Exhibit 99.1
BE SEMICONDUCTOR INDUSTRIES N.V.
QUARTERLY REPORT FOR THE QUARTER ENDED
MARCH 31, 2003
INDEX
Part I. Financial Information.................................................................................... 1
Item 1 - Unaudited Condensed Consolidated Financial Statements................................................. 1
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations................ 13
Item 3 - Quantitative and Qualitative Disclosures About Market Risk........................................... 31
Part II. Other Information...................................................................................... 32
Item 1 - Legal Proceedings.................................................................................... 32
Item 2 - Changes in Securities and Use of Proceeds............................................................ 32
Item 3 - Defaults Upon Senior Securities...................................................................... 32
Item 4 - Submission of Matters to a Vote of Security Holders.................................................. 32
Item 5 - Other Information.................................................................................... 32
PART I. FINANCIAL INFORMATION
ITEM 1 - UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
BE SEMICONDUCTOR INDUSTRIES N.V.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except share and per share data)
- -----------------------------------------------------------------------------------------------------------------
Three months ended March 31,
-------------------------------------------
2002 2003 2003
EURO EURO USD
(unaudited) (unaudited) (unaudited)
- -----------------------------------------------------------------------------------------------------------------
Net sales................................................. 14,452 20,720 22,585
Cost of sales............................................. 11,042 14,499 15,804
---------------------------------------
Gross profit ............................................. 3,410 6,221 6,781
Selling, general and administrative expenses.............. 6,275 6,500 7,085
Research and development expenses......................... 3,056 3,635 3,962
Amortization of intangible assets......................... 656 635 692
---------------------------------------
Total operating expenses.................................. 9,987 10,770 11,739
Operating loss............................................ (6,577) (4,549) (4,958)
Interest income, net...................................... 939 779 849
---------------------------------------
Loss before taxes and minority interest................... (5,638) (3,770) (4,109)
Income tax benefit........................................ (1,577) (754) (822)
---------------------------------------
Loss before minority interest............................. (4,061) (3,016) (3,287)
Minority interest......................................... - 5 5
---------------------------------------
Net loss.................................................. (4,061) (3,011) (3,282)
================================================================================================================
Loss per share - basic.................................... (0.13) (0.10) (0.11)
Loss per share - diluted.................................. (0.13) (0.10) (0.11)
Weighted average number of shares used to
compute loss per share - basic.......................... 31,794,675 30,871,802 30,871,802
Weighted average number of shares used to
compute loss per share - diluted........................ 31,794,675 30,871,802 30,871,802
- ----------------------------------------------------------------------------------------------------------------
Page 1
BE SEMICONDUCTOR INDUSTRIES N.V.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
- ------------------------------------------------------------------------------------------------------------------
December 31, 2002 March 31, 2003
----------------------------------------------
EURO USD
EURO (unaudited) (unaudited)
- ------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents..................................... 119,866 115,566 125,967
Accounts receivable........................................... 28,238 23,816 25,959
Inventories................................................... 33,424 34,738 37,865
Other current assets.......................................... 7,687 9,732 10,608
-----------------------------------------
TOTAL CURRENT ASSETS.......................................... 189,215 183,852 200,399
Property, plant and equipment................................. 23,103 25,360 27,642
Goodwill...................................................... 14,690 14,211 15,490
Patents and trademarks........................................ 17,036 16,223 17,683
Other non-current assets...................................... 954 890 970
-----------------------------------------
TOTAL ASSETS.................................................. 244,998 240,536 262,184
-----------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current portion of long-term debt and capital leases.......... 1,228 908 990
Accounts payable.............................................. 13,103 14,165 15,440
Accrued liabilities........................................... 17,272 16,648 18,146
-----------------------------------------
TOTAL CURRENT LIABILITIES..................................... 31,603 31,721 34,576
Long-term debt and capital leases............................. 7,812 7,605 8,290
Deferred gain on sale and lease back.......................... 1,012 990 1,079
Deferred tax liabilities...................................... 4,039 3,945 4,300
-----------------------------------------
TOTAL NON-CURRENT LIABILITIES................................. 12,863 12,540 13,669
MINORITY INTEREST............................................. 44 37 40
TOTAL SHAREHOLDERS' EQUITY.................................... 200,488 196,238 213,899
-----------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................... 244,998 240,536 262,184
==================================================================================================================
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BE SEMICONDUCTOR INDUSTRIES N.V.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
- ----------------------------------------------------------------------------------------------------------------------
Three months ended March 31,
2002 2003 2003
EURO EURO USD
(unaudited) (unaudited) (unaudited)
- ----------------------------------------------------------------------------------------------------------------------
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss........................................................ (4,061) (3,011) (3,282)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation of property, plant and equipment................... 1,047 845 921
Amortization of intangible assets............................... 656 635 692
Deferred income taxes (benefits)................................ (99) (130) (142)
Loss (gain) on disposal of equipment............................ 118 (29) (32)
Translation of debt in foreign currency......................... (87) 689 751
Minority interest............................................... - (5) (5)
Effects of changes in assets and liabilities:
Decrease in accounts receivable................................. 3,755 4,321 4,710
Decrease (increase) in inventories.............................. 1,345 (1,520) (1,657)
Increase in other current assets................................ (1,976) (2,025) (2,207)
Increase (decrease) in accrued liabilities...................... (3,570) 483 526
Increase in accounts payable.................................... 679 1,101 1,200
-----------------------------------------
Net cash provided by (used in) operating activities............. (2,193) 1,354 1,475
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................................ (628) (3,268) (3,562)
Proceeds from sale of equipment................................. 37 25 27
Acquisition of subsidiaries, net of cash acquired............... (10,496) - -
-----------------------------------------
Net cash used in investing activities........................... (11,087) (3,243) (3,535)
Page 3
CASH FLOW FROM FINANCING ACTIVITIES:
Payments on long-term debt and capital leases................... (590) (527) (574)
Net proceeds from (payments of) advances from customers......... 625 (964) (1,051)
Purchases of own shares......................................... - (347) (378)
Proceeds from bank line of credit............................... 323 - -
-----------------------------------------
Net cash provided by (used in) financing activities............. 358 (1,838) (2,003)
=====================================================================================================================
Net decrease in cash and cash equivalents....................... (12,922) (3,727) (4,063)
Effect of changes in exchange rates on cash
and cash equivalents.......................................... 92 (573) (624)
Cash and cash equivalents at beginning of the period............ 141,506 119,866 130,654
-----------------------------------------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD.................. 128,676 115,566 125,967
=====================================================================================================================
Page 4
BE SEMICONDUCTOR INDUSTRIES N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying condensed consolidated financial statements have been
prepared by the Company without audit and reflect all adjustments which
are, in the opinion of management, necessary to present fairly the
financial position and the results of operations for the interim
periods presented. The statements have been prepared in accordance with
the regulations of the United States Securities and Exchange
Commission, but omit certain information and footnote disclosures
necessary to present the statements in accordance with generally
accepted accounting principles in the United States ("US GAAP"). For
further information, these condensed consolidated financial statements
should be read in conjunction with the Consolidated Financial
Statements and Notes thereto included in the Company's Annual Report on
Form 20-F for the year ended December 31, 2002. The results of
operations for the three-month period ended March 31, 2003 are not
necessarily indicative of the results to be expected for the year ended
December 31, 2003.
The accompanying condensed consolidated financial statements are,
solely for the convenience of the reader, also translated into US
dollars ("USD") using the noon buying rate in New York City for cable
transfers in foreign currencies as certified for customs purposes by
the Federal Reserve Bank of New York in effect on March 31, 2003 (Euro
1 = USD 1.09). Such translations should not be construed as
representations that the Euro amounts could be converted into US
dollars at that or any other date.
2. SHARES OUTSTANDING
As of December 31, 2002 and March 31, 2003, the Company's authorized
capital consisted of 55,000,000 ordinary shares, nominal value of
(euro) 0.91 per share, and 55,000,000 preference shares, nominal value
(euro) 0.91 per share. At December 31, 2002 and March 31, 2003,
30,898,228 and 30,794,660 ordinary shares, respectively, were
outstanding. No preference shares were outstanding at December 31, 2002
and March 31, 2003.
On September 17, 2002, the Company announced that it had adopted a plan
to repurchase up to 1,000,000 of the Company's ordinary shares from
time to time. As of March 10, 2003, the Company had repurchased all
1,000,000 ordinary shares authorized under the repurchase program at an
average price of (euro) 5.22 per share. During the three months ended
March 31, 2003, the Company repurchased 103,568 ordinary shares at an
average price of (euro) 3.35 per share.
Page 5
3. INVENTORIES
Inventories consist of:
- ----------------------------------------------------------------------------------------------------------
December 31, March 31,
2002 2003
EURO EURO
- ----------------------------------------------------------------------------------------------------------
Precious metals.................................................. 20 15
Raw materials.................................................... 12,106 11,593
Work in progress................................................. 18,142 20,550
Finished goods................................................... 3,156 2,580
----------------------------
33,424 34,738
=======================================================================================================
4. GOODWILL, PATENTS AND TRADEMARKS
- ----------------------------------------------------------------------------------------------------------
December 31, March 31,
2002 2003
EURO EURO
- ----------------------------------------------------------------------------------------------------------
Non amortizable:
Goodwill......................................................... 14,690 14,211
Amortizable:
Patents.......................................................... 16,455 15,680
Trademarks....................................................... 581 543
============================
31,726 30,434
=======================================================================================================
The above amounts are presented net of accumulated amortization of
(euro) 26.8 million at December 31, 2002 and (euro) 27.3 million at
March 31, 2003.
As of January 1, 2002, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 142 "Goodwill and other intangible
Assets" and SFAS No. 144 "Accounting for the impairment or disposal of
long-lived assets". SFAS No. 142 eliminates the amortization of
goodwill and indefinite-lived intangible assets, addresses the
amortization of intangible assets with finite lives and addresses
impairment testing and recognition for goodwill and intangible assets
with indefinite lives. SFAS No. 144 establishes a single model for the
impairment of long-lived assets and broadens the presentation of
discontinued operations to include disposal of an individual business.
As a result of the adoption of SFAS No. 142, goodwill amortization
ceased as of January 1, 2002.
The Company reviewed its business and determined that there are four
reporting units to be reviewed for impairment in accordance with the
standard, the reporting units were: packaging equipment, plating and
singulation equipment, flip chip die attach equipment and die sorting
equipment. During the first quarter of 2002, the Company completed the
required
Page 6
transitional impairment testing of goodwill, and based upon those
analyses, did not identify any impairment charges as a result of
adoption of SFAS No. 142.
The Company has determined that its annual test for impairment of
goodwill will take place at the end of the fourth quarter of each year,
which coincides with the completion of its annual forecasting process.
In the third quarter of 2002, the Company consolidated its die attach
equipment business and die sort equipment business into a single die
handling equipment business unit. Due to the severity and the length of
the current industry downturn and uncertainty of the timing of
improvement in industry conditions the Company has revised its earnings
forecasts for each of its business units that were tested for
impairment. As a result, in the fourth quarter of 2002, the Company
recognized a goodwill impairment loss of (euro) 3,302 in the die
handling equipment reporting unit. The fair value of each reporting
unit was estimated using the expected present value of future cash
flows.
5. DEFERRED GAIN ON SALE AND LEASE BACK
On June 28, 2002, the Company sold the land and buildings of one of its
subsidiaries in a sale and lease back transaction for (euro) 6.5
million in cash. At the date of the transaction, the cost of the land
and buildings totaled (euro) 6.9 million and the net book value of this
real estate was (euro) 5.4 million. The Company's gain on this
transaction of (euro) 1.1 million will be amortized and netted against
rental expenses over the twelve and a half-year term of the lease.
Gross rental expenses total (euro) 0.6 million per annum. The total
deferred gain on the sale and lease back as of December 31, 2002 and
March 31, 2003 were (euro) 1.0 million.
6. RESTRUCTURING
In the third quarter of 2002, the Company relocated its flip chip die
attach operations from New Jersey to New Hampshire in the United States
and consolidated these activities with its die sorting activities to
form a single Die Handling Systems business unit. Furthermore, in the
fourth quarter of 2002, the Company adopted a restructuring plan that
reduced the workforce of its Die Handling Systems business unit by
approximately 28%. The Company recorded a pre-tax restructuring charge
of (euro) 0.8 million ((euro) 0.6 million after tax) in connection with
this relocation of its Die Handling systems' business and reduction in
workforce.
Page 7
Changes in the restructuring reserve during the first quarter of 2003
were:
- ------------------------------------------------------------------------------------------------------------
EURO
- ------------------------------------------------------------------------------------------------------------
January 1, 2003........................................................ 1,281
Cash payments in the first quarter of 2003............................. (480)
-----
Restructuring reserve as of March 31, 2003............................. 801
============================================================================================================
Total remaining cash outlays for restructuring activities are expected
to be (euro) 0.8 million, which primarily will be expended during the
remainder of 2003.
7. EARNINGS (LOSS) PER SHARE
For the three-month period ended March 31, 2002 and 2003, all options
were excluded from the calculation of diluted loss per share, as the
effect would be anti-dilutive due to the Company's loss for those
periods.
8. COMPREHENSIVE INCOME
Other comprehensive income items include revenues, expenses, gains and
losses that under US GAAP are excluded from net income and are
reflected as a component of shareholders' equity; such as foreign
currency translation adjustments, minimum pension liability adjustments
and unrealized gains and losses on marketable securities classified as
available-for-sale. The components of comprehensive loss for the
Company for the three-month period ended March 31, 2002 and 2003 were
net loss and foreign currency translation adjustments. Those components
are as follows:
- -----------------------------------------------------------------------------------------------------
Three months ended March 31,
---------------------------------------
2002 2003 2003
EURO EURO USD
- -----------------------------------------------------------------------------------------------------
Net loss.................................................... (4,061) (3,011) (3,282)
Other comprehensive income (loss):
Foreign currency translation adjustment................... 422 (894) (974)
---------------------------------------
Comprehensive loss.......................................... (3,639) (3,905) (4,256)
=====================================================================================================
Page 8
9. STOCK OPTIONS
In 1995, the Company established the BE Semiconductor Industries
Incentive Plan 1995 (the "Incentive Plan 1995"). The Company may issue
1,250,000 ordinary shares ("1995 Plan Shares") under the Incentive Plan
1995, subject to adjustments for share splits, share dividends,
recapitalizations and similar events. 1995 Plan Shares can consist, in
whole or in part, of unauthorized and unissued shares or treasury
shares. During the years from 1995 to 2001, the Company made awards
under the Incentive Plan 1995 to executive officers and senior
employees of the Company. Options granted between 1995 and 1998 to
Dutch employees and officers vested in full on the date of grant.
Options granted between 1999 and 2001 vest after three years. The
Incentive Plan 1995 expired in 2001. Stock options granted under the
Incentive Plan 1995 have exercise prices which were equal to the market
price of the Company's ordinary shares on the date of grant.
In 2001, the Company established the BE Semiconductor Industries
Incentive Plan 2001 - 2005 (the "Incentive Plan 2001"). The total of
ordinary shares ( "2001 Plan Shares") that may be issued under the
Incentive Plan 2001, shall not exceed 1.5% per year of the total
ordinary shares outstanding, subject to adjustments for share splits,
share dividends, recapitalizations and similar events. 2001 Plan Shares
may consist, in whole or in part, of unauthorized and unissued shares
or treasury shares. The Company anticipates that it will, on an annual
basis, make awards under the Incentive Plan 2001 to executive officers
and senior employees of the Company. Options granted in 2002 and 2003
vest after three years. Stock options granted under the Incentive Plan
2001 will have exercise prices equal to the market price of the
Company's ordinary shares on the date of grant.
In the years 2000, 2001, 2002 and 2003, the Company granted stock
options to all of its employees. The options vest after three years and
have exercise prices equal to the market price of the Company's
ordinary shares on the date of grant. These options are reported as
variable stock options. All other options granted by the Company are
reported as fixed stock options.
The Company accounts for stock-based compensation using the intrinsic
value method. Accordingly, no compensation has been recorded for the
fixed stock options granted. Additionally, no compensation cost was
recognized for the variable stock options granted in 2001, 2002 and
2003 due to the Company's ordinary share market value.
The Company applies Accounting Principles Board Opinion ("APB") No. 25
"Accounting for Stock Issued to Employees", and related interpretations
in accounting for its plans. SFAS No. 123 "Accounting for Stock-Based
Compensation" allows companies to elect to either account for stock
options using fair value based method, or continue to account for stock
option plans under APB No. 25, and disclose pro forma disclosure of net
income and earnings per share as if SFAS No. 123 were applied. The
Company accounts for the stock based employee compensation plans under
the recognition and measurement principles of APB No. 25 and related
Interpretations. No stock-based employee compensation cost is reflected
in net income (loss), as all options granted under the Company's stock
option plans had an exercise price equal to the market value of the
underlying ordinary shares on the date of grant. The Company has
elected to continue to account for its stock options under the
Page 9
provisions of APB No. 25 and disclose the pro forma effect of SFAS No.
123. The following table illustrates the effect on net loss and loss
per share for the first quarters of 2002 and 2003, respectively, if the
Company had applied the fair value recognition provisions of SFAS No.
123 to stock-based employee compensation.
- ------------------------------------------------------------------------------------------------------------
Three months ended March 31,
----------------------------
2002 2003
EURO EURO
- -----------------------------------------------------------------------------------------------------------
Net loss as reported (4,061) (3,011)
Deduct: Stock-based employee compensation expense (277) (333)
determined under fair value based method for all
awards, net of related tax effects
Add: Stock-based compensation expense included in net
loss, net of related tax effect - -
-----------------------------
Pro forma net loss (4,338) (3,344)
BASIC LOSS PER SHARE:
As reported (0.13) (0.10)
Pro forma (0.14) (0.11)
DILUTED LOSS PER SHARE:
As reported (0.13) (0.10)
Pro forma (0.14) (0.11)
===========================================================================================================
The fair value of the Company's option awards to employees was
estimated using the Black-Scholes option-pricing model assuming no
dividends, vesting after three years and the following weighted average
assumptions:
- ---------------------------------------------------------------------------
Three months
ended March
31, 2003
- ---------------------------------------------------------------------------
Expected life (years) 5.7
Expected stock price volatility 55.2%
Risk-free rate 3.66%
==========================================================================
The per share weighted average fair value of options granted during the
first quarter of 2003 was (euro) 1.79.
10. SEGMENT DATA
The Company designs, develops, manufactures, markets and services (i)
molding systems, trim and form and integration systems ("packaging
equipment") through its Fico subsidiary, (ii) selective plating and
tin-lead plating systems and singulation systems ("plating and
singulation equipment")
Page 10
through its Meco subsidiary, (iii) flip chip die attach and die sorting
systems through its subsidiaries RDA and Laurier ("die handling
equipment") for the semiconductor industry's "back-end" assembly
operations. On January 4, 2002, the Company acquired Laurier Inc., a
die sort equipment business. In the third quarter of 2002, the Company
consolidated its Die Attach Equipment business and Die Sort Equipment
business into a single Die Handling Systems business and has
reclassified financial data for the Die Attach Equipment business and
Die Sort Equipment business for prior periods. The accounting
principles that are used for reporting the results of operations of the
segments are the same accounting principles as used for the Company's
Consolidated Financial Statements. The measure of profit or loss used
by the Company's chief operating decision maker to evaluate the
performance for each operating segment is income (loss) before taxes
and minority interest.
- ----------------------------------------------------------------------------------------------------
Plating and
Packaging Singulation Die Handling Corporate/
(Euro in thousands) Equipment Equipment Equipment Elimination Total
- ----------------------------------------------------------------------------------------------------
Three months ended
March 31,2002................
Net sales ................... 8,767 2,831 2,854 - 14,452
Income (loss) before
taxes ....................... (4,028) (1,978) (555) 923 (5,638)
Total assets ................ 98,438 52,360 32,951 85,054 268,803
Three months ended
March 31,2003 ...............
Net sales ................... 14,755 5,391 574 - 20,720
Income (loss) before
taxes ....................... (2,408) (952) (1,188) 778 (3,770)
Minority interest ........... 5 - - - 5
Total assets ................ 87,060 53,440 17,427 82,609 240,536
Page 11
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Quarterly Report contains certain forward-looking statements as that term
is defined in the Private Litigation Securities Reform Act of 1995. For this
purpose any statements herein that are not statements of historical fact may be
deemed to be forward-looking statements. Without limiting the foregoing, any
estimates of future business or financial results constituting forward looking
statements and any statements including the words "believes", "anticipates",
"plans", "expects", "intends" and similar expressions are intended to identify
forward-looking statements. These forward-looking statements represent the
expectations of management as of the date of the filing of this report. Actual
results could differ materially from those anticipated by the forward-looking
statements due to a number of important factors, including the risks and
uncertainties faced by us described elsewhere in this Quarterly Report and in
other documents we have filed with the Securities and Exchange Commission. You
should consider carefully each of these risks and uncertainties in evaluating
our financial condition and results of operations.
OVERVIEW
Our net sales and results of operations depend in significant part on the level
of capital expenditures by semiconductor manufacturers, which in turn depends on
the current and anticipated market demand for semiconductors and for products
utilizing semiconductors. Demand for semiconductor devices and expenditures for
the equipment required to assemble semiconductors is cyclical, depending in
large part on levels of demand worldwide for computing and peripheral equipment,
telecommunications devices and automotive and industrial components as well as
the production capacity of global semiconductor manufacturers. Historically, as
demand for these devices has increased, semiconductor manufacturers have sought
to increase their capacity by increasing the number of wafer fabrication
facilities and equipment production lines, and installing equipment that
incorporates new technology to increase the number of devices and the amount of
computing power per device. As demand has increased, semiconductor prices have
also typically risen. Conversely, if the additional capacity outstrips the
demand for semiconductor devices, manufacturers historically have cancelled or
deferred additional equipment purchases until demand again begins to outstrip
aggregate capacity. Under such circumstances, semiconductor prices typically
fall.
Due to the lead times associated with the production of our semiconductor
manufacturing equipment, our sales orders historically have lagged any downturn
or recovery in the semiconductor market by approximately nine to twelve months.
Our results of operations historically have fluctuated significantly both on an
annual and quarterly basis depending on overall levels of semiconductor demand
globally and the specific production requirements of our principal customers.
During 2001, we saw a significant deterioration in industry conditions. Although
we experienced increased order levels in 2002, the slowdown in the semiconductor
and semiconductor equipment industry continued throughout 2002 and we expect
this slowdown to continue through at least the first half of 2003.
Our sales are generated primarily by shipments to the Asian manufacturing
operations of leading US and European semiconductor manufacturers and, to a
lesser extent, Korean and other Asian manufacturers and subcontractors. Most of
our principal competitors on a worldwide basis are Japanese, which historically
have dominated the Japanese market because Japanese
Page 12
semiconductor manufacturers typically purchase equipment from domestic
suppliers. To date, our sales to Japanese customers have been limited.
Our sales to specific customers tend to vary significantly from year to year
depending on customers' capital expenditure budgets, new product introductions,
production capacity and packaging requirements. In addition, we derive a
substantial portion of our net sales from products that have an average selling
price in excess of (euro) 300,000 and that have significant lead times between
the initial order and delivery of the product. The timing and recognition of net
sales from customer orders can cause significant fluctuations in operating
results from quarter to quarter.
On January 4, 2002, we acquired Laurier, Inc. ("Laurier"), a privately held
company located in Londonderry, New Hampshire, USA, for US$ 8.9 million in cash.
Laurier manufactures die sorting equipment used to inspect, select and sort bare
die, flip chips, wafer level chip scale packages and opto-electronic devices
from a wafer for further processing in assembly operations. Laurier's results of
operations are included in our consolidated results of operations from the date
of acquisition.
EVALUATION OF CRITICAL ACCOUNTING POLICIES
Our discussion and analysis of our financial condition and results of operations
are based upon our condensed consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the financial statements and the reported amounts
of revenues and expenses during the reporting periods. Areas where significant
judgements are made include, but are not limited to, revenue recognition,
inventories, long-lived assets and goodwill and intangible assets. Actual
results could differ materially from these estimates. For a more detailed
explanation of the judgments made in these areas, refer to our Annual Report on
Form 20-F for the year ended December 31, 2002.
REVENUE RECOGNITION
Our revenue recognition policy conforms to the Securities and Exchange
Commission Staff Accounting Bulletin No. 101. Advance payments received from
customers are recorded as a liability until the products have been shipped.
Shipment of products occurs after a customer accepts the product at our
premises. We recognize revenues from sales of products upon shipment. The risk
of loss and rewards of ownership with respect to products transfer to customers
at that time. The sale of the product to the customer is thereby considered
complete and no significant obligations remain after the sale is completed. A
customer's sole recourse against us is to enforce our obligations relating
warranty. Operating expenses and other income and expense items are recognized
in the income statement as incurred or earned.
INVENTORIES
We periodically evaluate whether or not the carrying value of our inventories is
in excess of market value or whether we have excess or obsolete items in our
inventory. Our evaluation
Page 13
includes judgements regarding future market developments that might have an
adverse effect on the valuation of our inventories.
Inventories are stated at the lower of cost (first-in, first-out method) or
market value. Cost includes net prices paid for materials purchased, charges for
freight and custom duties, production labor costs and factory overhead. Precious
metals are valued at the market price at the balance sheet date. Variances in
market price from balance sheet date to balance sheet date are recorded in gross
profit as gains or losses.
LONG-LIVED ASSETS
Long-lived assets, such as property, plant and equipment, and purchased
intangibles subject to amortization, are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used is determined
by a comparison of the carrying amount of an asset to estimated undiscounted
future cash flows. If the sum of the estimated undiscounted future cash flows is
less than the carrying amount of the related asset, then an impairment charge is
recognized. The measurement of the impairment charge is based upon the amount
that the carrying value of the asset exceeds its fair value. Fair value is
generally determined on the basis of estimated future discounted cash flows.
Assets to be disposed of are reported at the lower of the carrying amount of
fair value less costs to sell, and depreciation ceases.
The amortization of patents and other identifiable intangible assets is based on
the weighted average remaining lives of 13 years for Meco, RDA and Laurier and
16 years for Fico as determined by an independent valuation at the date of
acquisition.
Goodwill and intangible assets not subject to amortization are tested annually
for impairment. An impairment loss is recognized to the extent that the carrying
amount exceeds the asset's fair value.
GOODWILL
Goodwill represents the excess of the costs of purchased businesses over the
fair value of their net assets at date of acquisition and through December 31,
2001 was being amortized by the straight-line method. The amortization of the
goodwill from the Meco acquisition (13 years) and the RDA acquisition (13
years), was based on the weighted average remaining lives of Meco's and RDA's
patents as determined by an independent valuation. Goodwill was assessed for
recoverability by determining whether the amortization of the goodwill balance
over its remaining life could be recovered through undiscounted future operating
cash flows of the acquired operation. As of January 1, 2002, goodwill is no
longer amortized, but is required to be evaluated for impairment at least
annually in accordance with SFAS No. 142.
We adopted the provisions of SFAS No. 141, "Business combinations" as of July 1,
2001 and SFAS No. 142 as of January 1, 2002. Goodwill and any intangible asset
determined to have an indefinite useful life acquired in a purchase business
combination completed after June 30, 2001 and determined to have an indefinite
useful life are not amortized, but will continue to be evaluated for impairment
annually in accordance with SFAS No. 142.
Page 14
In connection with the transitional goodwill impairment evaluation, Statement
No. 142 required us to perform an assessment of whether there was an indication
that goodwill, and equity-method goodwill, is impaired as of the date of
adoption. To accomplish this, we were required to identify our reporting units
and determine the carrying value of each reporting unit by assigning the assets
and liabilities, including the existing goodwill and intangible assets, to those
reporting units as of January 1, 2002. We were required to determine the fair
value of each reporting unit and compare it to the reporting unit's carrying
amount within six months of January 1, 2002. To the extent a reporting unit's
carrying amount exceeds its fair value, an indication exists that the reporting
unit's goodwill may be impaired and the second step of the transitional
impairment test must be performed. In the second step, the implied fair value of
the reporting unit's goodwill, determined by allocating the reporting unit's
fair value to all of its assets (recognized and unrecognized) and liabilities in
a manner similar to a purchase price allocation in accordance with Statement No.
141, must be compared to its carrying amount, both of which would be measured as
of the date of adoption. This second step is required to be completed as soon as
possible, but no later than the end of the year of adoption. We were not
required to perform the second step for any of our identified reporting units
during its January 1, 2002 goodwill transitional impairment test.
We have determined that our annual test for impairment of goodwill will take
place at the end of the fourth quarter of each year, which coincides with the
completion of our annual forecasting process. In the third quarter of 2002, we
consolidated our die attach equipment business and die sort equipment business
into a single die handling equipment business unit. Due to the severity and the
length of the current industry downturn and uncertainty of the timing of
improvement in industry conditions we have revised our earnings forecasts for
each of our business units that were tested for impairment. As a result, in the
fourth quarter of 2002, we recognized a goodwill impairment loss of (euro) 3,302
in the die handling equipment reporting unit. The fair value of each reporting
unit was estimated using the expected present value of future cash flows.
We do not have any identifiable intangible assets that have indefinite lives.
Page 15
CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
The following table discloses our contractual obligations and commercial
commitments.
- ---------------------------------------------------------------------------------------------------
Payments Due by Period
------------------------------------------------------------------
Less than After 5
(Euro in thousands) 1 year 1-3 years 4-5 years years Total
- ---------------------------------------------------------------------------------------------------
Long term debt 635 476 - - 1,111
Capital lease obligations
including imputed interest 600 1,200 1,200 6,847 9,847
Operating lease 1,799 1,853 1,371 4,810 9,833
Unconditional purchase
obligations 7,120 - - - 7,120
------------------------------------------------------------------
Total contractual obligations
and commercial
commitments 10,154 3,529 2,571 11,657 27,911
===================================================================================================
Unconditional purchase obligations relate to buildings, equipment and specific
external technical staff.
Page 16
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2003 COMPARED TO THREE MONTHS ENDED MARCH 31, 2002.
- -----------------------------------------------------------------------------------------------------------------
Three Months Ended March 31,
---------------------------------------------
2002 2003
(amounts in thousands, EURO EURO
except share and per share data) (unaudited) % (unaudited) %
- -----------------------------------------------------------------------------------------------------------------
Net sales................................................. 14,452 100.0 20,720 100.0
Cost of sales............................................. 11,042 76.4 14,499 70.0
---------------------------------------------
Gross profit ............................................. 3,410 23.6 6,221 30.0
Selling, general and administrative expenses.............. 6,275 43.4 6,500 31.4
Research and development expenses......................... 3,056 21.2 3,635 17.5
Amortization of intangible assets......................... 656 4.5 635 3.1
---------------------------------------------
Total operating expenses.................................. 9,987 69.1 10,770 52.0
Operating loss............................................ (6,577) (45.5) (4,549) (22.0)
Interest income, net...................................... 939 6.5 779 3.8
---------------------------------------------
Loss before taxes and minority interest................... (5,638) (39.0) (3,770) (18.2)
Income tax benefit........................................ (1,577) (10.9) (754) (3.7)
---------------------------------------------
Loss before minority interest............................. (4,061) (28.1) (3,016) (14.5)
Minority interest......................................... - - 5 -
---------------------------------------------
Net loss.................................................. (4,061) (28.1) (3,011) (14.5)
=================================================================================================================
Loss per share
- - Basic................................................ (0.13) (0.10)
- - Diluted.............................................. (0.13) (0.10)
Number of shares used in calculating loss per
share:
- - Basic................................................ 31,794,675 30,871,802
- - Diluted.............................................. 31,794,675 30,871,802
- -----------------------------------------------------------------------------------------------------------------
Page 17
THREE MONTHS ENDED MARCH 31, 2003 COMPARED TO THREE MONTHS ENDED MARCH 31, 2002.
NET SALES
Our net sales consist of sales of automated molding systems, automated trim and
form integration systems, singulation systems, automated plating systems and die
handling systems.
Our net sales increased by 42.8% from (euro) 14.5 million in the first quarter
of 2002 to (euro) 20.7 million in the first quarter of 2003. The increase in net
sales in the first quarter of 2003 as compared to the first quarter of 2002 was
due to increased order levels in the second half of 2002, resulting in increased
shipments in the first quarter of 2003, especially for molding systems, trim and
form integration systems and plating systems, offset by lower sales of die
handling systems.
Our net sales per product line for the quarters were as follows:
- ------------------------------------------------------------------------------------------------------------
(Euro in million) 2002 2003 % CHANGE
- ------------------------------------------------------------------------------------------------------------
Automated molding systems................................ 7.2 9.5 31.9
Automated trim and form integration systems.............. 1.6 5.2 225.0
Singulation systems...................................... 0.0 0.5 -
Automated plating systems................................ 2.8 4.9 75.0
Die handling systems..................................... 2.9 0.6 (79.3)
-----------------------------------
TOTAL NET SALES.......................................... 14.5 20.7 42.8
===================================
BACKLOG
Backlog decreased by 10.1% from (euro) 42.5 million at December 31, 2002 to
(euro) 38.2 million at March 31, 2003. New orders for the first quarter of 2003
amounted to (euro) 16.5 million as compared to (euro) 16.1 million in the first
quarter of 2002 and (euro) 24.8 million in the fourth quarter of 2002. The
book-to-bill ratio was 0.80 for the first quarter of 2003 as compared to a
book-to-bill ratio of 1.11 for the first quarter of 2002 and 0.91 for the fourth
quarter of 2002.
We include in backlog only those orders for which we have received a completed
purchase order. Such orders are subject to cancellation by the customer with
payment of a negotiated charge. Because of the possibility of customer changes
in delivery schedules, cancellation of orders and potential delays in product
shipments, our backlog as of any particular date may not be representative of
actual sales for any succeeding period.
Page 18
GROSS PROFIT
Cost of sales includes materials, purchased components and subassemblies from
subcontractors, direct labor and manufacturing overhead. It also includes costs
relating to the pre-production and customization of new equipment once a product
has advanced beyond the prototype stage. Changes in cost of sales typically lag
changes in net sales due to our manufacturing lead times.
Gross profit increased by 82.4% from (euro) 3.4 million in the first quarter of
2002 to (euro) 6.2 million in the first quarter of 2003. As a percentage of net
sales, gross profit increased from 23.6% in the first quarter of 2002 to 30.0%
in the first quarter of 2003, mainly due to the increase in net sales in the
first quarter of 2003 and the benefits of our restructuring, undertaken in 2001
and 2002.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses consist of expenses related to
sales of products and services, administrative and other corporate level
expenses not related to the production of products and all expenses associated
with ongoing customer support.
Selling, general and administrative expenses increased by 3.2% from (euro) 6.3
million in the first quarter of 2002 to (euro) 6.5 million in the first quarter
of 2003 due to the increase in net sales, partially offset by decreased expenses
resulting our restructuring efforts. As a percentage of net sales, selling,
general and administrative expenses decreased from 43.4% in the first quarter of
2002 to 31.4% in the first quarter of 2003 primarily due to the increase in net
sales and the benefits of our restructuring efforts.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development spending relating to packaging and die handling
equipment varies from year to year depending on our new product development
cycle. As research and development expenses do not include pre-production and
customization costs, our research and development expenses decrease as products
move from prototype development to production and final customer acceptance.
Research and development expenses relating to plating equipment include costs
related solely to new product development efforts and exclude new product
pre-production and customization expenses and design and engineering expenses
incurred in sustaining and enhancing existing product lines.
Research and development expenses increased by 16.1% from (euro) 3.1 million in
the first quarter of 2002 to (euro) 3.6 million in the first quarter of 2003. As
a percentage of net sales, research and development expenses were 21.2% and
17.5% in the 2002 and 2003 periods, respectively. Research and development
spending in the first quarter of 2003 mainly related to the new AMS-I molding
system, as well as spending for new trim and form systems.
OPERATING LOSS
Operating loss decreased from (euro) 6.6 million in the first quarter of 2002 to
(euro) 4.5 million in the first quarter of 2003. The decrease in operating loss
in the first quarter of 2003 as compared to the first quarter of 2002 was due to
a substantial increase in net sales and gross margins, offset by increased
operating expenses.
Page 19
INTEREST INCOME, NET
Interest income decreased from (euro) 0.9 million in the first quarter of 2002
to (euro) 0.8 million in the first quarter of 2003, due to lower interest rates
and cash and lower cash equivalent balances.
INCOME TAX BENEFIT
Income tax benefit was (euro) 1.6 million in the first quarter of 2002 as
compared to (euro) 0.8 million in the first quarter of 2003. The effective tax
rate decreased from 28.0% in the first quarter of 2002 to 20.0% in the first
quarter of 2003. The decrease of the effective tax rate was due to losses in
certain foreign subsidiaries in which we were not able to recognize a tax
benefit, as management believes that the recent losses of these subsidiaries
should be given substantially more weight than forecasts of future profitability
in the evaluation. The effective tax rate for the first quarter of 2003
represents management's best estimate of the effective tax rate for the fiscal
year ended December 31, 2003.
MINORITY INTEREST
Minority interest relates to our investment in Tooling Leshan Company Ltd. in
Leshan.
NET LOSS
Net loss decreased by (euro) 1.1 million from a net loss of (euro) 4.1 million
in the first quarter of 2002 to (euro) 3.0 in the first quarter of 2003. The
decrease in net loss in the first quarter of 2003 was due principally to
increased net sales and gross margins, partially offset by an increase in
operating expenses.
Page 20
LIQUIDITY AND CAPITAL RESOURCES
We had (euro) 119.9 million and (euro) 115.6 million in cash and cash
equivalents at December 31, 2002 and March 31, 2003, respectively.
We finance Meco and, to an extent, Fico, on a stand-alone basis. Meco utilizes
funds generated from its results of operations and available bank lines of
credit to finance its working capital and capital expenditure requirements. Meco
and Fico maintain lines of credit with various local commercial banks. The
credit lines of Meco and Fico are unsecured. The principal restrictive covenant
in each line is related to solvency ratios, which generally are based on a ratio
of each subsidiary's equity to its assets. Currently, our Besi Die Handling
Systems subsidiary and, to an extent, Fico are financed through intercompany
loans.
The working capital requirements of our subsidiaries are affected by the receipt
of periodic payments on orders from their customers. Although Fico and Besi Die
Handling Systems generally receive partial payments for automated molding
systems, automated trim and form integration systems and die handling systems
prior to final installation, initial payments generally do not cover a
significant portion of the costs incurred in the manufacturing of such systems.
Meco generally receives a higher initial payment upon receipt of orders than
Fico and Besi Die Handling Systems.
Net cash provided by (used in) operating activities were ((euro) 2.2) million
and (euro) 1.4 million in the first quarter of 2002 and 2003, respectively. The
primary sources of cash from operations in the first quarter of 2003 were
decreased in working capital requirements of (euro) 2.4 million, partially
offset by a net loss of (euro) 3.0 million that included non-cash charges of
(euro) 1.5 million for depreciation and amortization.
At March 31, 2003, our cash totaled (euro) 115.6 million and our total debt and
capital lease obligations totaled (euro) 8.5 million. At March 31, 2003,
shareholders' equity stood at (euro) 196.2 million.
Our capital expenditures increased from (euro) 0.6 million in the first quarter
of 2002 to (euro) 3.3 million in the first quarter of 2003. The expenditures in
the first quarter of 2003 were incurred primarily for (i) the construction of an
80,000 square foot facility in Duiven, the Netherlands for molding systems and
tooling manufacturing and (ii) the establishment of our first manufacturing
facility in mainland China for the production of tools. We expect capital
spending in 2003 to increase to approximately (euro) 13 million.
At June 28, 2002, we sold the land and buildings of one of our subsidiaries in a
sale and lease back transaction for (euro) 6.5 million in cash. At the date of
the transaction, the cost of the land and buildings totaled (euro) 6.9 million
and the net book value of the real estate sold by was (euro) 5.4 million. Our
gain on this transaction of (euro) 1.1 million will be amortized and netted
against rental expenses over the twelve and a half-year term of the lease. Gross
rental expenses total (euro) 0.6 million per annum.
Page 21
On June 17, 2002, we announced that we had adopted a plan to repurchase up to
1,000,000 of our ordinary shares from time to time. As of March 31, 2003, we had
repurchased all 1,000,000 ordinary shares authorized under this repurchase
program at an average price of (euro) 5.22 per share.
At March 31, 2003, we had available lines of credit amounting to (euro) 24.3
million, under which no borrowings were outstanding. At March 31, 2003, (euro)
0.8 million was reserved for foreign exchange contracts under such lines.
Interest is charged at the bank's base lending rates plus increments ranging
from 1.0% to 1.5%. The credit facility agreements include covenants requiring us
to maintain certain financial ratios. We were in compliance with, or had
received waivers for, all loan covenants at March 31, 2003.
We believe that our cash position, internally generated funds and available
lines of credit will be adequate to meet our levels of capital spending,
research and development and working capital requirements for at least the next
twelve months.
NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the FASB issued SFAS No. 143, "Accounting for asset retirement
obligations". SFAS No. 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated retirement costs. It requires that we recognize the fair value of a
liability for an asset retirement obligation in the period in which it is
incurred if a reasonable estimate of fair value can be made. We adopted SFAS No.
143 on January 1, 2003 and the adoption did not have a material impact on our
consolidated financial statements.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the impairment or
disposal of long-lived assets". SFAS No. 144 establishes a single accounting
model for the impairment of long-lived assets and broadens the presentation of
discontinued operations to include more disposal transactions. We adopted SFAS
No. 144 effective January 1, 2002 and the adoption did not have a material
impact on our consolidated financial statements.
In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. In
rescinding FASB Statement No. 4 and FASB No. 64, FASB No. 145 eliminates the
requirement that gains and losses from the extinguishment of debt be aggregated
and, if material, classified as an extraordinary item, net of the related income
tax effect, however, an entity would not be prohibited from classifying such
gains and losses as extraordinary items so long as they meet the criteria of
paragraph 20 of APB 30, Reporting the results of operations - Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions. Further, the Statement amends
SFAS No. 13 to eliminate an inconsistency between the accounting for sale and
leaseback transactions and certain lease modifications that have economic
effects that are similar to sale-leaseback transactions. The standard is
effective for transactions occurring after May 15, 2002. The adoption of SFAS
No. 145 did not have a material impact on our consolidated financial statements.
Page 22
In June 2002, the FASB issued SFAS 146, Accounting for Exit or Disposal
Activities which addresses significant issues regarding the recognition,
measurement, and reporting of costs that are associated with exit and disposal
activities, including restructuring activities that are currently accounted for
pursuant to the guidance that the Emerging Issues Task Force (EITF) has set
forth in EITF 94-3 Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred
in a Restructuring). The standard will be effective for exit or disposal
activities that are initiated after December 31, 2002. We adopted SFAS No. 146
on January 1, 2003 and the adoption did not have a material impact on our
consolidated financial statements.
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others (hereinafter "the Interpretation"), which adresses, among
other things, the disclosures to be made by a guarantor in its interim and
annual financial statements about its obligations under guarantees. The
Interpretation also requires the recognition of a liability by a guarantor at
the inception of certain guarantees. The Interpretation requires the guarantor
to recognize a liability for the non-contingent component of the guarantee, this
is the obligation to stand ready to perform in the event that specified
triggering events or conditions occur. The initial measurement of this liability
is the fair value of the guarantee at inception. The recognition of the
liability is required even if it is not probable that payments will be required
under the guarantee or if the guarantee was issued with a premium payment or as
part of a transaction with multiple elements. We adopted the disclosure
requirements of the Interpretation as at December 31, 2002 and will apply the
recognition and measurement provisions for all guarantees entered into or
modified after December 31, 2002.
In November 2002, the Emerging Task-Force issued its consensus on EITF 00-21,
"Revenue Arrangements with Multiple Deliverables" ("EITF 00-21") on an approach
to determine whether an entity should divide an arrangement with multiple
deliverables into separate units of accounting. According to the EITF in an
arrangement with multiple deliverables, the delivered item(s) should be
considered a separate unit of accounting if all of the following criteria are
met: (i) the delivered item(s) has value to the customer on a standalone basis,
(ii) there is objective and reliable evidence of the fair value of the
undelivered item(s), (iii) if the arrangement includes a general right of
return, delivery or performance of the undelivered item(s) is considered
probable and substantially in the control of the vendor. If all the conditions
above are met and there is objective and reliable evidence of fair value for all
units of accounting in an arrangement, the arrangement consideration should be
allocated to the separate units of accounting based on their relative fair
values. However, there may be cases in which there is objective and reliable
evidence of the fair value(s) of the undelivered item(s) in an arrangement but
no such evidence for one or more of the delivered items. In those cases, the
residual method should be used to allocate the arrangement consideration. The
guidance in this Issue is effective for revenue arrangements entered into in
fiscal beginning after June 15, 2003. Alternatively, entities may elect to
report the change in accounting as a cumulative effect adjustment in accordance
with Accounting Principles Board Opinion 20, "Accounting Changes". If so
elected, disclosure should be made in periods subsequent to the date of initial
application of this consensus of the amount of recognized revenue that was
previously included in the cumulative effect adjustment. We believe that the
adoption of EITF 00-21 will not have a material impact on our consolidated
financial statements.
Page 23
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock Based
Compensation - Transition and Disclosure - an amendment of FASB Statement No.
123. SFAS No. 148 permits two additional transition methods for entities that
adopt the fair value based method of accounting for stock-based employee
compensation. The Statement also requires new disclosures about the ramp-up
effect of stock-based employee compensation on reported results. The Statement
also requires that those effects be disclosed more prominently by specifying the
form, content, and location of those disclosures. The transition guidance and
annual disclosure provisions of SFAS No. 148 are effective for fiscal years
ending after December 15, 2002, with earlier application permitted in certain
circumstances. The interim disclosure provisions are effective for financial
reports, containing financial statements for interim periods beginning after
December 15, 2002. The Company has adopted the annual and quarterly disclosure
requirements of SFAS No.148 in the consolidated financial statements.
In January 2003 the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities, an interpretation of ARB No. 51" ("FIN 46"). FIN 46
addresses the consolidation by business enterprises of variable interest
entities as defined in FIN 46. FIN 46 applies immediately to variable interests
in variable interest entities created after January 31, 2003 and to variable
interests in variable interest entities obtained after January 31, 2003.
Page 24
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
The following important factors, among others, could cause our actual results to
differ materially from those contained in forward-looking statements made in
this report or presented elsewhere by management from time to time.
OUR NET SALES AND RESULTS OF OPERATIONS DEPEND IN SIGNIFICANT PART ON
ANTICIPATED DEMAND FOR SEMICONDUCTORS, WHICH IS HIGHLY CYCLICAL, AND THE
SEMICONDUCTOR MARKET HAS RECENTLY EXPERIENCED A SIGNIFICANT AND SUSTAINED
DOWNTURN.
Capital expenditures of our customers for semiconductor manufacturing equipment
depend on the current and anticipated market demand for semiconductors and
products using semiconductors. The semiconductor industry is highly cyclical and
has suffered significant economic downturns at various times. These downturns
have involved periods of production overcapacity, oversupply, reduced prices and
lower net sales, and have regularly been associated with dramatically reduced
levels in capital expenditures for semiconductor facilities and equipment. Due
to the lead times associated with the production of semiconductor equipment, a
rise or fall in the level of sales of semiconductor equipment typically lags any
downturn or recovery in the semiconductor market by approximately nine to twelve
months. For example, according to trade association data, worldwide sales of all
semiconductor products grew by more than 40% in 1995. In 1996, however, the
market began to experience a significant downturn due to production overcapacity
and severely falling prices that resulted in an 8.6% decrease in worldwide
sales. Worldwide semiconductor sales in 2002 decreased by more than 30% as
compared to 2000. These conditions had a direct result on our net sales, results
of operations and backlog. Downturns in the industry can be severe and
protracted and could again impact our net sales, results of operations and
backlog.
OUR QUARTERLY NET SALES AND OPERATING RESULTS FLUCTUATE SIGNIFICANTLY.
Our quarterly net sales and operating results have varied in the past and may
continue to fluctuate in the future. We believe that period-to-period
comparisons of our operating results are not necessarily indicative of future
operating results. Factors that have caused our results to fluctuate in the past
and which are likely to affect us in the future include the following:
- the volatility of the semiconductor industry;
- the length of sales cycles and lead-times associated with our
product offerings;
- the timing, size and nature of our transactions;
- market acceptance of new products or product enhancements by us
or our competitors;
- the timing of new personnel hires and the rate at which new
personnel become productive;
- changes in pricing policies by our competitors;
- changes in our operating expenses;
- our ability to adjust production capacity on a timely basis to
meet customer demand; and
- fluctuations in foreign currency exchange rates.
OUR BACKLOG AT ANY PARTICULAR DATE MAY NOT BE INDICATIVE OF OUR FUTURE OPERATING
RESULTS.
Our backlog amounted to (euro) 38.2 million at March 31, 2003. In market
downturns, semiconductor manufacturers historically have cancelled or deferred
additional equipment purchases. For
Page 25
example, backlog decreased significantly in 2001 due to a steep decline in
semiconductor production and capital expenditure cutbacks initiated by our
customers during this period. The orders in our backlog are subject to
cancellation by the customer at any time upon payment of a negotiated charge.
Because of the possibility of changes in delivery schedules, cancellations of
orders and potential delays in product shipments, our backlog at any particular
date may not be representative of actual sales for any succeeding period.
BECAUSE OF THE LENGTHY AND UNPREDICTABLE SALES CYCLE ASSOCIATED WITH OUR
TRANSACTIONS, WE MAY NOT SUCCEED IN CLOSING TRANSACTIONS ON A TIMELY BASIS, IF
AT ALL, WHICH WOULD ADVERSELY AFFECT OUR NET SALES AND OPERATING RESULTS.
Transactions for our products often involve large expenditures as the average
selling price for a substantial portion of the equipment we offer exceeds (euro)
300,000. The sales cycles for these transactions are often lengthy and
unpredictable. Factors affecting the sales cycle include:
- customers' capital spending plans and budgetary constraints;
- the timing of customers' budget cycles; and
- customers' internal approval processes.
We may not succeed in closing such large transactions on a timely basis or at
all, which could cause significant variability in our net sales and results of
operations for any particular period.
A LIMITED NUMBER OF CUSTOMERS HAVE ACCOUNTED FOR A SIGNIFICANT PERCENTAGE OF OUR
NET SALES, AND OUR FUTURE NET SALES COULD DECLINE IF WE CANNOT KEEP OR REPLACE
THESE CUSTOMER RELATIONSHIPS.
Historically, a limited number of our customers have accounted for a significant
percentage of our net sales. In the first three months of 2003, our three
largest customers accounted for approximately 64% of our net sales, with the
largest customer accounting for approximately 48% of our net sales. We
anticipate that our results of operations in any given period will continue to
depend to a significant extent upon revenues from a small number of customers.
In addition, we anticipate that the identity of such customers will continue to
vary over time, so that the achievement of our long-term goals will require us
to maintain relationships with our existing clients and to obtain additional
customers on an ongoing basis. Our failure to enter into and realize revenue
from a sufficient number of contracts during a particular period could have a
significant adverse effect on our net sales.
WE MAY FAIL TO COMPETE EFFECTIVELY IN OUR MARKET.
We face substantial competition from established companies, based primarily in
Japan, various other Pacific Rim countries and the United States, many of which
have greater financial, engineering, manufacturing and marketing resources than
us. We believe that once a semiconductor manufacturer has decided to buy
semiconductor assembly equipment from a particular vendor, the manufacturer
often continues to use that vendor's equipment in the future. Accordingly, it is
often difficult to achieve significant sales to a particular customer once
another vendor's products have been installed. Furthermore, some companies have
historically developed, manufactured and installed back-end assembly equipment
internally, and it may be difficult for us to sell our products to these
companies.
Page 26
Most of our principal competitors on a worldwide basis are Japanese, which
historically have dominated the Japanese market because Japanese semiconductor
manufacturers typically purchase equipment from domestic suppliers. To date, our
sales to Japanese customers have been limited. We believe that the limited
growth of the Japanese semiconductor industry in recent years has caused our
Japanese competitors to intensify their efforts to export their products to
other areas of the world, particularly Asia. As a result, competition in these
markets has become increasingly intense.
We believe that a decrease in the value of the Japanese yen or the U.S. dollar
and dollar-linked currencies in relation to the euro could lead to intensified
price-based competition in our markets resulting in lower prices and margins and
could have a negative impact on our business and results of operations.
We believe that our ability to compete successfully in our market depends on a
number of factors both within and outside our control, including:
- price, product quality and system performance;
- ease of use and reliability of our products;
- manufacturing lead times, including the lead times of our
subcontractors;
- cost of ownership;
- success in developing or otherwise introducing new products; and
- market and economic conditions.
We cannot assure you that we will be able to compete successfully in the future.
WE MUST INTRODUCE NEW PRODUCTS IN A TIMELY FASHION AND ARE DEPENDENT UPON THE
MARKET ACCEPTANCE OF THESE PRODUCTS.
Our industry is subject to rapid technological change and new product
introductions and enhancements. Our business strategy and results of operations
are largely based upon accurate anticipation of customer and market
requirements. Our ability to implement our overall strategy and remain
competitive will depend in part upon our ability to develop new and enhanced
products and to introduce them at competitive price levels. We must also
accurately forecast commercial and technical trends in the semiconductor
industry so that our products provide the functions required by our customers
and are configured to be used in our customers' facilities. We may not be able
to respond effectively to technological changes or to specific product
announcements by competitors.
Although we expect to continue to introduce new products in each of our product
lines, we cannot assure you that we will be successful in developing new
products in a timely manner or that any new products will achieve market
acceptance.
Page 27
WE ARE LARGELY DEPENDENT UPON OUR INTERNATIONAL OPERATIONS.
We have facilities and personnel in The Netherlands, Malaysia, Korea, Hong Kong,
Singapore, Japan and the United States and our products are marketed, sold and
serviced worldwide. Our operations are subject to risks inherent in
international business activities, including, in particular:
- general economic conditions in each country;
- the overlap of different tax structures and management of an
organization spread over various countries;
- unexpected changes in regulatory requirements, compliance with a
variety of foreign laws and regulations, and longer accounts
receivables payment cycles in some countries; and
- import and export licensing requirements, trade restrictions and
changes in tariff and freight rates.
In addition, each region in the global semiconductor equipment market exhibits
unique characteristics that can cause capital equipment investment patterns to
vary significantly from period to period.
WE ARE DEPENDENT ON NET SALES FROM CUSTOMERS IN VARIOUS PACIFIC RIM COUNTRIES
WHO HAVE EXPERIENCED ECONOMIC DIFFICULTIES.
Our net sales are dependent upon customers in various Pacific Rim countries.
Many Pacific Rim countries have experienced banking and currency difficulties
that have led to an economic slowdown in those countries. Specifically, the
decline in value of the Korean and Southeast Asian currencies, together with
difficulties in obtaining credit, has resulted in a decline in the purchasing
power of our Korean and Southeast Asian customers and has resulted in the
cancellation or delay of orders for our products from Korean and Southeast Asian
customers. In addition, if Japan's economy weakens further, investments by
Japanese customers may be negatively affected and it is possible that economic
recovery in other Pacific Rim countries could be delayed.
OUR RESULTS OF OPERATIONS HAVE IN THE PAST AND COULD IN THE FUTURE BE AFFECTED
BY CURRENCY EXCHANGE RATE FLUCTUATIONS.
The percentage of our consolidated net sales that is denominated in euro is
approximately 70% whereas net sales represented by U.S. dollars or dollar-linked
currencies is approximately 30%. Approximately 85% of our costs and expenses are
denominated in euro. As a result, our results of operations could be affected by
fluctuations in the value of the euro against the dollar. We seek to manage our
exposure to such fluctuations by hedging firmly committed sales contracts
denominated in U.S. dollars. While management will continue to monitor our
exposure to currency fluctuations and, as appropriate, use financial hedging
instruments to minimize the effect of these fluctuations, we cannot assure you
that exchange rate fluctuations will not have an adverse effect on our results
of operations or financial condition.
Although we do not anticipate paying any dividends or other distributions to
shareholders for the foreseeable future, any such distributions would be made in
euro. Accordingly, the value of distributions to shareholders electing to
convert euro into another currency not linked to the euro would depend in part
on the fluctuation of the value of the euro against such other currency.
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IF WE FAIL TO CONTINUE TO ATTRACT AND RETAIN QUALIFIED PERSONNEL, OUR BUSINESS
MAY BE HARMED.
Our future operating results depend in significant part upon the continued
contribution of our senior executive officers and key employees, including a
number of specialists with advanced university qualifications in engineering,
electronics and computing. In addition, our business and future operating
results depend in part upon our ability to attract and retain other qualified
management, technical, sales and support personnel for our operations. We
believe that our ability to increase the manufacturing capacity of our
subsidiaries has from time to time been constrained by the limited number of
such skilled personnel. Competition for such personnel is intense, and we may
not be able to continue to attract and retain such personnel. The loss of any
key executive or employee or the inability to attract and retain skilled
executives and employees as needed could adversely affect our business,
financial condition and results of operations.
WE MAY NOT BE ABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, WHICH COULD MAKE
US LESS COMPETITIVE AND CAUSE US TO LOSE MARKET SHARE.
Although we seek to protect our intellectual property rights through patents,
trademarks, copyrights, trade secrets and other measures, we cannot assure you
that we will be able to protect our technology adequately, that our competitors
will not be able to develop similar technology independently, that any of our
pending patent applications will be issued, or that intellectual property laws
will protect our intellectual property rights. In addition, we operate
internationally, and intellectual property protection varies among the
jurisdictions in which we conduct business. Litigation may be necessary in order
to enforce our patents, copyrights or other intellectual property rights, to
protect our trade secrets, to determine the validity and scope of the
proprietary rights of others or to defend against claims of infringement.
Litigation could result in substantial costs and diversion of resources and
could have a material adverse effect on our business and operating results.
Third parties may seek to challenge, invalidate or circumvent any patent issued
to us, and the rights granted under any patent issued to us may not provide
competitive advantages to us or third parties may assert that our products
infringe patent, copyright or trade secrets of such parties. Furthermore, third
parties may independently develop similar products or duplicate our products.
WE ARE SUBJECT TO ENVIRONMENTAL RULES AND REGULATIONS IN A VARIETY OF
JURISDICTIONS.
We are subject to a variety of governmental regulations relating to the use,
storage, discharge and disposal of chemical by-products of, and water used in,
our manufacturing processes. Environmental claims or the failure to comply with
any present or future regulations could result in the assessment of damages or
imposition of fines against us, suspension of production or a cessation of
operations. New regulations could require us to acquire costly equipment or to
incur other significant expenses. Any failure by us to control the use or
adequately restrict the discharge of hazardous substances could subject us to
future liabilities.
IN JANUARY 2002, WE ACQUIRED LAURIER INC. ("LAURIER") AND AS PART OF OUR FUTURE
GROWTH STRATEGY WE MAY MAKE ADDITIONAL ACQUISITIONS OR INVESTMENTS IN COMPANIES
OR TECHNOLOGIES ANY OF WHICH COULD DISRUPT OUR ONGOING BUSINESS, DISTRACT OUR
MANAGEMENT AND EMPLOYEES, INCREASE OUR EXPENSES AND ADVERSELY AFFECT OUR RESULTS
OF OPERATIONS.
If we do not successfully integrate the business and technology of Laurier, our
business may be harmed. We are integrating the operations of Laurier with our RD
Automation subsidiary
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('RDA") and we expect to incur costs and commit significant management time in
effecting this integration.
If we do not realize the expected benefits of the purchase and integration of
RDA and Laurier, our financial results, including earnings per share, could be
adversely affected. Achieving the benefits of the acquisition will depend in
part on the successful integration of operations, technology, development
programs, products, clients and personnel in a timely and efficient manner.
Integration efforts may be difficult and unpredictable because of possible
cultural conflicts and different opinions on technical decisions, strategic
plans, personnel and other decisions. We do not know whether we will be
successful in these integration efforts and cannot assure you that it will
realize the expected benefits of the acquisition.
In addition, it is possible, as part of our future growth strategy, that we will
from time-to-time acquire or make investments in companies and technologies. We
could face difficulties in assimilating personnel and operations from the
acquired businesses and in retaining and motivating key personnel from these
businesses. In addition, these acquisitions may disrupt our ongoing operations,
divert management from day-to-day business, increase our expenses and adversely
impact our results of operations. Any future acquisitions could involve other
risks, including the assumption of additional liabilities, dilutive issuances of
equity securities and incurrence of debt. In addition, these types of
transactions often result in charges to earnings for such items as amortization
of goodwill or in-process research and development expenses.
WE ARE SUBJECT TO PROVISIONS OF NETHERLANDS LAW, WHICH MAY RESTRICT THE ABILITY
OF OUR SHAREHOLDERS TO MAKE SOME DECISIONS.
We are subject to provisions of Netherlands law applicable to large corporations
("structuurregime") that, together with some provisions of our Articles of
Association, have the effect of concentrating control over significant corporate
decisions and transactions in the hands of our Supervisory Board. Under such
regime, the Supervisory Board of a corporation has the power to appoint its own
members, to appoint and dismiss members of the board of management, and to adopt
the annual financial statements of the corporation. This regime may have the
effect of delaying or preventing a change in control that shareholders may find
favorable.
In addition, in April 2000 we established the Stichting Continuiteit BESI, a
foundation whose board consists of five members, four of whom are independent of
BE Semiconductor Industries. We have granted the foundation a call option
pursuant to which it may purchase up to 55,000,000 of our preference shares. If
the foundation were to exercise the call option, it may result in delaying or
preventing a change in control that shareholders may find favorable.
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ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks from changes in foreign currency exchange rates
and interest rates, which may adversely affect our results of operations and
financial condition. We seek to minimize the risks associated with interest rate
and foreign currency exchange rate fluctuations through our regular operating
and financing activities and, when deemed appropriate, through the use of
derivative financial instruments. We do not use financial instruments for
trading or other speculative purposes.
FOREIGN CURRENCY EXCHANGE RATE RISK
As a consequence of the global nature of our businesses, our operations and
reported financial results and cash flows are exposed to the risks associated
with fluctuations in exchange rates between the euro and other major world
currencies. Currency exchange rate movements typically also affect economic
growth, inflation, interest rates, government actions and other factors. These
changes can cause us to adjust our financing and operating strategies. The
discussion below of changes in currency exchange rates does not incorporate
these other economic factors. For example, the sensitivity analysis presented in
the foreign exchange rate risk discussion below does not take into account the
possibility that rates can move in opposite directions and that gains from one
category may or may not be offset by losses from another category. Operations
outside the Netherlands and other countries that have adopted the euro as their
currency for the first quarter of 2003 constitute approximately 9% of our net
sales. As currency exchange rates change, translation of the Statements of
Operations of our international business into euro affects year-over-year
comparability. We historically have not hedged translation risks because cash
flows from international operations have generally been reinvested locally. We
estimate that a 10% change in foreign exchange rates would affect our reported
operating income (loss) by less than (euro) 1.0 million.
Our currency risk exposure primarily occurs because we generate a portion of our
net sales in currencies other than the euro while the major share of the
corresponding cost of sales is incurred in euro. The percentage of our
consolidated net sales which is denominated in euro amounted to approximately
70% of total net sales in the first quarter of 2003, whereas net sales
represented by US dollars or dollar-linked currencies amounted to approximately
30%. Approximately 85% of our costs and expenses were denominated in the euro
and the remaining 15% in various currencies, principally the dollar and dollar
linked currencies. In order to mitigate the impact of currency exchange rate
fluctuations, we continually assess our remaining exposure to currency risks and
hedge such risks through the use of derivative financial instruments. The
principal derivative financial instruments currently used by us to cover foreign
currency exposures are forward foreign currency exchange contracts that qualify
for hedge accounting.
INTEREST RATE RISK
Our long-term debt, excluding capital leases, bears interest at fixed rates. Our
long-term capital lease obligations, bank debt and lines of credit currently
bear a variable rate of interest. An immediate 10% change in interest rates
would not have a material effect on our results of operations over the next
fiscal year.
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PART II. PART II. OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
None
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3 - DEFAULTS ON SENIOR SECURITIES
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On March 27, 2003, we held our 2003 Annual General Meeting of
Shareholders. At the meeting the following matters were presented to
and voted upon by our shareholders:
1. The annual accounts for the year ended December 31, 2002
were approved by all shares casting votes at the meeting.
2. The conduct of, and actions taken by the members of the
management board during the year ended December 31, 2002, were approved
and ratified by a unanimous vote of the shares entitled to vote at the
meeting; and the conduct of, and actions taken by the supervisory board
members with respect to their supervision of the activities of the
management board were also approved and ratified by a unanimous vote of
all shares casting votes at the meeting.
3. A proposal to extend, for a limited period of time, the
authority of the management board, subject to approval of the
supervisory board, to issue shares and grant rights to subscribe for
shares comprised in the Company's authorized capital according to our
articles of association of as the articles of association read at the
time of the relevant issue or granting as well as to exclude or limit
the pre-emptive right on ordinary shares was disapproved. The votes
were cast as follows: 2,731,299 ordinary shares voted for the proposal
and 2,738,527 ordinary shares voted against the proposal. At the
meeting of May 1, 2002, this authority was approved until May 14, 2005.
4. A proposal authorizing the management board, for a limited
period of time, to repurchase on our behalf, within the limits set by
our articles of association, our own shares up to the maximum number
allowed at that moment in time pursuant to Section 98 paragraph 2 Book
2 of the Civil Code was approved by a unanimous vote of all shares
casting votes at the meeting.
5. A proposal to amend the articles of association to add a
provision which would allow management board members, supervisory board
members and officers (as defined in the new article 30) be reimbursed
for all costs incurred in connection with certain services rendered by
such persons on behalf of the Company, was approved by all shares
casting vote at the meeting. This provision should allow the Company to
attract suitable candidates that are prepared to hold the referred
positions.
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6. A proposal to the general meeting that KPMG Accountants
N.V. be given the instruction for the audit of the annual accounts for
the years 2003-2005 was approved by all shares casting vote at the
meeting.
ITEM 5 - OTHER INFORMATION
None
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