-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WrIhBteUXMt0FTxJLiinrk0jS69PSANHMXBiI28nUxZT70uSKDH37VJ0RLXEUeKe XPcwg98CJY2EP9Tp7mwv2Q== 0001005477-00-000980.txt : 20000214 0001005477-00-000980.hdr.sgml : 20000214 ACCESSION NUMBER: 0001005477-00-000980 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000211 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KULICKE & SOFFA INDUSTRIES INC CENTRAL INDEX KEY: 0000056978 STANDARD INDUSTRIAL CLASSIFICATION: SPECIAL INDUSTRY MACHINERY, NEC [3559] IRS NUMBER: 231498399 STATE OF INCORPORATION: PA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-00121 FILM NUMBER: 536719 BUSINESS ADDRESS: STREET 1: 2101 BLAIR MILL RD CITY: WILLOW GROVE STATE: PA ZIP: 19090 BUSINESS PHONE: 2157846000 MAIL ADDRESS: STREET 1: 2101 BLAIR MILL RD CITY: WILLOW GROVE STATE: PA ZIP: 19090 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended DECEMBER 31, 1999 ----------------- OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to . --------- --------- Commission File No. 0-121 ------- KULICKE AND SOFFA INDUSTRIES, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) PENNSYLVANIA 23-1498399 - ---------------------------- ------------------- (State or other jurisdiction (IRS Employer of incorporation) Identification No.) 2101 BLAIR MILL ROAD, WILLOW GROVE, PENNSYLVANIA 19090 - ------------------------------------------------ ---------- (Address of principal executive offices) (Zip Code) (215) 784-6000 ---------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether registrant (1) has filed all reports required to be filed by section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| As of January 31, 2000, there were 23,657,443 shares of the Registrant's Common Stock, Without Par Value outstanding. KULICKE AND SOFFA INDUSTRIES, INC. FORM 10 - Q DECEMBER 31, 1999 INDEX Page No. -------- PART I. FINANCIAL INFORMATION: Item 1. FINANCIAL STATEMENTS Condensed Consolidated Balance Sheets - September 30, 1999 and December 31, 1999 3 Condensed Consolidated Statements of Operations - Three Months Ended December 31, 1998 and 1999 4 Condensed Consolidated Statements of Cash Flows - Three Months Ended December 31, 1998 and 1999 5 Notes to Condensed Consolidated Financial Statements 6 - 10 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10 - 25 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 25 - 26 PART II. OTHER INFORMATION: Item 6. EXHIBITS AND REPORTS ON FORM 8 - K. 26 Signatures. 27 PART I - FINANCIAL INFORMATION Item 1 - Financial Statements KULICKE AND SOFFA INDUSTRIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) September 30, December 31, 1999 1999 (unaudited) ASSETS --------- --------- CURRENT ASSETS: Cash and cash equivalents $ 37,155 $ 177,837 Short-term investments 2,190 21,104 Accounts and notes receivable, net 136,047 159,888 Inventories 61,782 70,213 Deferred income taxes 11,071 8,738 Prepaid expenses and other current assets 9,906 9,365 Refundable income taxes 2,934 1,016 --------- --------- TOTAL CURRENT ASSETS 261,085 448,161 Property, plant and equipment, net 67,485 71,294 Intangible assets, primarily goodwill, net 44,637 43,931 Investments in and loans to joint ventures 2,940 3,417 Other assets 1,998 7,850 --------- --------- TOTAL ASSETS $ 378,145 $ 574,653 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable and current portion of long-term debt $ 1,178 $ 1,204 Accounts payable 61,962 63,924 Accrued expenses 27,210 29,356 Income taxes payable 3,604 5,825 --------- --------- TOTAL CURRENT LIABILITIES 93,954 100,309 Other liabilities 4,373 4,803 Long term debt -- 175,000 Minority interest 5,042 4,772 --------- --------- TOTAL LIABILITIES 103,369 284,884 --------- --------- Commitments and contingencies -- -- SHAREHOLDERS' EQUITY: Common stock, without par value 160,108 162,079 Retained earnings 117,018 129,819 Accumulated other comprehensive loss (2,350) (2,129) --------- --------- TOTAL SHAREHOLDERS' EQUITY 274,776 289,769 --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 378,145 $ 574,653 ========= ========= The accompanying notes are an integral part of these consolidated financial statements. 3 KULICKE AND SOFFA INDUSTRIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) (unaudited) Three months ended December 31, ------------------------ 1998 1999 --------- --------- Net sales $ 61,175 $ 179,849 Cost of goods sold 44,999 119,937 --------- --------- Gross profit 16,176 59,912 --------- --------- Selling, general and administrative 17,247 30,693 Research and development, net 8,814 12,103 Resizing costs 397 -- --------- --------- Income (loss) from operations (10,282) 17,116 Interest income 1,157 1,090 Interest expense (37) (514) Equity in loss of joint ventures (3,501) (346) --------- --------- Income (loss) before income taxes (12,663) 17,346 Income tax provision (benefit) (3,800) 4,978 --------- --------- Income (loss) before minority interest (8,863) 12,368 Minority interest in net loss of subsidiary -- 433 --------- --------- Net income (loss) $ (8,863) $ 12,801 ========= ========= Net income (loss) per share: Basic $ (0.38) $ 0.54 ========= ========= Diluted $ (0.38) $ 0.52 ========= ========= Weighted average common shares outstanding: Basic 23,373 23,549 Diluted 23,373 25,342 The accompanying notes are an integral part of these consolidated financial statements. 4 KULICKE AND SOFFA INDUSTRIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) Three months ended December 31, ------------------------ 1998 1999 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income(loss) $ (8,863) $ 12,801 Adjustments to reconcile net income(loss) to net cash used in operating activities: Depreciation and amortization 3,370 5,476 Equity in loss of joint ventures 3,501 346 Minority interest in net loss of subsidiary -- (433) Deferred taxes (4,796) 2,333 Changes in components of working capital, net (1,598) (23,953) Other, net 1,509 1,443 --------- --------- Net cash used in operating activities (6,877) (1,987) --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of investments classified as available for sale (21,316) (18,981) Sale/maturities of investments classified as available for sale 9,145 -- Purchases of property, plant and equipment (1,513) (8,436) Investments in and loans to joint ventures (4,900) (823) --------- --------- Net cash used in investing activities (18,584) (28,240) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from debt offering -- 169,579 Proceeds from issuance of common stock 103 1,330 Payments on capital leases (140) -- --------- --------- Net cash provided by (used in) financing activities (37) 170,909 --------- --------- Changes in cash and cash equivalents (25,498) 140,682 Cash and cash equivalents at beginning of period 76,478 37,155 --------- --------- Cash and cash equivalents at end of period $ 50,980 $ 177,837 ========= ========= CASH PAID DURING THE PERIOD FOR: Interest $ 37 $ 59 Income Taxes $ 2,571 $ 431 The accompanying notes are an integral part of these consolidated financial statements 5 KULICKE AND SOFFA INDUSTRIES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands, except per share and employee data) (unaudited) NOTE 1 - BASIS OF PRESENTATION: The condensed consolidated financial statement information included herein is unaudited, but in the opinion of management, contains all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the Company's financial position as of September 30, 1999 and December 31, 1999, and the results of its operations for the three month periods ended December 31, 1998 and 1999 and its cash flows for the three month periods ended December 31, 1998 and 1999. These financial statements should be read in conjunction with the audited financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1999. NOTE 2 - INVENTORIES: Inventories consist of the following: September 30, December 31, 1999 1999 -------- -------- Raw materials and supplies $ 35,981 $ 42,202 Work in process 24,033 28,939 Finished goods 16,696 14,429 -------- -------- 76,710 85,570 Inventory reserves (14,928) (15,357) -------- ------ $ 61,782 $ 70,213 ======== ======== NOTE 3 - EARNINGS PER SHARE: Basic net income (loss) per share ("EPS") is calculated using the weighted average number of shares of common stock outstanding during the period. The calculation of diluted net income per share assumes the exercise of employee stock options and the conversion of the convertible subordinated notes to common shares. In addition, in computing diluted net income per share the after-tax amount of interest expense recognized in the period associated with the convertible subordinated notes is added back to net income. For the three months ended December 31, 1999, the after-tax interest associated with the convertible subordinated notes that was added back to net income in order to calculate diluted EPS was $281. 6 A reconciliation of weighted average shares outstanding-basic to the weighted average shares outstanding-diluted appears below: Three months ended December 31, ------------------- 1998 1999 ------ ------ Weighted average shares outstanding - Basic 23,373 23,549 Potentionally dilutive securities: Employee stock options * 1,015 Convertible subordinated notes NA 778 ------ ------ Weighted average shares outstanding - Diluted 23,373 25,342 ====== ====== * Due to the Company's net loss for the three months ended December 31, 1998, all potentially dilutive securities are deemed to be antidilutive. The weighted average number of shares for potentially dilutive securities (employee and director stock options) was 380,000 in the three months ended December 31, 1998. NOTE 4 - OPERATING RESULTS BY BUSINESS SEGMENT: Operating results by business segment for the three month periods ended December 31, 1999 and 1998 were as follows:
Advanced Packaging Packaging Three months ended Equipment Materials Technology December 31, 1999: Segment Segment Segment(1) Corporate Total --------- --------- --------- --------- --------- Net sales $ 132,531 $ 42,440 $ 4,878 $ -- $ 179,849 Cost of goods sold 84,333 30,323 5,281 -- 119,937 --------- --------- --------- --------- --------- Gross profit 48,198 12,117 (403) -- 59,912 Operating expenses 28,291 6,678 4,236 3,591 42,796 --------- --------- --------- --------- --------- Income (loss) from operations $ 19,907 $ 5,439 $ (4,639) $ (3,591) $ 17,116 ========= ========= ========= ========= ========= Equity in loss of joint ventures $ -- $ (346) $ -- $ -- $ (346) ========= ========= ========= ========= ========= Segment assets At December 31, 1999 $ 237,199 $ 89,330 $ 39,288 $ 208,836 $ 574,653 ========= ========= ========= ========= =========
7 Packaging Three months ended Equipment Materials Corporate, December 31, 1998: Segment Segment Other Total --------- --------- --------- --------- Net Sales $ 33,623 $ 27,552 $ -- $ 61,175 Cost of goods sold 24,185 20,814 -- 44,999 --------- --------- --------- --------- Gross profit 9,438 6,738 -- 16,176 Operating expenses 19,079 5,583 1,399 26,061 Resizing costs 397 -- -- 397 --------- --------- --------- --------- Income (loss) from operations $ (10,038) $ 1,155 $ (1,399) $ (10,282) ========= ========= ========= ========= Equity in loss of joint ventures $ -- $ -- $ (3,501) $ (3,501) ========= ========= ========= ========= Segment assets At December 31, 1998 $ 120,041 $ 79,121 $ 124,920 $ 324,082 ========= ========= ========= ========= (1) Comprised of Flip Chip Technologies, LLC ("FCT") and the Company's X-LAM operation. Effective May 31, 1999, the Company increased its ownership interest in FCT and began reporting the operating results of FCT on a consolidated basis. Accordingly, the operating results of FCT are reported on a consolidated basis with the operating results of the Company for the quarter ended December 31, 1999. In the quarter ended December 31, 1998 FCT was reported under the equity method of accounting and reflected in equity in loss of joint ventures. Note 5 - LONG TERM DEBT On December 13, 1999, the Company issued $150.0 million of convertible subordinated notes through a private placement to qualified institutional investors and institutional accredited investors. On December 15, 1999 the Company issued an additional $25.0 million of convertible subordinated notes in connection with the exercise of the initial purchasers' over-allotment option. The notes are general obligations of the Company and subordinated to all senior debt. The notes bear interest at a fixed rate of 4 3/4%, are convertible into the Company's common stock at $45.7993 per share (subject to adjustment upon the occurrence of certain events) and mature on December 15, 2006. There are no financial covenants associated with the notes and there are no restrictions on paying dividends, incurring additional debt or issuing or repurchasing the Company's securities. Interest on the notes will be paid on June 15 and December 15 of each year beginning June 15, 2000. The Company may redeem the notes in whole or in part at any time after December 18, 2002 at prices decreasing from 102.714% at December 19, 2002 to 100.0% at December 15, 2006. Note 6 - RESIZING COSTS During fiscal 1999, the Company announced plans to relocate its automatic ball bonder manufacturing from Willow Grove, Pennsylvania to 8 Singapore. As a result, the Company recorded a charge for severance of $3,955 for the elimination of approximately 230 positions and asset writeoffs of $1,566. In fiscal 1999, the Company also recorded a charge of $397 for severance for an additional 30 employees related to the reduction in workforce that began in fiscal 1998. Write-downs of property, plant and equipment were made where carrying values exceeded the Company's estimate of proceeds from abandonment or disposal. These estimates were based principally on past experience of comparable asset disposals. Cash payments for severance and the disposition of assets identified are expected to be substantially paid or completed by the end of fiscal 2000. The balance of the severance and other resizing reserves is included within accrued liabilities. The components of these resizing reserves and the movement within these components during the three months ended December 31, 1999 are as follows: Severance Other Total --------- ----- ----- Balance at September 30, 1999 $ 4,144 $ 481 $ 4,625 Payments made (70) -- (70) ------- ------- ------- Balance at December 31, 1999 $ 4,074 $ 481 $ 4,555 ======= ======= ======= The severance reserve at December 31, 1999 is comprised of the estimated cost to eliminate approximately 230 positions associated with the move of the ball bonder manufacturing to Singapore and expensed in fiscal 1999 and remaining severance for 3 employees terminated and expensed in fiscal 1998. The payments made against the severance reserve in the three months ended December 31, 1999 related to the 3 employees terminated and expensed in fiscal 1998. Note 7 - INVESTMENTS IN JOINT VENTURES In the three months ended December 31, 1999 the Company recognized as Equity in Loss of Joint Ventures 50% or $0.3 million of the loss on our equity interest in Advanced Polymer Solutions, LLC. Effective May 31, 1999 the Company increased its ownership interest in Flip Chip Technologies, LLC ("FCT"), the Company's joint venture with Delco Electronics Corporation, from 51% to 73.6% by converting all of its outstanding loans to FCT and accrued interest totaling $32.8 million into equity units. The Company accounted for the increase in ownership by the purchase method of accounting and began reporting the operating results of FCT on a consolidated basis with the operating results of the Company on June 1, 1999. The Company contributed an additional $1.5 million to FCT during the three months ended December 31, 1999 and increased its ownership interest from 73.6% to 74.7%. The Company's financial statements for the three months ended December 31, 1999 reflect FCT's operating results on a consolidated basis. 9 The Company recorded a pretax loss from FCT operations for the three months ended December 31, 1998 and December 31, 1999 as follows: Three Months Ended December 31, 1998 1999 ------- ------- Equity in loss of joint venture $(3,501) $ -- Consolidated with operations of the Company -- (1,379) ------- ------- Pretax loss from FCT operations $(3,501) $(1,379) ======= ======= Note 8 - COMPREHENSIVE INCOME (LOSS): For the three months ended December 31, 1998 and 1999, the components of total comprehensive income (loss) are as follows: Three months ended December 31, ---------------------- 1998 1999 ------- ------- Net income(loss) $(8,863) $12,801 ------- ------- Foreign currency translation adjustment 1,191 217 Minimum pension liability, net of taxes (1,137) -- Unrealized gain(loss) on investments,net of taxes (108) 4 ------- ------- Other comprehensive income (loss) (54) 221 ------- ------- Comprehensive income(loss) $(8,917) $13,022 ======= ======= Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. In addition to historical information, this report contains statements relating to future events or our future results. These statements are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Act of 1934, as amended (the "Exchange Act"), and are subject to the Safe Harbor provisions created by statute. Such forward-looking statements include, but are not limited to, statements that relate to our future revenue, product development, demand forecasts, competitiveness, gross margins, operating expenses, cost savings expected from the transfer of our automatic ball bonder manufacturing to Singapore and benefits expected as a result of: o The projected growth rates in the overall semiconductor industry, the semiconductor assembly equipment market and the market for semiconductor packaging materials; o the anticipated development, production and licensing of our advanced packaging technology; 10 o the projected continuing demand for wire bonders; and o the anticipated growing importance of the flip chip assembly process in high-end market segments. Generally words such as "may," "will," "should," "could," "anticipate," "expect," "intend," "estimate," "plan," "continue," and "believe," or the negative of or other variation on these and other similar expressions identify forward-looking statements. These forward-looking statements are made only as of the date of this report. We do not undertake to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise. Forward-looking statements are based on current expectations and involve risks and uncertainties and our future results could differ significantly from those expressed or implied by our forward-looking statements. These risks and uncertainties include, without limitation, those described below and under the heading "Risk Factors" within this section and in our reports and registration statements filed from time to time with the Securities and Exchange Commission. This discussion should be read in conjunction with the Condensed Consolidated Financial Statements and Notes on pages 3 to 10 of this Form 10-Q for a full understanding of our financial position and results of operations for the three month period ended December 31, 1999. INTRODUCTION We design, manufacture and market capital equipment and packaging materials for sale to companies that manufacture and assemble semiconductor devices. We also service, maintain, repair and upgrade assembly equipment. Our operating results primarily depend upon the capital and operating expenditures of semiconductor manufacturers and subcontract assemblers worldwide which, in turn, depend on the current and anticipated market demand for semiconductors and products using semiconductors. The semiconductor industry historically has been highly volatile and has experienced periodic downturns and upturns which have had severe effects on the semiconductor industry's demand for capital equipment, including the assembly equipment we manufacture and market and, to a lesser extent, the packaging materials we sell. We do not consider our business to be seasonal in nature. Beginning in the third quarter of fiscal 1999 the semiconductor industry business cycle started to recover from a business downturn that negatively affected our operating results in the first half of fiscal 1999 and the demand for our assembly equipment and packaging materials increased. This industry recovery, combined with market acceptance of our Model 8028 automatic ball bonder resulted in record net sales and new orders in the three months ended December 31, 1999. RESULTS OF OPERATIONS - Three month period ended December 31, 1999 compared to the three month period ended December 31, 1998. 11 During the three months ended December 31, 1999 we recorded bookings of new orders of $206.9 million compared to $51.0 million during the comparable period of the prior year and $158.1 million in the prior quarter. At December 31, 1999 our total backlog of customer orders totaled $120.1 million compared to $43.9 million at December 31, 1998 and $93.1 million at September 30, 1999. Since the timing of deliveries may vary and orders generally are subject to delay or cancellation, our backlog as of any date may not be indicative of sales for any succeeding period. Net sales for the three months ended December 31, 1999 increased 194% over the comparable period in the prior year. This increase was primarily reflected in our equipment segment where unit sales of wire bonders increased 355% and the average selling price of our automatic ball bonders increased 8%, reflecting the improved business environment for semiconductor assembly equipment and the increased productivity and technical performance of our Model 8028 automatic ball bonder. Additionally, sales of our packaging material businesses were 54% higher than the prior year due to the increased volume of gold wire and expendable tool shipments. Also, effective May 31, 1999 we began reporting Flip Chip Technologies LLC ("FCT"), our joint venture with Delco Electronics Corporation, on a consolidated basis with our operating results and recorded $5.0 million of net sales from FCT in the three months ended December 31, 1999. See Note 7 to our Condensed Consolidated Financial Statements for more information on FCT. In line with the improving business environment for semiconductor assembly equipment, our total net sales in the first quarter of fiscal 2000 were 17% higher than the fourth quarter of fiscal 1999. International sales (shipments of our products with ultimate foreign destinations) comprised 90% and 77% of our total sales during the three months ended December 31, 1999 and 1998, respectively. Sales to customers in the Asia/Pacific region accounted for approximately 79% and 62% of our total sales during the three months ended December 31, 1999 and 1998, respectively. Net sales to all major geographic regions were above the comparable period of the prior year for the three months ended December 31, 1999. Gross profit increased to $59.9 million or 33.3% of net sales during the three months ended December 31, 1999 compared to $16.2 million or 26.4% of net sales during the comparable period of the prior year. The higher gross profit in the three months ended December 31, 1999 was due primarily to the higher sales volume. In the three months ended December 31, 1999, the equipment business gross profit as a percentage of sales ("gross margin") was 36.4% compared to 28.1% in the prior year due to a lower cost of production and the higher average selling price of our automatic ball bonders (primarily our Model 8028). The packaging materials business reported a gross margin of 28.6% for the three months ended December 31, 1999 compared to 24.5% in the comparable period of the prior year. This increase was due to lower average cost of production resulting primarily from operating efficiencies from the 12 higher unit volume and a shift in product mix to higher margin fine pitch products. Partially offsetting the higher gross margins in the equipment and packaging materials businesses was a negative gross margin recorded at FCT. We anticipate that our gross margin will improve further during the year. Selling, general and administrative ("SG&A") expenses increased $13.5 million in the three months ended December 31, 1999 from the comparable period in the prior year. The higher SG&A expenses in the three month period ended December 31, 1999 included approximately $3.2 million associated with the new Advanced Packaging Technology business segment and $2.3 million for start-up costs for our new Singapore facility. The remaining increase in SG&A expenses primarily reflects payroll and related costs and travel associated with the 194% increase in net sales. Net research and development ("R&D") expense for the three months ended December 31, 1999 increased $3.3 million to $12.1 million from $8.8 million in the comparable period of the prior year. This increase in R&D spending reflected our commitment to new product introductions and product development in our equipment and packaging materials businesses as well as R&D spending at X-LAM and FCT. Income from operations was $17.1 million for the three months ended December 31, 1999 compared to a loss from operations of $10.3 million in the comparable period of the prior year and income from operations of $8.4 million in the prior quarter. This increase in income from operations was due primarily to the higher sales volume and gross margin partially offset by higher operating expenses. In December 1999 we issued $175.0 million of fixed rate 4 3/4% convertible subordinated notes through a private placement to qualified institutional investors and institutional accredited investors. We recorded interest expense of $0.4 million in the three months ended December 31, 1999 associated with this debt. We expect increases in our interest expense, due to the convertible notes, and interest income, due to the cash proceeds from the convertible notes, to be higher than fiscal 1999 for the remainder of fiscal 2000. In the three months ended December 31, 1999 we recognized as Equity in Loss of Joint Ventures 50% or $.3 million of the loss on our equity interest in Advanced Polymer Solutions, LLC. In the three months ended December 31, 1998 we recognized 100% or $3.5 million of the loss from FCT. On May 31, 1999, we increased our ownership in FCT and began reporting the operating results of FCT on a consolidated basis with our operating results. As a result we stopped reflecting FCT under the equity method of accounting. See Note 7 to the Condensed Consolidated Financial Statements and the discussion of advanced packaging technologies other than wire bonding under the "Risk Factors" section of this Item 2. 13 Our effective tax rate for fiscal 2000 is expected to approximate 28%, compared to 33% for fiscal 1999. However, the timing of the transition of the manufacture of our automatic ball bonders to our new Singapore facility could have an impact on our final effective tax rate for fiscal 2000. In the three months ended December 31, 1999, we recorded minority interest of $0.4 million reflecting our joint venture partner's share of the loss incurred at FCT. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS: In June 1998, SFAS 133, "Accounting for Derivative Instruments and Hedging Activities" was issued. SFAS 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. This standard is effective for the Company's financial statements for all quarters in the fiscal years beginning after June 15, 2000. We do not believe that the adoption of SFAS 133 will have a material impact on our financial statements. LIQUIDITY AND CAPITAL RESOURCES: As of December 31, 1999, we had $198.9 million in cash and short term investments compared to $39.3 million at September 30, 1999. Additionally, we have a $60.0 million bank revolving credit facility, which expires in March 2003. Borrowings are subject to our compliance with financial and other covenants set forth in the revolving credit documents. At December 31, 1999, we were in compliance with the covenants of the credit facility and had no cash borrowings outstanding under that facility, but had utilized $1.0 million of availability under the credit facility to support letters of credit issued as security deposits for our new manufacturing facility in Singapore and our new X-LAM facility. The revolving credit facility provides for borrowings denominated in either U.S. dollars or foreign currencies. Borrowings in U.S. dollars bear interest either at a Base Rate (defined as the greater of the prime rate minus 1/4% or the federal funds rate plus 1/2%) or, at a LIBOR Rate (defined as LIBOR plus 0.4% to 0.8%, depending on our leverage ratio). Foreign currency borrowings bear interest at a LIBOR Rate, as defined above, applicable to the foreign currency. In December 1999, we issued $175.0 million of convertible subordinated notes. The notes are general obligations of the Company and subordinated to all senior debt. The notes bear interest at 4 3/4%, are convertible into the Company's common stock at $45.7993 per share (subject to adjustment upon the occurrence of certain events) and mature on December 15, 2006. There are no financial covenants associated with the notes and there are no restrictions on paying dividends, incurring additional debt or issuing or repurchasing the Company's securities. 14 Cash used in operating activities totaled $2.0 million during the three months ended December 31, 1999 compared to $6.9 million during the comparable period in the prior year. The use of cash for operating activities in the first three months of fiscal 2000 was primarily the result of the buildup of accounts receivable and inventory associated with the increase in sales and order levels partially offset by our operating income. At December 31, 1999, our working capital was $347.9 million compared to $167.1 million at September 30, 1999. The higher working capital was due primarily to the proceeds from the convertible debt offering. During the three months ended December 31, 1999, we invested approximately $8.4 million in property and equipment compared to $1.5 million in the comparable period of the prior year. The capital spending in the three months ended December 31, 1999 was primarily for the purchase of tooling and equipment for our new manufacturing facility in Singapore and equipment and leasehold improvements for our research and manufacturing facility to develop the X-LAM technology. We expect to invest additional capital in the Singapore and X-LAM facilities and to increase our manufacturing capacity in our packaging materials businesses during the remainder of fiscal 2000. In the three months ended December 31, 1999 we contributed $1.5 million to FCT thereby increasing our equity ownership to 74.7% from 73.6%. We also contributed $0.8 million to Advanced Polymer Solutions during the three months ended December 31, 1999, bringing our total investment in Advanced Polymer Solutions to approximately $4.6 million. We have committed to invest a total of $6.0 million in Advanced Polymer Solutions. We believe that anticipated cash flows from operations, the proceeds from the sale of $175 million of 4 3/4% convertible subordinated notes, working capital and amounts available under our revolving credit facilities will be sufficient to meet our liquidity and capital requirements for at least the next 12 months. However, we may seek, as required, equity or debt financing to provide capital for corporate purposes and/or to fund strategic business opportunities, including possible acquisitions, joint ventures, alliances or other business arrangements which could require substantial capital outlays. The timing and amount of such potential capital requirements cannot be determined at this time and will depend on a number of factors, including demand for the Company's products, semiconductor and semiconductor capital equipment industry conditions, competitive factors and the nature and size of strategic business opportunities which the Company may elect to pursue. 15 RISK FACTORS: OUR QUARTERLY OPERATING RESULTS FLUCTUATE SIGNIFICANTLY AND MAY CONTINUE TO DO SO IN THE FUTURE In the past, our quarterly operating results have fluctuated significantly. Although these fluctuations are partly due to the volatile nature of the semiconductor industry, they also reflect the impact of other factors, some of which are outside of our control. Some of the factors that could cause our revenues and/or operating margins to fluctuate significantly from period to period are: o the mix of products that we sell because, for example: - packaging materials generally have lower margins than assembly equipment, - some lines of equipment are more profitable than others, and - some sales arrangements have higher margins than others; o the volume and timing of orders for our products and any order postponements and cancellations by our customers; o adverse changes in our pricing, or that of our competitors; o higher than anticipated costs of development or production of new equipment models; o the availability and cost of key components for our products; o market acceptance of our new products and upgraded versions of our products; o our announcement of, or perception by others that we will introduce, new or upgraded products, which could delay customers from purchasing our products; o the timing of acquisitions; and o our competitors' introduction of new products. Many of our expenses, such as research and development and selling, general and administrative expenses, do not vary directly with our net sales. As a result, a decline in our net sales would adversely affect our operating results. In addition, if we were to incur additional expenses in a quarter in which we did not experience comparable increased net sales, our operating results would decline. Factors that could cause our expenses to fluctuate from period to period include: o the timing and extent of our research and development efforts; o severance and other costs of relocating facilities or resizings in market downturns; and o inventory writeoffs due to obsolesence. 16 Because our revenues and operating results are volatile and difficult to predict, we believe that period-to-period comparisons of our operating results are not a good indication of our future performance. THE SEMICONDUCTOR INDUSTRY AS A WHOLE IS VOLATILE, AS ARE OUR FINANCIAL RESULTS Our operating results are significantly affected by the capital expenditures of semiconductor manufacturers and assemblers worldwide. Expenditures by semiconductor manufacturers and assemblers depend on the current and anticipated market demand for semiconductors and products that use semiconductors, such as personal computers, telecommunications, consumer electronics and automotive goods. Any significant downturn in the market for semiconductor devices or in general economic conditions would likely reduce demand for our products and adversely affect our business, financial condition and operating results. Historically, the semiconductor industry has been volatile with sharp periodic downturns and slowdowns. These downturns have been characterized by, among other things, diminished product demand, excess production capacity and accelerated erosion of selling prices. This has severely and negatively affected the industry's demand for capital equipment, including the assembly equipment that we manufacture and market and, to a lesser extent, the packaging materials that we sell. These downturns and slowdowns have adversely affected our operating results. In the 1998 downturn, for example, our net sales declined from approximately $501.9 million in fiscal 1997 to $411.0 million in fiscal 1998 and continued to decline in the first half of fiscal 1999. Downturns in the future could similarly adversely affect our business, financial condition and operating results. THE TRANSFER OF OUR AUTOMATIC BALL BONDER MANUFACTURING TO SINGAPORE, COULD DISRUPT OUR ABILITY TO SUPPLY OUR CUSTOMERS AND MAY NOT RESULT IN THE COST SAVINGS WE ANTICIPATE The transfer of our automatic ball bonder manufacturing to Singapore has required and will continue to require us to relocate equipment, hire and train production, engineering and management personnel, qualify suppliers and develop a purchasing and delivery infrastructure. In addition, we expect to experience increased selling, general and administrative expenses in fiscal 2000 in connection with start up costs. We plan to source a significantly higher percentage of materials from suppliers in Singapore. To the extent we experience availability, reliability or quality problems as a result of this shift in supply source, our business would be adversely affected. In addition, we do not intend to move our research and development function from Willow Grove to the Singapore facility. If we are unable to accomplish the move efficiently and commence full production as scheduled, our ability to fill orders could be hurt, which could damage our relationships with customers. In addition, our ability to meet production requirements may be adversely affected by any problems associated with the start up of this facility. We also anticipate cost savings from the transfer of our automatic ball bonder manufacturing as a result of reduced costs of labor, shipping and materials. However, we cannot assure you that we will realize these savings. 17 OUR BUSINESS DEPENDS ON ATTRACTING AND RETAINING MANAGEMENT, MARKETING AND TECHNICAL EMPLOYEES WHO ARE IN GREAT DEMAND As is the case with all technology companies, our future success depends on our ability to hire and retain qualified management, marketing and technical employees. Competition is intense in personnel recruiting in the semiconductor and semiconductor equipment industries, particularly with respect to some engineering disciplines. In particular, we have experienced periodic shortages of software engineers. If we are unable to continue to attract and retain the technical and managerial personnel we require, our business, financial condition and operating results could be adversely affected. WE MAY NOT BE ABLE TO RAPIDLY DEVELOP AND MANUFACTURE NEW AND ENHANCED PRODUCTS REQUIRED TO MAINTAIN OR EXPAND OUR BUSINESS We believe that our continued success will depend on our ability to continuously develop and manufacture or acquire new products and product enhancements on a timely and cost-effective basis. We also must introduce these products and product enhancements into the market in response to customers' demands for higher performance assembly equipment. Our competitors may develop enhancements to or future generations of competitive products that will offer superior performance, features and lower prices that may render our products noncompetitive. We may not be able to develop and introduce products incorporating new technologies in a timely manner or at a price that will satisfy future customers' needs or achieve market acceptance. For example, the introduction of the Model 8020 wire bonder in 1998 was less successful than we had hoped because of higher than anticipated design and production costs and lower than anticipated sales prices. WE MAY NOT BE ABLE TO ACCURATELY FORECAST DEMAND FOR OUR PRODUCT LINES We typically operate our business with a relatively short backlog and order supplies and otherwise plan production based on internal forecasts of demand. Due to these factors, we have in the past, and may again in the future, fail to accurately forecast demand, in terms of both volume and configuration for either our current or next-generation wire bonders. This has led to and may in the future lead to delays in product shipments or, alternatively, an increased risk of inventory obsolescence. For example, we inaccurately forecasted demand for the Model 8020 wire bonder in 1998 and consequently recorded writeoffs for excess inventory. Also, we underestimated the magnitude of the improvement in the semiconductor industry at the end of fiscal 1999 and the demand for the new Model 8028 ball bonder; as a result some customer shipments may be delayed in fiscal 2000. If we fail to accurately forecast demand for our products, our business, financial condition and operating results could be materially and adversely affected. ADVANCED PACKAGING TECHNOLOGIES OTHER THAN WIRE BONDING MAY RENDER SOME OF OUR PRODUCTS OBSOLETE AND OUR STRATEGY FOR PURSUING THESE OTHER TECHNOLOGIES MAY BE COSTLY AND INEFFECTIVE Advanced packaging technologies have emerged that may improve device performance or reduce the size of an integrated circuit or IC package, as compared to traditional die and wire bonding. These technologies 18 include flip chip, chip scale packaging and tape automated bonding. In general, these advanced technologies eliminate the need for wires to establish the electrical connection between a die and its package. For some assemblies, these advanced technologies have largely replaced wire bonding. However, today most ICs still employ die and wire bonding technology, and the possible extent, rate and timing of change is difficult, if not impossible, to predict. In fact, wire bonding has proved more durable than we originally anticipated, largely because of its reliability and cost. However, we cannot assure you that the semiconductor industry will not, in the future, shift a significant part of its volume into advanced packaging technologies, such as those discussed above. Presently, Intel, Motorola, IBM and Advanced Micro Devices, for example, have developed flip chip technologies for internal use, and a number of other companies are also increasing their investments in advanced packaging technologies. If a significant shift to advanced technologies were to occur, demand for our wire bonders and related packaging materials would diminish. One component of our strategy is to develop the capacity to use advanced technologies to allow us to compete in those portions of the market that currently use these advanced technologies and to prepare for any eventual decline in the use of wire bonding technology. There are a number of risks associated with our strategy to diversify into new technologies: o The technologies that we have invested in represent only some of the advanced technologies that may one day supercede wire bonding; o Other companies are developing similar or alternative advanced technologies; o Wire bonding may continue as the dominant technology for longer than we anticipate; o The cost of developing advanced technologies may be significantly greater than we expect; and o We may not be able to develop the necessary technical, research, managerial and other related skills to develop, produce, market and support these advanced technologies. As a result of these risks, we cannot assure you that any of our attempts to develop alternative technologies will be profitable or that we will be able to realize the benefits that we anticipate from them. BECAUSE WE HAVE A SMALL NUMBER OF PRODUCTS, A DECLINE IN DEMAND FOR, OR THE PRICE OF, ANY OF OUR PRODUCTS COULD CAUSE OUR REVENUES TO DECLINE SIGNIFICANTLY Historically, our wire bonders have comprised at least 55% of our net sales. If demand for, or pricing of, our wire bonders declines because our competitors introduce superior or lower cost systems, the semiconductor industry changes or because of other occurrences beyond our control, our business, financial condition and operating results would be materially and adversely affected. 19 BECAUSE A SMALL NUMBER OF CUSTOMERS ACCOUNT FOR NEARLY ALL OUR SALES, OUR REVENUES COULD DECLINE IF WE LOSE ANY SIGNIFICANT CUSTOMER The semiconductor manufacturing industry is highly concentrated, with a relatively small number of large semiconductor manufacturers and subcontract assemblers purchasing a substantial portion of semiconductor assembly equipment and packaging materials. Sales to our five largest customers accounted for approximately 45.2% of our fiscal 1997 net sales, 41.4% of our fiscal 1998 net sales and 31.7% of our fiscal 1999 net sales. In fiscal 1997, our sales to Anam accounted for 12.5% of our net sales, and sales to Intel accounted for 10.2% of our net sales. In fiscal 1998, sales to Intel accounted for 17.6% of our net sales. During fiscal 1999, no customer accounted for more than 10% of our net sales. We expect that sales of our products to a limited number of customers will continue to account for a high percentage of our net sales for the foreseeable future. If we lose orders from a significant customer, or if a significant customer reduces its orders substantially, these losses or reductions will adversely affect our business, financial condition and operating results. WE DEPEND ON A SMALL NUMBER OF SUPPLIERS FOR MATERIALS AND, IF OUR SUPPLIERS DO NOT DELIVER THEIR PRODUCTS TO US, WE MAY BE UNABLE TO DELIVER OUR PRODUCTS TO OUR CUSTOMERS Our products are complex and require materials, components and subassemblies of an exceptionally high degree of reliability, accuracy and performance. We rely on subcontractors to manufacture many of the components and subassemblies for our products and we rely on sole source suppliers for some material components. Our reliance involves a number of significant risks, including: o loss of control over the manufacturing process; o changes in our manufacturing processes, dictated by changes in the market, that have delayed our shipments; o our inadvertent use of defective or contaminated materials; o the relatively small operations and limited manufacturing resources of some of our contractors and suppliers, which may limit their ability to manufacture and sell subassemblies, components or parts in the volumes we require and at quality levels and prices we can accept; o reliability and quality problems we experience with certain key subassemblies provided by single source suppliers; and o delays in the delivery of subassemblies, which, in turn, have caused delays in some of our shipments. If we are unable to deliver products to our customers on time for these or any other reasons, or if we do not maintain acceptable product quality or reliability in the future, our business, financial condition and operating results would be materially and adversely affected. 20 WE ARE EXPANDING AND DIVERSIFYING OUR OPERATIONS, AND IF WE FAIL TO MANAGE OUR EXPANDING AND MORE DIVERSE OPERATIONS SUCCESSFULLY, OUR BUSINESS AND FINANCIAL RESULTS MAY BE MATERIALLY AND ADVERSELY AFFECTED In recent years, we have broadened our product offerings to include significantly more packaging materials. Although our strategy is to diversify our products and services, we may not be able to develop, acquire, introduce or market new products in a timely or cost-effective manner and the market may not accept any new or improved products we develop, acquire, introduce or market. Our diversification into new lines of business and our expansion through acquisitions and alliances has increased, and is expected to continue to increase, demand on our management, financial resources and information and internal control systems. Our success depends in significant part on our ability to manage and integrate acquisitions, joint ventures and other alliances and to continue to implement, improve and expand our systems, procedures and controls. If we fail to do this at a pace consistent with the development of our business, our business, financial condition and operating results would be materially and adversely affected. As we seek to expand our operations, we expect to encounter a number of risks, which will include: o risks associated with hiring additional management and other critical personnel; o risks associated with adding equipment and capacity; and o risks associated with increasing the scope, geographic diversity and complexity of our operations. In addition, sales and servicing of packaging materials and advanced technologies require different organizational and managerial skills than sales of traditional wire bonding technology. We cannot assure you that we will be able to develop the necessary skills to successfully produce and market these different products. WE MAY BE UNABLE TO CONTINUE TO COMPETE SUCCESSFULLY IN THE HIGHLY COMPETITIVE SEMICONDUCTOR EQUIPMENT AND PACKAGING MATERIALS INDUSTRIES The semiconductor equipment and packaging materials industries are intensely competitive. Significant competitive factors in the semiconductor equipment market include performance quality, customer support and price. Our major equipment competitors include: o ASM Pacific Technology, Shinkawa, Kaijo and ESEC in wire bonders; o ESEC, Nichiden, ASM Pacific Technology and Alphasem in die bonders; and o Disco Corporation in dicing saws. Competitive factors in the semiconductor packaging materials industry include price, delivery and quality. Our significant packaging 21 materials competitors with respect to expendable tools and blades include: o Gaiser Tool Co. and Small Precision Tools, Inc. in expendable tools; and o Disco Corporation in blades; and in the bonding wire market: o Tanaka Electronic Industries and Sumitomo Metal Mining. In each of the markets we serve, we face competition and the threat of competition from established competitors and potential new entrants, some of which may have greater financial, engineering, manufacturing and marketing resources than we have. Some of these competitors are Japanese or Korean companies that have had and may continue to have an advantage over us in supplying products to local customers because many of these customers appear to prefer to purchase from local suppliers, without regard to other considerations. We expect our competitors to improve their current products' performance, and to introduce new products with improved price and performance characteristics. New product introductions by our competitors or by new market entrants could hurt our sales. If a particular semiconductor manufacturer or subcontract assembler selects a competitor's product for a particular assembly operation, we may not be able to sell a product to that manufacturer or assembler for a significant period of time because manufacturers and assemblers sometimes develop lasting relations with suppliers, and products in our industry often go years without requiring replacement. In addition, we may have to lower our prices in response to price-cuts by our competitors, which could materially and adversely affect our business, financial condition and operating results. We cannot assure you that we will be able to continue to compete in these or other areas in the future. WE SELL MOST OF OUR PRODUCTS TO CUSTOMERS LOCATED OUTSIDE OF THE U.S. AND WE HAVE SUBSTANTIAL MANUFACTURING OPERATIONS LOCATED OUTSIDE OF THE U.S., BOTH OF WHICH SUBJECT US TO RISKS FROM CHANGES IN TRADE REGULATIONS, CURRENCY FLUCTUATIONS, POLITICAL INSTABILITY AND WAR Approximately 85% of our net sales for fiscal 1997, 80% of our net sales for fiscal 1998 and 83% of our net sales for fiscal 1999 were attributable to sales to customers for delivery outside of the United States. We expect our sales outside of the United States to continue to represent a substantial portion of our future revenues. Our future performance will depend, in significant part, on our ability to continue to compete in foreign markets, particularly in Asia. Asian economies have been highly volatile, resulting in significant fluctuation in local currencies, and political and economic instability. These conditions may continue or worsen, which could 22 materially and adversely affect our business, financial condition and operating results. In addition, we rely on non-U.S. suppliers for materials and components used in the equipment that we sell. We also maintain substantial manufacturing operations in countries other than the United States, including operations in Israel and Singapore. As a result, a major portion of our business is subject to the risks associated with international commerce such as, risks of war and civil disturbances or other events that may limit or disrupt markets; expropriation of our foreign assets; longer payment cycles in foreign markets; international exchange restrictions; the difficulties of staffing and managing dispersed international operations; tariff and currency fluctuations; changing political conditions; foreign governments' monetary policies; and less protective foreign intellectual property laws. Because most of our foreign sales are denominated in United States dollars, an increase in value of the United States dollar against foreign currencies, particularly the Japanese yen, will make our products more expensive than those offered by some of our foreign competitors. Our ability to compete overseas in the future could be materially and adversely affected by a strengthening of the United States dollar against foreign currencies. The ability of our international operations to prosper also will depend, in part, on a continuation of current trade relations between the United States and foreign countries in which our customers operate and in which our subcontractors have assembly operations. A change toward more protectionist trade legislation in either the United States or foreign countries in which we do business, such as a change in the current tariff structures, export compliance or other trade policies, could adversely affect our ability to sell our products in foreign markets. OUR SUCCESS DEPENDS IN PART ON OUR INTELLECTUAL PROPERTY, WHICH WE MAY BE UNABLE TO PROTECT Our success depends in part on our proprietary technology. To protect this technology, we rely principally on contractual restrictions (such as nondisclosure and confidentiality agreements) in our agreements with employees, vendors, consultants and customers and on the common law of trade secrets and proprietary "know-how." We secondarily rely, in some cases, on patent and copyright protection, which may become more important to us as we expand our investment in advanced packaging technologies. We may not be successful in protecting our technology for a number of reasons, including: o Our competitors may independently develop technology that is similar to or better than ours; o Employees, vendors, consultants and customers may not abide by their contractual agreements, and the cost of enforcing those agreements may be prohibitive, or those agreements may prove to be unenforceable or more limited than we anticipate; o Foreign intellectual property laws may not adequately protect our intellectual property rights; and o Our patent and copyright claims may not be sufficiently broad to effectively protect our technology; patents or copyrights may be 23 challenged, invalidated or circumvented; and we may otherwise be unable to obtain adequate protection for our technology. In addition, our partners in joint ventures and alliances may also have rights to technology we develop through those joint ventures and alliances. If we are unable to protect our technology, we could weaken our competitive position or face significant expense to protect or enforce our intellectual property rights. THIRD PARTIES MAY CLAIM WE ARE INFRINGING ON THEIR INTELLECTUAL PROPERTY, WHICH COULD CAUSE US TO INCUR SIGNIFICANT LITIGATION COSTS OR OTHER EXPENSES, OR PREVENT US FROM SELLING SOME OF OUR PRODUCTS The semiconductor industry is characterized by rapid technological change, with frequent introductions of new products and technologies. As a result, industry participants often develop products and features similar to those introduced by others, increasing the risk that their products and processes may give rise to claims that they infringe on the intellectual property of others. We may unknowingly infringe on the intellectual property rights of others and incur significant liability for that infringement. If we are found to infringe on the intellectual property rights of others, we could be enjoined from continuing to manufacture, market or use the affected product, or be required to obtain a license to continue manufacturing or using the affected product. A license could be very expensive to obtain or may not be available at all. Similarly, changing our products or processes to avoid infringing the rights of others may be costly or impractical. Occasionally, third parties assert that we are, or may be, infringing on or misappropriating their intellectual property rights. In these cases, we will defend against claims or negotiate licenses where we consider these actions appropriate. Intellectual property cases are uncertain and involve complex legal and factual questions. If we become involved in this type of litigation, it could consume significant resources and divert our attention from our business. Some of our customers have received notices of infringement from the Lemelson Medical, Education and Research Foundation Limited Partnership (the "Lemelson Foundation"), alleging that equipment we have supplied to our customers, and processes this equipment performs, infringes on patents held by the Lemelson Foundation. These notices increased substantially in 1998, the year in which the Lemelson Foundation settled its suit against the Ford Motor Company, and entered into license agreements with Ford, GM and Chrysler. Since the settlement, a number of our customers, including Intel, have been sued by the Lemelson Foundation. Some of our customers have requested that we defend and indemnify them against the Lemelson Foundation's claims or contribute to any settlement the customer reaches with the Lemelson Foundation. We have received opinions from our outside patent counsel with respect to various Lemelson Foundation patents. We are not aware that any equipment we market or that any process performed by our equipment infringes on the Lemelson Foundation patents and we do not believe that the Lemelson Foundation matter or any other pending intellectual property claim against us will materially and adversely affect our business, financial condition or operating results. The ultimate outcome of any infringement or misappropriation claim affecting us is uncertain, however, and we cannot assure you that our resolution of 24 this litigation will not materially and adversely affect our business, financial condition and operating results. YEAR 2000 If our products or our internal data management, accounting, manufacturing or operating software and systems do not adequately or accurately process or manage day or date information beyond the year 1999, our operations could be affected adversely. To address the issue, we created an internal task force to assess our state of readiness for possible "Year 2000" issues and to take the necessary actions to ensure our Year 2000 compliance. The taskforce has evaluated: o our products and our internal business systems and software; and o our vulnerability to possible Year 2000 exposure due to suppliers' and other third parties' lack of preparedness for the year 2000. To evaluate equipment that we sell and equipment, tools or software that we use, we employed Year 2000 Readiness Test scenarios established by SEMATECH, an industry group comprised of U.S. semiconductor manufacturers. Based on this assessment, we do not believe the operation of the equipment that we sell or the equipment, tools and software that we use will be affected by the transition to the year 2000. We completed our review, material corrective measures and contingency planning in September 1999. In connection with our review and corrective measures, we replaced the business and accounting systems of our U.S. and Israeli equipment manufacturing sites with a new Enterprise Resource Planning System that was represented to us to be Year 2000 compliant. We spent approximately $9.8 million in hardware, software, consulting costs and internal expenses to implement this new system. In addition, we have been in contact with our suppliers and other third parties to determine the extent to which they may be vulnerable to Year 2000 issues. We have received representations as to the Year 2000 compliance of our major suppliers. We believe that the reasonably anticipated worst case scenario for our business resulting from Year 2000 problems would be unexpected delays of supplier deliveries and customer shipments. If these delays are significant, customers may cancel orders and long-term customer relationships could be damaged. We believe that we have developed appropriate contingency plans for any Year 2000 delays, including carrying larger inventory of products from a small number of suppliers that we believe may be vulnerable to year 2000 disruptions. To date we have experienced no material Year 2000 issues, and we expect minimal future Year 2000 issues based on the performance to date of internal systems that we use and the products we supply to our customers. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. At December 31, 1999, we had a non-trading investment portfolio, excluding those classified as cash and cash equivalents, of $21.1 million. At December 31, 1999 we also were obligated, under a foreign exchange contract, to purchase 1.6 million Swiss Francs in March 2000 25 for $1.079 million. If market interest rates were to increase immediately and uniformly by 100 basis points and we experienced an adverse move in the Swiss currency rate of 10% there would be no material or adverse affect on our business, financial condition or operating results. PART II. OTHER INFORMATION. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits Exhibit 27 - Financial Data Schedule (b) Reports on Form 8-K The Company filed a Form 8-K on November 30, 1999 making an Item 5 disclosure announcing its intention, subject to market and other conditions, to raise approximately $125 million through a private offering of convertible subordinated notes due 2006 to certain qualified and accredited institutional investors. The Company filed a Form 8-K on December 2, 1999 making an Item 5 disclosure announcing the results of its fourth quarter and fiscal year ended September 30, 1999. The Company filed a Form 8-K on December 9, 1999 making an Item 5 disclosure announcing the terms of the Convertible Subordinated Notes ("Notes") due December 2006 offered through a private placement to qualified institutional investors and institutional accredited investors. The principal amount of the Notes was increased from $125 million to $150 million with a $25 million over-allotment option. The Company filed a Form 8-K on December 14, 1999 making an Item 5 disclosure announcing the completion of the private placement of $150 million of 4 3/4% Convertible Subordinated Notes due 2006 to qualified institutional investors and institutional accredited investors. The Company filed a Form 8-K on December 16, 1999 making an Item 5 disclosure announcing the completion of the private placement of $175 million aggregated principal amount of 4 3/4% Convertible Subordinated Notes due 2006 (the "Notes") through a private placement to qualified institutional investors and institutional accredited investors. 26 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. KULICKE AND SOFFA INDUSTRIES, INC. Date: February 11, 2000 By: /s/ CLIFFORD G. SPRAGUE ----------------- ------------------------------------- Clifford G. Sprague Senior Vice President, Chief Financial Officer (Principal Financial Officer) EX-27 2 FDS WORKSHEET FOR KULICKE & SOFFA INDUSTRIES, INC.
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE KULICKE AND SOFFA INDUSTRIES, INC. FORM 10-Q FOR THE THREE MONTHS ENDED DECEMBER 31, 1999. 1,000 3-MOS SEP-30-2000 OCT-01-1999 DEC-31-1999 177,837 21,104 161,655 1,767 70,213 448,161 152,360 81,066 574,653 100,309 175,000 0 0 162,079 127,690 574,653 179,849 179,849 119,937 119,937 42,796 0 514 17,346 4,978 12,368 0 0 433 12,801 0.54 0.52
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