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As a result, a major portion of our business is subject to the risks associated with international, and particularly Asia/Pacific, commerce, such as: · risks of war and civil disturbances or other events that may limit or disrupt manufacturing and markets; · seizure of our foreign assets, including cash; · longer payment cycles in foreign markets; · international exchange restrictions; · restrictions on the repatriation of our assets, including cash; · significant foreign and United States taxes on repatriated cash; · difficulties of staffing and managing dispersed international operations; · possible disagreements with tax authorities regarding transfer pricing regulations; · episodic events outside our control such as, for example, outbreaks of influenza; · tariff and currency fluctuations; · changing political conditions; · labor work stoppages and strikes in our factories or the factories of our suppliers; · foreign governments’ monetary policies and regulatory requirements; · less protective foreign intellectual property laws; and · legal systems which are less developed and may be less predictable than those in the United States. |
As a result, we are exposed to a number of significant risks, including: · decreased control over the manufacturing process for components and subassemblies; · changes in our manufacturing processes, in response to changes in the market, which may delay our shipments; · our inadvertent use of defective or contaminated raw materials; · the relatively small operations and limited manufacturing resources of some of our suppliers, which may limit their ability to manufacture and sell subassemblies, components or parts in the volumes we require and at acceptable quality levels and prices; · the reliability or quality issues with certain key subassemblies provided by single source suppliers as to which we may not have any short term alternative; · shortages caused by disruptions at our suppliers and subcontractors for a variety of reasons, including work stoppage or fire, earthquake, flooding or other natural disasters; · delays in the delivery of raw materials or subassemblies, which, in turn, may delay shipments to our customers; · loss of suppliers as a result of consolidation of suppliers in the industry; and · loss of suppliers because of their bankruptcy or insolvency. |
Operating Expenses The following table reflects operating expenses as a percentage of net revenue for fiscal 2010 and 2009: Selling, general and administrative (“SG&A”) An increase in SG&A expenses of $24.8 million during fiscal 2010 as compared to fiscal 2009 was primarily due to: · $14.7 million higher incentive compensation expense driven by current fiscal year net income as compared to a net loss during fiscal 2009; · $5.4 million increase in sales commissions due to higher net revenue for the current fiscal year; · $5.2 million higher equity-based compensation expense due to the following: · $2.3 million related to higher estimated percentage attainments for performance-based restricted stock, of which $0.3 million related to compensation as a result of the retirement of our Chief Executive Officer; · $1.5 million related to market-based restricted stock granted during fiscal 2010, of which $0.9 million related to compensation as a result of the retirement of our Chief Executive Officer, and; · $1.4 million related to time-based restricted stock granted during fiscal 2010. |
As a result, a major portion of our business is subject to the risks associated with international, and particularly Asia/Pacific, commerce, such as: • risks of war and civil disturbances or other events that may limit or disrupt manufacturing and markets; • seizure of our foreign assets, including cash; • longer payment cycles in foreign markets; • international exchange restrictions; • restrictions on the repatriation of our assets, including cash; • significant foreign and United States taxes on repatriated cash; • difficulties of staffing and managing dispersed international operations; • possible disagreements with tax authorities regarding transfer pricing regulations; • episodic events outside our control such as, for example, outbreaks of influenza; • tariff and currency fluctuations; • changing political conditions; • labor conditions and costs; • foreign governments’ monetary policies and regulatory requirements; • less protective foreign intellectual property laws; and • legal systems which are less developed and may be less predictable than those in the United States. |
As a result, we are exposed to a number of significant risks, including: • decreased control over the manufacturing process for components and subassemblies; • changes in our manufacturing processes, in response to changes in the market, which may delay our shipments; • our inadvertent use of defective or contaminated raw materials; • the relatively small operations and limited manufacturing resources of some of our suppliers, which may limit their ability to manufacture and sell subassemblies, components or parts in the volumes we require and at acceptable quality levels and prices; • the reliability or quality issues with certain key subassemblies provided by single source suppliers as to which we may not have any short term alternative; • shortages caused by disruptions at our suppliers and subcontractors for a variety of reasons, including work stoppage or fire, earthquake, flooding or other natural disasters; • delays in the delivery of raw materials or subassemblies, which, in turn, may delay shipments to our customers; • loss of suppliers as a result of consolidation of suppliers in the industry; and • loss of suppliers because of their bankruptcy or insolvency. |
As a result, a major portion of our business is subject to the risks associated with international, and particularly Asia/Pacific, commerce, such as: • risks of war and civil disturbances or other events that may limit or disrupt manufacturing and markets; • seizure of our foreign assets, including cash; • longer payment cycles in foreign markets; • international exchange restrictions; • restrictions on the repatriation of our assets, including cash; • significant foreign and United States taxes on repatriated cash; • difficulties of staffing and managing dispersed international operations; • possible disagreements with tax authorities regarding transfer pricing regulations; • episodic events outside our control such as, for example, an outbreak of Severe Acute Respiratory Syndrome or influenza; • tariff and currency fluctuations; • changing political conditions; • labor conditions and costs; • foreign governments’ monetary policies and regulatory requirements; • less protective foreign intellectual property laws; and • legal systems which are less developed and which may be less predictable than those in the United States. |
As a result, we are exposed to a number of significant risks, including: • lack of control over the manufacturing process for components and subassemblies; • changes in our manufacturing processes, in response to changes in the market, which may delay our shipments; • our inadvertent use of defective or contaminated raw materials; • relatively small operations and limited manufacturing resources of some of our suppliers, which may limit their ability to manufacture and sell subassemblies, components or parts in the volumes we require and at acceptable quality levels and prices; • reliability or quality problems with certain key subassemblies provided by single source suppliers as to which we may not have any short term alternative; • shortages caused by disruptions at our suppliers and subcontractors for a variety of reasons, including work stoppage or fire, earthquake, flooding or other natural disasters; • delays in the delivery of raw materials or subassemblies, which, in turn, may delay our shipments; • loss of suppliers as a result of consolidation of suppliers in the industry; and • loss of suppliers because of their bankruptcy or insolvency as a result of the global economic crisis. |
As a result, a major portion of our business is subject to the risks associated with international, and particularly Asia/Pacific, commerce, such as: • risks of war and civil disturbances or other events that may limit or disrupt manufacturing and markets; • seizure of our foreign assets, including cash; • longer payment cycles in foreign markets; • international exchange restrictions; • restrictions on the repatriation of our assets, including cash; • significant foreign and United States taxes on repatriated cash; • the difficulties of staffing and managing dispersed international operations; • possible disagreements with tax authorities regarding transfer pricing regulations; • episodic events outside our control such as, for example, an outbreak of Severe Acute Respiratory Syndrome or influenza; • tariff and currency fluctuations; • changing political conditions; • labor conditions and costs; • foreign governments’ monetary policies and regulatory requirements; • less protective foreign intellectual property laws; and • legal systems which are less developed and which may be less predictable than those in the United States. |
As a result, we are exposed to a number of significant risks, including: • lack of control over the manufacturing process for components and subassemblies; • changes in our manufacturing processes, in response to changes in the market, which may delay our shipments; • our inadvertent use of defective or contaminated raw materials; • the relatively small operations and limited manufacturing resources of some of our suppliers, which may limit their ability to manufacture and sell subassemblies, components or parts in the volumes we require and at acceptable quality levels and prices; • reliability or quality problems with certain key subassemblies provided by single source suppliers as to which we may not have any short term alternative; • shortages caused by disruptions at our suppliers and subcontractors for a variety of reasons, including work stoppage or fire, earthquake, flooding or other natural disasters; • delays in the delivery of raw materials or subassemblies, which, in turn, may delay our shipments; and • the loss of suppliers as a result of consolidation of suppliers in the industry. |
Some of the factors that may cause our revenues and/or operating margins to fluctuate significantly from period to period are: • market downturns; • the mix of products that we sell because, for example: • some lines of equipment within our business segments are more profitable than others; and • some sales arrangements have higher margins than others; • the volume and timing of orders for our products and any order postponements; • virtually all of our orders are subject to cancellation, deferral or rescheduling by the customer without prior notice and with limited or no penalties; • competitive pricing pressures may force us to reduce prices to retain the business; • higher than anticipated costs of development or production of new equipment models; • the availability and cost of the components for our products; • unanticipated delays in the development and manufacture of our new products and upgraded versions of our products and market acceptance of these products when introduced; • customers’ delay in purchasing our products due to anticipation that we or our competitors may introduce new or upgraded products; and • our competitors’ introduction of new products. |
As a result, a major portion of our business is subject to the risks associated with international, and particularly Asia/Pacific, commerce, such as: • risks of war and civil disturbances or other events that may limit or disrupt manufacturing and markets; • seizure of our foreign assets, including cash; • longer payment cycles in foreign markets; • international exchange restrictions; • restrictions on the repatriation of our assets, including cash; • significant foreign and United States taxes on repatriated cash; • the difficulties of staffing and managing dispersed international operations; • possible disagreements with tax authorities regarding transfer pricing regulations; • episodic events outside our control such as, for example, an outbreak of Severe Acute Respiratory Syndrome or influenza; • tariff and currency fluctuations; • changing political conditions; • labor conditions and costs; • foreign governments’ monetary policies and regulatory requirements; • less protective foreign intellectual property laws; and • legal systems which are less developed and which may be less predictable than those in the United States. |
As a result, we are exposed to a number of significant risks, including: • lack of control over the manufacturing process for components and subassemblies; • Changes in our manufacturing processes, in response to changes in the market, which may delay our shipments; • our inadvertent use of defective or contaminated raw materials; • the relatively small operations and limited manufacturing resources of some of our suppliers, which may limit their ability to manufacture and sell subassemblies, components or parts in the volumes we require and at acceptable quality levels and prices; • reliability or quality problems with certain key subassemblies provided by single source suppliers as to which we may not have any short term alternative; • shortages caused by disruptions at our suppliers and subcontractors for a variety of reasons, including work stoppage or fire, earthquake, flooding or other natural disasters; • delays in the delivery of raw materials or subassemblies, which, in turn, may delay our shipments; and • the loss of suppliers as a result of consolidation of suppliers in the industry. |
Some of the factors that may cause our revenues and/or operating margins to fluctuate significantly from period to period are: • market downturns; • the mix of products that we sell because, for example: • our test business has lower margins than assembly equipment and packaging materials; • some lines of equipment within our business segments are more profitable than others; and • some sales arrangements have higher margins than others; • the volume and timing of orders for our products and any order postponements; • virtually all of our orders are subject to cancellation, deferral or rescheduling by the customer without prior notice and with limited or no penalties; • competitive pricing pressures may force us to reduce prices to retain the business; • higher than anticipated costs of development or production of new equipment models; • the availability and cost of the components for our products; • unanticipated delays in the development and manufacture of our new products and upgraded versions of our products and market acceptance of these products when introduced; • customers’ delay in purchasing our products due to anticipation that we or our competitors may introduce new or upgraded products; and • our competitors’ introduction of new products. |
As a result, a major portion of our business is subject to the risks associated with international, and particularly Asia/Pacific, commerce, such as: • risks of war and civil disturbances or other events that may limit or disrupt markets; • seizure of our foreign assets, including cash; • longer payment cycles in foreign markets; • international exchange restrictions; • restrictions on the repatriation of our assets, including cash; • significant foreign and United States taxes on repatriated cash; • the difficulties of staffing and managing dispersed international operations; • possible disagreements with tax authorities regarding transfer pricing regulations; • episodic events outside our control such as, for example, an outbreak of Severe Acute Respiratory Syndrome or influenza; • tariff and currency fluctuations; • changing political conditions; • labor conditions and costs; • foreign governments’ monetary policies and regulatory requirements; • less protective foreign intellectual property laws; and • legal systems which are less developed and which may be less predictable than those in the United States. |
As a result, we are exposed to a number of significant risks, including: • lack of control over the manufacturing process for components and subassemblies; • changes in our manufacturing processes, in response to changes in the market, which may delay our shipments; • our inadvertent use of defective or contaminated raw materials; • the relatively small operations and limited manufacturing resources of some of our suppliers, which may limit their ability to manufacture and sell subassemblies, components or parts in the volumes we require and at acceptable quality levels and prices; • reliability or quality problems with certain key subassemblies provided by single source suppliers as to which we may not have any short term alternative; • shortages caused by disruptions at our suppliers and subcontractors for a variety of reasons, including work stoppage or fire, earthquake, flooding or other natural disasters; • delays in the delivery of raw materials or subassemblies, which, in turn, may delay our shipments; and • the loss of suppliers as a result of consolidation of suppliers in the industry. |
Some of the factors that may cause our revenues and/or operating margins to fluctuate significantly from period to period are: • market downturns; • the mix of products that we sell because, for example: • our test division has lower margins than assembly equipment and packaging materials; • some lines of equipment within our business segments are more profitable than others; and • some sales arrangements have higher margins than others; • the volume and timing of orders for our products and any order postponements; • virtually all of our orders are subject to cancellation, deferral or rescheduling by the customer without prior notice and with limited or no penalties; • changes in our pricing, or that of our competitors; • higher than anticipated costs of development or production of new equipment models; • the availability and cost of the components for our products; • unanticipated delays in the introduction of our new products and upgraded versions of our products and market acceptance of these products when introduced; • customers’ delay in purchasing our products due to customer anticipation that we or our competitors may introduce new or upgraded products; and • our competitors’ introduction of new products. |
As a result, a major portion of our business is subject to the risks associated with international, and particularly Asia/Pacific, commerce, such as: • terrorism, war and civil disturbances or other events that may limit or disrupt markets; • expropriation of our foreign assets; • longer payment cycles in foreign markets; • international exchange restrictions; • restrictions on the repatriation of our assets, including cash; • possible disagreements with tax authorities regarding transfer pricing regulations; • the difficulties of staffing and managing dispersed international operations; • episodic events outside our control such as, for example, the outbreak of Severe Acute Respiratory Syndrome; • tariff and currency fluctuations; • changing political conditions; • labor conditions and costs; • foreign governments’ monetary policies and regulatory requirements; • less protective foreign intellectual property laws; and • legal systems which are less developed and which may be less predictable than those in the United States. |
As a result, we are exposed to a number of significant risks, including: • lack of control over the manufacturing process for components and subassemblies; • changes in our manufacturing processes, in response to changes in the market, which may delay our shipments; • our inadvertent use of defective or contaminated raw materials; • the relatively small operations and limited manufacturing resources of some of our suppliers, which may limit their ability to manufacture and sell subassemblies, components or parts in the volumes we require and at acceptable quality levels and prices; • reliability or quality problems with certain key subassemblies provided by single source suppliers as to which we may not have any short term alternative; • shortages caused by disruptions at our suppliers and subcontractors for a variety of reasons, including work stoppage or fire, earthquake, flooding or other natural disasters; • delays in the delivery of raw materials or subassemblies, which, in turn, may delay our shipments; and • the loss of suppliers as a result of the consolidation of suppliers in the industry. |
Some of the factors that may cause our revenues and/or operating margins to fluctuate significantly from period to period are: • market downturns; • the mix of products that we sell because, for example: - our test interconnect business has lower margins than assembly equipment and packaging materials; - some lines of equipment are more profitable than others; and - some sales arrangements have higher margins than others; • the volume and timing of orders for our products and any order postponements; • virtually all of our orders are subject to cancellation, deferral or rescheduling by the customer without prior notice and with limited or no penalties; • adverse changes in our pricing, or that of our competitors; • higher than anticipated costs of development or production of new equipment models; • the availability and cost of key components for our products; • market acceptance of our new products and upgraded versions of our products; • customers’ delay in purchasing our products due to customer anticipation that we may introduce new or upgraded products; and • our competitors’ introduction of new products. |
As a result, we are exposed to a number of significant risks, including: • lack of control over the manufacturing process for components and subassemblies; • changes in our manufacturing processes, dictated by changes in the market, that may delay our shipments; • our inadvertent use of defective or contaminated raw materials; • the relatively small operations and limited manufacturing resources of some of our suppliers, which may limit their ability to manufacture and sell subassemblies, components or parts in the volumes we require and at acceptable quality levels and prices; • the risk of reliability or quality problems with certain key subassemblies provided by single source suppliers as to which we may not have any short term alternative; • shortages caused by disruptions at our suppliers and subcontractors for a variety of reasons, including work stoppage, fire, earthquake, flooding or other natural disasters; • delays in the delivery of raw materials or subassemblies, which, in turn, may delay our shipments; and • the loss of suppliers as a result of the consolidation of suppliers in the industry. |
Some of the factors that could cause our revenues and/or operating margins to fluctuate significantly from period to period are: • market downturns; • the mix of products that we sell because, for example: - some packaging materials have lower margins than assembly equipment and test interconnect solutions; - some lines of equipment are more profitable than others; and - some sales arrangements have higher margins than others; • the volume and timing of orders for our products and any order postponements and cancellations by our customers; • the cancellation, deferral or rescheduling of orders, because virtually all orders are subject to cancellation, deferral or rescheduling by the customer without prior notice and with limited or no penalties; • adverse changes in our pricing, or that of our competitors; • higher than anticipated costs of development or production of new equipment models; • the availability and cost of key components for our products; • market acceptance of our new products and upgraded versions of our products; • our announcement, or perception by others, that we will introduce new or upgraded products, which could cause customers to delay purchasing our products; • the timing of acquisitions; and • our competitors’ introduction of new products. |
As a result, we are exposed to a number of significant risks, including: • loss of control over the manufacturing process; • changes in our manufacturing processes, dictated by changes in the market, that may delay our shipments; • our inadvertent use of defective or contaminated raw materials; • the relatively small operations and limited manufacturing resources of some of our contractors and suppliers, which may limit their ability to manufacture and sell subassemblies, components or parts in the volumes we require and at quality levels and prices we can accept; • reliability and quality problems we experience with certain key subassemblies provided by single source suppliers; • the exposure of our suppliers and subcontractors to disruption for a variety of reasons, including work stoppage, fire, earthquake, flooding or other natural disasters; • delays in the delivery of raw materials or subassemblies, which, in turn, may cause delays in some of our shipments; and • the loss of suppliers as a result of the consolidation of suppliers in the industry. |
EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) The following documents are filed as part of this report: (1) Financial Statements-Kulicke and Soffa Industries, Inc.: Report of Independent Accountants Consolidated Balance Sheets at September 30, 2002 and 2001 Consolidated Statements of Operations for the fiscal years ended September 30, 2002, 2001 and 2000 Consolidated Statements of Cash Flows for the fiscal years ended September 30, 2002, 2001 and 2000 Consolidated Statements of Changes in Shareholders’ Equity for the fiscal years ended September 30, 2002, 2001 and Notes to Consolidated Financial Statements 50-79 (2) Financial Statement Schedules: II-Valuation and Qualifying Accounts 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(i) Agreement and Plan of Merger, dated as of October 11, 2000, by and among Kulicke and Soffa Industries, Inc., Cardinal Merger Sub., Inc. and Cerprobe Corporation is incorporated herein by reference from Exhibit D(1) to the Company’s Form TO filed on October 25, 2000. |
NOTE 10: INCOME TAXES Income (loss) before income taxes and after minority interest in net loss consisted of the following: FISCAL YEAR ENDED SEPTEMBER 30, ---------------------------------------- 1999 1998 1997 -------- -------- -------- United States operations $(43,663) $(17,953) $ 32,879 Foreign operations 18,496 10,596 18,903 -------- -------- -------- $(25,167) $ (7,357) $ 51,782 ======== ======== ======== The provision (benefit) for income taxes included the following: FISCAL YEAR ENDED SEPTEMBER 30, ---------------------------------------- 1999 1998 1997 -------- -------- -------- Current: Federal $ (2,218) $ (7,210) $ 8,722 State 50 50 700 Foreign 2,410 4,155 3,797 Deferred: Federal (8,613) 840 244 Foreign 150 248 -- -------- -------- -------- $ (8,221) $ (1,917) $ 13,463 ======== ======== ======== The provision (benefit) for income taxes differed from the amount computed by applying the statutory federal income tax rate as follows: Undistributed earnings of certain foreign subsidiaries for which taxes have not been provided approximate $40,447 at September 30, 1999. |
The net deferred tax balance is composed of the tax effects of cumulative temporary differences, as follows: SEPTEMBER 30, --------------------------- 1999 1998 -------- -------- Repatriation of foreign earnings, including foreign withholding taxes $ 12,414 $ 12,264 Depreciable assets 2,592 2,073 Prepaid expenses and other 1,541 831 -------- -------- Total deferred tax liability 16,547 15,168 -------- -------- SEPTEMBER 30, --------------------------- 1999 1998 -------- -------- Inventory reserves 2,291 3,299 Warranty accrual 655 750 Other accruals and reserves 2,298 3,621 Intangible assets 1,446 -- Domestic NOL carryforwards 19,430 3,894 Foreign NOL carryforwards 6,359 4,436 Domestic tax credit carryforwards 5,409 6,730 Deferred intercompany profit 1,945 2,137 -------- -------- 39,833 24,867 Valuation allowance (12,215) (7,091) -------- -------- Total deferred tax asset 27,618 17,776 -------- -------- Net deferred tax asset $ 11,071 $ 2,608 ======== ======== Realization of deferred tax assets associated with the net operating loss and tax credit carryforwards is dependent upon generating sufficient taxable income prior to their expiration in the respective tax jurisdictions. |
The table below presents destination sales to unaffiliated customers and long-lived assets by country: DESTINATION LONG-LIVED FISCAL YEAR ENDED SEPTEMBER 30, 1999 SALES ASSETS - ------------------------------------ ----------- --------- TAIWAN $ 93,317 $ 606 UNITED STATES 69,353 230,337 SINGAPORE 44,642 48,653 PHILIPPINES 42,607 656 MALAYSIA 40,172 127 JAPAN 19,262 13,738 HONG KONG 19,096 4,875 ISRAEL 1,007 20,300 ALL OTHER 69,461 5,503 -------- -------- $398,917 $324,795 ======== ======== DESTINATION LONG-LIVED FISCAL YEAR ENDED SEPTEMBER 30, 1998 SALES ASSETS - ------------------------------------ ----------- --------- Taiwan $ 82,957 $ 660 United States 82,053 123,308 Philippines 70,675 796 Malaysia 63,817 149 Singapore 18,932 39,095 Korea 15,205 309 Hong Kong(1) 14,815 6,863 Israel 1,397 24,834 All other 61,189 11,872 -------- -------- $411,040 $207,886 ======== ======== (1) The reduction in assets from $44,526 in fiscal 1997 to $6,863 in fiscal 1998 was due to lower accounts receivable resulting from the centralization of the Company's invoicing practices, for equipment sales, to the US. |
Signature Title Date - ----------------------------- --------------------- ----------------- /s/ C. SCOTT KULICKE - ----------------------------- C. Scott Kulicke Chairman of the Board December 20, 1999 (Principal Executive Officer) and Director /s/ CLIFFORD G. SPRAGUE - ----------------------------- Clifford G. Sprague Senior Vice President December 20, 1999 (Principal Financial Officer) and Chief Financial Officer /s/ JAMES W. BAGLEY - ----------------------------- James W. Bagley Director December 20, 1999 /s/ FREDERICK W. KULICKE, JR - ----------------------------- Frederick W. Kulicke, Jr. Director December 20, 1999 /s/ JOHN A. O'STEEN - ----------------------------- John A. O'Steen Director December 20, 1999 /s/ ALLISON F. PAGE - ----------------------------- Allison F. Page Director December 20, 1999 /s/ MACDONELL ROEHM, JR. - ----------------------------- MacDonell Roehm, Jr. Director December 20, 1999 /s/ LARRY D. STRIPLIN, JR. - ----------------------------- Larry D. Striplin, Jr. Director December 20, 1999 /s/ C. WILLIAM ZADEL - ----------------------------- C. William Zadel Director December 20, 1999 [THIS PAGE INTENTIONALLY LEFT BLANK] EXHIBIT INDEX EXHIBIT NUMBER ITEM - -------- ------------------------------------------------------------------ 10(vi) The Company's 1988 Non-Qualified Stock Option Plan for Non-Officer Directors (as amended and restated effective February 9, 1999). |
The net deferred tax balance is composed of the tax effects of cumulative temporary differences, as follows: September 30, -------------------------- 1998 1997 -------- -------- Repatriation of foreign earnings, including foreign withholding taxes $ 12,264 $ 3,711 Depreciable assets 2,073 1,832 Prepaid expenses and other 831 906 -------- -------- Total deferred tax liability 15,168 6,449 -------- -------- Inventory reserves 3,299 2,846 Warranty accrual 750 1,461 Other accruals and reserves 3,621 1,875 Acquired domestic NOL carryforwards 3,894 2,162 Foreign NOL carryforwards 4,436 2,492 Domestic tax credits carryforward 6,730 -- Deferred intercompany profit 2,137 1,788 -------- -------- 24,867 12,624 Valuation allowance (7,091) (4,654) -------- -------- Total deferred tax asset 17,776 7,970 -------- -------- Net deferred tax asset $ 2,608 $ 1,521 ======== ======== Realization of deferred tax assets associated with the net operating loss and tax credit carryforwards is dependent upon generating sufficient taxable income prior to their expiration in the respective tax jurisdictions. |
FLIP CHIP TECHNOLOGIES, LLC STATEMENTS OF OPERATIONS FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997 AND FOR THE PERIOD FROM INCEPTION (FEBRUARY 28, 1996) THROUGH SEPTEMBER 30, 1996 1998 1997 1996 ------------ ------------ ------------ NET REVENUE $ 4,342,133 $ 887,332 $ 98,639 COST OF MANUFACTURING 15,195,257 9,264,540 629,954 ------------ ------------ ------------ Gross margin (10,853,124) (8,377,208) (531,315) OPERATING EXPENSES: Technology development 530,816 507,467 85,521 Sales and marketing 2,524,974 2,574,042 656,171 General and administrative 1,805,229 1,735,161 745,236 Licensing 214,033 -- -- ------------ ------------ ------------ 5,075,052 4,816,670 1,486,928 ------------ ------------ ------------ LOSS FROM OPERATIONS (15,928,176) (13,193,878) (2,018,243) ------------ ------------ ------------ OTHER INCOME (EXPENSE): Interest income 55,865 118,095 68,708 Other income 53,023 -- -- Interest expense (1,268,118) (63,685) -- ------------ ------------ ------------ (1,159,230) 54,410 68,708 ------------ ------------ ------------ NET LOSS $(17,087,406) $(13,139,468) $ (1,949,535) ============ ============ ============ The accompanying notes are an integral part of these statements. |
Income Statement Data: Fiscal Year Ended September 30, ------------------------------------------------- 1997 1996(a) 1995 1994 1993 -------- -------- -------- -------- -------- (in thousands, except per share amounts) Net sales $501,907 $381,176 $304,509 $173,302 $140,880 Gross profit 183,905 141,685 137,052 71,968 61,675 Income from operations 57,663 17,418 55,440 13,930 14,280 Net income (b) 38,319 11,847 42,822 10,418 10,831 Net income per share: Primary $1.78 $0.60 $2.38 $0.63 $0.66 Fully diluted $1.78 $0.60 $2.22 $0.63 $0.66 Weighted average shares outstanding: Primary 21,551 19,773 18,028 16,665 16,342 Fully diluted 21,551 19,773 19,693 16,665 16,342 Balance Sheet Data: September 30, ------------------------------------------------- 1997 1996(a) 1995 1994 1993 ------- ------- ------- ------- -------- (in thousands) Working capital $190,220 $113,804 $103,833 $ 61,459 $ 58,190 Total assets 376,819 249,554 191,029 121,198 105,278 Long-term debt, less current portion 220 50,712 156 26,474 26,708 Shareholders' equity (c) 291,927 147,489 133,647 63,234 51,481 (a) See footnote 2 of the Notes to the Consolidated Financial Statements for a detailed discussion of the October 2, 1995 AFW acquisition. |
/s/ Price Waterhouse LLP - ------------------------ Philadelphia, Pennsylvania November 13, 1997 KULICKE AND SOFFA INDUSTRIES, INC. CONSOLIDATED BALANCE SHEET (in thousands) September 30, ------------------- 1997 1996 -------- ------- ASSETS CURRENT ASSETS: Cash and cash equivalents (including time deposits; 1997 - $723; 1996 - $2,925) $107,605 $ 45,344 Short-term investments 7,982 13,078 Accounts and notes receivable (less allowance for doubtful accounts; 1997 - $2,149; 1996 - $1,227) 105,103 47,456 Inventories, net 45,602 44,519 Prepaid expenses and other current assets 4,391 4,277 Refundable income taxes -- 6,212 Deferred income taxes 1,521 1,765 ------- ------- TOTAL CURRENT ASSETS 272,204 162,651 Property, plant and equipment, net 45,648 41,143 Intangible assets, primarily goodwill, net 42,724 42,049 Long-term investments -- 449 Investment in and loans to joint venture 14,135 1,556 Other assets 2,108 1,706 ------- ------- TOTAL ASSETS $376,819 $249,554 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt $ 780 $ 491 Accounts payable 47,408 23,032 Accrued expenses 24,932 18,389 Income taxes payable 8,864 6,935 ------- ------- TOTAL CURRENT LIABILITIES 81,984 48,847 Long-term debt 220 50,712 Other liabilities 2,688 2,506 ------- ------- TOTAL LIABILITIES 84,892 102,065 Commitments and contingencies (Notes 6 and 13) -- -- SHAREHOLDERS' EQUITY: Preferred stock, without par value: Authorized - 5,000 shares; issued - none -- -- Common stock, without par value: Authorized - 50,000 shares; issued and outstanding: 1997 - 23,237; 1996 - 19,433 155,246 48,733 Retained earnings 139,404 101,085 Cumulative translation adjustment (2,723) (2,329) ------- ------- TOTAL SHAREHOLDERS' EQUITY 291,927 147,489 ------- ------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $376,819 $249,554 ======= ======= The accompanying notes are an integral part of these consolidated financial statements. |
KULICKE AND SOFFA INDUSTRIES, INC. CONSOLIDATED INCOME STATEMENT (in thousands, except per share amounts) Fiscal Year Ended September 30, ------------------------------------ 1997 1996 1995 --------- --------- --------- Net sales $501,907 $381,176 $304,509 Cost of goods sold 318,002 239,491 167,457 ------- ------- ------- Gross profit 183,905 141,685 137,052 Selling, general and administrative 80,212 71,863 50,728 Research and development, net 46,030 52,404 30,884 ------- ------- ------- Income from operations 57,663 17,418 55,440 Interest income 3,151 3,124 1,580 Interest expense (2,331) (3,288) (1,407) Equity in loss of joint venture (6,701) (994) -- Other expense -- (630) -- ------- ------- ------- Income before taxes 51,782 15,630 55,613 Provision for income taxes 13,463 3,783 12,791 ------- ------- ------- Net income $ 38,319 $ 11,847 $ 42,822 ======= ======= ======= Net income per share: Primary $1.78 $0.60 $2.38 Fully diluted $1.78 $0.60 $2.22 Weighted average shares outstanding: Primary 21,551 19,773 18,028 Fully diluted 21,551 19,773 19,693 The accompanying notes are an integral part of these consolidated financial statements. |
KULICKE AND SOFFA INDUSTRIES, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands) Fiscal Year Ended September 30, ------------------------------- 1997 1996 1995 --------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 38,319 $ 11,847 $ 42,822 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 11,329 9,658 4,947 Provision for doubtful accounts 1,065 178 826 Deferred taxes on income 244 (2,125) (718) Provision for inventory reserves 4,153 4,547 2,758 Equity in loss of joint venture 6,701 994 -- Changes in components of working capital, excluding effects of business acquisitions: Decrease (increase) in accounts receivable (57,960) 38,959 (37,995) Decrease (increase) in inventories (4,761) (6,358) (16,390) Increase in prepaid expenses and other current assets (35) (483) (1,107) Collection of refundable income taxes 6,212 -- -- Increase (decrease) in accounts payable and accrued expenses 30,668 (11,632) 20,903 Increase (decrease) in net taxes payable 3,527 (8,076) 5,158 Other, net 726 1,364 844 ------- ------- ------- Net cash provided by operating activities 40,188 38,873 22,048 ------- ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of net assets of Semitec in 1997; AFW in 1996, net of cash acquired (4,510) (43,020) -- Purchases of investments classified as available-for-sale (4,451) (28,512) (12,612) Proceeds from sales or maturities of investments: Classified as available-for-sale 9,967 26,802 16,631 Classified as held-to-maturity -- 505 2,082 Purchases of plant and equipment (13,516) (18,028) (10,777) Proceeds from sale of property and equipment -- 781 1,067 Investments in and loans to joint venture (19,280) (2,550) -- ------- ------- ------- Net cash used by investing activities (31,790) (64,022) (3,609) ------- ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments on borrowings, including capitalized leases (51,065) (8,537) (60) Proceeds from borrowings -- 50,000 -- Proceeds from issuances of common stock 104,905 394 1,484 ------- ------- ------- Net cash provided by financing activities 53,840 41,857 1,424 ------- ------- ------- EFFECT OF EXCHANGE RATE CHANGES ON CASH 23 12 7 ------- ------- ------- CHANGE IN CASH AND CASH EQUIVALENT 62,261 16,720 19,870 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 45,344 28,624 8,754 ------- ------- ------- CASH AND CASH EQUIVALENTS AT END OF YEAR $107,605 $ 45,344 $ 28,624 ======= ======= ======= The accompanying notes are an integral part of these consolidated financial statements. |
KULICKE AND SOFFA INDUSTRIES, INC. CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (in thousands) Unrealized Cumulative Gain/ Total Common Stock Retained Translation (Loss) on Shareholders' Shares Amount Earnings Adjustment Investments Equity ------ ------ -------- ----------- ----------- ---------- Balances at September 30, 1994 16,499 $ 17,839 $ 46,416 $ (841) $ (180) $ 63,234 Purchases under the employee stock purchase plan 119 556 -- -- -- 556 Employer contributions to the 401(k) plan 12 118 -- -- -- 118 Exercise of stock options 217 928 -- -- -- 928 Tax benefit from exercise of stock options -- 154 -- -- -- 154 Shares issued upon conversion of subordinated debt 2,463 26,162 -- -- -- 26,162 Translation adjustment -- -- -- (507) -- (507) Unrealized gain on investments -- -- -- -- 180 180 Net income -- -- 42,822 -- -- 42,822 ------ ------ ------- ------ -------- ------- Balances at September 30, 1995 19,310 45,757 89,238 (1,348) -- 133,647 Employer contribution to the 401(k) plan 84 1,580 -- -- -- 1,580 Exercise of stock options 39 394 -- -- -- 394 Tax benefit from exercise of stock options -- 1,002 -- -- -- 1,002 Translation adjustment -- -- -- (981) -- (981) Net income -- -- 11,847 -- -- 11,847 ------ ------ ------- ------ -------- ------- Balances at September 30, 1996 19,433 48,733 101,085 (2,329) -- 147,489 Shares sold 3,450 101,103 -- -- -- 101,103 Employer contributions to the 401(k) plan 92 1,793 -- -- -- 1,793 Exercise of stock options 262 2,009 -- -- -- 2,009 Tax benefit from exercise of stock options -- 1,608 -- -- -- 1,608 Translation adjustment -- -- -- (394) -- (394) Net income -- -- 38,319 -- -- 38,319 ------ ------ ------- ------ -------- ------- Balances at September 30, 1997 23,237 $155,246 $139,404 $(2,723) $ -- $291,927 ====== ======= ======= ====== ======== ======= The accompanying notes are an integral part of these consolidated financial statements. |
Investments, excluding cash equivalents, consisted of the following at September 30, 1997 and 1996: September 30, 1997 September 30, 1996 ------------------------- ----------------------- Unrealized Unrealized Fair Gains/ Cost Fair Gains/ Cost Value (Losses) Basis Value (Losses) Basis ----- -------- ----- ----- -------- ----- Available-for-sale: U.S. Treasury bills maturing in less than one year $ -- $ -- $ -- $ 5,969 $ -- $ 5,969 Adjustable rate notes 5,062 -- 5,062 4,808 -- 4,808 ----- ------ ----- ------ ---- ------ Short-term investments classified as available for sale $5,062 $ -- $5,062 $10,777 $ -- $10,777 ===== ====== ===== ====== ==== ====== Held-to-maturity: Corporate bonds with weighted average maturity less than three years $2,898 $ (22) $2,920 $ 2,690 $ (60) $ 2,750 ===== ====== ====== ==== Less: Short-term investments classified as held-to maturity 2,920 2,301 ----- ----- Held-to-maturity investments maturing after one year, within five years $ -- $ 449 ===== ====== NOTE 5: INVENTORIES September 30, ------------------- 1997 1996 -------- -------- Raw materials and supplies $ 28,237 $ 29,985 Work in process 16,028 9,862 Finished goods 17,245 16,427 ------- ------- 61,510 56,274 Inventory reserves (15,908) (11,755) ------- ------- $ 45,602 $ 44,519 ======= ======= NOTE 6: PROPERTY, PLANT AND EQUIPMENT September 30, ------------------- 1997 1996 -------- -------- Land $ 1,453 $ 1,442 Buildings and building improvements 19,583 16,457 Machinery and equipment 63,187 56,524 Leasehold improvements 4,039 2,767 ------- ------- 88,262 77,190 Accumulated depreciation (42,614) (36,047) ------- ------- $ 45,648 $ 41,143 ======= ======= The Company has obligations under various operating leases, primarily for manufacturing and office facilities, which expire periodically through 2002. |
The following summarizes all employee stock option activity for the three years ended September 30, 1997: September 30, ---------------------------------------------- 1997 1996 1995 -------------- -------------- ------------- Average Average Average Exercise Exercise Exercise Options Price Options Price Options Price ------- ----- ------- ----- ------ ----- (Share amounts in thousands) Options outstanding at beginning of period 815 $15.08 618 $ 6.93 472 $ 5.30 Granted or reissued 552 12.00 259 32.84 350 8.06 Exercised (231) 7.72 (37) 6.24 (130) 4.21 Terminated or canceled (64) 15.94 (25) 10.60 (74) 6.66 ----- ----- ---- ----- ---- ----- Options outstanding at end of period 1,072 $15.05 815 $15.08 618 $ 6.93 ====== ===== ==== ===== ==== ===== Options exercisable at end of period 132 $12.35 223 $ 6.47 147 $ 4.52 ====== ===== ==== The Company also maintains a stock option plan for non-officer directors (the "Director Plan") pursuant to which options to purchase 5,000 shares of the Company's Common Stock at an exercise price of 100% of the market price on the date of grant are issued to each non-officer director each year. |
NOTE 10: INCOME TAXES Income before income taxes consisted of the following: Fiscal Year Ended September 30, ------------------------------- 1997 1996 1995 ------- ------- ------- United States operations $32,879 $ (361) $31,249 Foreign operations 18,903 15,991 24,364 ------ ------ ------ $51,782 $15,630 $55,613 ====== ====== ====== The provision for income taxes included the following: Fiscal Year Ended September 30, ------------------------------- 1997 1996 1995 ------- ------- ------- Current: Federal $ 8,722 $ 2,523 $ 9,470 State 700 25 600 Foreign 3,797 3,360 3,439 Deferred: Federal 244 (2,625) (898) Foreign -- 500 180 ------ ------- ------ $13,463 $ 3,783 $12,791 ====== ======= ====== The provision for income taxes differed from the amount computed by applying the statutory federal income tax rate as follows: Fiscal Year Ended September 30, ------------------------------- 1997 1996 1995 ------- ------- ------- Computed income tax expense based on U.S. statutory rate $18,124 $ 5,471 $19,465 Effect of earnings of foreign subsidiaries subject to different tax rates (1,212) (1,017) (811) Benefits from Israeli Approved Enterprise Zones (1,049) (1,660) (1,470) Benefits of net operating loss and tax credit carryforwards and change in valuation allowance (1,819) -- (3,493) Non-deductible goodwill amortization 659 613 -- Provision for repatriation of certain foreign earnings, including foreign withholding taxes -- 500 180 Effect of revisions of prior year's estimated taxes (205) 562 (505) Benefits of Foreign Sales Corporation (985) (1,027) (533) Other, net (50) 341 (42) ------ ------- ------ $13,463 $ 3,783 $12,791 ====== ======= ====== Undistributed earnings of certain foreign subsidiaries for which taxes have not been provided approximate $75,026 at September 30, 1997. |
The net deferred tax balance is comprised of the tax effects of cumulative temporary differences, as follows: September 30, ---------------- 1997 1996 ------ ------ Repatriation of foreign earnings, including foreign withholding taxes $ 3,711 $ 3,711 Depreciable assets 1,832 1,870 Prepaid expenses and other 906 226 ------ ------ Total deferred tax liability 6,449 5,807 ------ ------ Inventory reserves 2,846 2,755 Warranty accrual 1,461 980 Other accruals and reserves 1,875 1,828 Acquired domestic NOL carryforwards 2,162 2,512 Foreign NOL carryforwards 2,492 1,519 Domestic tax credit carryforward -- 1,084 Deferred intercompany profit 1,788 2,009 ------ ------ 12,624 12,687 Valuation allowance (4,654) (5,115) ------ ------ Total deferred tax asset 7,970 7,572 ------ ------ Net deferred tax asset $ 1,521 $ 1,765 ====== ====== Realization of deferred tax assets associated with the net operating loss carryforwards is dependent upon generating sufficient taxable income prior to their expiration in the respective tax jurisdictions. |
Additional information by geographic area for the fiscal years ended September 30, 1997, 1996 and 1995 is as follows: Fiscal Year Ended September 30, ------------------------------- 1997 1996 1995 -------- -------- -------- Sales to unaffiliated customers: United States $194,700 $173,110 $146,577 Hong Kong 223,421 138,859 143,429 Israel 1,582 1,312 773 Singapore 62,472 48,600 572 Rest of world 19,732 19,295 13,158 ------- ------- ------- Consolidated $501,907 $381,176 $304,509 ======= ======= ======= Transfers between geographic areas: United States $256,222 $167,933 $158,543 Hong Kong 459 327 51 Israel 61,573 51,603 38,646 Singapore 406 76 -- Rest of world 401 392 24 Adjustments and eliminations (319,061) (220,331) (197,264) ------- ------- ------- Consolidated $ -- $ -- $ -- ======= ======= ======= Total net sales: United States $450,922 $341,043 $305,120 Hong Kong 223,880 139,186 143,480 Israel 63,155 52,915 39,419 Singapore 62,878 48,676 572 Rest of world 20,133 19,687 13,182 Adjustments and eliminations (319,061) (220,331) (197,264) ------- ------- ------- Consolidated $501,907 $381,176 $304,509 ======= ======= ======= Operating income (loss): United States $ 47,350 $ 7,704 $ 37,530 Hong Kong 13,873 11,672 14,841 Israel 8,658 10,531 9,004 Singapore (756) (789) (261) Rest of world (1,782) (1,048) 3,125 Adjustments and eliminations (1,610) (3,086) (2,345) ------- ------- ------- Consolidated operating income (loss) 65,733 24,984 61,894 General corporate expenses (8,070) (7,566) (6,454) Interest income (expense), net 820 (164) 173 Other expenses (6,701) (1,624) -- ------- ------- ------- Income before taxes $ 51,782 $ 15,630 $ 55,613 ======= ======= ======= Identifiable assets: United States $122,061 $ 94,842 $ 95,989 Hong Kong 44,526 21,855 42,653 Israel 25,872 27,430 15,289 Singapore 42,762 42,096 238 Rest of world 16,441 10,489 11,991 Corporate assets 129,772 60,427 29,368 Adjustments and eliminations (4,615) (7,585) (4,499) ------- ------- ------- Total assets $376,819 $249,554 $191,029 ======= ======= ======= Transfers between geographic areas were primarily sales of finished products and spare parts and generally were priced at end customer selling prices, with intercompany commissions paid to the selling subsidiary in the case of machines, and at a discount off list price in the case of spare parts. |
Operating results by business segment for the fiscal years ended September 30, 1997, 1996 and 1995 were as follows: Packaging Corporate Equipment Materials and Segment Segment Eliminations Total --------- --------- ------------ -------- September 30, 1997: Fiscal Year Ended - ------------------- Net sales $391,721 $110,186 $501,907 Cost of goods sold 228,854 89,148 318,002 ------- ------ ------- Gross profit 162,867 21,038 183,905 Operating expenses 97,143 21,029 $ 8,070 126,242 ------- ------ ------- ------- Operating profit (loss) $ 65,724 $ 9 ($8,070) $ 57,663 ======= ====== ======= ======= Identifiable assets $159,124 $ 87,973 $129,722 $376,819 Capital expenditures 7,749 5,767 -- 13,516 Depreciation expense 5,977 2,968 -- 8,945 Packaging Corporate Equipment Materials and Segment Segment Eliminations Total --------- --------- ------------ -------- September 30, 1996: Fiscal Year Ended - ------------------- Net sales $287,234 $ 93,942 $381,176 Cost of goods sold 164,221 75,270 239,491 ------- ------- ------- Gross profit 123,013 18,672 141,685 Operating expenses 102,138 14,563 $ 7,566 124,267 ------- ------- ------- ------- Operating profit (loss) $ 20,875 $ 4,109 $ (7,566) $ 17,418 ======= ====== ====== ======= Identifiable assets $112,762 $ 76,365 $ 60,427 $249,554 Capital expenditures 9,669 8,359 -- 18,028 Depreciation expense 5,379 1,800 -- 7,179 Packaging Corporate Equipment Materials and Segment Segment Eliminations Total --------- --------- ------------ -------- September 30, 1995: Fiscal Year Ended - ------------------- Net sales $283,835 $ 20,674 $304,509 Cost of goods sold 155,195 12,262 167,457 ------- ------- ------- Gross profit 128,640 8,412 137,052 Operating expenses 71,880 3,278 $ 6,454 81,612 ------- ------- ------- ------- Operating profit (loss) $ 56,760 $ 5,134 $ (6,454) $ 55,440 ======= ======= ======= ======= Identifiable assets $155,962 $ 5,699 $ 29,368 $191,029 Capital expenditures 7,294 3,483 -- 10,777 Depreciation expense 4,265 465 -- 4,730 Intersegment sales are immaterial. |
NOTE 14: SELECTED QUARTERLY FINANCIAL DATA (unaudited) Financial information pertaining to quarterly results of operations follows: Year ended First Second Third Fourth September 30, 1997: Quarter Quarter Quarter Quarter Total - -------------------- ------- ------- ------- ------- --------- Net sales $ 81,844 $121,491 $146,380 $152,192 $501,907 Gross profit 28,781 45,235 53,836 56,053 183,905 Income from operations (2) 1,861 14,727 19,901 21,174 57,663 Income before income taxes $ 598 $ 12,904 $ 18,100 $ 20,180 $ 51,782 Income tax expense 179 3,602 4,571 5,111 13,463 ------- ------- ------- ------- ------- Net income $ 419 $ 9,302 $ 13,529 $ 15,069 $ 38,319 ======= ======= ======= ======= ======= Net income per share $ .02 $ .46 $ .62 $ .63 $ 1.78 ======= ======= ======= ======= ======= Year ended First Second Third Fourth September 30, 1996: Quarter Quarter Quarter Quarter(1) Total - -------------------- ------- ------- ------- ------- --------- Net sales $127,189 $115,374 $ 76,912 $ 61,701 $381,176 Gross profit 52,076 45,497 27,801 16,311 141,685 Income (loss) from operations (2) 23,812 15,086 (3,328) (18,152) 17,418 Income (loss) before income taxes $ 23,010 $ 15,078 $ (3,504) $(18,954) $ 15,630 Income tax expense (benefit) 6,673 4,373 (1,016) (6,247) 3,783 ------- ------- ------- ------- ------- Net income (loss) $ 16,337 $ 10,705 $ (2,488) $(12,707) $ 11,847 ======= ======= ======= ======= ======= Net income (loss) per share $ 0.82 $ 0.54 $ (0.13) $ (0.65) $ 0.60 ======= ======= ======= ======= ======= (1) Results for the fourth quarter of fiscal 1996 include charges of approximately $6.9 million, including the write-off of approximately $2.8 million of excess and obsolete inventories, $1.2 million in severance and benefit costs associated with the Company's August 1996 reduction in its worldwide work force, the write-off of approximately $1.8 million of costs incurred in connection with the discontinuation of the Willow Grove, PA facility expansion project, and the $1.0 million write-down of the value of certain engineering prototype machines to their net realizable value. |
Schedule II-Valuation and Qualifying Accounts (in thousands) Charged Balance Charged to to other Balance at beginning costs and accounts- Deductions- at end Description of period expenses describe describe of period - ---------------- ------------ --------- -------- ---------- --------- Year ended September 30, 1995: - -------------------- Allowance for doubtful accounts $ 422 $ 826 $ -- $ 154(1) $ 1,094 ======== ======= ===== ====== ====== Inventory reserve $ 6,636 $ 3,075(2) $ -- $ 1,958(3) $ 7,753 ======== ======= ===== ====== ====== Valuation allowance for deferred taxes $ 3,854 $ -- $ -- $ 3,247(4) $ 607 ======== ======= ===== ====== ====== Year ended September 30, 1996: - -------------------- Allowance for doubtful accounts $ 1,094 $ 178 $ -- $ 45(1) $ 1,227 ======== ====== ===== ====== ====== Inventory reserve $ 7,753 $ 6,058(5) $ -- $ 2,056(3) $11,755 ======== ====== ===== ====== ====== Valuation allowance for deferred taxes $ 607 $ 1,996 $2,512(6) $ -- $ 5,115 ======== ====== ===== ====== ====== Year ended September 30, 1997: - -------------------- Allowance for doubtful accounts $ 1,227 $ 1,065 $ -- $ 143(1) $ 2,149 ======== ====== ===== ====== ====== Inventory reserve $ 11,755 $ 4,153(6) $ -- $ -- $15,908 ======== ====== ===== ====== ====== Valuation allowance for deferred taxes $ 5,115 $ 623(7) $ -- $ 1,084(8) $ 4,654 ======== ====== ===== ====== ====== (1) Bad debts written off. |
Signature Title Date - ---------------------------- -------------------- ---------------- /s/ C. SCOTT KULICKE - ---------------------------- C. Scott Kulicke Chairman of the Board December 18, 1997 (Principal Executive Officer) and Director /s/ CLIFFORD G. SPRAGUE - ---------------------------- Clifford G. Sprague Senior Vice President December 18, 1997 (Principal Financial Officer) and Chief Financial Officer /s/ CURTIS A. MASSEY - ---------------------------- Curtis A. Massey Vice President and December 18, 1997 (Principal Accounting Officer) Corporate Controller /s/ JAMES W. BAGLEY - ---------------------------- James W. Bagley Director December 18, 1997 /s/ FREDERICK W. KULICKE, JR - ---------------------------- Frederick W. Kulicke, Jr. Director December 18, 1997 /s/ JOHN A. O'STEEN - ---------------------------- John A. O'Steen Director December 18, 1997 /s/ ALLISON F. PAGE - ---------------------------- Allison F. Page Director December 18, 1997 /s/ MACDONELL ROEHM, JR. - ---------------------------- MacDonell Roehm, Jr. Director December 18, 1997 /s/ LARRY D. STRIPLIN, JR. - ---------------------------- Larry D. Striplin, Jr. Director December 18, 1997 /s/ C. WILLIAM ZADEL - ---------------------------- C. William Zadel Director December 18, 1997 EXHIBIT INDEX EXHIBIT NUMBER ITEM - ------- ------------------------------------------------------------------- 10(ix) The Company's Executive Incentive Compensation Plan, As Amended Through October 14, 1997 10(xiv) The Company's November 1994 Officers' Deferred Compensation Plan 21 Subsidiaries of the Company 23 Consent of Price Waterhouse LLP (Independent Accountants) 27 Financial Data Schedule EXHIBIT 21 SUBSIDIARIES OF THE COMPANY Name Jurisdiction of Incorporation - --------------------------------------- ----------------------------- Kulicke and Soffa AG Switzerland Kulicke & Soffa (Asia) Limited Hong Kong Kulicke and Soffa (Japan) Ltd. Japan and Delaware Kulicke and Soffa (Israel) Ltd. Israel Kulicke and Soffa Investments, Inc. Delaware Micro-Swiss Limited Israel Kulicke and Soffa Leasing, Inc. Delaware Kulicke & Soffa Singapore, Inc. Delaware Kulicke & Soffa Export, Inc. Barbados AFWH Sub, Inc. (Formerly Circle "S" Industries, Inc.) Alabama American Fine Wire Corporation Alabama American Fine Wire, Limited Cayman Islands Dr. Muller Feindraht AG Switzerland Semitec California Certain subsidiaries are omitted; however, such subsidiaries, even if combined into one subsidiary, would not constitute a "significant subsidiary" within the meaning of Regulation S-X. |
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. |
/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. |
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. |
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. |
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. |
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. |
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. |
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. |
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. |
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. |
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. |
EXECUTIVE OFFICERS OF THE COMPANY The names, ages (as of December 1, 1994), dates of initial appointment and offices of the executive officers of the Company are as follows: First Became an Officer Name Age (calendar year) Office - - ----------------- --- --------------- ------------------- C. Scott Kulicke 45 1976 Chairman of the Board of Directors and Chief Executive Officer Morton K. Perchick 57 1982 Senior Vice President and General Manager Clifford G. Sprague 51 1989 Senior Vice President and Chief Financial Officer Herbert D. Benjamin 41 1990 Vice President - Sales and Customer Support Moshe Jacobi 52 1992 Vice President and Managing Director of Micro-Swiss Ltd. Shlomo Oren 48 1991 Vice President and Managing Director of Kulicke and Soffa (Israel) Ltd. Asuri Raghavan 41 1991 Vice President - Wire Bond Business Charles Salmons 39 1992 Vice President - Operations Teruhiko Sawachi 51 1991 Vice President and President of Kulicke and Soffa (Japan) Ltd. Walter Von Seggern 54 1992 Vice President - Engineering and Technology Mr. C. Scott Kulicke is Chairman of the Board and Chief Executive Officer of the Company. |
SELECTED FINANCIAL DATA SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA (in thousands except per-share data) Fiscal Year Ended September 30, -------------------------------------------------- 1994 1993 1992 1991 1990 Statement of -------- -------- -------- -------- -------- Operations Data: Net sales $173,302 $140,880 $94,959 $100,193 $102,812 Income (loss) from operations 13,930 14,280 (12,040) (524) 3,684 Income (loss) before extraordinary gain $ 10,418 $ 10,831 ($12,341) ($ 1,243) $ 1,949 Extraordinary gains, net of tax (1) -- -- 218 211 1,441 ------- ------- ------ ------- ------- Net income (loss) $ 10,418 $ 10,831 ($12,123) ($ 1,032) $ 3,390 ======= ======= ====== ======= ======= Income (loss) per share: Before extraordinary gain $1.25 $1.33 ($1.56) ($.16) $.25 Extraordinary gain -- -- .03 .03 .19 ---- ---- ---- --- --- Net income (loss) per share $1.25 $1.33 ($1.53) ($.13) $.44 ==== ==== ==== === === Average shares outstanding 8,333 8,171 7,912 7,847 7,781 Balance Sheet Data: Total assets $121,198 $105,278 $83,941 $92,922 $97,180 Long-term debt 26,474 26,708 26,778 27,721 28,479 Shareholders' equity 63,234 51,481 38,988 50,173 50,610 (1) In fiscal 1989, the Company began a program of selectively repurchasing its 8% convertible subordinated debentures at such times as market prices were favorable. |
/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, 1994 1993 ASSETS ------- ------- CURRENT ASSETS: Cash and cash equivalents (including time deposits of: 1994 - $1,297; 1993 - $2,965) $ 8,754 $ 7,413 Short-term investments 12,933 15,355 Accounts and notes receivable (less allowance for doubtful accounts of $422 and $476 at September 30, 1994 and 1993, respectively) 40,258 29,346 Inventories, net 27,218 29,108 Prepaid expenses and other current assets 2,427 3,061 ------- ------ TOTAL CURRENT ASSETS 91,590 84,283 Investments in debt securities held-to-maturity 5,310 -- Property, plant and equipment, net 20,562 18,181 Other assets, including goodwill 3,736 2,814 ------- ------- TOTAL ASSETS $121,198 $105,278 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Debt due within one year $ 60 $ 60 Accounts payable to suppliers and others 19,956 15,371 Accrued expenses 8,300 9,889 Estimated income taxes payable 1,815 773 ------- ------- TOTAL CURRENT LIABILITIES 30,131 26,093 Long-term debt, less current portion 26,474 26,708 Deferred income taxes 642 408 Other liabilities 717 588 ------- ------- TOTAL LIABILITIES 57,964 53,797 Commitments and contingencies (Notes 4, 5, 7 and 11) -- -- 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 - 8,249 in 1994 and 8,122 in 1993 17,839 16,336 Retained earnings 46,416 35,998 Cumulative translation adjustment (841) (853) Unrealized loss on investments, net of tax (180) -- ------- ------- TOTAL SHAREHOLDERS' EQUITY 63,234 51,481 ------- ------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $121,198 $105,278 ======= ======= 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 amounts) Fiscal Year Ended September 30, 1994 1993 1992 ------- ------- ------ Net sales $173,302 $140,880 $94,959 Costs and expenses: Cost of goods sold 101,334 79,205 54,558 Selling, general and administrative 36,752 31,463 34,104 Research and development, net 21,286 15,932 13,887 Restructuring cost -- -- 4,450 ------- ------- ------ Income (loss) from operations 13,930 14,280 (12,040) Interest income 1,264 1,136 1,226 Interest expense (2,171) (2,202) (2,245) Other expense -- (1,125) -- ------- ------- ------ Income (loss) before income taxes and extraordinary gain 13,023 12,089 (13,059) Provision for income tax expense (benefit) 2,605 1,258 (718) ------- ------- ------ Income (loss) before extraordinary gain 10,418 10,831 (12,341) Extraordinary gain on early retirement of debentures, net of income taxes -- -- 218 ------- ------- ------- Net income (loss) $ 10,418 $ 10,831 ($12,123) ======= ======= ====== Income (loss) per share before extraordinary gain $1.25 $1.33 ($1.56) Extraordinary gain per share -- -- .03 ---- ---- ---- Net income (loss) per share $1.25 $1.33 ($1.53) ==== ==== ==== Weighted average number of shares outstanding 8,333 8,171 7,912 ===== ===== ===== KULICKE AND SOFFA INDUSTRIES, INC. CONSOLIDATED STATEMENT OF RETAINED EARNINGS (in thousands) Fiscal Year Ended September 30, 1994 1993 1992 ------ ------ ------ Retained earnings, beginning of year $35,998 $25,167 $37,290 Net income (loss) 10,418 10,831 (12,123) ------ ------ ------ Retained earnings, end of year $46,416 $35,998 $25,167 ====== ====== ====== 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, 1994 1993 1992 CASH FLOWS FROM OPERATING ACTIVITIES: ------- ------- ------- Net income (loss) $10,418 $10,831 ($12,123) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 3,940 3,212 2,944 Provision for restructuring costs -- -- 4,450 Provision for doubtful accounts 103 175 26 Gain on early retirement of debentures, net -- -- (218) (Gain) loss on sale or dispostion of equipment 370 9 (159) Deferred taxes on income 234 408 594 Provision for inventory reserves 677 1,011 2,518 Foreign currency translation (gain) loss (267) (138) 49 Changes in components of working capital, excluding effects of business acquisitions: Increase in accounts receivable (11,023) (10,695) (1,264) Decrease (increase) in inventories 3,258 (10,604) 7,001 Decrease in prepaid expenses and other current assets 677 630 937 Increase in accounts payable and accrued expenses 2,523 8,178 839 Increase in estimated income taxes payable 1,287 585 99 Other, net 573 275 153 ------- ------ ------ Net cash provided by operating activities 12,770 3,877 5,846 ------- ------ ------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of net assets of Assembly Technologies, including transaction costs (3,296) -- -- Purchases of investments (25,891) (10,608) (17,247) Proceeds from sales of investments 22,825 10,824 9,488 Purchases of property, plant and equipment (6,202) (4,404) (3,597) Proceeds from sale of equipment 123 122 288 ------- ------ ------ Net cash used by investing activities (12,441) (4,066) (11,068) ------- ------ ------ CASH FLOWS FROM FINANCING ACTIVITIES: Payments on borrowings (60) (82) (2,139) Proceeds from issuance of common stock 1,084 1,215 317 Retirement of debentures -- -- (632) ------- ------ ------ Net cash provided (used) by financing activities 1,024 1,133 (2,454) EFFECT OF EXCHANGE RATE CHANGES ON CASH (12) 55 35 ------- ------ ------ CHANGE IN CASH AND CASH EQUIVALENTS 1,341 999 (7,641) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 7,413 6,414 14,055 ------- ------ ------ CASH AND CASH EQUIVALENTS AT END OF YEAR $ 8,754 $ 7,413 $ 6,414 ====== ====== ====== The accompanying notes are an integral part of these consolidated financial statements. |
Investments, excluding cash equivalents, consist of the following at September 30, 1994: Fair Original Market Unrealized Cost of Available-for-sale: Value Losses Investment --------- ---------- ---------- U.S. Treasury bills maturing in less than one year $ 4,958 $ 4,958 Bond mutual funds with weighted average maturity less than five years 2,932 $180 3,112 Adjustable rate notes and preferred stock 3,507 3,507 ------ --- ------ $11,397 $180 $11,577 ====== === ====== Fair Amortized Market Unrealized Cost of Held-to-maturity: Value Losses Investment --------- ---------- ---------- Corporate bonds with weighted average maturity less than three years $ 5,924 $165 $ 6,089 U.S. Treasury notes with maturity less than three years 757 757 ------ --- ------ $ 6,681 $165 6,846 ====== === Portion maturing within one year 1,536 ------ Portion maturing after one year, within five years $ 5,310 ====== NOTE 3: INVENTORIES September 30, 1994 1993 ------- ------- Finished goods $7,657 $ 6,727 Work in process 8,664 8,848 Raw materials and supplies 17,533 19,751 ------- ------- 33,854 35,326 Inventory reserves (6,636) (6,218) ------- ------- $27,218 $29,108 ======= ====== NOTE 4: PROPERTY, PLANT AND EQUIPMENT September 30, 1994 1993 ------- ------- Land $ 1,095 $ 1,095 Buildings and building improvements 16,924 13,299 Machinery and equipment 28,537 27,017 Leasehold improvements 1,362 1,134 ------ ------ 47,918 42,545 Less - Accumulated depreciation and amortization (27,356) (24,364) ------ ------ $20,562 $18,181 ====== ====== The Company has obligations under various operating leases, primarily for manufacturing and office facilities, which expire periodically through 2107. |
NOTE 6: SHAREHOLDERS' EQUITY COMMON STOCK Changes in common stock during the three years ended September 30, 1994 are as follows: Common Stock Treasury Stock Shares Amount Shares Amount ------ ------ ------ ------ (All amounts in thousands) Balance at September 30, 1991 7,885 $14,803 11 ($134) Purchases under the employee stock purchase plan 59 317 -- -- Employer contribution pursuant to 401(k) plan -- (54) (11) 134 ------ ------ ------ ------ Balance at September 30, 1992 7,944 15,066 -- -- Purchases under the employee stock purchase plan 63 330 -- -- Employer contribution pursuant to 401(k) plan 11 46 (3) 45 Exercise of stock options 103 885 3 (45) Shares issued upon conversion of subordinated debt 1 9 -- -- ------ ------ ------ ------ Balance at September 30, 1993 8,122 16,336 -- -- Purchases under the employee stock purchase plan 39 369 -- -- Employer contribution pursuant to 401(k) plan 8 112 -- -- Exercise of stock options 72 603 -- -- Tax benefit from exercise of stock options -- 245 -- -- Shares issued upon conversion of subordinated debt 8 174 -- -- ------ ------ ------- ------ Balance at September 30, 1994 8,249 $17,839 -- -- ====== ====== ======= ====== CUMULATIVE TRANSLATION ADJUSTMENT Changes in the cumulative translation adjustment account are as follows: September 30, 1994 1993 ------ ------ Beginning of year ($853) ($1,245) Translation adjustment 12 392 ------ ----- End of year ($841) ($ 853) ====== ===== STOCK OPTION PLANS The Company has three 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. |
The following summarizes all employee stock option activity for the three years ended September 30, 1994: September 30, September 30, September 30, 1994 1993 1992 ---------------- ---------------- ---------------- Average Average Average Exercise Exercise Exercise Options Price Options Price Options Price ------- -------- ------- -------- ------- -------- (Share amounts in thousands) Options outstanding at beginning of period 269 $ 7.47 340 $ 8.09 335 $ 8.57 Granted or reissued 52 22.91 57 5.75 58 7.13 Exercised (59) 8.33 (94) 8.49 -- 5.25 Terminated or canceled (26) 8.13 (34) 6.81 (53) 8.38 --- --- --- Options outstanding at end of period 236 $10.60 269 $7.47 340 $8.09 === === === Options exercisable at end of period 100 $ 8.20 126 $8.72 187 $9.01 === === === The Company also maintains a stock option plan for non-officer directors (the "Director Plan") pursuant to which options to purchase 2,500 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. |
Net pension cost for the U.S. plan comprises the following: Fiscal Year Ended September 30, 1994 1993 1992 ------ ------ ------ Service cost-benefits earned during the period $564 $489 $413 Interest cost on projected benefit obligations 670 633 601 Actual return on plan assets (153) (428) (469) Net amortization and deferral (878) (606) (653) --- --- --- Net pension expense (benefit) of U.S. plan $203 $ 88 ($108) === === === Weighted average discount rate 7.75% 7.25% 9.00% Rate of increase in future compensation 4.00% 4.00% 5.50% Expected long-term return on assets 9.00% 9.00% 10.00% The funded status of the U.S. plan follows: September 30, 1994 1993 ----- ----- Accumulated benefit obligation, including vested benefits of $8,384 and $7,334, respectively $ 8,577 $7,570 ====== ===== Projected benefit obligation for service rendered to date ($10,288) ($9,240) Plan assets at fair value, primarily mutual fund investments and U.S. Treasury bills 9,009 9,130 ------ ----- Excess of projected benefit obligation over plan assets (1,279) (110) Unrecognized net implementation asset (386) (650) Unrecognized net loss 2,456 1,725 Unrecognized prior service cost 107 133 ------ ----- Prepaid pension cost $898 $1,098 ====== ===== For the fiscal year ended September 30, 1993, the unrecognized net loss of $1,725 includes $1,253 resulting from changes in actuarial assumptions. |
The provision for income taxes differs from the amount computed by applying the statutory Federal income tax rate as follows: Fiscal Year Ended September 30, 1994 1993 1992 ------ ------ ------ Computed income tax expense (benefit) based on U.S. statutory rate $4,558 $4,200 ($4,378) State taxes, net of federal benefit 65 49 -- Effect of earnings of foreign subsidiaries subject to different tax rates (1,843) (263) (50) Benefits of net operating loss and tax credit carryforwards and change in valuation allowance (532) (5,251) (101) Provision for repatriation of foreign earnings, including foreign withholding taxes 121 2,112 -- Operating losses with no tax benefit -- 151 4,046 Effect of revisions of prior years' estimated income taxes -- 290 75 Income not subject to taxation -- -- (340) Other, net 236 (30) 30 ----- ----- ----- $2,605 $1,258 ($ 718) ===== ===== ===== 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. |
Additional information by geographic area for fiscal years ended September 30 is as follows: Fiscal Year Ended September 30, 1994 1993 1992 ------ ------ ------ Sales to unaffiliated customers: Europe $ 0 $ 3,215 $10,257 Asia/Pacific 78,801 61,894 27,899 Middle East 858 4,186 3,191 ------- ------- ------ Total foreign 79,659 69,295 41,347 United States 93,643 71,585 53,612 Eliminations -- -- -- ------- ------- ------ Total $173,302 $140,880 $94,959 ======= ======= ====== Intercompany sales: Europe $ 0 $ 1,622 $ 134 Asia/Pacific 523 151 201 Middle East 27,006 19,132 21,099 ------- ------- ------ Total foreign 27,529 20,905 21,434 United States 88,264 55,789 24,699 Eliminations (115,793) (76,694) (46,133) ------- ------- ------ Total $ -- $ -- $ -- ======= ======= ====== Total sales: Europe $ 0 $ 4,837 $10,391 Asia/Pacific 79,324 62,045 28,100 Middle East 27,864 23,318 24,290 ------- ------- ------ Total foreign 107,188 90,200 62,781 United States 181,907 127,374 78,311 Eliminations (115,793) (76,694) (46,133) ------- ------- ------ Total $173,302 $140,880 $94,959 ======= ======= ====== Income (loss) from operations (1): Europe $ 220 $ 1,359 ($ 1,783) Asia/Pacific 6,254 4,011 (252) Middle East 3,332 1,722 (1,012) ------- ------- ------ Total foreign 9,806 7,092 (3,047) United States 4,120 7,311 (10,799) Eliminations 4 (123) 1,806 ------- ------- ------ Total $ 13,930 $ 14,280 ($12,040) ======= ======= ====== Income (loss) before income taxes and extraordinary gain (1): Europe $ 298 $ 1,460 ($ 1,405) Asia/Pacific 6,492 4,554 (1) Middle East 3,361 1,775 (998) ------- ------- ------ Total foreign 10,151 7,789 (2,404) United States 2,868 4,423 (12,461) Eliminations 4 (123) 1,806 ------- ------- ------ Total $ 13,023 $ 12,089 ($13,059) ======= ======= ====== Total Assets: Europe $ 1,696 $ 1,798 $ 7,707 Asia/Pacific 27,317 27,233 21 565 Middle East 9,652 10,176 7,114 ------- ------- ------ Total foreign 38,665 39,207 36,386 United States 84,687 68,427 49,594 Eliminations (2,154) (2,356) (2,039) ------- ------- ------ Total $121,198 $105,278 $83,941 ======= ======= ====== (1) 1992 includes $4,450 of restructuring cost as follows: Europe $1,531; Middle East $2,150; Japan $369; rest of world $400. |
NOTE 12: SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) Financial information pertaining to quarterly results of operations follows: Year ended First Second Third Fourth September 30, 1994 Quarter Quarter Quarter Quarter Total - - ------------------- ------- ------- ------- ------- ------- Net sales $38,259 $43,766 $40,838 $50,439 $173,302 Gross profit 16,471 18,331 15,861 21,305 71,968 Income from operations * 2,954 4,185 1,683 5,108 13,930 Income before income taxes $ 2,714 $ 3,943 $ 1,452 $ 4,914 $ 13,023 Income tax expense 407 749 305 1,144 2,605 ------ ------ ------ ------ ------ Net income $ 2,307 $ 3,194 $ 1,147 $ 3,770 $ 10,418 ====== ====== ====== ====== ======= Net income per share $ .28 $ .38 $ .14 $ .45 $ 1.25 ==== ==== ==== ==== ===== Year ended First Second Third Fourth September 30, 1993 Quarter Quarter Quarter Quarter Total - - ------------------- ------- ------- ------- ------- ------- Net sales $27,907 $30,475 $38,532 $43,966 $140,880 Gross profit 12,160 13,965 16,564 18,986 61,675 Income from operations * 767 2,477 4,641 6,395 14,280 Income before income taxes $ 536 $ 2,199 $ 4,347 $ 5,007** $12,089 Income tax expense 80 242 435 501 1,258 ------ ------ ------ ------ ------ Net income $ 456 $ 1,957 $ 3,912 $ 4,506 $10,831 ====== ====== ====== ====== ======= Net income per share $ .06 $ .24 $ .47 $ .54*** $ 1.33 ==== ==== ==== ==== ===== * Represents net sales less costs and expenses but before net interest expense and other expense. |
Signature Title Date ___________________________ _____________________ __________ /s/ C. Scott Kulicke Chairman of the Board December 21, ___________________________ and Director 1994 C. Scott Kulicke (Principal Executive Officer) /s/ Clifford G. Sprague Senior Vice President December 21, ___________________________ and Chief Financial 1994 Clifford G. Sprague Officer (Principal Financial and Accounting Officer) /s/ James W. Bagley ___________________________ Director December 21, 1994 James W. Bagley /s/ Frederick W. Kulicke, Jr. ___________________________ Director December 21, 1994 Frederick W. Kulicke, Jr. /s/ John A. O'Steen ___________________________ Director December 21, 1994 John A. O'Steen /s/ Allison F. Page ___________________________ Director December 21, 1994 Allison F. Page /s/ MacDonell Roehm, Jr. ___________________________ Director December 21, 1994 MacDonell Roehm, Jr. /s/ C. William Zadel ___________________________ Director December 21, 1994 C. William Zadel 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, 1994. |
(d) A "Change in Management" shall mean either of the following events: (i) An acquisition (other than directly from K&S) of any voting securities of K&S ("Voting Securities") by any "Person" (as such term is used for purposes of section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "1934 Act")) immediately after which such Person has "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under the 1934 Act) of 50% or more of the combined voting power of all then outstanding Voting Securities, provided, however, that any such acquisition approved by two-thirds of the Incumbent Board (as hereinafter defined) shall not be deemed to be a Change in Control; or (ii) The individuals who, as of December 13, 1994, are members of K&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. |
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. |
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) and (6) above; or (C) In the case of an ISO, three (3) months following termination of employment; his or her 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 his or her death, or to any greater extent permitted by the Committee, 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. |
"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 Exchange 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 Proposed Treasury Regulation Sec. |
For more information, see “Legislative, Regulatory and Tax - State Regulation - Compliance with existing and emerging privacy regulations could result in increased compliance costs and/or lead to changes in business practices and policies, and any failure to protect the confidentiality of client information could adversely affect our reputation and have a material adverse effect on our business, financial condition and results of operations.” Although we conduct due diligence, negotiate contractual provisions and, in many cases, conduct periodic reviews of our vendors, distributors, and other third parties that provide operational or information technology services to us to confirm compliance with our information security standards, the failure of such third parties’ computer systems and/or their disaster recovery plans for any reason might cause significant interruptions in our operations and result in a failure to maintain the security, confidentiality or privacy of sensitive data, including personal information relating to our customers. |
(i) The sum of our consolidated net income for the four trailing fiscal quarters ending on the quarter that is two quarters prior to the most recently completed quarter prior to the determination date is zero or negative, and (ii) our consolidated stockholders’ equity (excluding accumulated other comprehensive income (loss) and any increase in stockholders’ equity resulting from the issuance of preferred stock during a quarter), or “adjusted stockholders’ equity,” as of (x) the most recently completed quarter and (y) the end of the quarter that is two quarters before the most recently completed quarter, has declined by 10% or more as compared to the quarter that is ten fiscal quarters prior to the last completed quarter, or the “benchmark quarter.” The ACSM would generally require us to use commercially reasonable efforts to satisfy our obligation to pay interest in full on the capital securities with the net proceeds from sales of our common stock and warrants to purchase our common stock with an exercise price greater than the market price. |
Actual results could differ materially from those expressed in or implied by such forward-looking statements due to a variety of factors, including: The continuation of the COVID-19 pandemic, or future outbreaks of COVID-19, and uncertainty surrounding the length and severity of future impacts on the global economy and on our business, results of operations and financial condition; Further deterioration in general economic and business conditions that may affect account values, investment results, guaranteed benefit liabilities, premium levels and claims experience; Adverse global capital and credit market conditions that may affect our ability to raise capital, if necessary, and may cause us to realize impairments on investments and certain intangible assets, including goodwill and the valuation allowance against deferred tax assets, which may reduce future earnings and/or affect our financial condition and ability to raise additional capital or refinance existing debt as it matures; The inability of our subsidiaries to pay dividends to the holding company in sufficient amounts, which could harm the holding company’s ability to meet its obligations; Legislative, regulatory or tax changes, both domestic and foreign, that affect: the cost of, or demand for, our subsidiaries’ products; the required amount of reserves and/or surplus; our ability to conduct business and our captive reinsurance arrangements as well as restrictions on the payment of revenue sharing and 12b-1 distribution fees; The impact of U.S. federal tax reform legislation on our business, earnings and capital; The impact of Regulation Best Interest or other regulations adopted by the Securities and Exchange Commission (“SEC”), the Department of Labor or other federal or state regulators or self-regulatory organizations relating to the standard of care owed by investment advisers and/or broker-dealers that could affect our distribution model; Actions taken by reinsurers to raise rates on in-force business; Further declines in or sustained low interest rates causing a reduction in investment income, the interest margins of our businesses, estimated gross profits (“EGPs”) and demand for our products; Rapidly increasing interest rates causing contract holders to surrender life insurance and annuity policies, thereby causing realized investment losses, and reduced hedge performance related to variable annuities; The impact of the implementation of the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act relating to the regulation of derivatives transactions; The initiation of legal or regulatory proceedings against us, and the outcome of any legal or regulatory proceedings, such as: adverse actions related to present or past business practices common in businesses in which we compete; adverse decisions in significant actions including, but not limited to, actions brought by federal and state authorities and class action cases; new decisions that result in changes in law; and unexpected trial court rulings; A decline or continued volatility in the equity markets causing a reduction in the sales of our subsidiaries’ products; a reduction of asset-based fees that our subsidiaries charge on various investment and insurance products; an acceleration of the net amortization of deferred acquisition costs (“DAC”), value of business acquired (“VOBA”), deferred sales inducements (“DSI”) and deferred front-end loads (“DFEL”); and an increase in liabilities related to guaranteed benefit features of our subsidiaries’ variable annuity products; Ineffectiveness of our risk management policies and procedures, including various hedging strategies used to offset the effect of changes in the value of liabilities due to changes in the level and volatility of the equity markets and interest rates; A deviation in actual experience regarding future persistency, mortality, morbidity, interest rates or equity market returns from the assumptions used in pricing our subsidiaries’ products, in establishing related insurance reserves and in the net amortization of DAC, VOBA, DSI and DFEL, which may reduce future earnings; Changes in accounting principles that may affect our business, results of operations and financial condition; Lowering of one or more of our debt ratings issued by nationally recognized statistical rating organizations and the adverse effect such action may have on our ability to raise capital and on our liquidity and financial condition; Lowering of one or more of the insurer financial strength ratings of our insurance subsidiaries and the adverse effect such action may have on the premium writings, policy retention, profitability of our insurance subsidiaries and liquidity; Significant credit, accounting, fraud, corporate governance or other issues that may adversely affect the value of certain financial assets, as well as counterparties to which we are exposed to credit risk, requiring that we realize losses on financial assets; Interruption in telecommunication, information technology or other operational systems or failure to safeguard the confidentiality or privacy of sensitive data on such systems, including from cyberattacks or other breaches of our data security systems; The effect of acquisitions and divestitures, restructurings, product withdrawals and other unusual items; The adequacy and collectability of reinsurance that we have purchased; Future pandemics, acts of terrorism, war or other man-made and natural catastrophes that may adversely affect our businesses and the cost and availability of reinsurance; Competitive conditions, including pricing pressures, new product offerings and the emergence of new competitors, that may affect the level of premiums and fees that our subsidiaries can charge for their products; The unknown effect on our subsidiaries’ businesses resulting from evolving market preferences and the changing demographics of our client base; and The unanticipated loss of key management, financial planners or wholesalers. |
Certain Debt Covenants on Capital Securities Our $1.2 billion in principal amount of capital securities outstanding contain certain covenants that require us to make interest payments in accordance with an alternative coupon satisfaction mechanism (“ACSM”) if we determine that one of the following trigger events exists as of the 30th day prior to an interest payment date (“determination date”): LNL’s risk-based capital (“RBC”) ratio is less than 175% (based on the most recent annual financial statement filed with the State of Indiana); or (i) The sum of our consolidated net income for the four trailing fiscal quarters ending on the quarter that is two quarters prior to the most recently completed quarter prior to the determination date is zero or negative; and (ii) our consolidated stockholders’ equity (excluding AOCI and any increase in stockholders’ equity resulting from the issuance of preferred stock during a quarter), or “adjusted stockholders’ equity,” as of (x) the most recently completed quarter and (y) the end of the quarter that is two quarters before the most recently completed quarter, has declined by 10% or more as compared to the quarter that is 10 fiscal quarters prior to the last completed quarter, or the “benchmark quarter.” The ACSM would generally require us to use commercially reasonable efforts to satisfy our obligation to pay interest in full on the capital securities with the net proceeds from sales of our common stock and warrants to purchase our common stock with an exercise price greater than the market price. |
Income (loss) from operations is GAAP net income excluding the after-tax effects of the following items, as applicable: Realized gains and losses associated with the following (“excluded realized gain (loss)”): Sales or disposals and impairments of financial assets; Changes in the fair value of equity securities; Changes in the fair value of derivatives, embedded derivatives within certain reinsurance arrangements and trading securities (“gain (loss) on the mark-to-market on certain instruments”); Changes in the fair value of the derivatives we own to hedge our GDB riders within our variable annuities; Changes in the fair value of the embedded derivatives of our GLB riders reflected within variable annuity net derivative results accounted for at fair value; Changes in the fair value of the derivatives we own to hedge our GLB riders reflected within variable annuity net derivative results; and Changes in the fair value of the embedded derivative liabilities related to index options we may purchase or sell in the future to hedge contract holder index allocations applicable to future reset periods for our indexed annuity products accounted for at fair value (“indexed annuity forward-starting option”); Changes in reserves resulting from benefit ratio unlocking on our GDB and GLB riders (“benefit ratio unlocking”); Income (loss) from reserve changes, net of related amortization, on business sold through reinsurance; Gains (losses) on early extinguishment of debt; Losses from the impairment of intangible assets; Income (loss) from discontinued operations; Acquisition and integration costs related to mergers and acquisitions; and Income (loss) from the initial adoption of new accounting standards, regulations, and policy changes including the net impact from the Tax Cuts and Jobs Act. |
Signature Title /s/ Dennis R. Glass President, Chief Executive Officer and Director Dennis R. Glass (Principal Executive Officer) /s/ Randal J. Freitag Executive Vice President and Chief Financial Officer Randal J. Freitag (Principal Financial Officer) /s/ Christine A. Janofsky Senior Vice President and Chief Accounting Officer Christine A. Janofsky (Principal Accounting Officer) /s/ Deirdre P. Connelly Director Deirdre P. Connelly /s/ William H. Cunningham Director William H. Cunningham /s/Reginald E. Davis Director Reginald E. Davis /s/ George W. Henderson, III Director George W. Henderson, III /s/ Eric G. Johnson Director Eric G. Johnson /s/ Gary C. Kelly Director Gary C. Kelly /s/ M. Leanne Lachman Director M. Leanne Lachman /s/ Michael F. Mee Director Michael F. Mee /s/ Patrick S. Pittard Director Patrick S. Pittard /s/ Lynn M. Utter Director Lynn M. Utter Index to Financial Statement Schedules I - Summary of Investments - Other than Investments in Related Parties FS-2 II - Condensed Financial Information of Registrant FS-3 III - Supplementary Insurance Information FS-6 IV - Reinsurance FS-8 All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions, are inapplicable, or the required information is included in the consolidated financial statements, and therefore omitted. |
This system of supervision and regulation covers, among other things: Market conduct standards; Standards of minimum capital requirements and solvency, including RBC measurements; Restrictions on certain transactions, including, but not limited to, reinsurance between our insurance subsidiaries and their affiliates; Restrictions on the nature, quality and concentration of investments; Restrictions on the receipt of reinsurance credit; Restrictions on the types of terms and conditions that we can include in the insurance policies offered by our primary insurance operations; Limitations on the amount of dividends that insurance subsidiaries can pay; Licensing status of the company; Certain required methods of accounting pursuant to statutory accounting principles (“SAP”); Reserves for unearned premiums, losses and other purposes; Payment of policy benefits (claims); and Assignment of residual market business and potential assessments for the provision of funds necessary for the settlement of covered claims under certain policies provided by impaired, insolvent or failed insurance companies. |
For more information, see “Legislative, Regulatory and Tax - State Regulation - Compliance with existing and emerging privacy regulations could result in increased compliance costs and/or lead to changes in business practices and policies, and any failure to protect the confidentiality of client information could adversely affect our reputation and have a material adverse effect on our business, financial condition and results of operations.” Although we conduct due diligence, negotiate contractual provisions and, in many cases, conduct periodic reviews of our vendors, distributors, and other third parties that provide operational or information technology services to us to confirm compliance with our information security standards, the failure of such third parties’ computer systems and/or their disaster recovery plans for any reason might cause significant interruptions in our operations and result in a failure to maintain the security, confidentiality or privacy of sensitive data, including personal information relating to our customers. |
(i) The sum of our consolidated net income for the four trailing fiscal quarters ending on the quarter that is two quarters prior to the most recently completed quarter prior to the determination date is zero or negative, and (ii) our consolidated stockholders’ equity (excluding accumulated OCI and any increase in stockholders’ equity resulting from the issuance of preferred stock during a quarter), or “adjusted stockholders’ equity,” as of (x) the most recently completed quarter and (y) the end of the quarter that is two quarters before the most recently completed quarter, has declined by 10% or more as compared to the quarter that is ten fiscal quarters prior to the last completed quarter, or the “benchmark quarter.” The ACSM would generally require us to use commercially reasonable efforts to satisfy our obligation to pay interest in full on the capital securities with the net proceeds from sales of our common stock and warrants to purchase our common stock with an exercise price greater than the market price. |
Actual results could differ materially from those expressed in or implied by such forward-looking statements due to a variety of factors, including: Deterioration in general economic and business conditions that may affect account values, investment results, guaranteed benefit liabilities, premium levels, claims experience and the level of pension benefit costs, funding and investment results; Adverse global capital and credit market conditions could affect our ability to raise capital, if necessary, and may cause us to realize impairments on investments and certain intangible assets, including goodwill and the valuation allowance against deferred tax assets, which may reduce future earnings and/or affect our financial condition and ability to raise additional capital or refinance existing debt as it matures; Because of our holding company structure, the inability of our subsidiaries to pay dividends to the holding company in sufficient amounts could harm the holding company’s ability to meet its obligations; Legislative, regulatory or tax changes, both domestic and foreign, that affect: the cost of, or demand for, our subsidiaries’ products; the required amount of reserves and/or surplus; our ability to conduct business and our captive reinsurance arrangements as well as restrictions on the payment of revenue sharing and 12b-1 distribution fees; the impact of U.S. federal tax reform legislation on our business, earnings and capital; and the impact of any “best interest” standards of care adopted by the Securities and Exchange Commission (“SEC”) or other regulations adopted by federal or state regulators or self-regulatory organizations relating to the standard of care owed by investment advisers and/or broker-dealers; Actions taken by reinsurers to raise rates on in-force business; Declines in or sustained low interest rates causing a reduction in investment income, the interest margins of our businesses, estimated gross profits (“EGPs”) and demand for our products; Rapidly increasing interest rates causing contract holders to surrender life insurance and annuity policies, thereby causing realized investment losses, and reduced hedge performance related to variable annuities; Uncertainty about the effect of continuing promulgation and implementation of rules and regulations under the Dodd-Frank Wall Street Reform and Consumer Protection Act on us, the economy and the financial services sector in particular; The initiation of legal or regulatory proceedings against us, and the outcome of any legal or regulatory proceedings, such as: adverse actions related to present or past business practices common in businesses in which we compete; adverse decisions in significant actions including, but not limited to, actions brought by federal and state authorities and class action cases; new decisions that result in changes in law; and unexpected trial court rulings; A decline in the equity markets causing a reduction in the sales of our subsidiaries’ products; a reduction of asset-based fees that our subsidiaries charge on various investment and insurance products; an acceleration of the net amortization of deferred acquisition costs (“DAC”), value of business acquired (“VOBA”), deferred sales inducements (“DSI”) and deferred front-end loads (“DFEL”); and an increase in liabilities related to guaranteed benefit features of our subsidiaries’ variable annuity products; Ineffectiveness of our risk management policies and procedures, including various hedging strategies used to offset the effect of changes in the value of liabilities due to changes in the level and volatility of the equity markets and interest rates; A deviation in actual experience regarding future persistency, mortality, morbidity, interest rates or equity market returns from the assumptions used in pricing our subsidiaries’ products, in establishing related insurance reserves and in the net amortization of DAC, VOBA, DSI and DFEL, which may reduce future earnings; Changes in accounting principles that may affect our financial statements; Lowering of one or more of our debt ratings issued by nationally recognized statistical rating organizations and the adverse effect such action may have on our ability to raise capital and on our liquidity and financial condition; Lowering of one or more of the insurer financial strength ratings of our insurance subsidiaries and the adverse effect such action may have on the premium writings, policy retention, profitability of our insurance subsidiaries and liquidity; Significant credit, accounting, fraud, corporate governance or other issues that may adversely affect the value of certain investments in our portfolios, as well as counterparties to which we are exposed to credit risk, requiring that we realize losses on investments; Inability to protect our intellectual property rights or claims of infringement of the intellectual property rights of others; Interruption in telecommunication, information technology or other operational systems or failure to safeguard the confidentiality or privacy of sensitive data on such systems from cyberattacks or other breaches of our data security systems; The effect of acquisitions and divestitures, restructurings, product withdrawals and other unusual items, including the successful implementation of integration strategies or the achievement of anticipated synergies and operational efficiencies related to an acquisition; The adequacy and collectability of reinsurance that we have purchased; Acts of terrorism, a pandemic, war or other man-made and natural catastrophes that may adversely affect our businesses and the cost and availability of reinsurance; Competitive conditions, including pricing pressures, new product offerings and the emergence of new competitors, that may affect the level of premiums and fees that our subsidiaries can charge for their products; The unknown effect on our subsidiaries’ businesses resulting from evolving market preferences and the changing demographics of our client base; and The unanticipated loss of key management, financial planners or wholesalers. |
Certain Debt Covenants on Capital Securities Our $1.2 billion in principal amount of capital securities outstanding contain certain covenants that require us to make interest payments in accordance with an alternative coupon satisfaction mechanism (“ACSM”) if we determine that one of the following trigger events exists as of the 30th day prior to an interest payment date (“determination date”): LNL’s risk-based capital (“RBC”) ratio is less than 175% (based on the most recent annual financial statement filed with the State of Indiana); or (i) The sum of our consolidated net income for the four trailing fiscal quarters ending on the quarter that is two quarters prior to the most recently completed quarter prior to the determination date is zero or negative; and (ii) our consolidated stockholders’ equity (excluding AOCI and any increase in stockholders’ equity resulting from the issuance of preferred stock during a quarter), or “adjusted stockholders’ equity,” as of (x) the most recently completed quarter and (y) the end of the quarter that is two quarters before the most recently completed quarter, has declined by 10% or more as compared to the quarter that is 10 fiscal quarters prior to the last completed quarter, or the “benchmark quarter.” The ACSM would generally require us to use commercially reasonable efforts to satisfy our obligation to pay interest in full on the capital securities with the net proceeds from sales of our common stock and warrants to purchase our common stock with an exercise price greater than the market price. |
Income (loss) from operations is GAAP net income excluding the after-tax effects of the following items, as applicable: Realized gains and losses associated with the following (“excluded realized gain (loss)”): Sales or disposals and impairments of securities; Changes in the fair value of derivatives, embedded derivatives within certain reinsurance arrangements and trading securities (“gain (loss) on the mark-to-market on certain instruments”); Changes in the fair value of the derivatives we own to hedge our GDB riders within our variable annuities; Changes in the fair value of the embedded derivatives of our GLB riders reflected within variable annuity net derivative results accounted for at fair value; Changes in the fair value of the derivatives we own to hedge our GLB riders reflected within variable annuity net derivative results; Changes in the fair value of the embedded derivative liabilities related to index options we may purchase or sell in the future to hedge contract holder index allocations applicable to future reset periods for our indexed annuity products accounted for at fair value (“indexed annuity forward-starting option”); and Changes in the fair value of equity securities; Changes in reserves resulting from benefit ratio unlocking on our GDB and GLB riders (“benefit ratio unlocking”); Income (loss) from reserve changes, net of related amortization, on business sold through reinsurance; Gains (losses) on early extinguishment of debt; Losses from the impairment of intangible assets; Income (loss) from discontinued operations; Acquisition and integration costs related to mergers and acquisitions; and Income (loss) from the initial adoption of new accounting standards, regulations, and policy changes including the net impact from the Tax Cuts and Jobs Act. |
Signature Title /s/ Dennis R. Glass President, Chief Executive Officer and Director Dennis R. Glass (Principal Executive Officer) /s/ Randal J. Freitag Executive Vice President and Chief Financial Officer Randal J. Freitag (Principal Financial Officer) /s/ Christine A. Janofsky Senior Vice President and Chief Accounting Officer Christine A. Janofsky (Principal Accounting Officer) /s/ Deirdre P. Connelly Director Deirdre P. Connelly /s/ William H. Cunningham Director William H. Cunningham /s/ George W. Henderson, III Director George W. Henderson, III /s/ Eric G. Johnson Director Eric G. Johnson /s/ Gary C. Kelly Director Gary C. Kelly /s/ M. Leanne Lachman Director M. Leanne Lachman /s/ Michael F. Mee Director Michael F. Mee /s/ Patrick S. Pittard Director Patrick S. Pittard /s/ Lynn M. Utter Director Lynn M. Utter Index to Financial Statement Schedules I - Summary of Investments - Other than Investments in Related Parties FS-2 II - Condensed Financial Information of Registrant FS-3 III - Supplementary Insurance Information FS-6 IV - Reinsurance FS-8 All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions, are inapplicable, or the required information is included in the consolidated financial statements, and therefore omitted. |
This system of supervision and regulation covers, among other things: · Market conduct standards; · Standards of minimum capital requirements and solvency, including RBC measurements; · Restrictions on certain transactions, including, but not limited to, reinsurance between our insurance subsidiaries and their affiliates; · Restrictions on the nature, quality and concentration of investments; · Restrictions on the receipt of reinsurance credit; · Restrictions on the types of terms and conditions that we can include in the insurance policies offered by our primary insurance operations; · Limitations on the amount of dividends that insurance subsidiaries can pay; · Licensing status of the company; · Certain required methods of accounting pursuant to statutory accounting principles (“SAP”); · Reserves for unearned premiums, losses and other purposes; · Payment of policy benefits (claims); and · Assignment of residual market business and potential assessments for the provision of funds necessary for the settlement of covered claims under certain policies provided by impaired, insolvent or failed insurance companies. |
For more information, see “Legislative, Regulatory and Tax - State Regulation - Compliance with existing and emerging privacy regulations could result in increased compliance costs and/or lead to changes in business practices and policies, and any failure to protect the confidentiality of client information could adversely affect our reputation and have a material adverse effect on our business, financial condition and results of operations.” Although we conduct due diligence, negotiate contractual provisions and, in many cases, conduct periodic reviews of our vendors, distributors, and other third parties that provide operational or information technology services to us to confirm compliance with our information security standards, the failure of such third parties’ computer systems and/or their disaster recovery plans for any reason might cause significant interruptions in our operations and result in a failure to maintain the security, confidentiality or privacy of sensitive data, including personal information relating to our customers. |
(i) The sum of our consolidated net income for the four trailing fiscal quarters ending on the quarter that is two quarters prior to the most recently completed quarter prior to the determination date is zero or negative, and (ii) our consolidated stockholders’ equity (excluding accumulated OCI and any increase in stockholders’ equity resulting from the issuance of preferred stock during a quarter), or “adjusted stockholders’ equity,” as of (x) the most recently completed quarter and (y) the end of the quarter that is two quarters before the most recently completed quarter, has declined by 10% or more as compared to the quarter that is ten fiscal quarters prior to the last completed quarter, or the “benchmark quarter.” The ACSM would generally require us to use commercially reasonable efforts to satisfy our obligation to pay interest in full on the capital securities with the net proceeds from sales of our common stock and warrants to purchase our common stock with an exercise price greater than the market price. |
Risks and uncertainties that may cause actual results to vary materially, some of which are described within the forward-looking statements, include, among others: · Deterioration in general economic and business conditions that may affect account values, investment results, guaranteed benefit liabilities, premium levels, claims experience and the level of pension benefit costs, funding and investment results; · Adverse global capital and credit market conditions could affect our ability to raise capital, if necessary, and may cause us to realize impairments on investments and certain intangible assets, including goodwill and the valuation allowance against deferred tax assets, which may reduce future earnings and/or affect our financial condition and ability to raise additional capital or refinance existing debt as it matures; · Because of our holding company structure, the inability of our subsidiaries to pay dividends to the holding company in sufficient amounts could harm the holding company’s ability to meet its obligations; · Legislative, regulatory or tax changes, both domestic and foreign, that affect: the cost of, or demand for, our subsidiaries’ products; the required amount of reserves and/or surplus; our ability to conduct business and our captive reinsurance arrangements as well as restrictions on the payment of revenue sharing and 12b-1 distribution fees; the impact of U.S. federal tax reform legislation on our business, earnings and capital; and the impact of any “best interest” standards of care adopted by the Securities and Exchange Commission (“SEC”) or other regulations adopted by federal or state regulators or self-regulatory organizations relating to the standard of care owed by investment advisers and/or broker-dealers; · Actions taken by reinsurers to raise rates on in-force business; · Declines in or sustained low interest rates causing a reduction in investment income, the interest margins of our businesses, estimated gross profits (“EGPs”) and demand for our products; · Rapidly increasing interest rates causing contract holders to surrender life insurance and annuity policies, thereby causing realized investment losses, and reduced hedge performance related to variable annuities; · Uncertainty about the effect of continuing promulgation and implementation of rules and regulations under the Dodd-Frank Wall Street Reform and Consumer Protection Act on us, the economy and the financial services sector in particular; · The initiation of legal or regulatory proceedings against us, and the outcome of any legal or regulatory proceedings, such as: adverse actions related to present or past business practices common in businesses in which we compete; adverse decisions in significant actions including, but not limited to, actions brought by federal and state authorities and class action cases; new decisions that result in changes in law; and unexpected trial court rulings; · A decline in the equity markets causing a reduction in the sales of our subsidiaries’ products; a reduction of asset-based fees that our subsidiaries charge on various investment and insurance products; an acceleration of the net amortization of deferred acquisition costs (“DAC”), value of business acquired (“VOBA”), deferred sales inducements (“DSI”) and deferred front-end loads (“DFEL”); and an increase in liabilities related to guaranteed benefit features of our subsidiaries’ variable annuity products; · Ineffectiveness of our risk management policies and procedures, including various hedging strategies used to offset the effect of changes in the value of liabilities due to changes in the level and volatility of the equity markets and interest rates; · A deviation in actual experience regarding future persistency, mortality, morbidity, interest rates or equity market returns from the assumptions used in pricing our subsidiaries’ products, in establishing related insurance reserves and in the net amortization of DAC, VOBA, DSI and DFEL, which may reduce future earnings; · Changes in GAAP that may result in unanticipated changes to our net income; · Lowering of one or more of our debt ratings issued by nationally recognized statistical rating organizations and the adverse effect such action may have on our ability to raise capital and on our liquidity and financial condition; · Lowering of one or more of the insurer financial strength ratings of our insurance subsidiaries and the adverse effect such action may have on the premium writings, policy retention, profitability of our insurance subsidiaries and liquidity; · Significant credit, accounting, fraud, corporate governance or other issues that may adversely affect the value of certain investments in our portfolios, as well as counterparties to which we are exposed to credit risk, requiring that we realize losses on investments; · Inability to protect our intellectual property rights or claims of infringement of the intellectual property rights of others; · Interruption in telecommunication, information technology or other operational systems or failure to safeguard the confidentiality or privacy of sensitive data on such systems from cyberattacks or other breaches of our data security systems; · The effect of acquisitions and divestitures, restructurings, product withdrawals and other unusual items, including the successful implementation of integration strategies or the achievement of anticipated synergies and operational efficiencies related to an acquisition; · The adequacy and collectability of reinsurance that we have purchased; · Acts of terrorism, a pandemic, war or other man-made and natural catastrophes that may adversely affect our businesses and the cost and availability of reinsurance; · Competitive conditions, including pricing pressures, new product offerings and the emergence of new competitors, that may affect the level of premiums and fees that our subsidiaries can charge for their products; · The unknown effect on our subsidiaries’ businesses resulting from evolving market preferences and the changing demographics of our client base; and · The unanticipated loss of key management, financial planners or wholesalers. |
Certain Debt Covenants on Capital Securities Our $1.2 billion in principal amount of capital securities outstanding contain certain covenants that require us to make interest payments in accordance with an alternative coupon satisfaction mechanism (“ACSM”) if we determine that one of the following trigger events exists as of the 30th day prior to an interest payment date (“determination date”): · LNL’s risk-based capital (“RBC”) ratio is less than 175% (based on the most recent annual financial statement filed with the State of Indiana); or · (i) The sum of our consolidated net income for the four trailing fiscal quarters ending on the quarter that is two quarters prior to the most recently completed quarter prior to the determination date is zero or negative; and (ii) our consolidated stockholders’ equity (excluding AOCI and any increase in stockholders’ equity resulting from the issuance of preferred stock during a quarter), or “adjusted stockholders’ equity,” as of (x) the most recently completed quarter and (y) the end of the quarter that is two quarters before the most recently completed quarter, has declined by 10% or more as compared to the quarter that is 10 fiscal quarters prior to the last completed quarter, or the “benchmark quarter.” The ACSM would generally require us to use commercially reasonable efforts to satisfy our obligation to pay interest in full on the capital securities with the net proceeds from sales of our common stock and warrants to purchase our common stock with an exercise price greater than the market price. |
Income (loss) from operations is GAAP net income excluding the after-tax effects of the following items, as applicable: · Realized gains and losses associated with the following (“excluded realized gain (loss)”): § Sales or disposals and impairments of securities; § Changes in the fair value of derivatives, embedded derivatives within certain reinsurance arrangements and trading securities; § Changes in the fair value of the derivatives we own to hedge our GDB riders within our variable annuities; § Changes in the fair value of the embedded derivatives of our GLB riders reflected within variable annuity net derivative results accounted for at fair value; § Changes in the fair value of the derivatives we own to hedge our GLB riders reflected within variable annuity net derivative results; § Changes in the fair value of the embedded derivative liabilities related to index call options we may purchase in the future to hedge contract holder index allocations applicable to future reset periods for our indexed annuity products accounted for at fair value; and § Changes in the fair value of equity securities; · Changes in reserves resulting from benefit ratio unlocking on our GDB and GLB riders; · Income (loss) from reserve changes, net of related amortization, on business sold through reinsurance; · Gains (losses) on early extinguishment of debt; · Losses from the impairment of intangible assets; · Income (loss) from discontinued operations; · Acquisition and integration costs related to mergers and acquisitions; and · Income (loss) from the initial adoption of new accounting standards, regulations, and policy changes including the net impact from the Tax Cuts and Jobs Act. |
Signature Title /s/ Dennis R. Glass President, Chief Executive Officer and Director Dennis R. Glass (Principal Executive Officer) /s/ Randal J. Freitag Executive Vice President and Chief Financial Officer Randal J. Freitag (Principal Financial Officer) /s/ Christine A. Janofsky Senior Vice President and Chief Accounting Officer Christine A. Janofsky (Principal Accounting Officer) /s/ Deirdre P. Connelly Director Deirdre P. Connelly /s/ William H. Cunningham Director William H. Cunningham /s/ George W. Henderson, III Director George W. Henderson, III /s/ Eric G. Johnson Director Eric G. Johnson /s/ Gary C. Kelly Director Gary C. Kelly /s/ M. Leanne Lachman Director M. Leanne Lachman /s/ Patrick S. Pittard Director Patrick S. Pittard /s/ Isaiah Tidwell Director Isaiah Tidwell /s/ Lynn M. Utter Director Lynn M. Utter Index to Financial Statement Schedules I - Summary of Investments - Other than Investments in Related Parties FS-2 II - Condensed Financial Information of Registrant FS-3 III - Supplementary Insurance Information FS-6 IV - Reinsurance FS-8 All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions, are inapplicable, or the required information is included in the consolidated financial statements, and therefore omitted. |
This system of supervision and regulation covers, among other things: · Standards of minimum capital requirements and solvency, including RBC measurements; · Restrictions on certain transactions, including, but not limited to, reinsurance between our insurance subsidiaries and their affiliates; · Restrictions on the nature, quality and concentration of investments; · Restrictions on the receipt of reinsurance credit; · Restrictions on the types of terms and conditions that we can include in the insurance policies offered by our primary insurance operations; · Limitations on the amount of dividends that insurance subsidiaries can pay; · Licensing status of the company; · Certain required methods of accounting pursuant to statutory accounting principles (“SAP”); · Reserves for unearned premiums, losses and other purposes; · Payment of policy benefits (claims); and · Assignment of residual market business and potential assessments for the provision of funds necessary for the settlement of covered claims under certain policies provided by impaired, insolvent or failed insurance companies. |
(i) The sum of our consolidated net income for the four trailing fiscal quarters ending on the quarter that is two quarters prior to the most recently completed quarter prior to the determination date is zero or negative, and (ii) our consolidated stockholders’ equity (excluding accumulated OCI and any increase in stockholders’ equity resulting from the issuance of preferred stock during a quarter), or “adjusted stockholders’ equity,” as of (x) the most recently completed quarter and (y) the end of the quarter that is two quarters before the most recently completed quarter, has declined by 10% or more as compared to the quarter that is ten fiscal quarters prior to the last completed quarter, or the “benchmark quarter.” The ACSM would generally require us to use commercially reasonable efforts to satisfy our obligation to pay interest in full on the capital securities with the net proceeds from sales of our common stock and warrants to purchase our common stock with an exercise price greater than the market price. |
Risks and uncertainties that may cause actual results to vary materially, some of which are described within the forward-looking statements, include, among others: · Deterioration in general economic and business conditions that may affect account values, investment results, guaranteed benefit liabilities, premium levels, claims experience and the level of pension benefit costs, funding and investment results; · Adverse global capital and credit market conditions could affect our ability to raise capital, if necessary, and may cause us to realize impairments on investments and certain intangible assets, including goodwill and the valuation allowance against deferred tax assets, which may reduce future earnings and/or affect our financial condition and ability to raise additional capital or refinance existing debt as it matures; · Because of our holding company structure, the inability of our subsidiaries to pay dividends to the holding company in sufficient amounts could harm the holding company’s ability to meet its obligations; · Legislative, regulatory or tax changes, both domestic and foreign, that affect: the cost of, or demand for, our subsidiaries’ products; the required amount of reserves and/or surplus; our ability to conduct business and our captive reinsurance arrangements as well as restrictions on revenue sharing and 12b-1 payments; the impact of recently enacted U.S. federal tax reform legislation on our business, earnings and capital; and the effect of the Department of Labor’s (“DOL”) regulation defining fiduciary; · Actions taken by reinsurers to raise rates on in-force business; · Declines in or sustained low interest rates causing a reduction in investment income, the interest margins of our businesses, estimated gross profits (“EGPs”) and demand for our products; · Rapidly increasing interest rates causing contract holders to surrender life insurance and annuity policies, thereby causing realized investment losses, and reduced hedge performance related to variable annuities; · Uncertainty about the effect of continuing promulgation and implementation of rules and regulations under the Dodd-Frank Wall Street Reform and Consumer Protection Act on us, the economy and the financial services sector in particular; · The initiation of legal or regulatory proceedings against us, and the outcome of any legal or regulatory proceedings, such as: adverse actions related to present or past business practices common in businesses in which we compete; adverse decisions in significant actions including, but not limited to, actions brought by federal and state authorities and class action cases; new decisions that result in changes in law; and unexpected trial court rulings; · A decline in the equity markets causing a reduction in the sales of our subsidiaries’ products; a reduction of asset-based fees that our subsidiaries charge on various investment and insurance products; an acceleration of the net amortization of deferred acquisition costs (“DAC”), value of business acquired (“VOBA”), deferred sales inducements (“DSI”) and deferred front-end loads (“DFEL”); and an increase in liabilities related to guaranteed benefit features of our subsidiaries’ variable annuity products; · Ineffectiveness of our risk management policies and procedures, including various hedging strategies used to offset the effect of changes in the value of liabilities due to changes in the level and volatility of the equity markets and interest rates; · A deviation in actual experience regarding future persistency, mortality, morbidity, interest rates or equity market returns from the assumptions used in pricing our subsidiaries’ products, in establishing related insurance reserves and in the net amortization of DAC, VOBA, DSI and DFEL, which may reduce future earnings; · Changes in GAAP that may result in unanticipated changes to our net income; · Lowering of one or more of our debt ratings issued by nationally recognized statistical rating organizations and the adverse effect such action may have on our ability to raise capital and on our liquidity and financial condition; · Lowering of one or more of the insurer financial strength ratings of our insurance subsidiaries and the adverse effect such action may have on the premium writings, policy retention, profitability of our insurance subsidiaries and liquidity; · Significant credit, accounting, fraud, corporate governance or other issues that may adversely affect the value of certain investments in our portfolios, as well as counterparties to which we are exposed to credit risk, requiring that we realize losses on investments; · Inability to protect our intellectual property rights or claims of infringement of the intellectual property rights of others; · Interruption in telecommunication, information technology or other operational systems or failure to safeguard the confidentiality or privacy of sensitive data on such systems from cyberattacks or other breaches of our data security systems; · The effect of acquisitions and divestitures, restructurings, product withdrawals and other unusual items, including the successful implementation of integration strategies or the achievement of anticipated synergies and operational efficiencies related to an acquisition; · The adequacy and collectability of reinsurance that we have purchased; · Acts of terrorism, a pandemic, war or other man-made and natural catastrophes that may adversely affect our businesses and the cost and availability of reinsurance; · Competitive conditions, including pricing pressures, new product offerings and the emergence of new competitors, that may affect the level of premiums and fees that our subsidiaries can charge for their products; · The unknown effect on our subsidiaries’ businesses resulting from evolving market preferences and the changing demographics of our client base; and · The unanticipated loss of key management, financial planners or wholesalers. |
Certain Debt Covenants on Capital Securities Our $1.2 billion in principal amount of capital securities outstanding contain certain covenants that require us to make interest payments in accordance with an alternative coupon satisfaction mechanism (“ACSM”) if we determine that one of the following trigger events exists as of the 30th day prior to an interest payment date (“determination date”): · The Lincoln National Life Insurance Company’s (“LNL”) risk-based capital (“RBC”) ratio is less than 175% (based on the most recent annual financial statement filed with the State of Indiana); or · (i) The sum of our consolidated net income for the four trailing fiscal quarters ending on the quarter that is two quarters prior to the most recently completed quarter prior to the determination date is zero or negative; and (ii) our consolidated stockholders’ equity (excluding AOCI and any increase in stockholders’ equity resulting from the issuance of preferred stock during a quarter), or “adjusted stockholders’ equity,” as of (x) the most recently completed quarter and (y) the end of the quarter that is two quarters before the most recently completed quarter, has declined by 10% or more as compared to the quarter that is 10 fiscal quarters prior to the last completed quarter, or the “benchmark quarter.” The ACSM would generally require us to use commercially reasonable efforts to satisfy our obligation to pay interest in full on the capital securities with the net proceeds from sales of our common stock and warrants to purchase our common stock with an exercise price greater than the market price. |
Income (loss) from operations is GAAP net income excluding the after-tax effects of the following items, as applicable: · Realized gains and losses associated with the following (“excluded realized gain (loss)”): § Sales or disposals and impairments of securities; § Changes in the fair value of derivatives, embedded derivatives within certain reinsurance arrangements and trading securities; § Changes in the fair value of the derivatives we own to hedge our GDB riders within our variable annuities; § Changes in the fair value of the embedded derivatives of our GLB riders reflected within variable annuity net derivative results accounted for at fair value; § Changes in the fair value of the derivatives we own to hedge our GLB riders reflected within variable annuity net derivative results; and § Changes in the fair value of the embedded derivative liabilities related to index call options we may purchase in the future to hedge contract holder index allocations applicable to future reset periods for our indexed annuity products accounted for at fair value; · Changes in reserves resulting from benefit ratio unlocking on our GDB and GLB riders; · Income (loss) from reserve changes, net of related amortization, on business sold through reinsurance; · Gains (losses) on early extinguishment of debt; · Losses from the impairment of intangible assets; · Income (loss) from discontinued operations; · Acquisition and integration costs related to mergers and acquisitions; and · Income (loss) from the initial adoption of new accounting standards, regulations, and policy changes including the net impact from the Tax Cuts and Jobs Act. |
Signature Title /s/ Dennis R. Glass President, Chief Executive Officer and Director Dennis R. Glass (Principal Executive Officer) /s/ Randal J. Freitag Executive Vice President and Chief Financial Officer Randal J. Freitag (Principal Financial Officer) /s/ Christine A. Janofsky Senior Vice President and Chief Accounting Officer Christine A. Janofsky (Principal Accounting Officer) /s/ Deirdre P. Connelly Director Deirdre P. Connelly /s/ William H. Cunningham Director William H. Cunningham /s/ George W. Henderson, III Director George W. Henderson, III /s/ Eric G. Johnson Director Eric G. Johnson /s/ Gary C. Kelly Director Gary C. Kelly /s/ M. Leanne Lachman Director M. Leanne Lachman /s/ Michael F. Mee Director Michael F. Mee /s/ Patrick S. Pittard Director Patrick S. Pittard /s/ Isaiah Tidwell Director Isaiah Tidwell /s/ Lynn M. Utter Director Lynn M. Utter Index to Financial Statement Schedules I - Summary of Investments - Other than Investments in Related Parties FS-2 II - Condensed Financial Information of Registrant FS-3 III - Supplementary Insurance Information FS-6 IV - Reinsurance FS-8 All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions, are inapplicable, or the required information is included in the consolidated financial statements, and therefore omitted. |
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