of $47.9 million (see Note 5 of the Company’s Consolidated Financial Statements). These securities, like
all fixed income instruments, are subject to interest rate and exchange rate risk and may fall in value if market rates change. If
market interest rates were to increase immediately and uniformly by 10% from levels as of September 30, 2001, the fair market
value of the portfolio would decline by approximately $100,000. We also had investments in equity securities of $1.2 million at
September 30, 2001 of which 100% of the portfolio is vulnerable to market risk.

Item 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The consolidated Financial Statements of Kulicke and Soffa Industries, Inc. listed in the index appearing under Item 14 (a)(1)
herein are filed as part of this Report.

[This page intentionally left blank]

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders
of Kulicke and Soffa Industries, Inc.:

In our opinion, the consolidated financial statements listed in the index appearing under Item 14(a)(1) present fairly, in all
material respects, the financial position of Kulicke and Soffa Industries, Inc. and its subsidiaries at September 30, 2001 and
September 30, 2000, and the results of their operations and their cash flows for each of the three years in the period ended
September 30, 2001 in conformity with accounting principles generally accepted in the United States of America. In
addition, in our opinion, the financial statement schedule listed in the index appearing under Item 14(a)(2) presents fairly, in
all material respects, the information set forth therein when read in conjunction with the related consolidated financial
statements. These financial statements and financial statement schedule are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial statements and financial statement schedule based
on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

As discussed in Note 1 to the consolidated financial statements, the Company adopted Staff Accounting Bulletin No. 101
(SAB 101), “Revenue Recognition in Financial Statements,” in fiscal 2001.

PricewaterhouseCoopers LLP

Philadelphia, Pennsylvania
November 14, 2001

KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)

ASSETS

CURRENT ASSETS:
Cash and cash equivalents (including time
deposits: 2000 - $503; 2001 - $1,053)
Short-term investments
Accounts and notes receivable (less allowance for doubtful
accounts: 2000 - $4,355; 2001 - $6,242)
Inventories, net
Prepaid expenses and other current assets
Deferred income taxes

TOTAL CURRENT ASSETS

Property, plant and equipment, net
Intangible assets, primarily goodwill (net of accumulated
amortization: 2000 - $13,781; 2001 - $36,920)
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: 2000 - 48,716; 2001 - 49,034
Retained earnings
Accumulated other comprehensive loss

TOTAL SHAREHOLDERS' EQUITY

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

September 30,

2000

2001

211,489
105,130

155,036
47,892

188,485
74,034
9,748
8,650

597,536

83,867

41,724
8,375

79,305
74,364
9,013
15,282

380,892

127,952

253,999
14,583

731,502

777,426

1,026
62,513
51,935
10,724

753
51,420
48,965
14,399

126,198

115,537

175,000
7,967
12,798
4,197

301,511
13,736
8,054
41

326,160

438,879

189,766
220,263
(4,687)

193,058
155,012
(9,523)

405,342

338,547

731,502

777,426

The accompanying notes are an integral part of these consolidated financial statements.

KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)

Net sales

Cost of goods sold

Gross profit

Selling, general and administrative
Research and development, net
Resizing (recovery) costs
Asset impairment
Purchased in-process research and development

Income (loss) from operations

Interest income
Interest expense
Equity in loss of joint ventures
Other Income

Income (loss) before income taxes

Fiscal Year Ended September 30,

1999

2000

2001

398,917

899,273

555,003

285,382

113,535

86,226
37,188
5,918
-
3,935

573,177

326,096

136,179
50,135
(2,548)
3,871
-

(19,732)

138,459

3,762
(215)
(10,000)
-

12,418
(7,699)
(1,221)
-

(26,185)

141,957

392,604

162,399

164,561
62,727
4,166
800
11,709

(81,564)

8,398
(13,933)
-
8,016

(79,083)

(21,643)

Provision (benefit) for income taxes

(8,221)

40,149

Income (loss) before minority interest and cumulative
effect of change in accounting principle

Cumulative effect of change in accounting principle,
net of tax of $4,395

Minority interest in net loss of subsidiary

(17,964)

101,808

(57,440)

1,018

1,437

(8,163)

352

Net income (loss)

(16,946)

103,245

(65,251)

Net income (loss) excluding cumulative effect of change in
accounting principle per share:
Basic
Diluted

Cumulative effect of change in accounting principle,
net of tax per share:
Basic
Diluted

Net income (loss) per share:
Basic
Diluted

Weighted average shares outstanding:
Basic
Diluted

$
$

(0.36)
(0.36)

$
$

2.15
1.90

$
$

(1.17)
(1.17)

$
-
$
-

$
$

(0.17)
(0.17)

$
$

(0.36)
(0.36)

$
$

2.15
1.90

$
$

(1.34)
(1.34)

46,846
46,846

47,932
56,496

48,877
48,877

The accompanying notes are an integral part of these consolidated financial statements.

KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

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
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
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

CASH FLOWS FROM INVESTING ACTIVITIES:
(Purchases) proceeds from investments classified
as available-for-sale, net
Purchases of plant and equipment
Purchase of Flip Chip
Purchase of Probe Tech, net of cash acquired
Purchase of Cerprobe, net of cash acquired
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
Proceeds from sale of receivables
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

Fiscal Year Ended September 30,

1999

2000

2001

(16,946)

103,245

(65,251)

15,989
180
812
1,566
(8,463)
1,200
10,000
(1,018)
3,935
1,662

(66,833)
(14,700)
(4,801)
2,336
36,182
(42)
1,012

(37,929)

28,075
(10,891)
-
-
-
(8,000)
-
(10,912)

(1,728)

-
-
(192)
280

246

24,260
12,444
2,758
3,871
15,219
6,978
1,221
(1,437)
-
2,437

(55,490)
(19,267)
153
2,934
25,289
7,120
2,362

134,097

(103,046)
(38,304)
-
-
-
-
-
(2,152)

(143,502)

168,985
-
-
14,777

183,762

53,849
248
1,406
800
(37,556)
18,095
-
(352)
11,709
1,942

110,469
2,572
(1,734)
-
(30,918)
3,226
3,364

71,869

56,640
(48,636)
(5,000)
(62,512)
(217,415)
-
8,338
-

(268,585)

120,749
20,000
(1,652)
1,102

140,199

(23)

(39,323)

174,334

(56,453)

76,478
37,155

37,155
211,489

211,489
155,036

The accompanying notes are an integral part of these consolidated financial statements.

KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(in thousands)

Balances at September 30, 1999

46,978

160,108

117,018

(2,350)

Balances at September 30, 1998

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

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

Balances at September 30, 2000

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
Minimum pension liability (net of taxes
of $1,556)

Total comprehensive loss

1,662
280
180

(16,946)
2,622
(115)

(49)
(768)

(15,256)

274,776

2,437
14,777
12,444

103,245
(884)
(20)

Accumulated
Other

Common Stock

Retained

Comprehensive Shareholders’

Amount

46,734

157,986

Earnings
$
133,964

Income (Loss)
(4,040)

Equity
287,910

168
76

-
-
-

-
-

1,662
280
180

-
-
-

-
-

-
-
-

(16,946)
-
-

-
-

-
-
-

-
2,622
(115)

(49)
(768)

94
1,644
-

2,437
14,777
12,444

-
-
-

103,245

-
-

-
-
-

-
(884)
(20)

(1,433)

48,716

189,766

220,263

(4,687)

153
165
-

-
-
-

1,942
1,102
248

-
-
-

(65,251)
-
-

-
(2,226)
280

(2,890)

100,908

405,342

1,942
1,102
248

(65,251)
(2,226)
280

(2,890)

(70,087)

Balances at September 30, 2001

49,034

193,058

155,012

(9,523)

338,547

The accompanying notes are an integral part of these consolidated financial statements.

KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENT

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

These consolidated financial statements include the accounts of Kulicke and Soffa Industries, Inc. and its subsidiaries
(the "Company"), with appropriate elimination of intercompany balances and transactions.

Nature of Business - The Company designs, manufactures, and markets capital equipment, packaging materials and test
interconnect solutions and provides flip chip bumping services for sale to companies that manufacture and assemble
semiconductor devices. We also service, maintain, repair and upgrade assembly equipment, license our flip chip
bumping process technology and are marketing high density interconnect substrates. The Company's operating results
depend upon the capital and operating expenditures of semiconductor manufacturers and subcontract assemblers
worldwide which, in turn, depend on the current and anticipated market demand for semiconductors and products
utilizing semiconductors. The semiconductor industry historically has been highly volatile and experienced periodic
downturns and slowdowns which have had a severe negative effect on the semiconductor industry's demand for
semiconductor capital equipment, including assembly equipment manufactured and marketed by the Company and, to a
lesser extent, packaging materials and test interconnect solutions such as those sold by the Company. These downturns
and slowdowns have also adversely affected the Company's operating results. The Company believes such volatility will
continue to characterize the industry and the Company's operations in the future.

Management Estimates - The preparation of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. The more significant areas involving the use of estimates
in these financial statements include allowances for uncollectible accounts receivable, reserves for excess and obsolete
inventory, warranties, carrying value and lives of fixed assets, goodwill and intangible assets, valuation allowances for
deferred tax assets and deferred tax liabilities for unrepatriated earnings. Actual results could differ from those
estimated.

Vulnerability to Certain Concentrations - Financial instruments which may subject the Company to concentration of
credit risk at September 30, 2001 and 2000 consist primarily of investments and trade receivables. The Company
manages credit risk associated with investments by investing its excess cash in investment grade debt instruments of the
U.S. Government, financial institutions and corporations. The Company has established investment guidelines relative to
diversification and maturities designed to maintain safety and liquidity. These guidelines are periodically reviewed and
modified to take advantage of trends in yields and interest rates. The Company's trade receivables result primarily from
the sale of semiconductor equipment, related accessories and replacement parts, packaging materials and test
interconnect products to a relatively small number of large manufacturers in a highly concentrated industry. The
Company continually assesses the financial strength of its customers to reduce the risk of loss. Accounts receivable at
September 30, 2001 and 2000 included notes receivable of $16 thousand and $4.0 million respectively. Writeoffs of
uncollectible accounts have historically been insignificant.

Sales to a relatively small number of customers account for a significant percentage of the Company's net sales. In fiscal
2001, no customer accounted for more than 10% of the Company’s net sales. In fiscal 2000, sales to Advanced
Semiconductor Engineering accounted for 15% of the Company’s net sales and sales to Amkor Technologies accounted
for 10% of the Company’s net sales. In fiscal 1999, no customer accounted for more than 10% of net sales. The
Company expects sales of its products to a limited number of customers will continue to account for a high percentage of
net sales for the foreseeable future. At September 30, 2001 and 2000, Advanced Semiconductor Engineering accounted
for 13% and 14%, respectively, of total accounts receivable. No other customer accounted for more than 10% of total
accounts receivable at September 30, 2001 and 2000. The reduction or loss of orders from a significant customer could
adversely affect the Company's business, financial condition, operating results and cash flows.

The Company relies on subcontractors to manufacture to the Company's specifications many of the components or
subassemblies used in its products. Certain of the Company's products require components or parts of an exceptionally
high degree of reliability, accuracy and performance for which there are only a limited number of suppliers or for which
a single supplier has been accepted by the Company as a qualified supplier. If supplies of such components or
subassemblies were not available from any such source and a relationship with an alternative supplier could not be
promptly developed, shipments of the Company's products could be interrupted and re-engineering of the affected
product could be required. Such disruptions could have a material adverse effect on the Company's results of operations.

Cash Equivalents - The Company considers all highly liquid investments with original maturities of three months or less
when purchased to be cash equivalents.

Investments - Investments, other than cash equivalents, are classified as "trading," "available-for-sale" or "held-to-
maturity", in accordance with SFAS 115, and depending upon the nature of the investment, its ultimate maturity date in
the case of debt securities, and management's intentions with respect to holding the securities. Investments classified as
"trading" are reported at fair market value, with unrealized gains or losses included in earnings. Investments classified as
available-for-sale are reported at fair market value, with net unrealized gains or losses reflected as a separate component
of shareholders' equity (accumulated other comprehensive income (loss)). Investments classified as held-to-maturity are
reported at amortized cost. Realized gains and losses are determined on the basis of specific identification of the
securities sold.

Inventories - Inventories are stated at the lower of cost (determined on the basis of first-in, first-out) or market. Due to
the volatility of demand for capital equipment and the rapid technological change in the semiconductor industry, the
Company is vulnerable to risks of excess and obsolete inventory. The Company generally provides reserves for
equipment inventory considered to be in excess of 6 months of forecasted future demand and provides reserves for spare
part and consumables inventory considered to be in excess of 18 months of forecasted future demand.

Property, Plant and Equipment - Property, plant and equipment are carried at cost. The cost of additions and those
improvements which increase the capacity or lengthen the useful lives of assets are capitalized while repair and
maintenance costs are expensed as incurred. Depreciation and amortization are provided on a straight-line basis over the
estimated useful lives as follows: buildings 25 to 40 years; machinery and equipment 3 to 8 years; and leasehold
improvements are based on the shorter of the life of lease or life of asset. Purchased computer software costs related to
business and financial systems are amortized over a five year period on a straight-line basis.

In accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of, the carrying value of long-lived assets, including goodwill, is evaluated whenever changes in
circumstances indicate the carrying amount of such assets may not be recoverable. In performing such review for
recoverability, the Company compares the expected future cash flows to the carrying value of long-lived assets and
identifiable intangibles. If the anticipated undiscounted future cash flows are less than the carrying amount of such
assets, the Company recognizes an impairment loss for the difference between the carrying amount of the assets and
their estimated fair value. If an asset being tested for recoverability was acquired in a business combination accounted
for using the purchase method, the excess of cost over fair value of net assets that arose in that transaction is allocated to
the assets being tested for recoverability on a pro rata basis using the relative fair values of the long-lived assets and
identifiable intangibles acquired at the acquisition date.

Depreciation expense was $30.1 million, $20.1 million and $13.1 million for the fiscal years ended September 30, 2001,
2000 and 1999, respectively. When assets are retired or otherwise disposed of, the assets and related accumulated
depreciation accounts are adjusted accordingly, and any resulting gain or loss is recorded in current operations.

Intangible Assets - Goodwill resulting from acquisitions accounted for using the purchase method is amortized on a
straight-line basis over the estimated period to be benefited by the acquisitions ranging from five to twenty years. The
weighted average life of the goodwill recorded by the Company on September 30, 2001 was 9.72 years. The Company
accounts for impairment of goodwill in accordance with SFAS No. 121, as discussed above and expects to adopt the
provisions of SFAS 142 effective October 1, 2001.

Foreign Currency Translation - The U.S. dollar is the functional currency for all subsidiaries except the Company's
subsidiaries in Japan, Korea, the Philippines, Thailand, Switzerland and Taiwan. Gains and losses resulting from the
translation of functional currency financial statement amounts into U.S. dollars are not included in determining net
income but are accumulated in the cumulative translation adjustment account as a separate component of shareholders'
equity (accumulated other comprehensive income (loss)), in accordance with SFAS No. 52. Cumulative translation
adjustments are not adjusted for income taxes as they relate to indefinite investments in non-U.S. subsidiaries. Gains and
losses resulting from foreign currency transactions are included in the determination of net income. Net exchange and
transaction gains (losses) were ($700) thousand, $1.0 million and $13 thousand, for the fiscal years ended September 30,
2001, 2000 and 1999, respectively.

Revenue Recognition – The Company changed its revenue recognition policy in the fourth quarter of fiscal 2001,
effective October 1, 2000, based upon guidance provided in the Securities and Exchange Commission (SEC) Staff
Accounting Bulletin No. 101 (SAB 101), Revenue Recognition in Financial Statements. The Company recognizes
revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered,
the price is fixed or determinable, the collectibility is reasonably assured, and it has completed its equipment
installation obligations and received customer acceptance, or are otherwise released from our installation or customer
acceptance obligations. In the event terms of the sale provide for a lapsing customer acceptance period, revenue is
recognized based upon the expiration of the lapsing acceptance period or customer acceptance, whichever occurs
first. Revenue related to services is generally recognized upon performance of the services requested by a customer
order. Revenue for extended maintenance service contracts with a term more than one month is recognized on a
prorated straight-line basis over the term of the contract. Revenue from royalty arrangements and license agreements
is recognized in accordance with the contract terms, generally prorated over the life of the contract or based upon
specific deliverables.

In accordance with the guidance provided in SAB 101, the deferred revenue balance as of October 1, 2000 was
$26.5 million. This amount consists of equipment that was shipped and recorded as revenue in fiscal 2000 but had
not met the customer acceptance criteria required by SAB 101. In fiscal 2001, the Company recorded an after-tax
non-cash charge of $8.2 million or $0.17 per fully diluted share, associated with the $26.5 million of deferred
revenue, to reflect the cumulative effect of the accounting change as of the beginning of the fiscal year.

In fiscal 2001, the Company received customer acceptances for $19.3 million of the $26.5 million that was deferred
as of the beginning of the fiscal year and accordingly recognized $19.3 million of revenue. Also in fiscal 2001, the
Company recorded after-tax non-cash profit of $5.7 million or $0.12 per fully diluted share associated with the $19.3
million of deferred revenue. At September 30, 2001, deferred revenue was approximately $7.2 million, which will be
recognized in future periods as the revenue recognition criteria are met.

Our pro-forma net loss for fiscal 2001, assuming the Company did not adopt SAB 101, was $62.8 million or $1.29
per fully diluted share.

The unaudited consolidated statements of operations for the quarters ended December 31, 2000, March 31, 2001 and
June 30, 2001 have been restated to reflect the application of SAB 101.

Research and Development Arrangements - The Company receives funding from certain customers and government
agencies pursuant to contracts or other arrangements for the performance of specified research and development
activities. Such amounts are recognized as a reduction of research and development expense when specified activities
have been performed. During fiscal 2001, 2000 and 1999, reductions to research and development expense related to
such funding totaled $1.0 million, $1.1 million and $1.3 million, respectively.

Income Taxes - Deferred income taxes are determined using the liability method in accordance with SFAS No. 109,
Accounting for Income Taxes. No provision is made for U.S. income taxes on the portion of undistributed earnings of
foreign subsidiaries which are indefinitely reinvested in foreign operations.

Environmental Expenditures – Future environmental remediation expenditures are recorded in operating expenses when
it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated. Accrued
liabilities do not include claims against third parties and are not discounted.

Earnings Per Share - Earnings per share is calculated in accordance with SFAS No. 128, Earnings Per Share. Basic
earnings per share includes only the weighted average number of common shares outstanding during the period. Diluted
earnings per share includes the weighted average number of common shares and the dilutive effect of stock options and
other potentially dilutive securities outstanding during the period. On June 26, 2000, the Company’s Board of Directors
approved a two-for-one stock split of its common stock. Pursuant to the stock split, each shareholder of record at the
close of business on July 17, 2000 received one additional share for each common share held at the close of business on
that date. The additional shares were distributed on July 31, 2000. All prior period earnings per share amounts have
been restated to reflect the two-for-one stock split.

Accounting for Stock-based Compensation – The Company accounts for stock option grants using the "intrinsic value
method" prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees ("APB
No. 25"), and discloses the pro forma effect on net income and earnings per share as if the fair value method had been
applied to stock option grants, in accordance with SFAS 123, Accounting For Stock-Based Compensation.

Reporting Comprehensive Income – The Company reports comprehensive income and its components in accordance
with SFAS 130, Reporting Comprehensive Income ("SFAS 130"), which establishes standards for reporting and display
of comprehensive income and its components (revenues, expenses, gains and losses) in a full set of general purpose
financial statements. The comprehensive income and related cumulative equity impact of comprehensive income items
are required to be reported in a financial statement that is displayed with the same prominence as other financial
statements. The impact of foreign currency translation adjustments, minimum pension liability adjustments and
unrealized gains or losses on securities available-for-sale are considered to be components of the Company's
comprehensive income under the requirements of SFAS 130.

Derivative Instruments and Hedging Activities – In fiscal 2001, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No.
133, as amended by SFAS No. 138. The standard requires that all derivative instruments be recorded on the balance
sheet at fair value. Changes in the fair value of derivatives are recorded in earnings or other comprehensive income,
based on whether the instrument is designated as part of a hedge transaction and, if so, the type of hedge transaction.
The cumulative effect of adoption was not material. The impact of SFAS No. 133 on the company’s future results
will be dependent upon the fair values of the company’s derivatives and related financial instruments and could
result in increased volatility.

Coupons, Rebates and Discounts - In May 2000, the Emerging Issues Task Force (“EITF”) issued EITF No. 00-14,
Accounting for Coupons, Rebates and Discounts that addressed accounting for sales incentives. The Task Force
concluded that in accounting for cash sales incentives a manufacturer should recognize the incentive as a reduction
of revenue on the later date of the manufacturer’s sale or the date the offer is made to the public. The reduction of
revenues should be measured based on the estimated amount of incentives to be claimed by the ultimate customers.
The Company adopted this pronouncement in the fourth quarter of fiscal 2001. The adoption did not have a material
impact on the Company’s financial statements.

Shipping and Handling - In September 2000, the EITF reached a final consensus on issue EITF No. 00-10,
Accounting for Shipping and Handling Revenues and Costs. The Task Force concluded that amounts billed to
customers related to shipping and handling should be classified as revenue. The Company adopted this
pronouncement in the fourth quarter of fiscal 2001. The adoption did not have a material impact on the Company’s
financial statements.

Stock Compensation - In March 2000, FASB Interpretation, or FIN, No. 44, “Accounting for Certain Transactions
Involving Stock Compensation - An Interpretation of APB Opinion No. 25,” was issued. FIN 44 clarifies the
application of APB No. 25 for certain issues. FIN 44 clarifies the definition of employee for purposes of applying
APB No. 25, the criteria for determining whether a plan qualifies as a non-compensatory plan, the accounting
consequences of various modifications to the terms of a previously fixed option or award, and the accounting for an
exchange of share compensation awards in a business combination, among others. FIN 44 was effective July 1, 2000
but certain conclusions in this interpretation cover specific events that occurred after either December 15, 1998 or
January 12, 2000. FIN 44 did not have a significant effect on the Company’s financial position or results of
operations.

Goodwill and Other Intangibles - In July 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) 142, Goodwill and Other Intangible Assets. This standard requires that
goodwill no longer be amortized to earnings, but instead be reviewed for impairment. This change is expected to
provide investors with greater information regarding the economic value of goodwill and its impact on earnings. We
expect to adopt the standard effective October 1, 2001 and will reclassify the intangible assets relating to acquired
workforces as goodwill in accordance with the provisions of SFAS 142. We do not expect an impairment of
goodwill or intangibles upon adoption of this standard.

Asset Retirement Obligations - In August 2001, the FASB issued SFAS 143, Accounting for Obligations Associated
with the Retirement of Long-Lived Assets which is effective for fiscal years beginning after June 15, 2002. The
standard provides guidance for financial reporting for obligations associated with the retirement of tangible long-
lived assets and the associated asset retirement costs. The Standard applies to legal obligations associated with the
retirement of long-lived assets that result from the acquisition, construction, development, and/or the normal
operation of a long-lived asset, except for certain obligations of lessors. We do not expect that the adoption of SFAS
143 will have a significant impact on our financial position and results of operations.

Impairment and Disposal of Long-Lived Assets - In October 2001, the FASB issued SFAS 144, Accounting for the
Impairment or Disposal of Long-Lived Assets which supersedes FASB 121, Accounting for the Impairment of Long-
Lived Assets and for Assets to Be Disposed Of and the accounting and reporting provisions of APB Opinion No. 30,
Reporting the Results of Operations – Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions. The Statement is effective for fiscal
years beginning after December 15, 2001 and interim periods within those fiscal years. This Statement applies to all
long-lived assets and requires that the assets to be disposed of by sale be measured at the lower of book value or fair
value less costs to sell. We are currently reviewing the provisions of this Statement but do not expect that the
adoption of SFAS 144 will have a significant impact on our financial position and results of operations.

Reclassifications - Certain amounts in the Company’s prior year financial statements have been reclassified to conform
to their presentation in the current fiscal year.

NOTE 2: ACQUISITIONS AND PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT

In November 2000, the Company completed a tender offer for 100.0% of the outstanding shares of Cerprobe
Corporation (“Cerprobe”) for $20 per share. The total purchase price of Cerprobe, including transaction costs, the
assumption of acquisition related liabilities and debt repayment, was approximately $225.0 million, payable in cash.
In December 2000 the Company purchased all the outstanding shares of Probe Technology Corporation (“Probe
Tech”) for approximately $65.0 million, including transaction costs and the assumption of acquisition related
liabilities, payable in cash. The acquired assets of Probe Tech include a minority interest in a foreign subsidiary.
Both Cerprobe and Probe Tech design and manufacture semiconductor test interconnect solutions. The acquisitions
have been recorded using the purchase method of accounting and accordingly, the purchase price has been allocated
to the tangible and intangible assets acquired and liabilities assumed on the basis of their fair values on the
acquisition dates. The Company has allocated a portion of the purchase price for each acquisition to intangible assets
valued using a discount rate of 25.0% for Cerprobe and 18.0% for Probe Tech. The portion of the purchase price
allocated to in-process R&D projects that did not have future alternative use and to which technological feasibility

had not been established totaled $11.3 million for Cerprobe and $0.4 million for Probe Tech. These amounts were
charged to expense as of the acquisition dates. The purchase price allocation may change upon resolution of certain
items relating to purchase price adjustments. The Company received a waiver of a bank covenant under its then
existing bank revolving credit facility, which limited the amount the Company could spend on acquisitions, in order
to complete the Cerprobe and Probe Tech acquisitions. The Company borrowed $55.0 million under its bank
revolving credit facility to partially fund the purchase of Probe Tech. The operations of these two companies have
been combined to create a test division, which is disclosed as a separate business segment for financial reporting
purposes.

Unaudited pro forma operating results for years ended September 30, 2001 and 2000 assuming the acquisitions of
Cerprobe and Probe Tech were consummated on October 1, 1999 appear below. The unaudited pro forma
information is presented for illustrative purposes only and is not necessarily indicative of the operating results that
would have occurred if the transaction had been consummated at the date indicated, nor is it necessarily indicative of
the future operating results of the combined businesses.

Net Sales
Net Income (loss)
Diluted net income (loss) per share

(unaudited)
(in thousands, except per share data)
Fiscal year ended September 30,

2000 (1)

2001

$
$
$

1,009,809
79,880
1.49

$
$
$

582,426
(67,732)
(1.39)

(1) The results for Cerprobe for the fiscal year ended September 30, 2000 included a charge of $8.8 million for in-process

research and development associated with its acquisition of OZ Technologies, Inc.

The components of the purchase price allocation for the acquisitions of Cerprobe and Probe Tech are as follows:

Current assets

Property, plant, equipment and other long term assets

Acquired intangibles

Acquired in-process research and development

Goodwill

Less: Liabilities assumed

Total

(in thousands)

Cerprobe

Probe Tech

44,223

12,180

27,241

80,800

11,295

105,510

(75,573)

8,948

30,253

414

16,298

(3,432)

193,496

64,661

The goodwill and intangible assets resulting from the acquisitions are being amortized on a straight-line basis over a
10-year period.

A lawsuit between Cerprobe and the former President, Director and shareholder of Silicon Valley Test & Repair,
Inc. (a company acquired by Cerprobe Corporation in January 1997) was settled and dismissed in June 2001, with
Cerprobe paying $280 thousand in attorney’s fees to opposing counsel. This amount has been allocated to goodwill
in the opening balance sheet, as a cost of the Cerprobe acquisition.

Purchased in-process research and development represents the value assigned in a purchase business combination to
research and development projects of the acquired business that were commenced but not yet completed at the date

of acquisition, for which technological feasibility has not been established and which have no alternative future use
in research and development activities or otherwise. In accordance with Statement of Financial Accounting
Standards No. 2, Accounting for Research and Development Costs, as interpreted by Interpretation No. 4, amounts
assigned to purchased in-process research and development meeting the above criteria must be charged to expense at
the date of consummation of the purchase business combination.

In connection with the acquisitions of Cerprobe and Probe Tech, the Company assigned a value of $11.7 million to
the purchased in-process research and development of these entities. The portion of the purchase price assigned to
the in-process research and development activities was charged to expense in fiscal 2001 and was comprised of
several research and development projects that were scheduled to reach completion in 2001 and 2002. At the
acquisition date, research and development projects ranged in completion from 10% to 90% complete.

In January 1999, the Company purchased enabling technology and fixed assets used in the design, development,
manufacture, marketing and sale of laminate substrates for $8.0 million. The Company has allocated the majority of
the purchase price to intangible assets, including in-process research and development. The portion of the purchase
price allocated to in-process research and development was charged to expense in fiscal 1999. The other purchased
intangibles include core technology and assembled workforce. These intangibles are being amortized over their
estimated useful lives of 1 to 5 years.

The Company allocated the enabling technology purchase price as follows:

In-process research and development
Core technology
Property, plant and equipment
Assembled workforce
Total

(in thousands)
$ 3,935
3,447
513
105
$ 8,000

The income valuation approach was used to determine the fair value of the in-process research and development.
The Company estimated that the purchased technology was 60% complete.

NOTE 3: RESIZING COSTS

In the fourth quarter of fiscal 2001, we announced a resizing plan to close a bonding wire facility, and recorded a
charge of $3.2 million related to this plan. The charge includes $2.4 million for severance associated with the
elimination of 215 positions and asset impairment charges of $800 thousand related to facilities and equipment that
will be disposed of in connection with the closure of the wire facility. In the second quarter, we began a resizing plan
for the elimination of 296 positions and recorded a resizing charge for severance of $1.7 million. These programs
are ongoing and continuing as planned. Of the 511 positions identified during fiscal 2001 for elimination under both
programs, 55 individuals remain to be terminated in the first half of fiscal 2002. The severance accrual will be paid
out during fiscal 2002, and the commitments will be substantially completed in fiscal 2002 but will continue into
future years as a result of the contractual arrangements. In connection with the acquisition of Probe Tech, we
eliminated its duplicate operations, and increased goodwill by $1.5 million during the fiscal year for costs associated
with this program.

The table below details the spending and activity related to these programs.

Balance, September 30, 2000
Additions during fiscal 2001
Resizing costs
Acquisition restructuring
Spending under programs

(in thousands)

Severance

Commitments

Total

$
-

4,166
84
(2,172)

-
1,402
(213)

4,166
1,486
(2,385)

Balance, September 30, 2001

2,149

1,189

3,338

In the fourth quarter of fiscal 2000, the Company reversed into income $2.5 million of the $5.6 million reserve which
it established in fiscal 1999 for the relocation of its automatic ball bonder manufacturing from Willow Grove,
Pennsylvania to Singapore. The reserve was established to reflect provisions for severance and asset write-off costs
resulting from the move. However, due to the significant increase in demand for microelectronics products the
Company retained engineering and marketing positions which were planned for downsizing. In addition, the majority
of the direct and indirect manufacturing positions were eliminated through attrition in the workforce. The decision to
retain the engineering and marketing positions in the U.S. and attrition in the workforce reduced the amount of
severance required to be paid compared to the original estimate and resulted in the reversal of $2.5 million of the
reserve. These relocation activities are now complete.

During fiscal 1999, the Company announced plans to relocate its automatic ball bonder manufacturing from Willow
Grove, Pennsylvania to Singapore. As a result, in fiscal 1999 the Company recorded a charge for severance of $4.0
million for the elimination of approximately 230 positions and asset write-offs of $1.6 million. In fiscal 1999, the
Company also recorded a charge of $397 thousand for severance for an additional 30 employees related to the
reduction in workforce that began in fiscal 1998. Write-downs of property, plant and equipment were made where
carrying values exceeded the Company’s estimate of proceeds from abandonment or disposal. These estimates were
based principally on past experience of comparable asset disposals.

NOTE 4: INVESTMENTS IN JOINT VENTURES

Flip Chip Technologies, LLC

In February 1996, the Company entered into a joint venture agreement with Delco Electronics Corporation ("Delco")
providing for the formation and management of Flip Chip Technologies, LLC ("FCT"). FCT was formed to license
related technologies and to provide wafer bumping services on a contract basis. In March 2001, the Company
purchased the remaining interest in the joint venture owned by Delco for $5.0 million, with a contingent future cash
payment of up to $3.0 million, depending on the future operations of Flip Chip, of which $95 thousand is due for fiscal
2001. The Company now owns 100% of Flip Chip.

The Company has recorded goodwill, since May 31, 1999, of $6.9 million associated with the increase in ownership
of FCT and continues to amortize the goodwill over 10 years.

The Company recorded a pretax loss from FCT operations for the fiscal year ended September 30, 1999 as follows:

Equity in loss of joint venture
Consolidated with operations of the Company

Pretax loss from FCT operations

(1) After minority interest

Advanced Polymer Solutions

(in thousands)

1999(1)
$9,163
3,003

$12,166

In September 1998, the Company entered into a joint venture agreement with Polyset Company, Inc. (“Polyset”)
providing for the formation and management of Advanced Polymer Solutions, LLC (“APS”) to develop, manufacture
and market advanced polymer materials for semiconductor and microelectronic packaging end users. In the fourth
quarter of fiscal 2000, the Company and its joint venture partner decided not to devote additional capital to this
venture and to dissolve the joint venture. The Company recorded an asset impairment of $3.9 million representing
the write-off of the Company’s remaining investment in APS. The Company invested $6.0 million in APS and
reported pre-tax losses of $837 thousand in fiscal 1999 and $1.2 million in fiscal 2000. The Company has no further
obligations or commitments to the joint venture.

NOTE 5: INVESTMENTS

At September 30, 2001 and 2000, no short-term investments were classified as held-to-maturity. Investments, excluding
cash equivalents, classified as available-for-sale, consisted of the following at September 30, 2000 and 2001:

(in thousands)

September 30, 2000
Unrealized
Gains/
(Losses)

Fair
Value

Cost
Basis

Fair
Value

September 30, 2001
Unrealized
Gains/
(Losses)

Cost
Basis

Available-for-sale:

Corporate debt securities
Adjustable rate notes

101,494
2,370

(105)
-

101,599
2,370

44,472
2,226

284
46

44,188
2,180

Short-term investments
classified as available
for sale

103,864

(105)

103,969

46,698

330

46,368

An after-tax unrealized gain of $212 thousand (net of taxes of $118 thousand) and an after tax unrealized loss of $68
thousand (net of taxes of $37 thousand) were recorded as direct adjustments to shareholders’ equity at September 30,
2001 and September 30, 2000, respectively. Investments in equity securities are held-for-sale with changes in
market value recorded in the Statement of Operations. A loss of $639 thousand and a gain of $53 thousand were
recorded during fiscal 2001 and 2000, respectively. Held-for-sale investments were $1.2 million at September 30,
2001 and 2000. In fiscal 2001, the Company purchased $158.1 million of securities it classified as available-for-sale
and sold $214.8 million of available-for-sale securities.

NOTE 6: BALANCE SHEET COMPONENTS

Inventories

Raw materials and supplies
Work in process
Finished goods

Inventory reserves

Property, Plant and Equipment

Land
Buildings and building improvements
Machinery and equipment
Leasehold improvements

Accumulated depreciation

(in thousands)
September 30,

2000

50,394
22,687
17,194

90,275
(16,241)

2001

60,870
21,185
21,418

103,473
(29,109)

74,034

74,364

(in thousands)
September 30,

2000

1,602
23,481
129,684
20,496

175,263
(91,396)
83,867

2001

1,636
32,364
190,132
21,144

245,276
(117,324)
127,952

Accrued expenses at September 30, 2001 included $18.0 million for accrued wages, incentives and vacations and $5.6
million for customer advances for the future delivery of parts and services. Accrued expenses at September 30, 2000
included $16.4 million for accrued wages, incentives and vacations and $13.0 million for customer advances for the
future delivery of parts and services. No other accrued expenses were significant.

NOTE 7: DEBT OBLIGATIONS

At September 30, 2001, the Company had capital lease debt obligations of $2.2 million, of which $753 thousand was
due within one year. The capital lease obligations, including interest are payable as follows: $1.1 million in 2002, $747
thousand in 2003, $365 thousand in 2004, $88 thousand in 2005, $38 thousand in 2006 and $209 thousand thereafter. At
September 30, 2000, the Company had a short-term debt obligation of $1.0 million reflecting debt due to Delco, the
former minority owner of FCT.

In August 2001, the Company issued $125.0 million of convertible subordinated notes. The notes are general
obligations of the Company and are subordinated to all senior debt. The notes rank equally with the convertible
notes issued in December 1999. The notes bear interest at 5 ¼%, are convertible into our common stock at $19.75
per share and mature on August 15, 2006. There are no financial covenants associated with the notes and there are
no restrictions on paying dividends, incurring additional debt or issuing or repurchasing our securities. Interest on
the notes is payable on February 15 and August 15 each year. We may redeem the notes in whole or in part at any
time on or after August 19, 2004 at prices ranging from 102.1% at August 19, 2004 to 100.0% at August 15, 2006.

In April 2001, we entered into a receivable securitization program in which we transferred all domestic account
receivables to KSI Funding Corporation, a “bankruptcy remote” special purpose corporation and our wholly owned
subsidiary. Under the facility, KSI Funding Corporation can sell up to a $40.0 million interest in all of our domestic
receivables. This facility was structured as a revolving securitization, whereby an interest in additional account

receivables can be sold as collections reduce the previously sold interest. At September 30, 2001, we have sold
receivables under this agreement amounting to $20.0 million.

In December 2000, the Company entered into a $60.0 million (reducing to $40.0 million over a three-year period) bank
revolving credit facility. Part of the proceeds from the August 2001 note offering were used to repay and terminate this
credit facility.

In December 1999, the Company issued $175.0 million of convertible subordinated notes. The notes are general
obligations of the Company and subordinated to all senior debt. The notes bear interest at 4 ¾%, are convertible into
the Company’s common stock at $22.8997 per share and mature on December 15, 2006. There are no financial
covenants associated with the notes and there are no restrictions on paying dividends, incurring additional debt or
issuing or repurchasing the Company’s securities. Interest on the notes will be paid on June 15 and December 15 of
each year. The Company may redeem the notes in whole or in part at any time after December 18, 2002 at prices
ranging from 102.714% at December 19, 2002 to 100.0% at December 15, 2006.

Interest paid on the Company’s debt obligations totaled $11.3 million, $4.3 million and $215 thousand in fiscal 2001,
2000 and 1999, respectively.

NOTE 8: SHAREHOLDERS' EQUITY

Common Stock

In fiscal 2001, the Company’s common stock increased by $1.1 million reflecting the proceeds from the exercise of
employee and director stock options and increased by $248 thousand due to a tax benefit associated with the exercise of
the stock options. The Company’s common stock also increased due to the issuance of common stock as matching
contributions to the Company’s 401(k) saving plan by $1.9 million, $2.4 million and $1.7 million in fiscal 2001, 2000
and 1999, respectively.

Stock Option Plans

The Company has six employee stock option plans covering substantially all employees (the "Employee Plans")
pursuant to which options have been or may be granted at 100% of the market price of the Company's Common Stock
on the date of grant. Options granted under the Employee Plans are exercisable at such dates as are determined in
connection with their issuance, but not later than ten years after the date of grant.

The following summarizes all employee stock option activity for the three years ended September 30, 2001:

(Option amounts in thousands)
September 30,

1999 (1)

2000

2001

Weighted
Average
Exercise
Price

Options

Options outstanding at
beginning of period
Granted or reissued
Exercised
Terminated or canceled
Options outstanding at
end of period

Options exercisable at
end of period

4,360
1,670
(76)
(222)

8.99
12.90
3.77
9.81

5,732
106
(1,480)
(249)

10.17
27.78
9.16
12.57

4,109
2,544
(141)
(433)

10.82
14.23
7.07
12.82

5,732

10.17

4,109

10.82

6,079

12.17

1,404

8.29

1,250

9.13

1,963

10.13

(1) Adjusted for stock split in fiscal 2000.

The following table summarizes information concerning currently outstanding and exercisable employee options at
September 30, 2001:

Options Outstanding
(Option amounts in thousands)

Options Exercisable
(Option amounts in thousands)

Range of Exercise
Prices

Options
Outstanding

Weighted
Average
Remaining
Contractual
Life

Weighted
Average
Exercise
Price

$
$
$
$
$
$
$

1.44
4.15
8.29
12.44
16.58
20.72
29.01

-
-
-
-
-
-
-

$
$
$
$
$
$
$

4.14
8.28
12.43
16.57
20.71
29.00
32.06

168
1,526
104
3,823
389
56
13

6,079

2.5
6.2
8.4
8.4
5.7
8.6
7.5

7.5

3.48
6.52
11.15
13.90
18.39
28.50
32.06

Weighted
Average
Exercise
Price

3.48
6.48
11.47
13.67
18.40
28.50
32.06

Number
Exercisable

168
879
21
694
187
11
3

12.17

1,963

10.13

The Company also maintains two stock option plans for non-officer directors (the "Director Plans") pursuant to
which options to purchase shares of the Company's Common Stock at an exercise price of 100% of the market price
on the date of grant are issued to each non-officer director each year. Options to purchase 334,000 shares at an
average exercise price of $16.45 were outstanding under the Director Plans at September 30, 2001, of which options
to purchase 142,000 shares were currently exercisable. In fiscal 2001, there were 24,000 options exercised under the
Director Plans at an average exercise price of $4.21.

Unaudited pro forma information regarding net income and earnings per share is required by SFAS 123 for options

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,

1999

2000

-
74.00%
5.84%
8

-
73.00%
5.87%
8

2001

-
76.90%
5.99%
7

For pro forma purposes, the estimated fair value of the Company’s stock options to employees is amortized over the
options’ vesting period. The Company’s pro forma information is as follows:

Weighted average fair value of options granted
Net income (loss) - as reported
Net income (loss) - unaudited pro forma
Net income (loss) per share- as reported, diluted
Net income (loss) per share- unaudited pro forma, diluted

(net income (loss) in thousands)
Fiscal Year Ended September 30,

1999

2000

2001

$
$
$
$
$

19.92
(16,946)
(20,499)
(0.36)
(0.44)

$
$
$
$
$

21.27
103,245
94,634
1.90
1.75

$
$
$
$
$

10.70
(65,251)
(78,964)
(1.34)
(1.62)

At September 30, 2001, 13.1 million shares were reserved for issuance and 7.1 million shares were available for
grant in connection with the Employee Plans and 944,000 shares were reserved for issuance and 610,000 shares were
available for grant in connection with a Director Plan.

NOTE 9: EMPLOYEE BENEFIT PLANS

The Company has a non-contributory defined benefit pension plan covering substantially all U.S. employees who were
employed on September 30, 1995. The benefits for this plan were based on the employees' years of service and the
employees' compensation during the three years before retirement. The Company's funding policy is consistent with the
funding requirements of Federal law and regulations. Effective December 31, 1995, the benefits under the Company's
pension plan were frozen. As a consequence, accrued benefits no longer change as a result of an employee's length of
service or compensation.

Detailed information regarding the Company’s defined benefit pension is as follows:

Change in benefit obligation:
Benefit obligations at beginning of year:
Interest cost
Benefit paid
Actuarial (gain) loss

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

Amount recognized in the statement of
financial position consists of:
Accrued benefit liability
Accumulated other comprehensive income/
Unrecognized net loss

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 compensaton increase

(in thousands)
Fiscal Year Ended September 30,

1999

2000

2001

11,802
885
(407)
(324)

11,956
1,008
(497)
1,296

13,763
1,051
(548)
1,093

11,956

13,763

15,359

10,542
1,066
-
(407)

11,201
(92)
1,782
(497)

12,394
(2,520)
1,855
(548)

11,201

12,394

11,181

(755)
1,181

(1,369)
3,387

(4,178)
7,832

426

2,018

3,654

(755)

(1,369)

(4,178)

1,181

3,387

7,832

426

2,018

3,654

885
(858)
36

1,008
(922)
104

1,051
(1,018)
186

190

219

7.75%
8.00%

7.25%
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 consolidated basis, pension expense was $1.2 million, $1.3 million and $998
thousand, in fiscal 2001, 2000 and 1999, respectively.

The Company has a 401(k) Employee Incentive Savings Plan. This plan allows for employee contributions and
matching Company contributions in varying percentages, depending on employee age and years of service, ranging
from 30% to 175% of the employees' contributions. The Company's contributions under this plan totaled $1.9 million,

$2.4 million and $1.7 million in fiscal 2001, 2000 and 1999, respectively, and were satisfied by contributions of shares
of Company common stock, valued at the market price on the date of the matching contribution.

NOTE 10: INCOME TAXES

Income (loss), including minority interest in net income (loss), before income taxes and cumulative effect of a change in
accounting principle consisted of the following:

United States operation
Foreign operations

(43,663)
18,496

76,851
66,543

(116,113)
37,382

(in thousands)
Fiscal Year Ended September 30,

1999

2000

2001

The provision (benefit) for income taxes included the following:

Current:
Federal
State
Foreign

Deferred:
Federal
Foreign

(25,167)

143,394

(78,731)

(in thousands)
Fiscal Year Ended September 30,

1999

2000

2001

(2,218)
50
2,410

19,988
500
4,442

9,017
300
6,596

(8,613)
150

15,219
-

(37,556)
-

(8,221)

40,149

(21,643)

The provision (benefit) for income taxes differed from the amount computed by applying the statutory federal income
tax rate as follows:

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
Foreign dividends
Write off of In-Process Research and Development
Effect of revisions of permanent items
Other, net

(in thousands)
Fiscal Year Ended September 30,

1999

2000

2001

(8,808)

50,188

(27,556)

603
(4,509)

(206)
(12,817)

4,200
677
150
-
(533)
(1)

1,566
871
-
-
-
547

3,263
(2,870)

(178)
3,499
1,137
3,953
(2,015)
(876)

(8,221)

40,149

(21,643)

In fiscal 2001, the Company recorded a cumulative effect of a change in accounting principle associated with the
adoption of SAB 101, resulting in a charge to earnings of $8.2 million, net of taxes of $4.4 million.

Undistributed earnings of certain foreign subsidiaries for which taxes have not been provided approximate $130.0
million at September 30, 2001. Such undistributed earnings are considered to be indefinitely reinvested in foreign
operations.

Undistributed earnings approximating $73.2 million are not considered to be indefinitely reinvested in foreign
operations. Accordingly, as of September 30, 2001, deferred tax liabilities of $16.4 million including withholding taxes
have been provided.

Deferred income taxes are determined based on the differences between the financial reporting and tax basis of assets
and liabilities as measured by the current tax rates. The net deferred tax balance is composed of the tax effects of
cumulative temporary differences, as follows:

Inventory reserves
Warranty accrual
Other accruals and reserves
Revenue recognition

Total short-term deferred tax asset

Intangible assets
Domestic tax credit carryforwards
Foreign tax credit carryforwards
Deferred intercompany profit
Domestic NOL carryforwards
Foreign NOL carryforwards

Valuation allowance

Total long-term deferred tax asset

Repatriation of foreign earnings,
including foreign withholding taxes
Depreciable assets
Intangible assets
Prepaid expenses and other

Total long-term deferred tax liability

Net long-term deferred liability

(in thousands)
September 30,

2000

2001

2,813
1,126
4,711
-

3,962
312
9,699
1,309

8,650

15,282

1,515
6,241
4,000
706
1,855
6,869

2,208
7,019
4,000
1,946
40,184
9,293

21,186
(12,724)

64,650
(20,724)

8,462

43,926

16,414
2,748
-
2,098

16,414
2,738
30,798
2,030

21,260

51,980

12,798

8,054

Realization of deferred tax assets associated with the net operating loss and tax credit carryforwards is dependent upon
generating sufficient taxable income prior to their expiration in the respective tax jurisdictions. In fiscal 2001, the
Company recorded additional deferred tax liabilities in the amount of $26.2 million associated with the acquisition of
Cerprobe. Although realization is not assured for the remaining deferred tax assets, the Company believes it is more
likely than not that they will be realized through future taxable earnings or alternative tax strategies. However, the net
deferred tax assets could be reduced in the near term if the Company's estimates of taxable income during the
carryforward period are significantly reduced or alternative tax strategies are no longer viable.

In addition to the current year federal operating loss of approximately $112 million, which is scheduled to expire in
2021, the company has also generated various state tax loss carryovers totaling approximately $18.7 million. These

losses are scheduled to expire in years 2005 through 2020. With regard to the state loss carryovers, the Company can
not be assured of realizing the benefit associated with these losses and therefore has established a valuation allowance to
reduce such benefit. The Company also has generated losses in certain foreign tax jurisdictions totaling approximately
$17 million. Realization of the benefit associated with these foreign loss carryforwards can not be assured and a full
valuation allowance has been provided for the portion of these deferred tax assets related to these carryovers.

During the year ended September 30, 2001, the Company through acquisition of Cerprobe, acquired additional federal
tax loss carryforwards of approximately $5.5 million which expire in 2020. Additionally, as part of the Cerprobe
acquisition, the company acquired approximately $3.9 million in state loss carryforwards. As utilization of these losses
is not assured, more likely than not, the company has provided a full valuation allowance on the benefit associated with
them. In the event the tax benefits related to these acquired net operating losses are realized, such benefit would reduce
the recorded amount of goodwill.

During fiscal 2001, the IRS concluded its audit of the Company’s federal income tax returns for the fiscal years ended
September 30, 1995, 1996, and 1997. The outcome of these audits did not have a material impact on the Company’s
financial position, results of operations or cash flows.

The Company paid income taxes of $7.8 million, $6.3 million, and $3.8 million, in fiscal 2001, 2000 and 1999,
respectively.

NOTE 11: SEGMENT INFORMATION

The Company evaluates performance of its segments and allocates resources to them based on income from operations
before interest, allocations of corporate expenses and income taxes.

The Company operates primarily in four industry segments: equipment, packaging materials, test interconnect solutions
and advanced packaging technologies. The equipment business unit designs, manufactures and markets capital
equipment and related spare parts for use in the semiconductor assembly process. Equipment also services, maintains,
repairs and upgrades assembly equipment. The packaging materials business designs, manufactures and markets
consumable packaging materials for use on the equipment the company markets as well as on competitors’ equipment.
The packaging materials products have different manufacturing processes, distribution channels and a less volatile
revenue pattern than the Company's capital equipment. The test interconnect business unit was established in fiscal 2001,
following the acquisitions of Cerprobe and Probe Tech. The business provides a broad range of products used to test
semiconductors during wafer fabrication and after they have been assembled and packaged. The advanced packaging
technology business unit was established in fiscal 1999 to reflect the Company’s strategic initiative to develop new
technologies for advanced semiconductor packaging. This segment is comprised of FCT and the high density
substrate business. The products and services of all segments are, or will be, for sale to semiconductor device
manufacturers.

The table below presents information about reported segments:

Fiscal Year Ended
September 30, 2001

Net revenue
Cost of sales

(in thousands)

Equipment
Segment

Packaging
Materials
Segment

Advanced
Packaging
Segment

Test
Segment

Corporate,
Other and

Eliminations Consolidated

249,952
166,359

150,945
110,570

37,216
31,274

116,890
84,401

$
-
-

555,003
392,604

Gross profit
Operating costs
Resizing and asset impairment
Purchased in-process research
and development

83,593
103,386
2,223

40,375
28,667
2,421

5,942
25,395
-

32,489
54,169
270

11,709

-
15,671
52

162,399
227,288
4,966

11,709

Income (loss) from operations

(22,016)

9,287

(19,453)

(33,659)

(15,723)

(81,564)

Segment Assets
Captial Expenditures
Depreciation expense

155,220
24,754
10,760

86,113
8,028
3,973

38,260
9,396
8,057

270,506
6,458
7,302

214,039
-
-

764,138
48,636
30,092

Fiscal Year Ended
September 30, 2000

Net revenue
Cost of sales

Equipment
Segment

Packaging
Materials
Segment

Advanced
Packaging
Segment

Corporate,
Other and

Eliminations Consolidated

692,062
419,732

185,570
130,548

21,641
22,897

$
-
-

899,273
573,177

Gross profit
Operating costs
Resizing and asset impairment

272,330
122,792
(2,548)

55,022
29,005
3,871

(1,256)
19,096
-

-
15,421

326,096
186,314
1,323

Income (loss) from operations

152,086

22,146

(20,352)

(15,421)

138,459

Segment Assets
Captial 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

Fiscal Year Ended
September 30, 1999

Net revenue
Cost of sales

Gross profit
Operating costs
Resizing and asset impairment
Purchased in-process research
and development

Equipment
Segment

Packaging
Materials
Segment

Advanced
Packaging
Segment

Corporate,
Other and

Eliminations Consolidated

269,854
188,958

124,450
90,326

4,613
6,098

-
$
-

398,917
285,382

80,896
86,239
5,918

34,124
23,500
-

(1,485)
5,314
-

-
8,361
-

3,935

113,535
123,414
5,918

3,935

Income (loss) from operations

(11,261)

10,624

(6,799)

(12,296)

(19,732)

Segment Assets
Captial Expenditures
Depreciation expense

200,837
6,522
7,339

86,398
2,136
3,951

37,560
2,233
1,814

53,350
-
-

378,145
10,891
13,104

Intersegment sales are immaterial. Operating expenses identified as Corporate, Other and Eliminations consist entirely of
corporate expenses. Assets identified as Corporate, Other and Eliminations consist of all cash and short-term investments of
the Company and corporate income tax assets.

The Company's market for its products is worldwide. The table below presents destination sales to unaffiliated
customers and long-lived assets by country:

Fiscal year ended September 30, 2001

(in thousands)

Destination
Sales

Long- Lived
Assets

Fiscal year ended September 30, 2000

Destination
Sales

Long- Lived
Assets

Fiscal year ended September 30, 1999

Destination
Sales

Long- Lived
Assets

209,273
66,078
59,749
42,656
31,810
29,613
11,041
15,690
3,504
85,589
555,003

282,395
102,517
90,438
83,480
78,002
74,696
58,962
40,079
4,066
84,638
899,273

93,317
69,353
44,642
42,607
40,172
19,262
19,096
1,007
69,461
398,917

445,279
8,221
44,561
97
8,886
269
186
214
28,774
13,612
550,099

1,316
683
81,939
242,322
147
264
27,834
691
31,411
14,245
400,852

606
230,337
48,653
656
127
13,738
4,875
20,300
5,503
324,795

United States
Taiwan
Singapore
Malaysia
Japan
Philippines
Korea
Hong Kong
Israel
All other

Taiwan
Philippines
Singapore
United States
Malaysia
Korea
Japan
Hong Kong
Israel
All other

Taiwan
United States
Singapore
Philippines
Malaysia
Japan
Hong Kong
Israel
All other

Sales to a relatively small number of customers account for a significant percentage of the Company's net sales. In
fiscal 2001, no customer accounted for more than 10% of net sales. In fiscal 2000, sales to Advanced
Semiconductor Engineering accounted for 15% of the Company’s net sales and sales to Amkor Technologies
accounted for 10% of the Company’s net sales. In fiscal 1999 no customer accounted for more than 10% of total net
sales. The Company expects that sales of its products to a limited number of customers will continue to account for
a high percentage of net sales for the foreseeable future.

NOTE 12: OTHER FINANCIAL DATA

The Company recorded other income of $8.0 million in fiscal 2001 as the result of a cash settlement of an insurance
claim associated with a fire in our expendable tool facility.

Maintenance and repairs expense totaled $5.6 million, $3.1 million and $2.6 million for fiscal 2001, 2000 and 1999,
respectively. Warranty and retrofit expense was $3.5 million, $8.8 million and $4.6 million for fiscal 2001, 2000 and
1999, respectively.

Rent expense for fiscal 2001, 2000 and 1999 was $7.8 million, $3.6 million and $3.2 million, respectively.

A reconciliation of weighted average shares outstanding-basic to the weighted average shares outstanding-diluted
appears below:

Weighted average shares outstanding – Basic
Potentially dilutive securities:
Employee stock options
4¾% Convertible Subordinated Debt
5¼% Convertible Subordinated Debt

Weighted average shares outstanding – Diluted

(shares in thousands)
Fiscal Year Ended September 30,

1999

2000

2001

46,846

47,932

48,877

*
N/A
N/A

46,846

2,469
6,095
N/A

56,496

*
*
*

48,877

The after-tax interest expense recognized by the Company in fiscal 2000 associated with the convertible subordinated
notes that was added back to net income in order to compute diluted net income per share was $4.3 million.

* Due to the Company’s net loss for the fiscal years ended September 30, 2001 and September 30, 1999, all
potentially dilutive securities are deemed to be antidilutive. The weighted average number of shares for potentially
dilutive securities (convertible notes and employee and director stock options) was 9,382,000 in fiscal 2001, and the
weighted average number of shares for potentially dilutive securities (employee and director stock options) was 666,000
in fiscal 1999.

NOTE 13: COMMITMENTS AND CONTINGENCIES

The Company has obligations under various operating leases, primarily for manufacturing and office facilities, which
expire periodically through 2012. Minimum rental commitments under these leases (excluding taxes, insurance,
maintenance and repairs, which are also paid by the Company), are as follows: $11.2 million in 2002; $9.5 million in
2003; $7.9 million in 2004; $7.3 million in 2005; $5.2 million in 2006 and $14.4 million thereafter.

The Israeli government has continued to fund a portion of the research and development costs related to some of our
products. We are contingently liable to repay this funding through royalties to the Israeli government. Royalty payments
are due only after sale of the funded products, are computed at varying rates from 2% to 5% of the sales and are limited
to the amounts received from the Israeli government. Royalty payments to the Israeli government for the fiscal years
ended September 30, 2001, 2000 and 1999 totaled $490 thousand, $9 thousand and $4 thousand, respectively. At
September 30, 2001, we estimate that contingent liabilities for royalties related to potential future product sales are
approximately $4.6 million.

From time to time, third parties assert that the Company is, or may be, infringing or misappropriating their intellectual
property rights. In such cases, the Company will defend against claims or negotiate licenses where considered
appropriate. In addition, certain of the Company's customers have received notices of infringement from the Lemelson
Medical, Education and Research Foundation Limited Partnership (the "Lemelson Foundation"), alleging that equipment
supplied by the Company, and processes performed by such equipment, infringe on patents held by the Lemelson
Foundation. This activity increased substantially in 1998, the year in which the Lemelson Foundation settled its suit
against the Ford Motor Company, and entered into License Agreements with Ford, GM and Chrysler. Since the
settlement, a number of the Company's customers, including Intel, have been sued by the Lemelson Foundation. Certain
customers have requested that the Company defend and indemnify them against the claims of the Lemelson Foundation
or to contribute to any settlement the customer reaches with the Lemelson Foundation. The Company has received
opinions from its outside patent counsel with respect to certain of the Lemelson Foundation patents. The Company is
not aware that any equipment marketed by the Company, or process performed by such equipment, infringe on the
Lemelson Foundation patents in question and does not believe that the Lemelson Foundation matter or any other
pending intellectual property claim will have a material adverse effect on its business, financial condition, operating
results or cash flows. However, the ultimate outcome of any infringement or misappropriation claim affecting the
Company is uncertain, and there can be no assurances that the resolution of these matters will not have a material
adverse effect on the Company's business, financial condition, operating results or cash flows.

The U.S. Customs Service has conducted an assessment of the Company’s compliance with Customs Regulations for
the fiscal year ended September 30, 1998 and has concluded that $201 thousand of duty was not paid. They also
concluded that for the fiscal years ended September 30, 1996, 1997 and 1999 unpaid duty amounted to $584
thousand. The Company has paid the total assessed duty of $785 thousand and may be assessed a penalty on the
unpaid duty. The amount ultimately to be paid is unknown at this time, but could range from 0 to 8 times the
assessed duty.

NOTE 14: SELECTED QUARTERLY FINANCIAL DATA (unaudited)

Financial information pertaining to quarterly results of operations follows:

Fiscal Year ended September 30, 2001:

Net sales
Gross profit

(in thousands, except per share amounts)

First (1)
Quarter

153,429
53,604

Second (1)
Quarter

Third (1)
Quarter

Fourth
Quarter

149,425
42,021

134,358
42,010

117,791
24,764

Total

555,003
162,399

(13,639)

Loss from operations(2)(3)
Loss before minority interest, cumulative
effect of change in accounting principle
and income tax
Income tax benefit
Cumulative effect of change in accounting
principle, net of tax
Minority interest in net loss

(12,403)
(162)

(8,163)
242

(24,558)

(11,654)

(31,713)

(81,564)

(18,198)
(6,418)

(13,828)
(4,691)

(34,654)
(10,372)

(79,083)
(21,643)

(8,163)
352

Net income

(20,162)

(11,694)

(9,122)

(24,273)

(65,251)

Net income per share:
Basic
Diluted

$
$

(0.41)
(0.41)

$
$

(0.24)
(0.24)

$
$

(0.19)
(0.19)

$
$

(0.50)
(0.50)

$
$

(1.34)
(1.34)

Fiscal Year ended September 30, 2000:

First
Quarter

Net sales
Gross profit

179,849
59,912

Second
Quarter

222,153
75,600

Third
Quarter

268,258
101,278

Fourth
Quarter

229,013
89,306

Total

899,273
326,096

Income from operations(2)(3)
Income before minority interest
and income taxes
Income tax expense
Minority interest in net loss

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

Net income

12,801

22,022

38,207

30,215

103,245

Net income per share:
Basic
Diluted

$
$

0.27
0.26

$
$

0.47
0.40

$
$

0.79
0.67

$
$

0.62
0.54

$
$

2.15
1.90

(1) Restated to give effect to the adoption of SAB 101.

(2) Represents net sales less costs and expenses but before net interest expense, equity in loss of joint ventures and other

expense.

(3) Results for fiscal 2001 include the resizing charges recorded in the second and fourth quarter of $1.7 million and $2.5
million, respectively, established for the termination of 511 employees and the closure of a wire facility. Results for the
fourth quarter of fiscal 2000 include the benefit from the reversal of $2.5 million of the severance reserve established in
fiscal 1999 for the termination of employees in the United States as a result of the move of the manufacturing of the
Company’s automatic ball bonders to Singapore and a charge of $3.9 million for the write-off of the Company’s
investment in Advanced Polymer Solutions, LLC.

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND

FINANCIAL DISCLOSURE.

None.

PART III

Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

Information required hereunder with respect to the directors will appear under the heading "ELECTION OF
DIRECTORS" in the Company's Proxy Statement for the 2002 Annual Meeting, which information is incorporated
herein by reference.

The information required by Item 401(b) of Regulation S-K appears at the end of Part I, Item 1 of this report under the
heading "Executive Officers of the Company."

Item 11. EXECUTIVE COMPENSATION.

The information required hereunder will appear under the heading "ADDITIONAL INFORMATION" in the Company's
Proxy Statement for the 2002 Annual Meeting, which information is incorporated herein by reference.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The information required hereunder will appear under the heading "ELECTION OF DIRECTORS" in the Company's
Proxy Statement for the 2002 Annual Meeting, which information is incorporated herein by reference.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

PART IV

Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(a) The following documents are filed as part of this report:

(1) Financial Statements - Kulicke and Soffa Industries, Inc.:

Report of Independent Accountants
Consolidated Balance Sheets at September 30, 2001 and 2000
Consolidated Statements of Operations for the fiscal years

ended September 30, 2001, 2000 and 1999

Consolidated Statements of Cash Flows for the fiscal years

ended September 30, 2001, 2000 and 1999

Consolidated Statements of Changes in Shareholders' Equity

for the fiscal years ended September 30, 2001, 2000 and 1999
Notes to Consolidated Financial Statements 40-61

(2)

Financial Statement Schedules:

II - Valuation and Qualifying Accounts

35
36

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)

2(ii)

2(iii)

3(i)

3(ii)

4(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.

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 Form of Amended and Restated Articles of Incorporation July 5, 2000, filed as Exhibit 3(i),
to the Company’s Registration Statement, as amended, filed October 2, 2001, are incorporated herein by
reference.

The Company's By-Laws, as amended through June 26, 1990, filed as Exhibit 2.2 to the Company's Form 8-
A12G dated September 8, 1995, SEC file No. 000-00121, is incorporated herein by reference.

Indenture dated as of December 13, 1999 between the Company and Chase Manhattan Trust Company,
National Association, as Trustee, filed as Exhibit 4.1 to the Company’s Form 8-K dated December 13,
1999, is incorporated herein by reference.

4(ii)

4(iii)

4(iv)

10(i)

10(ii)

10(iii)

10(iv)

10(v)

10(vi)

10(vii)

10(viii)

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.

Indenture dated as of August 15, 2001 between the Company and Chase Manhattan Trust Company,
National Association, as Trustee, filed as Exhibit 4.1 to the Company’s Form 8-K dated August 24, 2001, is
incorporated herein by reference.

Registration Rights Agreement dated as of August 15, 2001 between the Company and Morgan Stanley &
Co. Incorporated, filed as Exhibit 4.2 to the Company’s Form 8-K dated August 24, 2001, is incorporated
herein by reference.

Form of Termination of Employment Agreement signed by Mr. Kulicke (Section 2(a) - 30 months), and
Messrs. Perchick, Sprague, Jacobi, Lendner, Leonhardt, May, Salmons, Sawachi, Spooner, Wolf, Belani,
Chylak, Cristallo, Greenberger, Oscilowski, Torton, Amweg, Camarda, Hartigan, Kish, Mak, Marrs, Rheault
and Strittmatter (Section 2(a) - 18 months), filed as Exhibit 10(vii) to the Company's quarterly report on
Form 10-Q for the quarterly period ended December 31, 2000, is incorporated herein by reference.*

The Company's 1994 Employee Incentive Stock Option and Non-Qualified Stock Option Plan (as amended
and restated effective October 8, 1996), filed as Exhibit 10(viii) to the Company's Annual Report on Form
10-K for the year ended September 30, 1996, SEC file No. 000-00121, is incorporated herein by reference.*

The Company's 1997 Non-Qualified Stock Option Plan for Non-Employee Directors (as amended and
restated effective February 9, 1999), filed as Exhibit 10(viii) to the Company's Annual Report on Form 10-K
for the year ended September 30, 1999, is incorporated herein by reference.*

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, SEC file No. 000-00121, is incorporated herein by reference.

The Company's Executive Deferred Compensation Plan (As Amended and restated Effective October 1,
1999), as Exhibit 10(xiv) to the Company's Annual Report on Form 10-K for the year ended September 30,
1999, is incorporated herein by reference.*

Operating Agreement of Flip Chip Technologies, LLC dated February 28, 1996, filed as Exhibit 10 to the
Company's Quarterly Report on Form 10-Q for the quarterly period ended December 31, 1996, is
incorporated herein by reference.

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, filed as Exhibit 10(xiii) to the Company's Annual Report on Form 10-K for the year ended
September 30, 1999, is incorporated by reference.*

Amendment No. 1 to the Company's 1994 Employee Incentive Stock Option and Non-Qualified Stock
Option Plan (as amended and restated effective October 8, 1996), as Exhibit 10(xix) to the Company's
Annual Report on Form 10-K for the year ended September 30, 1999, is incorporated by reference.*

Amendment No. 1 to the Company's 1988 Employee Incentive Stock Option and Non-Qualified Stock
Option Plan (as amended and restated effective October 8, 1996), as Exhibit 10(xx) to the Company's
Annual Report on Form 10-K for the year ended September 30, 1999 is incorporated by reference.*

10(xiii) Amendment No. 2 to the Company's 1994 Employee Incentive Stock Option and Non-Qualified Stock
Option Plan (as amended and restated effective October 8, 1996), filed as Exhibit 10(a) to the Company's
quarterly report on Form 10-Q for the quarterly period ended June 30, 2000, is incorporated by reference.*

10(xiv) Amendment No. 2 to the Company's 1998 Employee Incentive Stock Option and Non-Qualified Stock
Option Plan , filed as Exhibit 10(b) to the Company's quarterly report on Form 10-Q for the quarterly
period ended June 30, 2000, is incorporated by reference.*

10(xv)

10(xvi)

Receivables purchase agreement among KSI Funding Corporation, Kulicke and Soffa Industries, Inc.,
Market Street Funding Corporation, and PNC Bank, National Association dated April 17, 2001, as filed
as Exhibit 10.1 to the Company’s Quarterly Report on Form 10Q for the quarterly period ended June 30,
2001, is incorporated herein by reference.

Purchase and sale agreement between American Fine Wire Corporation, Cerprobe Corporation, Kulicke
and Soffa Industries, Inc., Probe Technology Corporation and Semitec, as the Originators, and KSI
Funding Corporation, dated April 17, 2001, as filed as Exhibit 10.2 to the Company’s Quarterly Report
on Form 10Q for the quarterly period ended June 30, 2001, is incorporated herein by reference.

10(xvii) The Company’s 2001 Employee Incentive Stock Option and Non-Qualified Stock Option Plan, as filed as
Appendix A to the Company’s Proxy Statement dated January 8, 2001, is incorporated herein by
reference.*

10(xviii) Amendment No. 3 to the Company’s 1994 Employee Incentive Stock Option and Non-Qualified Stock

Option Plan (as amended and restated effective October 8, 1996).*

10(xix) Amendment No. 4 to the Company’s 1994 Employee Incentive Stock Option and Non-Qualified Stock

Option Plan (as amended and restated effective October 8, 1996).*

10(xx)

Amendment No. 5 to the Company’s 1994 Employee Incentive Stock Option and Non-Qualified Stock
Option Plan (as amended and restated effective October 8, 1996).*

10(xxi) Amendment No. 3 to the Company’s 1998 Employee Incentive Stock Option and Non-Qualified Stock

Option Plan.*

10(xxii) Amendment No. 4 to the Company’s 1998 Employee Incentive Stock Option and Non-Qualified Stock

Option Plan.*

10(xxiii) Amendment No. 5 to the Company’s 1998 Employee Incentive Stock Option and Non-Qualified Stock

Option Plan.*

10(xxiv) Amendment No. 1 to the Company’s 2001 Employee Incentive Stock Option and Non-Qualified Stock

Option Plan.*

10(xxv) Amendment No. 2 to the Company’s 2001 Employee Incentive Stock Option and Non-Qualified Stock

Option Plan.*

10(xxvi) Amendment No. 1 to the Company’s Executive Deferred Compensation Plan (as amended and restated

effective October 1, 1999).*

10(xxvii) Amendment No. 2 to the Company’s Executive Deferred Compensation Plan (as amended and restated

effective October 1, 1999).*

Subsidiaries of the Company.

Consent of PricewaterhouseCoopers LLP (Independent Accountants).

Indicates a Management Contract or Compensatory Plan.

Reports on Form 8-K:

(b)

The Company filed a Form 8-K on August 9, 2001 making an Item 5 disclosure announcing its intention,
subject to market and other conditions, to raise approximately $100 million (excluding proceeds of the over-
allotment option, if any) through a private placement of convertible subordinated notes due 2006 to certain
qualified institutional investors. A copy of the press release was filed as Exhibit 99 and incorporated in this
report by reference.

The Company filed a Form 8-K on August 10, 2001 making an Item 5 disclosure announcing the private
placement of $125 million of 5 1/4% Convertible Subordinated Notes due 2006 through Rule 144A to
qualified institutional investors. A copy of the press release was filed as Exhibit 99.1 and incorporated in
this report by reference.

The Company filed a Form 8-K on August 24, 2001 making an Item 5 disclosure announcing the private
placement of $125 million of 5 1/4% Convertible Subordinated Notes due 2006 through Rule 144A to
qualified institutional investors. Also on the Form 8-K was an Item 7 disclosure of the Indenture dated as
of August 15, 2001 between the Company and Chase Manhattan Trust Company, National Association,
as Trustee and a copy of the Registration Rights Agreement dated as of August 15, 2001 between the
Company as Issuer and Morgan Stanley & Co. Incorporated as Initial Purchaser.

KULICKE AND SOFFA INDUSTRIES, INC.
Schedule II-Valuation and Qualifying Accounts
(in thousands)

Balance
at beginning
of period

Charged to
costs and
expenses

Other
Additions
(describe)

Deductions
(describe)

Balance
at end
of period

Year ended September 30, 1999

Allowance for doubtful accounts

1,677

812

$
-

762

(1)

$1,727

Inventory reserve

15,658

1,200

$
-

1,930

(2)

$14,928

Valuation allowance for deferred taxes

7,091

5,124

(3)

$
-

$12,215

Year ended September 30, 2000

Allowance for doubtful accounts

1,727

2,758

$
-

130

(1)

4,355

Inventory reserve

14,928

6,978

$
-

5,665

(2)

16,241

Valuation allowance for deferred taxes

12,215

509

(3)

$
-

12,724

Year ended September 30, 2001

Allowance for doubtful accounts

4,355

1,406

816

(4)

335

(1)

6,242

Inventory reserve

16,241

18,095

1,003

(4)

6,230

(2)

29,109

Valuation allowance for deferred taxes

12,724

7,926

(5)

1,929

(4)

1,855

(6)

20,724

(1) Bad debts written off.
(2) Disposal of excess and obsolete inventory.
(3) Reflects the increase in the valuation allowance associated with net operating losses of the Company's Japanese subsidiary

plus an increase in the valuation allowance related to U.S. tax credits.

(4) Reflects adjustment for reserves acquired.
(5) Reflects the increase in the valuation allowance associated with net operating losses of certain of the Company’s

subsidiaries.

(6) Reversal of valuation allowance provided for a domestic subsidiary of the Company.

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 21, 2001

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this Report has been signed by
the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature

Title

Date

/s/ C. SCOTT KULICKE
C. Scott Kulicke
(Principal Executive Officer)

Chairman of the Board
and Director

December 21, 2001

/s/ CLIFFORD G. SPRAGUE
Clifford G. Sprague
(Principal Financial and Accounting

Officer)

/s/ PHILIP V. GERDINE
Philip V. Gerdine

Senior Vice President
and Chief Financial
Officer

December 21, 2001

Director

December 21, 2001

/s/ JOHN A. O’STEEN
John A. O'Steen

Director

/s/ ALLISON F. PAGE
Allison F. Page

Director

December 21, 2001

/s/ MACDONELL ROEHM, JR.
MacDonell Roehm, Jr.

Director

December 21, 2001

/s/ LARRY D. STRIPLIN, JR.
Larry D. Striplin, Jr.

Director

December 21, 2001

/s/ C. WILLIAM ZADEL
C. William Zadel

Director

December 21, 2001