1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________.
Commission File No. 0-121
KULICKE AND SOFFA INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 23-1498399
(State or other jurisdiction (IRS employer
of incorporation) identification number)
2101 Blair Mill Road 19090
Willow Grove, Pennsylvania (Zip code)
(Address of principal
executive offices)
(215) 784-6000
(Registrant's telephone number, including area code)
Indicate by check mark whether 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 [ ]
As of August 6, 1995, 1995, there were 19,305,254 shares of the
Registrant's Common Stock, Without Par Value, outstanding.
2
KULICKE AND SOFFA INDUSTRIES, INC.
FORM 10 - Q
JUNE 30, 1995
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet - June 30, 1995
and September 30, 1994 3
Consolidated Statement of Operations - Three
and Nine Months Ended June 30, 1995
and 1994 4
Consolidated Condensed Statement of Cash
Flows - Nine Months Ended June 30, 1995
and 1994 5
Notes to Consolidated Financial Statements 6 - 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8 - 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8 - K 12 - 13
Signatures 13
3
KULICKE AND SOFFA INDUSTRIES, INC. and Subsidiaries
CONSOLIDATED BALANCE SHEET
(in thousands)
(unaudited)
June 30, September 30,
1995 1994
--------- ----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 22,234 $ 8,754
Short-term investments 9,808 12,933
Accounts and notes receivable, net 58,480 40,258
Inventories, net 40,054 27,218
Prepaid expenses and other current assets 3,395 2,427
------- -------
TOTAL CURRENT ASSETS 133,971 91,590
Investments in debt securities held-to-maturity 4,301 5,310
Property, plant and equipment, net 22,331 20,562
Other assets, including goodwill 3,065 3,736
------- -------
TOTAL ASSETS $163,668 $121,198
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Debt due within one year $ 60 $ 60
Accounts payable to suppliers and others 27,771 19,956
Accrued expenses 10,674 8,300
Estimated income taxes payable 5,628 1,815
------- -------
TOTAL CURRENT LIABILITIES 44,133 30,131
Long-term debt, less current portion 1,519 26,474
Deferred income taxes 692 642
Other liabilities 943 717
------- -------
TOTAL LIABILITIES 47,287 57,964
------- -------
Commitments and contingencies
SHAREHOLDERS' EQUITY:
Common stock, without par value 44,219 17,839
Retained earnings 72,427 46,416
Cumulative translation adjustment (223) (841)
Unrealized loss on investments, net of tax (42) (180)
------- -------
TOTAL SHAREHOLDERS' EQUITY 116,381 63,234
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $163,668 $121,198
======= =======
See accompanying notes to consolidated financial statements.
4
KULICKE AND SOFFA INDUSTRIES, INC. and Subsidiaries
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Three months Nine months
ended June 30, ended June 30,
---------------- ------------------
1995 1994 1995 1994
------ ------ ------- -------
Net sales $87,296 $40,838 $203,540 $122,863
Costs and expenses:
Cost of goods sold 47,456 24,977 112,498 72,200
Selling, general and
administrative 13,153 9,002 35,476 26,613
Research and development, net 8,316 5,176 21,022 15,228
------ ------ ------- -------
Total costs and expenses 68,925 39,155 168,996 114,041
------ ------ ------- -------
Income from operations 18,371 1,683 34,544 8,822
Interest income 405 308 1,065 920
Interest expense (312) (539) (1,392) (1,633)
------ ------ ------- -------
Income before income taxes 18,464 1,452 34,217 8,109
Provision for income taxes 4,431 305 8,206 1,461
------ ------ ------- -------
Net income $14,033 $ 1,147 $ 26,011 $ 6,648
====== ====== ======= =======
Net income per share:
Primary $0.76 $0.07 $1.50 $0.40
==== ==== ==== ====
Fully diluted $0.72 $0.07 $1.37 $0.40
==== ==== ==== ====
Weighted average shares
outstanding:
Primary 18,422 16,705 17,381 16,641
Fully diluted 19,863 16,705 19,668 16,641
See accompanying notes to consolidated financial statements.
5
KULICKE AND SOFFA INDUSTRIES, INC. and Subsidiaries
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(in thousands)
(unaudited)
Nine months
ended June 30,
------------------
1995 1994
------ ------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $26,011 $ 6,648
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 3,529 2,856
Deferred income taxes 50 (218)
Changes in other components of working
capital excluding short-term investments (17,943) 3,524
Other changes, net 1,129 304
------ ------
Net cash provided by operating activities 12,776 13,114
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment, net (5,215) (5,116)
Proceeds from sales/maturities of
short-term investments 12,373 15,259
Purchases of short-term investments (7,906) (20,898)
------ ------
Net cash used by investing activities (748) (10,755)
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options and
sales of shares pursuant to the Employee
Stock Purchase Plan 1,454 1,061
Payments on borrowings (45) (45)
------ ------
Net cash provided by financing activities 1,409 1,016
------ ------
Effects of exchange rate changes on cash 43 13
------ ------
Increase in cash and cash equivalents 13,480 3,388
Cash and cash equivalents at beginning
of period 8,754 7,413
------ ------
Cash and cash equivalents at end of period $22,234 $10,801
====== ======
See accompanying notes to consolidated financial statements.
6
KULICKE AND SOFFA INDUSTRIES, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
(unaudited)
Note 1. Basis of Presentation
The consolidated financial statement information included herein is
unaudited, but in the opinion of management, contains all adjustments,
consisting only of normal recurring adjustments, necessary to present
fairly the Company's financial position as of June 30, 1995 and 1994,
the results of its operations for the three and nine month periods
ended June 30, 1995 and 1994, and its cash flows for the nine month
periods ended June 30, 1995 and 1994. These financial statements
should be read in conjunction with the audited financial statements
included in the Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 1994.
Note 2. Inventory
June 30, September 30,
1995 1994
------ ------
Finished goods $10,705 $ 7,657
Work in process 19,232 8,664
Raw materials and supplies 17,950 17,533
------ ------
47,887 33,854
Inventory reserves (7,833) (6,636)
------ ------
$40,054 $27,218
====== ======
Note 3. Debt
During the nine month period ended June 30, 1995, holders of
approximately $24.9 million of the Company's 8% Convertible
Subordinated Debentures (the "Debentures") converted the Debentures
into approximately 2,337,000 shares of the Company's common stock. On
June 1, 1995, the Company called for redemption on July 10, 1995 the
remaining outstanding Debentures, at a redemption price of 101.60% of
the principal amount of the Debentures, plus accrued interest. The
$1.3 million of Debentures which remained outstanding at June 30, 1995
were converted into the Company's common stock by July 10, 1995.
Note 4. Common Stock
On June 1, 1995, the Company declared a two-for-one split of its
common stock which was distributed on July 28, 1995 to holders of
record on July 17, 1995. All share and per share data in the
accompanying financial statements have been restated to give effect to
this stock split.
7
Note 5. Possible Acquisition
The Company has entered into a letter of intent, which was revised on
July 20, 1995, providing for the acquisition of the business of
American Fine Wire Corporation ("AFW") by acquiring the stock of AFW's
parent corporation, Circle "S" Industries, Inc. ("CSI"). AFW supplies
bonding wire for the semiconductor assembly industry, and recorded
sales of approximately $68.7 million for the year ended December 31,
1994. AFW has production facilities in Singapore; Selma, Alabama; and
Zurich, Switzerland.
The purchase price for this acquisition is estimated at $53 million,
subject to closing adjustments, is expected to be payable in cash and
short-term notes, and to be financed initially with borrowings under a
new bridge financing facility. The bridge financing facility is
expected to bear interest at the LIBOR rate plus 50 basis points and
to be convertible into long-term debt at the Company's option.
The AFW acquisition is subject to approval by the boards of directors
of the Company and CSI and by the shareholders of CSI, execution of a
definitive agreement, regulatory approvals and other conditions, and
is expected to be completed prior to the Company's fiscal year ending
September 30, 1995. The acquisition would be accounted for using the
purchase method.
8
KULICKE AND SOFFA INDUSTRIES, INC. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The Company's sales largely depend on the capital expenditures of
semiconductor manufacturers and subcontract assemblers, which in turn
depend on the current and anticipated market demand for semiconductors
and products using semiconductors. While the Company does not
consider its business to be seasonal in nature, historically there
have been substantial fluctuations in the amounts which semiconductor
manufacturers and subcontract assemblers have invested in capital
equipment. Furthermore, the Company's sales consist primarily of a
relatively small number of machines, most with selling prices ranging
from $80,000 to in excess of $400,000. A delay in shipment of a
limited number of machines, either due to manufacturing delays or to
rescheduling or cancellation of customer orders, could have a material
adverse effect on results of operations for any particular quarter.
The Company believes that such volatility will continue to
characterize the industry and the Company's operations in the future.
On July 13, 1994, the Company acquired the business and certain assets
of Assembly Technologies ("AT"). The acquired assets and results of
operations of the AT business are included in the Company's
consolidated financial statements from the date of the acquisition.
RESULTS OF OPERATIONS
The Company recorded bookings totaling $102.0 million for the third
quarter ended June 30, 1995 compared to $77.0 million for the second
quarter of fiscal 1995. The continued strength in customer orders is
primarily attributable to the following factors. First, growing end
user demand for semiconductor devices is fueling industrywide
expansion both in wafer fabrication capacity and semiconductor
assembly capacity. In addition, certain semiconductor manufacturers
are replacing older assembly capital equipment with newer, higher
throughput machines capable of handling more complex semiconductor
devices for a wider variety of applications. Finally, enhanced
versions of the Company's gold ball wire bonder (Model 1488 Turbo -
introduced in late fiscal 1994) and aluminum wedge bonder (Model
1474fp - introduced in the fiscal 1995 second quarter) each offer
significant performance advantages compared to the Company's earlier
models, including greater throughput, finer pitch capabilities and
improved programmability to handle a wider variety of applications.
Favorable customer acceptance of these enhanced models has contributed
to the Company's increased volume of orders during fiscal 1995.
At June 30, 1995, ending backlog of customer orders totaled
approximately $79.0 million compared to $64.0 million at March 31,
1995. Since the timing of deliveries may vary and orders generally
are subject to cancellation, the Company's backlog as of any date may
not be indicative of sales for any succeeding period.
9
Revenues totaled $87.3 million during the third quarter ended June 30,
1995, up 35% from the $64.8 million reported for the second quarter of
fiscal 1995 and up 114% from the $40.8 million for the third quarter
of fiscal 1994. Revenues for the nine month period ended June 30,
1995 totaled $203.5 million, an increase of 66% over the same period
last year. Of these increases, approximately $41.3 million for the
quarter and $77.9 million for the year-to-date period are due to
increased unit volume, primarily of the Company's Model 1488 Turbo
gold ball wire bonders and 1474fp aluminum wedge bonders, and to a
lesser extent, to increased sales of spare parts and consumable tools.
For the nine month period ended June 30, 1995, sales of ball bonders
and wedge bonders comprised 73% of total revenues, compared to 68% of
revenues for the fiscal year ended September 30, 1994.
Higher selling prices, due in large part to the introduction of the
higher priced Model 1488 turbo ball bonder and Model 1474fp wedge
bonder, contributed approximately $5.1 million and $2.8 million to
revenues for the fiscal 1995 third quarter and year-to-date periods,
respectively, over the amounts reported for the comparable periods
last year.
Gross profit as a percentage of sales increased to 45.6% during the
quarter ended June 30, 1995 compared to 38.8% for the same quarter
last year and to 44.7% for the nine months ended June 30, 1995
compared to 41.2% for the same period in fiscal 1994. The increase in
the gross profit percentage for the quarter and year-to-date period
resulted principally from improved manufacturing overhead absorption
associated higher sales volumes, the improved gross profit margin on
the gold ball and wedge bonder products largely due to the higher
selling prices realized on the new, enhanced models and to a shift in
sales mix toward higher margin wedge bonders. Partially offsetting
the above factors were additional inventory reserves established for
slower moving products during fiscal 1995.
Selling, general and administrative expenses totaled $13.2 million and
$35.5 million during the three and nine month periods ended June 30,
1995, respectively, compared to $9.0 million and $26.6 million,
respectively, during the same periods last year. The increases for
both the three and nine month periods were primarily attributable to
higher employment levels required to support the higher volume of
business, increased sales incentives and commissions resulting from
the higher sales levels, increased management incentives associated
with improved earnings, and higher outside contractor costs associated
with ongoing internal management information systems development
efforts. Of the total increases in SG&A costs, $426,000 and $1.3
million for the three and nine month periods ended June 30, 1995,
respectively, were related to the incremental costs incurred by the
Company to market and support products added in the July 1994
acquisition of AT.
Net research and development costs increased to $8.3 million and $21.0
million for the quarter and nine month periods ended June 30, 1995,
respectively, compared to $5.2 million and $15.2 million for the same
periods last year. Of the $5.8 million increase for the year-to-date
period, $1.3 million resulted from incremental expenditures related to
10
die bonder products following the AT acquisition. The remainder
consisted primarily of personnel related costs, outside contractor
costs and prototype materials related to new product development.
The Company continues to invest heavily in the development of the 8000
Series wire bonders and in enhancements of existing products,
including the recently introduced 1474fp wedge bonder which is capable
of handling higher lead-count devices with finer pitch requirements,
at faster bonding speeds than the earlier Model 1472 wedge bonder. In
addition, the Company, continues to invest in new technologies which
may eventually lead to improved or alternate semiconductor assembly
technologies.
Operating income increased to $18.4 million for the three months ended
June 30, 1995 compared to $1.7 million during the third quarter of
fiscal 1994. For the year-to-date periods, operating income totaled
$34.5 million in fiscal 1995 compared to $8.8 million in fiscal 1994.
The fiscal 1995 improvements resulted principally from the higher
revenue levels and improved gross profit margins, offset in part by
the increased expenses noted above.
During fiscal 1995, approximately $24.9 million of the Company's 8%
Convertible Subordinated Debentures were converted into common stock.
As a result, interest expense for the quarter and the nine month
period ended June 30, 1995 was lower than during the comparable
periods of fiscal 1994. The $1.3 million of Debentures which remained
outstanding at June 30, 1995, were converted into the Company's common
stock by July 10, 1995.
The provision for income taxes for the nine months ended June 30,
1995, is based on the Company's estimated effective tax rate of 24%
for the year. The increase in the effective rate in fiscal 1995
compared to the fiscal 1994 rate of 20% is due primarily to
utilization of remaining net operating loss carryforwards in fiscal
1994 and to the estimated amount and geographic distribution of
taxable income in fiscal 1995. The Company expects that its effective
tax rate will be higher in the future as most available tax credits
will have been utilized by the end of fiscal 1995.
As described more fully in Note 5 to the accompanying financial
statements, the Company has signed a letter of intent to acquire
American Fine Wire Corporation ("AFW"), a supplier of bonding wire for
the semiconductor assembly industry, with sales of approximately $68.7
million for the year ended December 31, 1994. The total purchase
price is estimated at $53 million, subject to closing adjustments, and
is expected to be financed with borrowings under a new bridge
financing facility. If the proposed AFW acquisition is consummated,
future sales and operating expense levels would be higher than the
levels reflected in the Company's historical financial statements.
LIQUIDITY AND CAPITAL RESOURCES
During the past three years, the Company has financed its operations
principally through cash flows from operations. Cash flows from
11
operating activities and the overall increase in cash and total
investments in fiscal 1995 compared to fiscal 1994 generally reflect
improved profitability in fiscal 1995. Cash generated by operating
activities totaled $12.8 million for the nine months ended June 30,
1995 compared to $13.1 million for the same period last year. Cash
and total investments increased to $36.3 million at June 30, 1995 from
the $27.0 million reported at September 30, 1994.
At June 30, 1995, working capital increased to $89.8 million compared
to $61.5 million at September 30, 1994. The accounts receivable
balance at June 30, 1995 increased by $18.2 million compared to the
September 30, 1994 balance due largely to increased sales volume in
the fiscal 1995 third quarter. The $12.8 million increase in
inventory at June 30, 1995 primarily reflects growth in work in
process inventories as the Company continues to ramp up manufacturing
activities to satisfy increased customer demand.
Trade accounts payable and accrued expenses increased by approximately
$10.2 million at June 30, 1995 compared to their September 30, 1994
balances. The increase in trade payables is directly attributable to
increased inventory purchases during the third quarter of fiscal 1995.
The increase in accrued expenses primarily resulted from higher sales
and management incentives due to improved fiscal 1995 sales and
profits and to increased accruals associated with the higher
employment levels compared to fiscal 1994.
During the nine months ended June 30, 1995, the Company invested
approximately $5.2 million in property and equipment, net of
retirements and disposals, primarily to upgrade equipment used in the
Company's manufacturing and research and development activities, and
for tooling used in the manufacturing of new machines. The Company
expects to incur in excess of $10 million of capital expenditures in
fiscal 1996, principally for the expansion of domestic and
international manufacturing facilities and related manufacturing
equipment.
Stock option exercises and sales of shares of common stock to
employees pursuant to the Company's Employee Stock Purchase Plan
generated approximately $1.4 million in cash during the nine months
ended June 30, 1995.
The Company maintains a $10 million unsecured line of credit with a
financial institution, subject to interest at 1/4% below the lender's
prime rate. Borrowings under this credit line are subject to the
Company meeting certain financial requirements as described in the
notes to the Company's fiscal 1994 financial statements. The Company
has consistently met all such requirements. There have been no
borrowings under this credit line during fiscal 1995. This credit
line will expire in January 1996, unless renewed. The Company expects
to renew this credit line.
The Company believes that, based on its presently forecasted operating
levels, its working capital, internally generated funds and amounts
available under its line of credit will be sufficient to meet its own
anticipated cash requirements for operating expenses and capital
12
expenditures through the next fiscal year, without taking into account
the proposed acquisition of AFW.
The Company has obtained a verbal commitment from a bank to provide up
to $50.0 million in bridge financing for the proposed acquisition of
AFW. Such bridge financing would be convertible to long-term
financing at the Company's option. The Company believes that existing
financial resources together with the anticipated acquisition
financing would be sufficient to fund the purchase price and combined
operating requirements of the Company and AFW.
The Company continues to seek and evaluate strategic business
opportunities as they arise. Such opportunities include, but are not
limited to, acquisitions (including the proposed AFW acquisition),
joint ventures and alternative business arrangements which could
require substantial capital outlays. To strengthen its liquidity and
ensure the availability of financial resources should additional
strategic opportunities arise, the Company may seek additional debt or
equity financing in the near term. There can be no assurance that
such financing will be available when required or on reasonable terms.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is party to various pending and threatened legal actions
involving patents and employment matters in the normal conduct of its
business. Reference is made to Part I, Item 3 of the Company's 1994
Annual Report on Form 10-K. As reported in the Company's quarterly
report on Form 10-Q for the quarter ended March 31, 1995, the Company
received notice of a potential suit by another company in connection
with an environmental matter related to a facility leased by the
Company between 1962 and 1973. On August 1, 1995, a third party
complaint was filed against the Company in the United States District
Court for the Eastern district of Pennsylvania in connection with this
matter. On the basis of the complaint received, and the information
currently available to it, the Company is unable to quantify the
potential financial impact of this matter. Although certain of these
pending and threatened matters are in their early stages and facts are
still developing, the Company currently does not believe that the
ultimate resolution of these matters will have a material adverse
effect on the Company's financial position.
Item 6. Exhibits and Reports on Form 8 - K
(a) Exhibits
Exhibit 27 - Financial Data Schedule.
(b) Reports on Form 8 - K
During the quarter ended June 30, 1995, the Company filed two
reports on Form 8-K:
13
On April 5, 1995, the Company filed a Form 8-K to report the change in
certifying accountants of its Israeli subsidiary to Price Waterhouse's
affiliate, Somekh Chaikin. On April 10, 1995, the Company filed a
Form 8-K/A, amending the Form 8-K filed April 5, 1995, to include as
Exhibit 16, the letter from the former certifying accountant in
response to Regulation S-K, Item 304(a)(3).
On May 26, 1995, the Company filed a Form 8-K reporting as Item 5, the
proposed acquisition of the business of American Fine Wire
Corporation.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
KULICKE AND SOFFA INDUSTRIES, INC.
Date: August 11, 1995 /s/ Clifford G. Sprague
---------------------------------
Clifford G. Sprague
Senior Vice President, Chief
Financial Officer and Chief
Accounting Officer