Kulicke & Soffa Industries Inc.
1999
Annual
Report
and
Form 10K
1999
FIVE YEAR REVIEW
Fiscal Year Ended September 30,
1999
1998
1997
1996 (1)
1995
Statement of Operations Data:
Net sales
Research and development expense, net
Research and development expense, net
as a percentage of sales
Interest income (expense), net
Net income (loss) (2)
Net Income as a percentage of sales
Net return on average equity
Net Income (Loss) Per Share: (3)
Basic
Diluted
Average Shares Outstanding
Basic
Diluted
Balance Sheet Data:
Working Capital
Property, plant and equipment, net
Total assets
Long-term debt
Shareholders' equity
Other Selected Data:
Backlog
Current ratio
Capital expenditures
Depreciation expense
Book value per share
Total shares outstanding
Number of employees
$398,917,000
$37,188,000
9.3%
$3,547,000
$(16,946,000)
(4.2%)
(6.0%)
$411,040,000
$48,715,000
$501,907,000
$46,030,000
$381,176,000
$52,404,000
$304,509,000
$30,884,000
11.9%
$5,514,000
$(5,440,000)
(1.3%)
(1.9%)
9.2%
$820,000
$38,319,000
7.6%
17.4%
13.7%
$(164,000)
$11,847,000
3.1%
8.4%
10.1%
$173,000
$42,822,000
14.1%
43.5%
$(0.72)
$(0.72)
$(0.23)
$(0.23)
$1.84
$1.79
$0.61
$0.60
$2.44
$2.23
23,423,287
23,423,287
23,301,444
23,301,444
20,871,111
21,428,035
19,375,308
19,788,146
17,562,892
19,589,724
$167,131,000
$67,485,000
$378,145,000
0
$274,776,000
$93,000,000
2.78/1
$10,891,000
$13,104,000
$11.70
23,489,180
2,239
$182,181,000
$48,269,000
$342,584,000
0
$287,910,000
$54,000,000
4.53/1
$16,062,000
$10,896,000
$12.32
23,367,093
2,057
$190,220,000
$45,648,000
$376,819,000
220,000
$291,927,000
$118,000,000
3.32/1
$13,516,000
$8,945,000
$12.56
23,237,173
2,229
$113,804,000
$41,143,000
$249,554,000
50,712,000
$147,489,000
$69,000,000
3.33/1
$18,028,000
$7,179,000
$7.59
19,432,959
1,897
$103,909,000
$25,519,000
$191,029,000
156,000
$133,647,000
$84,700,000
2.85/1
$10,777,000
$4,730,000
$6.92
19,309,910
1,750
(1) IN FISCAL 1996, THE COMPANY ACQUIRED AMERICAN FINE WIRE COPRORATION.
(2) IN FISCAL 1997 AND 1996, THE COMPANY RECORDED PRETAX LOSSES OF $6,701,000 AND $994,000, RESPECTIVELY, REPRESENTING ITS PROPORTIONATE SHARE OF THE LOSS FROM ITS EQUITY
INVESTMENT IN FLIP CHIP TECHNOLOGIES, LLC (“FCT”).
IN FISCAL 1998, THE COMPANY RECORDED A PRETAX LOSS OF $8,715,000 REPRESENTING ITS PROPORTIONATE SHARE OF THE LOSS FROM ITS EQUITY INVESTMENT IN FCT, THE COMPANY ALSO
INCURRED A ONE TIME RESIZING CHARGE OF $8,420,000 FOR SEVERANCE AND ASSET WRITE-OFFS AND A CHARGE OF $3,788,000 FOR INVENTORY RELATED ITEMS. SEE NOTE 2 TO THE
COMPANY’S CONSOLIDATED FINANCIAL STATEMENTS FOR A DETAILED DISCUSSION.
IN FISCAL 1999 THE COMPANY RECORDED PRETAX LOSSES AS FOLLOWS: $12,166,000 REPRESENTING ITS SHARE OF THE LOSS FROM FCT; $5,918,000 FOR SEVERENCE AND ASSET WRITE-OFFS IN
CONNECTION WITH THE MOVE OF IC BALL BONDER MANUFACTURING TO SINGAPORE AND RESIZING EFFORTS; $3,935,000 OF IN-PROCESS R&D IN CONNECTION WITH THE PURCHASE OF THE X-LAM
TECHNOLOGY; AND $837,000 FOR ITS PROPORTIONATE SHARE OF THE LOSS FROM ADVANCED POLYMER SOLUTIONS.
(3) FISCAL YEARS 1997, 1996, AND 1995 RESTATED TO REFLECT REQUIREMENT OF SFAS 128.
PER SHARE PRICE OF COMMON STOCK
Traded on the NASDAQ National Market System, NASDAQ Symbol-KLIC
Fiscal Year
1999
1998
1997
1996
1995
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
High
21 7/8
35 1/4
29
29
Low
9 3/8
17 5/8
19
19 1/8
High
48 1/4
29 5/8
24 13/16
19 1/2
Low
16 1/2
16 1/4
13 7/8
11 1/2
High
22 1/4
30
35 5/8
58 3/8
Low
10 1/2
18 3/4
20 3/4
31
High
36 3/4
25 1/2
20 1/2
14 5/8
Low
22
15 1/8
13 1/4
8 3/4
High
10 31/32
14 7/8
33 3/8
45 3/8
Low
7 1/2
9 1/8
13 1/4
32 7/8
The Company has not paid dividends since the 3rd Quarter of 1985.
At December 1, 1999, there were 664 shareholders of record.
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 Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K
for the fiscal year ended September 30, 1999 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:
Every year I start writing this by first rereading last
year’s President’s Letter. A year ago, I was trying to
explain the reasons behind the dramatic retrenchment
our industry was going through and how we were
responding. This year, my task is much more
pleasant; I get to tell you how well things are today,
and what we’re doing to take advantage of the current
boom market. The stunning change in just twelve
months underscores how dynamic – and volatile – the
semiconductor business is. Nonetheless, there are at
least a few constants in this business.
One is that the balance between supply and demand
will swing first one way, then the other, but never
quite settle into equilibrium.
of
the
volatility
semiconductor
Long time followers of K&S can certainly appreciate
the
cycle.
Semiconductor unit volume has, for over a decade,
exhibited remarkably constant growth in the 10% to
11% range, yet customers alternately binge on
capacity then retreat from the capital equipment
market. In this regard, 1999 was a transition year,
with business accelerating through the year so that
we concluded our fourth fiscal quarter with sales of
$153,375,000, or roughly double the fourth quarter of
fiscal 1998 sales of $76,176,000. Earnings for the
fourth quarter of fiscal 1999 were $7,352,000 or
loss of
to a
$0.30 per share, as compared
($18,331,000) or ($0.79) per share in 1998.
Sales for the full year were $398,917,000 compared
to sales of $411,040,000 in fiscal 1998, with a net
loss of ($16,946,000) or ($0.72) per share, compared
to a net loss of ($5,440,000) or ($0.23) per share in
1998.
As our customers continue to shift from retrenchment
to aggressive growth, the inevitable questions come
regarding the expected duration of the cycle and just
how good will things get before the next, inevitable,
swing. Obviously, we won’t really know until it has
happened, but we believe there are a number of clues
that suggest a longer and more robust cycle than
normal.
One clue comes from the customers themselves.
Most of our major customers are forecasting
accelerated capital spending through the year 2000,
and in many cases, have engaged us in purchase
negotiations for large numbers of machines and
increased shipments of materials. On the strength of
those forecasts, we are continuing to increase our
own capacity in virtually every major product line.
While we don’t know just how high the top of the
cycle will be, we are planning for fiscal 2000 sales to
be well above the $600,000,000 run rate reported in
the September quarter.
the cycle comes from an
Another clue about
examination of past cycles. It appears to us that
semiconductor cycles are usually (although not
always) self-inflicted. The root cause seems to do
with the lack of granularity in wafer fabrication
capacity additions. Under most circumstances, it is
impossible to add just a little bit of wafer fab
capacity; typically if you are going to build a fab, you
build a good sized one – a project that takes 2-3 years
(including the time to ramp to full production) and
costs in the neighborhood of $1 billion dollars. Since
you’re stuck with the high fixed costs associated with
this billion dollar investment, once you have it, you
the
it, which means you will also make
run
corresponding investments in back-end assembly –
our end of the market. The problems arise when
many companies, all in the same niche, all add wafer
fab capacity simultaneously. That segment of the
business will inevitably swing into a position of
excess supply until
in
semiconductor unit volume absorb the excess.
the expected
increases
The good news here is that our customers have, at
least by historic measures, been under investing in
new wafer fabs. While this seems to be changing
(judging from the accelerated bookings levels of
wafer fab equipment companies such as Applied
Materials, Lam, Novellus, and KLA/Tencor) given
the 2 to 3 years required to build and ramp a new fab,
we ought to have that long before our customers
trigger the end of this cycle.
It is useful to strike a cautionary note at this point.
The above analysis applies to the industry’s supply
and demand dynamic. One ought to keep in mind
that there are also examples of externally triggered
down cycles – the most recent occurring in late 1997
with the Asian financial meltdown which pushed the
then-recovering semiconductor industry back into the
downturn from which we have just emerged. For all
the vigor of the semiconductor business, it is not
immune to macro events.
Another one of the constants of the semiconductor
industry has to do with technological progress.
Today’s leading edge products will be old hat next
year. This is true whether it is at the chip level,
same time frame testify to the extent to which we
have delivered customer satisfaction, we recognize
that our cost structure has precluded us from
delivering the kind of shareholder returns that we
ought to. Accordingly, earlier this year we decided it
was time to lower our manufacturing cost structure
by shifting IC ball bonder production from America
to Asia. When this move is complete next summer,
we expect a noticeable reduction in manufacturing
costs of our principal product line. Coupled with the
volume leverage expected to accompany the growth
spurt we are currently experiencing, it should result
in a more acceptable margin structure.
Hopefully, a year from now I’ll reread this as I
prepare to write next year’s President’s Letter.
Inevitably, since this is the semiconductor industry,
we’ll have had to dodge a curve ball or two, but I
expect the major themes of this letter – growth,
product innovation and improving profits – will be
equally relevant.
C. Scott Kulicke
Chairman of the Board
Chief Executive Officer
December 17, 1999
where you see a faster microprocessor coming out
every month or two, or at the equipment level where
the 8020 ball bonder we introduced last year is
already giving way to its replacement, our model
8028. We continue to invest in new product
development – including a successor to the 8028
which is already in testing – and continually evolving
materials offerings developed in conjunction with our
equipment products. Thus, we deliver total solutions
to our customers, not just hardware.
product
turnover: most
There is an interesting corollary to the idea of
continued
product
improvements happen through stretching seemingly
mature technologies rather than replacing them
wholesale. Again, this is true at the chip level where
the shrinking of process
technology allows a
company like Intel to run their existing designs faster
or at K&S where, for instance, the introduction of
new gold alloys allows us to wire bond applications
we didn’t think we could tackle a year ago.
This is not to say that from time to time there aren’t
fundamental shifts in the way semiconductors are
built, but those shifts inevitably take longer than the
trade press would have you expect. In our end of the
business, we are deeply involved in the projected
shift from traditional chip and wire assembly with its
emphasis on wire bonding, to flip chip and/or chip
scale packaging techniques. We continue to invest in
these next generation
technologies because we
believe that they will one day represent the center of
gravity of semiconductor assembly. But we are also
justifiably proud that we have been able to push off
that transition because we have extended wire
bonding capability specifically through the kind of
short product life cycle and product management
philosophies mentioned above. We think we are
positioned
ongoing
semiconductor growth, regardless of the packaging
technology choices our customers might make.
advantage
take
of
to
last constant exhibited by
industry has
the
Perhaps
the
semiconductor
to do with cost;
ultimately it seems to go back to Moore’s Law -- first
articulated by the Intel founder, Gordon Moore --
which postulates that the industry will continue to
grow in proportion to the extent that the cost of
electronic functionality can be continually reduced.
Not surprisingly, our customers expect us to do our
part.
So while we have been increasing the
productivity of our ball bonders (which represent
about half of our total revenue), by about 15% per
product generation over the last six years or so, our
average selling prices have gone up at a much slower
rate. While our increases in market share over that
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FORM 10-K
For the fiscal year ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
Commission file number 0-121
KULICKE AND SOFFA INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania
(State or other jurisdiction of
incorporation or organization)
2101 Blair Mill Road, Willow Grove, PA
(Address of principal executive offices)
Registrant's telephone number, including area code: (215) 784-6000
Securities registered pursuant to Section 12(b) of the Act:
Securities registered pursuant to Section 12(g) of the Act:
None
23-1498399
(I.R.S. Employer
Identification No.)
19090
(zip code)
COMMON STOCK, WITHOUT PAR VALUE
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the Registrant's common stock (its only voting stock) held by non-affiliates of the
Registrant as of December 1, 1999 was approximately $822,190,000. (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, 1999, there were 23,568,851 shares of the Registrant's common stock, without par value,
outstanding.
Documents Incorporated by Reference
Portions of the Registrant's Proxy Statement for the 2000 Annual Shareholders' Meeting to be filed prior to January
8, 2000 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.
1999 Annual Report on Form 10-K
Table of Contents
Part I
Item 1.
Business
Item 2.
Properties
Item 3.
Legal Proceedings
Item 4.
Submission of Matters to a Vote of Security Holders
Part II
Item 5.
Market for the Registrants' Common Equity and Related Stockholder Matters
Item 6.
Selected Financial Data
Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Financial Statements and Supplementary Data
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 10. Directors and Executive Officers of the Registrant
Item 11.
Executive Compensation
Part III
Item 12.
Security Ownership of Certain Beneficial Owners and Management
Item 13.
Certain Relationships and Related Transactions
Item 14.
Exhibits, Financial Statement Schedules and Reports on Form 8-K
Part IV
Page
2
10
11
11
11
12
14
28
28
64
64
64
64
64
65
1
PART I
In addition to historical information, this report contains statements relating to future events or our future results.
These statements are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933
and Section 21E of the Securities Act of 1934, as amended (the “Exchange Act”), and are subject to the Safe
Harbor provisions created by statute. Such forward-looking statements include, but are not limited to, statements
that relate to our future revenue, product development, demand forecasts, competitiveness, gross margins,
operating expenses, cost savings expected from the transfer of our automatic ball bonder manufacturing to
Singapore and benefits expected as a result of:
• The projected growth rates in the overall semiconductor industry, the semiconductor assembly
equipment market and the market for semiconductor packaging materials;
the anticipated development, production and licensing of our advanced packaging technology;
the projected continuing demand for wire bonders; and
the anticipated growing importance of the flip chip assembly process in high-end market segments.
•
•
•
Generally words such as “may,” “will,” “should,” “could,” “anticipate,” “expect,” “intend,” “estimate,”
“plan,” “continue,” and “believe,” or the negative of or other variation on these and other similar expressions
identify forward-looking statements. These forward-looking statements are made only as of the date of this report.
We do not undertake to update or revise the forward-looking statements, whether as a result of new information,
future events or otherwise.
Forward-looking statements are based on current expectations and involve risks and uncertainties and our future
results could differ significantly from those expressed or implied by our forward-looking statements. These risks
and uncertainties include, without limitation those described under Item 1. Business and Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations.
Item 1. BUSINESS.
We design, manufacture and market capital equipment and packaging materials for sale to companies that
manufacture and assemble semiconductor devices. We also service, maintain, repair and upgrade assembly
equipment. Today, we are the world's largest supplier of semiconductor assembly equipment, according to VLSI
Research, Inc. Our business is divided into three segments: equipment, packaging materials and advanced
packaging technology.
Historically, the demand for semiconductors and our semiconductor assembly equipment has been volatile from
period to period. A downturn in the semiconductor industry began in fiscal 1998 and continued through the first
half of fiscal 1999, contributing to our net losses for fiscal years 1998 and 1999. The semiconductor industry began
to rebound in the second half of 1999, and we reported strong fourth quarter results, with net sales of $153.4
million and net income of $7.4 million, compared to net sales of $76.2 million and a net loss of $18.3 million in
the fourth quarter of 1998, and net sales of $110.8 million and a net loss of $0.7 million in the third quarter of
1999.
Kulicke and Soffa Industries, Inc. was incorporated in Pennsylvania in 1956. Our principal offices are located at
2101 Blair Mill Road, Willow Grove, Pennsylvania 19090 and our telephone number is (215) 784-6000.
Products and Services
We offer a broad range of semiconductor assembly equipment, packaging materials, advanced packaging
technologies and complementary services and spare parts used in the semiconductor assembly process. Set forth
below is a table listing the approximate percentage of our net sales by principal product for our fiscal years ended
September 30, 1999, 1998 and 1997.
Wire bonders
Additional assembly equipment
Services and spare parts
Packaging materials
Advanced packaging technologies
Fiscal Year Ended
September 30,
1997
1998
1999
55%
7
6
31
1
100%
58%
7
8
27
--
100%
65%
7
6
22
--
100%
2
See Note 11 to our Consolidated Financial Statements for financial results by Business segment.
Wire Bonders
Our principal product line is our family of wire bonders, which are used to connect extremely fine wires, typically
made of gold or aluminum, between the bonding pads on the die and the leads on the integrated circuit (IC)
package to which the die has been bonded. We offer both ball and wedge bonders in automatic and manual
configurations. Ball bonders typically are used for leadframe-based and laminate-based packages, while wedge
bonders typically are used for ceramic packages. We believe that our wire bonders offer competitive advantages
based on high productivity and superior process control, enabling fine pitch bonding and long, low wire loops,
which are needed to assemble advanced IC packages. The selling prices for our automatic wire bonders range from
$60,000 to over $200,000 and from $8,000 to $40,000 for manual wire bonders, in each case depending on system
configuration and purchase volume.
Our current generation of wire bonders, the 8000 family, is based on an entirely new platform and required us to
develop new software and many subassemblies that were not part of our prior series of wire bonders. The first
products in the 8000 family were the Model 8020 ball bonder and Model 8060 wedge bonder. In the third quarter
of fiscal 1999, we introduced the Model 8028 ball bonder and began to shift production capacity from the Model
8020 ball bonder. By the end of the fourth quarter of fiscal 1999, the Model 8028 accounted for the majority of ball
bonders we sold due to its superior technical performance and productivity.
We continue to market the Model 8060 wedge bonder, which we introduced during the fiscal 1997 fourth quarter
and began shipping in volume in the first quarter of fiscal 1998, the Model 8090, a large area wedge bonder we
introduced during the first quarter of fiscal 1998 and the 4500 digital series of manual wire bonders. We also
continue to develop a new wire bonder platform to meet expected customer requirements.
As part of our strategy to reduce the manufacturing costs of our wire bonders, we plan to transfer our automatic
ball bonder manufacturing from Willow Grove, Pennsylvania to a 74,000 square foot facility in Singapore. We
expect the Singapore facility to be fully operational in late fiscal 2000.
Additional Semiconductor Assembly Equipment
In addition to wire bonders, we produce and distribute other types of semiconductor assembly equipment, including
wafer dicing saws and die bonders, flip chip assembly systems and factory automation and integration systems.
Dicing Saws. Dicing saws use diamond-embedded saw blades to cut silicon wafers into individual
semiconductor die. We presently produce and market two dicing saws: the Model 7500, an automatic dicing
saw, and the Model 7700 twin spindle dicing saw, which was introduced during the fourth quarter of fiscal
1999. These dicing saws range in price from $150 to more than $400.
Die Bonders. Die bonders are used to attach a semiconductor die to a leadframe or other package before wire
bonding. We have a 5 year distribution agreement with DATACON Semiconductor Equipment GmbH, an
Austrian company, principally to market their multi chip module and flip chip die bonder product line
worldwide, excluding Europe. The die bonders range in price from $200,000 to more than $500,000,
depending on configuration. In the fourth quarter of fiscal 1999, we began marketing the 2200 apm, an
extremely accurate multi chip bonder developed by DATACON. We have received several orders for the 2200
apm.
Flip Chip Assembly Systems. Flip chip is an alternative assembly technique in which the die is inverted and
attached to the package or board using conductive bumps, thereby eliminating the need for conventional die or
wire bonding. The Model 2200 apm, manufactured by DATACON Semiconductor Equipment GmbH and
distributed by us, can be configured to support flip chip applications. Selling prices for flip chip applications
exceed $300,000.
Factory Automation and Integration Systems. Factory systems include products and services designed to
automate data collection and material flow between process steps in semiconductor assembly. We are
successfully marketing the Knet, a PC-based information management system, as well as several software
products for factory simulation and lot management.
3
We also offer different configurations of some of our products for non-semiconductor applications. For instance,
our Model 980 saw can be configured for cutting and grinding hard and brittle materials, such as ceramic, glass
and ferrite, that are used in the fabrication of chip capacitors or disk drive heads.
Packaging Materials
We offer a range of packaging materials to semiconductor device assemblers which we sell under the brand names
''American Fine Wire,'' ''Micro-Swiss,'' ''Semitec'' and ''Advanced Polymer Solutions.'' We have integrated these
operating units with our equipment groups, and intend to expand this business in an effort to increase our revenues
from materials used in the assembly of ICs. We also sell our packaging materials for use with competitors'
assembly equipment. Our principal packaging materials are:
Bonding Wire. American Fine Wire is a manufacturer of very fine (typically 0.001 inches in diameter) gold,
aluminum and copper wire used in the wire bonding process. American Fine Wire produces wire to a wide
range of specifications, which can satisfy most wire bonding applications.
Expendable Tools. The Micro-Swiss family of expendable tools includes capillaries, wedges, die collets, saw
blades and microspheres. Capillaries and wedges are used to feed out, attach and cut the wires used in wire
bonding. Die collets are used to pick up and place die into packages. Micro-Swiss brand hubless saw blades
are used to cut hard and brittle materials. Semitec, which we acquired in October 1996, manufactures hub
blades that are used to cut silicon wafers into semiconductor die.
Die Attach Adhesives. Advanced Polymer Solutions, a joint venture company that we established in the first
quarter of fiscal 1999 with Polyset, Inc., currently offers two die attach adhesive formulations based on epoxy
siloxane chemistry. The first is a fast curing adhesive that can eliminate the need for oven curing, reducing
handling and processing time during the assembly of semiconductors. The second provides a high degree of
moisture resistance for increased package reliability. Additional products planned for introduction in fiscal
2000 include flip chip underfills and liquid encapsulants.
Services and Spare Parts
We believe that our knowledge and experience have positioned us to deliver innovative, customer-specific services
that reduce the cost of owning our equipment. Historically, our offerings in this area were limited to spare parts,
customer training and extended warranty contracts. In response to customer trends in outsourcing packaging
requirements, we are focusing on providing repair and maintenance services, a variety of equipment upgrades,
machine and component rebuild activities and expanded customer training through a Value-Added Products and
Services Organization. These services are generally priced on a time and materials basis. The service and
maintenance arrangements are typically subject to bi-annual or multi-year contracts.
Investment in Advanced Packaging Technologies
In February 1996, we entered into a joint venture agreement with Delco Electronics Corporation to license flip chip
technology and to provide wafer bumping services on a contract basis through Flip Chip Technologies, LLC. Flip
Chip Technologies intends to focus primarily on licensing its flip chip technology to customers. As of September
30, 1999, Flip Chip Technologies had sold one license and we expect it to sell additional licenses in fiscal 2000. In
addition, Flip Chip Technologies completed construction of its manufacturing facility in Phoenix, Arizona during
fiscal 1997, has commenced production and currently is providing contract bump services to customers and is
working with other customers to have its manufacturing processes qualified. In March of 1998, Flip Chip
Technologies introduced a new wafer level chip scale package, named the Ultra CSPTM, aimed at the chip scale
packaging market. A chip scale device has a surface area no larger than 1.2 times the area of the die. Flip Chip
Technologies' Ultra CSP package has been qualified and is currently being shipped to customers.
On May 31, 1999, we increased our ownership interest in Flip Chip Technologies to 73.6% by converting all of our
outstanding loans and accrued interest into equity units. Under various operating agreements, we manage Flip
Chip Technologies jointly with Delco and have agreed not to compete with the joint venture. Flip Chip
Technologies has also entered into various agreements with Delco that are customary in similar joint venture
arrangements.
4
We continuously evaluate investments in advanced packaging technologies. To that end, in February 1999, we
acquired the X-LAM technology of MicroModule SystemsTM, a Cupertino, California company, to enable
production of high performance ball grid array substrates, daughter cards and multi-layer boards. In the fourth
quarter of fiscal 1999, we leased a 35,000 square foot manufacturing/research and development facility in Milpitas,
California and are building a staff to fully develop and market the technology.
To date our Advanced Packaging Technology business has experienced losses. We expect these losses to continue
at least through fiscal 2000.
Customers
Our major customers include large semiconductor manufacturers and subcontract assemblers worldwide. Some of
these major customers are:
Advanced Micro Devices
Advanced Semiconductor Engineering
Amkor Technologies
Anam
ChipPAC
Fujitsu
IBM
Infineon Technologies
Lucent Technologies
Micron Technology
Motorola
National Semiconductor
Orient Semiconductor Electronics
Philips Electronics
ST Microelectronics
Siliconware Precision
Intel
Texas Instruments
Sales to a relatively small number of customers have accounted for a significant percentage of our net sales. In
fiscal 1999, no customer accounted for more than 10% of net sales, but in fiscal 1998 sales to Intel accounted for
17.6% of our net sales, and in fiscal 1997 sales to Anam accounted for 12.5% of our net sales and sales to Intel
accounted for 10.2% of our net sales.
We believe that developing long-term relationships with our customers is critical to our success. By establishing
these relationships with semiconductor manufacturers and subcontract assemblers, we gain insight into our
customers' future IC packaging strategies. This information assists us in our efforts to develop material, equipment
and process solutions that address our customers' future assembly requirements.
International Operations
We sell our products to semiconductor device manufacturers and contract manufacturers, which are primarily
located in or have operations in the Asia/Pacific region. Approximately 83% of our fiscal 1999 net sales, 80% of
our fiscal 1998 net sales and 85% of our fiscal 1997 net sales were for delivery to customer locations outside of the
United States. The majority of these foreign sales were destined to customer locations in the Asia/Pacific region,
including Taiwan, Korea, Malaysia, the Philippines, Singapore, Hong Kong and Japan. We expect sales outside of
the United States to continue to represent a substantial portion of our future revenues.
In addition, we maintain manufacturing operations in countries other than the United States, including operations
located in Israel, Singapore and Switzerland. Risks associated with our international operations include risks of
foreign currency and foreign financial market fluctuations, international exchange restrictions, changing political
conditions and monetary policies of foreign governments, war, civil disturbances, expropriation, or other events
which may limit or disrupt markets.
Sales and Customer Support
We established a single sales management team in the third quarter of fiscal 1999 to coordinate activities and
improve customer support. Our direct sales force, consisting of approximately 80 individuals at September 30,
1999, is responsible for the sale of all product lines, including those of our equipment, packaging materials and
advanced packaging technology businesses, to customers in the United States and the Asia/Pacific region,
including Japan. Lower volume product lines, as well as all equipment sales to customers in Europe, are sold
through a network of manufacturers' representatives.
We believe that providing comprehensive worldwide sales, service, training and support are important competitive
5
factors in the semiconductor equipment industry, and we have combined these functions into a customer operations
group. In order to support our U.S. and foreign customers whose semiconductor assembly operations are located in
the Asia/Pacific region, we maintain a significant presence in the region, with sales facilities in Hong Kong, Japan,
Korea, Taiwan, Malaysia, the Philippines and Singapore, a technology center in Japan and application labs in
Singapore. We also maintain customer resource centers in Taiwan, the Philippines and Singapore. We support our
assembly equipment customers worldwide with over 175 customer service and support personnel as of September
30, 1999, located in the United States, Hong Kong, Japan, Korea, Malaysia, the Philippines, Singapore, Taiwan
and Thailand. Our local presence in the Asia/Pacific countries enables us to provide more timely customer service
and support by positioning our service representatives and spare parts near customer facilities, and affords
customers the ability to place orders locally and to deal with service and support personnel who speak the
customer's language and are familiar with local country practices.
Backlog
At September 30, 1999, our backlog of orders approximated $93.0 million, compared to approximately $54.0
million at September 30, 1998. Our backlog consists of product orders for which we have received confirmed
purchase orders, and which are scheduled for shipment within 12 months. Virtually all orders are subject to
cancellation, deferral or rescheduling by the customer with limited or no penalties. Because of the possibility of
customer changes in delivery schedules or cancellations and potential delays in product shipments, our backlog as
of any particular date may not be indicative of revenues for any succeeding quarterly period.
Manufacturing
Equipment. Our assembly equipment manufacturing activities consist primarily of integrating components
and subassemblies to create finished systems configured to customer specifications. During fiscal 1999, we
performed system design, assembly and testing in-house at our Willow Grove, Pennsylvania and Haifa, Israel
facilities, utilizing an outsourcing strategy for the manufacture of many of our major subassemblies. We believe
that outsourcing enables us to minimize our fixed costs and capital expenditures and allows us to focus on product
differentiation through system design and quality control. Our just-in-time inventory management strategy has
reduced our manufacturing cycle times and limited our on-hand inventory. This strategy will continue at our new
facility in Singapore, sourced largely by local suppliers. We have obtained ISO 9001 certification for operations in
our Willow Grove, Pennsylvania facility and for our Haifa, Israel equipment manufacturing facility, and will apply
for ISO 9001 certification of our new facility in Singapore.
Packaging Materials. We manufacture our Micro-Swiss expendable tools at our facility in Yokneam, Israel
and our American Fine Wire product line, consisting of gold and aluminum bonding wire, at facilities in Selma,
Alabama, Singapore and Thalwil, Switzerland. We manufacture our Semitec hub blades in Santa Clara, California.
We manufacture our Advanced Polymer Solutions adhesives in our Willow Grove, Pennsylvania facility. All three
American Fine Wire facilities, as well as the Semitec facility, have received ISO 9002 certification and the Micro-
Swiss facility has received ISO 9001 certification.
Advanced Packaging Technology. We also maintain manufacturing facilities in Phoenix, Arizona for Flip
Chip Technologies and in Milpitas, California for our X-LAM technology.
Research and Product Development
Because technological change occurs rapidly in the semiconductor industry, we devote substantial resources to our
research and development programs to maintain our competitiveness. We employed approximately 380 individuals
in research and development at September 30, 1999. We pursue the continuous improvement and enhancement of
existing products while simultaneously developing next generation products. For example, while the performance
of current generations of wire bonders is being enhanced in accordance with a specific continuous improvement
plan, we are simultaneously developing the next generation wire bonders. Much of the next generation equipment
we are presently developing is based on modular, interchangeable subsystems, including the 8000 control platform,
which we believe will promote more efficient and cost-effective manufacturing operations, lower inventory levels,
improved field service capabilities and shorter product development cycles, and allow us to introduce new products
more quickly. In fiscal 1999, we introduced two new bonders based on technology developed for earlier models of
the 8000 family, the Model 8028, an automatic ball bonder that offers increased accuracy and productivity over its
predecessor, the Model 8020, and the Model 8098, which is used for large area ball bonding and wafer level ball
bumping.
6
Our net expenditures for research and development totaled approximately $37.2 million, $48.7 million and $46.0
million during the fiscal years ended September 30, 1999, 1998 and 1997, respectively. We have received funding
from certain customers and government agencies pursuant to contracts or other arrangements for the performance
of specified research and development activities. Such amounts are recognized as a reduction of research and
development expense when specified activities have been performed. During the fiscal years ended September 30,
1999, 1998 and 1997, such funding totaled approximately $1.3 million, $1.7 million and $2.0 million,
respectively.
Competition
The semiconductor equipment and packaging materials industries are intensely competitive. Significant
competitive factors in the semiconductor equipment market include performance, quality, customer support and
price. Our major equipment competitors include:
• ASM Pacific Technology, Shinkawa, Kaijo and ESEC in wire bonders;
• ESEC, Nichiden, ASM Pacific Technology and Alphasem in die bonders; and
• Disco Corporation in dicing saws.
Competitive factors in the semiconductor packaging materials industry include price, delivery and quality. Our
significant packaging materials competitors with respect to expendable tools and blades include:
• Gaiser Tool Co. and Small Precision Tools, Inc. in expendable tools; and
• Disco Corporation in blades;
and in the bonding wire market:
• Tanaka Electronic Industries and Sumitomo Metal Mining.
In each of the markets we serve, we face competition and the threat of competition from established competitors
and potential new entrants, some of which may have greater financial, engineering, manufacturing and marketing
resources than we have. Some of these competitors are Japanese or Korean companies that have had and may
continue to have an advantage over us in supplying products to local customers because many of these customers
appear to prefer to purchase from local suppliers, without regard to other considerations.
We expect our competitors to improve their current products' performance, and to introduce new products with
improved price and performance characteristics. New product introductions by our competitors or by new market
entrants could hurt our sales. If a particular semiconductor manufacturer or subcontract assembler selects a
competitor's product for a particular assembly operation, we may not be able to sell a product to that manufacturer
or assembler for a significant period of time because manufacturers and assemblers sometimes develop lasting
relations with suppliers, and products in our industry often go years without requiring replacement. In addition, we
may have to lower our prices in response to price-cuts by our competitors, which could materially and adversely
affect our business, financial condition and operating results. We cannot assure you that we will be able to continue
to compete in these or other areas in the future.
Intellectual Property
Where circumstances warrant, we seek to obtain patents on inventions governing new products and processes
developed as part of our ongoing research, engineering and manufacturing activities. We currently hold a number
of United States patents some of which have foreign counterparts. We believe that the duration of our patents
generally exceeds the life cycles of the technologies disclosed and claimed in the patents. Although the patents we
hold and may obtain in the future may be of value, we believe that our success will depend primarily on our
engineering, manufacturing, marketing and service skills.
In addition, we believe that much of our important technology resides in our proprietary software and trade
secrets. As long as we rely on trade secrets and unpatented knowledge, including software, to maintain our
competitive position, there is no assurance that competitors may not independently develop similar technologies
and possibly obtain patents containing claims applicable to our products and processes. The sale of our products
7
covered by such patents could require licenses that may not be available on acceptable terms, or at all. In addition,
although we execute non-disclosure and non-competition agreements with certain of our employees, customers,
consultants, selected vendors and others, there is no assurance that such secrecy agreements will not be breached
Environmental Matters
We are subject to various federal, state, local and foreign laws and regulations governing, among other things, the
generation, storage, use, emission, discharge, transportation and disposal of hazardous materials and the health
and safety of our employees. In addition, we are subject to environmental laws which may require investigation and
cleanup of any contamination at facilities we own or operate or at third party waste disposal sites we use or have
used. These laws could impose liability even if we did not know of, or were not responsible for, the contamination.
We have in the past and will in the future incur costs to comply with environmental laws. We are not, however,
currently aware of any costs or liabilities relating to environmental matters, including any claims or actions under
environmental laws or obligations to perform any cleanups at any of our facilities or any third party waste disposal
sites, that we expect to have a material adverse effect on our business, financial condition or operating results. It is
possible, however, that material environmental costs or liabilities may arise in the future.
Employees
At September 30, 1999, we had 2,239 permanent employees, 33 temporary employees and 145 contract personnel
worldwide. Our only employees represented by a labor union are America Fine Wire's employees in Singapore.
Most of the employees at our new automatic ball bonder manufacturing facility in Singapore will also be members
of that union. Generally, we believe our employee relations to be good. Competition in the recruiting of personnel
in the semiconductor and semiconductor equipment industry is intense, particularly with respect to software
engineering. We believe that our future success will depend in part on our continued ability to hire and retain
qualified management, marketing and technical employees.
8
Executive Officers of the Company
The following table sets forth certain information regarding the executive officers of the Company.
First Became
an Officer
Age (calendar year) Position
Name
1976
C. Scott Kulicke 50
1982
62
Morton K. Perchick
41 1997
David A. Leonhardt
44 1992
Charles Salmons
1989
56
Clifford G. Sprague
1992
59
Walter Von Seggern
39 1998
Laurence P. Wagner
Chairman of the Board of Directors and Chief Executive Officer
Executive Vice President
Senior Vice President
Senior Vice President
Senior Vice President and Chief Financial Officer
Senior Vice President
Senior Vice President
C. Scott Kulicke has been Chief Executive Officer since 1979 and Chairman of the Board since 1984. Prior to that
he held a number of executive positions with us. Mr. Kulicke is the son of Frederick W. Kulicke, Jr., a member of
the Board of Directors. Mr. Kulicke also serves on the Board of Directors of General Semiconductor, Inc.
Morton K. Perchick joined us in 1980 and has served in various executive positions, most recently as Senior Vice
President, prior to being appointed Executive Vice President in July 1995.
David A. Leonhardt joined us in 1982 as an engineer in wedge bonder development and was promoted to various
positions in engineering, product management and new product development. In 1997 he was appointed Vice
President of Strategic Marketing and then Vice President of the Ball Bonder Division and in March 1998 was
named Vice President and General Manager, Sales and Marketing, for the Equipment Group. Mr. Leonhardt was
promoted to his current position of Senior Vice President, as co-head of our equipment and materials businesses, in
September 1999.
Charles Salmons joined us in 1978 as an accountant and was promoted to various positions in accounting,
production and operations. In 1992 he was appointed Vice President Manufacturing, in 1994 he was appointed
Vice President Operations, in 1996 he was appointed Vice President Product Development Programs and in March
1998 was named Vice President and General Manager, Operations, for the Equipment Group. Mr. Salmons was
promoted to his current position of Senior Vice President Customer Operations in September 1999.
Clifford G. Sprague joined us in March 1989 as Vice President and Chief Financial Officer and was promoted to
Senior Vice President in 1990. Prior to joining us, he served for more than five years as Vice President and
Controller of the Oilfield Equipment Group of NL Industries, Inc., an oilfield equipment and service company.
Walter E. Von Seggern joined us in September 1992 as Vice President of Engineering and Technology. He was
appointed Senior Vice President in December 1996, and was in charge of Marketing from April 1997 until early
1998 when he was placed in charge of new equipment business opportunities. Mr. Von Seggern has also served as
President of Advanced Polymer Solutions LLC, a joint venture of ours, since December 1998. From April 1988 to
April 1992, he worked for M/A-Com, Inc. He was General Manager of M/A-Com's ANZAC, RGH and Eurotec
Divisions from 1990 to 1992, and from 1988 to 1990 he was General Manager of M/A-Com's Radar Products
Division.
Laurence P. Wagner joined us in July 1998 as Senior Vice President and President of Packaging Materials and is
currently serving as Senior Vice President, as co-head of our equipment and materials businesses. From March
1996 until the time he joined us, Mr. Wagner was Vice President and General Manager of Emcore Electronic
Materials, a compound semiconductor materials manufacturer. Before Emcore, Mr. Wagner was the Operating
Unit Manager of Shipley Company LLC, a division of Rohm and Haas Company, where he had worked since
1989.
9
Item 2. PROPERTIES.
Our major facilities are described in the table below:
Facility
Willow Grove,
Pennsylvania
Approximate
Size Function
214,000 sq.ft. (1) Corp. headquarters,
Products
Manufactured
Wire bonders
manufacturing,
technology center, sales
and service
Singapore
73,700 sq.ft. (2) Manufacturing,
Wire bonders
technology center,
sales and service
Haifa, Israel
46,100 sq.ft. (2) Manufacturing,
technology center,
assembly systems
Manual wire bonders,
dicing saws and
automatic multi-process
assembly systems
Lease
Expiration
Date
N/A
September
2002
April 2002
Yokneam, Israel
48,400 sq.ft. (1) Manufacturing, Micro-
Swiss operations
Capillaries, wedges and
die collets
N/A
Yokneam, Israel
12,000 sq.ft. (2) Manufacturing, Micro-
Hard material blades
April 2003
Swiss operations
Milpitas, California 35,000 sq.ft. (2) Technology center
Laminate substrates
July 2006
Phoenix, Arizona
45,000 sq.ft. (2) Technology center,
Wafer bumping services
April 2006
Manufacturing
Tokyo, Japan
10,700 sq.ft. (2) Technology center,
N/A
(3)
sales and service
Singapore
35,100 sq.ft. (2) Manufacturing, American
Bonding wire
May 2000
Fine Wire
operations
Selma, Alabama
25,600 sq.ft. (2) Manufacturing, American
Bonding wire
October 2017
Fine Wire
operations
Thalwil,
Switzerland
Santa Clara,
California
15,100 sq.ft. (2) Manufacturing, American
Bonding wire
(3)
Fine Wire
operations
13,600 sq.ft. (2) Manufacturing
Dicing saw blades
October 2003
(1) Owned.
(2) Leased.
(3) Cancellable semi-annually upon six months notice.
We also rent space for sales and service offices in Horsham, Pennsylvania; Santa Clara, California; Mesa,
Arizona; Korea; Taiwan; Malaysia; the Philippines; Singapore; and Hong Kong. We believe that our facilities
generally are in good condition.
10
Item 3. LEGAL PROCEEDINGS.
From time to time, we are a plaintiff or defendant in various cases arising out of our usual and customary business.
We cannot assure you of the results of pending or future litigation, but we do not believe that resolution of these
matters will materially and adversely affect our business , financial condition or operating results.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
Our common stock is traded on the Nasdaq National Market under the symbol ''KLIC.'' The following table lists
the high and low per share sale prices for our common stock for the periods indicated:
High Low
Fiscal 1998:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Fiscal 1999:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$48 1/4
29 5/8
24 13/16
19 1/2
21 7/8
35 1/4
29
29
$16 1/2
16 1/4
13 7/8
11 1/2
9 3/8
17 5/8
19
19 1/8
On December 1, 1999, there were 664 holders of record of the shares of outstanding common stock.
The payment of dividends on our common stock is within the discretion of our board of directors. We do not
currently pay cash dividends on our common stock and we do not expect to declare cash dividends on our common
stock in the near future. We intend to retain earnings to finance the growth of our business. Our Gold Supply
Agreement between American Fine Wire and its subsidiaries and their gold supplier contains certain financial
covenants and prohibits American Fine Wire from paying any dividends or making any distributions without the
consent of the supplier if, following the payment of the dividend or distribution, the net worth of American Fine
Wire is less than $7.0 million.
During fiscal 1999, we contributed 24,461 shares of unregistered common stock, valued at its fair market value, as
our matching contribution to our employee 401(k) Plan. Registration of such shares was not required because the
transaction did not constitute a "sale" under Section 2(3) of the Securities Act of 1933 or the transaction was
exempt pursuant to the private offering provisions of that Act.
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 2000 Annual Meeting of Shareholders filed or to be filed with the Securities and Exchange Commission.
11
Item 6. SELECTED FINANCIAL DATA.
The following selected consolidated financial data should be read in conjunction with our consolidated
financial statements, related notes and other financial information included elsewhere herein.
Statement of Operations Data:
Net sales:
Equipment
Packaging materials
Advanced packaging technology
Total net sales
Cost of goods sold:
Equipment
Packaging materials
Advanced packaging technology
Total cost of goods sold
Operating expenses:
Equipment
Packaging materials
Advanced packaging technology
Corporate (2)
Total operating expenses (3)
Income (loss) from operations:
Equipment
Packaging materials
Advanced packaging technology
Corporate (2)
Total income (loss) from operations
Interest, net
Equity in loss of joint ventures (4)
Other expenses
Income (loss) before taxes
Provision (benefit) for income taxes
Minority interest
Net income (loss)
Basic net income (loss) per common share (5)
Diluted net income (loss) per common share (5)
Shares used in per common share calculations:(5)
Fiscal Years Ended September 30,
1996(1) 1995
1997
1999 1998
(in thousands, except per share amounts)
$269,854 $302,107 $391,721 $287,234
124,450
93,942
108,933
-- --
4,613 --
110,186
$283,835
20,674
--
398,917
411,040
501,907
381,176
304,509
188,958
90,326
6,098
285,382
191,948
82,259
163,844
228,854
75,270
89,148
-- -- --
239,114
274,207 318,002
92,157
23,500
5,314
12,296
133,267
107,083
24,553
97,143
102,515
21,029 14,563
--
9,353
8,070
140,989 126,242
--
--
7,566
124,644
155,195
12,262
--
167,457
71,880
3,278
--
6,454
81,612
(11,261)
10,624
(6,799)
(12,296)
(19,732)
3,547
(10,000)
--
(26,185)
(8,221)
1,018
3,076 65,724
2,121 9
--
--
(8,070)
(9,353)
57,663
(4,156)
820
5,514
(6,701)
(8,715)
-- --
51,782
(7,357)
13,463
(1,917)
--
--
$ 38,319 $11,847
$ (16,946) $ (5,440)
$ (0.72) $ (0.23) $ 1.84
$ 0.61
$ (0.72) $ (0.23)0 $ 1.79 $ 0.60
20,875
56,760
4,109
5,134
--
--
(7,566)
(6,454)
17,418
55,440
(164)
173
(994)
--
(630)
--
15,630
55,613
12,791
3,783
-- -
$ 42,822
$ 2.44
$ 2.23
Basic
Diluted
23,423
23,423
23,301
23,301
20,871
21,428
19,375
19,788
17,563
19,590
As of September 30,
1999 1998 1997 1996 1995
(in thousands)
Balance Sheet Data:
Cash, cash equivalents and short-term investments (7) $ 39,345 $106,900 $115,587 $ 58,422 $38,214
Working capital 167,131 182,181 190,220 113,804 103,909
Total assets 378,145 342,584 376,819 249,554 191,029
Long-term debt (6) (7) -- -- 220 50,712 156
Shareholders’ equity 274,776 287,910 291,927 147,489 133,647
12
(1) The fiscal 1996 Consolidated Statement of Operations was reclassified for comparative purposes. Also, in
October 1995, we acquired American Fine Wire Corporation through the acquisition of all of the common
stock of Circle ''S'' Industries, Inc., the parent corporation of American Fine Wire. American Fine Wire is a
manufacturer of fine gold and aluminum wire used in the wire bonding process.
(2) In January 1999, we purchased the X-LAM technology and fixed assets used in the design, development and
manufacture of laminate substrates for $8.0 million. As a result of this purchase, we recorded a pre-tax charge
of approximately $3.9 million for the writeoff of in-process research and development.
(3) During fiscal 1999, we announced plans to relocate our automatic ball bonder manufacturing to Singapore. As
a result, we recorded a pre-tax charge for severance of approximately $4.0 million for the elimination of
approximately 230 positions and asset writeoff costs of approximately $1.6 million. In fiscal 1999, we also
recorded approximately $0.4 million for severance related to the reduction in workforce begun in fiscal 1998.
During fiscal 1998, we recorded a pre-tax charge of approximately $8.4 million for severance and product
discontinuance as a result of a slowdown in the semiconductor industry. Of this amount $6.0 million was
associated with the equipment business, $1.7 million with the packaging materials business and $0.7 million
was recorded in corporate expense. During fiscal 1996, we recorded a pre-tax charge in the equipment
business of approximately $3.0 million for severance and the writeoff of costs incurred in connection with the
suspended Willow Grove facility expansion as a result of a slowdown in the semiconductor industry.
(4) Effective May 31, 1999 we increased our ownership interest in Flip Chip Technologies, LLC, from 51.0% to
73.6% by converting all of our outstanding loans to Flip Chip Technologies and accrued interest totaling
$32.8 million into equity units. We accounted for the increase in ownership by the purchase method of
accounting and began consolidating the results of Flip Chip Technologies into our financial statements on
June 1, 1999. We recognized pre-tax losses of approximately $12.2 million, $8.7 million, $6.7 million and
$1.0 million, representing our share of the losses from our investment in Flip Chip Technologies during fiscal
1999, 1998, 1997 and 1996, respectively. Our financial statements for fiscal 1999 reflect pre-tax losses at Flip
Chip Technologies of $3.0 million for the four months after we began reporting Flip Chip Technologies on a
consolidated basis and a loss of $9.2 million for the eight months when Flip Chip Technologies was accounted
for by the equity method of accounting and reflected in Equity in Loss of Joint Ventures.
(5) Because we had a net loss for each of the fiscal years ended September 30, 1999 and 1998, only the common
shares outstanding have been used to calculate both the basic earnings per common share and diluted earnings
per common share for these years because the inclusion of the potential common shares would be anti-
dilutive.
(6) Does not include letters of credit or foreign exchange contract obligations.
(7) In May 1997, we completed the sale of 3,450,000 shares of our common stock in an underwritten offering,
resulting in net proceeds of approximately $101 million. A portion of these proceeds was used to repay the
$50 million outstanding balance under the Company's existing bank revolving credit facility.
13
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
In addition to historical information, this report contains statements relating to future events or our future results.
These statements are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933
and Section 21E of the Securities Act of 1934, as amended (the “Exchange Act”), and are subject to the Safe
Harbor provisions created by statute. Such forward-looking statements include, but are not limited to, statements
that relate to our future revenue, product development, demand forecasts, competitiveness, gross margins,
operating expenses, cost savings expected from the transfer of our automatic ball bonder manufacturing to
Singapore and benefits expected as a result of:
• The projected growth rates in the overall semiconductor industry, the semiconductor assembly
equipment market and the market for semiconductor packaging materials;
the anticipated development, production and licensing of our advanced packaging technology;
the projected continuing demand for wire bonders; and
the anticipated growing importance of the flip chip assembly process in high-end market segments.
•
•
•
Generally words such as “may,” “will,” “should,” “could,” “anticipate,” “expect,” “intend,” “estimate,”
“plan,” “continue,” and “believe,” or the negative of or other variation on these and other similar expressions
identify forward-looking statements. These forward-looking statements are made only as of the date of this report.
We do not undertake to update or revise the forward-looking statements, whether as a result of new information,
future events or otherwise.
Forward-looking statements are based on current expectations and involve risks and uncertainties and our future
results could differ significantly from those expressed or implied by our forward-looking statements. These risks
and uncertainties include, without limitation, those described under Item 1. Business and Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations.
Overview
We design, manufacture and market capital equipment and packaging materials for sale to companies that
manufacture and assemble semiconductor devices. We also service, maintain, repair and upgrade assembly
equipment. Today, we are the world's largest supplier of semiconductor assembly equipment, according to VLSI
Research Inc. We sell our products to semiconductor device manufacturers and contract manufacturers, which are
primarily located in or have operations in the Asia/Pacific region. Sales to customers outside of the United States
accounted for 83% of net sales for fiscal 1999 and are expected to continue to represent a substantial portion of our
future revenues. To support our international sales, we currently have major manufacturing operations in the
United States, Israel and Singapore, sales facilities in Hong Kong, Japan, Korea, Taiwan, Malaysia, the Philippines
and Singapore, a technology center in Japan and applications labs in Singapore. We also maintain customer
resource centers in Taiwan, the Philippines and Singapore.
Our business is divided into the following three segments:
Equipment
Through our equipment business we design, manufacture and market semiconductor assembly equipment. Our
principal product line is our family of wire bonders, which are used to connect extremely fine wires, typically made
of gold or aluminum, between the bonding pads on the die and the leads on the IC package to which the die has
been bonded. We are the world's largest manufacturer of wire bonders, according to VLSI. In fiscal 1999, we
successfully introduced the Model 8028 automatic ball bonder which, by the fourth quarter, accounted for the
majority of ball bonders we sold due to its superior technical performance and productivity.
Earlier in 1999, we announced plans to relocate our automatic ball bonder manufacturing from the United States to
Singapore. We expect the new manufacturing operation in Singapore to be fully operational in late fiscal 2000.
Automatic ball bonders are our primary product and accounted for 48.0% of our total sales in fiscal 1999. We
anticipate cost savings as a result of this move from reductions in the cost of shipping, labor and production
materials. In addition, we expect to receive favorable tax treatment from Singapore in connection with the move.
We incurred start up costs associated with the move of $1.6 million in fiscal 1999 and expect additional start up
costs in the first half of fiscal 2000 of approximately $6.8 million.
14
Packaging Materials
Through our packaging materials business we design, manufacture and market a range of packaging materials to
semiconductor device assemblers including very fine (typically 0.001 inches in diameter) gold, aluminum and
copper wire, capillaries, wedges, die collets and saw blades. We expect to expand this business in an effort to
increase our revenues from materials used in the assembly of ICs.
Advanced Packaging Technology
We established this business segment in fiscal 1999 to reflect the operating results of our strategic initiative to
develop new technologies for advanced semiconductor packaging. This new business unit is comprised of Flip
Chip Technologies, LLC, a joint venture with Delco Electronics Corporation, and our X-LAM business unit.
Through Flip Chip Technologies we license our flip chip technology and provide wafer bumping services. On May
31, 1999, we increased our ownership interest in Flip Chip Technologies from 51.0% to 73.6% by converting all of
our outstanding loans and accrued interest, which totaled $32.8 million, into equity units. We accounted for the
increase in ownership by the purchase method of accounting and began consolidating the results of Flip Chip
Technologies into our financial statements on June 1, 1999. For the first eight months of fiscal 1999, we
recognized 100% of Flip Chip Technologies' pre-tax loss and did not recognize interest income on loans to Flip
Chip Technologies due to the existence of these loans and uncertainties about Flip Chip Technologies' ability to
obtain additional financing from Delco and its ability to generate short-term positive cash flow. The pre-tax loss of
Flip Chip Technologies for fiscal 1999 was $14.6 million compared to $17.1 million in fiscal 1998. Our share of
the Flip Chip Technologies pre-tax loss, reflected in our financial statements, was $12.2 million in fiscal 1999 and
$8.7 million in fiscal 1998. The $12.2 million pre-tax loss in fiscal 1999 consists of $3.0 million of losses for the
four months after we began reporting Flip Chip Technologies on a consolidated basis (after giving effect to Delco's
minority interest and the elimination of inter-company interest), and a loss of $9.2 million for the eight months
when Flip Chip Technologies was accounted for by the equity method of accounting and reflected in Equity in Loss
of Joint Ventures.
We established our X-LAM business unit to develop, manufacture and market high density interconnect substrates
using either flip chip or advanced wire bonding interconnection schemes. We purchased the X-LAM technology
for $8.0 million in the second quarter of fiscal 1999, have leased a research/manufacturing facility and are building
a staff to fully develop and market the technology. In fiscal 1999, we recorded an operating loss for the X-LAM
business of $3.0 million and a charge for the writeoff of in-process research and development of $3.9 million.
Neither Flip Chip Technologies nor X-LAM has been profitable to date. With a full year of X-LAM operations in
fiscal 2000 and our anticipated increased selling, general and administrative expenses and development spending,
we expect losses at X-LAM to increase in fiscal 2000. We do not expect our X-LAM operations to generate any
sales until fiscal 2001.
The following table sets forth the percentage of our net sales from each business segment for the past three years:
Segment
Equipment
Packaging Materials
Fiscal Year Ended
September 30,
1998 1997
1999
73%
68%
78%
27 22
31
Advanced Packaging Technology
1
--
--
Total
100%
100% 100%
Net sales. We recognize net sales upon the shipment of products or performance of services.
Our equipment sales depend on the capital expenditures of semiconductor manufacturers and subcontract
assemblers worldwide which, in turn, depend on the current and anticipated market demand for semiconductors
and products using semiconductors. The semiconductor industry historically has been highly volatile and has
experienced periodic downturns and slowdowns which have had a severe negative effect on the semiconductor
industry's demand for capital equipment. These downturns and slowdowns, coupled with the effect of the Asian
economic crisis, adversely affected our sales during the latter half of fiscal 1998 and the first half of fiscal 1999.
However, the semiconductor business cycle appears to have turned up, as evidenced by our sales results in the
15
fourth quarter of fiscal 1999.
Our packaging materials sales depend on the same semiconductor manufacturers and subcontract assemblers as our
equipment sales. However, the volatility in demand for our packaging materials is less than that of our equipment
sales due to the consumable nature of the packaging materials. We expect to expand this portion of our business to
help offset the volatility of the equipment segment, and because the worldwide market for consumable packaging
materials is larger than the market for our semiconductor assembly equipment.
Our advanced packaging technology sales represent the sales from Flip Chip Technologies for the four months that
we reported the results of Flip Chip Technologies on a consolidated basis. We will report Flip Chip Technologies'
sales on a consolidated basis in all twelve months of fiscal 2000. Therefore, we expect our advanced packaging
technology sales to be higher than in fiscal 1999.
Cost of goods sold. Our equipment cost of goods sold consists mainly of subassemblies, materials, direct and
indirect labor costs and other overhead. We rely on subcontractors to manufacture many of the components and
subassemblies for our products and we rely on sole source suppliers for some material components.
Packaging materials cost of goods sold consists primarily of gold, aluminum, direct labor and other materials used
in the manufacture of bonding wire, capillaries, wedges and other company products, with gold making up the
majority of the cost. Gold bonding wire is generally priced based on a fabrication charge per 1,000 feet of wire,
plus the value of the gold. To minimize our exposure to gold price fluctuations, we obtain gold for fabrication
under a contract with our gold supplier and only purchase the gold when we ship and sell the finished product to
the customer. Accordingly, fluctuations in the price of gold are generally absorbed by our gold supplier or passed
on to our customers. Since gold makes up a significant portion of the cost of goods sold by the packaging materials
segment, the gross profit margins will be lower than can be expected in the equipment business.
Cost of goods sold in our Advanced Packaging Technology segment is currently comprised of material, labor and
overhead at Flip Chip Technologies. Our X-LAM operations will not report cost of goods sold until they begin to
generate revenues, which is expected to occur in fiscal 2001.
Selling, general and administrative expense. Our selling, general and administrative expense is comprised
primarily of personnel costs, professional costs, management information systems, facility and depreciation
expenses. We expect our selling, general and administrative expenses to increase in fiscal 2000 as we build the
staff in the X-LAM operation, report the results of Flip Chip Technologies on a consolidated basis for a full year
and incur additional start up costs in Singapore.
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. Our research and development costs decreased in fiscal 1999 due to the reduction of our workforce in
response to the market downturn. We expect our research and development costs to increase in fiscal 2000 as the
semiconductor business cycle improves, we devote a full year to building the X-LAM operation and we report the
results of Flip Chip Technologies on a consolidated basis for a full year.
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, 1999:
Net sales
Costs of goods sold
Gross margin
Selling general and administrative
Research and development, net
Resizing costs
Purchased in-process research and development
Income (loss) from operations
Fiscal Year Ended
September 30,
1999
100.0%
71.5
28.5
21.6
9.3
1.5
1.0
(4.9)%
1998
100.0%
66.7
33.3
20.4
11.9
2.0
--
1997
100.0%
63.3
36.7
16.0
9.2
--
--
(1.0)% 11.5%
16
Fiscal Years Ended September 30, 1999 and September 30, 1998
During the 1999 fiscal year ended September 30, 1999, we recorded bookings of $438.0 million compared to
$347.0 million during fiscal 1998. The $91.0 million increase in fiscal 1999 bookings occurred in the second half
of fiscal 1999 and primarily reflected a significant improvement in demand for semiconductor assembly
equipment. At September 30, 1999, total backlog of customer orders approximated $93.0 million compared to
$54.0 million at September 30, 1998. Since the timing of deliveries may vary and orders are generally subject to
cancellation, our backlog as of any date may not be indicative of net sales for any succeeding period.
Net sales for the 1999 fiscal year decreased by $12.1 million to $398.9 million from $411.0 million in fiscal 1998.
During the first half of fiscal 1999, net sales totaled $134.7 million, or $108.5 million lower than the same six
month period of fiscal 1998, reflecting the impact of the slowdown in the semiconductor industry which started in
1998. However, as the semiconductor business cycle turned up in the second half of fiscal 1999, net sales increased
over the prior year in the third and fourth quarters by 20.8% and 101.3%, respectively. Net sales in our equipment
segment decreased by $32.3 million to $269.9 million in fiscal 1999 compared to $302.1 million in fiscal 1998.
The lower equipment segment sales were primarily due to significantly reduced demand for wedge bonders. We
sold 117 wedge bonders in fiscal 1999, a 71% or $48.1 million decline from the fiscal 1998 level. This was
partially offset by higher automatic ball bonder sales (approximately 2,000 machines sold in fiscal 1999 versus
approximately 1,800 machines sold in fiscal 1998). The increase in ball bonder sales primarily occurred in the
second half of fiscal 1999, reflecting the increased industry demand for semiconductor assembly equipment as well
as the introduction of the new Model 8028 ball bonder. The lower equipment segment sales in fiscal 1999 also
reflect reduced average selling prices for our Model 1488 and Model 8020 ball bonders partially offset by improved
pricing for the Model 8028. Packaging materials segment net sales increased $15.6 million to $124.5 million in
fiscal 1999 from $108.9 million in fiscal 1998. The higher packaging material segment net sales were due
primarily to a higher volume of gold wire and capillary shipments during the second half of fiscal 1999. Net sales
of our new advanced packaging technology segment reflect the sales of Flip Chip Technologies for the four months
ended September 30, 1999.
International sales (shipments of our products with ultimate foreign destinations) comprised 83% and 80% of our
total sales during fiscal 1999 and 1998, respectively. Sales to customers in the Asia/Pacific region, including
Korea, Taiwan, Malaysia, the Philippines, Japan, Singapore, Thailand and Hong Kong, accounted for
approximately 74% and 73% of our total sales in fiscal 1999 and 1998, respectively. During fiscal 1999, shipments
to customers located in Taiwan, Singapore, the Philippines and Malaysia accounted for approximately 23%, 11%,
11% and 10% of net sales, compared to 20%, 5%, 17% and 16%, respectively, for the 1998 fiscal year.
Gross profit decreased to $113.5 million for fiscal 1999 from $136.8 million in fiscal 1998 due primarily to the
lower volume of equipment segment sales in fiscal 1999. Gross profit margin decreased to 28.5% in fiscal 1999
from 33.3% in fiscal 1998, due to lower gross profit margin in the equipment segment partially offset by higher
gross profit margin in the packaging materials segment. The gross profit margin in fiscal 1999 was also negatively
impacted by a $1.5 million negative gross profit recorded by our newly created advanced packaging technology
segment. The equipment segment gross profit margin decreased to 30.0% in fiscal 1999 from 36.5% in fiscal 1998
due primarily to the lower average selling price for the segment's Model 1488 and 8020 ball bonders due to pricing
competition and higher manufacturing costs associated with the Model 8020 and a sharp decline in sales of our
higher margin wedge bonder. The packaging materials segment gross profit margin increased to 27.4% in fiscal
1999 from 24.5% in fiscal 1998 due primarily to operating efficiencies resulting from the impact of cost
improvement programs implemented in fiscal 1998, the favorable impact of higher unit volumes of materials and
higher margins on fine pitch products.
Selling, general and administrative expenses increased to $86.2 million in fiscal 1999 from $83.9 million in fiscal
1998. The $2.3 million increase was due to $3.8 million of expenses associated with our new advanced packaging
technology business units and $1.6 million of start up expenses for our new Singapore manufacturing facility,
partially offset by lower selling, general and administrative expenses in our equipment segment. The lower selling,
general and administrative expenses in our equipment segment were due to lower payroll and related costs
resulting from our resizing efforts to reduce our workforce in late fiscal 1998 and early fiscal 1999.
Research and development costs decreased to $37.2 million in fiscal 1999 from $48.7 million in the prior fiscal
year. Our lower research and development expense was due to lower payroll and related costs resulting from our
efforts to reduce our workforce in late fiscal 1998 and early fiscal 1999. We focused our research and development
17
efforts on new product introductions (e.g., the Model 8028 ball bonder) and new product development. Gross
research and development expenditures were partially offset by funding received from customers and governmental
subsidies totaling $1.3 million in fiscal 1999 compared to $1.7 million in fiscal 1998.
We recorded resizing costs of $5.9 million in fiscal 1999 reflecting provisions for severance and asset writeoff costs
resulting from the announced move of our automatic ball bonder manufacturing to Singapore and additional
severance in connection with the reduction in our workforce. At September 30, 1999, we had accrued liabilities of
$4.0 million in connection with these severance costs, the majority of which will be paid in fiscal 2000. We also
recorded resizing costs of $8.4 million in fiscal 1998 for severance, asset writeoffs and other costs in response to
the industry-wide slowdown in orders for semiconductor assembly equipment and to a lesser extent semiconductor
packaging materials.
In January 1999, we purchased the X-LAM technology and fixed assets used in the design, development and
manufacture of laminate substrates for $8.0 million. In fiscal 1999, we recorded a charge of approximately $3.9
million for in-process research and development representing the appraised value of products still in the
development stage that had not reached technological feasibility and an operating loss of $3.0 million.
Loss from operations in fiscal 1999 was $19.7 million compared to a loss of $4.2 million in fiscal 1998. The
unfavorable variance in fiscal 1999 was due primarily to an operating loss at our equipment business of $11.3
million compared to operating income of $3.1 million in the prior year and a loss at our new advanced packaging
technology business of $6.8 million. The operating loss in our equipment business was due to lower net sales and
gross profit margin and one-time charges for the move to Singapore and workforce reductions. The operating
losses in our equipment and advanced packaging technology businesses were partially offset by an increase of $8.5
million in operating income in the packaging materials business. Additionally, as described previously, we
recorded a $3.9 million writeoff of in-process research and development relating to the acquisition of the X-LAM
technology.
Interest income, net of interest expense, decreased by $2.0 million in fiscal 1999 compared to fiscal 1998,
primarily due to lower short-term investments resulting from the use of cash throughout fiscal 1999 to fund the net
loss, working capital, capital expenditures and investments in new business initiatives. See ''Liquidity and Capital
Resources.''
Equity in Loss of Joint Ventures increased from $8.7 million in fiscal 1998 to $10.0 million in fiscal 1999. Our
share of the pre-tax loss in Flip Chip Technologies for the eight months ended May 31, 1999 was $9.2 million
versus $8.7 million for all of 1998. In fiscal 1999 we recognized 100% of the loss at Flip Chip Technologies for the
eight months ended May 31, 1999 compared to recognizing only 51.0% of the Flip Chip Technologies loss in fiscal
1998, for reasons previously discussed. During fiscal 1999, we also recognized a $0.8 million loss from our 50%
equity interest in Advanced Polymer Solutions, LLC, a joint venture established in fiscal 1999 to develop,
manufacture and market advanced polymer materials for semiconductor and microelectronic packaging end users.
We recorded a tax benefit of $8.2 million in fiscal 1999. The effective tax rate of this benefit was 33%. We
increased our valuation allowance on foreign tax credit carryforwards, and continue to maintain a valuation
allowance for deferred tax assets related to the acquired domestic American Fine Wire net operating loss and net
operating loss carryforwards of our Japanese subsidiary, because we cannot reasonably forecast sufficient future
earnings by these subsidiaries to fully utilize the net operating losses during the carryforward period. If we realize
the benefits of the American Fine Wire acquired net operating loss carryforward, the benefits would reduce the
recorded amount of American Fine Wire goodwill. We believe that all of the net operating loss benefits generated
during the year will be realized in the foreseeable future.
We recorded a minority interest in the net loss of Flip Chip Technologies of $1.0 million. The minority interest
reflects the portion (26.4%) of Flip Chip Technologies that is owned by Delco, our joint venture partner.
Our net loss for fiscal 1999 was $16.9 million compared to a net loss of $5.4 million in fiscal 1998, for the reasons
enumerated above.
Fiscal Years Ended September 30, 1998 and September 30, 1997
During the 1998 fiscal year ended September 30, 1998, we recorded bookings totaling $347.0 million compared to
$550.0 million during fiscal 1997. The $203.0 million decrease in fiscal 1998 bookings primarily reflected an
18
industry-wide slowdown in orders for semiconductor assembly equipment. At September 30, 1998, total backlog of
customer orders approximated $54.0 million compared to $118.0 million at September 30, 1997.
Net sales for the 1998 fiscal year decreased by $90.9 million to $411.0 million from $501.9 million in fiscal 1997.
The lower sales volume generally reflected the slowdown in the semiconductor industry, resulting in reduced
demand for semiconductor assembly equipment and to a lesser extent packaging materials. The majority of the
reduction in net sales was in our equipment segment where net sales decreased $89.6 million to $302.1 million in
fiscal 1998 from $391.7 million in fiscal 1997. Fewer unit sales of ball bonders (approximately 1,800 ball bonders
were sold in fiscal 1998 compared to over 3,000 in fiscal 1997) were partially offset by higher unit sales of wedge
bonders resulting in the lower equipment segment sales in fiscal 1998. Packaging materials segment net sales
decreased $1.3 million to $108.9 million in fiscal 1998 from $110.2 million in fiscal 1997. The lower packaging
material segment net sales was due primarily to lower average selling prices of bonding wire as the result of lower
prevailing gold prices in fiscal 1998 compared to fiscal 1997.
International sales (shipments of our products with ultimate foreign destinations) comprised 80% and 85% of our
total sales during fiscal 1998 and 1997, respectively. Sales to customers in the Asia/Pacific region, including
Korea, Taiwan, Malaysia, the Philippines, Japan, Singapore, Thailand and Hong Kong, accounted for
approximately 73% and 76% of our total sales in fiscal 1998 and 1997, respectively. During fiscal 1998, shipments
to customers located in Taiwan, the Philippines, Malaysia and Korea accounted for approximately 20%, 17%, 16%
and 4% of net sales, compared to 22%, 8%, 13% and 19%, respectively, for the 1997 fiscal year. The most
significant change in foreign destination sales occurred in Korea, where Korean based customers, which have
historically accounted for a significant percentage of our sales, were adversely affected by the financial turmoil in
that country and as a result, reduced their orders from us.
Gross profit decreased to $136.8 million for fiscal 1998 from $183.9 million in fiscal 1997 due primarily to the
lower unit volume of equipment segment sales in fiscal 1998. Gross profit as a percentage of net sales decreased to
33.3% in fiscal 1998 compared to 36.6% in fiscal 1997, due to lower gross profit margin in the equipment segment
partially offset by higher gross profit margin in the packaging materials segment. The equipment segment gross
profit margin decreased to 36.5% in fiscal 1998 from 41.6% in fiscal 1997 due primarily to the lower unit volume,
which resulted in the absorption of manufacturing overhead costs by fewer units. Our packaging materials segment
gross profit margin increased to 24.5% in fiscal 1998 compared to 19.1% in fiscal 1997 due primarily to improved
manufacturing efficiencies at our bonding wire and saw blade facilities.
Selling, general and administrative expenses increased to $83.9 million in fiscal 1998 from $80.2 million in fiscal
1997. This increase of $3.7 million consisted of approximately $3.1 million related to the equipment segment, $0.4
million related to the packaging materials segment and $0.2 million of incremental corporate costs. The increase in
the equipment segment selling, general and administrative expenses was due primarily to increased selling,
marketing and customer support costs associated with the launch of our new Model 8020 and 8060 wire bonders
and increased spending in connection with the 1999 implementation of our new Enterprise Resource Planning
System, which replaced the segment's business and accounting systems. The slight increase in the package
materials selling, general and administrative expenses costs in fiscal 1998 was due to higher sales and distribution
infrastructure costs.
Research and development costs increased to $48.7 million in fiscal 1998 from $46.0 million in the prior fiscal
year. The majority of the research and development costs incurred were in the equipment segment and were due to
increased internal labor, higher outside contract development costs and increased expenditures for prototype
materials as we continued development of additional products in the 8000 family of wire bonders. We also
continued to invest in new technologies, which may eventually lead to improved and alternative semiconductor
assembly technologies. Gross research and development expenditures were partially offset by funding received
from customers and governmental subsidies totaling $1.7 million in fiscal 1998 compared to $2.0 million in fiscal
1997.
We recorded resizing costs of $8.4 million in the fourth quarter of fiscal 1998 reflecting our efforts to reduce our
workforce and discontinue products in response to the industry-wide slowdown in orders for semiconductor
assembly equipment and, to a lesser extent, semiconductor packaging materials. The resizing costs consisted of
$5.0 million of severance, $2.8 million of asset writeoffs associated with discontinued products and $0.6 million of
other liabilities associated with the resizing. At September 30, 1998, we had accrued liabilities of $3.7 million in
connection with the resizing charges, the majority of which were paid in fiscal 1999.
19
Loss from operations in fiscal 1998 was $4.2 million compared to operating income of $57.7 million in fiscal 1997.
The unfavorable variance to fiscal 1997 was due primarily to lower unit sales volume and gross profit in our
equipment segment and to resizing charges, both resulting from the slowdown in the semiconductor industry.
Partially off setting the lower operating income in the equipment segment was a $3.8 million improvement in
operating income in our packaging materials segment, excluding resizing charges.
Interest income, net of interest expense, increased by $4.7 million in fiscal 1998 compared to fiscal 1997, primarily
due to the investment of net proceeds from our May 1997 public offering of common stock for a full year in fiscal
1998, compared to a partial year in fiscal 1997, and to the paydown of all outstanding bank debt with a portion of
the proceeds of the public offering in May 1997.
During fiscal 1998, we recognized an $8.7 million pre-tax loss from our 51% equity interest in Flip Chip
Technologies compared to a pre-tax loss of $6.7 million in fiscal 1997. The increase in the loss in fiscal 1998
resulted from delays in potential customers' evaluations of Flip Chip Technologies' manufacturing process and the
generally soft business environment in the semiconductor industry, along with a ramp-up of Flip Chip
Technologies' production facility.
We recorded a tax benefit of $1.9 million in fiscal 1998. The effective tax rate of this benefit was 26%, resulting
from U.S. pre-tax losses exceeding foreign pre-tax income that was taxed at lower rates.
Our net loss for fiscal 1998 was $5.4 million compared to net income of $38.3 million in fiscal 1997, 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 1999
and 1998:
Fiscal 1999
Net sales
Gross profit
Income (loss) from operations
Fiscal 1998
Net sales
Gross profit
Income (loss) from operations
First
Quarter
$61,175
16,176
(10,282)
Second
Quarter
Third
Quarter
Fourth
Quarter Total
$73,561 $110,806 $153,375 $398,917
113,535
21,025
(19,732)
(17,087)
30,374
(776)
45,960
8,413
First
Quarter
Second
Quarter
Third
Fourth
Quarter Total
Quarter
$123,111 $120,060 $ 91,693 $ 76,176 $411,040
136,833
30,185
(4,156)
(3,202)
15,316
(24,571)
45,987
12,987
45,345
10,630
The effect of the semiconductor industry downturn on our operating results is reflected in the quarterly results
throughout fiscal 1998 and the first half of fiscal 1999. The turnaround in the industry cycle is reflected in the
second half of fiscal 1999.
Effect of Recent Accounting Pronouncements
In June 1998, Statement of Financial Accounting Standards No. 133, ''Accounting for Derivative Instruments and
Hedging Activities'' (''SFAS 133'') was issued. SFAS 133 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred
to as derivatives) and for hedging activities. It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments at fair value. This Statement is
effective for all fiscal quarters for financial statements for fiscal years commencing after June 15, 2000. We do not
believe that the adoption of SFAS 133 will have a material impact on our financial statements.
20
Liquidity and Capital Resources
As of September 30, 1999, our cash, cash equivalents and investments totaled $39.3 million compared to $106.9
million at September 30, 1998. Additionally, we have a $60.0 million bank revolving credit facility, which expires
in March 2003. Borrowings are subject to our compliance with financial and other covenants set forth in the
revolving credit documents. At September 30, 1999, we were in compliance with the covenants of the credit facility
and had no cash borrowings outstanding under that facility, but had utilized $1.0 million of availability under the
credit facility to support letters of credit issued as security deposits for our new manufacturing facility in Singapore
and our new X-LAM facility. The revolving credit facility provides for borrowings denominated in either U.S.
dollars or foreign currencies. Borrowings in U.S. dollars bear interest either at a Base Rate (defined as the greater
of the prime rate minus 1/4% or the federal funds rate plus 1/2%) or, at a LIBOR Rate (defined as LIBOR plus
0.4% to 0.8%, depending on our leverage ratio). Foreign currency borrowings bear interest at a LIBOR Rate, as
defined above, applicable to the foreign currency.
On December 13, 1999, we issued $150.0 million of convertible subordinated notes. On December 15, 1999 we
issued an additional $25.0 million of convertible subordinated notes in connection with the exercise of the initial
purchasers’ over-allotment option. The notes are general obligations of our company and subordinated to all senior
debt. The notes bear interest at 4 3/4%, are convertible into our common stock at $45.7993 per share and mature
on December 15, 2006. There are no financial covenants associated with the notes and there are no restrictions on
paying dividends, incurring additional debt or issuing or repurchasing our securities. Interest on the notes will be
paid on June 15 and December 15 of each year beginning June 15, 2000. We may redeem the notes in whole or in
part at any time after December 18, 2002 at prices ranging from 102.714% at December 19, 2002 to 100.0% at
December 15, 2006.
Cash used in operating activities totaled $37.9 million during fiscal 1999 compared to cash generated by operating
activities of $21.7 million during fiscal 1998 and $42.0 million in fiscal 1997. The use of cash from operating
activities was primarily the result of the net loss we recorded in fiscal 1999 and the increase in accounts receivable
and inventory, partially offset by a significant increase in accounts payable, due to the ramp up in business in the
fourth quarter.
At September 30, 1999, our working capital was $167.1 million compared to $182.2 million at September 30,
1998. Our lower working capital was due primarily to a $67.6 million reduction in cash and short term
investments and an increase in accounts payable, partially offset by higher accounts receivable and inventory. The
higher non-cash working capital assets were the result of the ramp up in business in the fourth quarter of fiscal
1999.
During fiscal 1999, we invested approximately $10.9 million in property and equipment, primarily for leasehold
improvements and tooling for our new Singapore facility and our advanced packaging technology business, an
increase in capacity for the packaging and materials business and an upgrade of our computer hardware and
software systems in connection with the implementation of a new Enterprise Resource Planning System that
became operational in fiscal 1999. We presently expect fiscal 2000 capital spending to more than double as we
continue investing in the projects listed above.
During fiscal 1999, we loaned $10.5 million to Flip Chip Technologies, then, as mentioned above, converted all
outstanding loans and interest (including the $10.5 million invested in fiscal 1999) into equity units of Flip Chip
Technologies, thereby increasing our ownership interest in Flip Chip Technologies to 73.6% from 51.0%.
In September 1998, we entered into a joint venture agreement to develop, manufacture and market advanced
polymer materials for semiconductor and microelectronic packaging end users. Through September 30, 1999, we
have invested $3.8 million in this joint venture and have committed to invest an additional $2.2 million.
We purchased the X-LAM technology for $8.0 million in the second quarter of fiscal 1999. Through September 30,
1999, we have invested an additional $4.0 million for operational and capital expenditures, and we expect
additional funding requirements will be necessary in future years.
The Israeli government has funded a portion of the research and development costs related to some of our products.
We are contingently liable to repay this funding through royalties to the Israeli government. Royalty payments are
due only after sale of the funded products, are computed at varying rates from 2% to 5% of the sales and are
21
limited to the amounts received from the Israeli government. At September 30, 1999, we estimate that contingent
liabilities for royalties related to potential future product sales are less than $3.0 million.
We believe that anticipated cash flows from operations, the proceeds from the sale of $175.0 million of the 4 3/4%
convertible subordinated notes described above, our working capital and amounts available under our revolving
credit facilities will be sufficient to meet our liquidity and capital requirements for at least the next 12 months.
However, we may seek, as required, equity or debt financing to provide capital for corporate purposes and/or to
fund strategic business opportunities, including possible acquisitions, joint ventures, alliances or other business
arrangements that could require substantial capital outlays. We cannot determine the timing and amount of these
potential capital requirements at this time because they will depend on a number of factors, including demand for
our products, semiconductor and semiconductor capital equipment industry conditions and competitive factors and
the nature and size of strategic business opportunities that we may elect to pursue.
Risks Related to Our Business
Our quarterly operating results fluctuate significantly and may continue to do so in the future
In the past, our quarterly operating results have fluctuated significantly. Although these fluctuations are partly due
to the volatile nature of the semiconductor industry, they also reflect the impact of other factors, some of which are
outside of our control.
Some of the factors that could cause our revenues and/or operating margins to fluctuate significantly from period to
period are:
•
the mix of products that we sell because, for example:
- packaging materials generally have lower margins than assembly equipment,
- some lines of equipment are more profitable than others, and
- some sales arrangements have higher margins than others;
•
•
•
•
the volume and timing of orders for our products and any order postponements and cancellations by our
customers;
adverse changes in our pricing, or that of our competitors;
higher than anticipated costs of development or production of new equipment models;
the availability and cost of key components for our products;
• market acceptance of our new products and upgraded versions of our products;
•
•
•
our announcement of, or perception by others that we will introduce, new or upgraded products, which
could delay customers from purchasing our products;
the timing of acquisitions; and
our competitors' introduction of new products.
Many of our expenses, such as research and development and selling, general and administrative expenses, do not
vary directly with our net sales. As a result, a decline in our net sales would adversely affect our operating results.
In addition, if we were to incur additional expenses in a quarter in which we did not experience comparable
increased net sales, our operating results would decline. Factors that could cause our expenses to fluctuate from
period to period include:
•
•
•
the timing and extent of our research and development efforts;
severance and other costs of relocating facilities or resizings in market downturns; and
inventory writeoffs due to obsolesence.
22
Because our revenues and operating results are volatile and difficult to predict, we believe that period-to-period
comparisons of our operating results are not a good indication of our future performance.
The semiconductor industry as a whole is volatile, as are our financial results
Our operating results are significantly affected by the capital expenditures of semiconductor manufacturers and
assemblers worldwide. Expenditures by semiconductor manufacturers and assemblers depend on the current and
anticipated market demand for semiconductors and products that use semiconductors, such as personal computers,
telecommunications, consumer electronics and automotive goods. Any significant downturn in the market for
semiconductor devices or in general economic conditions would likely reduce demand for our products and
adversely affect our business, financial condition and operating results.
Historically, the semiconductor industry has been volatile with sharp periodic downturns and slowdowns. These
downturns have been characterized by, among other things, diminished product demand, excess production
capacity and accelerated erosion of selling prices. This has severely and negatively affected the industry's demand
for capital equipment, including the assembly equipment that we manufacture and market and, to a lesser extent,
the packaging materials that we sell. These downturns and slowdowns have adversely affected our operating
results. In the 1998 downturn, for example, our net sales declined from approximately $501.9 million in fiscal
1997 to $411.0 million in fiscal 1998 and continued to decline in the first half of fiscal 1999. Downturns in the
future could similarly adversely affect our business, financial condition and operating results.
We are in the process of transfering our automatic ball bonder manufacturing to Singapore, which could
disrupt our ability to supply our customers and may not result in the cost savings we anticipate
The proposed move of our automatic ball bonder manufacturing to Singapore will require us to relocate
equipment, hire and train production, engineering and management personnel, qualify suppliers and develop a
purchasing and delivery infrastructure. In addition, we expect to experience increased selling, general and
administrative expenses in fiscal 2000 in connection with start up costs. We plan to source a significantly higher
percentage of materials from suppliers in Singapore. To the extent we experience availability, reliability or quality
problems as a result of this shift in supply source, our business would be adversely affected. In addition, we do not
intend to move our research and development function from Willow Grove to the Singapore facility. If we are
unable to accomplish the move efficiently and commence full production as scheduled, our ability to fill orders
could be hurt, which could damage our relationships with customers. In addition, our ability to meet production
requirements may be adversely affected by any problems associated with the start up of this facility. We also
anticipate cost savings from the transfer of our automatic ball bonder manufacturing as a result of reduced costs of
labor, shipping and materials. However, we cannot assure you that we will realize these savings.
Our business depends on attracting and retaining management, marketing and technical employees who are
in great demand
As is the case with all technology companies, our future success depends on our ability to hire and retain qualified
management, marketing and technical employees. Competition is intense in personnel recruiting in the
semiconductor and semiconductor equipment industries, particularly with respect to some engineering disciplines.
In particular, we have experienced periodic shortages of software engineers. If we are unable to continue to attract
and retain the technical and managerial personnel we require, our business, financial condition and operating
results could be adversely affected.
We may not be able to rapidly develop and manufacture new and enhanced products required to maintain or
expand our business
We believe that our continued success will depend on our ability to continuously develop and manufacture or
acquire new products and product enhancements on a timely and cost-effective basis. We also must introduce these
products and product enhancements into the market in response to customers' demands for higher performance
assembly equipment. Our competitors may develop enhancements to or future generations of competitive products
that will offer superior performance, features and lower prices that may render our products noncompetitive. We
may not be able to develop and introduce products incorporating new technologies in a timely manner or at a price
that will satisfy future customers' needs or achieve market acceptance. For example, the introduction of the Model
8020 wire bonder in 1998 was less successful than we had hoped because of higher than anticipated design and
23
production costs and lower than anticipated sales prices.
We may not be able to accurately forecast demand for our product lines
We typically operate our business with a relatively short backlog and order supplies and otherwise plan production
based on internal forecasts of demand. Due to these factors, we have in the past, and may again in the future, fail to
accurately forecast demand, in terms of both volume and configuration for either our current or next-generation
wire bonders. This has led to and may in the future lead to delays in product shipments or, alternatively, an
increased risk of inventory obsolescence. For example, we inaccurately forecasted demand for the Model 8020 wire
bonder in 1998 and consequently recorded writeoffs for excess inventory. Also, we underestimated the magnitude
of the improvement in the semiconductor industry at the end of fiscal 1999 and the demand for the new Model
8028 ball bonder; as a result some customer shipments may be delayed in fiscal 2000.
If we fail to accurately forecast demand for our products, our business, financial condition and operating results
could be materially and adversely affected.
Advanced packaging technologies other than wire bonding may render some of our products obsolete and
our strategy for pursuing these other technologies may be costly and ineffective
Advanced packaging technologies have emerged that may improve device performance or reduce the size of an
integrated circuit or IC package, as compared to traditional die and wire bonding. These technologies include flip
chip, chip scale packaging and tape automated bonding. In general, these advanced technologies eliminate the
need for wires to establish the electrical connection between a die and its package. For some assemblies, these
advanced technologies have largely replaced wire bonding. However, today most ICs still employ die and wire
bonding technology, and the possible extent, rate and timing of change is difficult, if not impossible, to predict. In
fact, wire bonding has proved more durable than we originally anticipated, largely because of its reliability and
cost. However, we cannot assure you that the semiconductor industry will not, in the future, shift a significant part
of its volume into advanced packaging technologies, such as those discussed above. Presently, Intel, Motorola, IBM
and Advanced Micro Devices, for example, have developed flip chip technologies for internal use, and a number of
other companies are also increasing their investments in advanced packaging technologies. If a significant shift to
advanced technologies were to occur, demand for our wire bonders and related packaging materials would
diminish.
One component of our strategy is to develop the capacity to use advanced technologies to allow us to compete in
those portions of the market that currently use these advanced technologies and to prepare for any eventual decline
in the use of wire bonding technology. There are a number of risks associated with our strategy to diversify into
new technologies:
• The technologies that we have invested in represent only some of the advanced technologies that may one
day supercede wire bonding;
• Other companies are developing similar or alternative advanced technologies;
• Wire bonding may continue as the dominant technology for longer than we anticipate;
• The cost of developing advanced technologies may be significantly greater than we expect; and
• We may not be able to develop the necessary technical, research, managerial and other related skills to
develop, produce, market and support these advanced technologies.
As a result of these risks, we cannot assure you that any of our attempts to develop alternative technologies will be
profitable or that we will be able to realize the benefits that we anticipate from them.
Because we have a small number of products, a decline in demand for, or the price of, any of our products
could cause our revenues to decline significantly
Historically, our wire bonders have comprised at least 55% of our net sales. If demand for, or pricing of, our wire
bonders declines because our competitors introduce superior or lower cost systems, the semiconductor industry
changes or because of other occurrences beyond our control, our business, financial condition and operating results
24
would be materially and adversely affected.
Because a small number of customers account for nearly all our sales, our revenues could decline if we lose
any significant customer
The semiconductor manufacturing industry is highly concentrated, with a relatively small number of large
semiconductor manufacturers and subcontract assemblers purchasing a substantial portion of semiconductor
assembly equipment and packaging materials. Sales to our five largest customers accounted for approximately
45.2% of our fiscal 1997 net sales, 41.4% of our fiscal 1998 net sales and 31.7% of our fiscal 1999 net sales. In
fiscal 1997, our sales to Anam accounted for 12.5% of our net sales, and sales to Intel accounted for 10.2% of our
net sales. In fiscal 1998, sales to Intel accounted for 17.6% of our net sales. During fiscal 1999, no customer
accounted for more than 10% of our net sales.
We expect that sales of our products to a limited number of customers will continue to account for a high
percentage of our net sales for the foreseeable future. If we lose orders from a significant customer, or if a
significant customer reduces its orders substantially, these losses or reductions will adversely affect our business,
financial condition and operating results.
We depend on a small number of suppliers for materials and, if our suppliers do not deliver their products to
us, we may be unable to deliver our products to our customers
Our products are complex and require materials, components and subassemblies of an exceptionally high degree of
reliability, accuracy and performance. We rely on subcontractors to manufacture many of the components and
subassemblies for our products and we rely on sole source suppliers for some material components. Our reliance
involves a number of significant risks, including:
•
•
•
•
•
•
loss of control over the manufacturing process;
changes in our manufacturing processes, dictated by changes in the market, that have delayed our
shipments;
our inadvertent use of defective or contaminated materials;
the relatively small operations and limited manufacturing resources of some of our contractors and
suppliers, which may limit their ability to manufacture and sell subassemblies, components or parts in the
volumes we require and at quality levels and prices we can accept;
reliability and quality problems we experience with certain key subassemblies provided by single source
suppliers; and
delays in the delivery of subassemblies, which, in turn, have caused delays in some of our shipments.
If we are unable to deliver products to our customers on time for these or any other reasons, or if we do not
maintain acceptable product quality or reliability in the future, our business, financial condition and operating
results would be materially and adversely affected.
We are expanding and diversifying our operations, and if we fail to manage our expanding and more diverse
operations successfully, our business and financial results may be materially and adversely affected
In recent years, we have broadened our product offerings to include significantly more packaging materials.
Although our strategy is to diversify our products and services, we may not be able to develop, acquire, introduce or
market new products in a timely or cost-effective manner and the market may not accept any new or improved
products we develop, acquire, introduce or market.
Our diversification into new lines of business and our expansion through acquisitions and alliances has increased,
and is expected to continue to increase, demand on our management, financial resources and information and
internal control systems. Our success depends in significant part on our ability to manage and integrate
acquisitions, joint ventures and other alliances and to continue to implement, improve and expand our systems,
procedures and controls. If we fail to do this at a pace consistent with the development of our business, our
business, financial condition and operating results would be materially and adversely affected.
25
As we seek to expand our operations, we expect to encounter a number of risks, which will include:
•
•
•
risks associated with hiring additional management and other critical personnel;
risks associated with adding equipment and capacity; and
risks associated with increasing the scope, geographic diversity and complexity of our operations.
In addition, sales and servicing of packaging materials and advanced technologies require different organizational
and managerial skills than sales of traditional wire bonding technology. We cannot assure you that we will be able
to develop the necessary skills to successfully produce and market these different products.
We sell most of our products to customers located outside of the U.S. and we have substantial manufacturing
operations located outside of the U.S., both of which subject us to risks from changes in trade regulations,
currency fluctuations, political instability and war
Approximately 85% of our net sales for fiscal 1997, 80% of our net sales for fiscal 1998 and 83% of our net sales
for fiscal 1999 were attributable to sales to customers for delivery outside of the United States. We expect our sales
outside of the United States to continue to represent a substantial portion of our future revenues. Our future
performance will depend, in significant part, on our ability to continue to compete in foreign markets, particularly
in Asia. Asian economies have been highly volatile, resulting in significant fluctuation in local currencies, and
political and economic instability. These conditions may continue or worsen, which could materially and adversely
affect our business, financial condition and operating results. In addition, we rely on non-U.S. suppliers for
materials and components used in the equipment that we sell. We also maintain substantial manufacturing
operations in countries other than the United States, including operations in Israel and Singapore. As a result, a
major portion of our business is subject to the risks associated with international commerce such as, risks of war
and civil disturbances or other events that may limit or disrupt markets; expropriation of our foreign assets; longer
payment cycles in foreign markets; international exchange restrictions; the difficulties of staffing and managing
dispersed international operations; tariff and currency fluctuations; changing political conditions; foreign
governments' monetary policies; and less protective foreign intellectual property laws.
Because most of our foreign sales are denominated in United States dollars, an increase in value of the United
States dollar against foreign currencies, particularly the Japanese yen, will make our products more expensive than
those offered by some of our foreign competitors. Our ability to compete overseas in the future could be materially
and adversely affected by a strengthening of the United States dollar against foreign currencies.
The ability of our international operations to prosper also will depend, in part, on a continuation of current trade
relations between the United States and foreign countries in which our customers operate and in which our
subcontractors have assembly operations. A change toward more protectionist trade legislation in either the United
States or foreign countries in which we do business, such as a change in the current tariff structures, export
compliance or other trade policies, could adversely affect our ability to sell our products in foreign markets.
Our success depends in part on our intellectual property, which we may be unable to protect
Our success depends in part on our proprietary technology. To protect this technology, we rely principally on
contractual restrictions (such as nondisclosure and confidentiality agreements) in our agreements with employees,
vendors, consultants and customers and on the common law of trade secrets and proprietary ''know-how.'' We
secondarily rely, in some cases, on patent and copyright protection, which may become more important to us as we
expand our investment in advanced packaging technologies. We may not be successful in protecting our technology
for a number of reasons, including:
• Our competitors may independently develop technology that is similar to or better than ours;
• Employees, vendors, consultants and customers may not abide by their contractual agreements, and the
cost of enforcing those agreements may be prohibitive, or those agreements may prove to be
unenforceable or more limited than we anticipate;
26
• Foreign intellectual property laws may not adequately protect our intellectual property rights; and
• Our patent and copyright claims may not be sufficiently broad to effectively protect our technology;
patents or copyrights may be challenged, invalidated or circumvented; and we may otherwise be unable to
obtain adequate protection for our technology.
In addition, our partners in joint ventures and alliances may also have rights to technology we develop through
those joint ventures and alliances. If we are unable to protect our technology, we could weaken our competitive
position or face significant expense to protect or enforce our intellectual property rights.
Third parties may claim we are infringing on their intellectual property, which could cause us to incur
significant litigation costs or other expenses, or prevent us from selling some of our products
The semiconductor industry is characterized by rapid technological change, with frequent introductions of new
products and technologies. As a result, industry participants often develop products and features similar to those
introduced by others, increasing the risk that their products and processes may give rise to claims that they infringe
on the intellectual property of others. We may unknowingly infringe on the intellectual property rights of others
and incur significant liability for that infringement. If we are found to infringe on the intellectual property rights of
others, we could be enjoined from continuing to manufacture, market or use the affected product, or be required to
obtain a license to continue manufacturing or using the affected product. A license could be very expensive to
obtain or may not be available at all. Similarly, changing our products or processes to avoid infringing the rights of
others may be costly or impractical.
Occasionally, third parties assert that we are, or may be, infringing on or misappropriating their intellectual
property rights. In these cases, we will defend against claims or negotiate licenses where we consider these actions
appropriate. Intellectual property cases are uncertain and involve complex legal and factual questions. If we
become involved in this type of litigation, it could consume significant resources and divert our attention from our
business.
Some of our customers have received notices of infringement from the Lemelson Medical, Education and Research
Foundation Limited Partnership (the ''Lemelson Foundation''), alleging that equipment we have supplied to our
customers, and processes this equipment performs, infringes on patents held by the Lemelson Foundation. These
notices increased substantially in 1998, the year in which the Lemelson Foundation settled its suit against the Ford
Motor Company, and entered into license agreements with Ford, GM and Chrysler. Since the settlement, a number
of our customers, including Intel, have been sued by the Lemelson Foundation.
Some of our customers have requested that we defend and indemnify them against the Lemelson Foundation's
claims or contribute to any settlement the customer reaches with the Lemelson Foundation. We have received
opinions from our outside patent counsel with respect to various Lemelson Foundation patents. We are not aware
that any equipment we market or that any process performed by our equipment infringes on the Lemelson
Foundation patents and we do not believe that the Lemelson Foundation matter or any other pending intellectual
property claim against us will materially and adversely affect our business, financial condition or operating results.
The ultimate outcome of any infringement or misappropriation claim affecting us is uncertain, however, and we
cannot assure you that our resolution of this litigation will not materially and adversely affect our business,
financial condition and operating results.
Other Risks
Year 2000
If our products or our internal data management, accounting, manufacturing or operating software and systems do
not adequately or accurately process or manage day or date information beyond the year 1999, our operations could
be affected adversely. To address the issue, we created an internal task force to assess our state of readiness for
possible ''Year 2000'' issues and to take the necessary actions to ensure our Year 2000 compliance. The taskforce
has evaluated and continues to evaluate:
•
•
our products and our internal business systems and software; and
our vulnerability to possible Year 2000 exposure due to suppliers' and other third parties' lack of
preparedness for the year 2000.
27
To evaluate equipment that we sell and equipment, tools or software that we use, we employed Year 2000
Readiness Test scenarios established by SEMATECH, an industry group comprised of U.S. semiconductor
manufacturers. Based on this assessment, we do not believe the operation of the equipment that we sell or the
equipment, tools and software that we use will be affected by the transition to the year 2000. We completed our
review, material corrective measures and contingency planning in September 1999.
In connection with our review and corrective measures, we replaced the business and accounting systems of our
U.S. and Israeli equipment manufacturing sites with a new Enterprise Resource Planning System that was
represented to us to be Year 2000 compliant. We spent approximately $9.8 million in hardware, software,
consulting costs and internal expenses to implement this new system.
In addition, we have been in contact with our suppliers and other third parties to determine the extent to which
they may be vulnerable to Year 2000 issues. We have received representations as to the Year 2000 compliance of
our major suppliers.
We believe that the reasonably anticipated worst case scenario for our business resulting from Year 2000 problems
would be unexpected delays of supplier deliveries and customer shipments. If these delays are significant,
customers may cancel orders and long-term customer relationships could be damaged. We believe that we have
developed appropriate contingency plans for any Year 2000 delays, including carrying larger inventory of products
from a small number of suppliers that we believe may be vulnerable to year 2000 disruptions.
Anti-takeover provisions in our Articles of Incorporation and Bylaws and Pennsylvania law may discourage
other companies from attempting to acquire us
Some provisions of our articles of incorporation and bylaws and of Pennsylvania law may discourage some
transactions where we would otherwise experience a change in control. For example, our articles of incorporation
and bylaws contain provisions that:
•
•
•
classify our Board of Directors into four classes, with one class being elected each year;
permit our Board to issue ''blank check'' preferred stock without shareholder approval; and
prohibit us from engaging in some types of business combinations with a holder of 20% or more of our
voting securities without super-majority board or shareholder approval.
Further, under the Pennsylvania Business Corporation Law, because our bylaws provide for a classified Board of
Directors, shareholders may only remove directors for cause. These provisions and some provisions of the
Pennsylvania Business Corporation Law could delay, defer or prevent us from experiencing a change in control
and may adversely affect our common stockholders' voting and other rights.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
At September 30, 1999, we had a non-trading investment portfolio of fixed income securities, excluding those
classified as cash and cash equivalents, of $2.1 million (see Note 5 of the Company’s Consolidated Financial
Statements). At September 30, 1999, we also were obligated, under a foreign exchange contract, to purchase 1.6
million Swiss Francs in March 2000 for $1.079 million. 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 100 basis points and we experienced an adverse move in the Swiss
currency rate of 10% there would be no material or adverse affect on our business, financial condition or operating
results.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated Financial Statements of Kulicke and Soffa Industries, Inc. and its subsidiaries and Flip Chip
Technologies, LLC, listed in the index appearing under Item 14 (a)(1)(a) and (b) herein are filed as part of this
Report.
28
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
Kulicke and Soffa Industries, Inc.
In our opinion, the consolidated financial statements listed in the index appearing under Item 14 (a) (1) (a) on page
65 of this Annual Report on Form 10-K present fairly, in all material respects, the financial position of Kulicke
and Soffa Industries, Inc and its subsidiaries at September 30, 1999 and September 30, 1998, and the results of
their operations and their cash flows for each of the three years in the period ended September 30, 1999, in
conformity with accounting principles generally accepted in the United States. In addition, in our opinion, the
financial statement schedule listed in the index appearing under Item 14 (a) (2) on page 65 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, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
December 6, 1999, except as to Note 15, which is as of December 15, 1999
29
KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
(in thousands)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (including time
deposits: 1999 - $ 912; 1998 - $2,166)
Short-term investments
Accounts and notes receivable (less allowance for doubtful
accounts: 1999 - $ 1,727; 1998 - $1,677)
Inventories, net
Prepaid expenses and other current assets
Refundable income taxes
Deferred income taxes
TOTAL CURRENT ASSETS
Property, plant and equipment, net
Intangible assets, primarily goodwill (net of amortization:
1999 - $10,276; 1998 - $7,391)
Investments in and loans to joint ventures
Other assets
TOTAL ASSETS
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable and current portion of long-term debt
Accounts payable
Accrued expenses
Income taxes payable
TOTAL CURRENT LIABILITIES
Other liabilities
Minority interest
TOTAL LIABILITIES
COMMITMENTS AND CONTINGENCIES (Note 13)
SHAREHOLDERS' EQUITY:
Preferred stock, without par value:
Authorized - 5,000 shares; issued - none
Common stock, without par value:
Authorized - 100,000 shares; issued and
outstanding: 1999 - 23,489; 1998 - 23,367
Retained earnings
Accumulated other comprehensive loss
TOTAL SHAREHOLDERS' EQUITY
September 30,
1999
1998
$ 37,155 $ 76,478
30,422
2,190
136,047
61,782
9,906
2,934
11,071
261,085
66,137
47,573
5,303
5,270
2,608
233,791
67,485
48,269
44,637
2,940
1,998
38,765
19,920
1,839
$ 378,145
$342,584
$ 1,178
61,962
27,210
3,604
93,954
4,373
5,042
103,369
$ 192
24,223
23,549
3,646
51,610
3,064
--
54,674
--
--
--
--
157,986
160,108
133,964
117,018
(2,350) (4,040)
287,910
274,776
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$378,145 $342,584
The accompanying notes are an integral part of these consolidated financial statements.
30
KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED STATEMENT 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 costs
Purchased in-process research and development
Fiscal Year Ended September 30,
1999
1998
1997
$398,917
$411,040 $501,907
285,382
274,207
318,002
113,535
136,833
183,905
86,226
37,188
5,918
3,935
83,854
48,715
8,420
--
80,212
46,030
--
--
Income (loss) from operations
(19,732) (4,156)
57,663
Interest income
Interest expense
Equity in loss of joint ventures
3,762
(215)
5,776
(262)
(10,000) (8,715)
3,151
(2,331)
(6,701)
Income (loss) before taxes
Provision (benefit) for income taxes
Income (loss) before minority interest
Minority interest in net loss of subsidiary
Net income (loss)
(26,185) (7,357)
(8,221) (1,917)
(17,964) (5,440)
1,018
$(16,946) $ (5,440)
--
51,782
13,463
38,319
--
$ 38,319
Net income (loss) per share:
Basic
Diluted
$(0.72)
$(0.72)
$(0.23)
$(0.23)
$1.84
$1.79
Weighted average shares outstanding:
Basic
Diluted
23,423
23,423
23,301
23,301
20,871
21,428
The accompanying notes are an integral part of these consolidated financial statements.
31
KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
Fiscal Year Ended September 30,
1997
1998
1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation and amortization
Provision for doubtful accounts
Provision for impairment of goodwill
Deferred taxes
Provision for inventory reserves
Equity in loss of joint ventures
Minority interest in net loss of subsidiary
Purchased in-process research and development
Loss on write off and disposal of property and equipment
Non-cash employee benefits
Changes in working capital accounts, net of effect
of acquired businesses:
Accounts receivable
Inventories
Prepaid expenses and other assets
Refundable income taxes
Accounts payable and accrued expenses
Taxes payable
Other, net
Net cash provided by (used in) operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of net assets of Semitec;
net of cash acquired
Purchases of investments classified
as available-for-sale
Proceeds from sales or maturities of investments
classified as available-for-sale
Purchases of plant and equipment
Purchase of X-LAM technology
Proceeds from sale of property and equipment
Investments in and loans to joint ventures
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on borrowings, including capitalized leases
Proceeds from issuances of common stock
Net cash provided by (used in) financing activities
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS
CHANGE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS AT:
BEGINNING OF YEAR
END OF YEAR
$(16,946)
$ (5,440)
$ 38,319
15,989
812
--
(8,463)
1,200
10,000
(1,018)
3,935
1,566
1,662
13,250
29
948
(1,087)
4,132
8,715
--
--
1,484
2,240
38,937
(6,103)
(912)
(5,270)
(66,833)
(14,700)
(4,801)
2,336
36,182 (24,568)
(4,446)
138
1,012 (185)
(37,929)
21,724
11,329
1,065
--
244
2,593
6,701
--
--
--
1,793
(57,960)
(3,201)
(35)
6,212
30,668
3,527
726
41,981
--
--
(4,510)
(29,379)
(108,482)
(4,451)
57,454
(10,891)
(8,000)
--
(10,912)
(1,728)
86,199
(16,062)
--
436
(14,500)
(52,409)
9,967
(13,516)
--
--
(19,280)
(31,790)
(192)
280
88
(808)
385
(423)
(51,065)
103,112
52,047
246
(39,323)
(19)
(31,127)
23
62,261
76,478
$ 37,155
107,605
$ 76,478
45,344
$ 107,605
The accompanying notes are an integral part of these consolidated financial statements.
32
KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(in thousands)
Accumulated
Common Stock Retained Comprehensive Shareholders'
Shares Amount Earnings Income (Loss) Equity
Other Total
Balances at September 30, 1996 19,433 $48,733 $101,085 $(2,329) $147,489
Common stock sold 3,450 101,103 -- -- 101,103
Employer contribution to the
401(k) plan 92 1,793 -- -- 1,793
Exercise of stock options 262 2,009 -- -- 2,009
Tax benefit from exercise of
stock options -- 1,608 -- -- 1,608
Components of comprehensive income:
Net income -- -- 38,319 -- 38,319
Translation adjustment -- -- -- (394) (394)
Total comprehensive income 37,925
Balances at September 30, 1997 23,237 155,246 139,404 (2,723) 291,927
Employer contribution to the
401(k) plan 89 2,240 -- -- 2,240
Exercise of stock options 41 385 -- -- 385
Tax benefit from exercise of
stock options -- 115 -- -- 115
Components of comprehensive loss:
Net loss -- -- (5,440) -- (5,440)
Translation adjustment -- -- -- (1,433) (1,433)
Unrealized gain on investments, net -- -- -- 116 116
Total comprehensive loss (6,757)
Balances at September 30, 1998 23,367 157,986 133,964 (4,040) 287,910
Employer contribution to the
401(k) plan 84 1,662 -- -- 1,662
Exercise of stock options 38 280 -- -- 280
Tax benefit from exercise of
stock options -- 180 -- -- 180
Components of comprehensive loss:
Net loss -- -- (16,946) -- (16,946)
Translation adjustment -- -- -- 2,622 2,622
Unrealized loss on investments, net -- -- -- (115) (115)
Realized gain on investments included in
net loss, net -- --
Minimum pension liability (net of taxes
of $413) -- -- -- (768) (768)
Total comprehensive loss (15,256)
-- (49) (49)
Balances at September 30, 1999 23,489 $160,108 $117,018 $(2,350) $274,776
The accompanying notes are an integral part of these consolidated financial statements.
33
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These consolidated financial statements include the accounts of Kulicke and Soffa Industries, Inc. and its
subsidiaries (the "Company"), with appropriate elimination of intercompany balances and transactions.
Nature of Business - The Company manufactures capital equipment and packaging materials used in the assembly
of semiconductors. The Company's operating results primarily depend upon the capital expenditures of
semiconductor manufacturers and subcontract assemblers worldwide which, in turn, depend on the current and
anticipated market demand for semiconductors and products utilizing semiconductors. The semiconductor industry
historically has been highly volatile and experienced periodic downturns and slowdowns which have had a severe
negative effect on the semiconductor industry's demand for semiconductor capital equipment, including assembly
equipment manufactured and marketed by the Company and, to a lesser extent, packaging materials such as those
sold by the Company. These downturns and slowdowns have also adversely affected the Company's operating
results. The Company believes such volatility will continue to characterize the industry and the Company's
operations in the future.
The semiconductor and semiconductor equipment industries are subject to rapid technological change and frequent
new product introductions and enhancements. The Company invests substantial amounts in research and
development to continuously develop and manufacture new products and product enhancements in response to
demands for higher performance assembly equipment. In addition, the Company continuously pursues investments
in alternative packaging technologies. The Company's inability to successfully develop new products and product
enhancements or to effectively manage the introduction of new products into the marketplace could have a material
adverse effect on the Company's results of operations, financial condition and liquidity.
Management Estimates - The preparation of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. The more significant areas involving the use of
estimates in these financial statements include allowances for uncollectible accounts receivable, reserves for excess
and obsolete inventory, carrying value and lives of fixed assets, goodwill and intangibles assets, valuation
allowances for deferred tax assets and deferred tax liabilities for unrepatriated earnings. Actual results could differ
from those estimated.
Vulnerability to Certain Concentrations - Financial instruments which may subject the Company to concentration
of credit risk at September 30, 1999 and 1998 consist primarily of investments and trade receivables. The
Company manages credit risk associated with investments by investing its excess cash in investment grade debt
instruments of the U.S. Government, financial institutions and corporations. The Company has established
investment guidelines relative to diversification and maturities designed to maintain safety and liquidity. These
guidelines are periodically reviewed and modified to take advantage of trends in yields and interest rates. The
Company's trade receivables result primarily from the sale of semiconductor equipment, related accessories and
replacement parts and packaging materials to a relatively small number of large manufacturers in a highly
concentrated industry. The Company continually assesses the financial strength of its customers to reduce the risk
of loss. Accounts receivable at September 30, 1999 and 1998 included notes receivable of $10 and $524
respectively. Writeoffs of uncollectible accounts have historically been insignificant.
Sales to a relatively small number of customers account for a significant percentage of the Company's net sales. In
fiscal 1999 no customer accounted for more than 10% of net sales but in fiscal 1998, sales to Intel accounted for
17.6% of the Company's net sales and in fiscal 1997, sales to Anam (a Korea-based customer) and Intel accounted
for approximately 12.5% and 10.2%, respectively, of net sales. The Company expects sales of its products to a
limited number of customers will continue to account for a high percentage of net sales for the foreseeable future.
The reduction or loss of orders from a significant customer could adversely affect the Company's business,
financial condition, operating results and cash flows.
34
The Company relies on subcontractors to manufacture to the Company's specifications many of the components or
subassemblies used in its products. Certain of the Company's products require components or parts of an
exceptionally high degree of reliability, accuracy and performance for which there are only a limited number of
suppliers or for which a single supplier has been accepted by the Company as a qualified supplier. If supplies of
such components or subassemblies were not available from any such source and a relationship with an alternative
supplier could not be promptly developed, shipments of the Company's products could be interrupted and re-
engineering of the affected product could be required. Such disruptions could have a material adverse effect on the
Company's results of operations.
Cash Equivalents - The Company considers all highly liquid investments with original maturities of three months
or less when purchased to be cash equivalents.
Investments - Investments, other than cash equivalents, are classified as "trading," "available-for-sale" or "held-to-
maturity," depending upon the nature of the investment, its ultimate maturity date in the case of debt securities, and
management's intentions with respect to holding the securities. Investments classified as "trading" are reported at
fair market value, with unrealized gains or losses included in earnings. Investments classified as available-for-sale
are reported at fair market value, with net unrealized gains or losses reflected as a separate component of
shareholders' equity (accumulated other comprehensive income (loss)). Investments classified as held-to-maturity
are reported at amortized cost. Realized gains and losses are determined on the basis of specific identification of
the securities sold.
Inventories - Inventories are stated at the lower of cost (determined on the basis of first-in, first-out) or market.
Due to the volatility of demand for capital equipment and the rapid technological change in the semiconductor
industry, the Company is vulnerable to risks of excess and obsolete inventory. The Company generally provides
reserves for inventory considered to be in excess of 18 months of forecasted future demand.
Property, Plant and Equipment - Property, plant and equipment are carried at cost. The cost of additions and those
improvements which increase the capacity or lengthen the useful lives of assets are capitalized while repair and
maintenance costs are expensed as incurred. Depreciation and amortization are provided on a straight-line basis
over the estimated useful lives as follows: buildings 25 to 40 years; machinery and equipment 3 to 8 years; and
leasehold improvements are based on the shorter of the life of lease or life of asset. Purchased computer software
costs related to business and financial systems are amortized over a five year period on a straight-line basis. In
accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of," the carrying value of long-lived assets, including goodwill, is evaluated whenever changes in
circumstances indicate the carrying amount of such assets may not be recoverable. In performing such review for
recoverability, the Company compares the expected future cash flows to the carrying value of long-lived assets and
identifiable intangibles. If the anticipated undiscounted future cash flows are less than the carrying amount of such
assets, the Company recognizes an impairment loss for the difference between the carrying amount of the assets
and their estimated fair value. If an asset being tested for recoverability was acquired in a business combination
accounted for using the purchase method, the excess of cost over fair value of net assets that arose in that
transaction is allocated to the assets being tested for recoverability on a pro rata basis using the relative fair values
of the long-lived assets and identifiable intangibles acquired at the acquisition date.
Depreciation expense was $13,104, $10,896 and $8,945 for the fiscal years ended September 30, 1999, 1998 and
1997, respectively. When assets are retired or otherwise disposed of, the assets and related accumulated
depreciation accounts are adjusted accordingly, and any resulting gain or loss is recorded in current operations.
Intangible Assets - Goodwill resulting from acquisitions accounted for using the purchase method is amortized on
a straight-line basis over the estimated period to be benefited by the acquisitions ranging from five to twenty years.
The Company accounts for impairment of goodwill in accordance with SFAS No. 121, as discussed above. In
connection with the Company’s resizing efforts in fiscal 1998, the Company discontinued certain die bonder
products which the Company had acquired in 1994, and recorded an impairment of goodwill of $948.
Foreign Currency Translation - The U.S. dollar is the functional currency for all subsidiaries except the Company's
subsidiaries in Japan, Korea, Singapore, Switzerland and Taiwan. Unrealized translation gains and losses resulting
from the translation of functional currency financial statement amounts into U.S. dollars are not included in
determining net income but are accumulated in the cumulative translation adjustment account as a separate
35
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 $13, ($147) and ($135), for the
fiscal years ended September 30, 1999, 1998 and 1997, respectively.
Revenue Recognition - Sales are recorded upon shipment of products or performance of services. Provisions for
estimated product returns, warranty and installation costs are accrued in the period of sale recognition.
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 1999, 1998 and 1997, reductions to research and
development expense related to such funding totaled $1,269, $1,655 and $2,018, respectively.
Income Taxes - Deferred income taxes are determined using the liability method in accordance with SFAS No. 109,
"Accounting for Income Taxes." No provision is made for U.S. income taxes on the portion of undistributed
earnings of foreign subsidiaries which are indefinitely reinvested in foreign operations.
Environmental Expenditures – Future environmental remedial 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 - In the fiscal 1998 first quarter ended December 31, 1997, the Company adopted Statement of
Financial Accounting Standards No. 128, "Earnings Per Share," ("SFAS 128"). Under SFAS 128, basic earnings
per share includes only the weighted average number of common shares outstanding during the period. Diluted
earnings per share includes the weighted average number of common shares and the dilutive effect of stock options
and other potentially dilutive securities outstanding during the period. All prior period earnings per share amounts
have been restated to reflect the requirements of SFAS 128. See Note 12.
Accounting for Stock-based Compensation - In 1995, Statement of Financial Accounting Standards No. 123 -
"Accounting for Stock-Based Compensation" ("SFAS 123") was issued. SFAS 123 defines the "fair value method"
of accounting for stock options or similar equity instruments, pursuant to which compensation cost is measured at
the grant date based on the value of the award and is recognized over the service period. SFAS 123 permits
companies to continue to account for stock option grants using the "intrinsic value method" prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25"), and
disclose the pro forma effect on net income and earnings per share as if the fair value method had been applied to
stock option grants. The Company has elected to follow the disclosure basis only, as permitted by SFAS 123.
Reporting Comprehensive Income - In fiscal 1999, the Company adopted Statement of Financial Accounting
Standards No. 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.
Segment Disclosure - In fiscal 1998, the Company adopted Statement of Financial Accounting Standards No. 131,
“Disclosures about Segments of an Enterprise and Related Information” (“SFAS 131”). SFAS 131 supersedes SFAS
14, Financial Reporting for Segments of a Business Enterprise, replacing the “industry segment” approach with the
“management” approach. The management approach designates the internal organization that is used by
management for making operating decisions and assessing performance as the source of the Company’s reportable
segments. SFAS 131 also requires disclosure about products and services, geographic areas, and major customers.
The adoption of SFAS 131 did not affect results of operations or financial position but did affect the disclosure of
segment information (see “Segment Information” Note 11).
36
Derivative Instruments and Hedging Activities - In June 1998, Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133") was issued. SFAS 133
establishes accounting and reporting standards for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives) and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those
instruments at fair value. This Statement is effective for all fiscal quarters for financial statements for fiscal years
commencing after June 15, 2000. Management does not believe that the adoption of SFAS 133 will have a material
impact on the financial statements.
Reclassifications - Certain amounts in the Company’s prior year financial statements have been reclassified to
conform to their presentation in the current fiscal year.
NOTE 2: RESIZING COSTS
During fiscal 1999, the Company announced plans to relocate its automatic ball bonder manufacturing from
Willow Grove, Pennsylvania to Singapore. As a result, the Company recorded a charge for severance of $3,955 for
the elimination of approximately 230 positions and asset writeoffs of $1,566. In fiscal 1999, the Company also
recorded a charge of $397 for severance for an additional 30 employees related to the reduction in workforce that
began in fiscal 1998.
Write-downs of property, plant and equipment were made where carrying values exceeded the Company’s estimate
of proceeds from abandonment or disposal. These estimates were based principally on past experience of
comparable asset disposals. Cash payments for severance and the disposition of assets identified are expected to be
substantially paid or completed by the end of fiscal 2000.
During fiscal 1998, the Company announced plans to resize its workforce and discontinue products due to a
slowdown in orders for its semiconductor assembly capital equipment and to a lesser extent for its semiconductor
packaging materials. As a result of the resizing activities, the Company reduced it worldwide workforce by
approximately 21% or 500 employees. The Company recorded a total resizing charge of $8,420 in 1998 for
severance ($4,953), impairment of goodwill associated with the 1994 acquisition of certain assets from Assembly
Technologies ($948), product discontinuation costs ($1,891; primarily writeoff of fixed assets and excess
inventory) and other costs ($628).
Concurrent with the resizing charge in fiscal 1998 of $8,420, the Company recorded in 1998 charges in its cost of
goods sold of $2,362 for excess and obsolete inventory and $1,426 for excess purchase commitments resulting from
the slowdown in orders for its semiconductor assembly equipment.
The balance of the severance and other resizing reserves is included within accrued liabilities. The components of
these resizing reserves and movements within these components during 1999 were as follows:
Severance Other Total
Balance at September 30, 1998
$ 3,088 $ 628 $ 3,716
Provision in fiscal 1999 4,352 -- 4,352
Payments made (3,296) (147) (3,443)
Balance at September 30, 1999 $ 4,144 $ 481 $ 4,625
The severance resizing reserve at September 30, 1999 is comprised of the elimination of approximately 230
positions associated with the move of the ball bonder manufacturing to Singapore and expensed in fiscal 1999 and
3 employees terminated in association with the fiscal 1998 reduction in workforce and expensed in fiscal 1998.
During fiscal 1999, payments of $3,296 were made related to the termination of approximately 285 employees.
37
NOTE 3: INVESTMENTS IN JOINT VENTURES
In February 1996, the Company entered into a joint venture agreement with Delco Electronics Corporation
("Delco") providing for the formation and management of Flip Chip Technologies, LLC ("FCT"). FCT was formed
to license related technologies and to provide wafer bumping services on a contract basis. The Company owned a
51.0% equity interest in FCT but participated equally with Delco in the management of FCT through an Executive
Committee. Accordingly, the Company accounted for its investment in FCT using the equity method, and
recognized its proportionate share of the operating results of the joint venture on the basis of its ownership interest
through September 30, 1998. For the first eight months of fiscal 1999, the Company recognized 100% of the FCT
pre-tax loss and did not recognize interest income on loans to FCT due to the existence of these loans and
uncertainties about FCT’s ability to obtain additional financing from Delco and its ability to generate short-term
positive cash flow.
Effective May 31, 1999 the Company increased its ownership interest in FCT, from 51.0% to 73.6% by converting
all of its outstanding loans and accrued interest to FCT, which totaled $32,832, into equity units and gained
operating control of FCT. The Company accounted for the increase in ownership by the purchase method of
accounting and began consolidating the results of FCT into the Company’s financial statements on June 1, 1999.
The pre-tax loss of FCT for fiscal 1999 was $14,583 compared to $17,087 in fiscal 1998. The Company’s share of
the FCT pre-tax loss, reflected in its financial statements, was $12,166 in fiscal 1999, $8,715 in fiscal 1998 and
$6,701 in fiscal 1997. The $12,166 pre-tax loss in fiscal 1999 consists of $3,003 of losses for the four months after
the Company began reporting FCT on a consolidated basis and a loss of $9,163 for the eight months when FCT
was accounted for by the equity method of accounting and reflected in Equity in Loss of Joint Ventures.
The Company recorded goodwill of $5,205 associated with the increase in ownership of FCT and is amortizing the
goodwill over 10 years. For income tax purposes, FCT is treated as a partnership, accordingly, no provision for
income tax is included in FCT’s separate financial statements. Rather, the Company’s share of the results of FCT
were reported on a pre-tax basis until May 31, 1999.
Through September 30, 1999, the Company had contributed $49,662 to FCT.
Unaudited pro forma operating results of the Company, assuming the increase in ownership of FCT took place at
the beginning of fiscal 1998, are as follows:
September 30,
1999 1998
(unaudited)
Net sales
$ 418,157 $ 415,382
Net loss (16,268) (8,719)
Net loss per share - diluted (0.69) (0.37)
Fiscal Year ended
The pro forma operating results reflected above are not necessarily indicative of the future operating results of the
Company.
Selected assets and liabilities of FCT, which are consolidated in the Company’s balance sheet at September 30,
1999, are:
September 30, 1999
Cash $ 839
Current assets 3,711
Property, plant and equipment, net 20,844
Total assets 24,946
5,873
Current liabilities
5,873
Total liabilities
In September 1998, the Company entered into a joint venture agreement with Polyset Company, Inc. (“Polyset”)
providing for the formation and management of Advanced Polymer Solutions, LLC (“APS”) to develop,
manufacture and market advanced polymer materials for semiconductor and microelectronic packaging end users.
The Company owns a 50% equity interest in APS and participates equally with Polyset in the management of APS
38
through an Executive Committee. Accordingly, the Company accounts for its investment in APS using the equity
method, and recognizes its proportionate share of the operating results of the joint venture on the basis of its
ownership interest. For income tax purposes, APS is treated as a partnership. Accordingly, no provision for income
taxes is included in APS’s separate financial statements. Rather, the Company’s proportionate share of the results
of APS are reported on a pre-tax basis. For the fiscal year ended September 30, 1999, the Company reported a pre-
tax loss of $837 on its investment in APS. Through September 30, 1999, the company had contributed
approximately $3,800 to APS and has committed to contribute up to $6,000.
NOTE 4: PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT
Purchased in-process research and development represents the value assigned in a purchase business combination
to research and development projects of the acquired business that were commenced but not yet completed at the
date of acquisition, for which technological feasibility has not been established and which have no alternative
future use in research and development activities or otherwise. In accordance with Statement of Financial
Accounting Standards No. 2, “Accounting for Research and Development Costs,” as interpreted by Interpretation
No. 4, amounts assigned to purchased in-process research and development meeting the above criteria must be
charged to expense at the date of consummation of the purchase business combination.
In January 1999, the Company purchased enabling technology and fixed assets used in the design, development,
manufacture, marketing and sale of laminate substrates (the “X-LAM technology”) for $8.0 million. The Company
has allocated the majority of the purchase price to intangible assets, including in-process research and
development. The portion of the purchase price allocated to in-process research and development was charged to
expense in fiscal 1999. The other purchased intangibles include core technology and assembled workforce. These
intangibles are being amortized over their estimated useful lives of 1 – 5 years.
The Company allocated the purchase price as follows:
$ 3,935
In-process research and development
Core technology
3,447
Property, plant and equipment 513
Assembled workforce 105
$ 8,000
The Company obtained an independent valuation of the purchased in-process research and development. The
income valuation approach was used to determine the fair value of the in-process research and development. The
Company estimated that the purchased technology was 60% complete and the technology would be marketable in
fiscal 2000 and would generate positive cash flow beginning in fiscal 2001. These estimates are subject to change,
given uncertainties of the development process, and no assurance can be given that deviations from these estimates
will not occur.
NOTE 5: INVESTMENTS
At September 30, 1999 and 1998, no short-term investments were classified as trading or held-to-maturity.
Investments, excluding cash equivalents, consisted of the following at September 30, 1999 and 1998:
September 30, 1999 September 30, 1998
Unrealized
Gains/
(Losses)
$ --
--
Fair
Value
$ --
--
Fair
Value
$ 2,355
28,067
--
Unrealized
Gains/
(Losses)
$ 21
136
--
Cost
Basis
$ --
--
2,264
Cost
Basis
$ 2,334
27,931
--
2,190 (74)
Available-for-sale:
U.S. Treasuries
Corporate debt securities
Adjustable rate notes
Short-term investments
classified as available
for sale
$ 2,190 $ (74)
$ 2,264 $30,422 $ 157 $ 30,265
39
An after-tax unrealized loss of $48 (net of taxes of $26) and an after-tax unrealized gain of $116 (net of taxes of
$41) were recorded as direct adjustments to shareholders’ equity at September 30, 1999 and September 30, 1998,
respectively.
NOTE 6: BALANCE SHEET COMPONENTS
Inventories:
Raw materials and supplies
Work in process
Finished goods
Inventory reserves
Property, Plant and Equipment:
Land
Buildings and building improvements
Machinery and equipment
Leasehold improvements
Accumulated depreciation
September 30,
1999
$ 35,981
24,033
16,696
76,710
(14,928)
$ 61,782
1998
$ 28,062
11,381
23,788
63,231
(15,658)
$ 47,573
September 30,
1999
1998
$ 1,453
21,608
105,148
15,960
144,169
(76,684)
$67,485
$ 1,453
21,124
72,992
4,289
99,858
(51,589)
$ 48,269
Accrued expenses at September 30, 1999 and 1998 include $12,100 and $10,981, respectively, for accrued wages,
incentives and vacations.
NOTE 7: DEBT OBLIGATIONS
At September 30, 1999, the Company recorded a short-term debt obligation of $1,178 reflecting debt due to Delco,
the 26.4% owner of FCT, by FCT. At September 30, 1998 the Company’s debt obligations consisted entirely of
capital lease obligations which matured in fiscal 1999. Interest paid on the Company's debt obligations totaled
$215, $262 and $2,331, in fiscal 1999, 1998 and 1997, respectively.
The Company has a $60,000 revolving credit facility expiring on March 26, 2003. At September 30, 1999, the
Company had no cash borrowings outstanding under the credit facility, but had utilized $960 of availability under
the credit facility to support letters of credit issued as security deposits for its new manufacturing facility in
Singapore and its new X-LAM facility. The revolving credit facility provides for borrowings denominated in either
U.S. dollars or foreign currencies. Borrowings in U.S. dollars bear interest either at a Base Rate (defined as the
greater of the prime rate minus 1/4% or the federal funds rate plus 1/2%) or, at a LIBOR Rate (defined as LIBOR
plus .4% to .8%, depending on the Company's leverage ratio). Foreign currency borrowings bear interest at a
LIBOR Rate, as defined above, applicable to the foreign currency.
The Amended and Restated Loan Agreement is guaranteed by certain of the Company's domestic subsidiaries and
requires the Company maintain certain financial covenants including a leverage ratio and an interest coverage
ratio or liquidity ratio. The Amended and Restated Loan Agreement also limits the Company's ability to mortgage,
pledge or dispose of a material portion of its assets and imposes restrictions on the Company's investments and
acquisitions. There were no borrowings under this bank credit facility during fiscal 1999. The Company was in
compliance with the covenants of the Amended and Restated Loan Agreement as of September 30, 1999.
NOTE 8: SHAREHOLDERS' EQUITY
Common Stock
40
In May 1997, the Company completed the sale of 3,450,000 shares of its common stock in an underwritten
offering, resulting in net proceeds to the Company approximating $101,103. A portion of these proceeds was used
to repay the $50,000 outstanding balance under the Company's existing bank revolving credit facility.
Stock Option Plans
The Company has six employee stock option plans covering substantially all employees (the "Employee Plans")
pursuant to which options have been or may be granted at 100% of the market price of the Company's Common
Stock on the date of grant. Options may no longer be granted under three of the plans. Options granted under the
Employee Plans are exercisable at such dates as are determined in connection with their issuance, but not later than
ten years after the date of grant.
The following summarizes all employee stock option activity for the three years ended September 30, 1999:
September 30, ____________
_____1999 1998 1997
Average
Exercise
Price
Average
Exercise
Price
Average
Exercise
Price
Options
Options
Options
Options outstanding at
beginning of period
Granted or reissued
Exercised
Terminated or canceled
Options outstanding at
end of period
Options exercisable at
end of period
(Share amounts in thousands)
2,180
835
(38)
(111)
$17.98
25.79
7.54
19.61
1,072
1,300
(41)
(151)
$ 15.05
20.64
9.62
22.36
815
552
(231)
(64)
$ 15.08
12.00
7.72
15.94
2,866
20.33
2,180
17.98
1,072
15.05
702
16.58
317
13.79
132
12.35
The Company also maintains two stock option plans for non-officer directors (the "Director Plans") pursuant to
which options to purchase 5,000 shares of the Company's Common Stock at an exercise price of 100% of the
market price on the date of grant are issued to each non-officer director each year. Options can no longer be
granted under one of these plans. Options to purchase 201,000 shares at an average exercise price of $19.87 were
outstanding under the Director Plans at September 30, 1999, of which options to purchase 97,000 shares were
currently exercisable. No options under the Director Plans were exercised during 1999.
At September 30, 1999, 4,664,000 shares were reserved for issuance and 1,798,000 shares were available for grant
in connection with the Employee Plans and 626,000 shares were reserved for issuance and 425,000 shares were
available for grant in connection with the Director Plans.
The following table summarizes information concerning currently outstanding and exercisable options at
September 30, 1999:
Options Outstanding Options Exercisable
(Share amounts in thousands) (Share amounts in thousands)
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
$ 2.62 - $10.00 220 4.4 $7.04 168 $6.72
$10.01 - $20.00 1,289 8.2 $12.94 361 $12.63
$20.01 - $30.00 839 9.9 $25.78 2 $23.63
$30.01 - $39.00 518 7.3 $35.55 171 $34.56
2,866 8.2 $20.33 702 $16.58
41
As permitted under Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), the Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"), in accounting for stock options granted to employees.
Under APB 25, the Company generally recognizes no compensation expense in the income statement with respect
to such grants.
Unaudited pro forma information regarding net income and earnings per share is required by SFAS 123 for options
granted after October 1, 1995 as if the Company had accounted for its stock option grants to employees under the
fair value method of SFAS 123. The fair value of the Company's stock option grants to employees was estimated
using a Black-Scholes option pricing model.
The following assumptions were employed to estimate the fair value of stock options granted to employees:
Expected dividend yield
Expected stock price volatility
Risk-free interest rate
Expected life (years)
Fiscal Year Ended
September 30,
1999
$0.00
74.00%
5.84%
8
1998
$0.00
73.00%
5.40%
7
1997
$0.00
71.00%
6.16%
6
For pro forma purposes, the estimated fair value of the Company's stock options to employees is amortized over the
options' vesting period. The Company's pro forma information follows:
Weighted average fair value of options granted
Net income (loss) - as reported
Net income (loss) - unaudited pro forma
Net income (loss) per share - as reported, diluted
Net income (loss) per share - unaudited pro forma, diluted
NOTE 9: EMPLOYEE BENEFIT PLANS
Fiscal Year Ended
September 30,
1999
$19.92
1998
$ 15.18
(16,946) (5,440)
(20,499) (8,040)
(.72) (0.23)
(.88) (0.35)
1997
$ 8.22
38,319
37,069
1.79
1.72
The Company has a non-contributory defined benefit pension plan covering substantially all U.S. employees who
were employed on September 30, 1995. The benefits for this plan were based on the employees' years of service and
the employees' compensation during the three years before retirement. The Company's funding policy is consistent
with the funding requirements of Federal law and regulations. Effective December 31, 1995, the benefits under the
Company's pension plan were frozen. As a consequence, accrued benefits no longer change as a result of an
employee's length of service or compensation. In fiscal 1999, the Company adopted SFAS No. 132, “Employers’
Disclosures about Pension and Other Post-retirement Benefits.” The disclosures for fiscal 1998 and 1997 have
been restated for comparative purposes.
Detailed information regarding the Company’s defined benefit pension is as follows:
Fiscal Year Ended September 30,
1997
1998
1999
Change in benefit obligation:
Benefit obligations at beginning of year: $11,802 $11,198
$10,340
Interest cost 885 840 776
Benefits paid (407) (405) (399)
Actuarial (gain) loss (324) 169 481
Benefit obligation at end of year $11,956 $11,802 $11,198
42
Fiscal Year Ended September 30,
1997
1998
1999
Change in plan assets:
Fair value of plan assets at beginning of year: $10,542 $10,372 $ 9,770
Actual return on plan assets 1,066 490 980
Employer contributions -- 85 21
Benefits paid (407) (405) (399)
Fair value of assets at end of year $11,201 $10,542 $10,372
Reconciliation of funded status:
Funded status $ (755) $(1,260) $ (826)
Unrecognized actuarial loss 1,181 1,749 1,245
Net amount recognized at year-end $ 426 $ 489 $ 419
Amount recognized in the statement of financial position consists of:
Accrued benefit liability $ (755) $(1,260) $ (826)
Accumulated other comprehensive income /unrecognized net loss 1,181 1,749 1,245
Net amount recognized at year-end $ 426 $ 489 $ 419
Components of net periodic benefit cost:
Interest cost $ 885 $ 840 $ 776
Expected return on plan assets (858) (833) (720)
Recognized actuarial loss 36 8 --
Net periodic benefit cost $ 63 $ 15 $ 56
Weighted-average assumptions as of September 30:
Discount rate 7.75% 7.50% 7.50%
Expected long-term rate of return on plan assets 8.00% 8.00% 7.00%
Rate of compensation increase * * *
* Not applicable due to the December 31, 1995 benefit freeze.
The Company's foreign subsidiaries have retirement plans that are integrated with and supplement the benefits
provided by laws of the various countries. They are not required to report nor do they determine the actuarial
present value of accumulated benefits or net assets available for plan benefits. The Company believes these plans
are substantially fully funded as to vested benefits. On a consolidated basis, pension expense was $998, $914 and
$991, in fiscal 1999, 1998 and 1997, respectively.
The Company has a 401(k) Employee Incentive Savings Plan. This plan allows for employee contributions and
matching Company contributions in varying percentages, depending on employee age and years of service, ranging
from 30% to 175% of the employees' contributions. The Company's contributions under this plan totaled $1,662,
$2,240 and $1,793 in fiscal 1999, 1998 and 1997, respectively, and were satisfied by contributions of shares of
Company common stock, valued at the market price on the date of the matching contribution.
NOTE 10: INCOME TAXES
Income (loss) before income taxes and after minority interest in net loss consisted of the following:
Fiscal Year Ended September 30,
1997
1999
1998
United States operations $(43,663) $ (17,953) $ 32,879
Foreign operations 18,496 10,596 18,903
$(25,167) $ (7,357) $ 51,782
43
The provision (benefit) for income taxes included the following:
Fiscal Year Ended September 30,
Current:
Federal
State
Foreign
Deferred:
Federal
Foreign
1999
1998
1997
$ (2,218)
50
2,410
$ (7,210)
50
4,155
$ 8,722
700
3,797
(8,613)
150
$ (8,221)
840
244
248 --
$ (1,917)
$13,463
The provision (benefit) for income taxes differed from the amount computed by applying the statutory federal
income tax rate as follows:
Fiscal Year Ended September 30,
1999
1998
1997
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 Approved Enterprise Zones
Benefits of net operating loss and tax credit
carryforwards and change in valuation allowance
Non-deductible goodwill amortization
Provision for repatriation of certain foreign
earnings, including foreign withholding taxes
Effect of revisions of prior year's estimated taxes
Benefits of Foreign Sales Corporation
Other, net
$ (8,808)
$ (2,575)
$18,124
603
(4,509)
4,200
677
150
(533)
--
(1)
$(8,221)
(289)
(1,532)
(951)
677
(1,212)
(1,049)
(1,819)
659
3,298
--
(779) (205)
(985)
(50)
$ 13,463
--
234
$ (1,917)
Undistributed earnings of certain foreign subsidiaries for which taxes have not been provided approximate $40,447
at September 30, 1999. Such undistributed earnings are intended to be indefinitely reinvested in foreign operations.
Undistributed earnings approximating $73,000 are not considered to be indefinitely reinvested in foreign
operations. Accordingly, as of September 30, 1999, deferred tax liabilities of $12,414 including withholding taxes
but net of estimated foreign tax credits, have been provided.
Deferred income taxes are determined based on the differences between the financial reporting and tax basis of
assets and liabilities as measured by the current tax rates. The net deferred tax balance is composed of the tax
effects of cumulative temporary differences, as follows:
Repatriation of foreign earnings,
including foreign withholding taxes
Depreciable assets
Prepaid expenses and other
Total deferred tax liability
September 30,
1999
1998
$ 12,414
2,592
1,541
16,547
$ 12,264
2,073
831
15,168
44
Inventory reserves
Warranty accrual
Other accruals and reserves
Intangible assets
Domestic NOL carryforwards
Foreign NOL carryforwards
Domestic tax credit carryforwards
Deferred intercompany profit
Valuation allowance
Total deferred tax asset
Net deferred tax asset
September 30,
1999
2,291
655
2,298
1,446
19,430
6,359
5,409
1,945
39,833
(12,215)
1998
3,299
750
3,621
--
3,894
4,436
6,730
2,137
24,867
(7,091)
27,618
17,776
$ 11,071
$ 2,608
Realization of deferred tax assets associated with the net operating loss and tax credit carryforwards is dependent
upon generating sufficient taxable income prior to their expiration in the respective tax jurisdictions. The Company
believes there is a risk that certain of these tax credits carryforwards may expire unused and, accordingly, has
established certain valuation allowances. The valuation allowance at September 30, 1999 relates to U.S. foreign tax
credit carryforwards expiring through the year 2014, acquired domestic net operating loss carryforwards expiring
through the year 2010 whose realization is limited to the U.S. earnings of the acquired company, and foreign net
operating loss carryforwards which are scheduled to expire through the 2004 fiscal year. Although realization is
not assured for the remaining deferred tax assets, the Company believes it is more likely than not that they will be
realized through future taxable earnings or alternative tax strategies. However, the net deferred tax assets could be
reduced in the near term if the Company's estimates of taxable income during the carryforward period are
significantly reduced or alternative tax strategies are no longer viable. In the event the tax benefits relating to
acquired net operating loss carryforwards are realized, such benefits would reduce the recorded amount of
goodwill.
The IRS is currently auditing the Company’s federal income tax returns for fiscal 1995, 1996, 1997 and 1998.
Management believes sufficient taxes have been provided in prior years and that the ultimate outcome of the IRS
audits will not have a material adverse impact on the Company’s financial position, results of operations or cash
flows.
The Company paid income taxes of $3,753, $8,817 and $9,965, in fiscal 1999, 1998 and 1997, respectively.
NOTE 11: SEGMENT INFORMATION
The Company evaluates performance of its segments and allocates resources to them based on income from
operations before interest, allocations of corporate expenses and income taxes.
The Company operates primarily in three industry segments: equipment, packaging materials and advanced
packaging technologies. The equipment business unit designs, manufactures and markets capital equipment and
related spare parts for use in the semiconductor assembly process. Equipment also services, maintains, repairs and
upgrades assembly equipment. The packaging materials business designs, manufactures and markets consumable
packaging materials for use on the equipment the company markets as well as on competitors’ equipment. The
packaging materials products have different manufacturing processes, distribution channels and a less volatile
revenue pattern than the Company's capital equipment. The advanced packaging technology business unit was
established is fiscal 1999 to reflect the Company’s strategic initiative to develop new technologies for advanced
semiconductor packaging. This segment is comprised of FCT and the Company’s X-LAM business unit. The
products of all segments are, or will be, for sale to semiconductor device manufacturers. The Company’s equity
method investment in APS is considered part of the packaging materials segment.
45
The table below presents information about reported segments:
Advanced
Packaging Packaging Corporate,
Equipment Materials Technology Other and
Fiscal Year Ended September 30, 1999 Segment Segment
124,450
Net sales
90,326
Cost of goods sold
34,124
Gross profit
23,500
Operating expenses
Resizing costs
--
Purchased in-process research
and development
Income (loss) from operations
Equity in loss of joint ventures
$269,854
188,958
80,896
86,239
5,918
--
$(11,261)
$ --
--
$10,624
$ (837)
Segment Eliminations Consolidated
$398,917
$ 4,613
285,382
6,098
113,535
(1,485)
123,414
5,314
5,918
--
$ -
--
--
8,361
--
--
$ (6,799)
$ (9,163)
3,935
3,935
$(12,296)
$(19,732)
$ -- $(10,000)
Segment assets
Capital expenditures
Depreciation expense
$200,837
6,522
7,339
$86,398
2,136
3,951
$37,560
2,233
1,814
$53,350
$378,145
10,891
13,104
Fiscal Year Ended September 30, 1998
Net sales
Cost of goods sold
Gross profit
Operating expenses
Resizing costs
Income (loss) from operations
Equity in loss of joint ventures
Segment assets
Capital expenditures
Depreciation expense
Equipment
Segment
$302,107
191,948
110,159
101,099
5,984
$ 3,076
$ --
$ 129,568
12,809
7,285
Corporate,
Other and
Packaging
Materials
Segment Eliminations Consolidated
$ --
$108,933
--
82,259
26,674
--
8,641
22,829
712
1,724
$ (9,353)
$ 2,121
$ (8,715)
$ --
$411,040
274,207
136,833
132,569
8,420
$ (4,156)
$ (8,715)
$ 78,318
3,253
3,611
$134,698
--
--
$342,584
16,062
10,896
Fiscal Year Ended September 30, 1997
Net sales
Cost of goods sold
Gross profit
Operating expenses
Income (loss) from operations
Equity in loss of joint ventures
Equipment
Segment
$391,721
228,854
162,867
Corporate,
Packaging
Materials
Other and
Segment Eliminations
$ --
$110,186
--
89,148
--
21,038
97,143 21,029 8,070
$ (8,070)
$ (6,701)
$ 9
$ --
$ 65,724
$ --
Consolidated
$501,907
318,002
183,905
126,242
$ 57,663
$ (6,701)
Segment assets
Capital expenditures
Depreciation expense
$159,124
7,749
5,977
$ 87,973
5,767
2,968
$ 129,722
--
--
$376,819
13,516
8,945
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.
46
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, 1999
Taiwan
United States
Singapore
Philippines
Malaysia
Japan
Hong Kong
Israel
All other
Fiscal year ended September 30, 1998
United States
Taiwan
Philippines
Malaysia
Singapore
Korea
Hong Kong(1)
Israel
All other
Destination
Sales
$93,317
69,353
44,642
42,607
40,172
19,262
19,096
1,007
69,461
$398,917
Long-Lived
Assets
$ 606
230,337
48,653
656
127
13,738
4,875
20,300
5,503
$324,795
Destination
Sales
Long-Lived
Assets
$82,957
82,053
70,675
63,817
18,932
15,205
14,815
1,397
61,189
$411,040
$ 660
123,308
796
149
39,095
309
6,863
24,834
11,872
$207,886
(1) The reduction in assets from $44,526 in fiscal 1997 to $6,863 in fiscal 1998 was due to
lower accounts receivable resulting from the centralization of the Company’s invoicing
practices, for equipment sales, to the US.
Fiscal year ended September 30, 1997
Destination
Sales
Long-Lived
Assets
Taiwan
Korea
United States
Malaysia
Philippines
Singapore
Hong Kong
Israel
All other
$109,822
97,370
74,817
66,231
39,435
26,825
13,990
731
72,686
$501,907
$ 424
185
122,061
127
-
42,762
44,526
25,872
11,140
$247,097
Sales to a relatively small number of customers account for a significant percentage of the Company's net sales. In
fiscal 1999 no customer accounted for more than 10% of total net sales but in fiscal 1998, sales to Intel accounted
for 17.6% of the Company's net sales and in fiscal 1997, sales to Anam (a Korea-based customer) and Intel
accounted for approximately 12.5% and 10.2%, respectively, 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.
47
NOTE 12: OTHER FINANCIAL DATA
In July 1998, the Company decided to discontinue the manufacture and sale of a line of products acquired in July
1994 from Assembly Technologies. As a consequence, no future cash flows from this product line were anticipated
and $948 of goodwill arising from this acquisition was written off in the Company's fiscal 1998 fourth quarter, in
accordance with the provisions of SFAS 121.
Maintenance and repairs expense totaled $2,551, $3,582 and $4,316 for fiscal 1999, 1998 and 1997, respectively.
Warranty and retrofit expense was $4,586, $4,796 and $5,788 for fiscal 1999, 1998 and 1997, respectively.
Rent expense for fiscal 1999, 1998 and 1997 was $3,216, $2,997 and $3,191, respectively.
A reconciliation of weighted average shares outstanding-basic to the weighted average shares outstanding-diluted
appears below:
(Shares in thousands)
Fiscal Year Ended September 30,
Weighted average shares outstanding - Basic
Potentially dilutive securities:
Employee stock options
Weighted average shares outstanding – Diluted
1999
23,423
*
23,423
1998
23,301
*
23,301
1997
20,871
557
21,428
* Due to the Company’s net loss for the fiscal years ended September 30, 1999 and September 30, 1998, all
potentially dilutive securities are deemed to be antidilutive. The weighted average number of shares for potentially
dilutive securities (employee and director stock options) was 666,000 in fiscal 1999 and 366,000 in fiscal 1998.
NOTE 13: COMMITMENTS AND CONTINGENCIES
The Company has obligations under various operating leases, primarily for manufacturing and office facilities,
which expire periodically through 2006. Minimum rental commitments under these leases (excluding taxes,
insurance, maintenance and repairs, which are also paid by the Company), are as follows: $3,970 in 2000; $3,107
in 2001; $2,642 in 2002; $1,376 in 2003; $1,237 in 2004 and $2,312 thereafter.
The Company entered into a joint venture agreement, in September 1998, to develop, manufacture and market
advanced polymer materials for semiconductor and microelectronic packaging end users. The Company has
invested approximately $3,800 in this joint venture and has committed to invest an additional $2,200.
From time to time, third parties assert that the Company is, or may be, infringing or misappropriating their
intellectual property rights. In such cases, the Company will defend against claims or negotiate licenses where
considered appropriate. In addition, certain of the Company's customers have received notices of infringement
from the Lemelson Medical, Education and Research Foundation Limited Partnership (the "Lemelson
Foundation"), alleging that equipment supplied by the Company, and processes performed by such equipment,
infringe on patents held by the Lemelson Foundation. This activity increased substantially in 1998, the year in
which the Lemelson Foundation settled its suit against the Ford Motor Company, and entered into License
Agreements with Ford, GM and Chrysler. Since the settlement a number of the Company's customers, including
Intel, have been sued by the Lemelson Foundation. Certain customers have requested that the Company defend
and indemnify them against the claims of the Lemelson Foundation or to contribute to any settlement the customer
reaches with the Lemelson Foundation. The Company has received opinions from its outside patent counsel with
respect to certain of the Lemelson Foundation patents. The Company is not aware that any equipment marketed by
the Company, or process performed by such equipment, infringe on the Lemelson Foundation patents in question
and does not believe that the Lemelson Foundation matter or any other pending intellectual property claim will
have a material adverse effect on its business, financial condition, operating results or cash flows. However, the
ultimate outcome of any infringement or misappropriation claim affecting the Company is uncertain, and there can
be no assurances that the resolution of these matters will not have a material adverse effect on the Company's
business, financial condition, operating results or cash flows.
The Israeli government has funded a portion of the research and development costs related to certain products. The
Company is contingently liable to repay such funding through royalties to the Israeli government. Royalty
48
payments are due only upon sale of the funded products, are computed at varying rates from 2% to 5% of such
sales and are limited to the amounts received from the Israeli government. Royalty payments to the Israeli
government for the fiscal years ended September 30, 1999, 1998 and 1997 totaled $4, $286 and $148, respectively.
At September 30, 1999, the Company was contingently liable for royalties approximating $2,302 related to
potential future product sales.
The Company is obligated, under a foreign exchange contract, to purchase 1,600 Swiss Francs in March 2000 for
$1,079. Based on the year-end exchange rate the fair value of the obligation approximates the contract value.
The U.S. Customs is currently conducting as assessment of the Company’s compliance with Customs Regulations
for the fiscal year ended September 30, 1998. Management believes that the ultimate outcome of this assessment
will not materially and adversely affect the Company’s business, financial condition, operating results or cash
flows.
NOTE 14: SELECTED QUARTERLY FINANCIAL DATA (unaudited)
Financial information pertaining to quarterly results of operations follows:
Year ended
September 30, 1999:
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Total
Net sales $61,175 $ 73,561 $110,806 $153,375 $398,917
Gross profit 16,176 21,025 30,374 45,960 113,535
Income (loss) from operations (1)(3) (10,282) (17,087) (776) 8,413 (19,732)
Income (loss) before minority interest
and income taxes (12,663) (21,109) (1,224) 8,811 (26,185)
Income tax expense (benefit) (3,800) (6,333) (283) 2,195 (8,221)
Minority interest in net loss -- -- 282 736 1,018
Net income (loss) $(8,863) $(14,776) $ (659) $7,352 $(16,946)
Net income (loss) per share:
Basic $ (0.38) $ (0.63) $ (0.03) $ .31 $(0.72)
Diluted $ (0.38) $ (0.63) $ (0.03) $ .30 $(0.72)
Year ended
September 30, 1998 :
Net sales
Gross profit
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Total
$123,111
45,345
$120,060
45,987
$91,693
30,185
$ 76,176
15,316
$411,040
136,833
Income (loss) from operations (2) (3)
10,630
12,987 (3,202)
(24,571)
(4,156)
Income (loss) before income taxes
Income tax expense (benefit)
$ 9,748
2,924
$ 11,894 $ (4,222) $ (24,777) $ (7,357)
(1,917)
2,703 (1,098)
(6,446)
Net income (loss)
Net income (loss) per share:
Basic
Diluted
$ 6,824
$ 9,191 $ (3,124) $ (18,331) $ (5,440)
$ 0.29
$ 0.29
$ 0.39
$ 0.39
$ (0.13) $ (0.79) $ (0.23)
$ (0.13) $ (0.79) $ (0.23)
(1) Results for the first quarter of fiscal 1999 include a charge of $397 for severance in connection with the
resizing of the Company’s work-force begun in fiscal 1998. Results of the second quarter include a one-time
charge of $5,521 for severance and asset writeoff in connection with the move of ball bonder manufacturing
to Singapore and a charge of $3,935 for purchased in-process research and development in connection with
the purchase of the X-LAM technology.
49
(2) Results for the fourth quarter of fiscal 1998 include a charge of $8,420 consisting of $4,953 of severance,
$1,891 of product discontinuation costs, $948 of goodwill writeoff and $628 of other costs, in connection
with the resizing of the Company’s work force and product lines resulting from a slowdown in customer
orders.
(3) Represents net sales less costs and expenses but before net interest expense, equity in loss of joint ventures
and other expense.
NOTE 15: SUBSEQUENT EVENT
On December 13, 1999, the Company issued $150.0 million of convertible subordinated notes. On December 15,
1999 the Company issued an additional $25.0 million of convertible subordinated notes in connection with the
exercise of the initial purchasers’ over-allotment option. 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 $45.7993 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 beginning June
15, 2000. 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.
50
Report of Independent Accountants
To the Members of Flip Chip Technologies, LLC:
In our opinion, the accompanying balance sheet and the related statements of operations, members’ equity and of
cash flows present fairly, in all material respects, the financial position of Flip Chip Technologies, LLC at
September 30, 1999, and the results of its operations and its cash flows for the year ended September 30,1999 in
conformity with accounting principles generally accepted in the United States. These financial statements are the
responsibility of the Company’s management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these statements in accordance with auditing standards
generally accepted in the United States, 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 audit provides a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
December 6, 1999
51
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Flip Chip Technologies, LLC:
We have audited the accompanying balance sheet of FLIP CHIP TECHNOLOGIES, LLC (the Company; a
Delaware limited liability company) as of September 30, 1998, and the related statements of operations, members’
equity and cash flows for each of the two years in the period ended September 30, 1998. These financial statements
are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that
we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial
position of Flip Chip Technologies, LLC at September 30, 1998, and the results of its operations and its cash flows
for each of the two years in the period ended September 30, 1998, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Phoenix, Arizona,
November 19, 1998
52
Flip Chip Technologies, LLC
Balance Sheets
September 30, 1999 and 1998
Current Assets:
Cash and cash equivalents
Accounts receivable (net of allowance for bad debts
of $14,309 in 1999 and $0 in 1998)
Assets
Due from Member
Materials inventory
Deposits
Prepaid expenses
Total current assets
Property and equipment, net
Deposits
Liabilities and Members' Equity
Current Liabilities
Accounts payable
Accrued compensation and related taxes
Accrued interest
Other accrued expenses
Due to members
Notes payable to members, current portion
Total current liabilities
Accrued interest
Notes payable to members, net of current portion
Total liabilities
Commitments and contingencies
Members' Equity
Members' contributions
Accumulated deficit
Total members' equity
1999
1998
$
839,122
$
1,269,566
2,483,074
-
67,140
200,667
121,236
1,052,161
58,583
89,091
91,200
35,464
3,711,239
2,596,065
20,843,846
390,470
22,317,827
680,603
$
24,945,555
$
25,594,495
$
2,042,123
559,827
151,962
1,760,984
332,118
1,025,805
$
1,721,686
742,438
559,966
511,249
-
5,000,000
5,872,819
8,535,339
-
-
757,423
15,478,142
5,872,819
24,770,904
65,832,294
(46,759,558)
33,000,000
(32,176,409)
19,072,736
823,591
$
24,945,555
$
25,594,495
The accompanying notes are an integral part of these financial statements.
53
Flip Chip Technologies, LLC
Statements of Operations
For the Years Ended September 30, 1999, 1998 and 1997
Wafer processing and engineering
Licensing
$
12,853,027
1,000,000
$
4,342,133
-
$
887,332
-
Net revenues
13,853,027
4,342,133
887,332
1999
1998
1997
Cost of wafer processing, engineering
and licensing
Gross margin
Operating expenses:
Research and development
Sales and marketing
General and administrative
Resizing expense
Loss from operations
Other income (expense)
Interest income
Other income
Interest expense
19,379,453
15,409,290
9,264,540
(5,526,426)
(11,067,157)
(8,377,208)
709,159
3,168,417
3,149,922
475,000
530,816
2,524,974
1,805,229
-
507,467
2,574,042
1,735,161
-
7,502,498
4,861,019
4,816,670
(13,028,924)
(15,928,176)
(13,193,878)
112,643
-
(1,666,868)
55,865
53,023
(1,268,118)
118,095
-
(63,685)
(1,554,225)
(1,159,230)
54,410
Net loss
$
(14,583,149)
$
(17,087,406)
$
(13,139,468)
The accompanying notes are an integral part of these financial statements.
54
Flip Chip Technologies, LLC
Statements of Members' Equity
For the Years Ended September 30, 1999, 1998 and 1997
Balance, September 30, 1996
Cash contributions
Net loss
Balance, September 30, 1997
Net loss
Members'
Contributions
Accumulated
Deficit
Total
$
5,000,000
28,000,000
-
$
(1,949,535)
-
(13,139,468)
$
3,050,465
28,000,000
(13,139,468)
33,000,000
-
(15,089,003)
(17,087,406)
17,910,997
(17,087,406)
Balance, September 30, 1998
33,000,000
(32,176,409)
823,591
Conversion of member notes and interest
Net loss
32,832,294
-
-
(14,583,149)
32,832,294
(14,583,149)
Balance, September 30, 1999
$
65,832,294
$
(46,759,558)
$
19,072,736
The accompanying notes are an integral part of these financial statements.
55
Flip Chip Technologies, LLC
Statement of Cash Flows
For the Years Ended September 30, 1999, 1998 and 1997
Cash flows from operating activities:
Net Loss
Adjustments to reconcile net loss to
cash used in operating activities:
Depreciation and amortization
Interest expense converted to equity
Provision for doubtful accounts
Changes in assets and liabilities:
Accounts receivable
Due from Members
Materials inventory
Prepaid expenses
Deposits
Accounts payable
Accrued compensation and related costs
Accrued interest
Other accrued expenses
Due to members
Accrued construction costs
1999
1998
1997
$
(14,583,149)
$
(17,087,406)
$
(13,139,468)
4,698,451
1,572,290
14,309
(1,445,222)
58,583
21,951
(85,772)
180,666
320,437
(182,611)
94,577
1,249,735
332,118
-
3,964,021
-
-
(753,342)
(58,583)
(26,515)
3,454
(339,265)
916,468
(136,063)
1,257,389
284,172
(726,231)
-
2,146,314
-
-
(231,176)
-
(62,576)
(9,706)
(229,038)
89,979
714,588
60,000
208,798
564,333
(2,504,737)
Net cash used in operating activities
(7,753,637)
(12,701,901)
(12,392,689)
Cash flows from investing activities:
Purchase of fixed assets
(3,224,470)
(3,330,474)
(20,433,227)
Net cash used in investing activities
(3,224,470)
(3,330,474)
(20,433,227)
Cash flows from financing activities:
Member contributions
Member loans
-
10,547,663
-
15,478,142
28,000,000
5,000,000
Net cash provided by investing activities
10,547,663
15,478,142
33,000,000
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
(430,444)
1,269,566
(554,233)
1,823,799
174,084
1,649,715
Cash and cash equivalents, end of year
$
839,122
$
1,269,566
$
1,823,799
Supplemental disclosures of cash flow information
and non cash financing activities:
Cash paid during the year for interest
Conversion of Member notes and interest
$
-
32,832,294
$
10,730
-
$
-
-
The accompanying notes are an integral part of these financial statements.
56
NOTES TO FINANCIAL STATEMENTS
1. Nature of Operations:
Company Profile
Flip Chip Technologies, LLC (the” Company”), a Delaware limited liability company formed on February 28,
1996, operates under an operating agreement (the Operating Agreement) between members Delphi-Delco
Electronics System (“Delco”) and Kulicke & Soffa Holdings, Inc. (“K&S”) as described in Note 4.
The Company entered into a technology transfer agreement (the Technology Transfer Agreement) with Delco
which permits the Company to use and sublicense Delco's Flex-On-Cap bumping technology to provide wafer
solder-bumping and related services. The Company's manufacturing facility and corporate offices are located
in Phoenix, Arizona.
Commencement of Operations
The Company incurred significant expenses to commence manufacturing operations, which has resulted in an
accumulated deficit of $46,759,558 at September 30, 1999. The Company's forecast for the year ended
September 30, 2000, indicates that additional funding will be needed to meet forecasted cash requirements.
Management expects, and has obtained written representation indicating, that K&S will fund the Company’s
additional cash requirements.
Strategy
The markets for the Company's technology are presently served by many companies utilizing different wafer
technologies which have significant investments in their respective technologies. The Company's operating
results will depend to a significant extent on its ability to attract new customers to use the Company's wafer
bumping and finishing technology. The Company provides wafer bumping and finishing services to customers
and sublicenses the technology to those customers who desire to use the technology in-house. The Company
believes that its technology will be accepted by a sufficient number of customers to sustain future profitable
operations.
2. Summary of Significant Accounting Policies
Revenue Recognition
Revenue is recognized on the accrual basis after the wafer bumping process has been completed and the
product has been shipped to the customer.
Licensing income is recognized as revenue in accordance with the specific terms of the licensing agreement.
Research and Development
The Company is involved with developing new wafer bumping technologies. In addition, Delco, under the
Technology Transfer Agreement, is obligated to provide certain technologies to the Company. Expenses to
develop new technology are included in research and development in the accompanying statements of
operations.
Cash and Cash Equivalents
Cash equivalents consist of investments in a money market account. The cash equivalents are recorded at cost,
which approximates market value of $838,522 and $1,163,325 at September 30, 1999 and 1998, respectively.
Materials Inventory
Materials inventory are recorded at cost and consist of raw materials used in the wafer bumping process.
Materials are expensed on consumption during the wafer bumping process.
Significant Customers
One customer represented 30% and 26% of total revenue for the years ended September 30, 1999 and 1998,
respectively, and 11% and 38% of total accounts receivable at September 30, 1999 and 1998, respectively.
Another customer represented 27% of total revenue for the years ended September 30, 1999 and 1998,
respectively, and 28% and 25% of total accounts receivable at September 30, 1999 and 1998, respectively.
57
Comprehensive Income
The Company has adopted SFAS No. 130 “Reporting Comprehensive Income.” The Company’s
comprehensive loss for 1999, 1998 and 1997 is equal to its net loss as reported in the accompanying
statements of operations.
Property and Equipment
Property, plant and equipment is recorded at cost and is depreciated using the straight-line method over the
estimated useful lives of the respective assets, which range from three to five years for machinery and
equipment. Building improvements consist of costs incurred related to the design and construction of leasehold
improvements on the Company's manufacturing and corporate headquarters in Phoenix, Arizona. The
improvements are being depreciated using the straight-line method over the initial term of the lease, which is
ten years. Depreciation expense was $4,698,451, $3,964,021 and $2,146,314 in fiscal years 1999, 1998 and
1997, respectively. When assets are retired or otherwise disposed of, the assets and related accumulated
depreciation accounts are adjusted accordingly, and any resulting gain or loss is recorded in current
operations.
Property and equipment consisted of the following at September 30:
Furniture, fixtures aned computer equipment
Building improvements
Machinery and equipment
Accumulated depreciation
1999
1998
$
680,322
11,908,208
19,068,349
$
595,101
11,815,757
16,021,551
31,656,879
28,432,409
(10,813,033)
(6,114,582)
$
20,843,846
$
22,317,827
In accordance with SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of,” the carrying value of long-lived assets is evaluated whenever changes in
circumstances indicate the carrying amount of such assets may not be recoverable. In performing such review
for recoverability, the Company compares the expected future cash flows to the carrying value of long-lived
assets and identifiable intangibles. If the anticipated undiscounted future cash flows are less than the carrying
amount of such assets, the Company recognizes an impairment loss for the difference between the carrying
amount of the assets and their estimated fair value. If an asset being tested for recoverability was acquired in a
business combination accounted for using the purchase method, the excess of cost over fair value of net assets
that arose in that transaction is allocated to the assets being tested for recoverability on a pro rata basis using
the relative fair values of the long-lived assets and identifiable intangibles acquired at the acquisition date.
The Company has not identified any impairments as of September 30, 1999.
Fair Value of Financial Instruments
The carrying amounts of cash, cash equivalents, accounts receivable, accounts payable and accrued expenses
are stated at cost, which approximates fair value, because of the short maturity of these financial instruments.
The Company's long-term debt bears interest at average interest rates which approximate market rates at
September 30, 1999.
Use of 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. Actual results could differ from those estimates.
58
Income Taxes
The Company, with the consent of its members, is a limited liability company which qualifies for tax treatment
as a partnership for federal and state income tax purposes. As a result, the Company's results of operations are
included in the income tax returns of its members. Therefore, the accompanying financial statements do not
include any provisions for income taxes.
Derivative Instruments and Hedging Activities
In June 1998, Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments
and Hedging Activities” (“SFAS 133”) was issued. SFAS 133 establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded in other contracts (collectively
referred to as derivatives) and for hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure those instruments at fair value.
This Statement is effective for fiscal years commencing after June 15, 2000. Management does not believe
that the adoption of SFAS 133 will have a material impact on the financial statements.
3. Notes Payable to Members
Through May 1999, the Company had entered into four separate loan agreements with K&S. The Company
had borrowed $30 million under these agreements. On May 31, 1999, K&S converted these loans and accrued
interest of $2,832,294 to capital contributions based upon the fair market value of the Company, as determined
by independent appraisers pursuant to the Loan Agreements and the Operating Agreement.
In February 1998, the Company entered into a loan agreement with Delco, pursuant to which Delco will
continue to provide and perform ongoing engineering support services in accordance with the Technology
Transfer Agreement. The amount owed to Delco for past engineering support costs as of the agreement date
was included in this loan agreement. Subsequent billings for engineering support services through May 31,
1999 have been added to the loan amount. The note carries an interest rate of prime (8.25% as of September
30, 1999) plus 1.5%. The loan's principal and accrued interest balances as of September 30, 1999, are
$1,025,805 and $151,962, respectively. Delco has the option to convert this note plus accrued interest to a
capital contribution, but on July 14, 1999 requested that this loan and its related interest be paid in full. The
Company is presently in default of this loan as it has not repaid this loan or any of the related accrued interest,
as a result the note is classified as a current liability at September 30, 1999.
4. Operating Agreement
As stated above, the Company operates under the Operating Agreement, which was entered into on February
28, 1996, between Delco and K&S. The Company registered in Delaware as a limited liability company to
obtain a license to use technology and to engage in the business of providing wafer bumping services and
licensing or sublicensing technology related to such services.
K&S and Delco had made initial capital contributions of $16,830,000 and $16,170,000, respectively. During
1999, K&S converted its notes payable and related accrued interest of $32,832,294 into equity units. The
ownership units, associated with the conversion, were based upon the fair market value of the Company
determined by an independent appraisal.
The members have agreed not to compete with the Company while being a member of the Company or for a
period of 24 months thereafter.
The Company shall continue until such time of dissolution. Dissolution will occur upon the following: the
agreement of both Members to dissolve and terminate the Company; the sale, abandonment or other
disposition of all or substantially all of the assets of the Company; or the dissociation of any Member unless
the remaining Member elects to continue the business.
5. Technology Transfer Agreement
On February 28, 1996, the Company entered into the Technology Transfer Agreement with Delco, allowing
59
the Company to use and sublicense Flex-On-Cap (FOC) technology owned by Delco. The Technology
Transfer Agreement also gives the Company exclusive rights to future bumping technology developed by
Delco.
For a period of up to five years, Delco shall provide ongoing engineering support, at the request of the
Company, in accordance with the terms in the Technology Transfer Agreement.
The Company pays a royalty to Delco through February 27, 2001 equal to 10% of gross profit, as defined in
the Technology Transfer Agreement, derived from the sale, service or transfer of licensed products made using
the existing FOC technology and technological improvements. Thereafter, the royalty rate shall be decreased
by 1% annually for each succeeding year through February 27, 2006. Beginning February 27, 2006, no further
royalty shall be due.
Sublicensing profit is divided between Delco and the Company. Delco receives 30% of the profit, as defined
by the technology Transfer Agreement, and the Company retains the remaining 70%.
6. Stock Option Plan
There is a stock option plan for officers and key employees pursuant to which options to purchase Kulicke and
Soffa Industries, Inc common stock have been or may be granted at 100% of the market price of Kulicke and
Soffa Industries, Inc. common stock on the date of the 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. Effective September 28, 1999, the Company’s officers and key employees participated in the
plan.
The following summarizes employee stock option activity for the year ended September 30, 1999:
Options outstanding at beginning of period
Granted
Exercised
Terminated or canceled
Options outstanding at end of period
Options exercisable at end of period
September 30, 1999
Average
Exercise
Price
Options
(Share amounts
in thousands)
-
29
-
-
29
-
N/A
25.88
N/A
N/A
25.88
N/A
The following table summarizes information concerning currently outstanding and exercisable options at
September 30, 1999:
60
Options Outstanding
(Share amounts in thousands)
Options Exercisable
(Share amounts in thousands)
Range of
Exercise
Prices
Number
Outstanding
Weighted
Average
Remaining
Contractual
Life
Weighted
Average
Exercise
Price
Weighted
Average
Exercise
Price
Number
Exercisable
$
25.88
29
10
$
25.88
-
N/A
As permitted under Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based
Compensation” (“SFAS 123”), the Company has elected to follow Accounting Principles Board Opinion No.
25, “Accounting for Stock Issued to Employees” (“APB 25”), in accounting for stock options granted to
employees. Under APB 25, the Company generally recognizes no compensation expense in the statements of
operations with respect to such grants.
Unaudited pro forma information regarding net income (loss) and earnings (loss) per share is required by
SFAS 123 for options granted after October 1, 1995 as if the Company had accounted for the stock option
grants to employees under the fair value method of SFAS 123. The fair value of the Company’s stock option
grants to employees was estimated using a Black-Scholes option pricing model.
The following assumptions were employed to estimate the fair value of stock options granted to employees:
Expected dividend yield
Expected stock price volatility
Risk-free interest rate
Expected life (years)
Fiscal
Year Ended
September 30,
1999
$
-
74.00%
5.84%
8
For pro forma purposes, the estimated fair value of the Kulicke and Soffa Industries, Inc. stock options to
employees is amortized over the options’ vesting period. The Company’s pro forma information follows:
Fiscal
Year Ended
September 30,
1999
$
19.92
(14,583,149)
(14,583,743)
Weighted average fair value of options granted
Net loss - as reported
Net loss - unaudited pro forma
61
7. Related Party Transactions
The Company incurred the following costs to Delco and K&S:
Delco
Salaries and burden
Royalty
Equipment cancellation fees
Engineering and development support
Materials, qualification and other costs
Manufacturing services
K&S
Marketing expenses
1999
1998
1997
$
-
270,000
-
65,981
109,193
-
-
$
-
-
93,979
151,606
34,508
$
145,177
-
243,662
214,801
142,650
289,477
$
445,174
$
280,093
$
1,035,767
$
20,000
$
-
$
-
The Company had the following related party receivables and payables at September 30, 1999 and 1998:
Sales to Delco
Due from Delco
Due to Delco
Due to K&S
8. Commitments and Contingencies
1999
1998
-
$
-
312,118
20,000
$
72,144
58,583
-
-
Commitments
In December 1996, the Company entered into an agreement to purchase water treatment services for its wafer
processing facility. The term of the agreement is ten years from March 1997. The base water service fee is
approximately $35,000 per month, adjusted annually based on the producer price index-commodities for
materials, supplies and labor.
The Company has a ten year agreement to purchase nitrogen through March 2007, and is renewable for an
additional five years. The base facility charge is approximately $15,000 per month, adjusted annually for
increases in labor and utility costs.
Effective October 1996, the Company entered into a ten year agreement for information technology services.
The agreement provides for the hardware, software and human resources to implement and support the
information technology needs of the manufacturing facility. The current base charge is approximately
$110,000 per month, adjusted annually based on the consumer price index.
62
Operating Leases
The Company has entered into a lease agreement to occupy its manufacturing and corporate headquarters
facility. In addition, the Company leases manufacturing and other equipment. Operating lease expense for the
periods ended September 30, 1999, 1998 and 1997 was approximately $994,000, $909,000 and $612,000,
respectively. At September 30, 1999, future minimum rental commitments under the noncancelable operating
lease obligations are as follows:
Year Ending
September 30,
2000
2001
2002
2003
2004
Thereafter
$
744,983
673,828
553,629
361,482
372,326
778,498
Total future minimum lease payments
$
3,484,746
Litigation
In the normal course of its business, the Company is subject to certain contractual guarantees and litigation. In
management's opinion, upon consultation with legal counsel, there is no current litigation which will have a
material adverse effect on the Company’s business, financial condition and operating results.
9. Employee Benefit Plan
Substantially all employees of the Company are covered by a qualified 401(k) plan. The plan is funded by
voluntary employee contributions with the Company matching 50% of employee contributions up to 6% of
employee contributions. For the years ended September 30, 1999, 1998 and 1997, the Company's matching
contribution was approximately $137,000, $103,000 and $53,000, respectively.
10. Resizing
In April 1999, the Company executed a resizing plan to align its workforce with current market conditions and
reduce costs. Under the plan, 21 employees were involuntarily terminated. Severance and benefits totaling
$475,000 were paid to the employees in the year ended September 30, 1999. No amounts remained accrued at
September 30, 1999.
63
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information required hereunder with respect to the directors will appear under the heading "ELECTION OF
DIRECTORS" in the Company's Proxy Statement for the 2000 Annual Meeting, which information is incorporated
herein by reference.
The information required by Item 401(b) of Regulation S-K appears at the end of Part I, Item 1 of this report under
the heading "Executive Officers of the Company."
Item 11. EXECUTIVE COMPENSATION.
The information required hereunder will appear under the heading "ADDITIONAL INFORMATION" in the
Company's Proxy Statement for the 2000 Annual Meeting, which information is incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required hereunder will appear under the heading "ELECTION OF DIRECTORS" in the
Company's Proxy Statement for the 2000 Annual Meeting, which information is incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required hereunder will appear under the heading "ADDITIONAL INFORMATION" in the
Company's Proxy Statement for the 2000 Annual Meeting, which information is incorporated herein by reference.
64
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
(1)(a) Financial Statements - Kulicke and Soffa Industries, Inc.:
Report of Independent Accountants
Consolidated Balance Sheet at September 30, 1999 and 1998
Consolidated Statement of Operations for the fiscal years
ended September 30, 1999, 1998 and 1997
Consolidated Statement of Cash Flows for the fiscal years
ended September 30, 1999, 1998 and 1997
Consolidated Statement of Changes in Shareholders' Equity
for the fiscal years ended September 30, 1999, 1998 and 1997
Notes to Consolidated Financial Statements
(b) Financial Statements - Flip Chip Technologies, LLC:
Report of Independent Accountants
Report of Independent Public Accountants
Balance Sheets at September 30, 1999 and 1998
Statements of Operations for the years ended September 30, 1999,
1998 and 1997
29
30
31
32
33
34 - 50
51
52
53
54
Statements of Members' Equity for the years ended September 30, 1999.
1998 and 1997 55
Statements of Cash Flows for the years ended September 30, 1999,
1998 and 1997 56
57 - 63
Notes to Financial Statements
(2) Financial Statement Schedules:
II - Valuation and Qualifying Accounts
68
All other schedules are omitted because they are not applicable or the required information is shown the
financial statements or notes thereto.
(3) Exhibits:
EXHIBIT
NUMBER ITEM
2.1(a)
Agreement and Plan of Acquisition dated September 14, 1995, between the Company, Circle "S"
Industries, Inc. and Certain Stockholders of Circle "S" Industries, Inc., filed as Exhibit 2.1(a) to the
Company's Form 8-K dated October 2, 1995, is incorporated herein by reference.
Agreement and Plan of Merger dated October 2, 1995, between the Company, Kulicke and Soffa
Acquisition Corporation and Circle "S" Industries, Inc., filed as Exhibit 2.1(b) to the Company's Form
8-K dated October 2, 1995, is incorporated herein by reference.
Escrow Agreement dated October 2, 1995, between the Company, Larry D. Striplin, Jr. and Mellon
Bank, N.A., filed as Exhibit 2.1(c) to the Company's Form 8-K dated October 2, 1995, is incorporated
herein by reference.
2.1(b)
2.1(c)
65
3(i)
3(ii)
4(i)
4(ii)
4(iii)
10(i)
10(ii)
10(iii)
10(iv)
10(v)
10(vi)
10(vii)
10(viii)
10(ix)
The Company's Amended and Restated Articles of Incorporation as of March 3, 1998, filed as Exhibit
3(i) to the Company's quarterly report on Form 10-Q for the quarterly period ended March 31, 1998 and
Form of Amendment of Articles of Incorporation effective March 12, 1999, filed as Exhibit 3(i), to the
Company’s quarterly report on Form 10-Q for the quarterly period ended March 31, 1999, are
incorporated herein by reference.
The Company's By-Laws, as amended through June 26, 1990, filed as Exhibit 2.2 to the Company's
Form 8-A12G dated September 8, 1995, is incorporated herein by reference.
Amended and Restated Loan Agreement between the Company and PNC Bank, N.A. dated March 26,
1998, filed as Exhibit 10(a) to the Company's quarterly report on Form 10-Q for the quarterly period
ended March 31, 1998, is incorporated herein by reference.
Indenture dated as of December 13, 1999 between the Company and Chase Manhattan Trust Company,
National Association, as Trustee, filed as Exhibit 4.1 to the Company’s Form 8-K dated December 13,
1999, is incorporated herein by reference.
Registration Rights Agreement dated as of December 13, 1999 between the Company and Morgan
Stanley & Co. Incorporated, filed as Exhibit 4.2 to the Company’s Form 8-K dated December 13, 1999,
is incorporated herein by reference.
Form of Termination of Employment Agreement signed by Mr. Kulicke (Section 2(a) - 30 months), and
Messrs. Perchick, Sprague, Von Seggern, Jacobi, Wagner, DeSouza, Furhovden, Lendner, Leonhardt,
May, Salmons, Sawachi, Spooner, Wolf, Belani, Chylak, Cristallo, Greenberger, Oscilowski and Torton
(Section 2(a) - 18 months), filed as Exhibit 10(vii) to the Company's quarterly report on Form 10-Q for
the quarterly period ended March 31, 1998, is incorporated herein by reference.*
Agreement between the Company and Frederick W. Kulicke, Jr., filed as Exhibit 10(iii) to Company's
Annual Report on Form 10-K for the year ended September 30, 1989, is incorporated herein by
reference.*
The Company's 1980 Employee Incentive Stock Option Plan, filed as Exhibit 10(iv) to the Company's
Annual Report on Form 10-K for the year ended September 30, 1989, is incorporated herein by
reference.*
The Company's 1983 Employee Incentive Stock Option Plan, filed as Exhibit 10(v) to the Company's
Annual Report on Form 10-K for the year ended September 30, 1989, is incorporated herein by
reference.*
The Company's 1988 Employee Incentive Stock Option and Non-Qualified Stock Option Plan (as
amended and restated effective October 8, 1996) filed as Exhibit 10(vi) to the Company's Annual Report
on Form 10-K for the year ended September 30, 1996, is incorporated herein by reference.*
The Company's 1988 Non-Qualified Stock Option Plan for Non-Officer Directors (as amended and
restated effective February 9, 1999).*
The Company's 1994 Employee Incentive Stock Option and Non-Qualified Stock Option Plan (as
amended and restated effective October 8, 1996), filed as Exhibit 10(viii) to the Company's Annual
Report on Form 10-K for the year ended September 30, 1996, is incorporated herein by reference.*
The Company's 1997 Non-Qualified Stock Option Plan for Non-Employee Directors (as amended and
restated effective February 9, 1999).*
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.*
66
10(x)
10(xi)
10(xii)
10(xiii)
10(xiv)
10(xv)
10(xvi)
10(xvii)
10(xiii)
Gold Supply Agreement, as amended October 2, 1995 between American Fine Wire Corporation, et al,
and Rothschild Australia Limited, filed as Exhibit 10.1 to the Company's Form 8-K dated September
14, 1995 as amended by Form 8-K/A on October 26, 1995, is incorporated herein by reference.
Agreement of Employment between Circle "S" Industries, Inc. and Larry D. Striplin, Jr. dated January
2, 1990, filed as Exhibit 10 (xiii) to the Company's Annual Report on Form 10-K for the year ended
September 30, 1995, is incorporated herein by reference.*
Amendment No. 1 to Agreement of Employment between Circle "S" Industries, Inc. and Larry D.
Striplin, Jr. dated May 1, 1995, filed as Exhibit 10 (xiv) to the Company's Annual Report on Form 10-K
for the year ended September 30, 1995, is incorporated herein by reference.*
Agreement between Circle "S" Industries, Inc. and Larry D. Striplin, Jr. dated September 30, 1995, filed
as Exhibit 10 (xv) to the Company's Annual Report on Form 10-K for the year ended September 30,
1995, is incorporated herein by reference.*
The Company's Executive Deferred Compensation Plan (As Amended and restated Effective October 1,
1999).*
Operating Agreement of Flip Chip Technologies, LLC dated February 28, 1996, filed as Exhibit 10 to
the Company's Quarterly Report on Form 10-Q for the quarterly period ended December 31, 1996, is
incorporated herein by reference.
Convertible Loan Agreements between the Company, Flip Chip Technologies, LLC and Delco
Electronics Corporation dated June 16, 1997, October 30, 1997, February 18, 1998 and November 19,
1998 filed as Exhibit 10(xviii) to the Company’s Annual Report on Form 10-K for the year ended
September 30, 1998, is incorporated herein by reference.
The Company’s 1998 Employee Incentive Stock Option and Non-Qualified Stock Option Plan filed as
Exhibit 10(a) to the Company's quarterly report on Form 10-Q for the quarterly period ended March 31,
1999, is incorporated herein by reference.*
Amendment No. 1 to the Company’s 1998 Employee Incentive Stock Option and Non-Qualified Stock
Option Plan.*
10(xix) Amendment No. 1 to the Company's 1994 Employee Incentive Stock Option and Non-Qualified Stock
10(xx)
Option Plan (as amended and restated effective October 8, 1996).*
Amendment No. 1 to the Company's 1988 Employee Incentive Stock Option and Non-Qualified Stock
Option Plan (as amended and restated effective October 8, 1996).*
21
Subsidiaries of the Company.
23.1
Consent of PricewaterhouseCoopers LLP (Independent Accountants).
23.2
23.3
27
*
(b)
Consent of PricewaterhouseCoopers LLP (Independent Accountants).
Consent of Arthur Andersen LLP (Independent Public Accountants).
Financial Data Schedule.
Indicates a Management Contract or Compensatory Plan.
Reports on Form 8-K:
None
67
KULICKE AND SOFFA INDUSTRIES, INC.
Schedule II-Valuation and Qualifying Accounts
(in thousands)
Balance Charged to
costs and
expenses
at beginning
of period
Charged
to other
accounts- Deductions-
describe
describe
Balance
at end
of period
$ 1,227
$ 1,065
$ --
$ 143(1) $ 2,149
Description
Year ended September 30, 1997
Allowance for doubtful
accounts
Inventory reserve
$ 11,755 $ 2,593 $ -- $ 1,503(2) $12,845
Valuation allowance for
deferred taxes
Year ended September 30, 1998
Allowance for doubtful
accounts
$ 5,115
$ 623 (3) $ -- $ 1,084(4) $ 4,654
$ 2,149 $ 29
$ --
$ 501(1) $ 1,677
Inventory reserve
$ 12,845
$ 4,132
$ --
$1,319(2) $15,658
Valuation allowance for
deferred taxes
Year ended September 30, 1999
Allowance for doubtful
accounts
$ 4,654
$ 2,437(5)
$ --
$ --
$ 7,091
$ 1,677
$ 812
$ --
$ 762(1) $ 1,727
Inventory reserve
$ 15,658
$ 1,200
$ --
$1,930(2) $14,928
Valuation allowance for
deferred taxes
$ 7,091
$ 5,124(5) $ --
$ --
$12,215
(1) Bad debts written off.
(2) Disposal of excess and obsolete inventory.
(3) Reflects the increase in the valuation allowance associated with net operating losses of the Company's Japanese
subsidiary.
(4) Reversal of the valuation allowance related to US tax credits.
(5) Reflects the increase in the valuation allowance associated with net operating losses of the Company's Japanese
subsidiary plus an increase in the valuation allowance related to US tax credits.
68
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 20, 1999
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 20, 1999
/s/ CLIFFORD G. SPRAGUE
Clifford G. Sprague
(Principal Financial Officer)
Senior Vice President
and Chief Financial
Officer
December 20, 1999
/s/ JAMES W. BAGLEY
James W. Bagley
Director
/s/ FREDERICK W. KULICKE, JR
Frederick W. Kulicke, Jr.
Director
/s/ JOHN A. O’STEEN
John A. O'Steen Director
/s/ ALLISON F. PAGE
Allison F. Page
Director
/s/ MACDONELL ROEHM, JR.
MacDonell Roehm, Jr.
Director
/s/ LARRY D. STRIPLIN, JR.
Larry D. Striplin, Jr.
Director
December 20, 1999
December 20, 1999
December 20, 1999
December 20, 1999
December 20, 1999
December 20, 1999
/s/ C. WILLIAM ZADEL
C. William Zadel
Director
69
December 20, 1999
[This page intentionally left blank]
BIOGRAPHIES
C. Scott Kulicke
Chairman of the Board
Chief Executive Officer
October 1984
President, Chief Executive Officer, 1979
General Manager, 1977
Vice President, 1976
Product Manager, Director, 1975
International Marketing Manager, 1973
Manager, Far East Operations, 1973
Other:
BS, Economics
Warton School
University of Pennsylvania
Morton K. Perchick
Executive Vice President
July 1995
President, Chairman of the Board
Kulicke & Soffa (Israel) Ltd.
May 1986
Senior Vice President/
General Manager, 1990
Vice President, Operations, 1985
Vice President,
Quality and Technology, 1985
Vice President,
Corporate Engineering, 1984
Vice President, Reliability &
Quality Assurance, 1982
Director, Quality & Reliability, 1980
Previous professional experience:
Aydin Corporation,
Director, Product Assurance
RCA, Manager, Quality Engineering,
Space Satellite Division
Other:
Registered Professional Engineer
BS, Physics
LaSalle University
Clifford G. Sprague
Senior Vice President
Chief Financial Officer
May 1990
Vice President,
Chief Financial Officer, 1989
Previous professional experience:
NL Industries, Inc.
Vice President & Controller
NL Oilfield Equipment Group
Vice President & Controller,
NL Shaffer Division
Controller, NL Metals Division
Assistant Controller, NL Metals
Other:
Member, Financial Executives Institute
BS, Finance
Fordham University
Moshe Jacobi
Senior Vice President
Walter Von Seggern
Senior Vice President
President Dicing Systems
September 1999
President Advanced Polymer Solutions
December 1998
Managing Director,
Senior Vice President,
Robert Chylak
Vice President
Engineering
September 1999
Director of Engineering
Equipment Division, 1997
Kulicke & Soffa (Israel) Ltd., 1998
Marketing Equipment Group, 1996
Director Development
President,
Vice President,
Equipment Division, 1995
Packaging Materials Group, 1996
Engineering and Technology, 1992
Engineering Manager
Senior Vice President
Expendable Tools
and Materials, 1995
Vice President, Managing Director,
Micro-Swiss Ltd., 1992
General Manager
Micro-Swiss Division, 1990
Deputy Managing Director, Operations
Kulicke & Soffa (Israel) Ltd., 1986
Previous professional experience:
Elbit Computers, Israel
F-16 Program Manager
Other:
MS, Management Science
Fairleigh Dickenson University
BS, Industrial Engineering
Fairleigh Dickenson University
David A. Leonhardt
Senior Vice President
September 1999
Vice President and General Manager,
Sales and Marketing, Equipment Group,
1998
Vice President,
Previous professional experience:
M/A-Com, Inc.
General Manager, Anzac
RHG and Eurotec Divisions
General Manager,
Radar Products Division
President, Industrial Lasers, Inc.
President, Sigma Design, Inc.
General Electric
General Manager,
Genigraphics Operation
Operations Manager,
Hybrid Integrated Circuits
Design Engineer, Heavy Military
Electronics Division
Other:
MBA,Syracuse University
MS, Electrical Engineering
Yale University
BS, Electrical Engineering
Union College
Laurence P. Wagner
Senior Vice President
July 1998
Ball Bonder Division, 1997
President Packaging Materials, July 1998
Vice President,
Strategic Marketing, 1997
Director,
Previous professional experience:
EMCORE Corp.
Ball Bonder New Development,1996
Vice President/General Manager
Product Manager,
Ball Bonder Group, 1991
Product Manager,
Rohm and Haas Company
Operating Unit Manager
Cabot Corporation
Wedge Bonder Group, 1990
Process Engineering Manager
Engineering Manager, 1988
Engineering Supervisors,
Wedge Bonder Development, 1987
Electrical Engineer, Control Systems
Wedge Bonder Development, 1982
Other:
BSEE, Ohio State University
Charles Salmons
Senior Vice President
Customer Operations
September 1999
Vice President and
General Manager, Operations,
Equipment Group, 1998
Vice President,
Product Development
Programs, 1996
Vice President, Operations, 1994
Vice President, Manufacturing, 1982
Director, Operations, 1992
Division Director, Production, 1988
Manager, Production, 1986
Manager Production Control, 1985
Assistant Production Control
Manager, 1985
Administration Manager, 1982
Cost Accounting Supervisor, 1981
Cost Accountant, 1978
Other:
MBA, LaSalle University
BS, Business Administration
Temple University
Other:
MS, Chemical Engineering
Massachusetts Institute of
Technology
BS, Chemical Engineering
Massachusetts Institute of
Technology
Jack Belani
Vice President
President of X-LAM(cid:228)
April 1999
Previous professional experience:
Cypress Semiconductor, 1996
Vice President
Assembly & Packaging
Worldwide Manufacturing
National Semiconductor, 1982
Director, Package Technology
Sr. Manager, Materials Technology
Advanced Micro Devices, 1981
Sr. Process Engineer
Bipolar Memory Division
National Semiconductor, 1997
Polymer Development Engineer
Package Technology
Other:
J.D., University of Santa Clara
MS, Metallurgical & Materials Engineering
Illinois Institute of Technology
B. Tech., Chemical Engineering
Indian Institute of Technology, Madras
8000 Bonding Platform Development, 1994
Process Engineering Manager
Equipment Division, 1992
Engineering Manager Electronics & Servos
8000 Platform Development, 1990
Other:
BSEE, Penn State University
Peter P. Cristallo
Vice President
Human Resources
October 1999
Previous professional experience:
NEC America, Inc.
Vice President Human Resources and
Administration
Bristol Myers Squibb Co.
Vice President Human Resources
Pharmaceutical Manufacturing Division
Director Human Resources
Bristol Laboratories Division
Manager Staffing and Training
Bristol Laboratories Division
Dart Industries Inc.
Manager, Chemical Group Recruiting
Manager Personnel
Other:
BA, Business Administration
St. Francis College
Walter C. DeSouza
Vice President
Chief Information Officer
November 1996
Director,
Chief Information Officer, 1995
Previous professional experience:
Raytheon Engineers & Constructors
Manager, Systems Integration
Senior Project Engineer,
Automated Systems
Chimmit, Gilman, Homchick, Inc.
Sr. Staff Consultant,
Manufacturing Systems
Unisys Corporation
Manager, Computer Integrated
Manufacturing
Activity Manager, Manufacturing
Systems Department
Manager, General Business Systems
Application Development Manager
Other:
MBA, The Wharton School
University of Pennsylvania
BS, Industrial Engineering
Federal University of Rio de Janeiro
(cid:228)
BIOGRAPHIES
Terry Furhovden
Vice President
Wire Bonding
September 1999
Vice President, Product Marketing, 1998
Vice President Factory Systems,
Equipment Group, 1995
Previous professional experience:
MA/COM
Director, Space Products
General Manager, ANZAC
General Electric – Aerospace Group
Manager, High Density
Interconnect
Manager, Radar Production
Transition
Donald R. May, III
Vice President
May 1997
Previous professional experience:
Delta Design, Inc.
Vice President,
Worldwide Sales & Marketing
Megatest Corporation
Vice President, Worldwide Sales
Pioneer Standard Electronics, Inc.
Director of Sales Development
Director of Corporate Contracts
Director of National Accounts
Motorola New Enterprises
Western Area Manager
Applied Materials, Inc.
Central Region Manager
Manager, Hybrid Integrated
GCA Corporation
Central Region Manager
Kulicke & Soffa Industries, Inc.
Deputy General Manager
Western Region Manager
Central Region Manager
Sales Engineer
IBM Corporation
Systems Engineer
Other:
BA, Business Administration
BA, Political Science
Florida Atlantic University
Alexander A. Oscilowski
Vice President
Strategic Marketing
June 1999
Previous professional experience:
Sematech Inc.
Vice President/Chief Operating Officer
Director, Advanced Technology
Director, Assembly and Packaging
Digital Equipment Corporation
Manager, Semiconductor Packaging
Texas Instruments, Inc.
Manager, Packaging Development
Other:
MBA, Boston University
BS, Materials Engineering
Drexel University
Other:
MSEA, Syracuse University
BSEE, Worcester Polytechnic Institute
Ofer Greenberger
Vice President
Managing Director,
Micro-Swiss/Semitec
Business Unit
September 1999
Managing Director,
Micro-Swiss/Semitec, 1998
General Manager,
Semitec Inc., 1996
Manager,
Micro-Swiss Singapore Pte Ltd.,
1995
Operations & Logistics Manager,
Micro-Swiss Ltd., 1993
Previous Professional Experience:
Israel Military Industry,
B747, Program Manager
Other:
MBA, Israel Institute of Technology
BS, Mechanical Engineering
Israel Institute of Technology
Oded Lendner
Vice President
Ball Bonder Business Unit
Managing Director, K&S Singapore
August 1999
Vice President, Operations,
Equipment Group, 1996
Director,
Operations, 1995
Director,
Materials, 1995
Deputy Managing Director, Operations
Kulicke & Soffa (Israel) Ltd., 1993
Materials Manager,
Kulicke & Soffa (Israel) Ltd., 1990
Production Control Manager,
Kulicke & Soffa (Israel) Ltd., 1989
Other:
BS, Industrial Engineering and
Management
Israel Institute of Technology
Teruhiko Sawachi
Vice President
President,
Kulicke & Soffa (Japan) Ltd.
December 1991
Previous professional experience:
Senco Products, Inc.
Representative Director,
Senco Japan Ltd.
Regional Sales Manager for Asia
Product Manager, Staples/Staplers
Sperry Corporation
Computer Systems Division
Manager, Marketing Support and
Administration, Worldwide
Marketing
Financial Manager, International
Division
Manager, Financial Planning
Western Operations
Branch Financial Manager,
Southern California
Michael H. Wolf
Vice President
Worldwide Sales,
Equipment Group
February 1995
Previous professional experience:
Proconics International, Inc.
Vice President, Sales, Marketing
and Customer Service
Credence Systems Corporation
Regional Sales Manager
Asix Systems Corporation
Area Manager
GCA Corporation
Regional Sales Manager
IBM Corporate Account Manager
Data General Corporation
Marketing Manager
Macrodata Corporation
Sales Engineer
District Manager
Raytheon Corporation
Design Engineer
Sperry Remington Division
Assistant to President
Nippon Remington Rand Kaisha, Ltd.
Nippon Bulge Industries, Ltd.
Manager, Strategic Planning
Matsushita Electric Industrial Co., Ltd.
Manager, Product Planning
Other:
MBA,Northeastern University
MS, Electrical Engineering
Northeastern University
BS, Electrical Engineering
University of Rhode Island
Other:
MBA, Pepperdine University
BS, Industrial Engineering
Keio University, Tokyo, Japan
James P. Spooner
Vice President
Mergers and Acquisitions
August 1997
Previous professional experience:
Rhone-Poulenc, Inc.
Director, Corporate Development
Business Director
Director, New Business
Development
Marketing Manager
PQ Corporation
Product Manager
Commercial Development Manager
Research Chemist
Other:
MBA, Widener University
BS, Chemistry
St. Joseph’s University
Shay Torton
Vice President
Managing Director,
American Fine Wire Business
October 1999
Managing Director
American Fine Wire, 1999
General Manager
American Fine Wire Group, 1998
General Manager
American Fine Wire Singapore,
1997
General Manager
American Fine Wire USA, 1996
Production Manager
Micro-Swiss, 1993
Logistic Manager
Micro-Swiss, 1991
Other:
BS, Industrial Engineering and Management
Israel Institute of Technology
COMPANY INFORMATION
BOARD OF DIRECTORS
OFFICERS
C. Scott Kulicke
Chairman of the Board
Kulicke & Soffa Industries, Inc.
James W. Bagley
Chairman and CEO
Lam Research Corporation
Frederick W. Kulicke, Jr.
Retired Co-founder
Kulicke & Soffa Industries, Inc.
John A. O’Steen
Executive Vice-President
of Operations
Cornerstone Brands, Inc.
Allison F. Page
Retired Partner
Pepper Hamilton LLP
MacDonell Roehm, Jr.
Chairman and CEO
Crooked Creek Capital LLC
Larry D. Striplin, Jr.
Chairman and CEO
Nelson-Brantley Glass
Contractors, Inc. and
Clearview Properties
C. William Zadel
Chairman, President and CEO
Millipore Corporation
C. Scott Kulicke
Chairman of the Board
Chief Executive Officer
Morton K. Perchick
Executive Vice President
Clifford G. Sprague
Senior Vice President
Chief Financial Officer
Moshe Jacobi
Senior Vice President
David A. Leonhardt
Senior Vice President
Charles Salmons
Senior Vice President
Walter Von Seggern
Senior Vice President
Laurence P. Wagner
Senior Vice President
Jack Belani
Vice President
Robert Chylak
Vice President
Peter P. Cristallo
Vice President
Walter C. DeSouza
Vice President
CORPORATE HEADQUARTERS
2101 Blair Mill Road
Willow Grove, PA 19090 USA
(215) 784-6000 phone
(215) 659-7588 fax
Terry Furhovden
Vice President
Ofer Greenberger
Vice President
K&S is an equal opportunity employer.
Our consistent management
philosophy has been to provide
maximum opportunities for all of our
employees without regard to race,
color, religion, sex, age, or national
origin.
Oded Lendner
Vice President
Donald R. May, III
Vice President
Alexander A. Oscilowski
Vice President
Teruhiko Sawachi
Vice President
James P. Spooner
Vice President
Shay Torton
Vice President
Michael H. Wolf
Vice President
SEMICONDUCTOR
EQUIPMENT
MANUFACTURING
FACILITIES &
TECHNOLOGY CENTERS
Kulicke & Soffa Industries, Inc.
2101 Blair Mill Road
Willow Grove, PA 19090
Kulicke & Soffa (Israel) Ltd.
Advanced Technology Center
P. O. Box 875
Haifa, Israel 31008
Kulicke & Soffa (Japan) Ltd.
No. 5 Koike Bldg. 3F
1-3-12 Kita-Shinagawa
Shinagawa-ku, Tokyo 140 Japan
Kulicke & Soffa Pte., Ltd.
Block 6 Serangoon North Ave. 5
#02-04/06 Sarengoon
North Industrial Estate
Singapore 554910
PACKAGING MATERIALS
MANUFACTURING
FACILITIES/TECHNOLOGY
CENTERS
Micro-Swiss Ltd., Israel
P. O. Box 90
Yokneam Elite 20692
Israel
Kulicke & Soffa Singapore, Inc.
5012 Ang Mo Kio Avenue 5
#04-06 Techplace II
Singapore 569876
American Fine Wire Corporation
907 Ravenwood Drive
P. O. Box 966
Selma, AL 36701
Dr. Muller Feindraht AG
Zurcherstrasse 73
CH-8800 Thalwil-Zurich
Switzerland
Semitec
3025 Stender Way
Santa Clara, CA 95054
Advanced Polymer Solutions, LLC
2101 Blair Mill Road
Willow Grove, PA 19090
ADVANCED PACKAGING
TECHNOLOGY
MANUFACTURING
FACILITIES
X-LAM Technologies
1504 McCarthy Boulevard
Milpitas, CA 95035
Flip Chip Technologies, LLC
3701 E. University Drive
Phoenix, AZ 85034
SALES, SERVICE AND
DISTRIBUTOR LOCATIONS
USA/Americas
Arizona
California
Colorado
Florida
Massachusetts
Minnesota
Canada
Europe/Africa
Denmark
Finland
France
Germany
Israel
Italy
Netherlands
Asia
Australia
China
Hong Kong
India
Japan
Korea
New Jersey
New York
Ohio
Pennsylvania
Texas
Washington
Norway
South Africa
Spain
Sweden
Switzerland
UK
Malaysia
Philippines
Singapore
Taiwan
Thailand
Independent Accountants
PricewaterhouseCoopers, LLP
Philadelphia, PA
Bank
PNC Bank, N.A.
Philadelphia, PA
Registrar and Transfer Agent
Common Stock
American Stock Transfer & Trust Co.
40 Wall Street
New York, NY 10005
1-800-937-5449
Stock Trading
Traded on the NASDAQ
National Market System
NASDAQ Symbol – KLIC
An electronic copy of the 1999 Annual
Report and 2000 Annual Meeting
Proxy Statement is available online at:
http://www.kns.com/ir/proxy/proxy.htm
Copies of the Company’s quarterly
reports, 10Q’s, and recent news
releases may be obtained through the
following services:
•
K&S “Fax on Demand” Service
1-800-755-8867 (request
Document 9200 for the current
index)
To order an investor kit, call
1-800-654-2582
•
or by contacting:
Investor Relations
Kulicke & Soffa Industries, Inc.
2101 Blair Mill Road
Willow Grove, PA 19090 USA
Phone: 215-784-6750
Fax: 215-784-6167
Visit the K&S Home Page:
http://www.kns.com