UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended JUNE 30, 1998 --------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to . --------- --------- Commission File No. 0-121 ------- KULICKE AND SOFFA INDUSTRIES, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) PENNSYLVANIA 23-1498399 - ---------------------------- ------------------- (State or other jurisdiction (IRS Employer of incorporation) Identification No.) 2101 BLAIR MILL ROAD, WILLOW GROVE, PENNSYLVANIA 19090 - ------------------------------------------------ ---------- (Address of principal executive offices) (Zip code) (215) 784-6000 ---------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether 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 ----- ----- As of August 3, 1998, there were 23,344,023 shares of the Registrant's Common Stock, Without Par Value outstanding.
KULICKE AND SOFFA INDUSTRIES, INC. FORM 10 - Q JUNE 30, 1998 INDEX Page No. -------- PART I. FINANCIAL INFORMATION: Item 1. FINANCIAL STATEMENTS Consolidated Balance Sheet - June 30, 1998 and September 30, 1997 3 Consolidated Statement of Operations - Three and Nine Months Ended June 30, 1998 and 1997 4 Consolidated Statement of Cash Flows - Nine Months Ended June 30, 1998 and 1997 5 Notes to Consolidated Financial Statements 6 - 8 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. 9 - 15 PART II. OTHER INFORMATION: Item 6. EXHIBITS AND REPORTS ON FORM 8 - K. 16 Signatures. 16
PART I - FINANCIAL INFORMATION Item 1 - Financial Statements KULICKE AND SOFFA INDUSTRIES, INC. CONSOLIDATED BALANCE SHEET (in thousands) (unaudited) June 30, September 30, 1998 1997 ASSETS -------- --------- CURRENT ASSETS: Cash and cash equivalents $ 61,052 $107,605 Short-term investments 43,265 7,982 Accounts and notes receivable, net 78,421 105,103 Inventories, net 62,688 45,602 Prepaid expenses and other current assets 6,000 4,391 Deferred income taxes 2,446 1,521 ------- ------- TOTAL CURRENT ASSETS 253,872 272,204 Property, plant and equipment, net 48,911 45,648 Intangible assets, primarily goodwill, net 40,274 42,724 Investments in and loans to joint venture 17,282 14,135 Other assets 2,022 2,108 ------- ------- TOTAL ASSETS $362,361 $376,819 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Debt due within one year $ 243 $ 780 Accounts payable to suppliers and others 26,415 47,408 Accrued expenses 24,152 24,932 Estimated income taxes payable 3,008 8,864 ------- ------- TOTAL CURRENT LIABILITIES 53,818 81,984 Long-term debt -- 220 Other liabilities 3,024 2,688 ------- ------- TOTAL LIABILITIES 56,842 84,892 ------- ------- Commitments and contingencies -- -- SHAREHOLDERS' EQUITY: Common stock, without par value 157,680 155,246 Retained earnings 152,295 139,404 Cumulative translation adjustment (4,456) (2,723) ------- ------- TOTAL SHAREHOLDERS' EQUITY 305,519 291,927 ------- ------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $362,361 $376,819 ======= ======= The accompanying notes are an integral part of these consolidated financial statements.
KULICKE AND SOFFA INDUSTRIES, INC. CONSOLIDATED STATEMENT OF OPERATIONS (in thousands, except per share data) (unaudited) Three months Nine months ended June 30, ended June 30, ----------------- ----------------- 1998 1997 1998 1997 ------- ------- ------- ------- Net sales $ 91,693 $146,380 $334,864 $349,715 Cost of goods sold 61,508 92,544 213,347 221,863 ------- ------- ------- ------- Gross profit 30,185 53,836 121,517 127,852 Selling, general and administrative 21,252 22,527 64,014 57,490 Research and development, net 12,135 11,408 37,088 33,873 ------- ------- ------- ------- Income (loss) from operations (3,202) 19,901 20,415 36,489 Interest income 1,428 710 4,088 1,972 Interest expense (136) (548) (230) (2,267) Equity in loss of joint venture (2,312) (1,963) (6,853) (4,592) ------- ------- ------- ------- Income (loss) before income taxes (4,222) 18,100 17,420 31,602 Income tax provision (benefit) (1,098) 4,571 4,529 8,352 ------- ------- ------- ------- Net income (loss) $ (3,124) $ 13,529 $ 12,891 $ 23,250 ======= ======= ======= ======= Net income (loss) per share: Basic $(0.13) $0.64 $0.55 $1.16 ====== ===== ===== ===== Diluted $(0.13) $0.62 $0.54 $1.13 ====== ===== ===== ===== Weighted average shares outstanding: Basic 23,324 21,243 23,287 20,088 Diluted 23,324 21,773 23,678 20,607 The accompanying notes are an integral part of these consolidated financial statements.
KULICKE AND SOFFA INDUSTRIES, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands) (unaudited) Nine months ended June 30, 1998 1997 ------- ------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 12,891 $ 23,250 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 9,613 8,518 Equity in loss of joint venture 6,853 4,592 Deferred taxes on income (925) 621 Collection of refundable income taxes -- 6,212 Changes in other components of working capital (16,928) (35,733) Other, net (12) 436 ------- ------- Net cash provided by operating activities 11,492 7,896 ------- ------- INVESTING ACTIVITIES: Purchase of Semitec in 1997, net of cash acquired -- (4,510) Purchases of investments classified as available for sale (86,337) (4,163) Maturities of investments classified as available for sale 51,054 9,460 Maturities of investments classified as held-to-maturity -- 29 Purchases of property, plant and equipment (12,382) (8,989) Investments in and loans to joint venture (10,000) (15,282) ------- ------- Net cash used by investing activities (57,665) (23,455) ------- ------- FINANCING ACTIVITIES: Proceeds from issuances of common stock 377 102,973 Proceeds from borrowings -- -- Payments on borrowings -- (50,523) Payments on capital leases (757) (405) ------- ------- Net cash provided by financing activities (380) 52,045 ------- ------- Changes in cash and cash equivalents (46,553) 36,486 Cash and cash equivalents at beginning of year 107,605 45,344 ------- ------- Cash and cash equivalents at end of period $ 61,052 $ 81,830 ======= ======= The accompanying notes are an integral part of these consolidated financial statements.
KULICKE AND SOFFA INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands) (unaudited) NOTE 1 - BASIS OF PRESENTATION: The consolidated financial statement information included herein is unaudited, but in the opinion of management, contains all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the Company's financial position as of June 30, 1998 and September 30, 1997, and the results of its operations and its cash flows for the three and nine month periods ended June 30, 1998 and 1997. These financial statements should be read in conjunction with the audited financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1997. NOTE 2 - INVENTORY: June 30, September 30, 1998 1997 ------- ------- Raw materials and supplies $38,150 $28,237 Work in process 12,827 16,028 Finished goods 27,648 17,245 ------ ------ 78,625 61,510 Inventory reserves (15,937) (15,908) ------ ------ $62,688 $45,602 ====== ====== NOTE 3 - COMMON STOCK AND EARNINGS PER SHARE: In the fiscal 1998 first quarter ended December 31, 1997, the Company adopted Statement of Financial Accounting Standards No. 128, "Earnings Per Share," ("SFAS 128"). Under SFAS 128, primary earnings per share has been replaced by basic earnings per share, which includes only the weighted average number of common shares outstanding during the period and excludes the effect of stock options from the calculation. In addition, fully diluted earnings per share has been replaced by diluted earnings per share which includes the weighted average number of common shares and the dilutive effect of stock options outstanding during the period. All prior period earnings per share amounts have been restated to reflect the requirements of SFAS 128. For the fiscal 1998 third quarter ended June 30, 1998, the Company reported a net loss. For this period, the effect of stock options has been excluded from the sharebase used to compute diluted loss per share as the effect would be antidilutive. In May 1997, the Company completed the sale of 3,450,000 shares of its common stock in an underwritten offering, resulting in net proceeds to the Company approximating $101.1 million. A portion of these proceeds was used to repay the $50.0 million outstanding balance on the Company's bank revolving credit facility.
NOTE 4 - OPERATING RESULTS BY BUSINESS SEGMENT: Operating results by business segment for the nine month periods ended June 30, 1998 and 1997 were as follows: Packaging Corporate Nine months ended Equipment Materials and June 30, 1998: Segment Segment Eliminations Total --------- --------- ------------ -------- Net sales $251,680 $ 83,184 $334,864 Cost of goods sold 150,571 62,776 213,347 ------- ------- ------- Gross profit 101,109 20,408 121,517 Operating costs 77,133 17,733 $ 6,236 101,102 ------- ------- ------ ------- Income (loss) from operations $ 23,976 $ 2,675 $(6,236) 20,415 ======= ======= ====== Net interest income 3,858 Equity in loss of joint venture (6,853) ------- Income before taxes $ 17,420 ======= Identifiable assets at June 30, 1998 $157,407 $83,355 $121,599 $362,361 ======= ====== ======= ======= Packaging Corporate Nine months ended Equipment Materials and June 30, 1997: Segment Segment Eliminations Total --------- --------- ------------ -------- Net sales $270,007 $ 79,708 $349,715 Cost of goods sold 156,823 65,040 221,863 ------- ------- ------- Gross profit 113,184 14,668 127,852 Operating costs 70,280 15,403 $ 5,680 91,363 ------- ------- ------ ------- Income (loss) from operations $ 42,904 $ (735) $(5,680) 36,489 ======= ======= ====== Net interest expense (295) Equity in loss of joint venture (4,592) ------- Income before taxes $ 31,602 ======= Identifiable assets at June 30, 1997 $160,198 $86,881 $102,277 $349,356 ======= ====== ======= ======= Intersegment sales are immaterial.
NOTE 5 - SUBSEQUENT EVENTS: In response to lower demand for the Company's products, the Company has initiated actions to reduce manufacturing capacity and operating expenses including, among other things, reducing its worldwide workforce by approximately 10% to 15%. The Company began this resizing process in August 1998 and expects to complete the resizing actions and recognize associated charges, including severance and outplacement costs, during its fiscal 1998 fourth quarter. The Company has also taken actions to discontinue certain products. As a consequence, in the fiscal 1998 fourth quarter, the Company expects to incur charges approximating $2.5 million, principally to write-off manufacturing equipment and intangible assets, including goodwill related to these discontinued products. As of the date of this filing, the full scope of these resizing activities and product discontinuations, as well as other cost reduction measures, has not been finalized. Accordingly, the aggregate amount of charges associated with these actions is unknown but is currently expected to exceed $6.0 million.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Certain statements contained in this report are forward looking statements and are subject to risks and uncertainties that could cause actual results to differ materially. These risks and uncertainties include, but are not limited to the following: the risk of order postponements or cancellations; the risks associated with a substantial foreign customer base; the risks associated with instability in foreign capital markets and foreign currency fluctuations; the upward and downward volatility in demand for semiconductors and for the Company's products and services; the risk of delays in introduction and customer qualification of new products and services; competitive pricing pressures; the Company's ability to manufacture and ship its products on a timely basis; and the risk that certain customers may adopt alternate semiconductor assembly processes. Reference is made to a more detailed discussion of risk factors affecting the Company's business in other Company reports filed with the Securities and Exchange Commission including the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1997, and "Risk Factors" and other sections of the Company's Registration Statement on Form S-3 (33-69734) filed in May 1997. 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 volatile and experienced periodic slowdowns which have had a severe negative effect on the semiconductor industry's demand for capital equipment, including assembly equipment manufactured and sold by the Company and, to a lesser extent, packaging materials such as those sold by the Company. These slowdowns have 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 Company does not consider its business to be seasonal in nature. A significant portion of the Company's revenue is derived from sales of a relatively small number of machines, most with selling prices ranging from $60,000 to over $400,000. A delay in the shipment of a limited quantity of machines, either due to manufacturing delays, which occur from time to time, or from rescheduling or cancellations of customer orders, could have a material adverse effect on the Company's results of operations for any particular quarter. RESULTS OF OPERATIONS - Three and Nine Month Periods Ended June 30, 1998 and June 30, 1997. Demand for semiconductor assembly equipment, principally the Company's automatic gold ball bonders, has declined steadily during fiscal 1998 compared to a trend of sequential quarterly
increases in demand throughout fiscal 1997. Fiscal 1998 third quarter bookings totaled $55.0 million, compared to $151.0 million for the fiscal 1997 third quarter. For the nine-month period ended June 30, 1998, net bookings totaled $285.0 million, compared to $394.0 million booked during the same period in fiscal 1997. The backlog of customer orders totaled $67.0 million at June 30, 1998 compared to $115.0 million at June 30, 1997. Since the timing of deliveries may vary and orders generally are subject to delay or cancellation, the Company's backlog as of any date may not be indicative of sales for any succeeding period. Net sales for the three-month period ended June 30, 1998 totaled $91.7 million compared to $146.4 million for the third quarter of fiscal 1997. For the nine-month period ended June 30, 1998, net sales totaled $334.9 million compared to $349.7 million for the fiscal 1997 year-to-date period. By geographic region, sales destined for customer locations in Korea, the United States and Taiwan were down sharply for the nine-month period ended June 30, 1998, in relation to the corresponding period last year. These declines were offset in part by increases in Philippines and Malaysia. Equipment segment sales totaled $64.8 million for the fiscal 1998 third quarter, down sharply from the $92.9 million reported for the fiscal 1998 second quarter and the $117.7 million reported for the third quarter of fiscal 1997. For the nine-month period ended June 30, 1998, equipment segment net sales totaled $251.7 million, compared to the $270.0 million reported for the same period last year. For the three and nine-month periods ended June 30, 1998, unit sales of automatic gold ball bonders were approximately 75% and 32% lower, respectively, than the comparable periods last year. In addition, sales of upgrade kits and accessories were lower in both the fiscal 1998 third quarter and year-to-date periods compared to the same periods in fiscal 1997. These declines were partially offset in both the fiscal 1998 third quarter and year-to-date periods by increased unit sales of higher priced Model 8060 wedge bonders. Packaging materials sales totaled $26.9 million for the fiscal 1998 third quarter compared to the $28.7 million reported for the fiscal 1997 third quarter. Reduced volumes of gold and aluminum wire sales and lower average gold prices in fiscal 1998, offset in part by higher unit volume of Micro-Swiss and Semitec products were the primary reasons for this decline. For the nine-month period ended June 30, 1998, packaging materials sales totaled $83.2 million compared to $79.7 million for the same period last year. Unit sales volumes were generally higher for all packaging materials products for the fiscal 1998 nine-month period compared to the fiscal 1997 year-to-date period, but were offset in part by the effect of lower average gold prices on gold wire sales during fiscal 1998. Gross profit as a percentage of net sales was 32.9% in the fiscal 1998 third quarter compared to 36.8% during the fiscal 1997 third quarter. The fiscal 1998 decline resulted in part from a shift in the overall mix of product sales from higher margin equipment products to lower margin packaging materials products.
In addition, equipment segment gross profit margin decreased to 36.4% in the fiscal 1998 third quarter from 41.1% for the same period last year. This decrease resulted largely from reduced manufacturing overhead absorption due to lower fiscal 1998 unit volumes, vendor cancellation charges associated with customer order cancellations and lower than anticipated customer requirements, and reduced unit sales of higher margin upgrade kits and accessories compared to fiscal 1997 third quarter levels. These declines more than offset the favorable effect of increased unit sales of higher margin Model 8060 wedge bonders. Gross profit margins on packaging materials products increased to 24.6% in the fiscal 1998 third quarter compared to 18.6% for the same period last year. A shift in sales mix to higher margin expendable tools products in fiscal 1998 was the primary reason for this improvement. For the nine month period ended June 30, 1998, gross profit as a percentage of net sales totaled 36.3% compared to 36.6% for the same period last year. Gross profit margin in the equipment segment declined to 39.9% for the nine months ended June 30, 1998 compared to 41.8% for the same period last year. This decline reflects the fiscal 1998 effects of unfavorable manufacturing overhead absorption, vendor cancellation charges and reduced sales of higher margin machine upgrade kits and accessories, partially offset by increased sales of higher margin Model 8060 wedge bonders. The gross profit margin on packaging materials products increased to 25.2% for the first nine months of fiscal 1998 compared to 18.4% for the nine month period ended June 30, 1997, due in part to yield and throughput improvements in fiscal 1998, and to non- recurring costs incurred during the first half of fiscal 1997 associated with the relocation of the Micro-Swiss manufacturing facility and excess manufacturing capacity of Micro-Swiss. Selling, general and administrative ("SG&A") expenses declined to $21.3 million in the fiscal 1998 third quarter compared to $22.5 million for the third quarter of fiscal 1997. In the fiscal 1997 third quarter, the Company recognized a bad debt charge of $1.0 million. Excluding this item, SG&A costs were flat in the fiscal 1998 third quarter compared to the prior year. For the nine months ended June 30 1998, SG&A costs increased to $64.0 million compared to $57.5 million for the same period last year. This increase largely reflects increased sales, marketing and customer support costs associated with the launch of the new Model 8020 and 8060 wire bonders, higher sales and distribution infrastructure costs in the packaging materials segment and increased spending in connection with implementation of the Company's new enterprise business system. Net research and development ("R&D") costs totaled $12.1 million for the fiscal 1998 third quarter compared to $11.4 million during the third quarter of fiscal 1997. R&D costs increased to $37.1 million in the first nine months of fiscal 1998 compared to $33.9 million for the same period in fiscal 1997. The increase in fiscal 1998 R&D spending generally reflects increased internal labor costs, higher outside contract development costs and increased expenditures for prototype materials as the Company continues
development of additional products in the 8000 family of wire bonders, a new automatic dicing saw and increased R&D expenditures related to packaging materials products. For the fiscal 1998 third quarter, the Company incurred a $3.2 million loss from operations compared to $19.9 million in income from operations for the fiscal 1997 third quarter. The fiscal 1998 loss resulted principally from the rapid decline in equipment segment unit sales and gross profits. For the first nine months of fiscal 1998, operating income totaled $20.4 million compared to $36.5 million for the same period in fiscal 1997 due to the factors discussed above. Net interest income totaled $1.3 million for the fiscal 1998 third quarter compared to $162,000 for the same period last year. For the nine-month period ended June 30, 1998, net interest income totaled $3.9 million compared to net interest expense of $295,000 for the nine-month period ended June 30, 1997. During fiscal 1998, the Company remained essentially debt-free, principally as a result of the Company's May 1997 underwritten public offering of common stock which generated net proceeds of $101.1 million. A portion of the offering proceeds was used to repay the $50.0 million borrowed under the Company's bank revolving credit facility to fund the AFW acquisition. Such borrowings accounted for the majority of the fiscal 1997 interest expense. In the fiscal 1998 third quarter, the Company recognized a $2.3 million loss as its 51% equity interest in its joint venture investment in Flip Chip Technologies, LLC ("FCT") compared to the $2.0 million loss during the same period last year. For the nine months ended June 30, 1998, the Company's share of the loss totaled $6.9 million compared to the $4.6 million loss in the same period last year. Through June 1998, the Company has made capital contributions totaling $16.8 million. In addition, the Company has agreed to loan FCT up to $22.0 million to fund start-up operations, of which $15.0 million has been loaned through June 30, 1998. As a result of delays in the customers' evaluations of FCT's manufacturing process and the generally soft business environment in the semiconductor industry, FCT has not generated substantial operating revenues to date. The Company is currently working with FCT management to balance FCT's planned expense and spending levels with available financial resources. The joint venture is subject to numerous risks common to business arrangements of this nature. There can be no assurance that FCT will ever become profitable, that the Company will not make additional capital contributions and loans to FCT, or that the anticipated benefits of the joint venture will ever be realized. If the joint venture does not become profitable and cash flow positive, the Company's business, financial condition and operating results could be materially adversely affected. The Company's effective tax rate during the first nine months of fiscal 1998 approximated 26% compared to 29% for the 1997 fiscal year. The Company currently anticipates an operating loss, principally from its US-based operations during the fiscal 1998 fourth quarter. This loss and the change in the geographic distribution of taxable income from earlier estimates, could impact the amount of tax benefits recognizable in fiscal 1998.
COMPANY OUTLOOK The Company presently expects sales for the fiscal 1998 fourth quarter to be significantly lower than the fiscal 1998 third quarter, and to realize a loss from operating activities, before the effect of any actions to resize its operations. This soft business outlook generally reflects the effect of continued weakening in demand for the Company's products as a result slow PC sales and the ongoing financial crisis in the Asia/Pacific region. In response to lower demand for the Company's products, the Company has initiated actions to reduce manufacturing capacity and operating expenses including, among other things, reducing its worldwide workforce by approximately 10% to 15%. The Company began this resizing process in August 1998 and expects to complete the resizing actions and recognize associated charges, including severance and outplacement costs, during its fiscal 1998 fourth quarter. The Company has also taken actions to discontinue certain products. As a consequence, in the fiscal 1998 fourth quarter, the Company expects to incur charges approximating $2.5 million, principally to write-off manufacturing equipment and intangible assets, including goodwill related to these discontinued products. As of the date of this filing, the full scope of these resizing activities and product discontinuations, as well as other cost reduction measures, has not been finalized. Accordingly, the aggregate amount of charges associated with these actions is unknown but is currently expected to exceed $6.0 million. YEAR 2000: The Company has appointed an internal task force to assess its state of readiness for possible "Year 2000" issues. The task force is evaluating internal business systems, software and other components which affect the performance of Company's products, and the Company's vulnerability to possible "Year 2000" exposures due to suppliers and other third parties lack of preparedness for the year 2000. The Company is currently in the process of replacing the business and accounting systems of its equipment manufacturing sites in the US and Israel with a new enterprise business system which is "Year 2000" compliant. The Company's system implementation plan currently anticipates conversion to the new enterprise business system by the Willow Grove and Israeli equipment manufacturing facilities in fiscal 1999. The Company has conducted an evaluation of the operating software used in most of its equipment products currently being sold for possible "Year 2000" issues. Based on this assessment, the Company does not believe operation of such equipment will be affected by the transition to the year 2000. In addition, the Company has been in contact with its suppliers and other third parties to determine the extent to which they may
be vulnerable to "Year 2000" issues. As this assessment progresses, matters may come to the Company's attention which could give rise to the need for remedial measures which have not yet been identified. The Company cannot currently predict the potential effect of third parties' "Year 2000" issues on its business. With the exception of the Company's current business systems which are being replaced, and pending completion of the Company's "Year 2000" assessments currently in progress, the Company does not currently have a contingency plan for possible "Year 2000" issues. If computer systems used by the Company or its suppliers, or the operating software used in equipment products sold by the Company, fail or experience significant difficulties, the Company's results of operations could be materially adversely affected. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS: In June 1998, Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133") was issued. SFAS 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. This standard is effective for the Company's financial statements for all quarters in the fiscal year commencing October 1, 1999. Management has not completed its review of SFAS 133 and has not determined the impact adoption will have on the Company's financial statements. LIQUIDITY AND CAPITAL RESOURCES: During the past three fiscal years and the nine-month period ended June 30, 1998, the Company has financed its operations principally through cash flows from operating activities, while its acquisitions of AFW in October 1995 and Semitec in October 1996 were financed with borrowings. The Company's May 1997 public offering of common stock resulted in net proceeds to the Company of approximately $101.1 million. A portion of the proceeds from the offering was used to repay the Company's acquisition related borrowings. Cash generated by operating activities totaled $11.5 million for the first nine months of fiscal 1998 compared to $7.9 million during the first nine months of fiscal 1997. Cash and total investments decreased to $104.3 million at June 30, 1998 from the $115.6 million at September 30, 1997. At June 30, 1998, working capital increased to $200.1 million compared to $190.2 million at September 30, 1997. The accounts receivable balance at June 30, 1998 decreased by $26.7 million compared to the September 30, 1997 balance. This decline resulted largely from the lower sales volume in the fiscal 1998 third quarter compared to the fiscal 1997 fourth quarter. Inventory increased by $17.1 million at June 30, 1998 compared to September 30, 1997 levels primarily due to the
unanticipated and substantial decline in customer demand for the Company's products, including certain order delays or cancellations within the Company's normal inventory purchasing lead-times. Trade accounts payable and accrued expenses decreased by approximately $21.8 million at June 30, 1998 compared to their September 30, 1997 balances. The decrease primarily resulted from reduced inventory purchases as result of the lower customer order rate, and lower accruals for management and sales incentive compensation due to the Company's reduced profitability level in fiscal 1998. During the first nine months of fiscal 1998, the Company invested approximately $12.4 million in property, plant and equipment. These investments were primarily to upgrade equipment used in manufacturing and R&D activities and for the Company's new enterprise business system. The principal capital projects planned for fiscal 1998 include the purchase of additional tooling and equipment necessary to manufacture the 8000 series of machines, the purchase of equipment necessary to upgrade manufacturing capabilities, primarily in the United States, Israel and Singapore, and additional investments in management information systems. See "Results of Operations" above for information concerning anticipated contributions and loans to FCT. A significant portion of the Company's consolidated earnings are attributable to undistributed earnings of certain of its foreign subsidiaries. Deferred income taxes have not been provided on that portion of undistributed foreign earnings which is expected to be indefinitely reinvested in foreign operations. If funds were required to be repatriated to fund the Company's operations or other financial obligations, substantial additional United States federal income tax expense could be required to be recognized. The Company currently has available the entire amount of a $60.0 million credit facility expiring March 26, 2003. There have been no borrowings under the Company's bank credit facilities during fiscal 1998. The Company believes that anticipated cash flows from operations, its working capital and amounts available under its revolving credit facilities will be sufficient to meet the Company's liquidity and capital requirements for at least the next 12 months, including any capital contributions and possible loans to FCT. 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.
PART II. OTHER INFORMATION. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits Exhibit 27.1 - Financial Data Schedule for the Quarterly Period Ended June 30, 1998 Exhibit 27.2 - Restated Financial Data Schedule for the Quarterly Period Ended June 30, 1997 Exhibit 27.3 - Restated Financial Data Schedule for the Quarterly Period Ended March 31, 1997 (b) Reports on Form 8-K No Reports on Form 8-K were filed during the quarter to which this Report relates. SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. KULICKE AND SOFFA INDUSTRIES, INC. Date: August 13, 1998 By: /s/ Clifford G. Sprague ------------------------------- Clifford G. Sprague Senior Vice President, Chief Financial Officer (Principal Financial Officer) By: /s/ Curtis A. Massey ------------------------------- Curtis A. Massey Vice President, Corporate Controller (Principal Accounting Officer)