1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended DECEMBER 31, 2000
-----------------
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 No.)
2101 BLAIR MILL ROAD, WILLOW GROVE, PENNSYLVANIA 19090
- ------------------------------------------------ ---------
(Address of principal executive offices) (Zip Code)
(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 January 31, 2000, there were 48,818,502 shares of the Registrant's Common
Stock, Without Par Value outstanding.
2
KULICKE AND SOFFA INDUSTRIES, INC.
FORM 10 - Q DECEMBER 31, 2000
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION:
Item 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets -
September 30, 2000 and December 31, 2000 3
Condensed Consolidated Statements of Operations -
Three Months Ended December 31, 1999 and 2000 4
Condensed Consolidated Statements of Cash Flows -
Three Months Ended December 31, 1999 and 2000 5
Notes to Condensed Consolidated Financial Statements 6 - 11
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 11 - 26
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK 26
PART II. OTHER INFORMATION:
Item 6. EXHIBITS AND REPORTS ON FORM 8 - K. 27
Signatures. 28
3
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
KULICKE AND SOFFA INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
December 31,
September 30, 2000
2000 (unaudited)
ASSETS -------- -----------
CURRENT ASSETS:
Cash and cash equivalents $211,489 $ 81,854
Short-term investments 105,130 38,403
Accounts and notes receivable (less allowance
for doubtful accounts: 9/30/00-$4,355; 12/31/00-$5,663) 188,485 160,506
Inventories, net 74,034 100,818
Prepaid expenses and other current assets 9,748 16,602
-------- --------
TOTAL CURRENT ASSETS 588,886 398,183
Property, plant and equipment, net 83,867 136,457
Intangible assets and goodwill, net 41,724 271,984
Other assets 8,375 9,826
-------- --------
TOTAL ASSETS $722,852 $816,450
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable and current portion of long-term debt $ 1,026 $ 11,447
Accounts payable 62,513 56,378
Accrued expenses 51,935 69,342
Income taxes payable 10,724 9,662
-------- --------
TOTAL CURRENT LIABILITIES 126,198 146,829
Other liabilities 7,967 8,887
Long term debt 175,000 228,500
Deferred Taxes 4,148 34,679
Minority interest 4,197 4,645
-------- --------
TOTAL LIABILITIES 317,510 423,540
--------- --------
Commitments and contingencies -- --
SHAREHOLDERS' EQUITY:
Common stock, without par value 189,766 190,092
Retained earnings 220,263 208,577
Accumulated other comprehensive loss (4,687) (5,759)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 405,342 392,910
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $722,852 $816,450
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
3
4
KULICKE AND SOFFA INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Three months ended
December 31,
------------------------------
1999 2000
--------- ---------
Net sales $179,849 $155,384
Cost of goods sold 119,937 101,298
-------- --------
Gross profit 59,912 54,086
-------- --------
Selling, general and administrative 29,823 35,340
Research and development, net 12,103 17,593
Amortization of goodwill and intangibles 870 2,601
Purchased in-process research and development -- 11,709
-------- --------
Income (loss) from operations 17,116 (13,157)
Interest income 1,090 3,900
Interest expense (514) (2,664)
Equity in loss of joint ventures (346) --
-------- --------
Income (loss) before income taxes 17,346 (11,921)
Income tax provision 4,978 7
-------- --------
Income (loss) before minority interest 12,368 (11,928)
Minority interest in net loss of subsidiary 433 242
-------- ---------
Net income (loss) $ 12,801 $(11,686)
======== ========
Net income (loss) per share:
Basic $ 0.27 $ (.24)
======== ========
Diluted $ 0.26 $ (.24)
======== ========
Weighted average common shares outstanding:
Basic 47,098 48,748
Diluted 50,684 48,748
The accompanying notes are an integral part of these consolidated financial
statements.
4
5
KULICKE AND SOFFA INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three months ended
December 31,
--------------------------------
1999 2000
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income(loss) $ 12,801 $ (11,686)
Adjustments to reconcile net income(loss) to
net cash provided by (used in) operating activities:
Depreciation and amortization 5,476 9,703
Purchased in-process research and development -- 11,709
Equity in loss of joint ventures 346 --
Minority interest in net loss of subsidiary (433) (242)
Deferred taxes 2,333 (405)
Changes in components of working
capital, net of effects of acquired
companies (23,953) 43,033
Other, net 1,443 (3,125)
-------- ---------
Net cash provided by (used in)
operating activities (1,987) 48,987
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale (purchase)of investments classified as
available for sale (18,981) 67,323
Purchases of property, plant and equipment (8,436) (23,936)
Purchase of Cerprobe Corp., net of cash -- (216,409)
Purchase of Probe Technology Corp., net of cash -- (62,512)
Investments in and loans to joint ventures (823) --
-------- ---------
Net cash used in investing activities (28,240) (235,534)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 169,579 58,000
Proceeds from issuance of common stock 1,330 122
Payments on borrowings -- (1,210)
-------- ---------
Net cash provided by
financing activities 170,909 56,912
-------- ---------
Changes in cash and cash equivalents 140,682 (129,635)
Cash and cash equivalents at beginning
of period 37,155 211,489
-------- ---------
Cash and cash equivalents at end of period $177,837 $ 81,854
========= =========
CASH PAID DURING THE PERIOD FOR:
Interest $ 59 $ 4,364
Income Taxes $ 431 $ 499
The accompanying notes are an integral part of these consolidated
financial statements
5
6
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except per share and employee data)
(unaudited)
NOTE 1 - BASIS OF PRESENTATION:
The condensed 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 at December 31, 2000, and the results of its
operations for the three month periods ended December 31, 1999 and 2000 and its
cash flows for the three month periods ended December 31, 1999 and 2000. 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, 2000.
NOTE 2 - INVENTORIES:
Inventories consist of the following:
September 30, December 31,
2000 2000
-------- --------
Raw materials and supplies $ 50,394 $ 68,241
Work in process 22,687 26,569
Finished goods 17,194 22,244
-------- --------
90,275 117,054
Inventory reserves (16,241) (16,236)
-------- --------
$ 74,034 $100,818
======== ========
NOTE 3 - EARNINGS PER SHARE:
Basic net income (loss) per share ("EPS") is calculated using the weighted
average number of shares of common stock outstanding during the period. The
calculation of diluted net income(loss) per share assumes the exercise of
employee stock options and the conversion of the convertible securities to
common shares unless the inclusion of these will have an anti-dilutive impact on
net income(loss) per share. In addition, in computing diluted net income per
share if convertible securities are assumed to be converted to common shares the
after-tax amount of interest expense recognized in the period associated with
the convertible securities is added back to net income. For the three months
ended December 31, 2000, the exercise of stock options and the conversion of the
convertible subordinated notes were not assumed since their conversion to common
shares would have an anti-dilutive effect on net loss per share.
6
7
A reconciliation of weighted average shares outstanding-basic to the weighted
average shares outstanding-diluted appears below:
Three months ended
December 31,
------------------
1999 2000
------ ------
Weighted average shares outstanding - Basic 47,098 48,748
Potentially dilutive securities:
Employee stock options 2,030 *
Convertible subordinated notes 1,556 *
------ ------
Weighted average shares outstanding - Diluted 50,684 48,748
====== ======
* Due to the Company's net loss for the three months ended December 31, 2000,
potentially dilutive securities are deemed to be antidilutive. The weighted
average number of shares for potentially dilutive employee and director stock
options was 785,000 and for convertible subordinated notes was 7,642,000 in the
three months ended December 31, 2000.
The after-tax interest expense recognized by the Company in the three months
ended December 31, 1999 associated with the convertible subordinated notes that
was added back to net income in order to compute net income per diluted share
was $0.3 million.
NOTE 4 - OPERATING RESULTS BY BUSINESS SEGMENT:
Operating results by business segment for the three month periods ended December
31, 2000 and 1999 were as follows:
Advanced
Packaging Packaging
Three months ended Equipment Materials Technology Test
December 31, 2000: Segment Segment Segment Segment(1) Corporate Total
--------- --------- ---------- ---------- --------- --------
Net sales $ 84,597 $ 48,207 $ 8,281 $ 14,299 $155,384
Cost of goods sold 47,994 34,491 8,028 10,785 101,298
-------- -------- ------- -------- -------- --------
Gross profit 36,603 13,716 253 3,514 54,086
Operating costs 31,511 8,256 6,499 5,653 $ 3,615 55,534
Purchased in-process
research and
development -- -- -- 11,709 -- 11,709
-------- -------- ------- -------- -------- --------
Income (loss)
from operations $ 5,092 $ 5,460 $(6,246) $(13,848) $ (3,615) $(13,157)
======== ======== ======= ======== ======== ========
Income(loss)
from operations before
Cerprobe Corp. and Probe
Technology acquisition
related expenses $ 5,092 $ 5,460 $(6,246) $ 1,398 $ (3,615) $ 2,089
======== ======== ======= ======== ======== ========
Segment assets at
December 31, 2000 $219,025 $101,939 $50,280 $314,894 $130,312 $816,450
======== ======== ======= ======== ======== ========
7
8
Advanced
Packaging Packaging
Three months ended Equipment Materials Technology Test
December 31, 1999: Segment Segment Segment Segment(1) Corporate Total
--------- --------- ---------- ---------- --------- --------
Net sales $132,531 $ 42,440 $ 4,878 $ -- $179,849
Cost of goods sold 84,333 30,323 5,281 -- 119,937
-------- -------- ------- -------- -------- --------
Gross profit 48,198 12,117 (403) -- 59,912
Operating expenses 28,291 6,678 4,236 -- $ 3,591 42,796
-------- -------- ------- -------- -------- --------
Income (loss)
from operations $ 19,907 $ 5,439 $(4,639) $ -- $ (3,591) $ 17,116
======== ======== ======= ======== ======== ========
Segment assets at
December 31, 1999 $237,199 $ 89,330 $39,288 $ -- $208,836 $574,653
======== ======== ======= ======== ======== ========
(1) Comprised of the recently acquired Cerprobe Corporation and Probe
Technology Corporation. The Company completed its acquisition of Cerprobe
in November 2000 and Probe Technology in December 2000. The results of
both companies, from the date of acquisition through December 31, 2000 are
included in loss from operations for the quarter ended December 31, 2000
but are not included in the operating results of the Company for any
period preceding their respective dates of acquisition.
Note 5 - DEBT
In December 2000, the Company entered into a new $60.0 million (reducing to
$40.0 million over a three year period) bank revolving credit facility which
replaced the revolving credit facility that had been in place for several years.
The new facility expires in December 2003. Borrowings are subject to compliance
with financial and other covenants set forth in the revolving credit documents.
Borrowings bear interest either at a Base Rate (defined as the higher of the
prime rate or the federal funds rate plus 1/2%) or, at a LIBOR Rate (defined as
LIBOR plus 1.0% to 2.0%, depending on the ratio of senior debt to earnings
before interest, taxes, depreciation and amortization). The new revolving credit
facility is guaranteed by certain of the Company's domestic subsidiaries and
requires the Company maintain certain financial covenants including a leverage
ratio, a liquidity ratio and a minimum net worth requirement. The revolving
credit facility 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.
The Company also has outstanding, $175.0 million of convertible subordinated
notes. The notes are general obligations of the Company and subordinated to all
senior debt. The notes bear interest at 4 3/4%, are convertible into the
Company's common stock at $22.8997 per share and mature on December 15, 2006.
There are no financial covenants associated with the notes and there are no
restrictions on paying dividends, incurring additional debt or issuing or
8
9
repurchasing the Company's securities. Interest on the notes will be paid on
June 15 and December 15 of each year. The Company may redeem the notes in whole
or in part at any time after December 18, 2002 at prices ranging from 102.714%
at December 19, 2002 to 100.0% at December 15, 2006.
Note 6 - ACQUISITIONS
In November 2000, the Company completed its tender offer for 100% of the
outstanding shares of Cerprobe Corporation ("Cerprobe") for $20 per share. The
total purchase price of Cerprobe, including transaction costs, the assumption of
acquisition related liabilities and debt repayment, was approximately $225.0
million, payable in cash. In December 2000 the Company purchased all the
outstanding shares of Probe Technology Corporation ("Probe Tech") for
approximately $65.0 million, including transaction costs and the assumption of
acquisition related liabilities, payable in cash. Both Cerprobe and Probe Tech
design and manufacture semiconductor test interconnect solutions. The
acquisitions have been recorded using the purchase method of accounting and
accordingly the purchase price has been allocated to the tangible and intangible
assets acquired and liabilities assumed on the basis of their fair values on the
acquisition dates. The Company has allocated a portion of the purchase price for
each acquisition to intangible assets valued using a discount rate of 25% for
Cerprobe and 18% for Probe Tech. The portion of the purchase prices allocated to
in-process R&D projects that did not have future alternative use and to which
technological feasibility had not been established totaled $11.3 million for
Cerprobe and $.4 million for Probe Tech and were charged to expense as of the
acquisition dates. The purchase price allocation is preliminary and will likely
change upon resolution of open matters including completion of appraisals,
finalization of restructuring activities, purchase price adjustments and the
final assessment of certain contingencies. The Company received a waiver of a
bank covenant under its then existing bank revolving credit facility, which
limited the amount the Company could spend on acquisitions, in order to complete
the Cerprobe and Probe Tech acquisitions. The Company borrowed $55.0 million
under its bank revolving credit facility to partially fund the purchase of Probe
Tech. The operations of these two companies are being combined to create a test
division, which is being disclosed as a separate business segment for financial
reporting purposes.
Pro forma operating results for the three months ended December 31, 1999 and
December 31, 2000 assuming the acquisitions of Cerprobe and Probe Tech were
consummated on October 1, 1999 appear below. This unaudited pro forma
information is presented for illustrative purposes only and is not necessarily
indicative of the operating results that would have occurred if the transaction
had been consummated at the date indicated, nor is it necessarily indicative of
the future operating results of the combined businesses.
9
10
Unaudited ProForma
Combined Operating Results
(in thousands, except per share amount)
Three months ended December 31,
-------------------------------
1999(1) 2000
------- ----
Net sales $205,480 $182,807
Net loss $(4,000) $(14,167)
Basic and diluted net loss per share $(0.08) $(0.29)
(1) The results of Cerprobe for the three months ended December 31, 1999
included a charge of $8.8 million for in-process R&D associated with its
acquisition of OZ Technologies, Inc.
The components of the preliminary purchase price allocation for the acquisitions
of Cerprobe and Probe Tech are as follows:
(In thousands)
Cerprobe Probe Tech
-------- ---------
Current assets $ 44,223 $12,180
Property,plant,equipment and
other long term assets 27,241 8,948
Acquired intangibles 80,800 30,253
Acquired in-process research
and development 11,295 414
Goodwill 104,864 16,298
Less: Liabilities assumed (74,927) (3,432)
-------- -------
Total $193,496 $64,661
======== =======
The goodwill and intangible assets resulting from the acquisitions is being
amortized on a straight-line basis over a 10-year period.
The Cerprobe and Probe Tech in-process R&D value was comprised of several
research and development projects which were scheduled to reach completion in
2001 and 2002. At the acquisition date, research and development projects
ranged in completion from 10% to 90% complete.
In February 1999, the former President, director and shareholder of Silicon
Valley Test & Repair, Inc. (a company acquired by Cerprobe Corporation in
January 1997) filed counterclaims against Cerprobe in an action Cerprobe brought
to rescind the acquisition. The counterclaims allege breach of contract,
conversion and other tortious conduct. Cerprobe's claims for rescission were
denied. A summary judgment motion filed by Cerprobe seeking dismissal of most of
the counterclaims, and a cross-motion for summary judgment filed by the
defendant are pending. While the Company intends to vigorously defend the
defendants' counter claims, it is impossible to predict the outcome of this or
any other litigation. It is not anticipated that the suit will have a material
adverse impact on the Company's financial condition or results of operations.
The outcome of this case could potentially impact the Cerprobe purchase price
allocation.
10
11
Note 7 - COMPREHENSIVE INCOME (LOSS):
For the three months ended December 31, 1999 and 2000, the components of total
comprehensive income (loss) are as follows:
Three months ended
December 31,
--------------------------
1999 2000
------ ------
Net income(loss) $12,801 $(11,686)
------- --------
Foreign currency translation adjustment 217 (1,067)
Unrealized gain(loss)
on investments, net of taxes 4 (5)
------- --------
Other comprehensive income (loss) 221 (1,072)
------- --------
Comprehensive income(loss) $13,022 $(12,758)
======= ========
Item 2. 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 and benefits expected as a
result of:
o The projected growth rates in the overall semiconductor industry, the
semiconductor assembly equipment market and the market for semiconductor
packaging materials;
o the anticipated development, production and licensing of our advanced
packaging technology;
o the successful integration of recent acquisitions into our company's
operating structure and expected growth rates for these companies;
o the projected continuing demand for wire bonders; and
o 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.
11
12
Forward-looking statements are based on current expectations and involve risks
and uncertainties and our future results could differ significantly from those
expressed or implied by our forward-looking statements. These risks and
uncertainties include, without limitation, those described below and under the
heading "Risk Factors" within this section and in our reports and registration
statements filed from time to time with the Securities and Exchange Commission.
This discussion should be read in conjunction with the Condensed Consolidated
Financial Statements and Notes on pages 3 to 11 of this Form 10-Q for a full
understanding of our financial position and results of operations for the three
month period ended December 31, 2000.
INTRODUCTION
We design, manufacture and market capital equipment, packaging materials and
test interconnect solutions and provide flip chip bumping services for sale to
companies that manufacture and assemble semiconductor devices. We also service,
maintain, repair and upgrade assembly equipment and license our flip chip
bumping process technology. Our operating results primarily depend upon the
capital and operating expenditures of semiconductor manufacturers and
subcontract assemblers worldwide which, in turn, depend on the current and
anticipated market demand for semiconductors and products using semiconductors.
The semiconductor industry historically has been highly volatile and has
experienced periodic downturns and upturns which have had severe effects on the
semiconductor industry's demand for capital equipment, including the assembly
equipment we manufacture and market and, to a lesser extent, the packaging
materials and test interconnect solutions we sell. We do not consider our
business to be seasonal in nature.
In November 2000 we acquired 100% of the stock of Cerprobe Corporation (referred
to as Cerprobe) and in December 2000 we acquired 100% of the stock of Probe
Technology Corporation (referred to as Probe Tech). Both Cerprobe and Probe Tech
design and manufacture semiconductor test interconnect solutions. These
acquisitions have been recorded using the purchase method of accounting and have
been consolidated with the company's operating results beginning on the date of
acquisition. The acquisitions were a step forward in our strategy to offer the
most complete, capable and cost-effective interconnect solutions. These two
companies comprise our new test segment.
Beginning in the fourth quarter of fiscal 2000 we experienced customer order
deferrals and push-outs. As a result, our net sales in the first quarter of
fiscal 2001 were below those in the same period in the prior year and we expect
our sales in the second quarter of fiscal 2001 to be below the first quarter's
net sales. In reaction to the anticipated lower sales volume, on February 13,
2001, we announced a 7% reduction in our workforce. The financial impact of
this reduction is currently being evaluated.
12
13
RESULTS OF OPERATIONS - Three month period ended December 31, 2000 compared to
the three month period ended December 31, 1999.
During the three months ended December 31, 2000 we reported bookings of $115.0
million, including $15.0 million from the test segment, compared to $219.0
million recorded in the prior quarter and $206.9 million recorded for the three
months ended December 31, 1999. At December 31, 2000, we had a backlog of
customer orders totaling $125.0 million, including $22.0 million at the test
segment, compared to $143.0 million at September 30, 2000 and $120.1 million at
December 31, 1999. Since the timing of deliveries may vary and orders generally
are subject to delay or cancellation, our backlog as of any date may not be
indicative of sales for any succeeding period.
Sales
Net sales for the three months ended December 31, 2000 (which included
approximately one month of revenue of Cerprobe and Probe Tech) were 13.6% below
the comparable period in the prior year. The lower sales were primarily
reflected in our equipment segment where unit sales of automatic ball bonders
were 57% below the same quarter in the prior year. The lower unit sales volume
of automatic ball bonders was partially offset by a 20% increase in the average
selling price of the automatic ball bonders, reflecting sales of our newly
introduced Models 8028S and 8028PPS automatic ball bonders which offer increased
productivity and technical performance. Packaging materials sales were 13.6%
higher than the prior year due to the increased volume of gold wire and
expendable tool shipments. Also, sales of our advanced packaging segment were
69.8% higher than the prior year due to higher bumping service revenue and
license income at Flip Chip Technologies LLC (referred to as Flip Chip), our
joint venture with Delco Electronics Corporation. We also recorded $14.3 million
in sales from Cerprobe and Probe Tech which are being reported as our test
segment.
International sales (shipments of our products with ultimate foreign
destinations) comprised 72% and 90% of our total sales during the three months
ended December 31, 2000 and 1999, respectively. Sales to customers in the
Asia/Pacific region accounted for approximately 59% and 79% of our total sales
during the three months ended December 31, 2000 and 1999, respectively.
Gross Profit
Gross profit decreased to $54.1 million compared to $59.9 million during the
comparable period of the prior year due primarily to the lower volume of ball
bonder shipments. However, gross margin (gross profit as a percentage of sales)
increased to 34.8% in the three months ended December 31, 2000 from 33.3% in the
prior year. The equipment business gross margin was 43.3% compared to 36.4% in
the prior year due to a lower cost of production as a result of the move
13
14
of the ball bonder manufacturing to Singapore and a higher average selling price
of our automatic ball bonders (primarily our Models 8028S and 8028PPS). The
packaging materials business reported a gross margin of 28.5% for the three
months ended December 31, 2000 compared to 28.6% in the comparable period of the
prior year. Consolidated gross margin was also favorably impacted from a gross
margin of 3.1% at our advanced packaging segment compared to a loss in the prior
year, resulting from the higher bumping volume and license revenue at Flip Chip.
The test segment recorded gross profit from operations, excluding an acquisition
related inventory "step-up" charge of $1.8 million, of $5.4 million or 37.4% of
sales.
Selling, General and Administrative
Selling, general and administrative ("SG&A") expenses increased $5.5 million in
the three months ended December 31, 2000 from the comparable period in the prior
year. The higher SG&A expenses included approximately $3.4 million associated
with the operations of Cerprobe and Probe Tech. The remaining increase in SG&A
expenses was due to higher payroll and related costs.
Research and Development
Net research and development ("R&D") expense for the three months ended December
31, 2000 increased $5.5 million to $17.6 million from $12.1 million in the
comparable period of the prior year, reflecting our commitment to new product
introductions and product development in our equipment and packaging materials
businesses as well as R&D spending at X-LAM and Flip Chip.
Acquisition Costs
In connection with the acquisitions of Cerprobe and Probe Tech we recorded a
charge of $11.7 million for in-process R&D representing the appraised value of
products still in the development stage that did not have a future alternative
use and have not reached technological feasibility. We also recorded
amortization expense of $1.7 million associated with the goodwill and intangible
assets associated with the purchase of Cerprobe and Probe Tech.
Loss from Operations
Loss from operations was $13.2 million for the three months ended December 31,
2000 compared to income from operations of $17.1 million in the comparable
period of the prior year. The loss from operations was due primarily to the
lower sales and associated gross profit, additional expenses associated with the
newly acquired companies, higher R&D expense and the charge for in-process
research and development.
14
15
Interest
Interest income in the three months ended December 31, 2000 was $2.8 million
higher than in the comparable period in the prior year. The higher interest
income resulted from investment income on higher cash balances. However, due to
the purchases of Cerprobe and Probe Tech for cash we have increased our
borrowings and reduced our investment portfolio and we expect to report lower
interest income in future quarters of fiscal 2001. Interest expense in the three
months ended December 31, 2000 was $2.2 million higher than the prior year due
to interest on our subordinated notes for a full quarter this year compared to a
partial quarter last year and interest on bank borrowing to consummate the Probe
Tech acquisition.
Equity in loss of joint venture
In the three months ended December 31, 1999 we recorded a loss on our equity
interest in Advanced Polymer Solutions, LLC ("APS"), a joint venture with
Polyset Company, Inc. APS was dissolved in September 2000 and operations ceased
at that time.
Tax Expense
Our effective tax rate for fiscal 2000 is expected to approximate 28%, the same
as the prior year. Our effective tax rate is favorably impacted by tax
incentives associated with the move of the automatic ball bonder manufacturing
to Singapore and incentives from Israel. In the three months ended December 31,
2000 we did not record an income tax benefit on the $11.7 million charge for
in-process research and development.
Minority Interest in Net Loss of Subsidiary
In the three months ended December 31, 2000, we recorded minority interest of
$0.2 million reflecting our joint venture partner's share of the loss incurred
at Flip Chip.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133, as amended by SFAS No. 138,
is effective for fiscal years beginning after June 15, 2000. The standard
requires that all derivative instruments be recorded on the balance sheet at
fair value. Changes in the fair value of derivatives are recorded in earnings or
other comprehensive income, based on whether the instrument is designated as
part of a hedge transaction and, if so, the type of hedge transaction. The
company adopted this statement in the first quarter of 2001. There was no
cumulative effect of adoption. The impact of SFAS No. 133 on the company's
future results will be dependent upon the fair values of the
15
16
company's derivatives and related financial instruments and could result in
increased volatility.
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements". The SAB summarizes certain of the Staff's views in applying
generally accepted accounting principles to revenue recognition in the financial
statements. We are required to adopt SAB101 in the fourth quarter of fiscal year
2001. Accordingly, any shipments previously reported as revenue, including
revenue reported for the first three quarters of fiscal 2001, that do not meet
SAB 101's guidance will be recorded as revenue in future periods. Changes in our
revenue recognition policy resulting from the guidelines of SAB 101 would not
involve the restatement of prior fiscal year statements, but would, to the
extent applicable, be reported as a change in accounting principle in the fiscal
year ended September 30, 2001, with the appropriate restatement of interim
periods as required by SFAS No. 3 "Reporting Accounting Changes in Interim
Financial Statements." We are currently assessing the full impact of SAB 101 on
our reported financial results. Based on our analysis to-date, we expect when
SAB 101 is adopted to report a cumulative adjustment to net income of between
$10.0 million and $15.0 million in fiscal 2001 for all prior annual periods
based on a revenue deferral ranging between $20.0 million and $30.0 million. We
also expect revenues in the first quarter of fiscal 2001 will be lower than
those reported in this report by $5.0 million to $10.0 million as a result of
adoption of SAB 101. We believe that SAB 101 will not affect the underlying
strength or weakness of our business operations as measured by the dollar value
of our product shipments and cash flows.
In May 2000, the Emerging Issues Task Force (EITF) issued EITF No. 00-14,
"Accounting for Coupons, Rebates and Discounts" that addressed accounting for
sales incentives. The Task Force concluded that in accounting for cash sales
incentives a manufacturer should recognize the incentive as a reduction of
revenue on the later date of the manufacturer's sale or the date the offer is
made to the public. The reduction of revenues should be measured based on the
estimated amount of incentives to be claimed by the ultimate customers. We must
adopt this pronouncement in our fourth quarter of fiscal 2001. We do not believe
the adoption of this pronouncement will have a material impact on the Company's
financial statements.
In September 2000, the EITF reached a final consensus on issue EITF No. 00-10,
"Accounting for Shipping and Handling Revenues and Costs." The Task Force
concluded that amounts billed to customers related to shipping and handling
should be classified as revenue. We currently classify shipping and handling
revenue as a reduction of cost of products sold. Further, the Task Force stated
that shipping and handling cost related to this revenue should either be
recorded in costs of goods sold or the Company should disclose where these costs
are recorded and the amount of these costs. We must adopt this pronouncement in
the fourth quarter of fiscal 2001. We do not believe
16
17
adoption of this pronouncement will have a material impact on our financial
statements.
LIQUIDITY AND CAPITAL RESOURCES:
As of December 31, 2000, cash, cash equivalents and investments totaled $120.3
million compared to $316.6 million at September 30, 2000. Additionally, we have
a $60.0 million (reducing to $40 million over a three year period) bank
revolving credit facility. The bank facility expires in December 2003. The
borrowings are subject to our compliance with financial and other covenants set
forth in the revolving credit documents. At December 31, 2000, we had $58
million of cash borrowings outstanding under the facility and had utilized $1.1
million of availability under that credit facility to support letters of credit.
Borrowings bear interest either at a Base Rate (defined as the prime rate or the
federal funds rate plus 1/2%) or, at a LIBOR Rate (defined as LIBOR plus 1.0% to
2.0%, depending on our ratio of senior debt to earnings before interest, taxes,
depreciation and amortization).
Cash provided by operating activities totaled $49.0 million during the three
months ended December 31, 2000 compared to cash used of $2.0 million during the
comparable period in the prior year. The cash provided by operation activities
was due primarily to the collection of accounts receivable.
During the three months ended December 31, 2000, we invested approximately $23.9
million in property and equipment compared to $8.4 million in the comparable
period of the prior year. The capital spending in the three months ended
December 31, 2000 was primarily for information technology to develop
corporate-wide e-business capabilities, increased capacity at Flip Chip, a new
wire manufacturing facility in Taiwan and continued expansion of the
manufacturing capabilities in our existing packaging materials facilities.
In the three months ended December 31, 2000, we purchased two companies, for
cash, that design and manufacture semiconductor test interconnect solutions.
Through December 31, 2000, we had paid $216.4 million for Cerprobe and $62.5
million for Probe Tech, net of cash acquired.
We believe that anticipated cash flows from operations, 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 we believe appropriate, 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 which could require substantial capital outlays. The
timing and amount of such potential capital requirements cannot be determined at
this time and will depend on a number of factors,
17
18
including demand for the Company's products, semiconductor and semiconductor
capital equipment industry conditions, competitive factors and the nature and
size of strategic business opportunities which the Company may elect to pursue.
RISK FACTORS:
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:
o 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;
o the volume and timing of orders for our products and any order
postponements and cancellations by our customers;
o adverse changes in our pricing, or that of our competitors;
o higher than anticipated costs of development or production of new
equipment models;
o the availability and cost of key components for our products;
o market acceptance of our new products and upgraded versions of our
products;
o our announcement of, or perception by others that we will introduce, new
or upgraded products, which could delay customers from purchasing our
products;
o the timing of acquisitions; and
o 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:
o the timing and extent of our research and development efforts;
18
19
o severance, resizing and other costs of relocating facilities in market
downturns; and
o inventory writeoffs due to obsolesence.
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 and
test interconnect solutions that we sell. These downturns and slowdowns have
adversely affected our operating results. Downturns in the future could
similarly adversely affect our business, financial condition and operating
results.
THE INTEGRATION OF CERPROBE AND PROBE TECH INTO OUR COMPANY'S OPERATING
STRUCTURE AND EXPECTED GROWTH RATES FOR THESE COMPANIES MAY NOT BE REALIZED AND
OUR EXPECTED BENEFITS MAY NOT OCCUR
In November 2000 we acquired the stock of Cerprobe Corporation for approximately
$225.0 million and in December 2000 we acquired the stock of Probe Tech for
approximately $65.0 million. Cerprobe and Probe Tech design and manufacture
semiconductor test interconnect solutions. We have invested a significant amount
of cash to acquire these companies and will invest a significant amount of
management time and effort to integrate them into the company's operating
structure, however, if we are unable to integrate them successfully or the
expected growth rates for these companies do not occur our business, financial
condition and operating results could be materially affected.
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
19
20
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.
WE MAY NOT BE ABLE TO ACCURATELY FORECAST DEMAND FOR OUR PRODUCT LINES
We typically operate our business with a relatively short backlog and order
supplies and otherwise plan production based on internal forecasts of demand.
Due to these factors, we have in the past, and may again in the future, fail to
accurately forecast demand, in terms of both volume and configuration for either
our current or next-generation wire bonders. This has led to and may in the
future lead to delays in product shipments or, alternatively, an increased risk
of inventory obsolescence.
If we fail to accurately forecast demand for our products, 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 devises, 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
20
21
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:
o The technologies that we have invested in represent only some of the
advanced technologies that may one day supercede wire bonding;
o Other companies are developing similar or alternative advanced
technologies;
o Wire bonding may continue as the dominant technology for longer than we
anticipate;
o The cost of developing advanced technologies may be significantly greater
than we expect; and
o We may not be able to develop the necessary technical, research,
managerial and other related skills to develop, produce, market and
support these advanced technologies.
As a result of these risks, we cannot assure you that any of our attempts to
develop alternative technologies will be profitable or that we will be able to
realize the benefits that we anticipate from them.
A DECLINE IN DEMAND FOR ANY OF OUR PRODUCTS COULD CAUSE OUR REVENUES TO DECLINE
SIGNIFICANTLY
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 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.
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
21
22
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:
o loss of control over the manufacturing process;
o changes in our manufacturing processes, dictated by changes in the market,
that have delayed our shipments;
o our inadvertent use of defective or contaminated materials;
o 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;
o reliability and quality problems we experience with certain key subassemblies
provided by single source suppliers; and
o 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.
As we seek to expand our operations, we expect to encounter a number of risks,
which will include:
o risks associated with hiring additional management and other critical
personnel;
22
23
o risks associated with adding equipment and capacity; and
o 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 MAY BE UNABLE TO CONTINUE TO COMPETE SUCCESSFULLY IN THE HIGHLY COMPETITIVE
SEMICONDUCTOR EQUIPMENT AND PACKAGING MATERIALS INDUSTRIES
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:
o ASM Pacific Technology, Shinkawa, Kaijo and ESEC in wire bonders;
o ESEC, Nichiden, ASM Pacific Technology and Alphasem in die bonders; and
o 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:
o Gaiser Tool Co. and Small Precision Tools, Inc. in expendable tools; and
o Disco Corporation in blades;
and in the bonding wire market:
o 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.
23
24
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.
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 80% of our net sales for fiscal 1998, 83% of our net sales for
fiscal 1999 and 91% of our net sales for fiscal 2000 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
24
25
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:
o Our competitors may independently develop technology that is similar to or
better than ours;
o 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;
o Foreign intellectual property laws may not adequately protect our
intellectual property rights; and
o 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
25
26
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.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. At December
31, 2000, we had a non-trading investment portfolio, excluding those classified
as cash and cash equivalents, of $38.4 million. Due to the short term nature of
the investment portfolio, if market interest rates were to increase immediately
and uniformly by 100 basis points there would be no material or adverse affect
on our business, financial condition or operating results.
26
27
PART II. OTHER INFORMATION.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit 10(a)- Form of Termination of Employment Agreement signed by
Mr.Kulicke (Section 2(a) - 30 months), and Messrs. Perchick,
Sprague, Jacobi, Lendner, Leonhardt, May, Salmons, Sawachi, Spooner,
Wolf, Belani, Chylak, Cristallo, Greenberger, Oscilowski, Torton,
Amweg, Camarda, Hartigan, Kish, Mak, Marrs, Rheault, Strittmatter
and Close (Section 2(a) - 18 months). *
(b) Reports on Form 8-K
The Company filed a Form 8-K on October 12, 2000 making an Item 5
disclosure announcing that it had signed a definitive agreement to
acquire Cerprobe Corporation.
The Company filed a Form 8-K on November 8, 2000 making an Item 5
disclosure announcing the push-out of previously booked orders and
deferrals of new orders by major assembly customers that were
expected to adversely impact the Company's financial performance in
the first fiscal quarter of 2001.
The Company filed a Form 8-K on December 6, 2000 making an Item 2
disclosure announcing the completion of its tender offer for 100% of
the shares of Cerprobe Corporation. The total amount of funds
required by the Company to consummate the Offer and the subsequent
merger and to pay related fees and acquired obligations was
estimated to be approximately $225.0 million.
The Company filed a Form 8-K on December 19, 2000 making an Item 5
disclosure announcing the completion of its acquisition of Probe
Technology Corporation. The total purchase price, including
acquisition-related costs was $64.0 million in cash.
* Compensatory contract
27
28
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: February 13, 2001 By:/s/ CLIFFORD G. SPRAGUE
- ------------------------- ----------------------------------
Clifford G. Sprague
Senior Vice President,
Chief Financial Officer
(Principal Financial Officer)
28