SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-10938
SEMICONDUCTOR PACKAGING MATERIALS CO., INC.
(Name of Business Issuer in its charter)
Delaware 13-3584740
(State of other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1 LABRIOLA COURT, ARMONK, NY 10504
(Address of principal executive offices, including zip code)
(914) 273-5500
(Registrant's telephone number, including area code)
Indicate by check mark whether the 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.
(1) Yes [X] No [ ]
(2) Yes [X] No [ ]
The number of shares outstanding of the Registrant's sole class of common
stock, as of September 30, 1997 was 6,075,116 shares.
1
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Index to Financial Statements Page
----------------------------- ----
Consolidated Balance Sheet at
September 30, 1997 and December 31, 1996. 3
Consolidated Statement of Income
for the three and nine months ended
September 30, 1997 and 1996. 4
Consolidated Statement of Cash Flows
for the three and nine months ended
September 30, 1997 and 1996. 5
Consolidated Statement of Shareholders' Equity
for the nine months ended September 30, 1997 6
Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-12
Item 2. Pro Forma Information 13
Pro Forma Consolidated Statement of
Income for the three months ended
September 30, 1996 (Unaudited) 14
Notes to Unaudited Pro Forma Consolidated
Statement of Income for the three months ended
September 30, 1996 15
Pro Forma Consolidated Statement of
Income for the nine months
ended September 30, 1996 (Unaudited) 16
Notes to Unaudited Pro Forma Consolidated
Statement of Income for the nine months
ended September 30, 1996 17
PART II OTHER INFORMATION
Items 1-5 N/A
Item 6 Exhibits and Reports on Form 8-K
(a) None
(b) None
SIGNATURE PAGE 18
EXHIBITS 19
2
<PAGE>
Semiconductor Packaging Materials Co., Inc. and Subsidiaries
Consolidated Balance Sheet
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1997 1996
(Unaudited) (Audited)
----------- ---------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 2,554,009 $ 3,531,099
Accounts receivable, less allowance for doubtful
accounts of $183,000 and $143,000, respectively 10,283,202 5,637,158
Inventories 11,281,638 9,078,471
Prepaid expenses and other current assets 1,449,470 885,644
------------ ------------
Total current assets 25,568,319 19,132,372
------------ ------------
Property and Equipment - at cost, net of accumulated
depreciation and amortization of $9,289,917
and $6,444,253, respectively 40,085,176 20,700,573
------------ ------------
Other Assets-net of accumulated amortization
Technology rights and intellectual property 707,623 749,523
Goodwill 19,444,086 14,816,454
Other 852,623 1,090,403
------------ ------------
Total other assets 21,004,332 16,656,380
------------ ------------
Total Assets $ 86,657,827 $ 56,489,325
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 4,969,151 $ 3,462,227
Accrued expenses 2,348,687 856,810
Income Taxes Payable 720,474 1,143,518
Current portion of obligations under capital lease 1,985,212 1,306,763
Current portion of long-term debt 10,452,859 1,416,000
------------ ------------
Total current liabilities 20,476,383 8,185,318
------------ ------------
Deferred income taxes 1,313,760 1,470,460
Long-term debt 21,998,596 6,719,333
Obligations under capital leases 5,391,107 4,242,415
------------ ------------
Total Liabilities 49,179,846 20,617,526
------------ ------------
Minority Interest in Subsidiary 1,473,462 1,932,171
------------ ------------
Shareholders' Equity:
Preferred stock - $.10 par value; authorized 1,000,000
shares,none issued 0 0
Common stock - $.10 par value; authorized 20,000,000
shares, issued 6,375,116 and 6,355,516 shares, respectively 637,512 635,552
Additional paid-in-capital 28,195,144 28,070,464
Cumulative Translation Adjustment (602,478) 0
Retained Earnings 7,774,341 5,233,612
------------ ------------
36,004,519 33,939,628
Less: Treasury stock:300,000 shares, at cost 0 0
------------ ------------
Shareholders' Equity 36,004,519 33,939,628
------------ ------------
Total Liabilities And Shareholders' Equity $ 86,657,827 $ 56,489,325
============ ============
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE>
Semiconductor Packaging Materials Co., Inc and Subsidiaries
Consolidated Statement of Income
(Unaudited)
<TABLE>
<CAPTION>
For The Three Months For The Nine Months
Ended September 30, Ended September 30,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales $ 13,539,103 $ 8,665,927 $ 33,618,350 $24,862,210
Service Revenue 6,113,620 3,280,446 16,870,038 10,574,227
----------- ----------- ----------- -----------
Total Revenue 19,652,723 11,946,373 50,488,388 35,436,437
Cost of Goods Sold 9,127,691 5,835,571 23,490,551 17,691,894
Cost of Services Performed 4,839,951 1,899,562 12,619,839 5,515,298
----------- ----------- ----------- -----------
Total Cost of Goods Sold and
Services Performed 13,967,642 7,735,133 36,110,390 23,207,192
----------- ----------- ----------- -----------
Gross Profit 5,685,081 4,211,240 14,377,998 12,229,245
Selling, General and
Administrative Expenses 3,184,670 1,995,643 8,861,308 5,816,359
----------- ----------- ----------- -----------
Operating Income 2,500,411 2,215,597 5,516,690 6,412,886
Interest Expense (Net) 697,575 234,331 1,912,843 653,536
----------- ----------- ----------- -----------
Income Before Provision for Income Taxes and
Minority Interest in Loss of Consolidated
Subsidiary 1,802,836 1,981,266 3,603,847 5,759,350
Provision for Income Taxes 680,160 717,470 1,365,127 2,233,401
----------- ----------- ----------- -----------
Income Before Minority Interest in Loss of
Consolidated Subsidiary 1,122,676 1,263,796 2,238,720 3,525,949
Minority Interest in Loss of Consolidated
Subsidiary 72,892 0 302,009 0
----------- ----------- ----------- -----------
Net Income $ 1,195,568 $ 1,263,796 $ 2,540,729 $ 3,525,949
=========== =========== =========== ===========
Income per Common Share $ .19 $ .21 $ .41 $ .57
=========== =========== =========== ===========
Weighted Average Number of Common
Shares Outstanding 6,267,006 6,156,671 6,220,264 6,145,586
=========== =========== =========== ===========
</TABLE>
See Notes To Consolidated Financial Statements
4
<PAGE>
Semiconductor Packaging Materials Co., Inc. and Subsidiaries
Consolidated Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For The Three Months For The Nine Months
Ended September 30, Ended September 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash Flows From Operating Activities:
Net Income $ 1,195,56 $ 1,263,796 $ 2,540,729 $ 3,525,949
Adjustments To Reconcile Net Income To Net
Cash Used In Operating Activities:
Gain on Sales of Property and Equipment (45,657)
Depreciation And Amortization of Property And 1,015,447 605,526 3,182,909 1,679,447
Other Amortization 210,896 169,746 585,355 509,238
Deferred Income Taxes 113,300
Minority Interest in Subsidiary Loss 46,008 (302,009)
Changes In Operating Assets And Liabilities:
Increase In Accounts Receivable (680,722) (588,444) (2,242,769) (1,872,179)
(Increase) Decrease In Inventory 360,360 (831,320) (818,034) (1,817,318)
(Increase) Decrease In Prepaid Expenses And
Other Current Assets 488,990 (109,114) 636,283 (166,645)
Increase In Accounts Payable 171,387 764,310 372,319 558,960
Increase (Decrease) In Accrued Expenses (507,960) 783,039 (625,493) 1,958,530
Increase (Decrease) in Income Taxes Payable 365,885 (777,633)
----------- ----------- ----------- -----------
Net Cash Provided By Operating Activities 2,665,859 2,057,539 2,506,000 4,489,282
----------- ----------- ----------- -----------
Cash Flows From Investing Activities:
Purchase Of Property And Equipment (2,148,192) (119,009) (10,001,490) (1,914,496)
Proceeds From Sale of Property and Equipment 275,000
(Increase) Decrease In Other Assets 486,082 (695,042) 206,875 (1,365,438)
Acquisition of Subsidiary (2,007,092) (15,134,321) (6,556,440)
----------- ----------- ----------- -----------
Net Cash Used In Investing Activities (3,669,202) (814,051) (24,653,936) (9,836,374)
----------- ----------- ----------- -----------
Cash Flows From Financing Activities:
Proceeds from Redemption of Warrants 2,400 2,400
Proceeds From Exercise Of Stock Options 38,590 9,038 126,639 196,969
Proceeds From Long-Term Debt 1,389,831 19,995,464 6,000,000
Borrowing Under Revolving Credit 1,450,000 5,225,000
Payment Under Capital Leases (517,261) (265,405) (1,278,400) (644,259)
Payment Under Term Loan Agreements (1,154,000) (60,000) (2,762,000) (646,166)
Decrease In Amounts Due Related Parties (625,000)
Minority Interest Contribution 984,202 984,202
----------- ----------- ----------- -----------
Net Cash Provided By Financing Activities 1,207,160 670,235 21,306,703 5,268,146
----------- ----------- ----------- -----------
Effect of Exchange Rate Change on Cash (118,458) (135,857)
Net Increase (Decrease) In Cash 85,359 1,913,723 (977,090) (78,946)
Cash At Beginning Of Period 2,468,650 2,251,406 3,531,099 4,244,075
----------- ----------- ----------- -----------
Cash At End Of Period $2,554,009 $ 4,165,129 $ 2,554,009 $ 4,165,129
=========== =========== =========== ===========
Supplemental schedule of noncash investing and
financing activity:
Machinery and equipment acquired under capital $ 1,151,660 $ 1,606,627 $ 2,894,101 $ 2,916,355
</TABLE>
See Notes to Consolidated Financial Statements
5
<PAGE>
Semiconductor Packaging Materials Co., Inc. and Subsidiaries
Consolidated Statement of Shareholders' Equity
For the nine months ended September 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
ADDITIONAL CUMULATIVE TOTAL
COMMON STOCK PAID-IN RETAINED TREASURY STOCK TRANSLATION SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT ADJUSTMENT EQUITY
------ ------ ------- -------- ------ ------ ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
January 1, 1997 6,055,516 $ 635,552 $ 28,070,464 $ 5,233,612 300,000 $ 0 $ 0 $ 33,939,628
Issuance Of
Common Stock
Through The
Exercise Of Stock
Options 19,600 1,960 124,680 126,640
Net Income 2,540,729 2,540,729
Cumulative
Translation
Adjustment (602,478) (602,478)
--------- --------- ------------ ----------- ------- ----- ---------- ------------
Balance at
September 30, 1997 6,075,116 $ 637,512 $ 28,195,144 $ 7,774,341 300,000 $ 0 $ (602,478) $ 36,004,519
========= ========= ============ =========== ======= ===== ========== ============
</TABLE>
See Notes To Consolidated Financial Statements
6
<PAGE>
Semiconductor Packaging Materials Co., Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
1. The consolidated financial statements include the accounts of the Company,
its wholly owned subsidiaries and its majority owned subsidiary. The
consolidated balance sheet as of September 30, 1997, the consolidated
statement of income for the three and nine months ended September 30, 1997
and 1996, the consolidated statement of cash flows for the three and nine
months ended September 30, 1997 and 1996 and the consolidated statement of
shareholders' equity for the nine months ended September 30, 1997, have
been prepared by the Company and are unaudited. In the opinion of
management, all adjustments necessary to present fairly the financial
position, results of operations and cash flows at September 30, 1997 and
for all periods presented have been made.
2. Earnings per share - Earnings per share are computed using the weighted
average number of common shares actually outstanding plus the shares that
would be outstanding assuming the exercise of employee stock options and
stock warrants during the periods presented.
3. See the Company's Annual Report on Form 10-KSB for the year ended December
31, 1996 for additional disclosures relating to the Company's financial
statements.
4. On January 23, 1997, American Silicon Products, Inc. ("ASP"), a wholly
owned subsidiary of the Company, acquired all of the assets of Silicon
Materials Service and acquired 100% of the outstanding stock of Silicon
Materials Service, B.V. (collectively "SMS"), a company which polishes and
reclaims silicon wafers for a purchase price of approximately $12,972,000
in cash. This business combination was accounted for as a purchase. In
addition, the Company incurred approximately $500,000 in estimated closing
expenses and $1,500,000 of costs associated with the integration and
relocation of certain acquired activities of SMS. The fair value of the
assets acquired, including approximately $2,183,000 allocated to goodwill,
which is being amortized over 25 years, amounted to $12,247,000 and
liabilities assumed amounted to $638,000.
5. Effective July 30, 1997, Retconn Incorporated ("Retconn"), a wholly owned
subsidiary of the Company, acquired 100% of the outstanding stock of S.T.
Electronics, Inc. ("S.T."), a company which manufactures and markets custom
cable and cable harness assemblies for $1,000,000 in cash and $2,000,000 in
notes, subject to adjustment, based on the closing net worth and adjusted
EBIT delivered by S.T. as of the closing date. In addition, Retconn
acquired certain proprietary rights from the S.T. shareholders for
$200,010. The notes are payable in twenty equal quarterly installments
beginning on November 1, 1997 together with interest on the unpaid
principal at the rate of 7% per annum. This business combination was
accounted for as a purchase. In addition, the Company incurred
approximately $300,000 in estimated closing expenses. The fair value of the
assets acquired, including $2,993,000 allocated to goodwill, which is being
amortized over 25 years, amounted to $4,431,000 and liabilities assumed
amounted to $862,000.
6. Effective August 28, 1996, the Company entered into a joint venture
agreement to develop a silicon wafer polishing and reclaiming facility in
Singapore. The jointly owned Singapore corporation, International
Semiconductor Products Pte Ltd ("ISP"), is 50.1% owned by the Company,
39.9% owned by a holding company, Semiconductor Alliance Pte Ltd. and 10%
owned by EDB Ventures 2 Pte Ltd. Accordingly, the Company's consolidated
balance sheet at September 30, 1997 reflects a $1,473,462 minority interest
contribution made by the Company's joint venture partner. ISP began
qualifications for prospective customers in the second quarter of 1997 and
generated revenues of $303,000 during the three month period ended
September 30, 1997.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD LOOKING INFORMATION
Portions of the narrative set forth in this 10-Q that are not historical in
nature are forward looking statements. The Company's actual performance may
differ materially from that contemplated by the forward looking statements as a
result of a variety of factors that include, but are not limited to, the general
economic or business climate, business conditions of the microelectronic and
semiconductor markets and wireless communications industry which the Company
serves, the timely and successful completion of the Company's capital and plant
expansion programs, economic volatility in Asian markets and the ability of the
Company to obtain necessary financing when required.
RESULTS OF OPERATIONS (for the three and nine month periods ended September 30,
1997 compared to the three and nine month periods ended September 30, 1996)
Total revenue for the three and nine month periods ended September 30, 1997
increased $7,706,000 and $15,052,000, or 65% and 42%, respectively, over the
comparable 1996 periods.
In the three and nine month periods ended September 30, 1997, sales by the
Company's Microelectronic Materials Group increased $4,873,000 and $8,756,000,
or 56% and 35%, respectively, over the comparable 1996 periods primarily due to
an increase in demand for its products by the communication and computer
industries. Due to the increased demand for the Company's microelectronic
materials, the Company is in the process of increasing the capacities of its
Polese Company and Retconn Incorporated subsidiaries through the acquisition of
additional manufacturing space and equipment. In addition, S.T. Electronics
("S.T."), which was acquired by the Company effective July 30, 1997, contributed
$870,000 to 1997's three and nine month Microelectronic Materials Group sales.
In the three and nine month periods ended September 30, 1997, revenue derived
from the Company's Semiconductor Services Group increased $2,833,000 and
$6,296,000, or 86% and 60% , respectively, over the comparable 1996 periods as
the result of the inclusion of $2,474,000 and $7,934,000 of revenue in the three
and nine month periods ended September 30, 1997 from SMS, which was acquired by
the Company on January 23, 1997. Revenue generated from the SMS acquisition in
the three month period ended September 30, 1997 decreased from revenue generated
in the three month period ended June 30, 1997 primarily as a result of revenue
reduction issues at the Texas operation and the effect of European summer
holidays on the Netherlands operation. The aforementioned product quality issues
existed prior to the Company's acquisition of SMS. The Company believes that it
has substantially improved the quality of the products of the Texas and
Netherlands operations in the three month period ended September 30, 1997,
enabling those operations to reestablish and improve their future revenue
streams. Revenue in the three and nine month periods ended September 30, 1997,
from ASP's Rhode Island operation, increased $36,000 and decreased $1,961,000,
respectively, from the comparable 1996 periods. The decrease in the nine month
period resulted primarily from a reduction in business with silicon wafer
brokers. While demand for the Company's silicon wafer reclaim services in the
nine month period ended September 30, 1997, was below that of the comparable
1996 periods, ASP's Rhode Island operation has experienced increased demand for
its services in the three month period ended September 30, 1997.
At September 30, 1997, the Company's consolidated backlog was $22,828,000, which
represents a 127% increase since the beginning of the year. Excluding the SMS
and S.T. backlog at September 30, 1997, consolidated backlog has increased 63%
since January 1, 1997. For the nine months ended September 30, 1997 and 1996,
direct sales of the Company's products into foreign markets accounted for 15%
and 10%, respectively, of consolidated revenue. The Company currently maintains
foreign manufacturing operations in the Netherlands ("ASP B.V.") and in
8
<PAGE>
Singapore, International Silicon Products Pte. Ltd. ("ISP"). In the three and
nine month periods ended September 30, 1997, the Company derived $679,000 and
$2,246,000, respectively, of revenue from ASP B.V. and $303,000 and $323,000
respectively, of revenue from ISP. ISP did not have any operations in the nine
month period ended September 30, 1996. ISP is currently in the process of being
qualified by prospective customers in the Asian marketplace. Foreign sales made
through the Company's domestic operations are made through foreign
manufacturer's representatives and are primarily priced and paid for in U.S.
dollars. The Company believes that its revenue has been, and will be, affected
by the cyclical nature of the industries it serves. The SMS acquisition, and the
Company's joint venture in Singapore, further increase the Company's reliance on
the semiconductor industry.
Gross profit for the three and nine month periods ended September 30, 1997
increased $1,474,000 and $2,149,000, or 35% and 18%, respectively, from the
comparable 1996 periods. Gross profit in the three and nine month periods ended
September 30, 1997 from the Company's Microelectronic Materials Group, increased
$1,581,000 and $2,958,000, or 56% and 41%, respectively, from comparable 1996
periods primarily due to increased sales volume and improved margins at the
Company's Polese Company subsidiary. Gross profit from the Company's
Semiconductor Services Group decreased $107,000 and $809,000, or 8% and 16%,
respectively, from comparable 1996 periods. While the SMS acquisition added
$1,600,000 to Semiconductor Services' gross profit, higher depreciation and
lower revenue at ASP's Rhode Island operation resulted in a $2,149,000 reduction
in gross profit. Also included in the nine month period ended September 30, 1997
is $260,000 of gross losses associated with the start-up of ISP. As a result of
the foregoing, gross margin decreased to approximately 29% in the three and nine
month periods ended September 30, 1997 from 35% in the comparable 1996 periods.
Selling, general and administrative ("SG&A") expenses in the three and nine
month periods ended September 30, 1997 increased $1,189,000 and $3,045,000, or
60% and 52%, respectively, over the comparable 1996 periods. Of the $3,045,000
increase in SG&A expenses, $1,645,000 was due to the inclusion of SMS, ISP and
S.T. SG&A expenses in the 1997 period, whereas no SG&A expenses of SMS, ISP and
S.T. were recorded in the comparable 1996 period. SG&A expenses also increased
in the respective 1997 periods due to higher revenues and additional
organizational infrastructure. SG&A expenses as a percentage of revenue
decreased to 16% and increased to 18%, respectively, in the three and nine month
periods ended September 30, 1997 as compared to 17% and 16%, respectively, in
the comparable 1996 periods.
Net interest expense for the three and nine month periods ended September 30,
1997 increased $463,000 and $1,259,000, respectively, from the comparable 1996
periods primarily due to increased interest costs associated with term debt
incurred in conjunction with the SMS acquisition (described herein), interest
costs associated with the S.T. acquisition (described herein) and higher
interest costs associated with capital lease obligations.
A provision of $837,000 and $1,522,000, respectively, for income taxes has been
made for the three and nine month periods ended September 30, 1997 as compared
to a $717,000 and $2,233,000 provision in the comparable 1996 periods, yielding
an effective tax rate of 38% in the 1997 periods compared with 36% and 39%,
respectively, in the 1996 periods. The decrease in the effective tax rates in
the 1997 periods was primarily related to a decrease in state income taxes due
to the utilization of investment tax credits during the periods.
In the three and nine month periods ended September 30, 1997, the Company has
included a loss associated with ISP in its income before minority interest in
loss of consolidated subsidiary, net of tax. The Company has a 50.1% interest in
the joint venture and has accordingly, excluded 49.9% of such loss from its
consolidated net income.
As a result of the foregoing, net income decreased $68,000 and $985,000,
respectively, or 5% and 28% in the three and nine month periods ended September
30, 1997 from the comparable 1996 periods.
9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its capital needs through the proceeds of its public
equity offerings, capital leases, its revolving credit facility and term loans
from banks led by First Union Bank (the "Bank") and cash flow from operations.
At September 30, 1997, the Company had cash and cash equivalents of $2,554,000
and had an available balance on its revolving credit facility of $6,175,000.
Net cash provided by operating activities in the three and nine month periods
ended September 30, 1997 amounted to $2,666,000 and $2,506,000, respectively, as
compared to $2,058,000 and $4,489,000, respectively, in the comparable 1996
periods. While cash provided by net income and adjustments to reconcile net
income to net cash used in operating activities increased $429,000 and $133,000,
respectively, in the three and nine month periods ended September 30, 1997, cash
used to support changes in operating assets and liabilities increased $179,000
and decreased $2,117,000, respectively, in the three and nine month periods
ended September 30, 1997 over the comparable 1996 periods. In the three and nine
month periods ended September 30, 1997, the Company used $320,000 and
$3,061,000, respectively, as compared to using $1,420,000 and $3,689,000,
respectively, in the three and nine month periods ended September 30, 1996 of
cash derived from operations to fund increases in accounts receivable and
inventory. The increases in the Company's accounts receivable and inventory were
made to support increased revenues. In the three and nine month periods ended
September 30, 1997, accrued expenses decreased $508,000 and $625,000,
respectively, as compared to increasing $783,000 and $1,959,000, respectively,
in the comparable 1996 periods. The decrease in the Company's accrued expenses
was due to the payment of costs associated with the integration and relocation
of certain acquired activities of SMS. In the nine month period ended September
30, 1997, the Company had made payments of approximately $2,410,000 for its 1996
and estimated 1997 state and federal tax obligations thereby reducing its
current income taxes payable by $778,000. In 1996, due to diminutive tax
obligations caused by the utilization of net operating loss carry forwards in
1995, the Company was not required to make any material tax payments for its
1996 tax obligations until 1997.
To support the Company's growth in the three and nine month periods ended
September 30, 1997, the Company invested $2,148,000 and $10,001,000,
respectively, as compared to $119,000 and $1,914,000, respectively, in the three
and nine month periods ended September 30, 1996, in property and equipment to
support its growth and expand its facilities and production capabilities. At
September 30, 1997, the Company had capital commitments of approximately
$1,374,000 for the ongoing upgrade of the Company's manufacturing equipment and
facilities. The Company believes that the lease financing available to it for
certain equipment together with cash flow from operations should be sufficient
to fund its capital needs.
On January 23, 1997, ASP completed the acquisition of the assets of Silicon
Materials Service of Garland, Texas, and acquired 100% of the outstanding stock
of Silicon Materials Service, B.V. of Helmond Netherlands. The purchase price of
approximately $12,972,000 was paid in cash, $400,000 of which was paid as a
deposit prior to December 31, 1996. The company also paid $736,000 in costs
associated with the integration and relocation of certain acquired activities of
SMS in the nine month period ended September 30, 1997. The SMS acquisition was
financed through a term loan with the Bank as described herein.
Effective July 30, 1997, Retconn Incorporated ("Retconn"), a wholly owned
subsidiary of the Company, acquired 100% of the outstanding stock of S.T.
Electronics, Inc. ("S.T."), for $1,000,000 in cash and $2,000,000 in notes. In
addition, Retconn acquired certain proprietary rights from the S.T. shareholders
for $200,010. The notes are payable in twenty equal quarterly installments
beginning on November 1, 1997 together with interest on the unpaid principal at
the rate of 7% per annum. In addition, the Company incurred approximately
$300,000 in estimated closing expenses. The fair value of the assets acquired,
including $2,993,000 allocated to goodwill, which is being amortized over 25
years, amounted to $4,431,000 and liabilities assumed amounted to $862,000. The
S.T. acquisition was financed through drawings under the Companys' line of
credit facility with the Bank as described herein.
Effective January 2, 1996, the Company acquired all of the common stock of
Retconn, a manufacturer of coaxial contacts and connectors, for $5,933,000 in
cash. In addition, the Company has paid approximately $986,000 in costs
associated with the Retconn acquisition. This business combination was accounted
for as a purchase. The
10
<PAGE>
Company also issued 15,000 of its common shares, valued at $146,250, in
conjunction with the acquisition. The fair value of the assets acquired,
including approximately $4,696,000 allocated to goodwill, which is being
amortized over 25 years, amounted to $8,033,000 and liabilities assumed amounted
to approximately $968,000.
In connection with the Retconn acquisition, on January 4, 1996, the Company
entered into a term loan with the Bank in the principal amount of $6,000,000.
The loan bore interest at the Bank's loan pricing rate (8.25% at December 31,
1996) with principal payable commencing on February 1, 1997. Interest on the
loan which was payable monthly commenced on February 1, 1996. This loan was
subsequently refinanced in conjunction with the SMS acquisition described
herein.
Effective August 28, 1996, the Company entered into a joint venture agreement to
develop a silicon wafer polishing and reclaiming facility in Singapore. The
jointly owned Singapore corporation, International Semiconductor Products Pte
Ltd ("ISP"), is 50.1% owned by the Company, 39.9% owned by a holding company,
Semiconductor Alliance Pte Ltd. and 10% owned by EDB Ventures 2 Pte. Ltd. In
1996, the Company and its joint venture partner made a total of $4,000,000 in
equity contributions into ISP, which was contributed pro-ratably based on
ownership. In addition, the Company has paid approximately $289,000 in costs
associated with the establishment of the joint venture.
Primarily as a result of the foregoing, the Company used $3,669,000 and
$24,654,000, respectively, in the three and nine month periods ended September
30, 1997, as compared to $814,000 and $9,836,000, respectively, in the three and
nine month periods ended September 30, 1996, in its investing activities.
Concurrent with the SMS acquisition, the Company entered into a $21,000,000 five
year term loan. The $21,000,000 term loan was principally used to finance the
SMS acquisition and to refinance the Retconn term loan. The principal amount
which is payable in 60 consecutive installments of $350,000, commenced on March
1, 1997. The loan bears interest at a Eurodollar rate plus 2.25%. In conjunction
with the term loan agreement, the Company also entered into a $15,000,000 line
of credit with the Bank which is described herein. Pursuant to the term loan and
line of credit agreements, the Bank has a first priority security interest in
substantially all of the Company's assets. The loan agreements provide, among
other things, that the Company maintain certain financial ratios. The Company is
also subject to restrictions relating to incurring additional indebtedness,
additional liens and security interests, capital expenditures and the payment of
dividends.
On January 23, 1997, the Company entered into a $15,000,000 line of credit with
the Bank which expires in February 1999, which includes a standby letter of
credit for ISP in the amount of $3,600,000. Interest is payable monthly at the
lower of the Bank's loan pricing rate or a Eurodollar rate plus 2.25%. At
September 30, 1997, the Company had borrowed $5,225,000 under its line of credit
and did not have any drawings under the standby letter of credit.
In 1997, ISP entered into a S$19,685,000 (approximately $14,000,000) credit
facility with a Singapore financial institution in order to acquire certain
equipment, acquire a building, provide for an overdraft facility and to provide
a multi currency letter of credit facility. Amounts borrowed under the facility
bear interest at an average rate of approximately 6.75%. In the three and nine
month periods ended September 30, 1997, ISP has borrowed $986,000 and
$4,592,000, respectively, under the facility.
In conjunction with the Company's acquisition of Polese Company in 1993, the
Company entered into an agreement with Mr. Frank Polese, the former sole
shareholder of Polese Company whereby, for a period of ten years, Mr. Polese has
the right to receive 10% of (I) the pre-tax profit from the copper tungsten
product line, after allocating operating costs and (ii) the proceeds of the
sale, if any, by the Company of the powdered metal technology. To date, no
payments have been made pursuant to this agreement.
In May of 1993, the Company entered into a $1,200,000 five year term loan
agreement with the Bank. The term loan agreement which calls for the repayment
of the loan in twenty equal installments, commenced on October 1, 1993. The term
loan bears interest at the Bank's loan pricing rate plus 1.5%. The term loan is
collateralized with a blanket lien on substantially all of the parent company's
assets, excluding the common stock and assets of its
11
<PAGE>
subsidiaries. As of September 30, 1997, the Company had an outstanding balance
of $210,000 due on this term loan.
The Company has, and expects to be able to continue to, meet its obligations to
the Bank from cash generated from operations. As at September 30, 1997, the
Company was in compliance with all of the covenants contained in its loan
agreements, as amended.
As a result of the above, in the three and nine months period ended September
30, 1997, $1,207,000 and $21,307,000, respectively, was provided by the
Company's financing activities as compared to $670,000 and $5,268,000 in the
comparable 1996 periods.
The Company continually seeks to broaden its product lines by various means,
including through acquisitions. The Company intends to pursue only those
acquisitions for which it will be able to arrange the necessary financing by
means of the issuance of additional equity, the use of its cash or through bank
or other debt financing.
The Company believes that it has the capacity for growth and that its working
capital and internally generated funds, combined with its bank line of credit,
the proceeds it has received from its public offerings, and from other sources
of financing, will be sufficient to satisfy the Company's currently anticipated
cash requirements on both a short-term and long-term basis.
12
<PAGE>
Pro Forma Information
The following unaudited pro forma combined financial statements and explanatory
notes are presented to reflect the acquisition of the net assets of Silicon
Materials Service of Garland, Texas, and 100% of the outstanding stock of
Silicon Materials Service, B.V. of Helmond, Netherlands (collectively "SMS") by
American Silicon Products, Inc, a subsidiary of Semiconductor Packaging
Materials Co., Inc. (the "Company") on January 23, 1997.
The pro forma statements of income give effect to this transaction as if it had
occurred at the beginning of the period presented.
The pro forma information should be read in conjunction with (1) the historical
financial statements for the Company, including the related notes thereto,
included in the Company's Form 10-KSB for the fiscal year ended December 31,
1996, (2) the historical financial statements of SMS, including the related
notes thereto and (3) the Company's Form 8-K and 8-K/A filed on February 4, 1997
and April 7, 1997, respectively.
The pro forma information is not necessarily indicative of the combined results
of operations or combined financial position that would have resulted had the
acquisition been consummated as of the date noted above, nor is it necessarily
indicative of the combined results of operations in any future period or of the
future combined financial position.
13
<PAGE>
Semiconductor Packaging Materials Co., Inc and Subsidiaries
Pro Forma Consolidated Statement of Income
(Unaudited)
For the Three Months Ended September 30, 1996
<TABLE>
<CAPTION>
Semiconductor
Packaging Materials
Co., Inc. and Pro Forma
Subsidiaries SMS Adjustments As Adjusted
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Net Sales $ 8,665,927 $ $ $ 8,665,927
Service Revenue 3,280,446 3,639,000 6,919,446
----------- ---------- ---------- -----------
Total Revenue 11,946,373 3,639,000 15,585,373
Cost of Goods Sold 5,835,571 5,835,571
Cost of Services Performed 1,899,562 3,113,000 (158,768)(1) 4,853,794
----------- ---------- ---------- -----------
Total Cost of Goods Sold and
Services Performed 7,735,133 3,113,000 (158,768) 10,689,365
----------- ---------- ---------- -----------
Gross Profit 4,211,240 526,000 158,768 4,896,008
Selling, General and
Administrative Expenses 1,995,643 402,000 21,829 (3) 2,419,472
----------- ---------- ---------- -----------
Operating Income 2,215,597 124,000 136,939 2,476,536
Interest Expense (Net) 234,331 320,642 (2) 554,973
----------- ---------- ---------- -----------
Income Before Provision for Income Taxes 1,981,266 124,000 (183,703) 1,921,563
Provision for Income Taxes 717,470 (24,239)(4) 693,231
----------- ---------- ---------- -----------
Net Income $ 1,263,796 $ 124,000 $ (159,464) $ 1,228,332
----------- ---------- ---------- -----------
Net Income per Common Share $ .21 $ .20
----------- ---------- ---------- -----------
Weighted Average Number of Common
Shares Outstanding 6,156,671 6,156,671
----------- ---------- ---------- -----------
</TABLE>
See Notes To Pro Forma Consolidated Statement Of Income
14
<PAGE>
Semiconductor Packaging Materials Co., Inc. and Subsidiaries
Notes to Unaudited Pro Forma Consolidated Statement of Income
For The Three Months Ended September 30, 1996
(1) Adjustment which reflects three months of depreciation expense of SMS's
machinery and equipment and furniture and fixtures at appraised values
amounting to $10,209,314, assuming an estimated useful life of ten years on
a straight line basis adjusted by actual depreciation expense of machinery
and equipment and furniture and fixtures recorded by SMS for the three
month period ended September 30, 1996, amounting to $414,000.
(2) Adjustment which records interest expense on a $15,000,000 term note with
an effective interest rate of 8.36%.
(3) Adjustment which records the amortization of the excess of the purchase
price paid for the fair market value of all tangible and identifiable
intangible assets acquired less liabilities assumed, totaling $2,182,895,
amortized over an estimated useful life of twenty-five years.
(4) Federal income taxes have been provided for the three month period ended
September 30, 1996 primarily because SMS prior to its acquisition by the
Company, was a division of Air Products and Chemicals, Inc. and therefore
no provision for federal income tax purposes was made. The income tax
credit of $24,239 represents SMS's pre-tax income of $124,000 less total
pre-tax pro forma adjustments of $183,703 adjusted for state and foreign
income taxes of 10% and federal income taxes of 34%.
15
<PAGE>
Semiconductor Packaging Materials Co., Inc and Subsidiaries
Pro Forma Consolidated Statement of Income
(Unaudited)
For the Nine Months Ended September 30, 1996
<TABLE>
<CAPTION>
Semiconductor
Packaging Materials
Co., Inc. and Pro Forma
Subsidiaries SMS Adjustments As Adjusted
----------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Net Sales $ 24,862,210 $ $ 24,862,210
Service Revenue 10,574,227 11,633,000 22,207,227
------------ ---------- ----------- -----------
Total Revenue 35,436,437 11,633,000 47,069,437
Cost of Goods Sold 17,691,894 17,691,894
Cost of Services Performed 5,515,298 9,580,000 (573,301) (1) 14,521,997
------------ ---------- ----------- -----------
Total Cost of Goods Sold and
Services Performed 23,207,192 9,580,000 (573,301) 32,213,891
------------ ---------- ----------- -----------
Gross Profit 12,229,245 2,053,000 573,301 14,855,546
Selling, General and
Administrative Expenses 5,816,359 1,298,000 65,487 (3) 7,179,846
------------ ---------- ----------- -----------
Operating Income 6,412,886 755,000 507,814 7,675,700
Interest Expense (Net) 653,536 954,957 (2) 1,608,493
------------ ---------- ----------- -----------
Income Before Provision for Income Taxes 5,759,350 755,000 (447,143) 6,067,207
Provision for Income Taxes 2,233,401 124,990 (4) 2,358,391
------------ ---------- ----------- -----------
Net Income $ 3,525,949 $ 755,000 $ (572,133) $ 3,708,816
------------ ---------- ----------- -----------
Net Income per Common Share $ .57 $ .60
------------ ---------- ----------- -----------
Weighted Average Number of Common
Shares Outstanding 6,145,586 6,145,586
=========== ========== =========== ===========
</TABLE>
See Notes To Pro Forma Consolidated Statement Of Income
16
<PAGE>
Semiconductor Packaging Materials Co., Inc. and Subsidiaries
Notes to Unaudited Pro Forma Consolidated Statement of Income
For The Nine Months Ended September 30, 1996
(1) Adjustment which reflects nine months of depreciation expense of SMS's
machinery and equipment and furniture and fixtures at appraised values
amounting to $10,209,314, assuming an estimated useful life of ten years on
a straight line basis adjusted by actual depreciation expense of machinery
and equipment and furniture and fixtures recorded by SMS for the nine month
period ended September 30, 1996, amounting to $1,339,000.
(2) Adjustment which records interest expense on a $15,000,000 term note with
an effective interest rate of 8.36%.
(3) Adjustment which records the amortization of the excess of the purchase
price paid for the fair market value of all tangible and identifiable
intangible assets acquired less liabilities assumed, totaling $2,182,895,
amortized over an estimated useful life of twenty-five years.
(4) Federal income taxes have been provided for the nine month period ended
September 30, 1996 primarily because SMS prior to its acquisition by the
Company, was a division of Air Products and Chemicals, Inc. and therefore
no provision for federal income tax purposes was made. The income tax
provision of $124,990 represents SMS's pre-tax income of $755,000 less
total pre-tax pro forma adjustments of $447,147 adjusted for state and
foreign income taxes of 10% and federal income taxes of 34%.
17
<PAGE>
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.
SEMICONDUCTOR PACKAGING MATERIALS CO., INC.
Date: November 14, 1997 By: /s/ Gilbert D. Raker
------------------------------
Name: Gilbert D. Raker
Title: Chairman of the Board
and Chief Executive Officer
Date: November 14, 1997 By: /s/ Andrew A. Lozyniak
------------------------------
Name: Andrew A. Lozyniak
Title: Treasurer and Secretary
(Chief Accounting Officer)
18
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,554
<SECURITIES> 0
<RECEIVABLES> 10,466
<ALLOWANCES> 183
<INVENTORY> 11,282
<CURRENT-ASSETS> 25,568
<PP&E> 49,375
<DEPRECIATION> 9,290
<TOTAL-ASSETS> 86,658
<CURRENT-LIABILITIES> 20,476
<BONDS> 27,390
0
0
<COMMON> 638
<OTHER-SE> 35,496
<TOTAL-LIABILITY-AND-EQUITY> 86,658
<SALES> 33,618
<TOTAL-REVENUES> 50,488
<CGS> 23,491
<TOTAL-COSTS> 36,110
<OTHER-EXPENSES> 8,861
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,913
<INCOME-PRETAX> 3,604
<INCOME-TAX> 1,365
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,541
<EPS-PRIMARY> 0.41
<EPS-DILUTED> 0.41
</TABLE>
