K U L I C K E & S O F F A
I N D U S T R I E S ,
I N C .
2003
Annual Report and
Form 10-K
2003
2003
2003
2003
2003
2003
2003
2003
2003
2003
2003
2003
2003
2003
2003
2003
2003
Five Year Review
Fiscal Year Ended September 30,
1999
2000
2001
2002
2003
$(000) except per share
data
Statement of Operations Data:
Net sales
Research and development expense, net
Interest income (expense), net
Net income (loss)
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
$398,917
$37,188
$3,547
$(16,946)
$(0.36)
$(0.36)
46,846
46,846
$167,131
$67,485
$378,145
0
$274,776
$93,000
2.78/1
$10,891
$13,104
$5.85
46,978
2,239
$899,273
$50,135
$4,719
$103,245
$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
$(5,535)
$(65,251)
$(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
$464,660
$52,948
$(14,929)
$(274,115)
$(5.57)
$(5.57)
49,217
49,217
$159,813
$89,742
$538,682
$300,393
$69,323
$54,000
2.35/1
$20,385
$32,343
$1.40
49,414
3,297
$494,321
$38,965
$(16,491)
$(76,689)
$(1.54)
$(1.54)
49,695
49,695
$125,829
$61,238
$442,861
$300,338
$97
$68,000
2.24/1
$10,975
$26,759
$0.00
50,092
3,169
The Company has recorded significant charges and asset write-downs in the periods presented above. In addition, in fiscal 2001 the Company purchased Cerprobe Corporation and Probe
Technology Corporation for approximately $290 million and formed its test interconnect business segment. For a complete understanding of the charges, assets write-downs and the effects
of the acquisitions, Management’s Discussion and Analysis (Item 7) and the Company’s Consolidated ’s Financial Statements and Notes (Item 8) of the attached Form 10-K must be read.
PER SHARE PRICE OF COMMON STOCK*
Traded on the NASDAQ National Market System, NASDAQ Symbol-KLIC
Fiscal Year
1999
2000
2001
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
High
$10.94
17.63
14.50
14.50
Low
$4.69
8.81
9.50
9.56
Low
High
$22.63 $11.50
19.59
19.94
13.12
43.66
40.31
33.12
High
$15.38
17.00
18.70
18.30
Low
$9.00
11.00
11.25
8.16
2002
High
$18.97
21.65
21.67
12.93
Low
$9.78
14.32
10.65
2.85
2003
High
$6.74
7.59
8.00
13.25
Low
$1.91
4.39
4.61
5.99
The Company has not paid dividends since the 3rd Quarter of 1985. At December 12, 2003, there were 566 shareholders of record.
* ADJUSTED FOR STOCK SPLIT EFFECTIVE JULY 31, 2000
In addition to historical information, this report contains statements relating to future events or our future results. These statements are forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities Act of 1934 and are subject to the safe 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, 2003 for a discussion of
important factors that could cause actual results to differ significantly from those expressed or implied by forward-looking statements contained in this report.
To Our Shareholders
In last year’s letter to the
shareholders, I described our view
that a prosperous semiconductor
industry is enabled by technology
advances which drive down chip
costs, or increase chip performance,
or both. The industry’s principle
method of increasing chip
performance and functionality is
feature size reduction. As I described
in last year’s letter, the industry’s
difficulties in adopting 130-nano-
meter wafer processing technology
in 2002 caused that year’s aborted
recovery, extending the industry-
wide recession through most of fiscal
2003.
In response to the extended
downturn, we concentrated the
corporation’s efforts on our major
product lines – wire bonders and
their related expendable and
consumable materials, and test
interface products such as probe
cards and sockets. Along the way,
we sold our saw and hubless saw
blade product lines, abandoned our
substrate start-up, and continued to
pursue the sale of our flip chip
bumping business. Most important
were our ongoing efforts toward both
technology leadership and cost
leadership in each of our major
product lines. Those ongoing efforts,
combined with working capital
improvements, resulted in
progressive improvements in cash
flow, culminating in the fourth
quarter’s $14.0 million in positive
cash flow. We are pleased with our
leadership in the wire bonding area.
Our bonders define the leading edge
of technology, and our ability to
develop machines, expendable tools,
and wire, as a system ought to allow
us to enhance our leadership
position.
Active supply chain
management and cost reduction
engineering have allowed us to
progressively reduce the
manufacturing costs of our bonders
throughout 2003. The initiation of
tool manufacturing in China has
done the same for that part of our
product line. These kinds of efforts
will continue in 2004.
We are less pleased with the
progress of our test interface
products, as we continue to wrestle
with integration problems related to
these acquired businesses. These
difficulties notwithstanding, we
believe our plan for this product
segment is sound, focusing on
product standardization, ramping
production in China, and then
rationalizing the older, higher cost
production facilities. In addition, we
have heightened our engineering
effort in the test interface business
with an objective of steadily
introducing next-generation test
interface products starting in 2004.
We will not be satisfied with our
performance in this segment until it
mirrors the industry leadership of our
bonder related businesses.
Fortunately, this work is taking
place against a backdrop of
improving industry conditions.
Starting early in 2003, our customers
started to improve their 130-nano-
meter wafer processing yields. With
this accomplished, new designs
started to flow through the
production process, and IC unit
volumes started to rise. These
improvements were reflected in our
own modest sequential quarterly
revenue gains through the year, and
especially the significant backlog
increase in our fourth fiscal quarter.
execute ongoing feature size
reductions. Which of these
eventualities turns out to be our
future depends (according to our
industry model at least) on the next
round of feature size reductions:
from 130-nanometer to 90-nano-
meter. First 90-nanometer
production is scheduled for next
spring. If designs work and fab
yields are high, I would predict an
extended cycle. But if the industry
stumbles, as it did with the 130-
nanometer ramp, then all bets are
off.
Our plan is adaptable to either
eventuality. Technology leadership
is always good and cost containment
is never bad. We won’t lose sight of
our goal of maintaining profitability
throughout the semiconductor cycle
while we enjoy this cycle’s growth
phase.
C. Scott Kulicke
Chairman & Chief Executive Officer
December 12, 2003
As we look into 2004, we’re
quite optimistic. We have given
revenue guidance for the first fiscal
quarter of 2004 (the December
quarter) of approximately $150
million, or up about 16%
sequentially, and have forecasted
March quarter revenue as
sequentially up again. All of this is
consistent with industry-wide
forecasts of a broad-based, cyclical
recovery.
Improvements in the
Company’s performance are not just
cyclically driven. Our cost cutting
efforts over the last two years are
paying off. Now our challenge is to
continue those efforts in a period of
rising revenue, especially controlling
our operating expense as a percent
of sales.
Also, regarding cost
reduction, I am pleased to report that
in our first quarter of 2004 we
refinanced part of our debt by issuing
$205 million of convertible notes with
a 0.5% interest rate, the proceeds of
which will be used to retire our $175
million of 4.75% convertible notes.
Excess cash from this refinancing
will be used to retire part of our
5.25% convertible notes. This
refinancing, when complete, reduces
our interest expense by about $1.8
million per quarter.
For investors, perhaps the
most important question is the
duration of this semiconductor cycle.
Given the ongoing volatility of the
industry, you could make an
argument for the industry losing
momentum as soon as late spring or
early summer of 2004. Equally, you
could argue for a longer, sustained
upturn as the industry continues to
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, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ______ to ______.
.
Commission file number 0-121
KULICKE AND SOFFA INDUSTRIES, INC.
(Exact Name of Registrant as Specified in Its Charter)
PENNSYLVANIA
(State or Other Jurisdiction of Incorporation)
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:
None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, WITHOUT PAR VALUE
(Title of Class)
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes [X] No
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 March 31, 2003 was approximately $231,900,000. (Reference is made to the final paragraph
of Part II, Item 5 herein for a statement of assumptions upon which this calculation is based).
As of December 1, 2003, there were 50,477,696 shares of the Registrant's common stock, without par value, outstanding.
Documents Incorporated by Reference
Portions of the Registrant's Proxy Statement for the 2004 Annual Shareholders' Meeting to be filed on or about January 6,
2004 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.
2003 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 9A.
Controls and Procedures
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 and Related
Stockholders Matters
Item 13.
Certain Relationships and Related Transactions
Item 14.
Principal Accountant Fees and Services
Item 15.
Exhibits, Financial Statement Schedules, and Reports on Form 8-K
Page
2
11
11
12
12
13
16
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51
87
87
87
88
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1
PART I
In addition to historical information, this report contains statements relating to future events or our future results. These
statements are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of
the Securities Exchange 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 successful operation of acquisitions and expected growth rates for these companies; and
the projected continuing demand for wire bonders.
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 products as well as service,
maintain, repair and upgrade equipment, all used to assemble and/or test semiconductor devices. We also provide
semiconductor wafer bumping services (flip chip bumping) and licensing of our bumping process to semiconductor
manufacturers and their subcontractors. We are currently the world's leading supplier of semiconductor wire bonding
assembly equipment, according to VLSI Research, Inc. Our business is currently divided into four product segments: 1)
equipment; 2) packaging materials; 3) wafer and package test interconnect products; and 4) advanced packaging technology.
In November 2002, the Company announced its intentions to divest its operations of the advanced packaging segment.
The semiconductor industry has been historically volatile, with periods of rapid growth followed by industry wide
retrenchment. One such downturn started in fiscal 2001 and has persisted into fiscal 2003. In response to this downturn the
Company has shifted its strategy, focusing on our larger more established product lines, and divesting or discontinuing
smaller or more speculative businesses. Additionally, we have been actively reducing the Company’s cost structure both by
moving operations to lower cost areas and by downsizing. Our goal is to be both the technology leader, and the lowest cost
supplier in each of our major lines of business.
Based on increased order activity starting late in fiscal 2003, as well as other factors we believe the semiconductor industry is
entering a growth cycle. There can be no assurances about either the duration or vigor of this cycle, and in any case, we believe
the historical volatility – both upward and downward – will persist.
We believe we are the only major supplier to the semiconductor assembly industry that can provide customers with
semiconductor wire bonding equipment along with the complimentary packaging materials and test interconnect products that
actually contact the surface of the customer’s semiconductor devices. We believe that the ability to control all of these
assembly related products provides us with a significant competitive advantage and should allow us to develop system
solutions to the new technology challenges inherent in assembling and packaging next-generation semiconductor devices.
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. We maintain a website with the
address www.kns.com. We are not including the information contained on our website as a part of, or incorporating it by
reference into, this Annual Report on Form 10-K. We make available free of charge (other than an investor’s own Internet
access charges) on or through our website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports
2
on Form 8-K, and all amendments to these reports, as soon as reasonably practicable after such material is electronically filed
with or otherwise furnished to the Securities and Exchange Commission.
Products and Services
We offer a range of wire bonding equipment and spare parts, packaging materials, test interconnect products, and flip chip
bumping services used in various semiconductor assembly processes. Set forth below is a table listing the net sales and
percentage of our total net sales for each business segment for our fiscal years ended September 30, 2001, 2002, and 2003.
Equipment
Packaging materials
Test interconnect
Advanced packaging technologies
(dollars in thousands)
Fiscal Year Ended September 30,
2001(1)
2002(2)
2003(3)
Net Sales
249,952
$
150,945
116,890
37,216
555,003
$
% of Total
Net Sales
45%
27%
21%
7%
100%
Net Sales
169,469
$
157,176
114,698
23,317
464,660
$
% of Total
Net Sales
36%
34%
25%
5%
100%
Net Sales
198,447
$
174,471
104,882
16,521
494,321
$
% of Total
Net Sales
40%
36%
21%
3%
100%
(1) In the first quarter of fiscal 2001, we acquired two test interconnect companies, Cerprobe Corporation and Probe
Technology Corporation, creating our test interconnect segment.
(2) In the fourth quarter of fiscal 2002, we closed the substrate business that was part of the advanced packaging technology
segment. That business was a startup and had no revenue.
(3) In the fourth quarter of fiscal 2003, we sold the assets related to the saw and hard material blade businesses that were part
of the equipment segment and packaging materials segment, respectively. Those businesses had fiscal 2003 revenue of
$11.3 million.
As the above chart indicates, our equipment sales are highly volatile, based on the semiconductor industry’s need for new
capability and capacity, whereas packaging materials and test interconnect sales in general tend to be more stable, following
the trend of total semiconductor unit production.
See Note 12 to our Consolidated Financial Statements for financial results by business segment.
Equipment
Our principal equipment 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 of a semiconductor die and the leads on the integrated circuit (IC)
package to which the die has been attached. We offer both ball and wedge type wire bonders in automatic and manual
configurations. Automatic IC ball bonders represent a large majority of our wire bonder business. We believe that our wire
bonders offer competitive advantages by providing customers with high productivity/throughput and superior package
quality/process control. Especially important is the machine’s ability to perform very fine pitch bonding as well as create the
sophisticated wire loop shapes which are needed in the assembly of today’s advanced semiconductor packages.
The largest portion of our wire bonder revenue comes from the sale of IC ball bonders. As part of our competitive strategy,
we have been introducing new models of IC ball bonders every 15 to 24 months, with each new model designed to increase
both productivity and process capability as compared to its predecessor. In May 2002, we began marketing the Maxum ™ , our
latest generation IC ball bonder, which offers up to 20% more productivity than its predecessor. In December, 2003 we plan
to introduce the Maxum Plus™ to customers offering further productivity increases, as well as process capability
improvements. In addition, in January of 2003, we began shipping the Nu-Tek ™ , a new automatic wire bonder optimized for
low lead count IC’s and discrete device applications, which are both segments of the market where we had not previously
participated.
3
We also produce other models of wire bonders, targeted at specific market niches, including: the Model 8098, a large area
ball bonder designed for wire bonding hybrid, chip on board, and other large area applications; the WaferPRO™, for wafer
level bumping for flip chip and other area array applications; the Triton RDA™, a wedge bonder designed for ribbon bonding;
the Model 8060 and Model 8090 wedge bonders; and the 4500 series of manual wire bonders.
As part of our efforts to reduce the cost of our wire bonders, we transferred our automatic ball bonder manufacturing from
Willow Grove, Pennsylvania to Singapore in fiscal 2000. Further cost reductions were achieved in fiscal 2003 by integrating a
China based supply chain.
In response to customer trends in outsourcing packaging requirements, we provide repair and maintenance services, a variety
of equipment upgrades, machine and component rebuild activities and expanded customer training through a customer
operations group.
Packaging Materials
We manufacture and market a range of semiconductor packaging materials and expendable tools for the semiconductor
assembly market, including very fine gold, aluminum and copper wire, capillaries, wedges, die collets and saw blades, all of
which are used in packaging and assembly processes. Our packaging materials are designed for use on both our own and our
competitors’ assembly equipment. A wire bonder uses a capillary or wedge tool and bonding wire much like a sewing
machine uses a needle and thread.
Our principal products are:
Bonding Wire. We manufacture very fine gold, aluminum and copper wire used in the wire bonding process. This
wire is bonded to the chip surface and package substrate by the wire bonder and becomes a permanent part of the
customers’ semiconductor package. We produce wire to a wide range of specifications, which can satisfy most wire
bonding applications across the spectrum of semiconductor packages.
Expendable Tools. Our expendable tools include a large variety of capillaries, wedges, die collets and wafer saw
blades. The capillaries and wedges actually attach the wire to the semiconductor chip, allow a precise amount of wire
to be paid out to form a permanent wire loop, then attach the wire to the package substrate, and finally cut the wire
so that the bonding process can be repeated again. Die collets are used to pick up and place die into packages before
the wire bonding process. Our hub blades are used to cut silicon wafers into individual semiconductor die.
Test Interconnect
We offer a broad range of fixtures used to temporarily contact a semiconductor device while it is still in the wafer format
(wafer probing) thereby providing electrical connections to automatic test equipment. We also offer test sockets used to test
the final semiconductor package (package or final testing). Our principal test interconnect products are:
Probe cards. A probe card consists of a complex, multilayer printed circuit board (PCB) upon which are attached
numerous probe needles designed to make temporary contact to each of the bond pads or bumps on a die while it is
still in a wafer format, thereby providing electrical connections to automatic test equipment.
Automatic Test Equipment (ATE) interface assemblies. An ATE interface assembly, sometimes called a space
transformer, typically consists of mechanical docking hardware and an intricate, multilayer PCB, which
mechanically connects ATE equipment to a wafer prober, carrying electrical signals to a probe card, and ultimately
to the semiconductor device under test.
ATE test boards. An ATE test board is a complex, multilayer PCB that mounts directly to ATE equipment and
transfers electrical signals from the ATE to the test socket.
Test sockets. A socket holds a packaged semiconductor device while making electrical connections to the device
leads through spring loaded contacts.
4
Changes in the design of a semiconductor device often require changes in the probe card, test socket 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. Changes in semiconductor design and
processes drive improvements in test interconnect technology in order to support significant increases in the number and
density of bond pads or leads being tested and the speed of the electrical signals being tested. Examples of the new families of
probe cards we have introduced include the DuraPlus™ and advanced epoxy products.
Advanced Packaging Technologies
Since the closure of our substrate business in August, 2002, our advanced packaging technologies segment consists solely of
our flip chip business.
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 are currently providing contract bump services to approximately 30 customers. We also developed and market a wafer
level package, named the UltraCSP®, which is in production and has been licensed to customers. In September 2002, we
introduced Spheron™, a wafer level package technology that expands the capability and performance of our wafer level
package product. As of September 30, 2003, we had sold nine licenses for wafer solder-bumping and wafer level packaging
applications.
Our flip chip business unit has not been profitable to date and we announced our intention to divest this business unit in
November, 2002.
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:
Semiconductor Manufacturers
Semiconductor Assemblers
Vertically Integrated Manufacturers
Advanced Micro Devices
Agere
Conexant
Infineon Technologies
Intel
LSI Logic
Micron
National Semiconductor
ST Microelectronics
Texas Instruments
Advanced Semiconductor Engineering
Amkor Technologies
ChipPAC
Orient Semiconductor Electronics
Siliconware Precision Industries Co., LTD Samsung
IBM
Motorola
NEC International
Philips Electronics
Seagate
5
These customers sometimes vary year to year based on their capital investment and operating expense budgets. The chart below
shows the Company’s top ten end-use customers for each of the last three fiscal years:
Fiscal 2001
Fiscal 2002
Fiscal 2003
1. Texas Instruments
2. ST Microelectronics
3. Micron
4. Advanced Semiconductor Eng.
5. Intel
6. Infineon Technologies
7. Lexmark
8. Amkor Technologies
9. Philips Electronics
10. Agere
1. Advanced Semiconductor Engineering 1. Advanced Semiconductor Engineering
2. ST Microelectronics
3. Siliconware Precision Industries LTD
4. Intel
5. Texas Instruments
6. Infineon Technologies
7. Amkor Technologies
8. National Semiconductor
9. Samsung
10. Philips Electronics
2. ST Microelectronics
3. Intel
4. Amkor Technologies
5. Texas Instruments
6. Infineon Technologies
7. National Semiconductor
8. Philips Electronics
9. ST Assembly Test
10. Siliconware Precision Industries LTD
We believe that developing long-term relationships with our customers is critical to our success. By establishing these
relationships with semiconductor manufacturers, semiconductor 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, semiconductor subcontract assemblers, and vertically integrated
manufacturers of electronic systems, which are primarily located in or have operations in the Asia/Pacific region.
Approximately 79% of our fiscal 2003 net sales, 72% of our fiscal 2002 net sales, and 62% of our fiscal 2001 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 Taiwan, Malaysia, Singapore, Korea, Japan, and the Philippines. 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 majority of our future revenues.
Similarly, a majority of our manufacturing operations are also in countries other than the U.S., including major manufacturing
operations located in Singapore, Israel, and China with 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, and other events that may limit or disrupt markets.
Sales and Customer Support
Through the end of fiscal 2003 we operated a single sales management team to coordinate global activities and provide local
support in each country where our customers are located. Our country and regional managers rely on a combination of a
direct sales force, manufacturers’ representatives and distributors for the sale of our various product lines.
We believe that providing comprehensive worldwide sales, service, training and support are important competitive factors in
the semiconductor equipment industry, and we have managed these functions as a global customer operations group. In order
to support our customers, whose semiconductor assembly operations are located primarily outside of the United States, we
have sales, service, and support personnel based in China, Hong Kong, Japan, Korea, Malaysia, the Philippines, Singapore,
Taiwan, and Europe with applications labs in Singapore, Japan, Israel, Taiwan, and Germany. Our local presence enables us to
provide 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.
6
Subsequent to the end of fiscal 2003 we reorganized some of these customer operations along product lines with one group
focused on wire bonder related products, and another on test related products.
Backlog
At September 30, 2003, our backlog of orders approximated $68.0 million, compared to approximately $54.0 million at
September 30, 2002, and $55 million at June 2003. Our backlog consists of customer orders, which are scheduled for
shipment within 12 months. Our “customer order-to-sale” cycle is relatively short with quarter-ending backlog typically
representing 35% – 55% of the succeeding quarter’s net sales. 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 future revenues.
Manufacturing
The Company believes excellence in manufacturing can create competitive advantage, both through lower costs, and superior
responsiveness. In order to achieve these goals, we manage our manufacturing operations through a single organization, and
are trending to fewer, larger factories taking advantage of economies of scale and the cost savings available in low labor cost
areas.
Equipment. Our equipment manufacturing activities consist primarily of integrating outsourced parts and subassemblies, and
testing the finished product to customer specifications. During fiscal 2003 most equipment manufacturing took place in
Singapore, with small numbers of machines built in Willow Grove, Pennsylvania, and Haifa, Israel (which was sold in
August 2003). We believe the outsourcing model enables us to minimize our fixed costs and capital expenditures and allows
us to focus on product differentiation through technology innovations in system design and manufacturing quality control.
Just-in-time inventory management 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 expendable tools at facilities in Yokneam, Israel and Suzhou, China, and bonding
wire at facilities in Singapore and Thalwil, Switzerland. We manufacture blades for wafer sawing in Santa Clara, California.
The bonding wire facility in Switzerland has received ISO 9001 certification, the bonding wire facility in Singapore has
received QS9000 and ISO 14001 certifications, the blade facility in California has received ISO 9002 certification, the
bonding tools facility, in Yokneam, Israel has received ISO 9001 and ISO 14001 certifications, and the bonding tools facility
in Suzhou, China has received ISO 9001 and ISO 14001 certifications.
Test Interconnect Products. We manufacture test probe cards in various facilities located in: Gilbert, Arizona; Hayward and
San Jose, California; Hsin Chu, Taiwan; E. Kilbride, Scotland; Singapore; and Corbeil and Meyreuil, France. We plan to
begin manufacturing test probe cards in Suzhou, China in fiscal 2004. ATE interface assemblies are manufactured in Gilbert,
Arizona and test sockets in Hayward, California and Singapore. As part of our ongoing cost reduction activities, the Company
closed the ATE test board facility in Dallas, Texas in the third quarter of fiscal 2003, moving to an outsource strategy for this
product line.
Advanced Packaging Technology. We maintain a manufacturing facility in Phoenix, Arizona for our flip chip business unit.
Our Flip Chip manufacturing facility has received QS 9000 certification.
Research and Product Development
Many of our customers generate technology roadmaps describing the future manufacturing capability requirements needed to
support their product development plans. Our research and product development activities are organized so that our products
anticipate our customers’ requirements. This can happen, either through continuous improvement of our existing products,
including upgrades for products already installed in customers’ facilities, or through the creation of next generation products.
Examples of continuous improvement include the Nutek and Maxum Plus wire bonders mentioned above – both
improvements of the Maxum – our advanced epoxy line of probe cards, and our DuraCap line of bonding tools. A major next
7
generation wire bonder effort is also underway, with that product scheduled for launch in late 2004. Whether the Company
proceeds via continuous improvement, or via next generation technology development, our goal is technology leadership in
each of our major product lines.
Our net expenditures for research and development totaled approximately $39.0 million, $52.9 million, and $62.7 million
during the fiscal years ended September 30, 2003, 2002 and 2001, respectively. We have received funding from certain
customers and government agencies pursuant to specific 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, 2003, 2002, and 2001, such funding
totaled approximately $383 thousand, $426 thousand, and $1.0 million, respectively.
Competition
The market for semiconductor equipment, packaging materials, and test interconnect products is intensely competitive.
Significant competitive factors in the semiconductor equipment market include speed/throughput, production yield, customer
support, and price, which all contribute to lower the overall cost per package being manufactured. Our major equipment
competitors include:
• Wire bonders: ASM Pacific Technology and Shinkawa
Competitive factors in the semiconductor packaging materials industry include performance, price, delivery, life of the
product, and quality. Our significant packaging materials’ competitors include:
• Bonding tools: Gaiser Tool Co., Small Precision Tools, Inc. and PECO
• Saw blades: Disco Corporation
• Bonding wire: Tanaka Electronic Industries, Sumitomo Metal Mining, Heraeus, and Nippon Metal.
The test products face competition from a few large international firms as well as many small regional firms. Our significant
competitors include:
• Wafer test: Japan Electronic Materials, FormFactor, Inc., and Micronics
• Package test: Everett Charles Technologies, Yamaichi, Johnstech, and Synergetix
Our Flip Chip competitors include:
• Unitive and Chipbond
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.
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.
8
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, or that they can be
enforced.
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, 2003, we had 3,149 permanent employees and 20 temporary employees worldwide, down from 3,297
employees a year earlier. The 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 as of October 7, 2003, who
are elected by and serve at the discretion of the Board of Directors.
Name
C. Scott Kulicke
Charles Salmons
Jagdish (Jack) G. Belani
Maurice E. Carson
Oded Lendner
Samuel R. Wennberg
Age
54
48
50
46
43
45
First Became
an Officer
(calendar year)
1976
1992
1999
2003
1996
2002
Position
Chairman of the Board of Directors and Chief Executive Officer
Senior Vice President
Vice President
Vice President and Chief Financial Officer
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.
Charles Salmons holds the position of Senior Vice President, Product Development. He was appointed Senior Vice President,
Product Development in September 2002. 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. He was appointed Senior Vice President, Customer Operations in 1999.
9
Jack G. Belani holds the position of Vice President of Business Units and Marketing. He was appointed to this position in
February 2002. Prior to this, he was President of the Wire Bonding Division for a year. 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 and one year with Advanced Micro Devices as a Bipolar Memory Wafer Fabrication Process Development
Engineer.
Maurice E. Carson holds the position of Vice President, Chief Financial Officer. He was appointed to this position when he
joined us in September 2003. From 1996 until he joined us in 2003, Mr. Carson served in various finance positions
culminating as the Vice President, Finance and Corporate Controller for Cypress Semiconductor Corporation. Before Cypress
he was with Ephigraphx as the Chief Operating Officer.
Oded Lendner holds the position of Vice President World Wide Operations. He was appointed to this position in January,
2002. Prior to this he was President of the Microelectronics division for one year. He joined our Israeli subsidiary in 1989 and
has held positions of increasing responsibility throughout the Manufacturing organization, and was named Deputy Managing
Director Operations in Israel in 1993. He relocated to the United States and became Vice President Operations for the
Equipment group in 1996. In 1999 he became Vice President Ball Bonder Business unit and Managing Director of K&S
Singapore.
Samuel R. Wennberg holds the position of Vice President, Engineering. He was appointed to this position in January, 2002.
He joined us in November 2000 as Director of Operations for X-Lam Technologies. In March 2001 he became Director of
Corporate Operations. Prior to joining us, he served as Vice President Operations for NDC Infrared Engineering and has held
increasingly responsible positions at Delphi Delco since 1980.
10
Item 2. PROPERTIES.
Our major operating facilities are described in the table below:
Facility
Willow Grove,
Pennsylvania
Approximate
Size
220,000 sq.ft. (1)
Function
Corp. headquarters,
manufacturing, technology
center, sales and service
Products
Manufactured
Wedge, large area
bonders
Suzhou, China
134,700 sq.ft. (2)
Manufacturing
Capillaries
Singapore
84,800 sq.ft. (2)
Manufacturing, technology
center, assembly systems
Wire bonders, probe
cards
Gilbert, Arizona
83,000 sq.ft. (4)
Manufacturing, sales and
service
Probe cards, ATE
interface assemblies
Yokneam, Israel
53,800 sq.ft. (1)
Manufacturing, technology
center
Capillaries, wedges, die
collets
Phoenix, Arizona
45,000 sq.ft. (2)
Technology center,
manufacturing
Singapore
38,400 sq.ft. (2)
Manufacturing
Hayward, California
35,900 sq.ft. (2)
Manufacturing, sales and
service
Wafer bumping
services
Bonding wire
Test sockets /
contactors
Lease
Expiration
Date
(1) N/A
October 2007
August 2005
May 2012
(1) N/A
September 2006
May 2006
July 2004
Dallas, Texas
34,300 sq.ft. (2)
Engineering
ATE test boards
September 2012
San Jose, California
34,100 sq.ft. (2)
Manufacturing, sales and
service
Probe cards
August 2007
Thalwil,
Switzerland
Hsin Chu, Taiwan
15,100 sq.ft. (2)
Manufacturing
Bonding wire
(3)
10,100 sq.ft (2)
6,400 sq.ft. (2)
Manufacturing
Probe cards
April 2004
July 2008
(1) Owned.
(2) Leased.
(3) Cancelable 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 sales and service offices in: Santa Clara, California; Southbury, Connecticut; Austin, Texas; China;
Germany; Hong Kong; Italy; Japan; Korea; Malaysia; the Philippines; Taiwan; and Thailand and operate smaller
manufacturing facilities in Santa Clara, California; France; and Scotland. 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.
11
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, 2003:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Year ended September 30, 2002:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Common Stock Price
High
Low
$
$
$
$
6.74
7.59
8.00
13.25
$
$
$
$
1.91
4.39
4.61
5.99
$
$
$
$
18.97
21.65
21.67
12.93
$
$
$
$
9.78
14.32
10.65
2.85
On December 1, 2003, there were 569 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 2004 Annual Meeting of Shareholders filed or to be filed with the Securities and Exchange
Commission.
12
Item 6: SELECTED FINANCIAL DATA.
The following selected consolidated financial data should be read in conjunction with our consolidated financial statements, related
notes and other financial information included herein and incorporated herein by reference.
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)
Loss on sale of product lines
Other income and minority interest (1)
Income (loss) before taxes and cumulative effect
of change in accounting principle
Provision (benefit) for income taxes (4)
Cumulative effect of change in accounting principle,
net of taxes (1)
(in thousands, except per share amounts)
Fiscal Years Ended September 30,
1999
2000
2001
2002
2003
$
269,854
124,450
-
4,613
398,917
$
692,062
185,570
-
21,641
899,273
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)
-
1,018
(25,167)
(8,221)
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)
-
1,437
143,394
40,149
$
249,952
150,945
116,890
37,216
555,003
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)
-
-
8,368
(78,731)
(21,643)
$
169,469
157,176
114,698
23,317
464,660
$
198,447
174,471
104,882
16,521
494,321
142,965
118,080
79,686
25,068
365,799
91,966
32,578
130,077
39,209
33,666
327,496
(65,462)
6,518
(95,065)
(40,960)
(33,666)
(228,635)
(14,929)
-
-
2,010
(241,554)
32,561
129,092
132,779
87,856
21,154
370,881
67,332
25,773
44,218
18,076
15,388
170,787
2,023
15,919
(27,192)
(22,709)
(15,388)
(47,347)
(16,491)
-
(5,257)
-
(69,095)
7,594
-
-
(8,163)
-
-
Net income (loss) as previously reported
(16,946)
103,245
(65,251)
(274,115)
(76,689)
Addback:
Goodwill amortization, net of tax (8)
Pro forma net income (loss) (8)
1,689
(15,257)
$
1,873
105,118
$
9,587
(55,664)
$
-
(274,115)
$
-
(76,689)
$
13
(in thousands, except per share amounts)
Fiscal Years Ended September 30,
1999
2000
2001
2002
2003
$
$
(0.36)
(0.36)
$
$
2.15
1.90
$
$
(1.17)
(1.17)
$
$
(5.57)
(5.57)
$
$
(1.54)
(1.54)
-
$
$
-
$
-
$
-
$
$
(0.17)
(0.17)
-
$
$
-
-
$
$
-
Net income (loss) excluding cumulative effect of
change in accounting principle per share: (5)
Basic
Diluted
Cumulative effect of change in accounting principle,
net of tax per share: (5)
Basic
Diluted
Net income (loss) per share, as previously reported: (5)
Basic
Diluted
$
(0.36)
$
(0.36)
$
2.15
$
1.90
$
(1.34)
$
(1.34)
$
(5.57)
$
(5.57)
$
(1.54)
$
(1.54)
Goodwill amortization, net of tax per share: (5), (8)
Basic
Diluted
Pro forma net income (loss) per share: (5), (8)
Basic
Diluted
Shares used in per common share calculations:(5)
Basic
Diluted
Balance Sheet Data:
Cash, cash equivalents and short-term investments
Working capital
Total assets
Long-term debt (6) (7)
Shareholders’ equity
$
0.04
$
0.04
$
0.04
$
0.03
$
0.20
$
0.20
$
-
$
-
$
-
$
-
$
(0.32)
$
(0.32)
$
2.19
$
1.93
$
(1.14)
$
(1.14)
$
(5.57)
$
(5.57)
$
(1.54)
$
(1.54)
46,846
46,846
47,932
56,496
48,877
48,877
49,217
49,217
49,695
49,695
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
$
111,300
159,813
538,682
300,393
69,323
$
73,051
125,829
442,861
300,338
97
(1) During fiscal 2003, we recorded the following charges as operating expenses: asset impairment of $10.5 million, $6.9
million of which was associated with the write-down of the assets of our flip chip business unit to realizable value,
$1.7 million was associated with the discontinuation of a test product, $1.2 million was due to the reduction in size of
a test facility in Dallas, Texas, and $730 thousand resulted from the write-down of assets that were sold and assets
that became obsolete; goodwill impairment of $5.7 million associated with our flip chip business unit; $5.2 million of
severance associated with workforce reductions in our continuing businesses; and charges for inventory write-downs
of $5.1 million (to costs of goods sold).
During fiscal 2002, we recorded the following charges as operating expenses: goodwill impairment of $74.3 million
associated with our test and hub blade business units; asset impairment of $31.6 million primarily due to the
cancellation of a company-wide integrated information system, the closure of our high density interconnect substrate
business and the write-off of development and license costs of certain engineering and manufacturing software; $19.7
million of resizing charges comprised primarily of severance and contractual commitments associated with reductions
14
in workforce and our closed and consolidated businesses; and $5.0 million of severance associated with workforce
reductions in our continuing businesses. In fiscal 2002, we also recorded charges for inventory write-downs of $14.4
million (to costs of goods sold), $5.2 million of which was due to the discontinuance of a product.
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 (to costs of goods sold) 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 includes $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.
(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. 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) In fiscal 2003, we recorded a valuation allowance against our deferred tax asset consisting primarily of U.S. net operating
loss carryforwards of $12.1 million. In fiscal 2002 we recorded a valuation allowance against our deferred tax asset
consisting primarily of U.S. net operating loss carryforwards of $65.3 million and a charge of $25.0 million to provide for
tax expense on repatriation of certain foreign earnings.
(5) On June 26, 2000, the Company’s Board of Directors approved a two-for-one stock split of its common stock. Pursuant to the
stock split, each shareholder of record at the close of business on July 17, 2000 received one additional share for each common
share held at the close of business on that date. The additional shares were distributed on July 31, 2000. All prior period
earnings per share amounts have been restated to reflect the two-for-one stock split. For fiscal years 1999, 2001, 2002 and
2003 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.
(6) Does not include letters of credit or foreign exchange contract obligations.
(7)
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.
(8) Reflects pro-forma results as if the adoption of SFAS 142 Goodwill and Intangible Assets had occurred at October 1, 1998.
The adjustments reflect an add-back of amortization expense related to goodwill, net of tax, which would not have
occurred under the provisions of the standard. As part of the adoption of SFAS 142, there were no indefinite lived
intangibles identified, and there was no change to the estimated useful lives of existing intangible assets.
15
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 may 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 successful integration and operation of acquisitions and expected growth rates for these companies; and
the projected continuing demand for wire bonders.
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 below and under the heading “Risk Factors” within this section
and in our reports and registration statements filed from time to time with the Securities and Exchange Commission. This
discussion should be read in conjunction with the Consolidated Financial Statements and Notes in this report.
Introduction
We design, manufacture and market capital equipment, packaging materials and test interconnect products as well as
service, maintain, repair and upgrade equipment, all used to assemble semiconductor devices. We also provide
semiconductor wafer bumping services (flip chip bumping) and license of our bumping process to semiconductor
manufacturers and their subcontractors. Today, we are the world’s leading supplier of semiconductor wire bonding
assembly equipment, according to VLSI Research, Inc. Our business is currently divided into four product segments: 1)
equipment; 2) packaging materials; 3) wafer and package test interconnect products; and 4) advanced packaging
technology. In November 2002, the Company announced its intentions to divest its operations of the advanced packaging
segment.
The semiconductor industry has been historically volatile, with periods of rapid growth followed by industry wide
retrenchment. One such downturn started in fiscal 2001, and has persisted into fiscal 2003. In response to this downturn
the Company has shifted its strategy, focusing on our larger more established product lines, and divesting or discontinuing
smaller or more speculative businesses. Additionally, we have been actively reducing the Company’s cost structure both
by moving operations to lower cost areas and by downsizing. Our goal is to be both the technology leader, and the lowest
cost supplier, in each of our major lines of business.
Based on increased order activity starting late in fiscal 2003, as well as other factors we believe the semiconductor
industry is entering a growth cycle. There can be no assurances about either the duration or vigor of this cycle, and in any
case, we believe the historical volatility – both upward and downward – will persist.
Products and Services
We offer a range of wire bonding equipment and spare parts, packaging materials, test interconnect products, and flip chip
bumping services used in various semiconductor assembly processes. Set forth below is a table listing the net sales and
percentage of our total net sales for each business segment for our fiscal years ended September 30, 2001, 2002, and 2003.
16
Equipment
Packaging materials
Test interconnect
Advanced packaging technologies
(dollars in thousands)
Fiscal Year Ended September 30,
2001(1)
2002(2)
2003(3)
Net Sales
$
249,952
150,945
116,890
37,216
555,003
$
% of Total
Net Sales
45%
27%
21%
7%
100%
Net Sales
$
169,469
157,176
114,698
23,317
464,660
$
% of Total
Net Sales
36%
34%
25%
5%
100%
Net Sales
$
198,447
174,471
104,882
16,521
494,321
$
% of Total
Net Sales
40%
36%
21%
3%
100%
(1) In the first quarter of fiscal 2001, we acquired two test interconnect companies, Cerprobe Corporation and Probe
Technology Corporation, creating our test interconnect segment.
(2) In the fourth quarter of fiscal 2002, we closed the substrate business that was part of the advanced packaging
technology segment. That business was a startup and had no revenue.
(3) In the fourth quarter of fiscal 2003, we sold the assets related to the saw and hard material blade businesses that were
part of the equipment segment and packaging materials segment, respectively. Those businesses had fiscal 2003
revenue of $11.3 million.
As the above chart indicates, our equipment sales are highly volatile, based on the semiconductor industry’s need for new
capability and capacity, whereas packaging materials and test interconnect sales tend to be more stable, following the
trend of total semiconductor unit production.
See Note 12 to our Consolidated Financial Statements for financial results by business segment.
Equipment
Our principal equipment 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 of a semiconductor die and the leads on the integrated circuit
(IC) package to which the die has been attached. We offer both ball and wedge type wire bonders in automatic and
manual configurations. Automatic IC ball bonders represent a large majority of our wire bonder business. We believe that
our wire bonders offer competitive advantages by providing customers with high productivity/throughput and superior
package quality/process control. Especially important is the machine’s ability to perform very fine pitch bonding as well
as create the sophisticated wire loop shapes which are needed in the assembly of today’s advanced semiconductor
packages.
The largest portion of our wire bonder revenue comes from the sale of IC ball bonders. As part of our competitive
strategy, we have been introducing new models of IC ball bonders every 15 to 24 months, with each new model designed
to increase both productivity and process capability as compared to its predecessor. In May 2002, we began marketing the
Maxum ™, our latest generation IC ball bonder, which offers up to 20% more productivity than its predecessor. In
December, 2003 we plan to introduce the Maxum Plus ™ to customers offering further productivity increases, as well as
process capability improvements. In addition, in January of 2003, we began shipping the Nu-Tek ™ , a new automatic wire
bonder optimized for low lead count IC’s and discrete device applications, which are both segments of the market where
we had not previously participated.
We also produce other models of wire bonders, targeted at specific market niches, including: the Model 8098, a large area
ball bonder designed for wire bonding hybrid, chip on board, and other large area applications; the WaferPRO ™ , for
wafer level bumping for flip chip and other area array applications; the Triton RDA ™ , a wedge bonder designed for
ribbon bonding; the Model 8060 and Model 8090 wedge bonders; and the 4500 series of manual wire bonders.
As part of our efforts to reduce the cost of our wire bonders, we transferred our automatic ball bonder manufacturing from
Willow Grove, Pennsylvania to Singapore in fiscal 2000. Further cost reductions were achieved in fiscal 2003 by
integrating Chinese vendors into our supply chain.
17
In response to customer trends in outsourcing packaging requirements, we provide repair and maintenance services, a
variety of equipment upgrades, machine and component rebuild activities and expanded customer training through a
customer operations group.
Packaging Materials
We manufacture and market a range of semiconductor packaging materials and expendable tools for the semiconductor
assembly market, including very fine gold, aluminum and copper wire, capillaries, wedges, die collets and saw blades, all
of which are used in packaging and assembly processes. Our packaging materials are designed for use on both our own
and our competitors’ assembly equipment. A wire bonder uses a capillary or wedge tool and bonding wire much like an
automatic sewing machine uses a needle and thread.
Our principal products are:
Bonding Wire. We manufacture very fine gold, aluminum and copper wire used in the wire bonding process.
This wire is bonded to the chip surface and package substrate by the wire bonder and becomes a permanent part
of the customers’ semiconductor package. We produce wire to a wide range of specifications, which can satisfy
most wire bonding applications across the spectrum of semiconductor packages.
Expendable Tools. Our expendable tools include a large variety of capillaries, wedges, die collets and wafer saw
blades. The capillaries and wedges actually attach the wire to the semiconductor chip, allow a precise amount of
wire to be paid out to form a permanent wire loop, then attach the wire to the package substrate, and finally cut
the wire so that the bonding process can be repeated again. Die collets are used to pick up and place die into
packages before the wire bonding process. Our hub blades are used to cut silicon wafers into individual
semiconductor die.
Test Interconnect
We offer a broad range of fixtures used to temporarily contact a semiconductor device while it is still in the wafer format
(wafer probing) thereby providing electrical connections to automatic test equipment. We also offer test sockets used to
test the final semiconductor package (package or final testing). Our principal test interconnect products are:
Probe cards. A probe card consists of a complex, multilayer printed circuit board (PCB) upon which are attached
numerous probe needles designed to make temporary contact to each of the bond pads or bumps on a die while it
is still in a wafer format, thereby providing electrical connections to automatic test equipment.
Automatic Test Equipment (ATE) interface assemblies. An ATE interface assembly, sometimes called a space
transformer, typically consists of mechanical docking hardware and an intricate, multilayer PCB, which
mechanically connects ATE equipment to a wafer prober, carrying electrical signals to a probe card, and
ultimately to the semiconductor device under test.
ATE test boards. An ATE test board is a complex, multilayer PCB that mounts directly to ATE equipment and
transfers electrical signals from the ATE to the test socket.
Test sockets. A socket holds a packaged semiconductor device while making electrical connections to the device
leads through spring loaded contacts.
Changes in the design of a semiconductor device often requires changes in the probe card, test socket 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. Changes in semiconductor design
and processes drive improvements in test interconnect technology in order to support significant increases in the number
and density of bond pads or leads being tested and the speed of the electrical signals being tested. Examples of the new
families of probe cards we have introduced include the DuraPlus ™ and advanced epoxy products.
18
Advanced Packaging Technologies
Since the closure of our substrate business in August, 2002, our advanced packaging technologies segment consists solely
of our flip chip business.
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 own 100% of
Flip chip.
We are currently providing contract bump services to approximately 30 customers. We also developed and market a wafer
level package, named the UltraCSP ® , which is in production and has been licensed to customers. In September 2002, we
introduced Spheron ™ , a wafer level package technology that expands the capability and performance of our wafer level
package product. As of September 30, 2003, we had sold nine licenses for wafer solder-bumping and wafer level
packaging applications.
Our flip chip business unit has not been profitable to date and we announced our intention to divest this business unit in
November, 2002.
Critical Accounting Policies and Estimates
We believe the following accounting policy is critical to the preparation of our financial statements:
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 satisfied any 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. Our standard terms are Ex Works (K&S factory), with
title transferring to our customer at our loading dock or upon embarkation. We do have a small percentage of sales with
other terms, and revenue is recognized in accordance with the terms of the related customer purchase order. 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. Our business is
subject to contingencies related to customer orders as follows:
• Right of Return: A large portion of our revenue comes from the sale of machines that are used in the semiconductor
assembly process. These items are generally built to order, and often include customization to a customer’s
specifications. Revenue related to the semiconductor equipment is recognized upon customer acceptance. Other
product sales relate to consumable products, which are sold in high-volume quantities, and are generally maintained
at low stock levels at our customer’s facility. As a result, customer returns represent a very small percentage of
customer sales on an annual basis. Our policy is to provide an allowance for customer returns based upon our
historical experience and management assumptions.
• Warranties: Our products are generally shipped with a one-year warranty against manufacturer’s defects and we do
not offer extended warranties in the normal course of our business. We recognize a liability for estimated warranty
expense when revenue for the related product is recognized. The estimated liability for warranty is based upon
historical experience and management estimates of future expenses.
• Conditions of Acceptance: Sales of our consumable products and bonding wire generally do not have customer
acceptance terms. In certain cases, sales of our equipment products do have customer acceptance clauses which
19
generally require that the equipment perform in accordance with specifications during an on-site factory inspection by
the customer, as well as when installed at the customer’s facility. In such cases, if the terms of acceptance are
satisfied at our facility prior to shipment, the revenue for the equipment will be recognized upon shipment. If the
customer must first install the equipment in their own factory, then generally, revenue associated with that sale is not
recognized until acceptance is received from the customer.
• Price Protection: We do not provide price protection to our customers.
Before we adopted SAB 101, we recorded revenue upon the shipment of products or the performance of services.
Provisions for estimated product returns, warranty and installation costs were accrued in the period in which the revenue
was recognized. This policy assumed customer acceptance when the product specifications were met and the products
shipped. Product returns and disputes with customers due to dissatisfaction with the performance of our products have
been immaterial; accordingly, we recognized revenue upon the transfer of title and did not require our customers to
provide notice of acceptance.
Generally accepted accounting principles require the use of estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. The more significant areas involving the use of
estimates in these financial statements include allowances for uncollectible accounts receivable, reserves for excess and
obsolete inventory, carrying value and lives of fixed assets, goodwill and intangible assets, valuation allowances for
deferred tax assets and deferred tax liabilities, self insurance reserves, pension benefit liabilities, resizing, warranty,
litigation. We base our estimates on historical experience and on various other assumptions that we believe to be
reasonable under the circumstances, the results of which are the basis for making judgements about the carrying values of
assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under
different assumptions or conditions.
We believe the following accounting policies require significant judgements and estimates:
Allowance for Doubtful Accounts. We maintain allowances for doubtful accounts for estimated losses resulting from the
inability of our customers to make required payments. If the financial condition of our customers were to deteriorate,
resulting in an impairment of their ability to make payments, additional allowances may be required. We are also subject
to concentrations of customers and sales to a few geographic locations, which may also impact the collectability of certain
receivables. If economic or political conditions were to change in the countries where we do business, it could have a
significant impact on the results of our operations, and our ability to realize the full value of our accounts receivable. Our
average write-off of bad debts over the past five fiscal years has been less than 0.1%.
Inventory Reserves. We generally provide reserves for equipment inventory and spare part and consumable inventories
considered to be in excess of 18 months of forecasted future demand. The forecasted demand is based upon internal
projections, historical sales volumes, customer order activity and a review of consumable inventory levels at our
customers’ facilities. We communicate forecasts of our future demand to our suppliers and adjust commitments to those
suppliers accordingly. If required, we reduce the carrying value of our inventory to the lower of cost or market value,
based upon assumptions about future demand, market conditions and the next cyclical market upturn. If actual market
conditions are less favorable than our projections, additional inventory write-downs may be required. We review and
dispose of excess and obsolete inventory on a regular basis.
Valuation of Long-lived Assets. Our long-lived assets include property, plant and equipment, goodwill and intangible
assets. Our property, plant and equipment and intangible assets are depreciated over their estimated useful lives, and are
reviewed for impairment whenever changes in circumstances indicate the carrying amount of these assets may not be
recoverable. The fair value of our goodwill and intangible assets is based upon our estimates of future cash flows and
other factors to determine the fair value of the respective assets. We manage and value our intangible technology assets in
the aggregate, as one asset group, not by individual technology. We perform our annual goodwill and intangible assets
impairment test in the fourth quarter of each fiscal year, which coincides with our annual planning process. Our annual
impairment testing resulted in an impairment charge of $5.7 million in fiscal 2003 in our flip chip business unit and a
fiscal 2002 impairment charge of $72.0 million in the test business unit and $2.3 million in the hub blade business. If
these estimates or their related assumptions change in the future, we may be required to record additional impairment
20
charges in accordance with SFAS 142 and SFAS 144.
Deferred Taxes. We record a valuation allowance to reduce our deferred tax assets to the amount that we expect is more
likely than not to be realized. While we have considered future taxable income and ongoing prudent and feasible tax
planning strategies in assessing the need for the valuation allowance, if we were to determine that we would be able to
realize our deferred tax assets in the future in excess of our net recorded amount, an adjustment to the deferred tax asset
would increase income in the period such determination was made. Likewise, should we determine that we would not be
able to realize all or part of our net deferred tax assets in the future, an adjustment to the deferred tax asset would decrease
income in the period such determination was made. In fiscal 2003 and 2002 we established a valuation allowance against
our deferred tax assets generated from our U.S. net operating losses. As the Company generates additional U.S. net
operating loss carryforwards, additional valuation allowances are set up against these deferred tax assets.
Overview
Net sales. 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
technology driven advancements in semiconductor design. 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 from
fiscal 2001 through most of fiscal 2003 contributed to lower net sales in each of those fiscal years in comparison to our
fiscal 2000 net sales, during which time the semiconductor industry was experiencing an upturn.
Our packaging materials sales depend on manufacturing expenditures of semiconductor manufacturers and subcontract
assemblers, many of which also purchase our equipment products. 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.
Our test interconnect solutions sales depend on the manufacturing 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 our flip chip business unit.
Cost of goods sold. 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 comprised of material, labor and overhead at our flip
chip division.
Selling, general and administrative expense. Our selling, general and administrative expense is comprised primarily of
personnel and related costs, professional costs, and depreciation expense.
21
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 and
depreciation expense. For example, in fiscal 2003, we began shipping the Nu-Tek ™ , a new automatic wire bonder
designed for low lead applications, a segment of the market we had not previously targeted. Included in research and
development expense is the cost to develop the software that operates our semiconductor assembly equipment, which is
expensed as incurred. Our research and development costs decreased in fiscal 2003 as a result of the resizing of our
business. However, we expect to continue to incur significant research and development costs.
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
Resizing
Asset impairment
Goodwill impairment
Amortization of goodwill and intangibles
Purchased in-process research and development
Loss from operations
Fiscal Year Ended
September 30,
2002
%
100.0
78.7
21.3
30.0
11.4
4.2
6.8
16.0
2.1
-
(49.2)
%
2001
100.0
70.7
%
29.3
25.5
11.3
1.0
-
-
4.1
2.1
(14.7)
%
2003
100.0
75.0
%
25.0
21.6
7.9
(0.1)
2.1
1.1
1.9
-
(9.6)
%
Fiscal Years Ended September 30, 2003 and September 30, 2002
Bookings and Backlog. During the fiscal year ended September 30, 2003 we recorded bookings of $508.7 million
compared to $470.0 million in fiscal 2002. A booking is recorded when a customer order is reviewed and determination is
made that all specifications can be met, production (or service) and a delivery date can be scheduled, and the customer
meets the Company’s credit requirements. At September 30, 2003, the backlog of customer orders totaled $68.0 million,
compared to $54.0 million at September 30, 2002. 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, 2003 were $494.3 million, an increase of 6.4% from $464.7 million in
fiscal 2002. The higher sales were primarily due to a 17.1% increase in equipment sales and a 11.0% increase in
packaging material sales partially offset by a 29.1% decrease in flip chip sales and a 8.6% decrease in test segment sales.
Equipment sales were higher than in the prior year due primarily to a 46.3% increase in unit sales of automatic ball
bonders, partially offset by lower sales of other bonding machines and accessories. The higher packaging materials sales
were due primarily to higher unit sales of bonding tools and an increase in the price of gold and the volume of gold wire
shipped. The lower sales in our test segment and flip chip services were primarily due to a lower volume of shipments.
The majority of our sales are to customers that are located outside of the United States or have manufacturing facilities
outside of the United States. Shipments of our products with ultimate foreign destinations comprised 79% of our total
sales in fiscal 2003 compared to 72% in the prior fiscal year. The majority of these foreign sales were to customer
locations in the Asia/Pacific region, including Taiwan, Malaysia, Singapore, Korea and Japan. Taiwan accounted for the
largest single destination for our product shipments with 20.0% of our shipments in fiscal 2003 compared to 24.1% of our
shipments in the prior fiscal year.
22
Gross profit. Gross profit increased to $123.4 million in fiscal 2003 from $98.9 million in fiscal 2002. Included in the
results for fiscal 2003 and fiscal 2002 are charges for inventory write-downs of $5.1 million and $14.4 million,
respectively. The inventory write-down charge in fiscal 2003 was due primarily to excess and obsolete inventory and
discontinued products. The charge for inventory write-downs in fiscal 2002 includes three distinct components: $7.8
million related to the write-down of spare parts inventories; $5.2 million associated with the discontinuance of our model
7700 dual spindle saw; and $1.3 million related to excess and obsolete inventory. We provide reserves for equipment
inventory and for spare parts and consumables inventory considered to be in excess of 18 months of forecasted future
demand. The forecasted demand is based upon internal projections, historical sales volumes, customer order activity and
review of consumable inventory levels at our customers’ facilities. We communicate forecasts of our future demand to
suppliers and adjust commitments to those suppliers accordingly. We review and dispose of our excess and obsolete
inventory on a regular basis. In fiscal 2003 we disposed of $9.6 million of excess and obsolete inventory and in fiscal
2002 we disposed of $18.6 million of excess and obsolete inventory. The charges for inventory write-downs in fiscal 2003
and fiscal 2002 primarily involve items that are not part of our continuing product offerings and accordingly, should not
have a significant impact on our future business or profitability. Excluding the effect of inventory write-offs, the higher
gross profit in fiscal 2003 compared to fiscal 2002 was due primarily to higher unit sales of automatic ball bonders, lower
manufacturing cost per unit of our automatic ball bonders, higher unit sales of bonding tools and a higher volume of gold
wire shipped. These improvements were partially offset by lower sales and associated gross profit in our test and flip chip
business units.
Gross margin (gross profit as a percentage of sales) was 25.0% in fiscal 2003, as compared to 21.3% for the same period
in the prior year. As indicated above, gross margin in fiscal 2003 and 2002, was unfavorably impacted by inventory write-
offs, which amounted to 1.0% and 3.1% of sales, respectively in fiscal 2003 and fiscal 2002. Excluding the effect of
inventory write-offs, gross margin increased in fiscal 2003 compared to fiscal 2002 due primarily to lower unit cost of
production for our automatic ball bonders.
Selling, general and administrative expenses. Selling, general and administrative (referred to as SG&A) expenses
decreased $32.3 million or 23.2% from $139.1 million in fiscal 2002 to $106.9 million in fiscal 2003. The lower SG&A
expenses in fiscal 2003 resulted primarily from our cost saving initiatives, principally related to reductions in employment
levels. Included in the SG&A expense for fiscal 2003 were costs associated with workforce reductions (severance) of $5.2
million, start-up costs for our new China facility of approximately $2.0 million and a $0.7 million charge for the early
termination of an information technology services agreement partially offset by the favorable reversal of a $2.0 million
reserve, previously established for potential obligations to U.S. Customs. Included in the fiscal 2002 SG&A expense were
workforce reductions (severance) of $5.0 million and training and start-up costs for our new China facility of $2.2 million.
Research and development . Research and development (“R&D”) expense in fiscal 2003 decreased $14.0 million or
26.4% from fiscal 2002. The lower R&D expense in fiscal 2003 was primarily due to the closure of our substrate business
unit in the fourth quarter of fiscal 2002 and lower payroll and related expenses due to our ongoing cost reduction efforts.
Resizing costs. The semiconductor industry is volatile, with sharp periodic downturns and slowdowns. The industry
experienced excess capacity and a severe contraction in demand for semiconductor manufacturing equipment from 2001
through most of 2003. In fiscal 2002 and 2001, we developed resizing plans in response to these changes in the business
environment with the intent to align our cost structure with anticipated revenue levels. Expenses associated with these cost
containment activities were incurred and included downsizing and facility consolidations. Accounting for resizing
activities requires an evaluation of formally agreed upon and approved plans. Although we made every attempt to
consolidate all known resizing activities into one plan, the extreme cycles and rapidly changing forecasting environment
place limitations on achieving this objective. The recognition of a resizing event does not necessarily preclude similar but
unrelated actions in future periods.
In the fiscal 2003 we reversed $475 thousand of these resizing charges due to the actual severance cost associated with the
terminated positions being less than those originally estimated. We recorded resizing charges of $19.7 million in fiscal
2002 and $4.2 million in fiscal 2001.
23
A summary of all the resizing plans initiated in fiscal 2002 and 2001 and acquisition restructuring plans initiated in fiscal
2001 appears below:
Fiscal 2001 and 2002 Resizing Plans and
Acquisition Restructurings
Severance and
Benefits
Commitments
Total
(in thousands)
Provision for resizing plans in fiscal 2001
Acquisition restructurings
Payment of obligations in fiscal 2001
Balance, September 30, 2001
Provision for resizing plans in fiscal 2002
Payment of obligations in fiscal 2002
Balance, September 30, 2002
Change in estimate
Payment of obligations in fiscal 2003
Balance, September 30, 2003
$
4,166
84
(2,101)
2,149
10,379
(7,551)
4,977
(475)
(3,590)
$ 912
$
-
1,402
(213)
1,189
9,282
(1,470)
9,001
(3,211)
$ 5,790
$
4,166
1,486
(2,314)
3,338
19,661
(9,021)
13,978
(475)
(6,801)
$ 6,702
The individual resizing plans and acquisition restructuring plans initiated in fiscal 2002 and 2001 are identified below:
Charges in Fiscal Year 2002
Fourth Quarter 2002
In the fourth quarter of fiscal 2002, we announced that we would close our substrate operations due to its high capital and
operating cash requirements. As a result, we recorded a resizing charge of $8.5 million. The resizing charge included a
severance charge of $1.2 million for the elimination of 48 positions and lease obligations of $7.3 million. At September
30, 2003 all the positions had been eliminated. The plans have been completed but cash payments for the severance
charge are expected to continue through 2004 and cash payments for the lease obligations are expected to continue into
2006, or such time as the obligations can be satisfied. In addition to these resizing charges, in the fourth quarter of fiscal
2002, we wrote-off $7.3 million of fixed assets and $1.1 million of intangible assets associated with the closure of the
substrate operation.
The resizing costs were included in accrued liabilities. The table below details the activity related to this resizing program
during fiscal 2002 and 2003.
Fourth Quarter 2002 Charge
Provision for resizing
Balance, September 30, 2002
Change in estimate
Payment of obligations
Balance, September 30, 2003
Third Quarter 2002
Severance and
Benefits
$ 1,231
1,231
(102)
(1,051)
78
$
(in thousands)
Commitments
Total
$ 7,280
7,280
-
(2,401)
4,879
$
$
$
8,511
8,511
(102)
(3,452)
4,957
In the third quarter of fiscal 2002, we announced a resizing plan to reduce headcount and consolidate manufacturing in
our test division. The resizing plan was a result of our decision to move towards a 24 hour per-day manufacturing model
in our major U.S. wafer test facility, which would provide our customers with faster turn-around time and delivery of
orders and economies of scale in manufacturing. As part of this plan, we moved manufacturing of wafer test products
from our facilities in Gilbert, Arizona and Austin, Texas to our facility in San Jose, California and Dallas, Texas and from
24
our Kaohsuing, Taiwan facility to our Hsin Chu, Taiwan facility. The resizing plan includes a severance charge of $1.6
million for the elimination of 149 positions as a result of the manufacturing consolidation. At September 30, 2003, all of
the positions had been eliminated. The resizing plan also includes a charge of $0.5 million associated with the closure of
the Kaohsuing, Taiwan facility and an Austin, Texas facility, representing costs of non-cancelable lease obligations
beyond the facility closure and costs required to restore the production facilities to their original state. Both facilities have
been closed. The plans have been completed but cash payments for the severance are expected to continue through 2005
and cash payments for facility and contractual obligations are expected to continue through 2004, or such time as the
obligations can be satisfied.
The resizing costs were included in accrued liabilities. The table below details the activity related to this resizing program
during fiscal 2002 and 2003.
Third Quarter 2002 Charge
Provision for resizing
Payment of obligations
Balance, September 30, 2002
Payment of obligations
Balance, September 30, 2003
Second Quarter 2002
(in thousands)
Severance and
Benefits
Commitments
Total
$ 1,652
$ 452
$
2,104
(547)
1,105
(800)
305
$
(219)
233
(72)
161
$
(766)
1,338
(872)
466
$
In the second quarter of fiscal 2002, we announced a resizing plan comprised of a functional realignment of business
management and the consolidation and closure of certain facilities. In connection with the resizing plan, we recorded a
charge of $11.3 million, consisting of severance and benefits of $9.7 million for 372 positions that were to be eliminated
as a result of the functional realignment, facility consolidation, the shift of certain manufacturing to China (including our
hub blade business) and the move of our microelectronics products to Singapore and a charge of $1.6 million for the cost
of lease commitments beyond the closure date of facilities to be exited as part of the facility consolidation plan.
To reduce our short term cash requirements, we decided, in the fourth quarter of fiscal 2002, not to relocate either our hub
blade manufacturing facility from the United States to China or its microelectronics product manufacturing from the
United States to Singapore, as previously announced. This change in our facility relocation plan resulted in a reversal of
$1.6 million of the resizing costs recorded in the second quarter of fiscal 2002.
As a result of the functional realignment, we terminated employees at all levels of the organization from factory workers
to vice presidents. The organizational change shifted management of our businesses to functional (i.e. sales,
manufacturing, research and development, etc.) areas across product lines rather than by product line. For example,
research and development activities for the entire company are now controlled and coordinated by one corporate vice
president under the functional organizational structure, rather than separately by each business unit. This structure
provides for a more efficient allocation of human and capital resources to achieve corporate R&D initiatives.
In the second quarter of fiscal 2002, we closed five test facilities: two in the United States, one in France, one in Malaysia,
and one in Singapore. These operations were absorbed into other company facilities. The resizing charge for the facility
consolidation reflects the cost of lease commitments beyond the exit date that is associated with these closed test facilities.
The plans have been completed but cash payments for the severance charges and the facility and contractual obligations
are expected to continue through 2004, or such time as the obligations can be satisfied.
In the fourth quarter of fiscal 2002, we reversed $600 thousand of resizing expenses and in the fourth quarter of fiscal 2003
we reversed $250 thousand of resizing expenses, previously recorded in the second quarter of fiscal 2002, due to actual
severance costs associated with the terminated positions being less than those estimated as a result of employees leaving the
Company before they were severed.
25
The resizing costs were included in accrued liabilities. The table below details the activity related to this resizing program
during fiscal 2002 and 2003.
Second Quarter 2002 Charge
Provision for resizing
Change in estimate
Payment of obligations
Balance, September 30, 2002
Change in estimate
Payment of obligations
Balance, September 30, 2003
Severance and
Benefits
$ 9,733
(2,237)
(5,367)
2,129
(353)
(1,284)
492
$
(in thousands)
Commitments
Total
$
(1)
(1)
$ 1,550
-
(81)
1,469
-
(719)
750
$
11,283
(2,237)
(5,448)
3,598
(353)
(2,003)
1,242
$
(1) Includes $2.6 million non-cash charge for modifications of stock option awards that were granted prior to December 31,
2001 to the employees affected by the resizing plans in accordance with our annual grant of stock options to employees.
Charges in Fiscal Year 2001
Fourth Quarter 2001
In the quarter ended September 30, 2001, we announced a resizing plan to close a bonding wire facility in the United
States, and recorded a resizing charge for severance of $2.4 million for the elimination of 215 positions, all of which had
been terminated at September 30, 2002. Also in the fourth quarter of fiscal 2001, we recorded an increase to goodwill of
$0.8 million in connection with the acquisition of Probe Tech for additional lease costs associated with the elimination of
four duplicate facilities in the United States. The plans have been completed but cash payments for the severance charge
are expected to continue into 2004.
The resizing costs were included in accrued liabilities. The table below details the activity related to this resizing program
during fiscal 2001, 2002 and 2003.
Fourth Quarter 2001 Charge
Provision for resizing
Acquisition restructuring
Payment of obligations
Balance, September 30, 2001
Payment of obligations
Balance, September 30, 2002
Change in estimate
Payment of obligations
Balance, September 30, 2003
Second Quarter 2001
Severance and
Benefits
$
2,457
-
(402)
2,055
(1,543)
512
(20)
(455)
$
37
(in thousands)
Commitments
Total
$
-
840
-
840
$
2,457
840
(402)
2,895
(840)
-
(2,383)
512
(20)
-
$
-
$
(455)
37
In the quarter ended March 31, 2001, we announced a 7.0% reduction in our workforce. As a result, we recorded a
resizing charge for severance of $1.7 million for the elimination of 296 positions across all levels of the organization, all
of which were terminated prior to June 30, 2002. In connection with our acquisition of Probe Tech, we also recorded an
increase to goodwill of $0.6 million for severance, lease and other facility charges related to the elimination of four leased
Probe Tech facilities in the United States which were found to be duplicative with the Cerprobe facilities. The plans have
been completed and there are no additional cash obligations related to this program.
26
The resizing costs were included in accrued liabilities. The table below details the activity related to this resizing program
during fiscal 2001, 2002 and 2003.
Second Quarter 2001 Charge
Provision for resizing
Acquisition restructuring
Payment of obligations
Balance, September 30, 2001
Payment of obligations
Balance, September 30, 2002
Payment of obligations
Balance, September 30, 2003
Severance and
Benefits
$
1,709
84
(1,699)
94
(94)
-
-
$
-
(in thousands)
Commitments
Total
-
$
562
(213)
349
(330)
19
(19)
$
-
$
1,709
646
(1,912)
443
(424)
19
(19)
$
-
Asset impairment. In addition to the workforce resizings and the facility consolidations, over the past two fiscal years we
have terminated several of our major initiatives in an effort to more closely align our cost structure with expected revenue
levels. As a result, we recorded asset impairment charges of $10.5 million in fiscal 2003 and $31.6 million in fiscal 2002.
The fiscal 2003 charge included; $6.9 million in our flip chip business unit to write-down assets to their realizable value;
$1.7 million associated with the discontinuation of a test product; $1.2 million due to the reduction in the size of a test
facility in Dallas, Texas; and $730 thousand resulting from the write-down of assets that were sold and assets that became
obsolete. The fiscal 2002 charge included; $16.9 million associated with the cancellation of a company-wide integrated
information system; $8.4 million associated with the closure of the substrates operation; $3.6 million charge for the write-
off of development and license costs of certain engineering and manufacturing software, which had not yet been
completed or placed in service and would never be utilized; $1.4 million associated with a closed wire facility in Taiwan;
and $1.3 million related to leasehold improvements at the leased probe card manufacturing facilities in Malaysia and the
United States, which have been closed.
Goodwill impairment. Effective October 1, 2001, we adopted SFAS 142, Goodwill and Other Intangible Assets. Under
the provisions of this standard, the intangible assets that are classified as goodwill and those with indefinite lives will no
longer be amortized. Intangible assets with determinable lives will continue to be amortized over their estimated useful
life. The standard also requires that an impairment test be performed to support the carrying value of goodwill and
intangible assets at least annually.
We reviewed our business and determined that there are five reporting units to be reviewed for impairment in accordance
with the standard – the reporting units are: the bonding wire, hub blade, substrate, flip chip and test businesses. The
bonding wire and hub blade businesses are included in our packaging materials segment, the substrate and flip chip
businesses are included in our advanced packaging segment and the test business comprises our test segment. There is no
goodwill associated with our equipment segment. Upon adoption of SFAS 142 in the first quarter of fiscal 2002, we
completed the required transitional impairment testing of intangible assets, and based upon those analyses, did not identify
any impairment charges as a result of adoption of this standard effective October 1, 2001.
We have determined that our annual test for impairment of goodwill and intangible assets will take place at the end of the
fourth quarter of each fiscal year, which coincides with the completion of our annual forecasting process. In the fourth
quarter of fiscal 2003 we determined that the value of goodwill at our flip chip business unit could not be supported by
our current earnings forecasts. As a result, we recognized a goodwill impairment charge of $5.7 million. Likewise, in the
fourth quarter of fiscal 2002, our earnings forecasts did not support the value of goodwill at several of our operating units.
As a result, we recognized a goodwill impairment charge of $72.0 million in our test reporting unit and a goodwill
impairment charge of $2.3 million in our hub blade reporting unit. The fair value of each reporting unit was estimated
using the expected present value of future cash flows.
27
The following table presents pro forma net earnings and earnings per share data reflecting the impact of adoption of SFAS
142 as of the beginning of the first quarter of fiscal 2001:
Customer Accounts
Complete Technology
Total
$
41,100
51,336
$
11,649
14,538
$
29,451
36,798
$
92,436
$
26,187
$
66,249
(in thousands,
except per share data)
Fiscal Year Ended
September 30,
2002
(274,115)
$
2001
$
(65,251)
2003
$
(76,689)
9,587
-
-
$
(55,664)
$
(274,115)
$
(76,689)
Reported net loss, before adoption of SFAS 142
Addback:
Goodwill amortization, net of tax
Pro forma net loss
Net loss per share, as reported:
Amortization of goodwill and intangibles
Amortization expense was $9.3 million in fiscal 2003 compared to $9.9 million in fiscal 2002. The lower amortization
expense in fiscal 2003 was due to the elimination of amortization expense in fiscal 2003 on acquired technology at our
former substrate business that was written-off upon the closure of this business in the fourth quarter of fiscal 2002. The
amortization expense in fiscal 2003 is associated with the intangible assets of our test business unit.
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 which had not reached technological feasibility. As part of the acquisition, we acquired 16 ongoing
R&D projects, all aimed at increasing the technological features of the existing probe cards and therefore the number of
test applications for which they could be marketed. The R&D projects ranged from researching the feasibility of
producing multi-die testing probes to researching the feasibility of producing probes for specialized semiconductor
package (CSP and BGA) configurations. The project stage of completion ranged from 10% to 90% and all projects were
due for completion and product launch by the third quarter of 2002 at prices and costs similar to the existing probe cards
marketed by Cerprobe and Probe Tech.
In the valuation of this in-process technology, we utilize a variation of the income approach. We forecast revenue,
earnings and cash flow for the products under development. Revenues are projected to extend out over the expected useful
lives for each project. The technology is then valued through the application of the Discounted Cash Flow method. Values
were calculated using the present value of their projected future cash flow at discount rates of between 28.4% and 49.1%.
We anticipated that some of these projects might take longer to develop than originally thought and that some of these
projects may never be marketable and took into account the risk that the anticipated future cash flows might not be
achieved. Of the 16 ongoing R&D projects at the time of the acquisition five have been completed, one is still in progress,
four have been cancelled due to overlapping technology with our Cobra line of vertical test products, and six were
cancelled due to nonproductive results. We believe that the expected returns of the completed and in-process R&D
projects will be realized. We also believe that future revenues from our existing Cobra products will offset the expected
future revenues from the R&D projects that were cancelled due to the overlapping technology and that there will be no
28
adverse material impact on the Company’s future operating results or the expected return on its investment in the acquired
companies. The six projects that were cancelled due to lack of productive results will not have a material impact on our
future operating results and expected return on our investment in the acquired companies.
The major R&D projects in process at the time of the acquisition, along with their current status and estimated time for
completion are as follows:
(dollars in thousands)
R&D project
Value
Assigned
at Purchase(2)
Percentage
Complete
at Purchase
Estimated
Cost to
Complete
Project
at Purchase
Current
Projected
Product
Launch
Date
Current
Status of
Project
Next generation contact technology
$
2,700
10%
$
290
N/A
Cancelled
Socket testing capability for
CSP and BGA packages
$
2,000
ViProbe pitch reduction
$
1,600
Vertical space transformer
$
1,500
50%
40%
25%
$
65
$
89
$
278
N/A
N/A
N/A
Complete
Cancelled (1)
Cancelled (1)
Extension of P4 technology to
vertical test configuations
Low-force, high-density interface
using P4 technology
$
1,300
40%
$
229
N/A
Cancelled (1)
$
1,300
30%
$
138
N/A
Cancelled
All other projects combined
(total of ten projects)
$
1,300
10-90%
$
576
Q2 2004
4 complete;
1 in process;
5 cancelled
(1) We purchased two companies; Cerprobe Corporation (“Cerprobe”) and Probe Technology Corporation (“Probe
Tech”) that design and manufacture semiconductor test interconnect solutions, in our fiscal year 2001. Subsequent
to the acquisitions, we determined that the vertical probe technology designed and marketed by Probe Tech was
superior to the vertical probe technology of Cerprobe. We then shifted our R&D efforts to further enhancement of
the Probe Tech vertical probe technology and cancelled the R&D projects at Cerprobe that were enhancing the
Cerprobe vertical probe technology. The R&D projects identified by (1) in the above table were Cerprobe projects
that were cancelled due to the shift in focus to the Probe Tech vertical probe technology. We expect the future
revenue from the Probe Tech vertical probe technology will replace the anticipated revenue from the Cerprobe
vertical probe R&D projected that have been cancelled.
(2) The Value Assigned at Purchase reflects the present value of the projected future cash flow generated from the sale
of products created by each R&D project from its launch date through the expected life of the product.
Loss from operations. Our loss from operations in fiscal 2003 was $47.3 million compared to $228.6 million in the prior
fiscal year. The smaller operating loss in fiscal 2003 compared to fiscal 2002 was due primarily to higher sales and gross
profit, lower SG&A and R&D expenses, no resizing expenses, and lower asset and goodwill impairment charges.
Interest. Interest income in fiscal 2003 was $940 thousand compared to $3.8 million in the prior year. The lower interest
29
income was due primarily to lower cash balances to invest coupled with lower interest rates on short-term investments.
Interest expense was $17.4 million in fiscal 2003 compared to $18.7 million in the prior year. The lower interest expense
in fiscal 2003 resulted from the elimination in fiscal 2003 of interest associated with a receivable securitization program
which was cancelled in July of 2002.
Loss on sale of product lines. In the fourth quarter of fiscal 2003, we sold the fixed assets, inventories and intellectual
property associated with our sawing and hard material blade product lines for $1.2 million in cash. We wrote-off $6.5
million of net assets associated with the transaction. In addition, we sold the assets associated with our polymers business
for $105 thousand.
Other income and minority interest . Other income of $2.0 million in fiscal 2002 was associated with the cash settlement
of an insurance claim associated with a fire in our bonding tools facility. Other income also includes minority interest of
$10 thousand in fiscal 2002 for the portion of the loss of a foreign test division subsidiary that was owned by a third party.
We purchased the third party’s interest in fiscal 2002.
Tax expense. We recognized tax expense of $7.6 million in fiscal 2003 compared to $32.6 million in fiscal 2002. The tax
expense in fiscal 2003 represents income tax on foreign earnings and reserves for foreign withholding tax on repatriation
of certain foreign earnings. In fiscal 2003 we established a valuation allowance of $12.1 million against our U.S and
foreign net operating losses. The tax expense in fiscal 2002 was due primarily to a $65.3 million charge to establish a
valuation allowance against our U.S. net operating loss carryforwards, a $25.0 million charge to provide for tax expense
on repatriation of certain foreign earnings and foreign income taxes of $7.1 million. These charges were partially offset by
a benefit of $49.5 million from the pretax loss in the U.S.
Cumulative effect of change in accounting principle. In fiscal 2001, we adopted SAB 101 and recorded a cumulative
effect of a change in accounting principle of $8.2 million, net of taxes of $4.4 million. The cumulative effect represents
the net income associated with $26.5 million of sales that were deferred upon adoption of the standard. We recognized
$6.3 million of the $26.5 million of deferred sales in fiscal 2002 and $19.3 million in fiscal 2001. At September 30, 2003,
deferred sales revenue was approximately $300 thousand.
Net loss. Our net loss for fiscal 2003 was $76.7 million compared to a net loss of $274.1 million in fiscal 2002, for the
reasons enumerated above.
Fiscal Years Ended September 30, 2002 and September 30, 2001
Bookings and backlog. During the fiscal year ended September 30, 2002 we recorded bookings of $470.0 million
compared to $412.0 million in fiscal 2001. At September 30, 2002, the backlog of customer orders totaled $54.0 million,
compared to $49.0 million at September 30, 2001. 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, 2002 were $464.7 million, down 16.3% from $555.0 million in fiscal
2001. The decrease in sales reflected the continued downturn in the semiconductor industry, which significantly impacted
sales of our semiconductor assembly equipment and test products.
Fiscal 2002 sales in the equipment segment were down 32.2%, due to lower average selling prices for our automatic ball
bonders and lower sales of dicing systems and tab bonders, partially offset by higher unit sales of automatic ball bonders.
Net sales in the packaging materials segment were up 4.2%, due to higher demand for gold wire and capillaries primarily
in the fourth quarter. Net sales in the advanced packaging segment were down 37.3% from the prior year due to lower
bumping revenue and license fees at flip chip. Sales for the test division were down 1.9% for the fiscal year, however,
test sales for fiscal 2001 included only the 10 months from the dates of acquisition through September 30, 2001.
International sales (shipments of our products with ultimate foreign destinations) comprised 72% and 62% of our total
sales during fiscal 2002 and 2001, respectively. The majority of these foreign sales were destined for customer locations
in the Asia/Pacific region, including Taiwan, Malaysia, Singapore, Korea, Japan, and the Philippines. 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
30
represent a substantial portion of our future revenues.
Gross profit. Gross profit decreased to $98.9 million in fiscal 2002 from $162.4 million in fiscal 2001. The decline was
due primarily to lower average selling prices for automatic ball bonders and lower unit sales of dicing systems and tab
bonders in the equipment segment and lower sales volume at flip chip in the advanced packaging segment. Partially
offsetting the above mentioned declines in gross profit was higher unit sales of automatic ball bonders and packaging
materials and higher gross profit in the test segment. Included in the results for fiscal 2002 are charges for inventory
write-downs of $14.4 million. These charges for inventory write-downs include three distinct components. The largest
component of the charge, amounting to approximately $7.8 million, relates to the write-down of spare parts inventories.
We decided in the second quarter of fiscal 2002 to outsource our spare parts inventory management and accordingly
wrote-down excess inventory. The second component of the charge relates to the write-down of $5.2 million of inventory
associated with the discontinuance of our model 7700 dual spindle saw. Annual revenue for this product over the past
several fiscal years has been insignificant therefore, the discontinuance of this product is not expected to have a material
impact on sales, gross profit or net income. The smallest portion of the charge, amounting to $1.3 million, related to our
normal excess and obsolescence reviews that are a recurring part of our normal business and ongoing operations. We
provide reserves for equipment inventory and for spare parts and consumables inventory considered to be in excess of 18
months of forecasted future demand. The forecasted demand is based upon internal projections, historical sales volumes,
customer order activity and review of consumable inventory levels at our customers’ facilities. We communicate
forecasts of our future demand to suppliers and adjust commitments to those suppliers accordingly. We review and
dispose of our excess and obsolete inventory on a regular basis. In fiscal 2002, we disposed of $18.6 million of excess and
obsolete inventory. The charges for inventory write-downs in fiscal 2002 primarily involve items that are not part of our
continuing product offerings and accordingly, should not have a significant impact on our future business or profitability.
Included in the results for fiscal 2001 are charges for inventory write-downs of $19.9 million (to costs of goods sold). We
recorded $1.4 million of the charge in the first quarter for excess and obsolete ball bonder inventory and $6.5 million in
the second quarter for ball bonder and spare parts inventory. In the fourth quarter we recorded a charge of $12.0 million
for excess and obsolete ball bonder, dicing saw, test fixture and spare parts inventory. The charges for inventory write-
downs resulted from the severe and continued downturn in the semiconductor industry. In fiscal 2001, we also recorded
an acquisition-related inventory step-up charge of $4.2 million. In fiscal 2001, we disposed of $6.2 million of excess and
obsolete inventory.
Gross margin (gross profit as a percentage of sales) was 21.3% in fiscal 2002, as compared to 29.3% for the same period
in the prior year. The decline in gross margin for the year was due primarily to lower average selling prices of automatic
ball bonders and dicing systems and a negative gross profit at flip chip. The inventory write-downs in fiscal 2002 and
fiscal 2001 amounted to 3.1% and 3.6% of net sales, respectively.
Selling, general and administrative expenses. Selling, general and administrative (referred to as SG&A) expenses
decreased $2.6 million or 1.8% from $141.8 million in fiscal 2001 to $139.1 million in fiscal 2002. Fiscal 2002 SG&A
expenses include approximately $13.3 million of expenses which are not comparable to the fiscal 2001 expenses. The
$13.3 million of non-comparable expense include $5.0 million of severance expense, $6.1 million for two additional
months of expenses at the test division (12 months of operations in 2002 vs. only ten months 2001) and $2.2 million of
training and start-up expense associated with our new China facility. Excluding these charges, our fiscal 2002 SG&A
expense declined due to reduced compensation and outside services expenses from our resizing initiatives taken in the
current and prior year.
Research and development. Research and development (“R&D”) expense in fiscal 2002 decreased $9.8 million or 15.6%
from fiscal 2001. The lower R&D spending was due to a shift in certain engineering functions to lower-cost foreign
subsidiaries, and the ‘push-out’ of certain future product development initiatives. Our R&D expense includes the cost to
develop the software that operates our semiconductor assembly equipment, which is expensed as incurred.
Resizing costs. Historically, the semiconductor industry has been volatile, with sharp periodic downturns and slowdowns.
The industry has experienced excess capacity and a severe contraction in demand for semiconductor manufacturing
equipment for the past two years. We developed resizing plans in response to these changes in our business environment
with the intent to align our cost structure with anticipated revenue levels. Expenses have been incurred associated with
cost containment activities including downsizing and facility consolidations. Accounting for resizing activities requires an
31
evaluation of formally agreed upon and approved plans. Although we make every attempt to consolidate all known
resizing activities into one plan, the extreme cycles and rapidly changing forecasting environment places limitations on
achieving this objective. The recognition of a resizing event does not necessarily exclude similar but unrelated actions in
future periods.
We recorded resizing charges of $19.7 million in fiscal 2002 and $4.2 million in fiscal 2001.
Charges in Fiscal Year 2002
Fourth Quarter 2002
In the fourth quarter of fiscal 2002, we announced that we would close our substrate operations due to its high capital and
operating cash requirements. As a result, we recorded a resizing charge of $8.5 million. The resizing charge includes a
severance charge of $1.2 million for the elimination of 48 positions and lease obligations of $7.2 million. While none of
the 48 positions were terminated as of September 30, 2002, all but one were terminated in the first quarter of fiscal 2003
and the remaining position was expected to be terminated by March 31, 2003. Cash payments for the severance charge are
expected to be complete by March 31, 2003 but cash payments for the facility and contractual obligations are expected to
continue until the end of 2006, or such time as the obligations can be satisfied. In addition to these resizing charges, we
wrote-off $7.3 million of fixed assets and $1.1 million of intangible assets associated with the closure of the substrate
operation.
The resizing costs were included in accrued liabilities. The table below details the spending and activity related to the
resizing plan initiated in the fourth quarter of fiscal 2002:
Fourth Quarter 2002 Charge
Provision for resizing
Payment of obligations
(in thousands)
Severance and
Benefits
Commitments
Total
$ 1,231
-
$ 7,280
-
$
8,511
-
Balance, September 30, 2002
$
1,231
$
7,280
$
8,511
Third Quarter 2002
In the third quarter of fiscal 2002, we announced a resizing plan to reduce headcount and consolidate manufacturing in
our test division. The resizing plan was a result of our decision to move towards a 24 hour per day manufacturing model
in our major U.S. wafer test facility, which will provide our customers with faster turn-around time and delivery of orders
and economies of scale in manufacturing. As part of this plan, we moved manufacturing of wafer test products from our
Gilbert, Arizona facility and our Austin, Texas facility to our San Jose, California and Dallas, Texas facilities and from
our Kaohsuing, Taiwan facility to our Hsin Chu, Taiwan facility. The resizing plan includes a severance charge of $1.6
million for the elimination of 149 positions as a result of the manufacturing consolidation. At September 30, 2002, 116 of
the 149 positions have been eliminated. The remaining positions were expected to be terminated by June 30, 2003. The
resizing plan also included a charge of $0.5 million associated with the closure of the Kaohsuing, Taiwan and Austin,
Texas facilities representing costs of non-cancelable lease obligations beyond the facility closure date and costs required
to restore the production facilities to their original state. Both facilities have been closed. Cash payments for the severance
charge are expected to be complete by March 31, 2004 but cash payments for the facility obligations are expected to
continue through 2005, or such time as the obligations can be satisfied.
32
The resizing costs were included in accrued liabilities. The table below details the spending and activity related to the
resizing plan initiated in the third quarter of fiscal 2002:
Third Quarter 2002 Charge
Provision for resizing
Payment of obligations
(in thousands)
Severance and
Benefits
Commitments
Total
$ 1,652
$ 452
$
2,104
(547)
(219)
(766)
Balance, September 30, 2002
$
1,105
$
233
$
1,338
Second Quarter 2002
In the second quarter of fiscal 2002, we announced a resizing plan comprised of a functional realignment of business
management and the consolidation and closure of certain facilities. In connection with the resizing plan, we recorded a
charge of $11.3 million, consisting of severance and benefits of $9.7 million for 372 positions that were to be eliminated
as a result of the functional realignment, facility consolidation, the shift of certain manufacturing to China (including our
hub blade business) and the move of the Company’s microelectronics products to Singapore and a charge of $1.6 million
for the cost of lease commitments beyond the closure date of facilities to be exited as part of the facility consolidation
plan.
To reduce our short term cash requirements, we decided, in the fourth quarter of fiscal 2002, not to move our hub blade
manufacturing facility from the United States to China and our microelectronics product manufacturing from the United
States to Singapore, as previously announced. While we believe our cost structure would be reduced by transitioning
production from the United States to less expensive sites in Asia, we have decided that the immediate costs associated
with transition and training should be deferred. This change in our facility relocation plan resulted in a reversal of $1.6
million of the resizing costs recorded in the second quarter of fiscal 2002.
As a result of the functional realignment, we terminated employees at all levels of the organization from factory workers
to vice presidents. The organizational change shifts management of our businesses to functional (i.e. sales, manufacturing,
research and development, etc.) areas across product lines rather than by product line. For example, research and
development activities for the entire company are now controlled and coordinated by one corporate vice president under
the functional organizational structure, rather than separately by each business unit. This structure provides for a more
efficient allocation of human and capital resources to achieve corporate R&D initiatives.
In the second quarter, we closed five test facilities: two in the United States, one in France, one in Malaysia, and one in
Singapore, whose operations were absorbed into other Company facilities. The resizing charge for the facility
consolidation reflects the cost of lease commitments beyond the exit date that is associated with these closed test facilities.
At September 30, 2002, four positions remain to be terminated and are expected to be terminated by December 31, 2002.
Cash payments for the severance charge were expected to be complete by March 31, 2003 but cash payments for the
facility and contractual obligations were expected to continue through 2004, or such time as the obligations can be
satisfied.
In the fourth quarter of fiscal 2002, we reversed $600 thousand of resizing expenses, previously recorded in the second
quarter, due to actual severance costs associated with the terminated positions being less than those originally estimated.
33
The resizing costs were included in accrued liabilities. The table below details the spending and activity related to the
resizing plan initiated in the second quarter of fiscal 2002:
Second Quarter 2002 Charge
Provision for resizing
Change in estimate
Payment of obligations
(in thousands)
Severance and
Benefits
Commitments
Total
$ 9,733
(2,237)
(5,367)
(1)
(1)
$ 1,550
-
(81)
$
11,283
(2,237)
(5,448)
Balance, September 30, 2002
$
2,129
$
1,469
$
3,598
(1) Includes $2.6 million non-cash charge for modifications of stock option awards that were granted prior to December
31, 2001 to the employees affected by the resizing plans in accordance with our annual grant of stock options to
employees.
Charges in Fiscal Year 2001
Fourth Quarter 2001
In the quarter ended September 30, 2001, we announced a resizing plan to close a bonding wire facility in the United
States, and recorded a resizing charge for severance of $2.4 million for the elimination of 215 positions, all of which had
been terminated at September 30, 2002. Also in the fourth quarter of fiscal 2001, we recorded an increase to goodwill of
$0.8 million in connection with the acquisition of Probe Tech for additional lease costs associated with the elimination of
four duplicate facilities in the United States. The plans have been completed but cash payments for the severance charge
were expected to continue through 2004.
The resizing costs were included in accrued liabilities. The table below details the spending and activity related to the
resizing plan initiated in the fourth quarter of fiscal 2001:
Fourth Quarter 2001 Charge
Provision for resizing
Acquisition restructuring
Payment of obligations
Balance, September 30, 2001
Payment of obligations
Severance
and Benefits
$
2,457
-
(402)
2,055
(1,543)
(in thousands)
Commitments
Total
-
$
840
-
840
$
2,457
840
(402)
2,895
(840)
(2,383)
Balance, September 30, 2002
$
512
$
-
$
512
Second Quarter 2001
In the quarter ended March 31, 2001, we announced a 7.0% reduction in our workforce. As a result, we recorded a
resizing charge for severance of $1.7 million for the elimination of 296 positions across all levels of the organization, all
of which were terminated prior to March 31, 2002. In connection with our acquisition of Probe Tech, we also recorded an
increase to goodwill for $0.6 million for severance, lease and other facility charges related to the elimination of four
leased Probe Tech facilities in the United States which were found to be duplicative with the Cerprobe facilities. The
plans have been completed and there will be no additional cash payments related to severance under this program. Cash
payments for facility obligations were expected to continue until December 2002, or such time as the obligation can be
satisfied.
34
The resizing costs were included in accrued liabilities. The table below details the activity related to this resizing program
during fiscal 2001 and 2002:
Second Quarter 2001 Charge
Provision for resizing
Acquisition restructuring
Payment of obligations
Balance, September 30, 2001
Payment of obligations
Severance
and Benefits
$
1,709
84
(1,699)
94
(in thousands)
Commitments
Total
-
$
562
(213)
349
$
1,709
646
(1,912)
443
(94)
(330)
(424)
Balance, September 30, 2002
$
-
$
19
$
19
Asset impairment. In addition to the workforce resizings and the facility consolidations, we terminated several of our
major initiatives in an effort to more closely align our cost structure with expected revenue levels. As a result, we
recorded asset impairment charges of $31.6 million in fiscal 2002. We also recorded an asset impairment of $800
thousand in fiscal 2001.
In the fourth quarter of fiscal 2002, we recorded an asset impairment of $26.7 million. The charge included $16.9 million
associated with the cancellation of a company-wide integrated information system, an $8.4 million write-off of assets
associated with the closure of the substrates operation and $1.4 million of assets associated with a closed wire facility in
Taiwan.
In the second quarter of fiscal 2002, we recorded an asset impairment charge of $4.9 million. The write-off included a
$3.6 million charge for the write-off of development and license costs of certain engineering and manufacturing software,
which had not yet been completed or placed in service and would never be utilized. Also in the second quarter, we wrote-
off $1.3 million related to leasehold improvements at the leased probe card manufacturing facilities in Malaysia and the
United States, which have been closed.
In the fourth quarter of fiscal 2001, we recorded an asset impairment charge of $0.8 million related to the closure of a wire
facility in the United States and the disposition of the associated equipment.
Goodwill impairment. Effective October 1, 2001, we adopted SFAS 142, Goodwill and Other Intangible Assets. The
intangible assets that are classified as goodwill and those with indefinite lives will no longer be amortized under the
provisions of this standard. Intangible assets with determinable lives will continue to be amortized over their estimated
useful life. The standard also requires that an impairment test be performed to support the carrying value of goodwill and
intangible assets at least annually.
We reviewed our business and determined that there are five reporting units to be reviewed for impairment in accordance
with the standard – the reporting units were: the bonding wire, hub blade, substrate, flip chip and test business. The
bonding wire and hub blade businesses are included in our packaging materials segment, the substrate and flip chip
businesses are included in our advanced packaging segment and the test business comprises our test segment. There is no
goodwill associated with our equipment segment. Upon adoption of SFAS 142 in the first quarter of fiscal 2002, we
completed the required transitional impairment testing of intangible assets, and based upon those analyses, did not identify
any impairment charges as a result of adoption of this standard effective October 1, 2001.
We have determined that our annual test for impairment of intangible assets will take place at the end of the fourth quarter
of each fiscal year, which coincides with the completion of our annual forecasting process. Due to the severity and the
length of the current industry downturn and uncertainty of the timing of improvement in industry conditions we have
revised our earnings forecasts for each of our business units that were tested for impairment in the fourth quarter of fiscal
2002. As a result, we discontinued our substrate business and wrote-off intangible assets of $1.1 million and recognized a
goodwill impairment loss of $72.0 million in our test reporting unit and a goodwill impairment loss of $2.3 million in our
35
hub blade reporting unit. The fair value of each reporting unit was estimated using the expected present value of future
cash flows.
The following table presents pro forma net earnings and earnings per share data reflecting the impact of adoption of SFAS
142 as of the beginning of the first quarter of fiscal 2001:
Goodwill amortization, net of tax per share:
Basic
Diluted
-
$
$
-
$
-
$
-
$
$
0.20
0.20
Pro forma net loss per share:
Basic
Diluted
$
$
(1.14)
(1.14)
$
$
(5.57)
(5.57)
$
$
(1.54)
(1.54)
(in thousands,
except per share data)
Fiscal Year Ended
September 30,
2001
(65,251)
$
2000
103,245
$
2002
(274,115)
$
1,873
9,587
-
$
105,118
$
(55,664)
$
(274,115)
Reported net loss, before adoption of SFAS 142
Addback:
Goodwill amortization, net of tax
Pro forma net loss
Net loss per share, as reported:
Amortization of goodwill and intangibles
Amortization expense was $9.9 million in fiscal 2002 compared to $22.8 million in fiscal 2001. The lower amortization
expense in fiscal 2002 was primarily the result of our adoption of SFAS 142, Goodwill and Other Intangible Assets
effective October 1, 2001, which resulted in the elimination of amortization on goodwill and indefinite lived intangible
assets. Intangible assets with determinable lives will continue to be amortized over their estimated useful life.
The agreement governing our purchase of Probe Tech from Siegel-Robert Corp. included a provision for reducing the
purchase price if Probe Tech’s actual earnings before interest, taxes, depreciation and amortization (EBITDA) were less
than a projected amount. We disputed Probe Tech’s EBITDA calculation and initiated arbitration seeking a reduction in
the purchase price. The arbitrator’s award reduced the purchase price by $2.4 million in the second quarter of fiscal 2002.
In June 2002, we received the final settlement and reduced goodwill by $1.5 million, reflecting the award, less costs
incurred in the arbitration.
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 which had not reached technological feasibility. As part of the acquisition, we acquired 16 ongoing
R&D projects, all aimed at increasing the technological features of the existing probe cards and therefore the number of
test applications for which they could be marketed. The R&D projects ranged from researching the feasibility of
producing multi-die testing probes to researching the feasibility of producing probes for specialized semiconductor
package (CSP and BGA) configurations. The project stage of completion ranged from 10% to 90% and all projects were
due for completion and product launch by the third quarter of 2002 at prices and costs similar to the existing probe cards
marketed by Cerprobe and Probe Tech.
In the valuation of in-process technology, we utilized a variation of the income approach. We forecast revenue, earnings
36
and cash flow for the products under development. Revenues were projected to extend out over the expected useful lives
for each project. The technology was then valued through the application of the Discounted Cash Flow method. Values
were calculated using the present value of their projected future cash flow at discount rates of between 28.4% and 49.1%.
We anticipated that some of these projects might take longer to develop than originally thought and that some of these
projects may never be marketable and there is a risk that the anticipated future cash flows might not be achieved. Of the
16 ongoing R&D projects at the time of the acquisition four have been completed, four are still in progress, four have
been cancelled due to overlapping technology with our Cobra line of vertical test products, and four were cancelled due to
nonproductive results. We believe that the expected returns of the completed and in-process R&D projects will be
realized. We also believe that future revenues from our existing Cobra products will offset the expected future revenues
from the R&D projects that were cancelled due to the overlapping technology and that there will be no adverse material
impact on the Company’s future operating results or the expected return on its investment in the acquired companies. The
four projects that were cancelled due to lack of productive results will not have a material impact on our future operating
results and expected return on our investment in the acquired companies.
The major R&D projects in process at the time of the acquisition, along with their status at September 30, 2002 and
estimated time for completion are as follows:
(dollars in thousands)
R&D project
Value
Assigned
at Purchase(2)
Percentage
Complete
at Purchase
Estimated
Cost to
Complete
Project
at Purchase
Projected
Product
Launch
Date
Current
Status of
Project
Next generation contact technology
$
2,700
10%
$
290
Q2 2003
In process
Socket testing capability for
CSP and BGA packages
$
2,000
ViProbe pitch reduction
$
1,600
Vertical space transformer
$
1,500
50%
40%
25%
$
65
$
89
$
278
N/A
N/A
N/A
Complete
Cancelled (1)
Cancelled (1)
Extension of P4 technology to
vertical test configuations
Low-force, high-density interface
using P4 technology
$
1,300
40%
$
229
N/A
Cancelled (1)
$
1,300
30%
$
138
N/A
Cancelled
All other projects combined
(total of ten projects)
$
1,300
10-90%
$
576
Q1 2003 -
Q4 2004
3 complete;
3 in process;
4 cancelled
(1) We purchased two companies; Cerprobe Corporation (“Cerprobe”) and Probe Technology Corporation (“Probe
Tech”) that design and manufacture semiconductor test interconnect solutions, in our fiscal year 2001. Subsequent
to the acquisitions, we determined that the vertical probe technology designed and marketed by Probe Tech was
superior to the vertical probe technology of Cerprobe. We then shifted our R&D efforts to further enhancement of
the Probe Tech vertical probe technology and cancelled the R&D projects at Cerprobe that were enhancing the
Cerprobe vertical probe technology. The R&D projects identified by (1) in the above table were Cerprobe projects
that were cancelled due to the shift in focus to the Probe Tech vertical probe technology. We expect the future
revenue from the Probe Tech vertical probe technology will replace the anticipated revenue from the Cerprobe
37
vertical probe R&D projected that have been cancelled.
(2) The Value Assigned at Purchase reflects the present value of the projected future cash flow generated from the sale
of products created by each R&D project from its launch date through the expected life of the product.
Income (loss) from operations. Loss from operations for the year ended September 30, 2002 was $228.6 million
compared to a loss from operations of $81.6 million in the prior year. The operating loss was due primarily to the lower
sales and associated gross profit, resizing costs and the goodwill and asset impairment charges partially offset by lower
SG&A expenses.
Interest. Interest income in fiscal 2002 was $3.8 million compared to $8.4 million in the prior year. The lower interest
income was due primarily to lower interest rates on short-term investments. Interest expense was $18.7 million in fiscal
2002 compared to $13.9 million in the prior year. The higher interest expense in fiscal 2002 was due to a full year’s
interest on the 5¼ % Convertible Subordinated Notes due 2006 that were issued in the fourth quarter of fiscal 2001.
Other income and minority interest. Other income of $2.0 million in fiscal 2002 and $8.4 million in fiscal 2001 are
primarily associated with the cash settlement of an insurance claim associated with a fire in our bonding tools facility.
Other income also includes minority interest of $10 thousand in fiscal 2002 for the portion of the loss of a foreign test
division subsidiary that was owned by a third party. We purchased the third party’s interest in fiscal 2002. Other income
in 2001 includes minority interest of $352 thousand in the foreign test division subsidiary and Delco’s interest in the loss
incurred at flip chip prior to our purchases of all remaining outstanding flip chip equity units.
Tax expense. We recognized tax expense of $32.6 million in fiscal 2002 compared to a tax benefit of $21.6 million in
fiscal 2001. The tax expense in fiscal 2002 was due primarily to a $65.3 million charge to establish a valuation allowance
against our U.S. net operating loss carryforwards, a $25.0 million charge to provide for tax expense on repatriation of
certain foreign earnings and foreign income taxes of $7.1 million. These charges were partially offset by a benefit of
$49.5 million from the pretax loss in the U.S.
Cumulative effect of change in accounting principle. In fiscal 2001, we adopted SAB 101 and recorded a cumulative
effect of a change in accounting principle of $8.2 million, net of taxes of $4.4 million. The cumulative effect represents
the net income associated with $26.5 million of sales that were deferred upon adoption of the standard. We recognized
$6.3 million of the $26.5 million of deferred sales in fiscal 2002 and $19.3 million in fiscal 2001. At September 30, 2002,
deferred revenue was approximately $0.9 million.
Net loss. Our net loss for fiscal 2002 was $274.1 million compared to a net loss of $65.3 million in fiscal 2001, 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 2003 and
2002:
Fiscal 2003
First
Quarter
Second
Quarter
(in thousands)
Third
Quarter
Net sales
Gross profit
Loss from operations
$
111,371
27,331
(12,620)
Fiscal 2002
Net sales
Gross profit
Loss from operations
First
Quarter
$
103,155
25,387
(21,532)
38
$
125,938
32,518
(11,738)
Second
Quarter
$
106,917
10,632
(56,461)
$
127,723
31,264
(5,828)
Third
Quarter
$
132,418
35,020
(17,163)
Fourth
Quarter
$
129,289
32,327
(17,161)
Fourth
Quarter
$
122,170
27,822
(133,479)
Total
$
494,321
123,440
(47,347)
Total
$
464,660
98,861
(228,635)
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In January 2003, the FASB issued Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities, an
Interpretation of ARB No. 51 . FIN 46 requires certain variable interest entities to be consolidated by the primary
beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial
interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated
financial support from other parties. FIN 46 is effective immediately for all new variable interest entities created or
acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions
of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. We have identified a
business enterprise that qualifies as a variable interest entity and will consolidate the entity into our financial statements in
accordance with the new requirements beginning with the quarter ending December 31, 2003. The impact of this change
will increase our assets and liabilities by approximately $6.0 million.
In April 2003, the FASB issued Statement of Financial Accounting Standards No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities (SFAS No. 149). SFAS No. 149 amends and clarifies financial accounting
and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for
hedging activities under FASB Statement No. 133 , Accounting for Derivative Instruments and Hedging Activities . SFAS
No. 149 is generally effective for contracts entered into or modified after June 30, 2003, and for hedging relationships
designated after June 30, 2003. We do not expect the adoption of the standard will have a material impact on our financial
position and results of operations.
In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150 , Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity (SFAS No. 150). SFAS No. 150 establishes standards for
how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some
circumstances). SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and
otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. We do not expect the
adoption of the standard will have a material 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. The effect in fiscal 2003 was not material on our financial position
and results of operations.
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
39
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. In fiscal 2002, we recognized net sales of $6.3 million, of the $26.5 million of
sales deferred upon adoption, and $2.1 million of associated after-tax profit. No additional revenue was deferred during
fiscal 2002. At September 30, 2003, deferred revenue was approximately $300 thousand.
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 was not material to our financial position and results of operations. Effective
October 1, 2001, we adopted SFAS 142, Goodwill and Other Intangible Assets. The intangible assets that are classified as
goodwill and those with indefinite lives will no longer be amortized under the provisions of this standard. Intangible
assets with determinable lives will continue to be amortized over their estimated useful life. We amortize our intangible
assets with determinable lives on a straight-line basis over the estimated period to be benefited by the intangible assets
which we estimates to be 10 years. The standard also requires that an impairment test be performed to support the
carrying value of goodwill and intangible assets at least annually. Our goodwill impairment test utilizes discounted cash
flows to determine fair value and comparative market multiples to corroborate fair value. Our intangible assets other than
goodwill are tested for impairment based on undiscounted cash flows, and if impaired, written-down to fair value based
on either discounted cash flows or appraised values. Our intangible assets are comprised of customer accounts and
complete technology in our test interconnect business segment. We manage and value our complete technology in the
aggregate as one asset group.
Asset Retirement Obligations. In August 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS 143,
Accounting for Obligations Associated with the Retirement of Long-Lived Assets. This standard provides guidance for
financial reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset
retirement costs. It also provides guidance for 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 adopted this standard effective October 1, 2002 and the adoption did not have a material
impact on its financial position and results of operations, however this standard could impact our financial position and
results of operations in future periods.
In August 2001, the FASB issued SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets,”
which supersedes SFAS No. 121. This standard provides a single accounting model for long-lived assets to be disposed of
by sale and establishes additional criteria that would have to be met to classify an asset as held for sale. The carrying
amount of an asset or asset group is not recoverable if it exceeds the sum of the undiscounted cash flows expected to
result from the use and eventual disposition of the asset or asset group. Estimates of future cash flows used to test the
recoverability of a long-lived asset or asset group must incorporate the entity’s own assumptions about its use of the asset
or asset group and must factor in all available evidence. SFAS No. 144 requires that long-lived assets be tested for
recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable.
Such events include significant under-performance relative to the expected historical or projected future operating results;
significant changes in the manner of use of the assets; significant negative industry or economic trends and significant
changes in market capitalization.
In the fourth quarter of fiscal 2003, we completed the sale of our sawing and hard material blade product lines as well as
our polymer product line. As a result of these transactions, we recorded a loss of $5.3 million made up of asset write-offs
of $6.5 million offset by cash proceeds of $1.2 million.
As of September 30, 2003, we recognized a $6.9 million impairment charge associated with our flip chip Division. The
40
present value of flip chip’s future cash flows was less than the remaining carrying value. As a result, an asset impairment
charge was recorded to reduce the carrying value of flip chip to its fair value.
SFAS 145. In April 2002, the FASB issued SFAS 145, Recission of FASB Statements No. 4, 44, and 64, Amendment of
FASB Statement No. 13, and Technical Corrections. In rescinding FASB Statement No. 4 and FASB No. 64, FASB 145
eliminates the requirement that gains and losses from the extinguishment of debt be aggregated and, if material, classified
as an extraordinary item, net of the related income tax effect, however, an entity would not be prohibited from classifying
such gains and losses as extraordinary items so long as they meet the criteria of paragraph 20 of APB 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. Further, the Statement amends SFAS 13 to eliminate an inconsistency
between the accounting for sale leaseback transactions and certain lease modifications that have economic effects that are
similar to sale leaseback transactions. We adopted this standard and the adoption did not have a material impact on our
financial position and results of operations.
Accounting for Costs Associated with Exit or Disposal Activities. In June 2002, the FASB issued SFAS 146, Accounting
for Exit or Disposal Activities which addresses significant issues regarding the recognition, measurement, and reporting of
costs that are associated with exit and disposal activities, including restructuring activities that are currently accounted for
pursuant to the guidance that the Emerging Issues Task Force (EITF) has set forth in EITF 94-3, Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring). The standard is effective for exit or disposal activities that are initiated after December 31, 2002. We have
adopted this standard and the adoption did not have a material impact on our financial position and results of operations,
however, this standard will in certain circumstances change the timing of recognition of restructuring costs.
In December 2002, the FASB issued SFAS 148, Accounting for Stock-Based Compensation-Transition and Disclosure.
This Statement amends FASB Statement No. 123, Accounting for Stock-Based Compensation, to provide alternative
methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee
compensation. In addition, this Statement amends the disclosure requirements of Statement 123 to require prominent
disclosures in both annual and interim financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. The standard is effective for financial statements for
fiscal years ending after December 15, 2002. We have adopted the disclosure provisions of this standard.
In November 2002, the FASB issued Interpretation No. 45 (FIN 45), Guarantor’s Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others . FIN 45 requires a company (“the
guarantor”) to recognize, at the inception of a guarantee, a liability for the obligations it has undertaken in issuing the
guarantee. The Interpretation also incorporates, without change, the guidance in FASB Interpretation No. 34, “Disclosure
of Indirect Guarantees of Indebtedness of Others “ which is being superseded. The recognition and measurement
provisions of this Interpretation are applicable on a prospective basis to guarantees issued or modified after December 31,
2002. We adopted this standard and the adoption did not have a material impact on our financial position and results of
operations, however this standard could impact our financial position and results of operations in future periods.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2003, total cash and investments were $73.1 million, compared to $59.0 million at June 30, 2003 and
$111.3 million at September 30, 2002.
Cash used by operating activities totaled $29.1 million in fiscal 2003 compared to $72.0 million in fiscal 2002. Cash used
by operating activities in fiscal 2003 was primarily to fund the net loss and working capital needs. The working capital
needs in fiscal 2003 were primarily for the pay-down of current trade payables, the pay-out of costs associated with our
fiscal 2001 and 2002 resizing programs and an increase in trade accounts receivable. Cash used by operating activities in
fiscal 2002 was primarily to fund the net loss in that year.
Cash provided by investing activities totaled $8.3 million in fiscal 2003 compared to $6.4 million in the prior year. In
fiscal 2003 and 2002, the investing activities consisted primarily of proceeds from sales of investments, offset by
purchases of investments and capital expenditures. In fiscal 2003 we spent $11.0 million in capital expenditures,
consisting primarily of $3.6 million for continued expansion of our China facility, $3.4 million for manufacturing
41
equipment in our test business unit and $4.0 million of manufacturing equipment in our other manufacturing facilities. In
fiscal 2002 we spent $20.4 million in capital expenditures, $8.8 million of which was for costs associated with our
initiative to implement a company-wide integrated information system. These costs were accounted for in accordance
with SOP 98-1. We discontinued this project in the fourth quarter of fiscal 2002 and wrote-off the $8.8 million as part of a
total write-off of $16.9 million associated with this project. In fiscal 2002, we also spent approximately $5.2 million on
facility upgrades and manufacturing equipment in our test business. In addition, in fiscal 2002, we announced plans to
build a facility in China to manufacture capillaries, selected test products and other products. We spent $1.8 million on
this China facility in fiscal 2002.
Cash provided by financing activities was $563 thousand in fiscal 2003 compared to cash used in financing activities of
$3.4 million in the prior fiscal year. The cash provided by financing activities in fiscal 2003 was primarily due to a
reduction in restricted cash and proceeds from the issuance of common stock, resulting from employee stock option
exercises. Cash used by financing activities in the prior year was primarily due to establishing restricted cash balances, to
support letters of credit, and payments on capital leases partially offset by proceeds from the issuance of common stock,
resulting from employee stock option exercises.
At September 30, 2003, the fair value of our $175.0 million 4 3/4% Convertible Subordinated Notes was $154.9 million,
and the fair value of our $125.0 million 5 1/4% Convertible Subordinated Notes was $115.6 million. The fair values were
determined using quoted market prices at the balance sheet date. The fair value of our other assets and liabilities
approximates the book value of those assets and liabilities. On September 30, 2003, the Standard & Poor’s rating on the
above-referenced Convertible Subordinated Notes was CCC+.
The Securities and Exchange Commission declared effective on August 22, 2002 a shelf registration statement on Form S-
3, which will permit us, from time to time, to offer and sell various types of securities, including common stock, preferred
stock, senior debt securities, senior subordinated debt securities, subordinated debt securities, warrants and units, having
an aggregate sales price of up to $250.0 million. On June 15, 2003, we issued and contributed 150,000 shares of common
stock with a fair market value of $987,000 to fund certain obligations to our pension plan. We will not receive any of the
proceeds from the sale of these shares by the pension plan. The proceeds will be retained by the pension plan Trust to
fund future obligations to participants of the pension plan.
We believe that our existing cash reserves and anticipated cash flows from operations will be sufficient to meet our
liquidity and capital requirements for at least the next 12 months. However, our liquidity is affected by many factors,
some based on normal operations of the business and others related to uncertainties of the industry and global economies.
We may seek, as we believe appropriate, additional debt or equity financing to provide capital for corporate purposes. We
may also seek additional debt or equity financing for the refinancing or redemption of existing debt and/or to fund
strategic business opportunities, including possible acquisitions, joint ventures, alliances or other business arrangements
which could require substantial capital outlays. The timing and amount of such potential capital requirements cannot be
determined at this time and will depend on a number of factors, including demand for our products, semiconductor and
semiconductor capital equipment industry conditions, competitive factors, the condition of financial markets and the
nature and size of strategic business opportunities which we may elect to pursue.
Under GAAP, certain obligations and commitments are not required to be included in the consolidated balance sheets and
statements of operations. These obligations and commitments, while entered into in the normal course of business, may
have a material impact on liquidity. Certain of the following commitments as of September 30, 2003 have not been
included in the consolidated balance sheets and statements of operations. However, they have been disclosed in the
following table in order to provide a more complete picture of our Company’s financial position and liquidity.
42
The following table identifies obligations and contingent payments under various arrangements at September 30, 2003,
including those not included on our consolidated balance sheet:
Contractual Obligations:
Long-term debt
Capital Lease obligations
Operating Lease obligations*
Inventory Purchase obligations*
Commercial Commitments:
Standby Letters of Credit*
Total Contractual Obligations
and Commercial Commitments
Amounts
due in
less than
1 year
-
$
36
12,444
44,981
(in thousands)
Amounts
due in
2-3 years
$
125,000
78
16,408
574
Amounts
due in
4-5 years
$
175,000
84
5,896
78
Amounts
due in
more than
5 years
-
$
176
11,073
158
Total
$
300,000
374
45,821
45,791
2,694
2,694
-
-
-
$
394,680
$
60,155
$
142,060
$
181,058
$
11,407
* Represents contractual amounts not reflected in the consolidated balance sheet at September 30, 2003.
Long-term debt includes the amounts due under our 4¾% Convertible Subordinated Notes due December 2006 and our
5¼% Convertible Subordinated Notes due August 2006. The capital lease obligations principally relate to a building and
equipment lease. The operating lease obligations at September, 2003 represent obligations due under various facility and
equipment leases with terms up to fifteen years in duration. Inventory purchase obligations represent outstanding purchase
commitments for inventory components ordered in the normal course of business.
The standby letters of credit represent obligations of the company in lieu of security deposits for a facility lease and
employee benefit programs.
RISK FACTORS
Risks Relating to Our Business
The semiconductor industry is volatile with sharp periodic downturns and slowdowns
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, including 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 periods of rapid growth followed by industry-wide
retrenchment. These periodic downturns and slowdowns have adversely affected our operating results. They 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 has recently experienced downturns in fiscal 1998 through the first half of fiscal 1999, and in
fiscal 2001 through the first half of fiscal 2003. In the 1998-1999 downturn, our net sales declined from approximately
$501.9 million in fiscal 1997 to $411.0 million in fiscal 1998. In the most recent downturn, our net sales declined from
approximately $899.3 million in fiscal 2000 to $464.7 million in fiscal 2002. Although the business environment
43
improved in the fourth quarter of fiscal 2003, we cannot assure you that the market for semiconductors will continue to
improve or that the market will not experience additional and possibly more severe and prolonged downturns in the
future. Such downturns would adversely affect our business, financial condition and operating results.
We may experience increasing price pressure
Our historical business strategy for many of our products has been focused on product performance and customer service
rather than on price. The length and severity of the recent economic downturn put increased cost pressure on our
customers and we have observed increasing price sensitivity on their part. In response to these pressures, we are actively
seeking to reduce our cost structure by moving operations to lower cost areas and by reducing other operating costs. If we
are unable to realize prices that allow us to continue to compete on the basis of performance and service, our financial
condition and operating results may be materially and adversely affected.
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; we expect that they will continue to fluctuate.
Although these fluctuations are partly due to the volatile nature of the semiconductor industry, they also reflect other
factors, many of which are outside of our control.
Some of the factors that may 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:
-
-
-
our test interconnect business has lower margins than assembly equipment and packaging materials;
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;
virtually all of our 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;
•
customers’ delay in purchasing our products due to customer anticipation that we may introduce new or upgraded
products; 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. In a downturn, we may have excess inventory, which is required
44
to be written off. Some of the factors that may cause our expenses to fluctuate from period-to-period include:
•
•
•
•
the timing and extent of our research and development efforts;
severance, resizing and the costs of relocating or closing down 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 consecutive period-to-
period comparisons of our operating results may not be a good indication of our future performance.
Most of our sales and a substantial portion of our manufacturing are 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 79% of our net sales for fiscal 2003, 72% of our net sales for fiscal 2002 and 62% of our net sales for
fiscal 2001 were attributable to sales to customers for delivery outside of the United States, in particular to customers in
the Asia/Pacific region. We expect these trends to continue. Thus, our future performance will depend, in significant part,
on our ability to continue to compete in foreign markets, particularly in Asia/Pacific. These economies have been highly
volatile, resulting in significant fluctuation in local currencies, and political and economic instability. These conditions
may continue or worsen, which may materially and adversely affect our business, financial condition and operating
results.
We also rely on non-United States suppliers for materials and components used in our products, and most of our
manufacturing operations are located in countries other than the United States. We manufacture our automatic ball
bonders and bonding wire in Singapore, we manufacture capillaries in Israel and China and we have sales, service and
support personnel in China, Hong Kong, Japan, Korea, Malaysia, the Philippines, Singapore, Taiwan and Europe. We also
rely on independent foreign distribution channels for certain of our product lines. As a result, a major portion of our
business is subject to the risks associated with international, and particularly Asian/Pacific, 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;
restrictions on the repatriation of our assets, including cash;
the difficulties of staffing and managing dispersed international operations;
episodic events outside our control such as, for example, the recent outbreak of Severe Acute Respiratory Syndrome;
tariff and currency fluctuations;
changing political conditions;
labor conditions and costs;
foreign governments’ monetary policies;
45
•
•
less protective foreign intellectual property laws; and
legal systems which may be less predictable than those in the United States.
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 may be materially and adversely
affected by a strengthening of the United States dollar against foreign currencies. Because we have significant assets,
including cash, outside the United States, those assets are subject to risks of destruction and seizure, and it may be
difficult to repatriate them, including cash, or repatriation may result in the payment by us of significant United States
taxes.
Our international operations also depend, in part, upon a continuation of current trade relations between the United States
and those foreign countries in which our customers, subcontractors, and materials suppliers have operations. A
protectionist trade environment in either the United States or those foreign countries in which we do business, such as a
change in the current tariff structures, export compliance or other trade policies, may materially and adversely affect our
ability to sell our products in foreign markets.
Our business depends on attracting and retaining management, marketing and technical employees
As with many other technology companies, our future success depends on our ability to hire and retain qualified
management, marketing and technical employees. In particular, we periodically experience shortages of engineers. If we
are unable to continue to attract and retain the managerial, marketing and technical 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 depends on our ability to continuously develop and manufacture new products and
product enhancements on a timely and cost-effective basis. We also must timely 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 integrated circuits
and capital equipment designs. Our competitors may develop new products or enhancements to their products that offer
performance, features and lower prices that may render our products less competitive. The development and
commercialization of new products will require significant capital expenditures over an extended period of time, and
some products that we seek to develop may never become profitable. 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.
Difficulties in forecasting demand for our product lines may lead to periodic inventory shortages or excesses
We typically operate our business with a relatively short backlog. As a result, we sometimes experience inventory
shortages or excesses. We generally order supplies and otherwise plan our production based on internal forecasts of
demand. We have in the past, and may again in the future, fail to forecast accurately 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 forecast accurately demand
for our products, including assembly equipment, packaging materials and test interconnect solutions, our business,
financial condition and operating results may be materially and adversely affected.
Advanced packaging technologies other than wire bonding may render some of our products obsolete
Advanced packaging technologies have emerged that may improve device performance or reduce the size of an integrated
circuit package, as compared to traditional die and wire bonding. These technologies include flip chip and chip scale
packaging. Some of these advanced technologies eliminate the need for wires to establish the electrical connection
46
between a die and its package. 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 packaging technologies were to occur, demand for our wire bonders and related packaging materials may be
materially and adversely affected.
A decline in demand for any of our products could cause our revenues to decline significantly
If demand for, or pricing of, our wire bonders or test interconnect solutions declines because our competitors introduce
superior or lower cost systems, the semiconductor industry changes or demand for our products declines because of other
events beyond our control, our business, financial condition and operating results could be materially and adversely
affected.
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 our semiconductor assembly equipment, packaging materials and test interconnect solutions. Sales
to a relatively small number of customers account for a significant percentage of our net sales. In fiscal 2003 and 2002,
sales to Advanced Semiconductor Engineering accounted for 13% and 12%, respectively, of our net sales. In fiscal 2001,
no customer accounted for more than 10% of our net sales.
We expect that sales of our products to a small number of customers will continue to account for a high percentage of our
net sales for the foreseeable future. Thus, our business success depends on our ability to maintain strong relationships with
our important customers. Any one of a number of factors could adversely affect these relationships. If, for example,
during periods of escalating demand for our equipment, we are unable to add inventory and production capacity quickly
enough to meet the needs of our customers, they may turn to other suppliers making it more difficult for us to retain their
business. Similarly, if we are unable for any other reason to meet production or delivery schedules, particularly during a
period of escalating demand, our relationships with our key customers could be adversely affected. If we lose orders from
a significant customer, or if a significant customer reduces its orders substantially, these losses or reductions may
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. 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 having a high degree of reliability,
accuracy and performance. We rely on subcontractors to manufacture many of these components and subassemblies 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:
•
•
lack of control over the manufacturing process for components and subassemblies;
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 suppliers, which may limit their
ability to manufacture and sell subassemblies, components or parts in the volumes we require and at acceptable
quality levels and prices;
the risk of reliability or quality problems with certain key subassemblies provided by single source suppliers as to
which we may not have any short term alternative;
shortages caused by disruptions at our suppliers and subcontractors for a variety of reasons, including work stoppage,
fire, earthquake, flooding or other natural disasters;
47
•
•
delays in the delivery of raw materials or subassemblies, which, in turn, may delay 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, our business,
financial condition and operating results may be materially and adversely affected.
Our diversification presents significant management and operating challenges
During fiscal 2001, we acquired two companies that design and manufacture test interconnect solutions, Cerprobe
Corporation and Probe Technology Corporation, and combined their operations to create our test division. Since its
acquisition in 2001, our test interconnect business has not performed to our expectation. Problems include difficulty in
rationalizing duplicated products and facilities, and in integrating these acquisitions. Our plan to correct these problems
centers on the following steps: standardize production processes between the various test manufacturing sites, create and
ramp production of our highest volume products in a new low cost site in China and/or outsource production where
appropriate, then rationalize excess capacity by converting existing high cost, low volume manufacturing sites to service
centers. These plans will not mature before the second half of fiscal 2004, and if we are unable to successfully implement
this plan or another, our operating margins and results of operations will continue to be adversely affected by the
performance of our test interconnect segment.
More generally, our diversification strategy has increased demands on our management, financial resources and
information and internal control systems. Our success will depend in part on our ability to manage and integrate our test
interconnect and equipment and packaging materials businesses and to continue successfully to implement, improve and
expand our systems, procedures and controls. If we fail successfully to integrate our existing businesses or businesses that
we may subsequently acquire or to develop the necessary internal procedures to manage diversified businesses, our
business, financial condition and operating results may be materially and adversely affected.
Although we have no current plans to do so, we may from time to time in the future seek to expand our business through
acquisition. In that event, the success of any such acquisition will depend on our ability to integrate and finance (on
acceptable terms) the acquisition.
We may be unable to continue to compete successfully in the highly competitive semiconductor equipment, packaging
materials and test interconnect solutions industries
The semiconductor equipment, packaging materials and test interconnect solutions industries are very competitive. In the
semiconductor equipment and test interconnect solutions markets, significant competitive factors include performance,
quality, customer support and price. In the semiconductor packaging materials industry competitive factors 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 who 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. Our competitors may independently develop technology that is
similar to or better than ours. 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 may materially and adversely affect our
48
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. If we cannot compete successfully, we could be forced to reduce prices, lose customers
and market share and experience reduced margins and profitability.
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 provisions) 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. We may not be successful in protecting our technology for a number of reasons,
including:
•
•
•
employees, vendors, consultants and customers may violate their contractual agreements, and the cost of enforcing
those agreements may be prohibitive, or those agreements may 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; our patents or
copyrights may be challenged, invalidated or circumvented; or 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. Industry participants often develop products and features similar to those introduced by others, creating
a 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 have infringed 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 are parties to litigation brought by the Lemelson Medical, Education and Research Foundation
Limited Partnership (the “Lemelson Foundation”), in which the Lemelson Foundation claims that certain manufacturing
processes used by those customers infringe patents held by the Lemelson Foundation. We have never been named a party
to any such litigation. Some customers have requested that we indemnify them to the extent their liability for these claims
arises from use of our equipment. We do not believe that products sold by us infringe valid Lemelson patents. If a claim
for contribution were to be brought against us, we believe we would have valid defenses to assert and also would have
rights to contribution and claims against our suppliers. We have not incurred any material liability with respect to the
Lemelson claims or any other pending intellectual property claim and we do not believe that these claims will materially
and adversely affect our business, financial condition or operating results. The ultimate outcome of any infringement or
misappropriation claim that might be made, however, is uncertain and we cannot assure you that the resolution of any
such claim would not materially and adversely affect our business, financial condition and operating results.
49
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,
including potential shutdown of operations.
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 for,
among other matters, remediation, 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.
Other Risks
We may be unable to sell our Flip Chip business
We previously announced our intention to sell our Flip Chip business, if satisfactory arrangements can be negotiated. If
we are unable to accomplish that sale, we will either continue to operate the Flip Chip business, which has not been
profitable to date, or close it, which could result in significant closure costs.
We have significant intangible assets and goodwill, which we are required to evaluate annually
In fiscal 2003, we recorded a substantial write-down of goodwill. However, our financial statements continue to reflect
significant intangible assets and goodwill. As discussed under Management’s Discussion and Analysis , we are required to
perform an impairment test at least annually to support the carrying value of goodwill and intangible assets. Should we be
required to recognize additional intangible or goodwill impairment charges, our financial condition would be adversely
affected.
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 stockholder 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 stockholder approval.
Further, under the Pennsylvania Business Corporation Law, because our bylaws provide for a classified board of
directors, stockholders may only remove directors for cause. These provisions and some other 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.
50
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 affect our operations. 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 and manufacturing facilities in the United States, Israel, Singapore and China. 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 affect the sales of our
products in the United States and overseas. The conflicts in Afghanistan, Israel, and Iraq or any broader conflict 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.
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 is affected by the volatile nature of our business, and general
economic, competitive and other factors that are beyond our control. Our indebtedness poses risks to our business,
including that:
• we must use a substantial portion of our consolidated cash flow from operations to pay principal and interest on our
debt, thereby reducing the funds available for working capital, capital expenditures, acquisitions, product
development and other general corporate purposes;
•
insufficient cash flow from operations may force us to sell assets, or seek additional capital, which we may be unable
to do at all or on terms favorable to us; and
•
our level of indebtedness may make us more vulnerable to economic or industry downturns.
We have the ability to issue additional equity securities, which would lead to dilution of our issued and outstanding
common stock
The issuance of additional equity securities or securities convertible into equity securities will result in dilution of existing
stockholders’ equity interests in us. Our board of directors has the authority to issue, without vote or action of
stockholders, shares of preferred stock in one or more series, and has the ability to fix the rights, preferences, privileges
and restrictions of any such series. Any such series of preferred stock could contain dividend rights, conversion rights,
voting rights, terms of redemption, redemption prices, liquidation preferences or other rights superior to the rights of
holders of our common stock. Our board of directors has no present intention of issuing any such preferred stock, but
reserves the right to do so in the future. In addition, we are authorized to issue, without stockholder approval, up to an
aggregate of 200 million shares of common stock, of which approximately 50.1 million shares were outstanding as of
September 30, 2003. We are also authorized to issue, without stockholder approval, securities convertible into either
shares of common stock or preferred stock.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
At September 30, 2003, we had a non-trading investment portfolio of fixed income securities, excluding those classified as
cash and cash equivalents, of $4.5 million (see Note 6 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,
2003, the fair market value of the portfolio would decline by approximately $5 thousand.
Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated Financial Statements of Kulicke and Soffa Industries, Inc. listed in the index appearing under Item 15 (a)(1)
herein are filed as part of this Report.
51
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52
REPORT OF INDEPENDENT AUDITORS
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 15(a)(1) present fairly, in all
material respects, the financial position of Kulicke and Soffa Industries, Inc. and its subsidiaries at September 30, 2003
and September 30, 2002, and the results of their operations and their cash flows for each of the three years in the period
ended September 30, 2003 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 15(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, in fiscal 2002, the Company adopted Statement of
Financial Accounting Standards No. 142 “Goodwill and Other Intangible Assets” and in fiscal 2001, the Company
adopted Staff Accounting Bulletin No. 101 (SAB 101), “Revenue Recognition in Financial Statements”.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
November 19, 2003
53
KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Restricted cash
Short-term investments
Accounts and notes receivable, (net of allowance for doubtful
accounts: 9/30/02 - $6,033; 9/30/03 - $5,929)
Inventories, net
Prepaid expenses and other current assets
Deferred income taxes
TOTAL CURRENT ASSETS
Property, plant and equipment, net
Intangible assets, (net of accumulated amortization:
9/30/02 - $16,927; 9/30/03 - $26,187)
Goodwill
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
TOTAL LIABILITIES
Commitments and contingencies
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: 2002 - 49,414; 2003 - 50,092
Retained earnings (deficit)
Accumulated other comprehensive loss
TOTAL SHAREHOLDER’S EQUITY
September 30,
2002
September 30,
2003
$
85,986
3,180
22,134
$
65,725
2,836
4,490
89,132
50,887
10,508
16,072
277,899
89,742
75,509
87,107
8,425
538,682
$
$
186
55,659
52,581
9,660
118,086
300,393
14,106
36,774
469,359
94,144
37,906
11,187
10,700
226,988
61,238
66,249
81,440
6,946
442,861
$
$
36
45,844
41,885
13,394
101,159
300,338
9,865
31,402
442,764
-
-
199,886
(119,103)
(11,460)
69,323
203,607
(195,792)
(7,718)
97
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
$
538,682
$
442,861
The accompanying notes are an integral part of these consolidated financial statements.
54
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
Goodwill impairment
Amortization of goodwill and intangibles
Purchased in-process research and development
Loss from operations
Interest income
Interest expense
Loss on sale of product lines
Other income and minority interest
Loss before income taxes
Provision (benefit) for income taxes
Loss before cumulative effect of
change in accounting principle
Cumulative effect of change in accounting principle,
net of tax of $4,395
Net loss
Net 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 loss per share:
Basic
Diluted
Weighted average shares outstanding:
Basic
Diluted
Fiscal Year Ended September 30,
2001
2002
2003
$
555,003
$
464,660
$
494,321
392,604
162,399
141,751
62,727
4,166
800
-
22,810
11,709
(81,564)
8,398
(13,933)
-
8,368
(78,731)
(21,643)
365,799
98,861
139,134
52,948
19,661
31,594
74,295
9,864
-
(228,635)
3,758
(18,687)
-
2,010
(241,554)
32,561
370,881
123,440
106,868
38,965
(475)
10,502
5,667
9,260
-
(47,347)
940
(17,431)
(5,257)
-
(69,095)
7,594
(57,088)
(274,115)
(76,689)
(8,163)
-
-
$
(65,251)
$
(274,115)
$
(76,689)
$
$
(1.17)
(1.17)
$
$
(5.57)
(5.57)
$
$
(1.54)
(1.54)
$
$
(0.17)
(0.17)
-
$
$
-
$
-
$
-
$
$
(1.34)
(1.34)
$
$
(5.57)
(5.57)
$
$
(1.54)
(1.54)
48,877
48,877
49,217
49,217
49,695
49,695
The accompanying notes are an integral part of these consolidated financial statements.
55
KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss
Adjustments to reconcile net 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 fixed and intangible assets
Impairment of goodwill
Loss on sale of product lines
Deferred taxes
Provision for inventory valuations
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 and sold businesses:
Accounts receivable
Inventories
Prepaid expenses and other assets
Accounts payable and accrued expenses
Taxes payable
Other, net
Net cash provided by (used in) operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investments classified as available for sale
Purchase of investments classified as available for sale
Purchases of plant and equipment
Purchase of Flip Chip
Purchase of Probe Tech, net of cash acquired
Purchase of Cerprobe, net of cash acquired
Proceeds from sale of property and equipment
Net cash provided by (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
Restricted cash
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
Supplemental Disclosures:
Cash payments for interest
Cash payments for income taxes
Fiscal Year Ended September 30,
2001
2002
2003
$
(65,251)
$
(274,115)
$
(76,689)
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
214,766
(158,126)
(48,636)
(5,000)
(62,512)
(217,415)
8,338
(268,585)
120,749
20,000
(1,652)
-
1,102
140,199
64
(56,453)
44,315
329
158
31,594
74,295
-
32,808
14,362
(10)
-
5,061
(10,188)
9,076
(1,853)
7,855
(4,739)
(951)
(72,003)
59,224
(33,850)
(20,385)
(96)
1,472
-
-
6,365
-
-
(1,685)
(3,180)
1,438
(3,427)
15
(69,050)
37,852
89
519
10,502
5,667
5,257
-
3,490
-
-
2,230
(5,531)
2,454
(1,138)
(18,142)
3,734
604
(29,102)
26,287
(8,603)
(10,975)
-
-
-
1,643
8,352
-
-
(205)
344
424
563
(74)
(20,261)
211,489
155,036
$
155,036
85,986
$
85,986
65,725
$
$
$
11,300
7,800
$
$
15,400
9,200
$
$
15,700
4,800
The accompanying notes are an integral part of these consolidated financial statements.
56
KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(in thousands)
Balances at September 30, 2000
48,716
$
189,766
$
220,263
$
(4,687)
$
405,342
Common Stock
Shares
Amount
Retained
Earnings
Accumulated
Other
Comprehensive
Shareholders’
Loss
Equity
Employer contribution to the Company's 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
Balances at September 30, 2001
Employer contribution to the Company's 401K plan
Exercise of stock options
Tax benefit from exercise of stock options
Modification of stock options for terminated employees
Components of comprehensive income:
Net loss
Translation adjustment
Unrealized loss on investments, net
Minimum pension liability (net of taxes
of $1,294)
Total comprehensive loss
Balances at September 30, 2002
Employer contribution to Company's 401K plan
Employer contribution to Company's pension 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
Minimum pension liability (net of taxes
of $397)
Total comprehensive loss
Balances at September 30, 2003
153
165
-
-
-
-
-
1,942
1,102
248
-
-
-
-
-
-
-
(65,251)
-
-
-
-
-
-
-
(2,226)
280
(2,890)
1,942
1,102
248
(65,251)
(2,226)
280
(2,890)
(70,087)
49,034
$
193,058
$
155,012
$
(9,523)
$
338,547
214
166
2,478
1,438
329
2,583
(274,115)
730
(264)
(2,403)
2,478
1,438
329
2,583
(274,115)
730
(264)
(2,403)
(276,052)
49,414
$
199,886
$
(119,103)
$
(11,460)
$
69,323
429
150
99
2,230
987
415
89
(76,689)
2,953
51
738
2,230
987
415
89
(76,689)
2,953
51
738
(72,947)
50,092
$
203,607
$
(195,792)
$
(7,718)
$
97
The accompanying notes are an integral part of these consolidated financial statements.
57
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These consolidated financial statements include the accounts of Kulicke and Soffa Industries, Inc. and its subsidiaries (the
“Company”), with appropriate elimination of intercompany balances and transactions.
Nature of Business – The Company designs, manufactures and markets capital equipment, packaging materials and test
interconnect solutions and service, maintain, repair and upgrade assembly equipment. The Company also provides
semiconductor wafer solder-bumping interconnect (flip chip bumping) services for sale to companies that manufacture
and assemble semiconductor devices. The Company also licenses its flip chip bumping process. 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 is highly volatile and experiences periodic downturns and slowdowns which
have 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, carrying value and lives of fixed assets, goodwill and intangible assets, valuation allowances for deferred tax
assets, deferred tax liabilities for undistributed earnings of certain foreign subsidiaries, self insurance reserves, pension
benefit liabilities, resizing, warranty and litigation. 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, 2003 and 2002 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, 2003 and
2002 included notes receivable of $920 thousand and $50 thousand, respectively. Write-offs of uncollectible accounts
have historically not been significant.
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)). The fair market value of trading and available-
for-sale securities are determined using quoted market prices at the balance sheet date. Investments classified as held-to-
58
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. The
Company generally provides reserves for equipment inventory and spare parts and consumable inventories 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 10 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.
Property is tested for recoverability whenever events or changes in circumstances indicate that its carrying value may not
be recoverable. Such events include significant adverse changes in the business climate, current period operating or cash
flow losses, forecasted continuing losses or a current expectation that an asset group will be disposed of before the end of
its useful life. Recoverability of property is evaluated by a comparison of the carrying amount of an asset or asset group to
future net undiscounted cash flows expected to be generated by the asset or asset group. If these comparisons indicate that
an asset is not recoverable, the impairment loss recognized is the amount by which the carrying amount of the asset
exceeds the estimated fair value.
Goodwill and Intangible Assets - Effective October 1, 2001, the Company adopted SFAS 142, Goodwill and Other
Intangible Assets. The intangible assets that are classified as goodwill and those with indefinite lives will no longer be
amortized under the provisions of this standard. Intangible assets with determinable lives will continue to be amortized
over their estimated useful life. The Company amortizes its intangible assets with determinable lives on a straight-line
basis over the estimated period to be benefited by the intangible assets which it estimates to be 10 years. The standard also
requires that an impairment test be performed to support the carrying value of goodwill and intangible assets at least
annually. The Company’s goodwill impairment test utilizes discounted cash flows to determine fair value and
comparative market multiples to corroborate fair value. The Company’s intangible assets other than goodwill are tested
for impairment based on undiscounted cash flows, and if impaired, written-down to fair value based on either discounted
cash flows or appraised values. The Company’s intangible assets are comprised of customer accounts and complete
technology in its test interconnect business segment. The Company manages and values its complete technology in the
aggregate as one asset group.
Asset Retirement Obligations - In August 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS 143,
Accounting for Obligations Associated with the Retirement of Long-Lived Assets. This standard provides guidance for
financial reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset
retirement costs. It also provides guidance for 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. The Company adopted this standard effective October 1, 2002 and the cumulative effect of
adoption was not material. The adoption did not have a material impact on the Company’s financial position and results of
operations, however this standard could impact the Company’s financial position and results of operations in future
periods.
In August 2001, the FASB issued SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets,”
which supersedes SFAS No. 121. This standard provides a single accounting model for long-lived assets to be disposed of
by sale and establishes additional criteria that would have to be met to classify an asset as held for sale. The carrying
amount of an asset or asset group is not recoverable if it exceeds the sum of the undiscounted cash flows expected to
result from the use and eventual disposition of the asset or asset group. Estimates of future cash flows used to test the
recoverability of a long-lived asset or asset group must incorporate the entity’s own assumptions about its use of the asset
or asset group and must factor in all available evidence. SFAS No. 144 requires that long-lived assets be tested for
recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable.
Such events include significant under-performance relative to the expected historical or projected future operating results;
59
significant changes in the manner of use of the assets; significant negative industry or economic trends and significant
changes in market capitalization.
In the fourth quarter of Fiscal 2003, the Company completed the sale of its sawing and hard material blade product lines
as well as its polymer product line. As a result of these transaction, the Company recorded a loss of $5.3 million made up
of asset write-offs of $6.5 million offset by cash proceeds of $1.2 million.
As of September 30, 2003, the Company recognized a $6.9 million impairment charge associated with its flip chip
business unit. The present value of flip chip’s future cash flows was less than the remaining carrying value. As a result, an
asset impairment charge was recorded to reduce the carrying value of flip chip to its fair value.
Accounting for Costs Associated with Exit or Disposal Activities - In June 2002, the FASB issued SFAS 146, Accounting
for Exit or Disposal Activities which addresses significant issues regarding the recognition, measurement, and reporting of
costs that are associated with exit and disposal activities, including restructuring activities that are currently accounted for
pursuant to the guidance that the Emerging Issues Task Force (EITF) has set forth in EITF 94-3, Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring). The standard is effective for exit or disposal activities that are initiated after December 31, 2002. The
Company has adopted this standard and the adoption did not have a material impact on the Company’s financial position
and results of operations, however, this standard will in certain circumstances change the timing of recognition of
restructuring (resizing) costs.
Foreign Currency Translation – The functional currency of each of the Company’s subsidiaries is the currency in which
the majority of their transactions occur. However, the majority of the Company’s business is transacted in U.S. dollars.
For the Company subsidiaries that have a functional currency other than the U.S. dollar, gains and losses resulting from
the translation of the functional currency into U.S. dollars for financial statement presentation 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 $(1.4) million, $120 thousand and $700 thousand, for the fiscal years ended
September 30, 2003, 2002 and 2001, 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 is otherwise released from its 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. The Company’s standard terms are Ex
Works (K&S factory), with title transferring to its customer at the Company’s loading dock or upon embarkation. The
Company does have a small percentage of sales with other terms, and revenue is recognized in accordance with the terms
of the related customer purchase order. 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.
60
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 would be recognized
in future periods as the revenue recognition criteria was met. In fiscal 2002, the Company recognized net sales of $6.3
million of the $26.5 million of sales deferred upon adoption and $2.1 million of associated after-tax profit. No additional
revenue was deferred during fiscal 2002. At September 30, 2003, deferred revenue was approximately $300 thousand.
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 2003, 2002 and 2001, reductions to research and development expense related to such funding
totaled $383 thousand, $426 thousand and $1.0 million, respectively. It is the Company’s policy to expense all internally
funded R & D spending as incurred.
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. The Company records a valuation allowance
to reduce its deferred tax assets to the amount that is more likely than not to be realized.
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 include 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, when such instruments are dilutive.
Accounting for Stock-based Compensation – The Company accounts for stock option grants using the “intrinsic value
method” prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB
No. 25”), and discloses the pro forma effect on net income and earnings per share as if the fair value method had been
applied to stock option grants, in accordance with SFAS 123, Accounting For Stock-Based Compensation. (see Note 9) .
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 Activiti es. 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. The effect
in fiscal 2003 was not material.
In April 2002, the FASB issued SFAS 145, Recission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections. In rescinding FASB Statement No. 4 and FASB No. 64, FASB 145
61
eliminates the requirement that gains and losses from the extinguishment of debt be aggregated and, if material, classified
as an extraordinary item, net of the related income tax effect, however, an entity would not be prohibited from classifying
such gains and losses as extraordinary items so long as they meet the criteria of paragraph 20 of APB 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. Further, the Statement amends SFAS 13 to eliminate an inconsistency
between the accounting for sale leaseback transactions and certain lease modifications that have economic effects that are
similar to sale leaseback transactions. The Company adopted this standard and the adoption did not have a material impact
on its financial position and results of operations.
In November 2002, the FASB issued Interpretation No. 45 (FIN 45), Guarantor’s Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others . FIN 45 requires a guarantor to
recognize, at the inception of a guarantee, a liability for the obligations it has undertaken in issuing the guarantee. The
Interpretation also incorporates, without change, the guidance in FASB Interpretation No. 34, “Disclosure of Indirect
Guarantees of Indebtedness of Others “ which is being superseded. The recognition and measurement provisions of this
Interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The
Company has adopted this standard and the adoption did not have a material impact on its financial position and results of
operations, however this standard could impact the Company’s financial position and results of operations in future
periods ( See Note 15).
In January 2003, the FASB issued Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities, an
Interpretation of ARB No. 51 . FIN 46 requires certain variable interest entities to be consolidated by the primary
beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial
interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated
financial support from other parties. FIN 46 is effective immediately for all new variable interest entities created or
acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions
of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. The Company has
identified a business enterprise that qualifies as a variable interest entity and will consolidate the entity into the
Company’s financial statements in accordance with the new requirements beginning with the quarter ending December
31, 2003. The impact of this change will increase the Company’s assets and liabilities by approximately $6.0 million.
In December 2002, the FASB issued SFAS 148, Accounting for Stock-Based Compensation-Transition and Disclosure.
This Statement amends FASB Statement No. 123, Accounting for Stock-Based Compensation, to provide alternative
methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee
compensation. In addition, this Statement amends the disclosure requirements of Statement 123 to require prominent
disclosures in both annual and interim financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. The standard is effective for financial statements for
fiscal years ending after December 15, 2002. The Company has adopted the disclosure provisions of this standard.
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 weighted averages of 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,
2001
-
76.90%
5.99%
7
2002
-
82.95%
5.40%
7
2003
-
84.78%
2.89%
5
62
For pro forma purposes, the estimated fair value of the Company’s stock options to employees and directors is amortized
over the options’ vesting period. The Company’s pro forma information follows:
(net loss in thousands)
Fiscal Year Ended September 30,
2002
2003
2001
Net loss, as reported
$
(65,251)
$
(274,115)
$
(76,689)
Deduct: Total stock-based compensation
expense determined under fair value based
method for all awards, net of related tax effects
Pro forma net loss
Loss per share:
Basic-as reported
Basic-pro forma
Dilued - as reported
Diluted - pro forma
(13,713)
(17,227)
(8,828)
$
(78,964)
$
(291,342)
$
(85,517)
$
$
(1.34)
(1.62)
$
$
(5.57)
(5.92)
$
$
(1.54)
(1.72)
$
$
(1.34)
(1.62)
$
$
(5.57)
(5.92)
$
$
(1.54)
(1.72)
In April 2003, the FASB issued Statement of Financial Accounting Standards No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities (SFAS No. 149). SFAS No. 149 amends and clarifies financial accounting
and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for
hedging activities under FASB Statement No. 133 , Accounting for Derivative Instruments and Hedging Activities . SFAS
No. 149 is generally effective for contracts entered into or modified after June 30, 2003, and for hedging relationships
designated after June 30, 2003. The Company does not expect the adoption of the standard will have a material impact on
its financial position and results of operations.
In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150 , Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity (SFAS No. 150). SFAS No. 150 establishes standards for
how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some
circumstances). SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and
otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Company does not
expect the adoption of the standard will have a material impact on its 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: RESIZING COSTS
The semiconductor industry is volatile, with sharp periodic downturns and slowdowns. The industry experienced excess
capacity and a severe contraction in demand for semiconductor manufacturing equipment from 2001 through most of 2003.
In fiscal 2002 and 2001, the Company developed resizing plans in response to these changes in the business environment
with the intent to align its cost structure with anticipated revenue levels. Expenses associated with these cost containment
activities were incurred and included downsizing and facility consolidations. Accounting for resizing activities requires an
evaluation of formally agreed upon and approved plans. Although the Company made every attempt to consolidate all known
resizing activities into one plan, the extreme cycles and rapidly changing forecasting environment places limitations on
achieving this objective. The recognition of a resizing event does not necessarily preclude similar but unrelated actions in
future periods.
63
In the fiscal 2003 the Company reversed $475 thousand of these resizing charges due to the actual severance cost
associated with the terminated positions being less than those originally estimated. The Company recorded resizing
charges of $19.7 million in fiscal 2002 and $4.2 million in fiscal 2001.
In addition to the formal resizing plans identified below, the Company continued to downsize its operations in fiscal 2003
and 2002. These downsizing efforts resulted in workforce reduction charges (severance) of $5.6 million in fiscal 2003 and
$5.0 million in fiscal 2002 which were recorded as selling, general and administrative expenses and facility closure
charges of $1.4 million in fiscal 2003 and $1.9 million in fiscal 2002 which were recorded as asset impairments.
A summary of the formal resizing plans initiated in fiscal 2002 and 2001 and acquisition restructuring plans initiated in fiscal
2001 appears below:
Fiscal 2001 and 2002 Resizing Plans and
Acquisition Restructurings
Severance and
Benefits
Commitments
Total
(in thousands)
Provision for resizing plans in fiscal 2001
Acquisition restructurings
Payment of obligations in fiscal 2001
Balance, September 30, 2001
Provision for resizing plans in fiscal 2002
Payment of obligations in fiscal 2002
Balance, September 30, 2002
Change in estimate
Payment of obligations in fiscal 2003
Balance, September 30, 2003
$
4,166
84
(2,101)
2,149
10,379
(7,551)
4,977
(475)
(3,590)
$ 912
-
$
1,402
(213)
1,189
9,282
(1,470)
9,001
(3,211)
$ 5,790
$
4,166
1,486
(2,314)
3,338
19,661
(9,021)
13,978
(475)
(6,801)
$ 6,702
The remaining balance of the resizing costs are included in accrued liabilities.
The individual resizing plans and acquisition restructuring plans initiated in fiscal 2002 and 2001 are identified below:
Charges in Fiscal Year 2002
Fourth Quarter 2002
In the fourth quarter of fiscal 2002, the Company announced that it would close its substrate operations due to its high capital
and operating cash requirements. As a result, the Company recorded a resizing charge of $8.5 million. The resizing charge
included a severance charge of $1.2 million for the elimination of 48 positions and lease obligations of $7.3 million. By June
30, 2003 all the positions had been eliminated. The plans have been completed but cash payments for the severance charge
are expected to continue through 2004 and cash payments for the lease obligations are expected to continue into 2006, or
such time as the obligations can be satisfied. In addition to these resizing charges, in the fourth quarter of fiscal 2002, the
Company wrote-off $7.3 million of fixed assets and $1.1 million of intangible assets associated with the closure of the
substrate operation.
64
The resizing costs were included in accrued liabilities. The table below details the activity related to this resizing program
during fiscal 2002 and 2003:
Fourth Quarter 2002 Charge
Provision for resizing
Balance, September 30, 2002
Change in estimate
Payment of obligations
Balance, September 30, 2003
Third Quarter 2002
Severance and
Benefits
$ 1,231
1,231
(102)
(1,051)
78
$
(in thousands)
Commitments
Total
$ 7,280
7,280
-
(2,401)
4,879
$
$
$
8,511
8,511
(102)
(3,452)
4,957
In the third quarter of fiscal 2002, the Company announced a resizing plan to reduce headcount and consolidate
manufacturing in its test division. The resizing plan was a result of the Company’s decision to move towards a 24 hour per-
day manufacturing model in its major U.S. wafer test facility, which would provide its customers with faster turn-around
time and delivery of orders and economies of scale in manufacturing. As part of this plan, the Company moved
manufacturing of wafer test products from its facilities in Gilbert, Arizona and Austin, Texas to its facility in San Jose,
California and Dallas, Texas and from its Kaohsuing, Taiwan facility to its Hsin Chu, Taiwan facility. The resizing plan
includes a severance charge of $1.6 million for the elimination of 149 positions as a result of the manufacturing
consolidation. At September 30, 2003, all of the positions had been eliminated. The resizing plan also includes a charge of
$0.5 million associated with the closure of the Kaohsuing, Taiwan facility and an Austin, Texas facility representing costs of
non-cancelable lease obligations beyond the facility closure and costs required to restore the production facilities to their
original state. Both facilities have been closed. The plans have been completed but cash payments for the severance are
expected to continue through 2005 and cash payments for facility and contractual obligations are expected to continue
through 2004, or such time as the obligations can be satisfied.
The resizing costs were included in accrued liabilities. The table below details the activity related to this resizing program
during fiscal 2002 and 2003.
Third Quarter 2002 Charge
Provision for resizing
Payment of obligations
Balance, September 30, 2002
Payment of obligations
Balance, September 30, 2003
Second Quarter 2002
(in thousands)
Severance and
Benefits
Commitments
Total
$ 1,652
$ 452
$
2,104
(547)
1,105
(800)
305
$
(219)
233
(72)
161
$
(766)
1,338
(872)
466
$
In the second quarter of fiscal 2002, the Company announced a resizing plan comprised of a functional realignment of
business management and the consolidation and closure of certain facilities. In connection with the resizing plan, the
Company recorded a charge of $11.3 million, consisting of severance and benefits of $9.7 million for 372 positions that were
to be eliminated as a result of the functional realignment, facility consolidation, the shift of certain manufacturing to China
(including our hub blade business) and the move of the Company’s microelectronics products to Singapore and a charge of
$1.6 million for the cost of lease commitments beyond the closure date of facilities to be exited as part of the facility
consolidation plan.
To reduce the Company’s short term cash requirements, the Company decided, in the fourth quarter of fiscal 2002, not to
relocate either its hub blade manufacturing facility from the United States to China or its microelectronics product
65
manufacturing from the United States to Singapore, as previously announced. This change in the Company’s facility
relocation plan resulted in a reversal of $1.6 million of the severance resizing costs recorded in the second quarter of fiscal
2002.
As a result of the functional realignment, the Company terminated employees at all levels of the organization from factory
workers to vice presidents. The organizational change shifted management of the Company businesses to functional (i.e.
sales, manufacturing, research and development, etc.) areas across product lines rather than by product line. For example,
research and development activities for the entire company are now controlled and coordinated by one corporate vice
president under the functional organizational structure, rather than separately by each business unit. This structure provides
for a more efficient allocation of human and capital resources to achieve corporate R&D initiatives.
In the second quarter of fiscal 2002, the Company closed five test facilities: two in the United States, one in France, one in
Malaysia, and one in Singapore. These operations were absorbed into other company facilities. The resizing charge for the
facility consolidation reflects the cost of lease commitments beyond the exit date that is associated with these closed test
facilities.
The plans have been completed but cash payments for the severance charges and the facility and contractual obligations are
expected to continue through 2004, or such time as the obligations can be satisfied.
In the fourth quarter of fiscal 2002, the Company reversed $600 thousand of the severance resizing expenses and in the
fourth quarter of fiscal 2003 the Company reversed $353 thousand of resizing expenses, previously recorded in the second
quarter of fiscal 2002, due to actual severance costs associated with the terminated positions being less than those estimated
as a result of employees leaving the Company before they were severed.
The resizing costs were included in accrued liabilities. The table below details the activity related to this resizing program
during fiscal 2002 and 2003.
Second Quarter 2002 Charge
Provision for resizing
Change in estimate
Payment of obligations
Balance, September 30, 2002
Change in estimate
Payment of obligations
Balance, September 30, 2003
Severance and
Benefits
$ 9,733
(2,237)
(5,367)
2,129
(353)
(1,284)
492
$
(in thousands)
Commitments
Total
$
(1)
(1)
$ 1,550
-
(81)
1,469
-
(719)
750
$
11,283
(2,237)
(5,448)
3,598
(353)
(2,003)
1,242
$
(1) Includes $2.6 million non-cash charge for modifications of stock option awards that were granted prior to December 31,
2001 to the employees affected by the resizing plans in accordance with our annual grant of stock options to employees.
Charges in Fiscal Year 2001
Fourth Quarter 2001
In the quarter ended September 30, 2001, the Company announced a resizing plan to close a bonding wire facility in the
United States, and recorded a resizing charge for severance of $2.4 million for the elimination of 215 positions, all of which
had been terminated at September 30, 2002. Also in the fourth quarter of fiscal 2001, the Company recorded an increase to
goodwill of $0.8 million in connection with the acquisition of Probe Tech for additional lease costs associated with the
elimination of four duplicate facilities in the United States. The plans have been completed but cash payments for the
severance charge are expected to continue into 2004.
66
The resizing costs were included in accrued liabilities. The table below details the activity related to this resizing program
during fiscal 2001, 2002 and 2003.
Fourth Quarter 2001 Charge
Provision for resizing
Acquisition restructuring
Payment of obligations
Balance, September 30, 2001
Payment of obligations
Balance, September 30, 2002
Change in estimate
Payment of obligations
Balance, September 30, 2003
Second Quarter 2001
Severance and
Benefits
$
2,457
-
(402)
2,055
(1,543)
512
(20)
(455)
$
37
(in thousands)
Commitments
Total
-
$
840
-
840
$
2,457
840
(402)
2,895
(840)
-
(2,383)
512
(20)
-
$
-
$
(455)
37
In the quarter ended March 31, 2001, the Company announced a 7.0% reduction in its workforce. As a result, the Company
recorded a resizing charge for severance of $1.7 million for the elimination of 296 positions across all levels of the
organization, all of which were terminated prior to June 30, 2002. In connection with the Company’s acquisition of Probe
Tech, it also recorded an increase to goodwill of $0.6 million for severance, lease and other facility charges related to the
elimination of four leased Probe Tech facilities in the United States which were found to be duplicative with the Cerprobe
facilities. The plans have been completed and there are no additional cash obligations related to this program.
The resizing costs were included in accrued liabilities. The table below details the activity related to this resizing program
during fiscal 2001, 2002 and 2003.
Second Quarter 2001 Charge
Provision for resizing
Acquisition restructuring
Payment of obligations
Balance, September 30, 2001
Payment of obligations
Balance, September 30, 2002
Payment of obligations
Balance, September 30, 2003
NOTE 3: ASSET IMPAIRMENT
Severance and
Benefits
$
1,709
84
(1,699)
94
(94)
-
-
$
-
(in thousands)
Commitments
Total
-
$
562
(213)
349
(330)
19
(19)
$
-
$
1,709
646
(1,912)
443
(424)
19
(19)
$
-
In addition to resizing costs (see Note 2), the Company terminated several of its major initiatives in its effort to more
closely align its cost structure with expected revenue levels and wrote-down certain assets to their estimated fair market
value. As a result, the Company recorded asset impairment charges of $10.5 million in fiscal 2003, $31.6 million in fiscal
2002 and $800 thousand in fiscal 2001.
Fiscal 2003
In fiscal 2003, the Company recorded an asset impairment charge of $10.5 million. The charge included: $6.9 million in
its flip chip business unit to write-down assets to their estimated fair market value; $1.7 million associated with
67
manufacturing equipment for a discontinued test product; $1.2 million associated with manufacturing equipment in a
downsized test facility in Dallas, Texas; and $730 thousand resulting from the write-down of assets that were sold and
assets that became obsolete. In the fourth quarter of fiscal 2003, the Company completed the sale of its sawing and hard
material blades product lines as well as its polymer product line. As a result of these transactions, the Company recorded a
loss of $5.3 million made up of asset write-offs of $6.5 million offset by cash proceeds of $1.2 million.
Fiscal 2002
In fiscal 2002, the Company recorded an asset impairment of $31.6 million. The charge included: $16.9 million due to the
cancellation of a company-wide integrated information system; $8.4 million due to the write-off of assets associated with
the closure of the substrates operation; $3.6 million for the write-off of development and license costs of certain
engineering and manufacturing software; $1.4 million of write-offs associated with a closed wire facility in Taiwan; and
$1.3 million related to leasehold improvements at the leased probe card manufacturing facilities in Malaysia and the
United States, which were closed.
Fiscal 2001
In the fourth quarter of fiscal 2001, the Company recorded an asset impairment of $0.8 million related to the closure of a
wire facility in the United States and the disposition of the associated equipment.
NOTE 4: GOODWILL AND INTANGIBLE ASSETS
Effective October 1, 2001, the Company adopted SFAS 142, Goodwill and Other Intangible Assets. The intangible assets
that are classified as goodwill and those with indefinite lives will no longer be amortized under the provisions of this
standard. Intangible assets with determinable lives will continue to be amortized over their estimated useful life. The
standard also requires that an impairment test be performed to support the carrying value of goodwill and intangible assets
at least annually. The Company’s goodwill impairment test utilizes discounted cash flows to determine fair value and
comparative market multiples to corroborate fair value. The Company’s intangible assets other than goodwill are tested
for impairment based on undiscounted cash flows, and if impaired, written-down to fair value based on either discounted
cash flows or appraised values. The Company’s intangible assets are comprised of customer accounts and complete
technology in its test interconnect business segment. The Company manages and values its complete technology in the
aggregate as one asset group.
In fiscal 2002, the Company reviewed its business and determined that there are five reporting units to be reviewed for
impairment in accordance with the standard – the reporting units were: the bonding wire, hub blade, substrate, flip chip
and test businesses. The bonding wire and hub blade businesses are included in the Company’s packaging materials
segment, the substrate and flip chip businesses are included in the Company’s advanced packaging segment and the test
business comprises the Company’s test segment. There is no goodwill associated with the Company’s equipment
segment. Upon adoption of SFAS 142 in the first quarter of fiscal 2002, the Company completed the required transitional
impairment testing of intangible assets, and based upon those analyses, did not identify any impairment charges as a result
of adoption of this standard effective October 1, 2001.
Upon adoption of the standard in fiscal 2002, the Company reclassified $17.2 million of intangible assets relating to an
acquired workforce in the test reporting unit into goodwill and correspondingly reduced goodwill by $4.9 million of
goodwill associated with a deferred tax liability established for timing differences of U.S. income taxes on the workforce
intangible. Also in fiscal 2002, the Company reduced goodwill associated with the test reporting unit by $1.5 million
reflecting the settlement of a purchase price dispute with the former owners of Probe Technology and increased goodwill
associated with its flip chip reporting unit by $96 thousand reflecting an increase in the cost to purchase the former joint
venture partner’s equity share.
The Company has determined that its annual test for impairment of goodwill and intangible assets will take place at the
end of the fourth quarter of each fiscal year, which coincides with the completion of its annual forecasting process. In the
fourth quarter of fiscal 2002, the Company performed its impairment test on each of its five reporting units and
determined that cash flow forecasts did not support the value of goodwill at several of its operating units. As a result, the
68
Company recognized a goodwill impairment loss of $72.0 million of the goodwill associated with its test reporting unit
and a goodwill impairment loss of all the goodwill associated with its hub blade reporting unit in the amount of $2.3
million. In addition, in fiscal 2002 the Company also discontinued its substrate business and wrote-off all the substrate
intangible assets of $1.1 million. In the fourth quarter of fiscal 2003 the Company performed its impairment test on its
three remaining reporting units and determined that goodwill at its flip chip reporting unit could not be supported by its
cash flow forecast. As a result, the Company recognized a goodwill impairment charge on all the goodwill associated with
its flip chip reporting unit in the amount of $5.7 million.
The changes in the value of goodwill from September 30, 2001 to September 30, 2003 appear below:
Goodwill balance as of September 30, 2001
Reclassifications of intangibles upon
adoption of SFAS 142, net of deferred tax
liability of $4.9 million)
Goodwill impairment
Adjustment of purchase price related
to Probe Tech and Flip Chip
(in thousands)
Advanced
Packaging
Technology
Segment
Test
Segment
Packaging
Materials
Segment
$
31,980
$
5,570
$
112,924
Book Value
September 30,
$
150,474
-
(2,295)
-
-
12,304
(72,000)
12,304
(74,295)
(1)
97
(1,472)
(1,376)
Goodwill balance as of September 30, 2002
$
29,684
$
5,667
$
51,756
$
87,107
Goodwill impairment
-
(5,667)
-
(5,667)
Goodwill balance as of September 30, 2003
$
29,684
$
-
$
51,756
$
81,440
The changes in the value of intangible assets from September 30, 2001 to September 30, 2003 appear below:
Intangible balance at September 30, 2001
Reclassifications of intangibles upon
adoption of SFAS 142
Write-off of substrate intangible assets
Adjustment to complete technology
Amortization
Intangible balance at September 30, 2002
Amortization
Intangible balance at September 30, 2003
(in thousands)
Customer
Accounts
Complete
Acquired
Technology Workforce
Total
Intangible
Assets
$
37,675
$
48,669
$
17,181
$
103,525
-
-
(4,112)
33,563
(4,112)
29,451
$
-
(1,091)
142
(5,774)
41,946
(5,148)
36,798
$
(17,181)
-
-
-
-
$
-
(17,181)
(1,091)
142
(9,886)
75,509
(9,260)
66,249
$
At September 30, 2003 all intangible assets are recorded in the test business segment. The aggregate amortization expense
related to these intangible assets for the twelve months ended September 30, 2003 was $9.3 million compared to $9.2
million in fiscal 2002 and $7.7 million in fiscal 2001. The aggregate amortization expense for each of the next five fiscal
years is expected to be $9.3 million.
69
The following table presents pro forma net earnings and earnings per share data reflecting the impact of adoption of SFAS
142 as of the beginning of the first quarter of fiscal 2001:
Customer Accounts
Complete Technology
Total
$
41,100
51,336
$
11,649
14,538
$
29,451
36,798
$
92,436
$
26,187
$
66,249
(in thousands,
except per share data)
Fiscal Year Ended
September 30,
2002
(274,115)
$
2001
$
(65,251)
2003
$
(76,689)
9,587
-
-
$
(55,664)
$
(274,115)
$
(76,689)
Reported net loss, before adoption of SFAS 142
Addback:
Goodwill amortization, net of tax
Pro forma net loss
Net loss per share, as reported:
NOTE 5: COMPREHENSIVE LOSS
At September 30, 2003, the components of Accumulated Other Comprehensive Loss, reflected in the Consolidated Statement
of Changes in Shareholders’ Equity, net of related taxes, consisted of the following:
(in thousands)
September 30,
2001
2002
2003
Loss from foreign currency translation adjustments
Unrealized gain (loss) on investments, net of taxes
Minimum pension liability, net of tax
$
(4,644)
212
(5,091)
$
(3,914)
(52)
(7,494)
$
(961)
(1)
(6,756)
Other comprehensive loss
$
(9,523)
$
(11,460)
$
(7,718)
NOTE 6: INVESTMENTS
At September 30, 2003 and 2002, 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, 2003 and 2002:
70
(in thousands)
September 30, 2002
Unrealized
Gains/
(Losses)
Fair
Value
Cost
Basis
Fair
Value
September 30, 2003
Unrealized
Gains/
(Losses)
$
18,950
2,242
942
$
22
(105)
(127)
$
18,928
2,347
1,069
$
4,200
290
-
-
$
-
Cost
Basis
$
4,200
290
-
$
22,134
$
(210)
$
22,344
$
4,490
$
-
$
4,490
Available-for-sale:
Government and Corporate
debt securities
Adjustable rate notes
Equity securities
Short-term investments
classified as available
for sale
An after-tax unrealized loss of $52 thousand (net of taxes of $31 thousand) was recorded as a direct adjustment to
shareholders’ equity at September 30, 2002. In fiscal 2003, the Company purchased $8.6 million of securities it classified
as available-for-sale and sold $26.3 million of available-for-sale securities.
NOTE 7: 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,
2002
2003
$
39,477
18,549
17,708
75,734
(24,847)
$
29,654
11,788
12,279
53,721
(15,815)
$
50,887
$
37,906
(in thousands)
September 30,
2002
2003
$
1,602
34,314
173,998
12,745
222,659
(132,917)
89,742
$
$
1,602
32,914
151,674
15,362
201,552
(140,314)
61,238
$
71
Accrued Expenes
Wages and benefits
Contractural commitments on closed facilities
Severance
Customer advances
Interest on long term debt
Other
September 30,
2002
2003
$
$
16,171
10,586
4,942
4,616
3,057
13,209
52,581
17,537
5,777
3,365
2,549
3,155
9,502
41,885
$
$
The Company had restricted cash balances of $2.8 million at September 30, 2003 and $3.2 million at September 30, 2002.
These restricted cash balances were used to support letters of credit.
NOTE 8: DEBT OBLIGATIONS
At September 30, 2003, the Company had capital lease debt obligations of $374 thousand, of which $36 thousand was due
within one year. The capital lease obligations, including interest are payable as follows: $50 thousand each year from
fiscal 2004 through fiscal 2008 and $188 thousand thereafter. At September 30, 2002, the Company had capital lease
obligations of $579 thousand, of which $186 thousand was due within one year.
In August 2001, the Company issued $125.0 million of convertible subordinated notes. The notes are general obligations
of the Company and are subordinated to all senior debt. The notes rank equally with the convertible notes issued in
December 1999. The notes bear interest at 5 1/4 %, are convertible into the Company’s 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. The Company 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. At September 30,
2003, the fair value of the $125.0 million 5 1/4 % Convertible Subordinated Notes was $115.6 million.
In December 1999, the Company issued $175.0 million of convertible subordinated notes. The notes are general
obligations of the Company and subordinated to all senior debt. The notes bear interest at 4 3/4%, are convertible into the
Company’s common stock at $22.8997 per share and mature on December 15, 2006. There are no financial covenants
associated with the notes and there are no restrictions on paying dividends, incurring additional debt or issuing or
repurchasing the Company’s securities. Interest on the notes will be paid on June 15 and December 15 of each year. The
Company may redeem the notes in whole or in part at any time after December 18, 2002 at prices ranging from 102.714%
at December 19, 2002 to 100.0% at December 15, 2006. At September 30, 2003, the fair value the $175.0 million 4 3/4%
Convertible Subordinated Notes was $154.9 million.
The Company is obligated to make annual cash interest payments of $14.9 million through fiscal 2005, $14.1 million in
fiscal 2006 and $1.7 million in fiscal 2007 and principal payments of $125.0 million in fiscal 2006 and $175.0 million in
fiscal 2007 on the $300.0 million of convertible subordinated notes.
In April 2001, the Company entered into a receivable securitization program in which the Company transferred all
domestic account receivables to KSI Funding Corporation, a “bankruptcy remote” special purpose corporation and a
wholly-owned subsidiary. Bankruptcy remote refers to a subsidiary that is operated and structured so that transfers of
assets to it from a parent are characterized as true sales and are not available to creditors in the event of a bankruptcy of
the parent until the obligations of the bankruptcy remote subsidiary are satisfied. Under the facility, KSI Funding
Corporation could sell up to a $40.0 million interest in all of the Company’s domestic receivables. This facility was
structured as a revolving securitization, whereby an interest in additional account receivables could be sold as collections
reduced the previously sold interest. At September 30, 2001, the Company had sold receivables under this agreement
amounting to $20.0 million. The Company terminated this agreement in July 2002. The Company accounted for its sale of
receivables under the provision of SFAS 140 “Accounting for Transfers and Servicing of Financial Assets and
72
Extinguishments of Liabilities.” This transfer of financial assets without recourse qualified as a sale under the provisions
of SFAS 140. Upon the sale of the receivables, the receivables were removed from the Company’s balance sheet, and the
cash received from the participating bank was recorded. The Company paid a fee to the participating bank at the bank’s
A-1/P-1 commercial paper rate plus a program fee of 0.625%.
NOTE 9: SHAREHOLDERS' EQUITY
Common Stock
In fiscal 2003, the Company’s common stock increased by $415 thousand reflecting the proceeds from the exercise of
employee and director stock options and increased by $89 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 $2.2 million, $2.5 million and $1.9 million in fiscal 2003, 2002 and 2001,
respectively.
Stock Option Plans
The Company has five employee stock option plans (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. No compensation expense has been recognized related to our employee stock based plans.
The following summarizes all employee stock option activity for the three years ended September 30, 2003:
(Option amounts in thousands)
September 30,
2001
2002
2003
Weighted
Average
Exercise
Price
Weighted
Average
Exercise
Price
Options
Weighted
Average
Exercise
Price
Options
Options
Options outstanding at
beginning of period
Granted
Exercised
Terminated or canceled
Options outstanding at
end of period
Options exercisable at
end of period
4,109
2,544
(141)
(680)
$
10.82
14.23
7.26
12.84
5,832
2,519
(160)
(871)
$
12.16
14.64
9.21
13.52
7,320
2,459
(91)
(1,101)
$
12.91
3.45
4.41
10.48
5,832
12.16
7,320
12.92
8,587
10.57
1,915
10.09
2,922
11.02
4,453
11.84
73
The following table summarizes information concerning currently outstanding and exercisable employee options at
September 30, 2003:
(Option amounts in thousands)
Range of Exercise
Prices
$
$
$
$
$
$
$
$
$
1.44
3.22
6.42
9.63
12.04
16.04
19.25
22.45
28.87
-
-
-
-
-
-
$
$
$
$
$
$
$
$
$
3.21
6.41
9.62
12.03
16.03
19.24
22.44
28.86
32.06
Options Outstanding
Options Exercisable
Weighted
Average
Remaining
Contractual
Life
Weighted
Average
Exercise
Price
Options
Outstanding
Weighted
Average
Exercise
Price
Number
Exercisable
1,941
562
866
465
2,785
1,916
7
33
12
8,587
8.6
3.0
4.4
7.0
5.9
6.2
3.6
4.1
6.4
6.3
$
2.95
5.51
6.72
10.24
13.76
16.57
19.44
28.50
32.06
10.57
68
500
866
255
1,762
965
5
25
7
4,453
$
2.95
5.50
6.72
10.20
13.67
17.00
19.48
28.50
32.06
11.86
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 452,240 shares at an average exercise price
of $15.30 were outstanding under the Director Plans at September 30, 2003, of which options to purchase 269,240 shares
were exercisable. In fiscal 2003, 2002 and 2001, there were 8,000, 6,000 and 24,000 options, respectively, exercised
under the Director Plans at an average exercise price of $2.75, $1.69 and $4.21, respectively. No compensation expense
has been recognized related to our Director stock based plans.
At September 30, 2003, 14.2 million shares were reserved for issuance and 4.4 million shares were available for grant in
connection with the Employee Plans and 942,000 shares were reserved for issuance and 480,000 shares were available for
grant in connection with a Director Plan.
NOTE 10: 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 U.S Federal employee benefit and tax laws. 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.
74
Detailed information regarding the Company’s defined benefit pension is as follows:
(in thousands)
Fiscal Year Ended September 30,
2001
2002
2003
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
$
$
$
$
$
13,763
1,051
(548)
1,093
15,359
12,394
(2,520)
1,855
(548)
11,181
$
$
15,359
1,094
(636)
1,770
17,587
11,181
(1,612)
151
(636)
9,084
$
$
17,587
1,122
(678)
1,336
19,367
9,084
2,357
1,635
(678)
12,398
$
$
$
$
(4,178)
7,832
3,654
$
$
(8,503)
11,530
3,027
$
$
$
(6,968)
10,395
3,427
$
(4,178)
(8,503)
$
(6,968)
7,832
3,654
$
11,530
3,027
$
10,395
3,427
$
$
1,051
(1,018)
186
219
$
1,094
(875)
560
779
$
$
$
1,122
(751)
865
1,236
Weighted-average assumptions as of September 30:
Discount rate
Expected long-term rate of return on plan assets
Rate of compensaton increase
* Not applicable due to the December 31, 1995 benefit freeze
7.25%
8.00%
*
6.50%
8.00%
*
6.00%
8.00%
*
Plan assets include equity and fixed-income securities. At September 30, 2003, 150,000 shares of the Company’s common
stock with a fair value of $1.6 million was included in the Plan assets.
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. On a consolidated basis, pension expense was $2.5 million,
$1.4 million and $1.2 million, in fiscal 2003, 2002 and 2001, 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 50% to 175%
of the employees' contributions. The Company's contributions under this plan totaled $2.2 million, $2.5 million and $1.9
75
million in fiscal 2003, 2002 and 2001, 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 11: INCOME TAXES
Income (loss) before income taxes consisted of the following:
(in thousands)
Fiscal Year Ended September 30,
2001
2002
2003
United States operation
Foreign operations
$
(116,113)
37,382
$
(277,947)
36,393
$
(79,078)
9,983
$
(78,731)
$
(241,554)
$
(69,095)
The provision (benefit) for income taxes included the following:
Current:
Federal
State
Foreign
Deferred:
Federal
Foreign
(in thousands)
Fiscal Year Ended September 30,
2001
2002
2003
$
9,017
300
6,596
$
(7,376)
20
7,109
(37,556)
-
32,808
-
$
-
-
7,594
-
-
$
(21,643)
$
32,561
$
7,594
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
Tax credit write-offs
Benefits of net operating loss and tax credit
carryforwards and change in valuation allowance
Non-deductible goodwill impairment and amortization
Foreign dividends
Write off of In-Process Research and Development
Effect of revisions of permanent items
State income tax benefit
Other, net
(in thousands)
Fiscal Year Ended September 30,
2001
2002
2003
$
(27,556)
$
(84,544)
$
(24,183)
3,263
(2,870)
-
(178)
3,499
1,137
3,953
(2,015)
(1,488)
612
(21,643)
$
708
(1,565)
(5,890)
12,167
706
-
65,327
22,475
24,968
(343)
(2,456)
-
149
32,561
$
12,059
-
19,600
-
-
-
977
7,594
$
76
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 $125.5 million at
September 30, 2003. Such undistributed earnings are considered to be indefinitely reinvested in foreign operations.
Undistributed earnings approximating $58.9 million are not considered to be indefinitely reinvested in foreign operations.
Accordingly, as of September 30, 2003, deferred tax liabilities of $23.4 million including withholding taxes have been
provided. The Company expects to repatriate approximately $24.0 million of the $58.9 million of above-mentioned foreign
earnings in fiscal 2004.
Deferred income taxes are determined based on the differences between the financial reporting and tax basis of assets and
liabilities as measured by the current tax rates. The net deferred tax balance is composed of the tax effects of cumulative
temporary differences, as follows:
(in thousands)
September 30,
2002
2003
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
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
$
$
3,570
279
11,986
237
16,072
3,343
339
6,893
125
10,700
$
$
$
7,924
5,706
0
79,592
12,090
$
7,901
4,847
0
89,811
14,435
105,312
(86,749)
116,994
(100,728)
$
18,563
$
16,266
$
$
26,611
2,658
23,383
2,685
55,337
23,441
(24)
20,845
3,406
47,668
$
$
$
36,774
$
31,402
The Company has U.S. net operating loss carryforwards, state net operating loss carryforwards, and tax credit carryforwards
of approximately $217.9 million, $102.4 million, and $4.8 million, respectively, that will reduce future taxable income.
These carryforwards can be utilized in the future, prior to expiration of certain carryforwards in 2009 through 2022.
During the year ended September 30, 2001, the Company through the 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.
77
In the fourth quarter of fiscal 2002, as part of the income tax provision for the period, the Company recorded a charge of
$65.3 million through the establishment of a valuation allowance against its deferred tax asset consisting primarily of U.S.
net operating loss carryforwards. The Company determined that the valuation allowance was required based on its recent
losses, which are given substantially more weight than forecasts of future profitability in the evaluation. No tax benefits were
recorded in respect of U.S. net operating losses incurred during fiscal 2003. The Company established a valuation allowance
of $12.1 million is fiscal 2003 against U.S and foreign net operating losses. Until the Company utilizes these U.S. operating
loss carryforwards, its income tax provision will reflect only foreign taxation.
The Company also has generated losses in certain foreign jurisdictions totaling approximately $46.0 million. Similar to the
situation with the U.S., realization of the benefit associated with these foreign loss carryforwards cannot be assured and a full
valuation allowance has been provided against the deferred tax assets associated with these carryforwards.
NOTE 12: 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 segment designs, manufactures and markets capital equipment
and related spare parts for use in the semiconductor assembly process. The equipment segment also services, maintains,
repairs and upgrades assembly equipment. The packaging materials business segment 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 segment 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 segment was established in fiscal 1999 to reflect the Company’s strategic initiative to develop new
technologies for advanced semiconductor packaging. In fiscal 2003, operating results of this business segment were
comprised of the Company’s flip chip business unit. The fiscal 2002 and 2001 operating results of this business segment
included the results of our former high density substrate business unit in addition to our flip chip business unit. In order to
reduce costs, the high density substrate business unit was closed in the fourth quarter of fiscal 2002. The products and
services of all segments are for sale to semiconductor device manufacturers.
The table below presents information about reported segments:
78
Fiscal Year Ended
September 30, 2003
Net revenue
Cost of sales
Gross profit
Operating costs
Resizing
Asset impairment
Goodwill impairment
Equipment
Segment
$
198,447
129,092
69,355
67,490
(175)
17
-
Packaging
Materials
Segment
$
174,471
132,779
41,692
25,408
(20)
385
-
Advanced
Packaging
Segment
$
16,521
21,154
Test
Segment
Corporate,
Other and
Eliminations
$
104,882
87,856
$
-
-
(4,633)
5,509
(102)
7,002
5,667
17,026
41,223
(103)
3,098
-
-
15,463
(75)
-
-
Consolidated
$
494,321
370,881
123,440
155,093
(475)
10,502
5,667
Income (loss) from operations
$
2,023
$
15,919
$
(22,709)
$
(27,192)
$
(15,388)
$
(47,347)
Segment Assets
Captial Expenditures
Depreciation expense
Fiscal Year Ended
September 30, 2002
Net revenue
Cost of sales
Gross profit
Operating costs
Resizing
Asset impairment
Goodwill impairment
$
86,650
1,433
7,797
Equipment
Segment
$
169,469
142,965
26,504
85,020
4,781
2,165
-
$
94,466
4,604
5,879
Packaging
Materials
Segment
$
157,176
118,080
39,096
27,242
167
2,874
2,295
$
6,101
871
4,045
Advanced
Packaging
Segment
$
23,317
25,068
(1,751)
21,087
9,720
8,402
-
$
166,467
4,067
9,038
$
89,177
-
-
$
442,861
10,975
26,759
Test
Segment
Corporate,
Other and
Eliminations
$
114,698
79,686
$
-
-
35,012
52,117
4,715
1,245
72,000
-
16,480
278
16,908
Consolidated
$
464,660
365,799
98,861
201,946
19,661
31,594
74,295
Income (loss) from operations
$
(65,462)
$
6,518
$
(40,960)
$
(95,065)
$
(33,666)
$
(228,635)
Segment Assets
Captial Expenditures
Depreciation expense
Fiscal Year Ended
September 30, 2001
Net revenue
Cost of sales
Gross profit
Operating costs
Resizing
Asset impairment
Purchased in-process research
and development
$
119,831
5,237
8,898
Equipment
Segment
$
249,952
166,359
83,593
103,386
2,223
-
$
87,689
6,020
5,564
Packaging
Materials
Segment
$
150,945
110,570
40,375
28,667
1,621
800
$
21,101
7,676
7,671
Advanced
Packaging
Segment
$
37,216
31,274
5,942
25,395
-
-
-
-
-
$
175,480
1,452
10,210
$
134,581
-
-
$
538,682
20,385
32,343
Test
Segment
Corporate,
Other and
Eliminations
$
116,890
84,401
$
-
-
32,489
54,169
270
-
11,709
-
15,671
52
-
-
Consolidated
$
555,003
392,604
162,399
227,288
4,166
800
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
$
227,327
-
-
$
777,426
48,636
30,092
79
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, 2003
(in thousands)
Destination
Sales
Non-Corporate
Assets(1)
$
$
United States
Taiwan
Malaysia
Singapore
Korea
Japan
Philippines
Hong Kong
China
Israel
All other
United States
Taiwan
Malaysia
Singapore
Korea
Japan
Philippines
Hong Kong
Israel
All other
United States
Taiwan
Singapore
Malaysia
Japan
Philippines
Hong Kong
Korea
Israel
All other
$
$
Fiscal year ended September 30, 2002
Destination
Sales
Non-Corporate
Assets(1)
$
$
Fiscal year ended September 30, 2001
Destination
Sales
Non-Corporate
Assets(1)
$
$
$
$
104,067
98,712
59,679
47,016
40,933
24,107
19,870
15,060
13,296
2,641
68,940
494,321
130,934
112,155
45,956
40,389
17,846
17,294
15,167
11,275
3,135
70,509
464,660
209,273
66,078
59,749
42,656
31,810
29,613
15,690
11,041
3,504
85,589
555,003
236,941
5,989
43
70,333
101
9,919
199
126
6,315
9,192
14,526
353,684
284,955
7,149
83
69,113
222
5,254
69
129
21,201
15,926
404,101
445,279
8,221
44,561
97
8,886
269
214
186
28,774
13,612
550,099
$
$
80
(1) Corporate assets include cash, deferred tax assets and deferred financing expenses.
NOTE 13: 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. Both Cerprobe and
Probe Tech design and manufacture semiconductor test interconnect solutions. 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.
The acquired assets of Probe Tech included a minority interest in a foreign subsidiary.
The acquisitions were recorded using the purchase method of accounting and accordingly, the purchase price was allocated to
the tangible and intangible assets acquired and liabilities assumed on the basis of their fair values on the acquisition dates.
The Company 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
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.
Pro forma operating results for the year ended September 30, 2001 assuming the acquisitions of Cerprobe and Probe Tech
were consummated on October 1, 1999 appears below. The 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.
(in thousands, except per share data)
(unaudited)
Net Sales
Net Income (loss)
Diluted net income (loss) per share
Fiscal year ended September 30,
2001
$
$
$
582,426
(67,732)
(1.39)
The components of the purchase price allocation for the acquisitions of Cerprobe and Probe Tech are as follows:
Error! Not a valid link.
The 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 was allocated to goodwill in the opening balance sheet,
as a cost of the Cerprobe acquisition.
In fiscal 2001, the Company 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 which had not reached technological feasibility. As part of the acquisition, the Company acquired
16 ongoing R&D projects, all aimed at increasing the technological features of the existing probe cards and therefore the
number of test applications for which they could be marketed. The R&D projects ranged from researching the feasibility of
producing multi-die testing probes to researching the feasibility of producing probes for specialized semiconductor package
(CSP and BGA) configurations. The project stage of completion ranged from 10% to 90% and all projects were due for
81
completion and product launch by the third quarter of 2002 at prices and costs similar to the existing probe cards marketed by
Cerprobe and Probe Tech.
In the valuation of in-process technology, the Company utilized a variation of the income approach. The Company
forecasted revenue, earnings and cash flow for the products under development. Revenues were projected to extend out over
the expected useful lives for each project. The technology was then valued through the application of the Discounted Cash
Flow method. Values were calculated using the present value of their projected future cash flow at discount rates of between
28.4% and 49.1%. The Company anticipated that some of these projects might take longer to develop than originally thought
and that some of these projects may never be marketable and there is a risk that the anticipated future cash flows might not be
achieved. Of the 16 ongoing R&D projects at the time of the acquisition five have been completed, one is still in progress,
four have been cancelled due to overlapping technology with our Cobra line of vertical test products, and six were cancelled
due to nonproductive results. The Company believes that the expected returns of the completed and in-process R&D projects
will be realized. The Company also believes that future revenues from existing Cobra products will offset the expected
future revenues from the R&D projects that were cancelled due to the overlapping technology and that there will be no
adverse material impact on the Company’s future operating results or the expected return on its investment in the acquired
companies. The six projects that were cancelled due to lack of productive results will not have a material impact on our
future operating results and expected return on our investment in the acquired companies.
82
The major R&D projects in process at the time of the acquisition, along with their current status and estimated time for
completion are as follows:
(dollars in thousands)
R&D project
Value
Assigned
at Purchase(2)
Percentage
Complete
at Purchase
Estimated
Cost to
Complete
Project
at Purchase
Current
Projected
Product
Launch
Date
Current
Status of
Project
Next generation contact technology
$
2,700
10%
$
290
N/A
Cancelled
Socket testing capability for
CSP and BGA packages
$
2,000
ViProbe pitch reduction
$
1,600
Vertical space transformer
$
1,500
50%
40%
25%
$
65
$
89
$
278
N/A
N/A
N/A
Complete
Cancelled (1)
Cancelled (1)
Extension of P4 technology to
vertical test configuations
Low-force, high-density interface
using P4 technology
$
1,300
40%
$
229
N/A
Cancelled (1)
$
1,300
30%
$
138
N/A
Cancelled
All other projects combined
(total of ten projects)
$
1,300
10-90%
$
576
Q2 2004
4 complete;
1 in process;
5 cancelled
(1) The Company purchased two companies; Cerprobe Corporation (“Cerprobe”) and Probe Technology Corporation
(“Probe Tech”) that design and manufacture semiconductor test interconnect solutions, in its fiscal year 2001.
Subsequent to the acquisitions, the Company determined that the vertical probe technology designed and marketed by
Probe Tech was superior to the vertical probe technology of Cerprobe. The Company then shifted its R&D efforts to
further enhancement of the Probe Tech vertical probe technology and cancelled the R&D projects at Cerprobe that were
enhancing the Cerprobe vertical probe technology. The R&D projects identified by (1) in the above table were Cerprobe
projects that were cancelled due to the shift in focus to the Probe Tech vertical probe technology. The Company expect
the future revenue from the Probe Tech vertical probe technology will replace the anticipated revenue from the Cerprobe
vertical probe R&D projected that have been cancelled.
(2) The Value Assigned at Purchase reflects the present value of the anticipated future cash flow generated from each R&D
project from its launch date through the expected life of the product.
NOTE 14: OTHER FINANCIAL DATA
The Company recorded other income of $2.0 million in fiscal 2002 and $8.0 million in fiscal 2001 as the result of a cash
settlement of an insurance claim associated with a fire in the Company’s expendable tool facility.
Maintenance and repairs expense totaled $4.4 million, $5.2 million and $5.6 million for fiscal 2003, 2002 and 2001, respectively.
Warranty and retrofit expense was $2.5 million, $3.4 million and $3.5 million for fiscal 2003, 2002 and 2001, respectively.Rent
expense for fiscal 2003, 2002 and 2001 was $13.5 million, $14.0 million and $7.8 million, respectively.
83
The Company’s basic and diluted weighted average share outstanding were the same in fiscal 2003, 2002 and 2001 due to the
Company’s net loss in each of those fiscal years which caused all potentially dilutive securities to be deemed antidilutive. The
weighted average number of shares for potentially dilutive securities (convertible notes and employee and director stock options)
was 14,907,000 in fiscal 2003, 15,217,000 in fiscal 2002 and 9,382,000 in fiscal 2001.
NOTE 15: GUARANTOR OBLIGATIONS, COMMITMENTS, CONTINGENCIES AND CONCENTRATIONS
Guarantor Obligations
The Company has issued standby letters of credit to guarantee payments for employee benefit programs and a facility lease.
The standby letters of credit were issued in lieu of cash security deposits.
The table below identifies the guarantees under the standby letters of credit:
Nature of guarantee
Term of guarantee
(in thousands)
Maximum obligation under guarantee
Security deposit for payment of
employee health benefits
Security deposit for payment of
employee worker compensation
benefits
Security deposit for a facility lease
Expires June 2004
$
1,710
Expires July and October 2004
Expires July 2004
684
300
2,694
$
The table below details the activity related to the Company’s reserve for product warranties which is included in accrued
expenses in the balance sheet at September 30, 2003:
(in thousands)
Reserve for
Product
Warranty
Reserve for product warranty at September 30, 2002
Provision for product warranty
Product warranty
Reserve for product warranty at September 30, 2003
Commitments and Contingencies
$
837
2,477
(2,306)
1,008
$
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: $12.4 million in fiscal 2004; $11.4 million in fiscal 2005; $5.0
million in fiscal 2006; $3.4 million in fiscal 2007; $2.5 million in 2008 and $11.1 million thereafter.
From time to time, third parties assert that the Company is, or may be, infringing or misappropriating their intellectual
property rights. In such cases, the Company will defend against claims or negotiate licenses where considered appropriate. In
addition, some of the Company’s customers are parties to litigation brought by the Lemelson Medical, Education and
84
Research Foundation Limited Partnership (the “Lemelson Foundation”), in which the Lemelson Foundation claims that
certain manufacturing processes used by those customers infringe patents held by the Lemelson Foundation. The Company
has never been named a party to any such litigation. Some customers have requested that the Company indemnify them to
the extent their liability for these claims arises from use of the Company’s equipment. The Company does not believe that
products sold by it infringe valid Lemelson patents. If a claim for contribution was brought against the Company, the
Company believes it would have valid defenses to assert and also would have rights to contribution and claims against the
Company’s suppliers. The Company has never incurred any material liability with respect to the Lemelson claims or any
other pending intellectual property claim and the Company does not believe that these claims will materially and adversely
affect the Company’s business, financial condition or operating results. The ultimate outcome of any infringement or
misappropriation claim that might be made, however, is uncertain and the Company cannot assure you that the resolution of
any such claim will not materially and adversely affect the Company’s business, financial condition and operating results.
Concentrations
Sales to a relatively small number of customers account for a significant percentage of the Company's net sales. In fiscal
2003 and 2002, sales to Advanced Semiconductor Engineering accounted for 13% and 12%, respectively, of the Company’s
net sales. In fiscal 2001, no customer accounted for more than 10% of net sales The Company expects that sales of its
products to a limited number of customers will continue to account for a high percentage of net sales for the foreseeable
future. At September 30, 2003 and 2002, Advanced Semiconductor Engineering accounted for 10% and 17%, respectively, of
total accounts receivable. No other customer accounted for more than 10% of total accounts receivable at September 30, 2003
and 2002. 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.
85
NOTE 16: SELECTED QUARTERLY FINANCIAL DATA (unaudited)
Financial information pertaining to quarterly results of operations follows:
Fiscal Year ended September 30, 2003:
Net sales
Gross profit
(in thousands, except per share amounts)
First
Quarter
Second
Quarter
$
111,371
27,331
$
125,938
32,518
Third
Quarter
$
127,723
31,264
Fourth
Quarter
$
129,289
32,327
Total
$
494,321
123,440
Loss from operations(1)(2)
(12,620)
(11,738)
(5,828)
(17,161)
(47,347)
Loss before income taxes
Provision (benefit) for income tax
(16,629)
1,026
(15,973)
3,318
(10,002)
1,350
(26,491)
1,900
(69,095)
7,594
Net loss
$
(17,655)
$
(19,291)
$
(11,352)
$
(28,391)
$
(76,689)
Net loss per share:
Basic
Diluted
Fiscal Year ended September 30, 2002:
Net sales
Gross profit
$
$
(0.36)
(0.36)
$
$
(0.39)
(0.39)
$
$
(0.23)
(0.23)
$
$
(0.57)
(0.57)
$
$
(1.54)
(1.54)
First
Quarter
Second
Quarter
$
103,155
25,387
$
106,917
10,632
Third
Quarter
$
132,418
35,020
Fourth
Quarter
$
122,170
27,822
Total
$
464,660
98,861
Loss from operations(1)(3)
(21,532)
(56,461)
(17,163)
(133,479)
(228,635)
Loss before income taxes
Provision (benefit) for income tax
(24,934)
(7,481)
(59,799)
(16,244)
(20,747)
(2,645)
(136,074)
58,931
(241,554)
32,561
Net loss
$
(17,453)
$
(43,555)
$
(18,102)
$
(195,005)
$
(274,115)
Net loss per share:
Basic
Diluted
$
$
(0.36)
(0.36)
$
$
(0.89)
(0.89)
$
$
(0.37)
(0.37)
$
$
(3.95)
(3.95)
$
$
(5.57)
(5.57)
(1) Represents net sales less costs and expenses but before net interest expense and other income.
(2) Results for fiscal 2003 include: a reversal of prior year resizing charges in the first and fourth quarters of $205 thousand and
$270 thousand, respectively (See Note 2); asset impairment charges(reversals) in the first, second, third and fourth quarters
of $121 thousand, $1.7 million, $1.2 million and $7.7 million, respectively (See Note 3); goodwill impairment in the fourth
quarter of $5.7 million (See Note 4); severance associated with workforce reductions in our continuing businesses in the
first, second, third and fourth quarters of $1.6 million, $2.6 million, $1.0 million and $500 thousand, respectively; and
inventory write-downs of in the second, third and fourth quarters of $1.0 million, $3.2 million and $900 thousand,
respectively.
(3) Results for fiscal 2002 include: resizing charges in the second, third and fourth quarters of $11.3 million, $2.1 million and $6.3
million, respectively (See Note 2); asset impairment charges in the second and fourth quarters of $4.9 million and $26.7
million, respectively (See Note 3); goodwill impairment in the fourth quarter of $74.3 million (See Note 4); $5.0 million of
86
severance associated with workforce reductions in our continuing businesses in the fourth quarter; and inventory write-
downs of $13.3 million (to costs of goods sold) in the second quarter and $1.1 million in the fourth quarter..
NOTE 17: SUBSEQUENT EVENT (Unaudited)
In the first quarter of fiscal 2004, the Company issued $205.0 million of five-year 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 and August 2001. The notes bear interest at 0.5%, are convertible into the Company’s common
stock at $20.33 per share and mature on November 30, 2008. There are no financial covenants associated with the notes and
there are no restrictions on incurring additional debt or issuing or repurchasing our securities. Interest on the notes is payable
on May 30 and November 30 each year.
In November 2003, the Company notified the holders of its $175.0 million 4 .75% convertible subordinated notes due
December 15, 2006 that the notes will be redeemed in their entirety on December 26, 2003 at a redemption price equal to
102.036% of the principal amount plus interest accrued through the date of redemption. The Company intends to use the
majority of the proceeds from the above mentioned $205 million note offering to fund the redemption of these notes.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
None.
Item 9A. CONTROLS AND PROCEDURES.
Evaluation of disclosure controls and procedures
Based on their evaluation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934), the Company’s Chief Executive Officer and Chief Financial Officer have
concluded that as of September 30, 2003, the Company’s disclosure controls and procedures were designed to ensure that
information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and are
operating in an effective manner.
Changes in internal controls
There was not any change in the Company’s internal controls over financial reporting that occurred during the quarter ended
September 30, 2003 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control
over financial reporting.
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 2004 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."
The information required by Item 406 of Regulation S-K will appear under the heading “OTHER MATTERS” in the Company’s
Proxy Statement for the 2004 Annual Meeting, which information is incorporated herein by reference.
87
Item 11. EXECUTIVE COMPENSATION.
The information required hereunder will appear under the heading "ADDITIONAL INFORMATION" in the Company's Proxy
Statement for the 2004 Annual Meeting, which information is incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS.
The information required hereunder concerning security ownership of certain beneficial owners and management will appear
under the heading "ELECTION OF DIRECTORS" in the Company's Proxy Statement for the 2004 Annual Meeting, which
information is incorporated herein by reference.
Equity Compensation Plans
The following table summarizes our equity compensation plans as of September 30, 2003:
(share amounts in thousands)
Number of securities
to be issued upon exercise
of outstanding options,
warrants and rights
Weighted-average
exercise price of
outstanding options,
warrants and rights
Number of securities
remaining available for
future issuance under equity
compensation plans
Equity compensation plans
approved by secutity holders
Equity compensation plans
not approved by security
holders
Total
7,430
$11.35
1,609
9,039
$8.25
$10.81
3,902
920
4,822
The Company's 1999 Nonqualified Employee Stock Option Plan is the only equity compensation plan of the Company not
approved by shareholders. This plan was approved by the Board of Directors on September 28, 1999 and only employees of
the Company and its subsidiaries who are not directors or officers are eligible to receive options. The Compensation
Committee of the Board administers the plan. The exercise price of options granted under this plan is equal to 100% of the
fair market value of the Company's Common Shares on the date of grant.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required hereunder will appear under the heading "ADDITIONAL INFORMATION" in the Company's Proxy
Statement for the 2004 Annual Meeting, which information is incorporated herein by reference.
88
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Pursuant to SEC Release No. 33-8183 (as corrected by Release No 33-8183A), the disclosure requirements of this Item are
not effective until the Annual Report on Form 10-K for the first fiscal year ending after December 15, 2003.
Item 15. 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 Auditors
Consolidated Balance Sheets at September 30, 2003 and 2002
Consolidated Statements of Operations for the fiscal years
ended September 30, 2003, 2002 and 2001
Consolidated Statements of Cash Flows for the fiscal years
ended September 30, 2003, 2002 and 2001
Consolidated Statements of Changes in Shareholders' Equity
for the fiscal years ended September 30, 2003, 2002 and 2001
Notes to Consolidated Financial Statements
(2)
Financial Statement Schedules:
II - Valuation and Qualifying Accounts
53
54
55
56
57
58-87
93
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)
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 dated June 14, 2002, filed as
Exhibit 3.1 to the Company’s quarterly report on Form 10-Q for the quarterly period ended June 30, 2002, is
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.
4(i)
Indenture dated as of December 13, 1999 between the Company and Chase Manhattan Trust Company,
89
4(ii)
4(iii)
4(iv)
10(i)
10(ii)
10(iii)
10(iv)
10(v)
10(vi)
10(vii)
National Association, as Trustee, filed as Exhibit 4.1 to the Company’s Form 8-K dated December 13,
1999, is incorporated herein by reference.
Registration Rights Agreement dated as of December 13, 1999 between the Company and Morgan Stanley &
Co. Incorporated, filed as Exhibit 4.2 to the Company’s Form 8-K dated December 13, 1999, is incorporated
herein by reference.
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.
The Company's 1988 Employee Incentive Stock Option and Non- Qualified Stock Option Plan (as
amended and restated effective March 21, 2003).*
The Company’s 1988 Non-Qualified Stock Option Plan for Non-Officer Directors (as amended and restated
effective February 9, 1999), filed as Exhibit 10(vi) to the Company’s Annual Report on Form 10-K for the
year ended September 30, 1999, is incorporated by reference.*
The Company's 1994 Employee Incentive Stock Option and Non-Qualified Stock Option Plan (as amended
and restated effective March 21, 2003).*
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.
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.
The Company's 1997 Non-Qualified Stock Option Plan for Non-Employee Directors (as amended and
restated effective March 21, 2003).*
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(viii)
The Company's Executive Incentive Compensation Plan (as amended through October 14, 1997), filed as
Exhibit 10(ix) to the Company's Annual Report on Form 10-K for the year ended September 30, 1997, is
incorporated herein by reference.*
10(ix)
10(x)
The Company’s 1998 Employee Incentive Stock Option and Non-Qualified Stock Option Plan (as amended
and restated effective March 21, 2003).*
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.*
90
10(xi)
10(xii)
10(xiii)
10(xiv)
Amendment No. 1 to the Company’s Executive Deferred Compensation Plan (as amended and restated
effective October 1, 1999), filed as Exhibit 10(xxvi) to the Company’s Annual Report on Form 10-K for the
year ended September 30, 2001, is hereby incorporated by reference.*
Amendment No. 2 to the Company’s Executive Deferred Compensation Plan (as amended and restated
effective October 1, 1999), filed as Exhibit 10(xxvii) to the Company’s Annual Report on Form 10-K for the
year ended September 30, 2001, is hereby incorporated by reference.*
Amendment No. 3 to the Company’s Executive Deferred Compensation Plan (as amended and restated
effective October 1, 1999), filed as Exhibit 10(xxiv) to the Company’s Annual Report on Form 10-K for the
year ended September 30, 2002, is hereby incorporated by reference.*
Amendment No. 4 to the Company’s Executive Deferred Compensation Plan (as amended and restated
effective October 1, 1999), filed as Exhibit 10(xxv) to the Company’s Annual Report on Form 10-K for the
year ended September 30, 2002, is hereby incorporated by reference.*
10(xv)
The Company’s 1999 Nonqualified Employee Stock Option Plan (as amended and restated effective March
21, 2003).*
10(xvi)
Form of Termination of Employment Agreement signed by Mr. Kulicke (Section 2(a) - 30 months), and
Messrs. Carson, Jacobi, Lendner, Salmons, Sawachi, Belani, Chylak, Cristallo, Torton, Amweg, Camarda,
Hartigan, Kish, Mak, Rheault, Beatson and Wennberg (Section 2(a) - 18 months), filed as Exhibit 10(vii) to
the Company's quarterly report on Form 10-Q for the quarterly period ended December 31, 2000, is
incorporated herein by reference.*
10(xvii) Receivables purchase agreement among KSI Funding Corporation, Kulicke and Soffa Industries, Inc.,
Market Street Funding Corporation, and PNC Bank, National Association dated April 17, 2001, as filed as
Exhibit 10.1 to the Company’s Quarterly Report on Form 10Q for the quarterly period ended June 30,
2001, is incorporated herein by reference.
10(xviii) 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(xix)
The Company’s 2001 Employee Incentive Stock Option and Non-Qualified Stock Option Plan (as amended
and restated effective March 21, 2003).*
21
23
31.1
31.2
Subsidiaries of the Company.
Consent of PricewaterhouseCoopers LLP (Independent Accountants).
Certification of C. Scott Kulicke, Chief Executive Officer of Kulicke and Soffa Industries, Inc., pursuant
to Rule 13a-14(a) or Rule 15d-14(a).
Certification of Maurice E. Carson, Chief Financial Officer of Kulicke and Soffa Industries, Inc.,
pursuant to Rule 13a-14(a) or Rule 15d-14(a).
32.1 Certification of C. Scott Kulicke, Chief Executive Officer of Kulicke and Soffa Industries, Inc., pursuant
to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
91
32.2 Certification of Maurice E. Carson, Chief Financial Officer of Kulicke and Soffa Industries, Inc.,
pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
*
Indicates a Management Contract or Compensatory Plan.
(b) Reports on Form 8-K:
The Company filed a current report on Form 8-K on July 24, 2003 making an Item 5 disclosure announcing its
finacial results for the third fiscal quarter ended June 30, 2003. A copy of the Company’s earnings release was
filed as exhibit 99.1.
92
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, 2001
Allowance for doubtful accounts
$
4,355
$
1,406
$
816
(3)
$
335
(1)
$
6,242
Inventory reserve
$
16,241
$
18,095
$
1,003
(3)
$
6,230
(2)
$
29,109
Valuation allowance for deferred taxes
$
12,724
$
7,926
(4)
$
1,929
(3)
$
1,855
(5)
$
20,724
Year ended September 30, 2002
Allowance for doubtful accounts
$
6,242
$
158
$
-
$
367
(1)
$
6,033
Inventory reserve
$
29,109
$
14,362
$
-
$
18,624
(2)
$
24,847
Valuation allowance for deferred taxes
$
20,724
$
66,025
(6)
$
-
$
-
$
86,749
Year ended September 30, 2003
Allowance for doubtful accounts
$
6,033
$
519
$
-
$
623
(1)
$
5,929
Inventory reserve
$
24,847
$
3,490
$
(2,930)
(7)
$
9,592
(2)
$
15,815
Valuation allowance for deferred taxes
$
86,749
$
13,979
(6)
$
-
$
-
$
100,728
(1) Bad debts written off.
(2) Disposal of excess and obsolete inventory.
(3) Reflects adjustment for reserves acquired.
(4) Reflects the increase in the valuation allowance associated with net operating losses of certain of the Company’s
subsidiaries.
(5) Reversal of valuation allowance provided for a domestic subsidiary of the Company.
(6) Reflects the increase in the valuation allowance associated with the Company’s U.S. net operating losses and tax credit
carryforwards.
(7) Reflects the sales of the assets of the Company’s sawing and hub blades products lines.
93
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 18, 2003
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 18, 2003
Vice President and
Chief Financial Officer
December 18, 2003
/s/ MAURICE E.CARSON
Maurice E. Carson
(Principal Financial and Accounting
Officer)
/s/ BRIAN R. BACHMAN_________
Brian R. Bachman
/s/ PHILIP V. GERDINE_________
Philip V. Gerdine
Director
Director
/s/ JOHN A. O’STEEN
John A. O'Steen
Director
/s/ ALLISON F. PAGE
Allison F. Page
/s/ MACDONELL ROEHM, JR.
MacDonell Roehm, Jr.
/s/ LARRY D. STRIPLIN, JR.
Larry D. Striplin, Jr.
/s/ BARRY WAITE
Barry Waite
/s/ C. WILLIAM ZADEL
C. William Zadel
Director
Director
Director
Director
Director
94
December 18, 2003
December 18, 2003
December 18, 2003
December 18, 2003
December 18, 2003
December 18, 2003
December 18, 2003
December 18, 2003
COMPANY INFORMATION (12/12/2003)
BOARD OF DIRECTORS
C. Scott Kulicke
Chairman of the Board
Kulicke and Soffa Industries, Inc.
Brian R. Bachman
Private Investor
Former CEO and Vice Chairman
Axcelis Technologies, Inc.
Philip V. Gerdine, Ph.D., C.P.A.
Retired Executive Director
Siemens Aktiengesellschaft
John A. O’Steen
Executive Vice President,
Business Development
Cornerstone Brands, Inc.
Allison F. Page
Retired Partner
Pepper Hamilton LLP
MacDonell Roehm, Jr.
Chairman and CEO
Crooked Creek Capital LLC
Larry D. Striplin, Jr.
Chairman and CEO
Nelson-Brantley Glass
Contractors, Inc. and
Circle "S" Industries
Barry Waite
Retired President and CEO
Chartered Semiconductor
C. William Zadel
Chairman and CEO
Mykrolis Corporation
EXECUTIVE OFFICERS
C. Scott Kulicke
Chairman and
Chief Executive Officer
Maurice E. Carson
Vice President and CFO
Charles Salmons
Senior Vice President
Jack G. Belani
Vice President
Oded Lendner
Vice President
Samuel R. Wennberg
Vice President
CORPORATE VICE PRESIDENTS
Robert F. Amweg
David T. Beatson
Peter P. Cristallo
Jeffrey A. Hartigan
Peter J. Kish
EQUIPMENT MANUFACTURING
FACILITIES
Kulicke and Soffa Industries, Inc.
Willow Grove, PA
Kulicke & Soffa Pte., Ltd.
Singapore
PACKAGING MATERIALS
MANUFACTURING FACILITIES
TECHNOLOGY CENTERS
K&S Bonding Tools
Yokneam Elite, Israel
K&S Bonding Tools
Suzhou, China
K&S Bonding Wire
Singapore
K&S Bonding Wire - Europe
Thalwil-Zurich, Switzerland
K&S Dicing Blades
Santa Clara, CA
ADVANCED PACKAGING
TECHNOLOGY MANUFACTURING
FACILITIES
Flip Chip Technologies, LLC
Phoenix, AZ
TEST INTERCONNECT
MANUFACTURING FACILITIES
K&S Interconnect, Inc.
Gilbert, AZ
K&S Interconnect, Inc.
Hayward, CA
K&S Interconnect, Inc.
San Jose, CA
K&S Interconnect, Inc.
Corbeil, France
K&S Interconnect, Inc.
East Kilbride, Scotland
K&S Interconnect, Inc.
Hsin-Chu, Taiwan
K&S Interconnect, Inc.
Meyreuil, France
K&S Interconnect, Inc.
Singapore
K&S Interconnect, Inc.
Suzhou, China
K&S SALES OFFICES, SALES
REPRESENTATIVES, DISTRIBUTORS,
SERVICE LOCATIONS
USA/Americas
Alabama
Arizona
California
Florida
Georgia
Massachusetts
Europe/Africa
Austria
Belgium
Czech Republic
Denmark
Finland
France
Germany
Israel
Italy
Netherlands
Asia
Australia
China
Hong Kong
India
Japan
Minnesota
North Carolina
Oregon
Pennsylvania
Texas
Washington
Norway
Poland
Portugal
Russia
Scotland
South Africa
Spain
Sweden
Switzerland
United Kingdom
Korea
Malaysia
Philippines
Singapore
Taiwan
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers, LLP
Philadelphia, PA
BANK
PNC Bank, N.A.
Philadelphia, PA
REGISTRAR AND TRANSFER AGENT
Common Stock
American Stock Transfer & Trust Co.
59 Maiden Lane
New York, NY 10007
800-937-5449
STOCK TRADING
Traded on the NASDAQ
National Market System
Nasdaq Symbol – KLIC
An electronic copy of the 2003 Annual
Report, the 2004 Proxy Statement and
other filings are available online at
http://www.kns.com :
Copies of the Company’s 10Q’s, recent
news releases and investor packages
may be obtained by contacting:
Investor Relations
Kulicke & Soffa Industries, Inc.
Phone: 215-784-6750
Fax: 215-784-6167
Or request information online at:
http://www.kns.com
2101 Blair Mill Road, Willow Grove, PA 19090, USA
215-784-6000 phone 215-659-7588 fax
www.kns.com