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 JUNE 30, 1996.
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
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Commission File No. 0-121
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KULICKE AND SOFFA INDUSTRIES, INC.
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(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
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(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 August 5, 1996, there were 19,432,959 shares of the
Registrant's Common Stock, Without Par Value outstanding.
<PAGE>
KULICKE AND SOFFA INDUSTRIES, INC.
FORM 10 - Q JUNE 30, 1996
INDEX
Page No.
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PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS.
Consolidated Balance Sheet -
June 30, 1996 and September 30, 1995 3
Consolidated Statement of Operations -
Three and Nine Months Ended June 30, 1996
and 1995 4
Consolidated Condensed Statement of Cash Flows -
Nine Months Ended June 30, 1996 and 1995 5
Notes to Consolidated Financial Statements 6 - 9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS. 10 - 16
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8 - K. 17
Signatures. 17
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
(in thousands)
(unaudited)
June 30, September 30,
1996 1995
-------- -------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 52,521 $ 28,624
Short-term investments 8,241 9,590
Accounts and notes receivable, net 58,221 77,427
Inventories, net 46,189 40,850
Prepaid expenses and other current assets 3,798 3,534
--------- ---------
TOTAL CURRENT ASSETS 168,970 160,025
Property, plant and equipment, net 39,841 25,519
Intangible assets, primarily goodwill, net 42,607 1,183
Long-term investments 947 2,732
Other assets 4,715 1,570
--------- ---------
TOTAL ASSETS $ 257,080 $ 191,029
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 485 $ 60
Accounts payable to suppliers and others 20,674 33,145
Accrued expenses 18,458 16,014
Income taxes payable 5,405 6,973
--------- ---------
TOTAL CURRENT LIABILITIES 45,022 56,192
Long-term debt 50,797 156
Other liabilities 2,500 1,034
--------- ---------
TOTAL LIABILITIES 98,319 57,382
--------- ---------
Commitments and contingencies -- --
SHAREHOLDERS' EQUITY:
Common stock, without par value 47,222 45,757
Retained earnings 113,792 89,238
Cumulative translation adjustment (2,253) (1,348)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 158,761 133,647
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 257,080 $ 191,029
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Three months Nine months
ended June 30, ended June 30,
----------------- -----------------
1996 1995 1996 1995
------- ------- ------- -------
Net sales $76,912 $87,296 $319,475 $203,540
Cost of goods sold 49,111 47,456 194,101 112,498
------- ------- -------- --------
Gross profit 27,801 39,840 125,374 91,042
Selling, general and
administrative 18,192 13,153 53,436 35,476
Research and development, net 12,937 8,316 36,368 21,022
------- ------- -------- --------
Income (loss) from operations (3,328) 18,371 35,570 34,544
Interest income 822 405 2,391 1,065
Interest expense (806) (312) (2,507) (1,392)
Equity loss of joint venture (192) -- (240) --
Other expense -- -- (630) --
------- ------- -------- --------
Income (loss) before income taxes (3,504) 18,464 34,584 34,217
Income tax expense (benefit) (1,016) 4,431 10,030 8,206
------- ------- -------- --------
Net income (loss) ($2,488) $14,033 $ 24,554 $ 26,011
======= ======= ======== ========
Net income (loss) per share:
Primary ($0.13) $0.76 $1.24 $1.50
===== ===== ===== =====
Fully diluted ($0.13) $0.72 $1.24 $1.37
===== ===== ===== =====
Weighted average shares
outstanding:
Primary 19,798 18,422 19,836 17,381
Fully diluted 19,798 19,863 19,836 19,668
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(in thousands)
(unaudited)
Nine months ended June 30,
1996 1995
------ ------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 24,554 $ 26,011
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 7,082 3,529
Changes in other components of working
capital, net of acquisition of business 7,051 (17,893)
Other changes, net 161 1,129
-------- --------
Net cash provided by operating activities 38,848 12,776
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash portion of AFW purchase price,
less cash acquired (42,781) --
Purchase of property, plant and equipment (14,532) (5,215)
Purchases of short-term investments
classified as available-for-sale (16,571) (7,906)
Proceeds from sales of short-term investments
classified as available-for-sale 19,200 12,373
Proceeds from maturities of debt securities
held-to-maturity 505 --
Investment in joint venture (2,550) --
-------- --------
Net cash used by investing activities (56,729) (748)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings under bank
credit facility 50,000 --
Repayment of borrowings and capital
lease obligations (8,458) (45)
Proceeds from exercise of stock options 225 1,454
-------- --------
Net cash provided by financing activities 41,767 1,409
-------- --------
Effect of exchange rate changes on cash 11 43
-------- --------
Change in cash and cash equivalents 23,897 13,480
Cash and cash equivalents at beginning
of period 28,624 8,754
-------- --------
Cash and cash equivalents at end of period $ 52,521 $ 22,234
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands)
(unaudited)
NOTE 1 - BASIS OF PRESENTATION
The 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 Kulicke and Soffa Industries, Inc.'s
("the Company") financial position as of June 30, 1996 and
September 30, 1995, and the results of its operations and its
cash flows for the three and nine month periods ended June 30,
1996 and 1995. 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, 1995.
NOTE 2 - ACQUISITION OF AMERICAN FINE WIRE CORPORATION
On October 2, 1995, the Company acquired American Fine Wire
Corporation ("AFW") through the acquisition of all of the common
stock of Circle "S" Industries, Inc. ("Circle "S""), the parent
corporation of AFW. AFW is a manufacturer of fine gold and
aluminum wire used in the wire bonding process, and has
manufacturing facilities in Singapore; Selma, Alabama; and
Zurich, Switzerland. The AFW purchase price, including
transaction related costs, approximated $54.7 million, and was
initially financed by borrowings under a bank credit facility and
seller promissory notes (see Note 5). The AFW acquisition was
accounted for using the purchase method. Accordingly, AFW's
operating results are included in the Company's consolidated
financial statements commencing October 2, 1995.
The AFW purchase price, including transaction related costs, has
been allocated to the assets acquired and liabilities assumed
based on their estimated fair market values, as follows:
Cash $10,944
Accounts receivable 9,166
Inventory 1,964
Property and equipment 3,687
Intangible assets, primarily goodwill 43,099
Other assets 283
Short-term debt (8,000)
Accounts payable and accrued expenses (5,231)
Other liabilities (1,190)
------
Total purchase price $54,722
======
The excess of the AFW purchase price over the estimated fair
value of acquired tangible net assets consists primarily of
goodwill and a favorable operating lease for the Selma
manufacturing facility, both of which are being amortized over a
twenty-year period.
<PAGE>
Unaudited pro forma income statement data reflecting the combined
operating results of the Company and AFW for the nine month
period ended June 30, 1995, as if the acquisition had occurred on
October 1, 1994, after giving effect to certain pro forma
adjustments, are as follows:
Pro forma
-----------
(unaudited)
Revenue $256,415
Net income $ 24,791
Fully diluted net income per share $ 1.31
NOTE 3 - INVENTORY
June 30, September 30,
1996 1995
------- -------
Finished goods $19,712 $10,673
Work in process 10,737 15,740
Raw materials and supplies 25,833 22,190
------- -------
56,282 48,603
Inventory reserves (10,093) (7,753)
------- -------
$46,189 $40,850
======= =======
NOTE 4 - INVESTMENT IN JOINT VENTURE
On February 28, 1996, the Company entered into a joint venture
agreement with Delco Electronics Corporation ("Delco"), providing
for the formation and management of Flip Chip Technologies,
L.L.C. ("FCT" or "the Joint Venture"). FCT was formed to provide
wafer bumping services. The Company accounts for its investment
in the joint venture using the equity method. As of June 1996,
the Company contributed $2.6 million to FCT, and recognized its
proportionate share of the joint venture's operating loss.
NOTE 5 - DEBT OBLIGATIONS
The Company borrowed $15.0 million under its bank credit facility
on October 2, 1995 to fund the cash portion of the AFW purchase
price and issued promissory notes totaling $34.4 million to
certain selling shareholders of Circle "S". The promissory notes
were repaid in full on January 5, 1996, together with accrued
interest thereon. To finance the repayment of the promissory
notes, on January 5, 1996, the Company borrowed the remaining
$35.0 million available under a term credit facility. Borrowings
under the $50.0 million term credit facility bore interest at the
LIBOR rate plus 50 basis points (5.5% at June 30, 1996).
On April 10, 1996, the Company renegotiated the terms of its bank
credit facilities resulting in a new Restated Loan Agreement
providing for a $10.0 million revolving credit facility expiring
February 28, 1997, and a $50.0 million revolving credit facility
expiring March 30, 2001. The $10.0 million revolving loan bears
interest at the prime rate less 1/4%. The $50.0 million
revolving loan bears interest at the Company's option, either at
<PAGE>
a Base Rate (defined as the lesser of the prime rate minus 1/2%
or the Federal Funds rate plus 1/2%) or, at a LIBOR Rate (defined
as LIBOR plus .4% to .6%, depending on maintenance of certain
financial covenants). In May, 1996 the Company elected the 180
day LIBOR rate plus forty basis points resulting in an effective
rate of 6.025%. This rate will be in effect through the end of
the fiscal year.
The Restated Loan Agreement is unsecured and requires that the
Company maintain certain covenants including a leverage ratio, an
interest ratio and working capital of not less than $50.0
million. Additionally, the Restated Loan Agreement also limits
the Company's ability to mortgage, pledge, or dispose of material
assets, engage in certain transactions with affiliates and
imposes restrictions as to the type and quality of the Company's
investments.
NOTE 6 - EARNINGS PER SHARE
For the three and nine month periods ended June 30, 1996, primary
and fully diluted earnings per share included the dilutive effect
of shares issuable upon exercise of stock options. For the three
and nine month periods ended June 30, 1995, fully diluted
earnings per share included the dilutive effects of shares
issuable upon exercise of stock options and convertible
subordinated debentures, the remainder of which were either
converted or redeemed during fiscal 1995.
NOTE 7 - RECLASSIFICATIONS
Certain amounts in the Company's prior year financial statements
have been reclassified to conform to their presentation in the
Company's fiscal 1996 financial statements.
<PAGE>
NOTE 8 - OPERATING RESULTS BY BUSINESS SEGMENT
Operating results by business segment for the nine month periods
ended June 30, 1996 and 1995 were as follows:
Packaging Corporate
Nine months ended Equipment Materials and
June 30, 1996: Segment Segment Eliminations Total
--------- --------- ------------ -------
Net sales $247,839 $ 71,636 $319,475
Cost of goods sold 137,950 56,151 194,101
-------- -------- --------
Gross profit 109,889 15,485 125,374
Operating costs 73,206 10,660 $ 5,938 89,804
-------- -------- -------- --------
Operating income $ 36,683 $ 4,825 ($ 5,938) $35,570
======== ======== ======== ========
Packaging Corporate
Nine months ended Equipment Materials and
June 30, 1995: Segment Segment Eliminations Total
--------- --------- ------------ -------
Net sales $189,313 $ 14,227 $203,540
Cost of goods sold 104,266 8,232 112,498
-------- -------- --------
Gross profit 85,047 5,995 91,042
Operating costs 49,668 2,308 $ 4,522 56,498
-------- -------- -------- --------
Operating income $ 35,379 $ 3,687 ($ 4,522) $34,544
======== ======== ======== ========
Intersegment sales are immaterial.
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
INTRODUCTION
The Company's operating results depend primarily upon the capital
expenditures of semiconductor manufacturers and subcontract
assemblers worldwide, which in turn depend on the current and
anticipated market demand for semiconductors and products
utilizing semiconductors. The semiconductor industry has
historically been highly volatile and has experienced periodic
downturns and slowdowns which have had a severe negative effect
on the semiconductor industry's demand for semiconductor capital
equipment, including assembly equipment and packaging materials
manufactured, marketed and sold by the Company. These downturns
and slowdowns have also adversely affected the Company's
operating results. While the Company does not consider its
business to be seasonal in nature, historically there have been
substantial fluctuations in the amounts which semiconductor
manufacturers and subcontract assemblers have invested in capital
equipment. To help mitigate the effect of volatile demand for
capital equipment, the Company acquired AFW in October 1995 to
increase the portion of the Company's revenues in the packaging
materials segment (previously called the expendable tools and
materials segment) which have historically fluctuated less than
capital equipment sales.
The Company's equipment sales consist primarily of a relatively
small number of machines, most with selling prices ranging from
approximately $60,000 to over $500,000. A delay or reduction in
shipments of a limited number of machines, either due to
manufacturing delays or to rescheduling or cancellation of
customer orders, could have a material adverse effect on
operating results for any particular quarter. The Company
believes that such volatility will continue to characterize the
industry and the Company's operations in the future.
RESULTS OF OPERATIONS - Three month period ended June 30, 1996
compared to three month period ended June 30, 1995.
The Company recorded bookings totaling $68.0 million during the
fiscal 1996 third quarter ended June 30, 1996 (including $16.0
million related to AFW) compared to $102.0 million for the third
quarter of fiscal 1995. At June 30, 1996, the backlog of
customer orders totalled approximately $65.0 million (including
$9.0 million related to AFW products) compared a backlog of $74.0
million as of March 31, 1996. Because the timing of deliveries
may vary and orders generally are subject to delay or
cancellation, the Company's backlog as of any date may not be
indicative of sales for any succeeding period.
As a consequence of the declining booking levels during the past
two quarters, consolidated net sales for the third quarter ended
June 30, 1996 decreased by $10.4 million to $76.9 million
compared to $87.3 million reported for the same period in the
prior year. The decrease in consolidated net sales primarily
reflects a $26.4 million decline in equipment segment sales,
partially offset by a $16.0 million increase in sales in the
packaging materials segment, including $15.3 million in wire
sales attributable to the AFW business acquired October 2, 1995.
<PAGE>
By geographic area, revenue for the quarter was primarily
realized in the United States and the Asia/Pacific region, with
shipments primarily destined for Malaysia, Taiwan, Philippines
and Singapore. Shipments into Korea were significantly lower
during the fiscal 1996 third quarter than during the comparable
period last year.
In the equipment segment, lower unit volume, primarily for the
Company's Model 1488 Turbo bonders and 1474 Wedge bonders, offset
in part by improved selling prices for the 1488 Turbo bonders,
accounted for approximately $26.2 million of the decrease in net
sales during the third quarter of fiscal 1996 compared to the
same period last year.
Gross profit as a percentage of net sales in the equipment
segment totaled 42.3% during the three month period ended June
30, 1996 compared to 45.8% for the same period last year. This
decline primarily reflects the unfavorable effect of lower sales
volumes on manufacturing overhead absorption during the fiscal
1996 third quarter as compared to the same period in the prior
year.
In the packaging materials segment, gross profit as a percentage
of net sales decreased to 20.1% for the third quarter of fiscal
1996 as compared to 42.5% for the fiscal 1995 third quarter.
This decrease principally reflects the impact of the AFW
acquisition, as the gross profit percentage on sales of wire
products is significantly lower than historically realized by the
Company on sales of expendable tools.
Selling, general and administrative ("SG&A") expenses totaled
$18.2 million during the fiscal 1996 third quarter, compared to
$13.2 million during the same period last year. Of this
increase, $2.1 million was due to incremental SG&A costs
associated with the AFW business, including $.5 million of
goodwill amortization. The remainder of the increase was largely
attributable to higher employment levels, primarily in the areas
of customer support, information systems and other administrative
areas as compared to the same period in the prior year.
Net research and development ("R&D") costs increased to $12.9
million for the third quarter of fiscal 1996, from the $8.3
million for the same period last year. The Company continues to
invest heavily in the development of new products, primarily the
8000 Series wire bonders, and in enhancements of existing
products.
During the third quarter of fiscal 1996, the Company incurred an
operating loss of $3.5 million compared to $18.5 million of
income for the same period in fiscal 1995. The decline in
operating income resulted primarily from lower revenue levels and
decreased gross profit margins in both segments of the business,
as well as increased SG&A and R&D expenses noted above.
The majority of interest expense incurred during the third
quarter of fiscal 1996 resulted from borrowings related to the
AFW acquisition. In the comparable period last year, a majority
of the interest expense related to the Company's 8% Subordinated
Convertible Debentures, which were converted or redeemed during
fiscal 1995. Interest income during the third quarter of fiscal
<PAGE>
1996 exceeded the amounts reported for the same period last year
primarily due a higher average balance of invested cash and to
interest earned on a note receivable from a customer in fiscal
1996.
At the end of February 1996, the Company entered into an
agreement with Delco Electronics Corporation ("Delco") to form
and manage Flip Chip Technologies, L.L.C. ("FCT"), a joint
venture which will provide wafer bumping services. Nonoperating
costs during the third quarter ended June 30, 1996 reflect the
Company's proportionate share of the loss incurred by FCT.
The increase in the Company's effective tax rate to 29% in fiscal
1996 compared to a rate of 24% for fiscal 1995 was due primarily
to utilization of most remaining domestic tax credit
carryforwards in fiscal 1995, the effect of non-deductible
goodwill amortization resulting from the AFW acquisition and the
estimated amount and geographic distribution of taxable income in
fiscal 1996.
RESULTS OF OPERATIONS - Nine month period ended June 30, 1996
compared to nine month period ended June 30, 1995.
For the nine month period ended June 30, 1996, consolidated net
sales increased by $115.9 million from the $203.5 million for the
fiscal 1995 year to date period. Equipment segment revenue was
$247.8 million for the nine month period, with the remaining
$71.6 million attributable to the packaging materials segment
(including $50.2 million of wire sales as a result of the AFW
acquisition). By geographic area, revenues for the nine month
period ended June 30, 1996 were primarily realized in the United
States and Asia/Pacific region, with shipments primarily destined
for Taiwan, Korea, Malaysia, and the Philippines.
Higher unit volume of machine sales, primarily of the Company's
Model 1488 Turbo bonders, accounted for approximately $56.5
million of the increase in net sales during the nine month period
of fiscal 1996 as compared to the same period of the prior year.
Improved selling prices for the Model 1488 Turbo bonder (compared
to selling prices realized on earlier models of gold ball wire
bonders) contributed an additional $2.1 million to net sales
during the nine month period ended June 30, 1996. The remaining
increase of $7.1 million was attributable to the higher sales
volume of Micro-Swiss expendable tools as compared to the same
period last year.
Gross profit as a percentage of net sales in the equipment
segment totaled 44.3% during the nine month period in fiscal 1996
compared to 44.9% during the same period last year. The
reduction of the fiscal 1996 year to date gross profit margin
primarily resulted from unfavorable manufacturing overhead
absorption compared to fiscal 1995, partially offset by improved
selling prices on the Model 1488 Turbo bonder.
In the packaging materials segment, gross profit as a percentage
of net sales decreased to 21.6% for the nine month period ended
June 30, 1996 as compared to 42.1% for the fiscal 1995 year to
date period. This decrease was primarily the result of the
historically lower gross profit margin realized by AFW on wire
sales.
<PAGE>
SG&A expenses for the fiscal 1996 year to date period increased
to $53.4 million from $35.5 million, with approximately $6.1
million of the increase due to incremental costs related to the
AFW operation. The remainder of the increase resulted
principally from higher employment levels and increased travel
costs associated with servicing the Company's installed base of
customers in fiscal 1996.
R&D costs increased to $36.4 million for the nine month period of
fiscal 1996, from the $21.0 million for the same period last
year. The Company continues to invest heavily in the development
of new products, including the 8000 Series wire bonders and in
enhancements of existing products.
The majority of interest expense incurred during the nine month
period of fiscal 1996 resulted from borrowings related to the AFW
acquisition. In the comparable period last year, a majority of
the interest expense related to the Company's 8% Subordinated
Convertible Debentures, which were converted or redeemed during
fiscal 1995. Interest income during the nine month period of
fiscal 1996 exceeded the amounts reported for the same period
last year primarily due to a higher average balance of invested
cash and interest earned on a note receivable from a customer in
fiscal 1996.
Nonoperating costs during the nine month period ended June 30,
1996 included the write-off of $.6 million of costs incurred in
connection with a proposed public offering of the Company's
common stock which was indefinitely delayed due to a decline in
the market price of the Company's common stock and the Company's
proportionate share of the loss incurred by FCT.
The increase in the Company's effective tax rate to 29% during
fiscal 1996 compared to the fiscal 1995 rate of 24% was due
primarily to utilization of most remaining domestic tax credit
carryforwards in fiscal 1995, the effect of non-deductible
goodwill amortization resulting from the AFW acquisition and the
estimated amount and geographic distribution of taxable income in
fiscal 1996.
COMPANY OUTLOOK
Certain of the information set forth below and elsewhere in this
report contains forward looking statements that are subject to
certain risks and uncertainties that could cause actual results
to differ materially from those set forth in the forward looking
statements. These risks and uncertainties include, but are not
limited to the following: the risk of volatile demand in the
semiconductor industry; the continued deferral or possible
cancellation of existing customer orders; the timing,
development, introduction and acceptance of new products and
enhancements to existing products; the Company's ability to
manufacture and ship its products on a timely basis; competitive
pricing pressures; and international political and other
developments which could impact foreign operations.
While Semiconductor consumption continues to grow, the Company's
equipment segment is being adversely affected by the industry-
wide over-investment in assembly capacity made last year. During
the fiscal 1996 third quarter, the rate of new customer orders
<PAGE>
booked into backlog was lower than each of the previous two
quarters. The declining customer order rate over the past two
quarters has adversely affected the equipment segment's net sales
during the third quarter of fiscal 1996. Moreover, the Company
presently expects weak demand for all of its products to continue
at least through the end of this calendar year. While the
Company believes that long-term growth prospects for the
semiconductor industry and for the Company's products remain
positive, the Company is presently evaluating areas in which it
could significantly reduce operating costs in the fourth fiscal
quarter of 1996 as a result of the current overcapacity in the
semiconductor industry. Due to the anticipated lower volume of
equipment sales and incremental costs expected to be incurred as
the Company resizes its operations the Company expects to incur a
loss for the fourth quarter of fiscal 1996.
The Company is in the process of developing a new generation of
wire bonder, the 8000 family, which will be based on an entirely
new platform and has required the development of new software and
many subassemblies not part of the Company's current wire
bonders. The first prequalification Model 8020 ball bonder (the
first production model of the 8000 family) was shipped to a
customer in March 1996 and is presently being field tested. In
connection with the anticipated cost reductions discussed above,
the Company is reevaluating all of its R&D activities, including
projects involving the 8000 family. A potential impact of this
re-evaluation could be a delay in the release of the Model 8020
until after the middle of calendar year 1997.
Development and technical risks exist in all of the Company's R&D
projects and have the potential to delay the introduction of new
products. No assurance can be given that the introduction of the
Model 8020 will not be further delayed due to technical or other
difficulties, or that the Model 8020 will not experience
performance problems after shipment. The Company's inability to
complete the development of and introduce the Model 8020 or other
new products, or its inability to manufacture and ship these
products in volume and on a timely basis, could adversely affect
the Company's competitive position. The Company also may incur
substantial costs during the customer evaluation and
qualification process to ensure the functionality and reliability
of such product.
The Company's planned transition to the Model 8020 platform also
involves numerous risks, including the possibility that customers
will defer purchases of the current model of gold ball wire
bonders in anticipation of the availability of the Model 8020 or
that the Model 8020 will fail to meet customer needs or achieve
market acceptance. To the extent that the Company fails to
accurately forecast demand in volume and configuration for both
its current and next-generation wire bonders and generally to
manage product transitions successfully, it could experience
reduced orders, delays in product shipments, increased risk of
inventory obsolescence and delays in collecting accounts
receivable. There can be no assurance that the Company will
successfully develop and manufacture new products, including the
Model 8020, that new products introduced by the Company will be
accepted in the marketplace or that the Company will manage its
product transitions successfully. The Company's failure to do
<PAGE>
any of the foregoing could materially adversely affect the
Company's business, financial condition and operating results.
LIQUIDITY AND CAPITAL RESOURCES
During the past three fiscal years, the Company has financed its
operations principally through cash flows from operating
activities. Cash generated by operating activities totaled $38.8
million during the first nine months of fiscal 1996 compared to
$12.8 million during the same period of fiscal 1995. Cash and
total investments increased to $61.7 million at June 30, 1996
from the $40.9 million reported at September 30, 1995. Cash
flows from operating activities and the overall increase in cash
and total investments in the nine months of fiscal 1996 compared
to the same period in the prior year generally reflect
improvements in working capital.
At June 30, 1996, working capital increased to $123.9 million
compared to $103.8 million at September 30, 1995. Accounts
receivable at June 30, 1996 decreased by $19.2 million compared
to the balance at September 30, 1995. The effect of reduced
sales volumes and collection of a customer note receivable were
offset by a $7.3 million increase in accounts receivable
attributable to the AFW business. As a result of lower than
anticipated sales volumes during the previous two quarters,
inventory increased $5.3 million at June 30, 1996 compared to
September 30, 1995, of which, $2.3 million was attributable to
the AFW business. The remainder of the change in working capital
is due to an overall reduction of the Company's current
liabilities as the Company has adjusted its materials purchasing
plans to more closely track customer delivery schedules.
As described in Notes 2 and 5 to the Company's June 30, 1996
financial statements, the Company acquired AFW on October 2,
1995. Of the total AFW purchase price, $50.0 million was
financed by borrowings under the Company's bank credit facility.
During the nine months of fiscal 1996, the Company invested
approximately $14.5 million in property and equipment (excluding
$1.5 million in assets acquired under capital lease), primarily
to upgrade equipment used in the Company's manufacturing and R&D
activities and for tooling used to manufacture new models of
machines. The Company intends to reexamine its capital
expenditure program in light of the harsh business environment in
which it is currently operating. The Company presently expects
that fiscal 1996 capital spending will not exceed $25.0 million.
The principal capital project planned for the remainder of fiscal
1996 is the on-going expansion of the Micro-Swiss operating
facilities in Israel.
Through June 1996, the Company has contributed $2.6 million as
part of its initial capital contribution to the joint venture,
and expects additional capital contributions to FCT during fiscal
1996 will not exceed $1.0 million.
On April 10, 1996, the Company renegotiated the terms of its bank
credit facilities resulting in a Restated Loan Agreement
providing for a $10.0 million revolving credit facility expiring
February 28, 1997, and a $50.0 million revolving credit facility
expiring March 30, 2001. As of March 31, 1996, the $50.0 million
<PAGE>
borrowed under the term credit facility was classified as long-
term debt as the Company presently does not expect to repay any
principal under this loan during the next year. There have been
no borrowings under the $10.0 million credit line during fiscal
1996.
A significant portion of the Company's cash and investments are
attributable to undistributed earnings of its foreign
subsidiaries. Deferred income taxes have not been provided on
that portion of such undistributed earnings which is considered
indefinitely reinvested in the foreign operations. If such funds
were required to be repatriated to fund the Company's operations
or other financial obligations, additional income tax expenses
could be required to be recognized.
The amended Gold Supply Agreement dated October 2, 1995 between
AFW and its subsidiaries (collectively, the "AFW Companies") and
their gold supplier contains certain financial covenants and
prohibits the AFW Companies from paying any dividends or making
any distributions without the consent of the supplier if,
following any such dividend or distribution, the net worth of the
AFW Companies would be less than $7.0 million.
The Company believes that anticipated cash flows from operations,
its working capital and amounts available under its revolving
credit facility will be sufficient to meet the Company's
liquidity and capital requirements for at least the next 12
months. The Company may, however, seek additional equity or
additional or replacement debt financing to provide capital for
corporate purposes 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 any such capital
requirements cannot be precisely determined at this time and will
depend on a number of factors, including demand for the Company's
products, semiconductor and semiconductor capital equipment
industry conditions and competitive factors and the nature and
size of strategic business opportunities which the Company may
elect to pursue.
<PAGE>
PART II. OTHER INFORMATION.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 3(i) - The Company's Amended and Restated
Articles of Incorporation dated
April 23, 1986.
Exhibit 27 - Financial Data Schedule
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: August 8, 1996 /s/ Clifford G. Sprague
-------------------------------
Clifford G. Sprague
Senior Vice President,
Chief Financial Officer and
Chief Accounting Officer
Exhibit 3(i)
FORM OF ARTICLES OF INCORPORATION
OF KULICKE AND SOFFA INDUSTRIES, INC.
AS AMENDED AND RESTATED AS OF APRIL 23, 1986
1. The name of the corporation is Kulicke and Soffa Industries,
Inc.
2. The location of its registered office in this Commonwealth of
Pennsylvania is 2101 Blair Mill Road, Willow Grove,
Pennsylvania 19090.
3. The purpose or purposes of the corporation are to engage in and
to do any lawful act concerning any or all lawful business for
which corporations may be incorporated under the Business
Corporation Law of the Commonwealth of Pennsylvania.
4. The term of the corporation's existence is perpetual.
5. The aggregate number of shares which the corporation shall have
authority to issue is 55,000,000 consisting of 50,000,000
shares of Common Stock without par value and 5,000,000 shares
of Preferred Stock, without par value. The Board of Directors
is authorized, subject to limitations prescribed by law and the
provisions of this Article 5, to provide for the issuance of
shares of Preferred Stock, including one or more series of such
stock, and to fix, from time to time by resolution, the number
of shares to be included in each such series, and the
designations, preferences, qualifications, limitations,
restrictions, and special or relative rights of the shares of
each such series.
6. For the purposes of this Article 6, the term "Business
Combination" shall mean any one or more of the following
transactions:
A. Any merger or consolidation of the corporation or any
Subsidiary thereof with or into any 20% Shareholder or any
other corporation which is, or after such merger or
consolidation would be, an Affiliate of a 20% Shareholder;
or
B. Any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in a single transaction or in a series
of related transactions) of assets of the corporation or
any of its subsidiaries to any 20% Shareholder or any
Affiliate of any 20% Shareholder if the aggregate value of
such assets is equal to or greater than 10% of this
corporation's consolidated shareholder's equity; or
<PAGE>
C. The issuance or transfer by this corporation or by any
(subsidiary in a single transaction or a series of related
transactions) of any securities of this corporation or any
subsidiary to any 20% Shareholder or any Affiliate of any
20% Shareholder in exchange for cash, securities or
property, or any combination thereof, having an aggregate
fair market value equal to or greater than ten percent
(10%) of this corporation's consolidated shareholders'
equity; or
D. Any reclassification of securities, recapitalization,
reorganization of this corporation or any merger or
consolidation of this corporation with any of its
Subsidiaries, or any similar transaction which has the
effect, directly or indirectly, of increasing the
proportionate share of the outstanding capital stock
beneficially owned by any 20% Shareholder or the
proportionate number of votes which may be cast in an
election of directors in respect of the shares of this
corporation's capital stock beneficially owned by any 20%
Shareholder; or
E. The adoption of any plan of dissolution, liquidation or
partial liquidation which calls for distribution of assets
in kind to any 20% Shareholder or any Affiliate of a 20%
Shareholder; or
F. Any merger, consolidation, recapitalization,
reorganization, dissolution or other similar transaction in
which a 20% Shareholder and/or Affiliates of such 20%
Shareholder, receives cash, securities or other property
which is different in kind or amount from the distribution
made in the transaction to all other holders of Common
Stock and in which all holders of the Common Stock of this
corporation do not receive in cash an amount per share at
least as great as the highest price at which such 20%
Shareholder or Affiliate of such 20% Shareholder has
acquired shares of this corporation's Common Stock at or
subsequent to the time such 20% Shareholder acquired a
beneficial interest in 10% or more of the outstanding
shares of any class or series of any capital stock in this
corporation. If such 20% Shareholder or any Affiliate of
such 20% Shareholder has acquired shares other than for
cash, the price at which such shares shall be deemed to
have been acquired shall be determined by the Continuing
Directors of this corporation and such determination of a
majority of such Continuing Directors of this corporation
shall be conclusive for the purposes of this Article 6:
provided however, that no transaction described in
Subparagraphs A through F above shall constitute a Business
Combination:
<PAGE>
(i) if the Board of Directors has by resolution authorized
or ratified the execution and delivery of a written
agreement in principle, memorandum of understanding,
letter of intent, agreement or plan respecting such
transaction prior to the time that any 20% Shareholder
involved in such transaction acquired beneficial
ownership of more than 10% of the outstanding shares of
any class or series of any capital stock of this
corporation, or
(ii) if 70% of the Continuing Directors have approved the
transaction prior to its submission to the
shareholders.
No Business Combination described in Subparagraphs A through E
above shall be entered into by this corporation without the
affirmative vote of the holders of at least 80% of the outstanding
shares of all classes and series of this corporation's capital
stock, voting as a single class, and the affirmative vote of the
holders of at least 66 2/3% of all shares of this corporation's
capital stock, other than the shares beneficially owned by the 20%
Shareholder and no Business Combination described in Subparagraph
F above shall be entered into by this corporation without the
affirmative vote of the holders of at least 85% of the outstanding
shares of all classes and series of this corporation's capital
stock, voting as a single class, and the affirmative vote of the
holders of at least 75% of all shares of this corporation's capital
stock other than the shares beneficially owned by the 20%
Shareholder.
This corporation shall not purchase any shares of its capital stock
or, other than in the ordinary course of business, purchase any
assets from, sell any assets to, obtain any services from or
provide any services to any 10% Shareholder or any Affiliate
thereof without the affirmative vote of the holders of at least 50%
of the outstanding shares of all classes and series of this
corporation's capital stock, voting as a single class, and the
affirmative vote of the holders of 50% of all shares of this
corporation's capital stock other than the shares beneficially
owned by the 10% Shareholder; provided, however, that such vote of
the shareholders shall not be required if the transaction is
approved and authorized by the affirmative vote of 70% of the
Continuing Directors of this corporation, or if the transaction is
pursuant to a tender offer made by this corporation to its own
shareholders and no 10% Shareholder or Affiliate of a 10%
Shareholder is permitted by the terms of the tender offer to tender
a greater proportion of the shares beneficially owned by such 10%
Shareholder and the Affiliates of such 10% Shareholder that such
shares so held by such 10% Shareholder and his Affiliates represent
as a proportion of the outstanding shares of the class being
tendered for by the corporation. The corporation is hereby
specifically authorized to set appropriate conditions to any tender
offer made by it limiting the shares to be tendered by 10%
Shareholders and their Affiliates and/or the shares which the
<PAGE>
corporation is required to accept from 10% Shareholders and their
Affiliates in any tender offer to such percentages of the shares
beneficially owned by 10% Shareholder and their Affiliates as the
Board of Directors deems to be in the best interests of the
corporation, provided, however, that the provisions of this
paragraph shall not apply to purchases by this corporation of its
own capital stock on the over-the-counter market or on any exchange
other than purchases effected on such markets in a "cross"
transaction or by prearrangement, with a 10% Shareholder or an
Affiliate of a 10% Shareholder.
For the purpose of this Article 6:
A. A "person" shall mean an individual, partnership, group,
firm, corporation or other entity.
B. A "20% Shareholder" shall mean any person (other than this
corporation or a subsidiary thereof) who or which, as of
the record date for determination of shareholders entitled
to notice of and to vote on the Business Combination or
other transaction which is a subject of this Article 6, or
who or which, immediately prior to the consummation of such
transaction: (i) is the beneficial owner, directly or
indirectly, of 20% or more of the outstanding shares of any
class or series of this corporation's capital stock, (ii)
is an Affiliate of this corporation and at any time within
two years prior thereto was the beneficial owner, directly
or indirectly, of 20% or more of the outstanding shares of
any class or series of this corporation's capital stock.
C. A "10% Shareholder" shall mean any person (other than this
corporation or a subsidiary thereof) who or which, as of
the record date for determination of shareholders entitled
to notice of and to vote on the Business Combination or
other transaction which is a subject of this Article 6, or
who or which, immediately prior to the consummation of such
transaction: (i) is the beneficial owner, directly or
indirectly, of 10% or more of the outstanding shares of any
class or series of this corporation's capital stock, (ii)
is an Affiliate of this corporation and at any time within
two years prior thereto was the beneficial owner, directly
or indirectly, of 10% or more of the outstanding shares of
any class or series of this corporation's capital stock.
D. A person shall be deemed the "beneficial owner" of any
shares of this corporation's capital stock:
(i) which such person or any of such person's Affiliates
would be deemed to be the beneficial owner under
Section 13D of the Securities Exchange Act of 1934 and
the Regulations of the Securities and Exchange
Commission thereunder, and
<PAGE>
(ii) all shares of this corporation's capital stock
beneficially owned by such person's Associates, and
(iii)all shares beneficially owned by any member of any
partnership, limited partnership, syndicate or other
group, and by any Affiliates and Associates of any
member of any such entity of which such person would be
deemed a member under the provisions of Section 13 of
the Securities Exchange Act of 1934 and the Regulations
of the Securities and Exchange Commission thereunder.
E. A "Continuing Director" shall mean (i) a person who is a
member of the Board of Directors of the corporation and has
served as such continuously from a date prior to the date
on which the 20% Shareholder or the 10% Shareholder, as the
case may be, whose holdings would give rise to the
application of any of the provisions of this Article 6,
acquired 10% of more of the outstanding shares of any class
or series of the capital stock of this corporation, and
(ii) any person designated, prior to such person's initial
election or appointment as a director, as a Continuing
Director by a majority of the Continuing Directors.
F. "Affiliate" of a person shall mean any person controlling,
controlled by, or under control with, such person and any
person acting in concert with, or as part of a group, with
such person.
G. "Associate" of a person shall mean a relative, by blood,
marriage or adoption, of closer relationship than second
cousin, all relatives sharing the same domicile as a
person, all trusts for the benefit of a person or any of
such person's Affiliates or of which a person or an
Affiliate of such person serves as trustee.
H. "Subsidiary" means any corporation, association,
partnership or other entity in which this corporation holds
an equity interest equal to or larger than 50% of the
outstanding equity securities or has the right to cast on
any matter at least 50% of the votes which the holders of
all equity security holders are entitled to cast.
A majority of the Continuing Directors shall have the power and
duty to determine, for the purposes of this Article 6, on the basis
of the information available to them: (i) the number of shares of
capital stock beneficially owned by any person, (ii) whether a
person is an Affiliate or Associate, and (iii) who are members of
any group.
The amendment, alteration, change or repeal of this Article 6, or
any part thereof, shall require the affirmative vote of the holders
of at least 80% of the outstanding shares of all classes and series
of this corporation's capital stock, voting as a single class, and
the affirmative vote of the holders of 66 2/3% of all shares of
<PAGE>
this corporation's capital stock other than shares beneficially
owned by 20% Shareholders.
Whenever the By-Laws of this corporation provide for a classified
Board of Directors of three or more classes, no amendment to the
By-Laws adopted by the shareholders shall (a) reduce the number of
classes of directors below three classes or (b) increase or
decrease the total number of directors or the number of directors
in any class unless adopted by the affirmative vote of the holders
of at least 80% of the outstanding shares of all classes and series
of this corporation's capital stock voting as a single class and
the affirmative vote of the holders of 66 2/3% of all shares of
this corporation's capital stock other than shares beneficially
owned by the 20% Shareholders. Nothing in this paragraph shall
limit or prevent the Board of Directors from adopting resolutions
increasing or decreasing the number of classes of directors, the
number of directors in any class or the total number of directors
constituting the entire Board of Directors.
<TABLE> <S> <C>
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<PERIOD-END> JUN-30-1996
<CASH> 52,521
<SECURITIES> 8,241
<RECEIVABLES> 58,221
<ALLOWANCES> 0
<INVENTORY> 46,189
<CURRENT-ASSETS> 168,970
<PP&E> 39,841
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0
0
<COMMON> 47,222
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<SALES> 319,475
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