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 JUNE 30, 1998
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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
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(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 3, 1998, there were 23,344,023 shares of the
Registrant's Common Stock, Without Par Value outstanding.
<PAGE>
KULICKE AND SOFFA INDUSTRIES, INC.
FORM 10 - Q JUNE 30, 1998
INDEX
Page No.
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PART I. FINANCIAL INFORMATION:
Item 1. FINANCIAL STATEMENTS
Consolidated Balance Sheet -
June 30, 1998 and September 30, 1997 3
Consolidated Statement of Operations -
Three and Nine Months Ended June 30, 1998
and 1997 4
Consolidated Statement of Cash Flows -
Nine Months Ended June 30, 1998 and 1997 5
Notes to Consolidated Financial Statements 6 - 8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS. 9 - 15
PART II. OTHER INFORMATION:
Item 6. EXHIBITS AND REPORTS ON FORM 8 - K. 16
Signatures. 16
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
(in thousands)
(unaudited)
June 30, September 30,
1998 1997
ASSETS -------- ---------
CURRENT ASSETS:
Cash and cash equivalents $ 61,052 $107,605
Short-term investments 43,265 7,982
Accounts and notes receivable, net 78,421 105,103
Inventories, net 62,688 45,602
Prepaid expenses and other current assets 6,000 4,391
Deferred income taxes 2,446 1,521
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TOTAL CURRENT ASSETS 253,872 272,204
Property, plant and equipment, net 48,911 45,648
Intangible assets, primarily goodwill, net 40,274 42,724
Investments in and loans to joint venture 17,282 14,135
Other assets 2,022 2,108
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TOTAL ASSETS $362,361 $376,819
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Debt due within one year $ 243 $ 780
Accounts payable to suppliers and others 26,415 47,408
Accrued expenses 24,152 24,932
Estimated income taxes payable 3,008 8,864
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TOTAL CURRENT LIABILITIES 53,818 81,984
Long-term debt -- 220
Other liabilities 3,024 2,688
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TOTAL LIABILITIES 56,842 84,892
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Commitments and contingencies -- --
SHAREHOLDERS' EQUITY:
Common stock, without par value 157,680 155,246
Retained earnings 152,295 139,404
Cumulative translation adjustment (4,456) (2,723)
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TOTAL SHAREHOLDERS' EQUITY 305,519 291,927
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $362,361 $376,819
======= =======
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,
----------------- -----------------
1998 1997 1998 1997
------- ------- ------- -------
Net sales $ 91,693 $146,380 $334,864 $349,715
Cost of goods sold 61,508 92,544 213,347 221,863
------- ------- ------- -------
Gross profit 30,185 53,836 121,517 127,852
Selling, general and
administrative 21,252 22,527 64,014 57,490
Research and development, net 12,135 11,408 37,088 33,873
------- ------- ------- -------
Income (loss) from operations (3,202) 19,901 20,415 36,489
Interest income 1,428 710 4,088 1,972
Interest expense (136) (548) (230) (2,267)
Equity in loss of joint venture (2,312) (1,963) (6,853) (4,592)
------- ------- ------- -------
Income (loss) before income taxes (4,222) 18,100 17,420 31,602
Income tax provision (benefit) (1,098) 4,571 4,529 8,352
------- ------- ------- -------
Net income (loss) $ (3,124) $ 13,529 $ 12,891 $ 23,250
======= ======= ======= =======
Net income (loss) per share:
Basic $(0.13) $0.64 $0.55 $1.16
====== ===== ===== =====
Diluted $(0.13) $0.62 $0.54 $1.13
====== ===== ===== =====
Weighted average shares
outstanding:
Basic 23,324 21,243 23,287 20,088
Diluted 23,324 21,773 23,678 20,607
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
(unaudited)
Nine months ended June 30,
1998 1997
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 12,891 $ 23,250
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 9,613 8,518
Equity in loss of joint venture 6,853 4,592
Deferred taxes on income (925) 621
Collection of refundable income taxes -- 6,212
Changes in other components of working
capital (16,928) (35,733)
Other, net (12) 436
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Net cash provided by operating activities 11,492 7,896
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INVESTING ACTIVITIES:
Purchase of Semitec in 1997, net of
cash acquired -- (4,510)
Purchases of investments classified as
available for sale (86,337) (4,163)
Maturities of investments classified as
available for sale 51,054 9,460
Maturities of investments classified as
held-to-maturity -- 29
Purchases of property, plant and equipment (12,382) (8,989)
Investments in and loans to joint venture (10,000) (15,282)
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Net cash used by investing activities (57,665) (23,455)
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FINANCING ACTIVITIES:
Proceeds from issuances of common stock 377 102,973
Proceeds from borrowings -- --
Payments on borrowings -- (50,523)
Payments on capital leases (757) (405)
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Net cash provided by financing activities (380) 52,045
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Changes in cash and cash equivalents (46,553) 36,486
Cash and cash equivalents at beginning
of year 107,605 45,344
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Cash and cash equivalents at end of period $ 61,052 $ 81,830
======= =======
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 the Company's financial position as of
June 30, 1998 and September 30, 1997, and the results of its
operations and its cash flows for the three and nine month periods
ended June 30, 1998 and 1997. 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, 1997.
NOTE 2 - INVENTORY:
June 30, September 30,
1998 1997
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Raw materials and supplies $38,150 $28,237
Work in process 12,827 16,028
Finished goods 27,648 17,245
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78,625 61,510
Inventory reserves (15,937) (15,908)
------ ------
$62,688 $45,602
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NOTE 3 - COMMON STOCK AND EARNINGS PER SHARE:
In the fiscal 1998 first quarter ended December 31, 1997, the
Company adopted Statement of Financial Accounting Standards No.
128, "Earnings Per Share," ("SFAS 128"). Under SFAS 128, primary
earnings per share has been replaced by basic earnings per share,
which includes only the weighted average number of common shares
outstanding during the period and excludes the effect of stock
options from the calculation. In addition, fully diluted earnings
per share has been replaced by diluted earnings per share which
includes the weighted average number of common shares and the
dilutive effect of stock options outstanding during the period.
All prior period earnings per share amounts have been restated to
reflect the requirements of SFAS 128.
For the fiscal 1998 third quarter ended June 30, 1998, the Company
reported a net loss. For this period, the effect of stock options
has been excluded from the sharebase used to compute diluted loss
per share as the effect would be antidilutive.
In May 1997, the Company completed the sale of 3,450,000 shares of
its common stock in an underwritten offering, resulting in net
proceeds to the Company approximating $101.1 million. A portion of
these proceeds was used to repay the $50.0 million outstanding
balance on the Company's bank revolving credit facility.
<PAGE>
NOTE 4 - OPERATING RESULTS BY BUSINESS SEGMENT:
Operating results by business segment for the nine month periods
ended June 30, 1998 and 1997 were as follows:
Packaging Corporate
Nine months ended Equipment Materials and
June 30, 1998: Segment Segment Eliminations Total
--------- --------- ------------ --------
Net sales $251,680 $ 83,184 $334,864
Cost of goods sold 150,571 62,776 213,347
------- ------- -------
Gross profit 101,109 20,408 121,517
Operating costs 77,133 17,733 $ 6,236 101,102
------- ------- ------ -------
Income (loss)
from operations $ 23,976 $ 2,675 $(6,236) 20,415
======= ======= ======
Net interest income 3,858
Equity in loss of
joint venture (6,853)
-------
Income before taxes $ 17,420
=======
Identifiable assets
at June 30, 1998 $157,407 $83,355 $121,599 $362,361
======= ====== ======= =======
Packaging Corporate
Nine months ended Equipment Materials and
June 30, 1997: Segment Segment Eliminations Total
--------- --------- ------------ --------
Net sales $270,007 $ 79,708 $349,715
Cost of goods sold 156,823 65,040 221,863
------- ------- -------
Gross profit 113,184 14,668 127,852
Operating costs 70,280 15,403 $ 5,680 91,363
------- ------- ------ -------
Income (loss) from
operations $ 42,904 $ (735) $(5,680) 36,489
======= ======= ======
Net interest expense (295)
Equity in loss of
joint venture (4,592)
-------
Income before taxes $ 31,602
=======
Identifiable assets
at June 30, 1997 $160,198 $86,881 $102,277 $349,356
======= ====== ======= =======
Intersegment sales are immaterial.
<PAGE>
NOTE 5 - SUBSEQUENT EVENTS:
In response to lower demand for the Company's products, the
Company has initiated actions to reduce manufacturing capacity and
operating expenses including, among other things, reducing its
worldwide workforce by approximately 10% to 15%. The Company began
this resizing process in August 1998 and expects to complete the
resizing actions and recognize associated charges, including
severance and outplacement costs, during its fiscal 1998 fourth
quarter.
The Company has also taken actions to discontinue certain
products. As a consequence, in the fiscal 1998 fourth quarter, the
Company expects to incur charges approximating $2.5 million,
principally to write-off manufacturing equipment and intangible
assets, including goodwill related to these discontinued products.
As of the date of this filing, the full scope of these resizing
activities and product discontinuations, as well as other cost
reduction measures, has not been finalized. Accordingly, the
aggregate amount of charges associated with these actions is
unknown but is currently expected to exceed $6.0 million.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Certain statements contained in this report are forward looking
statements and are subject to risks and uncertainties that could
cause actual results to differ materially. These risks and
uncertainties include, but are not limited to the following: the
risk of order postponements or cancellations; the risks associated
with a substantial foreign customer base; the risks associated
with instability in foreign capital markets and foreign currency
fluctuations; the upward and downward volatility in demand for
semiconductors and for the Company's products and services; the
risk of delays in introduction and customer qualification of new
products and services; competitive pricing pressures; the
Company's ability to manufacture and ship its products on a timely
basis; and the risk that certain customers may adopt alternate
semiconductor assembly processes. Reference is made to a more
detailed discussion of risk factors affecting the Company's
business in other Company reports filed with the Securities and
Exchange Commission including the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 1997, and "Risk
Factors" and other sections of the Company's Registration
Statement on Form S-3 (33-69734) filed in May 1997.
INTRODUCTION
The Company's operating results primarily depend upon the capital
expenditures of semiconductor manufacturers and subcontract
assemblers worldwide which, in turn, depend on the current and
anticipated market demand for semiconductors. The semiconductor
industry has historically been volatile and experienced periodic
slowdowns which have had a severe negative effect on the
semiconductor industry's demand for capital equipment, including
assembly equipment manufactured and sold by the Company and, to a
lesser extent, packaging materials such as those sold by the
Company. These slowdowns have adversely affected the Company's
operating results. The Company believes that such volatility will
continue to characterize the industry and the Company's operations
in the future. The Company does not consider its business to be
seasonal in nature.
A significant portion of the Company's revenue is derived from
sales of a relatively small number of machines, most with selling
prices ranging from $60,000 to over $400,000. A delay in the
shipment of a limited quantity of machines, either due to
manufacturing delays, which occur from time to time, or from
rescheduling or cancellations of customer orders, could have a
material adverse effect on the Company's results of operations for
any particular quarter.
RESULTS OF OPERATIONS - Three and Nine Month Periods Ended June
30, 1998 and June 30, 1997.
Demand for semiconductor assembly equipment, principally the
Company's automatic gold ball bonders, has declined steadily
during fiscal 1998 compared to a trend of sequential quarterly
<PAGE>
increases in demand throughout fiscal 1997. Fiscal 1998 third
quarter bookings totaled $55.0 million, compared to $151.0 million
for the fiscal 1997 third quarter. For the nine-month period ended
June 30, 1998, net bookings totaled $285.0 million, compared to
$394.0 million booked during the same period in fiscal 1997. The
backlog of customer orders totaled $67.0 million at June 30, 1998
compared to $115.0 million at June 30, 1997. Since 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.
Net sales for the three-month period ended June 30, 1998 totaled
$91.7 million compared to $146.4 million for the third quarter of
fiscal 1997. For the nine-month period ended June 30, 1998, net
sales totaled $334.9 million compared to $349.7 million for the
fiscal 1997 year-to-date period. By geographic region, sales
destined for customer locations in Korea, the United States and
Taiwan were down sharply for the nine-month period ended June 30,
1998, in relation to the corresponding period last year. These
declines were offset in part by increases in Philippines and
Malaysia.
Equipment segment sales totaled $64.8 million for the fiscal 1998
third quarter, down sharply from the $92.9 million reported for
the fiscal 1998 second quarter and the $117.7 million reported for
the third quarter of fiscal 1997. For the nine-month period ended
June 30, 1998, equipment segment net sales totaled $251.7 million,
compared to the $270.0 million reported for the same period last
year. For the three and nine-month periods ended June 30, 1998,
unit sales of automatic gold ball bonders were approximately 75%
and 32% lower, respectively, than the comparable periods last
year. In addition, sales of upgrade kits and accessories were
lower in both the fiscal 1998 third quarter and year-to-date
periods compared to the same periods in fiscal 1997. These
declines were partially offset in both the fiscal 1998 third
quarter and year-to-date periods by increased unit sales of higher
priced Model 8060 wedge bonders.
Packaging materials sales totaled $26.9 million for the fiscal
1998 third quarter compared to the $28.7 million reported for the
fiscal 1997 third quarter. Reduced volumes of gold and aluminum
wire sales and lower average gold prices in fiscal 1998, offset in
part by higher unit volume of Micro-Swiss and Semitec products
were the primary reasons for this decline. For the nine-month
period ended June 30, 1998, packaging materials sales totaled
$83.2 million compared to $79.7 million for the same period last
year. Unit sales volumes were generally higher for all packaging
materials products for the fiscal 1998 nine-month period compared
to the fiscal 1997 year-to-date period, but were offset in part by
the effect of lower average gold prices on gold wire sales during
fiscal 1998.
Gross profit as a percentage of net sales was 32.9% in the fiscal
1998 third quarter compared to 36.8% during the fiscal 1997 third
quarter. The fiscal 1998 decline resulted in part from a shift in
the overall mix of product sales from higher margin equipment
products to lower margin packaging materials products.
<PAGE>
In addition, equipment segment gross profit margin decreased to
36.4% in the fiscal 1998 third quarter from 41.1% for the same
period last year. This decrease resulted largely from reduced
manufacturing overhead absorption due to lower fiscal 1998 unit
volumes, vendor cancellation charges associated with customer
order cancellations and lower than anticipated customer
requirements, and reduced unit sales of higher margin upgrade kits
and accessories compared to fiscal 1997 third quarter levels.
These declines more than offset the favorable effect of increased
unit sales of higher margin Model 8060 wedge bonders. Gross profit
margins on packaging materials products increased to 24.6% in the
fiscal 1998 third quarter compared to 18.6% for the same period
last year. A shift in sales mix to higher margin expendable tools
products in fiscal 1998 was the primary reason for this
improvement.
For the nine month period ended June 30, 1998, gross profit as a
percentage of net sales totaled 36.3% compared to 36.6% for the
same period last year. Gross profit margin in the equipment
segment declined to 39.9% for the nine months ended June 30, 1998
compared to 41.8% for the same period last year. This decline
reflects the fiscal 1998 effects of unfavorable manufacturing
overhead absorption, vendor cancellation charges and reduced sales
of higher margin machine upgrade kits and accessories, partially
offset by increased sales of higher margin Model 8060 wedge
bonders.
The gross profit margin on packaging materials products increased
to 25.2% for the first nine months of fiscal 1998 compared to
18.4% for the nine month period ended June 30, 1997, due in part
to yield and throughput improvements in fiscal 1998, and to non-
recurring costs incurred during the first half of fiscal 1997
associated with the relocation of the Micro-Swiss manufacturing
facility and excess manufacturing capacity of Micro-Swiss.
Selling, general and administrative ("SG&A") expenses declined to
$21.3 million in the fiscal 1998 third quarter compared to $22.5
million for the third quarter of fiscal 1997. In the fiscal 1997
third quarter, the Company recognized a bad debt charge of $1.0
million. Excluding this item, SG&A costs were flat in the fiscal
1998 third quarter compared to the prior year. For the nine months
ended June 30 1998, SG&A costs increased to $64.0 million compared
to $57.5 million for the same period last year. This increase
largely reflects increased sales, marketing and customer support
costs associated with the launch of the new Model 8020 and 8060
wire bonders, higher sales and distribution infrastructure costs
in the packaging materials segment and increased spending in
connection with implementation of the Company's new enterprise
business system.
Net research and development ("R&D") costs totaled $12.1 million
for the fiscal 1998 third quarter compared to $11.4 million during
the third quarter of fiscal 1997. R&D costs increased to $37.1
million in the first nine months of fiscal 1998 compared to $33.9
million for the same period in fiscal 1997. The increase in fiscal
1998 R&D spending generally reflects increased internal labor
costs, higher outside contract development costs and increased
expenditures for prototype materials as the Company continues
<PAGE>
development of additional products in the 8000 family of wire
bonders, a new automatic dicing saw and increased R&D expenditures
related to packaging materials products.
For the fiscal 1998 third quarter, the Company incurred a $3.2
million loss from operations compared to $19.9 million in income
from operations for the fiscal 1997 third quarter. The fiscal 1998
loss resulted principally from the rapid decline in equipment
segment unit sales and gross profits. For the first nine months of
fiscal 1998, operating income totaled $20.4 million compared to
$36.5 million for the same period in fiscal 1997 due to the
factors discussed above.
Net interest income totaled $1.3 million for the fiscal 1998 third
quarter compared to $162,000 for the same period last year. For
the nine-month period ended June 30, 1998, net interest income
totaled $3.9 million compared to net interest expense of $295,000
for the nine-month period ended June 30, 1997. During fiscal 1998,
the Company remained essentially debt-free, principally as a
result of the Company's May 1997 underwritten public offering of
common stock which generated net proceeds of $101.1 million. A
portion of the offering proceeds was used to repay the $50.0
million borrowed under the Company's bank revolving credit
facility to fund the AFW acquisition. Such borrowings accounted
for the majority of the fiscal 1997 interest expense.
In the fiscal 1998 third quarter, the Company recognized a $2.3
million loss as its 51% equity interest in its joint venture
investment in Flip Chip Technologies, LLC ("FCT") compared to the
$2.0 million loss during the same period last year. For the nine
months ended June 30, 1998, the Company's share of the loss
totaled $6.9 million compared to the $4.6 million loss in the same
period last year. Through June 1998, the Company has made capital
contributions totaling $16.8 million. In addition, the Company has
agreed to loan FCT up to $22.0 million to fund start-up
operations, of which $15.0 million has been loaned through June
30, 1998. As a result of delays in the customers' evaluations of
FCT's manufacturing process and the generally soft business
environment in the semiconductor industry, FCT has not generated
substantial operating revenues to date. The Company is currently
working with FCT management to balance FCT's planned expense and
spending levels with available financial resources. The joint
venture is subject to numerous risks common to business
arrangements of this nature. There can be no assurance that FCT
will ever become profitable, that the Company will not make
additional capital contributions and loans to FCT, or that the
anticipated benefits of the joint venture will ever be realized.
If the joint venture does not become profitable and cash flow
positive, the Company's business, financial condition and
operating results could be materially adversely affected.
The Company's effective tax rate during the first nine months of
fiscal 1998 approximated 26% compared to 29% for the 1997 fiscal
year. The Company currently anticipates an operating loss,
principally from its US-based operations during the fiscal 1998
fourth quarter. This loss and the change in the geographic
distribution of taxable income from earlier estimates, could
impact the amount of tax benefits recognizable in fiscal 1998.
<PAGE>
COMPANY OUTLOOK
The Company presently expects sales for the fiscal 1998 fourth
quarter to be significantly lower than the fiscal 1998 third
quarter, and to realize a loss from operating activities, before
the effect of any actions to resize its operations. This soft
business outlook generally reflects the effect of continued
weakening in demand for the Company's products as a result slow PC
sales and the ongoing financial crisis in the Asia/Pacific region.
In response to lower demand for the Company's products, the
Company has initiated actions to reduce manufacturing capacity and
operating expenses including, among other things, reducing its
worldwide workforce by approximately 10% to 15%. The Company began
this resizing process in August 1998 and expects to complete the
resizing actions and recognize associated charges, including
severance and outplacement costs, during its fiscal 1998 fourth
quarter.
The Company has also taken actions to discontinue certain
products. As a consequence, in the fiscal 1998 fourth quarter, the
Company expects to incur charges approximating $2.5 million,
principally to write-off manufacturing equipment and intangible
assets, including goodwill related to these discontinued products.
As of the date of this filing, the full scope of these resizing
activities and product discontinuations, as well as other cost
reduction measures, has not been finalized. Accordingly, the
aggregate amount of charges associated with these actions is
unknown but is currently expected to exceed $6.0 million.
YEAR 2000:
The Company has appointed an internal task force to assess its
state of readiness for possible "Year 2000" issues. The task force
is evaluating internal business systems, software and other
components which affect the performance of Company's products, and
the Company's vulnerability to possible "Year 2000" exposures due
to suppliers and other third parties lack of preparedness for the
year 2000.
The Company is currently in the process of replacing the business
and accounting systems of its equipment manufacturing sites in the
US and Israel with a new enterprise business system which is "Year
2000" compliant. The Company's system implementation plan
currently anticipates conversion to the new enterprise business
system by the Willow Grove and Israeli equipment manufacturing
facilities in fiscal 1999.
The Company has conducted an evaluation of the operating software
used in most of its equipment products currently being sold for
possible "Year 2000" issues. Based on this assessment, the Company
does not believe operation of such equipment will be affected by
the transition to the year 2000.
In addition, the Company has been in contact with its suppliers
and other third parties to determine the extent to which they may
<PAGE>
be vulnerable to "Year 2000" issues. As this assessment
progresses, matters may come to the Company's attention which
could give rise to the need for remedial measures which have not
yet been identified. The Company cannot currently predict the
potential effect of third parties' "Year 2000" issues on its
business.
With the exception of the Company's current business systems which
are being replaced, and pending completion of the Company's "Year
2000" assessments currently in progress, the Company does not
currently have a contingency plan for possible "Year 2000" issues.
If computer systems used by the Company or its suppliers, or the
operating software used in equipment products sold by the Company,
fail or experience significant difficulties, the Company's results
of operations could be materially adversely affected.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:
In June 1998, Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities"
("SFAS 133") 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
year commencing October 1, 1999. Management has not completed its
review of SFAS 133 and has not determined the impact adoption will
have on the Company's financial statements.
LIQUIDITY AND CAPITAL RESOURCES:
During the past three fiscal years and the nine-month period ended
June 30, 1998, the Company has financed its operations principally
through cash flows from operating activities, while its
acquisitions of AFW in October 1995 and Semitec in October 1996
were financed with borrowings. The Company's May 1997 public
offering of common stock resulted in net proceeds to the Company
of approximately $101.1 million. A portion of the proceeds from
the offering was used to repay the Company's acquisition related
borrowings.
Cash generated by operating activities totaled $11.5 million for
the first nine months of fiscal 1998 compared to $7.9 million
during the first nine months of fiscal 1997. Cash and total
investments decreased to $104.3 million at June 30, 1998 from the
$115.6 million at September 30, 1997. At June 30, 1998, working
capital increased to $200.1 million compared to $190.2 million at
September 30, 1997. The accounts receivable balance at June 30,
1998 decreased by $26.7 million compared to the September 30, 1997
balance. This decline resulted largely from the lower sales volume
in the fiscal 1998 third quarter compared to the fiscal 1997
fourth quarter. Inventory increased by $17.1 million at June 30,
1998 compared to September 30, 1997 levels primarily due to the
<PAGE>
unanticipated and substantial decline in customer demand for the
Company's products, including certain order delays or
cancellations within the Company's normal inventory purchasing
lead-times.
Trade accounts payable and accrued expenses decreased by
approximately $21.8 million at June 30, 1998 compared to their
September 30, 1997 balances. The decrease primarily resulted from
reduced inventory purchases as result of the lower customer order
rate, and lower accruals for management and sales incentive
compensation due to the Company's reduced profitability level in
fiscal 1998.
During the first nine months of fiscal 1998, the Company invested
approximately $12.4 million in property, plant and equipment.
These investments were primarily to upgrade equipment used in
manufacturing and R&D activities and for the Company's new
enterprise business system. The principal capital projects planned
for fiscal 1998 include the purchase of additional tooling and
equipment necessary to manufacture the 8000 series of machines,
the purchase of equipment necessary to upgrade manufacturing
capabilities, primarily in the United States, Israel and
Singapore, and additional investments in management information
systems.
See "Results of Operations" above for information concerning
anticipated contributions and loans to FCT.
A significant portion of the Company's consolidated earnings are
attributable to undistributed earnings of certain of its foreign
subsidiaries. Deferred income taxes have not been provided on that
portion of undistributed foreign earnings which is expected to be
indefinitely reinvested in foreign operations. If funds were
required to be repatriated to fund the Company's operations or
other financial obligations, substantial additional United States
federal income tax expense could be required to be recognized.
The Company currently has available the entire amount of a $60.0
million credit facility expiring March 26, 2003. There have been
no borrowings under the Company's bank credit facilities during
fiscal 1998.
The Company believes that anticipated cash flows from operations,
its working capital and amounts available under its revolving
credit facilities will be sufficient to meet the Company's
liquidity and capital requirements for at least the next 12
months, including any capital contributions and possible loans to
FCT. The Company may, however, seek 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 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 27.1 - Financial Data Schedule for the
Quarterly Period Ended June 30, 1998
Exhibit 27.2 - Restated Financial Data Schedule for
the Quarterly Period Ended June 30, 1997
Exhibit 27.3 - Restated Financial Data Schedule for
the Quarterly Period Ended March 31, 1997
(b) Reports on Form 8-K
No Reports on Form 8-K were filed during the quarter
to which this Report relates.
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 13, 1998 By: /s/ Clifford G. Sprague
-------------------------------
Clifford G. Sprague
Senior Vice President,
Chief Financial Officer
(Principal Financial Officer)
By: /s/ Curtis A. Massey
-------------------------------
Curtis A. Massey
Vice President,
Corporate Controller
(Principal Accounting Officer)
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED INCOME STATEMENT AND CONSOLIDATED BALANCE SHEET INCLUDED IN KULICKE
& SOFFA INDUSTRIES, INC.'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY
PERIOD ENDED JUNE 30, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS AND RELATED FOOTNOTES INCLUDED THEREIN.
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<MULTIPLIER> 1,000
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<SALES> 334,864
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<PERIOD-TYPE> 9-MOS
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<PERIOD-END> JUN-30-1997
<CASH> 81,830
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0
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<COMMON> 151,706
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<PERIOD-END> MAR-31-1997
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0
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<COMMON> 50,338
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<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,719
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<INCOME-TAX> 3,781
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