-----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, Osrr4wpD6ml8izxLIDUywMULm9i5eZdbzLN3ScJVopchiQvxwXTONCnB9OapINRg UDIarmjPAjSN32XDKVUILA== 0000056978-96-000017.txt : 19961225 0000056978-96-000017.hdr.sgml : 19961225 ACCESSION NUMBER: 0000056978-96-000017 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961224 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: 1934 Act SEC FILE NUMBER: 000-00121 FILM NUMBER: 96685361 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 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, 1996 ------------------ 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 (IRS Employer incorporation or organization) Identification No.) 2101 BLAIR MILL ROAD, WILLOW GROVE, PA 19090 (Address of principal executive offices) (zip code) (215) 784-6000 Registrant's telephone number, including area code 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 2, 1996 was approximately $387,804,000. (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 2, 1996, there were 19,460,659 shares of the Registrant's Common Stock, Without Par Value, outstanding. Documents Incorporated by Reference Portions of the Registrant's Proxy Statement for the Annual Shareholders' Meeting to be filed prior to January 10, 1997, 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 ITEM 1. BUSINESS Kulicke and Soffa Industries, Inc. (the "Company" or "K&S") was founded in 1951 to design equipment for industrial use. During the 1970's, the Company began to focus its efforts on the semiconductor assembly equipment market. Prior to its October 2, 1995 acquisition of American Fine Wire Corporation ("AFW"), the Company operated predominantly in one industry segment, the manufacture and sale of assembly equipment to the semiconductor industry. As a result of the AFW acquisition, the portion of the Company's operations attributable to sales of packaging materials exceeded 10% of total revenues. The packaging materials products have different manufacturing processes, distribution channels and a less volatile revenue pattern than the Company's capital equipment business. Accordingly, in fiscal 1996 the Company commenced reporting its operations in two business segments, its equipment segment (sales of capital equipment, related spare parts and services) and its packaging materials segment (which includes the Micro-Swiss and AFW operations). See Note 10 to the Company's fiscal 1996 consolidated financial statements, included herein, for financial results by business segment. Today, K&S is the world's largest supplier of semiconductor assembly equipment, according to VLSI Research, Inc. ("VLSI"). Through its AFW and Micro-Swiss subsidiaries, the Company also supplies packaging materials used in the semiconductor assembly process. The Company's primary assembly equipment products include wire bonders, dicing saws, and die, TAB and flip-chip bonders, while its packaging materials offerings include bonding wire, capillaries, wedges, saw blades and die collets. The Company's customers consist of leading semiconductor manufacturers and subcontract assemblers of semiconductors, including Advanced Semiconductor Engineering, Anam Electronics, Hyundai, IBM, Intel, Matsushita Electronics, Motorola, Philips, Samsung, and Texas Instruments. INDUSTRY BACKGROUND The worldwide market for semiconductors has experienced significant growth in recent years and is estimated to have exceeded $150 billion in 1995. VLSI projects this market to reach approximately $230 billion by 1999. This growth reflects the increasing demand for a wide variety of electronic devices, such as personal computers, cellular telephones, multimedia systems and other electronic devices for business and consumer use, as well as the increasing semiconductor content within these electronic devices and other products, such as automobiles, consumer appliances and factory automation and control systems. This demand has been driven in large part by continuing increases in semiconductor performance as measured by functionality, speed and memory density at declining costs per function. In response to the growing demand for semiconductor devices, semiconductor manufacturers are increasing capacity by expanding and upgrading existing facilities and constructing new semiconductor fabrication facilities. As new fabrication facilities come on line and existing facilities are expanded and upgraded, the Company anticipates that the semiconductor industry will need to add capacity to assemble the increased output of processed wafers. SEMICONDUCTOR MANUFACTURING PROCESS The manufacture of semiconductor devices ("semiconductors" or "IC's") requires complex and precise steps which can be broadly grouped into wafer fabrication, assembly and test. Wafer fabrication, the first step in the semiconductor manufacturing process, starts with raw silicon wafers and ends with finished devices in the form of die on wafers. After fabricated wafers are tested, they typically are shipped to assembly facilities located primarily in the Asia/Pacific region. Semiconductor devices are small and fragile and must be packaged to protect them and facilitate their connection to electronic systems. "Assembly" refers to those process steps required to package semiconductor devices. The packages are typically based on a stamped metal leadframe, which is subsequently molded with plastic, or on ceramic, depending on the device and the application in which it will be used. The semiconductor assembly process begins with the mounting of a finished, tested wafer onto a carrier, after which a dicing saw cuts the wafer into individual die. The cut wafer is then moved to a die bonder which picks each good die off the wafer and bonds it to a package. Next, the device is wire bonded. Very fine gold or aluminum wire (typically 0.001 inches in diameter) is bonded between specific locations called bond pads on the die and corresponding leads on the package in order to create the electrical connections necessary for the device to function. After wire bonding, the package is encapsulated. For leadframe-based packages, plastic is molded around the package and the leads are then trimmed and formed. For ceramic packages, encapsulation is accomplished by mounting a lid over the die. After encapsulation, devices are re-tested and are then marked and prepared for shipment. SEMICONDUCTOR ASSEMBLY MARKET According to VLSI, sales of semiconductor assembly equipment totaled approximately $2.4 billion in 1995 and are projected to grow to approximately $3.6 billion by 1999. Sales of semiconductor packaging materials were approximately $7.3 billion in 1995 and are expected to grow to approximately $9.4 billion by 1998 according to Rose Associates. The market for semiconductor assembly equipment is expected to continue to be driven by the demand for IC's, as well as the proliferation of different device types and technological advances in IC packages. Different types of devices such as microprocessors, logic devices and memory devices require different assembly and packaging solutions. In addition, current-generation semiconductors are more complex, more densely fabricated and more highly integrated than those of prior generations. To package these newer devices, assembly equipment must be able to handle smaller, more complex packages with higher pin counts. In addition, device manufacturers and assemblers continue to demand equipment with faster throughput, greater reliability, more automated manufacturing support and lower cost of ownership. The market for the expendable tools and materials used in the semiconductor assembly process is similarly driven by IC unit volume, cost and increased technological demands. These demands typically include package size reduction and greater consistency or uniformity of materials. ACQUISITION OF AFW On October 2, 1995, the Company acquired AFW (the "AFW Acquisition") through the merger of a subsidiary of the Company into Circle "S" Industries, Inc. ("Circle ""S"), the parent corporation of AFW. AFW is a manufacturer of fine gold and aluminum wire for use in the wire bonding process and has facilities in Singapore; Selma, Alabama; and Thalwil, Switzerland. The purchase price for the AFW Acquisition totaled $54.7 million, including transaction related costs. See Notes 2 and 6 to the Company's fiscal 1996 consolidated financial statements, included herein, for further discussion of the AFW acquisition and related financing. INVESTMENT IN FLIP CHIP TECHNOLOGIES, INC. In February 1996, the Company entered into a joint venture agreement with Delco Electronics Corporation providing for the formation and management of Flip Chip Technologies, L.L.C. ("FCT" or "the Joint Venture"). FCT was formed to provide wafer bumping services. During the fiscal year ended September 30, 1996, the Company contributed $2.6 million to FCT, and recognized $1.0 million as its proportionate share of the Joint Venture's operating loss. ACQUISITION OF SEMITEC, INC. On October 1, 1996, the Company acquired the common stock of Semitec, Inc. ("Semitec") for a purchase price of approximately $4.9 million, including transaction related costs. Of the total purchase price, $4.7 million must be paid to the former Semitec shareholders in registered shares of Company common stock or in cash by June 1997. Semitec manufactures and sells semiconductor dicing saw blades. The acquired assets and results of operations of the Semitec business will be included in the Company's consolidated financial statements commencing in fiscal 1997. 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 areas for its fiscal years ended September 30, 1996 and 1995. Fiscal Year Ended September 30, __________________ 1996 1995 Wire bonders 57% 74% Additional assembly equipment 10% 9% Packaging materials 25% 7% Services and spare parts 8% 10% 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 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 plastic packages (i.e., leadframe-based packages) while wedge bonders typically are used for ceramic packages. The Company's principal wire bonders are its Model 1488 turbo 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 is in the process of developing a new generation of wire bonder, the 8000 family, which will be 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 Company experienced delays in the development of the Model 1488 turbo wire bonder and has experienced delays in the development of the first product in the 8000 family, the Model 8020. The delays in the development of the Model 8020 have been due to a variety of reasons typical to the development of new technological products, including hardware and software related issues and changes in functional specifications based on input from customers. While development and technical risks exist which have the potential to further affect the introduction of the Model 8020, the Company currently expects that the product will be released in the second half of calendar 1997. However, no assurance can be given that its scheduled introduction in the second half of 1997 will not be delayed. The Company also may incur substantial costs during the customer evaluation and qualification process to ensure the functionality and reliability of the product. The Company's inability to complete the development of and introduce the Model 8020 or other 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 Company's planned transition to the Model 8020 platform involves numerous risks, including the possibility that customers will defer purchases of Model 1488 turbo wire bonders in anticipation of the availability of the Model 8020 or that the Model 8020 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 develop and manufacture new products, including the Model 8020, 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 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. After precise automatic positioning of the wafer, a dicing saw is used to cut it into individual die using diamond-embedded saw blades. Dicing saws range in price from $60,000 to more than $230,000. On October 1, 1995, the Company entered into a Manufacturing License and Supply Agreement with Tokyo Seimitsu Co. Ltd. ("TSK") for the right to manufacture, use and distribute their Model 7500 automatic dicing saw. This saw is a recently developed product providing improved accuracy and reliability. During 1996, the Company supplied these machines both to TSK and its own customers. This product is produced in the Company's Israeli machine manufacturing facility. In connection with the signing of this agreement, the Company discontinued the manufacture of its own Model 918 saw. Die Bonders. Die bonders are used to attach a semiconductor die to a leadframe or other package before wire bonding. The Company's primary die bonders are Models 4206 and 5408 automatic die attach machines. In addition, 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. Die bonders range in price from $60,000 to more than $250,000. 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 is an automatic multi-process assembly system which can be configured to support flip-chip applications. Selling prices for flip-chip assembly systems exceed $300,000, depending upon configuration. 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, for applications such as the fabrication of chip capacitors or disk drive heads. 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 expendable tools and materials to semiconductor device assemblers which it sells under the brand names "American Fine Wire" and "Micro-Swiss." The Company intends to expand this business in an effort to increase its revenues related to the manufacture of IC's as opposed to 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. The fabrication charge varies based on a number of factors, such as total volume, wire diameter and wire length per spool, and typically ranges from $7 to $14 per 1,000 feet of wire, depending upon specifications. To minimize AFW's financial exposure to gold price fluctuations, AFW acquires 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 and die collets. 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. Capillaries sell for $6 to $15 and wedges sell for $17 to $45, in each case depending upon specifications and die collets sell for up to $150. In addition, Micro-Swiss manufactures a line of saw blades used for cutting hard and brittle materials. These blades can be used on the Company's Model 980 saws or other machines designed for similar applications. On October 1, 1996, the Company acquired Semitec, Inc., a manufacturer of hub blades which are used to cut silicon wafers into semiconductor die. This acquisition expands the Company's expendable tools product offering, and complements the Company's line of automatic dicing saws. Typical prices for hub blades range from $22 to $28. 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 bound by annual or multi-year contracts. CUSTOMERS The Company's customers include large semiconductor manufacturers and subcontract assemblers worldwide, among which are the following: Advanced Semiconductor Engineering Matsushita Electronics Anam Micron Technology, Inc. AT&T Motorola Caesar Technology National Semiconductor Fujitsu Orient Semiconductor Electronics Ltd. GSS/ARRAY Philips Electronics NV Hyundai Electronics Industries Co., Ltd. Samsung Pacific, Inc. IBM SGS-Thomson Microelectronics Intel Corporation Siemens Kyocera Silicon Systems Lexmark International Texas Instruments Lucent Microelectronics 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 to 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. Sales to a relatively small number of customers have accounted for a significant percentage of the Company's net sales. During fiscal 1996, sales to Anam (a Korean-based customer) 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. In fiscal 1994, sales to Anam, Intel and Motorola accounted for 14.2%, 11.5% and 10.8%, 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 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. SALES AND CUSTOMER SUPPORT The Company sells its products to semiconductor device manufacturers and contract manufacturers, who are primarily located or have operations in the Asia/Pacific region. Approximately 79% of the Company's fiscal 1996 sales and 78% of fiscal 1995 sales were to customers for delivery outside of the United States. 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 90 individuals at September 30, 1996, 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 AFW and Micro-Swiss product lines through an independent sales force supporting customers primarily in the Asia/Pacific region and through manufacturers' representatives supporting customers throughout the rest of the world. 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 190 customer service and support personnel at September 30, 1996, 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, 1996, the Company's backlog was approximately $69.0 million, including approximately $6.7 million related to AFW, compared to approximately $84.7 million at September 30, 1995 which excluded AFW. 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 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 registration for most operations in its Willow Grove, Pennsylvania facility and for both of its Israeli manufacturing facilities. The Company manufactures its Micro-Swiss expendable tools at its facility in Israel and its AFW product line, consisting of gold and aluminum bonding wire, at facilities in Alabama, Singapore and Switzerland. The Company currently is constructing a new facility in Israel for its Micro-Swiss operations in Yokneam, Israel. Parts, materials and supplies for components used in the Company's equipment products are, for the most part, readily available from a number of sources at acceptable costs. 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, and the Company does not believe that its business is substantially dependent on any contract or arrangement with any of its subcontractors or suppliers. However, 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 finances 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, 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 experienced and continues to experience 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 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. 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 350 individuals in research and development at September 30, 1996. 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 gold ball 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 are expected to be introduced in the second half of 1997. Most of the next generation equipment presently being developed by the Company is expected to be 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 $52.4 million, $30.9 million and $21.3 million during the fiscal years ended September 30, 1996, 1995 and 1994, 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, 1996, 1995 and 1994, such funding totaled approximately $2.5 million, $2.8 million and $2.0 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. Competitive factors in the semiconductor packaging materials industry include price, delivery and quality. Significant competitors in the packaging materials line include Gaiser Tool Co. and Small Precision Tools, Inc. with respect to expendable tools and Tanaka Electronic Industries and Sumitomo Metal Mining in the bonding wire market. 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. 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. 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 obligations will not be breached. Certain of the Company's customers have received notices of infringement from two separate parties, Harold S. Hemstreet and Jerome H. Lemelson, alleging that equipment supplied by the Company, and processes performed by such equipment, infringe on patents held by them. Under and subject to the terms of its agreements with customers, the Company could be required to reimburse customers for certain damages resulting from these matters and to defend its customers in patent infringement suits. Certain customers have requested that the Company defend and indemnify them against the claims of Mr. Hemstreet or Mr. Lemelson, but, to date, no customer who has settled with either Mr. Hemstreet or Mr. Lemelson has sought contribution from the Company. A number of the Company's customers have actually been sued by Mr. Lemelson, but no customers were sued by Mr. Hemstreet prior to expiration of the time period in which he could bring suit. Based in part on opinions from the Company's outside patent counsel, the Company believes that no equipment marketed by the Company, and no process performed by such equipment, infringe on the patents in question and does not believe that such matters will have a material adverse effect on its business, financial condition, operating results or liquidity. However, the ultimate outcome of any infringement 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, operating results or liquidity. EMPLOYEES At September 30, 1996, K&S had approximately 1,900 permanent employees, 25 temporary employees and 75 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 information regarding the executive officers of the Company. First Became an Officer Name Age (calendar year) Position __________________ ___ _______________ ______________________________ C. Scott Kulicke 47 1976 Chairman of the Board of Directors and Chief Executive Officer Morton K. Perchick 59 1982 Executive Vice President Clifford G. Sprague 53 1989 Senior Vice President and Chief Financial Officer Moshe Jacobi 54 1992 Senior Vice President and President Packaging Materials Group Asuri Raghavan 43 1991 Senior Vice President and President Equipment Group Walter Von Seggern 56 1992 Vice President, Engineering and Technology 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 July 1995. Prior to that, he had served as Vice President of the Company and Managing Director of Micro-Swiss Ltd., a wholly-owned subsidiary of the Company since 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 Vice President, Marketing since July 1995, Vice President of the Wire Bonder Business since December 1993. Prior to that, he served 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. 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, assembly dicing saws and systems automatic multi- process assembly systems Haifa, Israel 39,200 sq. ft.(2) Manufacturing, Capillaries, March 1999 Micro-Swiss wedges and operations die collets Hong Kong 19,600 sq. ft.(2) Sales and service November 1998 Tokyo, Japan 10,700 sq. ft.(2) Technology center, November 1998 sales and service Singapore 22,900 sq. ft.(2) Manufacturing, Bonding wire November 1997 AFW operations Selma, 25,600 sq. ft.(2) Manufacturing, Bonding wire October 2017 Alabama AFW operations 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 is constructing a 48,400 sq. ft. manufacturing facility in Yokneam, Israel for its Micro-Swiss operations. Construction of this facility is expected to be completed in the winter of 1996. Upon completion, the Company will relocate its Micro-Swiss operations to the new facility. In addition, the Company rents space for sales and service offices in Santa Clara, California; Mesa, Arizona; Zug, Switzerland; Korea; Taiwan; 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 12 to the Company's fiscal 1996 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 (adjusted to reflect the July 1995 two-for-one stock split), as reported on the Nasdaq National Market. High Low ------- ------- 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 Fiscal 1995: First Quarter $10 31/32 $ 7 1/2 Second Quarter 14 7/8 9 1/8 Third Quarter 33 3/8 13 1/4 Fourth Quarter 45 3/8 32 7/8 On December 2, 1996, there were 1,025 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 1996, the Company contributed 84,000 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 officers of the Company. However, this should not be deemed to constitute an admission that all directors and 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 officers, directors and principal shareholders is included in the Company's definitive proxy statement 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, --------------------------------------------- 1996(a) 1995 1994 1993 1992 ------ ------- ------- ------- ------ (in thousands, except per share amounts) Net sales $381,176 $304,509 $173,302 $140,880 $ 94,959 Gross profit 141,685 137,052 71,968 61,675 40,401 Income (loss) from operations 17,418 55,440 13,930 14,280 (12,040) Net income (loss) (b) (c) 11,847 42,822 10,418 10,831 (12,123) Net income (loss) per share (b): Primary $0.60 $2.38 $0.63 $0.66 $(0.77) Fully diluted $0.60 $2.22 $0.63 $0.66 $(0.77) Weighted average shares outstanding: Primary 19,773 18,028 16,665 16,342 15,823 Fully diluted 19,773 19,693 16,665 16,342 15,823 Balance Sheet Data: September 30, ----------------------------------------------- 1996(a) 1995 1994 1993 1992 ------- ------- -------- ------- ------- (in thousands) Working capital $113,804 $103,833 $ 61,459 $ 58,190 $45,937 Total assets 249,554 191,029 121,198 105,278 83,941 Long-term debt, less current portion 50,712 156 26,474 26,708 26,778 Shareholders' equity 147,489 133,647 63,234 51,481 38,988 (a) See Part I, Item 1 and footnote 2 of the Notes to the Consolidated Financial Statements for a detailed discussion of the October 2, 1995 AFW acquisition. (b) In fiscal 1989, the Company began a program of selectively repurchasing its 8% Convertible Subordinated Debentures at such times as market prices were favorable. The effect of such repurchases was to reduce interest expense. During fiscal 1995, all of the Company's remaining 8% Convertible Subordinated Debentures were converted into Common Stock or redeemed. See Note 6 to the Company's Consolidated Financial Statements included elsewhere herein. (c) In fiscal 1996, other expenses include $994 representing the Company's proportionate share of the loss from its equity investment in Flip Chip Technologies, LLC, and the write-off of $630 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. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION The Company's operating results primarily depend upon the capital expenditures of semiconductor manufacturers and subcontract assemblers worldwide which, in turn, depend on the current and anticipated market demand for semiconductors. The semiconductor industry has historically been highly volatile and 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. 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 in 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 Company acquired American Fine Wire Corporation ("AFW") in October 1995, to help mitigate the effect of volatile demand for capital equipment on the Company's financial performance. This acquisition significantly increased the portion of the Company's total sales attributable to packaging materials which grew from 7% in fiscal 1995 to 25% in fiscal 1996. Packaging materials products have different manufacturing processes, distribution channels and a less volatile revenue pattern than historically experienced by the Company's equipment business. RESULTS OF OPERATIONS FISCAL YEARS ENDED SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995 During the 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 decline in fiscal 1996 equipment bookings primarily reflects a significant reduction in demand for semiconductor assembly equipment, principally gold ball and aluminum 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. 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. 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 fiscal year ended September 30, 1996 increased by $76.7 million to $381.2 million compared to $304.5 million in fiscal 1995. The acquisition of AFW contributed $66.9 million to fiscal 1996 net sales, with approximately $6.4 million of the increase attributable to sales of expendable tools and the remainder due to the Company's equipment segment. 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. 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. Equipment segment net sales increased to $287.2 million in fiscal 1996 compared to $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 gold ball wire 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 gold ball bonder line compared to the average selling prices realized on gold ball bonders during fiscal 1995. Packaging materials segment net sales increased to $93.9 million in fiscal 1996 from $20.7 million in fiscal 1995. The increase is due to $66.9 million of sales of wire products following the AFW acquisition and $6.4 million due to increased sales volumes of expendable tools totaling $6.4 million. Gross profit as a percentage of net sales declined to 37.2% in fiscal 1996 compared to 45.0% in fiscal 1995. Equipment segment gross profit as a percentage of net sales decreased to 42.5% for fiscal 1996 compared to 45.3% for fiscal 1995. 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 gold ball bonders, and the anticipated transition to the new generation Model 8020 gold ball bonders in the second half of 1997, caused the Company to recognize approximately $2.8 million of the 1996 provision for excess and obsolete inventory in the fourth quarter for inventory which was not expected to be used or sold with the transition to the new generation of wire bonders. 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. The decrease principally reflects the effect of the AFW acquisition as sales of wire products have historically had a substantially lower gross profit margin than the Company's other products. Selling, general and administrative expenses ("SG&A") increased to $71.9 million in fiscal 1996 compared to $50.7 million in fiscal 1995. The 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, discontinued the planned expansion of its Willow Grove, Pa. 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 discontinued Willow Grove facility expansion. Research and development costs ("R&D") increased to $52.4 million for the fiscal year ended September 30, 1996, compared to $30.9 million for the same period in 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. The Company continues 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 turbo gold 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 than earlier models. The Company also continues to invest in new technologies which may eventually lead to improved and alternative semiconductor assembly technologies. 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. Operating income declined to $17.4 million in fiscal 1996 compared to $55.4 million in fiscal 1995. The decline largely resulted from higher fiscal 1996 SG&A and R&D 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 U.S. as the U.S. 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. In connection with the October 1995 AFW acquisition, the Company borrowed $15.0 million under its Bank Credit Facility and $34.4 million pursuant to promissory notes issued to certain former Circle "S" shareholders. The promissory notes were repaid in January 1996 through additional borrowings under the Company's bank credit facility. During fiscal 1996, the Company incurred $3.2 million of incremental interest expense associated with these borrowings. During fiscal 1995, a portion of the Company's 8% Convertible Subordinated Debentures were outstanding. All of the remaining 8% debentures were converted into the Company's common stock or redeemed in fiscal 1995. In February 1996, the Company entered into a joint venture agreement with Delco Electronics Corporation providing for the formation and management of Flip Chip Technologies, L.L.C. ("FCT" or "the Joint Venture"). FCT was formed to provide wafer bumping services. During fiscal 1996, the Company contributed $2.6 million of capital to FCT, and recognized $1.0 million as its proportionate share of the Joint Venture's operating loss. The Joint Venture is still in the early stages of developing its business and is expected to incur increased losses in fiscal 1997. 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 net operating loss ("NOL") carryforward. During fiscal 1996, AFW's U.S. manufacturing operation experienced a small loss. Since the Company cannot 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. Net income declined to $11.8 in fiscal 1996 as compared to fiscal 1995 of $42.8 million due to the factors previously enumerated. In October 1995, Statement of Financial Accounting Standards No. 123, "Accounting for Stock-based Compensation" ("SFAS 123"), was issued. The statement requires the recognition of the fair value of stock options and other stock-based compensation to be reflected as compensation expense in the income statement, or disclosure of the pro-forma effect on net income and earnings per share of such compensation expense in the footnotes to the Company's financial statements commencing with the 1997 fiscal year. The Company expects to adopt SFAS 123 on a disclosure basis only. Accordingly, implementation of SFAS 123 is not expected to impact the Company's consolidated balance sheet or income statement. FISCAL YEARS ENDED SEPTEMBER 30, 1995 AND SEPTEMBER 30, 1994 The Company recorded bookings totaling $342.4 million during the fiscal year ended September 30, 1995 compared to $178.0 million during fiscal 1994. The increase in customer orders was primarily attributable to the following factors. First, growing end-user demand for semiconductor devices resulted in industry-wide expansion both in wafer fabrication capacity and semiconductor assembly capacity in 1995. In addition, certain semiconductor manufacturers replaced older assembly capital equipment with newer, higher throughput machines capable of handling more complex semiconductor devices for a wider variety of applications. Finally, enhanced versions of the Company's gold ball wire bonder (Model 1488 turbo - introduced in late fiscal 1994) and aluminum wedge bonder (Model 1474fp - introduced in the second quarter of fiscal 1995) offered significant performance advantages compared to the Company's earlier models, including greater throughput, finer pitch capabilities and improved programmability to handle a wider variety of applications. Favorable customer acceptance of these enhanced models contributed to the Company's increased volume of orders during fiscal 1995. At September 30, 1995, the backlog of customer orders totaled approximately $84.7 million compared to $46.8 million at September 30, 1994. Net sales for the fiscal year ended September 30, 1995 increased 76% to $304.5 million compared to $173.3 million during fiscal 1994. Approximately $123.6 million of this increase was due to higher unit volume, primarily of the Company's Model 1488 Turbo gold ball wire bonders and 1474fp aluminum wedge bonders, and, to a lesser extent, to increased sales of consumable tools and spare parts. Higher selling prices for the Model 1488 Turbo ball bonder and Model 1474fp wedge bonder contributed approximately $7.6 million to net sales in fiscal 1995, over the amounts reported in fiscal 1994. In addition, approximately $6.1 million of the volume increase was attributable to sales of products added from the July 1994 acquisition of Assembly Technologies ("AT"). By geographic region, increases in net sales in fiscal 1995 as compared to fiscal 1994 were primarily attributable to customers located in the Asia/Pacific region, and, to a lesser extent, to customers located in the United States. Sales to customers in the Asia/Pacific region and the United States accounted for more than 90% of the Company's net sales in fiscal 1995. Gross profit as a percentage of net sales increased to 45.0% for fiscal 1995 compared to 41.5% for fiscal 1994. The increase in the gross profit percentage resulted principally from improved manufacturing overhead absorption associated with higher sales volumes, the improved gross profit margin on the gold ball and wedge bonder products largely due to the higher selling prices realized on the new, enhanced models, and to a shift in sales mix toward higher margin wedge bonders. During fiscal 1994, the wedge bonder product line comprised 14% of net revenues; in fiscal 1995, wedge bonder products accounted for 20% of net revenues. Partially offsetting the above factors were additional inventory reserves established for slower moving products during fiscal 1995. SG&A totaled $50.7 million during fiscal 1995, compared to $36.8 million during fiscal 1994. This increase was primarily attributable to higher employment levels required to support the higher volume of business, increased sales incentives and commissions resulting from the higher sales levels, increased management incentives associated with improved earnings and higher outside contractor costs associated with ongoing internal management information systems development efforts. Of the total increase in SG&A costs, $1.5 million was related to the incremental costs incurred by the Company to market and support die bonder products added through the July 1994 acquisition of AT. Net R&D costs increased to $30.9 million for the fiscal year ended September 30, 1995, compared to $21.3 million for the same period last year. Of the $9.6 million increase in fiscal 1995, $2.0 million resulted from incremental expenditures related to development of the Company's next generation of die bonders and enhancements to die bonder products added through the AT acquisition. The remainder consisted primarily of personnel related costs, outside contractor costs and prototype materials related to new product development. Gross R&D expenses were partially offset by funding received from customers and governmental subsidies totaling $2.8 million in fiscal 1995 and $2.0 million in fiscal 1994. The Company continued to invest heavily in the development of the 8000 Series wire bonders and in enhancements of existing products, including the Model 1488 turbo ball bonder and Model 1474fp wedge bonder to enable them to handle higher lead-count devices with finer pitch requirements at faster bonding speeds than the earlier Models. In addition, the Company continued to invest in new technologies which may eventually lead to improved or alternate semiconductor assembly technologies. Operating income totaled $55.4 million for fiscal 1995 compared to $13.9 million for the same period in fiscal 1994. This improvement resulted principally from the higher revenue levels and improved gross profit margins, offset in part by the increased SG&A and R&D expenses noted above. The majority of the increase in operating profit was realized in the United States, where the Company maintains its principal manufacturing operations, and in Hong Kong where the Company's Asia/Pacific sales activities are centered. During fiscal 1995, all of the Company's remaining 8% Convertible Subordinated Debentures were converted into Common Stock or redeemed. As a result, interest expense during fiscal 1995 was lower than the amount reported in fiscal 1994. The increase in the effective tax rate to 23% in fiscal 1995 compared to the fiscal 1994 rate of 20% was due primarily to utilization of remaining net operating loss carryforwards in fiscal 1994, utilization in the United States of R&D tax credits not previously used due to the effects of net operating losses, and to the amount and geographic distribution of taxable income in fiscal 1995. COMPANY OUTLOOK Certain of the information set forth below and elsewhere in this report contains forward looking statements that are subject to certain risks and uncertainties that could cause actual results to materially differ from those set forth in the forward looking statements. These risks and uncertainties include, but are not limited to the following: the risk of volatile demand in the semiconductor industry; the deferral or possible cancellation of existing customer orders; the timing, development, introduction and acceptance of new products and enhancements to existing products; 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; and international political and other developments which could impact foreign operations. While semiconductor consumption continues to grow, the Company's equipment segment was adversely affected in fiscal 1996 by industry wide overinvestment in assembly capacity in fiscal 1995 and early fiscal 1996. During the third and fourth quarters of fiscal 1996, the rate of new customer orders booked into backlog was lower than each of the previous four quarters. This declining order rate resulted in the equipment segment's sharply lower net sales during the third and fourth quarters of fiscal 1996, led to the Company's August 1996 resizing efforts which reduced anticipated annualized operating costs by approximately $25 million, and contributed significantly to the $12.7 million net loss in the fourth quarter of fiscal 1996. Subsequent to the fiscal 1996 year end, the order rate has improved and the Company currently anticipates significant improvements in revenues and operating results in the first half of fiscal 1997 as compared to the last half of fiscal 1996. Moreover, the Company continues to believe that long- term growth prospects for the semiconductor industry and for the Company's products remain positive. The Company is in the process of developing a new generation of wire bonder, the 8000 family, which is based on an entirely new platform and requires the development of new software and many subassemblies not part of the Company's current wire bonders. The first prequalification Model 8020 ball bonder (the first production model of the 8000 family) was shipped to a customer in March 1996 and is presently being field tested. The Company currently expects that the product will be released in the second half of calendar 1997. Development and technical risks exist in all of the Company's R&D projects and have the potential to delay the introduction of new products. No assurance can be given that the introduction of the Model 8020 will not be further delayed due to technical or other difficulties. The Company's inability to complete the development of and introduce the Model 8020 or other 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. The Company's planned transition to the Model 8020 platform also involves numerous other risks, including the possibility that customers will defer purchases of the current model of gold ball wire bonders in anticipation of the availability of the Model 8020, or that the Model 8020 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 develop and manufacture new products, including the Model 8020, 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. LIQUIDITY AND CAPITAL RESOURCES During the past three fiscal years, the Company has financed its operations principally through cash flows from operating activities. Cash generated by operating activities totaled $38.9 million during fiscal 1996 compared to $22.0 million during fiscal 1995. Cash and total investments increased to $58.9 million at September 30, 1996 from $40.9 million at September 30, 1995. At September 30, 1996, working capital increased to $113.8 million compared to $103.8 million at September 30, 1995. The accounts receivable balance decreased by $30.0 million during fiscal 1996 reflecting the significantly reduced sales volumes in the latter half of fiscal 1996 and collection of a $15.0 million note receivable outstanding at September 30, 1995. Approximately $13.0 million of this reduction resulted from lower sales levels by the Company's Hong Kong subsidiary. Partially offsetting this reduction was an increase of $9.0 million due to the AFW acquisition. Gross inventory increased $7.7 million at September 30, 1996. Of this increase, $1.9 million resulted from the AFW acquisition. The remainder of the increase was due to increased levels of raw materials and finished goods on hand as customers either delayed or canceled orders. This increase was partially offset by additional inventory reserves, of which $2.8 million was recorded in the fourth quarter of fiscal 1996, as a result of the significant decline in customer orders for Company products. Trade accounts payable and accrued expenses at September 30, 1996 decreased by $7.7 million to $41.4 million compared to the balance at the end of fiscal 1995. The decrease in trade accounts payable of $10.1 million is directly attributable to the decreased level of inventory purchases during the latter half of fiscal 1996. The decrease in accrued expenses at September 30, 1996 primarily relates to reductions in accrued expenses related to the AFW acquisition. As described in Notes 2 and 6 to the Company's consolidated financial statements, the Company acquired AFW on October 2, 1995. Of the total purchase price, $50.0 million was financed by borrowings under the Company's bank credit facility. In October 1996, the Company acquired Semitec, Inc. ("Semitec") for approximately $4.9 million, including transaction costs. Of the total purchase price, $4.7 million must be paid to the former Semitec shareholders in cash or in registered shares of Company common stock by June 1997. During fiscal 1996, the Company invested approximately $18.0 million in property and equipment, primarily to expand Company facilities, upgrade equipment used in the Company's manufacturing activities, including tooling used in the manufacturing process, and for R&D test equipment suitable for the Company's new products. The Company presently expects fiscal 1997 capital spending will not exceed $15 million. The principal capital projects planned for fiscal 1997 include completion of the new Micro-Swiss manufacturing facility in Yokneam, Israel, relocation of AFW's Singapore based manufacturing and administrative facilities into a single new leased facility and the purchase of new tooling equipment necessary to commence manufacture of the 8000 series of machines. Relocations of the Micro-Swiss operations in the first quarter of fiscal 1997 and the AFW Singapore operations in late fiscal 1997 are not expected to have a material adverse effect on the Company's results of operations, cash flows or liquidity. Through September 30, 1996, the Company contributed $2.6 million in capital to the newly formed FCT. The Company expects its fiscal 1997 capital contributions to the joint venture will not exceed $17 million. In April 1996, the Company renegotiated the terms of its bank credit facility resulting in a Restated Loan Agreement providing for a $10.0 million revolving credit facility, expiring in February 1997 and a $50.0 million revolving credit facility expiring in March 2001. As of September 30, 1996, the $50.0 million borrowed under the revolving credit facility was classified as long-term debt as the Company presently does not expect any principal payments under this loan during fiscal 1997. There were no borrowings under the $10.0 million credit line during fiscal 1996. 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, additional U.S. Federal income tax expense could be required to be recognized. 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. The Company believes that anticipated cash flows from operations, its working capital and amounts available under its revolving credit facility will be sufficient to meet the Company's liquidity and capital requirements for at least the next fiscal year, including any debt service requirements under its bank credit facility. The Company may, however, seek equity or debt financing to provide capital for corporate purposes and/or to fund strategic business opportunities, including possible acquisitions, joint ventures, alliances or other business arrangements which could require substantial capital outlays. The timing and amount of such potential capital requirements cannot be determined at this time and will depend on a number of factors, including demand for the Company's products, semiconductor and semiconductor capital equipment industry conditions and competitive factors and the nature and size of strategic business opportunities which the Company may elect to pursue. 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) are filed as part of the Annual Report on Form 10-K. REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders Kulicke and Soffa Industries, Inc. In our opinion, based upon our audits and the report of other auditors, 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, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 1996, 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 did not audit the consolidated financial statements of Kulicke and Soffa (Israel) Ltd., a wholly-owned subsidiary, for the year ended September 30, 1994 which consolidated statements reflect, before adjustments to eliminate intercompany activity, net sales of $27,864,000 for the year ended September 30, 1994. Those statements were audited by other auditors whose report thereon has been furnished to us, and our opinion expressed herein, insofar as it relates to the amounts included for Kulicke and Soffa (Israel) Ltd., is based solely on the report of the other auditors. 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 and the report of other auditors provide a reasonable basis for the opinion expressed above. /s/ PRICE WATERHOUSE LLP Philadelphia, Pennsylvania November 15, 1996 REPORT OF INDEPENDENT ACCOUNTANTS To the Directors and Shareholders of Kulicke and Soffa (Israel) Ltd. We have audited the consolidated statements of operations and retained earnings and of cash flows of Kulicke and Soffa Industries (Israel) Ltd. and subsidiary for the year ended September 30, 1994, all expressed in U.S. dollars. 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 audit in accordance with generally accepted auditing standards in Israel and the United States. Those standards 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements (not separately presented herein) expressed in U.S. dollars, present fairly, in all material respects, the consolidated results of operations and retained earnings and of cash flows of Kulicke and Soffa (Israel) Ltd. and subsidiary for the year ended September 30, 1994, in conformity with generally accepted accounting principles in the United States. /s/ LUBOSHITZ, KASIERER & CO. Certified Public Accountants (Israel) Haifa, Israel November 3, 1994 KULICKE AND SOFFA INDUSTRIES, INC. CONSOLIDATED BALANCE SHEET (in thousands) September 30, ---------------- 1996 1995 ------- ------- ASSETS CURRENT ASSETS: Cash and cash equivalents (including time deposits: 1996 - $2,925; 1995 - $7,877) $ 45,344 $ 28,624 Short-term investments 13,078 9,590 Accounts and notes receivable (less allowance for doubtful accounts: 1996 - $1,227; 1995 - $1,094) 47,456 77,427 Inventories, net 44,519 40,850 Prepaid expenses and other current assets 4,277 3,534 Refundable income taxes 6,212 -- Deferred income taxes 1,765 76 ------- ------- TOTAL CURRENT ASSETS 162,651 160,101 Property, plant and equipment, net 41,143 25,519 Intangible assets, primarily goodwill, net 42,049 1,183 Long-term investments 449 2,732 Investment in joint venture 1,556 -- Other assets 1,706 1,494 ------- ------- TOTAL ASSETS $249,554 $191,029 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt $ 491 $ 60 Accounts payable 23,032 33,145 Accrued expenses 18,389 16,014 Income taxes payable 6,935 6,973 ------- ------- TOTAL CURRENT LIABILITIES 48,847 56,192 Long-term debt 50,712 156 Other liabilities 2,506 1,034 ------- ------- TOTAL LIABILITIES 102,065 57,382 ------- ------- Commitments and contingencies (Notes 5, 6, 8 and 12) -- -- 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: 1996 - 19,433; 1995 - 19,310 48,733 45,757 Retained earnings 101,085 89,238 Cumulative translation adjustment (2,329) (1,348) ------- ------- TOTAL SHAREHOLDERS' EQUITY 147,489 133,647 ------- ------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $249,554 $191,029 ======= ======= 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, ------------------------------ 1996 1995 1994 -------- -------- -------- Net sales $381,176 $304,509 $173,302 Cost of goods sold 239,491 167,457 101,334 ------- ------- ------- Gross profit 141,685 137,052 71,968 Selling, general and administrative 71,863 50,728 36,752 Research and development, net 52,404 30,884 21,286 ------- ------- ------- Income from operations 17,418 55,440 13,930 Interest income 3,124 1,580 1,264 Interest expense (3,288) (1,407) (2,171) Equity in loss of joint venture (994) -- -- Other expense (630) -- -- ------- ------- ------- Income before income taxes 15,630 55,613 13,023 Income tax expense 3,783 12,791 2,605 ------- ------- ------- Net income $ 11,847 $ 42,822 $ 10,418 ======= ======= ======= Net income per share: Primary $0.60 $2.38 $0.63 Fully diluted $0.60 $2.22 $0.63 Weighted average number of shares outstanding: Primary 19,773 18,028 16,665 Fully diluted 19,773 19,693 16,665 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, ------------------------------- 1996 1995 1994 --------- --------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 11,847 $ 42,822 $ 10,418 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 9,658 4,947 3,940 Provision for doubtful accounts 178 826 103 Deferred taxes on income (2,125) (718) 234 Provision for inventory reserves 4,547 2,758 677 Equity in loss of joint venture 994 -- -- Changes in components of working capital, excluding effects of business acquisitions: Decrease (increase) in accounts receivable 38,959 (37,995) (11,023) Decrease (increase) in inventories (6,358) (16,390) 3,258 Decrease (increase) in prepaid expenses other current assets (483) (1,107) 677 Increase (decrease) in accounts payable and accrued expenses (11,632) 20,903 2,523 Increase (decrease) in net taxes payable (8,076) 5,158 1,287 Other, net 1,364 844 676 ------- ------- ------- Net cash provided by operating activities 38,873 22,048 12,770 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of businesses, including transaction costs, net of cash acquired (43,020) -- (3,296) Purchases of investments classified as available-for-sale (28,512) (12,612) (25,891) Proceeds from sales or maturities of investments: Classified as available-for-sale 26,802 16,631 22,825 Classified as held-to-maturity 505 2,082 -- Purchases of plant and equipment (18,028) (10,777) (6,202) Proceeds from sale of property and equipment 781 1,067 123 Investment in joint venture (2,550) -- -- ------- ------- ------- Net cash used by investing activities (64,022) (3,609) (12,441) ------- ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments on borrowings including capitalized leases (8,537) (60) (60) Proceeds from borrowings 50,000 -- -- Proceeds from issuances of common stock 394 1,484 1,084 ------- ------- ------- Net cash provided by financing activities 41,857 1,424 1,024 ------- ------- ------- EFFECT OF EXCHANGE RATE CHANGES ON CASH 12 7 (12) ------- ------- ------- CHANGE IN CASH AND CASH EQUIVALENTS 16,720 19,870 1,341 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 28,624 8,754 7,413 ------- ------- ------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 45,344 $ 28,624 $ 8,754 ======= ======= ======== The accompanying notes are an integral part of these consolidated financial statements. See Note 6 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, 1993 16,244 $16,336 $35,998 $ (853) $ 51,481 Purchases under the employee stock purchase plan 79 369 -- -- 369 Employer contribution to the 401(k) plan 16 112 -- -- 112 Exercise of stock options 144 603 -- -- 603 Tax benefit from exercise of stock options -- 245 -- -- 245 Shares issued upon conversion of subordinated debt 16 174 -- -- 174 Translation adjustment -- -- -- 12 12 Unrealized loss on investments -- -- -- -- $ (180) (180) Net income -- -- 10,418 -- -- 10,418 ------ ------ ------ ------ ------ -------- 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 contribution 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 ====== ====== ======= ====== ====== ======= 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. 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 in "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, 1996 and 1995 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, 1996 and 1995 include notes receivable of $1,120 and $15,164, 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 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. In fiscal 1994, sales to Anam, Intel and Motorola accounted for 14.2%, 11.5% and 10.8% 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 loss of or reduction 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 for certain inventories and average cost for others) 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). The Company has adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," effective October 1, 1994. 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 - In fiscal 1995, the Company adopted SFAS No. 112, "Employers' Accounting for Postemployment Benefits." This Statement requires that post employment benefits be recognized over the employees' periods of service if such benefits vest ratably, or upon termination in certain instances. Adoption of this new statement did not materially impact the Company's financial position or results of operations. Foreign Currency Translation - The U.S. dollar is the functional currency for all subsidiaries except the Company's operations in Japan, Switzerland and Singapore. 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 $57, ($281) and $267 for the years ended September 30, 1996, 1995 and 1994, respectively. Revenue Recognition - Sales are recorded upon shipment of products or performance of services. Expenses for estimated product returns and warranty 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 1996, 1995 and 1994, reductions to research and development expense related to such funding totaled $2,473, $2,843 and $2,022, 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 - Primary earnings per share are computed using the weighted average number of common shares outstanding. Recognition is given to the assumed exercise of stock options, if dilutive. Fully diluted earnings per share are 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. All share related data reflects the effect of the Company's July 1995 two-for-one stock split. 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 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 October 1995, SFAS No. 123, "Accounting for Stock-based Compensation" ("SFAS 123"), was issued. Commencing with the Company's 1997 fiscal year, this statement will require the fair value of stock options and other stock-based compensation issued to employees to either be recognized as compensation expense in the income statement, or be disclosed as a pro forma effect on net income and earnings per share in the footnotes to the Company's financial statements. The Company expects to adopt SFAS 123 on a disclosure basis only. Accordingly, implementation of SFAS 123 is not expected to impact the Company's consolidated balance sheet or income statement. Reclassifications - Certain amounts in the Company's prior year financial statements have been reclassified to conform to their presentation in the current fiscal year. NOTE 2: ACQUISITIONS In July 1994, the Company acquired the business and certain assets of Assembly Technologies, an operating division of General Signal Corporation ("AT"), for a cash purchase price approximating $3,296, including transaction-related costs. AT manufactured and sold semiconductor assembly equipment, including automatic die attach machines, automatic dicing saws and related spare parts. The transaction was accounted for as a purchase. Accordingly, the acquired assets and results of operations of the AT business are included in the Company's consolidated financial statements from the date of the acquisition. The excess of the purchase price and transaction-related costs over the fair value of net assets acquired of $1,287 was charged to goodwill and is being amortized over a fifteen year period. 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 are 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 6). The AFW purchase price, including transaction related costs, totaled $54.7 million, and was allocated to the assets acquired and liabilities assumed based upon their estimated fair market value, as follows: Cash and cash equivalents $ 10,944 Accounts receivable, net 9,166 Inventories 1,858 Property, plant and equipment, net 3,648 Intangible assets, primarily goodwill 43,099 Other assets 284 Short-term debt (8,000) Accounts payable (1,918) Accrued expenses (3,219) Income taxes payable (704) Deferred income taxes (436) ------- Total purchase price $54,722 ====== The excess of the total purchase price over the estimated fair value of acquired tangible net assets was $43.1 million, consisting primarily of goodwill and a favorable operating lease, both of which are being amortized over a twenty-year period. Revenues of AFW include a fabrication charge per thousand feet of wire and the value of precious metals (primarily gold) which is sold to the customer. Gross revenues could vary significantly based on market fluctuations in the value of gold. To minimize financial exposure to gold price fluctuations, the Company obtains gold from its gold supplier on a consignment basis during the fabrication process and purchases the gold upon shipment and sale of the finished product to the customer. 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 NOTE 3: INVESTMENTS At September 30, 1996 and 1995, no short-term investments were classified as trading. Investments, excluding cash equivalents, consisted of the following at September 30, 1996 and 1995: September 30, 1996 September 30, 1995 ------------------------ ----------------------- 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 $5,455 $ -- $5,455 Adjustable rate notes 4,808 -- 4,808 2,122 -- 2,122 ------ ---- ------ ----- --- ----- Short-term investments classified as available for sale $10,777 $ -- $10,777 $7,577 $ -- $7,577 ====== ==== ====== ===== === ===== Held-to-maturity: Corporate bonds with weighted average maturity less than three years $ 2,690 $ (60) $ 2,750 $4,448 $(42) $4,490 U.S. Treasury notes with maturity less than three years -- -- -- 256 1 255 ------ --- ----- ----- --- ---- $ 2,690 $ (60) 2,750 $4,704 $(41) 4,745 ====== ==== ===== === Short-term investments classified as held-to maturity 2,301 2,013 Held-to-maturity investments maturing after one year, within five years $ 449 $2,732 ====== ===== NOTE 4: INVENTORIES September 30, ----------------- 1996 1995 ------- ------- Raw materials and supplies $ 29,985 $22,190 Work in process 9,862 15,740 Finished goods 16,427 10,673 ------- ------ 56,274 48,603 Inventory reserves (11,755) (7,753) ------- ------ $ 44,519 $40,850 ======= ====== NOTE 5: PROPERTY, PLANT AND EQUIPMENT September 30, ---------------- 1996 1995 ------- ------- Land $ 1,442 $ 1,026 Buildings and building improvements 16,457 14,879 Machinery and equipment 56,524 38,705 Leasehold improvements 2,767 2,137 ------- ------ 77,190 56,747 Accumulated depreciation (36,047) (31,228) ------- ------ $ 41,143 $25,519 ======= ====== The Company has obligations under various operating leases, primarily for manufacturing and office facilities, which expire periodically through 2107. 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: $3,544 in 1997; $2,627 in 1998; $1,316 in 1999; $731 in 2000 and $6,321 thereafter. Rent expense for fiscal 1996, 1995 and 1994 was $2,540, $2,355 and $1,663, respectively. NOTE 6: DEBT OBLIGATIONS Debt obligations include the following: September 30, ----------------- 1996 1995 ------- ------ United States: Revolving credit facility $50,000 $ -- Capital lease obligations 1,203 -- Asia: Term loan -- 216 ------ ----- Total debt obligations 51,203 216 Less - current portion 491 60 ------ ----- Debt due after one year $50,712 $ 156 ====== ===== The Company borrowed $15.0 million under its bank credit facility on October 2, 1995 to fund the cash portion of the AFW purchase price and issued promissory notes totaling $34.4 million 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 $35.0 million available under a term credit facility. Borrowings under the $50.0 million 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 $10.0 million revolving credit facility expiring February 28, 1997, and a $50.0 million revolving credit facility expiring March 30, 2001. The $10.0 million revolving loan bears interest at the prime rate less 1/4%. The $50.0 million 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 .6%, depending on maintenance of certain financial covenants). In May 1996 the Company elected the 180 day LIBOR rate plus forty basis points resulting in an effective rate of 6.025% as of September 30, 1996. 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 $50.0 million. 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 1996. The term loan of the Asian subsidiary was repaid in March 1996. Interest was calculated at the Hong Kong prime rate plus 1/2% (9.5% at September 30, 1995). 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. All but $11 of such Debentures were converted into the Company's common stock by July 10, 1995. The remaining $11 in Debentures were redeemed. Maturities of long-term debt subsequent to September 30, 1996, are $491 in 1997, $528 in 1998, $184 in 1999, $0 in 2000 and $50.0 million in 2001. Interest paid on the Company's debt obligations totaled $3,288, $1,407 and $2,171 in fiscal 1996, 1995 and 1994, respectively. NOTE 7: SHAREHOLDERS' EQUITY 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, 1996: September 30, --------------------------------------------------- 1996 1995 1994 --------------- -------------- -------------- Average Average Average Exercise Exercise Exercise Options Price Options Price Options Price ------- ------- ------- ------- ------- ------- (Share amounts in thousands) Options outstanding at beginning of period 618 $ 6.93 472 $5.30 538 $ 3.74 Granted or reissued 259 32.84 350 8.06 105 11.46 Exercised (37) 6.24 (130) 4.21 (118) 4.17 Terminated or canceled (25) 10.60 (74) 6.66 (53) 4.07 ------- ------- ------- Options outstanding at end of period 815 $15.08 618 $6.93 472 $ 5.30 ======= ======= ======= Options exercisable at end of period 223 $ 6.47 147 $4.52 200 $ 4.10 ======= ======= ======= 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 136,000 shares at an average exercise price of $10.73 were outstanding at September 30, 1996. Options to purchase 43,000 shares are currently exercisable. Options to purchase 2,000 shares granted under the Director Plan were exercised during 1996. At September 30, 1996, 2,578,440 shares of the Company's Common Stock were reserved for issuance in connection with the stock option plans. 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 8: 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, ------------------------------- 1996 1995 1994 ------- ------- ------- Service cost-benefits earned during the period $ 151 $ 563 $ 564 Interest cost on projected benefit obligations 760 797 670 Recognition of prior unrecognized loss 1,050 -- -- Recognition of net curtailment gain (1,050) -- -- Actual return on plan assets (570) (859) (153) Net amortization and deferral (250) (226) (878) Recognition of past service costs 75 -- -- ------- ------- ------- Net pension expense of U.S. plan $ 166 $ 275 $ 203 ======= ======= ======= Weighted average discount rate 7.50% 7.75% 7.75% Rate of increase in future compensation * 4.00% 4.00% Expected long-term return on assets 7.00% 9.00% 9.00% * Not applicable due to the December 31, 1995 benefit freeze. The funded status of the U.S. plan follows: September 30, ------------------ 1996 1995 ------ ------ Accumulated benefit obligation, including vested benefits of $10,002 and $9,040, respectively $10,340 $ 9,347 ====== ====== Projected benefit obligation for service rendered to date $10,340 $11,090 Plan assets at fair value, primarily mutual fund investments and U.S. Treasury bills 9,770 9,540 ------ ------ Excess of projected benefit obligation over plan assets (570) (1,550) Unrecognized net implementation asset -- (126) Unrecognized net loss 1,025 2,215 Unrecognized prior service cost -- 81 ------ ------ Prepaid pension cost $ 455 $ 620 ====== ====== 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 $629, $618 and $465 in fiscal 1996, 1995 and 1994, 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 $1,580, $118 and $112 in fiscal 1996, 1995 and 1994, 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 9: INCOME TAXES Income before income taxes consisted of the following: Fiscal Year Ended September 30, ------------------------------- 1996 1995 1994 ------- ------- ------- United States operations $ (361) $ 31,249 $ 3,213 Foreign operations 15,991 24,364 9,810 ------ ------- ------- $15,630 $ 55,613 $ 13,023 ====== ======= ======= The provision for income taxes included the following: Fiscal Year Ended September 30, ------------------------------- 1996 1995 1994 ------- ------- -------- Current: Federal $ 2,523 $ 9,470 $ 1,353 State 25 600 100 Foreign 3,360 3,439 918 Deferred: Federal (2,625) (898) 113 Foreign 500 180 121 ------ ------- -------- $ 3,783 $ 12,791 $ 2,605 ====== ======= ======= 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, ------------------------------- 1996 1995 1994 ------ ------- ------- Computed income tax expense based on U.S. statutory rate $ 5,471 $ 19,465 $ 4,558 Effect of earnings of foreign subsidiaries subject to different tax rates (1,017) (811) (1,021) Benefits from Israeli Approved Enterprise Zones (1,660) (1,470) (822) Benefits of net operating loss and tax credit carryforwards and change in valuation allowance -- (3,493) (532) Non-deductible goodwill amortization 735 -- -- Provision for repatriation of certain foreign earnings, including foreign withholding taxes 500 180 121 Effect of revisions of prior year's estimated taxes 562 (505) -- Benefits of Foreign Sales Corporation (1,027) (533) -- Other, net 219 (42) 301 ------ ------- ------- $ 3,783 $ 12,791 $ 2,605 ====== ======= ======= Undistributed earnings of certain foreign subsidiaries for which taxes have not been provided approximate $58,950 at September 30, 1996. Such undistributed earnings are intended to be indefinitely reinvested in foreign operations. The Company's Japanese subsidiary has approximately $2,220 in net operating loss ("NOL") carryforwards expiring through fiscal 1998, which may be used to offset future taxable income in Japan. Deferred 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, ---------------- 1996 1995 ------- ------ Repatriation of foreign earnings, including foreign withholding taxes $ 3,711 $3,211 Depreciable assets 1,870 1,329 Prepaid expenses and other 226 405 ------ ----- Total deferred tax liability 5,807 4,945 ------ ----- Inventory reserves 2,755 1,619 Accruals and other reserves 2,808 1,829 Acquired domestic NOL carryforwards 2,512 -- Foreign NOL carryforwards 1,519 607 Domestic tax credit carryforward 1,084 -- Deferred intercompany profit 2,009 1,573 ------ ----- 12,687 5,628 Valuation allowance (5,115) (607) ------ ----- Total deferred tax asset 7,572 5,021 ------ ----- Net deferred tax asset $ 1,765 $ 76 ====== ===== Realization of deferred tax assets associated with the NOL and tax credit carryforwards is dependent upon generating sufficient taxable income prior to their expiration. The Company believes that there is a risk that certain of these NOL and credit carryforwards may expire unused and, accordingly, has established a valuation allowance against them. The valuation allowance at September 30, 1996 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; domestic tax credit carryforwards which expire in varying amounts through the year 2011; and foreign net operating loss carryforwards which are scheduled to expire through the 1998 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 NOL carryforwards are realized, such benefits would reduce the recorded amount of goodwill. The Company paid income taxes of $11,699, $8,109 and $1,019 in fiscal 1996, 1995 and 1994, respectively. NOTE 10 - 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 $93,318, $78,435 and $48,082 for the fiscal years ended September 30, 1996, 1995 and 1994, respectively. Export sales to Korean based customers accounted for approximately 11.5% of total sales during fiscal 1996. 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 79%, 78% and 74% of consolidated sales during the fiscal years ended September 30, 1996, 1995 and 1994, respectively. During fiscal 1996, total shipments (including export sales) to customers in Korea, Taiwan and Malaysia represented approximately 16%, 14% and 14%, respectively, of consolidated sales. Additional information by geographic area for the fiscal years ended September 30, 1996, 1995 and 1994 is as follows: Fiscal Year Ended September 30, ------------------------------- 1996 1995 1994 ------- ------- ------ Sales to unaffiliated customers: United States $ 173,110 $ 146,577 $ 93,643 Hong Kong 138,859 143,429 71,985 Israel 1,312 773 858 Singapore 48,600 572 94 Rest of world 19,295 13,158 6,722 -------- -------- -------- Consolidated $ 381,176 $ 304,509 $ 173,302 ======== ======== ======== Intercompany sales: United States $ 167,933 $ 158,543 $ 81,119 Hong Kong 327 51 219 Israel 51,603 38,646 27,006 Singapore 76 -- -- Rest of world 392 24 304 Adjustments and eliminations (220,331) (197,264) (108,648) -------- -------- -------- Consolidated $ -- $ -- $ -- ======== ======== ======== Total net sales: United States $ 341,043 $ 305,120 $ 174,762 Hong Kong 139,186 143,480 72,204 Israel 52,915 39,419 27,864 Singapore 48,676 572 94 Rest of world 19,687 13,182 7,026 Adjustments and eliminations (220,331) (197,264) (108,648) -------- -------- -------- Consolidated $ 381,176 $ 304,509 $ 173,302 ======== ======== ======== Operating income: United States $ 7,704 $ 37,530 $ 8,698 Hong Kong 11,672 14,841 5,784 Israel 10,531 9,004 3,332 Singapore (789) (261) (85) Rest of world (1,048) 3,125 775 Adjustments and eliminations (3,086) (2,345) 4 -------- -------- -------- Consolidated operating income 24,984 61,894 18,508 General corporate expenses (7,566) (6,454) (4,578) Interest income expenses, net (164) 173 (907) Other expenses (1,624) -- -- -------- -------- -------- Income before taxes $ 15,630 $ 55,613 $ 13,023 ======== ======== ======== Identifiable assets: United States $ 94,842 $ 95,989 $ 63,991 Hong Kong 21,855 42,653 22,108 Israel 37,059 15,289 9,652 Singapore 32,467 238 120 Rest of world 10,489 11,991 6,785 Adjustments and eliminations (7,585) (4,499) (2,154) -------- -------- -------- 189,127 161,661 100,502 Corporate assets 60,427 29,368 20,696 -------- -------- -------- $ 249,554 $ 191,029 $ 121,198 ======== ======== ======== 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 and investments. Prior to its October 2, 1995 acquisition of AFW, the Company operated primarily in one industry segment, the manufacture and sale of production equipment to the semiconductor industry. As a result of the AFW acquisition, the portion of the Company's operations attributable to the packaging materials segment exceeded 10% of total revenues. The packaging materials products have different manufacturing processes, distribution channels and a less volatile revenue pattern than the Company's capital equipment. Accordingly, in fiscal 1996 the Company commenced reporting its operations in two business segments, its equipment segment (sales of capital equipment, related spare parts and services) and its packaging materials segment (which includes the Micro-Swiss and AFW operations). Operating results by business segment for the fiscal years ended September ,30, 1996, 1995 and 1994 were as follows: 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 Packaging Corporate Equipment Materials and Segment Segment Eliminations Total --------- --------- ------------ -------- September 30, 1994: Fiscal Year Ended - ------------------- Net sales $ 159,703 $ 13,599 $173,302 Cost of goods sold 92,725 8,609 101,334 -------- -------- ------- Gross profit 66,978 4,990 71,968 Operating expenses 52,122 1,338 $ 4,578 58,038 -------- -------- ---------- ------- Operating profit (loss) $ 14,856 $ 3,652 $ (4,578) $ 13,930 ======== ======== ========== ======= Identifiable assets $ 98,329 $ 2,173 $ 20,696 $121,198 Capital expenditures 5,267 935 -- 6,202 Depreciation expense 3,467 290 -- 3,757 Intersegment sales are immaterial. Corporate assets principally comprised cash and investments. Capital expenditures and depreciation expense for the corporate segment were immaterial. NOTE 11: OTHER FINANCIAL DATA In February 1996, the Company entered into a joint venture agreement with Delco Electronics Corporation providing for the formation and management of Flip Chip Technologies, L.L.C. ("FCT" or "the Joint Venture"). FCT was formed to provide wafer bumping services. The Company accounts for its investment in the joint venture using the equity method. As of September 1996, the Company contributed $2.6 million to FCT, and recognized its proportionate share of the Joint Venture's operating loss. Accrued expenses at September 30, 1996 and 1995 include $8,990 and $7,242, respectively, for accrued wages, incentives and vacations. Maintenance and repairs expense totaled $5,185, $3,737 and $3,027 for fiscal 1996, 1995 and 1994, respectively. Warranty and retrofit expense was $2,326, $5,085 and $1,354 for fiscal 1996, 1995 and 1994, respectively. NOTE 12: CONTINGENCIES The Company is the subject of various claims which arise in the normal course of business. In addition, certain of the Company's customers have received notices of infringement from two separate parties, Harold S. Hemstreet and Jerome H. Lemelson, alleging that equipment supplied by the Company, and processes performed by such equipment, infringe on patents held by them. Under and subject to the terms of its agreements with customers, the Company could be required to reimburse customers for certain damages resulting from these matters and to defend its customers in patent infringement suits. Certain customers have requested that the Company defend and indemnify them against the claims of Mr. Hemstreet or Mr. Lemelson, but, to date, no customer who has settled with either Mr. Hemstreet or Mr. Lemelson has sought contribution from the Company. A number of the Company's customers have actually been sued by Mr. Lemelson, but no customers were sued by Mr. Hemstreet prior to expiration of the time period in which he could bring suit. The Company believes, based in part on opinions from the Company's outside patent counsel, that no equipment marketed by the Company, and no process performed by such equipment, infringe on the patents in question. The Company does not believe that the ultimate resolution of the matters described above will have a material adverse effect on its business, financial condition, operating results or liquidity. NOTE 13: SELECTED QUARTERLY FINANCIAL DATA (unaudited) Financial information pertaining to quarterly results of operations follows: 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 ======= ======= ====== ======= ======= Year ended First Second Third Fourth September 30, 1995: Quarter Quarter Quarter Quarter Total - ------------------- ------- ------- ------- ------- -------- Net sales $ 51,459 $ 64,785 $87,296 $100,969 $304,509 Gross profit 22,045 29,157 39,840 46,010 137,052 Income from operations (2) 5,230 10,943 18,371 20,896 55,440 Income before income taxes $ 5,033 $ 10,720 $18,464 $ 21,396 $ 55,613 Income tax expense 1,309 2,466 4,431 4,585 12,791 ------- ------- ------ ------- ------- Net income $ 3,724 $ 8,254 $14,033 $ 16,811 $ 42,822 ======= ======= ====== ======= ======= Net income per share $ 0.21 $ 0.44 $ 0.72 $ 0.85 $ 2.22 ======= ======= ====== ======= ======= (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 1997 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 1997 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 1997 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 1997 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 Report of Independent Accountants 21 Consolidated Balance Sheet at September 30, 1996 and 1995 22 Consolidated Income Statement for the fiscal years ended September 30, 1996, 1995 and 1994 23 Consolidated Statement of Cash Flows for the fiscal years ended September 30, 1996, 1995 and 1994 24 Consolidated Statement of Changes in Shareholders' Equity for the fiscal years ended September 30, 1996, 1995 and 1994 25 Notes to Consolidated Financial Statements 26 - 39 (2) Financial Statement Schedules: Report of Other Independent Accountants 44 VIII - Valuation and Qualifying Accounts 45 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, CSI and Certain Stockholders of CSI, 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 CSI, 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 1995 Executive Incentive Compensation Plan, filed as Exhibit 10(ix) to the Company's Annual Report on Form 10-K for the year ended September 30, 1994, is incorporated herein by reference.* 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.* 21 Subsidiaries of the Company. 23(i) Consent of Price Waterhouse LLP (Independent Accountants). 23(ii) Consent of Luboshitz, Kasierer & Co. (Independent Accountants). 27 Financial Data Schedule. * Indicates a Management Contract or Compensatory Plan. (b) Reports on Form 8-K: On August 21, 1996, the Company filed a Form 8-K reporting certain actions taken in August 1996 in response to significant reduction in customer orders. 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, 1996. 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. REPORT OF INDEPENDENT ACCOUNTANTS Our audits of the consolidated financial statements of Kulicke and Soffa (Israel) Ltd. and its subsidiary referred to in our report dated November 3, 1994 appearing on Page 21 of this Annual Report on Form 10-K also included an audit of Financial Statement Schedules of Kulicke and Soffa (Israel) Ltd. and its subsidiary (not presented separately herein). In our opinion, these Financial Statement Schedules of Kulicke and Soffa (Israel) Ltd. and its subsidiary present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. /s/ LUBOSHITZ, KASIERER & CO. Certified Public Accountants (Israel) Haifa, Israel November 3, 1994 KULICKE AND SOFFA INDUSTRIES, INC. Schedule VIII-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, 1994: Allowance for doubtful accounts $ 476 $ 103 $ -- $ 157(1) $ 422 ======== ========= ===== ======= ====== Inventory reserve $ 6,218 $ 2,092(2) $ -- $ 1,674(3) $ 6,636 ======== ========= ===== ====== ====== Valuation allowance for deferred taxes $ 4,956 $ -- $ -- $ 1,102(4) $ 3,854 ======= ========= ===== ====== ====== Year ended September 30, 1995: Allowance for doubtful accounts $ 422 $ 826 $ -- $ 154(1) $ 1,094 ======= ========= ===== ===== ====== Inventory reserve $ 6,636 $ 3,075(5) $ -- $ 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(6) $ -- $ 2,056(3) $11,755 ====== ========= ===== ====== ====== Valuation allowance for deferred taxes $ 607 $ 1,996 $2,512(7)$ -- $ 5,115 ====== ========= ===== ===== ====== (1) Bad debts written off. (2) Amount includes $677 provision for excess and obsolete inventory. The remainder primarily reflects revaluation of inventory pursuant to changed standard costs. (3) Disposal of excess and obsolete equipment and sales of demonstration and evaluation inventory. (4) Net change in valuation allowance for deferred tax assets during fiscal 1994 and 1995. (5) Amount includes $2,758 provision for excess and obsolete inventory. The remainder primarily reflects revaluation of inventory pursuant to changed standard costs. (6) Amount includes $4,547 provision for excess and obsolete inventory. (7) Represents the valuation allowance established for U.S. net operating loss carryforwards acquired in connection with the AFW acquisition. 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 20, 1996 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 20, 1996 (Principal Executive Officer) and Director /s/ CLIFFORD G. SPRAGUE - ----------------------------- Clifford G. Sprague Senior Vice President December 20, 1996 (Principal Financial and and Chief Financial Accounting Officer) Officer /s/ JAMES W. BAGLEY - ----------------------------- James W. Bagley Director December 20, 1996 /s/ FREDERICK W. KULICKE, JR - ----------------------------- Frederick W. Kulicke, Jr. Director December 20, 1996 /s/ JOHN A. O'STEEN - ----------------------------- John A. O'Steen Director December 20, 1996 /s/ ALLISON F. PAGE - ----------------------------- Allison F. Page Director December 20, 1996 /s/ MACDONELL ROEHM, JR. - ----------------------------- MacDonell Roehm, Jr. Director December 20, 1996 /s/ LARRY D. STRIPLIN, JR. - ----------------------------- Larry D. Striplin, Jr. Director December 20, 1996 /s/ C. WILLIAM ZADEL - ----------------------------- C. William Zadel Director December 20, 1996 EXHIBIT INDEX EXHIBIT NUMBER ITEM - -------- ----------------------------------------------------------------- 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(vi) The Company's 1988 Employee Incentive Stock Option and Non- Qualified Stock Option Plan (as amended and restated effective October 8, 1996).* 10(viii) The Company's 1994 Employee Incentive Stock Option and Non- Qualified Stock Option Plan (as amended and restated effective October 8, 1996).* 21 Subsidiaries of the Company. 23(i) Consent of Price Waterhouse LLP (Independent Accountants). 23(ii) Consent of Luboshitz, Kasierer & Co. (Independent Accountants). 27 Financial Data Schedule. EX-4.II 2 Exhibit 4(ii) AMENDMENT THIS AMENDMENT dated December 16, 1996, between KULICKE AND SOFFA INDUSTRIES, INC. ("Borrower") and PNC BANK, NATIONAL ASSOCIATION, successor by merger to Midlantic Bank, N.A. ("Bank") BACKGROUND The parties have entered into a certain Restated Loan Agreement dated as of April 10, 1996 ("Loan Agreement"), and desire to amend the same in the manner hereinafter set forth. All capitalized terms used but not defined herein shall have the meaning given thereto in the Loan Agreement. NOW, THEREFORE, the parties, INTENDING TO BE LEGALLY BOUND, agree as follows: 1. Financial Covenant Amendment. In lieu of the Interest Coverage Ratio covenant set forth in subpart (b) of Exhibit 6.01(L) of the Loan Agreement, Borrower covenants that it will comply with the following covenant effective as of December 31, 1996 and thereafter: (a) As of Borrower's fiscal quarter ending December 31, 1996, Borrower shall have, on a consolidated basis, either (i) an Interest Coverage Ratio (calculated as set forth below) of not less than 1.5 to 1.0 or (ii) a Liquidity Ratio (as hereinafter defined) of not less than .90 to 1.0. For these purposes: (A) The EBITA and Fixed Charge components of the Interest Coverage Ratio shall, notwithstanding the period for which the same are to be calculated as set forth in the definition of Interest Coverage Ratio in the Loan Agreement, be calculated only for the fiscal quarter ending December 31, 1996 and not on the basis of the four fiscal quarters then ended, and (B) "Liquidity Ratio" shall mean, as of any date, the sum of cash, cash investments which constitute Permitted Investments as defined in the Loan Agreement (including as amended by Section 2 hereof) and accounts receivable as of such date, divided by the sum of current liabilities and the outstanding principal balance of all of Borrower's indebtedness to Bank as of such date, and (C) Cash investments shall be valued at the market value thereof. (b) As of Borrower's fiscal quarters ending March 31, 1997, June 30, 1997 and September 30, 1997, Borrower shall have, on a consolidated basis, an Interest Coverage Ratio (calculated as set forth below) of not less than 2.5 to 1.0. For these purposes, the EBITA and Fixed Charge components of the Interest Coverage Ratio shall, notwithstanding the period for which the same are to be calculated as set forth in the definition of Interest Coverage Ratio in the Loan Agreement, be calculated only for the then fiscal year to date and not (except for the fiscal quarter ending September 30, 1997) for the four fiscal quarters then ended. (c) For all fiscal quarters ending after September 30, 1997, the Borrower shall be in compliance with the Interest Coverage Ratio as set forth in and calculated in the manner provided in the Loan Agreement. 2. Permitted Investments. The definition of "Permitted Investments" as set forth in Section 1.01 of the Loan Agreement is hereby modified in order to add an additional subpart (g) at the end thereof, to read as follows: "and/or (g) Asset Backed Securities having a credit rating by Standard & Poors or Moody's of not less than A." 3. Interest Rate. Effective as of the Quarterly Period for which a Compliance Certificate for Borrower's fiscal quarter ending December 31, 1996 is provided to Bank, the definition of "Applicable Margin" as set forth in Section 2.07(A)(i) of the Loan Agreement is hereby restated in its entirety to read as follows: "(i) "Applicable Margin" means, with respect to principal of the Revolving Loan II for which a LIBOR Rate election is being made: (1) .40 percentage points for any Quarterly Period next following a fiscal quarter in which Borrower's Liquidity Ratio equals or exceeds 1.2, as reflected in Borrower's Compliance Certificate for such fiscal quarter: (2) .70 percentage points for any Quarterly Period next following a fiscal quarter in which neither subpart (1) or (3) of this subsection (i) applies, as reflected in Borrower's Compliance Certificate for such fiscal quarter; (3) 1.0 percentage point for any Quarterly Period next following a fiscal quarter in which Borrower's Liquidity Ratio is less than .75, as reflected in Borrower's Compliance Certificate for such fiscal quarter; With respect to principal of Revolving Loan II for which a LIBOR Rate election is made, the Applicable Margin will remain fixed for the applicable Rate Period regardless of any change in Borrower's Liquidity Ratio during such Rate Period." For these purposes, (A) "Liquidity Ratio" shall have the meaning given thereto in Section 1 hereof and (B) the "Applicable Margin" as defined hereby shall not be effective as to principal for which a LIBOR Rate election is presently in effect until the expiration of the applicable Rate Period. 4. Reaffirmation. Except as specifically modified herein, all of the terms of the Loan Agreement remain unchanged and in full force and effect and Borrower confirms that it has no offset, counterclaim or defense to any of its liabilities and obligations thereunder. IN WITNESS WHEREOF, the parties hereto have executed this Amendment the date first above written. KULICKE AND SOFFA INDUSTRIES, INC. By: ------------------------------ PNC BANK, NATIONAL ASSOCIATION By: ------------------------------- EX-10.VI 3 Exhibit 10(vi) KULICKE AND SOFFA INDUSTRIES, INC. 1988 EMPLOYEE INCENTIVE STOCK OPTION AND NON-QUALIFIED STOCK OPTION PLAN (As Amended and Restated Effective October 8, 1996) Section 1. Purpose The purpose of the 1988 Employee Stock Option and Non-qualified Stock Option Plan (the "Plan") of Kulicke and Soffa Industries, Inc. (the "Company") is to encourage stock ownership by officers and employees of the Company by issuing options to purchase shares of the Company's stock ("Options," and individually an "Option"), enabling such employees to acquire or increase their proprietary interest in the Company and thereby encouraging them to remain in the employ of the Company. The Options issued pursuant to the Plan are intended to constitute either incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or non-qualified stock options, at the discretion of the Board of Directors at the time of grant. Section 2. Administration The Plan will be administered by a Committee of the Board of Directors (the "Committee"), appointed by the Board of Directors (the "Board") of the Company. The Committee will consist of at least three directors not employed by the Company who will serve at the pleasure of the Board. The Committee will hold meetings when a quorum is present at such times and places as it may determine. A quorum shall consist of a majority of the Committee. A majority of the Committee present and voting at a meeting at which a quorum is present, or acts reduced to and approved in writing by a majority of the members of the Committee at any other time, will be valid acts of the Committee. The Committee may, from time to time at its discretion, recommend to the Board which, if any, officers and employees will be granted Options, the type of Option to be granted, the amount of stock to be subject to each such Option, and the option price of any non- qualified stock option. Options shall be granted only by the Board of Directors, provided that no member of the Board eligible to receive options under the Plan shall participate in any action of the Board with respect to the Plan. The interpretation and construction by the Committee of any provision of the Plan or of any Option granted under it will be final unless otherwise determined by the Board. Anything herein to the contrary notwithstanding, no member of the Board or the Committee will be liable for any action or determination made in good faith with respect to the Plan or any Option granted under it. Section 3. Eligibility Officers and employees of the Company and its majority owned subsidiaries (as defined in section 424(f) of the Code) ("Subsidiaries") who are expected to make significant contributions to the long term success of the Company are eligible to receive incentive stock options or non-qualified stock options under the Plan, as the Board may select from time to time either on its own motion or from among those nominated by the Committee. An officer or employee who is granted an Option is an Optionee (which term also includes the Optionee's legal representative under Section 5(g) hereof). An Optionee may be granted more than one Option. Section 4. Stock The stock subject to an Option will be shares of the Company's authorized but unissued or reacquired Common Stock, without par value (the "Shares"). Options shall not be issued with respect to more than 500,000 Shares, subject, however, to adjustment as provided in Section 5(h) hereof. Section 5. Terms and Conditions of Options Each Option granted pursuant to the Plan will be authorized by the Board and will be evidenced by an Option Notice in such form as the Committee or the Board may from time to time determine. Each Option Notice will include the information required in subparagraphs (a), (b) and (c) of this Section 5 and will be in conformity with and will incorporate by reference all other terms and conditions of the Plan, including the following terms and conditions: (a) Number of Shares. The number of Shares subject to the Option will be stated in the Option Notice. (b) Option Price. The price per Share payable on the exercise of the Option will be stated in the Option Notice and (i) with respect to non-qualified stock options, will be at such price as the Board of Directors shall determine; and (ii) with respect to incentive stock options, will be at a price not less than 100% of the fair market value per share of the outstanding shares of Common Stock of the Company on the date the Option is granted, without regard to any restriction other than a restriction which will never lapse. So long as the Company's Common Stock is quoted on NASDAQ, the fair market value, for the purpose of compliance with the foregoing sentence with respect to incentive stock options, shall be the representative closing price of the stock as obtained from NASDAQ on the date of the grant of the Option. (c) Form of Option. The Option Notice will state whether the Option granted is to be treated as an incentive stock option or a non-qualified stock option, and will constitute a binding determination as to the form of Option granted. (d) Payment. The price payable on the exercise of the Option in whole or in part will be equal to the Option price multiplied by the number of Shares as to which the Option is exercisable, and shall be paid in full upon exercise of any Option, either in cash or by delivering to the Company shares of the Company's Common Stock having a fair market value, as of the close of business on the day preceding such delivery, equal to the aggregate exercise price of the Shares being purchased on exercise of the Options, or by a combination of such cash and shares. (e) Notwithstanding any other provision of this Plan: (i) No option shall be granted under this Plan after December 13, 1998. (ii) No Option granted under this Plan shall be exercisable later than ten years from the date of grant. (iii) No Option granted to any Optionee shall be treated as an incentive stock option under the Code, to the extent such Option would cause the aggregate fair market value (determined as of the date of grant of each such option) of the Shares with respect to which incentive stock options are exercisable by such Optionee for the first time during any calendar year to exceed $100,000. For purposes of determining whether an incentive stock option would cause the optionee to exceed the $100,000 limitation, such incentive stock options shall be taken into account in the order granted. For purposes of this subsection, incentive stock options include all incentive stock options under all plans of the Company and its Subsidiaries that are incentive stock option plans within the meaning of Section 422 of the Code. (iv) Options granted pursuant to this Plan may be exercised in any order elected by the Optionee whether or not the Optionee holds any unexercised Options under this Plan or any other Plan of the Company, its parent or any of its subsidiaries. (v) No incentive stock option shall be granted under this Plan to any person who, at the time of the grant of such Option, owns stock possessing more than 10% of the total combined voting power of all classes of the Company's stock, unless the option price at the time the Option is granted is at least 110 percent (110%) of the fair market value of the stock, and subject to the condition that the Option expires five years from the option grant date. (f) Term and Exercise of Options. Subject to the provisions of Section 5(c)(i), (ii) and (v) hereof, Options granted hereunder may be exercisable in whole or in part at such time or times as the Board shall designate when granting such Options. No Option may be exercised for less than 25 shares or for any fractional shares, unless such Option is exhausted upon its exercise. Unless sooner terminated as provided in this Plan, each Option shall expire no later than ten years from the date of grant, and shall be void and unexercisable thereafter. No incentive stock option and, except as otherwise provided by the Board or the Committee, no non-qualified stock option shall be assignable or transferrable by the Optionee otherwise than by will or by the laws of decent and distribution, and, subject to the preceding clause, an Option may be exercised only by the Optionee and may not be exercised by any other person except as provided in Section 5(g) hereof. (g) Termination of Options. Except as provided herein, Options shall terminate when the option holder ceases to be employed either by the Company or one of its Subsidiaries. Upon the death of an Optionee while in the employ of the Company or a Subsidiary, Options held by such Optionee which are exercisable on the date of his or her death shall be exercisable by his or her executor(s) or administrator(s) for a period of one year from the date of such Optionee's death. Notwithstanding the foregoing, with respect to Options granted on and after October 8, 1996, if an Optionee shall die while in the employ of the Company or a Subsidiary and prior to the expiration date fixed for his or her Option, such Option shall accelerate and may be exercised, to the extent it remains unexercised on the date of his or her death, by the Optionee's estate, personal representative or beneficiary who acquired the right to exercise such Option by bequest or inheritance or by reason of the death of the Optionee, at any time prior to the earlier of: (1) the expiration date specified in such Option; or (2) one year after the date of death. Upon termination of an Optionee's employment with the Company or a Subsidiary for any reason other than Cause, Options exercisable by such Optionee on the date of termination of employment shall be exercisable by the Optionee (or in the case of the Optionee's death subsequent to termination of employment, by the Optionee's executor(s) or administrator(s)), for a period of three months from the date of such Optionee's termination of employment. With respect to Options granted on or after October 8, 1996, the preceding sentence shall apply in the event of termination of employment for any reason other than death, disability, Retirement or Cause. Upon the termination of an Optionee's employment for Cause, all Options held by such Optionee shall terminate concurrently with receipt by the Optionee of oral or written notice that his or her employment has been terminated. For the purposes of this Plan, termination for Cause shall include termination by reason of any dishonest or illegal act, or any willful refusal or failure to perform duties properly assigned. With respect to Options granted on or after October 8, 1996, if an Optionee shall become disabled (within the meaning of section 22(e)(3) of the Code) during his or her employment and, prior to the expiration date fixed for his or her Option, his or her employment is terminated as a consequence of such disability, such Option shall accelerate and may be exercised, to the extent it remains unexercised on the date of such termination, by the Optionee at any time prior to the earlier of: (1) the expiration date specified in such Option; or (2) one year after the date of such termination of employment. In the event of an Optionee's legal disability, such Option may be so exercised by the Optionee's legal representative. With respect to Options granted on or after October 8, 1996, if an Optionee's employment is terminated prior to the expiration date fixed for his or her Option by reason of Retirement (as hereinafter defined), such Option shall accelerate and may be exercised, to the extent it remains unexercised on the date of such Retirement, by the Optionee at any time prior to the earlier of: (1) the expiration date specified in such Option; or (2) three months after the date of such Retirement. For purposes of this Plan, Retirement shall mean an Optionee's retirement from the Company and its Subsidiaries at or after age 65, or before age 65 if expressly agreed to by the Company. Options may be terminated at any time by agreement between the Company and the Optionee. (h) Recapitalization. Subject to any required action by the stockholders, if any, the number of Shares as to which Options may be granted under this Plan and the number of Shares subject to outstanding options and the option prices thereto will be adjusted proportionately for any increase or decrease in the number of outstanding shares of Common Stock of the Company resulting from stock splits and reverse stock splits, but not for stock dividends. The number of shares will be adjusted to the nearest whole share. Any stock dividend resulting in an increase of 20% or more in the outstanding Common Stock shall be deemed a stock split. If the Company is a party to any merger in which the Company is not the surviving entity, any consolidation or dissolution (other than the merger or consolidation of the Company with one or more of its wholly-owned Subsidiaries), all Options outstanding hereunder shall terminate (1) in the case of such a merger or consolidation, on the date that such merger or consolidation becomes effective, and (2) in the case of dissolution, on the date that the Articles of Election to Dissolve are filed with the Secretary of the Commonwealth of Pennsylvania. If Options are terminated pursuant to the provisions of the foregoing sentence, Optionees shall receive in cash from the Company an amount equal to the fair market value of the Shares which are subject to then exercisable Options, determined as of the close of business on the day preceding the event cancelling all outstanding Options under this Plan, less the amount which would be required to exercise the then exercisable Options. Optionees shall have no rights to compensation or other consideration with respect to the cancellation of Options not subject to exercise on the date of cancellation. Except as expressly provided above in this Section 5(h), the Optionee will have no rights by reason of (1) any subdivision or consolidation of shares of stock of any class of the Company; (2) payment of any stock dividend by the Company; (3) any other increase or decrease in the number of shares of stock of any class of the Company; or (4) by reason of any dissolution, liquidation, merger, consolidation or spin-off of assets or stock of another corporation. The grant or existence of any Option shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations, or changes of its capital or business structure, or to merge, consolidate, dissolve, liquidate, sell or transfer all or any part of its stock or assets. (i) Rights as a Stockholder. The Optionee will have no rights as a stockholder of the Company with respect to any Shares subject to an Option until such Option has been exercised and a certificate with respect to the Shares purchased upon exercise has been issued to him or her. No adjustment will be made for dividends (ordinary or extraordinary, whether in cash, securities or other property), distributions or other rights for which the record date is prior to the date the Shares so purchased have been issued. (j) Modification, Extension and Renewal of Option. Subject to the terms and conditions of the Plan, the Board may modify, extend or renew an Option, or accept the surrender of an Option (to the extent not theretofore exercised). Notwithstanding the foregoing, no modification of an Option which adversely affects the Optionee shall be made without the consent of the Optionee. (k) Purchase for Investment. The issuance of Shares on exercise of the Option will be conditioned on obtaining appropriate representations and warranties of the Optionee that the purchase of Shares thereunder will be for investment, and not with a view to the public resale or distribution thereof, unless the Shares subject to the Option are registered under the Securities Act of 1933, as amended (the "Act"), and comply with any other law, regulation or rule applicable thereto. Unless the Shares are registered under the Act, the Optionee shall acknowledge that the Shares purchased on exercise of the Option are not registered under the Act and may not be sold or otherwise transferred unless the Shares have been registered under the Act in connection with the sale or other transfer, or that counsel satisfactory to the Company is of the opinion that the sale or other transfer is exempt from registration under the Act, and unless said sale or transfer is in compliance with any other applicable law, including all applicable state securities laws. (l) No Rights to Employment. Officers or employees granted Options under this Plan shall not have any right to continue in the employment of the Company or any Subsidiary by nature of the existence of such Options. An Optionee whose employment is terminated shall have no rights against the Company by reason of the termination of such Option whether the termination of the employment be with or without Cause. (m) Other Provisions. The Option Notice may contain such other provisions as the Board in its discretion deems advisable and which are not inconsistent with the provisions of this Plan, including, without limitation, restrictions upon the exercise of the Option. Section 6. Term of Plan Options may be granted from time to time within a period of ten years from the date the Plan is effective as described in Article 10 hereof. Section 7. Amendment of the Plan Insofar as permitted by law and the Plan, the Board may from time to time suspend or discontinue the Plan or revise or amend it in any respect whatsoever with respect to any Shares at the time not subject to an Option; provided, however, that without approval of the stockholders, no such revision or amendment may change the aggregate number of Shares for which options may be granted hereunder, change the designation of the class of employees eligible to receive Options, decrease the price at which Options may be granted, remove the administration of the Plan from the Committee, or render any member of the Committee eligible to receive an Option under the Plan while serving thereon. Any other provision of this Section 7 notwithstanding, the Board specifically is authorized to adopt any amendment to this Plan deemed by the Board to be necessary or advisable to assure that the incentive stock options or the non-qualified stock options available under the Plan continue to be treated as such, respectively, under the law. Section 8. Application of Funds The proceeds received by the Company from the sale of Shares pursuant to the exercise of Options will be used for general corporate purposes. Section 9. No Obligation to Exercise Option The granting of an Option will impose no obligation upon the Optionee to exercise such Option. Section 10. Approval of Stockholders This Plan shall become effective on the date that it is adopted by the Board, provided, however, that it shall become null and void if it is not approved by a majority of the holders of the Company's Common Stock present in person or by proxy at a meeting held within one year (365 days) of its adoption by the Board. The Board may grant Options hereunder prior to approval of the Plan by the holders of such a majority of the Common Stock; provided, however, that no Option so granted shall be exercisable within 365 days of the date of the adoption of the Plan, and all Options so granted shall terminate and become null and void if the Plan is not approved by a majority of the holders of the Company's Common Stock present in person or by proxy at a meeting of the shareholders held within 365 days of its adoption by the Board. Date Plan adopted by Board of Directors: December 6, 1988 EX-10.VIII 4 Exhibit 10(viii) KULICKE AND SOFFA INDUSTRIES, INC. 1994 EMPLOYEE INCENTIVE STOCK OPTION AND NON-QUALIFIED STOCK OPTION PLAN (As Amended and Restated Effective October 8, 1996) SECTION 1. Purpose This KULICKE AND SOFFA INDUSTRIES, INC. 1994 EMPLOYEE STOCK OPTION PLAN ("Plan") is intended to provide a means whereby KULICKE AND SOFFA INDUSTRIES, INC. ("Company") and any Subsidiary (as hereinafter defined) may, through the grant of incentive stock options and non-qualified stock options (collectively, "Options") to officers and other Key Employees (as defined in Section 3), attract and retain such Key Employees and motivate such Key Employees to exercise their best efforts on behalf of the Company and of any Subsidiary. As used in the Plan, the term "incentive stock options" ("ISOs") means Options which qualify as incentive stock options within the meaning of section 422 of the Internal Revenue Code of 1986, as amended from time to time ("Code"), at the time they are granted and which are either designated as ISOs in the Grant Letters (as hereinafter defined) covering such Options or which are designated as ISOs by the Committee (as defined in Section 2 hereof) at the time of grant. The term "non-qualified stock options" ("NQSOs") means all other Options granted under the Plan. The term "Subsidiary" means any corporation (whether or not in existence at the time the Plan is adopted) which, at the time an Option is granted, is a subsidiary of the Company under the definition of "subsidiary corporation" contained in section 424(f) of the Code or any similar provision hereafter enacted. SECTION 2. Administration The Plan shall be administered by the Company's Compensation Committee ("Committee"), which shall consist of not fewer than two (2) "non-employee directors" (within the meaning of Rule 16b- 3(b)(3) under the Securities Exchange Act of 1934, or any successor thereto) of the Company who are also "outside directors" (within the meaning of Treas. Reg. Section 1.162- 27(e)(3), or any successor thereto), who shall be appointed by, and shall serve at the pleasure of, the Company's Board of Directors ("Board"). Each member of such Committee, while serving as such, shall be deemed to be acting in his or her capacity as a director of the Company. The Committee shall have full and final authority in its absolute discretion, subject to the terms of the Plan, to select the persons to be granted ISOs and NQSOs under the Plan, to grant Options on behalf of the Company, and to set the date of grant and the other terms of such Options. The Committee may correct any defect, supply any omission and reconcile any inconsistency in the Plan and in any Option granted hereunder in the manner and to the extent it shall deem desirable. The Committee also shall have the authority to establish such rules and regulations, not inconsistent with the provisions of the Plan, for the proper administration of the Plan, and to amend, modify or rescind any such rules and regulations, and to make such determinations and interpretations under, or in connection with, the Plan, as it deems necessary or advisable. All such rules, regulations, determinations and interpretations shall be binding and conclusive upon the Company, its shareholders and all officers and employees and former officers and employees, and upon their respective legal representatives, beneficiaries, successors and assigns and upon all other persons claiming under or through any of them. No member of the Board or the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any Option granted hereunder. SECTION 3. Eligibility The class of employees who shall be eligible to receive Options under the Plan shall be the Key Employees (including any directors who also are Key Employees) of the Company and/or of a Subsidiary. A "Key Employee" is an officer or other employee who occupies a responsible executive, professional, managerial or administrative position and who the Committee believes has the capacity to contribute to the long-term success of the Company and its Subsidiaries. More than one Option may be granted to a Key Employee under the Plan. SECTION 4. Stock The number of shares of common stock of the Company, no par value ("Common Shares"), that may be subject to Options under the Plan shall be 850,000 shares, subject to adjustment as hereinafter provided. Shares issuable under the Plan may be authorized but unissued shares or reacquired shares, as the Company may determine from time to time. Any Common Shares subject to an Option which expires or otherwise terminates for any reason whatever (including, without limitation, the Key Employee's surrender thereof) without having been exercised shall continue to be available for the granting of Options under the Plan. Notwithstanding anything in this Plan to the contrary, no Key Employee shall receive Options for more than 300,000 Common Shares under the Plan. If an Option is cancelled, the Common Shares covered by the cancelled Option shall be counted against such maximum number of shares for which Options may be granted to a single Key Employee. If the exercise price of an Option is reduced after the date of grant, the transaction shall be treated as a cancellation of the original Option and the grant of a new Option for purposes of counting the maximum number of shares for which Options may be granted to a single Key Employee. SECTION 5. Annual Limit (a) ISOs. The aggregate Fair Market Value (determined as of the date the ISO is granted) of the Common Shares with respect to which ISOs become exercisable for the first time by a Key Employee during any calendar year (under this Plan and any other ISO plan of the Company or any parent corporation (within the meaning of section 424(e) of the Code ("Parent")) or Subsidiary) shall not exceed $100,000. The term "Fair Market Value" shall mean the value of the Common Shares arrived at by a good faith determination of the Committee and shall be: 1. The quoted closing price, if there is a market for and there are sales of Common Shares on a registered securities exchange or in an over the counter market, on the date specified; 2. The weighted average of the quoted closing prices on the nearest date before and the nearest date after the specified date, if there are no sales of Common Shares on the specified date but there are such sales on dates within a reasonable period both before and after the specified date; 3. The mean between the bid and asked prices, as reported by the National Quotation Bureau on the specified date, if actual sales are not available during a reasonable period beginning before and ending after the specified date; or 4. Such other method of determining Fair Market Value as shall be authorized by the Code, or the rules or regulations thereunder, and adopted by the Committee. Where the Fair Market Value of Common Shares is determined under (2) above, the average of the closing prices on the nearest sales date before and the nearest date after the specified date shall be weighted inversely by the respective numbers of trading days between the dates of reported sales and the specified date (i.e., the valuation date), in accordance with Treasury Regulation Section 20.2031-2(b)(1), or any successor thereto, under the Code. (b) Options Over Annual Limit. If an Option intended as an ISO is granted to a Key Employee and such Option may not be treated in whole or in part as an ISO pursuant to the limitation in (a) above, such Option shall be treated as an ISO to the extent it may be so treated under such limitation and as a NQSO as to the remainder. For purposes of determining whether an ISO would cause such limitation to be exceeded, ISOs shall be taken into account in the order granted. (c) NQSOs. The annual limit set forth above for ISOs shall not apply to NQSOs. SECTION 6. Options (a) Granting of Options. From time to time until the expiration or earlier suspension or discontinuance of the Plan, the Committee may, on behalf of the Company, grant to Key Employees under the Plan such Options as it determines are warranted, subject to the limitations of the Plan; provided, however, that grants of ISOs and NQSOs shall be separate and not in tandem (i.e., a Key Employee's exercise of an ISO shall not affect his or her right to exercise an NQSO, and vice versa). The granting of an Option under the Plan shall not be deemed either to entitle the Key Employee to, or to disqualify the Key Employee from, any participation in any other grant of Options under the Plan. In making any determination as to whether a Key Employee shall be granted an Option and as to the number of shares to be covered by such Option, the Committee shall take into account the duties of the Key Employee, the Committee's views as to his or her present and potential contributions to the success of the Company or a Subsidiary, and such other factors as the Committee shall deem relevant in accomplishing the purposes of the Plan. Moreover, the Committee may determine that the Grant Letter (as defined below) shall provide that said Option may be exercised only if certain conditions, as determined by the Committee, are fulfilled. (b) Terms and Conditions of Options. The Options granted pursuant to the Plan shall specify whether they are ISOs or NQSOs; however, if the Option is not designated in the Grant Letter as an ISO or NQSO, the Option shall constitute an ISO if it complies with the terms of section 422 of the Code, and otherwise, it shall constitute an NQSO. In addition, the Options granted pursuant to the Plan shall include expressly or by reference the following terms and conditions, as well as such other provisions not inconsistent with the provisions of this Plan as the Committee shall deem desirable, and for ISOs granted under this Plan, the provisions of section 422(b) of the Code: (1) Number of Shares. A statement of the number of Common Shares to which the Option pertains. (2) Price. A statement of the Option exercise price, which shall be determined and fixed by the Committee in its discretion at the time of grant, but shall not be less than 100% (110% in the case of an ISO granted to a more than 10% shareholder as provided in Subsection (9) below) of the Fair Market Value of the optioned Common Shares on the date the Option is granted. (3) Term. (A) ISOs. Subject to earlier termination as provided in Subsections (5), (6) and (7) below, the term of each ISO shall be not more than 10 years (5 years in the case of a more than 10% shareholder as provided in (9) below) from the date of grant. (B) NQSOs. Subject to earlier termination as provided in Subsections (5), (6) and (7) below, the term of each NQSO shall be not more than 10 years from the date of grant. (4) Exercise. (A) General. Options shall be exercisable in such installments and on such dates, commencing not less than 12 months from the date of grant, as the Committee may specify, provided that: (i) In the case of new Options granted to a Key Employee in replacement for options (whether granted under this Plan or otherwise) held by the Key Employee, the new Options may be made exercisable, if so determined by the Committee, in its discretion, at the earliest date the replaced options were exercisable; and (ii) The Committee may accelerate the exercise date of any outstanding Options in its discretion, if it deems such acceleration to be desirable. Any Common Shares the right to the purchase of which has accrued under an Option may be purchased at any time up to the expiration or termination of the Option. Exercisable Options may be exercised, in whole or in part, from time to time by giving written notice of exercise to the Company at its principal office, specifying the number of Common Shares to be purchased and accompanied by payment in full of the aggregate Option exercise price for such shares. Options may not be exercised in installments of less than 25 shares, unless such Option is exhausted upon its exercise. Only full shares shall be issued under the Plan, and any fractional share which might otherwise be issuable upon the exercise of an Option granted hereunder shall be forfeited. (B) Manner of Payment. The Option price shall be payable: (i) In cash or its equivalent; (ii) In the case of an ISO, if the Committee, in its discretion, causes the Grant Letter so to provide and in the case of an NQSO if the Committee, in its discretion, so determines at or prior to the time of exercise, in Common Shares previously acquired by the Key Employee, provided that if such shares were acquired through the exercise of an ISO granted under this Plan or any other plan of the Company and are used to pay the Option exercise price of an ISO, such shares have been held by the Key Employee for a period of not less than the holding period described in section 422(a)(1) of the Code on the date of exercise, or if such Common Shares were acquired through exercise of an NQSO or ISO granted under this Plan or any other plan of the Company and are used to pay the Option exercise price of an NQSO, such shares have been held by the Key Employee for a period of more than 12 months on the date of exercise; or (iii) In the discretion of the Committee, in any combination of (i) and (ii) above. In the event such Option exercise price is paid, in whole or in part, with Common Shares, the portion of the Option exercise price so paid shall equal the Fair Market Value on the date of exercise of the Option of the Common Shares surrendered in payment of such Option exercise price. (5) Termination of Employment. If a Key Employee's employment by the Company (and Subsidiaries) is terminated by either party prior to the expiration date fixed for his or her Option for any reason other than death, disability, or Cause (as hereinafter defined), such Option may be exercised, to the extent of the number of shares with respect to which the Key Employee could have exercised it on the date of such termination, or to any greater extent permitted by the Committee, by the Key Employee at any time prior to the earlier of: (A) The expiration date specified in such Option; or (B) Three months after the date of such termination of employment. With respect to Options granted on or after October 8, 1996, the foregoing provisions of this Subsection (5) shall apply in the event of termination of employment for any reason other than death, disability, Retirement, or Cause. If a Key Employee's employment by the Company (and Subsidiaries) is terminated for Cause, all Options held by the Key Employee shall terminate concurrently with receipt by the Optionee of oral or written notice that his or her employment has been terminated. For purposes of this Plan, termination for Cause shall include termination by reason of any dishonest or illegal act, or any willful refusal or failure to perform duties properly assigned. (5a) Exercise upon Retirement of Key Employee. With respect to Options granted on or after October 8, 1996, if a Key Employee's employment is terminated prior to the expiration date fixed for his or her Option by reason of Retirement (as hereinafter defined), such Option shall accelerate and may be exercised, to the extent it remains unexercised on the date of such Retirement, by the Key Employee at any time prior to the earlier of: (A) The expiration date specified in such Option; or (B) Three months after the date of such Retirement. For purposes of this Plan, Retirement shall mean a Key Employee's retirement from the Company and its Subsidiaries at or after age 65, or before age 65 if expressly agreed to by the Company. (6) Exercise upon Disability of Key Employee. Effective with respect to Options outstanding on October 8, 1996 and Options granted on and after such date, if a Key Employee shall become disabled (within the meaning of section 22(e)(3) of the Code) during his or her employment and, prior to the expiration date fixed for his or her Option, his or her employment is terminated as a consequence of such disability, such Option shall accelerate and may be exercised, to the extent it remains unexercised on the date of such termination, by the Key Employee at any time prior to the earlier of: (A) The expiration date specified in such Option; or (B) One year after the date of such termination of employment. In the event of the Key Employee's legal disability, such Option may be so exercised by the Key Employee's legal representative. (7) Exercise upon Death of Key Employee. Effective with respect to Options outstanding on October 8, 1996 and Options granted on and after such date, if a Key Employee shall die during his or her employment and prior to the expiration date fixed for his or her Option, or if a Key Employee whose employment is terminated for any reason shall die following his or her termination of employment but prior to the earliest of: (A) The expiration date fixed for his or her Option; (B) The expiration of the period determined under Subsections (5), (5a) (if applicable), and (6) above; or (C) In the case of an ISO which is to remain an ISO, three months following termination of employment; his or her Option shall accelerate and may be exercised, to the extent it remains unexercised on the date of his or her death, by the Key Employee's estate, personal representative or beneficiary who acquired the right to exercise such Option by bequest or inheritance or by reason of the death of the Key Employee, at any time prior to the earlier of: (i) The expiration date specified in such Option; or (ii) One year after the date of death. (8) Rights as a Shareholder. A Key Employee shall have no rights as a shareholder with respect to any shares covered by his or her Option until the issuance of a stock certificate to him or her for such shares. (9) Ten Percent Shareholder. If the Key Employee owns more than 10% of the total combined voting power of all shares of stock of the Company or of a Subsidiary or Parent at the time an ISO is granted to such Key Employee, the Option exercise price for the ISO shall be not less than 110% of the Fair Market Value of the optioned Common Shares on the date the ISO is granted, and such ISO, by its terms, shall not be exercisable after the expiration of five years after the date the ISO is granted. The conditions set forth in this Subsection (9) shall not apply to NQSOs. (c) Grant Letters. Options granted under the Plan shall be evidenced by written documents ("Grant Letters") in such form as the Committee shall, from time to time, approve, which Grant Letters shall contain such provisions, not inconsistent with the provisions of the Plan, for NQSOs granted pursuant to the Plan, and such conditions, not inconsistent with section 422(b) of the Code or the provisions of the Plan, for ISOs granted pursuant to the Plan, as the Committee shall deem advisable, and which Grant Letters shall specify whether the Option is an ISO or NQSO; provided, however, if the Option is not designated in the Grant Letter as an ISO or NQSO, the Option shall constitute an ISO if it complies with the terms of section 422 of the Code, and otherwise, it shall constitute an NQSO. Each Key Employee shall be bound by the terms of the Grant Letter. SECTION 7. Capital Adjustments The number of shares which may be issued under the Plan, the maximum number of shares with respect to which Options may be granted to any Key Employee under the Plan, both as stated in Section 4 hereof, and the number of shares issuable upon exercise of outstanding Options under the Plan (as well as the Option exercise price per share under such outstanding Options) shall, subject to the provisions of section 424(a) of the Code, be adjusted, as may be deemed appropriate by the Committee, to reflect any stock dividend, stock split, share combination, or similar change in the capitalization of the Company. In the event of a corporate transaction (as that term is described in section 424(a) of the Code and the Treasury Regulations issued thereunder as, for example, a merger, consolidation, acquisition of property or stock, separation, reorganization, or liquidation), each outstanding Option shall be assumed by the surviving or successor corporation; provided, however, that in the event of a proposed corporate transaction, the Committee may terminate all or a portion of the outstanding Options if it determines that such termination is in the best interests of the Company. If the Committee decides to terminate outstanding Options, the Committee shall give each Key Employee holding an Option to be terminated not less than ten days' notice prior to any such termination by reason of such a corporate transaction, and any such Option which is to be so terminated shall become fully exercisable and may be exercised up to, and including the date immediately preceding such termination. The Committee also may, in its discretion, change the terms of any outstanding Option to reflect any such corporate transaction, provided that, in the case of ISOs which are to remain ISOs, such change is excluded from the definition of a "modification" under section 424(h) of the Code unless the Option holder consents to such change. SECTION 8. Change in Control All Options shall become fully vested and exercisable upon a Change in Control of the Company. "Change in Control" shall mean any of the following events: (a) An acquisition (other than directly from the Company of any voting securities of the Company ("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 Incumbent Board (as hereinafter defined) shall not be deemed to be a Change in Control; (b) The individuals who, as of December 13, 1994, are members of the Company's 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 December 13, 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; (c) Approval by shareholders of the Company of (1) a merger or consolidation involving the Company if the shareholders of the Company immediately before such merger or consolidation do not own, directly or indirectly, immediately following such merger or consolidation more than 50% of the combined voting power of the outstanding Voting Securities of the corporation resulting from such merger or consolidation in substantially the same proportion as their ownership of the Voting Securities immediately before such merger or consolidation or (2) a complete liquidation or dissolution of the Company or an agreement for the sale or other disposition of all or substantially all of the assets of the Company; or (d) Acceptance of shareholders of the Company of shares in a share exchange if the shareholders of the Company immediately before such share exchange do not own, directly or indirectly, immediately following such share exchange more than 50% of the combined voting power of the outstanding Voting Securities of the corporation resulting from such share exchange in substantially the same proportion as their ownership of the Voting Securities outstanding immediately before such share exchange. SECTION 9. Amendment or Discontinuance of the Plan At any time and from time to time, the Board may suspend or terminate the Plan or amend it, and the Committee may amend any outstanding Options, in any respect whatsoever, except that the following amendments shall require the approval by the affirmative votes of holders of at least a majority of the shares present, or represented, and entitled to vote at a duly held meeting of shareholders of the Company: (a) Any amendment which would: (1) Materially increase the benefits accruing to directors and officers, within the meaning of Rule 16a-1(f) under the 1934 Act (hereinafter referred to as "Officers"), under the Plan; (2) Materially increase the number of Common Shares which may be issued to directors and Officers under the Plan; or (3) Materially modify the requirements as to eligibility for directors and Officers to participate in the Plan; (b) With respect to ISOs, any amendment which would: (1) Change the class of employees eligible to participate in the Plan; (2) Except as permitted under Section 7 hereof, increase the maximum number of Common Shares with respect to which ISOs may be granted under the Plan; or (3) Extend the duration of the Plan under Section 10 hereof with respect to any ISOs granted hereunder; and (c) Any amendment which would require shareholder approval pursuant to Treasury Regulation No. 1.162-27(e)(4)(vi), or any successor thereto. Notwithstanding the foregoing, no such suspension, discontinuance or amendment shall materially impair the rights of any holder of an outstanding Option without the consent of such holder. SECTION 10. Termination of Plan Unless earlier terminated as provided in the Plan, the Plan and all authority granted hereunder shall terminate absolutely at 12:00 midnight on December 12, 2004, which date is within ten years after the date the Plan was adopted by the Board, and no Options hereunder shall be granted thereafter. Nothing contained in this Section 10, however, shall terminate or affect the continued existence of rights created under Options issued hereunder and outstanding on December 12, 2004 which by their terms extend beyond such date. SECTION 11. Effective Date This Plan became effective on December 13, 1994 (the date the Plan was adopted by the Board), and was approved by shareholders on February 14, 1995. As amended and restated, the Plan shall be effective October 8, 1996. SECTION 12. Miscellaneous Governing Law. The Plan and the Grant Letters entered into, and the Options granted thereunder, shall be governed by the applicable Code provisions to the maximum extent possible. Otherwise, the operation of, and the rights of Key Employees under, the Plan, the Grant Letters, and the Options shall be governed by applicable federal law and otherwise by the laws of the Commonwealth of Pennsylvania. Rights. Neither the adoption of the Plan nor any action of the Board or the Committee shall be deemed to give any individual any right to be granted an Option, or any other right hereunder, unless and until the Committee shall have granted such individual an Option, and then his or her rights shall be only such as are provided by this Plan and the Grant Letter. Any Option under the Plan shall not entitle the holder thereof to any rights as a shareholder of the Company prior to the exercise of such Option and the issuance of the shares pursuant thereto. Further, notwithstanding any provisions of the Plan or any Grant Letter with a Key Employee, the Company shall have the right, in its discretion, to retire a Key Employee at any time pursuant to its retirement rules or otherwise to terminate his or her employment at any time for any reason whatsoever. No Obligation to Exercise Option. The granting of an Option shall impose no obligation upon a Key Employee to exercise such Option. Non-Transferability. No Option which is to remain an ISO and, except as otherwise provided by the Committee, no other Option shall be assignable or transferable by the Key Employee otherwise than by will or by the laws of descent and distribution, and subject to the preceding clause, during the lifetime of the Key Employee, any Options shall be exercisable only by him or her or by his or her guardian or legal representative. If a Key Employee is married at the time of exercise of an Option and if the Key Employee so requests at the time of exercise, the certificate or certificates issued shall be registered in the name of the Key Employee and the Key Employee's spouse, jointly, with right of survivorship. Withholding and Use of Shares to Satisfy Tax Obligations. The obligation of the Company to deliver Common Shares to a Key Employee pursuant to any Option under the Plan shall be subject to applicable federal, state and local tax withholding requirements. In order to satisfy the withholding requirements of applicable federal tax laws, the Committee, in its discretion (and subject to such withholding rules ("Withholding Rules") as shall be adopted by the Committee), may permit the Key Employee to satisfy the minimum required federal withholding tax, in whole or in part, by electing to have the Company withhold (or by returning to the Company) Common Shares, which shares shall be valued, for this purpose, at their Fair Market Value on the date of exercise of the Option (or if later, the date on which the Key Employee recognizes ordinary income with respect to such exercise) ("Determination Date"). An election to use Common Shares to satisfy tax withholding requirements must be made in compliance with and subject to the Withholding Rules. The Company may not withhold shares in excess of the number necessary to satisfy the minimum required federal income tax withholding requirements. In the event Common Shares acquired under the exercise of an ISO, granted under this Plan or any other plan of the Company, are used to satisfy such withholding requirement, such Common Shares must have been held by the Key Employee for a period of not less than the holding period described in section 422(a)(1) of the Code on the Determination Date, or if such Common Shares were acquired through exercise of an NQSO, granted under the Plan or any other plan of the Company, such option must have been granted to the Key Employee at least six (6) months prior to the Determination Date. Listing and Registration of Shares. Each Option shall be subject to the requirement that, if at any time the Committee shall determine, in its discretion, that the listing, registration or qualification of the shares covered thereby upon any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of, or in connection with, the granting of such Option or the purchase or vesting of shares thereunder, or that action by the Company or by the Key Employee should be taken in order to obtain an exemption from any such requirement, no such Option may be exercised, in whole or in part, unless and until such listing, registration, qualification, consent, approval, or action shall have been effected, obtained, or taken under conditions acceptable to the Committee. Without limiting the generality of the foregoing, each Key Employee or his or her legal representative or beneficiary may also be required to give satisfactory assurance that shares purchased upon exercise of an Option are being purchased for investment and not with a view to distribution, and certificates representing such shares may be legended accordingly. EX-21 5 EXHIBIT 21 SUBSIDIARIES OF THE COMPANY Name Jurisdiction of Incorporation - ----------------------------- ----------------------------- Kulicke and Soffa AG Switzerland Kulicke and Soffa (Asia) Ltd. Hong Kong Kulicke and Soffa (Japan) Ltd. Japan and Delaware Kulicke and Soffa (Israel) Ltd. Israel Kulicke and Soffa Investments, Inc. Delaware Micro Swiss Ltd. Israel Kulicke and Soffa Leasing, Inc. Delaware Kulicke & Soffa Singapore Inc. Delaware Kulicke & Soffa Export Inc. Barbados Circle "S" Industries, Inc. Alabama American Fine Wire Corporation Alabama American Fine Wire Ltd. Cayman Islands Mueller Feindraht, AG Switzerland 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. EX-23.(I) 6 EXHIBIT 23(i) 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 15, 1996 appearing on page 20 of this Annual Report on Form 10-K. /s/ PRICE WATERHOUSE LLP Philadelphia, Pennsylvania December 20, 1996 EX-23.(II) 7 EXHIBIT 23(ii) 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 333-00567) of Kulicke and Soffa Industries, Inc. of our report dated November 3, 1994 appearing on page 21 of this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report on the Financial Statement Schedule. /s/ LUBOSHITZ, KASIERER & CO. Certified Public Accountants (Israel) Haifa, Israel December 20, 1996 EX-27 8
5 THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE COMPANY'S AUDITED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS YEAR SEP-30-1996 SEP-30-1996 45,344 13,078 48,683 1,227 44,519 162,651 77,190 36,047 249,554 48,847 50,712 0 0 48,733 98,756 249,554 381,176 381,176 239,491 239,491 124,267 0 3,288 15,630 3,783 11,847 0 0 0 11,847 0.60 0.60
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