================================================================================
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended SEPTEMBER 30, 1995
----------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ________ to ________
Commission file number 0-121
KULICKE AND SOFFA INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-1498399
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2101 BLAIR MILL ROAD, WILLOW GROVE, PA 19090
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code (215) 784-6000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, WITHOUT PAR VALUE
[Title of Class]
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ____
---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting shares held by non-affiliates of the
Registrant as of December 1, 1995 was approximately $525,391,000. The Company
disclaims the existence of control of the Company.
As of December 1, 1995, there were 19,315,450 shares of the Registrant's Common
Stock, Without Par Value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the 1996 Annual Shareholders'
Meeting to be filed prior to January 12, 1996 are incorporated by reference into
Part III, Items 10, 11, 12 and 13 of this Report. Such Proxy Statement, except
for the parts therein which have been specifically incorporated by reference,
shall not be deemed "filed" for the purposes of this Report on Form 10-K.
- --------------------------------------------------------------------------------
================================================================================
PART I
ITEM 1. BUSINESS
Kulicke and Soffa Industries, Inc. (the "Company" or "K&S") was founded in 1951
to design equipment for industrial use. During the 1970s, the Company began to
focus its efforts on the semiconductor assembly equipment market. Today, K&S is
the world's largest supplier of semiconductor assembly equipment, according to
VLSI Research, Inc. ("VLSI"). Through its American Fine Wire ("AFW") and Micro-
Swiss subsidiaries, the Company also supplies expendable tools and materials
used in the semiconductor assembly process. The Company's primary assembly
equipment products include wire bonders, dicing saws and die, TAB and flip-chip
bonders, while its expendable tools and materials offerings include bonding
wire, die collets, capillaries and wedges. The Company's customers consist of
leading semiconductor manufacturers and subcontract assemblers of
semiconductors, including Advanced Micro Devices, Advanced Semiconductor
Engineering, Anam Electronics, Hyundai, IBM, Intel, Matsushita Electronics,
Motorola, Philips, Samsung, Swire Technologies and Texas Instruments.
INDUSTRY BACKGROUND
The worldwide market for semiconductors has experienced significant growth in
recent years. This growth reflects the increasing demand for a wide variety of
electronic devices, such as personal computers, cellular telephones, multimedia
systems and other electronic devices for business and consumer use, as well as
the increasing semiconductor content within these electronic devices and other
products, such as automobiles, consumer appliances and factory automation and
control systems. This demand has been driven in large part by continuing
increases in semiconductor performance as measured by functionality, speed and
memory density at declining costs per function.
In response to the growing demand for semiconductor devices, semiconductor
manufacturers are increasing capacity by expanding and upgrading existing
facilities and constructing new semiconductor fabrication facilities. As new
fabrication facilities come on line and existing facilities are expanded and
upgraded, the Company anticipates that the semiconductor industry will need to
add capacity to assemble the increased output of processed wafers.
SEMICONDUCTOR ASSEMBLY MARKET
The market for semiconductor assembly equipment is expected to continue to be
driven by the demand for IC's, as well as the proliferation of different device
types and technological advances in IC packages. Different types of devices
such as microprocessors, logic devices and memory devices require different
assembly and packaging solutions. In addition, current-generation
semiconductors are more complex, more densely fabricated and more highly
integrated than those of prior generations. To package these newer devices,
assembly equipment must be able to handle smaller, more complex packages with
higher pin counts. In addition, device manufacturers and assemblers continue to
demand equipment with faster throughput, greater reliability, more automated
manufacturing support and lower cost of ownership. The market for the
expendable tools and materials used in the semiconductor assembly process is
similarly driven by IC unit volume, cost and increased technological demands.
These demands typically include package size reduction and greater consistency
or uniformity of materials.
SEMICONDUCTOR MANUFACTURING PROCESS
The manufacture of semiconductor devices ("semiconductors" or "IC's") requires
complex and precise steps which can be broadly grouped into wafer fabrication,
assembly and test. Wafer fabrication, the first step in the semiconductor
manufacturing process, starts with raw silicon wafers and ends with finished
devices in the form of die on wafers. After fabricated wafers are tested, they
typically are shipped to assembly facilities located primarily in the
Asia/Pacific region.
Semiconductor devices are small and fragile and must be packaged to protect them
and facilitate their connection to electronic systems. "Assembly" refers to
those process steps required to package semiconductor devices.
2
The packages are typically based on a stamped metal leadframe, which is
subsequently molded with plastic, or on ceramic, depending on the device and the
application in which it will be used.
The semiconductor assembly process begins with the mounting of a finished,
tested wafer onto a carrier, after which a dicing saw cuts the wafer into
individual die. The cut wafer is then moved to a die bonder which picks each
good die off the wafer and bonds it to a package. Next, the device is wire
bonded. Very fine gold or aluminum wire (typically 0.001 inches in diameter) is
bonded between specific locations called bond pads on the die and corresponding
leads on the package in order to create the electrical connections necessary for
the device to function. After wire bonding, the package is encapsulated. For
leadframe-based packages, plastic is molded around the package and the leads are
then trimmed and formed. For ceramic packages, encapsulation is accomplished by
mounting a lid over the die. After encapsulation, devices are re-tested and are
then marked and prepared for shipment.
ACQUISITION OF AFW
On October 2, 1995, after completion of the Company's 1995 fiscal year, the
Company acquired AFW (the "AFW Acquisition") through the merger of a subsidiary
of the Company into Circle "S" Industries, Inc., the parent corporation of AFW
("Circle S"). AFW is a manufacturer of fine gold and aluminum wire for use in
the wire bonding process and has facilities in Selma, Alabama, Singapore and
Zurich, Switzerland.
The preliminary purchase price for the AFW Acquisition totaled approximately
$53.6 million, subject to possible upward or downward adjustment based upon
completion and audit of the closing balance sheet. The Company does not
anticipate that any such adjustment to the purchase price will be material. Of
the $53.6 million, approximately $34.4 million was paid by delivery of
promissory notes to certain former Circle "S" stockholders (the "AFW Notes"),
approximately $12.9 million was paid in cash, approximately $4.3 million was
placed in escrow against certain types of possible liabilities and $2.0 million
was withheld in a closing reserve pending completion and audit of the closing
balance sheet, in accordance with terms of the acquisition agreements. The
Company financed the cash portion of the purchase price with borrowings under a
new bank credit facility with Midlantic Bank N.A. (the "Bank Credit Facility").
Letters of credit securing the AFW Notes also were issued under this facility.
The AFW Notes become due and payable on January 5, 1996; bear interest at the
rate of 6.4375% per year, less costs (1% per year) of the letters of credit; are
not prepayable without the consent of the holders.
The AFW acquisition agreements provide for the indemnification of the Company by
certain former stockholders of Circle "S" (including Larry D. Striplin, Jr.,
formerly the Chairman and largest stockholder of Circle "S") against breaches of
or inaccuracies in various representations and warranties and covenants of
Circle "S" in the acquisition agreements and against certain types of possible
liabilities, including those relating to environmental matters, taxes, possible
violations of laws and similar matters. The indemnification obligations of the
former Circle "S" stockholders generally (i) only apply to the extent that the
aggregate covered claims exceed $375,000, (ii) are subject to an aggregate
maximum limit of $4.26 million, and (iii) terminate either 15 months or three
years after the date of the AFW Acquisition, although certain indemnification
claims are not subject to any minimum and certain other claims (including those
relating to environmental matters and taxes) are subject to higher maximum
limits and extend for longer periods of time. There can be no assurance that
such liabilities will not arise or that, if they do arise, the indemnification
provisions of the AFW Acquisition agreements will adequately protect the
Company.
In connection with the AFW Acquisition, the Company appointed R. Kelly Payne,
the President of AFW, as a Vice President of the Company, and on December 12,
1995, elected Larry D. Striplin, Jr. as a director of the Company. Pursuant to
the AFW Acquisition, the Company assumed a 1990 employment and non-competition
agreement between Circle "S" and Mr. Striplin providing for payments to him or
his estate of $200,000 per year for five years following the date of the AFW
Acquisition. Mr. Striplin's employment by Circle "S" and AFW terminated at the
time of such acquisition. In connection with the AFW Acquisition, the Company
also entered into an employment agreement with R. Kelly Payne.
AFW had sales of approximately $68.8 million and $55.2 million for the year
ended December 31, 1994 and the nine months ended September 30, 1995,
respectively. Income (loss) from continuing operations totaled $2.6
3
million and ($130,000), for the periods ended December 31, 1994 and September
30, 1995, respectively. Net income (loss) for the periods ended December 31,
1994 and September 30, 1995 was $2.6 million and ($2.9) million, respectively,
which included for the 1995 nine-month period a $2.6 million extraordinary loss
from early extinguishment of debt. The consolidated financial statements of
Circle "S" for the periods ended December 31, 1994 and June 30, 1995 were filed
with the Company's Form 8-K dated September 14, 1995 (as amended by a Form 8-K/A
filed October 27, 1995). See also Note 2 to the Company's fiscal 1995
consolidated financial statements included herein.
The Company will account for the AFW Acquisition using the purchase method. The
excess of the purchase price, including transaction related costs, over the
estimated fair value of the net assets acquired is expected to approximate $42
million, consisting primarily of goodwill, and will be amortized over twenty
years.
PRODUCTS
K&S offers a broad range of semiconductor assembly equipment, expendable tools
and materials and complementary services and spare parts used in the
semiconductor assembly process. Set forth below is a table listing the
approximate percentage of the Company's net sales by principal product areas for
its fiscal year ended September 30, 1995 and on a pro forma basis for the same
period giving effect to the AFW Acquisition.
Fiscal Year Ended
September 30, 1995
---------------------------
Actual Pro Forma
------ ---------
Wire Bonders 74% 60%
Additional Assembly Equipment 9 7
Expendable Tools and Materials 7 25
Services and Spare Parts 10 8
---- ----
100% 100%
==== ====
WIRE BONDERS
The Company's principal product line is its family of wire bonders, which are
used to connect extremely fine wires, typically made of gold or aluminum,
between the bonding pads on the die and the leads on the package to which the
die has been bonded. The Company offers both ball and wedge bonders in
automatic and manual configurations. Ball bonders are typically used for
plastic packages (i.e., leadframe-based packages) while wedge bonders are
typically used for ceramic packages.
The Company's principal wire bonders are its Model 1488 Turbo ball bonder and
Model 1474fp wedge bonder. The Company believes that its wire bonders offer
competitive advantages based on high throughput and superior process control
enabling fine pitch bonding and long, low wire loops, which are needed to
assemble advanced IC packages.
The selling prices for the Company's automatic wire bonders range from $60,000
to over $150,000 and from $8,000 to $35,000 for manual wire bonders, in each
case depending upon system configuration and purchase volume.
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 has required
the development of new software and many subassemblies not part of the Company's
current wire bonders. The Company experienced delays in the development of the
Model 1488 Turbo wire bonder and has experienced delays in the development of
the first product in the 8000 family, the Model 8020. The delays in the
development of the Model 8020 have been due to a variety of reasons typical in
the development of new technological products, including hardware and software
related issues and changes in functional specifications based on input from
customers. While development and technical risks exist which have the potential
to further affect the introduction of the Model 8020, the Company currently
expects that the product will be released in the second half of calendar 1996.
However, no assurance can be
4
given that its scheduled introduction in the second half of 1996 will not be
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.
Furthermore, the Company's planned transition to the Model 8020 platform
involves numerous risks, including the possibility that customers will defer
purchases of Model 1488 Turbo 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 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
could materially adversely affect the Company's business, financial condition
and operating results.
ADDITIONAL SEMICONDUCTOR ASSEMBLY EQUIPMENT
In addition to wire bonders, the Company produces other types of semiconductor
assembly equipment, including dicing saws, die bonders, TAB bonders and flip-
chip bonders, which allows the Company to leverage its significant investment in
customer relationships by offering its customers a broad range of assembly
equipment. Principal products offered by the Company consist of the following:
Dicing Saws. After precise automatic positioning of the wafer, a dicing saw is
used to cut it into individual die using diamond-embedded saw blades. The
Company's primary dicing product is its Model 918 fully automated dicing saw.
Dicing saws range in price from $60,000 to more than $185,000. On October 1,
1995, the Company entered into a Manufacturing License and Supply Agreement with
Tokyo Seimitsu Co. Ltd. for the right to manufacture, use and distribute certain
products. In connection with the signing of this agreement, the Company is
discontinuing the manufacture of the 918 saw in its Israeli manufacturing
facility.
Die Bonders. Die bonders are used to attach a semiconductor die to a leadframe
or other package before wire bonding. Through its July 1994 acquisition of
Assembly Technologies, the Company added Models 4206 and 5408 Automatic Die
Attach machines to its die bonder product line. In addition, in March 1995, the
Company shipped its first Model 6900, an automatic multi-process assembly system
which can be configured to support either conventional die bonding applications
or alternate semiconductor assembly technologies. Die bonders range in price
from $60,000 to more than $250,000.
Tape Automated Bonding (TAB). TAB is an alternate assembly method which uses a
thin, flexible film of laminated copper and polyamide in place of a conventional
package. In a TAB assembled device, the die is bonded directly to copper leads,
thereby eliminating the need for wire bonding. The Company's principal TAB
bonder is the Model SP2100. TAB bonders range in price from $375,000 to
approximately $500,000.
Flip-Chip Assembly Systems. Flip-chip is an alternate assembly technique in
which the die is mounted face down in a package or other electronic system using
conductive bumps, thereby eliminating the need for either conventional die or
wire bonding. The Company's Model 6900 is an automatic multi-process assembly
system which can be configured to support flip-chip applications. The Company
shipped the first Model 6900, which was configured as a flip-chip bonder, in
March 1995. Selling prices for flip-chip assembly systems are expected to
exceed $300,000, depending upon configuration.
The Company also offers different configurations of certain of its products for
non-semiconductor applications, including the Company's Model 980 saw for use
in cutting and grinding hard and brittle materials, such as ceramic, glass and
ferrite, for applications such as the fabrication of chip capacitors or disk
drive heads. A variant of the Model 2100 TAB bonder is used to assemble ink jet
printer cartridges.
5
EXPENDABLE TOOLS AND MATERIALS
The Company currently offers a range of expendable tools and materials to
semiconductor device assemblers which it sells under the brand names "American
Fine Wire" and "Micro-Swiss." The Company intends to expand this business in an
effort to increase its revenues related to the manufacture of IC's as opposed to
the expansion of IC manufacturing capacity. The Company sells its expendable
tools and materials for use with competitors' assembly equipment as well as its
own equipment. The following constitute the principal expendable tools and
materials products offered by the Company:
Bonding Wire. AFW is a manufacturer of very fine (typically 0.001 inches in
diameter) gold and aluminum wire used in the wire bonding process. AFW produces
wire to a wide range of specifications, which can satisfy most wire bonding
applications. Gold bonding wire is generally priced based on a fabrication
charge per 1,000 feet of wire, plus the value of the gold. The fabrication
charge varies based on a number of factors, such as total volume, wire diameter
and wire length per spool, and typically ranges from $7 to $10 per 1,000 feet of
wire, depending upon specifications. To minimize AFW's financial exposure to
gold price fluctuations, AFW leases gold for fabrication pursuant to a contract
with its gold supplier, Rothschild Australia Limited ("RAL"), and only purchases
the gold upon shipment and sale of the finished product to the customer.
Accordingly, fluctuations in the price of gold are generally absorbed by RAL or
passed on to AFW's customers.
Expendable Tools. The Micro-Swiss family of expendable tools includes die
collets, capillaries and wedges. Die collets are used to pick up, place and
bond die to packages. Capillaries and wedges are used to feed out, attach and
cut the wires used in wire bonding. Die collets sell for up to $150,
capillaries sell for $6 to $15 and wedges sell for $17 to $45, in each case
depending upon specifications.
SERVICES AND SPARE PARTS
The Company believes that its knowledge and experience have positioned it to
deliver innovative, customer-specific services that reduce the cost of ownership
associated with the Company's equipment. Historically, the Company's offerings
in this area were limited to spare parts, customer training and extended
warranty contracts. In response to customer trends in outsourcing equipment-
related services, the Company now also focuses on providing repair and
maintenance services, a variety of equipment upgrades and training capabilities.
These services are generally priced on a time and materials basis.
CUSTOMERS
The Company's customers include large semiconductor manufacturers and
subcontract assemblers worldwide, among which are the following:
Advanced Micro Devices Micron Technology, Inc.
Advanced Semiconductor Engineering Motorola
Anam Orient Semiconductor Electronics Ltd.
AT&T Olivetti
Caesar Technology Pantronix
Fujitsu Philips Electronics NV
GSS/ARRAY Samsung Pacific, Inc.
Hyundai Electronics Industries Co., Ltd. SGS-Thomson Microelectronics
IBM Silicon Systems
Intel Corporation Siliconware Precision
Kyocera Swire Technologies
Matsushita Electronics Texas Instruments
Sales to a relatively small number of customers account for a significant
percentage of the Company's net sales. During fiscal 1995, sales to Intel and
Anam accounted for approximately 19.8% and 16.3%, respectively, of the Company's
net sales. In fiscal 1994, sales to Anam, Intel and Motorola accounted for
14.2%, 11.5% and 10.8%, respectively, of the Company's net sales.
6
The Company believes that developing long-term relationships with its customers
is critical to its success. By establishing these relationships with
semiconductor manufacturers and subcontract assemblers, the Company gains
insight to its customers' future IC packaging strategies. This information
assists the Company in its efforts to develop process and equipment solutions
that address its customers' future assembly requirements. The Company expects
that sales of its products to a limited number of customers will continue to
account for a high percentage of net sales for the foreseeable future. The loss
of or reduction of orders from a significant customer, including losses or
reductions due to manufacturing, reliability or other difficulties associated
with the Company's products, changes in customer buying patterns, market,
economic or competitive conditions in the semiconductor or subcontract assembly
industries, could adversely affect the Company's business, financial condition
and operating results.
SALES AND CUSTOMER SUPPORT
The Company markets its semiconductor assembly equipment and its expendable
tools and materials through separate sales organizations. With respect to
semiconductor assembly equipment, the Company's direct sales force, consisting
of approximately 60 individuals at September 30, 1995, is principally
responsible for sales of major product lines to customers in the United States,
Japan and the rest of the Asia/Pacific region. Lower volume product lines, as
well as all equipment sales to customers in Europe, are sold through a network
of manufacturer's representatives. The Company sells its AFW and Micro-Swiss
product lines through an independent sales force supporting customers primarily
in the Asia/Pacific region and through manufacturers' representatives supporting
customers throughout the rest of the world.
The Company sells its products to semiconductor device manufacturers and
contract manufacturers, who are primarily located or have operations in the
Asia/Pacific region. Approximately 74% of the Company's fiscal 1994 and 78% of
fiscal 1995 net sales were attributable to sales to customers for delivery
outside of the United States.
The Company believes that providing comprehensive worldwide sales, service and
customer support are important competitive factors in the semiconductor
equipment industry. In order to support its U.S. and foreign customers whose
semiconductor assembly operations are located in the Asia/Pacific region, the
Company maintains a significant presence in the region with sales facilities in
Hong Kong, Japan and Singapore, and a technology center in Japan. In addition,
the Company supports its assembly equipment customers with over 160 customer
service and support personnel at September 30, 1995, located in Hong Kong,
Japan, Korea, Malaysia, the Philippines, Singapore, Taiwan, Thailand and the
United States. The Company's local presence in these Asia/Pacific countries
enables it to provide more timely customer service and support as service
representatives and spare parts are positioned near customer facilities, and
affords customers the ability to place orders locally and to deal with service
and support personnel who speak the same language and are familiar with local
country practices.
BACKLOG
At September 30, 1995, the Company's backlog was approximately $84.7 million
compared to approximately $46.8 million at September 30, 1994. The Company's
backlog consists of product orders for which confirmed purchase orders have been
received and which are scheduled for shipment within 12 months. In addition,
the Company may allocate production capacity to customers for anticipated
purchases for which a confirmed purchase order has not yet been received.
Virtually all orders are subject to cancellation, deferral or rescheduling by
the customer with limited or no penalties. Because of the possibility of
customer changes in delivery schedules or cancellations and potential delays in
product shipments, the Company's backlog as of any particular date may not be
indicative of revenues for any succeeding period.
MANUFACTURING
The Company's assembly equipment manufacturing activities consist primarily of
integrating components and subassemblies to create finished systems configured
to customer specifications. The Company utilizes an outsourcing strategy for
the manufacture of many of its major subassemblies and performs system design,
assembly and testing in-house. K&S believes that outsourcing enables it to
minimize its fixed costs and capital
7
expenditures and allows the Company to focus on product differentiation through
system design and quality control. The Company's just-in-time inventory
management strategy has reduced manufacturing cycle times and has limited on-
hand inventory. The Company recently obtained ISO 9001 registration for most
operations in its Willow Grove, Pennsylvania facility and for both of its
Israeli manufacturing facilities.
The Company manufactures its Micro-Swiss expendable tools and materials from raw
materials at facilities in Israel and its gold and aluminum bonding wire at
facilities in Alabama, Singapore and Switzerland. The Company currently is
constructing a new facility in Israel for its Micro-Swiss operations and intends
to establish a new facility in Singapore for its AFW operations.
Parts, materials and supplies for components used in the Company's products are,
for the most part, readily available from a number of sources at acceptable
costs. Certain of the Company's products, however, require components or
assemblies of an exceptionally high degree of reliability, accuracy and
performance. Currently there are a number of such items for which there are
only a single or limited number of suppliers which have been accepted by the
Company as a qualified supplier. The Company generally does not maintain long-
term contracts with its subcontractors and suppliers, and the Company does not
believe that the Company's business is substantially dependent on any contract
or arrangement with any of its subcontractors or suppliers. However, the
Company's reliance on subcontractors and single source suppliers involves a
number of significant risks, including the loss of control over the
manufacturing process, the potential absence of adequate capacity and the
reduced control over delivery schedules, manufacturing yields, quality and
costs. Further, certain of the Company's subcontractors and suppliers are
relatively small operations and have limited finances and manufacturing
resources. In the event that any significant subcontractor or single source
supplier were to become unable or unwilling to continue to manufacture or sell
subassemblies, components or parts to the Company in required volumes and of
acceptable quality, the Company would have to identify and qualify acceptable
replacements. The process of qualifying subcontractors and suppliers could be
lengthy, and no assurance can be given that any additional sources would be
available to the Company on a timely basis.
The Company has experienced and continues to experience reliability and quality
problems with certain key subassemblies provided by single source suppliers. The
Company also has experienced delays in the delivery of subassemblies from these
and other subcontractors in the past, which caused delays in Company shipments.
If supplies of such items were not available from any such source and a
relationship with an alternative supplier could not be developed, shipments of
the Company's products could be interrupted and re-engineering of the affected
product could be required. In addition, from time to time, the Company has
experienced manufacturing difficulties and problems in its own operation, which
have caused delays and have required remedial measures. Such delays,
interruption and re-engineering could damage the Company's relationships with
its customers and have a material adverse effect on the Company's business,
financial condition and operating results.
RESEARCH AND PRODUCT DEVELOPMENT
Because technological change occurs rapidly in the semiconductor industry, the
Company devotes substantial resources to its research and development programs
to maintain competitiveness. The Company employed more than 290 individuals in
research and development at September 30, 1995. The Company pursues the
continuous improvement and enhancement of existing products while simultaneously
developing next generation products. For example, while the performance of
current generations of gold ball wire bonders is being enhanced in accordance
with a specific continuous improvement plan, the Company is simultaneously
developing the series 8000 family of next generation wire bonders, the first
models of which are expected to be introduced in the second half of 1996. Most
of the next generation equipment presently being developed by the Company is
expected to be based on modular, interchangeable subsystems, including the 8000
control platform, which management believes will promote more efficient and
cost-effective manufacturing operations, lower inventory levels, improved field
service capabilities and shorter product development cycles, which will allow
the Company to introduce new products more quickly.
The Company's net expenditures for research and development totaled
approximately $15.9 million, $21.3 million and $30.9 million during the fiscal
years ended September 30, 1993, 1994 and 1995, respectively. The Company
receives funding from certain customers and government agencies pursuant to
contracts or other arrangements for the performance of specified research and
development activities. Such amounts are recognized as a reduction of research
and development expense when specified activities have been performed.
8
During the fiscal years ended September 30, 1993, 1994 and 1995, such funding
totaled approximately $1.0 million, $2.0 million and $2.8 million, respectively.
COMPETITION
The semiconductor equipment and semiconductor materials industries are intensely
competitive. Significant competitive factors in the semiconductor equipment
market include process capability and repeatability, quality and flexibility,
and cost of ownership, including throughput, reliability and automation,
customer support and price. The Company's major equipment competitors include
Shinkawa and Kaijo in wire bonders; ESEC, Nichiden, ASM Pacific Technology and
Alphasem in die bonders; and Disco Corporation in dicing saws. Competitive
factors in the semiconductor expendable tools and materials industry include
price, delivery and quality. Significant competitors in the expendable tools
line include Gaiser Tool Co. and Small Precision Tools, Inc. In the bonding
wire market, significant competitors include Tanaka Electronic Industries and
Sumitomo Metal Mining.
In each of the markets it serves, the Company faces 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 the Company. Some of these competitors are Japanese companies
that have had and may continue to have an advantage over the Company in
supplying products to Japan-based companies due to their preferences to purchase
equipment from Japanese suppliers. The Company expects its competitors to
continue to improve the performance of their current products and to introduce
new products with improved price and performance characteristics. New product
introductions by the Company's competitors or by new market entrants could
cause a decline in sales or loss of market acceptance of the Company's existing
products. If a particular semiconductor manufacturer or subcontract assembler
selects a competitor's product for a particular assembly operation, the Company
may experience difficulty in selling a product to that company for a significant
period of time. Increased competitive pressure could also lead to intensified
price-based competition, resulting in lower prices which could adversely affect
the Company's business, financial condition and operating results. The Company
believes that to remain competitive it must invest significant financial
resources in new product development and expand its customer service and support
worldwide. There can be no assurance that the Company will be able to compete
successfully in the future.
INTELLECTUAL PROPERTY
Where circumstances warrant, the Company seeks to obtain patents on inventions
governing new products and processes developed as part of its ongoing research,
engineering and manufacturing activities. The Company currently holds a number
of United States patents some of which have foreign counterparts. The Company
believes that the duration of its patents generally exceeds the life cycles of
the technologies disclosed and claimed therein. Although the patents it holds
and may obtain in the future may be of value, the Company believes that its
success will depend primarily on its engineering, manufacturing, marketing and
service skills.
The Company also believes that much of its important technology resides in its
proprietary software and trade secrets. Insofar as the Company relies on trade
secrets and unpatented knowledge, including software, to maintain its
competitive position, there is no assurance that others may not independently
develop similar technologies. In addition, although the Company executes non-
disclosure and non-competition agreements with certain of its employees,
customers, consultants, selected vendors and others, there is no assurance that
such secrecy obligations will not be breached.
Certain of the Company's customers have received notices of infringement from
two separate parties, Harold S. Hemstreet and Jerome H. Lemelson, alleging that
equipment supplied by the Company, and processes performed by such equipment,
infringe on patents held by them. The Company's product warranties generally
provide customers with indemnification for damages sustained by a customer as a
consequence of patent infringement claims arising out of use of the Company's
products and obligate the Company to defend such claims. As a consequence, the
Company could be required to reimburse its customers for certain damages
resulting from these matters and to defend its customers in patent infringement
suits. However, the Company generally does not accept responsibility for any
compromise or settlement made without its written consent. To the Company's
knowledge, no actions have been initiated or threatened directly against the
Company in
9
connection with these matters, although certain customers have requested that
the Company defend them and indemnify them against possible claims based on
their use of equipment supplied by the Company. A number of the Company's
customers have actually been sued, and the Company understands that certain of
them have settled such suits but have not sought any contribution from the
Company. The Company believes that no equipment marketed by the Company, and no
process performed by such equipment, infringe on the patents in question and
does not believe that such matters will have a material adverse effect on its
financial condition or operating results. However, the ultimate outcome of any
infringement claim affecting the Company is uncertain and there can be no
assurances that the resolution of these matters will not have a material adverse
effect on the Company's business, financial condition or operating results.
EMPLOYEES
At September 30, 1995, K&S had 1,695 permanent employees, 55 temporary employees
and 126 contract employees worldwide. In addition, at September 30, 1995, AFW
had 295 employees. The only Company employees represented by a labor union are
AFW's employees in Singapore. K&S considers its employee relations to be good.
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth information regarding the executive officers of
the Company.
First Became
an Officer
Name Age (calendar year) Position
- --------------------- --- --------------- ---------------------------------------------
C. Scott Kulicke 46 1976 Chairman of the Board of Directors and Chief Executive
Officer
Morton K. Perchick 58 1982 Executive Vice President
Clifford G. Sprague 52 1989 Senior Vice President and Chief Financial Officer
Moshe Jacobi 53 1992 Senior Vice President, Expendable Tools and Materials
Asuri Raghavan 42 1991 Senior Vice President, Marketing
Cary H. Baskin 46 1995 Vice President, Die Bonder Business
Mark H. Heeter 48 1995 Vice President, Human Resources
Shlomo Oren 49 1991 Vice President and Managing Director of Kulicke and
Soffa(Israel) Ltd.
R. Kelly Payne 35 1995 Vice President and President of AFW
Charles Salmons 40 1992 Vice President, Operations
Teruhiko Sawachi 52 1991 Vice President and President of Kulicke and Soffa (Japan) Ltd.
Walter Von Seggern 55 1992 Vice President, Engineering and Technology
Michael A. Wolf 51 1995 Vice President, Sales
C. Scott Kulicke has been Chief Executive Officer since 1979 and Chairman of the
Board since 1984. Prior to that he held a number of executive positions with
the Company. Mr. Kulicke is the son of Frederick W. Kulicke, Jr., a member of
the Board of Directors.
Morton K. Perchick joined the Company in 1980 and has served in various
executive positions, most recently as Senior Vice President, prior to his being
appointed Executive Vice President in July 1995.
Clifford G. Sprague joined the Company in March 1989 as Vice President and Chief
Financial Officer and was promoted to Senior Vice President in 1990. Prior to
joining the Company, he served for more than five years as Vice President and
Controller of the Oilfield Equipment Group of NL Industries, Inc., an oilfield
equipment and service company.
Moshe Jacobi has served as the Company's Senior Vice President, Expendable Tools
and Materials since July 1995. Prior to that, he had served as Vice President
of the Company and Managing Director of Micro-Swiss
10
Ltd., a wholly-owned subsidiary of the Company since November 1992. He was
Division Director and General Manager of the Micro-Swiss Division from July to
November 1992, and, from August 1986 to July 1992, he was Deputy Managing
Director of Kulicke and Soffa (Israel) Ltd., a wholly-owned subsidiary of the
Company.
Asuri Raghavan was promoted to Senior Vice President, Marketing in July 1995,
having served as Vice President of the Wire Bonder Business since December 1993.
Prior to that, he served as Vice President, Strategic Development from June 1991
to 1993, and in various other management capacities since joining the Company in
1980, except for the period from December 1985 until November 1987 when he was
Director, Research and Technology of American Optical.
Cary H. Baskin joined the Company in 1992 and since February 1995 he has served
as Vice President, Die Bonder Business. Prior to such time, Mr. Baskin served as
director of corporate marketing and, before that, director of product marketing
for the Company's ball bonding and TAB business. Formerly, Mr. Baskin held
senior marketing positions with Mars Electronics and Checkpoint Systems.
Mark H. Heeter was appointed Vice President, Human Resources in July 1995.
Prior to that, he was Vice President of Human Resources of The Dispatch Printing
Company from 1993 to 1994. From 1987 to 1993, Mr. Heeter was Director of Human
Resources of Checkers, Simon and Rosner, a public accounting and business
services firm.
Shlomo Oren joined the Company in 1980 and has served as a Vice President of the
Company since 1991 and has been Managing Director of Kulicke and Soffa (Israel),
Ltd. since January 1993. Prior to January 1993, he served as Vice President of
Marketing of the Company, Director, Microelectronic Business Division of the
Company, and Deputy Managing Director, Marketing, Kulicke and Soffa (Israel).
R. Kelly Payne was elected a Vice President of the Company in October 1995
following the Company's acquisition of Circle "S" and AFW. Prior to joining the
Company, he had served since 1989 in various executive capacities with AFW and
American Fine Wire, Ltd., its Singapore-based subsidiary. He became President
and Chief Executive Officer of AFW in January 1994.
Charles Salmons joined the Company in 1978 and became Vice President, Operations
in September 1994. Prior to that, he served as Vice President of Manufacturing,
Director of Operations, Director of Production and Manager of Production.
Teruhiko Sawachi joined the Company in December 1991 as Vice President of the
Company and President of Kulicke & Soffa (Japan) Ltd. Prior to that, he was
Representative Director of Senco Japan Ltd., a division of Senco Products, Inc.,
from November 1987 to December 1991.
Walter Von Seggern joined the Company in September 1992 as Vice President of
Engineering and Technology. From April 1988 to April 1992, he worked for M/A-
Com, Inc. He was General Manager of M/A-Com's ANZAC, RGH and Eurotec Divisions
from 1990 to 1992 and from 1988 to 1990, he was General Manager of M/A-Com's
Radar Products Division.
Michael A. Wolf was appointed Vice President, Sales in February 1995, having
served as Director of Sales since 1993. He came to K&S from Proconics
International, Inc., Boston, Massachusetts, where he served as vice president of
sales and marketing, and has more than 25 years of experience within the
semiconductor manufacturing industry in various marketing, sales and sales
management positions.
11
ITEM 2. PROPERTIES
The Company's major facilities are described in the table below:
Lease
Products Expiration
Facility Approximate Size Function Manufactured Date
- ------------ ---------------- --------------- ------------------ ------------
Willow Grove, 214,000 sq.ft. (1) Corp. headquarters, Wire bonders, die bonders N/A
Pennsylvania manufacturing, and TAB bonders
technology center, sales
and service
Haifa, Israel 43,000 sq.ft. (2) Manufacturing, Manual wire bonders, April 2002
technology center, dicing saws and
assembly systems automatic multi-process
assembly systems
Haifa, Israel 26,000 sq.ft. (3) Manufacturing, Micro- Capillaries, wedges and March 1999
Swiss operations die collets
Hong Kong 16,000 sq.ft. (2) Sales and service September 1996
Tokyo, Japan 10,667 sq.ft. (2) Technology center, sales November 1997/
and service July 1996
Singapore 22,942 sq.ft. (2) Manufacturing, AFW Bonding wire November 1997
operations
Selma, Alabama 25,629 sq.ft. (2) Manufacturing, AFW Bonding wire October 2017
operations
Zurich, 15,123 sq.ft. (2) Manufacturing, AFW Bonding wire (4)
Switzerland operations
(1) Owned.
(2) Leased.
(3) Part owned and part leased.
(4) Cancelable semi-annually upon six months' notice.
The Company is planning to expand its Willow Grove, Pennsylvania facilities and
is constructing a manufacturing facility in Yokneam, Israel for its Micro-Swiss
operations. Construction of this latter facility is expected to be completed in
the fall of 1996. Upon completion, the lease of Micro-Swiss' manufacturing
facility in Haifa will be terminated. The Company is also planning to relocate
AFW's Singapore facilities. In addition, the Company rents space for sales and
service offices in Santa Clara, California; Mesa, Arizona; Zug, Switzerland;
Korea; Taiwan; and Singapore. The Company believes that its facilities are
generally in good condition.
ITEM 3. LEGAL PROCEEDINGS
The Company is not aware of any material pending legal matters involving the
Company. See the discussion of certain legal contingencies in Note 12 to the
Company's fiscal 1995 consolidated financial statements included herein.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
12
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock trades on the Nasdaq National Market under the symbol
KLIC. The following table sets forth for the periods indicated the high and low
sale prices for the Common Stock as reported on the Nasdaq National Market,
which prices have been adjusted to reflect the Company's July 1995 two-for-one
stock split.
High Low
---- ---
Fiscal 1994:
- -----------
First Quarter $14 11/16 $ 6 3/16
Second Quarter 8 13/16 5 3/16
Third Quarter 8 1/8 4 11/16
Fourth Quarter 8 11/16 5 5/8
Fiscal 1995:
- -----------
First Quarter $10 31/32 $ 7 1/2
Second Quarter 14 7/8 9 1/8
Third Quarter 33 3/8 13 1/4
Fourth Quarter 45 3/8 32 7/8
On December 1, 1995, there were 731 holders of record of the shares of
outstanding Common Stock.
The Company currently does not pay cash dividends on its Common Stock. The
Company presently intends to retain any future earnings for use in its business
and does not anticipate paying any cash dividends on the Common Stock in the
foreseeable future.
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.
13
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below should be read in
conjunction with the Company's Consolidated Financial Statements and notes
thereto, which are included elsewhere herein.
Income Statement Data: Fiscal Year Ended September 30,
--------------------------------------------------------
1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------
(in thousands, except per share amounts)
Net sales $304,509 $173,302 $140,880 $ 94,959 $100,193
Cost of goods sold 167,457 101,334 79,205 54,558 51,496
-------- -------- -------- -------- --------
Gross profit 137,052 71,968 61,675 40,401 48,697
Selling, general and administrative 50,728 36,752 31,463 34,104 34,083
Research and product development, net 30,884 21,286 15,932 13,887 15,138
Restructuring cost -- -- -- 4,450 --
-------- -------- -------- -------- --------
Income (loss) from operations 55,440 13,930 14,280 (12,040) (524)
Interest expense, net (a) 173 (907) (1,066) (1,019) (1,029)
Other expense (b) -- -- (1,125) -- --
-------- -------- -------- -------- --------
Income (loss) before income taxes and
extraordinary gain 55,613 13,023 12,089 (13,059) (1,553)
Provision for income tax expense (benefit) 12,791 2,605 1,258 (718) (310)
-------- -------- -------- -------- --------
Income (loss) before extraordinary gain 42,822 10,418 10,831 (12,341) (1,243)
Extraordinary gain, net of tax (a) -- -- -- 218 211
-------- -------- -------- -------- --------
Net income (loss) $ 42,822 $ 10,418 $ 10,831 $(12,123) $ (1,032)
======== ======== ======== ======== ========
Income (loss) per share (c):
Primary:
Before extraordinary gain $ 2.38 $ 0.63 $ 0.66 $ (0.78) $ (0.08)
Extraordinary gain -- -- -- 0.01 0.01
-------- -------- -------- -------- --------
Net income (loss) $ 2.38 $ 0.63 $ 0.66 $ (0.77) $ (0.07)
======== ======== ======== ======== ========
Fully diluted:
Before extraordinary gain $ 2.22 $ 0.63 $ 0.66 $ (0.78) $ (0.08)
Extraordinary gain -- -- -- 0.01 0.01
-------- -------- -------- -------- --------
Net income (loss) $ 2.22 $ 0.63 $ 0.66 $ (0.77) $ (0.07)
======== ======== ======== ======== ========
Weighted average shares outstanding (c):
Primary 18,028 16,665 16,342 15,823 15,694
Fully diluted 19,693 16,665 16,342 15,823 15,694
Balance Sheet Data: September 30,
-------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
(in thousands)
Working capital $103,833 $ 61,459 $ 58,190 $ 45,937 $ 57,347
Total assets 191,029 121,198 105,278 83,941 92,922
Long-term debt, less
current portion 156 26,474 26,708 26,778 27,721
Shareholders' equity 133,647 63,234 51,481 38,988 50,173
- ------------------------
(a) In fiscal 1989, the Company began a program of selectively repurchasing its
8% Convertible Subordinated Debentures at such times as market prices were
favorable. The effect of such repurchases has been to reduce interest
expense. During fiscal 1995, all of the Company's remaining 8% Convertible
Subordinated Debentures were converted into Common Stock or redeemed. See
Note 6 to the Company's Consolidated Financial Statements included
elsewhere herein.
(b) In fiscal 1993, the Company incurred $1.1 million in costs associated with
a failed acquisition.
(c) All share and per share data have been restated to give effect to the July
1995 two-for-one stock split.
14
ITEM 7. 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 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. In the past, 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. Furthermore, the
Company's 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
in shipment of a limited number of machines, either due to manufacturing delays
or to rescheduling or cancelation of customer orders, could have a material
adverse effect on results of operations for any particular quarter. The Company
believes that such volatility will continue to characterize the industry and the
Company's operations in the future.
RESULTS OF OPERATIONS
FISCAL YEARS ENDED SEPTEMBER 30, 1995 AND SEPTEMBER 30, 1994
The Company recorded bookings totaling $342.4 million during the fiscal year
ended September 30, 1995 compared to $178.0 million during fiscal 1994. The
continued strength in customer orders is primarily attributable to the following
factors. First, growing end-user demand for semiconductor devices has resulted
in industry-wide expansion both in wafer fabrication capacity and semiconductor
assembly capacity. In addition, certain semiconductor manufacturers are
replacing older assembly capital equipment with newer, higher throughput
machines capable of handling more complex semiconductor devices for a wider
variety of applications. Finally, enhanced versions of the Company's gold ball
wire bonder (Model 1488 Turbo -introduced in late fiscal 1994) and aluminum
wedge bonder (Model 1474fp - introduced in the second quarter of fiscal 1995)
offer significant performance advantages compared to the Company's earlier
models, including greater throughput, finer pitch capabilities and improved
programmability to handle a wider variety of applications. Favorable customer
acceptance of these enhanced models contributed to the Company's increased
volume of orders during fiscal 1995.
At September 30, 1995, the backlog of customer orders totaled approximately
$84.7 million compared to $46.8 million at September 30, 1994. Since the timing
of deliveries may vary and orders generally are subject to cancellation, the
Company's backlog as of any date may not be indicative of sales for any
succeeding period.
Net sales for the fiscal year ended September 30, 1995 increased 76% to $304.5
million compared to $173.3 million during fiscal 1994. Approximately $123.6
million of this increase was due to higher unit volume, primarily of the
Company's Model 1488 Turbo gold ball wire bonders and 1474fp aluminum wedge
bonders, and, to a lesser extent, to increased sales of consumable tools and
spare parts. Higher selling prices for the Model 1488 Turbo ball bonder and
Model 1474fp wedge bonder contributed approximately $7.6 million to net sales in
fiscal 1995, over the amounts reported in fiscal 1994. In addition,
approximately $6.1 million of the volume increase was attributable to sales of
products added from the July 1994 acquisition of Assembly Technologies ("AT").
By geographic region, increases in net sales in fiscal 1995 as compared to
fiscal 1994 were primarily attributable to customers located in the Asia/Pacific
region, and, to a lesser extent, to customers located in the United States.
Sales to customers in the Asia/Pacific region and the United States accounted
for more than 90% of the Company's net sales in fiscal 1995.
Gross profit as a percentage of net sales increased to 45.0% for fiscal 1995
compared to 41.5% for fiscal 1994. The increase in the gross profit percentage
resulted principally from improved manufacturing overhead absorption associated
with higher sales volumes, the improved gross profit margin on the gold ball and
wedge bonder products largely due to the higher selling prices realized on the
new, enhanced models, and to a shift in sales mix toward higher margin wedge
bonders. During fiscal 1994, the wedge bonder product line comprised 14% of net
revenues; in fiscal 1995, wedge bonder products accounted for 20% of net
revenues. Partially offsetting the above factors were additional inventory
reserves established for slower moving products during
15
fiscal 1995.
Selling, general and administrative expenses ("SG&A") totaled $50.7 million
during fiscal 1995, compared to $36.8 million during fiscal 1994. This increase
was primarily attributable to higher employment levels required to support the
higher volume of business, increased sales incentives and commissions resulting
from the higher sales levels, increased management incentives associated with
improved earnings and higher outside contractor costs associated with ongoing
internal management information systems development efforts. Of the total
increase in SG&A costs, $1.5 million was related to the incremental costs
incurred by the Company to market and support die bonder products added through
the July 1994 acquisition of AT.
Net research and development ("R&D") costs increased to $30.9 million for the
fiscal year ended September 30, 1995, compared to $21.3 million for the same
period last year. Of the $9.6 million increase in fiscal 1995, $2.0 million
resulted from incremental expenditures related to development of the Company's
next generation of die bonders and enhancements to die bonder products added
through the AT acquisition. The remainder consisted primarily of personnel
related costs, outside contractor costs and prototype materials related to new
product development. Gross R&D expenses were partially offset by funding
received from customers and governmental subsidies totaling $2.8 million in
fiscal 1995 and $2.0 million in fiscal 1994.
The Company continues to invest heavily in the development of the 8000 Series
wire bonders and in enhancements of existing products, including the Model 1488
turbo ball bonder and Model 1474fp wedge bonder to enable them to handle higher
lead-count devices with finer pitch requirements at faster bonding speeds than
the earlier Models. In addition, the Company continues to invest in new
technologies which may eventually lead to improved or alternate semiconductor
assembly technologies.
Operating income totaled $55.4 million for fiscal 1995 compared to $13.9 million
for the same period in fiscal 1994. This improvement resulted principally from
the higher revenue levels and improved gross profit margins, offset in part by
the increased SG&A and R&D expenses noted above. The majority of the increase
in operating profit was realized in the United States, where the Company
maintains its principal manufacturing operations, and in Hong Kong where the
Company's Asia/Pacific sales activities are centered.
During fiscal 1995, all of the Company's remaining 8% Convertible Subordinated
Debentures were converted into Common Stock or redeemed. As a result, interest
expense during fiscal 1995 was lower than the amount reported in fiscal 1994.
In connection with the October 2, 1995 AFW acquisition, the Company borrowed
$15.0 million under its Bank Credit facility and $34.4 million pursuant to
promissory notes issued to certain former Circle "S" shareholders. During
fiscal 1996, the Company will incur interest expense associated with these
borrowings until they are repaid.
The increase in the effective tax rate to 23% in fiscal 1995 compared to the
fiscal 1994 rate of 20% was due primarily to utilization of remaining net
operating loss carryforwards in fiscal 1994, utilization in the United States of
R&D tax credits not previously used due to the effects of net operating losses,
and to the amount and geographic distribution of taxable income in fiscal 1995.
The Company expects that its overall effective tax rate will be higher in the
future, as most available tax credits were utilized by the end of fiscal 1995.
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 will require
the development of new software and many subassemblies not part of the Company's
current wire bonders. While development and technical risks exist which have
the potential to delay the introduction of the Model 8020, the Company currently
expects that the product will be released in the second half of calendar 1996.
However, no assurance can be given that its scheduled introduction in the second
half of 1996 will not be 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. Furthermore, the Company's planned transition to the Model
8020 platform involves numerous risks, including the possibility that customers
will defer purchases of Model 1488 Turbo 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
forecast
16
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.
In October 1995, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-based Compensation" ("SFAS 123"), was issued. This
statement requires the fair value of stock options and other stock-based
compensation issued to employees to either be included as compensation expense
in the income statement, or the pro forma effect on net income and earnings per
share of such compensation expense to be disclosed in the footnotes to the
Company's financial statements commencing with the Company's 1997 fiscal year.
The Company expects to adopt SFAS 123 on a disclosure basis only. As such,
implementation of SFAS 123 is not expected to impact the Company's consolidated
balance sheet or income statement.
ACQUISITION OF AFW
On October 2, 1995, the Company acquired AFW, a manufacturer of gold and
aluminum bonding wire primarily used in the semiconductor assembly industry.
Following the AFW acquisition, the Company's consolidated operating results will
include the sales, costs and expenses of AFW. During the 12 month period ended
September 30, 1995, AFW's revenues totaled $72.4 million. Revenues of AFW
include a fabrication charge per thousand feet of wire and the value of precious
metals (primarily gold) which is sold to the customer. . AFW has historically
reported a lower gross profit margin than the Company. As such, the Company
expects its future consolidated gross profit percentage to be lower than
historically reported.
The Company's future operating costs will include the operating costs of
the AFW business, amortization of intangible assets, including goodwill, arising
from the AFW Acquisition and interest expense associated with the acquisition
financing. The amortization of intangible assets arising from the AFW
Acquisition is not expected to be tax deductible, and as such, will adversely
affect the Company's overall effective tax rate in the future. See Note 2 to the
Company's fiscal 1995 consolidated financial statements include herein.
As a result of the AFW acquisition, the portion of the Company's operations
attributable to the expendable tools and materials will exceed 10% of total
revenues. These products have different manufacturing processes, distribution
channels and a less volatile revenue pattern than the Company's capital
equipment business. Accordingly, in the future, the Company intends to report
its operations in two business segments, its equipment business (sales of
capital equipment, related spare parts and services) and its expendable tools
and materials business (which will include the Micro-Swiss and AFW operations).
FISCAL YEARS ENDED SEPTEMBER 30, 1994 AND SEPTEMBER 30, 1993
The Company achieved record sales and bookings of customer orders during fiscal
1994. This growth was driven by the continued expansion of the semiconductor
industry and increased investment in semiconductor assembly equipment. Driven
largely by growing demand for the Company's Model 1484LXQ gold ball wire bonders
and Model 1472 aluminum wedge bonders, bookings increased 11% in fiscal 1994 to
$178.0 million. Backlog rose from $42.0 million at September 30, 1993 to $46.8
million at September 30, 1994.
Net sales increased 23% in fiscal 1994 to $173.3 million compared to $140.9
million in 1993. Increased unit volume, primarily of the Company's Model
1484LXQ gold ball wire bonders, Model 1472 aluminum wedge bonders and expendable
tools, generated approximately $38.7 million of incremental net sales in fiscal
1994 over fiscal 1993. The acquisition of the AT business contributed an
additional $1.9 million to fiscal 1994 net sales. By geographic region,
increases in net sales in 1994 as compared with 1993 were primarily attributable
to customers located in the Asia Pacific region and, to a lesser extent, to
customers located in the United States. Sales to customers in Asia Pacific and
the United States accounted for more than 90% of the Company's net sales in
fiscal 1994.
17
Increases in net sales from the higher unit volume were partially offset by
lower average selling prices of certain machines due to the continuing
competitive pricing environment in the Asian market and to discounts given for
certain large volume orders booked early in fiscal 1994. In July 1994, the
Company introduced the Model 1488 Turbo gold ball wire bonder, which offers
significantly improved throughput compared to the Model 1484LXQ ball bonders.
The higher productivity offered by this model led to higher average selling
prices.
Cost of goods sold increased to $101.3 million for fiscal 1994 from $79.2
million during fiscal 1993, largely as a result of increased unit volume in
fiscal 1994. Gross profit as a percentage of net sales decreased from 43.8%
during fiscal 1993 to 41.5% for fiscal 1994. This change resulted primarily
from the lower average selling prices realized on Model 1484LXQ gold ball wire
bonders and, to a lesser extent, from a shift in sales mix. In fiscal 1994,
sales of gold ball wire bonders, which have lower than average gross margins,
increased to 51% of net sales compared to 46% of total net sales in fiscal 1993.
Conversely, sales of higher margin spare parts declined from 14% of net sales in
1993 to 11% in 1994.
SG&A expenses increased 17% to $36.8 million in fiscal 1994 from the $31.5
million reported in fiscal 1993. These higher expenses were primarily
attributable to increased sales and customer support activities associated with
increased unit volume and the larger installed base of machines, increased costs
to enhance the Company's worldwide management information systems and
incremental costs to market and support the additional products offered by the
Company following the acquisition of AT, including a new sales and service
office in Singapore.
Net R&D increased to $21.3 million during fiscal 1994 from $15.9 million in
fiscal 1993. Personnel related costs rose as the Company expanded its overall
level of R&D activities in fiscal 1994. In addition, the Company incurred
higher outside service and prototype materials costs in fiscal 1994 as R&D
activities on new products progressed from the design to the development and
testing stage. Gross R&D expenses were partially offset by funding received
from customers and governmental subsidies totaling $2.0 million in fiscal 1994
and $1.0 million in fiscal 1993. Major R&D projects during fiscal 1994 included
development of the improved productivity Model 1488 Turbo gold ball wire bonder,
continued efforts toward the next generation 8000 series automatic wire bonders,
development of the Model 6900 automatic die attach machine and continuous
improvements to enhance the capabilities or extend the lives of the Company's
existing products.
Income from operations totaled $13.9 million in fiscal 1994 compared to $14.3
million in fiscal 1993. Although gross profit increased $10.3 million from
fiscal 1993 to fiscal 1994, gross profit margin as a percentage of sales
decreased from 43.8% in fiscal 1993 to 41.5% in fiscal 1994. This decline
resulted primarily from the lower average selling prices for 1484LXQ gold ball
wire bonders and, to a lesser extent, an unfavorable shift in the sales mix. As
discussed previously, SG&A and R&D expenses increased $10.7 million resulting in
lower operating income (primarily in the United States) in fiscal 1994 compared
to fiscal 1993.
Changes in interest income and expense were not significant. In fiscal 1993, the
Company charged $1.1 million to expense in connection with a failed acquisition
attempt; there was no comparable charge in fiscal 1994. The Company's effective
tax rate increased to 20% in fiscal 1994 compared to 10.4% in fiscal 1993. The
increase primarily resulted from a shift in the amount and geographic
distribution of taxable income during fiscal 1994 and from higher utilization of
net operating loss carryforwards in the United States and Israel during fiscal
1993.
LIQUIDITY AND CAPITAL RESOURCES
During the past three fiscal years, the Company has financed its operations
principally through cash flows from operations. Cash flows from operating
activities and the overall increase in cash and total investments in fiscal 1995
compared to fiscal 1994 generally reflect improved profitability in fiscal 1995.
Cash generated by operating activities totaled $22.0 million during fiscal 1995
compared to $12.8 million during fiscal 1994. Cash and total investments
increased to $40.9 million at September 30, 1995 from the $27.0 million reported
at September 30, 1994.
At September 30, 1995, working capital increased to $103.8 million compared to
$61.5 million at September 30, 1994. The accounts receivable balance at
September 30, 1995 increased by $37.2 million compared to the
18
September 30, 1994 balance due largely to increased sales volume in the fiscal
1995 fourth quarter. The $13.6 million increase in inventory at September 30,
1995 primarily reflects growth in raw materials and work in process inventories
as the Company continues to increase manufacturing activities to satisfy
increased customer demand for its products.
Trade accounts payable and accrued expenses increased by approximately $20.9
million at September 30, 1995 compared to their September 30, 1994 balances.
The increase in trade payables is directly attributable to increased inventory
purchases during the fourth quarter of fiscal 1995. The increase in accrued
expenses primarily resulted from higher sales and management incentives due to
improved fiscal 1995 sales and profits and to increased accruals associated with
higher employment levels compared to fiscal 1994.
During fiscal 1995, the Company invested approximately $10.8 million in property
and equipment, primarily to upgrade equipment used in the Company's
manufacturing and R&D activities and for tooling used in the manufacturing of
new machines. The Company presently expects fiscal 1996 capital spending to
approximate $30 million. The principal capital projects planned for fiscal 1996
include expansion of facilities (including Singapore and Israel), the purchase
of equipment necessary to expand capacity, and a new world-wide management
information system. Relocation of AFW's facility in Singapore and the Micro-
Swiss facility in Israel is not expected to have a material adverse effect on
the Company's results of operation, cash flow or liquidity.
The Company has signed a memorandum of understanding and is currently in
discussions with one party which would involve the formation of a joint venture
to pursue flip-chip bonding technology development and subcontract services to
semiconductor manufacturers. Such joint venture, if consummated on the terms
currently being discussed, would require a minimum initial investment of
approximately $11.0 million to fund the start up of operations.
Cash proceeds to the Company from stock option exercises and sales of shares of
Common Stock to employees pursuant to the Company's Employee Stock Purchase Plan
generated approximately $1.5 million in cash during fiscal 1995.
The Company maintains a $10.0 million unsecured revolving bank credit facility,
subject to interest at 0.25% below the lender's prime rate. Borrowings under
this credit line are subject to the Company's compliance with certain financial
and other covenants. There were no borrowings under this credit line during
fiscal 1995. This credit line will expire on March 29, 1996, unless renewed.
The Company expects to renew this credit line.
As described more fully in Note 6 to the Company's fiscal 1995 consolidated
financial statements, the Company borrowed $15.0 million under its new term
credit facility and $34.4 million pursuant to certain promissory notes, to
finance the AFW acquisition. The promissory notes are due January 5, 1996. The
Company may borrow additional amounts under the term credit facility to repay
the AFW Notes when due. Amounts borrowed under the term credit facility will
automatically convert into a five-year term loan payable in equal monthly
installments if not repaid by March 29, 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.
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, including debt service requirements under its bank credit
facility. The Company may, however, seek equity or debt financing to provide
capital for corporate purposes and/or to fund strategic
19
business opportunities, including possible acquisitions, joint ventures,
alliances or other business arrangements which could require substantial capital
outlays. The timing and amount of 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The consolidated Financial Statements of Kulicke and Soffa Industries, Inc. and
its subsidiaries, listed in the index appearing under Item 14 (a) (1) and (2)
are filed as part of the Annual Report on Form 10-K.
20
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
Kulicke and Soffa Industries, Inc.
In our opinion, based upon our audits and the report of other auditors, the
consolidated financial statements listed in the index appearing under Item
14(a)(1) and (2) on page 22 of this Annual Report on Form 10-K present fairly,
in all material respects, the financial position of Kulicke and Soffa
Industries, Inc. and its subsidiaries at September 30, 1995 and 1994, and the
results of their operations and their cash flows for each of the three years in
the period ended September 30, 1995, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We did not audit the consolidated
financial statements of Kulicke and Soffa (Israel) Ltd., a wholly-owned
subsidiary, as of September 30, 1994 and for the years ended September 30, 1994
and 1993 which consolidated statements reflect, before adjustments to eliminate
intercompany activity, total assets of $17,906,000 at September 30, 1994 and net
sales of $27,864,000 and $23,629,000 for the years ended September 30, 1994 and
1993, respectively. Those statements were audited by other auditors whose
report thereon has been furnished to us, and our opinion expressed herein,
insofar as it relates to the amounts included for Kulicke and Soffa (Israel)
Ltd., is based solely on the report of the other auditors. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits and the report of other auditors provide a reasonable basis for the
opinion expressed above.
/s/ PRICE WATERHOUSE LLP
Philadelphia, Pennsylvania
November 14, 1995
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Directors and Shareholders of
Kulicke and Soffa (Israel) Ltd.
We have audited the consolidated balance sheets of Kulicke and Soffa (Israel)
Ltd. and subsidiary as of September 30, 1994, and the related consolidated
statements of operations and retained earnings and cash flows for each of the
two years in the period ended September 30, 1994, all expressed in U.S. dollars.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing standards
in Israel and the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements (not separately presented
herein) expressed in U.S. dollars, present fairly, in all material respects, the
consolidated financial position of Kulicke and Soffa (Israel) Ltd. and
subsidiary as of September 30, 1994, and the consolidated results of their
operations and retained earnings and their cash flows for each of the two years
in the period ended September 30, 1994, in conformity with generally accepted
accounting principles in the United States.
/s/ LUBOSHITZ, KASIERER & CO.
Certified Public Accountants (Israel)
Haifa, Israel
November 3, 1994
95272948
F-2
KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
September 30,
---------------------------
1995 1994
------- -------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (including time
deposits: 1995 - $7,877; 1994 - $1,297) $ 28,624 $ 8,754
Short-term investments 9,590 12,933
Accounts and notes receivable (less allowance
for doubtful accounts: 1995 - $1,094;
1994 - $422) 77,427 40,258
Inventories, net 40,850 27,218
Prepaid expenses and other current assets 3,534 2,427
-------- --------
TOTAL CURRENT ASSETS 160,025 91,590
Investments in debt securities held-to-maturity 2,732 5,310
Property, plant and equipment, net 25,519 20,562
Other assets, including goodwill 2,753 3,736
-------- --------
TOTAL ASSETS $191,029 $121,198
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Debt due within one year $ 60 $ 60
Accounts payable to suppliers and others 33,145 19,956
Accrued expenses 16,014 8,300
Estimated income taxes payable 6,973 1,815
-------- --------
TOTAL CURRENT LIABILITIES 56,192 30,131
Long-term debt, less current portion 156 26,474
Deferred income taxes -- 642
Other liabilities 1,034 717
-------- --------
TOTAL LIABILITIES 57,382 57,964
-------- --------
Commitments and contingencies (Notes 2, 5, 6, 8 and 12) -- --
SHAREHOLDERS' EQUITY:
Preferred stock, without par value:
Authorized - 5,000 shares; issued - none -- --
Common stock, without par value:
Authorized - 50,000 shares; issued and
outstanding: 1995 - 19,310; 1994 - 16,499 45,757 17,839
Retained earnings 89,238 46,416
Cumulative translation adjustment (1,348) (841)
Unrealized loss on investments, net of tax -- (180)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 133,647 63,234
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $191,029 $121,198
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED INCOME STATEMENT
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Fiscal Year Ended September 30,
-------------------------------------------
1995 1994 1993
-------- --------- ---------
Net sales $304,509 $173,302 $140,880
Cost of goods sold 167,457 101,334 79,205
-------- -------- --------
Gross profit 137,052 71,968 61,675
Selling, general and administrative 50,728 36,752 31,463
Research and development, net 30,884 21,286 15,932
-------- -------- --------
Income from operations 55,440 13,930 14,280
Interest income 1,580 1,264 1,136
Interest expense (1,407) (2,171) (2,202)
Other expense -- -- (1,125)
-------- -------- --------
Income before income taxes 55,613 13,023 12,089
Provision for income tax expense 12,791 2,605 1,258
-------- -------- --------
Net income $ 42,822 $ 10,418 $ 10,831
======== ======== ========
Net income per share:
Primary $ 2.38 $ 0.63 $ 0.66
Fully diluted $ 2.22 $ 0.63 $ 0.66
Weighted average number of
shares outstanding:
Primary 18,028 16,665 16,342
Fully diluted 19,693 16,665 16,342
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
Fiscal Year Ended September 30,
--------------------------------
1995 1994 1993
-------- ------- ------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 42,822 $ 10,418 $ 10,831
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 4,947 3,940 3,212
Provision for doubtful accounts 826 103 175
(Gain) loss on sale or disposition of
property and equipment (136) 370 9
Deferred taxes on income (718) 234 408
Provision for inventory reserves 2,758 677 1,011
Foreign currency transaction (gain) loss 281 (267) (138)
Changes in components of working capital,
excluding effects of business acquisitions:
Increase in accounts receivable (37,995) (11,023) (10,695)
Decrease (increase) in inventories (16,390) 3,258 (10,604)
Decrease (increase) in prepaid expenses
other current assets (1,107) 677 630
Increase in accounts payable and
accrued expenses 20,903 2,523 8,178
Increase in estimated income taxes payable 5,158 1,287 585
Other, net 699 573 275
-------- -------- --------
Net cash provided by operating activities 22,048 12,770 3,877
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of net assets of Assembly Technologies,
including transaction costs -- (3,296) --
Purchases of investments classified
as available-for-sale (12,612) (25,891) (10,608)
Proceeds from sales of investments
classified as available-for-sale 16,631 22,825 10,824
Proceeds from maturities of investments
classified as held-to-maturity 2,082 -- --
Purchases of plant and equipment (10,777) (6,202) (4,404)
Proceeds from sale of property and equipment 1,067 123 122
-------- -------- --------
Net cash used by investing activities (3,609) (12,441) (4,066)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on borrowings (60) (60) (82)
Proceeds from issuances of common stock 1,484 1,084 1,215
-------- -------- --------
Net cash provided by financing activities 1,424 1,024 1,133
-------- -------- --------
Effect of exchange rate changes on cash 7 (12) 55
-------- -------- --------
CHANGE IN CASH AND CASH EQUIVALENTS 19,870 1,341 999
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 8,754 7,413 6,414
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 28,624 $ 8,754 $ 7,413
======== ======== ========
See Note 6 for disclosure of non-cash financing activities.
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS)
Cumulative Unrealized Total
Common Stock Retained Translation Loss on Shareholders'
------------------------
Shares Amount Earnings Adjustment Investments Equity
-------- -------- --------- ---------- ----------- --------
Balances at September 30, 1992 15,888 $15,066 $25,167 $(1,245) $ -- $ 38,988
Purchases under the employee stock
purchase plan 127 330 -- -- -- 330
Employer contribution
pursuant to 401(k) plan 22 91 -- -- -- 91
Exercise of stock options 206 840 -- -- -- 840
Shares issued upon conversion of
subordinated debt 1 9 -- -- -- 9
Translation adjustment -- -- -- 392 -- 392
Net income -- -- 10,831 -- -- 10,831
------ ------- -------- ------- ----- --------
Balances at September 30, 1993 16,244 16,336 35,998 (853) -- 51,481
Purchases under the employee stock
purchase plan 79 369 -- -- -- 369
Employer contribution
pursuant to 401(k) plan 16 112 -- -- -- 112
Exercise of stock options 144 603 -- -- -- 603
Tax benefit from exercise of
stock options -- 245 -- -- -- 245
Shares issued upon conversion of
subordinated debt 16 174 -- -- -- 174
Translation adjustment -- -- -- 12 -- 12
Unrealized loss on investments -- -- -- -- (180) (180)
Net income -- -- 10,418 -- -- 10,418
------ ------- -------- ------- ----- --------
Balances at September 30, 1994 16,499 17,839 46,416 (841) (180) 63,234
under the employee stock
purchase plan 119 556 -- -- -- 556
Employer contribution pursuant
to 401(k) plan 12 118 -- -- -- 118
Exercise of stock options 217 928 -- -- -- 928
Tax benefit from exercise of
stock options -- 154 -- -- -- 154
Shares issued upon conversion of
subordinated debt 2,463 26,162 -- -- -- 26,162
Translation adjustment -- -- -- (507) -- (507)
Unrealized gain on investments -- -- -- -- 180 180
Net income -- -- 42,822 -- -- 42,822
------ ------- ----------- ------- ----- --------
Balances at September 30, 1995 19,310 $45,757 $89,238 $(1,348) $ -- $133,647
====== ======= =========== ======= ===== ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These consolidated financial statements include the accounts of Kulicke and
Soffa Industries, Inc. and its subsidiaries (the "Company"), with appropriate
elimination of intercompany balances and transactions.
Cash Equivalents - The Company considers all highly liquid investments with
original maturities of three months or less when purchased to be cash
equivalents.
Investments - At September 30, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115 ("SFAS 115"), "Accounting for Certain Investments
in Debt and Equity Securities." In accordance with SFAS 115, the Company's
investments other than cash equivalents are classified as "trading," "available-
for-sale" or "held-to-maturity," depending upon the nature of the investment,
its ultimate maturity date in the case of debt securities, and management's
intentions with respect to holding the securities. Investments classified as
available-for-sale are reported at fair market value, with net unrealized gains
or losses reflected as a separate component of shareholders' equity. Investments
classified as held-to-maturity are reported at amortized cost. Realized gains
and losses are determined on the basis of specific identification of the
securities sold.
Concentration of Credit Risks - Financial instruments which may subject the
Company to concentration of credit risk at September 30, 1995 and 1994 consist
primarily of investments and trade receivables. The Company manages credit risk
associated with investments by investing its excess cash in investment grade
debt instruments of the U.S. Government, financial institutions and
corporations. The Company has established investment guidelines relative to
diversification and maturities designed to maintain safety and liquidity. These
guidelines are periodically reviewed and modified to take advantage of trends in
yields and interest rates. The Company's trade receivables result primarily
from the sale of semiconductor equipment and related accessories and replacement
parts to a relatively small number of large manufacturers in a highly
concentrated industry. The Company continually assesses the financial strength
of its customers to reduce the risk of loss. Accounts receivable at September
30, 1995 and 1994 include notes receivable of $15,164 and $204, respectively.
The majority of the notes receivable represent an unsecured note from one
customer due in 270 days from the date of shipment, with interest commencing
after 90 days from the date of issuance at the prime rate plus .25%.
Inventories - Inventories are stated at the lower of cost (determined on the
basis of first-in, first-out for certain inventories and average cost for
others) or market. The Company generally provides reserves for inventory
considered to be in excess of 18 months of forecasted future demand.
Property, Plant and Equipment - Property, plant and equipment are carried at
cost. The cost of additions and those improvements which increase the capacity
or lengthen the useful lives of assets are capitalized while repair and
maintenance costs are expensed as incurred. Depreciation and amortization are
provided on a straight-line basis over the following estimated useful lives:
buildings - 25 to 40 years; machinery and equipment - 3 to 8 years; leasehold
improvements - life of lease or life of asset. Purchased computer software
costs related to business and financial systems are included in other assets and
are amortized over a five year period on a straight-line basis.
Intangible Assets - Goodwill resulting from acquisitions accounted for using the
purchase method is amortized on a straight-line basis over the estimated period
to be benefited by the acquisition ranging from fifteen to twenty years (see
Notes 2 and 10). The Company has adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
effective October 1, 1994. The carrying value of long-lived assets, including
goodwill, is evaluated whenever changes in circumstances indicate the carrying
amount of such assets may not be recoverable. In performing such review for
recoverability, the Company compares the expected future cash flows to the
carrying value of long-lived assets and identifiable intangibles. If the
anticipated discounted future cash flows are less than the carrying amount of
such assets, the Company recognizes an impairment loss for the difference
between the carrying amount of the assets and their estimated fair value. If an
asset being tested for recoverability was acquired in a
F-7
business combination accounted for using the purchase method, the excess of cost
over fair value of net assets that arose in that transaction is allocated to the
assets being tested for recoverability on a pro rata basis using the relative
fair values of the long-lived assets and identifiable intangibles acquired at
the acquisition date.
Post-Employment Benefits - In fiscal 1995, the Company adopted SFAS No. 112,
"Employers' Accounting for Postemployment Benefits." This Statement requires
that these benefits be accrued over the employees' periods of service if such
benefits vest ratably, or upon termination in certain instances. Adoption of
this new statement did not materially impact the Company's financial position or
results of operations.
Foreign Currency Translation - The U.S. dollar is the functional currency for
all subsidiaries except Kulicke and Soffa (Japan) Ltd., whose functional
currency is the Japanese yen. Unrealized translation gains and losses resulting
from the translation of Kulicke and Soffa (Japan) Ltd. functional currency
financial statement amounts into U.S. dollars in accordance with SFAS No. 52 are
not included in determining net income but are accumulated in the Cumulative
Translation Adjustment account as a separate component of shareholders' equity.
Gains and losses resulting from foreign currency transactions are included in
the determination of net income.
Revenue Recognition - Sales are recorded upon shipment of products or
performance of services. Expenses for estimated product returns and warranty
costs are accrued in the period of sale recognition.
Research and Development Arrangements - The Company receives funding from
certain customers and government agencies pursuant to contracts or other
arrangements for the performance of specified research and development
activities. Such amounts are recognized as a reduction of research and
development expense when specified activities have been performed. During
fiscal 1995, 1994 and 1993, reductions to research and development expense
related to such funding totaled $2,843, $2,022 and $1,005, respectively.
Income Taxes - On October 1, 1993, the Company adopted SFAS No. 109, "Accounting
for Income Taxes," on a prospective basis. Until September 30, 1993 the
Company's provision for income taxes was based upon SFAS No. 96. Implementation
of SFAS No. 109 did not have a material effect on the Company's financial
statements. Deferred income taxes are not provided for undistributed earnings
of consolidated subsidiaries when such earnings are determined to be invested
indefinitely.
Earnings Per Share - Primary earnings per share are computed using the weighted
average number of common shares outstanding. Recognition is given to the
assumed exercise of stock options, if dilutive. Fully diluted earnings per
share are computed based on the weighted average number of shares outstanding
plus those shares assumed to be issued upon the exercise of stock options and,
in fiscal 1995, the conversion of the subordinated debentures, after giving
effect to the elimination of interest expense, net of income taxes, applicable
to the debentures. For fiscal 1994 and 1993, no recognition was given to the
assumed conversion of debentures since such conversion would either be anti-
dilutive or dilution would be less than 3%.
Accounting for Stock-based Compensation - In October 1995, Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-based
Compensation" ("SFAS 123"), was issued. This statement requires the fair value
of stock options and other stock-based compensation issued to employees to
either be included as compensation expense in the income statement, or the pro
forma effect on net income and earnings per share of such compensation expense
to be disclosed in the footnotes to the Company's financial statements
commencing with the Company's 1997 fiscal year. The Company expects to adopt
SFAS 123 on a disclosure basis only. As such, implementation of SFAS 123 is not
expected to impact the Company's consolidated balance sheet or income statement.
NOTE 2: SUBSEQUENT EVENT - 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., the parent corporation of AFW ("Circle S"). 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 preliminary purchase price, before transaction related costs, approximated
$53.6 million, subject to possible upward or downward adjustment upon completion
of the audit of the closing balance sheet. The Company does not anticipate
F-8
any material adjustment to the preliminary purchase price. The purchase price
was initially financed by borrowings under a new bank term credit facility and
seller promissory notes (see Note 6). The excess of the total purchase price
over the estimated fair value of acquired tangible net assets is expected to
approximate $42 million, consisting primarily of goodwill and a favorable
operating lease, both of which will be amortized over a twenty-year period.
This acquisition will be accounted for in fiscal 1996 using the purchase method.
Accordingly, AFW's operating results will be included in the Company's
historical financial statements commencing October 2, 1995.
Revenues of AFW include a fabrication charge per thousand feet of wire and the
value of precious metals (primarily gold) which is sold to the customer. Gross
revenues could vary significantly based on market fluctuations in the value of
gold. To minimize the Company's financial exposure to gold price fluctuations,
the Company obtains gold from its gold supplier on a consignment basis during
the fabrication process and purchases the gold upon shipment and sale of the
finished product to the customer.
Unaudited pro forma balance sheet and income statement data reflecting the
combined balance sheet at September 30, 1995 and combined operating results of
the Company and AFW as if the acquisition had occurred on October 1, 1994, after
giving effect to certain pro forma adjustments, are as follows:
Pro forma
(unaudited)
---------
Current assets $178,214
Property, plant and equipment, net 29,206
Intangible assets, including goodwill, net 43,454
Other assets 5,508
---------
Total assets $256,382
=========
Debt due within one year $ 57,489
Other current liabilities 63,256
Other liabilities 1,990
---------
Total liabilities 122,735
=========
Shareholders' equity 133,647
---------
Total liabilities and shareholders' equity $256,382
---------
Revenue $376,956
Net income 40,994
Net income per share $2.13
The foregoing unaudited pro forma results of operations reflect one year's
amortization of the estimated amount of intangible assets, including goodwill,
resulting from the acquisition of AFW.
F-9
NOTE 3: INVESTMENTS
The Company adopted SFAS 115 effective September 30, 1994. Adoption of SFAS 115
had no impact on fiscal 1994 results of operations. At September 30, 1995 and
1994, no short-term investments were classified as trading. Investments,
excluding cash equivalents, consisted of the following at September 30, 1995 and
1994:
September 30, 1995 September 30, 1994
------------------------------------- ----------------------------------
Unrealized Original Unrealized Original
Available-for-sale: Fair Gains Cost of Fair Gains Cost of
- ------------------
Value (Losses) Investment Value (Losses) Investment
------ -------- ----------- ----- -------- ----------
U.S. Treasury bills maturing
in less than one year $5,455 $ -- $ 5,455 $ 4,958 $ -- $4,958
Bond mutual funds with
weighted average maturity
less than five years -- -- -- 2,932 (180) 3,112
Adjustable rate notes and
preferred stock 2,122 -- 2,122 3,507 -- 3,507
----- ------ ----- ----- ------- -------
Short-term investments
classified as available
for sale $7,577 $ -- $7,577 $11,397 $ (180) $ 11,577
===== ====== ===== ====== ====== =======
Held-to-maturity:
- ----------------
Corporate bonds with weighted
average maturity less than
three years $4,448 $ 42 $4,490 $ 5,924 $ (165) $ 6,089
U.S. Treasury notes with
maturity less than three years 256 (1) 255 757 -- 757
----- ----- ------ ------ ------ ------
$4,704 $ 41 4,745 $ 6,681 $ (165) 6,846
===== ===== ====== ======
Short-term investments
classified as held-to
maturity 2,013 1,536
----- ------
Held-to-maturity investments
maturing after one year,
within five years $2,732 $ 5,310
===== ======
NOTE 4: INVENTORIES
September 30,
-----------------
1995 1994
------ -----
Finished goods $10,673 $ 7,657
Work in process 15,740 8,664
Raw materials and supplies 22,190 17,533
------ ------
48,603 33,854
Inventory reserves (7,753) (6,636)
------ ------
$40,850 $27,218
====== ======
F-10
NOTE 5: PROPERTY, PLANT AND EQUIPMENT
September 30,
-----------------
1995 1994
------ ------
Land $ 1,026 $ 1,095
Buildings and building improvements 14,879 14,168
Machinery and equipment 38,705 31,293
Leasehold improvements 2,137 1,362
-------- --------
56,747 47,918
Less - Accumulated depreciation
and amortization (31,228) (27,356)
-------- --------
$ 25,519 $ 20,562
======== ========
The Company has obligations under various operating leases, primarily for
manufacturing and office facilities, which expire periodically through 2107. In
addition, in connection with the October 2, 1995 acquisition of AFW, the Company
assumed certain leases associated with AFW's facilities. Minimum rental
commitments under these leases including the AFW leases (excluding taxes,
insurance, maintenance and repairs, which are also paid by the Company), are as
follows: $1,515 in 1996; $1,191 in 1997; $696 in 1998; $528 in 1999; and $6,347
thereafter.
Rent expense for fiscal 1995, 1994 and 1993 was $2,355, $1,663 and $1,585,
respectively.
NOTE 6: DEBT OBLIGATIONS
Debt obligations include the following:
September 30,
----------------
1995 1994
------ ------
United States:
8% convertible subordinated debentures $ -- $26,257
Asia:
Term loan 216 277
---- ------
Total debt obligations 216 26,534
Less - current portion 60 60
---- ------
Debt due after one year $ 156 $26,474
==== =======
The 8% convertible subordinated debentures (the "Debentures") were due March 1,
2008, and required minimum annual sinking fund payments of $1,750. The
Debentures were convertible at any time prior to maturity into shares of common
stock at a conversion rate of $10.66 per share. In 1995, the Company called for
redemption the remaining outstanding Debentures at a redemption price of 101.60%
of the principal amount of the Debentures, plus accrued interest thereon. All
but $11 of such Debentures were converted into the Company's common stock by
July 10, 1995. The remaining $11 in Debentures were redeemed. During fiscal
1994, $174 of Debentures were converted into 16,324 shares of the Company's
Common Stock. During fiscal 1993, $9 of Debentures were converted into 842
shares of Common Stock.
The term loan of the Asian subsidiary is payable in equal monthly installments
of $5, which include interest, to 1999. Interest is calculated at the Hong Kong
prime rate plus 1/2% (9.5% at September 30, 1995 and 8.25% at September 30,
1994).
During fiscal 1995, the Company had a $10,000 unsecured revolving loan facility
with interest at prime less 1/4%, and an unused commitment fee equal to 1/4 of
1% of the daily average unused amount of the revolving loan. Borrowings under
this facility were subject to certain financial and other covenants, all of
which were met as of September 30, 1995. There were no borrowings under this
revolving loan facility during fiscal 1995.
In connection with the AFW acquisition, on September 14, 1995, the Company
entered into a Restated Loan Agreement which extended its existing $10,000
revolving loan facility to March 29, 1996 (unless renewed) and established a new
F-11
term credit facility for borrowings of up to $50,000 to finance the AFW
acquisition. Borrowings under the $50,000 term credit facility during the first
180 days bear interest at the LIBOR rate plus 50 basis points (6.4375% on
October 2, 1995). If amounts borrowed under the term credit facility are not
repaid by March 29, 1996, the loan automatically will be converted into a five-
year term loan payable in equal monthly installments, plus accrued interest. If
converted into a five-year term loan, the term credit facility would bear
interest, at the Company's option, at 115 basis points over the five-year U.S.
Treasury Securities rate or 100 basis points over LIBOR. The Restated Loan
Agreement is unsecured and contains certain financial and other covenants
including maintenance of tangible net worth not less than $55.0 million, working
capital of not less than $35.0 million, a current ratio of not less than 1.25 to
1.0, a leverage ratio of not more than 1.75 to 1.0 and a fixed charge coverage
ratio of not less than 2.0 to 1.0.
On October 2, 1995, the Company borrowed $15,033 under the term credit facility
to fund the cash portion of the AFW purchase price. In addition, the Company
issued promissory notes to certain selling shareholders of Circle "S" totaling
$34,395, which are due on January 5, 1996, bear interest at the rate of 6.4375%
per year, less costs (1% per year) of the letters of credit securing such notes,
and are not prepayable without the consent of the holders.
Maturities of long-term debt subsequent to September 30, 1995, (exclusive of the
$49,428 borrowed in connection with the October 2, 1995 acquisition of AFW) are
$60 in 1996, $60 in 1997, $60 in 1998 and $36 in 1999.
Interest paid on the Company's debt obligations was $1,407, $2,171 and $2,202 in
fiscal 1995, 1994, and 1993, respectively.
NOTE 7: SHAREHOLDERS' EQUITY
Common Stock
On June 1, 1995, the Company declared a two-for-one split of its common stock
which was distributed on July 28, 1995 to holders of record on July 17, 1995.
All share and per share data in the accompanying consolidated financial
statements have been adjusted to give effect to this stock split.
Stock Option Plans
The Company has three employee stock option plans for officers and key employees
(the "Employee Plans") pursuant to which options may be granted at 100% of the
market price of the Company's Common Stock on the date of grant. Options may no
longer be granted under two of the plans. Options granted under the Employee
Plans are exercisable at such dates as are determined in connection with their
issuance, but not later than ten years after the date of grant.
The following summarizes all employee stock option activity for the three years
ended September 30, 1995:
September 30,
-------------------------------------------------------------
1995 1994 1993
------------------- ----------------- ---------------
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------- ----- ------- ----- ------- -----
(Share amounts in thousands)
Options outstanding at
beginning of period 472 $5.30 538 $ 3.74 679 $4.05
Granted or reissued 350 8.06 105 11.46 115 2.88
Exercised (130) 4.21 (118) 4.17 (188) 4.25
Terminated or canceled (74) 6.66 (53) 4.07 (68) 3.41
---- ---- ---- ---- ---- ----
Options outstanding at
end of period 618 $6.93 472 $ 5.30 538 $3.74
==== ==== ==== ===== ==== ====
Options exercisable at
end of period 147 $4.52 200 $ 4.10 252 $4.36
==== ==== ==== ===== ==== ====
F-12
The Company also maintains a stock option plan for non-officer directors (the
"Director Plan") pursuant to which options to purchase 5,000 shares of the
Company's Common Stock at an exercise price of 100% of the market price on the
date of grant are issued to each non-officer director each year. Options to
purchase 103,000 shares at an average exercise price of $7.19 were outstanding
at September 30, 1995. Options to purchase 16,000 shares are currently
exercisable. Options to purchase 88,000 shares granted under the Director Plan
were exercised during 1995.
At September 30, 1995, 2,818,000 shares of the Company's Common Stock were
reserved for issuance in connection with the stock option plans.
Employee Stock Purchase Plan
Through March 31, 1995, the Company maintained an Employee Stock Purchase Plan
which allowed employees to purchase the Company's Common Stock at 85% of the
market value on the first or last day of the offering period, whichever was
lower. On March 31, 1995, 119,016 shares were sold to employees at a price of
$4.675 per share, pursuant to this plan. Effective April 1, 1995 this Plan was
discontinued.
NOTE 8: EMPLOYEE BENEFIT PLANS
The Company has a non-contributory defined benefit pension plan covering
substantially all U.S. employees. The benefits for this plan are based on the
employees' years of service and the employees' compensation during the three
years before retirement. The Company's funding policy is consistent with the
funding requirements of Federal law and regulations. Net pension cost for the
U.S. plan comprises the following:
Fiscal Year Ended September 30,
-----------------------------------
1995 1994 1993
----- ---- ----
Service cost-benefits earned
during the period $ 563 $ 564 $ 489
Interest cost on projected
benefit obligations 797 670 633
Actual return on plan assets (859) (153) (428)
Net amortization and deferral (226) (878) (606)
---- --- ---
Net pension expense (benefit)
of U.S. plan $ 275 $ 203 $ 88
==== === ====
Weighted average discount rate 7.75% 7.75% 7.25%
Rate of increase in future compensation 4.00% 4.00% 4.00%
Expected long-term return on assets 9.00% 9.00% 9.00%
The funded status of the U.S. plan follows:
September 30,
---------------------
1995 1994
---- ----
Accumulated benefit obligation, including
vested benefits of $9,040 and $8,384,
respectively $ 9,347 $ 8,577
======= =======
Projected benefit obligation for service
rendered to date $(11,090) $(10,288)
Plan assets at fair value, primarily mutual
fund investments and U.S. Treasury bills 9,540 9,009
------ -------
Excess of projected benefit obligation
over plan assets (1,550) (1,279)
Unrecognized net implementation asset (126) (386)
Unrecognized net loss 2,215 2,456
Unrecognized prior service cost 81 107
------ -------
Prepaid pension cost $ 620 $ 898
====== =======
F-13
The Company's foreign subsidiaries have retirement plans that are integrated
with and supplement the benefits provided by laws of the various countries.
They are not required to report nor do they determine the actuarial present
value of accumulated benefits or net assets available for plan benefits. The
Company believes that these plans are substantially fully funded as to vested
benefits.
On a consolidated basis, pension expense was $618, $465 and $284 in fiscal 1995,
1994 and 1993, respectively.
The Company has a 401(k) Employee Incentive Savings Plan. This plan allows for
employee contributions and matching Company contributions in varying percentages
not to exceed 15% of the employees's contribution. The Company's contributions
under this plan were $118, $112 and $91 in fiscal 1995, 1994 and 1993,
respectively.
NOTE 9: INCOME TAXES
The provision for income taxes includes the following:
Fiscal Year Ended September 30,
--------------------------------
1995 1994 1993
---- ---- ----
Current:
Federal $9,470 $1,353 $ 596
State 600 100 75
Foreign 3,439 918 179
Deferred:
Federal (898) 113 (253)
Foreign 180 121 661
------ ----- -----
$12,791 $2,605 $1,258
====== ===== =====
Undistributed earnings of certain foreign subsidiaries for which taxes have not
been provided approximate $46,192 at September 30, 1995. Such undistributed
earnings are intended to be indefinitely reinvested in foreign operations.
The Company's Japanese subsidiary has $844 in net operating loss carryforwards
expiring through fiscal 1997, which may be used to offset future taxable income
in Japan.
The provision for income taxes differs from the amount computed by applying the
statutory federal income tax rate as follows:
Fiscal Year Ended September 30,
----------------------------------
1995 1994 1993
------- ------ ------
Computed income tax expense (benefit)
based on U.S. statutory rate $19,465 $4,558 $4,200
State taxes, net of federal benefit 390 65 49
Effect of earnings of foreign subsidiaries
subject to different tax rates (1,005) (1,021) (263)
Benefits from Israeli Approved Enterprise Zones (1,470) (822) --
Benefits of net operating loss and tax credit
carryforwards and change in valuation allowance (3,493) (532) (5,251)
Provision for repatriation of foreign
earnings, including foreign withholding taxes 180 121 2,112
Operating losses with no tax benefit 194 -- 151
Effect of revisions of prior years'
estimated income taxes (505) -- 290
Benefits of Foreign Sales Corporation (533) -- --
Other, net (432) 236 (30)
------ ------ -----
$12,791 $ 2,605 $1,258
====== ====== =====
F-14
Deferred taxes are determined based on the differences between the financial
reporting and tax bases of assets and liabilities as measured by the current tax
rates. The net deferred tax liability balance is attributable to the following
cumulative temporary differences:
September 30,
-------------------
1995 1994
----- ------
Repatriation of foreign earnings,
including foreign withholding taxes $3,211 $3,031
Depreciable assets 1,329 1,111
Prepaid expenses and other 405 601
----- ------
Total deferred tax liability 4,945 4,743
----- ------
Inventory reserves 1,619 1,594
Accruals and other reserves 2,001 1,126
Net operating loss and tax credit
carryforwards 435 5,235
Deferred intercompany profit 1,573 --
----- ------
5,628 7,955
Valuation allowance (607) (3,854)
----- ------
Total deferred tax asset 5,021 4,101
----- ------
Net deferred tax (asset) liability $ (76) $ 642
===== ======
The remaining valuation allowance at September 30, 1995 is related to foreign
net operating loss carryforwards scheduled to expire through the 1997 fiscal
year. The net deferred tax asset at September 30, 1995 is included in other
non-current assets.
The Company paid income taxes of $8,109, $1,019 and $74 in fiscal 1995, 1994 and
1993, respectively.
NOTE 10: OTHER FINANCIAL DATA
On October 1, 1995, the Company entered into a Manufacturing License and Supply
Agreement with Tokyo Seimitsu Co. Ltd. for the right to manufacture, use and
distribute certain products. In connection with the signing of this agreement,
the Company is discontinuing the manufacture of a similar product in its Israeli
manufacturing facility.
On July 13, 1994, the Company acquired the business and certain assets of
Assembly Technologies, an operating division of General Signal Corporation
("AT"), for a cash purchase price approximating $3,296, including transaction-
related costs. AT manufactured and sold semiconductor assembly equipment,
including automatic die attach machines, automatic dicing saws and related spare
parts. The transaction was accounted for as a purchase. Accordingly, the
acquired assets and results of operations of the AT business are included in the
Company's consolidated financial statements from the date of the acquisition.
The excess of the purchase price and transaction-related costs over the fair
value of net assets acquired of $1,287 was charged to goodwill, is being
amortized over a fifteen year period, and is included in other assets at
September 30, 1995 and 1994, net of accumulated amortization.
During fiscal 1993, the Company incurred approximately $1,125 in connection with
a proposed acquisition. In September 1993, the Company announced that
acquisition negotiations had been terminated and charged all costs associated
with this failed transaction to other expense.
Accrued expenses at September 30, 1995 and 1994 include $7,242 and $3,964,
respectively, for accrued wages, incentives and vacations.
Maintenance and repairs expense totaled $3,737, $3,027 and $2,503 for fiscal
1995, 1994 and 1993, respectively. Warranty and retrofit expense was $5,085,
$1,354 and $661 for fiscal 1995, 1994 and 1993, respectively.
F-15
NOTE 11 - OPERATIONS BY GEOGRAPHIC AREA
Prior to its October 2, 1995 acquisition of AFW, the Company operated primarily
in one industry segment, the manufacture and sale of production equipment to the
semiconductor industry. As a result of the AFW acquisition, the portion of the
Company's operations attributable to the expendable tools and materials products
will exceed 10% of total revenues. The expendable tools and materials products
have different manufacturing processes, distribution channels and a less
volatile revenue pattern than the Company's capital equipment business. As such,
prospectively, the Company will report its operations in two business segments,
its equipment business (sales of capital equipment, related spare parts and
services) and its expendable tools and materials business (which will include
the Micro-Swiss and AFW operations).
The Company's market for its products is worldwide. Export sales (sales from
U.S. based operations directly to foreign based customers and sales to foreign
locations of U.S. based customers) totaled $78,435, $48,082 and $40,364 for the
fiscal years ended September 30, 1995, 1994 and 1993, respectively. Of these
amounts, approximately $68,072, $39,506 and $36,313 in fiscal 1995, 1994 and
1993, respectively, were shipped to customers in the Asia/Pacific region
(primarily Korea and the Philippines). The remainder of the Company's exports
were shipped to customers in the European region.
In addition, a substantial portion of the Company's products are sold to the
Company's foreign subsidiaries which, in turn, sell to foreign based customers.
Total shipments of the Company's products with ultimate foreign destinations
(including export sales) accounted for 78%, 74% and 78% of net revenues during
the fiscal years ended September 30, 1995, 1994 and 1993.
F-16
Additional information by geographic area for fiscal years ended September 30,
1995, 1994 and 1993 is as follows:
Fiscal year ended September 30, 1995:
- --------------------------------------- Adjustments
United Hong Rest of and
States Kong Israel World Eliminations Consolidated
------ ---- ------ ----- ------------ ------------
Sales to unaffiliated
customers $146,577 $143,429 $ 773 $13,730 $ -- $304,509
Transfers between
geographic areas 158,543 51 38,646 24 (197,264) --
------- ------- ------ ------ -------- -------
Total net revenues $305,120 $143,480 $39,419 $13,754 $(197,264) $304,509
======= ======= ====== ====== ======== =======
Operating income (loss) $ 37,530 $ 14,841 $ 9,004 $ 2,864 $ (2,345) $ 61,894
======= ======= ====== ====== ========
General corporate expenses 6,454
Interest income, net (173)
-------
Income before income taxes $ 55,613
=======
Identifiable assets $ 95,989 $ 42,653 $15,289 $12,229 $ (4,499) $161,661
======= ======= ====== ====== ========
Corporate assets 29,368
-------
Total assets $191,029
=======
Fiscal year ended September 30, 1994:
- --------------------------------------- Adjustments
United Hong Rest of and
States Kong Israel World Eliminations Consolidated
------ ----- ------ ----- ------------ ------------
Sales to unaffiliated
customers $93,643 $71,985 $ 858 $ 6,816 $ -- $173,302
Transfers between
geographic areas 81,119 219 27,006 304 (108,648) --
------- ------- ------ ------ -------
Total net revenues $174,762 $ 72,204 $27,864 $ 7,120 $(108,648) $173,302
======= ======= ====== ====== ======== =======
Operating income (loss) $ 8,698 $ 5,784 $ 3,332 $ 690 $ 4 $ 18,508
======= ======= ====== ====== ========
General corporate expenses 4,578
Interest expense, net 907
-------
Income before income taxes $ 13,023
=======
Identifiable assets $ 63,991 $ 22,108 $ 9,652 $ 6,905 $ (2,154) $100,502
======= ======= ====== ====== ========
Corporate assets 20,696
-------
Total assets $121,198
=======
Fiscal year ended September 30, 1993:
- --------------------------------------- Adjustments
United Hong Rest of and
States Kong Israel World Eliminations Consolidated
------ ---- ------ ----- ------------ ------------
Sales to unaffiliated
customers $ 71,585 $ 56,041 $ 4,186 $ 9,068 $ -- $140,880
Transfers between
geographic areas 53,492 125 19,132 1,648 (74,397) --
------- ------- ------ ------ -------- -------
Total net revenues $125,077 $ 56,166 $23,318 $10,716 $ (74,397) $140,880
======= ======= ====== ====== ======== =======
Operating income (loss) $ 11,838 $ 4,380 $ 1,722 $ 990 $ (123) $ 18,807
======= ======= ====== ====== ========
General corporate expenses 4,527
Interest expense, net 1,066
Other expense 1,125
-------
Income before income taxes $ 12,089
=======
Identifiable assets $ 53,756 $ 22,083 $10,176 $ 6,948 $ (2,356) $ 90,607
======= ======= ====== ====== ========
Corporate assets 14,671
-------
Total assets $105,278
=======
F-17
Transfers between geographic areas are primarily sales of finished products and
spare parts and generally are priced at end customer selling price, with
intercompany commissions paid to the selling subsidiary in the case of machines,
and at a discount off list price in the case of spare parts. Such sales were
primarily from the United States to the Company's sales and service operations
in Hong Kong, Japan and Europe, and from Israel to the United States. Operating
income (loss) by geographic area does not include an allocation of general
corporate expenses. Identifiable assets are those that can be directly
associated with a particular geographic area. Corporate assets consist
principally of cash and investments.
Customers for the Company's equipment and systems include major merchant
semiconductor manufacturers. Sales to one such customer represented 11% and 16%
of the Company's net sales in fiscal 1994 and 1993, respectively Sales to
another such customer represented 20% of net sales in fiscal 1995 and 11% of net
sales in each of fiscal 1994 and 1993. In addition, customers for the Company's
equipment include firms that perform contract assembly of semiconductors, and
electronic systems suppliers that assemble semiconductors for use in their own
products and for sales to other companies. Sales to one such customer accounted
for approximately 16% and 14% of the Company's net sales in fiscal 1995 and
1994, respectively. Sales to another such customer accounted for 11% of net
sales in fiscal 1993.
Net exchange and transaction gains (losses) were ($281), $267 and $138 for the
years ended September 30, 1995, 1994 and 1993, respectively.
NOTE 12: CONTINGENCIES
Certain of the Company's customers have received notices of infringement from
two separate parties, each alleging that equipment supplied by the Company, and
processes performed by such equipment, infringe on patents held by them. The
Company's product warranties generally provide customers with indemnification
for damages sustained by a customer as a consequence of patent infringement
claims arising out of use of the Company's products and obligate the Company to
defend such claims. As a consequence, the Company could be required to
reimburse its customers for certain damages resulting from these matters and to
defend customers in patent infringement suits. As of the date of these
financial statements, no actions have been initiated or threatened directly
against the Company in connection with these matters, although certain customers
have requested that the Company defend and indemnify them against any damages
that they may be required to pay on the basis of their use of equipment supplied
by the Company and two of the Company's customers have actually been sued. The
Company believes, based in part on opinions from the Company's outside patent
counsel, that no equipment marketed by the Company, and no process performed by
such equipment, infringe on the patents in question.
In addition, In August 1995, a third-party complaint was filed against the
Company with respect to the clean up of alleged contaminated soil and ground
water beneath a facility located in Fort Washington, Pennsylvania, which the
Company partially occupied from 1962 to 1972. On the basis of the complaint and
information currently available to it, the Company is unable to quantify the
potential financial impact of this matter, but believes the allegations set
forth in the complaint are without merit and intends to vigorously defend itself
in this matter.
The Company does not believe that the ultimate resolution of the matters
described above will have a material adverse effect on its financial condition,
operating results or liquidity.
F-18
NOTE 13: SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Financial information pertaining to quarterly results of operations follows:
Year ended First Second Third Fourth
September 30, 1995: Quarter Quarter Quarter Quarter Total
- ------------------ ------- ------- ------- ------- --------
Net sales $51,459 $64,785 $87,296 $100,969 $304,509
Gross profit $22,045 $29,157 $39,840 $ 46,010 $137,052
Income from operations * $ 5,230 $10,943 $18,371 $ 20,896 $ 55,440
Income before income taxes $ 5,033 $10,720 $18,464 $ 21,396 $ 55,613
Income tax expense 1,309 2,466 4,431 4,585 12,791
----- ----- ----- ------ ------
Net income $ 3,724 $ 8,254 $14,033 $ 16,811 $ 42,822
====== ====== ====== ======= =======
Net income per share $ 0.21 $ 0.44 $ 0.72 $ 0.85 $ 2.22
====== ====== ====== ======= =======
Year ended First Second Third Fourth
September 30, 1994: Quarter Quarter Quarter Quarter Total
- -------------------- ------- ------- ------- ------- -----
Net sales $38,259 $43,766 $40,838 $ 50,439 $173,302
Gross profit $16,471 $18,331 $15,861 $ 21,305 $ 71,968
Income from operations * $ 2,954 $ 4,185 $ 1,683 $ 5,108 $ 13,930
Income before income taxes $ 2,714 $ 3,943 $ 1,452 $ 4,914 $ 13,023
Income tax expense 407 749 305 1,144 2,605
------ ------ ------ ------- -------
Net income $ 2,307 $ 3,194 $ 1,147 $ 3,770 $ 10,418
====== ====== ====== ======= =======
Net income per share $ 0.14 $0.19 $0.07 $0.23 $0.63
====== ====== ====== ======= =======
* Represents net sales less costs and expenses but before net interest expense
and other expense.
NOTE 14: SUBSEQUENT EVENT (UNAUDITED)
Effective December 31, 1995, the benefits under the Company's pension plan were
frozen. As a consequence, accrued benefits will no longer change as a result of
an employee's length of service or compensation. In addition, commencing January
1, 1996, the Company will increase the employer's matching contribution
percentage to the 401(k) Employee Incentive Savings Plan to varying rates,
depending on employee age and years of service, ranging from 30% to 175% of the
employees' contributions.
F-19
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On March 30, 1995, the Company dismissed Luboshitz, Kasierer & Co., certifying
accountant for the Company's wholly-owned subsidiary, Kulicke and Soffa
Industries (Israel) Ltd. ("KSL"). On the same date, the Company appointed Price
Waterhouse LLP's Israeli affiliate, Somekh Chaikin, as the certifying accountant
for KSL. This change in certifying accountants was made solely in order to
consolidate all audit and tax services with one worldwide accounting firm. This
event was reported as Item 4 on a Form 8-K dated March 30, 1995, and filed with
the Securities and Exchange Commission on April 5, 1995.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required hereunder with respect to the directors appears under the
heading "ELECTION OF DIRECTORS" in the Company's Proxy Statement for the 1996
Annual Meeting, which information is incorporated herein by reference.
The information required by Item 401(b) of Regulation S-K appears in Part I
hereof under the heading "Executive Officers of the Company."
ITEM 11. EXECUTIVE COMPENSATION
The information required hereunder appears under the heading "ADDITIONAL
INFORMATION" in the Company's Proxy Statement for the 1996 Annual Meeting, which
information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required hereunder appears on page one and under the heading
"ELECTION OF DIRECTORS" in the Company's Proxy Statement for the 1996 Annual
Meeting, which information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required hereunder appears under the heading "ADDITIONAL
INFORMATION" in the Company's Proxy Statement for the 1996 Annual Meeting, which
information is incorporated herein by reference.
21
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements:
Report of Independent Accountants F-1
Report of Other Independent Accountants F-2
Consolidated Balance Sheet at September 30, 1995 and 1994 F-3
Consolidated Income Statement for the fiscal years
ended September 30, 1995, 1994 and 1993 F-4
Consolidated Statement of Cash Flows for the fiscal years
ended September 30, 1995, 1994 and 1993 F-5
Consolidated Statement of Changes in Shareholders' Equity
for the fiscal years ended September 30, 1995, 1994 and 1993 F-6
Notes to Consolidated Financial Statements F-7 to F-19
(2) Financial Statement Schedules:
Report of Other Independent Accountants 24
VIII - Valuation and Qualifying Accounts 25
All other schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
(3) Exhibits:
Exhibit
Number Item
- ------ ----------------------------------------------------------------
Item
[S] [C]
3(i) The Company's Restated Articles of Incorporation, filed as Exhibit 2.1
to the Company's Form 8-A12G dated September 8, 1995, is incorporated
herein by reference.
3(ii) The Company's By-Laws, as amended through June 26, 1990, filed as
Exhibit 2.2 to the Company's Form 8-A12G dated September 8, 1995, is
incorporated herein by reference.
10(i) Form of Officer's Loan Agreement, Note and Stock Pledge Agreement, filed
as Exhibit 13(a) to Registration Statement No. 65612 filed September 28,
1979, is incorporated herein by reference.
10(ii) Form of Termination of Employment Agreement between the Company and
certain of its officers, filed as Exhibit 10(ii) to the Company's Annual
Report on Form 10-K for the fiscal year ended September 30, 1994, is
incorporated herein by reference.*
10(iii) Agreement between the Company and Frederick W. Kulicke, Jr., filed as
Exhibit 10(iii) to Company's Annual Report on Form 10-K for the year
ended September 30, 1989, is incorporated herein by reference.*
10(iv) The Company's 1980 Employee Incentive Stock Option Plan, filed as
Exhibit 10(iv) to the Company's Annual Report on Form 10-K for the year
ended September 30, 1989, is incorporated herein by reference.*
10(v) The Company's 1983 Employee Incentive Stock Option Plan, filed as
Exhibit 10(v) to the Company's Annual Report on Form 10-K for the year
ended September 30, 1989, is incorporated herein by reference.*
10(vi) The Company's 1988 Incentive and Non-Qualified Employee Stock Option
Plan, filed as Exhibit 10(xi) to the
22
Company's Annual Report on Form 10-K for the year ended September 30,
1988, is incorporated herein by reference.*
10(vii) The Company's 1988 Non-Qualified Stock Option Plan for Non-Officer
Directors, as amended, filed as Exhibit 10(vii) to the Company's Annual
Report on Form 10-K for the year ended September 30, 1989, is
incorporated herein by reference.*
10(viii)The Company's 1994 Employee Stock Option Plan, filed as Exhibit 10(viii)
to the Company's Annual Report on Form 10-K for the year ended September
30, 1994, is incorporated by reference.*
10(ix) The Company's 1995 Executive Incentive Compensation Plan, filed as
Exhibit 10(ix) to the Company's Annual Report on Form 10-K for the year
ended September 30, 1994, is incorporated by reference.*
10(x) Restated Loan Agreement between the Company and Midlantic Bank, N.A.
dated September 14, 1995, filed as Exhibit 10.1 to the Company's Form 8-
K dated September 14, 1994, is incorporated by reference.
10(xi) Letter agreement between the Company and Midlantic Bank N.A. dated
November 27, 1995.
10(xii) Gold Supply Agreement, as amended October 2, 1995 between American Fine
Wire Corporation, et al, and Rothschild Australia Limited, filed as
Exhibit 10.1 to the Company's From 8-K dated September 14, 1995 as
amended by Form 8-K/A on October 26, 1995, is incorporated by reference.
10(xiii)Agreement of Employment between Circle "S" Industries, Inc and Larry D.
Striplin, Jr. dated January 2, 1990.*
10(xiv) Amendment No. 1 to Agreement of Employment between Circle "S"
Industries, Inc. and Larry D. Striplin, Jr dated May 1, 1995.*
10(xv) Agreement between Circle "S" Industries, Inc. and Larry D. Striplin,
Jr. dated September 30, 1995.*
10(xvi) Form of Employment Agreement between Circle "S" Industries, Inc. and
R. Kelly Payne dated October 2, 1995.*
21 Subsidiaries of the Company.
23(i) Consent of Price Waterhouse LLP (Independent Accountants).
23(ii) Consent of Luboshitz, Kasierer & Co. (Independent Accountants).
27 Financial Data Schedule.
- --------------------
* Indicates a management contract or compensatory plan.
(b) Reports on Form 8-K
A Form 8-K was filed on September 14, 1995 reporting the signing of the AFW
Acquisition agreements.
23
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
Our audits of the consolidated financial statements of Kulicke and Soffa
(Israel) Ltd. and its subsidiary referred to in our report dated November 3,
1994 appearing on Page F-2 of this Annual Report on Form 10-K also included an
audit of Financial Statement Schedules of Kulicke and Soffa (Israel) Ltd. and
its subsidiary (not presented separately herein). In our opinion, these
Financial Statement Schedules of Kulicke and Soffa (Israel) Ltd. and its
subsidiary present fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements.
/s/ LUBOSHITZ, KASIERER & CO.
Certified Public Accountants (Israel)
Haifa, Israel
November 3, 1994
(9393-24)
24
KULICKE AND SOFFA INDUSTRIES, INC.
Schedule VIII-Valuation and Qualifying Accounts
(in thousands)
Charged Balance
Balance Charged to to other at end
at beginning costs and accounts- Deductions- of
Description of period expenses describe describe Period
- ---------------------------------- ------------ ---------- -------- ---------- -------
Year ended September 30, 1993:
- ------------------------------
Allowance for doubtful
accounts $ 345 $ 175 $ -- $ 44(1) $ 476
===== ===== ===== ===== =====
Inventory reserve $7,963 $1,011 $ 42 $2,798(3) $6,218
===== ===== ===== ===== =====
Year ended September 30, 1994:
- ------------------------------
Allowance for doubtful
accounts $ 476 $ 103 $ -- $ 157(1) $ 422
===== ===== ===== ===== =====
Inventory reserve $6,218 $2,092(2) $ -- $1,674(3) $6,636
===== ===== ===== ===== =====
Valuation allowance for
deferred taxes $4,956 $ -- $ -- $1,102(4) $3,854
===== ===== ===== ===== =====
Year ended September 30, 1995:
- ------------------------------
Allowance for doubtful
accounts $ 422 $ 826 $ -- $ 154(1) $1,094
===== ===== ===== ===== =====
Inventory reserve $6,636 $3,075(5) $ -- $1,958(3) $7,753
===== ===== ===== ===== =====
Valuation allowance for
deferred taxes $3,854 $ -- $ -- $3,247(4) $ 607
===== ===== ===== ===== =====
(1) Bad debts written off.
(2) Amount includes $677 provision for excess and obsolete inventory. The
remainder primarily reflects revaluation of inventory pursuant to changed
standard costs.
(3) Disposal of excess and obsolete equipment and sales of demonstration and
evaluation inventory.
(4) Net change in valuation allowance for deferred tax assets during fiscal
1994 and 1995.
(5) Amount includes $2,758 provision for excess and obsolete inventory. The
remainder primarily reflects revaluation of inventory pursuant to changed
standard costs.
25
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
KULICKE and SOFFA INDUSTRIES, INC.
By: /s/ C. Scott Kulicke
---------------------------
C. Scott Kulicke
Chairman of the Board and
Chief Executive Officer
Dated: December 21, 1995
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, this Report has been signed by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
Signature Title Date
- ----------------------------------- ------------------------ -------------
/s/ C. Scott Kulicke
- -----------------------------------
C. Scott Kulicke Chairman of the Board December 21, 1995
(Principal Executive Officer) and Director
/s/ Clifford G. Sprague
- -----------------------------------
Clifford G. Sprague Senior Vice President December 21, 1995
(Principal Financial and and Chief Financial
Accounting Officer) Officer
/s/ James W. Bagley
- -----------------------------------
James W. Bagley Director December 21, 1995
/s/ Frederick W. Kulicke, Jr.
- -----------------------------------
Frederick W. Kulicke, Jr. Director December 21, 1995
/s/ John A. O'Steen
- -----------------------------------
John A. O'Steen Director December21, 1995
/s/ Allison F. Page
- -----------------------------------
Allison F. Page Director December 21, 1995
/s/ MacDonell Roehm, Jr.
- -----------------------------------
MacDonell Roehm, Jr. Director December 21, 1995
/s/ Larry D. Striplin, Jr.
- -----------------------------------
Larry D. Striplin, Jr. Director December 21, 1995
/s/ C. William Zadel
- -----------------------------------
C. William Zadel Director December 21, 1995
26
NOTICE
Item 14(a)3 lists and describes the Exhibits filed as a part of the Company's
Annual Report on Form 10-K for the fiscal year ended September 30, 1995. The
Company will provide to any shareholder copies of any such Exhibits upon payment
of a fee of $.50 per page. Requests for copies of such Exhibits should be made
to: Director of Corporate Communications, Kulicke and Soffa Industries, Inc.,
2101 Blair Mill Road, Willow Grove, PA 19090.