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 June 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 June 30, 1997 was 6,068,516 shares.
1
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Index to Financial Statements Page
----------------------------- ----
Consolidated Balance Sheet at
June 30, 1997 and December 31, 1996. 3
Consolidated Statement of Income
for the three and six months ended
June 30, 1997 and 1996. 4
Consolidated Statement of Cash Flows
for the three and six months ended
June 30, 1997 and 1996. 5
Consolidated Statement of Shareholders' Equity
for the six months ended June 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
June 30, 1996 (Unaudited) 14
Notes to Unaudited Pro Forma Consolidated
Statement of Income for the three months
ended June 30, 1996 15
Pro Forma Consolidated Statement of
Income for the six months ended
June 30, 1996 (Unaudited) 16
Notes to Unaudited Pro Forma Consolidated
Statement of Income for the six months
ended June 30, 1996 17
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote
Of Security Holders 18
SIGNATURE PAGE 19
EXHIBITS 20
2
<PAGE>
Semiconductor Packaging Materials Co., Inc. and Subsidiaries
Consolidated Balance Sheet
June 30, December 31,
ASSETS 1997 1996
(Unaudited)
------------ ------------
Current Assets:
Cash and cash equivalents $ 2,468,650 $ 3,531,099
Accounts receivable, less allowance for doubtful
accounts of $192,000 and $143,000, respectively 8,568,250 5,637,158
Inventories 10,864,921 9,078,471
Prepaid expenses and other current assets 1,653,123 885,644
------------ ------------
Total current assets 23,554,945 19,132,372
------------ ------------
Property and Equipment-at cost, net of accumulated
depreciation and amortization of $8,574,885 38,108,821 20,700,573
and $6,444,253, respectively ------------ ------------
Other Assets-net of accumulated amortization
Technology rights and intellectual property 721,590 749,523
Goodwill 16,652,823 14,816,454
Other 957,036 1,090,403
------------ ------------
Total other assets 18,331,449 16,656,380
------------ ------------
Total Assets $ 79,995,215 $ 56,489,325
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 4,167,970 $ 3,462,227
Accrued expenses 2,317,234 856,810
Income Taxes Payable 0 1,143,518
Current portion of obligations under capital leases 1,632,637 1,306,763
Current portion of long-term debt 8,391,000 1,416,000
------------ ------------
Total current liabilities 16,508,841 8,185,318
Deferred income taxes 1,470,460 1,470,460
Long-term debt 20,516,965 6,719,333
Obligations under capital leases 4,897,843 4,242,415
------------ ------------
Total Liabilities 43,394,109 20,617,526
------------ ------------
Minority Interest in Subsidiary 1,584,154 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 6,368,516 and
6,355,516 shares, respectively 636,852 635,552
Additional paid-in-capital 28,157,213 28,070,464
Cumulative Translation Adjustment (355,886) 0
Retained Earnings 6,578,773 5,233,612
------------ ------------
35,016,952 33,939,628
Less: Treasury stock:300,000 shares, at cost 0 0
------------ ------------
Shareholders' Equity 35,016,952 33,939,628
------------ ------------
Total Liabilities And Shareholders' Equity $ 79,995,215 $ 56,489,325
============ ============
See Notes to Consolidated Financial Statements
3
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Semiconductor Packaging Materials Co., Inc. and Subsidiaries
Consolidated Statement of Income
(Unaudited)
<TABLE>
<CAPTION>
For The Three Months For The Six Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales $11,040,873 $ 8,274,276 $20,079,247 $16,196,283
Service Revenue 5,887,927 3,967,525 10,756,418 7,293,781
----------- ----------- ----------- -----------
Total Revenue 16,928,800 12,241,801 30,835,665 23,490,064
Cost of Goods Sold 7,809,197 6,030,354 14,362,860 11,856,323
Cost of Services Performed 4,339,969 1,922,835 7,779,888 3,615,736
----------- ----------- ----------- -----------
Total Cost of Goods Sold and
Services Performed 12,149,166 7,953,189 22,142,748 15,472,059
----------- ----------- ----------- -----------
Gross Profit 4,779,634 4,288,612 8,692,917 8,018,005
Selling, General and
Administrative Expenses 2,965,587 1,944,506 5,676,638 3,820,716
----------- ----------- ----------- -----------
Operating Income 1,814,047 2,344,106 3,016,279 4,197,289
Interest Expense (Net) 699,018 216,105 1,215,268 419,205
----------- ----------- ----------- -----------
Income Before Provision for Income Taxes and
Minority Interest in Loss of Consolidated
Subsidiary 1,115,029 2,128,001 1,801,011 3,778,084
Provision for Income Taxes 404,395 855,450 684,967 1,515,931
----------- ----------- ----------- -----------
Income Before Minority Interest in Loss of
Consolidated Subsidiary 710,634 1,272,551 1,116,044 2,262,153
Minority Interest in Loss of Consolidated
Subsidiary 153,285 0 229,117 0
----------- ----------- ----------- -----------
Net Income $ 863,919 $ 1,272,551 $ 1,345,161 $ 2,262,153
=========== =========== =========== ===========
Income per Common Share $ .14 $ .21 $ .22 $ .37
=========== =========== =========== ===========
Weighted Average Number of Common
Shares Outstanding 6,158,223 6,172,232 6,195,799 6,157,442
=========== =========== =========== ===========
</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 Six Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
Cash Flows From Operating Activities: ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Income $ 863,919 $ 1,272,551 $ 1,345,161 $ 2,262,153
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 Equipment 1,170,121 561,315 2,167,462 1,073,921
Other Amortization 190,896 169,746 374,459 339,492
Deferred Income Taxes 63,300 113,300
Minority Interest in Subsidiary Loss (233,042) (348,017)
Changes In Operating Assets And Liabilities:
Increase In Accounts Receivable (1,188,000) (109,060) (1,562,047) (1,283,735)
Increase In Inventory (661,556) (322,690) (1,178,394) (985,998)
(Increase) Decrease In Prepaid Expenses And
Other Current Assets (394,147) 96,711 147,293 (57,531)
Increase (Decrease) In Accounts Payable (902,058) (362,137) 200,932 (205,350)
Increase (Decrease) In Accrued Expenses (187,542) 234,997 (117,533) (25,013)
Increase (Decrease) in Income Taxes Payable 193,437 668,587 (1,143,518) 1,200,504
------------ ------------ ------------ ------------
Net Cash Provided By (Used In) Operating Activities (1,147,972) 2,273,320 (159,859) 2,431,743
------------ ------------ ------------ ------------
Cash Flows From Investing Activities:
Purchase Of Property And Equipment (805,525) (1,426,250) (7,853,298 (1,795,487)
Proceeds From Sale of Property and Equipment 14,895 275,000
(Increase) Decrease In Other Assets 382,063 (317,909) (279,207) (670,396)
Acquisition of Subsidiary (104,216) (342,534) (13,127,229) (6,556,440)
------------ ------------ ------------ ------------
Net Cash Used In Investing Activities (512,783) (2,086,693) (20,984,734) (9,022,323)
------------ ------------ ------------ ------------
Cash Flows From Financing Activities:
Proceeds From Exercise Of Stock Options 3,776 88,049 187,931
Proceeds From Long-Term Debt 1,223,939 18,605,633 6,000,000
Borrowing Under Revolving Credit 2,475,000 3,775,000
Payment Under Capital Leases (417,462) (201,804) (761,139) (378,854)
Payment Under Term Loan Agreements (1,154,000) (90,000) (1,608,000) (586,166)
Decrease In Amounts Due Related Parties (625,000)
------------ ------------ ------------ ------------
Net Cash Provided By (Used In) Financing Activities 2,127,477 (288,028) 20,099,543 4,597,911
------------ ------------ ------------ ------------
Effect of Exchange Rate Change on Cash 39,829 (17,399)
------------ ------------ ------------ ------------
Net Increase (Decrease) In Cash 506,551 (101,401) (1,062,449) (1,992,669)
Cash At Beginning Of Period 1,962,099 2,352,807 3,531,099 4,244,075
------------ ------------ ------------ ------------
Cash At End Of Period $ 2,468,650 $ 2,251,406 $ 2,468,650 $ 2,251,406
============ ============ ============ ============
Supplemental schedule of noncash investing and
financing activity:
Machinery and equipment acquired under capital leases $ 1,742,441 $ 557,358 $ 1,742,441 $ 1,309,728
</TABLE>
See Notes To Consolidated Financial Statements
5
<PAGE>
SEMICONDUCTOR PACKAGING MATERIALS CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
For the six months ended June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TREASURY STOCK CUMULATIVE TOTAL
-------------------- PAID-IN RETAINED ----------------- TRANSLATION SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT ADJUSTMENT EQUITY
--------- -------- ---------- ---------- -------- ------- ----------- -------------
<S> <C> <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 13,000 1,300 86,749 88,049
Net Income 1,345,161 1,345,161
Cumulative
Translation
Adjustment (355,886) (355,886)
--------- --------- ---------- ---------- -------- ------- ----------- ------------
Balance at
June 30, 1997 6,068,516 $636,852 $28,157,213 $6,578,773 300,000 $ 0 $(355,886) $35,016,952
========= ======== =========== ========== ======== ======= =========== ============
</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 June 30, 1997, the consolidated statement
of income for the three and six months ended June 30, 1997 and 1996, the
consolidated statement of cash flows for the three and six months ended
June 30, 1997 and 1996 and the consolidated statement of shareholders'
equity for the six months ended June 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 June 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 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 and
49.9% owned by a holding company, Semiconductor Alliance Pte Ltd.
Accordingly, the Company's consolidated balance sheet at June 30, 1997
reflects a $1,584,154 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 $ 20,000 during the
three month period ended June 30, 1997.
7
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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 which the Company serves, the timely and successful
completion of the Company's capital and plant expansion programs, the success of
the Company in implementing its strategic and operational plans and the ability
of the Company to obtain necessary financing when required.
RESULTS OF OPERATIONS (for the three and six month periods ended June 30, 1997
compared to the three and six month periods ended June 30, 1996)
Total revenue for the three and six month periods ended June 30, 1997 increased
$4,687,000 and $7,346,000, respectively, or 38% and 31%, respectively, over the
comparable 1996 periods. In the three and six month periods ended June 30, 1997,
sales from the Company's Microelectronic Materials Group increased $2,767,000
and $3,883,000, respectively, or 33% and 24%, respectively, over the comparable
1996 periods primarily due to an increase in demand for its products by the
communication and computer industries. In the three and six month periods ended
June 30, 1997, revenue derived from the Company's Semiconductor Services Group
increased $1,920,000 and $3,463,000, respectively, or 48% and 47%, respectively,
over the comparable 1996 periods as the result of the inclusion of revenue from
SMS, which was acquired by the Company on January 23, 1997. While revenue in the
three and six month periods ended from June 30, 1997 from the ASP's Rhode Island
Semiconductor Services operation decreased $1,239,000 and $1,998,000,
respectively, from the comparable 1996 periods, primarily due to decreased
demand for its services by silicon wafer brokers, the ASP Rhode Island
operation's new order inflow and backlog position continued to improve in the
second quarter of 1997. While demand for the Company's silicon wafer reclaim
services in the three and six month period ended June 30, 1997, has been below
that of the comparable 1996 periods, demand for its services, new orders and
backlog appears to be improving. The Company believes that as various segments
of the semiconductor industry recover, it will experience an increase in demand
for its services. At June 30, 1997, the Company's consolidated backlog increased
to $27,068,000, which represents an 80% increase since the beginning of the
year. Excluding the SMS backlog at June 30, 1997, consolidated backlog has
increased 62% since January 1, 1997. For the six months ended June 30, 1997 and
1996, direct sales of the Company's products into foreign markets accounted for
15% and 9%, respectively, of consolidated revenue. The Company currently
maintains foreign manufacturing operations in the Netherlands ("ASP B.V.") and
in Singapore ("ISP"). In the three and six month periods ended June 30, 1997,
the Company derived $894,000 and $1,568,000, respectively, of revenue from ASP
B.V. and $20,000 of revenue from ISP. 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, will further increase the Company's
reliance on the semiconductor industry and its future revenue could be impacted
by the cyclical nature of the semiconductor industry.
Gross profit for the three and six month periods ended June 30, 1997 increased
$491,000 and $675,000,
8
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respectively, or 11% and 8%, respectively, from the comparable 1996 periods.
Gross profit in the three and six month periods ended June 30, 1997 from the
Company's Microelectronic Materials Group, increased $988,000 and $1,376,000,
respectively, or 44% and 32%, respectively, from comparable 1996 periods
primarily due to increased sales and improved margins for the Company's heat
dissipation products. Gross profit from the Company's Semiconductor Services
Group decreased $497,000 and $701,000, respectively, or 24% and 19%,
respectively, from comparable 1996 periods as the result of decreased revenue
and higher depreciation expenses associated with capacity expansion at ASP's
Rhode Island operation. While gross margin improved approximately 2% in the
three and six month periods ending June 30, 1997 from comparable 1996 periods in
the Company's Microelectronic Materials Group, gross margin in the Company's
Semiconductor Services Group decreased 25% and 23%, respectively, from 1996
comparable levels. As a result of the foregoing, gross margin decreased to 28%
in the three and six month periods ended June 30, 1997 from 35% and 34%,
respectively, in the comparable 1996 periods.
Selling, general and administrative ("SG&A") expenses in the three and six month
periods ended June 30, 1997 increased $1,021,000 and $1,856,000, respectively,
or 53% and 49%, respectively, over the comparable 1996 periods. Of the
$1,856,000 increase in SG&A expenses, $1,058,000 was due to the inclusion of SMS
and ISP SG&A expenses in the 1997 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 increased to 18% in the
three and six month periods ended June 30, 1997 as compared to 16% in the
comparable 1996 periods.
Net interest expense for the three and six month periods ended June 30, 1997
increased $483,000 and $796,000, respectively, from the comparable 1996 periods
primarily due to increased interest costs associated with term debt incurred in
conjunction with the SMS acquisition (described below) and higher interest costs
associated with capital lease obligations.
A provision of $404,000 and $685,000, respectively, for income taxes has been
made for the three and six month periods ended June 30, 1997 as compared to a
$855,000 and $1,516,000 provision in the comparable 1996 periods, yielding
effective tax rates of 36% and 38%, respectively, compared with 40% in the 1996
periods. The decrease in the effective tax rates in the 1997 periods was
primarily related to a reduction in state income taxes due to the utilization of
investment tax credits.
In the three and six month periods ended June 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 $409,000 and $917,000,
respectively, or 32% and 41% in the three and six month periods ended June 30,
1997 from the comparable 1996 periods.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its capital needs through the proceeds of its public
offerings, its revolving credit facility and term loans from First Union Bank
(the "Bank") and cash flow from operations.
At June 30, 1997, the Company had cash and cash equivalents of $2,469,000 and
had an available balance on its revolving credit facility of $7,600,000.
9
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Net cash used in operating activities in the three and six month periods ended
June 30, 1997 amounted to $1,148,000 and $160,000, respectively, as compared to
$2,273,000 and $2,432,000, respectively, of net cash provided by operating
activities in the comparable 1996 periods. While cash provided by net income and
adjustments to reconcile net income to net cash used in operating activities
decreased $75,000 and $296,000, respectively, in the three and six month periods
ended June 30, 1997, cash used to support changes in operating assets and
liabilities increased $3,346,000 and $2,296,000, respectively, in the three and
six month periods ended June 30, 1997 over the three and six month periods ended
June 30, 1996. In the three and six month periods ended June 30, 1997, the
Company used $1,850,000 and $2,740,000, respectively, as compared to using
$432,000 and $2,270,000, respectively, in the three and six month periods ended
June 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 six month period ended
June 30, 1997, the Company had made payments of approximately $1,865,000 for its
1996 and its estimated 1997 state and federal tax obligations. 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 and enhance its profitability, in the three and
six month periods ended June 30, 1997, the Company invested $806,000 and
$7,853,000, respectively, as compared to investing $1,426,000 and $1,795,000,
respectively, in the three and six month periods ended June 30, 1996, in
property and equipment to support its growth and expand its facilities and
production capabilities. At June 30, 1997, the Company had capital commitments
of approximately $634,000 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
will 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 $555,000 in
acquisition expenses in the six month period ended June 30, 1997 related to the
SMS acquisition.
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 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) and the principal was to be payable commencing on February 1, 1997.
Interest on the loan was payable monthly and commenced on February 1, 1996. The
loan was subsequently refinanced in conjunction with the SMS acquisition
described below.
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 and 49.9% owned by a holding
10
<PAGE>
company, Semiconductor Alliance 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 $250,000 in costs associated with the establishment of
the joint venture.
Primarily as a result of the foregoing, the Company used $513,000 and
$20,985,000, respectively, in the three and six month periods ended June 30,
1997, as compared to using $2,087,000 and $9,022,000, respectively, in the three
and six month periods ended June 30, 1996, in its investing activities.
Concurrent with the SMS acquisition, the Company entered into a $21,000,000 five
year term loan with First Union Bank (the "Bank"). Fleet National Bank is also
participating in the term loan facility and the line of credit described below.
The $21,000,000 term loan was principally used to finance the SMS acquisition
and to refinance the Retconn term loan. The principal amount is payable in 60
consecutive installments of $350,000 which 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 below. 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 June
30, 1997, the Company had borrowed $3,775,000 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 United States
dollars) 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 six month periods ended June 30, 1997, ISP has borrowed $1,224,000
and $3,606,000, 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 calls for the repayment of the
loan in twenty equal installments which 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 subsidiaries. As of June
30, 1997, the Company had an outstanding balance of $270,000 due on the 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 June 30, 1997, the Company
was in compliance with all of the covenants contained in
11
<PAGE>
its loan agreements.
As a result of the above, in the three and six months period ended June 30,
1997, $2,127,000 and $20,100,000, respectively, of cash was provided by the
Company's financing activities. In the three and six month periods ended June
30, 1996, $288,000 was used in, and $4,598,000 was provided by, respectively,
the Company's financing activities.
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 gives 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)
<TABLE>
<CAPTION>
For The Three Months Ended June 30, 1996
---------------------------------------------------
Historical
Semiconductor
Packaging Materials
Co., Inc. and Pro Forma
Subsidiaries SMS Adjustments As Adjusted
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 8,274,276 $ $ 8,274,276
Service revenue 3,967,525 3,987,000 7,954,525
------------ ------------ ------------ ------------
Total revenue 12,241,801 3,987,000 16,228,801
Cost of goods sold 6,030,354 6,030,354
Cost of services performed 1,922,835 3,244,000 (205,767)(1) 4,961,068
------------ ------------ ------------ ------------
Total cost of goods sold and services performed 7,953,189 3,244,000 (205,767) 10,991,422
------------ ------------ ------------ ------------
Gross profit 4,288,612 743,000 205,767 5,237,379
Selling, general and administrative expenses 1,944,506 424,000 21,829 (3) 2,390,335
------------ ------------ ------------ ------------
Operating income 2,344,106 319,000 183,938 2,847,044
Interest expense (net) 216,105 312,813 (2) 528,918
------------ ------------ ------------ ------------
Income before provision for income taxes 2,128,001 319,00 (128,875) 2,318,126
Provision for income taxes 855,450 77,191 (4) 932,641
------------ ------------ ------------ ------------
Net income $ 1,272,551 $ 319,000 $ (206,066) $ 1,385,485
============ ============ ============ ============
Net income per common share $ .21 $ .22
============ ============ ============ ============
Weighted average number of common
shares outstanding 6,172,232 6,172,232
============ ============ ============ ============
</TABLE>
14
<PAGE>
Semiconductor Packaging Materials Co., Inc. and Subsidiaries
Notes to Unaudited Pro Forma Consolidated Statement of Income
For The Three Months Ended June 30, 1996
(1) Adjustment which reflects three months of depreciation expense on 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 on machinery
and equipment and furniture and fixtures recorded by SMS for the three
month period ended June 30, 1996, amounting to $461,000.
(2) Adjustment which records interest expense on a $15,000,000 term note with
an effective interest rate of 8.25%.
(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
June, 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 has been made. The income tax
provision of $77,191 represents SMS's pre-tax income of $319,000 less total
pre-tax pro forma adjustments of $128,875 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)
<TABLE>
<CAPTION>
For The Six Months Ended June 30, 1996
---------------------------------------------------
Historical
Semiconductor
Packaging Materials
Co., Inc. and Pro Forma
Subsidiaries SMS Adjustments As Adjusted
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 16,196,283 $ $ 16,196,283
Service revenue 7,293,781 7,994,000 15,287,781
------------ ------------ ------------ ------------
Total revenue 23,490,064 7,994,000 31,484,064
Cost of goods sold 11,856,323 11,856,323
Cost of services performed 3,615,736 6,467,000 (414,534)(1) 9,668,202
------------ ------------ ------------ ------------
Total cost of goods sold and services performed 15,472,059 6,467,000 (414,534) 21,524,525
------------ ------------ ------------ ------------
Gross profit 8,018,005 1,527,000 414,534 9,959,539
Selling, general and administrative expenses 3,820,716 895,000 43,658 (3) 4,759,374
------------ ------------ ------------ ------------
Operating income 4,197,289 632,000 370,876 5,200,165
Interest expense (net) 419,205 625,626 (2) 1,044,831
------------ ------------ ------------ ------------
Income before provision for income taxes 3,778,084 632,000 (254,750) 4,155,334
Provision for income taxes 1,515,931 153,164 (4) 1,669,095
------------ ------------ ------------ ------------
Net income $ 2,262,153 $ 632,000 $ (407,914) $ 2,486,239
============ ============ ============ ============
Net income per common share $ .37 $ .40
============ ============ ============ ============
Weighted average number of common
shares outstanding 6,157,442 6,157,442
============ ============ ============ ============
</TABLE>
16
<PAGE>
Semiconductor Packaging Materials Co., Inc. and Subsidiaries
Notes to Unaudited Pro Forma Consolidated Statement of Income
For The Six Months Ended June 30, 1996
(1) Adjustment which reflects six months of depreciation expense on 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 on machinery
and equipment and furniture and fixtures recorded by SMS for the six month
period ended June 30, 1996, amounting to $925,000.
(2) Adjustment which records interest expense on a $15,000,000 term note with
an effective interest rate of 8.25%.
(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 six month period ended June
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 has been made. The income tax provision of
$153,164 represents SMS's pre-tax income of $632,000 less total pre-tax pro
forma adjustments of $254,750 adjusted for state and foreign income taxes
of 10% and federal income taxes of 34%.
17
<PAGE>
PART II OTHER INFORMATION
- ------- -----------------
Item 4. Submission of Matters to a Vote of Security Holders.
On April 29, 1997, the registrant conducted its annual meeting. At
such meeting stockholders of record as of at the close of business on
March 18, 1997 were entitled to notice of and to vote at the meeting.
A total of 6,068,516 shares were entitled to vote at the meeting. A
total of 5,720,794 shares, or 94.3% of those shares entitled to vote,
were present in person or by proxy at said meeting. The matters voted
on at the meeting was limited to: the election of six directors to
serve for one year and until their successors are elected and qualify;
the ratification of Goldstein Golub Kessler & Company, P.C. as the
Company's auditors for the year ending December 31, 1997; and the
Certificate of Incorporation to increase the number of authorized
shares of common stock, $.10 par value, from 10,000,000 to 20,000,000
shares.
The following directors where elected at such meeting:
Mark Pinto John U. Moorhead, II
Richard D. Fain Steven B. Sands
Gilbert D. Raker Frank J. Polese
The following votes were cast in the election of Goldstein Golub Kessler &
Company, P.C.
Affirmative Against Abstain
----------- ------- -------
5,675,195 Shares 30,355 Shares 15,244 Shares
Appointment of Goldstein Golub Kessler, P.C. as auditors for the
Company was approved.
The following votes were cast to amend the Company's Certificate of
Incorporation to increase the authorized common shares from 10,000,000 to
20,000,000.
Affirmative Against Abstain Not Voted
----------- ------- ------- ---------
5,519,719 Shares 180,861 Shares 20,214 Shares 347,722 Shares
Adoption to amend the Company's Certificate of Incorporation was
approved.
18
<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: August 12, 1997 By: /s/ Gilbert D. Raker
------------------------------------
Name: Gilbert D. Raker
Title: Chairman of the Board
and Chief Executive Officer
Date: August 12, 1997 By: /s/ Andrew A. Lozyniak
------------------------------------
Name: Andrew A. Lozyniak
Title: Treasurer and Secretary
(Chief Accounting Officer)
19
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,469
<SECURITIES> 0
<RECEIVABLES> 8,760
<ALLOWANCES> 192
<INVENTORY> 10,865
<CURRENT-ASSETS> 23,555
<PP&E> 46,684
<DEPRECIATION> 8,575
<TOTAL-ASSETS> 79,995
<CURRENT-LIABILITIES> 16,509
<BONDS> 25,415
0
0
<COMMON> 637
<OTHER-SE> 34,380
<TOTAL-LIABILITY-AND-EQUITY> 79,995
<SALES> 20,079
<TOTAL-REVENUES> 30,836
<CGS> 14,363
<TOTAL-COSTS> 22,143
<OTHER-EXPENSES> 5,677
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,215
<INCOME-PRETAX> 1,801
<INCOME-TAX> 685
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,345
<EPS-PRIMARY> 0.22
<EPS-DILUTED> 0.22
</TABLE>
