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 MARCH 31, 1996.
----------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
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Commission File No. 0-121
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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 No.
2101 BLAIR MILL ROAD, WILLOW GROVE, PENNSYLVANIA 19090
- ------------------------------------------------ ----------
(Address of principal executive offices) (Zip code)
(215) 784-6000
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(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 May 3, 1996, there were 19,370,862 shares of the Registrant's
Common Stock, Without Par Value outstanding.
2
KULICKE AND SOFFA INDUSTRIES, INC.
FORM 10 - Q MARCH 31, 1996
INDEX
Page No.
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PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS.
Consolidated Balance Sheet -
March 31, 1996 and September 30, 1995 3
Consolidated Income Statement -
Three and Six Months Ended March 31, 1996
and 1995 4
Consolidated Condensed Statement of Cash Flows -
Six Months Ended March 31, 1996 and 1995 5
Notes to Consolidated Financial Statements 6 - 9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS. 10 - 16
PART II. OTHER INFORMATION
Item 2. CHANGES IN SECURITIES. 16
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. 16
Item 6. EXHIBITS AND REPORTS ON FORM 8 - K. 17
Signatures. 17
3
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
(in thousands)
(unaudited)
March 31, September 30,
1996 1995
--------- ---------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 35,474 $ 28,624
Short-term investments 12,575 9,590
Accounts and notes receivable, net 86,253 77,427
Inventories, net 50,964 40,850
Prepaid expenses and other current assets 4,497 3,534
------- -------
TOTAL CURRENT ASSETS 189,763 160,025
Property, plant and equipment, net 35,101 25,519
Intangible assets, primarily goodwill, net 43,167 1,183
Long-term investments 1,600 2,732
Other assets 2,704 1,570
------- -------
TOTAL ASSETS $272,335 $191,029
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 659 $ 60
Accounts payable to suppliers and others 29,216 33,145
Accrued expenses 20,631 16,014
Income taxes payable 6,665 6,973
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TOTAL CURRENT LIABILITIES 57,171 56,192
Long-term debt 50,925 156
Deferred income taxes 690 --
Other liabilities 2,511 1,034
------- -------
TOTAL LIABILITIES 111,297 57,382
------- -------
Commitments and contingencies -- --
SHAREHOLDERS' EQUITY:
Common stock, without par value 46,807 45,757
Retained earnings 116,280 89,238
Cumulative translation adjustment (2,049) (1,348)
------- -------
TOTAL SHAREHOLDERS' EQUITY 161,038 133,647
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $272,335 $191,029
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
4
KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED INCOME STATEMENT
(in thousands, except per share data)
(unaudited)
Three months Six months
ended March 31, ended March 31,
------------------ ------------------
1996 1995 1996 1995
------- ------ ------- -------
Net sales $115,374 $64,785 $242,563 $116,244
Cost of goods sold 69,877 35,628 144,990 65,042
------- ------ ------- -------
Gross Profit 45,497 29,157 97,573 51,202
Selling, general and
administrative 18,256 11,668 35,244 22,323
Research and development, net 12,155 6,546 23,431 12,706
------- ------ ------- ------
Income from operations 15,086 10,943 38,898 16,173
Interest income 860 318 1,569 660
Interest expense (820) (541) (1,701) (1,080)
Other expense -- -- (630) --
------- ------ ------- ------
Income before income taxes 15,126 10,720 38,136 15,753
Provision for income taxes 4,390 2,466 11,063 3,775
------- ------ ------- ------
10,736 8,254 27,073 11,978
Equity in loss of joint venture 31 -- 31 --
------- ------ ------- ------
Net income $ 10,705 $ 8,254 $ 27,042 $11,978
======= ====== ======= ======
Net income per share:
Primary $0.54 $0.49 $1.36 $ 0.71
==== ==== ==== ====
Fully diluted $0.54 $0.44 $1.36 $ 0.65
==== ==== ==== ====
Weighted average shares
outstanding:
Primary 19,831 16,963 19,854 16,881
Fully diluted 19,831 19,482 19,854 19,426
The accompanying notes are an integral part of these consolidated financial
statements.
5
KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(in thousands)
(unaudited)
Six months ended March 31,
1996 1995
------ ------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $27,042 $11,978
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 4,577 2,323
Deferred income taxes 160 50
Changes in other components of working
capital net of acquisition of business (15,940) (14,374)
Other changes, net 1,067 462
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Net cash provided by operating activities 16,906 439
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CASH FLOWS FROM INVESTING ACTIVITIES:
Cash portion of AFW purchase price,
less cash acquired (41,778) --
Purchase of property, plant and equipment (7,876) (3,040)
Purchases of short-term investments
classified as available-for-sale (13,028) (2,976)
Proceeds from sales of short-term investments
classified as available-for-sale 10,692 11,867
Proceeds from maturities of debt securities
held-to-maturity 505 --
Investment in joint venture (510) --
------ ------
Net cash (used) provided by investing activities (51,995) 5,851
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings under bank
credit facility 50,000 --
Repayment of borrowings and capital
lease obligations (8,142) (30)
Proceeds from exercise of stock options 103 975
------ ------
Net cash provided by financing activities 41,961 945
------ ------
Effect of exchange rate changes on cash (22) 32
------ ------
Change in cash and cash equivalents 6,850 7,267
Cash and cash equivalents at beginning of
period 28,624 8,754
------ ------
Cash and cash equivalents at end of period $35,474 $16,021
====== ======
The accompanying notes are an integral part of these consolidated financial
statements.
6
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts 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 Kulicke and Soffa Industries, Inc.'s
("the Company") financial position as of March 31, 1996 and
September 30, 1995, and the results of its operations and its cash
flows for the three and six month periods ended March 31, 1996 and
1995. 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,
1995.
NOTE 2 - ACQUISITION OF AMERICAN FINE WIRE CORPORATION
On October 2, 1995, the Company acquired American Fine Wire
Corporation ("AFW") through the acquisition of all of the common
stock of Circle "S" Industries, Inc. ("Circle "S""), the parent
corporation of AFW. AFW is a manufacturer of fine gold and
aluminum wire used in the wire bonding process, and has
manufacturing facilities in Singapore; Selma, Alabama; and Zurich,
Switzerland. The AFW purchase price, including transaction related
costs, approximated $54.7 million, and was initially financed by
borrowings under a bank credit facility and seller promissory notes
(see Note 5). The AFW acquisition was accounted for using the
purchase method. Accordingly, AFW's operating results are included
in the Company's consolidated financial statements commencing
October 2, 1995.
The AFW purchase price, including transaction related costs, has
been allocated to the assets acquired and liabilities assumed based
on their estimated fair market values, as follows:
Cash $10,944
Accounts receivable 9,166
Inventory 1,964
Property and equipment 3,687
Intangible assets, primarily goodwill 43,099
Other assets 283
Short-term debt (8,000)
Accounts payable and accrued expenses (5,231)
Other liabilities (1,190)
------
Total purchase price $54,722
======
The excess of the AFW purchase price over the estimated fair value
of acquired tangible net assets consists primarily of goodwill and
a favorable operating lease for the Selma manufacturing facility,
both of which are being amortized over a twenty-year period.
7
Unaudited pro forma income statement data reflecting the combined
operating results of the Company and AFW for the six month period
ended March 31, 1995, as if the acquisition had occurred on October
1, 1994, after giving effect to certain pro forma adjustments, are
as follows:
Pro forma
-----------
(unaudited)
Revenue $151,190
Net income $ 11,472
Net income per share $ 0.63
NOTE 3 - INVENTORY
March 31, September 30,
1996 1995
------ ------
Finished goods $17,254 $10,673
Work in process 15,989 15,740
Raw materials and supplies 26,437 22,190
------ ------
59,680 48,603
Inventory reserves (8,716) (7,753)
------ ------
$50,964 $40,850
====== ======
NOTE 4 - INVESTMENT IN JOINT VENTURE
On February 28, 1996, the Company entered into a joint venture
agreement with Delco Electronics Corporation ("Delco"), providing
for the formation and management of Flip Chip Technologies, L.L.C.
("FCT" or "the Joint Venture"). FCT was formed to provide wafer
bumping services. The Company will account for its investment in
the joint venture using the equity method. In March 1996, the
Company contributed $.5 million as its initial capital contribution
to FCT, and recognized its proportionate share of the joint
venture's operating loss.
NOTE 5 - DEBT OBLIGATIONS
The Company borrowed $15.0 million under its bank credit facility
on October 2, 1995 to fund the cash portion of the AFW purchase
price and issued promissory notes totaling $34.4 million to certain
selling shareholders of Circle "S". The promissory notes were
repaid in full on January 5, 1996, together with accrued interest
thereon. To finance the repayment of the promissory notes, on
January 5, 1996, the Company borrowed the remaining $35.0 million
available under the term credit facility. Borrowings under the
$50.0 million term credit facility bore interest at the LIBOR rate
plus 50 basis points (5.8125% at March 31, 1996).
8
On April 10, 1996, the Company renegotiated the terms of its bank
credit facilities resulting in a new Restated Loan Agreement
providing for a $10.0 million revolving credit facility expiring
February 28, 1997, and a $50.0 million revolving credit facility
expiring March 30, 2001. The $10.0 million revolving loan bears
interest at the prime rate less 1/4%. The $50.0 million revolving
loan bears interest, at the Company's option, either at a "Base
Rate" (the lesser of the prime rate minus 1/2% or the Federal Funds
rate plus 1/2%) or, at a "LIBOR Rate" (LIBOR plus .4% to .6%,
depending on maintenance of certain financial covenants).
The Restated Loan Agreement is unsecured and requires that the
Company maintain certain covenants including a leverage ratio, an
interest ratio and working capital of not less than $50.0 million.
Additionally, the Restated Loan Agreement also limits the Company's
ability to mortgage, pledge, or dispose of material assets, engage
in certain transactions with affiliates and imposes restrictions as
to the type and quality of the Company's investments.
NOTE 6 - EARNINGS PER SHARE
For the three and six month periods ended March 31, 1996, primary
and fully diluted earnings per share included the dilutive effect
of shares issuable upon exercise of stock options. For the three
and six month periods ended March 31, 1995, fully diluted earnings
per share included the dilutive effects of shares issuable upon
exercise of stock options and convertible subordinated debentures,
the remainder of which were either converted or redeemed during
fiscal 1995.
NOTE 7 - RECLASSIFICATIONS
Certain amounts in the Company's prior year financial statements
have been reclassified to conform to their presentation in the
Company's fiscal 1996 financial statements.
9
NOTE 8 - OPERATING RESULTS BY BUSINESS SEGMENT
Operating results by business segment for the six month periods
ended March 31, 1996 and 1995 were as follows:
Expendable
Tools and Corporate
Six months ended Equipment Materials and
March 31, 1996: Segment Segment Eliminations Total
--------- ---------- ------------ --------
Net sales $192,307 $50,256 $242,563
Cost of goods sold 105,915 39,075 144,990
------- ------ -------
Gross profit 86,392 11,181 97,573
Operating costs 47,878 7,002 $3,795 58,675
------- ------ ----- -------
Operating income $ 38,514 $ 4,179 ($3,795) $ 38,898
======= ====== ===== =======
Expendable
Tools and Corporate
Six months ended Equipment Materials and
March 31, 1995: Segment Segment Eliminations Total
--------- ---------- ------------ ---------
Net sales $107,339 $ 8,905 $116,244
Cost of goods sold 59,872 5,170 65,042
------- ------ -------
Gross profit 47,467 3,735 51,202
Operating costs 30,538 1,401 $3,090 35,029
------- ------ ----- -------
Operating income $ 16,929 $ 2,334 ($3,090) $ 16,173
======= ====== ===== =======
Intersegment sales are immaterial.
10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
INTRODUCTION
The Company's operating results depend primarily 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 has historically been
highly volatile and has 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, expendable tools and
materials such as those sold by the Company. These downturns and
slowdowns have also adversely affected the Company's operating
results. 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. To help
mitigate the effect of volatile demand for capital equipment, the
Company acquired AFW in October 1995 to increase the portion of the
Company's revenues from expendable tools and materials which have
historically fluctuated less than capital equipment sales.
The Company's equipment sales consist primarily of a relatively
small number of machines, most with selling prices ranging from
approximately $60,000 to over $500,000. A delay or reduction in
shipments 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 operating results
for any particular quarter. The Company believes that such
volatility will continue to characterize the industry and the
Company's operations in the future.
RESULTS OF OPERATIONS - Three and six month periods ended March 31,
1996 compared to three and six month periods ended March 31, 1995.
The Company recorded bookings totaling $86.0 million during the
fiscal 1996 second quarter ended March 31, 1996 (including $17.0
million related to AFW) compared to $77.0 million for the second
quarter of fiscal 1995. AFW bookings data was not included in
fiscal 1995 as AFW was not part of the consolidated group. At
March 31, 1996, the backlog of customer orders totalled
approximately $74.0 million (including $7.0 million related to AFW
products) compared to December 31, 1995 backlog of $96.0 million
(excluding AFW products). Because the timing of deliveries may
vary and orders generally are subject to delay or cancellation,
the Company's backlog as of any date may not be indicative of sales
for any succeeding period.
During the fiscal 1996 second quarter, some customers either
cancelled equipment orders or asked the Company to delay shipments
of machines originally scheduled for the second and third quarters
11
of fiscal 1996, causing fiscal 1996 second quarter equipment sales
to fall below the amount reported during the fiscal 1996 first
quarter. Despite these push outs, consolidated net sales for the
fiscal 1996 second quarter ended March 31, 1996 increased by $50.6
million (including $18.1 million of wire sales as a result of the
AFW acquisition) to $115.4 million compared to $64.8 million for
the same period in the prior year. For the six month period ended
March 31, 1996, consolidated net sales increased by $127.4 million
(including $34.8 million of wire sales as a result of the AFW
acquisition) from the $115.2 million for the fiscal 1995 year to
date period. Of the fiscal 1996 increases in net sales, $29.2
million for the three month period and $85.0 million for the six
month period were attributable to the equipment segment, with the
balance due to the expendable tools and materials segment. By
geographic area, the revenue increases were primarily realized in
the Asia/Pacific region, with shipments primarily destined for
Korea, Taiwan, Malaysia, and the Philippines.
Higher unit volume of machine sales, primarily of the Company's
Model 1488 Turbo bonders, accounted for approximately $22.3 million
and $80.8 million of the increases in net sales during the second
quarter and year to date periods of fiscal 1996, respectively.
Higher selling prices for the Model 1488 Turbo bonder (compared to
selling prices realized on earlier models of gold ball wire
bonders) contributed an additional $4.2 million and $6.3 million,
to net sales during the three and six month periods ended March 31,
1996, respectively, over the amounts reported for the comparable
periods in fiscal 1995.
Gross profit as a percentage of net sales in the equipment segment
totaled 44.6% during the three month period ended March 31, 1996
compared to 44.7% for the same period last year, and totaled 44.9%
during the six month period in fiscal 1996 compared to 44.2% during
the same period last year. During the second quarter of fiscal
1996, the Company realized improved selling prices on the 1488
Turbo bonder and the favorable effect on manufacturing overhead
absorption associated with higher fiscal 1996 sales volumes. These
improvements were offset by a $2.0 million charge to cost of goods
sold primarily to provide for anticipated inventory obsolescence
associated with product changes and vendor charges due to the
cancellation by the Company of certain purchase orders for
subassemblies and components. Improved selling prices on the 1488
Turbo bonder and favorable manufacturing overhead absorption also
contributed to the improved 1996 year to date gross profit margin
as compared to the same period of fiscal 1995.
In the expendable tools and materials segment, gross profit as a
percentage of net sales decreased to 22.0% for the second quarter
of fiscal 1996 as compared to 49.1% for the fiscal 1995 second
quarter, and decreased to 22.2% for the six month period ended
March 31, 1996 as compared to 41.9% for the fiscal 1995 year to
date period. These decreases were primarily the result of the AFW
acquisition, as the gross profit percentage on sales of wire
products is significantly lower than historically realized by the
Company on sales of expendable tools.
12
Selling, general and administrative expenses ("SG&A") totaled $18.3
million during the second quarter of fiscal 1996, compared to $11.7
million during the same period last year. Of this increase, $2.0
million reflected incremental SG&A costs attributable to the AFW
acquisition, including $.5 million of goodwill amortization. The
remainder of the increase was largely attributable to higher
employment levels, primarily in the areas of customer support,
information systems and other administrative areas to support the
higher volume of business. For the fiscal 1996 year to date
period, SG&A costs increased to $35.2 million from $22.3 million,
with approximately $4.1 million of the increase due to incremental
costs related to the AFW operation, and the remainder due primarily
to higher employment levels in fiscal 1996.
Net research and development ("R&D") costs increased to $12.2
million for the second quarter of fiscal 1996, from the $6.5
million for the same period last year. The Company continues to
invest heavily in the development of the 8000 Series wire bonders
and in enhancements of existing products, including an enhancement
to the Model 1488 Turbo bonder which will enable it to deliver
improved throughput compared to the current Model 1488 Turbo.
Operating income totaled $15.1 million for the second quarter of
fiscal 1996 compared to $10.9 million for the same period in fiscal
1995. This improvement resulted principally from the higher
revenue levels and improved gross profit margins in the equipment
segment, offset in part by the increases in SG&A and R&D expenses
noted above.
The majority of interest expense incurred during the second quarter
and year to date periods of fiscal 1996 resulted from borrowings
related to the AFW acquisition. In the comparable periods last
year, most of the interest expense related to the Company's 8%
Subordinated Convertible Debentures, which were converted or
redeemed during fiscal 1995. Interest income during the second
quarter and year to date periods of fiscal 1996 exceeded the
amounts reported for the same periods last year primarily due to
interest earned on a note receivable from a customer and to a
higher average balance of invested cash in fiscal 1996.
Nonoperating costs during the six month period ended March 31, 1996
reflect the write-off of $.6 million of costs incurred in
connection with a proposed public offering of the Company's common
stock which was indefinitely delayed due to a decline in the market
price of the Company's common stock.
The increase in the Company's effective tax rate to 29% in fiscal
1996 compared to the fiscal 1995 rate of 24% was due primarily to
utilization of most remaining domestic tax credit carryforwards in
fiscal 1995, the effect of non-deductible goodwill amortization
resulting from the AFW acquisition, and the estimated amount and
geographic distribution of taxable income in fiscal 1996.
13
COMPANY OUTLOOK
Certain of the information set forth below and elsewhere in this
report contains forward looking statements that are subject to
certain risks and uncertainties that could cause actual results to
differ materially from those set forth in the forward looking
statements. These risks and uncertainties include, but are not
limited to the following: the risk of volatile demand in the
semiconductor industry; the continued deferral or possible
cancellation of existing customer orders; the timing, development,
introduction and acceptance of new products and enhancements to
existing products; the Company's ability to manufacture and ship
its products on a timely basis; competitive pricing pressures; and
international political and other developments which could impact
foreign operations.
As indicated above, some customers either cancelled equipment
orders or asked the Company to delay shipments of machines
originally scheduled for delivery during the second and third
quarters of fiscal 1996, adversely affecting equipment segment net
sales during the second quarter of fiscal 1996. In addition, the
rate of new customer orders booked into backlog during the fiscal
1996 second quarter was lower than each of the previous two
quarters. As a result, the Company presently anticipates that net
sales by the equipment segment during the fiscal 1996 third and
fourth quarters will be lower than reported in the fiscal 1996
second quarter. While the Company believes this downturn will be
temporary and that long-term growth prospects for the semiconductor
industry and for the Company's products remain positive, in the
near term, the Company intends to selectively reduce certain
operating costs. Despite the planned cost reductions, net income
for the third and fourth quarters of fiscal 1996 are currently
expected to be substantially lower than reported during the latter
half of fiscal 1995 and first half of fiscal 1996 because of the
anticipated lower volume of equipment sales.
The Company is in the process of developing a new generation of
wire bonder, the 8000 family, which will be based on an entirely
new platform and has required the development of new software and
many subassemblies not part of the Company's current wire bonders.
The first prequalification Model 8020 ball bonder (the first
production model of the 8000 family) was shipped to a customer in
March 1996 and is presently being field tested. While development
and technical risks exist which have the potential to delay the
introduction of the Model 8020 including recent software related
development issues, the Company currently expects that the Model
8020 will be released early in calendar 1997. However, no
assurance can be given that its scheduled introduction in early
1997 will not be further delayed due to technical or other
difficulties, or that the Model 8020 will not experience quality or
reliability problems after shipment. The Company's inability to
complete the development of and introduce the Model 8020 or other
new products, or its inability to manufacture and ship these
products in volume and on a timely basis, could adversely affect
the Company's competitive position. The Company also may incur
substantial costs early in a new product's life cycle to ensure the
functionality and reliability of such product.
14
The Company's planned transition to the Model 8020 platform also
involves numerous risks, including the possibility that customers
will defer purchases of the current model of gold ball wire bonders
in anticipation of the availability of the Model 8020 or that the
Model 8020 will fail to meet customer needs or achieve market
acceptance. To the extent that the Company fails to accurately
forecast demand in volume and configuration for both its current
and next-generation wire bonders and generally to manage product
transitions successfully, it could experience reduced orders,
delays in product shipments, increased risk of inventory
obsolescence and delays in collecting accounts receivable. There
can be no assurance that the Company will successfully develop and
manufacture new products, including the Model 8020, that new
products introduced by the Company will be accepted in the
marketplace or that the Company will manage its product transitions
successfully. The Company's failure to do any of the foregoing
would materially adversely affect the Company's business, financial
condition and operating results.
LIQUIDITY AND CAPITAL RESOURCES
During the past three fiscal years, the Company has financed its
operations principally through cash flows from operations. Cash
generated by operating activities totaled $16.9 million during the
first six months of fiscal 1996 compared to $.4 million during the
first half of fiscal 1995. Cash and total investments increased to
$49.6 million at March 31, 1996 from the $40.9 million reported at
September 30, 1995. Cash flows from operating activities and the
overall increase in cash and total investments in the first six
months of fiscal 1996 compared to the first six months of fiscal
1995 generally reflect improved profitability in fiscal 1996.
As described in Notes 2 and 5 to the Company's March 31, 1996
financial statements, the Company acquired AFW on October 2, 1995.
In connection with this acquisition, $17.2 million of the $53.6
million purchase price was paid in cash at closing. The Company
borrowed $15.0 million under its term credit facility and $34.4
million pursuant to certain promissory notes, to finance the AFW
acquisition. The promissory notes were repaid in full on January
5, 1996. To finance the repayment of the promissory notes, on
January 5, 1996, the Company borrowed the remaining $35.0 million
under the bank term credit facility.
At March 31, 1996, working capital increased to $132.6 million
compared to $103.8 million at September 30, 1995. Accounts
receivable at March 31, 1996 increased by $8.8 million compared to
the September 30, 1995, of which $7.8 million was attributable to
the AFW acquisition. Inventory increased $10.1 million at March
31, 1996 compared to September 30, 1995, of which, $2.4 million was
attributable to the AFW acquisition. The remainder of the increase
is due generally to growth in inventories in the equipment segment,
largely due to changes in customer delivery requirements. The
Company has adjusted its materials purchasing plans to more closely
track customer delivery schedules. Current liabilities are
essentially unchanged compared to the September 30, 1995 balances.
15
During the first half of fiscal 1996, the Company invested
approximately $7.9 million in property and equipment (excluding
$1.5 million in assets acquired under capital lease), primarily to
upgrade equipment used in the Company's manufacturing and R&D
activities and for tooling used to manufacture new models of
machines. The Company presently expects fiscal 1996 capital
spending will not exceed $30.0 million. The principal capital
projects planned for fiscal 1996 include: expansion of operating
facilities in Willow Grove, PA, Singapore and Israel; purchase of
equipment necessary to expand capacity and investment in a new
global management information system. Relocation of facilities in
Singapore and Israel is not expected to have a material adverse
effect on the Company's results of operation, cash flow or
liquidity.
In addition, at the end of February 1996, the Company entered into
an agreement with Delco Electronics Corporation ("Delco") to form
and manage a joint venture which will provide wafer bumping
services. In March 1996, the Company paid $.5 million as its
initial cash contribution to the joint venture, and expects an
initial investment of approximately $11.0 million to fund the start
up of activities during the joint venture's first year of
operations.
On April 10, 1996, the Company renegotiated the terms of its bank
credit facilities resulting in a Restated Loan Agreement providing
for a $10.0 million revolving credit facility expiring February 28,
1997, and a $50.0 million revolving credit facility expiring March
30, 2001. As of March 31, 1996, the $50.0 million borrowed under
the term credit facility was classified as long-term debt as the
Company presently does not expect to repay any principal under this
loan during the next year. There have been no borrowings under the
$10.0 million credit line during fiscal 1996.
A significant portion of the Company's cash and investments are
attributable to undistributed earnings of its foreign subsidiaries.
Deferred income taxes have not been provided on that portion of
such undistributed earnings which is considered indefinitely
reinvested in the foreign operations. If such funds were required
to be repatriated to fund the Company's operations or other
financial obligations, additional income tax expenses could be
required to be recognized.
The amended Gold Supply Agreement dated October 2, 1995 between AFW
and its subsidiaries (collectively, the "AFW Companies") and their
gold supplier contains certain financial covenants and prohibits
the AFW Companies from paying any dividends or making any
distributions without the consent of the supplier if, following any
such dividend or distribution, the net worth of the AFW Companies
would be less than $7.0 million.
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The Company believes that anticipated cash flows from operations,
its working capital and amounts available under its revolving
credit facility will be sufficient to meet the Company's liquidity
and capital requirements for at least the next 12 months. The
Company may, however, seek additional equity or additional or
replacement debt financing to provide capital for corporate
purposes or to fund strategic business opportunities, including
possible acquisitions, joint ventures, alliances or other business
arrangements which could require substantial capital outlays. The
timing and amount of any such capital requirements cannot be
precisely determined at this time and will depend on a number of
factors, including demand for the Company's products, semiconductor
and semiconductor capital equipment industry conditions and
competitive factors and the nature and size of strategic business
opportunities which the Company may elect to pursue.
PART II. OTHER INFORMATION.
Item 2. Changes in Securities.
The Restated Loan Agreement (Exhibit 4) is unsecured and requires
that the Company maintain certain covenants including a minimum
working capital of $50.0 million, as detailed in Note 5 to the
consolidated financial statements.
Item 4. Submission of Matters to a Vote of Security Holders.
The 1996 Annual Meeting of Shareholders of the Company was held on
February 13, 1996.
At this meeting, Messrs. Frederick W. Kulicke and Larry D.
Striplin, Jr. were re-elected to the Board of Directors of the
Company for terms expiring at the 2000 Annual Meeting. In such
election, 17,297,749 votes were cast for Mr. Kulicke and for Mr.
Striplin. Under Pennsylvania law, votes cannot be cast against a
candidate. Proxies filed by the holders of 70,528 shares at the
1996 Annual Meeting withheld authority to vote for Mr. Kulicke and
Mr. Striplin.
At the 1996 Annual Meeting, 17,284,431 shares were voted in favor
of the reappointment of Price Waterhouse as independent accountants
of the Company to serve until the 1997 Annual Meeting and 41,377
shares were voted against such proposal. Proxies filed by the
holders of 42,469 shares at the 1996 Annual Meeting instructed the
proxy holders to abstain from voting on such proposal.
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 4 - Restated Loan Agreement
Exhibit 27 - Financial Data Schedule
SIGNATURES
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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: May 15, 1996 /s/ Clifford G. Sprague
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Clifford G. Sprague
Senior Vice President,
Chief Financial Officer and
Chief Accounting Officer