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UNITED STATES
SECURITIES & 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 29, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to ___________________
Commission file number: 0-27712
__________________________
INTEGRATED PACKAGING ASSEMBLY CORPORATION
(Exact name of registrant as specified in its charter)
CALIFORNIA 77-0309372
(State or other jurisdiction of incorporation) (I.R.S. Employer
Identification No.)
2221 OLD OAKLAND ROAD
SAN JOSE, CA 95131-1402
(Address of principal executive offices) (Zip Code)
(408) 321-3600
(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.
Yes [X] No [_]
Number of shares of common stock outstanding as of November 11, 1996: 13,808,834
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TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheet.............................. 3
Condensed Statement of Operations.................... 4
Condensed Statement of Cash Flows.................... 5
Notes to Financial Statements........................ 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........... 8
PART II. OTHER INFORMATION
Item 6. Exhibits............................................. 16
Signatures................................................... 17
Exhibit Index................................................ 18
Page 2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTEGRATED PACKAGING ASSEMBLY CORPORATION
CONDENSED BALANCE SHEET
(IN THOUSANDS)
(UNAUDITED)
SEPT. 29, DEC. 31,
1996 1995
--------- --------
ASSETS
Current assets:
Cash and cash equivalents $15,149 $ 5,424
Short term investments 6,044 --
Accounts receivable, net 5,520 2,903
Inventory 2,099 2,141
Prepaid expenses and other current assets 897 487
------- -------
Total current assets 29,709 10,955
Property and equipment, net 28,541 17,050
Other assets 295 255
------- -------
Total assets $58,545 $28,260
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt $ 4,301 $ 2,948
Accounts payable 2,673 1,855
Accrued expenses and other liabilities 2,814 1,379
------- -------
Total current liabilities 9,768 6,182
Long term debt 8,126 7,015
Mandatorily Redeemable Convertible Preferred Stock -- 15,981
------- -------
Shareholders' equity (deficit)
Common Stock 39,798 449
Accumulated earnings (deficit) 833 (1,367)
------- -------
Total shareholders' equity (deficit) 40,631 (918)
------- -------
Total liabilities and shareholders' equity $58,545 $28,260
======= =======
The accompanying notes are an integral part of these financial statements.
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INTEGRATED PACKAGING ASSEMBLY CORPORATION
CONDENSED STATEMENT OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FISCAL QUARTER ENDED NINE MONTHS ENDED
------------------------ -----------------------
SEPT. 29, OCT. 1, SEPT 29, OCT. 1,
1996 1995 1996 1995
--------- -------- ------- -------
<S> <C> <C> <C> <C>
Revenues $10,385 $ 6,069 $26,911 $13,713
Cost of revenues 8,062 4,724 20,839 10,274
------- ------- ------- -------
Gross profit 2,323 1,345 6,072 3,439
------- ------- ------- -------
Operating expenses
Selling, general & administrative 959 619 2,562 1,510
Research & development 275 196 737 493
------- ------- ------- -------
Total operating expenses 1,235 815 3,299 2,003
Operating income 1,088 530 2,773 1,436
Interest & other income (expense) (17) (45) (73) (383)
------- ------- ------- -------
Income before income taxes 1,071 485 2,700 1,053
Provision for income taxes (50) (35) (500) (75)
------- ------- ------- -------
Net income $ 1,021 $ 450 $ 2,200 $ 978
======= ======= ======= =======
Net income per share $ 0.07 $ 0.04 $ 0.16 $ 0.08
======= ======= ======= =======
Weighted average common shares and equivalents 14,732 11,253 13,979 11,265
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements
Page 4
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INTEGRATED PACKAGING ASSEMBLY CORPORATION
CONDENSED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) CASH
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------------
SEPT. 29, OCT. 1,
1996 1995
-------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,200 $ 978
ADJUSTMENTS:
Depreciation and amortization 2,192 547
Changes in assets and liabilities:
Accounts receivable (2,617) (1,769)
Inventory 42 (478)
Prepaid expenses and other assets (450) (277)
Accounts payable 817 448
Accrued expenses and other liabilities 1,436 (127)
------- -------
Net cash provided by (used in) operating activities 3,620 (678)
------- -------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Acquisition of property and equipment (13,425) (3,759)
Net investment in short term investments (6,044) --
------- -------
Net cash used in investing activities (19,469) (3,759)
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Payments under capital lease obligations (1,174) (656)
Principal payments on note payable (1,162) --
Proceeds from note payable 4,634 --
Proceeds from issuance of Mandatorily Redeemable
Convertible Preferred Stock -- 7,961
Proceeds from issuance of Common Stock, net 23,276 27
------- -------
Net cash provided by investing activities 25,574 7,332
------- -------
NET INCREASE (DECREASE) IN CASH 9,725 2,895
Cash and cash equivalents at beginning of period 5,424 3,030
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $15,149 $ 5,925
======= =======
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCIING ACTIVITIES
Acquisition of equipment under capital leases $ 147 $ 40
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements
Page 5
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INTEGRATED PACKAGING ASSEMBLY CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Integrated Packaging Assembly Corporation (the "Company") packages integrated
circuits for companies in the semiconductor industry.
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Regulation S-X. Accordingly, they do
not have the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation have been included.
The financial statements should be read in conjunction with the audited
financial statements for the year ended December 31, 1995 included in the
Company's Registration Statement on Form SB-2 declared effective February 28,
1996.
The results of operations for the three month and nine month periods ended
September 29, 1996 are not necessarily indicative of results that may be
expected for the entire year ending December 31, 1996.
FISCAL YEAR
The Company's fiscal quarters and year end on the Sunday nearest the calendar
quarter end and December 31, respectively. For purposes of financial statement
presentation, each fiscal year is presented as having ended on December 31 and
each fiscal quarter is presented as having ended on the calendar quarter end.
Fiscal 1994 consisted of 53 weeks; fiscal 1995 and 1996 each consist of 52
weeks.
NOTE 2. BALANCE SHEET COMPONENTS
(IN THOUSANDS)
SEPT. 29, DEC. 31,
1996 1995
------ ------
INVENTORY
Raw materials $1,881 $1,906
Work in progress 218 235
------ ------
$2,099 $2,141
====== ======
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NOTE 3. COMMON STOCK
Common Stock as of September 29, 1996 reflects the sale of 3,450,000 shares of
Common Stock issued in the Company's initial public offering completed February
28, 1996. Net proceeds to the Company were $23.2 million as a result of the
initial public offering. In addition, Common Stock also reflects the
conversion of all the Mandatorily Redeemable Convertible Preferred Stock
outstanding prior to the public offering into an aggregate of 7,862,130 shares
of Common Stock which occurred upon the closing of the public offering.
NOTE 4. INCOME TAXES
The provision for income taxes reflects the estimated annualized effective tax
rate applied to earnings for the interim period. The effective tax rate differs
from the statutory rate primarily due to use of federal and state net operating
loss carryforwards (NOLs) and state investment tax credits.
NOTE 5. NET INCOME PER SHARE
Net income per share is computed using the weighted average number of common and
common equivalent shares outstanding during the period. Common equivalent
shares consist of Common Stock issued upon the conversion of the Company's
Mandatorily Redeemable Convertible Preferred Stock using the as if converted
method and the exercise of stock options and warrants using the treasury stock
method. Pursuant to the requirements of the Securities and Exchange Commission,
common stock equivalent shares relating to stock options and warrants, using the
treasury stock method, and the Mandatorily Redeemable Convertible Preferred
Stock, even where antidilutive, using the as if-converted method, issued
subsequent to December 31, 1994 are included in the computation of net income
per share through February 28, 1996, the date of the Company's initial public
offering.
Page 7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
In addition to the historical information contained herein, this Management's
Discussion and Analysis of Financial Condition and Results of Operations
contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. The forward-looking statements contained herein are
subject to certain factors that could cause actual results to differ materially
from those reflected in the forward-looking statements. Such factors include,
but are not limited to, those discussed below and elsewhere in this Report on
Form 10-Q.
OVERVIEW
Integrated Packaging Assembly Corporation (the "Company") is an independent
North American semiconductor packaging foundry. The Company receives wafers
from its customers and assembles each integrated circuit in a protective plastic
package. The Company commenced commercial production in the quarter ended March
31, 1994. Since then, the Company has been engaged in a continual program to
expand its manufacturing capacity, and the Company believes that its competitive
position depends substantially on its ability to successfully continue such
expansion. The expansion of the Company's manufacturing capacity is highly
dependent on the ability of the Company (i) to obtain certain critical capital
equipment which is manufactured for the Company by a limited number of suppliers
and (ii) to identify, hire, and train qualified personnel. See "Certain
Factors Affecting Operating Results".
REVENUES
- --------
The Company recognizes revenues upon shipment of products to its customers.
Revenue for the three month and nine month periods ended September 29, 1996,
increased to $10.4 million and $26.9 million respectively, representing
increases of 71% and 96% respectively, over the comparable periods in the prior
fiscal year. The increase in revenues for both the three month and nine month
periods reflect both a growth in unit volume from existing customers as well as
an expansion of the Company's customer base.
Future revenue growth is dependent on the Company receiving increased orders
from current customers and/or new customers and the Company increasing its
manufacturing capacity. In order to increase its manufacturing capacity, the
Company must obtain additional critical capital equipment and identify, hire,
and train qualified personnel. The Company experienced delays in the receipt of
two molding and encapsulation systems during the first and second quarters of
fiscal 1996. This equipment was received at the end of the second quarter, and
the delay in the delivery had an adverse impact on second quarter revenues.
A substantial portion of the Company's net revenues in each quarter results from
shipments during the last month of that quarter, and for that reason, among
others, the Company's revenues are subject to significant quarterly
fluctuations. In addition, the Company establishes its targeted expenditure
levels based on expected revenues. If anticipated orders and shipments in any
quarter do not occur when expected, expenditure levels could be
disproportionately high and the Company's operating results for that quarter
could be materially adversely affected.
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GROSS PROFIT
- ------------
Cost of revenues includes materials, labor, depreciation and overhead costs
associated with semiconductor packaging. Gross profit for the three month and
nine month periods ended September 29, 1996 increased to $2.3 million and $6.1
million respectively representing increases of 73% and 77% respectively, over
the comparable periods in the prior fiscal year. Gross profit as a percentage
of revenues, or gross margin, was 22.4% for the third quarter of 1996 compared
to 22.2% for the third quarter of 1995. Gross margin decreased to 22.6% for
the nine month period ended September 29, 1996 compared to 25.1% for the same
period in 1995. Gross margin declined during the first nine months of 1996
compared with the comparable period in 1995 because prototype orders, which
carry significantly higher gross margins than high volume production orders,
comprised a significant portion of revenues during the early part of 1995.
Since the second half of 1995, prototype orders have not been a significant part
of the Company's revenues.
SELLING, GENERAL AND ADMINISTRATIVE
- -----------------------------------
Selling, general and administrative expenses consist primarily of costs
associated with sales, customer service, finance, administration and management
personnel, as well as advertising, public relations, legal, and accounting
costs. Selling, general and administrative expenses increased 55% to $959,000
and 70% to $2.6 million for the three month and nine month periods ended
September 29, 1996, respectively, over the comparable periods in 1995. These
increases were due primarily to increases in staff, marketing efforts and
facilities to support the Company's expansion.
As a percentage of revenues, selling, general and administrative expenses
decreased from 10.2% for the third quarter of 1995 to 9.2% in the third quarter
of 1996, and from 11.0% for the first nine months of fiscal 1995 to 9.5% for the
comparable period in 1996. The decreases in such expenses as a percentage of
revenues were a result of spreading fixed costs over a larger revenue base. The
Company anticipates that its selling, general and administrative expenses will
continue to increase in absolute dollars in future periods, although such
expenses may fluctuate as a percentage of revenues.
RESEARCH AND DEVELOPMENT
- ------------------------
Research and development expenses consist primarily of the costs associated with
research and development personnel, the cost of related materials and services,
and the depreciation of development equipment. Research and development
expenses increased 41% to $276,000 and 50% to $737,000 for the three month and
nine month periods ended September 29, 1996 respectively, over the comparable
periods in 1995. These increases were due primarily to the Company's expanded
efforts in ongoing product development.
As a percentage of revenues, research and development expenses decreased from
3.2% in the third quarter of 1995 to 2.7% in the third quarter of 1996, and from
3.6% for the first nine months of fiscal 1995 to 2.7% for the comparable period
in 1996. The decreases in such expenses as a percentage of revenues reflect
the higher revenue level in 1996. The Company anticipates that its research and
development expenses will continue to increase in absolute dollars in future
periods, although such expenses may fluctuate as a percentage of revenues.
Page 9
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INTEREST AND OTHER INCOME (EXPENSE)
- -----------------------------------
Interest and other income resulted in net other expense of $17,000 for the
quarter ended September 29, 1996 compared to a net other expense of $45,000 for
the same quarter last year. For the nine month period ended September 29, 1996,
such net other expense declined to $73,000 compared to $383,000 for the
comparable period in 1995. This decline in net other expense was due primarily
to increased interest income arising from cash proceeds obtained in the
Company's initial public offering which was completed in March, 1996, offset in
part by increased interest expense due to a larger borrowing base.
PROVISION FOR INCOME TAXES
- --------------------------
The Company applied a provision for income taxes for the nine months ended
September 29, 1996 at an expected rate of approximately 19%, compared to a rate
of 7% for the comparable period in the prior year. The rate for 1996 reflects
the application of the anticipated use of the Company's remaining tax loss
carryforward and the utilization of various tax credits, the primary one being
the California Manufacturer's Investment Credit.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
During the nine month period ended September 29, 1996, the Company's principal
sources of liquidity were cash flow from operations of $3.6 million, proceeds of
$4.6 million from equipment secured term loans, and net proceeds of $23.1
million from its initial public offering completed in the first quarter. Cash
flow from operations was comprised primarily of net income and non-cash
depreciation and amortization expenses of $2.2 million, an increase in accounts
payable and accrued liabilities of $2.3 million, offset by an increase in
accounts receivable of $2.6 million. As of September 29, 1996, the Company had
cash and cash equivalents of $15.1 million and short term investments of $6.0
million.
The Company had capital expenditures of $13.4 million during the first nine
months of 1996. Such capital expenditures were incurred primarily for the
purchase of production equipment. The Company expects to spend approximately $6
million on capital expenditures during the remainder of 1996, primarily for the
acquisition of production equipment. Most of the Company's production equipment
has been funded either through capital leases or term loans secured by
production equipment. The Company acquired $3.7 million and $4.0 million of
production equipment through capital leases in 1993 and 1994 respectively, which
leases expire from December 1997 to January 1999. The production equipment
acquired in 1995 was funded through two term loans, with a total amount of $4.9
million, secured by the equipment.
Through October 1996, the Company has secured loan facilities from four lenders
providing a total of $15 million of equipment financing, available through June
1997. The Company has utilized $4.4 million of these facilities through
September 29, 1996.
The Company has a $2.0 million revolving credit line, secured by substantially
all of the Company's assets, expiring in May 1997. As of September 29, 1996, no
money had been borrowed against this line.
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The Company believes that its existing cash and short term investment balances
along with anticipated cash from operations and equipment financing will be
sufficient to meet its projected working capital and other cash requirements for
the next 12 months. There can be no assurance, however, that lower than expected
revenues, increased expenses, increased costs associated with the purchase or
maintenance of capital equipment, or other events will not cause the Company to
seek more capital, or capital sooner than currently expected. The timing and
amount of the Company's actual capital requirements will depend on a number of
factors, including demand for the Company's services, availability of capital
equipment, adverse fluctuations in foreign currency exchange rates, changes in
semiconductor industry conditions and competitive factors. There can be no
assurance that additional financing will be available when needed or, if
available, will be available on satisfactory terms.
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CERTAIN FACTORS AFFECTING OPERATING RESULTS
The Company's operating results are affected by a wide variety of factors that
could materially and adversely affect revenues, gross profit and operating
income. These factors include the short term nature of its customers'
commitments, timing and volume of orders relative to the Company's production
capacity, long lead times for the manufacturing equipment required by the
Company, evolutions in the life cycles of customers' products, timing of
expenditures in anticipation of future orders, lack of a meaningful backlog,
effectiveness in managing production processes, changes in costs and
availability of labor, raw materials and components, costs to obtain materials
on an expedited basis, mix of orders filled, the impact of price competition on
the Company's average selling prices and changes in economic conditions.
Unfavorable changes in any of the above factors would adversely affect the
Company's business, financial condition and results of operations.
DEPENDENCE ON A LIMITED NUMBER OF EQUIPMENT SUPPLIERS
- -----------------------------------------------------
The semiconductor packaging business is capital intensive and requires a
substantial amount of highly automated, expensive capital equipment which is
manufactured by a limited number of suppliers, many of which are located in Asia
or Europe. The market for capital equipment used in semiconductor packaging has
been and is expected to continue to be characterized by intense demand, limited
supply and long delivery cycles. As the Company continues to expand its
production capacity, it will be necessary for the Company to obtain a
substantial amount of this capital equipment. Accordingly, the Company's
operations and expansion plans are highly dependent on its ability to obtain a
significant amount of this capital equipment from a limited number of suppliers.
The Company has no long term agreement with any such supplier and acquires such
equipment on a purchase order basis. This dependence creates substantial risks.
Should any of the Company's major suppliers be unable or unwilling to provide
the Company with high quality capital equipment in amounts necessary to meet the
Company's requirements, the Company would experience severe difficulty locating
alternative suppliers in a timely fashion and its ability to achieve its
expansion plans would be materially adversely affected. A prolonged delay in
equipment shipments by key suppliers or an inability to locate alternative
equipment suppliers would have a material adverse effect on the Company's
business, financial condition and results of operations and could result in
damage to customer relationships.
In this regard, the Company experienced a significant delay in the receipt of
two molding systems previously scheduled for delivery in March and April 1996,
which did not arrive until late in the second quarter of 1996. These delays
adversely impaired the Company's revenues in the second quarter of 1996.
Moreover, increased levels of demand in the capital equipment market may cause
an increase in the price of equipment, further lengthen delivery cycles and
limit the ability of suppliers to adequately service equipment following
delivery, any of which could have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, adverse
fluctuations in foreign currency exchange rates, particularly the Japanese yen,
could result in increased prices for the equipment purchased by the Company,
which could have a material adverse effect on the Company's business, financial
condition and results of operations.
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DEPENDENCE ON THE SEMICONDUCTOR INDUSTRY
- ----------------------------------------
The Company's business is substantially affected by market conditions in the
semiconductor industry, which is highly cyclical and, at various times, has been
subject to significant economic downturns and characterized by reduced product
demand, rapid erosion of average selling prices and production overcapacity. In
addition, the markets for integrated circuits are characterized by rapid
technological change, evolving industry standards, intense competition and
fluctuations in end user demand. Because the Company's business is entirely
dependent on the requirements of semiconductor companies for independent
packaging foundries, any downturn in the semiconductor industry is expected to
have an adverse effect on the Company's business, financial condition and
results of operations. For example, delays or rescheduling of orders due to a
downturn or anticipated downturn in the semiconductor industry could have a
material adverse effect on the Company's business, operating results and
financial condition.
In this regard, the Company experienced a significant decline in orders during
June 1996 which the Company attributes to reduced demand for semiconductors
manufactured by certain of the Company's customers that serve, in particular,
the personal computer market. There can be no assurance that this downturn in
the computer industry, or the general economic conditions underlying this
downturn, will not recur again. Furthermore, there can be no assurance that
any such continuation or expansion of this downturn will not result in an
additional and significant decline in the demand for the products produced by
the Company's customers and a corresponding material adverse impact on the
Company's business, operating results and financial condition.
In addition, the Company has been substantially dependent on a relatively small
number of customers within the semiconductor industry. The Company anticipates
that significant customer concentration will continue through fiscal year 1996
and at least through early 1997. There can be no assurance that such customers
or any other customers will continue to place orders with the Company in the
future at the same levels as in prior periods. The loss of one or more of the
Company's customers, or reduced orders by any of its key customers, would
adversely affect the Company's business, financial condition and results of
operations.
EXPANSION OF MANUFACTURING CAPACITY
- -----------------------------------
The Company believes that its competitive position depends substantially on its
ability to expand its manufacturing capacity. The Company is continuing to make
significant investments to expand such capacity, particularly through the
acquisition of capital equipment and the training of new personnel. There can
be no assurance that the Company will be able to utilize such capacity or expand
its manufacturing capacity in a timely manner, that the cost of such expansion
will not exceed management's current estimates or that such capacity will not
exceed the demand for the Company's services. In addition, expansion of the
Company's manufacturing capacity will continue to significantly increase the
Company's fixed costs, and the future profitability of the Company will depend
on its ability to utilize its manufacturing capacity in an effective manner.
The Company's inability to generate the additional revenues necessary to fully
utilize its capacity would have a material adverse effect on the Company's
business, financial condition and results of operations.
Page 13
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MANAGEMENT OF GROWTH
- --------------------
The Company has recently experienced and may continue to experience substantial
growth in the number of its employees and the scope of its operations. This
growth is expected to continue to strain the Company's managerial, financial,
manufacturing and other resources. In addition, in order to manage its growth,
the Company must not only improve its existing operational, financial and
management systems, it must continue to implement additional operating and
financial controls and hire and train additional personnel. Any failure to
improve the Company's operational, financial and management systems could have a
material adverse effect on the Company's business, financial condition and
results of operations. Because the Company's expense levels are based in part
on anticipated future revenue levels, if revenue were to fall below projected
levels, the Company's operating results would be materially adversely affected.
In addition, the Company must hire and train significant numbers of additional
personnel to operate the highly complex capital equipment required by its
manufacturing operations. There can be no assurance that the Company will be
able to hire and properly train sufficient numbers of qualified personnel or to
effectively manage such growth and its failure to do so could have a material
adverse effect on the Company's business, financial condition and results of
operations.
PRODUCT QUALITY AND RELIABILITY; PRODUCTION YIELDS
- --------------------------------------------------
The semiconductor packaging process is complex and product quality and
reliability is subject to a wide variety of factors. Defective packaging can
result from a number of factors, including the level of contaminants in the
manufacturing environment, human error, equipment malfunction, use of defective
raw materials, defective plating services and inadequate sample testing. From
time to time, the Company expects to experience lower than anticipated
production yields as a result of such factors. For example, in the second and
third quarters of 1995, the Company experienced inefficiencies due to rework of
subcontracted plating services which required the Company to reschedule planned
new production and resulted in lower gross profit during such periods. The
Company's failure to maintain high quality production standards or acceptable
production yields would likely result in loss of customers, delays in shipments,
increased costs, cancellation of orders and product returns for rework, any of
which could have a material adverse effect on the Company's business, financial
condition and results of operations.
DEPENDENCE ON RAW MATERIALS SUPPLIERS AND SUBCONTRACTORS
- --------------------------------------------------------
To maintain competitive manufacturing operations, the Company must obtain from
its vendors, in a timely manner, sufficient quantities of acceptable materials
at expected prices. The Company sources most of its raw materials, including
critical materials such as lead frames and die attach compound, from a limited
group of suppliers. Molding compound, a critical raw material, is obtained from
a single supplier. From time to time, vendors have extended lead times or
limited the supply of required materials to the Company because of vendor
capacity constraints and, consequently, the Company has experienced difficulty
in obtaining acceptable raw materials on a timely basis. In addition, from time
to time, the Company may reject materials from those vendors that do not meet
its specifications, resulting in declines in output or yield. Any interruption
in the availability of or reduction in the quality of materials from these
suppliers would materially adversely affect the Company's business, financial
condition and results of operations. For example, in the second quarter of
fiscal 1996, the Company's revenues were adversely affected by the rejection of
a batch of key material.
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The Company purchases all of its materials on a purchase order basis and has no
long term contracts with any of its suppliers. There can be no assurance that
the Company will be able to obtain sufficient quantities of raw materials and
other supplies. The Company's business, financial condition and results of
operations would be materially adversely affected if it were unable to obtain
sufficient quantities of raw materials and other supplies in a timely manner or
if there were significant increases in the costs of raw materials that the
Company could not pass on to its customers.
The Company also relies on subcontractors to perform certain manufacturing
operations such as plating. From time to time, the Company's plating
subcontractors have experienced significant manufacturing problems. In
particular, such problems resulted in delayed customer shipments by, and
increased costs to, the Company during the second and third quarters of 1995.
There can be no assurance that the Company's subcontractors will not experience
manufacturing problems in the future or that such problems will not result in
increased costs or production delays which could have a material adverse effect
on the Company's business, financial condition and results of operations.
DEPENDENCE ON SINGLE MANUFACTURING FACILITY
- -------------------------------------------
The Company's current manufacturing operations are located in a single facility
in San Jose, California. Because the Company does not currently operate
multiple facilities in different geographic areas, a disruption of the Company's
manufacturing operations resulting from various factors, including sustained
process abnormalities, human error, government intervention or a natural
disaster such as fire, earthquake or flood, could cause the Company to cease or
limit its manufacturing operations and consequently would have a material
adverse effect on the Company's business, financial condition and results of
operations.
COMPETITION; POTENTIAL DECLINE IN AVERAGE SELLING PRICES
- --------------------------------------------------------
The semiconductor packaging industry is highly competitive. The Company
currently faces substantial competition from established packaging foundries
located in Asia. Each of these competitors has significantly greater
manufacturing capacity, financial resources, research and development
operations, marketing and other capabilities than the Company, and has been
operating for a significantly longer period of time than the Company. Such
companies also have established relationships with many large semiconductor
companies which are current or potential customers of the Company. The Company
could face substantial competition from Asian packaging foundries should one or
more of such companies decide to establish foundry operations in North America.
The Company could also face competition from emerging independent North American
packaging foundries. The Company also competes against companies which have in
house packaging capabilities as current and prospective customers constantly
evaluate the Company's capabilities against the merits of in house packaging.
Many of the Company's customers are also customers of one or more of the
Company's competitors. In addition, the Company expects that average selling
prices for its products may decline in the future, principally due to intense
competitive conditions. A decline in average selling prices of the Company's
products, if not offset by reductions in the cost of producing those products,
would decrease the Company's gross margins and could materially and adversely
affect the Company's business, financial condition and results of operations.
There can be no assurance that the Company will be able to reduce its cost per
unit.
Page 15
<PAGE>
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11.1 Statement Regarding Computation of Earnings Per Share
27 Financial Data
(b) Reports on Form 8-K
None
Page 16
<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.
INTEGRATED PACKAGING ASSEMBLY CORPORATION
Date: November 11, 1996 /s/ Tony Lin
______________________________
Tony Lin
Principal Financial and Accounting Officer
Page 17
<PAGE>
EXHIBIT INDEX
11.1 Statement Regarding Computation of Earnings Per Share
27 Financial Data
Page 18
<PAGE>
EXHIBIT 11.1
INTEGRATED PACKAGING ASSEMBLY CORPORATION
COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
FISCAL QUARTER ENDED NINE MONTHS ENDED
----------------------- -----------------------
SEPT. 29, OCT. 1, SEPT. 29, OCT. 1,
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Weighted average common shares outstanding $13,855 $ 2,111 $11,333 $ 2,111
Common equivalent shares from options,
warrants and convertible preferred stock (1) -- 2,347 -- 2,347
Weighted average common equivalent shares
from convertible preferred stock
calculated using if-converted method -- 6,123 1,747 6,123
Weighted average common stock equivalents
calculated by the treasury stock method
applied to options and warrants 877 672 899 684
------- ------- ------- -------
Weighted average common shares and equivalents 14,732 11,253 13,979 11,265
======= ======= ======= =======
Net income $ 1,021 $ 450 $ 2,200 $ 978
======= ======= ======= =======
Net income per share $ 0.07 $ 0.04 $ 0.16 $ 0.08
======= ======= ======= =======
</TABLE>
(1) Pursuant to Securities and Exchange Commission Staff Accounting Bulletins,
common and common equivalent shares and options issued by the Company during
the 12 month period prior to the initial public offering of the Company's
common stock have been included as if they were outstanding for all periods
presented
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED STATEMENT OF OPERATIONS, THE CONDENSED BALANCE SHEET AND THE
ACCOMPANYING NOTES TO THE CONDENSED FINANCIAL STARTEMENTS, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 15,149
<SECURITIES> 6,044
<RECEIVABLES> 5,610
<ALLOWANCES> 90
<INVENTORY> 2,099
<CURRENT-ASSETS> 29,709
<PP&E> 32,437
<DEPRECIATION> 3,896
<TOTAL-ASSETS> 58,545
<CURRENT-LIABILITIES> 9,788
<BONDS> 0
0
0
<COMMON> 39,798
<OTHER-SE> 833
<TOTAL-LIABILITY-AND-EQUITY> 58,545
<SALES> 26,911
<TOTAL-REVENUES> 26,911
<CGS> 20,839
<TOTAL-COSTS> 20,839
<OTHER-EXPENSES> 3,299
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 347
<INCOME-PRETAX> 2,700
<INCOME-TAX> 500
<INCOME-CONTINUING> 2,200
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,200
<EPS-PRIMARY> 0.16
<EPS-DILUTED> 0.16
</TABLE>
