-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QlwKKAbgGXvTJVVEvt4IiLc9p4pGPtar1z5+SEXgAz9uJnTBRt+B+gGmyBsRcCfD gAS2h9p6a/N1KbunpmsDjw== 0000056978-97-000019.txt : 19971219 0000056978-97-000019.hdr.sgml : 19971219 ACCESSION NUMBER: 0000056978-97-000019 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971218 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: KULICKE & SOFFA INDUSTRIES INC CENTRAL INDEX KEY: 0000056978 STANDARD INDUSTRIAL CLASSIFICATION: SPECIAL INDUSTRY MACHINERY, NEC [3559] IRS NUMBER: 231498399 STATE OF INCORPORATION: PA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-00121 FILM NUMBER: 97740612 BUSINESS ADDRESS: STREET 1: 2101 BLAIR MILL RD CITY: WILLOW GROVE STATE: PA ZIP: 19090 BUSINESS PHONE: 2157846000 MAIL ADDRESS: STREET 1: 2101 BLAIR MILL RD CITY: WILLOW GROVE STATE: PA ZIP: 19090 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark one) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the fiscal year ended September 30, 1997 ------------------ OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from ------- to ------- Commission file number 0-121 KULICKE AND SOFFA INDUSTRIES, INC. (Exact name of registrant as specified in its charter) Pennsylvania 23-1498399 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2101 Blair Mill Road, Willow Grove, PA 19090 (Address of principal executive offices) (zip code) Registrant's telephone number, including area code): (215) 784-6000 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, WITHOUT PAR VALUE (Title of Class) 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 ---- ---- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the Registrant's Common Stock (its only voting stock) held by non-affiliates of the Registrant as of December 1, 1997 was approximately $604,303,000. (Reference is made to the final paragraph of Part II, Item 5 herein for a statement of assumptions upon which this calculation is based). As of December 1, 1997, there were 23,242,287 shares of the Registrant's Common Stock, Without Par Value, outstanding. Documents Incorporated by Reference Portions of the Registrant's Proxy Statement for the 1998 Annual Shareholders' Meeting to be filed prior to January 6, 1998 are incorporated by reference into Part III, Items 10, 11, 12 and 13 of this Report. Such Proxy Statement, except for the parts therein which have been specifically incorporated by reference, shall not be deemed "filed" for the purposes of this Report on Form 10-K. PART I Certain statements contained in this report are forward looking statements and are subject to risks and uncertainties that could cause actual results to differ materially. These risks and uncertainties include, but are not limited to the following: the upward and downward volatility in demand for semiconductors and for the Company's products and services; the risk of order postponements or cancellations; the Company's ability to manufacture and ship its products on a timely basis; competitive pricing pressures; the risk that certain customers may adopt alternate semiconductor assembly processes; the risks associated with a substantial foreign customer base; and the risks associated with recent instability in foreign capital markets and foreign currency fluctuations. Reference is made to a more detailed discussion of risk factors affecting the Company's business in other Company reports filed with the Securities and Exchange Commission, and "Risk Factors" and other sections of the Company's Registration Statement on Form S-3 (33-69734). Item 1. BUSINESS Kulicke and Soffa Industries, Inc. (the "Company" or "K&S") designs, manufactures and markets capital equipment, related spare parts and packaging materials used to assemble semiconductor devices ("semiconductors" or "IC's"). The Company also services, maintains, repairs and upgrades assembly equipment. The equipment offered by the Company addresses a broad range of applications in the semiconductor assembly process, including wire bonding systems, wafer dicing saws and die, TAB and flip-chip bonders. Today, K&S is the world's largest supplier of semiconductor assembly equipment, according to VLSI Research, Inc. Through its American Fine Wire Corporation ("AFW"), Micro-Swiss, Ltd. ("Micro-Swiss") and Semitec subsidiaries, the Company offers packaging materials, including bonding wire, capillaries, wedges, die collets and saw blades. Packaging materials products have different manufacturing processes, distribution channels and a less volatile revenue pattern than the Company's capital equipment business. See Note 11 to the Company's fiscal 1997 Consolidated Financial Statements, included herein, for financial results by business segment. The Company was founded in 1951 and is a Pennsylvania Corporation. Its principal offices are located at 2101 Blair Mill Road, Willow Grove, Pennsylvania, and its telephone number is (215) 784-6000. Products K&S offers a broad range of semiconductor assembly equipment, packaging materials and complementary services and spare parts used in the semiconductor assembly process. Set forth below is a table listing the approximate percentage of the Company's net sales by principal product area for its fiscal years ended September 30, 1997, 1996 and 1995. Fiscal Year Ended September 30, -------------------- 1997 1996 1995 ---- ---- ---- Wire bonders 65% 57% 74% Additional assembly equipment 7% 10% 9% Packaging materials 22% 25% 7% Services and spare parts 6% 8% 10% ---- ---- ---- 100% 100% 100% ==== ==== ==== Wire Bonders The Company's principal product line is its family of wire bonders, which are used to connect extremely fine wires, typically made of gold or aluminum, between the bonding pads on the die and the leads on the IC package to which the die has been bonded. The Company offers both ball and wedge bonders in automatic and manual configurations. Ball bonders typically are used for leadframe-based and laminate-based packages, while wedge bonders typically are used for ceramic packages. Through fiscal 1997, the Company's principal wire bonders were its Model 1488 plus ball bonder and Model 1474fp wedge bonder. The Company believes that its wire bonders offer competitive advantages based on high throughput and superior process control enabling fine pitch bonding and long, low wire loops, which are needed to assemble advanced IC packages. The selling prices for the Company's automatic wire bonders range from $60,000 to over $200,000 and from $8,000 to $40,000 for manual wire bonders, in each case depending upon system configuration and purchase volume. The Company has developed and is in the process of transitioning to a new generation of wire bonders, the 8000 family, which is based on an entirely new platform and has required the development of new software and many subassemblies not part of the Company's current wire bonders. The first products in the 8000 family are the Model 8020 ball bonder and Model 8060 wedge bonder. The Model 8020 will replace the Model 1488 plus ball bonder. Through fiscal 1997, the Company experienced delays in the development and introduction of the Model 8020. Such delays, which are typical in the development of new technological products, included hardware, software and process related issues and changes in functional specifications based on input from customers. The Company is shifting production capacity from the Model 1488 plus to Model 8020 ball bonders in response to growing backlog for Model 8020's, and expects Model 8020 sales to exceed 10% of total ball bonder sales for the fiscal 1998 first quarter. The Model 8060, which will replace the Model 1474fp, was introduced during the fiscal 1997 fourth quarter with the sale of the four production units. While development and technical risks exist which have the potential to further affect the transition to the 8000 family wire bonders, the Company expects the transition to volume production and sales of Model 8020 and 8060 machines to continue through the first half of fiscal 1998. The Company has incurred incremental costs to date and may incur substantial additional costs during the customer evaluation and qualification process to ensure the functionality and reliability of these new products. The Company's inability to successfully qualify new products, or its inability to manufacture and ship these products in volume and on a timely basis, could adversely affect the Company's competitive position. Furthermore, the transition to the Model 8020 and 8060 platforms involves numerous risks, including the possibility that customers will defer purchases of Model 1488 plus and 1474fp wire bonders in anticipation of the availability of the Model 8020 or 8060, or that the Model 8020 or 8060 will fail to meet customer needs or achieve market acceptance. To the extent that the Company fails to accurately forecast demand in volume and configuration for both its current and next-generation wire bonders and generally to manage product transitions successfully, it could experience reduced orders, delays in product shipments and increased risk of inventory obsolescence. There can be no assurance that the Company will successfully introduce and manufacture new products, including the Model 8020 and 8060, that new products introduced by the Company will be accepted in the marketplace or that the Company will manage its product transitions successfully. The Company's failure to do any of the foregoing could materially adversely affect the Company's business, financial condition and operating results. Additional Semiconductor Assembly Equipment In addition to wire bonders, the Company produces other types of semiconductor assembly equipment, including wafer dicing saws, die bonders, TAB bonders and flip-chip bonders, which allows the Company to leverage its significant investment in customer relationships by offering its customers a broad range of assembly equipment. Principal products offered by the Company consist of the following: Dicing Saws. Dicing saws use diamond-embedded saw blades to cut silicon wafers into individual semiconductor die. Dicing saws range in price from $60,000 to more than $230,000. In October 1995, the Company entered into a Manufacturing License and Supply Agreement with Tokyo Seimitsu Co. Ltd. ("TSK"). Under terms of this agreement, the Company manufacturers and distributes TSK's automatic dicing saw as the Company's Model 7500 and manufactures that saw for sale to and for distribution by TSK as TSK's Model 5000. This product is produced in the Company's Israeli machine manufacturing facility. Die Bonders. Die bonders are used to attach a semiconductor die to a leadframe or other package before wire bonding. The Company's product line includes the Model 6900, an automatic multi-process assembly system which can be configured to support either conventional die bonding applications or alternate semiconductor assembly technologies, and Models 4206 and 5408 machines. Die bonders range in price from $100,000 to more than $300,000. Tape Automated Bonding (TAB). TAB is an alternate assembly method which uses a thin, flexible film of laminated copper and polyamide in place of a conventional package. In a TAB assembled device, the die is bonded directly to copper leads, thereby eliminating the need for wire bonding. The Company's principal TAB bonder is the Model SP2100. TAB bonders range in price from $375,000 to over $400,000. Flip-Chip Assembly Systems. Flip-chip is an alternate assembly technique in which the die is mounted face down in a package or other electronic system using conductive bumps, thereby eliminating the need for either conventional die or wire bonding. The Company's Model 6900 can be configured to support flip-chip applications. Selling prices for flip-chip assembly systems exceed $300,000. The Company also offers different configurations of certain of its products for non-semiconductor applications, including the Company's Model 980 saw for use in cutting and grinding hard and brittle materials, such as ceramic, glass and ferrite, that are used in the fabrication of chip capacitors or disk drive heads. Similarly, a variant of the Model 2100 TAB bonder is used to assemble ink jet printer cartridges. Packaging Materials The Company currently offers a range of packaging materials to semiconductor device assemblers which it sells under the brand names "American Fine Wire," "Micro-Swiss" and "Semitec." The Company intends to expand this business in an effort to increase its revenues from materials used in the manufacture of IC's as opposed to equipment for the expansion of IC manufacturing capacity. The Company sells its packaging materials for use with competitors' assembly equipment as well as its own equipment. The Company's principal packaging materials products consist of the following: Bonding Wire. AFW is a manufacturer of very fine (typically 0.001 inches in diameter) gold and aluminum wire used in the wire bonding process. AFW produces wire to a wide range of specifications, which can satisfy most wire bonding applications. Gold bonding wire is generally priced based on a fabrication charge per 1,000 feet of wire, plus the value of the gold. To minimize AFW's financial exposure to gold price fluctuations, AFW obtains gold for fabrication pursuant to a contract with its gold supplier, Rothschild Australia Limited ("RAL"), and only purchases the gold upon shipment and sale of the finished product to the customer. Accordingly, fluctuations in the price of gold are generally absorbed by RAL or passed on to AFW's customers. Expendable Tools. The Micro-Swiss family of expendable tools includes capillaries, wedges, die collets and saw blades. Capillaries and wedges are used to feed out, attach and cut the wires used in wire bonding. Die collets are used to pick up, place and bond die to packages. Saw blades are used for cutting hard and brittle materials. Hub blades, manufactured by Semitec which was acquired October 1, 1996, are used to cut silicon wafers into semiconductor die. Services and Spare Parts The Company believes that its knowledge and experience have positioned it to deliver innovative, customer-specific services that reduce the cost of ownership associated with the Company's equipment. Historically, the Company's offerings in this area were limited to spare parts, customer training and extended warranty contracts. In response to customer trends in outsourcing equipment-related services, the Company is focusing on providing repair and maintenance services, a variety of equipment upgrades, machine and component rebuild activities and expanded customer training. These services are generally priced on a time and materials basis. The service and maintenance arrangements are typically subject to bi-annual or multi-year contracts. Investment in Flip-Chip Technologies, L.L.C. The Company continuously evaluates investments in alternative packaging technologies. To that end, in February 1996, the Company entered into a joint venture agreement with Delco Electronics Corporation ("Delco") to provide wafer bumping services on a contract basis and to license related technologies through Flip Chip Technologies, L.L.C. ("FCT"). FCT completed construction of its manufacturing facility in Phoenix, Arizona during fiscal 1997, has commenced production runs involving limited quantities of wafers and is currently working with additional customers to have its manufacturing processes qualified. This qualification process is expected to continue into fiscal 1998. FCT has experienced losses since its inception. The Company recognizes its proportionate share of such losses, based on its 51% equity interest. Customers The Company's customers include large semiconductor manufacturers and subcontract assemblers worldwide, among which are the following: Advanced Micro Devices Micron Technology Advanced Semiconductor Engineering Motorola Anam Electronics National Semiconductor Ceasar Technology NEC Hyundai Electronics Industries Orient Semiconductor Electronics IBM Philips Electronics Intel Corporation SGS-Thomson Microelectronics Lexmark International Siemens Lucent Technologies Sales to a relatively small number of customers have accounted for a significant percentage of the Company's net sales. During fiscal 1997, sales to Anam (a Korean-based customer) and Intel accounted for 12.5% and 10.2%, respectively, of the Company's net sales. During fiscal 1996, sales to Anam and Intel accounted for approximately 14.3% and 11.2%, respectively, of the Company's net sales. In fiscal 1995, sales to Intel and Anam accounted for 19.8% and 16.3%, respectively, of the Company's net sales. The Company believes that developing long-term relationships with its customers is critical to its success. By establishing these relationships with semiconductor manufacturers and subcontract assemblers, the Company gains insight into its customers' future IC packaging strategies. This information assists the Company in its efforts to develop process and equipment solutions that address its customers' future assembly requirements. The Company expects that sales of its products to a limited number of customers will continue to account for a high percentage of net sales for the foreseeable future. The loss or reduction of orders from a significant customer, including losses or reductions due to manufacturing, reliability or other difficulties associated with the Company's products, changes in customer buying patterns, market, economic or competitive conditions in the semiconductor or subcontract assembly industries, could adversely affect the Company's business, financial condition and operating results. International Operations The Company sells its products to semiconductor device manufacturers and contract manufacturers, which are primarily located or have operations in the Asia/Pacific region. Approximately 85%, 79% and 78% of the Company's net sales for fiscal 1997, 1996 and 1995, respectively, were for delivery to customer locations outside of the United States, with the majority of such foreign sales destined to customer locations in the Asia/Pacific region, including Taiwan, Korea, Malaysia, Philippines, Singapore, Hong Kong and Japan. The Company expects sales outside of the United States to continue to represent a substantial portion of its future revenues. In addition, the Company maintains manufacturing operations in countries other than the United States, including operations located in Israel, Singapore and Switzerland. Risks associated with the Company's international operations include risks of foreign currency and foreign financial market fluctuations, international exchange restrictions, changing political conditions and monetary policies of foreign governments, war, civil disturbances, expropriation, or other events which may limit or disrupt markets. Sales and Customer Support The Company markets its semiconductor assembly equipment and its packaging materials through separate sales organizations. With respect to semiconductor assembly equipment, the Company's direct sales force, consisting of approximately 100 individuals at September 30, 1997, is principally responsible for sales of major product lines to customers in the United States and the Asia/Pacific region, including Japan. Lower volume product lines, as well as all equipment sales to customers in Europe, are sold through a network of manufacturer's representatives. The Company sells its packaging materials product lines through a separate direct sales force and through manufacturers' representatives. The Company believes that providing comprehensive worldwide sales, service and customer support are important competitive factors in the semiconductor equipment industry. In order to support its U.S. and foreign customers whose semiconductor assembly operations are located in the Asia/Pacific region, the Company maintains a significant presence in the region, with sales facilities in Hong Kong, Japan, Korea, Taiwan, Malaysia and Singapore, a technology center in Japan and an applications lab in Singapore. The Company supports its assembly equipment customers worldwide with over 260 customer service and support personnel at September 30, 1997, located in the United States, Hong Kong, Japan, Korea, Malaysia, the Philippines, Singapore, Taiwan and Thailand. The Company's local presence in these Asia/Pacific countries enables it to provide more timely customer service and support as service representatives and spare parts are positioned near customer facilities, and affords customers the ability to place orders locally and to deal with service and support personnel who speak the same language and are familiar with local country practices. Backlog At September 30, 1997, the Company's backlog was approximately $118.0 million, compared to approximately $69.0 million at September 30, 1996. The Company's backlog consists of product orders for which confirmed purchase orders have been received and which are scheduled for shipment within 12 months. In addition, the Company may allocate production capacity to customers for anticipated purchases for which a confirmed purchase order has not yet been received. Virtually all orders are subject to cancellation, deferral or rescheduling by the customer with limited or no penalties. Because of the possibility of customer changes in delivery schedules or cancellations and potential delays in product shipments, the Company's backlog as of any particular date may not be indicative of revenues for any succeeding quarterly period. Manufacturing The Company's assembly equipment manufacturing activities consist primarily of integrating components and subassemblies to create finished systems configured to customer specifications. The Company performs system design, assembly and testing in-house at its Willow Grove, Pennsylvania and Haifa, Israel facilities, but utilizes an outsourcing strategy for the manufacture of many of its major subassemblies. K&S believes that outsourcing enables it to minimize its fixed costs and capital expenditures and allows the Company to focus on product differentiation through system design and quality control. The Company's just-in-time inventory management strategy has reduced manufacturing cycle times and has limited on-hand inventory. The Company has obtained ISO 9001 certification for most operations in its Willow Grove, Pennsylvania facility and for both of its Israeli manufacturing facilities. Additionally, the AFW manufacturing facility in Selma, Alabama has received ISO 9002 certification. The Company manufactures its Micro-Swiss expendable tools at its recently constructed facility in Yokneam, Israel and its AFW product line, consisting of gold and aluminum bonding wire, at facilities in Alabama, Singapore and Switzerland. Semitec hub blades are manufactured in Santa Clara, California. The Company relies on subcontractors to produce to the Company's specifications many of the materials, components or subassemblies used in its products. Certain of the Company's products, however, require components or assemblies of an exceptionally high degree of reliability, accuracy and performance. Currently there are a number of such items for which there are only a single or limited number of suppliers which have been accepted by the Company as a qualified supplier. The Company generally does not maintain long-term contracts with its subcontractors and suppliers. While the Company does not believe that its business is substantially dependent on any contract or arrangement with any of its subcontractors or suppliers, the Company's reliance on subcontractors and single source suppliers involves a number of significant risks, including the loss of control over the manufacturing process, the potential absence of adequate capacity and the reduced control over delivery schedules, manufacturing yields, quality and costs. Further, certain of the Company's subcontractors and suppliers are relatively small operations and have limited financial and manufacturing resources. In the event that any significant subcontractor or single source supplier were to become unable or unwilling to continue to manufacture or sell subassemblies, components or parts to the Company in required volumes and of acceptable quality levels and prices, the Company would have to identify and qualify acceptable replacements. The process of qualifying subcontractors and suppliers could be lengthy, and no assurance can be given that any additional sources would be available to the Company on a timely basis. The Company has, from time to time, experienced reliability and quality problems with certain key subassemblies provided by single source suppliers. The Company also has experienced delays in the delivery of subassemblies from these and other subcontractors in the past, which caused delays in Company shipments. If supplies of such items were not available from any such source at acceptable quality levels and prices and a relationship with an alternative supplier could not be developed, shipments of the Company's products could be interrupted and re-engineering of the affected product could be required with resulting delays. In addition, from time to time, the Company has experienced manufacturing difficulties and problems in its own operations which have caused delays and have required remedial measures. Such delays, interruption and re-engineering could damage the Company's relationships with its customers and have a material adverse effect on the Company's business, financial condition and operating results. Research and Product Development Because technological change occurs rapidly in the semiconductor industry, the Company devotes substantial resources to its research and development programs to maintain its competitiveness. The Company employed approximately 380 individuals in research and development at September 30, 1997. The Company pursues the continuous improvement and enhancement of existing products while simultaneously developing next generation products. For example, while the performance of current generations of wire bonders is being enhanced in accordance with a specific continuous improvement plan, the Company is simultaneously developing the series 8000 family of next generation wire bonders, the first models of which were introduced in the fourth quarter of fiscal 1997 and first quarter of fiscal 1998. Most of the next generation equipment presently being developed by the Company is based on modular, interchangeable subsystems, including the 8000 control platform, which management believes will promote more efficient and cost-effective manufacturing operations, lower inventory levels, improved field service capabilities and shorter product development cycles, which will allow the Company to introduce new products more quickly. The Company's net expenditures for research and development totaled approximately $46.0 million, $52.4 million and $30.9 million during the fiscal years ended September 30, 1997, 1996 and 1995, respectively. The Company has received funding from certain customers and government agencies pursuant to contracts or other arrangements for the performance of specified research and development activities. Such amounts are recognized as a reduction of research and development expense when specified activities have been performed. During the fiscal years ended September 30, 1997, 1996 and 1995, such funding totaled approximately $2.0 million, $2.5 million and $2.8 million, respectively. Competition The semiconductor equipment and packaging materials industries are intensely competitive. Significant competitive factors in the semiconductor equipment market include process capability and repeatability, quality and flexibility, and cost of ownership, including throughput, reliability and automation, customer support and price. The Company's major equipment competitors include Shinkawa, Kaijo and ESEC in wire bonders; ESEC, Nichiden, ASM Pacific Technology and Alphasem in die bonders; and Disco Corporation in dicing saws. Significant competitive factors in the semiconductor packaging materials industry include price, delivery and quality. Major competitors in the packaging materials line include Gaiser Tool Co. and Small Precision Tools, Inc. with respect to expendable tools Tanaka Electronic Industries and Sumitomo Metal Mining in the bonding wire market, and Disco Corporation with respect to dicing blades. In each of the markets it serves, the Company faces competition and the threat of competition from established competitors and potential new entrants, some of which may have greater financial, engineering, manufacturing and marketing resources than the Company. Some of these competitors are Japanese companies that have had and may continue to have an advantage over the Company in supplying products to Japan-based companies due to their preferences to purchase equipment from Japanese suppliers. Additionally, certain competitors may have pricing advantages as a result of recent currency fluctuations in relation to the U.S. dollar. The Company expects its competitors to continue to improve the performance of their current products and to introduce new products with improved price and performance characteristics. New product introductions by the Company's competitors or by new market entrants could cause a decline in sales or loss of market acceptance of the Company's existing products. If a particular semiconductor manufacturer or subcontract assembler selects a competitor's product for a particular assembly operation, the Company may experience difficulty in selling a product to that company for a significant period of time. Increased competitive pressure could also lead to intensified price-based competition, resulting in lower prices which could adversely affect the Company's business, financial condition and operating results. The Company believes that to remain competitive it must invest significant financial resources in new product development and expand its customer service and support worldwide. There can be no assurance that the Company will be able to compete successfully in the future. Intellectual Property Where circumstances warrant, the Company seeks to obtain patents on inventions governing new products and processes developed as part of its ongoing research, engineering and manufacturing activities. The Company currently holds a number of United States patents some of which have foreign counterparts. The Company believes that the duration of its patents generally exceeds the life cycles of the technologies disclosed and claimed therein. Although the patents it holds and may obtain in the future may be of value, the Company believes that its success will depend primarily on its engineering, manufacturing, marketing and service skills. The Company also believes that much of its important technology resides in its proprietary software and trade secrets. Insofar as the Company relies on trade secrets and unpatented knowledge, including software, to maintain its competitive position, there is no assurance that others may not independently develop similar technologies and possibly obtain patents containing claims applicable to the Company's products and processes. The sale of Company products covered by such patents could require licenses that may not be available on acceptable terms, or at all. In addition, although the Company executes non-disclosure and non-competition agreements with certain of its employees, customers, consultants, selected vendors and others, there is no assurance that such secrecy agreements will not be breached. From time to time, third parties assert that the Company is, or may be, infringing or misappropriating their intellectual property rights. In such cases, the Company will defend against claims or negotiate licenses where considered appropriate. In addition, certain of the Company's customers have received notices of infringement from Jerome H. Lemelson, alleging that equipment supplied by the Company, and processes performed by such equipment, infringe on patents held by Mr. Lemelson. A number of the Company's customers have been sued by Mr. Lemelson. Certain customers have requested that the Company defend and indemnify them against the claims of Mr. Lemelson, but, to date, no customer who has settled with Mr. Lemelson has sought contribution from the Company. The Company has received opinions from its outside patent counsel with respect to certain of the Lemelson patents. The Company is not aware that any equipment marketed by the Company, or process performed by such equipment infringe on the Lemelson patents in question and does not believe that the Lemelson matter or any other pending intellectual property claim will have a material adverse effect on its business, financial condition or operating results. However, the ultimate outcome of any infringement or misappropriation claim affecting the Company is uncertain and there can be no assurances that the resolution of these matters will not have a material adverse effect on the Company's business, financial condition and operating results. Employees At September 30, 1997, K&S had 2,229 permanent employees, 90 temporary employees and 64 contract personnel worldwide. The only Company employees represented by a labor union are AFW's employees in Singapore. K&S considers its employee relations to be good. Competition in the recruiting of personnel in the semiconductor and semiconductor equipment industry is intense, particularly with respect to certain engineering disciplines. The Company believes that its future success will depend in part on its continued ability to hire and retain qualified management, marketing and technical employees. Executive Officers of the Company The following table sets forth certain information regarding the executive officers of the Company. First Became an Officer Name Age (calendar year) Position - ------------------ --- --------------- ---------------------------------- C. Scott Kulicke 48 1976 Chairman of the Board of Directors and Chief Executive Officer Morton K. Perchick 60 1982 Executive Vice President Clifford G. Sprague 54 1989 Senior Vice President and Chief Financial Officer Moshe Jacobi 55 1992 Senior Vice President and President Packaging Materials Group Asuri Raghavan 44 1991 Senior Vice President and President Equipment Group Walter Von Seggern 57 1992 Senior Vice President Marketing C. Scott Kulicke has been Chief Executive Officer since 1979 and Chairman of the Board since 1984. Prior to that he held a number of executive positions with the Company. Mr. Kulicke is the son of Frederick W. Kulicke, Jr., a member of the Board of Directors. Morton K. Perchick joined the Company in 1980 and has served in various executive positions, most recently as Senior Vice President, prior to his being appointed Executive Vice President in July 1995. Clifford G. Sprague joined the Company in March 1989 as Vice President and Chief Financial Officer and was promoted to Senior Vice President in 1990. Prior to joining the Company, he served for more than five years as Vice President and Controller of the Oilfield Equipment Group of NL Industries, Inc., an oilfield equipment and service company. Moshe Jacobi has served as the Company's Senior Vice President and President, Packaging Materials Group since November 1996. Prior to that, he served as Senior Vice President Expendable Tools and Materials from July 1995 and as Vice President of the Company and Managing Director of Micro-Swiss Ltd., a wholly-owned subsidiary of the Company from November 1992. He was Division Director and General Manager of the Micro-Swiss Division from July to November 1992, and, from August 1986 to July 1992, he was Deputy Managing Director of Kulicke and Soffa (Israel) Ltd., a wholly-owned subsidiary of the Company. Asuri Raghavan was promoted to Senior Vice President and President, Equipment Group in November 1996, having served as Senior Vice President, Marketing from July 1995 and Vice President of the Wire Bonder Business from December 1993, as Vice President, Strategic Development from June 1991 to 1993, and in various other management capacities since joining the Company in 1980, except for the period from December 1985 until November 1987 when he was Director, Research and Technology of American Optical. Walter Von Seggern joined the Company in September 1992 as Vice President of Engineering and Technology. He was appointed Senior Vice President in December 1996 and became Senior Vice President, Marketing in April 1997. From April 1988 to April 1992, he worked for M/A-Com, Inc. He was General Manager of M/A-Com's ANZAC, RGH and Eurotec Divisions from 1990 to 1992 and from 1988 to 1990, he was General Manager of M/A-Com's Radar Products Division. Item 2. PROPERTIES The Company's major facilities are described in the table below: Lease Products Expiration Facility Approximate Size Function Manufactured Date - ----------- ---------------- -------------- ------------ ---------- Willow Grove, 214,000 sq.ft. (1) Corporate Wire bonders, N/A Pennsylvania headquarters die bonders manufacturing, and TAB bonders technology center, sales and service Haifa, Israel 46,100 sq.ft. (2) Manufacturing, Manual wire April 2002 technology bonders, center, dicing saws and assembly systems automatic multi- process assembly systems Yokneam, Israel 48,400 sq.ft. (1) Manufacturing, Capillaries, N/A Micro-Swiss wedges and die operations collets Hong Kong, 19,600 sq.ft. (2) Sales and service N/A November 1998 China Tokyo, Japan 10,700 sq.ft. (2) Technology center, N/A November 1998 sales and service Singapore 35,111 sq.ft. (2) Manufacturing, Bonding wire May 2000 AFW operations Selma, Alabama 25,600 sq.ft. (2) Manufacturing, Bonding October 2017 AFW operations wire Thalwil, 15,100 sq.ft. (2) Manufacturing, Bonding wire (3) Switzerland AFW operations Santa Clara, 13,600 sq.ft. (2) Manufacturing Dicing Saw October 2003 California Blades (1) Owned. (2) Leased. (3) Cancelable semi-annually upon six months' notice. The Company also rents space for sales and service offices in Santa Clara, California; Mesa, Arizona; Zug, Switzerland; Korea; Taiwan; Malaysia; Philippines; and Singapore. The Company believes that its facilities are generally in good condition. Item 3. LEGAL PROCEEDINGS The Company is not aware of any material pending legal matters involving the Company or its subsidiaries. See the discussion of certain legal contingencies in Note 13 to the Company's fiscal 1997 consolidated financial statements included herein. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The Company's Common Stock trades on the Nasdaq National Market under the symbol KLIC. The following table sets forth for the periods indicated the high and low sale prices for the Common Stock, as reported on the Nasdaq National Market. High Low ------- ------- Fiscal 1997: First Quarter $22 1/4 $10 1/2 Second Quarter 30 18 3/4 Third Quarter 35 5/8 20 3/4 Fourth Quarter 58 3/8 31 Fiscal 1996: First Quarter $36 3/4 $22 Second Quarter 25 1/2 15 1/8 Third Quarter 20 1/2 13 1/4 Fourth Quarter 14 5/8 8 3/4 On December 1, 1997, there were 703 holders of record of the shares of outstanding Common Stock. The Company currently does not pay cash dividends on its Common Stock. The Company presently intends to retain any future earnings for use in its business and does not anticipate paying any cash dividends on the Common Stock in the foreseeable future. The amended Gold Supply Agreement dated October 2, 1995 between AFW and its subsidiaries (collectively, the "AFW Companies") and their gold supplier contains certain financial covenants and prohibits the AFW Companies from paying any dividends or making any distributions without the consent of the supplier if, following any such dividend or distribution, the net worth of the AFW Companies would be less than $7.0 million. During fiscal 1997, the Company contributed 91,505 shares of unregistered common stock, valued at its fair market value, as its matching contribution to its Section 401(k) Employee Incentive Savings Plan. Registration for such shares was not required because the transaction did not constitute a "sale" under Section 2(3) of the Securities Act of 1933, or, alternatively, the transaction was exempt pursuant to the private offering provisions of that Act and the rules thereunder. For the purposes of calculating the aggregate market value of the shares of common stock of the Company held by nonaffiliates, as shown on the cover page of this report, it has been assumed that all the outstanding shares were held by nonaffiliates except for the shares held by directors and executive officers of the Company. However, this should not be deemed to constitute an admission that all directors and executive officers of the Company are, in fact, affiliates of the Company, or that there are not other persons who may be deemed to be affiliates of the Company. Further information concerning shareholdings of executive officers, directors and principal shareholders is included in the Company's definitive proxy statement relating to its 1998 Annual Meeting of Shareholders filed or to be filed with the Securities and Exchange Commission. Item 6. SELECTED FINANCIAL DATA The selected financial data presented below should be read in conjunction with the Company's Consolidated Financial Statements and notes thereto, which are included elsewhere herein. Income Statement Data: Fiscal Year Ended September 30, ------------------------------------------------- 1997 1996(a) 1995 1994 1993 -------- -------- -------- -------- -------- (in thousands, except per share amounts) Net sales $501,907 $381,176 $304,509 $173,302 $140,880 Gross profit 183,905 141,685 137,052 71,968 61,675 Income from operations 57,663 17,418 55,440 13,930 14,280 Net income (b) 38,319 11,847 42,822 10,418 10,831 Net income per share: Primary $1.78 $0.60 $2.38 $0.63 $0.66 Fully diluted $1.78 $0.60 $2.22 $0.63 $0.66 Weighted average shares outstanding: Primary 21,551 19,773 18,028 16,665 16,342 Fully diluted 21,551 19,773 19,693 16,665 16,342 Balance Sheet Data: September 30, ------------------------------------------------- 1997 1996(a) 1995 1994 1993 ------- ------- ------- ------- -------- (in thousands) Working capital $190,220 $113,804 $103,833 $ 61,459 $ 58,190 Total assets 376,819 249,554 191,029 121,198 105,278 Long-term debt, less current portion 220 50,712 156 26,474 26,708 Shareholders' equity (c) 291,927 147,489 133,647 63,234 51,481 (a) See footnote 2 of the Notes to the Consolidated Financial Statements for a detailed discussion of the October 2, 1995 AFW acquisition. (b) In fiscal 1997, net income included a loss of $6.7 million representing the Company's proportionate share of the loss from its equity investment in FCT. In 1996, net income included a $1.0 million loss from FCT and the write-off of $630,000 of costs incurred in connection with a proposed but withdrawn public offering of common stock. In fiscal 1993, the Company incurred $1.1 million in costs associated with a failed acquisition. (c) In fiscal 1997, the Company completed the sale of 3,450,000 shares of its common stock in an underwritten offering, resulting in net proceeds to the Company approximating $101.1 million. In fiscal 1995, the Company called for redemption its 8% Convertible Subordinated Debentures (the "Debentures") then outstanding, resulting in the conversion of approximately $26.2 million of such Debentures into shares of the Company's common stock. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Introduction and Company Outlook The Company's operating results primarily depend upon the capital expenditures of semiconductor manufacturers and subcontract assemblers worldwide which, in turn, depend on the current and anticipated market demand for semiconductors and products using semiconductors. The semiconductor industry historically has been highly volatile and has experienced periodic downturns and slowdowns which have had a severe negative effect on the semiconductor industry's demand for capital equipment, including assembly equipment manufactured and marketed by the Company and, to a lesser extent, packaging materials such as those sold by the Company. These downturns and slowdowns have also adversely affected the Company's operating results, in particular, during the latter half of fiscal 1996. The Company does not consider its business to be seasonal in nature. A significant portion of the Company's revenue is derived from sales of a relatively small number of machines, most with selling prices ranging from $60,000 to over $400,000. A delay in the shipment of a limited quantity of machines, either due to manufacturing delays or to rescheduling or cancellations of customer orders, could have a material adverse effect on the results of the operations for any particular quarter. The Company believes that such volatility will continue to characterize the industry and the Company's operations in the future. The semiconductor and semiconductor equipment industries are subject to rapid technological change and frequent new product introductions and enhancements. The Company believes that its continued success will depend upon its ability to continuously develop and manufacture new products and product enhancements and to introduce them into the market in response to demands for higher performance assembly equipment. The Company has developed and is in the process of transitioning to a new generation of wire bonders, the 8000 family, which is based on an entirely new platform and has required the development of new software and many subassemblies not part of the Company's current wire bonders. The first products in the 8000 family are the Model 8020 ball bonder and Model 8060 wedge bonder. Through fiscal 1997, the Company experienced delays in the development and introduction of the Model 8020. Such delays, which are typical in the development of new technological products, included hardware, software and process related issues and changes in functional specifications based on input from customers. The Company is shifting production capacity from the Model 1488 plus to Model 8020 ball bonders in response to growing backlog for Model 8020's, and expects Model 8020 sales to exceed 10% of total ball bonder sales for the fiscal 1998 first quarter. The Model 8060 was introduced during the fiscal 1997 fourth quarter with the sale of four production units. Additional Model 8060 units have been sold during the fiscal 1998 first quarter, although recent delays in the production ramp up have been experienced. While development and technical risks exist which have the potential to further affect the transition to the 8000 family wire bonders, the Company expects the transition to volume production and sales of Model 8020 and 8060 machines to continue through the first half of fiscal 1998. The Company has incurred incremental costs to date and may incur substantial additional costs during the customer evaluation and qualification process to ensure the functionality and reliability of these new products. The Company's inability to successfully qualify new products, or its inability to manufacture and ship these products in volume and on a timely basis, could adversely affect the Company's competitive position. Furthermore, the transition to the Model 8020 and 8060 platforms involves numerous risks, including the possibility that customers will defer purchases of Model 1488 plus and 1474fp wire bonders in anticipation of the availability of the Model 8020 or 8060, or that the Model 8020 or 8060 will fail to meet customer needs or achieve market acceptance. To the extent that the Company fails to accurately forecast demand in volume and configuration for both its current and next-generation wire bonders and generally to manage product transitions successfully, it could experience reduced orders, delays in product shipments and increased risk of inventory obsolescence. There can be no assurance that the Company will successfully introduce and manufacture new products, including the Model 8020 and 8060, that new products introduced by the Company will be accepted in the marketplace or that the Company will manage its product transitions successfully. The Company's failure to do any of the foregoing could materially adversely affect the Company's business, financial condition and operating results. During fiscal 1997, approximately 76% of the Company's sales were delivered to customer locations in the Asia/Pacific region, including Korea, Taiwan, Malaysia, Japan, Singapore and Hong Kong. Sales to customer locations in Taiwan, Korea and Malaysia accounted for 22%, 19% and 13%, respectively, of consolidated net sales in fiscal 1997. In recent months, certain of these countries have experienced significant instability in their financial markets and fluctuations in their local currencies relative to the U.S. dollar. The Company does not believe these foreign financial market and currency fluctuations impacted its operations during fiscal 1997. However, certain Korean-based customers recently pushed out deliveries of machines originally scheduled for the Company's fiscal 1998 first quarter, adversely affecting expected revenues and earnings for the period. In addition, because most of the Company's foreign sales are denominated in U.S. dollars, the Company believes that the increase in value of the U.S. dollar relative to certain foreign currencies in recent months has made the Company's products more expensive in relation to products offered by certain of the Company's foreign competitors. While pricing pressures associated with currency fluctuations have not been significant to date, there can be no assurance that selling prices in future orders will not be adversely impacted by these currency fluctuations. In February 1996, the Company entered into a joint venture agreement with Delco to provide wafer bumping services on a contract basis and to license related technologies through FCT. FCT completed construction of its manufacturing facility in Phoenix, Arizona during fiscal 1997, has commenced production runs involving limited quantities of wafers, and is currently working with additional customers to have its manufacturing processes qualified. This qualification process is expected to continue into fiscal 1998. FCT has experienced losses since its inception. The Company has recognized its proportionate share of such losses based on its 51% equity interest, including a $1.0 million loss during fiscal 1996 and a $6.7 million loss in fiscal 1997. The Company currently expects FCT will incur additional losses during the first nine months of fiscal 1998, but expects FCT's operations to turn profitable by the fourth quarter of fiscal 1998. As previously announced by the Company, sales and earnings for the Company's first quarter of fiscal 1998 will be significantly lower than amounts reported for the fiscal 1997 fourth quarter. This expected reduction reflects the effect of customers needing to assimilate the record number of machines purchased during fiscal 1997, the longer than anticipated transition to the new Model 8020 platform, rescheduling of shipments by certain Korean-based customers and delays in the Model 8060 ramp up. While the longer term effect of the Asia/Pacific region's recent financial market instability on underlying demand for semiconductor devices and for semiconductor capital equipment, or its potential impact, if any, on future selling prices cannot currently be determined with certainty, the Company's present outlook for the remainder of fiscal 1998 remains optimistic. Results of Operations Fiscal Years Ended September 30, 1997 and September 30, 1996 During the 1997 fiscal year ended September 30, 1997, the Company recorded bookings totaling $550.0 million compared to $358.4 million during fiscal 1996. The $191.6 million increase in fiscal 1997 equipment bookings primarily reflected a significant improvement in demand for semiconductor assembly equipment, principally gold ball bonders, compared to the declining demand experienced throughout fiscal 1996. At September 30, 1997, total backlog of customer orders approximated $118.0 million compared to $69.0 million at September 30, 1996. Since the timing of deliveries may vary and orders are generally subject to cancellation, the Company's backlog as of any date may not be indicative of net sales for any succeeding period. Net sales for the 1997 fiscal year increased by $120.7 million to $501.9 million from $381.2 million in fiscal 1996. This improvement generally reflected a reversal of the fiscal 1996 trend of declining quarterly sales. Equipment segment net sales increased to $391.7 million in fiscal 1997 compared to $287.2 million in fiscal 1996. During fiscal 1997, the Company sold more than 3,000 ball bonders compared to slightly more than 1,800 units during fiscal 1996. Additionally, increased unit sales of automatic dicing saws contributed to the fiscal 1997 increase. These volume increases were offset, in part, by lower selling prices for the Model 1488 plus ball bonder line compared to the average selling prices realized on ball bonders during fiscal 1996, and by reduced unit sales of the Model SP2100 Tab bonder in fiscal 1997 compared to fiscal 1996. Packaging materials segment net sales increased to $110.2 million in fiscal 1997 from $93.9 million in fiscal 1996. Of this increase, $6.3 million was attributable to sales of hub blades following the October 1, 1996 Semitec acquisition and $8.8 million was due to increased sales volume of bonding wire, which was offset, in part, by the effect on revenues of declining gold prices. International sales (shipments of the Company's products with ultimate foreign destinations) comprised 85% and 79% of the Company's total sales during fiscal 1997 and 1996, respectively. Sales to customers in the Asia/Pacific region, including Korea, Taiwan, Malaysia, Philippines, Japan, Singapore, Thailand and Hong Kong, accounted for approximately 76% and 72% of the Company's total sales in fiscal 1997 and 1996, respectively. During fiscal 1997, total shipments (including export sales) to customers located in Taiwan, Korea and Malaysia accounted for approximately 22%, 19% and 13% of net sales, compared to 14%, 16% and 14%, respectively, for the 1996 fiscal year. Gross profit increased to $183.9 million for fiscal 1997 from $141.7 million for fiscal 1996 due primarily to the fiscal 1997 increased unit volume of equipment sales. Gross profit as a percentage of net sales decreased slightly to 36.6% in fiscal 1997 compared to 37.2% in fiscal 1996, with declines being experienced in both the equipment and packaging materials segments. The equipment segment gross profit margin decreased to 41.6% in fiscal 1997 from 42.8% in fiscal 1996, due primarily to lower average selling prices on ball bonders and reduced fiscal 1997 sales of higher margin upgrade kits and accessories compared to fiscal 1996 levels. The packaging materials segment gross profit margin declined to 19.1% in fiscal 1997 compared to 19.9% in fiscal 1996. A shift in sales mix to lower margin wire products in fiscal 1997 was the primary reason for this decline. Selling, general and administrative expenses ("SG&A") increased to $80.2 million in fiscal 1997 from $71.9 million in fiscal 1996. This increase of $8.3 million consisted of approximately $1.9 million related to the equipment segment, $5.9 million related to the packaging materials segment and $.5 million of incremental corporate costs. Fiscal 1997 SG&A costs included incremental costs resulting from the October 1996 Semitec acquisition, generally higher employment costs related to the increased sales volume, higher sales and management incentive compensation costs due to improved fiscal 1997 sales and profitability and costs incurred to relocate the Company's Micro-Swiss and AFW Singapore manufacturing operations into new facilities during the year. The impact of these increases was offset, in part, by certain non-recurring equipment segment and corporate costs incurred in connection with the Company's August 1996 resizing initiatives. Research and development costs ("R&D") decreased to $46.0 million in fiscal 1997 from $52.4 million for the prior fiscal year. The majority of the R&D costs incurred were in the equipment segment, and reflected lower outside contract development costs and lower expenditures for prototype materials. During fiscal 1997, the Company continued to invest heavily in the development of the 8000 series wire bonders and the enhancement of many of its existing products, including, but not limited to, the Model 1488 plus ball bonder and Model 1474fp wedge bonder, to enable them to meet customer requirements for higher lead count devices with finer pitch requirements at faster bonding speeds. The Company also continues to invest in new technologies which may eventually lead to improved and alternative semiconductor assembly technologies. Gross R&D expenditures were partially offset by funding received from customers and governmental subsidies totaling $2.0 million in fiscal 1997 compared to $2.5 million in fiscal 1996. Operating income increased to $57.7 million in fiscal 1997 from $17.4 million in fiscal 1996. This improvement resulted principally from the higher net sales and gross profit in the equipment segment, offset, in part, by the increased operating expenses noted above. The packaging materials segment operating income declined to a break-even level in fiscal 1997 from $4.1 million in fiscal 1996, primarily reflecting costs incurred in fiscal 1997 to relocate the Micro-Swiss and AFW Singapore operations to new facilities, severance costs and incremental costs to expand the packaging materials marketing and distribution organizations. Interest income, net of interest expense increased by approximately $1.0 million in fiscal 1997 compared to fiscal 1996, primarily due to the investment of net proceeds from the Company's May 1997 public offering of common stock. During fiscal 1997, the Company recognized a $6.7 million loss from its equity interest in FCT compared to a loss of $1.0 million in fiscal 1996. The increase in the loss in fiscal 1997 resulted from a full year of start up activities during fiscal 1997 compared to only a partial year of early start up activities during fiscal 1996. The Company's effective tax rate increased to 26% for fiscal 1997 from 24.2% in fiscal 1996. The increase resulted largely from an increase in income attributable to operations in the United States. This increase was offset in part by the reversal of valuation allowances established in prior years related to U.S. tax credits. The Company continues to maintain a valuation allowance for deferred tax assets related to the acquired domestic AFW net operating loss ("NOL") and NOL carryforwards of the Company's Japanese subsidiary, since the Company cannot reasonably forecast sufficient future earnings by these subsidiaries to fully utilize the NOL's during the carryforward period. If benefits of the acquired NOL carryforward are realized, such tax benefits would reduce the recorded amount of AFW goodwill. Net income increased to $38.3 million in fiscal 1997 compared to $11.8 million in fiscal 1996, for the reasons enumerated above. Fiscal Years Ended September 30, 1996 and September 30, 1995 During the 1996 fiscal year ended September 30, 1996, the Company recorded bookings totaling $358.4 million, including approximately $66.0 million related to AFW, compared to $342.4 million during fiscal 1995 which excluded AFW's operating results. The $50.0 million decline in fiscal 1996 equipment bookings primarily reflected a significant reduction in demand for semiconductor assembly equipment, principally ball and wedge bonders, in the latter half of fiscal 1996 compared to the record levels experienced throughout fiscal 1995 and the first several months of fiscal 1996. The Company believes that this decline reflected a high level of uncertainty and concern among the Company's customers about then forecasted declines in personal computer sales, a significant drop in selling prices of memory chips, and with regard to the Company's Taiwan-based customers, geopolitical uncertainty regarding China's reaction to elections in Taiwan. At September 30, 1996 total backlog of customer orders approximated $69.0 million, including $6.7 million relating to AFW, compared to $84.7 million at September 30, 1995. Net sales for the 1996 fiscal year increased by $76.7 million to $381.2 million from $304.5 million in fiscal 1995. The acquisition of AFW contributed $66.9 million to fiscal 1996 net sales. Equipment segment net sales increased to $287.2 million in fiscal 1996 from $283.8 million in fiscal 1995. Total unit sales in fiscal 1996 were essentially flat compared to unit sales for fiscal 1995. However, sales of ball bonders, non- semiconductor dicing saws and wire bonder upgrade kits increased in fiscal 1996, while sales of aluminum wedge bonders declined in relation to the amounts sold in fiscal 1995. During fiscal 1996, slightly improved selling prices were realized on the Model 1488 ball bonder line compared to the average selling prices realized on ball bonders during fiscal 1995. On a quarterly basis, net sales declined sharply throughout fiscal 1996, primarily in the equipment segment. The decline generally reflected an industry-wide slowdown in capital equipment purchases during 1996 as compared to the record levels experienced during 1995. Packaging materials segment net sales increased to $93.9 million in fiscal 1996 from $20.7 million in fiscal 1995. The increase was due to $66.9 million of sales of bonding wire products following the AFW acquisition and $6.4 million due to increased sales volumes of expendable tools. International sales (shipments of the Company's products with ultimate foreign destinations) comprised 79% and 78% of the Company's total sales during fiscal 1996 and 1995, respectively. Sales to customers in the Asia/Pacific region (including Korea, Taiwan, Malaysia, Philippines, Japan, Singapore, Thailand and Hong Kong) accounted for approximately 72% of the Company's total sales in both fiscal 1996 and 1995. In fiscal 1996, sales to customers located in Malaysia, Korea and Philippines increased compared to fiscal 1995 levels, while sales to Taiwan-based customers declined significantly in fiscal 1996. The decline in Taiwan, in part, reflected the impact of geopolitical uncertainty concerning China's reaction to the 1996 elections in Taiwan. Gross profit as a percentage of net sales declined to 37.2% in fiscal 1996 from 45.0% in fiscal 1995. Gross margin declines were experienced in both the equipment segment and the packaging materials segment. As a result of the rapid and substantial decline in customer demand for the Company's equipment in the second half of fiscal 1996, the Company experienced unfavorable overhead absorption during the third and fourth quarters of fiscal 1996. Provisions for excess and obsolete inventory totaled $4.5 million in fiscal 1996 compared to $2.8 million in the prior year. The rapid decline in customer demand in fiscal 1996, particularly for the Model 1488 turbo ball bonders, and the anticipated transition to the new generation Model 8020 gold ball bonders, caused the Company to recognize approximately $2.8 million of the 1996 provision for excess and obsolete inventory in the fourth quarter. Thus, equipment segment gross profit as a percentage of net sales decreased to 42.5% for fiscal 1996 from to 45.3% for fiscal 1995. Gross profit as a percentage of net sales in the packaging materials segment decreased to 19.6% for fiscal 1996 compared to 40.7% for fiscal 1995. This decrease principally reflected the effect of the AFW acquisition as sales of bonding wire products have historically had a substantially lower gross profit margin than the Company's other products. SG&A expenses increased to $71.9 million in fiscal 1996 from to $50.7 million in fiscal 1995. This increase of $21.2 million consisted of approximately $9.4 million related to the equipment segment, $10.6 million related to the packaging materials segment, and $1.1 million of incremental corporate costs. In the equipment segment, higher employment and travel related costs, primarily in connection with the Company's worldwide customer support activities during the first half of fiscal 1996, contributed to the increase. Incremental goodwill amortization of $2.1 million and other SG&A costs of $5.8 million associated with the AFW operation accounted for the majority of the increase in the packaging materials segment. Higher sales commissions related to increased sales of expendable tools, increased travel costs related to AFW integration activities and increased administrative costs to support the expanded worldwide activities of the packaging materials segment also contributed to the fiscal 1996 increase. Corporate costs grew principally as a result of implementation activities related to a new worldwide computer system. In response to the rapid decline in customer demand for the Company's products during the latter half of fiscal 1996, the Company reduced its world-wide work force, primarily in the equipment segment, suspended the planned expansion of its Willow Grove, Pennsylvania, facility, and deferred the implementation of a new worldwide integrated computer system. As a result of these actions, in the fourth quarter of fiscal 1996, the Company incurred severance costs totaling $1.2 million and a $1.8 million charge to write-off costs incurred in connection with the suspended Willow Grove facility expansion. R&D costs increased to $52.4 million in fiscal 1996 from $30.9 million for the prior fiscal year. The majority of the R&D costs incurred were in the equipment segment. Approximately $13.0 million of the increase was due to engineering activities associated with the 8000 family of products, principally the Model 8020 development program. The fiscal 1996 increase also included approximately $1.0 million related to the write-down of certain engineering prototype machines to their net realizable value. The remaining R&D spending increases related to development activities for other products and continuous improvements of existing products. Packaging materials segment R&D costs increased to $1.0 million as compared to fiscal 1995 levels. Substantially all of the R&D spending in the packaging materials segment related to continuous improvement activities for existing products. Gross R&D expenditures were partially offset by funding received from customers and governmental subsidies totaling $2.5 million in fiscal 1996 compared to $2.8 million in fiscal 1995. Operating income declined to $17.4 million in fiscal 1996 from $55.4 million in fiscal 1995. This decline largely resulted from higher operating costs in the equipment segment and to the decline in equipment segment gross profits during the latter half of fiscal 1996. Most of the decline in operating income was realized in the United States as the United States operation incurred the majority of the Company's R&D expenses and corporate costs and recognized the majority of the fiscal 1996 fourth quarter charges. The increase in interest expense in fiscal 1996 was primarily attributable to borrowings of $50.0 million under the Company's bank credit facility related to the financing of the Company's October 1995 AFW acquisition. Fiscal 1996 first quarter results included the write-off of approximately $630,000 of costs incurred in connection with a proposed public offering of the Company's common stock. Also, during fiscal 1996, the Company contributed $2.6 million of capital to FCT, and recognized a $1.0 million loss as its proportionate share of the joint venture's operating results. The Company's effective tax rate increased to 24% for fiscal 1996 compared to 23% in fiscal 1995. The increase was due primarily to the amount and geographic distribution of taxable income in fiscal 1996. In connection with the AFW acquisition, the Company acquired a $7.1 million U.S. federal NOL carryforward. During fiscal 1996, AFW's U.S. manufacturing operation experienced a small loss. Since the Company could reasonably forecast sufficient future U.S. earnings by this subsidiary to fully utilize the acquired NOL during the carryforward period, a valuation allowance was established for the full amount of this potential tax benefit. If realized, such tax benefits would reduce the recorded amount of AFW goodwill. Effect of Recent Accounting Pronouncements In February 1997, Statement of Financial Accounting Standards No. 128 "Earnings Per Share" ("SFAS 128") was issued by the Financial Accounting Standard Board ("FASB"). SFAS 128 redefines earnings per share under generally accepted accounting principles and is effective for the Company's fiscal 1998 first quarter ended December 31, 1997. Under the new Statement, primary earnings per share is replaced by basic earnings per share and fully diluted earnings per share is replaced by diluted earnings per share. See Note 1 of Notes to Consolidated Financial Statements for the effect of SFAS No. 128. In June 1997, the FASB also issued SFAS No. 130, "Reporting Comprehensive Income," which establishes standards for reporting and display of comprehensive income and its components (revenues, expenses, gains and losses) in a full set of general purpose financial statements. The comprehensive income and related cumulative equity impact of comprehensive income items will be required to be reported in a financial statement that is displayed with the same prominence as other financial statements. Only the impact of foreign currency translation adjustments and unrealized gains or losses on securities available for sale are expected to be disclosed as potential additional components of the Company's income under the requirements of SFAS No. 130. This statement is effective for fiscal years beginning after December 15, 1997. In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," which revises disclosure requirements related to operating segments, products and services, the geographic areas in which the Company operates, and major customers. The Company intends to adopt this Statement in the first quarter of fiscal 1998 and does not presently anticipate any material change in its disclosures following adoption of SFAS 131. Liquidity and Capital Resources During the past three fiscal years, the Company has financed its operations principally through cash flows from operations. Cash generated by operating activities totaled $40.2 million during fiscal 1997 compared to $38.9 million during fiscal 1996. Cash and total investments increased to $115.6 million at September 30, 1997 from $58.9 at September 30, 1996. The increase in total cash and investments in fiscal 1997 was due largely to proceeds approximating $101.1 million from the Company's May 1997 sale of 3,450,000 shares of common stock, net of repayment of the $50.0 million outstanding balance on the Company's bank revolving credit facility. At September 30, 1997, working capital increased to $190.2 million compared to $113.8 million at September 30, 1996. The accounts receivable balance increased by $57.6 million during fiscal 1997 reflecting the significantly improved sales volumes throughout the latter half of the year. Gross inventory increased $5.2 million at September 30, 1997, compared to the prior year end due to increased levels of work in process. This increase in work in process was consistent with the growth in backlog. Trade accounts payable and accrued expenses at September 30, 1997 increased by $30.9 million to $72.3 million compared to the amounts at the end of fiscal 1996. The increases primarily resulted from increased inventory purchases associated with improved sales levels in fiscal 1997 and increased management incentive compensation accruals due to improved fiscal 1997 profitability. During fiscal 1997, the Company invested approximately $13.5 million in property and equipment, primarily to complete the construction of its Micro- Swiss manufacturing facility in Yokneam, Israel, and to upgrade equipment used in the Company's manufacturing and R&D activities. The Company presently expects fiscal 1998 capital spending to approximate $18.0 million. The principal capital projects planned for fiscal 1998 include the purchase of additional tooling and equipment necessary to manufacture the 8000 series of machines, the purchase of equipment necessary to expand manufacturing capacity, primarily in the United States and Israel, and additional investments in a new global management information system. The Company has initiated a project to replace existing business and accounting systems with an enterprise-wide business system which is "Year 2000" compliant. The Company expects to incur capital expenditures, primarily for computer hardware and software, related to this system implementation project. Such amounts are included in the estimated capital expenditures discussed above. Internal staffing costs and reengineering costs, if any, associated with this system implementation project will be expensed as incurred. The Company's business system implementation plan currently anticipates conversion to the new enterprise business system by the beginning of its 1999 fiscal year. Accordingly, the Company does not currently anticipate any material disruption in its business operations as a consequence of the year 2000 issue. Pursuant to the terms of the FCT joint venture agreement, the Company contributed to FCT an aggregate of $16.8 million through the end of fiscal 1997. In addition, the Company loaned FCT $5.0 million during fiscal 1997 and, in October 1997, agreed to provide an additional $5.0 million in loans. The Company currently expects that an additional $5 million to $10 million of funding will be required by FCT during fiscal 1998, although the amount which may be funded by the Company and its timing are presently uncertain. The joint venture is subject to numerous risks common to business arrangements of this nature. There can be no assurance that FCT will ever become profitable, that the Company will not make additional capital contributions and loans to FCT or that the anticipated benefits of the joint venture will ever be realized. If the joint venture were to not realize such benefits, the Company's business, financial condition and operating results could be materially adversely affected. A significant portion of the Company's consolidated earnings are attributable to undistributed earnings of certain of its foreign subsidiaries. Deferred income taxes have not been provided on that portion of undistributed foreign earnings which is expected to be indefinitely reinvested in foreign operations. If funds were required to be repatriated to fund the Company's operations or other financial obligations, substantial additional United States federal income tax expense could be required to be recognized. The Company currently has available the entire amount of a $10.0 million revolving credit facility expiring February 28, 1998, which it expects to renew under comparable terms, and a $50.0 million revolving credit facility expiring March 30, 2001. There were no borrowings under the $10.0 million credit line during fiscal 1997. The Company had outstanding the entire amount of the $50.0 million revolving credit facility through May 19, 1997, at which time the loan was repaid from proceeds received in connection with the stock issuance. The Company intends to retain both of these revolving credit facilities. The Company believes that anticipated cash flows from operations, its working capital and amounts available under its revolving credit facilities will be sufficient to meet the Company's liquidity and capital requirements for at least the next 12 months. However, the Company may seek, as required, equity or debt financing to provide capital for corporate purposes and/or to fund strategic business opportunities, including possible acquisitions, joint ventures, alliances or other business arrangements which could require substantial capital outlays. The timing and amount of such potential capital requirements cannot be determined at this time and will depend on a number of factors, including demand for the Company's products, semiconductor and semiconductor capital equipment industry conditions and competitive factors and the nature and size of strategic business opportunities which the Company may elect to pursue. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated Financial Statements of Kulicke and Soffa Industries, Inc. and its subsidiaries, listed in the index appearing under Item 14 (a)(1) and (2) herein are filed as part of this Report. REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders Kulicke and Soffa Industries, Inc. In our opinion, based upon our audits, the consolidated financial statements listed in the index appearing under Item 14(a)(1) and (2) on page 41 of this Annual Report on Form 10-K present fairly, in all material respects, the financial position of Kulicke and Soffa Industries, Inc. and its subsidiaries at September 30, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 1997, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ Price Waterhouse LLP - ------------------------ Philadelphia, Pennsylvania November 13, 1997 KULICKE AND SOFFA INDUSTRIES, INC. CONSOLIDATED BALANCE SHEET (in thousands) September 30, ------------------- 1997 1996 -------- ------- ASSETS CURRENT ASSETS: Cash and cash equivalents (including time deposits; 1997 - $723; 1996 - $2,925) $107,605 $ 45,344 Short-term investments 7,982 13,078 Accounts and notes receivable (less allowance for doubtful accounts; 1997 - $2,149; 1996 - $1,227) 105,103 47,456 Inventories, net 45,602 44,519 Prepaid expenses and other current assets 4,391 4,277 Refundable income taxes -- 6,212 Deferred income taxes 1,521 1,765 ------- ------- TOTAL CURRENT ASSETS 272,204 162,651 Property, plant and equipment, net 45,648 41,143 Intangible assets, primarily goodwill, net 42,724 42,049 Long-term investments -- 449 Investment in and loans to joint venture 14,135 1,556 Other assets 2,108 1,706 ------- ------- TOTAL ASSETS $376,819 $249,554 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt $ 780 $ 491 Accounts payable 47,408 23,032 Accrued expenses 24,932 18,389 Income taxes payable 8,864 6,935 ------- ------- TOTAL CURRENT LIABILITIES 81,984 48,847 Long-term debt 220 50,712 Other liabilities 2,688 2,506 ------- ------- TOTAL LIABILITIES 84,892 102,065 Commitments and contingencies (Notes 6 and 13) -- -- SHAREHOLDERS' EQUITY: Preferred stock, without par value: Authorized - 5,000 shares; issued - none -- -- Common stock, without par value: Authorized - 50,000 shares; issued and outstanding: 1997 - 23,237; 1996 - 19,433 155,246 48,733 Retained earnings 139,404 101,085 Cumulative translation adjustment (2,723) (2,329) ------- ------- TOTAL SHAREHOLDERS' EQUITY 291,927 147,489 ------- ------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $376,819 $249,554 ======= ======= The accompanying notes are an integral part of these consolidated financial statements. KULICKE AND SOFFA INDUSTRIES, INC. CONSOLIDATED INCOME STATEMENT (in thousands, except per share amounts) Fiscal Year Ended September 30, ------------------------------------ 1997 1996 1995 --------- --------- --------- Net sales $501,907 $381,176 $304,509 Cost of goods sold 318,002 239,491 167,457 ------- ------- ------- Gross profit 183,905 141,685 137,052 Selling, general and administrative 80,212 71,863 50,728 Research and development, net 46,030 52,404 30,884 ------- ------- ------- Income from operations 57,663 17,418 55,440 Interest income 3,151 3,124 1,580 Interest expense (2,331) (3,288) (1,407) Equity in loss of joint venture (6,701) (994) -- Other expense -- (630) -- ------- ------- ------- Income before taxes 51,782 15,630 55,613 Provision for income taxes 13,463 3,783 12,791 ------- ------- ------- Net income $ 38,319 $ 11,847 $ 42,822 ======= ======= ======= Net income per share: Primary $1.78 $0.60 $2.38 Fully diluted $1.78 $0.60 $2.22 Weighted average shares outstanding: Primary 21,551 19,773 18,028 Fully diluted 21,551 19,773 19,693 The accompanying notes are an integral part of these consolidated financial statements. KULICKE AND SOFFA INDUSTRIES, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands) Fiscal Year Ended September 30, ------------------------------- 1997 1996 1995 --------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 38,319 $ 11,847 $ 42,822 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 11,329 9,658 4,947 Provision for doubtful accounts 1,065 178 826 Deferred taxes on income 244 (2,125) (718) Provision for inventory reserves 4,153 4,547 2,758 Equity in loss of joint venture 6,701 994 -- Changes in components of working capital, excluding effects of business acquisitions: Decrease (increase) in accounts receivable (57,960) 38,959 (37,995) Decrease (increase) in inventories (4,761) (6,358) (16,390) Increase in prepaid expenses and other current assets (35) (483) (1,107) Collection of refundable income taxes 6,212 -- -- Increase (decrease) in accounts payable and accrued expenses 30,668 (11,632) 20,903 Increase (decrease) in net taxes payable 3,527 (8,076) 5,158 Other, net 726 1,364 844 ------- ------- ------- Net cash provided by operating activities 40,188 38,873 22,048 ------- ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of net assets of Semitec in 1997; AFW in 1996, net of cash acquired (4,510) (43,020) -- Purchases of investments classified as available-for-sale (4,451) (28,512) (12,612) Proceeds from sales or maturities of investments: Classified as available-for-sale 9,967 26,802 16,631 Classified as held-to-maturity -- 505 2,082 Purchases of plant and equipment (13,516) (18,028) (10,777) Proceeds from sale of property and equipment -- 781 1,067 Investments in and loans to joint venture (19,280) (2,550) -- ------- ------- ------- Net cash used by investing activities (31,790) (64,022) (3,609) ------- ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments on borrowings, including capitalized leases (51,065) (8,537) (60) Proceeds from borrowings -- 50,000 -- Proceeds from issuances of common stock 104,905 394 1,484 ------- ------- ------- Net cash provided by financing activities 53,840 41,857 1,424 ------- ------- ------- EFFECT OF EXCHANGE RATE CHANGES ON CASH 23 12 7 ------- ------- ------- CHANGE IN CASH AND CASH EQUIVALENT 62,261 16,720 19,870 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 45,344 28,624 8,754 ------- ------- ------- CASH AND CASH EQUIVALENTS AT END OF YEAR $107,605 $ 45,344 $ 28,624 ======= ======= ======= The accompanying notes are an integral part of these consolidated financial statements. See Note 7 for disclosure of non-cash financing activities. KULICKE AND SOFFA INDUSTRIES, INC. CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (in thousands) Unrealized Cumulative Gain/ Total Common Stock Retained Translation (Loss) on Shareholders' Shares Amount Earnings Adjustment Investments Equity ------ ------ -------- ----------- ----------- ---------- Balances at September 30, 1994 16,499 $ 17,839 $ 46,416 $ (841) $ (180) $ 63,234 Purchases under the employee stock purchase plan 119 556 -- -- -- 556 Employer contributions to the 401(k) plan 12 118 -- -- -- 118 Exercise of stock options 217 928 -- -- -- 928 Tax benefit from exercise of stock options -- 154 -- -- -- 154 Shares issued upon conversion of subordinated debt 2,463 26,162 -- -- -- 26,162 Translation adjustment -- -- -- (507) -- (507) Unrealized gain on investments -- -- -- -- 180 180 Net income -- -- 42,822 -- -- 42,822 ------ ------ ------- ------ -------- ------- Balances at September 30, 1995 19,310 45,757 89,238 (1,348) -- 133,647 Employer contribution to the 401(k) plan 84 1,580 -- -- -- 1,580 Exercise of stock options 39 394 -- -- -- 394 Tax benefit from exercise of stock options -- 1,002 -- -- -- 1,002 Translation adjustment -- -- -- (981) -- (981) Net income -- -- 11,847 -- -- 11,847 ------ ------ ------- ------ -------- ------- Balances at September 30, 1996 19,433 48,733 101,085 (2,329) -- 147,489 Shares sold 3,450 101,103 -- -- -- 101,103 Employer contributions to the 401(k) plan 92 1,793 -- -- -- 1,793 Exercise of stock options 262 2,009 -- -- -- 2,009 Tax benefit from exercise of stock options -- 1,608 -- -- -- 1,608 Translation adjustment -- -- -- (394) -- (394) Net income -- -- 38,319 -- -- 38,319 ------ ------ ------- ------ -------- ------- Balances at September 30, 1997 23,237 $155,246 $139,404 $(2,723) $ -- $291,927 ====== ======= ======= ====== ======== ======= The accompanying notes are an integral part of these consolidated financial statements. KULICKE AND SOFFA INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share data) NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES These consolidated financial statements include the accounts of Kulicke and Soffa Industries, Inc. and its subsidiaries (the "Company"), with appropriate elimination of intercompany balances and transactions. Nature of Business - The Company manufactures capital equipment and packaging materials used in the assembly of semiconductors. The Company's operating results primarily depend upon the capital expenditures of semiconductor manufacturers and subcontract assemblers worldwide which, in turn, depend on the current and anticipated market demand for semiconductors and products utilizing semiconductors. The semiconductor industry historically has been highly volatile and experienced periodic downturns and slowdowns which have had a severe negative effect on the semiconductor industry's demand for semiconductor capital equipment, including assembly equipment manufactured and marketed by the Company and, to a lesser extent, packaging materials such as those sold by the Company. These downturns and slowdowns have also adversely affected the Company's operating results. The Company believes that such volatility will continue to characterize the industry and the Company's operations in the future. The semiconductor and semiconductor equipment industries are subject to rapid technological change and frequent new product introductions and enhancements. The Company invests substantial amounts in research and development to continuously develop and manufacture new products and product enhancements in response to demands for higher performance assembly equipment. In addition, the Company continuously pursues investments in alternative packaging technologies. The Company's inability to successfully develop new products and product enhancements or to effectively manage the introduction of new products into the marketplace could have a material adverse effect on the Company's results of operations, financial condition and liquidity. Cash Equivalents - The Company considers all highly liquid investments with original maturities of three months or less when purchased to be cash equivalents. Investments - The Company's investments other than cash equivalents are classified as "trading," "available-for-sale" or "held-to-maturity," depending upon the nature of the investment, its ultimate maturity date in the case of debt securities, and management's intentions with respect to holding the securities. Investments classified as "trading" are reported at fair market value, with unrealized gains or losses included in earnings. Investments classified as available-for-sale are reported at fair market value, with net unrealized gains or losses reflected as a separate component of shareholders' equity. Investments classified as held-to-maturity are reported at amortized cost. Realized gains and losses are determined on the basis of specific identification of the securities sold. Vulnerability to Certain Concentrations - Financial instruments which may subject the Company to concentration of credit risk at September 30, 1997 and 1996 consist primarily of investments and trade receivables. The Company manages credit risk associated with investments by investing its excess cash in investment grade debt instruments of the U.S. Government, financial institutions and corporations. The Company has established investment guidelines relative to diversification and maturities designed to maintain safety and liquidity. These guidelines are periodically reviewed and modified to take advantage of trends in yields and interest rates. The Company's trade receivables result primarily from the sale of semiconductor equipment, related accessories and replacement parts and packaging materials to a relatively small number of large manufacturers in a highly concentrated industry. The Company continually assesses the financial strength of its customers to reduce the risk of loss. Accounts receivable at September 30, 1997 and 1996 include notes receivable of $50 and $1,120, respectively. Write-offs of uncollectible accounts have historically been insignificant. Sales to a relatively small number of customers account for a significant percentage of the Company's net sales. During fiscal 1997, sales to Anam (a Korea-based customer) and Intel accounted for approximately 12.5% and 10.2%, respectively, of the Company's net sales. In fiscal 1996, sales to Intel and Anam accounted for 14.3% and 11.2%, respectively. In fiscal 1995, sales to Anam and Intel accounted for 19.8% and 16.3%, respectively, of the Company's net sales. The Company expects that sales of its products to a limited number of customers will continue to account for a high percentage of net sales for the foreseeable future. The reduction or loss of orders from a significant customer could adversely affect the Company's business, financial condition and operating results. The Company relies on subcontractors to manufacture to the Company's specifications many of the components or subassemblies used in its products. Certain of the Company's products require components or parts of an exceptionally high degree of reliability, accuracy and performance for which there are only a limited number of suppliers or for which a single supplier has been accepted by the Company as a qualified supplier. If supplies of such components or subassemblies were not available from any such source and a relationship with an alternative supplier could not be promptly developed, shipments of the Company's products could be interrupted and re-engineering of the affected product could be required. Such disruptions could have a material adverse effect on the Company's results of operations. Inventories - Inventories are stated at the lower of cost (determined on the basis of first-in, first-out) or market. Due to the volatility of demand for capital equipment and the rapid technological change in the semiconductor industry, the Company is vulnerable to risks of excess and obsolete inventory. The Company generally provides reserves for inventory considered to be in excess of 18 months of forecasted future demand. Property, Plant and Equipment - Property, plant and equipment are carried at cost. The cost of additions and those improvements which increase the capacity or lengthen the useful lives of assets are capitalized while repair and maintenance costs are expensed as incurred. Depreciation and amortization is provided on a straight-line basis over the estimated useful lives as follows: buildings 25 to 40 years; machinery and equipment 3 to 8 years; leasehold improvements are based on the life of lease or life of asset. Purchased computer software costs related to business and financial systems are amortized over a five year period on a straight-line basis. Intangible Assets - Goodwill resulting from acquisitions accounted for using the purchase method is amortized on a straight-line basis over the estimated period to be benefited by the acquisitions ranging from fifteen to twenty years (see Note 2). In accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," the carrying value of long-lived assets, including goodwill, is evaluated whenever changes in circumstances indicate the carrying amount of such assets may not be recoverable. In performing such review for recoverability, the Company compares the expected future cash flows to the carrying value of long-lived assets and identifiable intangibles. If the anticipated undiscounted future cash flows are less than the carrying amount of such assets, the Company recognizes an impairment loss for the difference between the carrying amount of the assets and their estimated fair value. If an asset being tested for recoverability was acquired in a business combination accounted for using the purchase method, the excess of cost over fair value of net assets that arose in that transaction is allocated to the assets being tested for recoverability on a pro rata basis using the relative fair values of the long-lived assets and identifiable intangibles acquired at the acquisition date. Postemployment Benefits - Post employment benefits are recognized over the employees' periods of service if such benefits vest ratably, or upon termination in certain instances. Foreign Currency Translation - The U.S. dollar is the functional currency for all subsidiaries except the Company's operations in Japan, Korea, Singapore, Switzerland and Taiwan. Unrealized translation gains and losses resulting from the translation of functional currency financial statement amounts into U.S. dollars in accordance with SFAS No. 52 are not included in determining net income but are accumulated in the cumulative translation adjustment account as a separate component of shareholders' equity. Gain and losses resulting from foreign currency transactions are included in the determination of net income. Net exchange and transaction gains (losses) were ($135), $57 and ($281) for the years ended September 30, 1997, 1996 and 1995, respectively. Revenue Recognition - Sales are recorded upon shipment of products or performance of services. Expenses for estimated product returns, warranty and installation costs are accrued in the period of sale recognition. Research and Development Arrangements - The Company receives funding from certain customers and government agencies pursuant to contracts or other arrangements for the performance of specified research and development activities. Such amounts are recognized as a reduction of research and development expense when specified activities have been performed. During fiscal 1997, 1996 and 1995, reductions to research and development expense related to such funding totaled $2,018, $2,473 and $2,843, respectively. Income Taxes - Deferred income taxes are determined using the liability method in accordance with SFAS No. 109, "Accounting for Income Taxes." No provision is made for U.S. income taxes on undistributed earnings of foreign subsidiaries which are indefinitely reinvested in foreign operations. Earnings Per Share - Through the fiscal year ended September 30, 1997, the Company computed earnings per share in accordance with Accounting Principles Board Opinion No. 15, "Earnings Per Share." Primary earnings per share was computed using the weighted average number of common shares outstanding, giving recognition to the assumed exercise of stock options, if dilutive. Fully diluted earnings per share was computed based on the weighted average number of shares outstanding plus those shares assumed to be issued upon the exercise of stock options and, in fiscal 1995, the conversion of the subordinated debentures, after giving effect to the elimination of interest expense, net of income taxes, applicable to the debentures. In the first quarter of fiscal 1998, the Company will implement Statement of Financial Accounting Standards No. 128, "Earnings Per Share," ("SFAS 128"). If the Company had adopted SFAS No. 128 for the year ended September 30, 1997, the Company's pro forma earnings per share for the fiscal years ended September 30, 1997, 1996 and 1995 would have been as follows: Fiscal Year Ended September 30, ------------------------------- 1997 1996 1995 -------- -------- -------- Pro forma earnings per share: Basic $1.84 $0.61 $2.44 Diluted $1.78 $0.60 $2.23 Management Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The more significant areas involving the use of estimates in these financial statements include allowances for uncollectible accounts receivable, reserves for excess and obsolete inventory and valuation allowances for deferred tax assets. Actual results could differ from those estimates. Accounting for Stock-based Compensation - In 1995, Statement of Financial Accounting Standards No. 123 - "Accounting for Stock-Based Compensation" ("SFAS No. 123") was issued. SFAS No. 123 defines the "fair value method" of accounting for stock options or similar equity instruments, pursuant to which compensation cost is measured at the grant date based on the value of the award and is recognized over the service period. SFAS No. 123 permits companies to continue to account for stock option grants using the "intrinsic value method" prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25"), and disclose the pro forma effect on net income and earnings per share as if the fair value method had been applied to stock option grants. The Company has elected to implement SFAS No. 123 on a disclosure basis only (see Note 8). NOTE 2: ACQUISITIONS On October 2, 1995, the Company acquired American Fine Wire Corporation ("AFW") through the acquisition of all of the common stock of Circle "S" Industries, Inc. ("Circle S"), the parent corporation of AFW. AFW is a manufacturer of fine gold and aluminum wire used in the wire bonding process, and has manufacturing facilities in Singapore; Selma, Alabama; and Thalwil, Switzerland. The acquisition was accounted for using the purchase method. Accordingly, AFW's operating results were included in the Company's consolidated financial statements commencing October 2, 1995. The purchase price was initially financed by borrowings under a new bank credit facility and by issuance of promissory notes to the former Circle "S" shareholders (see Note 7). The excess of the total purchase price over the estimated fair value of acquired tangible net assets was $43,099, consisting primarily of goodwill and a favorable operating lease, both of which are being amortized over a twenty-year period. Unaudited pro forma income statement data reflecting the combined operating results of the Company and AFW for the fiscal year ended September 30, 1995, as if the acquisition had occurred on October 1, 1994, after giving effect to certain pro forma adjustments, are as follows: Pro forma ---------- (unaudited) Revenue $ 376,956 Net income 40,994 Net income per share $2.13 On October 1, 1996, the Company acquired the common stock of Semitec Corporation ("Semitec") for a purchase price of approximately $4,901, including transaction related costs. The acquisition was accounted for using the purchase method. Accordingly, Semitec's operating results are included in the Company's consolidated financial statements commencing October 1, 1996. Goodwill resulting from this acquisition is being amortized on a straight- line basis over a twenty-year period. The Semitec purchase price was allocated to the assets acquired and liabilities assumed based upon their estimated fair market values, as follows: Total current assets $1,447 Property and equipment 1,260 Goodwill 3,059 Total current liabilities (442) Total long term liabilities (423) ----- Total purchase price $4,901 ===== NOTE 3: INVESTMENTS IN AND LOANS TO JOINT VENTURE In February 1996, the Company entered into a joint venture agreement with Delco Electronics Corporation ("Delco") providing for the formation and management of Flip Chip Technologies, L.L.C. ("FCT"). FCT was formed to provide wafer bumping services on a contract basis and to license related technologies. The Company owns a 51% equity interest in FCT but participates equally with Delco in the management of FCT through an Executive Committee. Accordingly, the Company accounts for its investment in FCT using the equity method, and recognizes its proportionate share of the operating results of the joint venture on the basis of its ownership interest. For income tax purposes, FCT is treated as a partnership. Accordingly, no provision for income taxes is included in FCT's separate financial statements. Rather, the reported results of FCT, and the Company's proportionate share of such results are on a pre- tax basis. During fiscal 1997, the Company loaned FCT $5,000 pursuant to a revolving loan agreement. The loan bears interest at prime plus 1 1/2% (10% at September 30, 1997) and is secured by accounts receivable, inventory and machinery and equipment. The loan is due on June 16, 1999 with interest payable semi-annually. The loan is convertible, at the Company's option, into additional shares of FCT common stock, subject to Delco's right to purchase additional shares to maintain its current proportionate ownership interest. On October 30, 1997, the Company agreed to loan an additional $5,000 to FCT under similar terms to the initial $5,000 loan. Summary financial information of FCT for the period from formation (February 28, 1996) to September 30, 1996 and for the fiscal year ended September 30, 1997, are as follows: September 30, ------------------- 1997 1996 -------- -------- Current assets $ 2,224 $ 1,747 Property, plant and equipment, net 22,951 4,664 Total assets 25,608 6,615 Current liabilities 2,697 3,564 Note payable 5,000 -- Members' equity 17,911 3,050 Period from February 28, 1996 Fiscal Year Ended (inception) to September 30, 1997 September 30, 1996 ------------------ ------------------ Net sales $ 887 $ 99 Net loss (13,139) (1,950) NOTE 4: INVESTMENTS At September 30, 1997 and 1996, no short-term investments were classified as trading. Investments, excluding cash equivalents, consisted of the following at September 30, 1997 and 1996: September 30, 1997 September 30, 1996 ------------------------- ----------------------- Unrealized Unrealized Fair Gains/ Cost Fair Gains/ Cost Value (Losses) Basis Value (Losses) Basis ----- -------- ----- ----- -------- ----- Available-for-sale: U.S. Treasury bills maturing in less than one year $ -- $ -- $ -- $ 5,969 $ -- $ 5,969 Adjustable rate notes 5,062 -- 5,062 4,808 -- 4,808 ----- ------ ----- ------ ---- ------ Short-term investments classified as available for sale $5,062 $ -- $5,062 $10,777 $ -- $10,777 ===== ====== ===== ====== ==== ====== Held-to-maturity: Corporate bonds with weighted average maturity less than three years $2,898 $ (22) $2,920 $ 2,690 $ (60) $ 2,750 ===== ====== ====== ==== Less: Short-term investments classified as held-to maturity 2,920 2,301 ----- ----- Held-to-maturity investments maturing after one year, within five years $ -- $ 449 ===== ====== NOTE 5: INVENTORIES September 30, ------------------- 1997 1996 -------- -------- Raw materials and supplies $ 28,237 $ 29,985 Work in process 16,028 9,862 Finished goods 17,245 16,427 ------- ------- 61,510 56,274 Inventory reserves (15,908) (11,755) ------- ------- $ 45,602 $ 44,519 ======= ======= NOTE 6: PROPERTY, PLANT AND EQUIPMENT September 30, ------------------- 1997 1996 -------- -------- Land $ 1,453 $ 1,442 Buildings and building improvements 19,583 16,457 Machinery and equipment 63,187 56,524 Leasehold improvements 4,039 2,767 ------- ------- 88,262 77,190 Accumulated depreciation (42,614) (36,047) ------- ------- $ 45,648 $ 41,143 ======= ======= The Company has obligations under various operating leases, primarily for manufacturing and office facilities, which expire periodically through 2002. In addition, in connection with the October 2, 1995 acquisition of AFW, the Company assumed certain leases associated with AFW's facilities. Minimum rental commitments under these leases (excluding taxes, insurance, maintenance and repairs, which are also paid by the Company), are as follows: $1,955 in 1998; $1,390 in 1999; $1,122 in 2000; $538 in 2001; $298 in 2002 and $32 thereafter. Rent expense for fiscal 1997, 1996 and 1995 was $3,191, $2,540 and $2,355, respectively. NOTE 7: DEBT OBLIGATIONS Debt obligations include the following: September 30, ------------------- 1997 1996 -------- -------- Revolving credit facility $ -- $ 50,000 Capital lease obligations 1,000 1,203 ------- ------- Total debt obligations 1,000 51,203 Less - current portion 780 491 ------- ------- Debt due after one year $ 220 $ 50,712 ======= ======= The Company borrowed $15,000 under its bank credit facility on October 2, 1995 to fund the cash portion of the AFW purchase price and issued promissory notes totaling $34,395 to certain selling shareholders of Circle "S." The promissory notes were repaid in full on January 5, 1996, together with accrued interest thereon. To finance the repayment of the promissory notes, on January 5, 1996, the Company borrowed the remaining $35,000 available under a term credit facility. Borrowings under the $50,000 term credit facility bore interest at the LIBOR rate plus 50 basis points. On April 10, 1996, the Company renegotiated the terms of its bank credit facilities resulting in a new Restated Loan Agreement providing for a $10,000 revolving credit facility expiring February 28, 1998, which the Company expects to renew under comparable terms, and a $50,000 revolving credit facility expiring March 30, 2001. The $10,000 revolving loan bears interest at the prime rate less 1/4%. The $50,000 revolving loan bears interest at the Company's option, either at a Base Rate (defined as the lesser of the prime rate minus 1/2% or the Federal Funds rate plus 1/2%) or, at a LIBOR Rate (defined as LIBOR plus .4% to 1.0%, depending on maintenance of certain financial covenants). The Company repaid the $50,000 outstanding under the revolving credit facility in May 1997 (see Note 8). The Restated Loan Agreement is unsecured and requires that the Company maintain certain covenants including a leverage ratio, an interest ratio and working capital of not less than $50,000. Additionally, the Restated Loan Agreement also limits the Company's ability to mortgage, pledge, or dispose of material assets, engage in certain transactions with affiliates and imposes restrictions as to the type and quality of the Company's investments. The Company was in compliance with all covenants of the Restated Loan Agreement during fiscal 1997. During fiscal 1995, a portion of the Company's 8% Convertible Subordinated Debentures (the "Debentures") were outstanding. The Debentures were convertible at any time prior to maturity into shares of the Company's common stock at a conversion rate of $10.66 per share. The Debentures were called for redemption in fiscal 1995 at a redemption price of 101.60% of the principal amount of the Debentures, plus accrued interest thereon, resulting in the conversion of approximately $26,162 of such Debentures into shares of the Company's common stock. Maturities of long-term debt subsequent to September 30, 1997, are $780 in 1998 and $220 in 1999. Interest paid on the Company's debt obligations totaled $2,331, $3,288 and $1,407 in fiscal 1997, 1996 and 1995, respectively. NOTE 8: SHAREHOLDERS' EQUITY Common Stock In May 1997, the Company completed the sale of 3,450,000 shares of its common stock in an underwritten offering, resulting in net proceeds to the Company approximating $101,103. A portion of these proceeds was used to repay the $50,000 outstanding balance under the Company's existing bank revolving credit facility. Stock Option Plans The Company has four employee stock option plans for officers and key employees (the "Employee Plans") pursuant to which options may be granted at 100% of the market price of the Company's Common Stock on the date of grant. Options may no longer be granted under two of the plans. Options granted under the Employee Plans are exercisable at such dates as are determined in connection with their issuance, but not later than ten years after the date of grant. The following summarizes all employee stock option activity for the three years ended September 30, 1997: September 30, ---------------------------------------------- 1997 1996 1995 -------------- -------------- ------------- Average Average Average Exercise Exercise Exercise Options Price Options Price Options Price ------- ----- ------- ----- ------ ----- (Share amounts in thousands) Options outstanding at beginning of period 815 $15.08 618 $ 6.93 472 $ 5.30 Granted or reissued 552 12.00 259 32.84 350 8.06 Exercised (231) 7.72 (37) 6.24 (130) 4.21 Terminated or canceled (64) 15.94 (25) 10.60 (74) 6.66 ----- ----- ---- ----- ---- ----- Options outstanding at end of period 1,072 $15.05 815 $15.08 618 $ 6.93 ====== ===== ==== ===== ==== ===== Options exercisable at end of period 132 $12.35 223 $ 6.47 147 $ 4.52 ====== ===== ==== The Company also maintains a stock option plan for non-officer directors (the "Director Plan") pursuant to which options to purchase 5,000 shares of the Company's Common Stock at an exercise price of 100% of the market price on the date of grant are issued to each non-officer director each year. Options to purchase 132,000 shares at an average exercise price of $16.20 were outstanding under the Director Plan at September 30, 1997, of which options to purchase 34,000 shares were currently exercisable. Options to purchase 39,000 shares under the Director Plan were exercised during 1997. At September 30, 1997, a total of 2,496,428 shares of the Company's Common Stock were reserved for issuance in connection with the Company's stock option plans. Stock-Based Compensation As permitted under Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"), the Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25"), in accounting for stock options granted to employees. Under APB No. 25, the Company generally recognizes no compensation expense in the income statement with respect to such grants. Pro forma information regarding net income and earnings per share is required by SFAS No. 123 for options granted after October 1, 1995 as if the Company had accounted for its stock option grants to employees under the fair value method of SFAS No. 123. The fair value of the Company's stock option grants to employees was estimated using a Black-Scholes option pricing model. The following assumptions were employed to estimate the fair value of stock options granted to employees: Fiscal Year Ended September 30, ----------------- 1997 1996 ------- ------- Expected dividend yield $0.00 $0.00 Expected stock price volatility 71.00% 71.00% Risk-free interest rate 6.16% 6.16% Expected life (years) 6 6 For pro forma purposes, the estimated fair value of the Company's stock options to employees is amortized over the options' vesting period. The Company's pro forma information follows: Fiscal Year Ended September 30, ----------------- 1997 1996 ------- ------- (in thousands except per share amounts) Weighted average fair value of options granted $8.22 $22.47 Net income - as reported $38,319 $11,847 Net income - pro forma 37,069 11,120 Earnings per share - as reported $1.78 $0.60 Earnings per share - pro forma $1.72 $0.56 SFAS No. 123 is effective for stock options granted by the Company commencing October 1, 1995. Options granted before October 1, 1995 have not been valued and no pro forma compensation expense has been recognized. Employee Stock Purchase Plan Through March 31, 1995, the Company maintained an Employee Stock Purchase Plan which allowed employees to purchase the Company's Common Stock at 85% of the market value on the first or last day of the offering period, whichever was lower. On March 31, 1995, 119,016 shares were sold to employees at a price of $4.675 per share, pursuant to this plan. Effective April 1, 1995 this Plan was discontinued. NOTE 9: EMPLOYEE BENEFIT PLANS The Company has a non-contributory defined benefit pension plan covering substantially all U.S. employees. The benefits for this plan were based on the employees' years of service and the employees' compensation during the three years before retirement. The Company's funding policy is consistent with the funding requirements of Federal law and regulations. Effective December 31, 1995, the benefits under the Company's pension plan were frozen. As a consequence, accrued benefits will no longer change as a result of an employee's length of service or compensation. The benefit freeze resulted in the recognition of a $1,050 net curtailment gain in fiscal 1996, which was offset by recognition of a $1,050 prior unrecognized loss. Net pension cost for the U.S. plan comprises the following: Fiscal Year Ended September 30, ------------------------------- 1997 1996 1995 ------ ------ ------ Service cost-benefits earned during the period $ -- $ 151 $ 563 Interest cost on projected benefit obligations 776 760 797 Recognition of prior unrecognized loss -- 1,050 -- Recognition of net curtailment gain -- (1,050) -- Actual return on plan assets (980) (570) (859) Net amortization and deferral 260 (250) (226) Recognition of past service costs -- 75 -- --- ------ ----- Net pension expense of U.S. plan $ 56 $ 166 $ 275 === ====== ==== Weighted average discount rate 7.50% 7.50% 7.75% Rate of increase in future compensation * * 4.00% Expected long-term return on assets 7.00% 7.00% 9.00% * Not applicable due to the December 31, 1995 benefit freeze. The funded status of the U.S. plan follows: September 30, ------------------- 1997 1996 ------- ------- Accumulated benefit obligation, including vested benefits of $11,198 and $10,002, respectively $11,198 $10,340 ====== ====== Projected benefit obligation for service rendered to date $11,198 $10,340 Plan assets at fair value, primarily mutual fund investments and U.S. Treasury bills 10,372 9,770 ------ ------ Excess of projected benefit obligation over plan assets (826) (570) Unrecognized net implementation asset -- -- Unrecognized net loss 1,245 1,025 Unrecognized prior service cost -- -- ------ ------ Prepaid pension cost $ 419 $ 455 ====== ====== The Company's foreign subsidiaries have retirement plans that are integrated with and supplement the benefits provided by laws of the various countries. They are not required to report nor do they determine the actuarial present value of accumulated benefits or net assets available for plan benefits. The Company believes that these plans are substantially fully funded as to vested benefits. On a consolidated basis, pension expense was $991, $629 and $618 in fiscal 1997, 1996 and 1995, respectively. The Company has a 401(k) Employee Incentive Savings Plan. This plan allows for employee contributions and matching Company contributions in varying percentages depending on employee age and years of service, ranging from 30% to 175% of the employees' contributions. The Company's contributions under this plan totaled $1,793, $1,580 and $118 in fiscal 1997, 1996 and 1995, respectively, and were satisfied by contribution of shares of Company common stock, valued at the market price on the date of the matching contribution. NOTE 10: INCOME TAXES Income before income taxes consisted of the following: Fiscal Year Ended September 30, ------------------------------- 1997 1996 1995 ------- ------- ------- United States operations $32,879 $ (361) $31,249 Foreign operations 18,903 15,991 24,364 ------ ------ ------ $51,782 $15,630 $55,613 ====== ====== ====== The provision for income taxes included the following: Fiscal Year Ended September 30, ------------------------------- 1997 1996 1995 ------- ------- ------- Current: Federal $ 8,722 $ 2,523 $ 9,470 State 700 25 600 Foreign 3,797 3,360 3,439 Deferred: Federal 244 (2,625) (898) Foreign -- 500 180 ------ ------- ------ $13,463 $ 3,783 $12,791 ====== ======= ====== The provision for income taxes differed from the amount computed by applying the statutory federal income tax rate as follows: Fiscal Year Ended September 30, ------------------------------- 1997 1996 1995 ------- ------- ------- Computed income tax expense based on U.S. statutory rate $18,124 $ 5,471 $19,465 Effect of earnings of foreign subsidiaries subject to different tax rates (1,212) (1,017) (811) Benefits from Israeli Approved Enterprise Zones (1,049) (1,660) (1,470) Benefits of net operating loss and tax credit carryforwards and change in valuation allowance (1,819) -- (3,493) Non-deductible goodwill amortization 659 613 -- Provision for repatriation of certain foreign earnings, including foreign withholding taxes -- 500 180 Effect of revisions of prior year's estimated taxes (205) 562 (505) Benefits of Foreign Sales Corporation (985) (1,027) (533) Other, net (50) 341 (42) ------ ------- ------ $13,463 $ 3,783 $12,791 ====== ======= ====== Undistributed earnings of certain foreign subsidiaries for which taxes have not been provided approximate $75,026 at September 30, 1997. Such undistributed earnings are intended to be indefinitely reinvested in foreign operations. Deferred income taxes are determined based on the differences between the financial reporting and tax bases of assets and liabilities as measured by the current tax rates. The net deferred tax balance is comprised of the tax effects of cumulative temporary differences, as follows: September 30, ---------------- 1997 1996 ------ ------ Repatriation of foreign earnings, including foreign withholding taxes $ 3,711 $ 3,711 Depreciable assets 1,832 1,870 Prepaid expenses and other 906 226 ------ ------ Total deferred tax liability 6,449 5,807 ------ ------ Inventory reserves 2,846 2,755 Warranty accrual 1,461 980 Other accruals and reserves 1,875 1,828 Acquired domestic NOL carryforwards 2,162 2,512 Foreign NOL carryforwards 2,492 1,519 Domestic tax credit carryforward -- 1,084 Deferred intercompany profit 1,788 2,009 ------ ------ 12,624 12,687 Valuation allowance (4,654) (5,115) ------ ------ Total deferred tax asset 7,970 7,572 ------ ------ Net deferred tax asset $ 1,521 $ 1,765 ====== ====== Realization of deferred tax assets associated with the net operating loss carryforwards is dependent upon generating sufficient taxable income prior to their expiration in the respective tax jurisdictions. The Company believes there is a risk that certain of these net operating loss carryforwards may expire unused and, accordingly, has established certain valuation allowances. The valuation allowance at September 30, 1997 relates to acquired domestic net operating loss carryforwards expiring through the year 2010 whose realization is limited to the U.S. earnings of the acquired company and foreign net operating loss carryforwards which are scheduled to expire through the 2002 fiscal year. Although realization is not assured for the remaining deferred tax assets, the Company believes it is more likely than not that they will be realized through future taxable earnings or alternative tax strategies. However, the net deferred tax assets could be reduced in the near term if the Company's estimates of taxable income during the carryforward period are significantly reduced or alternative tax strategies are no longer viable. In the event that the tax benefits relating to acquired net operating loss carryforwards are realized, such benefits would reduce the recorded amount of goodwill. The Company paid income taxes of $9,965, $11,699 and $8,109 in fiscal 1997, 1996 and 1995, respectively. NOTE 11 - OPERATIONS BY GEOGRAPHIC AREA AND BUSINESS SEGMENT The Company's market for its products is worldwide. Export sales (sales from U.S. based operations directly to foreign based customers and sales to foreign locations of U.S. based customers) totaled $122,490, $93,318 and $78,435 for the fiscal years ended September 30, 1997, 1996 and 1995, respectively. Export sales to Korean based customers accounted for approximately 9% and 12% of total sales during fiscal 1997 and 1996, respectively. In addition, a substantial portion of the Company's products are sold to the Company's foreign subsidiaries which, in turn, sell to foreign based customers. Total shipments of the Company's products with ultimate foreign destinations (including export sales) comprised 85%, 79% and 78% of consolidated sales during the fiscal years ended September 30, 1997, 1996 and 1995, respectively. During fiscal 1997, total shipments to customers located in Taiwan, Korea and Malaysia accounted for approximately 22%, 19% and 13% of consolidated net sales, compared to 14%, 16% and 14%, respectively, for the 1996 fiscal year. Additional information by geographic area for the fiscal years ended September 30, 1997, 1996 and 1995 is as follows: Fiscal Year Ended September 30, ------------------------------- 1997 1996 1995 -------- -------- -------- Sales to unaffiliated customers: United States $194,700 $173,110 $146,577 Hong Kong 223,421 138,859 143,429 Israel 1,582 1,312 773 Singapore 62,472 48,600 572 Rest of world 19,732 19,295 13,158 ------- ------- ------- Consolidated $501,907 $381,176 $304,509 ======= ======= ======= Transfers between geographic areas: United States $256,222 $167,933 $158,543 Hong Kong 459 327 51 Israel 61,573 51,603 38,646 Singapore 406 76 -- Rest of world 401 392 24 Adjustments and eliminations (319,061) (220,331) (197,264) ------- ------- ------- Consolidated $ -- $ -- $ -- ======= ======= ======= Total net sales: United States $450,922 $341,043 $305,120 Hong Kong 223,880 139,186 143,480 Israel 63,155 52,915 39,419 Singapore 62,878 48,676 572 Rest of world 20,133 19,687 13,182 Adjustments and eliminations (319,061) (220,331) (197,264) ------- ------- ------- Consolidated $501,907 $381,176 $304,509 ======= ======= ======= Operating income (loss): United States $ 47,350 $ 7,704 $ 37,530 Hong Kong 13,873 11,672 14,841 Israel 8,658 10,531 9,004 Singapore (756) (789) (261) Rest of world (1,782) (1,048) 3,125 Adjustments and eliminations (1,610) (3,086) (2,345) ------- ------- ------- Consolidated operating income (loss) 65,733 24,984 61,894 General corporate expenses (8,070) (7,566) (6,454) Interest income (expense), net 820 (164) 173 Other expenses (6,701) (1,624) -- ------- ------- ------- Income before taxes $ 51,782 $ 15,630 $ 55,613 ======= ======= ======= Identifiable assets: United States $122,061 $ 94,842 $ 95,989 Hong Kong 44,526 21,855 42,653 Israel 25,872 27,430 15,289 Singapore 42,762 42,096 238 Rest of world 16,441 10,489 11,991 Corporate assets 129,772 60,427 29,368 Adjustments and eliminations (4,615) (7,585) (4,499) ------- ------- ------- Total assets $376,819 $249,554 $191,029 ======= ======= ======= Transfers between geographic areas were primarily sales of finished products and spare parts and generally were priced at end customer selling prices, with intercompany commissions paid to the selling subsidiary in the case of machines, and at a discount off list price in the case of spare parts. Such sales were primarily from the United States to the Company's sales and service operations in Hong Kong and Japan, and from Israel to the United States, and were eliminated in consolidation. Operating income (loss) by geographic area did not include an allocation of general corporate expenses. Corporate expenses consisted primarily of general and administrative expenses which were not attributable to geographic regions. Identifiable assets were those that could be directly associated with a particular geographic area. Corporate assets consisted principally of cash, investments and the Company's equity investment in FCT. The Company operates primarily in two industry segments, its equipment segment and its packaging materials segment. Packaging materials products have different manufacturing processes, distribution channels and a less volatile revenue pattern than the Company's capital equipment. Operating results by business segment for the fiscal years ended September 30, 1997, 1996 and 1995 were as follows: Packaging Corporate Equipment Materials and Segment Segment Eliminations Total --------- --------- ------------ -------- September 30, 1997: Fiscal Year Ended - ------------------- Net sales $391,721 $110,186 $501,907 Cost of goods sold 228,854 89,148 318,002 ------- ------ ------- Gross profit 162,867 21,038 183,905 Operating expenses 97,143 21,029 $ 8,070 126,242 ------- ------ ------- ------- Operating profit (loss) $ 65,724 $ 9 ($8,070) $ 57,663 ======= ====== ======= ======= Identifiable assets $159,124 $ 87,973 $129,722 $376,819 Capital expenditures 7,749 5,767 -- 13,516 Depreciation expense 5,977 2,968 -- 8,945 Packaging Corporate Equipment Materials and Segment Segment Eliminations Total --------- --------- ------------ -------- September 30, 1996: Fiscal Year Ended - ------------------- Net sales $287,234 $ 93,942 $381,176 Cost of goods sold 164,221 75,270 239,491 ------- ------- ------- Gross profit 123,013 18,672 141,685 Operating expenses 102,138 14,563 $ 7,566 124,267 ------- ------- ------- ------- Operating profit (loss) $ 20,875 $ 4,109 $ (7,566) $ 17,418 ======= ====== ====== ======= Identifiable assets $112,762 $ 76,365 $ 60,427 $249,554 Capital expenditures 9,669 8,359 -- 18,028 Depreciation expense 5,379 1,800 -- 7,179 Packaging Corporate Equipment Materials and Segment Segment Eliminations Total --------- --------- ------------ -------- September 30, 1995: Fiscal Year Ended - ------------------- Net sales $283,835 $ 20,674 $304,509 Cost of goods sold 155,195 12,262 167,457 ------- ------- ------- Gross profit 128,640 8,412 137,052 Operating expenses 71,880 3,278 $ 6,454 81,612 ------- ------- ------- ------- Operating profit (loss) $ 56,760 $ 5,134 $ (6,454) $ 55,440 ======= ======= ======= ======= Identifiable assets $155,962 $ 5,699 $ 29,368 $191,029 Capital expenditures 7,294 3,483 -- 10,777 Depreciation expense 4,265 465 -- 4,730 Intersegment sales are immaterial. Corporate assets principally comprised cash, investments and the Company's equity investment in FCT. Capital expenditures and depreciation expense for the corporate segment were immaterial. NOTE 12: OTHER FINANCIAL DATA Accrued expenses at September 30, 1997 and 1996 include $13,455 and $8,990, respectively, for accrued wages, incentives and vacations. Maintenance and repairs expense totaled $4,316, $5,185 and $3,737 for fiscal 1997, 1996 and 1995, respectively. Warranty and retrofit expense was $5,788, $2,326 and $5,085 for fiscal 1997, 1996 and 1995, respectively. NOTE 13: COMMITMENTS AND CONTINGENCIES From time to time, third parties assert that the Company is, or may be, infringing or misappropriating their intellectual property rights. In such cases, the Company will defend against claims or negotiate licenses where considered appropriate. In addition, certain of the Company's customers have received notices of infringement from Jerome H. Lemelson, alleging that equipment supplied by the Company, and processes performed by such equipment, infringe on patents held by Mr. Lemelson. A number of the Company's customers have been sued by Mr. Lemelson. Certain customers have requested that the Company defend and indemnify them against the claims of Mr. Lemelson, but, to date, no customer who has settled with Mr. Lemelson has sought contribution from the Company. The Company has received opinions from its outside patent counsel with respect to certain of the Lemelson patents. The Company is not aware that any equipment marketed by the Company, or process performed by such equipment infringe on the Lemelson patents in question and does not believe that the Lemelson matter or any other pending intellectual property claim will have a material adverse effect on its business, financial condition or operating results. However, the ultimate outcome of any infringement or misappropriation claim affecting the Company is uncertain and there can be no assurances that the resolution of these matters will not have a material adverse effect on the Company's business, financial condition and operating results. The Israeli government has funded a portion of the research and development costs related to certain products. The Company is contingently liable to repay such funding through royalties to the Israeli government. Royalty payments are due only upon sale of the funded products, are computed at varying rates from 2% to 5% of such sales, and are limited to the amounts received from the Israeli government. Royalty payments to the Israeli government for the fiscal years ended September 30, 1997, 1996 and 1995 totaled $148, $351 and $192, respectively. At September 30, 1997, the Company was contingently liable for royalties approximating $2,696 related to potential future product sales. NOTE 14: SELECTED QUARTERLY FINANCIAL DATA (unaudited) Financial information pertaining to quarterly results of operations follows: Year ended First Second Third Fourth September 30, 1997: Quarter Quarter Quarter Quarter Total - -------------------- ------- ------- ------- ------- --------- Net sales $ 81,844 $121,491 $146,380 $152,192 $501,907 Gross profit 28,781 45,235 53,836 56,053 183,905 Income from operations (2) 1,861 14,727 19,901 21,174 57,663 Income before income taxes $ 598 $ 12,904 $ 18,100 $ 20,180 $ 51,782 Income tax expense 179 3,602 4,571 5,111 13,463 ------- ------- ------- ------- ------- Net income $ 419 $ 9,302 $ 13,529 $ 15,069 $ 38,319 ======= ======= ======= ======= ======= Net income per share $ .02 $ .46 $ .62 $ .63 $ 1.78 ======= ======= ======= ======= ======= Year ended First Second Third Fourth September 30, 1996: Quarter Quarter Quarter Quarter(1) Total - -------------------- ------- ------- ------- ------- --------- Net sales $127,189 $115,374 $ 76,912 $ 61,701 $381,176 Gross profit 52,076 45,497 27,801 16,311 141,685 Income (loss) from operations (2) 23,812 15,086 (3,328) (18,152) 17,418 Income (loss) before income taxes $ 23,010 $ 15,078 $ (3,504) $(18,954) $ 15,630 Income tax expense (benefit) 6,673 4,373 (1,016) (6,247) 3,783 ------- ------- ------- ------- ------- Net income (loss) $ 16,337 $ 10,705 $ (2,488) $(12,707) $ 11,847 ======= ======= ======= ======= ======= Net income (loss) per share $ 0.82 $ 0.54 $ (0.13) $ (0.65) $ 0.60 ======= ======= ======= ======= ======= (1) Results for the fourth quarter of fiscal 1996 include charges of approximately $6.9 million, including the write-off of approximately $2.8 million of excess and obsolete inventories, $1.2 million in severance and benefit costs associated with the Company's August 1996 reduction in its worldwide work force, the write-off of approximately $1.8 million of costs incurred in connection with the discontinuation of the Willow Grove, PA facility expansion project, and the $1.0 million write-down of the value of certain engineering prototype machines to their net realizable value. (2) Represents net sales less costs and expenses but before net interest expense and other expense. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information required hereunder with respect to the directors will appear under the heading "ELECTION OF DIRECTORS" in the Company's Proxy Statement for the 1998 Annual Meeting, which information is incorporated herein by reference. The information required by Item 401(b) of Regulation S-K appears in Part I hereof under the heading "Executive Officers of the Company." Item 11. EXECUTIVE COMPENSATION The information required hereunder will appear under the heading "ADDITIONAL INFORMATION" in the Company's Proxy Statement for the 1998 Annual Meeting, which information is incorporated herein by reference. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required hereunder will appear on page one and under the heading "ELECTION OF DIRECTORS" in the Company's Proxy Statement for the 1998 Annual Meeting, which information is incorporated herein by reference. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required hereunder will appear under the heading "ADDITIONAL INFORMATION" in the Company's Proxy Statement for the 1998 Annual Meeting, which information is incorporated herein by reference. PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this report: (1) Financial Statements: Report of Independent Accountants 20 Consolidated Balance Sheet at September 30, 1997 and 1996 21 Consolidated Income Statement for the fiscal years ended September 30, 1997, 1996 and 1995 22 Consolidated Statement of Cash Flows for the fiscal years ended September 30, 1997, 1996 and 1995 23 Consolidated Statement of Changes in Shareholders' Equity for the fiscal years ended September 30, 1997, 1996 and 1995 24 Notes to Consolidated Financial Statements 25 - 39 (2) Financial Statement Schedules: II - Valuation and Qualifying Accounts 44 All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. (3) Exhibits: EXHIBIT NUMBER ITEM - ------- ------------------------------------------------------------------- 2.1(a) Agreement and Plan of Acquisition dated September 14, 1995, between the Company, Circle "S" Industries, Inc. and Certain Stockholders of Circle "S" Industries, Inc., filed as Exhibit 2.1(a) to the Company's Form 8-K dated October 2, 1995, is incorporated herein by reference. 2.1(b) Agreement and Plan of Merger dated October 2, 1995, between the Company, Kulicke and Soffa Acquisition Corporation and Circle "S" Industries, Inc., filed as Exhibit 2.1(b) to the Company's Form 8-K dated October 2, 1995, is incorporated herein by reference. 2.1(c) Escrow Agreement dated October 2, 1995, between the Company, Larry D. Striplin, Jr. and Mellon Bank, N.A., filed as Exhibit 2.1(c) to the Company's Form 8-K dated October 2, 1995, is incorporated herein by reference. 3(i) The Company's Amended and Restated Articles of Incorporation, filed as Exhibit 3(i) to the Company's Form 10-Q for the quarterly period ended June 30, 1996, is incorporated herein by reference. 3(ii) The Company's By-Laws, as amended through June 26, 1990, filed as Exhibit 2.2 to the Company's Form 8-A12G dated September 8, 1995, is incorporated herein by reference. 4(i) Restated Loan Agreement between the Company and Midlantic Bank, N.A. dated April 10, 1996, filed as Exhibit 4 to the Company's Form 10-Q for the quarterly period ended March 31, 1996, is incorporated herein by reference. 4(ii) Amendment dated December 16, 1996 to the Restated Loan Agreement dated April 10, 1996 between the Company and PNC Bank, National Association, successor by merger to Midlantic Bank, N.A. 10(i) Form of Officer's Loan Agreement, Note and Stock Pledge Agreement, filed as Exhibit 13(a) to Registration Statement No. 2-65612 filed September 28, 1979, is incorporated herein by reference. 10(ii) Form of Termination of Employment Agreement between the Company and certain of its officers, filed as Exhibit 10(ii) to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1994, is incorporated herein by reference.* 10(iii) Agreement between the Company and Frederick W. Kulicke, Jr., filed as Exhibit 10(iii) to Company's Annual Report on Form 10-K for the year ended September 30, 1989, is incorporated herein by reference.* 10(iv) The Company's 1980 Employee Incentive Stock Option Plan, filed as Exhibit 10(iv) to the Company's Annual Report on Form 10-K for the year ended September 30, 1989, is incorporated herein by reference.* 10(v) The Company's 1983 Employee Incentive Stock Option Plan, filed as Exhibit 10(v) to the Company's Annual Report on Form 10-K for the year ended September 30, 1989, is incorporated herein by reference.* 10(vi) The Company's 1988 Employee Incentive Stock Option and Non-Qualified Stock Option Plan (as amended and restated effective October 8, 1996).* 10(vii) The Company's 1988 Non-Qualified Stock Option Plan for Non-Officer Directors, as amended, filed as Exhibit 10(vii) to the Company's Annual Report on Form 10-K for the year ended September 30, 1989, is incorporated herein by reference.* 10(viii) The Company's 1994 Employee Incentive Stock Option and Non-Qualified Stock Option Plan (as amended and restated effective October 8, 1996).* 10(ix) The Company's Executive Incentive Compensation Plan, As Amended Through October 14, 1997.* 10(x) Gold Supply Agreement, as amended October 2, 1995 between American Fine Wire Corporation, et al, and Rothschild Australia Limited, filed as Exhibit 10.1 to the Company's Form 8-K dated September 14, 1995 as amended by Form 8-K/A on October 26, 1995, is incorporated by reference. 10(xi) Agreement of Employment between Circle "S" Industries, Inc. and Larry D. Striplin, Jr. dated January 2, 1990, filed as Exhibit 10 (xiii) to the Company's Annual Report on Form 10-K for the year ended September 30, 1995, is incorporated herein by reference.* 10(xii) Amendment No. 1 to Agreement of Employment between Circle "S" Industries, Inc. and Larry D. Striplin, Jr. dated May 1, 1995, filed as Exhibit 10 (xiv) to the Company's Annual Report on Form 10-K for the year ended September 30, 1995, is incorporated herein by reference.* 10(xiii) Agreement between Circle "S" Industries, Inc. and Larry D. Striplin, Jr. dated September 30, 1995, filed as Exhibit 10 (xv) to the Company's Annual Report on Form 10-K for the year ended September 30, 1995, is incorporated herein by reference.* 10(xiv) The Company's November 1994 Officers' Deferred Compensation Plan* 10(xv) Operating Agreement of Flip-Chip Technologies, L.L.C. dated as of February 28, 1996, filed as Exhibit 10 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended December 31, 1996, is incorporated herein by reference. 21 Subsidiaries of the Company. 23 Consent of Price Waterhouse LLP (Independent Accountants). 27 Financial Data Schedule. * Indicates a Management Contract or Compensatory Plan. (b) Reports on Form 8-K: None NOTICE Item 14(a)3 lists and describes the Exhibits filed as a part of the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1997. The Company will provide to any shareholder copies of any such Exhibits upon payment of a fee of $.50 per page. Requests for copies of such Exhibits should be made to: Director of Investor Relations, Kulicke and Soffa Industries, Inc., 2101 Blair Mill Road, Willow Grove, PA 19090. KULICKE AND SOFFA INDUSTRIES, INC. Schedule II-Valuation and Qualifying Accounts (in thousands) Charged Balance Charged to to other Balance at beginning costs and accounts- Deductions- at end Description of period expenses describe describe of period - ---------------- ------------ --------- -------- ---------- --------- Year ended September 30, 1995: - -------------------- Allowance for doubtful accounts $ 422 $ 826 $ -- $ 154(1) $ 1,094 ======== ======= ===== ====== ====== Inventory reserve $ 6,636 $ 3,075(2) $ -- $ 1,958(3) $ 7,753 ======== ======= ===== ====== ====== Valuation allowance for deferred taxes $ 3,854 $ -- $ -- $ 3,247(4) $ 607 ======== ======= ===== ====== ====== Year ended September 30, 1996: - -------------------- Allowance for doubtful accounts $ 1,094 $ 178 $ -- $ 45(1) $ 1,227 ======== ====== ===== ====== ====== Inventory reserve $ 7,753 $ 6,058(5) $ -- $ 2,056(3) $11,755 ======== ====== ===== ====== ====== Valuation allowance for deferred taxes $ 607 $ 1,996 $2,512(6) $ -- $ 5,115 ======== ====== ===== ====== ====== Year ended September 30, 1997: - -------------------- Allowance for doubtful accounts $ 1,227 $ 1,065 $ -- $ 143(1) $ 2,149 ======== ====== ===== ====== ====== Inventory reserve $ 11,755 $ 4,153(6) $ -- $ -- $15,908 ======== ====== ===== ====== ====== Valuation allowance for deferred taxes $ 5,115 $ 623(7) $ -- $ 1,084(8) $ 4,654 ======== ====== ===== ====== ====== (1) Bad debts written off. (2) Amount includes $2,758 provision for excess and obsolete inventory. (3) Disposal of excess and obsolete equipment and sales of demonstration and evaluation inventory. (4) Net change in valuation allowance for deferred tax assets. (5) Amount includes $4,547 provision for excess and obsolete inventory. (6) Represents the valuation allowance established for U.S. net operating loss carryforwards acquired in connection with the AFW acquisition. (7) Reflects the increase in the valuation allowance associated with net operating losses of the Company's Japanese subsidiary. (8) Reversal of the valuation allowance related to US tax credits. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. KULICKE and SOFFA INDUSTRIES, INC. By: /s/ C. SCOTT KULICKE ------------------------------- C. Scott Kulicke Chairman of the Board and Chief Executive Officer Dated: December 18, 1997 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this Report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature Title Date - ---------------------------- -------------------- ---------------- /s/ C. SCOTT KULICKE - ---------------------------- C. Scott Kulicke Chairman of the Board December 18, 1997 (Principal Executive Officer) and Director /s/ CLIFFORD G. SPRAGUE - ---------------------------- Clifford G. Sprague Senior Vice President December 18, 1997 (Principal Financial Officer) and Chief Financial Officer /s/ CURTIS A. MASSEY - ---------------------------- Curtis A. Massey Vice President and December 18, 1997 (Principal Accounting Officer) Corporate Controller /s/ JAMES W. BAGLEY - ---------------------------- James W. Bagley Director December 18, 1997 /s/ FREDERICK W. KULICKE, JR - ---------------------------- Frederick W. Kulicke, Jr. Director December 18, 1997 /s/ JOHN A. O'STEEN - ---------------------------- John A. O'Steen Director December 18, 1997 /s/ ALLISON F. PAGE - ---------------------------- Allison F. Page Director December 18, 1997 /s/ MACDONELL ROEHM, JR. - ---------------------------- MacDonell Roehm, Jr. Director December 18, 1997 /s/ LARRY D. STRIPLIN, JR. - ---------------------------- Larry D. Striplin, Jr. Director December 18, 1997 /s/ C. WILLIAM ZADEL - ---------------------------- C. William Zadel Director December 18, 1997 EXHIBIT INDEX EXHIBIT NUMBER ITEM - ------- ------------------------------------------------------------------- 10(ix) The Company's Executive Incentive Compensation Plan, As Amended Through October 14, 1997 10(xiv) The Company's November 1994 Officers' Deferred Compensation Plan 21 Subsidiaries of the Company 23 Consent of Price Waterhouse LLP (Independent Accountants) 27 Financial Data Schedule EXHIBIT 21 SUBSIDIARIES OF THE COMPANY Name Jurisdiction of Incorporation - --------------------------------------- ----------------------------- Kulicke and Soffa AG Switzerland Kulicke & Soffa (Asia) Limited Hong Kong Kulicke and Soffa (Japan) Ltd. Japan and Delaware Kulicke and Soffa (Israel) Ltd. Israel Kulicke and Soffa Investments, Inc. Delaware Micro-Swiss Limited Israel Kulicke and Soffa Leasing, Inc. Delaware Kulicke & Soffa Singapore, Inc. Delaware Kulicke & Soffa Export, Inc. Barbados AFWH Sub, Inc. (Formerly Circle "S" Industries, Inc.) Alabama American Fine Wire Corporation Alabama American Fine Wire, Limited Cayman Islands Dr. Muller Feindraht AG Switzerland Semitec California Certain subsidiaries are omitted; however, such subsidiaries, even if combined into one subsidiary, would not constitute a "significant subsidiary" within the meaning of Regulation S-X. EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectuses constituting part of the Registration Statements on Form S-8 (Nos. 2-68488, 33-12453, 33-13577, 33-30884, 33-39265 and 333-0567) of Kulicke and Soffa Industries, Inc. of our report dated November 13, 1997 appearing on page 20 of this Annual Report on Form 10-K. /s/ PRICE WATERHOUSE LLP - -------------------------- Philadelphia, Pennsylvania December 18, 1997 EX-10.IX 2 Exhibit 10(ix) Kulicke & Soffa Industries Inc. Executive Incentive Compensation Plan As Amended Through October 14, 1997 SECTION 1 PURPOSE AND EFFECTIVE DATE -------------------------- Kulicke & Soffa Industries Inc. (the "Company") has established this Executive Incentive Compensation Plan (the "Plan") in order to make a significant portion of the total cash compensation for certain of the Company's key executives depend upon the attainment of Performance Objectives. The Company believes that by providing compensation based on the attainment of specified objectives, the Plan will serve as an effective means of attracting and retaining key executives and motivating and rewarding executives. In recognition of the volatile nature of the Company's business, the Plan has been amended and restated, effective with respect to Plan Years beginning on and after October 1, 1997, in order to provide that Company-Based Operating Performance Objectives will be established on a semi-annual, rather than an annual, basis. SECTION 2 DEFINITIONS ----------- (a) Applicable Multiplier. The multiplier shown in the table below opposite the percentage of Company-Based Operating Performance Objective actually achieved for the relevant six-month period of a Plan Year, using linear interpolation between percentages and between multipliers: Percentage of Company-Based Operating Performance Objective Achieved Multiplier 150% or more 1.4 140% 1.3 130% 1.2 115% 1.1 100% 1.0 75% 0.5 50% or below 0.0 In the case of an Individual Performance Objective, the Applicable Multiplier is 1.0 if the Participant achieves 100% or more of the Objective. (b) Board. The Company's Board of Directors. (c) Committee. The Compensation Committee of the Board, as constituted from time to time. (d) Operating Profits. The net income of the Company (or a designated unit within the Company) for either the first six months of a Plan Year (i.e., October through the following March) or the second six months of the Plan Year (i.e., April through September), as applicable, determined in accordance with generally accepted accounting principles as applied by the Company from time to time, plus any deductions for interest, taxes on income and extraordinary and non- operating items of expense deducted in computing net income and less any items of interest income and extraordinary and non-operating items of income included in computing net income for the applicable six-month period. In computing Operating Profits, the results of operations of any business acquired or established during the applicable six-month period shall be excluded unless otherwise determined by the Committee in connection with establishing the Operating Performance Objectives for the applicable six-month period. The Committee shall in its sole discretion determine whether any items constitute non-operating items of expense or income for purposes of calculating Operating Profits. (e) Plan Year. The fiscal year of the Company, which commences October 1 and ends the following September 30. (f) Return on Operating Assets. The net income of the Company (or a designated unit within the Company) for the applicable six-month period of a Plan Year, determined in accordance with generally accepted accounting principles as applied by the Company from time to time, divided by the average total month-end assets (exclusive of cash and investments) of the Company (or such unit) for such six-month period and the day immediately prior to the commencement of such six-month period. In computing Return on Operating Assets, the assets of any business acquired and the proceeds of (and any interest earned or paid on) any securities or debt issued by the Company during the applicable six-month period of the Plan Year shall be excluded unless otherwise determined by the Committee in connection with establishing the Operating Performance Objectives for such six-month period. SECTION 3 OPERATION OF PLAN _________________ (a) Prior to, or as promptly as possible after, the beginning of each Plan Year, the Committee shall: (i) determine, based on position, the key executives of the Company who shall be Participants in the Plan for the Plan Year; (ii) establish a Target Total Compensation for each Participant for the Plan Year, based on marketplace data; (iii) determine the degree to which each Participant's compensation will be leveraged against performance; (iv) establish an Incentive Component for each Participant, expressed as an Incentive Percentage of Base Salary, according to the degree to which that executive's compensation is to be leveraged; (v) determine a Base Salary for each Participant by subtracting from that Participant's Target Total Compensation the Incentive Component established pursuant to paragraph (iv) above; (vi) determine which types of Performance Objectives will be set for each Participant for the Plan Year. Such objectives may consist of one or more Company-Based Operating Performance Objectives (e.g., Operating Profit Objectives, Return on Operating Asset Objectives, and Objectives based on individual division, group, location, or other business unit performance) and Individual Performance Objectives (i.e., Objectives based on individual Participant performance), as the Committee may specify; and (vii) establish for each Performance Objective for each Participant for the Plan Year the Applicable Percentage of the total Incentive Component for that Participant allocable to that Performance Objective; such Applicable Percentages shall aggregate 100%. (b) Prior to, or as promptly as possible after, the beginning of each Plan Year, the Committee shall also establish Performance Objectives for each Participant. Company-Based Operating Performance Objectives will be established for the first six months of the Plan Year (i.e., October through the following March), and Individual Performance Objectives will be established for the Plan Year. Prior to, or as promptly as possible after, April 1 of each Plan Year, the Committee shall establish Company-Based Operating Performance Objectives for the second six months of the Plan Year (i.e., April through September). (c) When the Company's financial statements become available following March 31 of the Plan Year for the six-month period from October through March, and following September 30 of the Plan Year for the six- month period from April through September, the Committee shall cause to be made such calculations of Operating Profits, Return on Operating Assets, and other relevant data as it deems appropriate for such six-month period and shall make the final determination of Operating Profits, Return on Operating Assets, and other data for such six-month period for purposes of determining attainment of Company-Based Operating Performance Objectives under the Plan. Based on such determinations, the Incentive Payment relating to the Company-Based Operating Performance Objectives for each Participant for such six-month period shall be calculated by multiplying an amount equal to one-half of each Participant's Base Salary by the Incentive Percentage of Base Salary established for such Participant pursuant to Section 3(a)(iv), and by multiplying such product by the sum of the products of each Applicable Percentage and Applicable Multiplier relating to Company-Based Operating Performance Objectives. For example, if a Participant's total Incentive Percentage of Base Salary is 45%, if the Applicable Percentages of his or her total Incentive Component are Operating Profits: 40%, Return on Operating Assets: 40%, and Individual Performance Objective: 20%, and if the Applicable Multiplier of Operating Profits is 1.25 and the Return on Operating Assets is 1.10 for the six-month period from October through March, the Participant's Incentive Payment with respect to Company-Based Operating Performance Objectives for that six-month period shall be calculated as follows: [1/2 Base Salary] times [0.45] times [[0.40][1.25] plus [0.40][1.1]] = 1/2 Base Salary times 0.45 times 0.94 = 42.3% of 1/2 Base Salary, or 21.15% of Base Salary. The Committee may, in its sole discretion, increase the aggregate Incentive Payments so determined for all Participants under this Section 3(c) for a six-month period by up to 10% and allocate such increase among some or all of the Participants in its sole discretion. (d) Following each Plan Year, the Chief Executive Officer shall assess, or shall cause such officers or employees as he or she designates to assess, and review with each Participant (other than the Chief Executive Officer) whose Performance Objectives include Individual Performance Objectives, the Participant's individual performance during the Plan Year and report to the Committee the degree of attainment of such Individual Performance Objectives. Based on such determinations, the Incentive Payment relating to the Individual Performance Objectives for the Participant for the Plan Year shall be calculated by multiplying the Participant's Base Salary by the Incentive Percentage of Base Salary established for such Participant pursuant to Section 3(a)(iv), and by multiplying such product by the sum of the products of each Applicable Percentage and Applicable Multiplier relating to Individual Performance Objectives. For example, in the case of the Participant described in Section 3(c), if the Applicable Multiplier of the Participant's Individual Performance Objective is 1.0, the Participant's Incentive Payment with respect to his or her Individual Performance Objective for the Plan Year shall be calculated as follows: [Base Salary] times [0.45] times [[0.20][1.0]] = Base Salary times 0.45 times 0.20 = 9% of Base Salary. If one or more of a Participant's Individual Performance Objectives are based on operating performance (e.g., at a corporate, division, group, or location level), attainment of such Objectives will be determined based on operating performance during the last six months (i.e., April through September) of the Plan Year only. The Committee may, in its sole discretion, increase the aggregate Incentive Payments so determined for all Participants under this Section 3(d) for a Plan Year by up to 10% and allocate such increase among some or all of the Participants in its sole discretion. (e) Incentive Payments calculated as set forth in Section 3(c) and (d) shall be made at such time as is determined by the Committee but in any event within 90 days following the first Board meeting after financial statements become available following: (i) March 31 of the Plan Year, in the case of Incentive Payments relating to Company-Based Operating Performance Objectives for the first six months of the Plan Year; and (ii) September 30 of the Plan Year, in the case of Incentive Payments relating to Company-Based Operating Performance Objectives for the second six months of the Plan Year and to Individual Performance Objectives for the Plan Year. SECTION 4 PARTICIPATION _____________ Section 3(a) of the Plan provides for the selection by the Committee on an annual basis of Participants in the Plan. The Committee may, in addition, from time to time during a Plan Year designate, by name and/or job title, additional officers or employees as Participants in the Plan for the current Plan Year. Designation by the Committee as a Participant in the Plan for any Plan Year shall not bestow upon the Participant any right to continued employment with the Company. SECTION 5 TERMINATION OF EMPLOYMENT _________________________ Except as provided in the immediately following sentence, no payment under the Plan shall be made to any person who is not actively employed by the Company at the time payments are made under Section 3(e), regardless of whether or not the individual continues to receive compensation from the Company in accordance with any type of termination arrangement. At the discretion of the Committee, a payment or a reduced payment under the Plan may be made to a former Participant who has died or retired, become disabled or otherwise has voluntarily left the employment of the Company with the consent of the Chief Executive Officer prior to the payment. A payment which the Committee has determined to make on behalf of a deceased Participant shall be delivered to his or her legal representative or to such other person or persons as the Committee may determine. SECTION 6 ADMINISTRATION ______________ The Plan shall be administered by the Committee, which shall have the sole discretion to interpret and effectuate the provisions of the Plan and resolve all disputes concerning the Plan. All actions of the Committee in connection with the Plan and all decisions of the Committee with respect to questions arising as to the interpretation or operation of the Plan shall be final and binding on all persons. In no event may a member of the Committee be a Participant while he or she is a member of the Committee. SECTION 7 MISCELLANEOUS _____________ (a) Assignability. No Participant may sell, assign, transfer, pledge or encumber any expectation of or right to a payment under the Plan, and any attempt to do so shall be void. (b) No Segregation of Assets. Payments under the Plan shall be made, if at all, out of the general assets of the Company, and the Plan shall not be construed to require the Company to segregate any monies or to create any trusts or to make any special deposits in connection with any payment made under the Plan. (c) Incentive Payments Not Part of Base Salaries. Incentive Payments under the Plan shall not be considered as part of the Participants' base salaries and shall not be used in the calculation of any other pay, allowance or benefit that uses solely base salary to determine the level and or amount of the benefit. (d) Gender. The masculine gender as used herein shall include the feminine and terms used in the singular shall include the plural, and vice versa, as appropriate. (e) Governing Law. The validity, construction and performance of the Plan shall be governed by the laws of the Commonwealth of Pennsylvania. (f) No Personal Liability. Anything in the Plan to the contrary notwithstanding, the Plan shall not be construed to confer upon any Participant or other person any claim against any director or officer of the Company, the Board, the Committee or any member of the Board or Committee for any amount payable under the Plan. (g) Nonexclusivity. The Plan is not intended to and shall not preclude the Board or Committee from adopting or continuing such additional compensation arrangements for Participants or other employees as it deems desirable, including but not limited to any thrift, savings, investment, stock purchase, stock option, profit sharing, pension, retirement, insurance or other incentive plans. (h) Claims Procedure. In the event of a claim of a denial or limitation of any benefit under the Plan, any Participant may file a written claim for a benefit under the Plan with the Committee in care of the Chief Executive Officer. Any such claim with respect to an Incentive Payment must be filed, if at all, within 60 days after the making of the Incentive Payment to the Participant pursuant to Section 3 of the Plan. The Committee shall act on such claim within 90 days after receipt thereof and shall promptly notify the Participant of its decision. If the Committee denies a claim in whole or in part, it shall specify in such notice the reasons for the denial of the claim, citing pertinent provisions of the Plan. The Participant shall have 60 days from the time of receipt of the notice of the Committee's denial, in whole or in part, of any claim to submit such additional material to the Committee as the Participant deems relevant and to request the Committee to reconsider its decision. The Committee shall notify the Participant of its decision on reconsideration within 60 days after receipt of the request for reconsideration. If the Committee does not render decisions within the time periods specified in this paragraph, the Committee shall be deemed to have denied the claim in the first instance or upon reconsideration, as the case may be. Pursuant to Section 6 of the Plan, all decisions of the Committee shall be final and binding. SECTION 8 AMENDMENTS __________ The Board may, at any time and from time to time, amend, suspend or terminate in whole or in part, and if suspended or terminated may reinstate, any or all of the provisions of the Plan. 112097 EX-10.XIV 3 Exhibit 10(xiv) KULICKE & SOFFA INDUSTRIES INC. OFFICERS' DEFERRED COMPENSATION PLAN Table of Contents Article Contents Page ARTICLE 1 DEFINITIONS 1 ARTICLE 2 PARTICIPATION IN THE PLAN 5 2.1 Plan Participation 5 2.2 Procedure For and Effect of Election to Participate 5 2.3 Cessation of Participation 5 ARTICLE 3 PLAN ALLOCATIONS AND VESTING 6 3.1 Deferral Allocations 6 3.2 Rules Governing Deferral Allocations 6 3.3 Vesting 7 ARTICLE 4 PARTICIPANTS' ACCOUNTS 8 4.1 Establishment of Accounts 8 4.2 Benefit Allocation 8 4.3 Irrevocable Allocation 8 4.4 Suballocation Within the Education Account 8 4.5 Interest 8 ARTICLE 5 BENEFITS 9 5.1 Retirement Account 9 5.2 Education Account 11 5.3 Fixed Period Account 12 5.4 Postretirement Health Care Account 13 5.5 Beneficiary Designation 15 5.6 Distribution Upon Change in Control or Special Circumstance 15 5.7 Tax Withholding 15 5.8 No Right of Set-Off 15 ARTICLE 6 ADMINISTRATION 16 6.1 Appointment of Plan Administrator 16 6.2 Plan Administrator's Responsibilities 16 6.3 Records and Accounts; Statements to Participants 16 6.4 Plan Administrator's Specific Powers and Duties 16 6.5 Employer's Responsibility to Plan Administrator 17 6.6 Liability 17 6.7 Payment of Expenses 17 6.8 Indemnity of Plan Administrator 17 ARTICLE 7 CLAIMS PROCEDURE 18 7.1 Claim and Review 18 7.2 Right to Sue; Payment of Attorneys' Fees 18 ARTICLE 8 AMENDMENT AND TERMINATION 19 8.1 Plan Amendment 19 8.2 No Premature Distribution 19 8.3 Termination of the Plan 19 ARTICLE 9 MISCELLANEOUS 20 9.1 Supplemental Benefits 20 9.2 Governing Law 20 9.3 Jurisdiction 20 9.4 No Assignment Permitted 20 9.5 Binding Terms 20 9.6 Spendthrift Provision 20 9.7 Headings 20 9.8 Rules of Interpretation 20 9.9 No Continued Employment 20 9.10 Limitation of Rights 21 9.11 Severability 21 KULICKE & SOFFA INDUSTRIES INC. OFFICERS' DEFERRED COMPENSATION PLAN ARTICLE 1 DEFINITIONS 1.1 Account means a recordkeeping source by which Plan benefits are measured, consisting of the Participant's Deferral Allocations and the interest thereon provided for in Section 4.5. The specific Accounts under this Plan are listed in Section 4.1. 1.2 Base Compensation means an Eligible Employee's base salary, A. including Deferral Contributions made hereunder the source of which is Base Compensation and any pretax elective deferrals to any Employer-sponsored plan which includes either a qualified cash or deferred arrangement under Section 401(k) of the Code or a cafeteria plan under section 125 of the Code; and B. excluding Incentive Compensation, stock options, stock purchase plan benefits, Deferral Contributions the source of which is Incentive Compensation and all other forms of remuneration or reimbursement. 1.3 Beneficiary means the person, persons, trust or other entity a Participant designates by written revocable designation filed with the Plan Administrator to receive payments in the event of his death. 1.4 Board of Directors means the Board of Directors of K&S. 1.5 Change in Control means the occurrence of either of the following events: A. An acquisition (other than directly from K&S) of any voting securities of K&S ("Voting Securities") by any "Person" (as such term is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "1934 Act")) immediately after which such Person has "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under the 1934 Act) of 50% or more of the combined voting power of all then outstanding Voting Securities, provided, however, that any such acquisition approved by two-thirds of the Continuing Directors (as hereinafter defined) shall not be deemed to be a Change in Control. B. The individuals who, as of October 11, 1994, are members of the Board of Directors (the "Incumbent Board") cease for any reason to constitute at least two-thirds of the Board of Directors; provided, however, that if the election, or nomination for election by the shareholders, of any new director was approved by a vote of at least two-thirds of the members of the Board of Directors who constitute Incumbent Board members, such new directors shall for all purposes be considered as members of the Incumbent Board as of October 11, 1994; provided further, however, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of either an actual or threatened "Election Contest" (as described in Rule 14a-11 promulgated under the 1934 Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors (a "Proxy Contest") including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest. 1.6 Code means the Internal Revenue Code of 1986, as amended, and the same as may be amended from time to time. 1.7 Compensation means the sum of the Participant's A. Base Compensation; and B. Incentive Compensation. 1.8 Deferral Agreement means a written agreement between a Participant and the Employer whereby a Participant agrees to defer a portion of his Compensation and the Employer agrees to provide Plan benefits. 1.9 Deferral Allocations means the elective deferrals described in Section 3.1. 1.10 Determination Date means such date or dates as may be selected by the Plan Administrator including March 31, June 30, September 30 and December 31 of each calendar year and, for each Participant, his date of death, Retirement, Disability or other termination of employment. 1.11 Disability means an illness or injury which entitles the Participant to receive a benefit under the Employer's long term disability plan. In the event that no such plan is in effect, "Disability" shall mean an illness or injury which, in the sole discretion of the Plan Administrator, will prevent the individual from performing the duties of his position. 1.12 Effective Date means October 1, 1994. 1.13 Eligible Dependent means an individual who is a child, stepchild, grandchild, niece or nephew, or who is otherwise identified as a dependent of a Participant for purposes of the Code who is living at any time throughout the Enrollment Period and who is either younger than age 15 or younger than age 18 but for whom a subaccount was initially established pursuant to Section 4.4 prior to his attaining age 15. 1.14 Eligible Employee means an elected officer of the Employer who is paid on a United States payroll. 1.15 Employer means K&S and any successor thereto, and for purposes of determining eligibility to participate in the Plan, any affiliated company which is a member of a controlled group of corporations within the meaning of section 1563(a) of the Code with K&S which adopts this Plan with consent of K&S. 1.16 Enrollment Period means the 30-day period which ends prior to the first day of a Plan Year and, with respect to an officer who becomes eligible for participation effective as of any date other than the first day of a Plan Year, the 30- day period immediately following the date on which he becomes an Eligible Employee. Notwithstanding the preceding sentence, the Enrollment Period for the first Plan Year shall be the 60-day period immediately following the Effective Date. 1.17 Incentive Compensation means any cash remuneration paid to an Eligible Employee, excluding Base Compensation, as a specific incentive or award, including Deferral Contributions the source of which is Incentive Compensation. 1.18 K&S means Kulicke & Soffa Industries, Inc., a Pennsylvania corporation. 1.19 Participant means any Eligible Employee who has elected to participate in the Plan. 1.20 Retirement means a Participant's severance from service after attaining age 55. 1.21 Plan means the K&S Officers' Deferred Compensation Plan as described in this instrument, and the same as may be amended from time to time. 1.22 Plan Administrator means the Compensation Committee of the Board of Directors. 1.23 Plan Year means each twelve-consecutive month period beginning on October 1 and ending on the following September 30. The first Plan Year shall be October 1, 1994 through September 30, 1995. 1.24 Special Circumstance means the reporting by K&S of consolidated losses equal to or in excess of $15,000,000, over a measuring period not exceeding two fiscal years of K&S (beginning with a fiscal year in which a loss for the year is reported). A Special Circumstance shall be deemed to occur on the date on which K&S makes an announcement of quarterly or annual earnings showing consolidated losses, which together with losses reported previously during the measuring period, equal or exceed such $15,000,000 amount. ARTICLE 2 PARTICIPATION IN THE PLAN 2.1 Plan Participation. Any Eligible Employee may become a Participant as soon as administratively possible following his qualification as an Eligible Employee. 2.2 Procedure For and Effect of Election to Participate. Each Eligible Employee who desires to participate in this Plan shall complete such forms and provide such data as are reasonably required by the Employer during the applicable Enrollment Period. By becoming a Participant, an Eligible Employee shall be deemed to have agreed to the provisions of this Plan and all amendments hereto. 2.3 Cessation of Participation. A Participant shall cease to be an active participant on the earlier of A. and B., subject to C.: A. the date on which the Plan terminates, or B. the date on which he ceases to be an Eligible Employee; provided, however, that participation of any Eligible Employee who subsequently becomes ineligible but retains a Plan Account shall be determined in accordance with Subsection C. C. Notwithstanding the foregoing, a former active Participant who retains a Plan Account shall be deemed a Participant for all purposes except that no additional Deferral Allocations shall be allocated to such Account. ARTICLE 3 PLAN ALLOCATIONS AND VESTING 3.1 Deferral Allocations. A. Each Participant may authorize the Employer to reduce his 1. Base Compensation thereafter payable in the Plan Year to which the Deferral Agreement relates by any fixed percentage ("Base Deferral Rate") for such Plan Year up to a maximum of 25% of his total Base Compensation payable in such Plan Year, and 2. Incentive Compensation by any fixed percentage ("Incentive Deferral Rate") for such Plan Year up to a maximum of 100% of such Incentive Compensation, and to have a corresponding amount credited to his Accounts, in accordance with Section 4.2, by filing a Deferral Agreement with the Plan Administrator during his initial Enrollment Period or any subsequent Enrollment Period preceding the Plan Year during which such Compensation shall be earned. The deferral shall be made from Base Compensation or Incentive Compensation, or both, as the Participant shall specify. B. Notwithstanding the foregoing, a Participant may not make contributions to this Plan during any period for which contributions must be suspended in accordance with regulation section 1.401(k)-1(d)(2)(iii)(B)(3) of the Code, as a condition of the Participant's receipt of a hardship withdrawal from the Qualified Plan. 3.2 Rules Governing Deferral Allocations. A. Each deferral election made in accordance with Section 3.1 shall be irrevocable. B. The amount that a Participant elects to defer shall be credited to the Participant's Accounts as soon as practicable, but no longer than 30 days following the date on which the Participant would have been paid the deferral. 3.3 Vesting. A Participant's interest in his Deferral Allocations and interest earned thereon under Section 4.5 of this Plan shall be fully vested and nonforfeitable at all times, subject to the limitations of Section 9.10 hereof. ARTICLE 4 PARTICIPANTS' ACCOUNTS 4.1 Establishment of Accounts. The following Accounts shall be established with respect to each Participant: A. Retirement Account, B. Education Account, C. Fixed Period Account, and D. Postretirement Health Care Account. 4.2 Benefit Allocation. Each Participant shall submit to the Plan Administrator before the close of the Enrollment Period for each Plan Year a written statement specifying the Participant's allocation of anticipated contributions to his Accounts. 4.3 Irrevocable Allocation. An Eligible Employee may not amend or revoke his allocation to Accounts (in accordance with Section 4.2) for a Plan Year after the end of the Enrollment Period for such Plan Year. 4.4 Suballocation Within the Education Account. If a Participant allocates a portion of his anticipated contributions to his Education Account, the Participant may further allocate among subaccounts on behalf of up to a maximum of five Eligible Dependents. In the absence of such suballocation, all contributions to the Participant's Education Account shall be equally allocated to the Participant's Eligible Dependents. 4.5 Interest. Benefits are payable as they become due whether or not the Employer makes any investments to meet its obligations and irrespective of the performance of any such investments if actually made. Interest will be credited to each Participant's Accounts monthly at the interest rate actually earned on the taxable portion of K&S's investment portfolio (without regard to fluctuations in the market value of such investment portfolio). ARTICLE 5 BENEFITS 5.1 Retirement Account. A. Payment of Benefit If the employment of a Participant with a Retirement Account is terminated for any reason, whether by the Participant or by the Employer, the Employer shall pay him a benefit in the form and amount determined under Subsections B and C based on the value of his Retirement Account at such Retirement, Disability, death or other termination of employment. If the Participant is deceased, the benefit shall be paid to his Beneficiary. B. Form of Payment 1. Upon the Participant's Retirement, Disability or death, payment of the benefit from his Retirement Account shall begin within 30 days after the applicable event. A Participant shall elect, in accordance with Subsection D, one of the following payment options for payments under this Subsection B.1: (i) substantially equal annual installments for a fixed period of up to 10 years; or (ii) lump sum. 2. Upon the Participant's termination of employment for any reason other than Retirement, Disability or death, payment of the benefit shall begin within 30 days after such termination of employment. A Participant shall elect, in accordance with Subsection D, one of the following payment options for payments under this Subsection B.2: (i) substantially equal annual installments for a fixed period of up to 5 years; or (ii) lump sum. 3. Notwithstanding any provision to the contrary, if a Participant's Retirement Account has a value less than $10,000 at the time benefits are to commence, then the Participant's benefit shall be paid as a lump sum as soon as administratively feasible following the Participant's termination of employment for any reason. C. Determination of Benefits 1. In the event that the Participant's benefits are distributed in a single lump sum in accordance with Subsection B.1(ii) or B.2(ii) or B.3, he shall receive a single lump sum equal to the total value of his Retirement Account determined as of his Determination Date. 2. In the event that the Participant's benefits are distributed over a fixed period of up to 10 years in accordance with Subsection B.1(i) or a fixed period of up to 5 years in accordance with Subsection B.1(ii), the (i) amount of the first payment shall be determined by multiplying the value of the Participant's Retirement Account as of his Determination Date by a fraction, (a) the denominator of which equals the number of years over which the benefits are to be paid; and (b) the numerator of which is one, and the (ii) amounts of the payments for each succeeding year shall be determined by multiplying the value of the Participant's Retirement Account as of the applicable anniversary of his Determination Date by a fraction, (a) the denominator of which equals the number of remaining years over which the benefits are to be paid; and (b) the numerator of which is one. D. Election of Form of Benefit Payment 1. A Participant shall elect the form in which his benefits are payable in accordance with Subsection 5.1.B. Separate elections shall be made with respect to the form in which benefits shall be distributed upon the occurrence of the following events: (i) Retirement; (ii) Disability; (iii) death; and (iv) termination of employment for any reason other than Retirement, Disability or death. Such elections must be made when the Participant makes his initial election to participate in the Plan. 2. Notwithstanding the foregoing, the Participant may elect to change the form(s) elected in accordance with Subsection 1, provided such new election shall apply only to Deferral Allocations in Plan Years beginning after the receipt by the Plan Administrator of the change in form(s) election, and shall not modify the form(s) of payment for any Deferral Allocations for prior Plan Years, or any interest thereon theretofore accrued or thereafter accruing. 3. Any election made pursuant to this Article shall be made on forms and in the manner prescribed by the Plan Administrator and shall be irrevocable, except as provided in Subsection 2. 5.2 Education Account. A. If a Participant with an Education Account remains continuously employed by the Employer until January 1 of the calendar year in which an Eligible Dependent attains age 18, the Employer shall pay to the Participant a benefit, within 30 days after such January 1 and each of the next three anniversaries thereof (the four-year payment method) or each of the next five anniversaries thereof (the six-year payment method), as elected by the Participant, determined by applying the applicable percentage from the appropriate schedule below to the value of the Eligible Dependent's Subaccount as of the date of distribution: Four-Year Payment Method ------------------------ January 1st Percentage of Eligible Year Dependent Subaccount 1 25% 2 33-1/3% 3 50% 4 100% Six-Year Payment Method ----------------------- January 1st Percentage of Eligible Year Dependent Subaccount 1 16-2/3% 2 20% 3 25% 4 33-1/3% 5 50% 6 100% B. If a Participant terminates his employment for any reason other than Retirement with a balance in his Education Account, such balance shall be transferred to his Retirement Account and distributed in accordance with Section 5.1. C. Notwithstanding any provision to the contrary, if an Eligible Dependent's subaccount has a balance of less than $10,000 on the January 1 of the calendar year in which such Eligible Dependent attains age 18, then the balance shall be paid to the Participant in one lump sum. 5.3 Fixed Period Account. A. A benefit equal to the value of a Participant's Fixed Period Account shall be paid to the Participant, or commence to be paid, within 30 days after the first day of the month specified by the Participant in his election pursuant to Subsection 5.3.B. B. If a Participant elects, pursuant to Section 4.2, that all or a portion of his Deferral Allocations shall be credited to his Fixed Period Account, he shall specify in such election the month and year in which the Fixed Period Account shall be paid, or commence to be paid. The Participant shall also elect one of the following payment options for payments of his Fixed Income Account: (i) substantially equal annual installment for a fixed period of up to five years; or (ii) lump sum. If the Participant elects installment payments, the amount of each installment shall be determined pursuant to Section 5.1.C.2. A Participant may change the form of benefit payments elected only as provided in Section 5.1.D.2. C. If a Participant's employment terminates for any reason and the Participant has a balance in his Fixed Period Account, the balance shall be transferred to his Retirement Account and distributed in accordance with Section 5.1. 5.4 Postretirement Health Care Account. A. Supplemental benefits hereunder shall take the form of reimbursement by the Employer for Medical Expenses incurred by a Participant and his or her spouse after having attained age 55 and having terminated employment with the Employer, or after having terminated his employment as a result of a Disability regardless of age. B. A Participant shall be entitled to benefits hereunder in an amount which does not exceed the balance in his Postretirement Health Care Account. C. As used herein, "Medical Expense" shall mean any amount paid or incurred that is a "medical care expense" as that term is used in Section 105(b) of the Code. The Plan Administrator shall determine whether any amount constitutes a Medical Expense that qualifies for reimbursement hereunder. A Medical Expense shall be considered incurred when the goods and services giving rise to such Medical Expense are provided, irrespective of when such Medical Expenses are billed to the Participant. D. A Participant desiring to receive reimbursement from the Postretirement Health Care Account shall submit a written application to the Plan Administrator, in accordance with rules and regulations as the Plan Administrator may specify. Such request for reimbursement shall state: 1. the amount of the Medical Expense for which the reimbursement is requested; 2. the purpose of the Medical Expense; 3. a designation of whether the Medical Expense was incurred on behalf of the Participant or the Participant's spouse; 4. the name of the person, organization or other provider to whom the Medical Expense was or is to be paid; 5. the date on which the Medical Expense was incurred; 6. that the Participant has not been reimbursed for the Medical Expense by insurance or otherwise. E. Medical Expense reimbursement under this Plan shall be considered excess medical coverage over and above any and all coverage obtained elsewhere. Medical Expense reimbursement shall be provided only in the event and to the extent not provided for under any insurance policy or any other plan of the Employer or another employer, or under federal or state law. In the event that there is such a policy, plan or law in effect providing for such Medical Expense reimbursement in whole or in part, then to the extent of the coverage under such policy, plan or law, the Employer shall be relieved of any and all liability hereunder. F. If a Participant shall die while an active Employee of the Employer and while having a balance in his Post-retirement Health Care Account, said balance shall be transferred to his Retirement Account and distributed to the Participant's Beneficiary in accordance with Section 5.1. G. If a Participant shall die after having terminated employment and while having a balance in his Post retirement Health Care Account, the account shall be maintained on behalf of the Participant's surviving spouse, if any. In the event the Participant is not survived by a spouse, or if the Participant's surviving spouse shall die while a balance remains in his Post retirement Health Care Account said balance shall be payable in a lump sum to Participant's Beneficiary as soon as administratively practicable. H. Notwithstanding any provision to the contrary, if at the time a Participant terminates employment for 1. reasons of Retirement, Disability or death, such Participant's Postretirement Health Care Account has a balance less than $10,000, said balance shall be transferred to his Retirement Account and distributed to the Participant, or Beneficiary, if applicable, in accordance with Section 5.1. 2. any reason other than Retirement, Disability or death, such Participant's Postretirement Health Care Account shall be transferred to his Retirement Account and distributed to the Participant, or Beneficiary, if applicable, in accordance with Section 5.1. 5.5 Beneficiary Designation. A. Each Participant, upon becoming eligible for participation in the Plan, may designate a Beneficiary or Beneficiaries to receive the benefits payable in the event of his death, and designate a successor Beneficiary or Beneficiaries to receive any benefits payable in the event of the death of any other Beneficiary. B. A Participant may change his Beneficiary or Beneficiaries at any time. All Beneficiary designations and changes shall be made on an appropriate form as designated by the Plan Administrator and filed with the Plan Administrator. C. If no person shall be designated by the Participant, or if the designated Beneficiary or Beneficiaries shall not survive the Participant, payment of his interest shall be made to the Participant's estate. 5.6 Distribution Upon Change in Control or Special Circumstance. Upon the occurrence of a Change in Control or a Special Circumstance, the Employer shall pay to each Participant, within 30 days after the event has occurred, a single lump sum equal to the total value of all Accounts of the Participant, valued as of the end of the month immediately preceding such payment. 5.7 Tax Withholding. To the extent required by the law, the Employer shall withhold or cause to be withheld taxes from payments made under this Plan. 5.8 No Right of Set-Off. The Employer shall not have the right to set-off against benefits payable to a Participant pursuant to this Plan any amounts owing, or alleged to be owing, by the Participant to the Employer. ARTICLE 6 ADMINISTRATION 6.1 Appointment of Plan Administrator. The Compensation Committee of the Board of Directors shall serve as Plan Administrator. 6.2 Plan Administrator's Responsibilities. The Plan Administrator is responsible for the overall administration of the Plan. The Plan Administrator may appoint other persons or entities to perform any of its fiduciary functions. Such appointment shall be made and accepted by the appointee in writing. The Plan Administrator and any such appointee may employ advisors and other persons necessary or convenient to help him carry out his duties, including his fiduciary duties. The Plan Administrator shall have the right to remove any such appointee from his position. Any person, group of persons or entity may serve in more than one fiduciary capacity. 6.3 Records and Accounts; Statements to Participants. The Plan Administrator shall maintain or shall cause to be maintained accurate and detailed records and accounts of Participants and of their rights under the Plan, and of all investments, receipts, disbursements and other transactions. Such accounts, books and records relating thereto shall be open at all reasonable times to inspection and audit by the Employer and by persons designated thereby, and by a Participant with respect to his individual records and accounts. The Employer shall provide to each Participant, not later than 30 days after the end of each calendar quarter, a statement showing the amounts credited to each of the Participant's Accounts at the beginning of the quarter, additional Deferral Contributions to the Accounts during the quarter, and interest credited to the Accounts in accordance with Section 4.5. 6.4 Plan Administrator's Specific Powers and Duties. In addition to any powers, rights and duties set forth elsewhere in the Plan, the Plan Administrator shall have the following powers and duties: A. to adopt rules and regulations consistent with the provisions of the Plan; B. to enforce the Plan in accordance with its terms and any rules and regulations it establishes; C. to maintain records concerning the Plan sufficient to prepare reports, returns and other information required by the Plan or by law; D. to construe and interpret the Plan in its sole discretion and to resolve all questions, including questions involving the entitlement to benefits, arising under the Plan; E. to direct the Employer to pay benefits under the Plan, and to give such other directions and instructions as may be necessary for the proper administration of the Plan; and F. to be responsible for the preparation, filing and disclosure on behalf of the Plan of such documents and reports as are required by any applicable federal or state law. 6.5 Employer's Responsibility to Plan Administrator. The Employer shall furnish the Plan Administrator such data and information as it may require. The records of the Employer shall be determinative of each Participant's period of employment, termination of employment and the reason therefor, leave of absence, reemployment, years of service, personal data, and compensation reductions. Participants and their Beneficiaries shall furnish to the Plan Administrator such evidence, data, or information, and execute such documents, as the Plan Administrator requests. 6.6 Liability. Neither the Plan Administrator nor the Employer shall be liable to any person for any action taken or omitted in connection with the administration of this Plan unless attributable to its own fraud or willful misconduct; nor shall the Employer be liable to any person for such action unless attributable to fraud or willful misconduct on the part of a director, officer or employee of the Employer. 6.7 Payment of Expenses. All expenses of the Plan Administrator incurred in the operation or administration of this Plan shall be paid by the Employer. 6.8 Indemnity of Plan Administrator. The Employer shall indemnify the Plan Administrator or any individual who is a delegate against any and all claims, loss, damage, expense or liability arising from any action or failure to act, except when due to gross negligence or willful misconduct. The Employer may purchase errors and omissions insurance, the proceeds from which may be used for any such indemnification. ARTICLE 7 CLAIMS PROCEDURE 7.1 Claim and Review If a Participant or Beneficiary is denied all or a portion of an expected Plan benefit for any reason, he must file a written notification of his claim with the Plan Administrator. The Plan Administrator shall notify the Participant or Beneficiary within 30 days of allowance or denial of the claim. If the Plan Administrator fails to notify the claimant of its decision to grant or deny the claim within the 30-day period, such claim shall be deemed to have been conclusively denied. The notice provided by the Plan Administrator under this Section shall be in writing, sent by mail to the Participant's last known address and, if a denial, must contain the following information: A. the specific reasons for the denial; B. the specific reference to the pertinent Plan provision on which the denial is based; C. if applicable, a description of any additional information or material necessary to perfect the claim, and an explanation of why such information or material is necessary; and D. an explanation of the Participant's right to seek a court review of the denial of the claim. 7.2 Right to Sue; Payment of Attorneys' Fees. If the Plan Administrator denies a claim filed with it in accordance with Section 7.1, a Participant or Beneficiary may then commence an action against the Employer, the Plan and the Plan Administrator, or any of them separately, in a court of competent jurisdiction, for appropriate relief. If, after such court action has commenced, the Employer pays, or is required to pay (whether by court order, mutual agreement, or otherwise) all or any part of the benefits claimed by the Participant or Beneficiary, the Employer shall pay the full amount of the attorneys' fees incurred by the Participant or Beneficiary in prosecuting such court action, together with all costs and disbursements related thereto. ARTICLE 8 AMENDMENT AND TERMINATION 8.1 Plan Amendment. The Plan may be amended or otherwise modified, in whole or in part, either retroactively or prospectively, by written resolution of the Board of Directors of K&S, provided that no amendment or modification shall reduce the then balance in any Account of any Participant, reduce the amount of interest to be thereafter credited to any such Account under Section 4.5, divest any then vested interest in any Account balance, create any vesting requirement for Deferral Allocations or for interest thereafter to be credited on any then existing Account balance, deprive any Participant of the right to attorneys' fees under Section 7.2, permit any set-off by the Employer against benefits payable hereunder or otherwise adversely affect the rights of a Participant with respect to amounts credited to his or her Account. 8.2 No Premature Distribution. Subject to Section 8.3, no amendment hereto shall permit amounts accumulated prior to the amendment to be paid to a Participant or Beneficiary prior to the time he would otherwise be entitled thereto. 8.3 Termination of the Plan. K&S reserves the right to terminate the Plan and/or the Deferral Agreement pertaining to any Participant at any time prior to the commencement of benefits by written resolution of its Board of Directors. In the event of the termination of the Plan, the Employer shall, within 30 days after such termination, pay a single lump sum to each Participant or the Beneficiary of any deceased Participant, in lieu of other benefits hereunder, equal to the total value of all of the Participant's Accounts, valued as of the end of the month immediately preceding such payment. ARTICLE 9 MISCELLANEOUS 9.1 Supplemental Benefits. The benefits provided for the Participants under this Plan are in addition to benefits provided by any other plan or program of the Employer and, except as otherwise expressly provided herein, the benefits of this Plan shall supplement and shall not supersede any plan or agreement between the Employer and any Participant or any provisions contained herein. 9.2 Governing Law. The Plan shall be governed and construed under the laws of the Commonwealth of Pennsylvania as in effect at the time of its adoption. 9.3 Jurisdiction. The federal and state courts in the Commonwealth of Pennsylvania shall have exclusive jurisdiction in any or all actions arising under this Plan. 9.4 No Assignment Permitted. No Participant, Beneficiary or heir shall have any right to commute, sell, transfer, assign or otherwise convey the right to receive any payment under the terms of this Plan. Any such attempted assignment shall be considered null and void. 9.5 Binding Terms. The terms of this Plan shall be binding upon and inure to the benefit of the parties hereto, their respective heirs, executors, administrators and successors. 9.6 Spendthrift Provision. Neither the interest of any Participant or Beneficiary or other person herein nor any such person's right to payments hereunder shall be subject in any manner to anticipation, voluntary or involuntary alienation, sale, transfer, assignment, pledge, encumbrance, attachment or garnishment by creditors (including the Employer) of the Participant, Beneficiary or other person. 9.7 Headings. All headings preceding the text of the several Sections hereof are inserted solely for reference and shall not constitute a part of this Plan, nor affect its meaning, construction or effect. 9.8 Rules of Interpretation. Where appropriate, words in the masculine gender shall include the feminine and neuter genders, and singular words shall include the plural, where appropriate. 9.9 No Continued Employment. Nothing in this Plan shall require the Employer to retain any Participant in its service. 9.10 Limitation of Rights. To the extent a Participant or any Beneficiary or other person acquires a right to receive payments from the Employer under this Plan, such rights shall be the same as those of other general unsecured creditors of the Employer. The Plan constitutes a mere promise by the Employer to make benefit payments in the future. It is the intention of the Employer, and each Participant by virtue of his participation herein confirms that it is also his intention, that the arrangements for future payments provided for herein are, and are to remain, unfunded for tax purposes and for purposes of Title I of the Employee Retirement Income Security Act of 1975, as amended. Neither the establishment of the Plan, nor any modification thereof, nor the creation of an account, nor the payment of any benefits shall be construed as giving any Participant, Beneficiary, or any other person whomsoever, any legal or equitable right against the Employer or the Plan Administrator unless such right shall be specifically provided for in the Plan; or as giving any Participant the right to be retained in the service of the Employer, and all Participants and other employees shall remain subject to discharge to the same extent as if the Plan had never been adopted. 9.11 Severability. Should any provision of the Plan or any regulations adopted thereunder be deemed or held to be unlawful or invalid for any reason, such fact shall not adversely affect the other provisions or regulations unless such invalidity shall render impossible or impractical the functioning of the Plan and, in such case, the appropriate parties shall immediately adopt a new provision or regulation to take the place of the one held illegal or invalid. KULICKE & SOFFA INDUSTRIES INC. Attest: ____________________________ By:______________________________ Date: November ___, 1994 [CORPORATE SEAL] EX-27 4
5 THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE COMPANY'S AUDITED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 1,000 YEAR SEP-30-1997 SEP-30-1997 107,605 7,982 107,252 2,149 45,602 272,204 88,262 42,614 376,819 81,984 220 0 0 155,246 136,681 376,819 501,907 501,907 318,002 318,002 126,242 0 2,331 51,782 13,463 38,319 0 0 0 38,319 1.78 1.78
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