Exhibit 99.1
BE SEMICONDUCTOR INDUSTRIES N.V.
QUARTERLY REPORT FOR THE QUARTER ENDED
JUNE 30, 2005
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.......................................... 12
Part II. Other Information................................................. 33
Item 1 - Legal Proceedings.............................................. 33
Item 2 - Sales of Unregistered Securities and Use of Proceeds........... 33
Item 3 - Defaults Upon Senior Securities................................ 33
Item 4 - Submission of Matters to a Vote of Security Holders............ 33
Item 5 - Other Information.............................................. 33
Item 6 - Exhibits....................................................... 33
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 June 30, Six Months Ended June 30,
--------------------------------------- ---------------------------------------
2004 2005 2005 2004 2005 2005
EURO EURO USD (1) EURO EURO USD (1)
----------- ----------- ----------- ----------- ----------- -----------
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
Net sales .............................. 33,054 36,960 44,714 55,196 73,597 89,038
Cost of sales .......................... 21,853 24,537 29,685 36,870 50,908 61,589
---------- ---------- ---------- ---------- ---------- ----------
Gross profit ........................... 11,201 12,423 15,029 18,326 22,689 27,449
Selling, general and administrative
expenses ............................ 6,526 10,223 12,368 12,766 19,446 23,526
Research and development expenses ...... 3,366 4,867 5,888 6,277 10,166 12,299
Restructuring charges .................. -- 1,718 2,078 -- 1,718 2,078
Amortization of intangible assets ...... 618 931 1,126 1,234 2,154 2,606
---------- ---------- ---------- ---------- ---------- ----------
Total operating expenses ............... 10,510 17,739 21,460 20,277 33,484 40,509
Operating income (loss) ................ 691 (5,316) (6,431) (1,951) (10,795) (13,060)
Interest income (expense), net ......... 415 (708) (857) 1,196 (1,280) (1,548)
---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before taxes and
minority interest ................... 1,106 (6,024) (7,288) (755) (12,075) (14,608)
Income tax expense (benefit) ........... 389 (1,506) (1,822) (78) (3,019) (3,652)
---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before minority
interest ............................ 717 (4,518) (5,466) (677) (9,056) (10,956)
Minority interest ...................... 19 (15) (18) 35 (9) (11)
---------- ---------- ---------- ---------- ---------- ----------
Net income (loss) ...................... 736 (4,533) (5,484) (642) (9,065) (10,967)
========== ========== ========== ========== ========== ==========
Net income (loss) per share - basic .... 0.02 (0.14) (0.17) (0.02) (0.28) (0.34)
Net income (loss) per share - diluted .. 0.02 (0.14) (0.17) (0.02) (0.28) (0.34)
Page 1
Weighted average number of shares
used to compute net income (loss) per
share - basic ....................... 30,794,660 32,728,502 32,728,502 30,794,660 32,685,765 32,685,765
---------- ---------- ---------- ---------- ---------- ----------
Weighted average number of shares
used to compute net income (loss) per
share - diluted ..................... 30,870,265 32,728,502 32,728,502 30,794,660 32,685,765 32,685,765
---------- ---------- ---------- ---------- ---------- ----------
1) See Note 1 of "Notes to Consolidated Financial Statements".
See accompanying notes to these condensed consolidated financial statements.
Page 2
BE SEMICONDUCTOR INDUSTRIES N.V.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
June 30, 2005
December 31, 2004 -------------------------
EURO EURO USD (1)
----------------- ----------- -----------
(unaudited) (unaudited)
ASSETS
Cash and cash equivalents ............................. 106,573 66,244 80,142
Accounts receivable ................................... 20,172 28,508 34,489
Inventories ........................................... 34,118 60,292 72,941
Other current assets .................................. 14,773 16,389 19,828
------- ------- -------
TOTAL CURRENT ASSETS .................................. 175,636 171,433 207,400
Property, plant and equipment ......................... 28,543 41,355 50,031
Goodwill .............................................. 12,070 70,140 84,855
Other intangible assets ............................... 10,895 16,141 19,527
Debt issuance costs ................................... -- 2,139 2,588
Other non-current assets .............................. 198 5,575 6,745
------- ------- -------
TOTAL ASSETS .......................................... 227,342 306,783 371,146
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable to banks ................................ -- 6,851 8,288
Current portion of long-term debt and capital leases .. 753 3,694 4,469
Accounts payable ...................................... 14,331 13,981 16,914
Accrued liabilities ................................... 18,791 22,355 27,046
------- ------- -------
TOTAL CURRENT LIABILITIES ............................. 33,875 46,881 56,717
Long-term debt and capital leases ..................... 13,361 29,721 35,956
Convertible notes ..................................... -- 46,000 55,651
Deferred tax liabilities .............................. 2,156 3,229 3,906
Other non-current liabilities ......................... 842 3,720 4,501
------- ------- -------
TOTAL NON-CURRENT LIABILITIES ......................... 16,359 82,670 100,014
MINORITY INTEREST ..................................... 115 140 169
TOTAL SHAREHOLDERS' EQUITY ............................ 176,993 177,092 214,246
------- ------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ............ 227,342 306,783 371,146
======= ======= =======
1) See Note 1 of "Notes to Consolidated Financial Statements".
See accompanying notes to these condensed consolidated financial statements.
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BE SEMICONDUCTOR INDUSTRIES N.V.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
Six Months Ended June 30,
---------------------------------------
2004 2005 2005
EURO EURO USD(1)
----------- ----------- -----------
(unaudited) (unaudited) (unaudited)
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss .................................................. (642) (9,065) (10,967)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation of property, plant and equipment ............. 2,176 2,841 3,437
Amortization of intangible assets ......................... 1,234 2,154 2,606
Deferred income tax benefits .............................. (371) (1,881) (2,276)
Loss (gain) on disposal of equipment ...................... (102) 95 115
Translation of debt in foreign currency ................... (431) (1,863) (2,254)
Minority interest ......................................... (35) 11 13
Amortization of debt issuance costs ....................... -- 135 163
Effects of changes in assets and liabilities:
Decrease (increase) in accounts receivable ................ (8,207) 1,123 1,359
Decrease (increase) in inventories ........................ (12,529) 1,002 1,212
Decrease (increase) in other current assets ............... (2,041) 2,379 2,878
Decrease in accrued liabilities ........................... (1,096) (4,654) (5,630)
Increase (decrease) in accounts payable ................... 6,774 (3,890) (4,706)
------- ------- -------
Net cash used in operating activities ..................... (15,270) (11,613) (14,050)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ...................................... (2,085) (4,490) (5,432)
Proceeds from sale of equipment ........................... 67 640 774
Acquisition of subsidiaries, net of cash acquired ......... -- (61,862) (74,840)
------- ------- -------
Net cash used in investing activities ..................... (2,018) (65,712) (79,498)
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CASH FLOW FROM FINANCING ACTIVITIES:
Payments of bank lines of credit .......................... -- (12,585) (15,225)
Payments on long-term debt and capital leases ............. (7,697) (5,448) (6,591)
Proceeds from long-term debt and capital leases ........... 13,768 11,658 14,103
Proceeds from issuance of convertible notes, net of
expenses ............................................... -- 43,726 52,900
Net proceeds from (payments of) advances from customers ... 2,013 (1,001) (1,211)
------- ------- -------
Net cash provided by financing activities ................. 8,084 36,350 43,976
Net decrease in cash and cash equivalents ................. (9,204) (40,975) (49,572)
Effect of changes in exchange rates on cash and cash
equivalents ............................................ 216 646 782
Cash and cash equivalents at beginning of the period ...... 108,897 106,573 128,932
------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD ............ 99,909 66,244 80,142
======= ======= =======
1) See Note 1 of "Notes to Consolidated Financial Statements".
See accompanying notes to these condensed consolidated financial statements.
Page 5
BE SEMICONDUCTOR INDUSTRIES N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited 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 (the
"SEC"), 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
unaudited 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, 2004, as amended by Form 20-F/A as filed with the SEC on June
21, 2005. The results of operations for the three month period ended June
30, 2005 are not necessarily indicative of the results to be expected for
the year ended December 31, 2005.
The accompanying unaudited condensed consolidated financial statements are,
solely for the convenience of the reader, also translated from Euros into
US dollars ("USD" or "US$") using the noon buying rate (rounded) in New
York City for cable transactions in foreign currencies as certified for
customs purposes by the Federal Reserve Bank of New York in effect on June
30, 2005 (E 1.00 = US$ 1.2098). Such translations should not be construed
as representations that the Euro amounts could be converted into US dollars
at the rate indicated or at any other rate.
In the first quarter of 2004, the Company's Board of Management, in
consultation with the Company's Supervisory Board, evaluated its functional
and operational organization and determined that the Company is engaged in
one line of business, the design, manufacture, marketing and servicing of
assembly equipment for the semiconductor industry. Therefore, the Company
reports its financial results for only one segment, in accordance with US
GAAP.
2. ACQUISITION OF DATACON
On January 4, 2005, the Company completed the acquisition of all of the
outstanding ordinary shares of Datacon Technology AG ("Datacon") for total
consideration of E 72.6 million, of which E 65.0 million was paid in cash
and the remainder through the Company's issuance of 1,933,842 ordinary
shares, valued at E 7.6 million at the date of the acquisition. Acquisition
costs amounted to E 3.3 million.
The results of Datacon are included in the Company's unaudited condensed
consolidated financial statements included herein from the date of
acquisition. The acquisition was accounted for using the purchase method of
accounting. In connection with the transaction, the Company made a
preliminary allocation of the purchase price which resulted in certain
preliminary purchase accounting adjustments.
Page 6
The purchase price, including acquisition costs, was allocated as follows
(preliminary):
(Euro in thousands)
- -------------------
Net tangible assets ...... 11,829
Patents .................. 297
Customer relationships ... 6,083
Product backlog .......... 719
Goodwill ................. 56,961
------
75,889
======
3. SHARES OUTSTANDING
As of December 31, 2004 and June 30, 2005, the Company's authorized capital
consisted of 55,000,000 ordinary shares, nominal value E 0.91 per share,
and 55,000,000 preference shares, nominal value E 0.91 per share. At
December 31, 2004 and June 30, 2005, 30,794,660 and 32,728,502 ordinary
shares were outstanding, respectively. No preference shares were
outstanding at each of December 31, 2004 and June 30, 2005.
4. INVENTORIES
Inventories consist of:
December 31, June 30,
2004 2005
(in thousands) EURO EURO
- -------------- ------------ --------
Raw materials ...... 10,906 20,964
Work in progress ... 19,921 31,465
Finished goods ..... 3,291 7,863
------ ------
34,118 60,292
====== ======
5. GOODWILL AND OTHER INTANGIBLE ASSETS
The following table shows the amounts at December 31, 2004 and June 30,
2005 for goodwill and other intangible assets:
December 31, June 30,
2004 2005
(in thousands) EURO EURO
- -------------- ------------ --------
Non amortizable:
Goodwill ................. 12,070 70,140
Amortizable:
Patents .................. 10,534 9,861
Trademarks ............... 361 384
Page 7
Customer relationships ... -- 5,831
Product backlog .......... -- 65
------ ------
22,965 86,281
====== ======
The above amounts are presented net of accumulated amortization of E 30.8
million at December 31, 2004 and E 33.6 million at June 30, 2005.
6. WARRANTY PROVISION
A summary of activity in the warranty provision is as follows:
2004 2005
(in thousands) EURO EURO
- -------------- ----- ------
Balance at January 1 ........................ 1,753 2,578
Addition due to acquisition of subsidiary ... -- 415
Provision for loss on warranty .............. 1,162 939
Cost for warranty ........................... (843) (1,406)
Foreign currency translation ................ 4 49
----- ------
Balance at June 30, ......................... 2,076 2,575
===== ======
7. CONVERTIBLE NOTES
In January 2005, the Company issued E 46 million principal amount of
convertible notes due 2012 (the "Notes"). The Notes carry an interest rate
of 5.5% per annum, payable semi-annually, with the first payment made on
July 28, 2005. The Notes initially convert into ordinary shares at a
conversion price of E 5.1250. The Notes will be repaid at maturity at a
price of 100% of their principal amount plus accrued and unpaid interest.
If the Notes are not converted, the Company may redeem the outstanding
Notes at their principal amount at any time on the date beginning four
years from the date of issue, subject to the purchase price of the
Company's ordinary shares exceeding 130% of the then effective conversion
price.
The Notes were offered to institutional investors in the Netherlands and
internationally to professional investors through an international private
placement, in reliance on Regulation S of the U.S. Securities Act of 1933,
as amended. Listing of the Notes on the official segment of the Stock
Market of Euronext Amsterdam N.V. took place on January 28, 2005.
The fees incurred for the issuance of the Notes of E 2.3 million are
included as debt issuance costs in the Company's consolidated balance sheet
as of June 30, 2005 and will be amortized using the interest method as
interest cost over the life of the Notes.
8. NET INCOME (LOSS) PER SHARE
Page 8
For the three-month and six-month period ended June 30, 2005 and the
six-month period ended June 30, 2004, all options were excluded from the
calculation of diluted net income (loss) per share, as the effect would be
anti-dilutive due to the Company's loss for those periods.
For the three-month and six-month period ended June 30, 2005, the impact of
the potential dilution of the 8,975,610 ordinary shares issuable upon the
conversion of the Notes were excluded from the calculation of diluted net
income (loss) per share as the effect would be anti-dilutive due to the
Company's loss for the period.
9. COMPREHENSIVE INCOME (LOSS)
Other comprehensive income (loss) items include gains and losses that,
under US GAAP, are excluded from net income (loss) and are reflected as a
component of shareholders' equity. Comprehensive income (loss) includes
items such as foreign currency translation adjustments, minimum pension
liability adjustments and unrealized gains and losses on marketable
securities classified as available-for-sale. The Company's components of
comprehensive income (loss) for the three-month and six-month period ended
June 30, 2004 and June 30, 2005 were net income (loss) and foreign currency
translation adjustments only. Those components were as follows:
Three months ended June 30, Six months ended June 30,
--------------------------- -------------------------
2004 2005 2005 2004 2005 2005
(in thousands) EURO EURO USD EURO EURO USD
- -------------- ---- ------ ------ ---- ------ -------
Net income (loss) ............. 736 (4,533) (5,484) (642) (9,065) (10,967)
Foreign currency
translation adjustment .. 78 941 1,138 402 1,564 1,892
--- ------ ------ ---- ------ -------
Comprehensive income (loss) ... 814 (3,592) (4,346) (240) (7,501) (9,075)
=== ====== ====== ==== ====== =======
10. EMPLOYEE BENEFIT PLANS
In 1995, the Company established the BE Semiconductor Industries Incentive
Plan 1995 (the "Incentive Plan 1995"). The Company granted 1,101,236
options to purchase ordinary shares ("1995 Plan Shares") under the
Incentive Plan 1995. 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 1999 and 2001 are fully
vested. 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 number of ordinary
shares ("2001 Plan Shares")
Page 9
that the Company may issue under the Incentive Plan 2001 may not exceed
1.5% of the total number of ordinary shares outstanding in the applicable
fiscal year, 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 ordinary shares or treasury
shares. Until 2004, the Company made awards under the Incentive Plan 2001
to executive officers and employees of the Company. Options granted from
2002 through 2004 are fully vested. Stock options granted under the
Incentive Plan 2001 have exercise prices equal to the market price of the
Company's ordinary shares on the date of grant.
In the years 2000 through 2001, the Company granted stock options to all of
its employees under the Incentive Plan 1995 and in the years 2001 through
2004, the Company granted stock options to all of its employees under the
Incentive Plan 2001. These options are fully vested and have exercise
prices equal to the market price of the Company's ordinary shares on the
date of grant. These options receive variable accounting treatment, due to
cash settlement provisions. All other options granted by the Company
receive fixed accounting treatment.
The Company accounts for stock-based compensation using the intrinsic value
method. Accordingly, no compensation has been recorded for the stock
options granted between 2001 and 2004, which received fixed accounting
treatment. For the stock options granted between 2001 and 2004 that receive
variable accounting treatment, an amount of E 1, net of tax, was recognized
as compensation cost based on the market value of the Company's ordinary
shares for the quarter ended June 30, 2005.
In 2005, the Company established the BE Semiconductor Industries Incentive
Plan 2005 - 2009 (the "Incentive Plan 2005"). The total number of ordinary
shares ("2005 Plan Shares") that the Company may issue under the Incentive
Plan 2005 may not exceed 1.5% of the total number of ordinary shares
outstanding in the applicable fiscal year, subject to adjustments for share
splits, share dividends, recapitalizations and similar events. 2005 Plan
Shares may consist, in whole or in part, of unauthorized and unissued
ordinary shares or treasury shares. The Company anticipates that it will,
on an annual basis, make annual and conditional performance stock awards
under the Incentive Plan 2005 to supervisory board members, executive
officers and senior employees of the Company.
For the performance stock awards granted in the first quarter of 2005, an
amount of E 24, net of tax, was recognized as compensation cost in the
three-month period ended June 30, 2005 based on the market value of the
Company's ordinary shares on the date of grant.
The Company accounts for stock based employee compensation plans under the
recognition and measurement principles of Accounting Principles Board
Opinion ("APB") No. 25 "Accounting for Stock Issued to Employees", and
related interpretations in accounting for its plans. Statement of Financial
Accounting Standards ("SFAS') No. 123 "Accounting for Stock-Based
Compensation" allows companies to elect to either account for stock options
using the 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. Under APB No. 25, no
stock-based employee compensation cost is reflected in net income (loss)
for the fixed stock options, as all options granted under the Company's
stock option plans have an exercise price equal to the market value of the
Page 10
underlying ordinary shares on the date of grant. The Company has elected to
continue to account for its stock options under the provisions of APB No.
25 and disclose the pro forma effect of SFAS No. 123. The following table
illustrates the effect on net income (loss) and income (loss) per share for
the three months and six months ended June 30, 2004 and 2005, respectively,
as if the Company had applied the fair value recognition provisions of SFAS
No. 123 to stock-based employee compensation.
Page 11
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
2004 2005 2004 2005
(in thousands, except per share data) EURO EURO EURO EURO
- ------------------------------------- ---- ------ ----- ------
Net income (loss) as reported ..................... 736 (4,533) (642) (9,065)
Deduct: Stock-based employee compensation
expense determined under fair value based method
of all awards, net of related tax effects ...... (84) (138) (169) (472)
Add: Stock-based compensation expense included
in net income (loss), net of related tax
effects ........................................ (11) 25 (11) 34
---- ------ ----- ------
Pro forma net income (loss) ....................... 641 (4,646) (822) (9,503)
BASIC NET INCOME (LOSS) PER SHARE:
As reported ....................................... 0.02 (0.14) (0.02) (0.28)
Pro forma ......................................... 0.02 (0.14) (0.03) (0.29)
DILUTED NET INCOME (LOSS) PER SHARE:
As reported ....................................... 0.02 (0.14) (0.02) (0.28)
Pro forma ......................................... 0.02 (0.14) (0.03) (0.29)
==== ====== ===== ======
11. SEGMENT DATA
The Company is engaged in one line of business, the design, manufacture,
marketing and servicing of assembly equipment for the semiconductor
industry.
In accordance with SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information," the Company's chief operating
decision-maker has been identified as the President and Chief Executive
Officer, who reviews operating results to make decisions about allocating
resources and assessing performance for the entire company. All material
operating units qualify for aggregation under SFAS 131 due to their
identical customer base and similarities in: economic characteristics;
nature of products and services; and procurement, manufacturing and
distribution processes. Since the Company operates in one segment and in
one group of similar products and services, all financial segment and
product line information required by SFAS 131 can be found in the unaudited
condensed consolidated financial statements.
Page 12
ITEM 2 -MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information in this 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 constitute
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
submission 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 which are described
elsewhere in this report and in other documents we have submitted to the
Securities and Exchange Commission. You should consider carefully each of these
risks and uncertainties in evaluating our financial condition and results of
operations. While we may elect to update the forward-looking statements we
specifically disclaim any obligation to do so, even if our expectations change.
OVERVIEW
We design, develop, manufacture, market and service products for the
semiconductor industry's back-end assembly operations.
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 cancel or defer
additional equipment purchases. 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 2003. In the
first half of 2004, industry conditions improved and we saw a significant
increase in bookings as compared to the first half of 2003. However, in the
third quarter of 2004, we saw a deterioration in industry conditions, resulting
in a significant decrease in bookings in the second half of 2004 as compared to
the first half of 2004. In the first half of 2005, we saw a slight increase in
bookings as
Page 13
compared to the second half of 2004 on a pro forma basis, yet quarterly bookings
continue to fluctuate.
Our sales are generated primarily by shipments to the Asian manufacturing
operations of leading United States 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 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 E 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.
ACQUISITION OF DATACON
On January 4, 2005, we completed the acquisition of all of the outstanding
ordinary shares of Datacon Technology AG or Datacon, for total consideration of
E 72.6 million, of which E 65.0 million was paid in cash and the remainder
through the issuance of 1,933,842 of our ordinary shares.
Datacon, a private company founded in 1986 and located in Radfeld, Austria, is,
according to 2003 data compiled by VLSI, a leading global manufacturer of flip
chip bonding, multi-chip die bonding and other related assembly equipment for
the semiconductor and telecommunications industries.
ISSUANCE OF E 46 MILLION 5.5% CONVERTIBLE NOTES
In January 2005, we issued E 46 million principal amount of convertible notes
due 2012, which we refer to as the Notes. The Notes bear an interest rate of
5.5% per annum, payable semi-annually, with the first payment made on July 28,
2005. The Notes initially convert into our ordinary shares at a conversion price
of E 5.1250. The Notes will be repaid at maturity at a price of 100% of their
principal amount plus accrued and unpaid interest. If the Notes are not
converted, we may redeem the outstanding Notes at their face value at any time
on the date beginning four years from the date of issue, subject to the purchase
price of our ordinary shares exceeding 130% of the then effective conversion
price.
Listing of the Notes on the official segment of the Stock Market of Euronext
Amsterdam N.V. took place on January 28, 2005.
EVALUATION OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our discussion and analysis of our financial condition and results of operations
are based upon our unaudited condensed consolidated financial statements, which
are included elsewhere in this report and which have been prepared in accordance
with accounting principles generally accepted
Page 14
in the United States, or US GAAP. 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 judgments 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 and estimates made in these
areas and a discussion of our accounting policies, please refer to "Evaluation
of Critical Accounting Policies and Estimates" included in Item 5 of our Annual
Report on Form 20-F/A for the year ended December 31, 2004. Since December 31,
2004, there have been no significant changes to our critical accounting
policies.
Page 15
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2005 COMPARED TO THREE MONTHS ENDED JUNE 30, 2004
Three Months Ended June 30,
---------------------------------------------------------------
Pro Forma
(amounts in thousands, except share and per 2004 2004 2005
share data) EURO % EURO % EURO %
- ------------------------------------------------ ----------- ----- ----------- ----- ----------- -----
(unaudited) (unaudited) (unaudited)
Net sales ...................................... 33,054 100.0 48,341 100.0 36,960 100.0
Cost of sales .................................. 21,853 66.1 30,059 62.2 24,537 66.4
---------- ----- ---------- ----- ---------- -----
Gross profit ................................... 11,201 33.9 18,282 37.8 12,423 33.6
Selling, general and administrative expenses ... 6,526 19.7 10,538 21.7 10,223 27.7
Research and development expenses .............. 3,366 10.2 4,722 9.8 4,867 13.2
Restructuring expenses ......................... -- -- -- -- 1,718 4.6
Amortization of intangible assets .............. 618 1.9 759 1.6 931 2.5
---------- ----- ---------- ----- ---------- -----
Total operating expenses ....................... 10,510 31.8 16,019 33.1 17,739 48.0
Operating income (loss) ........................ 691 2.1 2,263 4.7 (5,316) (14.4)
Interest income (expense), net ................. 415 1.3 (128) (0.3) (708) 1.9
---------- ----- ---------- ----- ---------- -----
Income (loss) before taxes and minority
interest ....................................... 1,106 3.4 2,135 4.4 (6,024) (16.3)
Income taxes (benefit) ......................... 389 1.2 682 1.4 (1,506) (4.1)
---------- ----- ---------- ----- ---------- -----
Income (loss) before minority interest ......... 717 2.2 1,453 3.0 (4,518) (12.2)
Minority interest .............................. 19 0.0 19 0.0 (15) (0.1)
---------- ----- ---------- ----- ---------- -----
Net income (loss) .............................. 736 2.2 1,472 3.0 (4,533) (12.3)
========== ===== ========== ===== ========== =====
Net income (loss) per share
- - Basic ........................................ 0.02 0.04 (0.14)
- - Diluted ...................................... 0.02 0.04 (0.14)
Number of shares used in calculating net
income (loss) per share:
- - Basic ........................................ 30,794,660 32,728,502 32,728,502
- - Diluted ...................................... 30,870,265 32,804,107 32,728,502
========== ========== ==========
Page 16
THREE MONTHS ENDED JUNE 30, 2005 COMPARED TO THREE MONTHS ENDED JUNE 30, 2004.
ACQUISITION OF DATACON
On January 4, 2005, we completed our acquisition of Datacon. In connection with
the transaction, certain preliminary purchase accounting adjustments were
recorded. Such preliminary adjustments included goodwill in an amount of
approximately E 57.0 million, which will not be amortized, but will continue to
be evaluated in accordance with SFAS 142 "Goodwill and Other Intangible Assets",
and approximately E 7.1 million of other intangible assets that will be
amortized annually over their respective estimated useful lives. Furthermore, in
accordance with purchase accounting rules, we made an upward adjustment of
Datacon's inventories by E 3.3 million in the opening balance sheet to its
estimated fair value resulting in an increase in our cost of sales by E 0.9
million in the second quarter of 2005. The results of Datacon are included in
our financial statements from the date of acquisition.
PRO FORMA INFORMATION
In order to facilitate a meaningful comparison of our 2005 quarterly results, we
have prepared comparative quarterly financial information for 2004 on a pro
forma basis to incorporate Datacon's results of operations as if the transaction
had occurred on January 1, 2004. Pro forma 2004 adjustments include (a) results
of operations of Datacon prepared in accordance with US GAAP, (b) the effects of
the purchase accounting adjustments relating to the acquisition of Datacon
resulting in the amortization of intangibles of E 0.14 million per quarter in
2004 and (c) the elimination of interest income of E 0.34 million per quarter
related to the E 68.2 million cash utilized to help fund the Datacon
acquisition. The number of shares, presented in the table above - basic and
diluted - includes 1,933,842 of our ordinary shares issued in the Datacon
acquisition.
NET SALES
Our net sales consist of sales of die sorting systems, flip chip bonding
systems, multi-chip die bonding systems, molding systems, trim and form
integration systems, singulation systems and plating systems.
As a result of the Datacon acquisition, we changed our presentation of net sales
to better reflect our business strategy and to better communicate the financial
development of our operations. We present our net sales as per end use customer
application in the following table, as opposed to a disclosure by individual
product line. We will continue to present our net sales as per end use customer
application in future quarters. In leadframe applications, the connection of the
chip is made by bonding extremely fine gold or aluminium wire to the leadframe,
the leads are then de-flashed and tin-plated, the chips are separated into
individual devices and the leads are trimmed and formed. In array connect
applications, the connection of the chip is made to a multi-layer substrate or
by creating direct connections to the multi-layer substrate via a so-called flip
chip, connections between the substrate and the chip are attached by ball
placement and reflow processes and the devices are cut, or singulated, into
individual units. In the conventional leadframe category, we include molding and
trim form systems made by Fico, our wholly owned subsidiary, in the Netherlands,
Malaysia and China and plating equipment made by Meco, our wholly owned
subsidiary, in the Netherlands. In the array connect category, we include flip
chip and multi chip die bonding products made by Datacon in Austria and Hungary,
die sorting and flip chip die bonding products made in the United States by
Laurier and singulation and certain molding products made by Fico in the
Netherlands.
Page 17
Our net sales per end use customer application for the quarters ended June 30,
2004 and 2005, respectively, were as follows:
Three Months Ended June 30, % change
------------------------------------------ 2005 2005 compared
Pro Forma compared to to pro forma
(Euro in million) 2004 2004 2005 2004 2004
- ----------------- ------------ ------------ ------------ ----------- -------------
Leadframes 22.8 68.9% 22.8 47.2% 10.8 29.2% (52.6%) (52.6%)
Array Connect 10.3 31.1% 25.5 52.8% 26.2 70.8% 154.4% 2.7%
---- ----- ---- ----- ---- ----- ----- -----
Total net sales 33.1 100.0% 48.3 100.0% 37.0 100.0% 11.8% (23.4%)
==== ===== ==== ===== ==== ===== ===== =====
On an actual basis, our net sales increased by 11.8% from E 33.1 million in the
second quarter of 2004 to E 37.0 million in the second quarter of 2005. The
increase in net sales in the second quarter of 2005 as compared to the second
quarter of 2004 was due to the acquisition of Datacon. Our net sales in the
second quarter of 2005 decreased by 23.4% from pro forma net sales of E 48.3
million in the second quarter of 2004, primarily as a result of decreased
leadframe sales, basically for all our leadframe products. Array connect sales
in the second quarter of 2005 were slightly higher than pro forma array connect
sales in the second quarter of 2004.
BACKLOG
On an actual basis, backlog increased by 75.2% from E 31.8 million at December
31, 2004 to E 55.7 million at June 30, 2005. On a pro forma basis, backlog at
June 30, 2005 increased by 9.4% as compared to pro forma backlog of E 50.9
million as of December 31, 2004, including E 19.1 million of backlog that was
acquired as part of the purchase of Datacon.
On an actual basis, new orders for the second quarter of 2005 amounted to E 38.1
million as compared to E 47.6 million in the second quarter of 2004 and E 40.3
million in the first quarter of 2005. Pro forma orders for the second quarter
2004 amounted to E 66.9 million. The book-to-bill ratio was 1.03 for the second
quarter of 2005 as compared to a book-to-bill ratio of 1.44 for the second
quarter of 2004 and 1.10 for the first quarter of 2005. The pro forma
book-to-bill ratio for the second quarter of 2004 was 1.38.
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.
GROSS PROFIT
Page 18
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.
On an actual basis, gross profit increased by 10.7% from E 11.2 million in the
second quarter of 2004 to E 12.4 million in the second quarter of 2005 and on a
pro forma basis decreased by 32.2% when compared to pro forma gross profit of E
18.3 million in the second quarter of 2004. Cost of sales for the second quarter
of 2005 included a E 0.9 million purchase accounting adjustment relating to an
upward fair value inventory adjustment in the opening balance sheet of Datacon.
As a percentage of net sales, gross profit decreased from 33.9% in the second
quarter of 2004 to 33.6% in the second quarter of 2005, mainly due to the fair
value inventory adjustment discussed above. Pro forma gross profit as a
percentage of net sales was 37.8% in the second quarter of 2004.
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.
On an actual basis, selling, general and administrative expenses increased by
56.9% from E 6.5 million in the second quarter of 2004 to E 10.2 million in the
second quarter of 2005, mainly due to the Datacon acquisition. On a pro forma
basis, selling, general and administrative expenses for the second quarter of
2005 decreased by 2.9% when compared to pro forma selling, general and
administrative expenses for the second quarter of 2004 of E 10.5 million. On an
actual basis, as a percentage of net sales, selling, general and administrative
expenses increased from 19.7% in the second quarter of 2004 to 27.7% in the
second quarter of 2005. As a percentage of net sales, pro forma selling, general
and administrative expenses were 21.7% in the second quarter of 2004.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development spending relating to die handling and packaging
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, which are included as cost of sales, 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, which we included
in cost of sales.
On an actual basis, research and development expenses increased by 44.1% from E
3.4 million in the second quarter of 2004 to E 4.9 million in the second quarter
of 2005, mainly due to the Datacon acquisition. On a pro forma basis, research
and development expenses for the second quarter of 2005 increased by 4.3% as
compared to pro forma research and development expenses for the second quarter
of 2004 of E 4.7 million, mainly due to increased research and development
expenses for our die handling equipment. On an actual basis, as a percentage of
net sales, research and development expenses were 10.2% and 13.2% in the second
quarters of 2004
Page 19
and 2005, respectively. On a pro forma basis, as a percentage of net sales,
research and development expenses were 9.8% in the second quarter of 2004.
RESTRUCTURING CHARGES
On December 14, 2004, as part of our plan to address the current downturn in the
semiconductor industry, we announced a restructuring of our operations focused
principally on a workforce reduction of 81 employees at our Dutch packaging and
tooling manufacturing operations in Duiven and Brunssum, the Netherlands, or
approximately 10% of total fixed headcount worldwide. In addition, we announced
that we would phase out approximately 50 temporary workers at the Duiven
facility. A component of the restructuring was the closing of our tooling
facility in Brunssum, the Netherlands in the first half of 2005. The workforce
reductions occurred during the first half of 2005.
We recorded a restructuring charge of E 5.6 million in the fourth quarter ended
December 31, 2004 to cover the estimated costs of this workforce reduction.
On May 27, 2005, we announced the further consolidation and integration of our
Dutch Fico packaging and tooling manufacturing operations in Duiven, the
Netherlands. The consolidation involved the termination of 32 employees that is
expected to occur in the third quarter of 2005 and the integration of production
and administrative personnel.
We recorded a restructuring charge of E 1.7 million in the second quarter of
2005 to cover the estimated costs of this workforce reduction.
Changes in the restructuring provision were as follows:
(Euro in thousands) 2004 2005
- ------------------- ----- ------
Balance at January 1, 521 5,820
Additions 5,616 1,718
Cash payments (317) (4,990)
----- ------
Balance at December 31, 2004 and June 30, 2005,
respectively 5,820 2,548
===== =====
The charges associated with the reduction in workforce, announced in December
2004 included severance and other benefit payments for approximately 81
employees in the Netherlands. Total remaining cash outlays for restructuring
activities stemming from 2004 are expected to be E 0.7 million, and will mainly
be paid in the third quarter of 2005. The 2005 provision for the reduction in
workforce included severance and other benefits for approximately 32 employees,
mainly in the Netherlands. Total remaining cash outlays for restructuring
activities in 2005 are expected to be E 1.5 million, and will mainly be paid in
the second half of 2005. The balance of E 0.3 million relates to the prior
restructuring activities and mainly consists of pension premiums to be paid for
terminated employees.
OPERATING INCOME (LOSS)
On an actual basis, our operating income decreased from E 0.7 million in the
second quarter of 2004 to an operating loss of E 5.3 million in the second
quarter of 2005. The operating loss for
Page 20
the second quarter of 2005 included the purchase accounting adjustment relating
to the Datacon acquisition of E 0.9 million and restructuring charges of E 1.7
million associated with the further consolidation of our Dutch packaging and
tooling manufacturing operations. Our pro forma operating income for the second
quarter of 2004 was E 2.3 million. The increase in our operating loss in the
second quarter of 2005 as compared to the pro forma second quarter of 2004 was
due to purchase accounting adjustments of E 0.9 million, restructuring expenses
of E 1.7 million and a decrease in net sales and gross margins.
INTEREST INCOME (EXPENSE), NET
Interest income, net amounted to E 0.4 million in the second quarter of 2004 as
compared to an interest expense, net of E 0.7 million in the second quarter of
2005. Pro forma interest expense, net amounted to E 0.1 million in the second
quarter of 2004. The increase in interest expense in the second quarter of 2005
as compared to the pro forma interest expense in the second quarter of 2004 was
due to E 0.6 million of interest expenses incurred in connection with the
issuance of the Notes.
INCOME TAX (BENEFIT)
On an actual basis, income taxes were E 0.4 million in the second quarter of
2004 as compared to an income tax benefit of E 1.5 million in the second quarter
of 2005. Pro forma income taxes in the second quarter of 2004 were E 0.7
million. On an actual basis, the effective tax rate decreased from 35.0% in the
second quarter of 2004 to 25.0% in the second quarter of 2005. The pro forma
effective tax rate in the second quarter of 2004 was 31.9%. The effective tax
rate for the second quarter of 2005 represents management's best estimate of the
effective tax rate for the fiscal year ending December 31, 2005.
MINORITY INTEREST
Minority interest relates to our investment in Tooling Leshan Company Ltd. in
Leshan, China.
NET INCOME (LOSS)
On an actual basis, our net income decreased by E 5.2 million from a net income
of E 0.7 million in the second quarter of 2004 to a net loss of E 4.5 million in
the second quarter of 2005. Our pro forma net income for the second quarter of
2004 was E 1.5 million. The net loss for the second quarter of 2005 included
after tax purchase accounting adjustments relating to the Datacon acquisition of
E 0.7 million and restructuring charges, net of income tax of E 1.2 million
associated with the further consolidation of our Dutch packaging and tooling
manufacturing operations. Net loss for the second quarter of 2005 increased by E
6.0 million as compared to a pro forma net income of E 1.5 million for the
second quarter of 2004, mainly due to the net purchase accounting adjustments of
E 0.7 million and restructuring charges, net of tax of E 1.2 million associated
with the further consolidation of our Dutch packaging and tooling manufacturing
operations, lower net sales and gross margins and increased interest expenses.
Page 21
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2005 COMPARED TO SIX MONTHS ENDED JUNE 30, 2004
Six Months Ended June 30,
---------------------------------------------------------------
Pro forma
(amounts in thousands, except share and per 2004 2004 2005
share data) EURO % EURO % EURO %
- -------------------------------------------- ----------- ----- ----------- ----- ----------- -----
(unaudited) (unaudited) (unaudited)
Net sales .................................. 55,196 100.0 83,676 100.0 73,597 100.0
Cost of sales .............................. 36,870 66.8 54,052 64.6 50,908 69.2
---------- ----- ---------- ----- ---------- -----
Gross profit ............................... 18,326 33.2 29,624 35.4 22,689 30.8
Selling, general and administrative
expenses ................................ 12,766 23.1 20,575 24.6 19,446 26.4
Research and development expenses .......... 6,277 11.4 8,506 10.2 10,166 13.8
Restructuring charges ...................... -- -- -- -- 1,718 2.3
Amortization of intangible assets .......... 1,234 2.2 1,516 1.8 2,154 2.9
---------- ----- ---------- ----- ---------- -----
Total operating expenses ................... 20,277 36.7 30,597 36.6 33,484 45.4
Operating loss ............................. (1,951) (3.5) (973) (1.2) (10,795) (14.6)
Interest income (expense), net ............. 1,196 2.2 59 0.1 (1,280) (1.8)
---------- ----- ---------- ----- ---------- -----
Loss before taxes and minority interest .... (755) (1.3) (914) (1.1) (12,075) 16.4
Income tax benefit ......................... (78) (0.1) (183) (0.2) (3,019) (4.1)
---------- ----- ---------- ----- ---------- -----
Loss before minority interest .............. (677) (1.2) (731) (0.9) (9,056) (12.3)
Minority interest .......................... 35 0.0 35 0.1 (9) 0.0
---------- ----- ---------- ----- ---------- -----
Net loss ................................... (642) (1.2) (696) (0.8) (9,065) (12.3)
========== ===== ========== ===== ========== =====
Net loss per share
- - Basic .................................... (0.02) (0.02) (0.28)
- - Diluted .................................. (0.02) (0.02) (0.28)
Number of shares used in calculating
net loss per share:
- - Basic .................................... 30,794,660 32,685,765 32,685,765
- - Diluted .................................. 30,794,660 32,685,765 32,685,765
========== ========== ==========
Page 22
FIRST SIX MONTHS 2004 COMPARED TO FIRST SIX MONTHS 2005
NET SALES
Our net sales increased from E 55.2 million in the first six months of 2004 to E
73.6 million in the same period of 2005, an increase of 33.3%. The increase in
net sales in the first six months of 2005 as compared to the first six months of
2004 was due to the acquisition of Datacon. Our net sales in the first six
months of 2005 decreased by 12.1% from pro forma net sales of E 83.7 million in
the first six months of 2004.
GROSS PROFIT
Gross profit increased by 24.0% from E 18.3 million in the first six months of
2004 to E 22.7 million in the first six months of 2005 and on a pro forma basis
decreased by 23.3% when compared to pro forma gross profit of E 29.6 million in
the first six months of 2004. Cost of sales for the six months ended June 30,
2005 included a E 3.0 million purchase accounting adjustment relating to an
upward fair value inventory adjustment in the opening balance sheet of Datacon.
As a percentage of net sales, gross profit decreased from 33.2% in the six
months ended June 30, 2004 to 30.8% in the same period of 2005, mainly due to
the fair value inventory adjustment discussed above. Pro forma gross profit as a
percentage of net sales was 35.4% in the first six months ended June 30, 2004.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Our selling, general and administrative expenses for the six months ended June
30, 2004 totaled E 12.8 million and represented 23.1% of net sales, compared to
E 19.4 million or 26.4% of net sales in the six month period ended June 30,
2005. On a pro forma basis, selling, general and administrative expenses for the
six months ended June 30, 2004 amounted to E 20.6 million, or 24.6% as
percentage of net sales. The increase in selling, general and administrative
expenses as percentage of net sales resulted primarily from the decrease in net
sales compared to the pro forma net sales for the six months ended June 30,
2004.
RESEARCH AND DEVELOPMENT EXPENSES
Our research and development expenses increased from E 6.3 million in the six
months ended June 30, 2004 to E 10.2 million in the same period of 2005. As a
percentage of net sales, research and development expenses were 11.4% and 13.8%
during the six months ended June 30, 2004 and 2005, respectively. Pro forma
research and development expenses for the first six months of 2004 amounted to E
8.5 million or 10.2% as percentage of pro forma net sales. The increase in
research and development expenses in the first six months of 2005 compared to
the pro forma research and development expenses in the first six months of 2004
are mainly due to increased spending on die handling and flip chip equipment.
RESTRUCTURING CHARGES
On May 27, 2005, we announced the further consolidation and integration of our
Dutch Fico packaging and tooling manufacturing operations in Duiven, the
Netherlands. The consolidation involved the termination of 32 employees that is
expected to occur in the third quarter of 2005 and the integration of production
and administrative personnel.
We recorded a restructuring charge of E 1.7 million in the first six months of
2005 to cover the estimated costs of this workforce reduction.
Page 23
OPERATING LOSS
Our operating loss increased from E 2.0 million in the first six months of 2004
to E 10.8 million in the first six months of 2005. Our operating loss for the
first six months of 2005 increased by approximately E 9.8 million when compared
to the pro forma operating loss of E 1.0 million for the first six months of
2004. Our operating loss in the first half of 2005 increased as compared to the
pro forma operating loss in the first half of 2004 due to restructuring expenses
of E 1.7 million, the fair value inventory adjustment of E 3.0 million relating
to the Datacon acquisition, and decreased sales, as compared to the pro forma
sales for the six months ended June 30, 2004.
INTEREST INCOME (EXPENSE), NET
Our interest income, net decreased from E 1.2 million in the first six months of
2004 to interest expenses, net of E 1.3 million in the first six months of 2005.
Pro forma interest income, net amounted to E 0.1 million for the six months
ended June 30, 2004. The increase in interest expense for the six months ended
June 30, 2005 of E 1.3 million, compared to the pro forma interest income, net
in the same period in 2004 is mainly due to E 1.1 million of interest expense
incurred in connection with the issuance of the Notes, as well as lower average
cash balances outstanding during the period.
INCOME TAX BENEFIT
Our income tax benefit amounted to E 0.1 million in the first six months of 2004
compared to an income tax benefit of E 3.0 million in the first six months of
2005. The effective tax rate was 10.3% in the first six months of 2004 and 25.0%
in the first six months of 2005. Income tax benefit on pro forma basis amounted
to E 0.2 million for the first six months of 2004, an effective tax rate of
20.0%. The effective tax rate for the six months ended June 30, 2005 represents
management's best estimate of the effective tax rate for the fiscal year ending
December 31, 2005.
NET LOSS
Our net loss for the first six months of 2004 amounted to E 0.6 million compared
to E 9.1 million in the first six months of 2005. On a pro forma basis, the net
loss for the first six months of 2004 amounted to E 0.7 million. The increase in
our net loss in the first half of 2005 compared to the pro forma net loss in the
first half of 2004 was principally due to the decrease in net sales and gross
margins, restructuring charges of E 1.7 million, E 1.4 million higher interest
expenses and after purchase accounting adjustments relating to the Datacon
acquisition of E 3.0 million.
LIQUIDITY AND CAPITAL RESOURCES
We had E 106.6 million and E 66.2 million in cash and cash equivalents at
December 31, 2004 and June 30, 2005, respectively.
We finance our Meco and Datacon subsidiaries and, to an extent, our Fico
subsidiary, 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 currently unsecured, except for pledges on the accounts of Fico and Meco
with the banks that provide the facilities. 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. We finance our Datacon subsidiary
using funds generated from its results of operations and available lines of
Page 24
credit. Datacon utilizes long-term loans, short-term bank lines of credit and
government granted loans for export and research and development activities.
Some of the loans are secured by a pledge of real estate, located in Radfeld,
Austria. Currently, Laurier and, to an extent, Fico are financed through
intercompany loans. Fico Tooling Leshan Company Ltd. in China, 87% of which is
owned by us, is partly financed by long-term loans issued by a local bank.
The working capital requirements of our subsidiaries are affected by the receipt
of periodic payments on orders from their customers. Although our subsidiaries
generally receive partial payments prior to final installation, initial payments
generally do not cover a significant portion of the costs incurred in the
manufacturing of such systems.
Net cash used in operating activities was E 15.3 million and E 11.6 million for
the first half of 2004 and 2005, respectively. The primary use of cash in
operations in the first half of 2005 was a net loss of E 9.1 million that
included non-cash charges of E 1.5 million primarily for depreciation and
amortization, and payment of restructuring costs of E 5.0 million.
The cash decrease of E 40.4 million between December 31, 2004 and June 30, 2005
was primarily due to the use of E 68.2 million of cash in the Datacon
acquisition, the cash deficit generated by operations of E 11.6 million, debt
repayment of E 6.4 million and capital expenditures of E 4.5 million during the
period, partially offset by net cash proceeds of E 43.7 million received from
the issuance of the Notes during the first quarter of 2005 and the inclusion of
E 6.4 million cash and cash equivalents held by Datacon on the date of
acquisition.
At June 30, 2005, our cash and cash equivalents totaled E 66.2 million and our
total debt and capital lease obligations totaled E 86.3 million. At June 30,
2005, shareholders' equity stood at E 177.1 million.
Our capital expenditures were E 2.1 million and E 4.5 million in the first six
months of 2004 and 2005, respectively. Approximately E 2.1 million of our
capital expenditures in 2005 were related to the purchase of land at our Radfeld
facility.
In January 2005, we issued the Notes which resulted in net proceeds to us of
approximately E 43.7 million.
At June 30, 2005, Besi and its subsidiaries had available lines of credit
amounting to an aggregate of E 45.4 million, under which E 25.9 million
borrowings were outstanding. Furthermore, amounts available to be drawn under
the lines were reduced by E 1.5 million in outstanding bank guarantees. At June
30, 2005, 2.6 million of the lines of credit were reserved for foreign exchange
contracts and other financial instruments. Interest is charged at the bank's
base lending rates plus an increment of 1.50% for Fico and Meco. Datacon
interest rates vary between 1.50% and 4.50% depending on type of credit facility
and currency. The credit facility agreements include covenants requiring us to
maintain certain financial ratios. The relevant companies were in compliance
with, or had received waivers for, all loan covenants at June 30, 2005.
Currently, the Company is considering the termination of a credit line of E 7.5
million due to unfavorable conditions.
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.
Page 25
MATERIAL DIFFERENCES BETWEEN US GAAP AND IFRS
Beginning in 2005, the European Commission requires companies that are quoted on
a European stock market to publish their financial statements in accordance with
IFRS. While we will continue publishing US GAAP financial statements, we will
also publish our consolidated financial statements in accordance with IFRS from
January 1, 2005 onwards. Our unaudited consolidated financial statements
included herein have been prepared in accordance with US GAAP, which differ in
certain significant respects from IFRS.
For a more detailed explanation of the our accounting policies, please refer to
"Evaluation of Critical Accounting Policies and Estimates" included in Item 5 of
our Annual Report on Form 20-F for the year ended December 31, 2004 as amended
by Form 20-F/A as filed with the SEC on June 21, 2005. Since December 31, 2004,
there have been no significant changes to our critical accounting policies.
RISK FACTORS
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, while worldwide
semiconductor sales in 2002 decreased by more than 30% as compared to 2000. This
cyclicality has had, and is expected to continue to have, a direct effect on our
net sales, results of operations and backlog. Downturns in the industry can be
severe and protracted and could continue to adversely affect 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 operating 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;
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- - the timing, size and nature of our transactions;
- - the 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;
- - the changes in pricing policies by our competitors;
- - the changes in our operating expenses;
- - our ability to adjust production capacity on a timely basis to meet
customer demand; and
- - the fluctuations in foreign currency exchange rates.
Because of these factors, investors should not rely on quarter-to-quarter
comparisons of our results of operations as an indication of future performance.
In future periods, our results of operations could differ from estimates of
public market analysts and investors. Such discrepancy could cause the market
price of our securities to fall.
OUR BACKLOG AT ANY PARTICULAR DATE MAY NOT BE INDICATIVE OF OUR FUTURE OPERATING
RESULTS
Our backlog amounted to E 55.7 million at June 30, 2005. During market
downturns, semiconductor manufacturers historically have cancelled or deferred
additional equipment purchases. For example, backlog decreased significantly in
the fourth quarter of 2004 due to production and capital expenditure cutbacks
initiated by our customers during this period. The backlog in the second quarter
of 2005 increased by 9.4% compared to pro forma backlog as of December 31, 2004.
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.
Our current and future dependence on a small number of customers increases the
revenue impact of each customer's delay or deferral activity. Our expense level
in future periods will be based, in large part, on our expectations regarding
future revenue sources and, as a result, our operating results for any given
period in which material orders fail to occur, are delayed or deferred could
vary significantly.
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 E
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.
These lengthy sales cycles may cause our net sales and results of operations to
vary from period to period and it may be difficult to predict the timing and
amount of any variations.
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.
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THE ACQUISITION OF DATACON MAY ADVERSELY AFFECT OUR RESULTS OF OPERATIONS
We completed the acquisition of Datacon on January 4, 2005. The acquisition of
Datacon is material to us based on Datacon's reported net sales of E 58.3
million for the fiscal year ended March 31, 2004 and E 39.1 million for the six
months ended September 30, 2004, as opposed to our net sales of E 85.5 million
for the year ended December 31, 2003 and E 126.3 million for the year ended
December 31, 2004. The success of this acquisition will depend, in part, on our
ability to retain key personnel, and integrate the business of Datacon with our
business. In addition, the integration efforts relating to the acquisition of
Datacon may divert management attention from day-to-day activities, disrupt our
ongoing operations, increase our expenses and adversely impact our results of
operations, which could adversely affect the market price of our securities.
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 half of 2005, our three largest
customers accounted for approximately 26% of our net sales, with the largest
customer accounting for approximately 11% 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 the
maintenance of relationships with our existing clients and obtaining 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
we do. 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. 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
Japanese suppliers will be our most significant competitors for the foreseeable
future due to their strength
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in the supply equipment for high-volume, low cost production and their high
levels of excess capacity relative to other suppliers.
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 markets 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 MUST INTRODUCE NEW PRODUCTS IN A TIMELY FASHION AND WE ARE DEPENDENT UPON THE
MARKET ACCEPTANCE OF THESE PRODUCTS
Our industry is subject to rapid technological change and new product
introductions and enhancements. The success of 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. As a result, the introduction of new products
embodying new technologies or the emergence of new industry standards could
render our existing products uncompetitive from a pricing standpoint, obsolete
or unmarketable.
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 that we introduce will
achieve market acceptance.
WE ARE LARGELY DEPENDENT UPON OUR INTERNATIONAL OPERATIONS
We have manufacturing and/or sales and service facilities and personnel in,
amongst others, the Netherlands, Malaysia, Korea, Hong Kong, Singapore, Japan,
China, Philippines 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;
- - currency fluctuations, which could result in increased operating expenses
and reduced revenues;
Page 29
- - greater difficulty in accounts receivable collection and longer collection
periods;
- - unexpected changes in regulatory requirements, compliance with a variety of
foreign laws and regulations; 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 IN THE PAST
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 economic recessions at times in the recent past. 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 were to weaken again, investments by
Japanese customers may be negatively affected with potential negative
implications for the economies of other Pacific Rim countries.
OUR RESULTS OF OPERATIONS HAVE IN THE PAST AND COULD IN THE FUTURE BE AFFECTED
BY CURRENCY EXCHANGE RATE FLUCTUATIONS
For the year ended December 31, 2004, the percentage of our consolidated net
sales denominated in euro was approximately 54% whereas the percentage of our
consolidated net sales represented by U.S. dollars or dollar-linked currencies
was approximately 46%. Approximately 83% of our costs and expenses were
denominated in euro for such period. For the six month period ended June 30,
2005, the percentage of our consolidated net sales denominated in euro was
approximately 51% whereas the percentage of our consolidated net sales
represented by U.S. dollars or dollar-linked currencies was approximately 49%.
Approximately 78% of our costs and expenses were denominated in euro for such
period. As a result, our results of operations could be affected by fluctuations
in the value of the euro against the U.S. dollar. In recent periods, the value
of the U.S. dollar has declined significantly in comparison with the euro. 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.
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
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future operating results depend in part upon our ability to attract and retain
other qualified management, technical, sales and support personnel for
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 TOO 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. In
addition, third parties may seek to challenge, invalidate or circumvent any
patent issued to us, the rights granted under any patent issued to us may not
provide competitive advantages and 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. If
any party is able to successfully claim that our creation or use of proprietary
technology infringes upon their intellectual property rights, we may be forced
to pay damages. In addition to any damages we may have to pay, a court could
require us to stop the infringing activity or obtain a license on unfavorable
terms.
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.
REPORTING IN ACCORDANCE WITH IFRS MAY DIFFER FROM REPORTING IN ACCORDANCE WITH
U.S. GAAP
Beginning in 2005, the European Commission requires companies that are quoted on
a European stock market, such as Euronext Amsterdam on which the Company is
listed, to publish their financial statements in accordance with IFRS. While we
intend to continue publishing financial statements prepared in accordance with
U.S. GAAP, we will also publish our consolidated financial statements in
accordance with IFRS beginning January 1, 2005. Our financial condition
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and results of operations reported in accordance with IFRS may differ from our
financial condition and results of operations reported in accordance with U.S.
GAAP, which could adversely affect the market price of our securities.
WE MAY ACQUIRE OR MAKE 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
As part of our future growth strategy, we may from time-to-time acquire or make
investments in companies and technologies. We could face difficulties in
integrating 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 activities, increase our expenses and adversely affect 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 items, such as amortization of intangible assets or
in-process research and development expenses.
WE ARE SUBJECT TO PROVISIONS OF DUTCH LAW, WHICH MAY RESTRICT THE ABILITY OF OUR
SHAREHOLDERS TO MAKE SOME DECISIONS
We are subject to provisions of Dutch law applicable to large companies 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 the Supervisory Board. Under such regime, the Supervisory Board has
the power to appoint and dismiss the members of the Board of Management. The
members of the Supervisory Board are appointed by the General Meeting of
Shareholders, but the Supervisory Board may provide binding nominations for the
majority of the members to be appointed. Consequently, this regime may have the
effect of delaying or preventing a takeover attempt, including a takeover
attempt that might result in a premium over the market price for our ordinary
shares.
ANTI-TAKEOVER PROVISIONS COULD DELAY OR PREVENT A CHANGE OF CONTROL, INCLUDING A
TAKEOVER ATTEMPT THAT MIGHT RESULT IN A PREMIUM OVER THE MARKET PRICE FOR OUR
ORDINARY SHARES
Our Articles of Association provide for the possible issuance of preference
shares. Such shares may be issued pursuant to a resolution of the General
Meeting of Shareholders. The General Meeting of Shareholders granted, and the
Supervisory Board has approved, the Board of Management's right to issue
preference shares. In April 2000, we established the Foundation, whose board
consists of five members, four of whom are independent of BE Semiconductor
Industries N.V.. We have granted the Foundation a call option pursuant to which
the Foundation may purchase up to 55,000,000 of the preference shares. If the
Foundation were to exercise the call option, it may result in delaying or
preventing a takeover attempt, including a takeover attempt that might result in
a premium over the market price for our ordinary shares.
WE MAY IN THE FUTURE BE CONSIDERED A PASSIVE FOREIGN INVESTMENT COMPANY
The U.S. Internal Revenue Code of 1986, as amended, contains special rules
relating to passive foreign investment companies, or PFICs. A U.S. holder who
owns stock in a PFIC
Page 32
generally is subject to adverse tax consequences under these rules. These rules
do not apply to non-U.S. holders. A company is treated as a PFIC if at least 75%
of its gross income for a taxable year consists of "passive income," defined
generally as income from passive investments, as opposed to operating income. A
company is also treated as a PFIC if the average percentage of the value of its
assets that produces or is held for the production of passive income, including
cash balances, is at least 50%. There can be no assurance that we will in future
years have sufficient revenues from product sales or sufficient non-passive
assets to avoid becoming a PFIC.
If we were classified as a PFIC, unless a U.S. holder made a timely specific
election, a special tax regime would apply to any "excess distribution," which
would be the U.S. holder's share of distributions in any year that are greater
than 125% of the average annual distributions received by the U.S. holder in the
three preceding years or the U.S. holder's holding period, if shorter, and any
gain realized on the sale or other disposition of the ordinary shares. Under
this regime, any excess distribution and realized gain would be treated as
ordinary income and would be subject to tax as if the excess distribution or
gain had been realized ratably over the U.S. holder's holding period for the
ordinary shares. A U.S. holder will generally be required to pay taxes on the
amount allocated to a year at the highest marginal tax rate and pay interest on
the prior year's taxes. A U.S. holder may be able to ameliorate the tax
consequences somewhat by making a mark-to-market election, or QEF election, that
is, an election to have us treated as a qualified electing fund for U.S. federal
income tax purposes. You should consult your tax advisor regarding the tax
consequences of our classification as a PFIC.
PRICE VOLATILITY OF THE ORDINARY SHARES
The current market price of our ordinary shares may not be indicative of prices
that will prevail in the trading market in the future. In particular, since our
initial public offering in December 1995, the market price of our ordinary
shares has experienced significant appreciation and, more recently, significant
depreciation, as have price levels for equity securities generally and price
levels for equity securities of companies associated with the semiconductor
industry and other high-technology fields. In addition, since our initial public
offering, the market price of the ordinary shares has experienced significant
fluctuation, including fluctuation that is unrelated to our performance. We
expect that this fluctuation will continue in the future.
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PART II. OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
None
ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None
ITEM 3 - DEFAULTS ON SENIOR SECURITIES
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5 - OTHER INFORMATION
None
ITEM 6 - EXHIBITS
None
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