================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM 20-F
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004
COMMISSION FILE NUMBER: 0-27298
BE SEMICONDUCTOR INDUSTRIES N.V.
(Exact Name of Registrant as Specified in Its Charter)
THE NETHERLANDS
(Jurisdiction of Incorporation or Organization)
MARCONILAAN 4
5151 DR DRUNEN
THE NETHERLANDS
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
SECURITIES REGISTERED OR TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED OR TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
Ordinary shares Nasdaq National Market
SECURITIES FOR WHICH THERE IS A REPORTING OBLIGATION PURSUANT TO
SECTION 15(d) OF THE ACT:
None
The number of outstanding shares of each of the issuer's classes of capital or
common stock as of December 31, 2004: 30,794,660 ordinary shares, nominal value
(euro) 0.91 per share (of which amount, 5,726,285 are traded on the NASDAQ
National Market in the form of New York Shares and 25,068,375 are traded on the
Amsterdam Stock Exchange in the form of Bearer Shares).
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark which financial statement item the Registrant has elected
to follow.
Item 17 [ ] Item 18 [X]
================================================================================
TABLE OF CONTENTS
PART I
Item 1: Identity of Directors, Senior Management and Advisors 1
Item 2: Offer Statistics and Expected Timetable 1
Item 3: Key Information 1
Item 4: Information on the Company 9
Item 5: Operating and Financial Review and Prospects 25
Item 6: Directors, Senior Management and Employees 38
Item 7: Major Shareholders and Related Party Transactions 48
Item 8: Financial Information 49
Item 9: The Offer and Listing 50
Item 10: Additional Information 51
Item 11: Quantitative and Qualitative Disclosure About Market Risk 65
Item 12: Description of Securities other than Equity Securities 65
PART II
Item 13: Defaults, Dividend Arrearages and Delinquencies 65
Item 14: Material Modifications to the Rights of Security Holders and Use of
Proceeds 65
Item 15: Controls and Procedures 65
Item 16: A. Audit Committee Financial Expert 66
B. Code of Ethics 66
C. Principal Accountant Fees and Service 66
D. Exemptions from Listing Standards for Audit Committees 67
E. Purchases of Equity Securities by the Issuer and Affiliated
Purchases 67
PART III
Item 17: Financial Statements 67
Item 18: Financial Statements 67
Item 19: Exhibits 67
In this Annual Report on Form 20-F, references to "Besi" or the "Company" are to
BE Semiconductor Industries N.V. and references to "we" or "us" are to BE
Semiconductor Industries N.V., and, as the context requires, its wholly owned
subsidiaries.
Our consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States or, U.S. GAAP. Our
consolidated financial statements are expressed in euro, the currency of the
European Economic and Monetary Union. In this Form 20-F, references to "euro" or
"(euro)" are to euro, and references to "U.S. dollars", "USD", "U.S. $" OR "$"
are to United States dollars.
For convenience purposes, our financial information for the most recently
completed fiscal year has been presented in U.S. dollars, converted at an
exchange rate of $ 1.3538 = (euro) 1.00, the noon buying rate (rounded) on
December 31, 2004, for cable transactions in foreign currencies as certified by
the Federal Reserve Bank of New York. The noon buying rate on February 28, 2005
was $ 1.3274 = (euro) 1.00. These translations should not be construed as a
representation that the euro amounts actually represent U.S. dollar amounts or
could be converted into U.S. dollar amounts at the rate indicated or at any
other rate.
Our fiscal year ends on December 31 of each year. References to any specific
financial year or to "FY" refer to the year ended December 31 of the calendar
year specified.
FORWARD LOOKING STATEMENTS
This Annual Report on Form 20-F contains certain forward-looking statements and
information relating to the Company that are based on beliefs of our management
as well as assumptions made by and information currently available to us.
Without limiting the foregoing, when used in this document, the words
"anticipate", "believe", "estimate", "expect", "intend", "plan" and "project"
and similar expressions, as they relate to the Company or our management, are
intended to identify forward-looking statements. Such statements reflect our
current views with respect to future events and are subject to certain risks,
uncertainties and assumptions. Many factors could cause our actual results,
performance or achievements to be materially different from any future results,
performance or achievements that may be expressed or implied by such
forward-looking statements, including, among others, changes in general economic
and business conditions, changes in currency exchange rates and interest rates,
introduction of competing products by other companies, lack of acceptance of new
products or services by our targeted customers, changes in business strategy and
various other factors, both referenced and not referenced in this Form 20-F.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those described herein as anticipated, believed, estimated, expected, intended,
planned or projected. We do not intend, and do not assume any obligation, to
update these forward-looking statements.
PART I
ITEM 1: IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
Not applicable.
ITEM 2: OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3: KEY INFORMATION
SELECTED CONSOLIDATED FINANCIAL AND STATISTICAL DATA
The selected consolidated financial data set forth below for the years ended
December 31, 2002, 2003 and 2004 and as of December 31, 2003 and 2004 are
derived from our consolidated financial statements, which appear elsewhere in
this Form 20-F, and which have been audited by KPMG Accountants N.V. The
selected consolidated financial data set forth below for the years ended
December 31, 2000 and 2001, and as of December 31, 2000, 2001 and 2002 are
derived from our audited consolidated financial statements, which are not
included in this Form 20-F. The data set forth below should be read in
conjunction with Item 5. "Operating and Financial Review and Prospects" and our
consolidated financial statements and notes thereto included elsewhere in this
Form 20-F.
1
Year Ended December 31,
---------------------------------------------------------------------------------
(Amounts in thousands, except share and 2000 2001 2002 2003 2004 2004
per share data) EURO EURO EURO EURO EURO USD(1)
--------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
CONSOLIDATED STATEMENTS OF OPERATIONS
Net sales 197,972 150,030 83,228 85,500 126,341 171,040
Cost of sales 121,171 96,253 55,849 63,345 88,352 119,611
---------- ---------- ---------- ---------- ---------- ----------
Gross profit 76,801 53,777 27,379 22,155 37,989 51,429
Selling, general and administrative
expenses 33,841 30,563 26,235 25,436 27,145 36,749
Research and development expenses 11,440 15,446 12,470 13,564 12,500 16,923
Write-off of in-process research and
development 11,461 - - - - -
Restructuring charges - 8,306 786 - 5,616 7,603
Impairment of intangibles - - 3,302 287 - -
Amortization of intangible assets 3,126 3,848 2,591 2,522 2,465 3,337
---------- ---------- ---------- ---------- ---------- ----------
Total operating expenses 59,868 58,163 45,384 41,809 47,726 64,612
Operating income (loss) 16,933 (4,386) (18,005) (19,654) (9,737) (13,183)
Interest income, net 2,814 4,240 3,395 2,815 1,811 2,452
---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before taxes and equity
in earnings (loss) of affiliated
companies and minority interest 19,747 (146) (14,610) (16,839) (7,926) (10,731)
Income taxes (benefit) 6,311 518 2,404 (3,292) (2,435) (3,297)
---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before equity in
earnings (loss) of affiliated
companies and minority interest 13,436 (664) (17,014) (13,547) (5,491) (7,434)
Equity in earnings (loss) of affiliated
companies and loss on sale of
affiliated companies 5,031 (16,314) - - - -
Minority interest - - 3 50 64 87
---------- ---------- ---------- ---------- ---------- ----------
Net income (loss) 18,467 (16,978) (17,011) (13,497) (5,427) (7,347)
========== ========== ========== ========== ========== ==========
Earnings (loss) per share
Basic 0.61 (0.53) (0.54) (0.44) (0.18) (0.24)
Diluted 0.61 (0.53) (0.54) (0.44) (0.18) (0.24)
Weighted average number of shares
used to compute earnings (loss) per
share
Basic 30,242,151 31,794,675 31,462,482 30,813,681 30,794,660 30,794,660
Diluted 30,351,462 31,794,675 31,462,482 30,813,681 30,794,660 30,794,660
========== ========== ========== ========== ========== ==========
CONSOLIDATED BALANCE SHEET DATA
Cash and cash equivalents 122,849 141,506 119,866 108,897 106,573 144,279
Working capital 156,389 177,121 157,612 138,437 141,760 191,916
Total assets 325,747 271,886 244,998 221,417 227,342 307,775
Long-term debt and capital leases,
including current portion 12,392 10,688 9,040 8,879 14,114 19,107
Total shareholders' equity 247,743 228,302 200,488 183,506 176,993 239,613
========== ========== ========== ========== ========== ==========
2
Year Ended December 31,
------------------------------------------------------------------------------
2000 2001 2002 2003 2004 2004
(Amounts in thousands) EURO EURO EURO EURO EURO USD(1)
----------------------------------- -------- -------- ------- -------- ------- -------
CONSOLIDATED STATEMENTS OF CASH
FLOW DATA
Capital expenditures 6,311 3,393 4,903 11,889 3,427 4,639
Depreciation of property, plant and
equipment 4,465 4,495 4,135 3,947 4,444 6,017
Net cash provided by (used in)
operating activities 12,066 14,942 (4,224) 5,296 (4,597) (6,223)
Net cash provided by (used in)
investing activities (30,208) 14,729 (8,719) (11,796) (3,288) (4,451)
Net cash provided by (used in)
financing activities 88,687 (11,392) (6,792) (2,817) 5,973 8,086
(1) Translated solely for convenience of the reader at the noon buying rate in
effect on December 31, 2004 of (euro) 1.00 = $ 1.3538.
EXCHANGE RATE INFORMATION
A significant portion of our net sales and expenses is denominated in currencies
other than euro. We do not currently anticipate paying any dividends to
shareholders. Any dividends that we may declare, however, would be in the
currency determined by our directors at the time such dividends are declared,
and exchange rate fluctuations would affect the U.S. dollar equivalent of any
cash dividend received by holders of shares of New York registry.
The average exchange rate information set forth below is computed using the noon
buying rate for the euro on the last business day of each month during the
period indicated.
AVERAGE EXCHANGE RATES OF U.S. DOLLARS PER EURO
AVERAGE
--------
Financial year ended December 31, 2000 $ 0.9209
Financial year ended December 31, 2001 $ 0.8909
Financial year ended December 31, 2002 $ 0.9495
Financial year ended December 31, 2003 $ 1.1411
Financial year ended December 31, 2004 $ 1.2478
RECENT EXCHANGE RATES OF U.S. DOLLARS PER EURO
The table below shows the high and low exchange rates of U.S. dollars per euro
for each month from September 2004 to February 2005:
HIGH LOW
-------- --------
September 2004 $ 1.2417 $ 1.2052
October 2004 $ 1.2783 $ 1.2271
November 2004 $ 1.3288 $ 1.2703
December 2004 $ 1.3625 $ 1.3224
January 2005 $ 1.3476 $ 1.2954
February 2005 $ 1.3274 $ 1.2773
The noon buying rate for the euro on February 28, 2005 was (euro) 1.00 = $
1.3274.
3
RISK FACTORS
The following important factors, among others, could cause our actual results to
differ materially from those contained in forward-looking statements made in
this report or presented elsewhere by management from time to time.
OUR NET SALES AND RESULTS OF OPERATIONS DEPEND IN SIGNIFICANT PART ON
ANTICIPATED DEMAND FOR SEMICONDUCTORS, WHICH IS HIGHLY CYCLICAL, AND THE
SEMICONDUCTOR MARKET HAS RECENTLY EXPERIENCED A SIGNIFICANT AND SUSTAINED
DOWNTURN
Capital expenditures of our customers for semiconductor manufacturing equipment
depend on the current and anticipated market demand for semiconductors and
products using semiconductors. The semiconductor industry is highly cyclical and
has suffered significant economic downturns at various times. These downturns
have involved periods of production overcapacity, oversupply, reduced prices and
lower net sales, and have regularly been associated with dramatically reduced
levels in capital expenditures for semiconductor facilities and equipment. Due
to the lead times associated with the production of semiconductor equipment, a
rise or fall in the level of sales of semiconductor equipment typically lags any
downturn or recovery in the semiconductor market by approximately nine to twelve
months. For example, according to trade association data, worldwide sales of all
semiconductor products grew by more than 40% in 1995, while worldwide
semiconductor sales in 2002 decreased by more than 30% as compared to 2000. This
cyclicality has had and is expected to continue to have a direct effect on our
net sales, results of operations and backlog. Downturns in the industry can be
severe and protracted and could again adversely affect our net sales, results of
operations and backlog.
OUR QUARTERLY NET SALES AND OPERATING RESULTS FLUCTUATE SIGNIFICANTLY
Our quarterly net sales and operating results have varied in the past and may
continue to fluctuate in the future. We believe that period-to-period
comparisons of our operating results are not necessarily indicative of future
operating results. Factors that have caused our operating results to fluctuate
in the past and which are likely to affect us in the future include the
following:
- the volatility of the semiconductor industry;
- the length of sales cycles and lead-times associated with our product
offerings;
- the timing, size and nature of our transactions;
- the market acceptance of new products or product enhancements by us or our
competitors;
- the timing of new personnel hires and the rate at which new personnel
become productive;
- the changes in pricing policies by our competitors;
- the changes in our operating expenses;
- our ability to adjust production capacity on a timely basis to meet
customer demand; and
- the fluctuations in foreign currency exchange rates.
Because of these factors, investors should not rely on quarter-to-quarter
comparisons of our results of operations as an indication of future performance.
In future periods, our results of operations could differ from estimates of
public market analysts and investors. Such discrepancy could cause the market
price of our securities to fall.
OUR BACKLOG AT ANY PARTICULAR DATE MAY NOT BE INDICATIVE OF OUR FUTURE OPERATING
RESULTS
Our backlog amounted to (euro) 31.8 million at December 31, 2004. In market
downturns, semiconductor manufacturers historically have cancelled or deferred
additional equipment purchases. For example, backlog decreased significantly in
the third quarter of 2004 due to production and capital expenditure cutbacks
initiated by our customers during this period. The orders in our backlog are
subject to cancellation by the customer at any time upon payment of a negotiated
charge. Because of the possibility of changes in delivery schedules,
cancellations of orders and potential delays in product shipments, our backlog
at any particular date may not be representative of actual sales for any
succeeding period.
Our current and future dependence on a small number of customers increases the
revenue impact of each customer's delay or deferral activity. Our expense level
in future periods will be based, in large part, on our expectations regarding
future revenue sources and, as a result, our operating results for any given
period in which material orders fail to occur, are delayed or deferred could
vary significantly.
4
BECAUSE OF THE LENGTHY AND UNPREDICTABLE SALES CYCLE ASSOCIATED WITH OUR
TRANSACTIONS, WE MAY NOT SUCCEED IN CLOSING TRANSACTIONS ON A TIMELY BASIS, IF
AT ALL, WHICH WOULD ADVERSELY AFFECT OUR NET SALES AND OPERATING RESULTS
Transactions for our products often involve large expenditures as the average
selling price for a substantial portion of the equipment we offer exceeds (euro)
300,000. The sales cycles for these transactions are often lengthy and
unpredictable. Factors affecting the sales cycle include:
- customers' capital spending plans and budgetary constraints;
- the timing of customers' budget cycles; and
- customers' internal approval processes.
These lengthy sales cycles may cause our net sales and results of operations to
vary from period to period and it may be difficult to predict the timing and
amount of any variations.
We may not succeed in closing such large transactions on a timely basis or at
all, which could cause significant variability in our net sales and results of
operations for any particular period.
THE ACQUISITION OF DATACON MAY ADVERSELY AFFECT OUR RESULTS OF OPERATIONS
We completed the acquisition of Datacon Technology AG, or Datacon, on January 4,
2005. The acquisition of Datacon is material to us based on Datacon's reported
net sales of (euro) 58.3 million for the fiscal year ended March 31, 2004 and
(euro) 39.1 million for the six months ended September 30, 2004, as opposed To
(euro) 85.5 million for the year ended December 31, 2003 and (euro) 126.3
million for the year ended December 31, 2004 for us. The succesS of this
acquisition will depend, in part, on our ability to retain key personnel, and
integrate the business of Datacon with our business. In addition, the
integration efforts relating to the acquisition of Datacon may divert management
attention from day-to-day activities, disrupt our ongoing operations, increase
our expenses and adversely impact our results of operations, which could
adversely affect the market price of our ordinary shares.
Datacon reports under International Financial Reporting Standards, or IFRS, and
not under U.S. GAAP. In order to consolidate the financial figures of Datacon
with ours, Datacon must prepare its financial statements according to U.S. GAAP
subsequent to the acquisition. The effects of this change in reporting standards
for Datacon's future results of operations cannot currently be determined. As a
result, our results of operations in future periods may substantially differ
from the results of operations in historical periods and the results of
operations for us and Datacon may not be indicative of the results of operations
for future years, which could adversely affect the market price of our ordinary
shares.
A LIMITED NUMBER OF CUSTOMERS HAVE ACCOUNTED FOR A SIGNIFICANT PERCENTAGE OF OUR
NET SALES, AND OUR FUTURE NET SALES COULD DECLINE IF WE CANNOT KEEP OR REPLACE
THESE CUSTOMER RELATIONSHIPS
Historically, a limited number of our customers have accounted for a significant
percentage of our net sales. In 2004, our three largest customers accounted for
approximately 37% of our net sales, with the largest customer accounting for
approximately 17% of our net sales. We anticipate that our results of operations
in any given period will continue to depend to a significant extent upon
revenues from a small number of customers. In addition, we anticipate that the
identity of such customers will continue to vary over time, so that the
achievement of our long-term goals will require the maintenance of relationships
with our existing clients and obtaining additional customers on an ongoing
basis. Our failure to enter into, and realize revenue from, a sufficient number
of contracts during a particular period could have a significant adverse effect
on our net sales.
WE MAY FAIL TO COMPETE EFFECTIVELY IN OUR MARKET
We face substantial competition from established companies, based primarily in
Japan, various other Pacific Rim countries and the United States, many of which
have greater financial, engineering, manufacturing and marketing resources than
we do. We believe that once a semiconductor manufacturer has decided to buy
semiconductor assembly equipment from a particular vendor, the manufacturer
often continues to use that vendor's equipment in the future. Accordingly, it is
often difficult to achieve significant sales to a particular customer once
another vendor's products have been installed. Furthermore, some companies have
historically developed, manufactured and installed back-end assembly equipment
internally, and it may be difficult for us to sell our products to these
companies. Most of our principal competitors on a worldwide basis are Japanese,
which historically have dominated the Japanese market because Japanese
semiconductor manufacturers typically purchase equipment from domestic
suppliers. To date, our sales to Japanese customers have been limited. We
believe that the limited growth of the Japanese semiconductor industry in recent
years has caused our Japanese competitors to intensify their efforts to export
their products to other areas of the world, particularly Asia. As a result,
competition in these markets has become
5
increasingly intense. We believe that Japanese suppliers will be our most
significant competitors for the foreseeable future due to their strength in the
supply equipment for high-volume, low cost production and their high levels of
excess capacity relative to other suppliers.
We believe that a decrease in the value of the Japanese yen or the U.S. dollar
and dollar-linked currencies in relation to the euro could lead to intensified
price-based competition in our markets resulting in lower prices and margins and
could have a negative impact on our business and results of operations.
We believe that our ability to compete successfully in our markets depends on a
number of factors both within and outside our control, including:
- price, product quality and system performance;
- ease of use and reliability of our products;
- manufacturing lead times, including the lead times of our subcontractors;
- cost of ownership;
- success in developing or otherwise introducing new products; and
- market and economic conditions.
WE MUST INTRODUCE NEW PRODUCTS IN A TIMELY FASHION AND WE ARE DEPENDENT UPON THE
MARKET ACCEPTANCE OF THESE PRODUCTS
Our industry is subject to rapid technological change and new product
introductions and enhancements. The success of our business strategy and results
of operations are largely based upon accurate anticipation of customer and
market requirements. Our ability to implement our overall strategy and remain
competitive will depend in part upon our ability to develop new and enhanced
products and to introduce them at competitive price levels. We must also
accurately forecast commercial and technical trends in the semiconductor
industry so that our products provide the functions required by our customers
and are configured to be used in our customers' facilities. We may not be able
to respond effectively to technological changes or to specific product
announcements by competitors. As a result, the introduction of new products
embodying new technologies or the emergence of new industry standards could
render our existing products uncompetitive from a pricing standpoint, obsolete
or unmarketable.
Although we expect to continue to introduce new products in each of our product
lines, we cannot assure you that we will be successful in developing new
products in a timely manner or that any new products that we introduce will
achieve market acceptance.
WE ARE LARGELY DEPENDENT UPON OUR INTERNATIONAL OPERATIONS
We have manufacturing and/or sales and service facilities and personnel in,
amongst others, the Netherlands, Malaysia, Korea, Hong Kong, Singapore, Japan,
China, Philippines and the United States and our products are marketed, sold and
serviced worldwide. Our operations are subject to risks inherent in
international business activities, including, in particular:
- general economic conditions in each country;
- the overlap of different tax structures and management of an
organization spread over various countries;
- currency fluctuations, which could result in increased operating
expenses and reduced revenues;
- greater difficulty in accounts receivable collection and longer
collection periods;
- unexpected changes in regulatory requirements, compliance with a
variety of foreign laws and regulations; and
- import and export licensing requirements, trade restrictions and
changes in tariff and freight rates.
In addition, each region in the global semiconductor equipment market exhibits
unique characteristics that can cause capital equipment investment patterns to
vary significantly from period to period.
WE ARE DEPENDENT ON NET SALES FROM CUSTOMERS IN VARIOUS PACIFIC RIM COUNTRIES
WHO HAVE EXPERIENCED ECONOMIC DIFFICULTIES IN THE PAST
Our net sales are dependent upon customers in various Pacific Rim countries.
Many Pacific Rim countries have experienced banking and currency difficulties
that have led to economic recessions at times in the recent past. Specifically,
the decline in value of the Korean and Southeast Asian currencies, together with
difficulties in obtaining credit, has resulted in a decline in the purchasing
power of our Korean and Southeast Asian customers and has resulted in the
cancellation or delay of orders for our products from Korean and Southeast Asian
customers. In addition, if Japan's economy were to weaken again, investments
6
by Japanese customers may be negatively affected with potential negative
implications for the economies of other Pacific Rim countries.
OUR RESULTS OF OPERATIONS HAVE IN THE PAST AND COULD IN THE FUTURE BE AFFECTED
BY CURRENCY EXCHANGE RATE FLUCTUATIONS
For the year ended December 31, 2004, the percentage of our consolidated net
sales that is denominated in euro was approximately 54% whereas the percentage
of our consolidated net sales represented by U.S. dollars or dollar-linked
currencies was approximately 46%. Approximately 83% of our costs and expenses
were denominated in euro for such period. As a result, our results of operations
could be affected by fluctuations in the value of the euro against the U.S.
dollar. In recent periods, the value of the U.S. dollar has declined
significantly in comparison with the euro. We seek to manage our exposure to
such fluctuations by hedging firmly committed sales contracts denominated in
U.S. dollars. While management will continue to monitor our exposure to currency
fluctuations and, as appropriate, use financial hedging instruments to minimize
the effect of these fluctuations, we cannot assure you that exchange rate
fluctuations will not have an adverse effect on our results of operations or
financial condition.
IF WE FAIL TO CONTINUE TO ATTRACT AND RETAIN QUALIFIED PERSONNEL, OUR BUSINESS
MAY BE HARMED
Our future operating results depend in significant part upon the continued
contribution of our senior executive officers and key employees, including a
number of specialists with advanced university qualifications in engineering,
electronics and computing. In addition, our business and future operating
results depend in part upon our ability to attract and retain other qualified
management, technical, sales and support personnel for the operations. We
believe that our ability to increase the manufacturing capacity of our
subsidiaries has from time to time been constrained by the limited number of
such skilled personnel. Competition for such personnel is intense, and we may
not be able to continue to attract and retain such personnel. The loss of any
key executive or employee or the inability to attract and retain skilled
executives and employees as needed could adversely affect our business,
financial condition and results of operations.
WE MAY NOT BE ABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, WHICH COULD MAKE
US LESS COMPETITIVE AND CAUSE US TOO LOSE MARKET SHARE
Although we seek to protect our intellectual property rights through patents,
trademarks, copyrights, trade secrets and other measures, we cannot assure you
that we will be able to protect our technology adequately, that our competitors
will not be able to develop similar technology independently, that any of our
pending patent applications will be issued, or that intellectual property laws
will protect our intellectual property rights. In addition, we operate
internationally, and intellectual property protection varies among the
jurisdictions in which we conduct business. Litigation may be necessary in order
to enforce our patents, copyrights or other intellectual property rights, to
protect our trade secrets, to determine the validity and scope of the
proprietary rights of others or to defend against claims of infringement.
Litigation could result in substantial costs and diversion of resources and
could have a material adverse effect on our business and operating results. In
addition, third parties may seek to challenge, invalidate or circumvent any
patent issued to us, the rights granted under any patent issued to us may not
provide competitive advantages and third parties may assert that our products
infringe patent, copyright or trade secrets of such parties. Furthermore, third
parties may independently develop similar products or duplicate our products. If
any party is able to successfully claim that our creation or use of proprietary
technology infringes upon their intellectual property rights, we may be forced
to pay damages. In addition, to any damages we may have to pay, a court could
require us to stop the infringing activity or obtain a license on unfavorable
terms.
WE ARE SUBJECT TO ENVIRONMENTAL RULES AND REGULATIONS IN A VARIETY OF
JURISDICTIONS
We are subject to a variety of governmental regulations relating to the use,
storage, discharge and disposal of chemical by-products of, and water used in,
our manufacturing processes. Environmental claims or the failure to comply with
any present or future regulations could result in the assessment of damages or
imposition of fines against us, suspension of production or a cessation of
operations. New regulations could require us to acquire costly equipment or to
incur other significant expenses. Any failure by us to control the use or
adequately restrict the discharge of hazardous substances could subject us to
future liabilities.
REPORTING IN ACCORDANCE WITH IFRS MAY DIFFER FROM REPORTING IN ACCORDANCE WITH
U.S. GAAP
Beginning in 2005, the European Commission will require companies that are
quoted on a European stock market, such as Euronext Amsterdam on which the
Company is listed, to publish their financial statements in accordance with
IFRS.
7
While we intend to continue publishing financial statements prepared in
accordance with U.S. GAAP, we will also publish our consolidated financial
statements in accordance with IFRS from January 1, 2005 onwards. Our financial
condition and results of operations reported in accordance with IFRS may differ
from our financial condition and results of operations reported in accordance
with U.S. GAAP, which could adversely affect the market price of our ordinary
shares.
WE MAY ACQUIRE OR MAKE INVESTMENTS IN COMPANIES OR TECHNOLOGIES ANY OF WHICH
COULD DISRUPT OUR ONGOING BUSINESS, DISTRACT OUR MANAGEMENT AND EMPLOYEES,
INCREASE OUR EXPENSES AND ADVERSELY AFFECT OUR RESULTS OF OPERATIONS
As part of our future growth strategy, we may from time-to-time acquire or make
investments in companies and technologies. We could face difficulties in
integrating personnel and operations from the acquired businesses and in
retaining and motivating key personnel from these businesses. In addition, these
acquisitions may disrupt our ongoing operations, divert management from
day-to-day activities, increase our expenses and adversely affect our results of
operations. Any future acquisitions could involve other risks, including the
assumption of additional liabilities, dilutive issuances of equity securities
and incurrence of debt. In addition, these types of transactions often result in
charges to earnings for items, such as amortization of intangible assets or
in-process research and development expenses.
WE ARE SUBJECT TO PROVISIONS OF DUTCH LAW, WHICH MAY RESTRICT THE ABILITY OF OUR
SHAREHOLDERS TO MAKE SOME DECISIONS
We are subject to provisions of Dutch law applicable to large companies that,
together with some provisions of our Articles of Association, have the effect of
concentrating control over significant corporate decisions and transactions in
the hands of the Supervisory Board. Under such regime, the Supervisory Board has
the power to appoint and dismiss the members of the Board of Management. The
members of the Supervisory Board are appointed by the General Meeting of
Shareholders, but the Supervisory Board may provide binding nominations for the
majority of the members to be appointed. Consequently, this regime may have the
effect of delaying or preventing a takeover attempt, including a takeover
attempt that might result in a premium over the market price for our ordinary
shares.
ANTI-TAKEOVER PROVISIONS COULD DELAY OR PREVENT A CHANGE OF CONTROL, INCLUDING A
TAKEOVER ATTEMPT THAT MIGHT RESULT IN A PREMIUM OVER THE MARKET PRICE FOR OUR
ORDINARY SHARES
Our Articles of Association provide for the possible issuance of preference
shares. Such shares may be issued pursuant to a resolution of the General
Meeting of Shareholders. The General Meeting of Shareholders granted, and the
Supervisory Board has approved, the Board of Management's right to issue
preference shares. In April 2000, we established the Foundation, whose board
consists of five members, four of whom are independent of Besi. We have granted
the Foundation a call option pursuant to which the Foundation may purchase up to
55,000,000 of the preference shares. If the Foundation were to exercise the call
option, it may result in delaying or preventing a takeover attempt, including a
takeover attempt that might result in a premium over the market price for our
ordinary shares.
WE MAY IN THE FUTURE BE CONSIDERED A PASSIVE FOREIGN INVESTMENT COMPANY
The U.S. Internal Revenue Code of 1986, as amended, contains special rules
relating to passive foreign investment companies, or PFICs. A U.S. holder who
owns stock in a PFIC generally is subject to adverse tax consequences under
these rules. These rules do not apply to non-U.S. holders. A company is treated
as a PFIC if at least 75% of its gross income for a taxable year consists of
"passive income," defined generally as income from passive investments, as
opposed to operating income. A company is also treated as a PFIC if the average
percentage of the value of its assets that produces or is held for the
production of passive income, including cash balances, is at least 50%. There
can be no assurance that we will in future years have sufficient revenues from
product sales or sufficient non-passive assets to avoid becoming a PFIC.
If we were classified as a PFIC, unless a U.S. holder made a timely specific
election, a special tax regime would apply to any "excess distribution," which
would be the U.S. holder's share of distributions in any year that are greater
than 125% of the average annual distributions received by the U.S. holder in the
three preceding years or the U.S. holder's holding period, if shorter, and any
gain realized on the sale or other disposition of the ordinary shares. Under
this regime, any excess distribution and realized gain would be treated as
ordinary income and would be subject to tax as if the excess distribution or
gain had been realized ratably over the U.S. holder's holding period for the
ordinary shares. A U.S. holder will generally be required to pay taxes on the
amount allocated to a year at the highest marginal tax rate and pay interest on
the prior year's taxes. A U.S. holder may be able to ameliorate the tax
consequences somewhat by making a mark-to-market election, or QEF election, that
is, an election to have us treated as a qualified electing fund for U.S. federal
income tax purposes. You should consult your tax advisor regarding the tax
consequences of our classification as a PFIC.
8
PRICE VOLATILITY OF THE ORDINARY SHARES
The current market price of our ordinary shares may not be indicative of prices
that will prevail in the trading market in the future. In particular, since our
initial public offering in December 1995, the market price of our ordinary
shares has experienced significant appreciation and, more recently, significant
depreciation, as have price levels for equity securities generally and price
levels for equity securities of companies associated with the semiconductor
industry and other high-technology fields. In addition, since our initial public
offering, the market price of the ordinary shares has experienced significant
fluctuation, including fluctuation that is unrelated to our performance. We
expect that this fluctuation will continue in the future.
ITEM 4: INFORMATION ON THE COMPANY
INTRODUCTION
BE Semiconductor Industries N.V. is a leading manufacturer of semiconductor die
sorting, flip chip bonding and multi-chip die bonding, packaging and plating
equipment for both leadframe and array connect applications. We design and
manufacture technologically advanced, high-performance equipment and integrated
systems for the semiconductor industry's assembly process operations. Our
equipment is used principally to produce semiconductor packages, which provide
the electronic interface and physical connection between the chip and other
electronic components and protect the chip from the external environment. Our
innovative systems offer customers high productivity and improved yields of
defect-free devices at a low total cost of ownership. We operate primarily
through our wholly owned divisions. We conduct the molding systems and trim and
form integration systems business through our wholly owned subsidiary Fico B.V.
and its subsidiaries, or Fico. We conduct the plating systems and singulation
systems business through our wholly owned subsidiary Meco International B.V. and
its subsidiaries, or Meco. RD Automation and Laurier operate our high precision
flip chip die attach systems and die sorting systems businesses. We conduct our
flip chip and multi-chip bonding equipment business through Datacon.
Our customers are leading U.S., European and Asian semiconductor manufacturers
and packaging subcontractors and include Agere, Amkor, ASE, AVX, Infineon,
Motorola, NSEB, ON Semiconductor, Philips, Skyworks and STMicroelectronics. Our
equipment performs critical functions in our customers' semiconductor assembly
operations and in many cases represents a significant percentage of their
installed base of packaging and plating equipment. Our business has benefited
from close, long-term relationships with our customers, many of whom have been
purchasing our equipment and services for over 30 years. We believe that these
customer relationships have contributed to us attaining leading positions in
each of our principal product lines.
Our ordinary shares are listed on Euronext Amsterdam (symbol: BESI) and on the
Nasdaq National Market (symbol: BESI). We were incorporated under the laws of
the Netherlands in May 1995. Our principal executive offices are located at
Marconilaan 4, 5151 DR Drunen, the Netherlands, and our telephone number at that
location from the United States is (011) 31- 416-384345. The address for our
agent for service in the United States is BE Semiconductor Industries USA, Inc.,
10 Tinker Avenue, Londonderry, NH 03053.
RECENT EVENTS
ACQUISITION OF DATACON
General
On January 4, 2005, we completed the acquisition of Datacon. In the transaction,
Datacon shareholders received total consideration of (euro) 72.6 million, of
which (euro) 65 million was paid in cash and the remainder through the issuance
of 1,933,842 ordinary shares. In connection with the acquisition of Datacon, we
incurred approximately (euro) 3.2 million in acquisition fees and expenses.
Under the terms of the acquisition, two foundations representing the former
Datacon shareholders have agreed to a lock-up arrangement pursuant to which the
new ordinary shares issued to them in the transaction must be held for a period
of two years from the date of the acquisition, subject to certain permitted
exceptions.
We expect to complete the determination of the allocation of the purchase price
paid in connection with the acquisition of Datacon in the first quarter of 2005.
We anticipate that the transaction will be accretive to our earnings per share
in 2005 assuming no synergies related to the combination of the two firms. We
intend to operate Datacon as an independent
9
subsidiary within our group. We intend to retain the Datacon brand name and to
offer its flip chip and die bonding equipment as part of our global product
portfolio of assembly equipment.
Under the terms of the transaction, H. Rutterschmidt and G. Zeindl, members of
Datacon's management board, will be appointed by our Supervisory Board as
members of our Board of Management. This appointment is expected to take place
after the notification of the General Meeting of Shareholders at the next annual
General Meeting of Shareholders. In a separate transaction, an Austrian
subsidiary of Besi acquired the land where the factory building of Datacon is
located in Radfeld, Austria, for (euro) 2 million from a partnership of which H.
Rutterschmidt and G. Zeindl are two of the partners.
Strategic Rationale
Our business strategy is to become the world's leading supplier of advanced
back-end assembly equipment by means of leveraging our technology leadership,
pursuing back-end system integration, focusing on long-term customer
relationships, expanding our sales and service operations and selectively
pursuing acquisitions.
The purchase of Datacon provides us with a complementary product line
acquisition that is consistent with our goal of becoming the world's leading
assembly equipment company and our strategy of offering customers a broad
portfolio of cost-effective, end-to-end integrated solutions. The acquisition
will increase the breadth of our product portfolio by adding flip chip bonding
equipment and multi-chip die bonding equipment to our global product portfolio.
The acquisition significantly increases our scale and presence in the
semiconductor assembly equipment market. Based on 2003 data from VLSI, we
believe that as a result of the Datacon acquisition, we will become the third
largest semiconductor assembly equipment company in the world as measured by
revenues. We believe that this increase in scale and market presence will
enhance our position in the eyes of our customers, competitors and employees.
In addition, we believe that the acquisition will allow us to further expand our
market penetration of many key global accounts such as Infineon,
STMicroelectronics and Amkor and provide the potential to expand our
relationships with customers such as Epcos, Skyworks, Bosch, Fairchild and ASE.
We believe that our manufacturing capacity and technology base will also benefit
from the transaction. Our global manufacturing resources will be expanded
through the incorporation of additional, production capacity in Hungary, Austria
and Asia. Our technology base will be strengthened through the combination of
the resources of our die handling operations in the United States with those of
Datacon.
We also expect to benefit from the depth of Datacon's management resources. We
believe that Datacon has an excellent senior and middle management organization
with a demonstrated track record of business and financial success. Datacon's
executive management team has agreed to stay on with Datacon subsequent to the
transaction and will be integrated with our management team. We believe that
Datacon's historical financial results reflect the leadership position of its
products and its successful business model.
Business
Datacon was founded in 1986 in Radfeld, Austria and is today a leading global
manufacturer of flip chip bonding, multi-chip die bonding and other related
assembly equipment for the semiconductor and telecommunications industries. In
the year ended March 31, 2004, sales of flip chip and die bonding equipment
represented approximately 47% and 53%, respectively, of Datacon's net sales.
According to data for 2003 from VLSI, Datacon is the world's largest
manufacturer of flip chip bonding equipment for the semiconductor industry with
a market share of 26%. The use of flip chip bonding technology is critical for
the needs of chip manufacturers, allowing them to further shrink device sizes
while increasing functionality for applications such as wireless telephony,
personal digital assistants, consumer electronics and Internet infrastructure.
Datacon's products provide a wide range of die bonding capabilities for the
advanced packaging market, ranging from high precision single die attach to
sophisticated multi-chip, die and flip chip bonding applications. In addition,
Datacon offers a customized products service for its customers, ranging from
single machines to entire production lines with equipment integrated from other
manufacturers, and also offers standardized and market specific products and
training as standard to all customers. The principal end markets for its
products are the automotive, telecommunications, consumer electronics, computer,
health care, industrial and military and space industries.
Datacon's largest customers are principally semiconductor manufacturers in
Europe and North America. Key customers include Epcos, Infineon, Bosch,
STMicroelectronics, Skyworks and Fairchild. It also has major customers in the
Asian assembly subcontractor industry, such as Amkor, ASE and STATS ChipPAC.
10
Currently, Datacon has production facilities in Radfeld, Austria, Gyor, Hungary
and Berlin, Germany, employs approximately 450 people, including 110 employees
in research and development, and has an estimated installed base of
approximately 1,500 machines at customer locations worldwide.
Datacon's business operations are managed from the corporate headquarters in
Radfeld, Austria, which also performs final assembly and testing of modules and
frames and houses die bonder research and development. Datacon's Hungarian
subsidiary is principally responsible for the production of mechanical parts and
assembly of application modules in the production of flip chip and die bonding
equipment. Datacon's German subsidiary produces special purpose machinery for
both internal and external use. Datacon's sales and service activities outside
Europe are handled by subsidiaries in North America and the Asia Pacific region.
INDUSTRY BACKGROUND
INTRODUCTION
Semiconductors are the basic building blocks used to create an increasing
variety of electronic products and systems. Most consumers picture
semiconductors as small black boxes. The small black boxes are actually the
packaging that surrounds the silicon chip and both protect the chip from the
external environment and provide the interface between the chip and other
electronic components.
Historically, semiconductors have been mass-produced as standard parts. Their
electronic functionality was determined by configuring many standard parts on a
printed circuit board that was custom designed for each application. Continuous
improvements in semiconductor process and design technologies have led to
smaller, more complex and more reliable devices at a lower cost per function.
Over time, system users and designers have continued to demand more
functionality, higher levels of performance, greater reliability and shorter
design cycle times, all at a lower cost. The semiconductor industry has
responded by combining the functions of multiple chips onto one chip. In
addition, by increasing the number of chips per wafer and wafer diameter,
manufacturers have reduced costs and increased device yields.
The simple approach of reducing chip sizes and increasing functionality in order
to meet customer production requirements has pushed the limits of conventional
semiconductor packages. Semiconductor manufacturers have been required to
develop new packaging technologies in response to increased demand for:
- Complexity. Manufacturers now combine so many functions on each chip that
it becomes difficult to accommodate the large number of necessary
electrical interconnections. We believe that this problem will only
increase as designers continue to develop solutions with an increased
number of functions per chip.
- Miniaturization. New applications and ever smaller electrical equipment
such as wireless devices, including cellular telephones and personal
digital assistants, demand increased density and functionality per chip,
which can only be achieved through smaller chip designs and packages.
- Customization. At the same time as individual chips become more powerful
and the total number of chips in end products is reduced, customers
require specific customized packages for their individual needs.
Manufacturers therefore demand packaging equipment with the flexibility to
handle an increased number of specific applications.
The rapid development of advanced semiconductor applications requires
semiconductor manufacturers to continually improve their core technology and
manufacturing capabilities to remain competitive. Due to increased requirements
for complexity, miniaturization and customization, semiconductor manufacturers
demand highly sophisticated, cost-effective equipment from semiconductor
assembly packaging and plating equipment suppliers.
SEMICONDUCTOR MANUFACTURING AND ASSEMBLY
The semiconductor manufacturing process involves two distinct phases, wafer
processing, commonly referred to as the front-end, and assembly/test operations,
including die attach wire bonding, packaging, plating and testing functions,
which are commonly referred to as the back-end. Wafer processing involves
thousands of complex steps applied to a silicon wafer to form millions of
circuits on the wafer comprising a large number of chips. As the cost of
equipment and consequently production cost for the front-end is very high, it is
critical for manufacturers to protect their investment during the back-end
process by minimizing losses from defective processing, increasing throughput
and shortening manufacturing lead times for semiconductor products.
11
The semiconductor assembly process first involves the separation from the wafer
of individual chips or "die" and the attachment of each die to a plated metal
leadframe or a multi-layer substrate. The connection of the chip is then made
either by bonding extremely fine gold or aluminum wire to the leadframe (this is
referred to as "wire bonding") or to a multi-layer substrate or by creating
direct connections to the multi-layer substrate via a so-called flip chip (this
is referred to as "die attach" or "die bonding"). Next, the chips are molded by
encapsulation in an epoxy plastic. In leadframe applications, the leads are then
de-flashed and tin-plated, the chips are separated into individual devices, and
the leads are trimmed and formed. In array connect applications, connections
between the substrate and the chip are attached by ball placement and reflow
processes and the devices are cut, or singulated, into individual units.
Functional testing is carried out in various testing operations. Advanced
integration capabilities, however, already permit the integration of test
functions with leadframe trim and form operations.
A more detailed description of the key stages in the semiconductor assembly
process is set forth below:
Die Separation--a dicing saw cuts the wafer into individual chips or "die";
Stamping, Etching, Plating and Materials Processing--a metal leadframe is
stamped or etched and plated with silver, gold or nickel palladium to act as a
physical carrier and electrical connection for the individual die; in processes
used to create array connect devices, a rigid or flexible multilayer substrate
acts as a carrier for the individual die;
Silver/Gold Spot Plating--the lead tips and die pads are plated with silver or
gold to facilitate bonding of the die to the leadframe or substrate;
Bonding--chips are bonded to the leadframe and specific locations on the chip
and corresponding leads on the frame are connected with very fine gold or
aluminum wire;
Flip Chip Die Attach--chips are attached directly to the substrate through
contact with small gold or precious metal alloy balls effected by a reflow
process;
Molding--the chips are encapsulated, generally in epoxy plastic, to protect them
from external contamination;
Deflashing--the epoxy residue left over from the molding process is removed;
Tin-lead plating--the leads of the molded chips are plated with tin-lead to
facilitate soldering to other components;
Trim and Form--the leads of the molded chips are cut and formed for later
placement on a printed circuit board after packaging and final test;
Ball Placement--balls are placed onto substrates to form the connection between
the chip's substrate and external electronic devices;
Reflow--tin balls are heated and cooled to connect them to the substrate;
Singulation--packaged array connect devices are sawed into individually packaged
units using a high-speed cutting wheel; and
Test Handling--the packaged semiconductor is delivered to a tester by handling
equipment.
SEMICONDUCTOR PACKAGING DEVELOPMENTS
Semiconductor manufacturers face continuing challenges to meet the demands of
their end-user customers in response to new market developments. For example, in
recent years, the use of semiconductors in applications such as wireless
telephony, personal digital assistants and consumer electronics has proliferated
rapidly. In addition to rapidly increasing volumes, the use of semiconductors in
devices such as cellular telephones imposes continuing demands upon
semiconductor manufacturers to reduce the size of the device and increase its
functionality, while still responding to intense time-to-market pressures.
To meet the challenges faced by semiconductor manufacturers, the semiconductor
assembly industry has developed new chip packaging technologies. To address the
requirement for increasingly dense circuits, array connect packaging has been
developed, of which chip scale ball grid array packaging has emerged as the
leading solution. Rather than relying on lead frames to mount and connect
semiconductors, a multi-layer substrate material is used. Underneath the
substrate, balls of
12
solder are placed in an array pattern to establish direct contact with the
circuit board allowing much greater densities than can be attained using
leadframe technology. Chip scale ball grid array packaging is ideal for
producing small, complex wireless devices.
A more recent innovation is flip chip technology. As chips have decreased in
size, the pitch or distance between the gold wires that connect the chip to the
substrate or leadframe has continued to shrink. Flip chip technology eliminates
the need for wire bonding by placing the contact points of the chip in direct
contact with the packaging substrate. This technology requires stringent control
of the placement of the chip on the substrate.
We believe that both these new technologies are attractive solutions for a
number of the challenges faced by semiconductor manufacturers, and anticipate
that they will continue to be adopted and will become a more significant part of
the overall market in the future. This adoption will in turn require the
introduction of new assembly processes, including new molding processes to
encapsulate array connect chips and singulation systems in place of trim and
form systems to cut and form array connect chips for installation on printed
circuit boards.
CUSTOMER REQUIREMENTS
The dynamic nature of the semiconductor market causes manufacturers to seek a
one-stop, integrated solution for their production requirements, both to
maximize their return on investment in fabrication facilities and to eliminate
potential bottlenecks in the semiconductor assembly process. As a result,
manufacturers require assembly solutions that:
- are continuously improved to support new technologies for both leadframe
and array connect packages;
- include equipment capable of handling the wide range and proliferating
number of chip packages; and
- offer increased yields of defect-free devices while reducing manufacturing
lead times.
To develop these solutions, manufacturers and suppliers must collaborate closely
to identify product and process specifications and develop new technologies.
COMPETITION
We are a leading manufacturer of semiconductor die sorting, flip chip bonding
and multi-chip die bonding, packaging and plating equipment for both leadframe
and array connect applications. The market for assembly equipment is highly
competitive. In each of the markets we serve, we face competition from
established and potential competitors, some of which may have greater financial,
engineering, manufacturing and marketing resources than we have.
We believe we compete favorably with respect to the following factors:
- product performance;
- ease of use of our products;
- product reliability;
- product pricing in relation to "value of ownership";
- breadth of product portfolio;
- historical customer relationships; and
- customer service and support.
A significant amount of the world's semiconductor manufacturing activity is
concentrated in Japan, a market which has traditionally been supplied by
Japanese semiconductor equipment manufacturers and historically has been
difficult for non-Japanese suppliers to penetrate. Since 1995, we have supplied
plating systems to the connector industry in Japan, and in recent years have
begun to ship plating systems to Japanese semiconductor manufacturers. While we
believe that this development will provide an opportunity to expand and broaden
our presence in the Japanese market, given the historical difficulties of
entering that market, and the existence of a number of major Japanese
competitors, we may not be successful in doing so. Moreover, Japanese
semiconductor equipment manufacturers aggressively compete in areas outside
Japan, particularly in the Asia Pacific region. We believe that Japanese
suppliers will be our most significant competitors for the foreseeable future
due to their strength in the supply of equipment for high-volume, low-cost
production and their high levels of excess capacity relative to other suppliers,
including Besi.
The semiconductor assembly industry is characterized by rapidly changing
technology and a high rate of technological obsolescence. Development of new
technologies that have price/performance characteristics superior to our
technologies could adversely affect our results of operations. In order to
remain competitive, we believe that we will have to expend substantial effort on
continuing product improvement and new product development. We cannot assure you
that we will be
13
able to develop and market new products successfully or that the products
introduced by others will not render our products or technologies
non-competitive or obsolete.
STRATEGY
Our objective is to become the world's leading supplier of advanced back-end
semiconductor assembly equipment incorporating both leadframe and array connect
process technologies. The principal elements of our strategy to achieve this
goal are set forth below.
LEVERAGE OUR TECHNOLOGY LEADERSHIP TO EXPLOIT NEW PACKAGING TECHNOLOGIES
Our customers' success depends on our timely development of manufacturing
processes and equipment to address changing requirements for new semiconductor
packaging. In the array connect market, we have introduced advanced molding
systems and singulation systems designed to address our customers' requirements
for miniaturization and higher chip density at lower overall cost. We have been
involved in the development and production of chip scale ball grid array
technology since the early 1990s and we are one of the leading suppliers of
equipment used in chip scale ball grid array molding.
ACTIVELY PURSUE SYSTEM INTEGRATION
We believe that customer demands for higher throughput, quality and flexibility
in the assembly process offer significant opportunities for those equipment
manufacturers able to automate and integrate that process. We intend to expand
the range of automated systems for various leadframe and array connect assembly
processes and ultimately to offer a complete, integrated solution for our
customers. Our current generation of systems has introduced the integration of
molding with wire bonding and post cure, as well as the integration of marking,
vision inspection and testing with trim and form and singulation processes. We
intend to continue this process by introducing other products to support an
automated and integrated assembly process, including advanced test handling
systems and tracking systems, as part of our goal of offering customers a
one-stop, integrated solution for the entire assembly process.
FOCUS ON STRATEGIC, LONG-TERM CUSTOMER RELATIONSHIPS
Our close relationships with our customers, many of which exceed thirty years,
provide us with valuable knowledge about the semiconductor packaging and plating
requirements as well as the opportunities to develop back-end systems in
conjunction with our customers. We believe that these relationships, combined
with our position as a leading supplier of integrated assembly systems, provide
an opportunity to broaden the range of products sold to these customers and to
enhance our reputation as a supplier of a broad and flexible range of assembly
systems.
EXPAND GLOBAL SALES AND SERVICE OPERATIONS
We maintain regional sales and service operations in Europe, the Asia Pacific
region and the United States and have customers in each region. As part of our
strategy, we intend to expand our customer base in critical global markets,
particularly China and Japan. Given the globalization of the semiconductor
industry, we believe that a significant presence in sales and after-market
service in each geographic region is critical to sustain close relationships
with customers and generate new product sales.
SELECTIVELY PURSUE ACQUISITIONS
We believe that in order to implement our goals of providing customers with
highly automated, integrated solutions with optimal packaging flexibility, it is
critically important to identify and incorporate new technologies and processes
on a timely basis. Towards that end, we intend to actively identify and evaluate
acquisition candidates that could assist us in attaining our overall goals of
achieving integrated, automated assembly, maintaining product leadership,
addressing evolving new packaging technologies and expanding our geographic
scope. In September 2000, we acquired our RD Automation subsidiary in order to
expand our array connect product portfolio, in January 2002, we acquired our
Laurier subsidiary allowing us to incorporate intelligent die sorting
capabilities as part of our integration strategy and, on January 4, 2005, we
acquired Datacon in order to extend our presence in the flip chip and die
bonding equipment markets and to increase our scale and presence in the assembly
equipment market. We expect to implement our acquisition strategy by leveraging
our reputation in the industry, extensive product range and significant cash
resources. In addition, we will also, where appropriate, evaluate implementing
our goals through joint ventures, alliances and other strategic relationships.
PRODUCTS AND SERVICES
14
We develop and produce semiconductor die handling, packaging and plating
equipment for both leadframe and array connect applications.
Our die handling equipment consists of:
- die sorting systems which are used to inspect, select and sort dies, flip
chips, wafer level scale packages and opto-electronic devices for further
processing in assembly operations; and
- high precision single and multi-chip and flip chip die attach systems
which place the chip onto a multi-layer substrate.
Our packaging equipment consists of:
- molding systems that encapsulate bonded semiconductor devices in epoxy
resin;
- trim and form integration systems used to cut and then form metallic leads
of encapsulated semiconductor devices;
- singulation systems used to cut package array connect substrates; and
- integration lines that connect and integrate the packaging process from
molding until final testing.
Our plating equipment consists of a comprehensive line of fully automated
tin-lead plating systems.
In the future, we plan to offer customers a fully automated and integrated array
connect assembly solution that will integrate test handling and flip chip
bonding capabilities with our existing line of packaging and plating equipment.
DIE HANDLING EQUIPMENT
DIE SORTING SYSTEMS
Die sorting systems are used to inspect, select and sort bare dies, flip chips,
wafer level chip scale packages and opto-electronic devices as small as 0.2
millimeters square from a wafer for further processing in back-end semiconductor
assembly operations. Pick-and-place systems are also capable of handling 300
millimeter diameter wafers, the next major step in the evolution of mass
produced semiconductor devices. Our current line of die sorting systems range in
price from (euro) 150,000 to approximately (euro) 300,000.
As of December 31, 2004, we had sold approximately 550 die sorting systems.
SINGLE AND MULTI-CHIP AND FLIP CHIP DIE ATTACH SYSTEMS
Datacon develops and produces advanced die attach and flip chip equipment for
the back-end process of integrated circuit, or IC, manufacturing. Using a highly
adaptable platform concept with modular systems, Datacon's product range offers
a large degree of flexibility for the IC manufacturing industry. Die attach and
flip chip modules are available in dedicated single-chip as well as multi-chip,
or MCM layouts and combinable with a range of other features. On the input side,
Datacon machines handle standard 200 millimeter wafers while the latest machines
also offer additional 300 millimeter capability. Factories still using
sub-standard sized wafers can also be supplied by Datacon. With these machines,
Datacon covers the requirements for a wide range of standard as well as advanced
package designs and technologies such as system-in-package, or SiP, stacked die,
micro-electro-mechanical systems, or MEMS, optoelectronics, and Chip-Scale
Packages, or CSP.
With the 2200 apm, Datacon pioneered the revolutionary flip chip technology.
Using different modules, the 2200 apm can be set up as a dedicated flip chip or
die bonder or execute both tasks in one module. Offering this large amount of
flexibility with a footprint of just 0.96 square meter, the 2200 apm is
currently considered the industry standard. The 2200 apm offers a maximum
throughput of 12,000 units per hour and a placement accuracy of +/-
10(mu)m@3(sigma).
Introduced in April 2004, the first model of the 8800 FC platform, the 8800 FC
Quantum, is a dedicated flip chip machine with wafer changing system and 300
millimetre wafer capability. Equipped with a dual head handling system executing
two flip chip bonding processes in parallel, the 8800 FC Quantum is a high-speed
machine aimed at the market for large volume flip chip production. It operates
with an accuracy of +/- 10(mu)m@3(sigma).
As of December 31, 2004, Datacon had sold approximately 950 single and
multi-chip and flip chip die attach systems and had supplied over 50% of the
installed base single and multi-chip and flip chip die attach systems at several
manufacturers, including Epcos, Infineon, ST Micro, Amkor, ASE, Philips,
Skyworks, Bosch, Intel, Texas Instruments, IBM, Spil, StatsChipac, Samsung.
Datacon's current line of single and multi-chip and flip chip die attach systems
range in price from (euro) 200,000 to more than (euro) 600,000.
15
HIGH PRECISION FLIP CHIP AND DIE ATTACH SYSTEMS
Flip chip technology eliminates the need for conventional wire bonding by
placing the contact points of the chip in direct contact with the packaged
substrate. The use of flip chip and multi-chip bonding technology is critical
for the needs of chip manufacturers to further shrink device sizes while
increasing functionality for applications such as wireless telephony, personal
digital assistants, consumer electronics and internet infrastructure. In the
opto-electronics field, precision flip chip, die attach systems are critical in
the assembly of filters such as waveguides which optimize the flow of data in
fiber optic networks. Our die attach equipment offers a variety of solutions for
process development and volume production environments, including models that
can accommodate bonding accuracy up to 1 micrometer. In addition, we offer
semi-automatic systems capable of bonding from 10 g to 125 kg of force, with an
average placement accuracy of approximately 2 micrometers. Our current line of
high precision flip chip die attach systems range in price from (euro) 100,000
to more than (euro) 500,000.
As of December 31, 2004, we had sold approximately 180 high precision flip chip
and die attach systems.
PACKAGING EQUIPMENT
MOLDING SYSTEMS
Once chips have been bonded, using either wire bond technology or flip chip die
attach technology, they must be encapsulated in a stable, electronically neutral
base. We produce a range of molding systems for the leadframe and array connect
markets that encapsulate semiconductor devices in epoxy resins.
Based on our observation of trends in our industry, we believe that package
proliferation both for leadframe and new array connect devices will increase
from 400 package types five years ago to over 1,000 package types in the coming
years. We believe that such proliferation will further increase the necessity of
automated molding processes, because automation will enable our customers to
increase their yield of defect-free devices through better process control and
because the rapid transition to smaller, thinner surface-mount devices and the
advent of array connect packages requires more precise handling and processing
techniques. As a result, manufacturers have demanded assembly equipment with
features that are sophisticated enough to support the introduction of these new
packages and sufficiently flexible to permit both the high-volume production of
devices and smaller production runs of specialized chips.
To meet these requirements, we have developed and customized molding systems to
meet customers' performance and flexibility requirements. Our molding systems
use a multi plunger technology, which increases efficiency by means of multiple
transfer plungers per mold. In addition, our systems use molds smaller than
those currently available from other manufacturers, including those in Japan. We
believe that these features improve process control, increase throughput and
provide greater flexibility by a more rapid exchange of mold sets. All of the
systems are modular, allowing integration with other process equipment, such as
wire bonders, post cure ovens and trim and form equipment.
Our molding systems feature an electromechanical drive and modular design
ranging for one strip to sixteen strips capability. For the year ended December
31, 2004, sales of our chip scale ball grid array molding systems accounted for
approximately 30% of our total molding systems sales.
To enhance further the flexibility, speed and reliability of our automated
systems, we have developed proprietary control software that permits operators
to vary the parameters for encapsulation of chips and facilitates the transition
from one product group to another. The software automatically analyzes the
characteristics of any chip entered by the operator, and provides the operator
with the instructions required for automated encapsulation of the prescribed
product set. We also have developed proprietary software that provides customers
with trend data on mold temperatures, plunger pressure and position and other
key performance reliability indicators to allow precise monitoring of the
production process.
Our current line of molding systems range in price from (euro) 250,000 for a one
strip machine designed to facilitate the development of new packages and
manufacturing of low volume products to approximately (euro) 1,000,000 for a
fully configured, high capacity, automated electromechanical system.
As of December 31, 2004, we had sold approximately 945 molding systems and had
supplied over 50% of the installed base of molding systems at several
manufacturers, including AVX, Cypress Semiconductor, Delphi Automotive Systems,
EEMS,
16
IBM, Infineon Technologies and Micronas.
TRIM AND FORM INTEGRATION SYSTEMS
Trim and form integration systems are used to cut and then form metallic leads
of encapsulated semiconductor devices in preparation for placement on a printed
circuit board or in other applications. Our trim and form integration systems
are capable of integrating laser marking, vision inspection and functional
testing. Trim and form integration, including testing, is the final step in the
manufacture of a semiconductor using conventional leadframe technology. The
procedure requires a high degree of precision, particularly with the increasing
adoption of smaller devices with thinner and more numerous leads that can easily
be misformed or broken during the trim and form process.
To meet customer requirements, we offer high quality trim and form systems with
a wide range of options. Customers have the ability to customize specific
production requirements by selecting a manual, semi-automatic or automated
system with either a hydraulic or electromechanical drive system. The customer
selects a specific configuration and we then customize the equipment to meet
such requirements using our proprietary tool designs and proprietary
loading/transport system. Our trim and form systems are modular in design in
order to meet customer-specific volume and product requirements.
To enhance further the flexibility, speed and reliability of our automated
systems, we have developed proprietary modular control software that permits
operators to vary the parameters and easily make the transition from one product
group to another. The software automatically analyzes the characteristics of any
chip entered by the operator, and provides the operator with the instructions
required for automated handling of the prescribed product set. We have also
developed proprietary software that provides customers with trend data and other
key performance reliability indicators to allow precise monitoring of the
production process.
Systems also can be configured to integrate capabilities such as product
marking, vision inspection and related testing functions and to operate on an
integrated basis with automated molding and post-cure systems. Our current line
of trim and form systems ranges in price from (euro) 125,000 to (euro) 550,000
depending on the particular configuration selected. As of December 31, 2004, we
had sold approximately 925 trim and form systems and had accounted for
approximately 50% of the installed base of trim and form systems at several
manufacturers, including AVX, Cypress Semiconductor, Delphi Automotive Systems,
EDL, EEMS, IBM, Infineon Technologies, Micronas, Motorola and NSEB.
SINGULATION SYSTEMS
Singulation is the final step in the assembly of semiconductors using the newly
developed array connect technology in which the molded substrates are cut into
individually packaged units. Our technology is based on the technology we used
to develop our trim and form systems. We commercially introduced a fully
automated singulation and sorting system in July 1999. As of December 31, 2004,
we had installed over 80 systems in the field. The systems are available in
single or double spindle version and can be used for saw singulation of a
variety of packages such as chip array bill grid array, or CABGA, land grid
array, or LGA, tape array bill grid array, or TABGA, quad flat no-lead, or QFN,
and micro leadframe, or MLF. The latest generation systems are based on the
modular Advanced Back-End Cluster, or ABC, concept and can be integrated with a
variety of other process modules such as laser markers and test handlers. Prices
for the different models range from (euro) 350,000 to (euro) 550,000.
PLATING EQUIPMENT
PLATING SYSTEMS
As part of the back-end manufacturing assembly process, the leadframes that
carry semiconductor chips must first be plated with electro-conductive
materials, such as silver or gold. Once encapsulated, the chips must again be
plated with tin-lead to facilitate soldering with other components. As
semiconductor devices become increasingly complex, semiconductor manufacturers
require plating systems that provide both higher accuracy of plating position
and uniform distribution of plating metals. In addition, systems must operate on
a fully automated basis to achieve higher throughput levels with a minimum
number of defects.
We currently supply plating equipment to manufacturers of stamped and etched
leadframes. Although the plating equipment market for stamped leadframes is
characterized by a large installed base of equipment built in-house, we believe
that as this market continues to grow, more suppliers of leadframes will
outsource their needs for plating equipment. The equipment
17
market for etched leadframes is supplied by independent manufacturers.
Our products can be used to plate semiconductors and discretes before and after
encapsulation, as well as to plate connector parts. We manufacture both
reel-to-reel systems, which plate continuous reels of leadframe material, and
cut-strip machines, which plate individual magazines or trays of subdivided
devices.
As of December 31, 2004, we had sold over 590 plating systems and had supplied
over 50% of the installed base of automated tin-lead plating systems at several
manufacturers, including Agere, Amkor, STATS ChipPAC, Hynix, Infineon
Technologies, NSEB, Philips, Samsung, SPIL and Texas Instruments.
All of our plating systems are modular in construction, so that they can be
configured to meet specific customer volume and product requirements. Our
systems use a patented plating wheel technology to support the application of a
broad range of selective plating techniques, including stripe, spot, mini-spot,
contour and front and rear side plating. Operators can define a range of plating
parameters, including process sequence, temperature, dosing and speed through
the use of proprietary control software.
Our current line of plating systems ranges in price from (euro) 400,000 to more
than (euro) 1,500,000, depending on the specific configuration.
Tin-Lead Plating (Post-Molding)
According to 2003 data compiled by VLSI, we believe that we have the leading
position in the automated tin-lead plating equipment market. We expect that our
growth in this market will be driven by semiconductor manufacturing capacity
additions as well as the replacement of existing semi-automatic systems. Our
most important current plating product is our deflash and plating
magazine-to-magazine cut-strip plating system. This system, which accounts for
approximately 50% of our plating system sales, is used by leading semiconductor
manufacturers to deflash and plate leadframes after encapsulation. The system
automatically removes plastic bleed or flash left over from the molding process
before plating and then plates semiconductor devices with a tin-lead alloy. We
intend to:
- maintain our position as a market leader in automated tin-lead plating
equipment and process technology;
- increase our sales and market share by replacing semi-automated systems
with our fully automated systems; and
- continue to introduce systems offering enhanced productivity and yields
and lower cost of ownership.
Other Plating Systems
We also produce reel-to-reel systems for tin-lead plating of discrete devices,
silver spot plating and selective connector plating.
Since 1970, we have also specialized in the supply of chemicals for the
semiconductor and electronic plating industry. We develop and sell our own
chemical formulations for the plating of electronic material that incorporate
qualities required for specific leadframe and connector applications. Our
chemical products include a range of cleaners, electro polishers and strippers
that are used by, and sold in conjunction with, our plating equipment.
AUTOMATED BALL PLACEMENT SYSTEMS
To capitalize on the growth of the array connect market, we are developing a
proprietary line of ball placement systems which places the soldered ball onto
the substrate molded strip in order to provide the device with electrical
conductivity. We believe that such systems are required for semiconductor
manufacturers seeking to establish a fully automated array connect manufacturing
line.
TECHNOLOGY
We believe that important trends in the semiconductor industry, including
rapidly changing technologies for semiconductor fabrication, shorter product
cycles and the proliferation of new packages and devices, will further increase
the significance of technology in the back-end manufacturing process. In cases
where such protection is required, we believe that our technology is adequately
protected by patents. We design, develop and manufacture die sorting, flip chip,
molding, trim and form, singulation and plating systems drawing on advanced
technological features, including the following:
DIE SORTING SYSTEMS
Our die sorting systems are used to inspect, select and sort bare dies, flip
chips, wafer level chip scale packages and opto-electronic devices as small as
0.2 millimeter square from a wafer for further processing in back-end
semiconductor assembly
18
operations. In addition, we offer pick-and-place systems which are also capable
of handling 300 millimeter diameter wafers.
DIE ATTACH SYSTEMS
Die Attach
Our die attach systems offer solutions for process development and volume
production applications, including models catering to 1 and 2 micrometer
accuracy bonding. In addition, we offer systems capable of bonding single and
multi-chip, with an average placement accuracy of approximately 10 micrometers.
Flip Chip
For flip chip technology we are the world's leading supplier. We are offering
flip chip bonders for the mainstream solder bump process as well as equipment
for adhesive technologies like non conductive adhesive, isotropic conductive
adhesive and anisotropic conductive adhesive. In addition to 7 um accuracy, a
heated bond head with bond forces up to 5 kg is available that also enables
thermo compression interconnects.
MOLDING SYSTEMS
Multi-Plunger Technology
Our molding systems use our multi-plunger technology, in which each mold
contains multiple transfer plungers with patented tips. This design, when
combined with our small mold sizes, affords both accuracy and flexibility to
provide faster and more efficient production. Additionally, for chip scale ball
grid array substrates, our molds can accommodate variations in board thickness,
allowing our systems to meet precise specifications. We also have developed
specialized configurations to improve the flow of mold compound in the
production of ultra thin packages.
Modular Press
Our patented electromechanical molding systems incorporate a modular designed,
rigid electromechanical press construction, resulting in greater process
control. In addition, the systems' electromechanical drive eliminates the risk
of contamination associated with the use of hydraulic fluids, facilitating their
use in clean room environments.
TRIM AND FORM SYSTEMS
Our trim and form systems have a patented modular press section with an
electromechanical drive for both press stroke and leadframe transport, making it
capable of integration with other back-end systems. Each system has a specially
guided press permitting greater stability and significantly higher speed and
precision when compared with conventional hydraulic systems. In addition, their
electromechanical motion control facilitates the use of the systems in clean
room environments.
SINGULATION SYSTEMS
Our singulation systems use modular vacuum heads to improve handling and sorting
capabilities. In addition, our high speed diamond-coated wheel cutting and laser
inspection technology provides both speed and flexibility to accommodate a wide
variety of array connect requirements.
PLATING SYSTEMS
Spot Plating Wheel
Our spot plating system uses our patented wheel concept to permit continuous
plating and eliminate the loss of production time inherent in traditional
step-and-repeat methods.
Tin-Lead Plating Equipment
Our tin-lead plating systems include specialized mechanical handling devices,
with patented leadframe guides that facilitate speed and flexibility in handling
a wide variety of products, including fragile leadframes. These devices allow
plating to be effected without major system changes.
19
BALL PLACEMENT SYSTEMS
We are currently developing a ball placement technology aimed at below 0.3
micron ball diameter on substrates of various designs.
PROPRIETARY DATA MANAGEMENT SOFTWARE
All of our systems incorporate proprietary software enabling customers to use
advanced process control, statistical process monitoring and advanced data
management that facilitates the application of our process technology across
back-end processes and enhances the flexibility of our systems. Our software
also supports testing during the course of the trim and form process. We believe
that the software component of our systems will increase in significance over
time. The software is microprocessor controlled, allowing integration with
customers' networks.
CUSTOMERS
Our customers consist primarily of leading U.S., European and Asian
semiconductor manufacturers and packaging subcontractors. Our close
relationships with our customers provide us with valuable knowledge about
evolving semiconductor devices and packages as well as the opportunity to
develop back-end systems in conjunction with our customers.
Our principal customers include:
DIE HANDLING EQUIPMENT PACKAGING EQUIPMENT PLATING EQUIPMENT
Agere Amkor Agere
Amkor ASE ASE
ASE Atlantic Amkor
Bosch AVX Chipmos
CMD Delphi Automotive Systems Compel
Cree EDL EEMS
Epcos EEMS FCI
Fairchild Infineon Hitachi
Infineon Micronas Infineon
Nortel Motorola Lingsen
NSEB NSEB NSEB
Osram Osram OSE Semiconductor
Philips Philips Philips
Raytheon ON Semiconductor Renesas
Samsung Samsung Samsung
Skyworks Skyworks Skyworks
STATS ChipPAC STMicroelectronics SPIL
STMicroelectronics Texas Instruments
For the year ended December 31, 2004, Infineon and STMicroelectronics each
accounted for more than 10% of our net sales. Historically, a significant
percentage of our net sales in each year have been attributable to a limited
number of customers; however, the largest customers for our systems tend to vary
from year to year depending upon specific capital investment schedules,
technological developments and business prospects.
In general, we have maintained close, long-term relationships with our
customers. The use of our systems has become an integral part of some of our
customers' decision-making processes for future equipment selection, while the
quality of services rendered by the plating division has provided customers with
flexibility in making evaluations regarding capacity needs in future business
planning. We believe that our focus on large, technically sophisticated
semiconductor manufacturers and our emphasis on close relationships with a
number of such semiconductor manufacturers worldwide is an important competitive
advantage.
20
SALES, FIELD SUPPORT AND SERVICES
Our worldwide sales and support organization is critical to our strategy of
maintaining close relationships with leading semiconductor manufacturers. Sales
functions are performed both on a regional and product line basis, and our
salesmen have direct responsibility for new product sales and daily customer
account management. The regional offices are supplemented in some Middle Eastern
and Asian countries by distributors or agents. Sales activities in each region
are supported by product line marketing groups in the Netherlands.
Our service and support activities include warranty services, technical support,
training, provision of spare parts, molds and tooling capability. We maintain 28
service offices. Our manufacturing facilities in the Netherlands, Malaysia and
the United States also play an important role in marketing and sales. Each
facility is responsible for the production and technical support of the
equipment that it manufactures as well as for customer service in conjunction
with field service personnel.
The following table sets forth the number of our employees, by geographical
region, engaged in sales and marketing and after sales and customer support as
of December 31, 2004:
After Sales
and
Sales and Customer
Marketing Support
--------- -----------
Europe 46 18
Asia Pacific 11 38
United States 7 8
-- --
Total 64 64
-- --
We typically experience a lengthy sales cycle for our products due to the
significant amount of capital investment involved and careful coordination
required to satisfy customers' design specifications. Equipment production takes
between four and nine months after agreement upon specifications, with generally
at least an additional month for testing and acceptance.
GEOGRAPHIC MARKETS
We believe that we are a leading supplier of trim and form, molding and plating
systems to non-Japanese semiconductor manufacturers for their operations in
Europe, the United States and the Asia Pacific region. The following table sets
forth our net sales by geographic regions for each of the last three years and
the percentage of our total net sales represented by each region.
(Euro in million, except for %) 2002 2003 2004
------------------------------- ------------------- ------------------- ---------------------
Asia Pacific 44.8 54% 55.3 65% 85.6 68%
Europe and Rest of World 28.3 34% 26.7 31% 30.0 24%
United States 10.1 12% 3.5 4% 10.7 8%
---- --- ---- --- ----- ---
Total 83.2 100% 85.5 100% 126.3 100%
==== === ==== === ===== ===
Net sales in 2003 in the United States declined significantly as compared to
2002, primarily due to the completion of an investment program of a major U.S.
semiconductor manufacturer in 2002. The increase in net sales in 2004 in the
United States as compared to 2003 is primarily due to the increase of net sales
of die handling systems, which was primarily realized in the United States.
BACKLOG
At December 31, 2004, we had a backlog of approximately (euro) 31.8 million
compared to (euro) 39.8 million at December 31, 2003. The decrease in backlog as
compared to December 31, 2003 was primarily due to a decrease in backlog for
molding and trim and form systems. We include in backlog only those orders for
which we have received a completed purchase order. Such orders are subject to
cancellation by the customer with payment of a negotiated charge. Because of
possible changes in customer delivery schedules, cancellation of orders and
potential delays in product shipments, our backlog as of any particular date may
not be representative of actual sales for any succeeding period.
21
MANUFACTURING AND SUPPLIERS
Our plating division, singulation division and die handling division subcontract
virtually all components and subsystems incorporated into our products. Our
manufacturing operations consist exclusively of final assembly and testing. Our
molding division continues to manufacture molds and tools which it considers
critical to its performance. It subcontracts all other manufactured parts,
components and subsystems. However, an increasing amount of the manufacturing
requirements of our molding division and trim and form division is being
subcontracted to third-party vendors. In all cases, we maintain overall
responsibility for the design, assembly, testing, production and incorporation
of proprietary features in equipment manufactured by third-party vendors.
Although we have not experienced any significant difficulty in our relationships
with subcontractors, our ability to expand our capacity and rate of growth will
rely on our ability to obtain increased production from our existing
subcontractors or identify additional qualified subcontractors.
On occasion, we have experienced delays or unexpected costs in connection with
the introduction of new products. These problems can result in unanticipated
delays in product introduction, delays in product shipment, declines in orders
and increased costs of goods sold and warranty costs, and can adversely impact
our relationship with our customers.
We believe that emphasis upon quality equipment and service is essential to our
competitive position, and therefore we maintain at each facility a dedicated
quality management organization. We train all of our employees in basic quality
skills and conduct customer quality audits of procedures and personnel. All of
our trim and form and molding systems operations have qualified for compliance
with ISO 9000 standards.
RESEARCH AND DEVELOPMENT
The semiconductor equipment industry is subject to rapid technological change
and new product developments and enhancements. We have periodically introduced
new generations of molding, trim and form and plating systems, and believe that
continued and timely development and introduction of new and enhanced products
is essential for us to maintain our competitive position.
Towards that end, we are currently actively engaged in developing enhancements
to our established systems, introducing our singulation systems for the array
connect market and developing automated ball placement systems for that market
as well as other hardware and software to support full automation and
integration of the back-end process.
Our research and development spending is customer-driven and focuses on
identifying and responding quickly to evolving customer and market requirements.
Overall research and development activities for molding systems and trim and
form systems are undertaken at our Duiven facilities, and automated plating,
singulation and ball placement systems at our Drunen facility. These facilities
are located in the Netherlands. Our research and development activities for our
die handling systems are conducted in Londonderry, New Hampshire in the United
States. In addition, each of our production facilities has an engineering group
whose main responsibility is application engineering, including customization of
specific customer requirements and investigation of new manufacturing processes
and materials.
We historically have devoted a significant portion of our financial resources to
research and development programs and expect to continue to do so in the future.
For the three years ended December 31, 2002, 2003 and 2004, aggregate research
and development expense was (euro) 12.5 million, (euro) 13.6 million and (euro)
12.5 million, respectively.
At December 31, 2004, we employed a total of 55 engineers engaged in research
and development projects for molding and trim and form systems. We also employed
approximately 29 engineers engaged in research and development of plating
systems and singulation systems, and approximately 19 engineers engaged in
research and development for die handling systems.
22
ORGANIZATIONAL STRUCTURE
We are the ultimate parent of our group, which as of December 31, 2004 included
each of the subsidiaries set forth below. Unless otherwise indicated, each
subsidiary is wholly owned, directly or indirectly, and is included in our
consolidated financial statements set forth elsewhere in this Annual Report on
Form 20-F. Each of the subsidiaries operates in its country of incorporation.
Location and Percentage of
Name Country of Incorporation ownership
-------------------------------------------- ------------------------------- -------------
BE Semiconductor Industries USA, Inc. Londonderry, New Hampshire, USA 100%
Fico B.V. Duiven, the Netherlands 100%
Fico Molding Systems B.V. Duiven, the Netherlands 100%
Fico Trim & Form Integration Systems B.V. Duiven, the Netherlands 100%
Fico Tooling B.V. Duiven, the Netherlands 100%
Fico Tooling Leshan Company Ltd. Leshan, China 87% (2)
Fico Asia SDN. BHD. Shah Alam, Malaysia 100% (3)
Fico America Inc. Chandler, Arizona, USA 100% (1)
ASM Fico (F.E.) SDN. BHD. Shah Alam, Malaysia 99.9% (4)
Besi Korea Ltd. Seoul, Korea 100%
Fico Hong Kong Ltd. Hong Kong, China 100%
Fico Sales & Service Pte. Ltd. Singapore 100%
Meco International B.V. Drunen, the Netherlands 100%
Besi Plating B.V. Drunen, the Netherlands 100%
Besi Japan Co. Ltd. Tokyo, Japan 100%
Besi Singulation B.V. Drunen, the Netherlands 100%
Besi Taiwan Ltd. Taipei, Taiwan 100%
PASR Neunte Beteiligungsverwaltung GmbH Vienna, Austria 100%
PASR Zehnte Beteiligungsverwaltung GmbH Vienna, Austria 100%
Meco Equipment Engineers Inc. Rock Hill, South Carolina, USA 100% (1)
Meco Equipment Engineers (Far East) Pte Ltd. Singapore 100%
Besi Die Handling Inc. Londonderry, New Hampshire, USA 100%
(1) Merged effective January 1, 2005 and name changed to Besi USA Inc.
(2) Upon a resolution of Fico Tooling Leshan's Board of Management, Leshan
Radio Company Ltd., the other 13%-shareholder in Fico Tooling Leshan
Company Ltd. (LRC), shall make agreed upon capital contributions after
which LRC shall hold 30% of and Besi 70% of Fico Tooling Leshan Company's
equity.
(3) In order to comply with local corporate law, a minority shareholding (less
than 0.1%) is held by the respective management of these respective
companies.
(4) In order to comply with local corporate law, a minority shareholding is
held by the management of these respective companies.
PROPERTY, PLANT AND EQUIPMENT
Our molding systems, trim and form systems and molds are manufactured at leased
facilities aggregating approximately 175,000 square feet located in Duiven, the
Netherlands. We own an approximately 16,000 square foot facility for tooling
manufacturing in Brunssum, the Netherlands. We own an approximately 24,000
square foot facility for tooling manufacturing in Shah Alam, Malaysia. In
Leshan, China, we own a facility of approximately 30,000 square feet which we
use as a facility for tooling and manufacturing. Our automated plating and
singulation systems are manufactured at leased facilities aggregating
approximately 95,000 square feet in Drunen, the Netherlands. We also lease
approximately 22,000 square feet of facilities for our die sorting systems in
Londonderry, New Hampshire in the United States.
On June 28, 2002, we sold the land and buildings of our Meco subsidiary in
Drunen, the Netherlands in a sale and lease back transaction for (euro) 6.5
million in cash. At the date of this transaction, the cost of the land and
buildings totaled (euro) 6.9 million and the net book value of the real estate
sold amounted to (euro) 5.4 million. Our gain on this transaction of (euro) 1.1
million is being amortized and netted against rental expenses over the twelve
and a half year term of the lease. Gross rental expenses total (euro) 0.6
million per annum.
23
On February 6, 2004, we sold land and buildings in Duiven, the Netherlands in a
sale and lease back transaction for (euro) 14.5 million in cash. At the date of
the transaction, the net book value of the real estate sold was approximately
equal to the selling price of the real estate. We granted the buyer a (euro) 1.5
million loan which is payable over a maximum period of 24 months. The loan can
be repaid at any time during the term of the loan. The loan is secured by a
second mortgage on the land and buildings which were the subject of the sale and
lease back transaction. The loan bears interest at the rate of 4.50% per annum.
The transaction is accounted for as a financing until the buyer pays off the
loan. Once the buyer repays the loan, this finance obligation and the related
real estate assets will be derecognized. Settlement of this obligation will not
result in a cash outflow from us. The net book value of the real estate involved
in this transaction is approximately (euro) 14.0 million at December 31, 2004.
On December 14, 2004, we announced that we will close our tooling facility in
Brunssum, the Netherlands in the first half of 2005.
Our rental expense for our facilities and machinery in 2002, 2003 and 2004 were
(euro) 9.1 million, (euro) 7.7 million, and (euro) 7.1 million, respectively.
Datacon has three production plants in Europe. These include a production plant
in Radfeld, Austria with facilities aggregating approximately 114,000 square
feet, that is owned by Datacon and leased facilities in Berlin, Germany and
Gyor, Hungary, aggregating approximately 20,000 square feet and 35,000 square
feet, respectively. Datacon also leases approximately 5,400 square feet of space
relating to its operations in Singapore and approximately 6,000 square feet of
space in the United States.
The following table summarizes information with respect to the principal
facilities that we leased or owned as of December 31, 2004.
Plant Location Principal Activities Area (sq. ft)
----------------------------------------- -------------------------------- -------------
Duiven, the Netherlands Manufacturing 175,000
Drunen, the Netherlands Manufacturing; Executive Offices 95,000
Leshan, China Manufacturing 30,000
Shah Alam, Malaysia Manufacturing 24,000
Londonderry, New Hampshire, United States Manufacturing 22,264
Brunssum, the Netherlands Manufacturing 16,000
Herwen, the Netherlands Idle Idle
CAPITAL EXPENDITURES
Our capital expenditures were (euro) 4.9 million in 2002, (euro) 11.9 million in
2003 and (euro) 3.4 million in 2004.
The decrease in capital expenditures in 2004 as compared to 2003 is mainly due
to the completion of our facilities in Duiven, the Netherlands and in China. The
expenditures in 2003 were incurred primarily for the construction of an 80,000
square foot facility in Duiven, the Netherlands for molding systems and tooling
manufacturing and the establishment of our first manufacturing facility in China
for the production of tools.
LEGAL PROCEEDINGS
We are not currently, nor have we in the last 12 months been, involved in any
litigation or arbitration proceedings that have or, in the last 12 months, have
had, a significant effect on our financial position or results of operations. We
are not aware of any threatened or potential legal proceedings that could have a
significant effect on our financial position or results of operations.
24
ITEM 5: OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with "Selected Consolidated Financial
Data" and our consolidated financial statements and notes thereto appearing
elsewhere in this Annual Report on Form 20-F. This discussion and analysis
contains forward-looking statements that involve risks, uncertainties and
assumptions. Our actual results may differ materially from those anticipated in
these forward-looking statements as a result of several factors, including those
set forth under "Risk Factors" and elsewhere in this Annual Report on Form 20-F.
OVERVIEW
We design, develop, manufacture, market and service products for the
semiconductor industry's back-end assembly operations.
Our net sales and results of operations depend in significant part on the level
of capital expenditures by semiconductor manufacturers, which in turn depends on
the current and anticipated market demand for semiconductors and for products
utilizing semiconductors. Demand for semiconductor devices and expenditures for
the equipment required to assemble semiconductors is cyclical, depending in
large part on levels of demand worldwide for computing and peripheral equipment,
telecommunications devices and automotive and industrial components as well as
the production capacity of global semiconductor manufacturers. Historically, as
demand for these devices has increased, semiconductor manufacturers have sought
to increase their capacity by increasing the number of wafer fabrication
facilities and equipment production lines, and installing equipment that
incorporates new technology to increase the number of devices and the amount of
computing power per device. As demand has increased, semiconductor prices have
also typically risen. Conversely, if the additional capacity outstrips the
demand for semiconductor devices, manufacturers historically have cancelled or
deferred additional equipment purchases until demand again begins to outstrip
aggregate capacity. Under such circumstances, semiconductor prices typically
fall.
Due to the lead times associated with the production of our semiconductor
manufacturing equipment, our sales orders historically have lagged any downturn
or recovery in the semiconductor market by approximately nine to twelve months.
Our results of operations historically have fluctuated significantly both on an
annual and quarterly basis depending on overall levels of semiconductor demand
globally and the specific production requirements of our principal customers.
During 2001, we saw a significant deterioration in industry conditions. Although
we experienced increased order levels in 2002, the slowdown in the semiconductor
and semiconductor equipment industry continued throughout 2002 and 2003. In the
first half of 2004, industry conditions improved and we saw a significant
increase in bookings as compared to the first half of 2003. However, in the
third quarter of 2004, we saw a deterioration in industry conditions, resulting
in a significant decrease in bookings in the second half of 2004 as compared to
the first half of 2004.
Our sales are generated primarily by shipments to the Asian manufacturing
operations of leading U.S. and European semiconductor manufacturers and, to a
lesser extent, Korean and other Asian manufacturers and subcontractors. Most of
our principal competitors on a worldwide basis are Japanese, which historically
have dominated the Japanese market, because Japanese semiconductor manufacturers
typically purchase equipment from domestic suppliers. To date, our sales to
Japanese customers have been limited.
Our sales to specific customers tend to vary significantly from year to year
depending on customers' capital expenditure budgets, new product introductions,
production capacity and packaging requirements. In addition, we derive a
substantial portion of our net sales from products that have an average selling
price in excess of (euro) 300,000 and that have significant lead times between
the initial order and delivery of the product. The timing and recognition of net
sales from customer orders can cause significant fluctuations in operating
results from quarter to quarter.
RECENT EVENTS
ACQUISITION OF DATACON
On January 4, 2005, we completed the acquisition of 100% of the outstanding
ordinary shares of Datacon for total consideration of (euro) 72.6 million, of
which (euro) 65 million was paid in cash and the remainder through the issuance
of 1,933,842 ordinary shares.
25
Datacon, a private company founded in 1986 and located in Radfeld, Austria, is,
according to 2003 data compiled by VLSI, a leading global manufacturer of flip
chip bonding, multi-chip die bonding and other related assembly equipment for
the semiconductor and telecommunications industries, with (euro) 58.3 million
reported revenue for the fiscal year ended March 31, 2004 and (euro) 39.1
million for the six months ended September 30, 2004 in accordance with IFRS.
See also "Acquisition of Datacon" under Item 4 "Information on the Company".
ISSUANCE OF (EURO) 46 MILLION 5.5% CONVERTIBLE NOTES
In January 2005, we issued (euro) 46 million principal amount of convertible
notes, or the Notes, due 2012. The Notes mature seven years from the date of
issue and carry an interest rate of 5.5% per annum, payable semi-annually, with
the first payment on or around July 28, 2005 and an initial conversion price of
(euro) 5.125. The Notes will be repaid at maturity in 2012 at a price of 100% of
their principal amount. If not converted, we may redeem the outstanding Notes at
their par value on or after four years from the date of issue, subject to the
share price exceeding 130% of the then effective conversion price.
Application for listing of the Notes on the official segment of the stock market
of Euronext Amsterdam N.V. coincided with publication of the prospectus on
January 25, 2005. Listing took place on January 28, 2005.
The Notes were offered to institutional investors in the Netherlands and
internationally to professional investors through an international private
placement, in reliance on Regulation S promulgated under the United States
Securities Act of 1933, as amended.
The net proceeds from the issuance of the Notes will be used by us for general
corporate purposes, including working capital and capital expenditures. In
addition, we may choose to repay all or a portion of the credit facilities that
were assumed upon closing of the acquisition of Datacon. At December 31, 2004,
Datacon had net debt of (euro) 23.7 million. Pending such uses, we intend to
invest all or a portion of the net proceeds in short-term, interest-bearing
instruments.
EVALUATION OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our discussion and analysis of our financial condition and results of operations
is based upon our condensed consolidated financial statements, which are
included elsewhere in this Annual Report on Form 20-F and which have been
prepared in accordance with U.S. GAAP. The preparation of these financial
statements requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Areas where significant judgments are made include, but are
not limited to, revenue recognition, inventories, long-lived assets and goodwill
and intangible assets. Actual results could differ materially from these
estimates.
REVENUE RECOGNITION
Our revenue recognition policy conforms to Emerging Issues Task Force, or EITF
00-21 and the SEC Staff Accounting Bulletin No. 101 and 104. Advance payments
received from customers are recorded as a liability until the products have been
shipped. Shipment of products occurs after a customer accepts the product at our
premises. We recognize revenues from sales of products upon shipment. The risk
of loss and rewards of ownership with respect to products transfer to customers
at that time. The sale of the product to the customer is thereby considered
complete and no significant obligations remain after the sale is completed.
Installation services are treated as separate deliverables in accordance with
EITF 00-21. A customer's sole recourse against us is to enforce our obligations
relating to installation and warranty. Operating expenses and other income and
expense items are recognized in the income statement as incurred or earned.
INVENTORIES
We periodically evaluate whether or not the carrying value of our inventories is
in excess of market value or whether we have excess or obsolete items in our
inventory. Our evaluation includes judgments regarding future market
developments that might have an adverse effect on the valuation of our
inventories.
Inventories are stated at the lower of cost (first-in, first-out method) or
market value. Cost includes net prices paid for materials purchased, charges for
freight and custom duties, production labor costs and factory overhead.
26
LONG-LIVED ASSETS
Long-lived assets, such as property, plant and equipment, and purchased
intangibles subject to amortization, are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used is determined
by a comparison of the carrying amount of an asset to estimated undiscounted
future cash flows. If the sum of the estimated undiscounted future cash flows is
less than the carrying amount of the related asset, then an impairment charge is
recognized. The measurement of the impairment charge is based upon the amount
that the carrying value of the asset exceeds its fair value. Fair value is
generally determined on the basis of estimated future discounted cash flows.
Assets to be disposed of are reported at the lower of the carrying amount or
fair value less costs to sell, and depreciation ceases.
GOODWILL AND INTANGIBLE ASSETS
Goodwill represents the excess of the costs of purchased businesses over the
fair value of their net assets at date of acquisition and, through December 31,
2001, was being amortized by the straight-line method. As of January 1, 2002,
goodwill is no longer amortized, but is required to be evaluated for impairment
at least annually in accordance with Statement of Financial Accounting
Standards, or SFAS, No. 142, "Goodwill and Other Intangible Assets".
The amortization of patents and other identifiable intangible assets is based on
the weighted average remaining lives of 13 years for Meco and RD Automation and
Laurier, and 16 years for Fico as determined by an independent valuation at the
date of acquisition.
The Company has three operating segments which aggregate as one reportable
segment. Goodwill and intangible assets not subject to amortization are tested
annually for impairment. An impairment loss is recognized to the extent that the
carrying amount exceeds the asset's fair value.
We do not have any identifiable assets with indefinite lives.
CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
The following table discloses our contractual obligations and commercial
commitments as of December 31, 2004.
Payments Due by Period
-------------------------------------------------------------------
(Euro in thousands) Less than 1 year 1-3 years 4-5 years After 5 years Total
---------------------------------- ---------------- --------- --------- ------------- ------
Long term debt obligations - 1,632 - - 1,632
Capital lease obligations
including imputed interest 1,248 2,550 2,624 9,357 15,779
Operating lease obligations 1,188 1,952 1,492 3,532 8,164
Unconditional purchase obligations 10,549 - - - 10,549
---------------- --------- --------- ------------- ------
Total contractual obligations and 12,985 6,134 4,116 12,889 36,124
================ ========= ========= ============= ======
commercial commitments
Unconditional purchase obligations relate to equipment and materials.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks from changes in foreign currency exchange rates
and interest rates, which may adversely affect our results of operations and
financial condition. We seek to minimize the risks associated with interest rate
and foreign currency exchange rate fluctuations through our regular operating
and financing activities and, when deemed appropriate, through the use of
derivative financial instruments. We do not use financial instruments for
trading or other speculative purposes.
27
FOREIGN CURRENCY EXCHANGE RATE RISK
As a consequence of the global nature of our businesses, our operations and
reported financial results and cash flows are exposed to the risks associated
with fluctuations in exchange rates between the euro and other major world
currencies. Currency exchange rate movements typically also affect economic
growth, inflation, interest rates, government actions and other factors. These
changes can cause us to adjust our financing and operating strategies. The
discussion below of changes in currency exchange rates does not incorporate
these other economic factors. For example, the sensitivity analysis presented in
the foreign exchange rate risk discussion below does not take into account the
possibility that rates can move in opposite directions and that gains from one
category may or may not be offset by losses from another category. Operations
outside the Netherlands and other countries that have adopted the euro as their
currency for 2004 constitute 19% of our net sales. As currency exchange rates
change, translation of the statements of operations of our international
business into euro affects year-over-year comparability. We historically have
not hedged translation risks, because cash flows from international operations
have generally been reinvested locally. We estimate that a 10% change in foreign
exchange rates would affect our reported operating income (loss) by less than
(euro) 1.0 million.
Our currency risk exposure primarily occurs because we generate a portion of our
net sales in currencies other than the euro while the major share of the
corresponding cost of sales is incurred in euro. The percentage of our
consolidated net sales which is denominated in euro amounted to approximately
54% of total net sales in the year ended December 31, 2004, whereas net sales
represented by U.S. dollars or dollar-linked currencies amounted to
approximately 46%. Approximately 83% of our costs and expenses were denominated
in the euro and the remaining 17% in various currencies, principally the U.S.
dollar and U.S.-dollar linked currencies. In order to mitigate the impact of
currency exchange rate fluctuations, we continually assess our remaining
exposure to currency risks and hedge such risks through the use of derivative
financial instruments. The principal derivative financial instruments currently
used by us to cover foreign currency exposures are forward foreign currency
exchange contracts that qualify for hedge accounting.
INTEREST RATE RISK
Our long-term capital lease obligations, long-term debt and lines of credit
currently bear a variable rate of interest. An immediate 10% change in interest
rates would not have a material effect on our results of operations over the
next fiscal year.
28
RESULTS OF OPERATIONS
SUMMARY FINANCIAL AND OTHER OPERATING DATA
Year Ended December 31,
--------------------------------------------------------------
2002 2003 2004 2004
(Amounts in thousands except share and per share data) EURO EURO EURO USD(1)
------------------------------------------------------ ---------- ---------- ---------- ----------
Net sales 83,228 85,500 126,341 171,040
Cost of sales 55,849 63,345 88,352 119,611
---------- ---------- ---------- ----------
Gross profit 27,379 22,155 37,989 51,429
Selling, general and administrative expenses 26,235 25,436 27,145 36,749
Research and development expenses 12,470 13,564 12,500 16,923
Restructuring charges 786 - 5,616 7,603
Impairment of intangibles 3,302 287 - -
Amortization of intangible assets 2,591 2,522 2,465 3,337
---------- ---------- ---------- ----------
Total operating expenses 45,384 41,809 47,726 64,612
Operating loss (18,005) (19,654) (9,737) (13,183)
Interest income, net 3,395 2,815 1,811 2,452
---------- ---------- ---------- ----------
Loss before taxes and minority interest (14,610) (16,839) (7,926) (10,731)
Income taxes (benefit) 2,404 (3,292) (2,435) (3,297)
---------- ---------- ---------- ----------
Loss before minority interest (17,014) (13,547) (5,491) (7,434)
Minority interest 3 50 64 87
---------- ---------- ---------- ----------
Net loss (17,011) (13,497) (5,427) (7,347)
---------- ---------- ---------- ----------
Loss per share:
Basic (0.54) (0.44) (0.18) (0.24)
Diluted (0.54) (0.44) (0.18) (0.24)
Weighted average number of shares used to
compute net loss per share:
Basic 31,462,482 30,813,681 30,794,660 30,794,660
Diluted 31,462,482 30,813,681 30,794,660 30,794,660
(1) Translated solely for convenience of the reader at the noon buying rate on
December 31, 2004 ((euro) 1.00 = US$ 1.3538)
2003 COMPARED TO 2004
NET SALES
Our net sales consist of sales of molding systems, trim and form integration
systems, singulation systems, plating systems and die handling systems.
Our net sales increased from (euro) 85.5 million in 2003 to (euro) 126.3 million
in 2004, an increase of 47.7%. The increase in net sales in 2004 as compared to
2003 was due to increased order levels in the first half of 2004, resulting in
increased shipments in 2004 for most product lines.
29
Our net sales per product line for the periods indicated were as follows:
(Euro in million) 2003 2004 % change
--------------------------------- ---- ----- --------
Molding systems 36.6 50.7 38.5%
Trim and form integration systems 22.1 21.8 (1.4)%
Singulation systems 4.6 15.5 237.0%
Plating systems 20.1 29.3 45.8%
Die handling systems 2.1 9.0 328.6%
---- ----- -----
Total net sales 85.5 126.3 47.7%
==== ===== =====
BACKLOG
Our backlog at December 31, 2004 decreased by 20.1% to (euro) 31.8 million from
(euro) 39.8 million at December 31, 2003. The decrease in backlog was due to the
significant deterioration in market conditions and corresponding reduction in
customer orders in the second half of 2004.
New orders in 2004 were (euro) 118.3 million, an increase of 42.7% as compared
to (euro) 82.9 million in 2003. The book-to-bill ratio for 2004 was 0.94
compared to 0.97 for 2003.
We include in backlog only those orders for which we have received a completed
purchase order. Such orders are subject to cancellation by the customer with
payment of a negotiated charge. Because of the possibility of customer changes
in delivery schedules, cancellation of orders and potential delays in product
shipments, our backlog as of any particular date may not be representative of
actual sales for any succeeding period.
GROSS PROFIT
Cost of sales includes materials, purchased components and subassemblies from
subcontractors, direct labor and manufacturing overhead. It also includes costs
relating to the pre-production and customization of new equipment once a product
has advanced beyond the prototype stage. Changes in our cost of sales typically
lag changes in net sales due to our manufacturing lead times.
Gross profit increased by 71.2% from (euro) 22.2 million in 2003 to (euro) 38.0
million in 2004. As a percentage of net sales, gross profit increased from 25.9%
in 2003 to 30.1% in 2004. The gross profit in 2004 was adversely affected by
charges of (euro) 1.9 million for inventory write-downs recorded in the fourth
quarter of 2004. In the fourth quarter of 2003, charges of (euro) 2.9 million
were recorded for higher engineering and modification costs and inventory
write-downs associated with the completion of a multi-unit order with a specific
customer.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses consist of expenses related to
sales of products and services, administrative and other corporate level
expenses not related to the production of products and all expenses associated
with ongoing customer support.
Our selling, general and administrative expenses in 2003 totaled (euro) 25.4
million and represented 29.7% of net sales compared to (euro) 27.1 million or
21.5% of net sales in 2004. The decrease in selling, general and administrative
expenses as percentage of net sales resulted primarily from the increase in net
sales levels.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development spending relating to packaging and die handling
equipment varies from year to year depending on our new product development
cycle. As research and development expenses do not include pre-production and
customization costs, our research and development expenses decrease as products
move from prototype development to production and final customer acceptance.
Research and development expenses relating to plating equipment include costs
related solely to new product development efforts and exclude new product
pre-production and customization expenses and design and engineering expenses
incurred in sustaining and enhancing existing product lines.
30
Our research and development expenses decreased from (euro) 13.6 million in 2003
to (euro) 12.5 million in 2004. As a percentage of net sales, research and
development expenses were 15.9% and 9.9% in 2003 and 2004, respectively.
Research and development spending in 2004 reflects our investment in research
and development, mainly for the development of trim and form systems, our AMS-i
molding system, as well as spending for new generation singulation and die
handling systems.
RESTRUCTURING CHARGES
On December 14, 2004, as part of a plan to address the current downturn in the
semiconductor industry, we announced a restructuring of our operations focused
principally on a workforce reduction of 81 employees at our Dutch packaging and
tooling manufacturing operations in Duiven and Brunssum, the Netherlands, or
approximately 10% of total fixed headcount worldwide. In addition, we announced
that we will phase out approximately 50 temporary workers at the Duiven
facility. A component of the restructuring will be the closing of our tooling
facility in Brunssum, the Netherlands in the first half of 2005. The workforce
reductions are expected to occur during the first quarter of 2005.
We recorded a restructuring charge of (euro) 5.6 million in the fourth quarter
ending December 31, 2004 to cover the estimated costs of this workforce
reduction.
Ongoing economic uncertainties and industry over-capacity resulted in customers
delaying scheduled deliveries, capacity investment and the funding of strategic
programs in the second half of 2004. We have taken steps to realign our
operations in response to reduced demand. The restructuring also is consistent
with our plans to reduce exposure in high cost geographies and to rely more on
low cost manufacturing regions.
Changes in the restructuring reserve were as follows:
(Euro in thousands) 2002 2003 2004
--------------------- ------ ----- ------
Balance at January 1, 5,487 1,281 521
Additions 1,991 - 5,616
Releases (1,201) - -
Impairment on assets (107) - -
Cash payment (4,889) (760) (317)
------ ----- -----
Balance at December 31, 1,281 521 5,820
====== ===== =====
The 2001 provision for the reduction in workforce included severance and other
benefits for approximately 180 employees in the Netherlands and Asia. The
additions to the restructuring reserve in 2002 related to higher than expected
severance cost, later than expected final employment terminations and severance
payments for the reduction in workforce in the United States and relocation
cost. The releases in 2002 mainly relate to social security expenses and
disabled personnel included for which we were not obliged to pay. Total
remaining cash outlays for these restructuring activities are expected to be
(euro) 0.3 million, which relate mainly to pension premiums to be paid for laid
off employees over a period of two to five years.
The 2004 provision for the reduction in workforce included severance and other
benefits for approximately 81 employees, mainly in the Netherlands. Total
remaining cash outlays for restructuring activities in 2004 are expected to be
(euro) 5.5 million, and will mainly be paid in the first half of 2005.
OPERATING LOSS
Operating loss decreased from (euro) 19.7 million in 2003 to (euro) 9.7 million
in 2004. Operating loss for 2004 included restructuring charges of (euro) 5.6
million and (euro) 1.9 million for inventory write-downs. Operating loss for
2003 included a non-cash patent impairment charge of (euro) 0.3 million and
charges of (euro) 2.9 million related to higher engineering and modification
costs and inventory write-downs associated with the completion of a multi-unit
order with a specific customer. Operating loss in 2004 decreased as compared to
2003 due to increased gross order margins as well as slightly decreased spending
on research and development.
We incurred annual patent and other identifiable assets amortization charges of
(euro) 2.5 million in 2004, which related to the acquisitions of our Fico, Meco,
RDA and Laurier subsidiaries.
In the fourth quarter of 2004, we tested our intangibles for impairment. No
impairment on intangibles was required.
31
INTEREST INCOME, NET
Our interest income, net, decreased from (euro) 2.8 million in 2003 to (euro)
1.8 million in 2004, mainly due to lower market interest rates, increased
capital lease obligations and slightly lower cash balances.
INCOME TAXES
Our income tax benefit amounted to (euro) 3.3 million in 2003 compared to (euro)
2.4 million in 2004. The effective tax rate was 19.5% in 2003 and 30.7% in 2004.
The increase of the effective tax rate was due to decreased losses as compared
to 2003 in certain foreign subsidiaries in which we were not able to recognize a
tax benefit. Management believes that the recent losses of these subsidiaries
should be given substantially more weight than forecasts of future profitability
in the evaluation.
NET LOSS
Our net loss amounted to (euro) 13.5 million in 2003 and (euro) 5.4 million in
2004. Net loss for 2004 was negatively impacted by (i) after-tax restructuring
charges of (euro) 3.7 million and (ii) lower margins due to the devaluation of
the U.S. dollar against the euro, as well as by pre-tax charges of (euro) 1.9
million related to inventory write-downs.
2002 COMPARED TO 2003
NET SALES
Our net sales increased from (euro) 83.2 million in 2002 to (euro) 85.5 million
in 2003, an increase of 2.8%. The increase in net sales in 2003 as compared to
2002 was due to increased order levels in the second half of 2002, resulting in
increased shipments in 2003, especially for trim and form integration systems
and singulation systems, offset by lower sales for die handling systems.
Our net sales per product line for the periods indicated were as follows:
(Euro in million) 2002 2003 % change
--------------------------------- ---- ---- --------
Molding systems 35.2 36.6 4.0%
Trim and form integration systems 15.8 22.1 39.9%
Singulation systems 2.9 4.6 58.6%
Plating systems 21.7 20.1 (7.4%)
Die handling systems 7.6 2.1 (72.4%)
---- ---- -----
Total net sales 83.2 85.5 2.8%
==== ==== =====
BACKLOG
Our backlog at December 31, 2003 decreased by 6.4% to (euro) 39.8 million from
(euro) 42.5 million at December 31, 2002. This decrease was primarily due to a
relatively high backlog for trim and form integration systems at January 1, 2003
that decreased as a result of increased shipments of these systems in 2003. The
decrease in trim and form integration systems' backlog was partly offset by an
increased backlog for singulation systems and die handling systems. New orders
in 2003 were (euro) 82.9 million, a decrease of 7.0% as compared to (euro) 89.1
million in 2002, which included (euro) 1.8 million of die handling systems'
backlog that was acquired as part of our purchase of Laurier. The book-to-bill
ratio for 2003 was 0.97 compared to 1.07 for 2002.
GROSS PROFIT
Gross profit decreased by 19.0% from (euro) 27.4 million in 2002 to (euro) 22.2
million in 2003. As a percentage of net sales, gross profit decreased from 32.9%
in 2002 to 25.9% in 2003. The gross profit in 2003 was adversely affected by
slightly lower margins, mainly caused by the devaluation of the U.S. dollar
against the euro. Furthermore, charges of (euro) 2.9 million were recorded in
the fourth quarter of 2003 for higher engineering and modification costs and
inventory write-downs associated with the completion of a multi-unit order with
a specific customer.
32
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Our selling, general and administrative expenses in 2002 totaled (euro) 26.2
million and represented 31.5% of net sales compared to (euro) 25.4 million or
29.7% of net sales in 2003. The decrease in selling, general and administrative
expenses resulted primarily from our ongoing efforts to reduce our operating
expenses.
RESEARCH AND DEVELOPMENT EXPENSES
Our research and development expenses increased from (euro) 12.5 million in 2002
to (euro) 13.6 million in 2003. As a percentage of net sales, research and
development expenses were 15.0% and 15.9% in 2002 and 2003, respectively. The
increase in research and development spending in 2003 reflects our continued
investment in research and development, mainly for the development of new trim
and form systems, our new AMS-i molding system, as well as spending for
singulation systems.
RESTRUCTURING CHARGES
On June 15, 2001, we adopted an initial restructuring plan that included a
reduction of our global workforce (including temporary workers) of approximately
13%. These actions were necessitated by the semiconductor industry downturn that
resulted in a significant reduction in new orders. We undertook this
restructuring: (i) to better align our cost structure with anticipated revenues
and (ii) to improve manufacturing efficiency and productivity. We recorded
pre-tax restructuring charges of (euro) 3.6 million in connection with the
reduction of our workforce in the second quarter of 2001. As a result of
continued adverse market conditions in the semiconductor equipment industry, we
took additional restructuring measures in each of the third and fourth quarters
of 2001, which resulted in a cumulative workforce reduction of approximately
26%. In connection with those additional restructuring measures, we incurred
additional restructuring charges for employee severance and benefits of (euro)
1.7 million and (euro) 3.0 million in the third and fourth quarter of 2001,
respectively.
In the third quarter of 2002, we relocated our flip chip die attach operations
from New Jersey to New Hampshire in the United States and consolidated these
activities with our die sorting business to form a single die handling systems
business unit. In the fourth quarter of 2002, we restructured the combined
business by reducing our workforce by approximately 28%. We recorded a
restructuring charge relating to these actions of (euro) 0.8 million in 2002.
Changes in the restructuring reserve were as follows:
(Euro in thousands) 2001 2002 2003
----------------------- ------ ------ -----
Balance at January 1, - 5,487 1,281
Additions 8,306 1,991 -
Releases - (1,201) -
Impairment on assets - (107) -
Cash payments (2,819) (4,889) (760)
------ ------ -----
Balance at December 31, 5,487 1,281 521
====== ====== =====
The 2001 provision for the reduction in workforce included severance and other
benefits for approximately 180 employees in the Netherlands and Asia. The
additions to the restructuring reserve in 2002 related to higher than expected
severance costs, later than expected final employment terminations and severance
payments for the reduction in workforce in the United States and relocation
cost. The releases in 2002 mainly relate to social security expenses and
disabled personnel included for which we were not obliged to pay. Total
remaining cash outlays for restructuring activities are expected to be (euro)
0.5 million, which relate mainly to pension premiums to be paid for laid off
employees over a period of two to five years.
OPERATING LOSS
Operating loss increased from (euro) 18.0 million in 2002 to (euro) 19.7 million
in 2003. Operating loss for 2002 included non-cash goodwill impairment of (euro)
3.3 million and restructuring charges of (euro) 0.8 million. Operating loss for
2003 included non-cash patent impairment of (euro) 0.3 million and charges of
(euro) 2.9 million related to higher engineering and modification costs and
inventory write-downs associated with the completion of a multi-unit order with
a specific customer. Furthermore, operating loss in 2003 increased as compared
to 2002 due to slightly lower order margins as well as increased spending on
research and development.
33
We incurred annual patent and other identifiable assets amortization charges of
(euro) 2.5 million in 2003, which related to the acquisitions of our Fico, Meco,
RD Automation and Laurier subsidiaries in October 1993, May 1995, September 2000
and January 2002, respectively.
As of January 1, 2002, we adopted SFAS No. 142 and SFAS No. 144, "Accounting for
the impairment or disposal of long-lived assets". SFAS No. 142 eliminates the
amortization of goodwill and indefinite-lived intangible assets, addresses the
amortization of intangible assets with finite lives and addresses impairment
testing and recognition for goodwill and intangible assets with indefinite
lives. SFAS No. 144 establishes a single model for the impairment of long-lived
assets and broadens the presentation of discontinued operations to include
disposal of an individual business. As a result of the adoption of SFAS No. 142,
goodwill amortization ceased.
We reviewed our business and determined that there are four reporting units to
be reviewed for impairment in accordance with the standard - the reporting units
were: packaging equipment, plating and singulation equipment, flip chip die
attach equipment and die sorting equipment. Upon adoption of SFAS No. 142 in the
first quarter of 2002, we completed the required transitional impairment testing
of goodwill, and based upon those analyses, did not identify any impairment
charges as a result of adoption of this standard effective January 1, 2002.
We have determined that our annual test for impairment of goodwill will take
place at the end of the fourth quarter of each year, which coincides with the
completion of our annual forecasting process. In the third quarter of 2002, we
consolidated our die attach equipment business unit and die sort equipment
business into a single die handling equipment business unit. Due to the severity
and the length of the current industry downturn and uncertainty of the timing of
improvement in industry conditions, we have revised our earnings forecasts for
each of our business units that were tested for impairment. As a result, in the
fourth quarter of fiscal year 2002, we recognized a goodwill impairment loss of
(euro) 3.3 million in the die handling equipment reporting unit. The fair value
of each reporting unit was estimated using the expected present value of future
cash flows.
In the fourth quarter of 2003, we tested our intangibles for impairment. As a
result of this impairment test, an impairment of patents of die handling
equipment to an amount of (euro) 0.3 million was recorded. No impairment on
other intangibles was required.
We do not have any identifiable assets with indefinite lives.
INTEREST INCOME, NET
Our interest income, net, decreased from (euro) 3.4 million in 2002 to (euro)
2.8 million in 2003, mainly due to lower market interest rates and slightly
lower cash balances.
INCOME TAXES
Our income tax expense was (euro) 2.4 million in 2002 as compared to an income
tax benefit of (euro) 3.3 million in 2003. The income tax rate as shown in the
results of operations was 19.6% in 2003. The tax rate for 2002 was not
meaningful as we recorded a valuation allowance of (euro) 6.0 million in the
fourth quarter of 2002. The tax rate for 2003 is significantly lower than our
domestic tax rate, due to losses in certain foreign subsidiaries in which we
were not able to recognize a tax benefit, as management believes that the recent
losses of these subsidiaries should be given substantially more weight than
forecasts of future profitability. In 2003, an amount of (euro) 2.8 million of
available tax benefit was not recognized.
In the fourth quarter of fiscal year 2002, as part of the income tax provision
for the period, we recorded a charge of (euro) 6.0 million through the
establishment of a valuation allowance against our deferred tax asset consisting
primarily of U.S. net operating loss carry forwards and temporary differences.
We determined that the valuation allowance was required based on our recent
losses, which were given substantially more weight than forecasts of future
profitability calculating tax valuation allowances. Until we utilize these U.S.
operating loss carry forwards, our income tax provision will reflect mainly
domestic taxation.
NET LOSS
Our net loss amounted to (euro) 17.0 million in 2002 and (euro) 13.5 million in
2003. Net loss for 2002 was negatively impacted by (i) goodwill impairment of
(euro) 3.3 million, (ii) a non-cash valuation allowance of (euro) 6.0 million
against our net deferred tax assets and (iii) after tax restructuring charges of
(euro) 0.6 million related to our die handling operations.
34
Net loss for 2003 was negatively impacted by slightly lower margins due to the
devaluation of the U.S. dollar against the euro, as well as by charges of (euro)
2.9 million related to higher engineering and modification costs and inventory
write-downs associated with the completion of a multi-unit order with a specific
customer and a (euro) 0.3 million charge for the impairment of intangibles.
LIQUIDITY AND CAPITAL RESOURCES
We had (euro) 108.9 million and (euro) 106.6 million in cash and cash
equivalents at December 31, 2003 and December 31, 2004, respectively.
We finance our Meco subsidiary and, to an extent, our Fico subsidiary, on a
stand-alone basis. We intend to finance our subsidiary Datacon on a stand-alone
basis. Meco utilizes funds generated from its results of operations and
available bank lines of credit to finance its working capital and capital
expenditure requirements. Meco and Fico maintain lines of credit with various
local commercial banks. The credit lines of Meco and Fico are currently
unsecured, except for pledges on the accounts of Fico and Meco with the banks
that provide the facilities. The principal restrictive covenant in each line is
related to solvency ratios, which generally are based on a ratio of each
subsidiary's equity to its assets. We expect to finance the Datacon group using
funds generated from its results of operations and available lines of credit.
Datacon utilizes long-term loans, short-term bank lines of credit and government
granted loans for export and research and development activities in these
financing activities. Some of these loans are secured by a pledge of real
property. Currently, RD Automation and Laurier and, to an extent, Fico are
financed through intercompany loans. Fico Tooling Leshan Company Ltd. in China,
87% of which is owned by us, is partly financed by long-term loans issued by a
local bank.
The working capital requirements of our subsidiaries are affected by the receipt
of periodic payments on orders from their customers. Although Fico, RD
Automation and Laurier and Datacon generally receive partial payments for
automated molding systems, automated trim and form integration systems, die
handling systems and bonding systems prior to final installation, initial
payments generally do not cover a significant portion of the costs incurred in
the manufacturing of such systems. Meco generally receives a higher initial
payment upon receipt of orders than Fico, RD Automation and Laurier and Datacon.
Net cash (used in) provided by operating activities was (euro) 5.3 million and
((euro) 4.6) million in 2003 and 2004, respectively. The primary uses of cash in
operations in 2004 were working capital requirements of (euro) 5.8 million as a
result of the substantial increase in bookings activity during the first half of
2004.
At December 31, 2004, our cash and cash equivalents totaled (euro) 106.6 million
and our total debt and capital lease obligations totaled (euro) 14.1 million. At
December 31, 2004, shareholders' equity stood at (euro) 177.0 million.
Our capital expenditures were (euro) 4.9 million in 2002, (euro) 11.9 million in
2003 and (euro) 3.4 million in 2004. The expenditures in 2003 were incurred
primarily for the construction of an 80,000 square foot facility in Duiven, the
Netherlands for molding systems and tooling manufacturing and the establishment
of our first manufacturing facility in China for the production of tools. A
majority of the capital expenditures of 2004 was used to further expand our
production capacity in China and Malaysia.
On February 6, 2004, Fico sold the land and buildings in Duiven, the Netherlands
in a sale and lease-back transaction for (euro) 14.5 million in cash. At the
date of the transaction, the net book value of the real estate sold was
approximately equal to the selling price of the real estate. Fico granted the
buyer a (euro) 1.5 million loan which is payable over a maximum period of 24
months. The loan can be repaid at any time during the term of the loan. The loan
is secured by a second mortgage on the land and buildings which were the subject
of the sale and lease back transaction. The loan bears interest at the rate of
4.5% per annum. The transaction will be accounted for as a financing until the
buyer pays off the loan. Once the buyer repays the loan, this finance obligation
and the related real estate assets will be derecognized. Settlement of this
obligation will not result in a cash outflow from Besi.
At December 31, 2004, Meco and Fico had available lines of credit amounting to
in aggregate (euro) 13.5 million, under which no borrowings were outstanding,
but with the amount available to be drawn under the lines reduced by (euro) 0.6
million in outstanding bank guarantees. At December 31, 2004, (euro) 0.4 million
of the lines of credit was reserved for foreign exchange contracts. Interest is
charged at the bank's base lending rates plus an increment of 1.5%. The credit
facility agreements include covenants requiring us to maintain certain financial
ratios. The relevant companies were in compliance with, or had received waivers
for, all loan covenants at December 31, 2004.
35
In January 2005, we announced that we have launched and priced an issue of
(euro) 46 million in Notes due 2012. The Notes mature seven years from the date
of issue and carry an interest rate of 5.5% per annum, payable semi-annually,
with the first payment on or around July 28, 2005 and an initial conversion
price of (euro) 5.1250. The Notes will be repaid at maturity in 2012 at a price
of 100% of their principal amount. If not converted, we may redeem the
outstanding Notes at their par value on or after four years from the date of
issue, subject to the share price exceeding 130% of the then effective
conversion price.
We believe that our cash position, internally generated funds and available
lines of credit will be adequate to meet its levels of capital spending,
research and development and working capital requirements for at least the next
twelve months.
MATERIAL DIFFERENCES BETWEEN U.S. GAAP AND IFRS
Beginning in 2005, the European Commission will require companies that are
quoted on a European stock market to publish their financial statements in
accordance with IFRS. While we intend to continue publishing U.S. GAAP financial
statements, we also will publish our consolidated financial statements in
accordance with IFRS from January 1, 2005 onwards. Our consolidated financial
statements have been prepared in accordance with U.S. GAAP, which differ in
certain significant respects from IFRS. We have not prepared financial
statements in accordance with IFRS and, accordingly cannot offer any assurances
that the differences described below would, in fact, be the accounting
principles creating the greatest differences between our financial statements
prepared under U.S. GAAP and under IFRS.
The following paragraphs summarize certain significant differences between U.S.
GAAP and IFRS as of December 31, 2004 and not differences that may have existed
throughout the period covered in the financial statements. This description is
not intended to provide a comprehensive listing of all such differences
specifically related to us or the industries in which we operate. U.S. GAAP is
generally more restrictive and comprehensive than IFRS regarding recognition and
measurement of transactions, account classification and disclosure requirements.
No attempt has been made to identify all disclosure, presentation or
classification differences that would affect the manner in which transactions
and events are presented in the financial statements or the notes thereto. We
are currently investigating the possible impact of differences identified
between IFRS and U.S. GAAP. In spite of the fairly large number of potential
differences between U.S. GAAP and IFRS, only a relatively small number appears
to be relevant to us in practice. The following summary may not include all
major differences that exist between U.S. GAAP and IFRS as they relate to our
business.
LEASES
U.S. GAAP generally requires profit or loss deferral on a sale and lease-back
transaction that is classified as an operating lease. The exceptions to that
general rule are the same as those for a sale and lease-back transaction
classified as a capital lease. U.S. GAAP has stringent rules on accounting for
sale and leaseback transactions of real estate.
IFRS requires immediate profit or loss recognition for a sale and lease-back
transaction classified as an operating lease if the sale transaction is
established at fair value because, in those situations, the sale transaction is
deemed to be a normal sale transaction that would typically result in profit or
loss being recognized immediately. If the sale price is less than the property's
fair value, IFRS requires immediate profit or loss recognition unless the loss
is compensated by future rentals at a below-market price, in which case the loss
is deferred and amortized in relation to the rental payments over the period
that the asset is expected to be used. If the sale price is above fair value,
IFRS requires that the excess over fair value be deferred and amortized over the
period for which the asset is expected to be used.
IMPAIRMENT OF LONG LIVED ASSETS
Under U.S. GAAP, when events or changes in circumstances indicate possible
impairment, the sum of expected undiscounted future cash flows, related to the
fixed asset (or group of assets) being measured, is compared to the carrying
amount of the respective assets. Estimates of future cash flows used to test the
recoverability of a long lived asset group should include only the future cash
flows that are directly associated with, and are expected to arise as a direct
result of, the use and eventual disposition of that asset group. If the carrying
amount of the asset exceeds this value, an impairment loss exists and a
write-down is necessary. The impairment charge is measured as the excess of
carrying value over fair value. Fair value may be measured using quoted market
prices in active markets, if available or using discounted cash flows.
Under IFRS, when events or changes in circumstances indicate possible
impairment, the sum of expected future discounted cash flows is compared to the
carrying amount of the respective assets. If the carrying amount of the asset
exceeds the sum of the discounted cash flows, an impairment loss exists and a
write-down is necessary. The impairment loss is based on the recoverable amount
(the higher of the asset's value-in-use and net selling price).
36
Under U.S. GAAP, reversals of impairment losses for assets to be held and used
are prohibited, as the impairment loss results in a new cost basis for the
asset. Subsequent revisions to the carrying amount of an asset to be disposed of
must be reported as adjustments to the asset's carrying amount, but limited by
the carrying amount at the date on which the decision to dispose of the asset is
made.
Under IFRS, reversal of impairment losses, other than on goodwill, is required
when there has been a change in economic conditions or in the expected use of
the asset.
RESEARCH AND DEVELOPMENT
Under U.S. GAAP, research and development costs are expensed as incurred.
Under IFRS, research costs should be expensed as incurred. An intangible asset
arising from development (or from the development phase of an internal project)
must be recognized as an intangible if, and only if, an enterprise can
demonstrate all of the following:
- the technical feasibility of completing the intangible asset so that it
will be available for use or sale;
- its intention to complete the intangible asset and use or sell it;
- its ability to use or sell the intangible asset;
- how the intangible asset will generate probable future economic benefits.
Among other things, the enterprise should demonstrate the existence of a
market for the output of the intangible asset or the intangible asset
itself or, if it is to be used internally, the usefulness of the
intangible asset;
- the availability of adequate technical, financial and other resources to
complete the development and to use or sell the intangible asset; and
- its ability to reliably measure the expenditure attributable to the
intangible asset during its development.
PENSIONS
Multi-Employer Plans
Under U.S. GAAP, defined contribution accounting must be used.
Under IFRS, defined benefit accounting must be used, unless sufficient
information cannot be obtained.
STOCK OPTIONS
Under U.S. GAAP, companies may elect to follow the accounting prescribed by
either Accounting Principles Board Opinion 25, "Accounting for Stock Issued co
Employees," (APB 25) or SFAS No 123. "Accounting for Stock-Based Compensation"
(SFAS 123).
Under U.S. GAAP, compensation is recorded for the cost of providing the options
to the employee over the relevant service period. The costs can be determined
based on either the intrinsic value method (APB 25) or the fair value method
(SFAS 123). Under the intrinsic value method, the compensation cost is the
difference between the market price of the stock at the measurement date and the
price to be contributed by the employee (exercise price). Under the intrinsic
method, the measurement date is the first date on which the employee knows the
number of shares that such employee is entitled to receive and the exercise
price. The measurement date is often the grant date; however, it may be later
than the grant date in plans with variable terms that depend on events which
occur after the grant date These terms may be variable by design, may become
variable due to their modification after the date of grant, or may be considered
variable due to their relation to other stock option features. In such cases,
compensation is measured at the end of each reporting period until the
measurement date or in some cases, until the stock option's exercise,
forfeiture, or expiry. Under the fair value method, the cost associated with
options is based on the fair value at the date of grant. Cost is estimated using
an option-pricing model. If an entity chooses to follow the intrinsic value
method, it must make pro-forma disclosures of net income and earnings per share
as if the fair value method had been applied.
IFRS requires expensing of stock option plans.
37
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In December 2004, the Financial Accounting Standards Board, or FASB, issued a
revision of FASB Statement No. 123, Accounting for Stock-Based Compensation ,
SFAS No. 123 (revised 2004), or SFAS 123(R). SFAS 123(R), supersedes Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and
its related implementation guidance. SFAS 123(R) addresses the accounting for
share-based payment transactions in which a company receives employee services
in exchange for either equity instruments of the Company or liabilities that are
based on the fair value of the Company's equity instruments that may be settled
by the issuance of such equity instruments. SFAS 123(R) eliminates the ability
to account for share-based compensation transactions using the intrinsic method
that we currently use and generally requires that such transactions be accounted
for using a "fair-value"-based method and recognized as expense in our
consolidated statements of operations. SFAS 123(R) will become effective as of
the third quarter in 2005. The effects of the change are still being determined
by us.
ITEM 6: DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. DIRECTORS AND SENIOR MANAGEMENT
SUPERVISORY BOARD
The members of the Supervisory Board as of December 31, 2004 are as follows:
Name Age Title Term Expires
------------------- --- --------------------------------- ------------
W.D. Maris 65 Chairman of the Supervisory Board 2006
E.B. Polak 60 Member of the Supervisory Board 2004
D. Sinninghe Damste 65 Member of the Supervisory Board 2004
T. de Waard 58 Member of the Supervisory Board 2007
Mr. Maris - Chairman of the Supervisory Board
Mr. Maris became a member of the Supervisory Board in May 2000 and has served as
Chairman since June 2000. From 1990 to January 2000, Mr. Maris served as
President and Chief Executive Officer of ASM Lithography N.V., the Netherlands,
a semiconductor equipment manufacturer. From 1979 to 1990, Mr. Maris was active
in the IC division of Philips Electronics N.V. Mr. Maris also serves as a member
of the Supervisory Board of Vanderlande Transport Mechanismen B.V. Furthermore,
Mr. Maris serves as a member of the board of directors of Photronics Inc., FSI
International Inc., and the European Asset Trust.
Mr. Polak - Member of the Supervisory Board
Mr. Polak became a member of the Supervisory Board in November 2000. From 1984
until 2001, Mr. Polak has served in various capacities with ASM Lithography
N.V., the Netherlands. From 1969 to 1984, Mr. Polak served in various capacities
with Philips.
Mr. Sinninghe Damste - Member of the Supervisory Board
Mr. Sinninghe Damste became a member of the Supervisory Board in November 2000.
From 1988 to his retirement in 2001, Mr. Sinninghe Damste served as a member of
the Board of Management of Hollandsche Beton Groep N.V., a multi-sector
construction company. From 1968 to 1988, Mr. Sinninghe Damste served in various
capacities with Royal Dutch/Shell Group of Companies. Mr. Sinninghe Damste also
serves as Chairman of the Supervisory Board of Holland Institute of Traffic
Technology N.V. and as a member of the Supervisory Boards of Vedior N.V. and NKI
\ AvL.
Mr. De Waard - Member of the Supervisory Board
Mr. De Waard became a member of the Supervisory Board in November 2000. Since
2001, Mr. De Waard has been a partner of Clifford Chance Limited Liability
Partnership, a law firm. Previously, Mr. De Waard was a partner of the law firm
Stibbe. Mr. De Waard also serves as a member of the Supervisory Board of
STMicroelectronics N.V.
The business address of each of the members of the Supervisory Board is our
registered office.
38
BOARD OF MANAGEMENT AND OTHER KEY MEMBERS OF MANAGEMENT
The members of the Board of Management and the other key members of management
as of December 31, 2004 are as follows:
Board of Management
Name Age Title Term Expires
------------- --- -------------------------------------- ------------
R.W. Blickman 50 President and Chief Executive Officer, N/a (1)
Chairman of the Board of Management
J.A. Wunderl 53 Member of the Board of Management, October 2007
appointed as of March 25, 2004,
Managing Director of
RD Automation and Laurier
Other Key Members of Management
Name Age Title
---------------------- --- --------------------------------------
W.M. Enzing 45 Managing Director of Fico Trim and N/a (1)
Form Integration
R.J. Foppen 57 Worldwide Sales and Marketing Manager N/a (1)
of Meco Plating
P.A. Govaert 48 Managing Director of Fico Molding and N/a (1)
Fico Tooling
J.C. te Hennepe 46 Director of Finance N/a (1)
F.J.M. Jonckheere 45 Managing Director of Meco Plating N/a (1)
H.F. Menschaar 58 Director of Corporate Technology N/a (1)
H.G.E.M. van der Sande 36 Co-Director of Finance, Secretary of N/a (1)
the Company
G. A. in `t Veld 48 Managing Director of Fico Singulation N/a (1)
(1) There are no specified terms for these members appointed prior to March 2004
Mr. Blickman - President, Chief Executive Officer and Chairman of the Board of
Management
Mr. Blickman is President and Chief Executive Officer and Chairman of the Board
of Management, positions he has held since November 1995. He also is Managing
Director of the Fico subsidiary, a position he has held since February 1991, and
Managing Director of the Meco subsidiary, a position he has held since November
1995. Previously, Mr. Blickman held the position of Worldwide Sales Manager of
Fico from September 1989 to February 1991. Prior to joining Fico, he served as
the European Marketing and Sales Manager for Advanced Semiconductor Materials
International N.V. (ASMI). Furthermore, Mr. Blickman serves as a member of the
Supervisory Board of ZBG Holdings N.V. and of Ennismore Fund Management Limited.
Mr. Wunderl - Executive Member and Managing Director of Besi Die Handling Inc.
(RD Automation and Laurier)
Mr. Wunderl has served as Managing Director of Besi Die Handling Inc. since
January 5, 2004 and was appointed a member of the Board of Management on March
25, 2004. From 2002 to 2004, Mr. Wunderl worked at Esec Switzerland and between
1990 and 2002 he held various positions at ASMI.
Mr. Enzing - Managing Director of Fico Trim and Form Integration
Mr. Enzing has served as Managing Director of Fico Trim and Form Integration
Systems since September 2001. Prior to joining Fico, Mr. Enzing served as Sector
Director at Atos Orgin from 1997 and as Account Manager from 1995. Prior to
that, Mr. Enzing was an Associate Consultant at McKinsey & Company, and held
various positions at ASMI.
Mr. Foppen - Worldwide Sales and Marketing Manager of Meco Plating
Mr. Foppen is Worldwide Sales and Marketing Manager of Meco Plating and also
serves as the Director of Sales and Marketing, a position he has held since
1985. From 1973 to 1985, Mr. Foppen served as the Sales Manager for the United
Kingdom and Benelux Countries for Cetema B.V.
Mr. Govaert - Managing Director of Fico Molding and Fico Tooling
Mr. Govaert is Managing Director of Fico Molding, a position he has held since
November 1, 2004, and Managing Director of Fico Tooling, a position he has held
since May 1, 1999. Prior to joining the Fico subsidiary, Mr. Govaert served at
Berkhof Heerenveen B.V. as General Manager from 1997 to 1998 and at WBM
Staalservice Centrum B.V. from 1987 to 1997 as General Manager.
39
Mr. te Hennepe - Director of Finance
Mr. te Hennepe has served as Director of Finance since March 1, 2002. From March
1999 until February 2002, Mr. te Hennepe served as Finance Manager of Possehl
Besi Electronics N.V. Prior to joining Possehl Besi Electronics N.V., Mr. te
Hennepe served as Finance Manager/Controller for Yokogawa, GTI, HCS, ABB and
ASMI in the Netherlands.
Mr. Jonckheere - Managing Director of Meco Plating
Mr. Jonckheere is Managing Director of Meco Plating, a position he has held
since October 1, 2003. Formerly, Mr. Jonckheere served as Director of Operations
of Meco Plating Systems and Chemicals from January 1996. From 1986 until joining
Besi, Mr. Jonckheere served in various positions at Holec Machines and Apparaten
B.V.
Mr. Menschaar - Director of Corporate Technology
Mr. Menschaar is Director of Corporate Technology, a position he has held since
January 1999. Mr. Menschaar served as Strategic Business Development manager for
Fico and Meco. Prior to joining Besi, Mr. Menschaar served variously as Managing
Director for AFAM B.V., as Managing Director for Advanced Production Automation
and as Chief Development for Patent Machinebouw B.V.
Mrs. van der Sande - Co-Director of Finance, Secretary of the Company
Mrs. van der Sande is Co-Director of Finance since March 2002 and acts as
Secretary of the Company. From March 2000 to March 2002, Mrs. van der Sande
served as our Director of Finance and from Juli 1996 to March 2000 as our
Manager of Finance. Prior to joining Besi, Mrs. van der Sande spent nine years
in public accountancy with KPMG Accountants N.V.
Mr. in 't Veld - Managing Director of Fico Singulation
Mr. in 't Veld has served as Managing Director of Fico Singulation (formely
Meco) since November 1, 2003. Prior to joining Besi, Mr. in 't Veld served as
Managing Director of Multin Technology Group from 2000 to 2003. From 1982 to
2000, Mr. in 't Veld held various positions at Delft Instruments.
The business address of each of the members of the Board of Management and of
the other key members of management is our registered office.
FUTURE MEMBERS OF THE BOARD OF MANAGEMENT
It is intended that Messrs. H. Rutterschmidt and G. Zeindl, members of the
Datacon management board, will be appointed by the Supervisory Board as members
of the Board of Management after the notification of the General Meeting of
Shareholders at the next annual General Meeting of Shareholders which will be
held on March 24, 2005. In connection with the acquisition of Datacon, H.
Rutterschmidt acquired a total of 444,784 ordinary shares, which shares are
subject to a two year lock up arrangement (subject to certain exceptions), which
expires on January 4, 2007. Messrs. H. Rutterschmidt and G. Zeindl are two of
the partners in a partnership that sold real property to a subsidiary of the
Company.
B. COMPENSATION OF DIRECTORS AND OFFICERS
The aggregate cash compensation paid to, or accrued by us for our management
including members of the Board of Management was (euro) 2.0 million in 2004,
excluding one-time payments of (euro) 0.7 million. Amounts accrued to provide
pension, retirement or similar benefits to these individuals, as a group, were
(euro) 0.2 million in 2004.
REMUNERATION OF THE BOARD OF MANAGEMENT
The aggregate cash compensation paid to members of the Board of Management was
(euro) 715,089 in 2004 (including pension, but excluding one-time payments of
(euro) 739,392). The remuneration of the members of the Board of Management is
determined by the Supervisory Board, all with due observance of the remuneration
policy to be adopted by the General Meeting of Shareholders. The Supervisory
Board is required to present any scheme providing for the remuneration of the
members of the Board of Management in the form of shares or options, to the
General Meeting of Shareholders for adoption.
40
The total cash remuneration and related costs of the individual members of the
Board of Management for the year ended December 31, 2002, 2003 and 2004 was as
follows:
Year ended December 31,
-----------------------------------------
(In euros, except as specified otherwise) 2002 2003 2004
----------------------------------------- ------- ------- -------
R.W. Blickman
Salaries and related costs (5) 311,497 312,637 317,847
Bonus (4) - 35,458 (4)
Pension 54,326 54,326 55,231
Other (6) - - 344,392
J. A. Wunderl (1) (in U.S.$)
Salaries and related costs (5) - - 190,797
Bonus (4) - - (4)
Pension - - -
M.A.H. Wartenbergh (2)
Salaries and related costs (5) - 124,219 169,050
Bonus (4) - 13,755 -
Pension - 14,329 19,499
Severance payment - - 395,000
J.W. Rischke (3)
Salaries and related costs (5) 145,948 - -
Bonus - - -
Pension 32,367 - -
Other (6) - - 40,884
(1) Member of the Board of Management from March 25, 2004, remuneration
relates to the period from March 25, 2004 onwards.
(2) Member of the Board of Management from March 27, 2003; remuneration
relates to the period from March 27, 2003 until his exit as of January 1,
2005.
(3) Member of the Board of Management until October 23, 2002; remuneration
relates to the period until October 23, 2002.
(4) Bonus is included in the year to which it relates. As of the date of
filing, the bonus for 2004 had not been determined.
(5) Includes salaries, holiday allowance, medical insurance and premiums
social securities.
(6) This amount was paid as part of a settlement reached with certain holders
of options issued under the Company's Incentive Plan 1995 (as defined
under "Stock Option Plans"), following a court interlocutory judgment in a
legal proceeding filed by a former employee that indicated that the
Company should compensate for dilution that arose as a result of the
Company's secondary share offering in 2000.
A portion of the compensation of the Board of Management is performance related.
REMUNERATION OF THE SUPERVISORY BOARD
The aggregate remuneration paid to current members of the Supervisory Board was
(euro) 87,488 in 2004. The remuneration of the Supervisory Board is determined
by the General Meeting of Shareholders.
The total remuneration of the individual members of the Supervisory Board
members for the years ended December 31, 2002, 2003 and 2004 was as follows:
Year ended December 31,
----------------------------------------
(In euros) 2002 2003 2004
------------------- ------ ------ ------
W. D. Maris 15,882 15,882 23,038
E. B. Polak 15,882 15,882 19,206
D. Sinninghe Damste 15,882 15,882 26,038
T. de Waard 15,882 15,882 19,206
41
In 2002, 2003 and 2004, part of the cash compensation, not exceeding 50%, paid
to the Supervisory Board members has been replaced by the granting of options to
purchase ordinary shares to three Supervisory Board members. The fair value of
the option awards to the Supervisory Board members was estimated using the
Black-Scholes option-pricing model. Total remuneration to Supervisory Board
members after the grant of said options did not change compared to the
remuneration approved by the General Meeting of Shareholders.
ORDINARY SHARES AND OPTIONS HELD BY MEMBERS OF THE BOARD OF MANAGEMENT
The aggregate number of ordinary shares and the aggregate number of options on
ordinary shares owned by the current members of the Board of Management as of
December 31, 2004 is as follows:
Number of shares
----------------
R.W. Blickman 270,485
Exercise price Number of options
Year of grant in euros outstanding
------------- --------------- ------------------
R.W. Blickman 1999 4.35 8,500
2000 17.90 20,000
2000 9.80 142,000
2001 9.55 40,000
2002 8.94 36,000
2003 3.22 35,042
2004 5.95 15,000
J.A. Wunderl 2003 5.20 8,000
2004 5.95 5,500
-------
Total 310,042
Loans outstanding relating to the stock options granted to the members of the
Board of Management amounted to (euro) 286,795 as of December 31, 2004. The
principal amount and other loan conditions have not changed since the inception
of the loan agreements in 1999 and 2000.
OPTIONS AND ORDINARY SHARES HELD BY MEMBERS OF THE SUPERVISORY BOARD
The aggregate number of ordinary shares and the aggregate number of options on
ordinary shares owned by the current members of the Supervisory Board as of
December 31, 2004 is as follows:
Exercise price Number of options
Year of grant in euros outstanding
------------- -------------- -----------------
E.B. Polak 2002 8.94 1,322
2003 3.22 3,667
2004 5.95 1,937
D. Sinninghe Damste 2002 8.94 1,322
2003 3.22 3,667
2004 5.95 2,629
T. de Waard 2002 8.94 1,322
2003 3.22 3,667
2004 5.95 1,937
------
Total 21,470
42
OPTIONS AND ORDINARY SHARES HELD BY FORMER MEMBERS OF THE BOARD OF MANAGEMENT
Details of options on ordinary shares held by former members of the Board of
Management as of December 31, 2004 are as follows:
Exercise price Number of options
Year of grant in euros outstanding
------------- -------------- -----------------
J.W. Rischke 1999 4.35 8,500
2000 17.90 16,000
2001 9.55 32,000
2002 8.94 23,000
2003 3.22 13,221
------
Total 92,721
Loans outstanding relating to the stock options granted to the former executive
members of the Board of Management amounted to (euro) 78,286 as of December 31,
2004. The principal amount and other loan conditions have not changed since the
inception of the loan agreement in 1999.
C. BOARD PRACTICES
BOARD PRACTICES
We acknowledge the importance of good corporate governance, including elements
such as transparency, independence and accountability. We continuously review
corporate governance developments in the jurisdictions in which we operate.
We pursue a policy of active communication with our shareholders through the
active participation of our shareholders at the general meeting and the
publication of our annual and quarterly results. Our corporate governance
structure is intended to:
- provide shareholders with regular, reliable and relevant transparent
information regarding our activities, structure, financial condition,
performance and other information, including information on our social,
ethical and environmental records and policies;
- apply high quality standards for disclosure, accounting and auditing; and
- apply stringent rules with regard to insider securities trading.
MANAGEMENT STRUCTURE
We have a two-tier board structure consisting of a Board of Management and a
Supervisory Board which is entrusted with supervising and guiding the Board of
Management. The Board of Management is currently comprised of two members and
the Supervisory Board is currently comprised of four members. The Board of
Management, the Chairman of the Board of Management or two members of the Board
of Management acting jointly, are authorized to represent Besi. In addition to
the two members of the Board of Management, our management team is currently
also comprised of seven key members of management which do not form a part of
the Board of Management itself.
The Supervisory Board supervises the policy of the Board of Management, as well
as the general course of our corporate affairs and business, and provides advice
to the Board of Management. The Board of Management must keep the Supervisory
Board informed, consult with the Supervisory Board on important matters and
submit certain important decisions to the Supervisory Board for its prior
approval. In performing its duties, the Supervisory Board is required to act in
the interests of Besi's business as a whole. The members of the Supervisory
Board are not authorized to represent Besi. All of the members of the
Supervisory Board are independent as defined under the rules of the Nasdaq
National Market, including the independence requirements contemplated by Rule
10A-3 under the United States Exchange Act of 1934, as amended, the Exchange
Act, and as defined in article III.2.3 of the Besi Code, which is in compliance
with the Tabaksblat Code.
The Supervisory Board has adopted corporate governance guidelines to assist the
Supervisory Board in the exercise of its duties and responsibilities and to
serve our best interests and the best interests of our shareholders. These
guidelines, which provide a framework for the conduct of the Board's business,
include that:
- the principal responsibility of the Supervisory Board is to oversee the
management of Besi;
- the members meet regularly in executive session;
- members have full and free access to management and, as necessary and
appropriate, independent advisors; and
- at least annually the board and its committees will conduct a
self-evaluation to determine whether they are functioning effectively.
43
The Supervisory Board met ten times during 2004. Special attention was paid to
recent developments related to corporate governance, especially changes stemming
from the passage and enactment of the Sarbanes-Oxley Act of 2002 in the United
States and the developments regarding the Tabaksblat corporate governance code
in The Netherlands, the acquisition of Datacon finalized on January 4, 2005 and
the issuance of the Notes listed on January 28, 2005.
Topics of the meetings included, among other items:
- our general strategy;
- our financial performance;
- approval of all periodic filings with the United States Securities and
Exchange Commission, or the Commission, and Euronext Amsterdam;
- the performance and internal division of tasks of the Board of Management;
- potential strategic alliances and acquisitions;
- the general risks associated with our operations; and
- the Supervisory Board's own performance.
In 2004, the Supervisory Board conducted a self-evaluation of the functioning of
the Supervisory Board as a whole and the performance of individual members.
Management of the Company was not present at this meeting. In addition, at the
meeting, the Supervisory Board discussed the functioning of the Board of
Management as a whole and the performance of the individual members of the Board
of Management.
The Chairman of the Supervisory Board and our management met on a regular basis.
Members of the Board of Management are appointed by the Supervisory Board and
serve until voluntary retirement, or suspension or dismissal by the Supervisory
Board. If a member of the Board of Management is to be dismissed, the General
Meeting of Shareholders must be consulted on the intended dismissal.
The Supervisory Board has established three committees, the Audit Committee, the
Remuneration Committee and the Selection, Appointment and Governance Committee.
The Remuneration Committee, Audit Committee and Selection, Appointment and
Governance Committee operate under a charter that has been approved by the
Supervisory Board. Members of these committees are appointed from and among the
Supervisory Board members.
Members of the Board of Management and Supervisory Board, as well certain senior
management members, are insured under the Besi's Directors and Officers
Insurance Policy. Although the insurance policy provides for a wide coverage,
our directors and officers may occur additional uninsured liabilities. Besi has
agreed to indemnify its Board of Management and Supervisory Board against any
claims arising in connection with their position as director and officer of the
Company, provided that such claim is not attributable to willful misconduct or
intentional recklessness.
AUDIT COMMITTEE
In view of the limited number of members of the Supervisory Board, the
Supervisory Board acts as the Audit Committee. The Audit Committee therefore has
four independent members. The Audit Committee fulfills its responsibilities by
carrying out the activities enumerated in its internal checklist as follows:
- the committee assists the Supervisory Board in fulfilling its oversight
responsibilities by reviewing:
- the financial reports and other financial information provided by
the Company to any governmental body or the public;
- the Company's systems of internal controls regarding finance,
accounting, legal compliance and ethics; and
- the Company's auditing, accounting and financial reporting processes
generally;
- the committee is directly responsible for the oversight of the Company's
independent auditor and has sole authority and responsibility for their
appointment (subject to shareholder ratification), termination and
compensation. The independent auditor reports directly to the Audit
Committee and the committee is responsible for the resolution of any
disagreements between management and the independent auditor regarding
financial reporting;
- the committee approves all audit fees and terms and all non-audit services
provided by the independent auditor, and considers whether these services
are compatible with the auditor's independence;
- the committee serves as an independent and objective party to monitor the
Company's financial reporting process and internal control systems;
- the committee provides an open avenue of communication among the Company's
independent accountants, financial and senior management, and the
Supervisory Board; and
- the committee has established and maintains procedures for (i) the
receipt, retention and treatment of complaints and (ii) the anonymous
submission of confidential concerns by employees regarding accounting
matters.
44
In 2004, the Audit Committee met eight times to discuss the scope and results of
audits and reviews of our external auditor, KPMG, to review our internal
accounting control policies and procedures, and to review all periodic filings
with the Commission and Euronext Amsterdam. Our external auditor, KPMG, attended
six meetings. Furthermore, the Audit Committee separately met with the auditor
outside the presence of management. Frequent contact took place between the
chairman of the Audit Committee and our management. During 2004, the Audit
Committee focused on identifying our critical accounting policies, new
accounting pronouncements and the developments of IFRS and the convergence
between IFRS and U.S. GAAP.
In 2004, the Audit Committee evaluated the performance of KPMG and advised the
Supervisory Board to propose that KPMG be appointed as our auditor for the
fiscal year ending December 31, 2005. This proposal will be presented to our
shareholders for approval at the Annual General Shareholders Meeting to be held
on March 24, 2005.
The Supervisory Board has determined that Mr. D. Sinninghe Damste qualifies as
an Audit Committee Financial Expert. In determining whether members of the Audit
Committee qualify as financial experts within the meaning of Commission
regulations and the Nasdaq listing standards, the Supervisory Board considered
the nature and scope of experiences and responsibilities members of our Audit
Committee have previously had with other reporting companies. Furthermore, the
Supervisory Board determined that all members of the Audit Committee are
financially literate.
REMUNERATION COMMITTEE
Besi has a Remuneration Committee which has responsibility for:
- annually reviewing and approving the corporate goals and objectives
relevant to the compensation of senior management;
- overseeing and administering the equity incentive plans;
- overseeing and making recommendations to the Supervisory Board with
respect to director compensation; and
- determining the compensation of the chief executive officer and reviewing
and approving, or make recommendations to the Supervisory Board, with
respect to the compensation of the other executive officers.
The Remuneration Committee consists of Mr. T. de Waard, Chairman of the
Remuneration Committee, Mr. W.D. Maris, Mr. Polak and Mr. Sinninghe Damste. The
Remuneration Committee met once in 2004.
SELECTION, APPOINTMENT AND GOVERNANCE COMMITTEE
The Selection, Appointment and Governance Committee consist of its Chairman Mr.
Polak, Mr. W.D. Maris, Mr. De Waard and Mr. Sinninghe Damste. The Selection,
Appointment and Governance Committee prepares, within its duties, the
decision-making of the Supervisory Board on:
- drawing up selection criteria and appointment procedures for Supervisory
Board members and Board of Management members;
- periodically assessing the size and composition of the Supervisory Board
and the Board of Management, and making a proposal for a composition
profile of the Supervisory Board;
- periodically assessing the functioning of individual Supervisory Board
members and Board of Management members, and reporting on this to the
Supervisory Board;
- making proposals for appointments and re-appointments; and
- supervising the policy of the Board of Management on the selection
criteria and appointment procedures for senior management.
In 2004, the committee met once.
DISCLOSURE COMMITTEE
Besi has a Disclosure Committee to ensure compliance with applicable disclosure
requirements arising under United States and Dutch law. The Disclosure Committee
reports to and assists our chief executive officer in the maintenance and
evaluation of disclosure controls and procedures. The Audit Committee is kept
informed about the outcome of the Disclosure Committee meetings. The Disclosure
Committee gathers all relevant financial and non-financial information and
assesses materiality, timeliness and necessity for disclosure of such
information. The Disclosure Committee comprises various members of senior
management. Furthermore, members of the Disclosure Committee are in close
contact with our external legal counsel and our external auditor.
45
During the year 2004, the Disclosure Committee met once.
EXEMPTIONS FROM CERTAIN NASDAQ CORPORATE GOVERNANCE RULES
The Nasdaq corporate governance rules provide that Nasdaq may provide exemptions
from the Nasdaq corporate governance standards to a foreign issuer when (i)
those standards are contrary to a law, rule or regulation of any public
authority exercising jurisdiction over such issuer or (ii) contrary to generally
accepted business practices in the issuer's country of domicile. Besi has
received from Nasdaq exemptions from the following rules:
- Besi is exempt from Nasdaq's quorum requirements applicable to meetings of
ordinary shareholders. In keeping with Dutch law and Netherlands generally
accepted business practice, Besi's Articles of Association provide that
there are no quorum requirements generally applicable to General Meetings
of Shareholders.
- Besi is exempt from Nasdaq's requirements regarding the solicitation of
proxies and provision of proxy statements for meetings of shareholders. We
do not solicit proxies or prepare proxy statements for General Meetings of
Shareholders. Dutch law does not have a regulatory regime for the
solicitation of proxies and the solicitation of proxies is not a generally
accepted business practice in The Netherlands.
D. EMPLOYEES
NUMBERS OF EMPLOYEES
The following table indicates the composition of our workforce (full time
equivalents) by geography as of December 31:
2002 2003 2004
---- ---- ----
The Netherlands 460 464 477
Asia/Pacific 117 233 254
United States 65 49 67
---- ---- ----
Total 642 746 798
The following table indicates the composition of our workforce (full time
equivalents) by role as of December 31:
2002 2003 2004
---- ---- ----
Manufacturing 371 459 484
Sales, Marketing and Customer Service 120 114 128
Research and Development 78 90 103
General and Administrative 73 83 83
---- ---- ----
Total 642 746 798
As of December 31, 2004, Besi had approximately 798 employees (full time
equivalents), of whom 339 were employed at Fico in the Netherlands, 130 at Meco
in the Netherlands, 61 at RD Automation and Laurier in the United States, 101 at
Fico Tooling Leshan, China, 122 at Fico Asia, Malaysia, 37 at Fico and Meco
sales and service offices outside the Netherlands and 8 at Besi headquarters in
the Netherlands. In addition, we employed 51 temporary workers (full time
equivalents), principally in product development and engineering activities in
the Netherlands.
RESTRUCTURING
On December 14, 2004, Besi announced a restructuring of its operations focused
principally on a workforce reduction at its Dutch packaging and tooling
manufacturing operations in Duiven and Brunssum of 81 employees, or
approximately 10% of total fixed headcount worldwide, as part of a plan to
address the current downturn in the semiconductor industry. In addition, Besi
will phase out the use of approximately 50 temporary workers at the Duiven
facility. The personnel terminations are expected to occur in the first quarter
of 2005. A component of the restructuring will be the closing of Besi's tooling
facility in Brunssum, the Netherlands in the first half of 2005.
COLLECTIVE BARGAINING ARRANGEMENTS AND WORKS COUNCIL
Approximately 98% of the employees in the Netherlands are covered by nationwide
collective bargaining agreements. We do not have any employee unions in any of
the other jurisdictions in which it operates.
Pursuant to the requirements of Dutch law, several of our subsidiaries have an
employee works council. A central works
46
council has been established at the level of Fico for the operations of Fico
Molding, Fico Tooling and Fico Trim and Form. In addition, Meco Plating and Fico
Singulation (formerly Meco) have a joint works council. Each works council has
the right to be informed by and/or to advise management on specific matters in
accordance with the Dutch Works Council Act. In addition, the Works Council Act
provides that various decisions with respect to employment conditions of general
application require the works council's consent. If withheld, such consent may
be replaced with a judgment from the cantonal court. These works councils may
make non-binding recommendations for the nominations made by the Supervisory
Board to the General Meeting of Shareholders for the appointment of new
Supervisory Board members. In addition, the central works council of Fico and
the works council of Meco Plating and Fico Singulation jointly have the
statutory right to make binding recommendations for up to one third of the
members of the Supervisory Board.
Datacon's employees in Austria are all covered by the nationwide collective
bargain agreement for employees and workers in the metal business. No other
Datacon employees are subject to collective bargain agreements.
Pursuant to the requirements of Austrian law, the Datacon plant in Austria has a
works council. The works council has the right to be informed by and/or to
advise management on specific matters in accordance with Austrian mandatory law.
In addition, the Austrian law provides the works council's consent for matters
referring to controlling and disciplining the employees' performance. With
regard to other issues such as introduction of administrative data processing
systems and introduction of employee evaluation systems, the consent may be
replaced by a judgement from the district court. Datacon does not have any other
works councils.
OPTION PLAN(S)
DESCRIPTION OF STOCK OPTION PLANS
In 1995, we established the BE Semiconductor Industries Incentive Plan 1995 (the
"Incentive Plan 1995"). We granted 1,101,236 options to purchase ordinary shares
("1995 Plan Shares") under the Incentive Plan 1995. During the years 1995 to
2001, we made awards under the Incentive Plan 1995 to our executive officers and
senior employees. Options granted between 1999 and 2001 vest after three years.
The Incentive Plan 1995 expired in 2001. Stock options granted under the
Incentive Plan 1995 have exercise prices which were equal to the market price of
the ordinary shares on the date of grant.
In 2001, we established the BE Semiconductor Industries Incentive Plan 2001 -
2005 (the "Incentive Plan 2001"). The total number of ordinary shares ("2001
Plan Shares") that we may issue under the Incentive Plan 2001, may not exceed
1.5% per year of the total number of ordinary shares outstanding in the
applicable fiscal year, subject to adjustments for share splits, share
dividends, recapitalizations and similar events. 2001 Plan Shares may consist,
in whole or in part, of unauthorized and unissued ordinary shares or treasury
shares. We anticipate that, on an annual basis, we will make awards under the
Incentive Plan 2001 to our executive officers and senior employees. Options
granted in 2002, 2003 and 2004 vest after three years. Stock options granted
under the Incentive Plan 2001 will have exercise prices equal to the market
price of the ordinary shares on the date of grant.
Under separate stock option plans, in the years 2000 through 2004, we granted
options to all of our employees. The options vest after three years and have
exercise prices equal to the market price of the ordinary shares on the date of
grant. Under the grants of 2001 through 2004, the Dutch employees have a right
to receive payment of an amount that corresponds with the profit achieved with
the sale of newly issued ordinary shares by us after exercise of the options.
These options receive variable accounting treatment. All other options granted
by us receive fixed accounting treatment.
We account for stock-based compensation using the intrinsic value method.
Accordingly, no compensation has been recorded for the stock options granted
from 2001 through 2004, which received fixed accounting treatment. As of
December 31, 2004, there were outstanding options to purchase an aggregate of
1,005,181 ordinary shares which receive fixed accounting treatment at a weighted
average exercise price of (euro) 9.79 per share. For the stock options granted
from 2001 through 2004 that receive variable accounting treatment, we recognized
a compensation release of (euro) 12 net of tax, based on the market value of the
ordinary shares for the year ended December 31, 2004. As of December 31, 2004,
229,079 options that receive variable accounting treatment were outstanding at a
weighted average exercise price of (euro) 7.06 per share.
We account for stock based employee compensation plans under the recognition and
measurement principles of Accounting Principles Board Opinion ("APB") No. 25
"Accounting for Stock Issued to Employees", and related interpretations in
accounting for its plans. SFAS No. 123 "Accounting for Stock-Based Compensation"
allows companies to elect to either account for stock options using fair value
based method, or continue to account for stock option plans under APB No. 25,
and disclose pro forma disclosure of net income and earnings per share as if
SFAS No. 123 were applied. Under APB No. 25, no stock-based employee
compensation cost is reflected in net income (loss) for the fixed stock options,
as all
47
options granted under our stock option plans had an exercise price equal to the
market value of the underlying ordinary shares on the date of grant. We have
elected to continue to account for our stock options under the provisions of APB
No. 25 and disclose the pro forma effect of SFAS No. 123.
FINANCING OF STOCK OPTION PLANS
Option plans that were issued in 1999 and 2000 contained a virtual financing
arrangement pursuant to which Besi financed the fiscal value of the options
granted to employees subject to the Dutch tax-regime. The loans issued under
this arrangement are repayable to Besi on the exercised date of the respective
option, provided that the option was actually exercised. If the options expire
unexercised, the respective loans are forgiven. Besi accrues a liability for the
respective fiscal implication of this arrangement.
ITEM 7: MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
BENEFICIAL HOLDINGS OF SHAREHOLDERS AND MANAGEMENT FOR EACH PERSON OR ENTITY
WHOM WE KNOW TO BENEFICIALLY OWN MORE THAN 5% OF OUR ORDINARY SHARES.
Applicable percentage of ownership is based on 30,794,660 ordinary shares
outstanding (excluding 1,000,015 ordinary shares held by us in treasury) as of
December 31, 2004.
The following table shows the beneficial ownership of the Company's share
capital as of December 31, 2004 for each person or entity who owns beneficially
5% or more of the Company's ordinary shares.
Name of Beneficial Owner(1) Shares Beneficially Owned Percentage Beneficially Owned
--------------------------------------------- ------------------------- -----------------------------
FMR Corp. (2) 3,096,700 10.1%
Schneider Capital Management Corporation (3) 2,126,320 6.9%
Schroder International Selection Fund (4) 1,700,000 5.5%
All Supervisory Board and Executive members
of the Board of Management as a group (5) 480,985 1.6%
Notes:
(1) Beneficial ownership is determined in accordance with the rules of the
Commission. Shares subject to options currently exercisable or exercisable
within 60 days of December 31, 2004 are deemed outstanding for computing
the percentage beneficially owned by the person holding such options, but
are not deemed outstanding for computing the percentage beneficially owned
by any other person.
(2) Consists of shares for which Fidelity Management & Research Company, a
wholly owned subsidiary of FMR Corp., has investment and or voting power
in its capacity as an investment adviser. The shares are held by Fidelity
Low Priced Stock Fund. This information is based solely on a Schedule 13G
filed with the Commission on June 10, 2004.
(3) This information is based solely on a Schedule 13G filed with the
Commission on February 11, 2005.
(4) This information is based on the notification form 1996 Act Part 1 on
January 19, 2005.
(5) Includes exercisable options to purchase 210,500 ordinary shares. None of
the members of our Supervisory Board or our Board of Management owns,
directly or indirectly, more than one percent of our outstanding share
capital.
1996 ACT ON THE DISCLOSURE OF HOLDING IN LISTED COMPANIES
On 15 July 1996, Berliner Elektro Holding Aktiengesellschaft notified the AFM of
its capital interest of 58.67% in the Company's share capital pursuant to the
1996 Act on the Disclosure of Holding in Listed Companies, which filing still
appears in the public register maintained by the Netherlands Authority for the
Financial Markets, or AFM, for these purposes. At the General Meeting of
Shareholders held on March 25, 2004, Berliner Elektro Aktiengesellschaft
(presently named: AdCapital AG), deposited an aggregate number of 1,654,080
ordinary shares, which leads us to believe that the information presented in the
public register with the AFM does not reflect the actual holdings of Ad Capital
AG.
48
THE FOUNDATION
In accordance with the 1996 Act on the Disclosure of Holding in Listed
Companies, it was announced that the Foundation has an option to acquire up to
55,000,000 preference shares. The option has not been exercised to date. The
objectives of the Foundation are to safeguard the interests of the Company and
its enterprise, group companies and all persons connected with the Group. To
achieve its objective, the Foundation may acquire preference shares and may
exercise the rights attached to those preference shares. See "Share Capital,
Corporate Structure and Corporate Governance".
We are not directly or indirectly owned or controlled by any foreign government.
ITEM 8: FINANCIAL INFORMATION
See "Item 18: Financial Statements" and pages F-1 through F-35.
DIVIDENDS
HISTORICAL DIVIDENDS
We have never paid a dividend in respect of our ordinary shares.
DIVIDEND POLICY
We intend to retain any future earnings to finance our operations and to help
finance future acquisitions. Therefore, we do not expect to pay any dividends in
the foreseeable future. According to our Corporate Governance Code, the policy
of Besi on additions to reserves and on dividends (the level and purpose of the
addition to reserves, the amount of the dividend and the type of dividend) and
resolutions to pay a dividend shall be dealt with as a separate agenda item at
the General Meeting of Shareholders.
PREFERENCE SHARES
Each year, the Board of Management, subject to approval of the Supervisory
Board, shall determine which part of the profit - the positive balance of the
profit and loss account - shall be reserved. From the profit remaining after
reservation, a dividend shall be distributed on the preference shares equal to
the average EURIBOR rate plus two hundred basic points calculated over the
amounts paid on such shares, the average being taken over the number of days
this rate applied over the financial year concerned. Currently, there are no
preference shares outstanding.
49
ITEM 9: THE OFFER AND LISTING
Our ordinary shares are currently listed on the following exchanges:
Location Trading Exchange Symbol
--------------- ---------------------- ------
United States Nasdaq National Market BESI
The Netherlands Euronext BESI
We have been informed by the Bank of New York, our transfer agent in the United
States, that there were 5,726,285 shares of New York registry held by 9 record
holders as of December 31, 2004. The following table sets forth the high and low
closing sale prices on Nasdaq National Market and Euronext Amsterdam for our
ordinary shares for our five most recent fiscal years.
United States The Netherlands
------------------------- ---------------------------------
High Low High Low
------- ------ ------------ -----------
Year Ended December 31, 2004
First Quarter $ 8.99 $ 6.95 (euro) 7.19 (euro) 5.55
Second Quarter $ 7.44 $ 5.42 (euro) 6.18 (euro) 4.50
Third Quarter $ 6.08 $ 4.67 (euro) 5.04 (euro) 3.90
Fourth Quarter $ 5.88 $ 4.65 (euro) 4.35 (euro) 3.65
Year Ended December 31, 2003
First Quarter $ 4.65 $ 3.13 (euro) 4.48 (euro) 3.15
Second Quarter $ 6.31 $ 3.33 (euro) 5.30 (euro) 3.18
Third Quarter $ 7.63 $ 5.25 (euro) 6.92 (euro) 4.50
Fourth Quarter $ 8.50 $ 5.85 (euro) 6.72 (euro) 5.10
Year Ended December 31, 2002
First Quarter $ 9.70 $ 7.06 (euro) 10.40 (euro) 8.14
Second Quarter $ 8.90 $ 6.01 (euro) 9.90 (euro) 6.45
Third Quarter $ 6.64 $ 4.02 (euro) 6.65 (euro) 4.23
Fourth Quarter $ 5.10 $ 3.35 (euro) 5.10 (euro) 3.70
Year Ended December 31, 2001 $ 11.63 $ 4.40 (euro) 12.50 (euro) 5.00
Year Ended December 31, 2000 $ 27.75 $ 7.28 (euro) 28.45 (euro) 8.70
The following table sets forth the high and low closing sale prices on Nasdaq
National Market and Euronext Amsterdam for our ordinary shares for the six most
recent months.
United States The Netherlands
------------------------ -------------------------------
High Low High Low
------ ------ ----------- -----------
February 2005 $ 6.00 $ 5.32 (euro) 4.59 (euro) 4.19
January 2005 $ 5.65 $ 5.11 (euro) 4.22 (euro) 4.01
December 2004 $ 5.88 $ 5.21 (euro) 4.30 (euro) 3.97
November 2004 $ 5.85 $ 4.92 (euro) 4.35 (euro) 3.86
October 2004 $ 5.19 $ 4.65 (euro) 4.20 (euro) 3.65
September 2004 $ 5.57 $ 4.85 (euro) 4.60 (euro) 4.06
On February 28, 2005, the closing sales price per share on the Nasdaq National
Market was $ 5.84 and the closing sales price per share on Euronext Amsterdam
Stock Exchange was (euro) 4.36.
50
ITEM 10: ADDITIONAL INFORMATION
This section contains a summary of material information relating to our share
capital, including summaries of certain material provisions of the Articles of
Association and applicable Dutch law in effect on the date hereof, as well as
relevant proposed legislation and regulation. This summary does not purport to
be complete and is qualified in its entirety by reference to the full Articles
of Association. The full text of the Articles of Association is available in
Dutch and English at Besi's principal office and at our website www.besi.com. We
are not including the information contained at www.besi.com, or at any other
Internet address as part of, or incorporating by reference, into this Annual
Report on Form 20-F.
GENERAL
Besi was incorporated on May 9, 1995 as a Dutch public company with limited
liability and is governed by Dutch law. Besi has its corporate seat in
Amsterdam, the Netherlands, with its head office in Drunen, the Netherlands, and
is registered under number 09092395 with the Trade Register at the Chamber of
Commerce and Industry of Oost-Brabant, the Netherlands. The ordinary shares are
listed on Euronext Amsterdam (symbol: BESI) and on Nasdaq (symbol: BESI). Besi
is subject to the Large Company Rules. A number of provisions of the Articles of
Association are subject to recent amendments to the Large Company Rules and Besi
will propose to amend its Articles of Association accordingly.
ARTICLES OF ASSOCIATION
The material provisions of the Articles of Association are summarized below.
Such summaries do not purport to be complete statements of these provisions and
are qualified in their entirety by reference to such exhibit. The Articles of
Association were last amended by a notarial deed executed on May 25, 2004 before
Mr. P.H.N. Quist, as legal substitute for Mr. H.B.H. Kraak, civil law notary,
practicing in Amsterdam. The Articles of Association are available free of
charge at Besi's website (www.besi.com).
CORPORATE PURPOSES
Pursuant to Article 4 of the Articles of Association, the objects of Besi are:
- to participate in, to finance, to collaborate with, to conduct the
management of companies and other enterprises and provide advice and other
services;
- to acquire, use and/or assign industrial and intellectual property rights
and real property;
- to invest funds;
- to provide security for the debts of legal persons or of other companies
with which the company is affiliated in a group; and
- to undertake all that which is connected to the foregoing or in
furtherance thereof, all in the widest sense of the words.
SHARE CAPITAL
As at February 28, 2005, the authorized share capital amounts to (euro)
100,100,000, divided into 55,000,000 ordinary shares with a nominal value of
(euro) 0.91 each, and 55,000,000 preference shares with a nominal value of
(euro) 0.91 each. The ordinary shares may be in bearer or registered form.
As at February 28, 2005, a total of 33,728,517 ordinary shares were outstanding
(including 1,000,015 ordinary shares held by Besi in treasury) and there were no
preference shares outstanding.
ISSUES OF ORDINARY SHARES AND PRE-EMPTIVE RIGHTS
Ordinary shares may be issued pursuant to a resolution of the General Meeting of
Shareholders or the General Meeting of Shareholders may grant the authority to
issue shares in the share capital of the Company to the Board of Management for
a maximum period of five years. After such designation, the Board of Management
may resolve upon the issue of ordinary shares after the approval of the
Supervisory Board.
Currently, the General Meeting of Shareholders has delegated to the Board of
Management subject to the prior approval of the Supervisory Board, until May 14,
2006 the authority to issue ordinary shares up to a maximum of 20% of the
ordinary shares included in the authorized capital.
51
Shareholders have a pro rata pre-emptive right of subscription to any ordinary
share issued for cash, which right may be limited or excluded. Shareholders have
no pro rata pre-emptive subscription right with respect to any ordinary shares
issued for a contribution other than cash, with respect to any issuance of
preference shares or in the case of ordinary shares issued to employees. On the
basis of a designation by the General Meeting of Shareholders, the Board of
Management has the power, subject to approval of the Supervisory Board, to limit
or exclude Shareholder pre-emptive rights through May 14, 2006. The designation
may be renewed for a maximum period of five year. In the absence of such
designation, the General Meeting of Shareholders has the power to limit or
exclude such preemptive rights.
The foregoing provisions apply mutatis mutandis to the issuance of rights to
subscribe for ordinary shares.
PREFERENCE SHARES
The provisions for the issuance of preference shares are similar to the
provisions for the issuance of ordinary shares described above. However, if an
issuance of preference shares would result in an outstanding amount of
preference shares exceeding 100% of the outstanding ordinary shares and the
issuance is effected pursuant to a resolution of a corporate body other than the
General Meeting of Shareholders, such as the Board of Management, the issuance
will require prior approval of the General Meeting of Shareholders.
If the issuance of preference shares is effected pursuant to a resolution of a
corporate body other than the General Meeting of Shareholders, but the amount of
preference shares to be issued would not exceed 100% of the number of
outstanding ordinary shares, then prior approval of the General Meeting of
Shareholders is not required, but the reasons for the issuance must be explained
at an extraordinary General Meeting of Shareholders to be held within four weeks
after such issue. Subsequently, within two years after the first issuance of
preference shares, a General Meeting of Shareholders will be held to resolve to
repurchase or cancel the preference shares. If no such resolution is adopted,
another General Meeting of Shareholders with the same agenda must be convened
and held within two years after the previous meeting and this meeting will be
repeated until no preference shares are outstanding. This procedure does not
apply to preference shares that have been issued pursuant to a resolution by, or
with the prior approval of, the General Meeting of Shareholders.
In connection with the issuance of preference shares it may be stipulated that
an amount not exceeding 75% of the nominal amount ordinarily payable upon
issuance of shares, may be paid only if Besi requests payment. A decision of the
Board of Management for further payment requires prior approval of the
Supervisory Board.
THE FOUNDATION
The Foundation was established in April 2000. The board of the Foundation
consists of five members, four of whom are independent of Besi and one of whom
is a member of the Supervisory Board. The purpose of the Foundation is to
safeguard Besi's interests, the enterprise connected therewith and all the
parties having an interest therein and to exclude as much as possible influences
which could threaten, among other things, Besi's continuity, independence and
identity.
Under the terms of an agreement entered into in April 2002 between Besi and the
Foundation, the Foundation has been granted a call option, pursuant to which it
may purchase a number of preference shares up to a maximum of the total number
of outstanding ordinary shares. Until the call option is exercised by the
Foundation, it can be revoked by Besi, with immediate effect. Under the terms of
a separate agreement entered into in April 2002, Besi may force the Foundation
to exercise its call option right if it has been announced (or may be expected)
that an unfriendly take-over bid will be made with respect to the ordinary
shares, or if (in the opinion of the Board of Management), a single shareholder
(or group of shareholders) holds a substantial number of the ordinary shares.
The aim of the preference shares is to provide a protective measure against
unfriendly take-over bids.
REPURCHASE AND CANCELLATION OF SHARES
Besi may repurchase any class of shares in its own capital subject to certain
provisions of Dutch law and the Articles of Association, if (a) shareholders'
equity less the payment required to make the acquisition does not fall below the
sum of the paid-up and called part of the issued share capital and any reserves
required by Dutch law or the Articles of Association and (b) Besi and its
subsidiaries would thereafter not hold shares with an aggregate nominal value
exceeding one-tenth of Besi's issued share capital. Shares held by Besi or any
of its subsidiaries will have no voting rights and Besi does not receive
dividends on shares it holds in its own capital. Any such purchases are subject
to the approval of the Supervisory Board and may only take place if the General
Meeting of Shareholders has granted to the Board of Management the
52
authority to effect such repurchases, which authorization may apply for a
maximum period of 18 months. The Board of Management was authorized to
repurchase up to 10% of the issued share capital through September 27, 2006.
Upon a proposal of the Board of Management and approval of the Supervisory
Board, the General Meeting of Shareholders shall have the power to decide to
cancel shares acquired by Besi or to reduce the nominal value of the ordinary
shares. Any such proposal is subject to the relevant provisions of Dutch law and
the Besi Articles of Association with respect to reduction of share capital.
DIVIDENDS
Dividends may be paid out of annual profits shown in the annual accounts, which
- under the Dutch Large Company Rules presently in effect and described below -
must be adopted by the General Meeting of Shareholders. At its discretion,
subject to statutory provisions, the Board of Management may, with the prior
approval of the Supervisory Board, distribute one or more interim dividends on
the ordinary shares before the annual accounts have been adopted by the General
Meeting of Shareholders. The Board of Management, with the prior approval of the
Supervisory Board, may decide that all or part of the profits should be retained
and not be made available for distribution to the shareholders. Those profits
that are not retained shall be distributed to holders of ordinary shares
pursuant to a shareholders' resolution, subject to preferred returns payable
with respect to outstanding preference shares, if any, provided that the
distribution does not reduce shareholders' equity below the issued share capital
increased by the amount of reserves required by Dutch law. Existing reserves
that are available for distribution under Dutch law may be distributed upon a
shareholders' resolution, proposed by the Board of Management, which proposal is
subject to the prior approval by the Supervisory Board. With respect to cash
payments, the rights to dividends and distributions shall lapse if such
dividends or distributions are not claimed within five years following the day
after the date on which they were made available.
VOTING RIGHTS
Every outstanding share (whether ordinary share, or preference share) will carry
the right to cast one vote. Resolutions by the General Meeting of Shareholders
require the approval of an absolute majority of votes validly cast, unless
otherwise required by Dutch law or the Articles of Association.
SUPERVISORY BOARD
Under Dutch law and the Besi Articles of Association , the management of Besi is
entrusted to the Board of Management under the supervision of the Supervisory
Board. Pursuant to the laws of the Netherlands, members of the Supervisory Board
cannot at the same time be a member of the Board of Management of the same
company. The primary responsibility of the Supervisory Board is to supervise the
policies pursued by the Board of Management and the general course of affairs of
Besi and its business. In fulfilling their duties, the members of the
Supervisory Board are required to act in the best interests of Besi and its
business.
Pursuant to the Articles of Association, the Supervisory Board consists of three
or more members, to be determined by the Supervisory Board itself. Although the
Articles of Association presently provide otherwise, in connection with a recent
change of the Large Company Rules described in more detail below, the
Supervisory Board members are appointed by the General Meeting of Shareholders
upon a nomination prepared by the Supervisory Board. Non-binding recommendations
for appointment to the Supervisory Board may be made by the General Meeting of
Shareholders and the works councils of Besi's subsidiaries. In addition, the
central works council of Fico and the works council of Meco Plating and Fico
Singulation jointly have the right to make binding recommendations for up to one
third of the members of the Supervisory Board. The Supervisory Board must adopt
such recommendation, except in certain limited circumstances.
The Articles of Association provide that a member of the Supervisory Board shall
resign no later than on the day the first General Meeting of Shareholders is
held after the fourth anniversary of his or her appointment. For details on the
period of service for the individual members of the Supervisory Board, see
"Management and Employees".
BOARD OF MANAGEMENT
The Supervisory Board appoints members of the Board of Management. The
Supervisory Board must notify the shareholders of intended appointments to the
Board of Management.
The management of Besi is entrusted to the Board of Management under the
supervision of the Supervisory Board. The Articles of Association provide that
the Board of Management may lay down further rules and regulations with
53
respect to its procedures and internal organization. These rules require the
prior approval of the Supervisory Board. In addition, the Articles of
Association provide that certain resolutions of the Board of Management require
prior approval of the Supervisory Board, such as resolutions relating to the
issuance of debt instruments.
The Board of Management consists of such number of members as may be determined
and as appointed by the Supervisory Board. The Supervisory Board has the power
to suspend or dismiss members of the Board of Management, provided that the
Supervisory Board will be required to consult the General Meeting on the
intended dismissal.
The compensation and other terms and conditions of employment of the members of
the Board of Management are determined by the Supervisory Board. Since October
1, 2004, the amended Large Company Rules prescribe that public companies with
limited liability, such as Besi, should have in place a policy relating to the
remuneration of the members of the Board of Management. This policy is to be
determined by the General Meeting of Shareholders. In addition, the new
legislation determines that the Supervisory Board shall present any scheme
providing for the remuneration of the members of the Board of Management in the
form of shares or options, to the General Meeting of Shareholders for adoption.
INDEMNIFICATION OF MEMBERS OF THE BOARD OF MANAGEMENT AND THE SUPERVISORY BOARD
AND OTHER OFFICERS OF BESI
Subject to certain restrictions, Besi indemnifies any person who on account of
being (former) member of the Supervisory Board, a (former) member of the Board
of Management or a(n) (former) official entitled to represent Besi, or who at
Besi's request of acts or acted as a member of the Supervisory Board, a member
of the Board of Management or an officer of another company or business, whether
or not having legal personality, is or was involved as a party or threatens to
become a party in a threatened, pending or completed action or proceedings
(other than an action by or in the right of Besi) for all costs incurred by such
person in connection with proceedings or actions.
In addition, subject to certain restrictions, Besi indemnifies any person who
was a party or is threatened to be made a party to any threatened, pending or
completed action or proceedings by or in the right of Besi to procure a judgment
in its favour, by reason of the fact that he is or was a member of the
Supervisory Board, (former) member of the Board of Management, official or agent
of Besi, or is or was serving at the request of Besi as member of the
Supervisory Board, member of the Board of Management or officer of another
company or business, whether or not having legal personality, for all costs
incurred by him in connection with the defense or settlement of such action or
proceeding. The indemnification set out above is in addition to other rights
which the indemnified person could be entitled to. To cover any liability, Besi
is authorized to conclude and maintain insurance on behalf of all indemnified
persons.
GENERAL MEETINGS OF SHAREHOLDERS
General Meetings of Shareholders are held at least once a year, not later than
six months after the end of the fiscal year. Notices convening a General Meeting
of Shareholders will be mailed to holders of registered shares at least 15 days
before the General Meeting of Shareholders and will be published in national
newspapers in the Netherlands and abroad in countries where the bearer shares
are admitted for official quotation. In order to attend, to address and to vote
at the General Meeting of Shareholders, the holders of the registered shares
must notify Besi in writing of their intention to attend the meeting and holders
of the bearer shares must deposit their bearer shares with a depositary, as
specified in the published notice. Besi currently does not solicit from or
nominate proxies for the shareholders and is exempt from the proxy rules of the
Exchange Act. However, shareholders and other persons entitled to attend the
General Meetings of Shareholders may be represented by proxies with written
authority. The Articles of Association allow the Board of Management to provide
for a record date should they decide to provide for proxy solicitation.
Other General Meetings of Shareholders may be held as often as deemed necessary
by the Supervisory Board or the Board of Management and must be held if one or
more Shareholders or other persons entitled to attend the General Meeting of
Shareholders jointly representing at least 10% of the issued share capital make
a written request to the Supervisory Board or the Board of Management that a
meeting be held and specifying in detail the business to be dealt with at such
meeting. Resolutions are adopted at General Meetings of Shareholders by a
majority of the votes cast, except where a different proportion of votes is
required by the Articles of Association or Dutch law. Each outstanding ordinary
share and, if outstanding, preference share, shall carry one vote.
AMENDMENT OF ARTICLES OF ASSOCIATION AND WINDING UP
A resolution of the General Meeting of Shareholders to amend the Articles of
Association or to dissolve Besi may only be taken at the proposal of the Board
of Management, which proposal shall require the approval of the Supervisory
Board. A resolution to dissolve Besi must be approved by at least a
three-fourths majority of the votes cast.
54
ADOPTION OF ANNUAL ACCOUNTS
The annual accounts (i.e. the balance sheet, the profit and loss account and the
explanatory notes to these accounts), together with a certificate of the
auditors, will be submitted to the General Meeting of Shareholders for adoption.
Following adoption of the annual accounts by the General Meeting of
Shareholders, a resolution shall be submitted to the General Meeting of
Shareholders to discharge the Board of Management and the Supervisory Board from
liability for the performance of their respective duties for the past financial
year.
LIQUIDATION RIGHTS
In the event of a dissolution and liquidation, the assets remaining after
payment of all debts and liquidation expenses are to be distributed first to the
Preference Shareholders to the extent of the amount paid on the preference
shares and the remaining balance shall be distributed to holders of the ordinary
shares in proportion to their nominal possession of said shares.
OBLIGATIONS OF SHAREHOLDERS TO DISCLOSE MAJOR HOLDINGS
Holdings of shares or rights to acquire shares may be subject to notification
obligations under the 1996 Act on the Disclosure of Holdings in Listed
Companies, or the Disclosure Act and the Dutch Act on the Supervision of the
Securities Trade 1995, or the Dutch Securities Act. The following description
summarizes these obligations. Holders of shares or rights to acquire shares are
advised to consult with their own legal advisors to determine whether the
notification obligations apply to them.
Under the Disclosure Act, any person who, directly or indirectly, acquires or
disposes of an interest or a potential interest in Besi's capital or voting
rights must immediately give written notice to Besi and the AFM if, as a result
of such acquisition or disposal, the percentage of Besi's capital or voting
rights held by such person falls within another percentage range, compared to
the percentage range applicable to the rights held by such person previously.
The percentage ranges referred to in the Disclosure Act are 0-5%, 5-10%, 10-25%,
25-50%, 50-66 2/3% and over 66 2/3%.
For the purpose of the notification obligation, the following interests must be
taken into accounts: (a) shares directly held (or acquired or disposed of) by
any person, (b) shares held (or acquired or disposed of) by such person's
subsidiaries or by a third party for such person's accounts or by a third party
with whom such person has concluded an oral or written voting agreement and (c)
shares which such person, or any subsidiary or third party referred to above,
may acquire pursuant to any option or other right which such person has (or
acquires or disposes of), including through the exercise of warrants. Special
rules apply to the attribution of the shares which are part of the property of a
partnership or other community of property. A holder of a pledge or right of
usufruct in respect of shares can also be subject to a notification obligation
if such person has, or can acquire, the right to vote on shares.
Under Section 2a of the Disclosure Act, each member of the Board of Management
and Supervisory Board must without delay notify both the AFM and Besi of any
changes in his interest or potential interest in Besi's capital or voting
rights.
The AFM will publish all disclosures by means of an advertisement in a newspaper
distributed throughout the Netherlands as well as on its public website
(www.afm.nl).
In addition, pursuant to the Dutch Securities Act and a decree based thereon, a
holder that directly or indirectly has a capital interest of more than 25% must,
by means of a standard form within ten (10) days after the end of the month in
which the transaction took place, notify the AFM of any and all transactions
(including, without limitation, an acquisition or disposal of ordinary shares)
that it carried out or caused to be carried out in securities issued by Besi,
including warrants. If that shareholder is a legal entity and not an individual,
the obligation is extended to its managing directors and members of its board of
supervisory directors. The notification obligations also rest on 25%
shareholders, their managing directors and members of their board of supervisory
directors (if a legal entity), their spouses and persons with whom they share a
household (if an individual). The AFM keeps a public register of all
notifications made pursuant to the Disclosure Act and the Dutch Securities Act
and publishes any notification received by it.
Non-compliance with the notification obligations under the Disclosure Act or the
Dutch Securities Act can lead to imprisonment or criminal fines, or
administrative fines or other administrative sanctions. In addition,
non-compliance with the notification obligations under the Disclosure Act may
lead to civil sanctions, including, without limitation, suspension of the voting
rights attaching to Besi's shares held by the offender for a period of not more
than three (3) years, suspension of a resolution of the General Meeting of
Shareholders, nullification of a resolution adopted by the General Meeting of
Shareholders (insofar as it can be assumed that such resolution would not have
been adopted if the offender had not voted) and a prohibition for the offender
to acquire the ordinary shares for a period of not more than five (5) years.
55
AMENDMENT OF THE LARGE COMPANY RULES
GENERAL
On October 1, 2004, the Act on the Amendment of the Large Company Rules (the
"Act") came into effect. The Act provides broader powers to shareholders of
companies established under Dutch law and, in particular, companies subject to
the Large Company Rules, such as Besi. The most important elements of the Act,
to the extent relevant to Besi, are described below.
THE GENERAL MEETING OF SHAREHOLDERS
In public companies with limited liability (N.V.'s), a requirement is introduced
for approval by the General Meeting of Shareholders of Board of Management
decisions concerning an important change in the identity or character of Besi,
including those to:
- transfer all, or the major part, of a company's business to a third party;
- enter into, or terminate long-lasting cooperation between Besi, or a
subsidiary, and a third party, if such entering into, or termination, has
a fundamental impact on Besi; and
- acquire, or divest an interest in another enterprise, with a value of at
least one third of the amount of the total assets reflected in Besi's
(consolidated) annual accounts, by Besi or a subsidiary of Besi.
Lack of approval by the General Meeting of Shareholders does not affect the
authority of the Board of Management to represent Besi vis-a-vis third parties
and therefore has no external effect. The policy of the Board of Management is
of course subject to review by the court.
AGENDA FOR THE GENERAL MEETING OF SHAREHOLDERS
Shareholders and holders of depositary receipts for shares issued with the
co-operation of a company, or Depositary Receipt Holders, representing at least
1% of the issued capital of a public company with limited liability (N.V.) have
the right to request the inclusion of (additional) items on the agenda of the
General Meeting of Shareholders. In case of listed companies, shareholders or
Depositary Receipt Holders representing an aggregate stock exchange value of at
least fifty million euro also have the right to make such a request. This amount
may be increased or decreased by a governmental decree. The board of management
may refuse to put an item on the agenda only if this would prejudice vital
interests of Besi. Also, such request must be made sixty (60) days prior to a
General Meeting of Shareholders. Under Dutch law, general meetings of
shareholders may be called by giving at least fifteen (15) days notice. If a
proposal is received after the sixty (60) day deadline, but more than fifteen
(15) days prior to the general meeting of shareholders, Besi may, but is not
under an obligation to, decide to put the item on the agenda for the general
meeting of shareholders. If the proposal is received late and the items are not
put on the agenda, they must be addressed at the subsequent General Meeting of
Shareholders.
BOARD OF MANAGEMENT AND REMUNERATION
Before the Act came into effect on October 1, 2004, the Dutch Civil Code
provided that the remuneration of the members of the board of management was
determined by the General Meeting of Shareholders, to the extent not stipulated
otherwise by the articles of association. The Act introduced a change to this
provision for all public companies with limited liability. The new provision
prescribes that public companies with limited liability should have a policy
regarding the remuneration of the members of the Board of Management. The
General Meeting of Shareholders shall determine this policy. The articles of
association can also prescribe that a body other than the General Meeting of
Shareholders establish the remuneration of individual members of the Board of
Management, all with due observance of the policy adopted by the General Meeting
of Shareholders. If a different body is authorized on the basis of the articles
of association with regard to establishing the remuneration of individual
members of the Board of Management, that body shall present any arrangement
providing for the remuneration of members of the Board of Management in the form
of shares or options, to the General Meeting of Shareholders for approval.
RELATIONSHIP BETWEEN THE BOARD OF MANAGEMENT AND THE BOARD OF SUPERVISORY
DIRECTORS
Before the Act entered into force on October 1, 2004, the Dutch Civil Code
provided that the Board of Management provide the Supervisory Board in a timely
manner with such information as the latter would require to fulfill its tasks.
The Act added to this requirement that the board of management must inform the
Supervisory Board at least once every year in writing of the broad outlines of
Besi's strategic policy, the general and financial risks connected to the
operation of Besi's business, as well as of Besi's management and control
system.
56
APPOINTMENT AND RE-APPOINTMENT OF MEMBERS OF THE SUPERVISORY BOARD
The Act provides that proposals to appoint, or re-appoint members of the
Supervisory Board must - also in case of companies that are not subject to the
Large Company Rules - be reasoned. In case of re-appointment, consideration
should be given to the manner in which the relevant member has fulfilled his/her
tasks as a member of the board of supervisory directors in the past.
REMUNERATION OF THE SUPERVISORY BOARD
The Act provides that the General Meeting of Shareholders is to establish the
remuneration of the Supervisory Board.
CORPORATE GOVERNANCE CODE
The Corporate Governance Code applies to companies with a registered office in
the Netherlands and a listing on a government-recognized stock exchange. Besi,
which has its registered office in Amsterdam and is listed on Euronext
Amsterdam, falls within the scope of the Corporate Governance Code. At the last
annual meeting the shareholders approved the Besi Corporate Governance Code.
This code is based on both the Corporate Governance Code and the Sarbanes Oxley
requirements. The Besi Corporate Governance Code can be found at Besi's website
(www.besi.com).
EXCHANGE CONTROLS
Cash distributions, if any, payable in euro on bearer shares (and on ordinary
shares of the Amsterdam register) may be officially transferred from the
Netherlands and converted into any other currency without Dutch legal
restrictions, except that for statistical purposes such payments and
transactions in excess of certain amounts must be reported by us to the Dutch
Central Bank. Cash distributions, if any, on New York shares shall be paid in
U.S. dollars, converted at the rate of exchange on the Amsterdam Stock Exchange
at the close of business on the date fixed for that purpose by the Board of
Management in accordance with the articles of association. We have no current
intention to pay dividends on our ordinary shares.
TAXATION
SUMMARY OF DUTCH TAX CONSIDERATIONS
WITHHOLDING TAX
INTEREST AND ANY OTHER PAYMENTS UNDER THE NOTES
Under current Dutch law, payment of interest, principal and premium, if any,
will not be subject to Dutch withholding tax. Accordingly, all payments made by
Besi under the Notes may be made free of withholding or deduction of, for or on
account of any taxes of whatever nature imposed, levied, withheld or assessed by
the Netherlands or any political subdivision or taxing authority thereof or
therein.
DIVIDENDS
Dividends distributed by Besi generally are subject to a withholding tax imposed
by the Netherlands at a rate of 25%. The expression "dividends distributed"
includes, among other things:
- distributions in cash or in kind, deemed and constructive distributions
and repayments of paid-in capital not recognized for Dutch dividend
withholding tax purposes;
- liquidation proceeds, proceeds of redemption of ordinary shares or
consideration for the repurchase of ordinary shares by Besi, or one of our
subsidiaries, to the extent such consideration exceeds the average paid-in
capital recognized for Dutch dividend withholding tax purposes;
- the par value of ordinary shares issued to a holder of ordinary shares or
an increase in the par value of ordinary shares, as the case may be, to
the extent that it does not appear that a contribution, recognized for
Dutch dividend withholding tax purposes, has been made or will be made;
- partial repayment of paid-in capital, recognized for Dutch dividend
withholding tax purposes, if and to the extent that there are net profits,
unless the general meeting of our shareholders has resolved in advance to
make such repayment and provided that the par value of the ordinary shares
concerned has been reduced by an equal amount by way of an amendment to
the articles of association; and
57
- payment of interest with respect to a "hybrid loan". A loan with a
maturity date (i.e. the original maturity date or revised maturity date
upon a novation of the loan, if any) on or before the tenth anniversary of
the loan cannot be classified as a "hybrid loan".
If a holder of ordinary shares resides in a country other than the Netherlands
and if a double taxation convention is in effect between the Netherlands and
such other country, such holder of ordinary shares may, depending on the terms
of that double taxation convention, be eligible for a full or partial exemption
from, reduction or refund of, Dutch dividend withholding tax. The Netherlands
has concluded such a convention with the United States, among other countries.
Under the convention between the United States of America and the Kingdom of the
Netherlands for the Avoidance of Double Taxation and the Prevention of Fiscal
Evasion with Respect to Taxes on Income (the "U.S. Tax Treaty") currently in
effect, dividends Besi pays to a holder of our ordinary shares who is not, or is
not deemed to be, a resident of the Netherlands for Dutch tax purposes but who
is a resident of the United States as defined in the U.S. Tax Treaty are
generally eligible for a reduction of the 25% Dutch withholding tax to 15% or,
in the case of certain U.S. corporate shareholders owning at least 10% of voting
power in Besi, to 5%, provided that such shareholder does not have an enterprise
or an interest in an enterprise that is, in whole or in part, carried on through
a permanent establishment or permanent representative in the Netherlands to
which the ordinary shares and the dividends are attributable. As of February 1,
2005, a full exemption of Dutch withholding tax is applicable for certain U.S.
corporate shareholders owning at least 80% of voting power in Besi for a period
of at least twelve months prior to the distribution. The U.S. Tax Treaty
provides for complete exemption from tax on dividends received by exempt pension
trusts and exempt organizations, as defined therein. The Netherlands and the
United States have entered into a mutual agreement to clarify the entitlement of
exempt pension funds to the benefits under the U.S. Tax Treaty. Based on this
agreement U.S. pension funds investing in Besi, through entities that are
considered to be transparent from a Dutch point of view, but are treated as
taxable from a U.S. point of view, are entitled to a reduction of dividend
withholding tax to nil. Except in the case of exempt organizations, the reduced
dividend withholding rate (or exemption from withholding) can be applied at the
source upon payment of the dividends, provided that the proper forms have been
filed prior to the payment. Exempt organizations remain subject to the statutory
withholding rate of 25% and are required to file an application for a refund of
such withholding.
A holder who is not, or is not deemed to be, a resident of the Netherlands may
not claim the benefits of the U.S. Tax Treaty unless:
- the holder is a resident of the United States as defined therein; and
- the holder's entitlement to such benefits is not limited by the provisions
of Article 26, limitation on benefits, of the U.S. Tax Treaty. The
Protocol to the U.S. Tax Treaty, mentioned above, will also amend Article
26 of this treaty.
Individuals and corporate entities who are resident or deemed to be resident in
the Netherlands for Dutch tax purposes, Dutch resident individuals and Dutch
resident entities, can generally credit the withholding tax against their income
tax or corporate income tax liability.
Under current Dutch law, Besi may be permitted under limited circumstances to
deduct and retain from the withholding a portion of the amount that otherwise
would be required to be remitted to the tax authorities in the Netherlands. That
portion generally may not exceed 3% of the total dividend distributed by Besi.
If Besi retains a portion of the amount withheld from the dividends paid to
Dutch resident individuals or Dutch resident entities, the portion (which is not
remitted to the tax authorities) might not be creditable against your domestic
income tax or corporate income tax liability. Besi will endeavor to provide you
with information concerning the extent to which Besi has applied the reduction
described above to dividends paid to you and advise you to check the
consequences thereof with your local tax advisor.
A refund, reduction, exemption or credit of Dutch dividend withholding tax on
the basis of Dutch tax law or on the basis of a tax treaty between the
Netherlands and another state, will be granted only if the dividends are paid to
the beneficial owner of the dividends. A receiver of a dividend is not
considered to be the beneficial owner of a dividend in an event of "dividend
stripping" in which he has paid a consideration related to the receipt of such
dividend. In general terms, "dividend stripping" can be described as the
situation in which a foreign or domestic person (usually, but not necessarily,
the original shareholder) has transferred his shares or his entitlement to the
dividend distributions to a party that has a more favorable right to a refund or
reduction of Dutch dividend withholding tax than the foreign or domestic person.
In these situations, the foreign or domestic person (usually the original
shareholder), by transferring his shares or his entitlement to the dividend
distributions, avoids Dutch dividend withholding tax while retaining his
"beneficial" interest in the shares and the dividend distributions. This regime
may also apply to the transfer of shares or the entitlement to dividend
distributions as described above, if the avoidance of dividend withholding tax
is not the main purpose of the transfer.
58
DUTCH TAXES ON INCOME AND CAPITAL GAINS
DUTCH RESIDENT INDIVIDUALS
As a general rule, Dutch resident individuals will be taxed annually on a deemed
income of 4% of their net investment assets at an income tax rate of 30%. The
net investment assets for the year are the average of the investment assets less
the attributable liabilities at the beginning and at the end of the relevant
year. The value of the Notes or shares or cash received in case of a conversion
or redemption of the Notes are included in the calculation of the net investment
assets. A tax-free allowance for the first (euro) 19,552 ((euro) 39,104 for
partners (statutorily defined term); this amount may be increased with (euro)
2,607 per minor child) of the net investment assets may be available (mentioned
amounts are applicable for 2005). Actual benefits derived from the notes or
shares, including any capital gains (including conversion or a redemption), are
not as such subject to Dutch income tax.
However, if the Notes or shares are attributable to an enterprise from which a
Dutch resident individual derives a share of the profit, whether as an
entrepreneur or as a person who has a co-entitlement to the net worth of such
enterprise without being a shareholder, any benefit derived or deemed to be
derived from the Notes or shares, including any capital gain realized on the
disposal or deemed disposal thereof (including a conversion or a redemption of
the notes and including a deemed disposal that also occurs upon a merger if Besi
is not the continuing entity, a demerger or a spin-off, are generally subject to
income tax at a progressive rate with a maximum of 52%. An increase of the
Conversion Amount, under the conditions mentioned in Article 6(5) of the Terms
and conditions of the Notes, may be treated as a conversion of the notes.
Subject to the same progressive rate are benefits derived from the Notes or
shares in case a Dutch resident individual carries out activities that exceed
regular portfolio asset management or derives other benefits from the notes or
shares that are taxable as benefits from activities.
Furthermore, if a Dutch resident individual has an actual or deemed substantial
interest in Besi, any benefit derived or deemed to be derived from the shares,
including any capital gains realized on the disposal or deemed disposal (that
also occurs upon a merger if Besi is not the continuing entity, a demerger or a
spin-off thereof, are subject to income tax at a rate of 25%. Finally, if a
Dutch resident individual has an actual or deemed substantial interest in Besi,
any benefit derived or deemed to be derived from the notes, including any
capital gains realized on the disposal thereof (including conversion or a
redemption of the notes and including a deemed disposal that also occurs upon a
merger if Besi is not the continuing entity, a demerger or a spin-off, may be
subject to income tax at a progressive rate with a maximum of 52%. An increase
of the Conversion Amount, under the conditions mentioned in Article 6(5) of the
Terms and conditions of the Notes, may be treated as a conversion of the notes.
Please see below for further clarification of the term substantial interest.
DUTCH CORPORATE ENTITIES
Any benefit derived or deemed to be derived from the notes or the shares held by
Dutch resident entities, including any capital gains realized on the disposal or
deemed disposal (including a conversion or a redemption of the Notes and
including a deemed disposal that also occurs upon a merger if Besi is not the
continuing entity, a demerger or a spin-off thereof, is generally subject to
corporate income tax at a rate of 34.5% (2005: 31.5%), unless the participation
exemption is applicable. An increase of the conversion amount, under the
conditions mentioned in Article 6(5) of the Terms and conditions of the Notes,
may be treated as a conversion of the Note. Under the participation exemption
Dutch resident companies are exempt from corporate income tax with respect to
dividends and capital gains (and losses), including currency exchange results,
derived from or realized on the disposal of a qualifying shareholding.
Generally, the participation exemption applies if a Dutch resident entity holds
an interest of at least 5% in the issued and paid up share capital of a company.
A Dutch qualifying pension fund is not subject to corporate income tax and a
qualifying Dutch resident investment fund is subject to corporate income tax at
a special rate of 0%.
NON-RESIDENT HOLDERS
A holder of Notes or shares into which the Notes may be converted will not be
subject to Dutch taxes on income or capital gains in respect of any payment
under the Notes or the shares or in respect of any gain realized on the disposal
or deemed disposal of the Notes or the shares (including the conversion of the
Notes into shares or the redemption of the Notes and including a deemed disposal
that also occurs upon a merger if Besi is not the continuing entity, a demerger
or a spin-off, provided that:
- such holder is neither resident nor deemed to be resident in the
Netherlands nor has made an election for the application of the rules of
the Dutch 2001 Income Tax Act as they apply to residents of the
Netherlands; and
59
- such holder does not have, and is not deemed to have, an enterprise or an
interest in an enterprise which is, in whole or in part, carried on
through a permanent establishment, a deemed permanent establishment, or a
permanent representative in the Netherlands and to which enterprise or
part of an enterprise the Notes or the shares are attributable nor does
such holder carry out any other activities in the Netherlands that exceed
regular asset management; and
- such holder does not have a profit share in, or any other entitlement to,
the assets or income of an enterprise, other than by way of securities,
which enterprise is effectively managed in the Netherlands and to which
enterprise the shares are attributable; and
- such holder does not carry out and has not carried out employment
activities with which the holding of the shares is connected directly or
indirectly; and
- such holder, individuals relating to such holder and some of their
relations by blood or marriage in the direct line (including foster
children) do not have a substantial interest or deemed substantial
interest in an entity residing in or deemed to reside in the Netherlands,
or, if such holder has a substantial interest or a deemed substantial
interest, it forms part of the assets of an enterprise.
To the extent that a non-resident holder is subject to Dutch taxes on income or
capital gains in respect of the Notes, an increase of the conversion amount,
under the conditions mentioned in Article 6(5) of the Terms and conditions of
the Notes, may be treated as a conversion of the Notes.
Generally, a non-resident holder of shares will have a substantial interest if
he, his partner, certain other relatives (including foster children) or certain
persons sharing his household, alone or together, directly or indirectly:
- hold shares representing 5% or more of Besi's total issued and outstanding
capital (or the issued and outstanding capital of any class of shares);
- hold or have rights to acquire shares (including the right to convert
Notes or stock options into shares), whether or not already issued, that
at any time (and from time to time) represent 5% or more of Besi's total
issued and outstanding capital (or the issued and outstanding capital of
any class of shares); or
- hold or own certain profit participating rights that relate to 5% or more
of Besi's annual profit and/or to 5% or more of the liquidation proceeds.
The same criteria apply to a non-resident entity, save for the extension to
partners, certain other relatives, and certain persons sharing the holder's
household.
A deemed substantial interest arises if a substantial interest (or part thereof)
has been disposed of, or is deemed to have been disposed of, on a
non-recognition basis.
GIFT, ESTATE AND INHERITANCE TAX
DUTCH RESIDENTS
Gift, estate and inheritance taxes will arise in the Netherlands with respect to
an acquisition of the Notes or shares or cash received in case of a conversion
or redemption of the Notes by way of a gift by, or on the death of, a holder of
the Notes or shares who is resident or deemed to be resident in the Netherlands
at the time of the gift or his death.
NON-RESIDENTS
No Dutch gift, estate or inheritance taxes will arise on the transfer of Notes
or shares by way of gift by, or on the death of, a holder of Notes or shares who
is neither resident nor deemed to be resident in the Netherlands, unless:
- such holder at the time of the gift has or at the time of his death had an
enterprise or an interest in an enterprise that is or was, in whole or in
part, carried on through a permanent establishment or a permanent
representative in the Netherlands and to which enterprise or part of an
enterprise the Notes or shares are or were attributable; or
- such holder is entitled to a share in the profits of an enterprise that is
effectively managed in the Netherlands other than by way of securities or
through an employment contract, the ordinary shares being attributable to
that enterprises; or
- in the case of a gift of a note or a share by an individual who at the
date of the gift was neither resident nor deemed to be resident in the
Netherlands, such individual dies within 180 days after the date of the
gift, while being resident or deemed to be resident in the Netherlands.
For purposes of Dutch gift, estate and inheritance taxes, a Dutch national is
deemed to be a resident of the Netherlands if he resided in that country at any
time during a period of ten years preceding the date of the gift or death, as
the case may be. In addition, for purposes of Dutch gift tax, a person not
possessing Dutch nationality is also deemed to be a Dutch resident, irrespective
of his
60
nationality, if he was a Dutch resident at any time during a period of twelve
months preceding the time at which the gift was made. The Netherlands has
concluded a treaty with the United States based on which double taxation on
inheritances may be avoided if the inheritance is subject to Dutch and/or U.S.
inheritance tax and the deceased was a resident of either the Netherlands or the
United States.
TURNOVER TAX
No Dutch turnover tax will arise in respect of any payment in consideration for
the issue of the Notes, the conversion of the Notes into ordinary shares or with
respect to any payment by Besi of principal, interest, dividend or premium (if
any) on the Notes or on the shares.
OTHER TAXES AND DUTIES
No Dutch registration tax, customs duty, transfer tax, stamp duty or any other
similar documentary tax or duty other than court fees, will be payable by a
holder of Notes or shares in respect of or in connection with the signing and/or
enforcement by legal proceedings (including the enforcement of any foreign
judgment in the courts of the Netherlands) of the issue documents or the
performance by Besi of its obligations thereunder or under the Notes or shares.
EU SAVINGS DIRECTIVE
The European Union has formally adopted the Savings Directive. Under the Savings
Directive, member states will be required to provide to the tax authorities of
another member state details of payments of interest or other similar income
paid by an economic operator to an individual resident in that other member
state, subject to the right of certain member states to opt instead for a
withholding system for a transitional period in relation to such payments.
Luxembourg, Austria and Belgium have opted for the withholding system. The
European Union, or EU, has signed or is in the process of signing agreements
with Switzerland, Andorra, San Marino, Monaco, Liechtenstein and the dependent
and associated territories of the United Kingdom and the Netherlands that
provides for equivalent measures. It is expected that the directive will enter
into force on July 1, 2005, provided that the non-EU countries mentioned above
have concluded the aforementioned agreement with the EU.
UNITED STATES TAXATION
The following discussion summarizes certain material U.S. federal tax
consequences of the acquisition, ownership and disposition of ordinary shares.
This summary applies to a holder of ordinary shares only if such holder is a
"U.S. holder". For purposes of this summary, a U.S. holder is a beneficial owner
of ordinary shares who is, for U.S. federal income tax purposes:
- an individual who is a citizen or resident of the U.S.;
- a corporation, or other entity taxable as a corporation, that is created
or organized under the laws of the U.S. or any state thereof or the
District of Columbia;
- an estate, the income of which is subject to taxation in the U.S.
regardless of its source; or
- a trust subject to the primary supervision of a U.S. court and the control
of one or more U.S. persons.
This summary is based on the tax laws of the U.S. in force and as interpreted by
the relevant tax authorities as of the date of this Annual Report on Form 20-F,
including the U.S.-Netherlands income tax treaty, or the Treaty. There can be no
assurance that the Internal Revenue Service, or IRS, will not challenge one or
more of the tax consequences described in this summary, and we have not
obtained, nor do we intend to obtain, a ruling from the Internal Revenue Service
with respect to the U.S. federal income tax consequences of the purchase,
ownership or disposition of ordinary shares. This summary addresses only certain
material consequences arising under U.S. federal tax law, and does not address
tax consequences arising under the laws of any state, locality or foreign taxing
jurisdiction.
This summary is of a general nature only and does not address all of the tax
consequences that may be relevant to a U.S. holder in light of such holder's
particular situation. In particular, this discussion only deals with U.S.
holders that hold ordinary shares as capital assets, as that term is defined in
the U.S. Internal Revenue Code, and does not address the special tax rules that
may apply to special classes of taxpayers, such as:
- securities broker-dealers;
- persons who hold ordinary shares as part of a larger integrated financial
transaction or straddle;
- U.S. holders whose functional currency is not the U.S. dollar;
- U.S. expatriates;
- persons who are owners of an interest in a partnership or other
pass-through entity that is a holder of ordinary shares;
61
- regulated investment companies;
- financial institutions;
- insurance companies;
- tax-exempt organizations;
- holders that own, directly, indirectly or by attribution, 10% or more of
our outstanding voting share capital; and
- persons subject to the alternative minimum tax.
This summary also does not discuss the tax consequences of the exchange or other
disposition of foreign currency in connection with the purchase or disposition
of ordinary shares.
U.S. holders should consult their own tax advisors as to the particular tax
consequences to them under U.S. federal, state and local, and foreign tax laws
of the acquisition, ownership and disposition of ordinary shares.
TAXATION OF DIVIDENDS
We do not currently intend to pay dividends. Subject to the discussion below
under "Passive Foreign Investment Company Considerations", for U.S. federal
income tax purposes, the gross amount of cash distributions (including the
amount of foreign taxes, if any, withheld therefrom) paid out of our current or
accumulated earnings and profits (as determined for U.S. federal income tax
purposes) will be includible in the gross income of a U.S. holder as dividend
income on the date of receipt. Dividends paid by U.S. generally will be treated
as foreign source income and will not be eligible for the dividends received
deduction generally allowed to corporate shareholders under U.S. federal income
tax law. Distributions in excess of our earnings and profits will be treated,
for U.S. federal income tax purposes, first as a nontaxable return of capital to
the extent of the U.S. holder's tax basis in the ordinary shares, and thereafter
as capital gain. The amount of any dividend paid in a non-U.S. currency will be
equal to the U.S. dollar value of the non-U.S. currency on the date of receipt,
regardless of whether the U.S. holder converts the payment into U.S. dollars. A
U.S. holder will have a tax basis in the non-U.S. currency distributed equal to
such U.S. dollar amount. Gain or loss, if any, recognized by a U.S. holder on
the sale or disposition of the non-U.S. currency generally will be U.S. source
ordinary income or loss.
Dividend income is generally taxed as ordinary income. However, as a result of
recent U.S. tax legislation, a maximum U.S. federal income tax rate of 15% will
apply to "qualified dividend income" received by individuals (as well as certain
trusts and estates) in taxable years beginning before January 1, 2009, provided
that certain holding period requirements are met. "Qualified dividend income"
includes dividends paid on shares of U.S. corporations as well as dividends paid
on shares of "qualified foreign corporations" if, among other things: (i) the
shares of the foreign corporation are readily tradable on an established
securities market in the U.S.; or (ii) the foreign corporation is eligible with
respect to substantially all of its income for the benefits of a comprehensive
income tax treaty with the U.S. which contains an exchange of information
program a "qualifying treaty". Our ordinary shares are readily tradable on the
Nasdaq National Market. In addition, the Treaty is a qualifying treaty.
Accordingly, we believe that dividends paid by us with respect to our ordinary
shares should constitute "qualified dividend income" for U.S. federal income tax
purposes, provided that the holding period requirements are satisfied and none
of the other special exceptions applies.
Any foreign tax withheld from a distribution will generally be treated as a
foreign income tax that U.S. holders may elect to deduct in computing their U.S.
federal taxable income or, subject to certain complex conditions and limitations
that must be determined on an individual basis by each U.S. holder, may credit
against their U.S. federal income tax liability. The limitations include, among
others, rules that may limit foreign tax credits allowable with respect to
specific classes of income to the U.S. federal income taxes otherwise payable
with respect to each such class of income. Dividends paid by us generally will
be foreign source "passive income" or "financial services income" for U.S.
foreign tax credit purposes.
TAXATION ON SALE, EXCHANGE OR OTHER DISPOSITION OF ORDINARY SHARES
Unless a non-recognition provision applies, U.S. holders will generally
recognize gain or loss for U.S. federal income tax purposes on the sale,
exchange or other disposition of ordinary shares in an amount equal to the
difference between the U.S. dollar value of the amount realized and the U.S.
holder's adjusted tax basis in the ordinary shares. In general, a U.S. holder's
adjusted tax basis in the ordinary shares will be equal to the amount paid by
the U.S. holder for such ordinary shares. Subject to the discussion below under
"Passive Foreign Investment Company Considerations", such gain or loss will
generally be U.S. source capital gain or loss, and will be long-term capital
gain or loss if the ordinary shares have been held for more than one year. If a
U.S. holder is an individual, trust or estate, long-term capital gain realized
upon a disposition of an ordinary share before the end of a taxable year which
begins before January 1, 2009 generally will be subject to a maximum U.S.
federal income tax rate of 15%. Gains on the sale of ordinary shares held for
one year or less will be treated as short-term capital gain and taxed as
ordinary income at the U.S. holder's marginal income tax rate.
62
Capital losses may only be used to offset capital gains, except that U.S.
individuals may deduct up to $3,000 of net capital losses against ordinary
income. U.S. holders should consult their own tax advisors regarding the
availability of this offset.
PASSIVE FOREIGN INVESTMENT COMPANY CONSIDERATIONS
If, during any taxable year, 75% or more of our gross income consists of certain
types of passive income, or the average value during a taxable year of our
passive assets (generally assets that generate passive income) is 50% or more of
the average value of all of our assets, we will be treated as a "passive foreign
investment company", or PFIC, under U.S. federal income tax law for such year
and succeeding years. Based on an analysis of our financial position, we believe
that we have not been a PFIC for U.S. federal income tax purposes for any
preceding taxable year and expect that we will not become a PFIC during the
current taxable year. However, because the tests for determining PFIC status are
applied as of the end of each taxable year and are dependent upon a number of
factors, some of which are beyond our control, including the implied value of
our assets based on the market price of our ordinary shares, and the amount and
type of our gross income, we cannot assure U.S. holders that we will not become
a PFIC in the future or that the IRS will agree with our conclusion regarding
our current PFIC status. We intend to use reasonable efforts to avoid becoming a
PFIC. If we determine that we are a PFIC, we will take reasonable steps to
notify U.S. holders.
If we were classified as a PFIC, unless a U.S. holder timely made one of the
elections described below, a special tax regime would apply to both:
- any "excess distribution", which would be such holder's share of
distributions in any year that are greater than 125% of the average annual
distributions received by such holder in the three preceding years or such
holder's holding period, if shorter; and
- any gain realized on the sale or other disposition of the ordinary shares.
Under this regime, any excess distribution and realized gain would be treated as
ordinary income and would be subject to tax as if the excess distribution or
gain had been realized ratably over the U.S. holder's holding period for the
ordinary shares. As a result of this treatment:
- the amount allocated to the taxable year in which the holder realizes the
excess distribution or gain would be taxed as ordinary income;
- the amount allocated to each prior year, with certain exceptions, would be
taxed as ordinary income at the highest applicable tax rate in effect for
that year; and
- the interest charge generally applicable to underpayments of tax would be
imposed on the taxes deemed to have been payable in those previous years.
If a U.S. holder makes a mark-to-market election with respect to such holder's
ordinary shares, the holder will not be subject to the PFIC rules described
above. Instead, in general, such U.S. holder will include as ordinary income
each year the excess, if any, of the fair market value of such holder's ordinary
shares at the end of the taxable year over the holder's adjusted basis in those
shares. Such U.S. holder will also be allowed to take an ordinary loss in
respect of the excess, if any, of the adjusted basis of the holder's ordinary
shares over their fair market value at the end of the taxable year, but only to
the extent of the net amount of income previously included as a result of the
mark-to-market election. The U.S. holder's tax basis in the ordinary shares will
be adjusted to reflect any such income or loss amounts. Any gain realized upon
disposition of such U.S. holder's ordinary shares will also be taxed as ordinary
income.
The special PFIC tax rules described above also will not apply to a U.S. holder
if the holder makes a QEF election, that is, the holder elects to have us
treated as a qualified electing fund for U.S. federal income tax purposes. If we
determine that we are a PFIC, we will provide U.S. holders with such information
as they may require from us in order to make an effective QEF election.
If a U.S. holder makes a QEF election, the holder will be required to include in
gross income for U.S. federal income tax purposes such holder's pro rata share
of our ordinary earnings and net capital gain for each of our taxable years that
we are a PFIC, regardless of whether or not the holder receives any
distributions from us. Such U.S. holder's tax basis in the ordinary shares will
be increased to reflect undistributed amounts that are included in such holder's
gross income. Distributions of previously includible income will result in a
corresponding reduction of basis in the ordinary shares and will not be taxed
again as a distribution to such holder.
U.S. holders are urged to consult their own tax advisors concerning the
potential application of the PFIC rules to the ownership and disposition of
ordinary shares.
63
64
GIFT AND ESTATE TAXES
An individual U.S. holder generally will be subject to U.S. gift and estate
taxes with respect to ordinary shares in the same manner and to the same extent
as with respect to other types of personal property.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Dividend payments with respect to ordinary shares and proceeds from the sale,
exchange or other disposition of ordinary shares may be subject to information
reporting to the Internal Revenue Service and possible backup withholding at a
28% rate. Backup withholding will generally not apply to a U.S. holder, if the
holder furnishes a correct taxpayer identification number and makes any other
required certification or if the holder is otherwise exempt from backup
withholding. If the U.S. holder is required to establish the holder's exempt
status, the holder generally must provide such certification on Internal Revenue
Service Form W-9.
Backup withholding is not an additional tax. Amounts withheld as backup
withholding may be credited against a U.S. holder's U.S. federal income tax
liability, and the holder may obtain a refund of any excess amounts withheld
under the backup withholding rules by filing the appropriate claim for refund
with the Internal Revenue Service and furnishing any required information.
ITEM 11: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
See "Item 5: Operating and Financial Review and Prospects".
ITEM 12: DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
PART II
ITEM 13: DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
Not applicable.
ITEM 14: MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS
Not applicable.
ITEM 15: CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures. Based on their evaluation
of our disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Exchange Act as of December 31, 2004, our chief executive
officer and director of finance have concluded that, as of December 31, 2004,
our disclosure controls and procedures were (1) designed to ensure that material
information relating to the company, including its consolidated subsidiaries, is
made known to our chief executive officer and director of finance by others
within those entities, particularly during the period in which this report was
being prepared and (2) effective, in that they provide reasonable assurance that
information required to be disclosed by us in the reports that we file or submit
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the SEC's rules and forms.
(b) Changes in internal controls. There were no significant changes in our
internal controls over financial reporting (as defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act) during the financial year ended December 31,
2004 that has materially affected, or is reasonably likely to materially affect
our internal controls over financial reporting or in other factors that could
significantly affect these controls subsequent to the date of their most recent
evaluation.
65
ITEM 16
A. AUDIT COMMITTEE FINANCIAL EXPERT
The members of the Audit Committee are all independent, non-executive members of
the Supervisory Board. The Supervisory Board has determined that Mr. D.
Sinninghe Damste qualifies as an Audit Committee Financial Expert. In
determining whether members of the Audit Committee qualify as financial experts
within the meaning of Commission regulations and the Nasdaq listing standards,
the Supervisory Board considered the nature and scope of experiences and
responsibilities members of our Audit Committee have previously had with other
reporting companies. Furthermore, the Supervisory Board determined that all
members of the Audit Committee are financially literate.
B. CODE OF ETHICS
In 2003, our Supervisory Board approved the Besi Code of Business Conduct and
Ethics and Code of Ethics for senior financial staff. A copy of the Code of
Business Conduct and Ethics and Code of Ethics for senior financial staff is
posted on our website (www.besi.com). We intend to disclose any amendment to, or
waiver from, provisions of this Code of Ethics by posting such information on
our website at the address specified above.
C. PRINCIPAL AUDITOR FEES AND SERVICES
KPMG has served as our independent public accountants for each of the years
ended in the three-year period ended December 31, 2004. The following table
presents the aggregate fees for professional audit services and other services
rendered by KPMG in 2002, 2003 and 2004:
December 31,
-----------------------------------------
(Amounts in euro) 2002 2003 2004
------------------- ------- ------- -------
Audit fees 241,009 184,700 212,750
Audit related fees - 40,650 180,340
Tax fees 25,748 56,640 41,795
All other fees 618 - 109,972
------- ------- -------
Total 267,375 281,990 544,857
======= ======= =======
AUDIT FEES
Audit fees primarily relate to fees for professional services rendered in
connection with the audit of our annual financial statements set forth in our
Annual Report on Form 20-F, agreed upon procedures work on our quarterly
financial results, services related to statutory and regulatory filings of our
subsidiaries and services in connection with accounting consultations.
AUDIT-RELATED FEES
Audit related fees mainly comprise services in connection with due diligence
work on the acquisition of Datacon, consultations on various accounting issues
and rendering opinions for different corporate-related items.
TAX FEES
Tax fees related to services in connection with tax advice, including fees
associated with tax compliance services for foreign subsidiaries and other audit
related tax services for the years ended December 31, 2002, 2003 and 2004.
ALL OTHER FEES
All other related fees mainly comprise services to assist the Company to comply
with the Sarbanes Oxley Act.
66
PRE-APPROVAL POLICIES FOR NON-AUDIT SERVICES
The Audit Committee has approved the external audit plan and related audit fees
for the year 2004. The Audit Committee has adopted a policy regarding audit and
non-audit services, provided by KPMG. This policy is designed to ensure the
independence of our auditors by expressly setting forth all services that the
auditors may not perform and reinforcing the principle of independence
regardless of the type of work performed. Certain non-audit services such as
tax-related services and acquisition advisory are permitted. In 2004, we
established a policy pursuant to which we will not engage our auditors to
perform any non-audit services unless the audit committee pre-approves the
service. The Audit Committee pre-approves non-audit services not specifically
permitted under this policy and reviews the annual external audit plan and any
subsequent engagements. The Audit Committee pre-approved all of the non-audit
services performed for us during 2004.
D. EXEMPTIONS FROM LISTING STANDARDS FOR AUDIT COMMITTEES
Not applicable
E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASES
Not applicable
PART III
ITEM 17: FINANCIAL STATEMENTS
Not applicable
ITEM 18: FINANCIAL STATEMENTS
See pages F-1 through F-35.
ITEM 19: EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- -------------------------------------------------------------------
1.1 Articles of Association of BE Semiconductor Industries N.V.
(English translation) (incorporated by reference to Exhibit 4.1
to Registrant's Report of Foreign Private Issuer on Form 6-K as
filed with the Securities and Exchange Commission on January 24,
2005)
8.1 List of Subsidiaries of BE Semiconductor Industries N.V.
12.1 Rule 13a-14(a)/15(d)-14(a) Certification of Chief Executive Officer
12.2 Rule 13a-14(a)/15(d)-14(a) Certification of Director of Finance
13.1 Section 1350 Certification of Chief Executive Officer
13.2 Section 1350 Certification of Director of Finance
67
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for
filing on From 20-F and that it has duly caused and authorized the undersigned
to sign this annual report on its behalf.
BE SEMICONDUCTOR INDUSTRIES N.V.
/s/ Richard W. Blickman
---------------------------------------------
Name: Richard W. Blickman
Title: President and Chief Executive Officer
Date: April 11, 2005
68
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS 2004
BE SEMICONDUCTOR INDUSTRIES N.V.
Report of Independent Registered Public Accounting Firm F-2
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Cash Flows F-5
Consolidated Statements of Shareholders' Equity F-7
Consolidated Statements of Comprehensive Loss F-8
Notes to the Consolidated Financial Statements F-9
Additional Information F-35
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Supervisory Board and the Board of Management of BE Semiconductor
Industries N.V.
We have audited the accompanying consolidated balance sheets of BE Semiconductor
Industries N.V. and subsidiaries as of December 31, 2003 and 2004 and the
related consolidated statements of operations, cash flows, shareholders' equity
and accumulated other comprehensive income (loss), for each of the years in the
three-year period ended December 31, 2004. These Consolidated Financial
Statements are the responsibility of the management of BE Semiconductor
Industries N.V. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (PCAOB). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statements presentation. We believe that our audits and the report of
the other auditors provide a reasonable basis for our opinion.
In our opinion, the Consolidated Financial Statements referred to above present
fairly, in all material respects, the financial position of BE Semiconductor
Industries N.V. and subsidiaries at December 31, 2003 and 2004 and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 2004, in conformity with accounting principles
generally accepted in the United States of America.
KPMG Accountants N.V.
`s-Hertogenbosch, the Netherlands
February 8, 2005
F-2
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
December 31,
-------------------------------------------
2003 2004 2004
EURO EURO USD 1)
------- ------- -------
ASSETS
Cash and cash equivalents 108,897 106,573 144,279
Accounts receivable 17,957 20,172 27,308
Inventories 27,880 34,118 46,189
Other current assets 9,439 14,773 19,999
------- ------- -------
Total current assets 164,173 175,636 237,775
Property, plant and equipment 30,100 28,543 38,642
Goodwill 12,846 12,070 16,340
Patents and trademarks 13,575 10,895 14,750
Other non-current assets 723 198 268
------- ------- -------
Total assets 221,417 227,342 307,775
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current portion of long-term debt and capital leases 934 753 1,019
Accounts payable 10,338 14,331 19,401
Accrued liabilities 14,464 18,791 25,439
------- ------- -------
Total current liabilities 25,736 33,875 45,859
Long-term debt and capital leases 7,945 13,361 18,088
Deferred gain on sale and lease back 927 842 1,140
Deferred tax liabilities 3,112 2,156 2,919
------- ------- -------
Total non-current liabilities 11,984 16,359 22,147
Minority interest 191 115 156
Ordinary shares 28,023 28,023 37,937
Preference shares - - -
Capital in excess of par value 177,478 177,478 240,270
Retained deficit (15,241) (20,668) (27,980)
Accumulated other comprehensive loss (6,754) (7,840) (10,614)
------- ------- -------
Total shareholders' equity 183,506 176,993 239,613
------- ------- -------
Total liabilities and shareholders' equity 221,417 227,342 307,775
======= ======= =======
See Note 2 of "Notes to the Consolidated Financial Statements".
The accompanying notes are an integral part of these Consolidated
Financial Statements
F-3
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands except share and per share data)
Year ended December 31,
---------------------------------------------------------------
2002 2003 2004 2004
EURO EURO EURO USD 1)
---------- ---------- ---------- ----------
Net sales 83,228 85,500 126,341 171,040
Cost of sales 55,849 63,345 88,352 119,611
---------- ---------- ---------- ----------
Gross profit 27,379 22,155 37,989 51,429
Selling, general and administrative expenses 26,235 25,436 27,145 36,749
Research and development expenses 12,470 13,564 12,500 16,923
Restructuring charges 786 - 5,616 7,603
Impairment of intangibles 3,302 287 - -
Amortization of intangible assets 2,591 2,522 2,465 3,337
---------- ---------- ---------- ----------
Total operating expenses 45,384 41,809 47,726 64,612
Operating loss (18,005) (19,654) (9,737) (13,183)
Interest income, net 3,395 2,815 1,811 2,452
---------- ---------- ---------- ----------
Loss before taxes and minority interest (14,610) (16,839) (7,926) (10,731)
Income taxes (benefit) 2,404 (3,292) (2,435) (3,297)
---------- ---------- ---------- ----------
Loss before minority interest (17,014) (13,547) (5,491) (7,434)
Minority interest 3 50 64 87
---------- ---------- ---------- ----------
Net loss (17,011) (13,497) (5,427) (7,347)
========== ========== ========== ==========
Loss per share
Basic (0.54) (0.44) (0.18) (0.24)
Diluted (0.54) (0.44) (0.18) (0.24)
Weighted average number of shares used to compute
loss per share
Basic 31,462,482 30,813,681 30,794,660 30,794,660
Diluted 31,462,482 30,813,681 30,794,660 30,794,660
1) See Note 2 of "Notes to the Consolidated Financial Statements".
The accompanying notes are an integral part of these Consolidated
Financial Statements
F-4
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
Year ended December 31,
------------------------------------------------
2002 2003 2004 2004
EURO EURO EURO USD 1)
------- ------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss (17,011) (13,497) (5,427) (7,347)
Adjustments to reconcile net loss
to net cash provided by (used in) operating
activities:
Depreciation of property, plant and
equipment 4,135 3,947 4,444 6,017
Amortization of intangible assets 2,591 2,522 2,465 3,337
Impairment of intangibles 3,302 287 - -
Deferred income taxes (benefits) 2,403 (610) (810) (1,096)
Loss (gain) on disposal of equipment 13 (32) (105) (142)
Gain on liquidation of subsidiaries - - (127) (172)
Translation of debt in foreign currency 2,109 2,409 1,189 1,610
Minority interest (3) (50) (64) (87)
Effects of changes in assets and liabilities:
Decrease (increase) in accounts receivable 3,575 9,961 (2,556) (3,460)
Decrease (increase) in inventories (2,405) 4,764 (6,762) (9,154)
Decrease in other current assets (2,857) (1,908) (4,960) (6,715)
Increase (decrease) in accrued liabilities (7,393) 124 4,010 5,428
Increase (decrease) in accounts payable 7,317 (2,621) 4,106 5,558
------- ------- ------ ------
Net cash provided by (used in) operating activities (4,224) 5,296 (4,597) (6,223)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (4,903) (11,889) (3,427) (4,639)
Proceeds from sale of property, plant and equipment 6,789 93 139 188
Acquisition of subsidiaries, net of cash
acquired (10,605) - - -
------- ------- ------ ------
Net cash used in investing activities (8,719) (11,796) (3,288) (4,451)
======= ======= ====== ======
1) See Note 2 of "Notes to the Consolidated Financial Statements".
F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
Year ended December 31,
---------------------------------------------------
2002 2003 2004 2004
EURO EURO EURO USD (1)
-------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt and capital leases (1,646) (1,233) (8,384) (11,350)
Proceeds from long-term debt and capital leases - 1,185 13,801 18,684
Net proceeds from (payments of) advances
from customers 1,015 (2,644) 556 752
Payments of bank lines of credit (1,324) - - -
Purchase of own shares (4,885) (346) - -
Proceeds from minority shareholder 48 221 - -
-------- -------- -------- --------
Net cash provided by (used) in financing activities (6,792) (2,817) 5,973 8,086
Net decrease in cash and cash equivalents (19,735) (9,317) (1,912) (2,588)
Effect of changes in exchange rates on cash
and cash equivalents (1,905) (1,652) (412) (558)
Cash and cash equivalents at beginning of the year 141,506 119,866 108,897 147,425
-------- -------- -------- --------
Cash and cash equivalents at end of the year 119,866 108,897 106,573 144,279
======== ======== ======== ========
Supplemental disclosure:
Cash paid for interest 710 655 825 1,117
Cash paid for income taxes 653 117 1,378 1,866
======== ======== ======== ========
(1) See Note 2 of "Notes to the Consolidated Financial Statements".
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-6
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Amounts in thousands except share data)
Accumulated
Number of Share Capital other Total
ordinary capital in excess Retained comprehensive share-
shares at par of par earnings income holders'
outstanding value value (deficit) (loss) equity
EURO EURO EURO EURO EURO
----------- ------- --------- --------- ------------- --------
Balance at December 31, 2001 31,794,675 28,933 181,799 15,267 2,303 228,302
Net loss - - - (17,011) - (17,011)
Exchange rate changes for the year - - - - (5,918) (5,918)
Repurchases of own shares (896,447) (816) (4,069) - - (4,885)
---------- ------ ------- ------- ------ -------
Balance at December 31, 2002 30,898,228 28,117 177,730 (1,744) (3,615) 200,488
Net loss - - - (13,497) - (13,497)
Exchange rate changes for the year - - - - (3,139) (3,139)
Repurchases of own shares (103,568) (94) (252) - - (346)
---------- ------ ------- ------- ------ -------
Balance at December 31, 2003 30,794,660 28,023 177,478 (15,241) (6,754) 183,506
Net loss - - - (5,427) - (5,427)
Exchange rate changes for the year - - - - (959) (959)
Reclassification - adjustment for
exchange rate changes on
liquidation of group companies
realized in net loss - - - - (127) (127)
---------- ------ ------- ------- ------ -------
Balance at December 31, 2004 30,794,660 28,023 177,478 (20,668) (7,840) 176,993
========== ====== ======= ======= ====== =======
The accompanying notes are an integral part of these Consolidated
Financial Statements.
F-7
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Amounts in thousands)
Year ended December 31,
----------------------------------------------
2002 2003 2004 2004
EURO EURO EURO USD (1)
------- ------- ------ ------
Net loss (17,011) (13,497) (5,427) (7,347)
Other comprehensive loss:
Foreign currency translation adjustment (5,918) (3,139) (959) (1,298)
Adjustment for exchange rate changes on
liquidation of group companies realized in net
loss - - (127) (172)
------- ------- ------ ------
Comprehensive loss (22,929) (16,636) (6,513) (8,817)
======= ======= ====== ======
Accumulated other comprehensive loss consists of:
Year ended December 31,
---------------------------------------------
2002 2003 2004 2004
EURO EURO EURO USD(1)
------ ------ ------ -------
Foreign currency translation adjustment (3,615) (6,754) (7,840) (10,614)
------ ------ ------ -------
Accumulated other comprehensive loss (3,615) (6,754) (7,840) (10,614)
====== ====== ====== =======
(1) See Note 2 of "Notes to the Consolidated Financial Statements".
The accompanying notes are an integral part of these Consolidated
Financial Statements.
F-8
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1 BASIS OF PRESENTATION
BE Semiconductor Industries N.V. ("Besi") was incorporated in the Netherlands in
May 1995 as a wholly owned subsidiary of AdCapital AG, former Berliner Elektro
Holding AG (together with its consolidated subsidiaries, "Berliner Elektro") to
serve as the holding company for a worldwide business engaged in the
development, production, marketing and sales of back-end equipment for the
semiconductor industry. Besi's principal operations are in the Netherlands, Asia
and the United States. Besi operates its business through its subsidiaries Fico
B.V. ("Fico"), Meco International B.V. ("Meco") and their respective
subsidiaries and Besi Die Handling Inc. ("Besi Die Handling").
On January 4, 2002, Besi acquired Laurier for a cash consideration of US$ 8.9
million. Acquisition cost amounted to US$ 0.5 million. This acquisition was
accounted for using the purchase method of accounting. In connection with this
transaction, an allocation of the purchase price was made resulting in certain
purchase accounting adjustments.
The purchase price, including acquisition costs, was allocated as follows:
(In thousands) USD
------------------- -----
Net tangible assets 1,161
Patents 1,508
Goodwill 6,695
-----
9,364
=====
The patents are amortized over their estimated useful life of 13 years. The
goodwill resulting from the transaction will not be amortized, but will instead
be evaluated for impairment in accordance with SFAS No. 142. The pro forma
impact of this acquisition on prior year financial information is not
significant.
2 SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
PRESENTATION
The accompanying Consolidated Financial Statements include the accounts of BE
Semiconductor Industries N.V. and its consolidated subsidiaries (collectively,
"the Company"). The Company follows accounting principles generally accepted in
the United States of America ("U.S. GAAP").
The Consolidated Financial Statements presented in this Annual Report are
prepared in conformity with U.S. GAAP. In accordance with accounting principles
generally accepted in the Netherlands, goodwill continued to be amortized.
Results in accordance with accounting principles in the Netherlands therefore
differ from the results presented in this Annual Report.
The accompanying Consolidated Financial Statements are, solely for the
convenience of the reader, also translated into U.S. dollars ("USD" or "U.S. $")
using the noon buying rate in New York City for cable transfers in foreign
currencies as certified for customs purposes by the Federal Reserve Bank of New
York in effect on December 31, 2004 ((euro) 1.00 = U.S.$ 1.3538). Such
translations should not be construed as representations that the euro amounts
could be converted into U.S. dollar amounts at that or any other date. All euro
and U.S. dollar amounts are expressed in thousands, unless otherwise stated.
F-9
PRINCIPLES OF CONSOLIDATION
As of December 31, 2004, the following subsidiaries are included in the
accompanying Consolidated Financial Statements:
LOCATION AND
NAME COUNTRY OF INCORPORATION PERCENTAGE OF OWNERSHIP
---- ------------------------ -----------------------
BE Semiconductor Industries USA, Inc. Londonderry, New Hampshire, USA 100%
Fico B.V. Duiven, the Netherlands 100%
Fico Molding Systems B.V. Duiven, the Netherlands 100%
Fico Trim & Form Integration Systems B.V. Duiven, the Netherlands 100%
Fico Tooling B.V. Duiven, the Netherlands 100%
Fico Tooling Leshan Company Ltd. Leshan, China 87%(2)
Fico Asia SDN. BHD. Shah Alam, Malaysia 100%(3)
Fico America Inc. Chandler, Arizona, USA 100%(1)
ASM Fico (F.E.) SDN. BHD. Shah Alam, Malaysia 99.9%(4)
Besi Korea Ltd. Seoul, Korea 100%
Fico Hong Kong Ltd. Hong Kong, China 100%
Fico Sales & Service Pte. Ltd. Singapore 100%
Meco International B.V. Drunen, the Netherlands 100%
Besi Plating B.V. Drunen, the Netherlands 100%
Besi Japan Co. Ltd. Tokyo, Japan 100%
Besi Singulation B.V. Drunen, the Netherlands 100%
Besi Taiwan Ltd. Taipei, Taiwan 100%
PASR Neunte Beteiligungsverwaltung GmbH Vienna, Austria 100%
PASR Zehnte Beteiligungsverwaltung GmbH Vienna, Austria 100%
Meco Equipment Engineers Inc. Rock Hill, South Carolina, USA 100%(1)
Meco Equipment Engineers (Far East) Pte Ltd. Singapore 100%
Besi Die Handling Inc. Londonderry, New Hampshire, USA 100%
(1) Merged effective January 1, 2005 and name changed in Besi USA Inc.
(2) Upon a resolution of Fico Tooling Leshan's Board of Management, Leshan Radio
Company Ltd., the other 13%-shareholder in Fico Tooling Leshan Company Ltd.
(LRC), shall make agreed upon capital contributions after which LRC shall
hold 30% and Besi 70% of Fico Tooling Leshan Company's equity.
(3) In order to comply with local corporate law, a minority shareholding (less
than 0.1%) is held by the respective management of these respective
companies.
(4) In order to comply with local corporate law, a minority shareholding is held
by the management of these respective companies.
The balance sheets of the foreign subsidiaries are translated at the year-end
exchange rate and the income statements of the foreign subsidiaries are
translated at the average rate of exchange prevailing during the period.
Translation differences arising from the consolidation of the financial
statements of foreign subsidiaries are recorded directly to accumulated other
comprehensive loss.
All significant intercompany profit, transactions and balances have been
eliminated in consolidation.
DERIVATIVE FINANCIAL INSTRUMENTS
In accordance with SFAS No. 133 "Accounting for Derivative Instruments and
Hedging Activities" and SFAS No. 138, "Accounting for Derivative Instruments and
Hedging Activities, an Amendment of SFAS 133", which the Company adopted on
January 1, 2001, all derivative financial instruments are carried in the
Consolidated Balance Sheets at fair value.
Using qualifying criteria defined in SFAS No. 133 and 138, derivative
instruments are designated and accounted for as either a hedge of exposure to
the change in fair value of a recognized asset or liability or unrecognized firm
commitment (fair value hedge), or a hedge of the exposure to variability in the
cash flows of a recognized asset or liability, or forecasted transaction (cash
flow hedge). For a fair value hedge, the gain or loss (both the effective and
ineffective portions) relating to the change in fair value of the derivative
instrument is recognized in earnings in the period of change, together with the
gain or loss on the hedged item attributable to the hedged risk. For a cash flow
hedge, gains and losses relating to changes in the fair value of the derivative
instrument that are highly effective are initially recorded in accumulated other
comprehensive income or
F-10
loss and subsequently reclassified into earnings when the underlying hedged item
affects earnings. The ineffective portion of cash flow hedges is recognized in
earnings immediately. During 2004, the derivative instruments used by the
Company all qualify as fair value hedges. The Company does not use derivative
financial instruments for trading or speculative purposes.
The Company uses forward foreign currency exchange contracts to hedge certain
firm commitments denominated in foreign currencies. The terms of the currency
instruments used are consistent with the timing of the firmly committed
transactions being hedged. The purpose of the Company's foreign currency
management activity is to protect the Company from changes in fair value of
foreign currency denominated transactions that may be adversely affected by
changes in exchange rates.
FOREIGN CURRENCY
Foreign currency transactions are recorded at the exchange rate of the date of
origin or at a forward contract rate if hedged through a related forward foreign
currency exchange contract. Assets and liabilities denominated in foreign
currencies are translated at year-end exchange rates. Realized exchange rate
differences are recorded in the Consolidated Statements of Operations in
selling, general and administrative expenses.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of highly liquid investments with an original
maturity date at the date of acquisition of three months or less.
ACCOUNTS RECEIVABLE
Accounts receivable are recorded at the invoiced amount and do not bear
interest. The allowance for doubtful accounts is the Company's best estimate of
the amount of probable credit losses in its existing accounts receivable. The
Company determines the allowance based on historical write-off experience by
industry and national economic data. The Company reviews its allowance for
doubtful accounts monthly. Balances which are over 90 days past due and exceed a
specific amount are reviewed individually for collectibility. Account balances
are charged off against the allowance after all means of collection have been
exhausted and the potential for recovery is considered remote. The Company does
not have any off-balance sheet credit exposure related to its customers.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market value. Cost includes net prices paid for materials purchased, charges for
freight and custom duties, production labor costs and factory overhead.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost less accumulated depreciation.
Depreciation is calculated using the straight-line method, based on the
following estimated useful lives:
CATEGORY ESTIMATED USEFUL LIFE
-------- ---------------------
Buildings 15 - 30 years
Leasehold improvements (1) 5 - 10 years
Machinery and equipment 2 - 10 years
Office furniture and equipment 3 - 10 years
(1) Leasehold improvements are amortized over the shorter of the lease term or
economic life of the asset.
LEASES
Assets acquired under capital leases are included in the balance sheet at the
present value of the minimum future lease payments and are depreciated over the
shorter of the lease term or their estimated economic lives. A corresponding
liability is recorded at the inception of the capital lease and the interest
element of capital leases is charged to interest expense.
LONG-LIVED ASSETS
Long-lived assets, such as property, plant and equipment, and purchased
intangibles subject to amortization, are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used is measured by
a comparison of the carrying amount of an asset to estimated undiscounted future
cash flows, an impairment charge is recognized by the amount by which the
carrying value of the asset exceeds the fair value of the asset. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less
costs to sell, and depreciation ceases.
F-11
GOODWILL AND INTANGIBLE ASSETS
Goodwill represents the excess of the costs of purchased businesses over the
fair value of their net assets at date of acquisition and, through December 31,
2001, was being amortized by the straight-line method. As of January 1, 2002,
goodwill is no longer amortized, but is required to be evaluated for impairment
at least annually in accordance with SFAS No. 142. The amortization of patents
and other identifiable intangible assets is based on the weighted average
remaining lives of 13 years for Meco, RDA and Laurier and 16 years for Fico as
determined by an independent valuation at the date of acquisition.
The Company has three operating segments which aggregate as one reportable
segment. Goodwill and intangible assets not subject to amortization are tested
annually for impairment. An impairment loss is recognized to the extent that the
carrying amount exceeds the asset's fair value.
The Company does not have any identifiable assets with indefinite lives.
INCOME TAXES
The Company applies SFAS No. 109 "Accounting for Income Taxes", which requires
the asset and liability method of accounting for taxes. Under the asset and
liability method, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carry forwards. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years which these temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date. Deferred tax assets are reduced by a valuation
allowance if management assesses that realization is less than probable.
REVENUE RECOGNITION
Shipment of products occurs after a customer accepts the product at the
Company's premises. Advance payments received from customers are recorded as a
liability until the products have been shipped. The Company recognizes revenues
from sales of products upon shipment. The risk of loss and rewards of ownership
with respect to products transfer to customers at that time. The sale of the
product to the customer is thereby considered complete and no significant
obligations remain after the sale is completed. Installation services are
treated as separate deliverables in accordance with EITF 00-21. A customer's
sole recourse against the Company is to enforce its obligations relating to
installation and warranty. Operating expenses and other income and expense items
are recognized in the Consolidated Statements of Operations as incurred or
earned.
WARRANTY EXPENSE
The Company records a liability for estimated warranty expense when
corresponding sales revenue is recognized. The amount recorded is based on a
history of actual costs incurred and on estimated probable costs related to such
current sales.
RESEARCH AND DEVELOPMENT
Research and development costs are charged to expenses when incurred. Subsidies
and other governmental credits to cover research and development costs relating
to approved projects are recorded as research and development credits in the
period when the research and development cost to which such subsidy or credit
relates, occurs. Technical development credits ("Technische
Ontwikkelingskredieten" or "TOKs") received from the Netherlands government to
offset the costs of certain research and development projects are contingently
repayable to the extent sales of equipment developed in such projects occur.
Such repayments are calculated as a percentage of sales revenue and are charged
to research and development expenses. No repayment is required if such sales do
not occur (see Note 18).
PENSION COSTS
A majority of the employees in the Netherlands participate in a multi-employer
union plan which consists of defined benefit determined in accordance with the
respective collective bargaining agreements. All other pension plans are funded
with insurance companies based on a defined contribution plan. The Company has
no other liability regarding pensions other than payment of annual premiums,
which are charged against earnings.
STOCK OPTIONS
The Company accounts for stock based employee compensation plans under the
recognition and measurement principles of Accounting Principles Board Opinion
("APB") No. 25 "Accounting for Stock Issued to Employees", and related
interpretations in accounting for its plans. SFAS No. 123 "Accounting for
Stock-Based Compensation" allows companies to elect to either account for stock
options using fair value based method, or continue to account for stock option
plans under APB No. 25, and disclose pro forma disclosure of net loss and loss
per share as if SFAS No. 123 were applied. Under APB No. 25, no stock-based
employee compensation cost is reflected in net loss for the fixed stock options,
as all options granted
F-12
under the stock option plans had an exercise price equal to the market value of
the underlying ordinary shares on the date of grant. The Company has elected to
continue to account for its stock options under the provisions of APB No. 25 and
disclose the pro forma effect of SFAS No. 123.
The Company uses variable accounting treatment for options whereby the employees
have a right to receive payment of an amount that corresponds with the profit
achieved with the sale of newly issued Ordinary Shares by the Company after
exercise of the options.
The following table illustrates the effect on net loss and loss per share if the
Company had applied the fair value recognition provisions of SFAS No. 123 to
stock-based employee compensation.
(Amounts in thousands, except per share data) 2002 2003 2004
EURO EURO EURO
------- ------- ------
Net loss as reported (17,011) (13,497) (5,427)
Deduct: Stock-based employee compensation expense
determined under fair value based method for all awards,
net of related tax effects (1,407) (1,036) (356)
Add: Stock-based compensation expense (release) included
in net loss, net of related tax effect - 26 (12)
------- ------- ------
Pro forma net loss (18,418) (14,507) (5,795)
BASIC LOSS PER SHARE:
As reported (0.54) (0.44) (0.18)
Pro forma (0.59) (0.47) (0.19)
DILUTED LOSS PER SHARE:
As reported (0.54) (0.44) (0.18)
Pro forma (0.59) (0.47) (0.19)
======= ======= ======
CONCENTRATION OF CREDIT RISK
A relatively small number of customers account for a significant percentage of
the Company's net sales. The loss of a major customer or a reduction in orders
by such customers, including reductions due to market or competitive conditions,
could have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company's customers consist of semiconductor manufacturers located
throughout the world. The Company performs ongoing credit evaluations of its
customers' financial condition and generally requires no collateral to secure
accounts receivable. The Company maintains an allowance for doubtful accounts
based on an assessment of the collectibility of such accounts.
EARNINGS PER SHARE
Basic earnings per share have been computed using the weighted average number of
ordinary shares outstanding during the period. Diluted earnings per share have
been computed using the weighted average number of ordinary shares and
equivalents (representing the dilutive effect of stock options) outstanding
during the period.
USE OF ESTIMATES
The preparation of the Company's Consolidated Financial Statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the balance
sheet dates and the reported amounts of revenue and expense during the reported
periods. Actual results could differ from those estimates.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In December 2004, the Financial Accounting Standards Board, or FASB, issued a
revision of FASB Statement No. 123, Accounting for Stock-Based Compensation ,
SFAS No. 123 (revised 2004), or SFAS 123(R). SFAS 123(R) supersedes Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and
its related implementation guidance. SFAS 123(R) addresses the accounting for
share-based payment transactions in which a company receives employee services
in exchange for either equity instruments of the Company or liabilities that are
based on the fair value of the Company's equity instruments that may be settled
by the issuance of such equity instruments.
F-13
SFAS 123(R) eliminates the ability to account for share-based compensation
transactions using the intrinsic method that the Company currently uses and
generally requires that such transactions be accounted for using a
"fair-value"-based method and recognized as expense in the Company's
consolidated statements of operations. SFAS 123(R) will become effective as from
the third quarter in 2005. The effects of the change are still being determined
by the Company.
3 ACCOUNTS RECEIVABLE
Accounts receivable, net consist of the following:
December 31,
-----------------
2003 2004
EURO EURO
------ ------
Accounts receivable 19,742 21,632
Allowance for doubtful accounts (1,785) (1,460)
------ ------
Total accounts receivable, net 17,957 20,172
====== ======
A summary of activity in the allowance for doubtful accounts is as follows:
2002 2003 2004
EURO EURO EURO
------ ----- -----
Balance at January 1, 4,502 2,912 1,785
Release for allowance for doubtful accounts, net (1,364) (894) (250)
Addition due to acquisition of subsidiary 52 - -
Accounts receivable written off (173) (127) (60)
Foreign currency translation (105) (106) (15)
------ ----- -----
Balance at December 31, 2,912 1,785 1,460
====== ===== =====
4 INVENTORIES
Inventories, net consist of the following:
December 31,
-----------------
2003 2004
EURO EURO
------ ------
Raw materials 11,475 10,906
Work in progress 13,401 19,921
Finished goods 3,004 3,291
------ ------
Total inventories, net 27,880 34,118
====== ======
A summary of activity in the allowance for obsolescence is as follows:
2002 2003 2004
EURO EURO EURO
------ ----- ------
Balance at January 1, 5,950 5,198 7,432
Provision for loss on obsolete inventory 707 3,362 3,245
Addition due to acquisition of subsidiary 215 - -
Inventory written off (1,437) (857) (1,680)
Foreign currency translation (237) (271) (82)
------ ----- ------
Balance at December 31, 5,198 7,432 8,915
====== ===== ======
F-14
5 OTHER CURRENT ASSETS
Other current assets consist of the following:
December 31,
-----------------
2003 2004
EURO EURO
----- ------
VAT receivables 1,618 2,253
Income taxes 4,732 8,989
Subsidies and development credits receivable 108 163
Interest receivable 1,103 383
Deposits 105 106
Prepaid expenses 1,053 1,726
Deferred tax assets 110 371
Other 610 782
----- ------
Total other current assets 9,439 14,773
===== ======
6 PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, net consist of the following:
Land,
buildings Office
and leasehold Machinery and furniture and Assets under
improvements equipment equipment construction Total
------------- ------------- ------------- ------------ -------
EURO EURO EURO EURO EURO
------------- ------------- ------------- ------------ -------
Balance at January 1, 2004:
Cost 20,363 29,435 17,255 1,120 68,173
Accumulated depreciation (5,536) (18,116) (14,421) - (38,073)
------ ------- ------- ----- -------
Property, plant and equipment, net 14,827 11,319 2,834 1,120 30,100
Changes in book value in 2004:
Investments 280 2,753 990 (596) 3,427
Disposals (1) (106) (12) - (119)
Depreciation (732) (2,314) (1,398) - (4,444)
Reallocation 488 (488) - - -
Foreign currency translation (170) (197) (40) (14) (421)
------ ------- ------- ----- -------
Total changes (135) (352) (460) (610) (1,557)
Balance at December 31, 2004:
Cost 21,026 29,308 15,053 510 65,897
Accumulated depreciation (6,334) (18,341) (12,679) - (37,354)
------ ------- ------- ----- -------
Property, plant and equipment, net 14,692 10,967 2,374 510 28,543
====== ======= ======= ===== =======
On February 6, 2004, the Company sold land and buildings in Duiven, the
Netherlands in a sale and lease back transaction for (euro) 14.5 million in
cash. At the date of the transaction, the net book value of the real estate sold
was approximately equal to the selling price of the real estate. The Company
granted the buyer a (euro) 1.5 million loan which is payable over a maximum
period of 24 months. The loan can be repaid at any time during the term of the
loan. The loan is secured by a second mortgage on the land and buildings which
were the subject of the sale and lease back transaction. The loan bears interest
at the rate of 4.50% per annum. The transaction is accounted for as a financing
until the buyer pays off the loan. Once the buyer repays the loan, this finance
obligation and the related real estate assets will be derecognized.
F-15
Settlement of this obligation will not result in a cash outflow from the
company. The net book value of the real estate involved in this transaction is
approximately (euro) 14.0 million at December 31, 2004.
The Company has obligations under various capital and operating leases,
primarily for land and buildings, manufacturing and office facilities and
equipment. Assets under capital leases included in property, plant and equipment
consist of the following:
December 31,
----------------
2003 2004
EURO EURO
------ ------
Land and buildings 9,453 13,140
Machinery, equipment and office furniture 54 3,384
Accumulated depreciation (1,806) (2,518)
------ ------
Total 7,701 14,006
====== ======
The legal ownership of the majority of the assets under capital leases lies at a
third party.
7 GOODWILL, PATENTS AND TRADEMARKS
In the fourth quarter of the years 2002, 2003 and 2004, the Company tested its
intangibles for impairment at the operating segment levels.
As a result, in the fourth quarter of 2002, the Company recognized a goodwill
impairment loss of (euro) 3,302 in the die handling equipment reporting unit. In
the fourth quarter of 2003, the Company recorded an impairment of patents of die
handling equipment of (euro) 287. No impairment on other intangibles was
required. In the fourth quarter of 2004, no impairment on intangibles was
required.
The Company does not have any identifiable assets with indefinite lives.
Goodwill, patents and trademarks, net consist of the following:
Goodwill Patents Trademarks Total
-------- ------- ---------- -------
EURO EURO EURO EURO
-------- ------- ---------- -------
Balance at January 1, 2004:
Cost 20,144 34,478 591 55,213
Accumulated amortization (7,298) (21,342) (152) (28,792)
------ ------- ---- -------
Goodwill, patents and trademarks 12,846 13,136 439 26,421
Changes in book value in 2004:
Amortization - (2,419) (46) (2,465)
Foreign currency translation (776) (183) (32) (991)
------ ------- ---- -------
(776) (2,602) (78) (3,456)
Balance at December 31, 2004:
Cost 19,074 34,186 541 53,801
Accumulated amortization (7,004) (23,652) (180) (30,836)
------ ------- ---- -------
Goodwill, patents and trademarks 12,070 10,534 361 22,965
====== ======= ==== =======
Aggregate amortization expense for the year ended December 31, 2004 was (euro)
2.5 million.
F-16
Estimated amortization expense for each of the next five years will be as
follows:
EURO
-----
2005 2,500
2006 2,500
2007 2,500
2008 1,600
2009 1,000
8 DEFERRED INCOME TAXES
The items giving rise to the deferred tax assets (liabilities), net were as
follows:
December 31,
-----------------
2003 2004
EURO EURO
------ ------
Deferred tax assets
- Operating loss carry forwards 5,001 5,171
- Intercompany interest 1,905 2,065
- Intangible assets 2,158 1,626
- Inventories 898 556
- Provisions 272 290
- Other items 264 264
------ ------
Total deferred tax assets, gross 10,498 9,972
- Valuation allowance (9,834) (9,403)
------ ------
Total deferred tax assets, net 664 569
Deferred tax liabilities
- Intangible assets (3,882) (2,849)
- Other items (2) (105)
------ ------
Total deferred tax liabilities (3,884) (2,954)
Total deferred tax assets (liabilities) (3,220) (2,385)
====== ======
Deferred tax assets
- Current 110 371
- Non-current 554 198
------ ------
664 569
Deferred tax liabilities
- Current (772) (798)
- Non-current (3,112) (2,156)
------ ------
(3,884) (2,954)
------ ------
Total deferred tax assets (liabilities) (3,220) (2,385)
====== ======
The deferred tax assets for operating loss carry forwards are related to the
U.S. and Dutch operations of the Company. Under applicable U.S. tax law, the
carry forwards related to the U.S. operating losses of (euro) 14.0 million
expire during the periods of 2010 through 2024. The carry forwards related to
the Dutch operating losses amount to approximately (euro) 0.4 million and have
no expiration terms.
F-17
A summary of activity in the valuation allowance on the deferred tax assets is
as follows:
2002 2003 2004
EURO EURO EURO
----- ------ -----
Balance at January 1, 1,677 8,859 9,834
Provision for allowance on deferred tax assets 7,214 2,777 819
Utilization of written-down net operating losses - - (376)
Release due to expiration of net operating losses
carried forward - (98) -
Foreign currency translation (32) (1,704) (874)
----- ------ -----
Balance at December 31, 8,859 9,834 9,403
===== ===== =====
The change in the total valuation allowance for the year ended December 31, 2002
and 2003 was an increase of (euro) 7,182 and (euro) 975, respectively,
principally due to uncertainty regarding the realization of the deferred tax
assets of the U.S. and Japanese subsidiaries through future taxable income. The
change in the total valuation allowance for the year ended December 31, 2004 was
a decrease of (euro) 431 principally due to foreign currency translation
differences.
In assessing the realizability of deferred tax assets, management considers
whether it is probable that some portion or all of the deferred tax assets will
be realized. The ultimate realization of deferred tax assets is dependent upon
the generation of future taxable income during the periods in which those
temporary differences become deductible. Management considers the scheduled
reversal of deferred tax liabilities, projected future taxable income, and tax
planning strategies in making this assessment. In the fourth quarter of fiscal
year 2002, as part of the income tax provision for the period, the Company
recorded a charge of (euro) 6.0 million to establish a valuation allowance
against its deferred tax asset consisting primarily of U.S. net operating loss
carry forwards and temporary differences. The Company determined that the
valuation allowance was required based on recent U.S. tax losses, which were
given substantially more weight than forecasts of future profitability in its
evaluation of whether it is probable that the U.S. net operating loss carry
forwards will be realized. Until the Company utilizes these U.S. operating loss
carry forwards, its income tax provision will reflect mainly domestic taxation.
The U.S. tax assets arising in 2003 and 2004 have been written down to nil. All
written-down tax assets of the Company's Japanese subsidiary have been utilized
in 2004.
The Company determined that no valuation allowance was required for the net
operating losses of the Dutch fiscal group amounting to approximately (euro) 0.4
million based on probable tax treatment.
The deferred tax liabilities for intangible assets relate to temporary
differences of intangible assets of Fico, Meco and Besi Die Handling.
In the fourth quarter of 2004, a corporate income tax rate reduction has been
enacted in the Netherlands. Consequently, the Company re-assessed the valuation
of its tax assets and liabilities, accordingly, resulting in a tax benefit in
the fourth quarter of 2004 of (euro) 223.
9 SHORT-TERM DEBT
At December 31, 2004, Fico had credit facilities of (euro) 7,487 with ING Bank
N.V. to meet working capital needs. At December 31, 2003 and 2004, no borrowings
were outstanding under the revolving credit facilities. However, the amount that
was available to be drawn under the line was reduced by (euro) 74 for both years
ending at December 31, 2003 and 2004, in outstanding bank guarantees. The credit
facility agreement includes covenants requiring Fico to maintain certain
financial ratios.
At December 31, 2004, Meco had credit facilities of (euro) 6,000 with SNS Bank
Nederland N.V. to meet working capital needs. At December 31, 2003 and 2004, no
borrowings were outstanding under the revolving credit facilities. However, the
amount that was available to be drawn under the line was reduced by (euro) 0 and
(euro) 496 as of December 31, 2003 and 2004, respectively, in outstanding bank
guarantees, and (euro) 483 and (euro) 432 as of December 31, 2003 and 2004,
respectively, for foreign exchange contracts and check payments facilities. The
credit facility agreement includes covenants requiring the Company's Meco
subsidiary to maintain certain financial ratios.
The Company was in compliance with, or had received waivers for, all loan
covenants at December 31, 2003 and 2004.
F-18
10 ACCRUED LIABILITIES
Accrued liabilities consist of the following:
December 31,
----------------
2003 2004
EURO EURO
------ ------
Advances from customers 1,563 1,991
Warranty provision 1,753 2,578
Income taxes 61 300
Other taxes and social security 631 724
Salaries and payroll related items 2,894 2,920
Accrued commissions 777 468
Development credits payable 577 310
Restructuring 521 5,820
Provision for purchase obligations 645 494
Deferred tax liabilities 772 798
Other 4,270 2,388
------ ------
Total accrued liabilities 14,464 18,791
====== ======
A summary of activity in the warranty provision is as follows:
2002 2003 2004
EURO EURO EURO
------ ------ ------
Balance at January 1, 3,102 2,446 1,753
Provision for loss on warranty 853 1,287 2,693
Addition due to acquisition of subsidiary 127 - -
Cost for warranty (1,613) (1,947) (1,847)
Foreign currency translation (23) (33) (21)
------ ------ ------
Balance at December 31, 2,446 1,753 2,578
====== ====== ======
11 RESTRUCTURING CHARGES
In the second, third and fourth quarters of 2001, the Company adopted
restructuring plans that included a total reduction of its global workforce
(including temporary workers) by approximately 26%. These actions were
necessitated by the semiconductor industry downturn that resulted in a
significant reduction in new orders received by the Company. These actions were
taken (i) to better align the Company's cost structure with anticipated revenues
and (ii) to improve manufacturing efficiency and productivity. In 2001, the
Company recorded pre-tax restructuring charges of (euro) 8.3 million ((euro) 5.5
million after tax) in connection with this reduction in workforce.
In the third quarter of 2002, the Company relocated its flip chip die attach
operations from New Jersey to New Hampshire in the United States and
consolidated these activities with its die sorting activities to form a single
die handling systems business unit. Furthermore, in the fourth quarter of 2002,
the Company adopted a restructuring plan that reduced the workforce of its die
handling systems business unit by approximately 28%. The Company recorded a
pre-tax restructuring charge of (euro) 0.8 million ((euro) 0.6 million after
tax) in connection with this relocation and reduction in workforce at its die
handling systems' business.
On December 14, 2004, the Company announced a restructuring of its operations
focused principally on a workforce reduction of 81 employees at its Dutch
packaging and tooling manufacturing operations in Duiven and Brunssum, the
Netherlands, or approximately 10% of total fixed headcount worldwide, as part of
a plan to address the current downturn in the semiconductor industry. In
addition, the Company announced that it will phase out approximately 50
temporary workers at the Duiven facility. A component of the restructuring will
be the closing of the Company's tooling facility in Brunssum, the Netherlands in
the first half of 2005. The workforce reductions are expected to occur during
the first quarter of 2005.
F-19
The Company recorded a restructuring charge of (euro) 5.6 million ((euro) 3.7
million after tax) in the fourth quarter ended December 31, 2004 to cover the
estimated costs of this workforce reduction.
Changes in the restructuring reserve were as follows:
2002 2003 2004
EURO EURO EURO
------ ----- -----
Balance at January 1, 5,487 1,281 521
Additions 1,991 - 5,616
Releases (1,201) - -
Impairment on assets (107) - -
Cash payments (4,889) (760) (317)
------ ----- -----
Balance at December 31, 1,281 521 5,820
====== ===== =====
The 2001 provision for the reduction in workforce included severance and other
benefits for approximately 180 employees in the Netherlands and Asia. The
additions to the restructuring reserve in 2002 related to higher than expected
severance cost, later than expected final employment terminations and severance
payments for the reduction in workforce in the United States and relocation
cost. The releases in 2002 mainly relate to social security expenses and
disabled personnel included for which the Company was not obliged to pay. Total
remaining cash outlays for restructuring activities in 2001 are expected to be
(euro) 0.3 million, which relate mainly to pension premiums to be paid for laid
off employees over a period of two to five years.
The 2004 provision for the reduction in workforce included severance and other
benefits for approximately 81 employees, mainly in the Netherlands. Total
remaining cash outlays for restructuring activities in 2004 are expected to be
(euro) 5.5 million and will mainly be paid in the first half of 2005.
12 DEFERRED GAIN ON SALE AND LEASE BACK
On June 28, 2002, the Company sold the land and buildings of one of its
subsidiaries in a sale and lease back transaction for (euro) 6.5 million in
cash. At the date of this transaction, the cost of the land and buildings
totaled (euro) 6.9 million and the net book value of this real estate amounted
to (euro) 5.4 million. The Company's gain on this transaction of (euro) 1.1
million will be amortized and netted against rental expenses over the twelve and
a half-year term of the operating lease. Gross rental expenses total (euro) 0.6
million per annum. The total deferred gain on the sale and lease back as of
December 31, 2003 and 2004 amounts to (euro) 927 and (euro) 842, respectively.
F-20
13 LONG-TERM DEBT AND CAPITAL LEASES
December 31,
---------------
2003 2004
EURO EURO
----- ------
A. Long-term loan from De Nationale Investerings Bank
N.V. ("NIB"), fixed interest rate at 8.85% 635 -
B. Capital lease of property Duiven, the Netherlands,
interest rate Interbancair rate + 0.9% 7,173 -
C. Capital lease of property Duiven, the Netherlands, - 12,457
interest rate at 4.1%
D. Long-term loan from Industrial & Commercial Bank of China, Leshan,
China (Average interest rate at
4.34% at December 31, 2004) 1,061 1,632
Other capital leases at various interest rates 10 25
----- ------
8,879 14,114
Less: current portion (934) (753)
----- ------
Total long-term debt and capital leases 7,945 13,361
===== ======
A. Final installment has been made in 2004.
B. The Company leased a building in Duiven, the Netherlands. The lease
commenced in July 1997 and had a term of 15 years. In February 2004, the
lease has been terminated by the Company and the outstanding loan has been
fully repaid.
C. The Company leases a building in Duiven, the Netherlands. The lease
commenced in February 2004 and has a term of 12.5 years. The lease payment
includes an interest rate component and was (euro) 127 per quarter. The
Company granted the buyer a (euro) 1.5 million loan which is payable over
a maximum period of 24 months. The loan can be repaid at any time during
the term of the loan. The transaction is accounted for as a financing
until the buyer pays off the loan. Once the buyer repays the loan, this
finance obligation and the related real estate assets will be
derecognized. Settlement of this obligation will not result in a cash
outflow for the Company.
D. The long-term loans consist of a loan of (euro) 266 denominated in
Renminbi and three loans totaling (euro) 1,366 denominated in U.S. Dollar
for the financing of the Company's activities in China. The interest rate
at the end of the year was 7.43%, 4.53%, 2.63% and 4.91%, respectively.
Total repayment is due in September 2006 and in April and May 2007. The
loan is secured by a mortgage on the Company's premises in Leshan, China.
F-21
Aggregate required principal payments due on long-term debt and capital leases
are as follows:
Long-term Capital
debt leases
EURO EURO
--------- -------
2005 - 1,248
2006 973 1,266
2007 659 1,284
2008 - 1,303
2009 - 1,321
2010 and thereafter - 9,357
----- ------
Total 1,632 15,779
Less: imputed interest (3,297)
Less: current portion of capitalized lease obligation (753)
------
Non-current portion of capitalized lease obligation 11,729
======
14 EMPLOYEE BENEFITS
PENSION PLANS
The employees of the Dutch subsidiaries of BE Semiconductor Industries N.V.
participate in a multi-employer union plan which consists of defined benefit
determined in accordance with the respective bargaining agreements.
Contributions under this multi-employer union plan were (euro) 2,935 in 2002,
(euro) 3,354 in 2003 and (euro) 3,667 in 2004. Contribution for defined
contribution plans, which provide retirement benefits that cover substantially
all other employees were (euro) 490 in 2002, (euro) 200 in 2003 and (euro) 235
in 2004. The Company has no continuing obligations other than the annual
payments.
The U.S., Malaysian, Korean, Japanese and Chinese subsidiaries have retirement
plans that are integrated with and supplement the governmental benefits provided
in the laws of the United States of America, Malaysia, Korea, Japan and China,
respectively.
EMPLOYEE STOCK OPTION PLANS
Description of Stock Option Plans
In 1995, the Company established the BE Semiconductor Industries Incentive Plan
1995 (the "Incentive Plan 1995"). The Company granted 1,101,236 options to
purchase ordinary shares ("1995 Plan Shares") under the Incentive Plan 1995.
During the years 1995 to 2001, the Company made awards under the Incentive Plan
1995 to executive officers and senior employees of the Company. Options granted
between 1999 and 2001 vest after three years. The Incentive Plan 1995 expired in
2001. Stock options granted under the Incentive Plan 1995 have exercise prices
which were equal to the market price of the ordinary shares on the date of
grant.
In 2001, the Company established the BE Semiconductor Industries Incentive plan
2001 - 2005 (the "Incentive Plan 2001"). The total number of ordinary shares
("2001 Plan Shares") that the Company may issue under the Incentive Plan 2001,
may not exceed 1.5% per year of the total number of ordinary shares outstanding
in the applicable fiscal year, subject to adjustments for share splits, share
dividends, recapitalizations and similar events. 2001 Plan Shares may consist,
in whole or in part, of unauthorized and unissued ordinary shares or treasury
shares. The Company anticipates that it will, on an annual basis, make awards
under the Incentive Plan 2001 to executive officers and senior employees of the
Company. Options granted in 2002, 2003 and 2004 vest after three years. Stock
options granted under the Incentive Plan 2001 will have exercise prices equal to
the market price of the ordinary shares on the date of grant.
Under separate stock option plans, in the years 2000 through 2004, the Company
granted options to all of its employees. Under these plans, the employees have a
right to receive payment of an amount that corresponds with the profit achieved
with the sale of newly issued ordinary shares by the Company after exercise of
the options. The options vest after three years and have exercise prices equal
to the market price of the ordinary shares on the date of grant. These options
receive variable accounting treatment. All other options granted by the Company
receive fixed accounting treatment.
The Company accounts for stock-based compensation using the intrinsic value
method. Accordingly, no compensation has been recorded for the stock options
granted from 2001 through 2004, which received fixed accounting treatment. As of
December 31, 2004 there were outstanding options to purchase an aggregate of
1,005,181 ordinary shares which receive fixed accounting treatment at a weighted
average exercise price of (euro) 9.79 per share. For the stock options granted
F-22
from 2001 through 2004 that receive variable accounting treatment, the Company
will recognize a compensation release of (euro) 12 net of tax, based on the
market value of the ordinary shares for the year ended December 31, 2004. As of
December 31, 2004, 229,079 options that receive variable accounting treatment
were outstanding at a weighted average exercise price of (euro) 7.06 per share.
The Company accounts for stock based employee compensation plans under the
recognition and measurement principles of Accounting Principles Board Opinion
("APB") No. 25 "Accounting for Stock Issued to Employees", and related
interpretations in accounting for its plans. SFAS No. 123 "Accounting for
Stock-Based Compensation" allows companies to elect to either account for stock
options using fair value based method, or continue to account for stock option
plans under APB No. 25, and disclose pro forma disclosure of net income and
earnings per share as if SFAS No. 123 was applied. Under APB No. 25, no
stock-based employee compensation cost is reflected in net income (loss) for the
fixed stock options, as all options granted under the Company's stock option
plans had an exercise price equal to the market value of the underlying ordinary
shares on the date of grant. The Company has elected to continue to account for
its stock options under the provisions of APB No. 25 and discloses the pro forma
effect of SFAS No. 123.
Financing of Stock Option Plans
Option plans that were issued in 1999 and 2000 contained a virtual financing
arrangement pursuant to which the Company financed the fiscal value of the
options granted to employees subject to the Dutch tax-regime. The loans issued
under this arrangement are repayable to the Company on the exercised date of the
respective option, provided that the option was actually exercised. If the
options expire unexercised, the respective loans are forgiven. Besi accrues a
liability for the respective fiscal implication of this arrangement.
Summary of Outstanding Stock Options
Following is a summary of changes in Besi options:
2002 2003 2004
Weighted Weighted Weighted
average average average
exercise Number exercise Number exercise
Number of price of price of price
options EURO options EURO options EURO
--------- -------- -------- --------- ---------- --------
Fixed option plans
Outstanding, beginning
of year 821,896 12.10 929,095 11.56 975,768 10.25
Options granted 223,337 9.32 162,905 3.46 131,363 6.02
Options expired (51,692) 11.28 (53,598) 10.05 - -
Options forfeited (64,446) 10.90 (62,634) 12.14 (101,950) 9.34
------- ----- ------- ----- --------- ----
Outstanding, end of year 929,095 11.56 975,768 10.25 1,005,181 9.79
======= ===== ======= ===== ========= ====
Exercisable, end of year 190,798 11.74 431,366 13.48 597,426 12.12
======= ===== ======= ===== ========= ====
Variable option plans
Outstanding, beginning
of year 67,983 9.55 122,710 9.23 164,105 7.54
Options granted 67,627 8.94 48,466 3.22 69,535 5.95
Options forfeited (12,900) 9.44 (7,071) 7.26 (4,561) 7.19
------- ----- ------- ----- --------- ----
Outstanding, end of year 122,710 9.23 164,105 7.54 229,079 7.06
======= ===== ======= ===== ========= ====
Exercisable, end of year - - - - 55,059 9.55
======= ===== ======= ===== ========= ====
F-23
Stock options outstanding and exercisable at December 31, 2004:
options outstanding options exercisable
-------------------------------------------- ----------------------------
Weighted Weighted Weighted
average average average
remaining exercise exercise
Range of Number contractual price Number price in
exercise price of options life (years) in EURO of options EURO
--------------- ---------- ----------- -------- ---------- --------
Fixed option plans
(euro) 3.22 - (euro) 4.35 162,639 4.58 3.46 34,200 4.35
(euro) 5.20 - (euro) 7.70 119,313 5.11 5.97 5,000 7.70
(euro) 8.94 - (euro) 10.31 482,563 2.53 9.48 317,560 9.66
(euro) 14.65 - (euro) 17.90 240,666 1.44 16.55 240,666 16.55
======= ==== ===== ======= =====
Variable option plans
(euro) 3.22 44,860 4.25 3.22 - -
(euro) 5.95 69,330 5.25 5.95 - -
(euro) 8.94 - (euro) 10.31 114,889 2.81 9.23 55,059 9.55
------- ---- ---- ------ ----
The fair value of the option awards to employees was estimated using the
Black-Scholes option-pricing model assuming no dividends, vesting after three
years and the following weighted average assumptions:
2002 2003 2004
---- ---- ----
Expected life (years) 5.7 5.7 5.6
Expected stock price volatility 55.2% 55.0% 52.27%
Risk-free rate 4.9% 3.7% 3.32%
---- ---- -----
The per share weighted average fair value of options granted during 2002, 2003
and 2004 was (euro) 5.30, (euro) 1.85 and (euro) 3.15, respectively.
15 SHARE CAPITAL
As of December 31, 2003 and December 31, 2004, the Company's authorized capital
consisted of 55,000,000 ordinary shares and 55,000,000 preference shares,
nominal value (euro) 0.91 per share. At December 31, 2003 and 2004, 30,794,660
ordinary shares were outstanding. No preference shares were outstanding at
December 31, 2003 and December 31, 2004.
On June 17, 2002, the Company announced that it had adopted a plan to repurchase
up to 1,000,000 of the Company's ordinary shares from time to time. As of March
10, 2003, the Company had repurchased all 1,000,000 ordinary shares authorized
under the repurchase program at an average price of (euro) 5.22 per share.
16 FINANCIAL INSTRUMENTS
FOREIGN EXCHANGE
Due to the international scope of the Company's operations, the Company is
exposed to the risk of adverse movements in foreign currency exchange rates. The
Company is primarily exposed to fluctuations in the value of the euro against
the U.S. dollar and dollar-linked currencies, since approximately 46% of its
sales are denominated in U.S. dollar and dollar-linked currencies.
The Company seeks to protect itself from adverse movements in foreign currency
exchange rates by hedging firmly committed sales contracts, which are
denominated in U.S. dollars or Japanese yen through the use of forward foreign
currency exchange contracts. In addition, the Company also uses forward foreign
currency exchange contracts to hedge accounts receivable that are denominated in
a foreign currency. During 2003 and 2004, the Company did not have any
derivative financial instruments that were held for trading or speculative
purposes or that qualified as cash flow hedges. Forward exchange contracts used
to hedge the foreign currency exposure resulting from assets and liabilities
denominated in currencies other than the functional currency are accounted for
as fair value hedges.
F-24
The Company has exposure to credit risk to the extent that the counterparty to
the transaction fails to perform according to the term of the contract. The
amount of such credit risk, measured as the fair value of all forward foreign
currency exchange contracts that have a positive fair value position, was (euro)
551 and (euro) 823 at December 31, 2003 and 2004, respectively. The Company
believes that the risk of significant loss from credit risk is remote, because
it deals with credit-worthy financial institutions. The Company does not, in the
normal course of business, demand collateral from the counterparties.
The following is a summary of the Company's forward foreign currency exchange
contracts:
December 31,
-----------------
2003 2004
EURO EURO
---- ----
To sell U.S. dollars for euro 8,984 9,910
To sell Japanese yen for euro 1,052 1,210
===== =====
At December 31, 2003 and 2004, unrealized gains on forward foreign currency
exchange contracts that were designated as a hedge of firmly committed
transactions amounted to (euro) 557 and (euro) 815, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The book value of the Company's financial instruments, which consist of cash and
cash equivalents, accounts receivable, accounts payable and long-term debt,
approximate their fair value due to the short maturity of those instruments and
to the fact that interest rates are floating or approximate the rates currently
available to the Company.
The fair value of the Company's forward foreign currency exchange contracts,
which are estimated using pricing models based on the discounted cash flow
method, had a positive value of (euro) 526 at December 31, 2003 and a positive
value of (euro) 823 at December 31, 2004, respectively.
Foreign currency results amounted to a loss of (euro) 294, (euro) 348 and to a
gain of (euro) 256 for the years ended December 31, 2002, 2003 and 2004,
respectively, and are reported as part of selling, general and administrative
expenses. For the year ended December 31, 2004, an amount of (euro) 617 of
foreign currency gain is included in cost of sales relating to ineffectiveness
of the Company's foreign currency contracts.
17 COMMITMENTS AND CONTINGENCIES
The Company leases certain facilities and equipment under operating leases. As
of December 31, 2004, the required minimum lease commitments were as follows:
EURO
----
2005 1,188
2006 1,044
2007 908
2008 789
2009 703
2010 and thereafter 3,532
-----
Total 8,164
=====
Committed rental expense was (euro) 9.1 million, (euro) 7.7 million and (euro)
7.1 million as of December 31, 2002, 2003 and 2004, respectively. In addition,
the Company has an unconditional obligation related to the purchase of equipment
and materials totaling (euro) 10.5 million as of December 31, 2004.
Lease and rental expenses amounted to (euro) 1.8 million, (euro) 1.6 million and
(euro) 1.3 million for the years ended December 31, 2002, 2003 and 2004,
respectively
F-25
18 RESEARCH AND DEVELOPMENT CREDITS
The Company receives subsidies and credits for research and development from
various governmental sources.
In 1994, the Company entered into research and development credit agreements
with the Government of the Netherlands, Ministry of Economic Affairs, to fund
research and development projects for a new generation of molding systems. If
the Company generates sales of the products that were created using the amounts
received under the grant, the Company is required to repay such amounts. The
amount of repayment as a percentage of the realized sales of the related
products was 6.0% in 1999 and 8.5% in 2000 and thereafter. Actual and contingent
amounts repayable accrue interest. The interest rate was 6.15% between 1994 and
2004. The remaining amount (including interest) contingently repayable was
(euro) 4,704 and (euro) 4,880 at December 31, 2003 and 2004, respectively. The
amounts reflected in accrued liabilities at December 31, 2003 and 2004, with
respect to sales of molding systems, were (euro) 105 and (euro) 117
respectively.
In 1996, the Company entered into research and development credit agreements
with the Government of the Netherlands, Ministry of Economic Affairs, to fund
research and development projects for a new generation of trim and form systems.
If the Company generates sales of the products that were created using the
amounts received under the grant, the Company is required to repay such amounts.
The amount of repayment as a percentage of the realized sales of the related
products was 6.0% in 1999 and 8.5% in 2000 and thereafter. Furthermore, 40% of
sales of the prototype and related assets, to which the aid was related, are
contingently repayable. Actual and contingent amounts repayable accrue interest.
The interest rate was 6.3% between 1997 and 2004. The remaining amount
(including interest) contingently repayable was (euro) 908 and (euro) 787 at
December 31, 2003 and 2004, respectively. The amounts reflected in accrued
liabilities at December 31, 2003 and 2004, with respect to sales of trim and
form systems were (euro) 472 and (euro) 193, respectively.
The amounts of research and development subsidies and credits offset against
research and development expenses amounted to (euro) 409 in 2002, (euro) 315 in
2003 and (euro) 414 in 2004.
19 SEGMENT, GEOGRAPHIC AND CUSTOMERS' INFORMATION
In the first quarter of 2004, the Board of Management, in consultation with the
Supervisory Board, re-evaluated the Company's functional and operational
organization and determined that the Company was engaged in one line of
business, the design, manufacture, marketing and servicing of assembly equipment
for the semiconductor industry. The change in reporting segments, as compared to
the Company's Annual Report on Form 20-F for the year ended December 31, 2003,
was due to an internal change in reporting structure and decision making
responsibilities, whereby all key policies and decisions with respect to the
Company's global product lines and manufacturing operations will reside now with
the Company's Board of Management (under the supervision of the Company's Chief
Executive Officer) which is the Company's key decision-making authority.
In accordance with SFAS No. 131 (SFAS 131), "Disclosures About Segments of an
Enterprise and Related Information," the Company's chief operating
decision-maker has been identified as the President and Chief Executive Officer,
who reviews operating results to make decisions about allocating resources and
assessing performance for the entire company. All material operating units
qualify for aggregation under SFAS 131 due to their identical customer base and
similarities in: economic characteristics; nature of products and services; and
procurement, manufacturing and distribution processes. Since the Company
operates in one segment and in one group of similar products and services, all
financial segment and product line information required by SFAS 131 can be found
in the Consolidated Financial Statements.
F-26
The following table summarizes net sales, net income (loss), long-lived assets
and total assets of the Company's operations in the Netherlands, the United
States of America and Asia Pacific, the significant geographic areas in which
the Company operates. Intra-area sales are based on the sales price to
unaffiliated customers:
The United Asia Intangible
Netherlands States Pacific assets Elimination Total
EURO EURO EURO EURO EURO EURO
------------ -------- -------- ---------- ----------- -------
Year ended December 31, 2002
Net sales 79,620 9,203 8,435 - (14,030) 83,228
Net income (loss) 332 (11,698) (136) (4,922) (587) (17,011)
Long-lived assets 19,846 302 2,955 31,726 - 54,829
Total assets 422,139 41,404 14,048 31,726 (264,319) 244,998
Year ended December 31, 2003
Net sales 78,854 3,617 8,941 - (5,912) 85,500
Net income (loss) (4,544) (7,017) 27 (1,947) (16) (13,497)
Long-lived assets 24,582 446 5,072 26,421 - 56,521
Total assets 350,230 14,308 15,742 26,061 (184,924) 221,417
Year ended December 31, 2004
Net sales 111,709 11,239 12,325 - (8,932) 126,341
Net income (loss) (4,266) (2,211) 2,556 (1,437) (69) (5,427)
Long-lived assets 23,805 211 4,527 22,965 - 51,508
Total assets 335,315 11,151 15,173 22,660 (156,957) 227,342
======= ====== ====== ====== ======== =======
The following table represents the geographical distribution of the Company's
net sales to unaffiliated companies:
Year ended December 31,
---------------------------
2002 2003 2004
EURO EURO EURO
---- ---- ----
Europe and Rest of the World 28,307 26,731 30,127
United States 10,107 3,452 10,663
Malaysia 16,638 21,306 16,827
Korea 3,051 6,929 15,579
Taiwan 7,392 4,368 13,131
Other Asia Pacific 17,733 22,714 40,014
------ ------ -------
Total net sales 83,228 85,500 126,341
====== ====== =======
The following table represents export sales by the Company's Dutch operations to
unaffiliated customers that exceeded 10% of total net sales in each year:
Other Rest of the
Europe Korea Malaysia World Total
EURO EURO EURO EURO EURO
------ ------ -------- ----------- -------
Year ended
December 31, 2002 25,863 - 14,390 27,477 67,730
December 31, 2003 26,191 - 18,576 30,017 74,784
December 31, 2004 24,255 15,104 16,294 51,838 107,491
====== ====== ====== ====== =======
F-27
The Company's net sales are generated primarily by shipments to Asian
manufacturing operations of leading U.S. and European semiconductor
manufacturers and, to a lesser extent, Taiwanese and other Asian manufacturers
and subcontractors. The following table presents sales to specific customers
that exceeded 10% of total net sales in each year.
Year ended December 31,
--------------------------
2002 2003 2004
EURO EURO EURO
---- ---- ----
Customer:
A 19,627 26,664 21,401
B 12,161 - 15,219
====== ====== ======
20 REMUNERATION BOARD OF MANAGEMENT AND SUPERVISORY BOARD
The aggregate cash compensation paid to, or accrued by, the Company for its
management including members of the Board of Management was (euro) 2.0 million
in 2004, excluding one-time payments of (euro) 0.7 million. Amounts accrued to
provide pension, retirement or similar benefits to these individuals, as a
group, were (euro) 0.2 million in 2004.
REMUNERATION OF THE BOARD OF MANAGEMENT
The aggregate cash compensation paid to its members of the Board of Management
was (euro) 715,089 in 2004 (including pension, but excluding one-time payments
of (euro) 739,392). The remuneration of the members of the Board of Management
is determined by the Supervisory Board, all with due observance of the
remuneration policy to be adopted by the General Meeting of Shareholders. The
Supervisory Board is required to present any scheme providing for the
remuneration of the members of the Board of Management in the form of shares or
options, to the General Meeting of Shareholders for adoption.
The total remuneration and related costs of the individual members of the Board
of Management for the year ended December 31, 2002, 2003 and 2004 was as
follows:
(In euros, except as specified otherwise) Year ended December 31,
------------------------
2002 2003 2004
------- ------- -----
R.W. Blickman
Salaries and related costs (5) 311,497 312,637 317,847
Bonus (4) - 35,458 (4)
Pension 54,326 54,326 55,231
Other (6) - - 344,392
J. A. Wunderl (1) (in U.S.$)
Salaries and related costs (5) - - 190,797
Bonus (4) - - (4)
Pension - - -
M.A.H. Wartenbergh (2)
Salaries and related costs (5) - 124,219 169,050
Bonus (4) - 13,755 -
Pension - 14,329 19,499
Severance payment - - 395,000
J.W. Rischke (3)
Salaries and related costs (5) 145,948 - -
Bonus - - -
Pension 32,367 - -
Other (6) - - 40,884
======= ======= =======
Notes:
(1) Member of the Board of Management from March 25, 2004, remuneration
relates to the period from March 25, 2004 onwards.
(2) Member of the Board of Management from March 27, 2003; remuneration
relates to the period from March 27, 2003 until his exit as of January 1,
2005.
F-28
(3) Member of the Board of Management until October 23, 2002; remuneration
relates to the period until October 23, 2002.
(4) Bonus is included in the year to which it relates. As of the date of
filing, the bonus for 2004 had not been determined.
(5) Includes salaries, holiday allowance, medical insurance and premiums
social securities.
(6) This amount was paid as part of an over-all settlement reached with
certain holders of options issued under the Company's Incentive Plan 1995
(as defined under "Stock Option Plans"), following a court interlocutory
judgment in a legal proceeding filed by a former employee that indicated
that the Company should compensate for dilution that arose as a result of
the Company's secondary share offering in 2000.
A portion of the compensation of the Board of Management is performance related.
REMUNERATION OF THE SUPERVISORY BOARD
The aggregate remuneration paid to current members of the Supervisory Board was
(euro) 87,488 in 2004. The remuneration of the Supervisory Board is determined
by the General Meeting of Shareholders.
The total remuneration of the individual members of the Supervisory Board
members for the years ended December 31, 2002, 2003 and 2004 was as follows:
(In euros) Year ended December, 31
------------------------
2002 2003 2004
------ ------ -----
W. D. Maris 15,882 15,882 23,038
E. B. Polak 15,882 15,882 19,206
D. Sinninghe Damste 15,882 15,882 26,038
T. de Waard 15,882 15,882 19,206
====== ====== ======
In 2002, 2003 and 2004, part of the cash compensation, not exceeding 50%, paid
to the Supervisory Board members has been replaced by granting of options to
purchase ordinary shares to three Supervisory Board members. The fair value of
the option awards to the Supervisory Board members was estimated using the
Black-Scholes option-pricing model. Total remuneration to Supervisory Board
members after the grant of said options did not change compared to the
remuneration approved by the General Meeting of Shareholders.
ORDINARY SHARES AND OPTIONS HELD BY MEMBERS OF THE BOARD OF MANAGEMENT
The aggregate number of ordinary shares and the aggregate number of options on
ordinary shares owned by the current members of the Board of Management as of
December 31, 2004 is as follows:
Number of
shares
------
R.W. Blickman 270,485
Exercise Number of
price in options
Year of grant euros outstanding
------------- ----- -----------
R.W. Blickman 1999 4.35 8,500
2000 17.90 20,000
2000 9.80 142,000
2001 9.55 40,000
2002 8.94 36,000
2003 3.22 35,042
2004 5.95 15,000
J. A. Wunderl 2003 5.20 8,000
2004 5.95 5,500
-------
Total 310,042
Loans outstanding relating to the stock options granted to the members of the
Board of Management amounted to (euro) 286,795 as of December 31, 2004. The
principal amount and other loan conditions have not changed since the inception
of the loan agreements in 1999 and 2000.
F-29
OPTIONS AND ORDINARY SHARES HELD BY MEMBERS OF THE SUPERVISORY BOARD
The aggregate number of ordinary shares and the aggregate number of options on
ordinary shares owned by the current members of the Supervisory Board as of
December 31, 2004 was as follows:
Number of
Exercise options
Year of grant price outstanding
------------- ----- -----------
E. B. Polak 2002 8.94 1,322
2003 3.22 3,667
2004 5.95 1,937
D. Sinninghe Damste 2002 8.94 1,322
2003 3.22 3,667
2004 5.95 2,629
T. de Waard 2002 8.94 1,322
2003 3.22 3,667
2004 5.95 1,937
------
Total 21,470
OPTIONS AND ORDINARY SHARES HELD BY FORMER MEMBERS OF THE BOARD OF MANAGEMENT
Details of options held by former members of the Board of Management in the
ordinary shares of the Company as of December 31, 2004 were as follows:
Number of
Exercise options
Year of grant price outstanding
------------- --------- -----------
J.W. Rischke 1999 4.35 8,500
2000 17.90 16,000
2001 9.55 32,000
2002 8.94 23,000
2003 3.22 13,221
------
Total 92,721
Loans outstanding relating to the stock options granted to the former executive
members of the Board of Management amounted to (euro) 78,286 as of December 31,
2004. The principal amount and other loan conditions have not changed since the
inception of the loan agreement in 1999.
21 SELECTED OPERATING EXPENSES AND ADDITIONAL INFORMATION
Personnel expenses for all employees were as follows:
Year ended December 31,
-----------------------------------
2002 2003 2004
EURO EURO EURO
---- ---- ----
Wages and salaries 27,824 26,730 29,311
Social security expenses 3,407 2,692 2,931
Pension and retirement expenses 2,352 2,385 2,561
------ ------ ------
Total personnel expenses 33,583 31,807 34,803
====== ====== ======
The average number of employees during 2002, 2003 and 2004 was 673, 694 and 781
respectively.
F-30
The total number of personnel employed per department was:
December 31,
-------------------------------
2002 2003 2004
---- ---- ----
Sales and Marketing 120 114 128
Manufacturing and Assembly 371 459 484
Research and Development 78 90 103
General and Administrative 73 83 83
--- --- ---
Total number of personnel 642 746 798
=== === ===
As of December 31, 2002, 2003 and 2004 a total of 460, 464 and 477 persons,
respectively, were employed in the Netherlands.
22 INTEREST INCOME
The components of interest income, net were as follows:
Year ended December 31,
-----------------------------
2002 2003 2004
EURO EURO EURO
---- ---- ----
Interest income 4,166 3,423 2,665
Interest expense (771) (608) (854)
----- ----- -----
Interest income, net 3,395 2,815 1,811
===== ===== =====
23 INCOME TAXES
The components of loss before income taxes and minority interest were as
follows:
Year ended December 31,
--------------------------------
2002 2003 2004
EURO EURO EURO
---- ---- ----
Domestic (2,867) (9,088) (8,605)
Foreign (11,743) (7,751) 679
------- ------- ------
Total (14,610) (16,839) (7,926)
======= ======= ======
F-31
The Dutch domestic statutory tax rate is 35% for the year ended December 31,
2002 and 34.5% for the years ended December 31, 2003 and 2004. The
reconciliation between the actual income taxes (benefit) shown in the
Consolidated Statements of Operations and the benefit that would be expected
based on the application of the domestic tax rate to loss before taxes and
minority interest, is as follows:
Year ended December 31,
---------------------------
2002 2003 2004
EURO EURO EURO
---- ---- ----
"Expected" income tax benefit based on
domestic rate (5,040) (5,810) (2,734)
Non deductible expenses 126 142 195
Goodwill impairment 1,255 - -
Foreign tax rate differential (249) (214) 19
Tax exempt income (904) (32) (142)
Changes in deferred tax assets and liabilities
due to adjustment tax rates - - (223)
Increase in valuation allowance, net 7,214 2,777 443
Other 2 (155) 7
----- ------ ------
Income taxes (benefit) shown in Statements of
Operations 2,404 (3,292) (2,435)
===== ====== ======
In the fourth quarter of fiscal year 2002, as part of the income tax provision
for the period, the Company recorded a charge of (euro) 6.0 million through the
establishment of a valuation allowance against its deferred tax asset consisting
primarily of U.S. net operating loss carry forwards and temporary differences.
The Company determined that the valuation allowance was required based on its
recent losses, which are given substantially more weight than forecasts of
future profitability in the evaluation. Until the Company utilizes these U.S.
operating loss carry forwards, its income tax provision will reflect mainly
domestic taxation.
In the fourth quarter of 2004, a corporate income tax rate reduction has been
enacted in the Netherlands. Consequently, the Company re-assessed the valuation
of its tax assets and liabilities, accordingly, resulting in a tax benefit in
the fourth quarter of 2004 of (euro) 223.
The provision for income taxes (benefit) consisted of the following:
Year ended December 31,
-------------------------------
2002 2003 2004
EURO EURO EURO
---- ---- ----
Current:
- domestic (151) (2,416) (2,019)
- foreign 152 (266) 382
Deferred:
- domestic (1,181) (719) (1,046)
- foreign 3,584 109 248
----- ------ ------
2,404 (3,292) (2,435)
===== ====== ======
F-32
24 EARNINGS PER SHARE
The following table reconciles shares outstanding at the beginning of the year
to average shares outstanding used to compute a loss per share:
2002 2003 2004
---------- ---------- ---------
Shares outstanding at beginning of the year 31,794,675 30,898,228 30,794,660
Weighted average shares issued during the year - - -
Weighted average shares converted from
priority shares to ordinary shares - - -
Weighted average repurchased shares (332,193) (84,547) -
---------- ---------- ----------
Average shares outstanding - basic 31,462,482 30,813,681 30,794,660
Dilutive shares contingently issuable upon the
exercise of stock options - - -
Shares assumed to have been repurchased for
treasury with assumed proceeds from the
exercise of stock options - - -
---------- ---------- ----------
Average shares outstanding - assuming dilution 31,462,482 30,813,681 30,794,660
========== ========== ==========
For purposes of computing diluted earnings per share, weighted average ordinary
share equivalents do not include stock options with an exercise price that
exceeds the average fair market value of the Company's ordinary shares for the
period, because the impact on earnings (loss) would be anti-dilutive. For the
years ended December 31, 2002, 2003 and 2004, all options to purchase ordinary
shares were excluded from the calculation of diluted loss per share as the
effect would be anti-dilutive due to the Company's loss for those years.
25 SUPPLEMENTAL CASH FLOW INFORMATION
On January 4, 2002, the Company acquired Laurier. The following is a summary of
the net cash paid for acquisition:
USD
---
Fair value of assets 12,632
Liabilities (3,268)
Acquisition cost (452)
------
Cash paid 8,912
Less: cash acquired (1)
------
Net cash paid for acquisition 8,911
======
26 SUBSEQUENT EVENTS
ACQUISITION OF DATACON
On January 4, 2005, the Company completed the acquisition of Datacon Technology
AG ("Datacon"). In the transaction, Datacon shareholders received total
consideration of (euro) 72.6 million, of which (euro) 65 million was paid in
cash and the balance was represented by the issue of 1,933,842 new ordinary
shares. In connection with the acquisition of Datacon, the Company incurred an
amount of approximately (euro) 3.2 million in acquisition fees and expenses.
Under the terms of the acquisition, two foundations representing the former
Datacon shareholders have agreed to a lock-up arrangement pursuant to which the
new ordinary shares issued to them in the transaction must be held for a period
of two years from the date of the acquisition, subject to certain permitted
exceptions.
The Company expects to complete the determination of the allocation of the
purchase price paid in connection with the acquisition of Datacon in the first
quarter of 2005.
F-33
ISSUANCE OF (EURO) 46 MILLION 5.5% CONVERTIBLE NOTES
In January 2005, the Company issued (euro) 46 million principal amount of
convertible notes (the "Notes") due 2012. The Notes mature seven years from the
date of issue and carry an interest rate of 5.5% per annum, payable
semi-annually, with the first payment on or around July 28, 2005 and an initial
conversion price of (euro) 5.1250. The Notes will be repaid at maturity in 2012
at a price of 100% of their principal amount. If not converted, the Company may
redeem the outstanding Notes at their par value on or after four years from the
date of issue, subject to the share price exceeding 130% of the then effective
conversion price.
Application for listing of the Notes on the official segment of the stock market
of Euronext Amsterdam N.V. coincided with publication of the prospectus on
January 25, 2005. Listing took place on January 28, 2005. The Notes were offered
to institutional investors in the Netherlands and internationally to
professional investors through an international private placement, in reliance
on Regulation S of the U.S. Securities Act of 1933, as amended.
The net proceeds from the issuance of the Notes will be used by the Company for
general corporate purposes, including working capital and capital expenditures.
In addition, the Company may choose to repay all or a portion of the credit
facilities that were assumed upon closing of the acquisition of Datacon. At
December 31, 2004, Datacon had net debt of (euro) 23.3 million. Pending such
uses, the Company intends to invest all or a portion of the net proceeds in
short-term, interest-bearing instruments.
F-34
ADDITIONAL INFORMATION
APPROPRIATION OF THE RESULT
The Articles of Association (Article 21) provide that the Company can only
distribute profits from its free distributable reserves. The Board of Management
proposes to allocate the loss for the year 2004 to the retained deficit. The
Supervisory Board has approved this proposal.
The General Meeting of Shareholders approved 2003 Statutory Financial Statements
at March 25, 2004.
PREFERENCE SHARES
Effective April 5, 2000, the authorized share capital was divided into
55,000,000 ordinary shares, nominal value (euro) 0.91 per ordinary share and
55,000,000 preference shares, nominal value (euro) 0.91 per preference share.
Also effective April 5, 2000, 250 outstanding priority shares were converted
into 250 ordinary shares and the class of priority shares was eliminated.
In April 2000, the foundation "Stichting Continuiteit BE Semiconductor
Industries" was established. The board of the foundation consists of five
members, four of whom shall be independent of BE Semiconductor Industries N.V.
and one of whom shall be a member of its Supervisory Board. The purpose of the
foundation is to safeguard the interests of the Company, the enterprise
connected therewith and all the parties having an interest therein and to
exclude as much as possible influences which could threaten, among other things,
the continuity, independence and identity of the Company contrary to such
interests.
By agreement of April 2002 between the Company and the foundation, the
foundation has been granted a call option pursuant to which it may purchase a
number of preference shares up to a maximum of 55,000,000 shares. Until the call
option is exercised by the foundation, it can be revoked by the Company, with
immediate effect. However, the Company will not be entitled to revoke the call
option within one year after the execution of the option agreement.
DECLARATION OF INDEPENDENCE
The Board of Management of BE Semiconductor Industries N.V. and the Board of
Management of Stichting Continuiteit BE Semiconductor Industries declare that,
in their collective judgement, the criteria referred to in Appendix X of the
Listing and Issuing Rules of Euronext Amsterdam, pertaining to the independence
of the Stichting Continuiteit BE Semiconductor Industries, have been met.
Drunen, February 8, 2005
BE Semiconductor Industries N.V. Stichting Continuiteit BE
Semiconductor Industries
Board of Management Board of Management
The Board of Management of the Stichting Continuiteit BE Semiconductor
Industries comprises:
J. Ekelmans (Chairman) Board Member B
P.C.W. Alberda van Ekenstein Board Member B
J.N. de Blecourt Board Member B
W.D. Maris Board Member A
J.W. Termijtelen Board Member B
F-35