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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 2005
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
SECURITIES EXCHANGE OF 1934:
None
SECURITIES REGISTERED OR TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE
SECURITIES EXCHANGE OF 1934:
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 SECURITIES EXCHANGE ACT OF 1934:
None
The number of outstanding shares of each of the issuer's classes of
capital or common stock as of December 31, 2005: 32,736,502 ordinary shares,
nominal value (euro) 0.91 per share (of which 5,899,376 are traded on the Nasdaq
National Market in the form of New York Shares and 26,837,126 are traded on the
Amsterdam Stock Exchange in the form of ordinary shares).
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act of 1933.
Yes [ ] No [X]
If this report is an annual or transition report, indicate by check mark if the
registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes [ ] No [X]
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 whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [X] Non-accelerated filer [ ]
Indicate by check mark which financial statement item the registrant has
elected to follow.
Item 17 [ ] Item 18 [X]
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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 10
Item 4 A: Unresolved Staff Comments 24
Item 5: Operating and Financial Review and Prospects 25
Item 6: Directors, Senior Management and Employees 37
Item 7: Major Shareholders and Related Party Transactions 50
Item 8: Financial Information 51
Item 9: The Offer and Listing 52
Item 10: Additional Information 53
Item 11: Quantitative and Qualitative Disclosure About Market Risk 66
Item 12: Description of Securities other than Equity Securities 66
PART II
Item 13: Defaults, Dividend Arrearages and Delinquencies 66
Item 14: Material Modifications to the Rights of Security Holders and Use of Proceeds 66
Item 15: Controls and Procedures 66
Item 16: A. Audit Committee Financial Expert 66
B. Code of Ethics 66
C. Principal Accountant Fees and Services 67
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 68
Item 18: Financial Statements 68
Item 19: Exhibits
Signatures
PART I
In this Annual Report on Form 20-F, references to "Besi", the "Company", "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 $ 1.1842 = (euro) 1.00, the noon buying rate (rounded) on
December 31, 2005, for cable transactions in foreign currencies as certified by
the Federal Reserve Bank of New York. The noon buying rate on March 3, 2006 was
$ 1.2028 = (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, projected or otherwise. We do not intend, and do not assume any
obligation, to update these forward-looking statements.
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 FINANCIAL DATA
The selected consolidated financial data set forth below for the years ended
December 31, 2003, 2004 and 2005 and as of December 31, 2004 and 2005 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, 2001 and 2002, and as of December 31, 2001, 2002 and 2003 are
derived from our audited consolidated financial statements, which are not
included in this Form 20-F. On January 4, 2005, we completed the acquisition of
Datacon Technology GmbH (formerly Datacon Technolgy AG), ("Datacon"). In order
to facilitate a meaningful comparison of our fiscal year 2005 results, we have
prepared unaudited comparative financial information for 2004 on a pro forma
basis to incorporate the results of operations of Datacon as if the transaction
had occurred on January 1, 2004.
1
Pro forma 2004 adjustments include (a) results of operations of Datacon prepared
in accordance with U.S. GAAP, (b) the effects of the purchase accounting
adjustments relating to the acquisition of Datacon resulting in the amortization
of intangibles of (euro) 0.7 million in 2004 and (c) the elimination of interest
income of (euro) 1.4 million related to the (euro) 68.4 million cash utilized to
help fund the Datacon acquisition. The number of shares outstanding for the year
ended December 31, 2004 on a pro forma basis includes 1,933,842 of our ordinary
shares issued in the Datacon acquisition.
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 Annual Report on Form 20-F.
Year Ended December 31,
-----------------------------------------------------------------------------------------
Pro Forma
2004
(Amounts in thousands, except share 2001 2002 2003 2004 Unaudited 2005 2005
and per share data) EURO EURO EURO EURO EURO EURO USD(1)
---------- ---------- ---------- ---------- ---------- ---------- ----------
CONSOLIDATED STATEMENTS OF OPERATIONS
Net sales 150,030 83,228 85,500 126,341 194,323 164,262 194,519
Cost of sales 96,253 55,849 63,345 88,352 127,901 106,897 126,587
---------- ---------- ---------- ---------- ---------- ---------- ----------
Gross profit 53,777 27,379 22,155 37,989 66,422 57,365 67,932
Selling, general and administrative
expenses 30,563 26,235 25,436 27,145 43,306 38,697 45,825
Research and development expenses
15,446 12,470 13,564 12,500 18,197 17,918 21,219
Restructuring charges 8,306 786 - 5,616 5,616 2,231 2,642
Impairment of intangibles - 3,302 287 - - - -
Amortization of intangible assets 3,848 2,591 2,522 2,465 3,029 3,728 4,415
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total operating expenses 58,163 45,384 41,809 47,726 70,148 62,574 74,101
Operating loss (4,386) (18,005) (19,654) (9,737) (3,726) (5,209) (6,169)
Interest income (expense), net 4,240 3,395 2,815 1,811 (528) (2,711) (3,210)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Loss before taxes and equity in
loss of affiliated companies and
minority interest (146) (14,610) (16,839) (7,926) (4,254) (7,920) (9,379)
Income taxes (benefit) 518 2,404 (3,292) (2,435) (1,438) (2,779) (3,291)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Loss before equity in loss of
affiliated companies and minority
interest (664) (17,014) (13,547) (5,491) (2,816) (5,141) (6,088)
Equity in loss of affiliated
companies and loss on sale of
affiliated companies (16,314) - - - - -
Minority interest - 3 50 64 64 (40) (47)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net loss (16,978) (17,011) (13,497) (5,427) (2,752) (5,181) (6,135)
========== ========== ========== ========== ========== ========== ==========
Loss per share
Basic (0.53) (0.54) (0.44) (0.18) (0.08) (0.16) (0.19)
Diluted (0.53) (0.54) (0.44) (0.18) (0.08) (0.16) (0.19)
Weighted average number of
shares used to compute loss per
share
Basic 31,794,675 31,462,482 30,813,681 30,794,660 32,709,309 32,710,934 32,710,934
Diluted 31,794,675 31,462,482 30,813,681 30,794,660 32,709,309 32,710,934 32,710,934
========== ========== ========== ========== ========== ========== ==========
2
Year Ended December 31,
-----------------------------------------------------------
2001 2002 2003 2004 2005 2005
(Amounts in thousands) EURO EURO EURO EURO EURO USD(1)
-------- ------- ------- ------- ------- -------
CONSOLIDATED BALANCE SHEET DATA
Cash and cash equivalents 141,506 119,866 108,897 106,573 72,950 86,387
Working capital 177,121 157,612 138,437 141,761 117,193 138,780
Total assets 271,886 244,998 221,417 227,342 301,036 356,487
Long-term debt and capital leases,
including current portion 10,688 9,040 8,879 14,114 77,093 91,293
Total shareholders' equity 228,302 200,488 183,506 176,993 181,411 214,827
CONSOLIDATED STATEMENTS OF CASH FLOW DATA
Capital expenditures 3,393 4,903 11,889 3,427 6,418 7,600
Depreciation of property, plant and
equipment 4,495 4,135 3,947 4,444 5,732 6,788
Net cash provided by (used in)
operating activities 14,942 (4,224) 2,652 (4,041) (562) (666)
Net cash provided by (used in)
investing activities 14,729 (8,719) (11,796) (3,288) (67,690) (80,159)
Net cash provided by (used in)
financing activities (11,392) (6,792) (173) 5,417 33,896 40,140
======== ======= ======= ======= ======= =======
(1) Translated solely for convenience of the reader at the noon buying rate in
effect on December 31, 2005 of (euro) 1.00 = $ 1.1842
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, or New York
Shares.
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, 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
Financial year ended December 31, 2005 $ 1.2400
3
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 August 2005 to February 2006:
HIGH LOW
------ ------
August 2005 1.2434 1.2178
September 2005 1.2538 1.2011
October 2005 1.2148 1.1914
November 2005 1.2067 1.1667
December 2005 1.2041 1.1699
January 2006 1.2287 1.1980
February 2006 1.2100 1.1860
The noon buying rate for the euro on March 3, 2006 was (euro) 1.00 = $ 1.2028.
4
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 Annual Report on Form 20-F 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. DEMAND FOR SEMICONDUCTORS 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
low net sales, and have regularly been associated with substantial reductions 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.
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 continue to 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;
- the success of our research and development projects;
- our ability to integrate acquisitions;
- our ability to adjust production capacity on a timely basis to meet
customer demand; and
- the fluctuation of 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 discrepancies could cause the market
price of our securities to decline.
OUR BACKLOG AT ANY PARTICULAR DATE MAY NOT BE INDICATIVE OF OUR FUTURE OPERATING
RESULTS
Our backlog amounted to (euro) 56.8 million at December 31, 2005. During market
downturns, semiconductor manufacturers historically have cancelled or deferred
additional equipment purchases. The backlog at December 31, 2005 increased by
78.6% compared to backlog as of December 31, 2004. 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 levels
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.
5
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 COULD 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.
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 has accounted for a significant
percentage of our net sales. In 2005, our three largest customers accounted for
approximately 27% of our net sales, with the largest customer accounting for
approximately 10.6% 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 from year to year, 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 other countries in Asia. As a result,
competition in these markets has become increasingly intense. 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.
We believe that a decrease in the value of the Japanese yen or the U.S. dollar
and U.S. 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.
6
COMPLIANCE WITH INTERNAL CONTROLS PROCEDURES AND EVALUATIONS AND ATTESTATION
REQUIREMENTS MAY BE VERY COSTLY AND RESULT IN THE IDENTIFICATION OF SIGNIFICANT
DEFICIENCIES OR MATERIAL WEAKNESSES
Beginning in fiscal year 2006, pursuant to Section 404 of the Sarbanes-Oxley Act
of 2002, we will be required, as a foreign private issuer to perform an
evaluation of our internal controls over financial reporting and have our
independent auditor publicly disclose its conclusions regarding such evaluation.
We are establishing procedures in order to comply with Section 404 in the
timeframe permitted under the regulations of the Securities and Exchange
Commission, although as of the date of this filing we have not yet finalized
these procedures. We expect that establishing procedures and ensuring compliance
with these requirements will be expensive and time-consuming. If we fail to
complete these procedures and the required evaluation in a timely manner, or if
our independent auditor cannot attest to our evaluation in a timely manner, we
could be subject to regulatory review and penalties which may result in a loss
of public confidence in our internal controls. In addition, we may uncover
significant deficiencies or material weaknesses in our internal controls.
Measures taken by us to remedy these issues may require significant effort and
expense, as well as the commitment of significant managerial resources. Each of
these circumstances may have an adverse impact on our business, financial
condition and results of operations or on our share price.
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 for use in their 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 and enhance our existing products, we cannot assure you that we will be
successful in developing new or enhanced products in a timely manner or that any
new or enhanced 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, Austria, Germany, Hungary, 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 and political conditions in each country;
- the overlap of different tax structures;
- 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
A substantial portion of our net sales are derived from customers in various
Pacific Rim countries. Many Pacific Rim countries experienced banking and
currency difficulties that have led to economic recessions at times in the
recent past. Specifically, fluctuations in the value of Korean and Southeast
Asian currencies, together with difficulties in obtaining credit, has resulted
periodically 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 by Japanese customers may be
negatively affected with potential negative implications for the economies of
other Pacific Rim countries.
7
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, 2005, the percentage of our consolidated net
sales denominated in euro was approximately 47% whereas the percentage of our
consolidated net sales represented by U.S. dollars or U.S. dollar-linked
currencies was approximately 53%. Approximately 75% of our costs and expenses
were denominated in euro for such period. As a result, our results of operations
could be adversely 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 in part by hedging firmly committed sales contracts
denominated in U.S. dollars. While management will continue to monitor our
exposure to currency fluctuations and may 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 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 TO 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 which may not be
available on terms which are favorable to us or may not be available at all.
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.
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 resources and
attention from day-to-day activities, increase our expenses and adversely affect
our results of operations. In addition, these types of transactions often result
in charges to earnings for items such as the amortization of intangible assets
or
8
in-process research and development expenses. Any future acquisitions or
investments in companies or technologies could involve other risks, including
the assumption of additional liabilities, dilutive issuances of equity
securities, the utilization of our cash and the incurrence of debt.
WE ARE SUBJECT TO PROVISIONS OF DUTCH LAW, WHICH MAY RESTRICT THE ABILITY OF OUR
SHAREHOLDERS TO PARTICIPATE IN 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 this 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 the Board
of Management the right to issue preference shares. In April 2000, we
established the foundation "Stichting Continuiteit BE Semiconductor Industries",
which we refer to as the Foundation, whose board consists of five members, four
of whom are independent of BE Semiconductor Industries N.V. We have granted the
Foundation a call option pursuant to which the Foundation may purchase up to
55,000,000 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 produce or are 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.
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
fluctuations, including fluctuations that are unrelated to our performance. We
expect that market price fluctuations will continue in the future.
9
ITEM 4: INFORMATION ON THE COMPANY
INTRODUCTION
BE Semiconductor Industries N.V. is a leading manufacturer of semiconductor die
sorting, flip chip and multi-chip die bonding, packaging and plating equipment
for both leadframe and array connect applications. Our advanced equipment and
integrated systems are used principally to produce semiconductor assemblies, or
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.
Our customers are leading U.S., European and Asian semiconductor manufacturers
and packaging subcontractors and include Agere, Amkor, ASE, Epcos, 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 assembly 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 in the form of New York Shares (symbol: BESI). On January
28, 2005, we issued (euro) 46 million principal amount of convertible notes due
2012, which are listed on the stock market of Euronext Amsterdam N.V. 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.
ACQUISITION OF DATACON
On January 4, 2005, we completed the acquisition of Datacon. 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 transaction, Datacon
shareholders received total consideration of (euro) 72.6 million, which
consisted of (euro) 65 million in cash and 1,933,842 of our ordinary shares. In
connection with the acquisition, we incurred approximately (euro) 3.4 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.
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. 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.
The allocation of the purchase price paid in connection with the acquisition of
Datacon was completed in the fourth quarter of 2005. H. Rutterschmidt and G.
Zeindl, members of Datacon's management board, were appointed by our Supervisory
Board as members of our Board of Management at the General Meeting of
Shareholders of March 24, 2005. Mr. Zeindl resigned as a member of our Board of
Management effective September 1, 2005.
In a separate transaction, our Austrian subsidiary acquired the land in Radfeld,
Austria, where Datacon manufacturing facilities are located for (euro) 2.1
million from a partnership of which H. Rutterschmidt and G. Zeindl are two of
the partners.
10
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.
As a result of continuous improvements in semiconductor process and design
technologies, system users and designers have demanded semiconductor
manufacturing devices with increased functionality, higher levels of
performance, greater reliability and shorter design cycle times, all at a lower
cost per function. 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 significantly reduced
costs and increased device yields. However, the simple approach of reducing chip
sizes and increasing functionality in order to meet customer production
requirements has pushed the limits of conventional semiconductor assembly
technology. As a result, semiconductor equipment manufacturers have been
required to develop new assembly and 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. Even as individual chips become more powerful and the total
number of chips in end products is reduced, customers are requiring more
highly customized packages for their product applications as well as
assembly equipment with the flexibility to handle the increased demand for
customized packages.
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 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.
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 (i) bonding extremely fine gold or aluminum wire to a metal leadframe,
this is referred to as "wire bonding", or to a multi-layer substrate or (ii)
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. From there, the assembly process
diverges according to the product application required. Leadframe assembly, the
most traditional approach historically involves the electrical connection of the
chip via a wire bonding process to a metal leadframe, or a leadframe
application. 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. Leadframe assembly technology is most frequently used to
produce semiconductor devices for mass market and legacy consumer electronics
applications. The second type of assembly process, array connect assembly, is
gaining increased acceptance for the assembly market and is used most frequently
in applications that require high degrees of miniaturization and chip density
such as cell phones, personal digital assistants, or PDAs, and wireless Internet
applications. In a typical array connect assembly, (i) the electrical connection
of the chip is made to a multi-layer substrate or through the creation of direct
connections to the multi-layer substrate via a flip chip die bonding process,
(ii) the connections between the
11
substrate and the chip are attached by ball placement and reflow processes and
(iii) the devices are cut, or singulated, into individual units. No metal
leadframes nor consequent metal lead trimming and deflashing are involved in
this process. After leadframe or array connect assembly, functional testing is
carried out in various testing operations either separately or as part of an
integrated system.
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;
Die Bonding -- single or multiple 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 Bonding -- 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 plating -- the leads of the molded chips are plated with tin 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, PDAs 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 leadframes to mount and connect
semiconductors, a multi-layer substrate material is used. Underneath the
substrate, balls of 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.
12
Another 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 become a more significant part of the overall market in the
future. Their adoption will in turn require the introduction of new assembly
processes, including new molding processes to encapsulate array connect chips
and new 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 increasing 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 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 on a global basis.
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. At present, we estimate that
sales to Japanese customers represent less than 5% of our consolidated net
sales. Although we are attempting 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 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.
13
STRATEGY
Our objective is to become the world's leading supplier of advanced
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 semiconductor
packaging. In the array connect market, we have introduced advanced molding
systems, flip chip die bonders 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
offer significant opportunities for those equipment manufacturers who are able
to automate and integrate the assembly 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. Toward this end, we are attempting to develop a
fully automated and integrated array connect assembly solution that will
integrate both test handling and flip chip bonding capabilities with our
existing line of packaging and plating equipment 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 semiconductor assembly requirements as
well as new opportunities to develop assembly 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 we sell 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
services 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
providing an integrated, automated assembly platform, product and process
technology leadership, and geographic expansion. We have made three acquisitions
over the past five years:
- In September 2001, we acquired our RD Automation subsidiary in order to
expand our array connect product portfolio;
- In January 2003, we acquired our Laurier subsidiary in order to
incorporate intelligent die sorting capabilities as part of our
integration strategy; and
- In January 2005, we acquired our Datacon subsidiary in order to extend our
presence in the flip chip and die bonding equipment markets and to
increase our scale and presence in the semiconductor assembly equipment
market.
14
PRODUCT LINES AND SERVICES
We develop and produce semiconductor die sorting, flip chip and multi-chip die
bonding, packaging and plating equipment for both leadframe and array connect
applications.
In 2005, net sales for leadframe and array connect applications represented
approximately 32% and 68%, respectively, of our consolidated net sales. In the
leadframe assembly category, we include molding and trim form systems made by
Fico, in the Netherlands, Malaysia and China and plating equipment made by Meco
in the Netherlands. In the array connect assembly category, we include flip chip
and multi chip die bonding products made by Datacon in Austria and Hungary, die
sorting and flip chip die bonding products made in the United States by Laurier
and singulation and certain molding products made by Fico in the Netherlands.
Our principal product lines are summarized below:
- Die sorting equipment consists of die sorting systems which are used to
inspect, select and sort bare dies, flip chips, wafer level chip scale
packages and opto-electronic devices for further processing in assembly
operations;
- Die bonding equipment consists of single-, multi-chip and flip chip die
bonding systems which place the chip onto a multi-layer substrate;
- 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 in leadframe
applications; and
- singulation systems used to cut packaged array connect devices; and
- Plating equipment consists primarily of a comprehensive line of fully
automated tin plating systems and spot plating systems.
DIE SORTING EQUIPMENT
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. Die sorting systems, also known as "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 ranges in price from (euro) 150,000 to approximately
(euro) 300,000.
As of December 31, 2005, we had sold approximately 600 die sorting systems. Our
die sorting systems are manufactured by our Laurier subsidiary in Londonderry,
New Hampshire, United States.
DIE BONDING EQUIPMENT
Single-, Multi-Chip and Flip Chip Die Bonding Systems
Our Datacon subsidiary is a leader in the development and production of die
bonding and flip chip die bonding equipment for the global market. The use of
flip chip and multi-chip die bonding technology permits semiconductor
manufacturers to further shrink device sizes while increasing functionality for
applications such as wireless telephony, PDAs, consumer electronics and the
Internet.
We also produce precision die bonding and flip chip die bonding systems for use
primarily in the opto-electronics field. Such systems are critical in the
assembly of filters such as waveguides which optimize the flow of data in fiber
optic networks. Through Datacon's Eurotec subsidiary, we also produce system
solutions that may include integrated lines of die bonding systems manufactured
according to customer specifications.
Datacon's product design features an adaptable base platform concept with
modular flip chip and die bonding process components. As such, we offer
semiconductor manufacturers flexibility to tailor their production processes for
dedicated single-chip and multi-chip applications as well as multichip module
layouts. Our equipment is designed to accommodate a full range of standard and
advanced package technologies such as chip-scale packages, system-in-package,
stacked die, micro-electro-mechanical systems and optoelectronics packages.
15
In April 2005, we launched a dedicated flip chip die bonding system with a
built-in wafer changing system and certain wafer processing capabilities.
Our current line of single, multi-chip and flip chip die bonding systems range
in price from (euro) 200,000 to more than (euro) 600,000. 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, 2005, Datacon had sold approximately 1,400 single, multi-chip
and flip chip die bonding systems and 190 high precision flip chip and die
bonding systems. In addition, we believe that Datacon has supplied over 50% of
the installed base of single, multi-chip and flip chip die bonding systems at
several semiconductor manufacturers, including Epcos, Infineon,
STMicroelectronics, Amkor, ASE, Philips, Skyworks, Bosch, Intel, Texas
Instruments, IBM, Spil, StatsChipac and Samsung.
PACKAGING EQUIPMENT
Molding Systems
Once chips have been bonded, using either wire or flip chip bonding 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.
To meet customer requirements for automation, customization and miniaturization,
we have developed and customized molding systems to meet customers' performance
and flexibility requirements. Our molding systems use a multi plunger technology
which we believe increases efficiency by using multiple transfer plungers per
mold. In addition, our systems use smaller molds 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 facilitating 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
also feature an electromechanical drive and modular design with a processing
capability of between one and sixteen strips. For the year ended December 31,
2005, sales of our molding systems for array connect applications accounted for
approximately 50% 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 more precise monitoring of the
production process.
Our current line of molding systems ranges 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, 2005, we had sold approximately 980 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, 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. Trim and form integration, including
testing, is the final step in the assembly of a semiconductor using conventional
leadframe technology. The procedure requires a high degree of precision,
particularly if customer demand requires increased production 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. Our trim and form systems are modular in design in
order to meet customer-specific volume and product requirements. In addition,
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.
To enhance further the flexibility, speed and reliability of our automated
systems, we have developed proprietary modular
16
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.
Our automated systems can also be configured to integrate capabilities such as
laser marking, vision inspection and related functional testing and to operate
on an integrated basis with automated molding and post-cure systems to provide
customers an automated solution to this final assembly phase.
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, 2005, we had sold approximately 940 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 array connect assembly of semiconductors in
which the molded substrates are cut into individually packaged units. We
commercially introduced a fully automated singulation and sorting system in July
2000.
Our singulation systems are available in single or double spindle versions and
can be used for the singulation of a variety of packages such as chip array bill
grid array, land grid array, tape array bill grid array, quad flat no-lead, and
micro leadframe. The latest generation systems are based on our modular advanced
back-end cluster 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. As of December 31, 2005, we had
installed over 125 singulation systems at customer locations.
PLATING EQUIPMENT
As part of the semiconductor 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 to
facilitate soldering with other components. As semiconductor devices become
increasingly complex, semiconductor manufacturers require 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.
Our principal plating systems address tin plating (post molding) systems and
spot plating processes and are produced by our Meco subsidiary in the
Netherlands. Our products can be used to plate semiconductors and discrete
devices before and after the molding/encapsulation process 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.
According to 2004 data compiled by VLSI, we believe that we have the leading
position in the automated tin plating equipment market. Our deflash
magazine-to-magazine cut-strip plating 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 alloy.
In addition, our plating systems unit also produces reel-to-reel systems for the
tin plating of discrete devices, silver spot plating and selective connector
plating and 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.
All of our plating systems are modular and are configured to meet specific
customer volume and functional requirements. Our plating systems use a
proprietary 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.
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
17
market continues to grow, more leadframe suppliers will purchase plating
equipment from independent suppliers. The equipment market for etched leadframes
is supplied by independent suppliers.
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. As of December
31, 2005, we had sold over 600 plating systems and had supplied over 50% of the
installed base of automated tin plating systems at several manufacturers,
including Agere, Amkor, STATS ChipPAC, Hynix, Infineon Technologies, NSEB,
Philips, Samsung, SPIL and Texas Instruments.
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 semiconductor assembly 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, die
bonding, packaging and plating systems drawing on advanced technological
features, including the following:
DIE HANDLING EQUIPMENT
Die Sorting Systems
Our die sorting systems use Laurier's dual transfer head pick and place
mechanism. This mechanism, when combined with our motion control system and
software, is designed to provide a fast but accurate die pick and place process.
Additionally, when handling very thin or delicate die, we use a low mass
compliant tool assembly with a synchronized pick procedure, which is intended to
safely remove the die from the dicing film. We believe our electronic wafer
alignment and mapping algorithms provide the flexibility to handle the wide
range of semiconductor products with reliable vision alignment and bin sorting
processes. Laurier has also developed an adaptive map correlation program for
smaller devices or distorted wafer arrays.
Die Bonding Systems
Flip chip bonding describes a method of electronically connecting a "face down"
die to the package carrier. In "standard" packaging, the interconnection between
the die and the carrier is made using wire bond technology. Flip chip uses a
conductive "bump" that is directly placed on the die surface as the
interconnection between the die and the carrier. The bumped die is "flipped
over" and placed face down, with the bumps connecting to the carrier directly.
Using a flip chip interconnection offers a number of possible advantages to the
user, including: reduced signal inductance, higher signal density, reduced
package footprint and die shrink.
Datacon's die bonding systems use a linear servo driven gantry for handling
components. Our design of the bond head and the corresponding tools are designed
to provide a constant placement force for the components. Datacon developed a
tool that uses flat springs to realize touchdown forces down to 2g, particularly
for radio frequency devices. The handling of delicate and warped substrates is
addressed by a clamping method enabling height variations of less than 10(mu)m
during processing steps. A fully controlled die ejection process is designed to
ensure reliable pickup of dies from the wafer.
PACKAGING EQUIPMENT
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
designed to provide faster and more efficient production. Additionally, for
CSBGA 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 reduces the risk of
contamination associated with the use of hydraulic fluids, facilitating their
use in clean room environments.
18
Trim and Form Integration Systems
Our trim and form integrations 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
charge-coupled device inspection technology are designed to provide both speed
and flexibility to accommodate a wide variety of array connect requirements.
PLATING EQUIPMENT
Tin Plating Equipment
Our tin 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.
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.
PROPRIETARY DATA MANAGEMENT SOFTWARE
All of our systems incorporate proprietary software enabling our customers to
use advanced process control, statistical process monitoring and advanced data
management that facilitates the application of our process technology across
back-end assembly 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.
19
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 SORTING EQUIPMENT DIE BONDING EQUIPMENT PACKAGING EQUIPMENT PLATING EQUIPMENT
Advanced Optical Components Advanced Optical Components Amkor ASE
Agere Amkor ASE Amkor
Amkor ASE Atlantic Chipmos
Ampoc Bosch AVX Compel
Cree Epcos Delphi EEMS
Infineon Fairchild EDL FCI
Nortel Infineon EEMS Hitachi
NSEB Lingsen Infineon Infineon
Samsung Osram Micronas Lingsen
Skyworks Philips Motorola NSEB
Raytheon NSEB OSE Semiconductor
Samsung Osram Philips
Scanditron Philips Renesas
STATS ChipPAC ON Semiconductor Samsung
STMicroelectronics Samsung Skyworks
Skyworks SPIL
STMicroelectronics Texas Instruments
For the year ended December 31, 2005, Infineon accounted for more than 10% of
our net sales. A significant percentage of our net sales in each year has 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. 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.
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, Austria and
the United States.
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 required.
Our service and support activities include warranty services, technical support,
training, and the provision of spare parts, molds and tooling capability and are
conducted through service offices worldwide. Our manufacturing facilities in the
Netherlands, Malaysia, Austria 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.
20
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, 2005:
After Sales
and
Sales and Customer
Marketing Support
--------- -----------
Europe 55 57
Asia Pacific 20 61
United States 11 12
--------- -----------
Total 86 130
========= ===========
GEOGRAPHIC MARKETS
We believe that we are a leading supplier of assembly equipment 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 region for each of the last three fiscal years and the percentage of
our total net sales represented by each region.
(Euro in million, except for %) 2003 2004 2005
------------------------------- --------- ---------- -----------
Asia Pacific 55.3 65% 85.6 68% 90.6 55%
Europe and Rest of World 26.7 31% 30.0 24% 52.1 32%
United States 3.5 4% 10.7 8% 21.6 13%
---- --- ----- --- ----- ---
Total 85.5 100% 126.3 100% 164.3 100%
==== === ===== === ===== ===
The increase in net sales in 2005 in the United States as compared to 2004 and
2003 is primarily due to increased net sales of our die sorting equipment
produced by Laurier in the United States as well as the acquisition of Datacon,
which has a relatively higher proportion of net sales to customers in the United
States.
BACKLOG
At December 31, 2005, we had a backlog of approximately (euro) 56.8 million as
compared to (euro) 31.8 million at December 31, 2004. The increase in backlog as
compared to December 31, 2004 was primarily due to the acquisition of Datacon as
well as a substantial increase in orders for array connect applications in the
second half of 2005.
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. Our backlog as of any particular date may not be
representative of actual sales for any succeeding period because of possible
changes in customer delivery schedules, the cancellation of orders and potential
delays in product shipments.
MANUFACTURING AND SUPPLIERS
Our manufacturing operations consist primarily of final assembly and testing. 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.
Our packaging equipment product line continues to manufacture molds and tools,
which we consider critical to our performance. We subcontract all other
manufactured parts, components and subsystems. However, an increasing amount of
the manufacturing requirements of our packaging systems is being subcontracted
to third-party vendors.
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 the 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
21
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. Our die bonding operations have qualified for compliance with ISO
9001 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 product lines, 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 new products
and enhancements to our established systems, principally for the array connect
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.
Our product line research and development activities are located at the
following facilities:
Product line Location
------------- ------------
Die sorting systems Londonderry, New Hampshire, United States
Die bonding/flip chip die bonding Radfeld, Austria
Packaging systems Duiven, the Netherlands and Drunen, the Netherlands
Plating systems Drunen, the Netherlands
In addition, each of our production facilities has an engineering group whose
main responsibility is application engineering, including the processing of
specific customer requirements and the 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, 2003, 2004 and 2005, research and
development expense was (euro) 13.6 million, (euro) 12.5 million and (euro) 17.9
million, respectively.
At December 31, 2005, we employed a total of 189 engineers engaged in research
and development projects for our various product lines. Our Director of
Technology is responsible for the overall coordination and planning of long term
research and development for all product lines.
ORGANIZATIONAL STRUCTURE
We are the ultimate parent of our group, which, as of December 31, 2005,
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.
22
Location and
Name Country of Incorporation Percentage of ownership
------------------------------------------------ -------------------------------- -----------------------
BE Semiconductor Industries USA, Inc. Londonderry, New Hampshire, USA 100%
Besi USA Inc. Londonderry, New Hampshire, USA 100%
Fico B.V. Duiven, the Netherlands 100%(1)
Fico Molding Systems B.V. Duiven, the Netherlands 100%(1)
Fico Trim & Form Integration Systems B.V. Duiven, the Netherlands 100%(1)
Fico Tooling B.V. Duiven, the Netherlands 100%(1)
Fico Tooling Leshan Company Ltd. Leshan, China 87%
Fico Asia SDN. BHD. Shah Alam, Malaysia 100%(2)
ASM Fico (F.E.) SDN. BHD. Shah Alam, Malaysia 99.9%(3)
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%
Meco Equipment Engineers B.V. Drunen, the Netherlands 100%
Besi Japan Co. Ltd. Tokyo, Japan 100%
Fico Singulation B.V. Drunen, the Netherlands 100%
Besi Taiwan Ltd. Taipei, Taiwan 100%
Meco Equipment Engineers (Far East) Pte Ltd. Singapore 100%
Laurier, Inc. Londonderry, New Hampshire, USA 100%
Besi Austria Holding GmbH Vienna, Austria 100%
Datacon Beteiligungs GmbH Vienna, Austria 100%
Datacon Technology GmbH Radfeld, Austria 100%
Datacon Eurotec GmbH Berlin, Germany 100%
Datacon Hungary Termelo Kft. Gyor, Hungary 100%(2)
Datacon Asia Pacific Pte. Ltd. Singapore 100%
Datacon North America Inc. Wilmington, Delaware, USA 100%
Datacon Korea Ltd. Seoul, Korea 100%
Datacon Philippines, Inc. Muntinlupa City, Philippines 100%
(1) Fico Molding Systems B.V., Fico Trim & Form Integrations B.V. and Fico
Tooling B.V. merged effective January 12, 2006 and changed the name of the
combined company to Fico B.V. Fico B.V. was renamed to Fico International
B.V.
(2) In order to comply with local corporate law, a minority shareholding (less
than 0.1%) is held by the management of these respective companies.
(3) In order to comply with local corporate law, a minority shareholding is
held by the management of this company.
PROPERTY, PLANT AND EQUIPMENT
The following table summarizes information with respect to the principal
manufacturing facilities that we leased or owned as of December 31, 2005.
Leased/
Plant Location Principal Activities owned Area (sq. ft)
---------------------------------------- ----------------------------------------- -------- -------------
Duiven, the Netherlands Packaging systems Leased 175,000
Radfeld, Austria Die bonding, flip chip die bonding Owned 114,000
Drunen, the Netherlands Executive offices, plating and singulation Leased 95,000
systems
Shah Alam, Malaysia Packaging systems, tooling Owned 54,000
Gyor, Hungary Die bonding, flip chip die bonding Leased 35,000
Leshan, China Packaging systems, tooling Owned 30,000
Londonderry, New Hampshire, United States Die sorting, flip chip Leased
bonding 22,264
Berlin, Germany Die bonding, flip chip die bonding Leased 20,000
Trevose, Pennsylvania, United States Die bonding, flip chip die bonding Leased 6,000
Singapore Die bonding, flip chip die bonding Leased 5,400
23
On June 28, 2002, we sold the land and buildings in Drunen, the Netherlands in a
sale and lease back transaction for (euro) 6.5 million in cash. At the date of
the 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.
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 in 2006. 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 being accounted for as a financing until the buyer repays the
loan. Once the buyer repays the loan, our financial obligation and the related
real estate assets will be derecognized from our balance sheet. 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) 13.1
million at December 31, 2005.
We closed our tooling facility of 16,000 square foot in Brunssum, the
Netherlands in the first half of 2005 as part of our 2005 restructuring plan.
Our rental expense for our facilities and machinery in 2003, 2004 and 2005 were
(euro) 7.7 million, (euro) 7.1 million, and (euro) 7.7 million, respectively.
CAPITAL EXPENDITURES
Our capital expenditures were (euro) 11.9 million in 2003, (euro) 3.4 million in
2004 and (euro) 6.4 million in 2005.
A substantial portion of the capital expenditures in 2004 and 2005 was used to
further expand our equipment and tooling production capacity in China and
Malaysia. In addition, (euro) 2.1 million of our capital expenditures in 2005
were related to the purchase of land at our Radfeld facility. The significant
decrease in spending levels in 2004 and 2005 as compared to 2003 was due to the
completion in 2003 of a new 80,000 square foot facility in Duiven, the
Netherlands, as well as 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, to our knowledge, could 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.
ITEM 4A: UNRESOLVED STAFF COMMENTS
Not applicable
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 cancel or defer
additional equipment purchases. Under such circumstances, semiconductor prices
typically fall.
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 substantial reductions
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. 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 continue to adversely affect our
net sales, results of operations and backlog. 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.
Our sales are generated primarily by shipments to the Asian manufacturing
operations of leading United States 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 our customers' capital expenditure budgets, new product
introductions, production capacity and packaging requirements. In addition, we
derive a substantial portion of our 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 sales from customer orders can cause significant fluctuations in
operating results from quarter to quarter.
In accordance with Statement of Financial Accounting Standards, or SFAS, No.
131, "Disclosures About Segments of an Enterprise and Related Information", or
SFAS No. 131, our 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 No. 131
due to their identical customer base and similarities in: economic
characteristics; nature of products and services; and procurement, manufacturing
and distribution processes. Since we operate in one segment and in one group of
similar products and services, all financial segment and product line
information required by SFAS No. 131 can be found in our Consolidated Financial
Statements contained elsewhere in this Annual Report on Form 20-F.
25
ACQUISITION OF DATACON
On January 4, 2005, we completed the acquisition of all of the outstanding
ordinary shares of Datacon for total consideration of (euro) 72.6 million, which
consisted of (euro) 65.0 million in cash and 1,933,842 of our ordinary shares.
Datacon, founded in 1986, is a leading global manufacturer of flip chip bonding,
multi-chip die bonding and other related assembly equipment for the
semiconductor and telecommunications industries. 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 aggregate amount of
convertible notes due 2012, which we refer to as the Notes. The Notes mature
seven years from the date of issue and carry an interest rate of 5.5% per annum,
payable semi-annually on January 28 and July 28 of each year. The Notes convert
into ordinary shares at a conversion price of (euro) 5.1250. The Notes will be
repaid at maturity in 2012 at a price of 100% of their principal amount plus
accrued and unpaid interest. If not converted on the date beginning four years
from the issue date, we may redeem the outstanding Notes at their par value
provided that on the date of conversion the market value of our ordinary shares
exceeds 130% of the then effective conversion price.
The Notes were offered to institutional investors in the Netherlands and
internationally to professional investors through an international private
placement. Listing of the Notes on the official segment of the Stock Market of
Euronext Amsterdam N.V. took place on January 28, 2005.
The net proceeds from the issuance of the Notes were used for general corporate
purposes, including working capital and capital expenditures.
EVALUATION OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our discussion and analysis of our financial condition and results of operations
is based upon our 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, "Change in Accounting Principle: Revenue Arrangements with Multiple
Deliveries", or EITF 00-21, and the SEC Staff Accounting Bulletin No. 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 using the 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 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. The amortization of patents and other
identifiable intangible assets is based on the estimated useful lives of the
applicable patents and other intangible assets on the date of acquisition.
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. Goodwill is not amortized
but is evaluated for impairment at least annually in accordance with SFAS No.
142, "Goodwill and Other Intangible Assets".
We have four business units which aggregate as one reportable segment. Goodwill
and intangible assets not subject to amortization are tested annually for
impairment at business unit level. An impairment loss is recognized to the
extent that the carrying amount exceeds the asset's fair value.
We do not have any identifiable intangible assets with indefinite lives.
CONTRACTUAL OBLIGATIONS
The following table discloses our contractual obligations and commercial
commitments as of December 31, 2005.
Payments Due by Period
----------------------------------------------------------------------------------------
(Euro in thousands) Less than 1 year 1-3 years 3-5 years More than 5 years Total
---------------------------------- ---------------- --------- --------- ----------------- -------
Long term debt obligations 3,506 7,494 3,794 50,131 64,925
Financial / capital lease
obligations 14,777 219 - - 14,996
Operating lease obligations 1,792 2,616 2,175 3,148 9,731
Purchase obligations 13,193 - - - 13,193
Pension and severance obligations - - - 2,503 2,503
---------------- --------- --------- ----------------- -------
Total contractual obligations 33,268 10,329 5,969 55,782 105,348
================ ========= ========= ================= =======
Long term debt obligations include the amount related to our 5.5% convertible
notes we issued in January 2005. Financial and capital lease obligations include
imputed interest. Purchase obligations relate to certain 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 we consider it appropriate, through the use
of derivative financial instruments. We do not use financial instruments for
trading or other speculative purposes.
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
27
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 2005 constitute 23%
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 exchange rate of the euro versus the
U.S. dollar or U.S. dollar linked currencies would affect our reported operating
income (loss) by less than (euro) 3 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
47% of total net sales in the year ended December 31, 2005, whereas net sales
represented by U.S. dollars or U.S. dollar-linked currencies amounted to
approximately 53%. Approximately 75% of our costs and expenses were denominated
in euros and the remaining 25% 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 fixed and variable rates of interest. An immediate increase of
100 basis points, or 1%, in interest rates would affect our results of
operations over the next fiscal year by less than (euro) 0.1 million, net of
tax.
28
RESULTS OF OPERATIONS
SUMMARY FINANCIAL AND OTHER OPERATING DATA
Year Ended December 31,
-------------------------------------------------------------------------------
Pro Forma
2004
(Amounts in thousands, except share and 2003 2004 Unaudited 2005 2005
per share data) EURO EURO EURO EURO USD(1)
------------------------------------------- ---------- ---------- ---------- ---------- ----------
Net sales 85,500 126,341 194,323 164,262 194,519
Cost of sales 63,345 88,352 127,901 106,897 126,587
---------- ---------- ---------- ---------- ----------
Gross profit 22,155 37,989 66,422 57,365 67,932
Selling, general and administrative
expenses 25,436 27,145 43,306 38,697 45,825
Research and development expenses 13,564 12,500 18,197 17,918 21,219
Restructuring charges - 5,616 5,616 2,231 2,642
Impairment of intangibles 287 - - - -
Amortization of intangible assets 2,522 2,465 3,029 3,728 4,415
---------- ---------- ---------- ---------- ----------
Total operating expenses 41,809 47,726 70,148 62,574 74,101
Operating loss (19,654) (9,737) (3,726) (5,209) (6,169)
Interest income (expense), net 2,815 1,811 (528) (2,711) (3,210)
---------- ---------- ---------- ---------- ----------
Loss before taxes and minority interest (16,839) (7,926) (4,254) (7,920) (9,379)
Income taxes (benefit) (3,292) (2,435) (1,438) (2,779) (3,291)
---------- ---------- ---------- ---------- ----------
Loss before minority interest (13,547) (5,491) (2,816) (5,141) (6,088)
Minority interest 50 64 64 (40) (47)
---------- ---------- ---------- ---------- ----------
Net loss (13,497) (5,427) (2,752) (5,181) (6,135)
---------- ---------- ---------- ---------- ----------
Loss per share:
Basic (0.44) (0.18) (0.08) (0.16) (0.19)
Diluted (0.44) (0.18) (0.08) (0.16) (0.19)
Weighted average number of shares
used to compute net loss per share:
Basic 30,813,681 30,794,660 32,709,309 32,710,934 32,710,934
Diluted 30,813,681 30,794,660 32,709,309 32,710,934 32,710,934
(1) Translated solely for convenience of the reader at the noon buying rate on
December 31, 2005 ((euro) 1.00 = US$ 1.1842).
2005 COMPARED TO 2004
ACQUISITION OF DATACON
On January 4, 2005, we completed our acquisition of Datacon. In connection with
the transaction, we recorded purchase accounting adjustments, including
goodwill, in an amount equal to (euro) 55.8 million, which will not be
amortized, but will continue to be evaluated in accordance with SFAS No. 142
"Goodwill and Other Intangible Assets", and (euro) 7.1 million of other
intangible assets that are being amortized annually over their respective
estimated useful lives. Furthermore, in accordance with purchase accounting
rules, we made an upward adjustment of Datacon's inventories by (euro) 3.3
million in the opening balance sheet to its estimated fair value resulting in an
increase in our cost of sales by (euro) 3.3 million in 2005. This upward
adjustment
29
was fully amortized in our 2005 fiscal year. The results of Datacon are included
in our financial statements from the date of acquisition.
PRO FORMA INFORMATION
In order to facilitate a meaningful comparison of our 2005 results, we have
prepared comparative financial information for 2004 on a pro forma basis to
incorporate Datacon's results of operations as if the transaction had occurred
on January 1, 2004. Pro forma 2004 adjustments include (i) results of operations
of Datacon prepared in accordance with US GAAP, (ii) the effects of the purchase
accounting adjustments relating to the acquisition of Datacon resulting in the
amortization of intangibles of (euro) 0.7 million in 2004 and (iii) the
elimination of interest income of (euro) 1.4 million related to the (euro) 68.4
million cash utilized to help fund the Datacon acquisition. The number of
shares, presented in the table above - basic and diluted - includes 1,933,842 of
our ordinary shares issued in the Datacon acquisition.
NET SALES
Our net sales consist of sales of die sorting systems, or die sorting equipment,
flip chip and multi-chip die bonding systems, or die bonding equipment, molding,
trim and form integration and singulation systems, or packaging equipment, and
plating systems, or plating equipment.
As a result of the Datacon acquisition, we changed our presentation of net sales
to better reflect our business strategy and to better communicate the financial
development of our operations. We now present our net sales as per assembly
process and end use customer application as opposed to a disclosure by
individual product line. We analyze our net sales and gross margins for our
leadframe assembly applications and array connect assembly applications as per
the table presented below. In the leadframe category, we include molding and
trim form systems made by Fico in the Netherlands, Malaysia and China and
plating equipment made by Meco in the Netherlands. In the array connect
category, we include flip chip and multi chip die bonding products made by
Datacon in Austria and Hungary, die sorting and flip chip die bonding products
made in the United States by Laurier and singulation and certain molding
products made by Fico in the Netherlands.
Our net sales per end use customer process application for the years ended
December 31, 2004 and 2005, respectively, were as follows:
Year Ended December 31, % change
--------------------------------------------------------------- ---------------------------
2005 2005 compared
Pro Forma compared to to pro forma
(Euro in million) 2004 2004 2005 2004 2004
--------------------------- ---------------- ----------------- ---------------- ----------- -------------
Leadframes 85.3 68% 85.3 44% 52.9 32% (38.0%) (38.0%)
Array Connect 41.0 32% 109.0 56% 111.4 68% 171.7% 2.2%
----- --- ----- --- ----- --- ---------- ------------
Total net sales 126.3 100% 194.3 100% 164.3 100% 30.1% (15.4%)
===== === ===== === ===== === ========== ============
On an actual basis, our net sales increased by 30.1% from (euro) 126.3 million
in 2004 to (euro) 164.3 million in 2005. The increase in net sales in 2005 as
compared to 2004 was due to the acquisition of Datacon. Our net sales in 2005
decreased by 15.4% from pro forma net sales of (euro) 194.3 million in 2004,
primarily as a result of excess inventories and, we believe, low capacity
utilization rates experienced by our customers which resulted in delays and
deferment of semiconductor assembly equipment purchases. In particular, we
experienced a 38.0% decrease in sales for leadframe applications across all
leadframe products partially offset by a 2.2% increase in array connect sales in
2005 principally due to increased sales of singulation and die sorting systems,
partly offset by a decrease in sales of die bonding equipment.
BACKLOG
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.
30
On an actual basis, our backlog at December 31, 2005 increased by 78.6% to
(euro) 56.8 million from (euro) 31.8 million at December 31, 2004. On a pro
forma basis, backlog at December 31, 2005 increased by 11.6% as compared to pro
forma backlog of (euro) 50.9 million as of December 31, 2004, including (euro)
19.1 million of backlog that was acquired as part of the purchase of Datacon.
The backlog increase as compared to pro forma December 31, 2004 was principally
due to increased backlog for array connect products.
On an actual basis, new orders for 2005 were (euro) 170.2 million as compared to
(euro) 118.3 million in 2004. New orders declined by 10.1% as compared to pro
forma orders of (euro) 189.3 million in 2004. The decline in new orders for 2005
as compared to pro forma 2004 was primarily due to a decline of approximately
36% for our leadframe products, offset by an increase in new orders of
approximately 6% for our array connect products. However, we received orders in
the second half of 2005 of (euro) 91.8 million as compared to orders received in
the first half of 2005 of (euro) 78.4 million, a 17.1% increase, reflecting what
we believe is a change in demand for semiconductor manufacturing equipment and
the timing and volume of customer purchase orders for assembly equipment. The
increase in second half orders was primarily focused on array connect
applications, principally for die bonding and singulation equipment. The
book-to-bill ratio was 1.04 for 2005 as compared to a book-to-bill ratio of 0.94
for 2004. The pro forma book-to-bill ratio for 2004 was 0.97.
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 for a customer
once a product has advanced beyond the prototype stage. Changes in cost of sales
typically lag changes in net sales due to our manufacturing lead times.
On an actual basis, gross profit increased by 51.1% from (euro) 38.0 million in
2004 to (euro) 57.4 million in 2005 and decreased by 13.6% when compared to pro
forma gross profit of (euro) 66.4 million in 2004. Cost of sales for 2005
included a (euro) 3.3 million purchase accounting adjustment, which amounts to
approximately 2.0% of our net sales, relating to an upward fair value inventory
adjustment in the opening balance sheet of Datacon. As a percentage of net
sales, gross profit increased from 30.1% in 2004 to 34.9% in 2005, mainly due to
(i) cost reductions realized from workforce terminations and plant consolidation
which commenced in the fourth quarter of 2004 and continued during 2005 that
resulted in cost savings in our packaging and die bonding product lines, (ii)
cost benefits realized from our transition of certain equipment manufacturing
and high precision tooling operations from the Netherlands to our facilities
located in Malaysia and China, and (iii) a higher proportion of our 2005 net
sales represented by array connect assembly applications which typically have a
higher gross margin than sales for leadframe assembly applications. In 2005,
array connect sales had an average gross margin of 39.1% as compared to 32.5%
for our leadframe sales. Pro forma gross profit in 2004 as a percentage of net
sales was 34.2%.
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.
On an actual basis, selling, general and administrative expenses increased by
42.8% from (euro) 27.1 million in 2004 to (euro) 38.7 million in 2005 due to the
Datacon acquisition. Selling, general and administrative expenses for 2005
decreased by 10.6% when compared to pro forma selling, general and
administrative expenses for 2004 of (euro) 43.3 million primarily as a result of
our corporate restructuring activities and benefits realized from the
integration of Datacon's sales and marketing activities. On an actual basis, as
a percentage of net sales, selling, general and administrative expenses
increased from 21.5% in 2004 to 23.6% in 2005. As a percentage of net sales, pro
forma selling, general and administrative expenses were 22.3% in 2004. The
increase in selling, general and administrative expenses as percentage of net
sales in 2005 as compared to pro forma 2004 resulted primarily from a decrease
in sales, which decrease exceeded the reduction in our overhead.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development spending varies from year to year depending on our new
product development cycles. As research and development expenses do not include
pre-production and customization costs, which are included as cost of sales, our
research and development expenses decrease as products move from prototype
development to production and final customer acceptance.
31
On an actual basis, research and development expenses increased from (euro) 12.5
million in 2004 to (euro) 17.9 million in 2005 due to the Datacon acquisition.
Research and development expenses for 2005 decreased by 1.6% as compared to pro
forma research and development expenses in 2004 of (euro) 18.2 million. On an
actual basis, as a percentage of net sales, research and development expenses
were 9.9% and 10.9% in 2004 and 2005, respectively. As a percentage of net
sales, research and development expenses were 9.4% in 2004 on a pro forma basis.
Research and development spending in 2005 was focused on the development of next
generation assembly systems, all in anticipation of future demand for such
products.
RESTRUCTURING CHARGES
Ongoing economic uncertainties and industry over-capacity resulted in customers
delaying or cancelling scheduled deliveries, delaying capacity investment and
the funding of strategic programs in the second half of 2004. In December 2004,
as part of our plan to address the downturn in the semiconductor industry and to
reduce our cost structure through the transfer of certain production activities
from high cost geographies to low cost manufacturing regions, 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 then total fixed
headcount worldwide. In addition, we announced that we would phase out
approximately 50 temporary workers at the Duiven facility. A component of the
restructuring was the closing of our tooling facility in Brunssum, the
Netherlands in the first half of 2005. Workforce reductions of 81 employees
occurred during the first half 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 these workforce reductions.
In May 2005, we announced the further consolidation and integration of our Dutch
Fico packaging and tooling manufacturing operations in Duiven, the Netherlands.
The consolidation involved the termination of 32 employees in the third quarter
of 2005 and the integration of production and administrative personnel at our
Duiven facility. We recorded a restructuring charge of (euro) 1.7 million in the
second quarter of 2005 to cover the estimated costs of this workforce reduction.
In the fourth quarter of 2005, we terminated 14 employees at at our Datacon
Eurotec subsidiary in Berlin in an effort to improve the efficiency of our die
bonding operations. We recorded a restructuring charge of (euro) 0.4 million in
the fourth quarter of 2005 to cover the estimated costs of this workforce
reduction.
Changes in the restructuring reserve in the periods 2004 and 2005 were as
follows:
(Euro in thousands) 2004 2005
----------------------- ----- ------
Balance at January 1, 521 5,820
Additions 5,616 2,231
Cash payments (317) (7,287)
----- ------
Balance at December 31, 5,820 764
===== ======
The charges associated with the workforce reduction announced in December 2004
included severance and other benefit payments for 81 employees in the
Netherlands. The charges associated with the workforce reduction announced in
May 2005 included severance and other benefits for approximately 32 employees,
mainly in the Netherlands. Total remaining cash outlays for the restructuring
activities announced at the end of 2004 and the second quarter of 2005 are
expected to be (euro) 0.2 million, which we expect will be paid mostly during
the first half of 2006.
The charges associated with the workforce reduction in the fourth quarter of
2005 at Datacon Eurotec included severance and other benefits for 14 people.
Total remaining cash outlays for these December 2005 restructuring activities
are expected to be (euro) 0.4 million which we expect will be paid mostly during
the first half of 2006. The balance of (euro) 0.2 million relates to prior
restructuring activities and mainly consists of pension premiums to be paid for
terminated employees.
OPERATING LOSS
On an actual basis, our operating loss decreased from (euro) 9.7 million in 2004
to an operating loss of (euro) 5.2 million in 2005. The operating loss for 2005
included purchase accounting adjustments related to the Datacon acquisition of
(euro) 3.3 million and restructuring charges of (euro) 2.2 million associated
with the further consolidation of our Dutch packaging and tooling manufacturing
operations and our restructuring of our German die bonding operations. Our
operating loss for 2004 included an aggregate of (euro) 7.5 million for
restructuring charges and inventory write-downs. Our operating loss for 2005
increased by approximately (euro) 1.5 million when compared to a pro forma
operating loss of (euro) 3.7 million for 2004 mainly due to (i) decreased sales
as compared to pro forma sales for 2004 and (ii) the fair value inventory
adjustment of (euro) 3.3 million relating to the
32
Datacon acquisition partially offset by lower restructuring charges of (euro)
3.4 million, higher gross margins and lower selling, general and administrative
expenses of (euro) 4.6 million.
We incurred annual patent and other identifiable asset amortization charges of
(euro) 3.7 million in 2005, which related to the acquisitions of our various
product lines as compared to (euro) 2.5 million in 2004.
In the fourth quarter of 2005, we tested our intangibles, including goodwill,
for impairment. No impairment on intangibles was required.
INTEREST INCOME (EXPENSE), NET
Our interest income (expense), net decreased from interest income, net of (euro)
1.8 million in 2004 to interest expense, net of (euro) 2.7 million in 2005. Pro
forma interest expense, net amounted to (euro) 0.5 million in 2004. Our interest
income decreased from (euro) 2.7 million in 2004 to (euro) 1.6 million in 2005,
mainly due to lower average cash balances as a result of cash utilized in the
Datacon acquisition. Interest expense increased from (euro) 0.9 million in 2004
to (euro) 4.3 million in 2005, mainly due to interest expense in 2005 of (euro)
2.2 million associated with the issuance of the Notes in January 2005, as well
as interest expense related to debt outstanding at our Datacon subsidiary.
INCOME TAXES
Our income tax benefit amounted to (euro) 2.4 million in 2004 compared to an
income tax benefit of (euro) 2.8 million in 2005. The effective tax rate was
30.7% in 2004 and 35.1% in 2005. Our income tax benefit on a pro forma basis
amounted to (euro) 1.4 million in 2004, equal to an effective tax rate of 33.8%.
NET LOSS
Our net loss for 2004 amounted to (euro) 5.4 million as compared to (euro) 5.2
million in 2005. On a pro forma basis, our net loss for 2004 was (euro) 2.8
million. The increase in our net loss in 2005 as compared to the pro forma net
loss in 2004 was principally due to (i) the decrease in net sales, (ii)
after-tax purchase accounting adjustments related to the Datacon acquisition of
(euro) 3.4 million and (iii) a (euro) 2.2 million increase in interest expense,
partly offset by higher gross margins, lower operating expenses and lower after
tax restructuring charges of (euro) 2.4 million.
2004 COMPARED TO 2003
NET SALES
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.
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.
33
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.
As indicated earlier in this Annual Report on Form 20-F, we include in backlog
only those orders for which we 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
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 reduced 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
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
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
Changes in the restructuring reserve were as follows:
(Euro in thousands) 2003 2004
----------------------- ----- -----
Balance at January 1, 1,281 521
Additions - 5,616
Cash payment (760) (317)
----- -----
Balance at December 31, 521 5,820
===== =====
Our 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, including goodwill, for impairment. No impairment on intangibles
was required.
34
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.
LIQUIDITY AND CAPITAL RESOURCES
We had (euro) 106.6 million and (euro) 73.0 million in cash and cash equivalents
at December 31, 2004 and December 31, 2005, respectively.
Generally, we fund our consolidated operations through cash generated from
operations and, in some instances, we fund the operations of our subsidiaries
through intercompany loans. Furthermore, to meet local financing needs, our
subsidiaries in the Netherlands and abroad maintain lines of credit with various
local commercial banks. The credit lines for the subsidiaries in the Netherlands
are currently unsecured, except for pledges on the accounts of these
subsidiaries with the banks that provide the facilities. The principal
restrictive covenant contained in each Dutch line of credit is a solvency ratio,
which generally is based on a ratio of each subsidiary's equity to its assets.
Consistent with past practice, Datacon utilizes short-term bank lines of credit,
long-term loans and government granted loans for export and research and
development activities. 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.
Some of these loans are secured by a pledge of real property.
At December 31, 2005, Besi and its subsidiaries had available lines of credit
aggregating (euro) 26.4 million, under which (euro) 5.7 million of short-term
borrowings and (euro) 10.7 million of long-term borrowings (including current
portion of long-term debt of (euro) 1.8 million) were outstanding. Amounts
available to be drawn under the lines were further reduced by (i) (euro) 1.7
million in outstanding bank guarantees and (ii) (euro) 1.0 million for foreign
exchange contracts. Interest is charged at the lenders' base lending rates plus
an increment of 1.50%, except for certain borrowings of Datacon, for which
interest rates vary between 1.50% and 4.50%, depending on the type of credit
facility and currency utilized. All our credit facility agreements include
covenants requiring us to maintain certain financial ratios. Besi and all of our
applicable subsidiaries were in compliance with all loan covenants at December
31, 2005. On January 12, 2006, we replaced a line of credit of (euro) 7.5
million which we terminated prior to December 31, 2005, by entering into a new
line of credit of (euro) 5.0 million and a 3-year loan of (euro) 6.0 million.
The working capital requirements of our subsidiaries are affected by the receipt
of periodic payments on orders from their customers. Although our subsidiaries
occasionally receive partial payments prior to final installation, initial
payments generally do not cover a significant portion of the costs incurred in
the manufacturing of such systems.
Net cash used in operating activities was (euro) 4.0 million and (euro) 0.6
million in 2004 and 2005, respectively. The primary use of cash in operations in
2005 was a net loss of (euro) 5.2 million and increased working capital
requirements of (euro) 2.2 million, principally related to the payment of
restructuring costs of (euro) 7.3 million, partially offset by non-cash charges
for depreciation and amortization.
The cash decrease of (euro) 33.6 million between December 31, 2004 and December
31, 2005 was primarily due to the use of (euro) 68.4 million of cash to help
fund the Datacon acquisition, debt repayment of (euro) 9.8 million, (euro) 7.3
million of restructuring payments and capital expenditures of (euro) 6.4
million, partially offset by net cash proceeds of (euro) 43.6 million received
from the issuance of the Notes during the first quarter of 2005, the inclusion
of (euro) 6.4 million cash and cash equivalents held by Datacon at the date of
acquisition and (euro) 5.1 million of proceeds received from the sale and
leaseback of our Duiven facility.
35
At December 31, 2005, our cash and cash equivalents totaled (euro) 73.0 million
and our total debt and capital lease obligations totaled (euro) 82.8 million. At
December 31, 2005, shareholders' equity stood at (euro) 181.4 million.
Our capital expenditures were (euro) 11.9 million in 2003, (euro) 3.4 million in
2004 and (euro) 6.4 million in 2005. 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 in 2004 and 2005 was used to further expand
our production capacity in China and Malaysia. In addition, (euro) 2.1 million
of expenditures in 2005 were related to the purchase of land at our Radfeld
facility.
In January 2005, we issued (euro) 46 million aggregate principal amount of
convertible notes due 2012, or the Notes. The Notes mature seven years from the
date of issue and carry an interest rate of 5.5% per annum, payable
semi-annually on January 28 and July 28 of each year. The Notes convert into
ordinary shares at a conversion price of (euro) 5.1250. The Notes are scheduled
to be repaid at maturity in 2012 at a price equal to 100% of their principal
amount plus accrued and unpaid interest. If not converted on the date beginning
four years from the issue date, we may redeem the outstanding Notes at their par
value provided that on the date of conversion the market value of our ordinary
shares exceeds 130% of the then effective conversion price. The Notes were
offered to institutional investors in the Netherlands and internationally to
professional investors through an international private placement. Listing of
the Notes on the official segment of the Stock Market of Euronext Amsterdam N.V.
took place on January 28, 2005. The net proceeds from the issuance of the Notes
were used for general corporate purposes, including working capital and capital
expenditures.
On February 6, 2004, we 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. We granted the
buyer a (euro) 1.5 million loan which is payable in 2006. 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 a rate of 4.5% per annum.
The transaction will be accounted for as a financing until the buyer repays the
loan. Once the buyer repays the loan, our financial obligation and the related
real estate assets will be derecognized from our financial statements.
Settlement of this financial obligation will not result in a cash outflow from
Besi.
We believe that our cash position, internally generated funds and available
lines of credit will be adequate to meet our anticipated levels of capital
spending, research and development and working capital requirements for at least
the next twelve months.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections -- a Replacement of APB Opinion No. 20 and FASB Statement No. 3", or
SFAS 154, which requires retrospective application to prior periods' financial
statements of every voluntary change in accounting principal unless it is
impracticable to do so. SFAS 154 is effective for accounting changes and
corrections of errors beginning in fiscal 2007. We do not expect the adoption of
this standard to have a material effect on our financial position or results of
operations.
In March 2005, the SEC released SEC Staff Accounting Bulletin No. 107, or SAB
107. SAB 107 provides the SEC staff position regarding the application of SFAS
123(R), "Share-Based Payment." SAB 107 contains interpretive guidance relating
to the interaction between SFAS 123(R) and certain SEC rules and regulations, as
well as the staff's views regarding the valuation of share-based payment
arrangements for public companies. SAB 107 also highlights the importance of
disclosures made related to the accounting for share-based payment transactions.
We are currently evaluating SAB 107 and will be incorporating it as part of our
adoption of SFAS 123(R) in the first quarter of 2006.
In December 2004, the FASB issued 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 January 1, 2006. The effects of the change are still
being determined by us.
36
ITEM 6: DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. DIRECTORS AND SENIOR MANAGEMENT
SUPERVISORY BOARD
The members of the Supervisory Board as of December 31, 2005 are as follows:
Name Age Title Term Expires
------------------- --- --------------------------------- ------------
W.D. Maris 66 Chairman of the Supervisory Board 2006
E.B. Polak 61 Member of the Supervisory Board 2009
D. Sinninghe Damste 66 Member of the Supervisory Board 2008
T. de Waard 59 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., an electronics manufacturer. 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 his retirement in 2001, Mr. Polak has served in various capacities with
ASM Lithography N.V., a semiconductor manufacturer, 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, which operates in the oil
and natural gas industry. 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.
37
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, 2005 are as follows:
Board of Management
Name Age Title Term Expires
---------------- --- -------------------------------------- -------------
R.W. Blickman 51 President and Chief Executive Officer, N/a (1)
Chairman of the Board of Management
J.A. Wunderl 54 Member of the Board of Management, October 2007
Managing Director of Laurier
H. Rutterschmidt 48 Member of the Board of Management, December 2009
appointed as of March 24, 2005,
Managing Director of Datacon
Other Key Members of Management
Name Age Title Term Expires
---------------------- --- ------------------------------------- ------------
P.A. Govaert 49 Managing Director of Fico N/a (1)
J.C. te Hennepe 47 Director of Finance N/a (1)
F.J.M. Jonckheere 46 Managing Director of Meco N/a (1)
H.F. Menschaar 59 Director of Corporate Technology N/a (1)
H.G.E.M. van der Sande 37 Co-Director of Finance, Secretary of N/a (1)
the Company
G. A. in `t Veld 49 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. Mr. Blickman serves as Director of various Besi subsidiaries. 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), a semiconductor manufacturer. 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 of the Board of Management and Managing Director
of Laurier
Mr. Wunderl has served as Managing Director of Laurier 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, a semiconductor manufacturer,
and between 1990 and 2002 he held various positions at ASMI.
Mr. Rutterschmidt - Executive Member of the Board of Management and President
and Chief Executive Officer of Datacon Technology GmbH
Mr. Rutterschmidt is President and Chief Executive Officer of Datacon, a
position he has held since September 1, 2005. Previously, he was Managing
Director of Datacon since May 1995. Since January 2006, he is also Managing
Director of Datacon Eurotec GmbH in Berlin and Datacon Hungary Kft. in
Gyor/Hungary. Prior to joining Datacon, he served as Sales and Marketing Manager
of F+K Delvotec, Munich. Furthermore, Mr. Rutterschmidt serves as Director of
Datacon North America, Inc., and as Director of various Besi subsidiaries in
Asia.
Mr. Govaert - Managing Director of Fico B.V. (formerly Fico Molding, Fico Trim &
Form and Fico Tooling)
Mr. Govaert is Managing Director of Fico, a position he has held since January
2006. Previously he was 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.
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.
38
Mr. Jonckheere - Managing Director of Meco
Mr. Jonckheere is Managing Director of Meco a position he has held since October
1, 2003. Mr. Jonckheere served as Director of Operations of Meco Plating Systems
and Chemicals from January 1996 to October 2003. 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 has served as 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 July 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 (formerly
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.
In connection with the acquisition of Datacon, Mr. 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.
Mr. Rutterschmidt is one of the partners in a partnership that sold real
property to a subsidiary of the Company.
B. COMPENSATION OF DIRECTORS AND OFFICERS
REMUNERATION OF THE BOARD OF MANAGEMENT
The remuneration of the members of the Board of Management is determined by the
Supervisory Board, all with due observance of the remuneration policy adopted by
the General Meeting of Shareholders on March 24, 2005. 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 cash remuneration and related costs of the individual members of the
Board of Management for the year ended December 31, 2003, 2004 and 2005 was as
follows:
(In euros) Year ended December 31,
---------- ---------------------------
2003 2004 2005
------- ------- -------
R.W. Blickman
Salaries 295,483 301,577 357,000
Other benefits (5) 17,154 16,270 17,553
Bonus (6) 35,458 36,443 53,550
Pension (7) 54,326 55,231 63,339
Other (8) - 344,392 -
J. A. Wunderl (1)
Salaries - 147,952 241,935
Other benefits (5) - 9,594 16,682
Bonus (6) - 34,621 36,290
Pension (7) - 48,085(9) 48,387
39
(In euros, except as specified otherwise) Year ended December 31,
----------------------------------------- -------------------------
2003 2004 2005
------- ------- -------
H. Rutterschmidt (2)
Salaries - - 274,615
Other benefits (5) - - 11,202
Bonus (6) - - 32,954
Pension (7) - - 60,181
G. Zeindl (3)
Salaries - - 154,700
Other benefits (5) - - 7,465
Pension (7) - - 45,215
M.A.H. Wartenbergh (4)
Salaries 114,479 155,835 -
Other benefits (5) 9,740 13,215 -
Bonus 13,755 - -
Pension (7) 14,329 19,499 -
Severance payment - 395,000 -
J.W. Rischke
Other (8) - 40,884 -
(1) Member of the Board of Management from March 25, 2004, remuneration
relates to the period from March 25, 2004 to December 31, 2005. Salary
amounts are translated from U.S. dollars into euro using the average
exchange rate of U.S. $ 1.2478 = (euro) 1.00 for the year ended December
31, 2004 and U.S. $ 1.2400 = (euro) 1.00 for the year ended December 31,
2005.
(2) Member of the Board of Management from March 24, 2005, remuneration
relates to the period from March 24, 2005 to December 31, 2005.
(3) Member of the Board of Management from March 24, 2005; remuneration
relates to the period from March 24, 2005 until his exit on September 1,
2005.
(4) Member of the Board of Management from March 27, 2003; remuneration
relates to the period from March 27, 2003 until his exit on January 1,
2005.
(5) Other benefits include expense compensation, medical insurance and
premiums social securities.
(6) This amount represents a bonus earned over the applicable year, which will
be payable in the first quarter of the following year.
(7) The pension arrangements for members of the Board of Management are
defined contribution plans. The Company does not have further pension
obligations beyond an annual contribution.
(8) 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 we should
compensate for dilution that arose as a result of our secondary share
offering in 2000.
(9) This amount relates to services rendered in 2004, but was agreed upon and
paid in 2005.
A portion of the compensation of the Board of Management is performance related.
40
REMUNERATION OF THE SUPERVISORY BOARD
The aggregate remuneration paid to current members of the Supervisory Board was
(euro) 93,000 in 2005. The remuneration of the Supervisory Board is determined
by the General Meeting of Shareholders.
The total cash remuneration of the individual members of the Supervisory Board
for the years ended December 31, 2003, 2004 and 2005 was as follows:
(In euros) Year ended December 31,
---------- ----------------------------------------
2003 2004 2005
Total Total Cash
remuneration remuneration remuneration
------------ ------------ ------------
W. D. Maris 15,882 23,038 26,000
E. B. Polak 15,882 19,206 20,000
D. Sinninghe Damste 15,882 26,038 26,000
T. de Waard 15,882 19,206 21,000
In 2003 and 2004, part of the cash compensation, not exceeding 50%, paid to
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 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.
At the General Meeting of Shareholders of March 24, 2005, the remuneration for
Supervisory Board members changed as follows:
(i) cash base pay for the chairman of the Supervisory Board and the chairman
of the Audit Committee of (euro) 20,000 (in euros) per annum and for the
other members of (euro) 15,000 (in euros) per annum;
(ii) cash payment of (euro) 1,000 for each board or committee per meeting
attended; and
(iii) a grant of 4,000 ordinary shares per annum.
Supervisory Board members will no longer have the option to receive ordinary
shares in lieu of a portion of their cash compensation.
41
ORDINARY SHARES, OPTIONS AND PSA UNITS HELD BY MEMBERS OF THE BOARD OF
MANAGEMENT
The aggregate number of ordinary shares, the aggregate number of options to
purchase ordinary shares and the aggregate number of PSA units owned by the
current members of the Board of Management as of December 31, 2005 are as
follows:
Ordinary Shares
Number of
shares
---------
R.W. Blickman 270,485
H. Rutterschmidt 444,784
-------
Total 715,269
=======
Options
Number of
Expiration Exercise price options
Year of grant date in euros outstanding
------------- ---------- --------------- -----------
R.W. Blickman 1999 2010 4.35 8,500
2000 2011 17.90 20,000
2000 2011 9.80 142,000
2001 2007 9.55 40,000
2002 2008 8.94 36,000
2003 2009 3.22 35,042
2004 2010 5.95 15,000
-------
296,542
J.A. Wunderl 2003 2009 5.20 8,000
2004 2010 5.95 5,500
-------
Total 13,500
-------
310,042
PSA Units
Number of Number of
Annual Conditional
Performance Performance
Stock Award Stock Award
Units Units
Year of grant outstanding outstanding (1)
------------- ----------- ---------------
R.W. Blickman 2005 5,000 10,000
J.A. Wunderl 2005 3,500 7,000
----- ------
Total 8,500 17,000
===== ======
(1) The number of shares that will be granted and/or will vest in any given
year will depend on whether the individual achieves defined goals.
At December 31, 2005, there were (euro) 287,000 of loans outstanding relating to
the stock options granted to the members of the Board of Management. The
principal amount and other loan conditions have not changed since the inception
of the loan agreements in 1999 and 2000.
42
OPTIONS AND PSA UNITS HELD BY MEMBERS OF THE SUPERVISORY BOARD
The aggregate number of options to purchase ordinary shares and the average
number of PSA units held by the current members of the Supervisory Board as of
December 31, 2005 are as follows:
Options
Number of
Expiration Exercise price options
Year of grant date in euros outstanding
------------- ---------- -------------- -----------
E.B. Polak 2002 2008 8.94 1,322
2003 2009 3.22 3,667
2004 2010 5.95 1,937
------
6,926
D. Sinninghe Damste 2002 2008 8.94 1,322
2003 2009 3.22 3,667
2004 2010 5.95 2,629
------
7,618
T. de Waard 2002 2008 8.94 1,322
2003 2009 3.22 3,667
2004 2010 5.95 1,937
------
6,926
------
Total 21,470
======
PSA Units
Number of Annual
Performance Stock
Award Units
Year of grant outstanding
------------- -----------------
W.D. Maris 2005 4,000
E.B. Polak 2005 4,000
D. Sinninghe Damste 2005 4,000
T. de Waard 2005 4,000
------
Total 16,000
======
OPTIONS HELD BY FORMER MEMBERS OF THE BOARD OF MANAGEMENT
The aggregate number of options to purchase ordinary shares held by a former
member of the Board of Management as of December 31, 2005 are as follows:
Exercise Number of
Expiration price options
Year of grant date in euros outstanding
------------- ---------- -------- -----------
J.W. Rischke 1999 2010 4.35 8,500
2000 2011 17.90 16,000
2001 2007 9.55 32,000
2002 2008 8.94 23,000
2003 2009 3.22 13,221
------
Total 92,721
======
At December 31, 2005, there were (euro) 78,000 of loans outstanding relating to
the stock options granted to the former members of the Board of Management. The
principal amount and other loan conditions have not changed since the inception
of the loan agreement in 1999.
43
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 of Shareholders
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, which
manages our day to day operations, and a Supervisory Board which is responsible
for supervising and guiding the Board of Management. The Board of Management is
currently comprised of three members and the Supervisory Board is currently
comprised of four members. Our Articles of Association provide that the Board of
Management as a whole, 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 three members of the Board of Management, our management team is
currently comprised of six key members of management, which do not form part of
the Board of Management itself.
The Supervisory Board supervises the management policies 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 matters 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
Stock Market Inc., the independence requirements contemplated by Rule 10A-3
under the Securities Exchange Act of 1934, as amended, and as defined in article
II.2.3 of the Besi Corporate Governance Code (the "Besi Code"), which is in
compliance with the Dutch Corporate Governance Code.
The Besi Code and the Regulations Supervisory Board establish guidelines for the
Supervisory Board in the exercise of its duties and responsibilities. The Besi
Code and the Regulations Supervisory Board are designed to ensure that Besi is
operated and managed in a manner consistent with our best interests and the best
interests of our shareholders. The Besi Code and the Regulations Supervisory
Board specifically provide that:
- the role of the Supervisory Board is to supervise the policies of the
Board of Management and the general affairs of Besi;
- members of the Supervisory Board, if they consider it necessary, may have
full and free access to Besi management and, as necessary and appropriate,
independent advisors; and
- at least annually the Supervisory Board and its committees will conduct a
self-evaluation.
The Supervisory Board met seven times during 2005. Topics of the meetings
included, among other items:
- our general strategy;
- our financial performance;
- approval of filings with the United States Securities and Exchange
Commission, or the SEC, 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 2005, the Supervisory Board conducted a self-evaluation of the functioning of
the Supervisory Board as a whole and the performance of individual members and
discussed the functioning of the Board of Management as a whole and the
performance of the individual members of the Board of Management. Members of the
Board of Management were not present at this meeting.
44
The Chairman of the Supervisory Board and the members of the Board of Management
of the Company met on a regular basis during the year.
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 or, if applicable, until the end of the agreed term, unless the relevant
member is re-appointed. If a member of the Board of Management is to be
dismissed, the General Meeting of Shareholders must be consulted on the intended
dismissal.
Members of the Board of Management and Supervisory Board, as well as certain
senior management members, are insured under the Company's Directors and
Officers Insurance Policy. Although the insurance policy provides for broad
coverage, our directors and officers may incur uninsured liabilities. The
Company has agreed to indemnify members of its Board of Management and
Supervisory Board against certain claims brought against them in connection with
such positions with the Company, provided that such individuals acted in good
faith and in a manner reasonably believed to be in or not opposed to the best
interests of the Company and, with respect to any criminal action or
proceedings, such individuals had no reasonable cause to believe their conduct
was unlawful.
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 charters that have been approved by the
Supervisory Board. Members of these committees are appointed from the
Supervisory Board members.
AUDIT COMMITTEE
In view of the limited number of members of the full Supervisory Board, the
Supervisory Board serves as the Audit Committee. All members of the Audit
Committee are independent members. The Chairman of the Audit Committee is Mr.
Sinninghe Damste. The Audit Committee fulfills its responsibilities by carrying
out the activities enumerated in its charter including:
- the committee assists the Supervisory Board in fulfilling its oversight
responsibilities by reviewing:
- the operation of internal risk management and control systems;
- the Company's systems of internal controls regarding finance,
accounting and compliance;
- 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 primary authority and responsibility for their
selection (subject to appointment by the Annual General Meeting of
Shareholders), 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 the auditor is
independent;
- the committee monitors the Company's financial reporting process and
internal control systems; 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.
In 2005, the Audit Committee met five times to discuss the scope and results of
audits and reviews by the Company's independent external auditor, KPMG, of the
Company's internal accounting control policies and procedures, and to review the
relevant periodic filings with the SEC and Euronext Amsterdam. The Company's
independent external auditor attended all meetings of the Audit Committee.
Furthermore, the Audit Committee separately met with KPMG outside the presence
of management. Frequent contact took place between the Chairman of the Audit
Committee and members of the Company's management. During 2005, the Audit
Committee reviewed the Company's internal control over financial reporting,
critical accounting policies, new accounting pronouncements, the development of
the international financial reporting standards (`IFRS') and the convergence
between IFRS and U.S. GAAP.
The Audit Committee followed the adoption of the Sarbanes-Oxley Act of 2002 and
the development of the rules promulgated by the SEC implementing the provisions
of the Sarbanes-Oxley Act of 2002, and the listing requirements and marketplace
rules of the Nasdaq National Market. The Audit Committee periodically discusses
and reviews the implementation of the Sarbanes-Oxley Act.
In 2004, the Audit Committee evaluated the performance of KPMG and advised the
Supervisory Board to propose that KPMG be appointed as the Company's auditor for
the fiscal year ending December 31, 2005. This proposal was adopted by the
shareholders at the Annual General Meeting of Shareholders held on March 24,
2005. In 2005, in compliance with the Dutch
45
Corporate Governance Code, the Audit Committee invited a number of audit firms
to participate in the tender for the Company's audit services for the fiscal
years 2006-2008. This procedure has been completed, and the Audit Committee has
recommended to the Supervisory Board that Ernst & Young be appointed as the
Company's auditors for the fiscal years 2006-2008. This proposal will be
presented to the shareholders at the Annual General Meeting of Shareholders to
be held on March 22, 2006.
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 SEC regulations and
the Nasdaq National Market 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
The Remuneration Committee consists of all Supervisory Board members. The
Chairman of the Remuneration Committee is Mr. T. de Waard. In 2004, the
Supervisory Board adopted the Regulations Remuneration Committee. The
Remuneration Committee responsibilities include:
- annually reviewing and proposing the corporate goals and objectives
relevant to the compensation of senior management;
- overseeing the equity incentive plans; and
- determining the compensation of the members of the Board of Management and
reviewing and approving, or make recommendations to the Supervisory Board,
with respect to the compensation of the other executive officers.
The Remuneration Committee met once in 2005 and discussed the remuneration of
the members of the Board of Management.
The Remuneration Committee consists of Mr. T. de Waard, Chairman of the
Remuneration Committee, Mr. W.D. Maris, Mr. E. Polak and Mr. D. Sinninghe
Damste.
SELECTION, APPOINTMENT AND GOVERNANCE COMMITTEE
The Selection, Appointment and Governance Committee consists of all Supervisory
Board members. The Chairman of the Selection, Appointment and Governance
Committee is Mr. E.B. Polak. In 2004, the Supervisory Board adopted the
Regulations Selection, Appointment and Governance Committee. The Selection,
Appointment and Governance Committee has responsibility for:
- establishing 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 to the Supervisory
Board and Board of Management; and
- supervising the policy of the Board of Management on the selection
criteria and appointment procedures for senior management.
In 2005, the Selection, Appointment and Governance 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.
During 2005, the Disclosure Committee met once.
46
EXEMPTIONS FROM CERTAIN NASDAQ NATIONAL MARKET CORPORATE GOVERNANCE RULES
The Nasdaq National Market corporate governance rules provide that Nasdaq
National Market may provide exemptions from the Nasdaq National Market 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 National
Market's exemptions from the following rules:
- Besi is exempt from the Nasdaq National Market's quorum requirements
applicable to meetings of ordinary shareholders. In keeping with Dutch law
and Dutch generally accepted business practice, Besi's Articles of
Association provide that there are no quorum requirements generally
applicable to General Meetings of Shareholders; and
- Besi is exempt from the Nasdaq National Market'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:
2003 2004 2005
---- ---- -----
Europe 464 477 688
Asia Pacific 233 254 320
United States 49 67 79
--- --- -----
Total 746 798 1,087
=== === =====
The following table indicates the composition of our workforce (full time
equivalents) by role as of December 31:
2003 2004 2005
---- ---- -----
Manufacturing 459 484 574
Sales, Marketing and Customer Service 114 128 216
Research and Development 90 103 189
General and Administrative 83 83 108
--- --- -----
Total 746 798 1,087
=== === =====
RESTRUCTURING
In December 2004, as part of our plan to address the downturn in the
semiconductor industry and to reduce our cost structure through the transfer of
certain production activities from high cost geographies to low cost
manufacturing regions, 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 then total fixed headcount worldwide. In addition, we
announced that we would phase out approximately 50 temporary workers at the
Duiven facility. A component of the restructuring was the closing of our tooling
facility in Brunssum, the Netherlands in the first half of 2005. Workforce
reductions of 81 employees occurred during the first half 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.
In May 2005, we announced the further consolidation and integration of our Dutch
Fico packaging and tooling manufacturing operations in Duiven, the Netherlands.
The consolidation involved the termination of 32 employees in the third quarter
of 2005 and the integration of production and administrative personnel at our
Duiven facility. We recorded a restructuring charge of (euro) 1.7 million in the
second quarter of 2005 to cover the estimated costs of this workforce reduction.
In the fourth quarter of 2005, we terminated 14 employees at at our Datacon
Eurotec subsidiary in Berlin in an effort to improve the efficiency of our die
bonding operations. We recorded a restructuring charge of (euro) 0.4 million in
the fourth quarter of 2005 to cover the estimated costs of this workforce
reduction.
47
COLLECTIVE BARGAINING ARRANGEMENTS AND WORKS COUNCIL
Approximately 98% of the employees in the Netherlands are covered by nationwide
collective bargaining agreements. Datacon's employees in Austria are all covered
by the nationwide collective bargaining agreement for employees and workers in
the metal business. Other then as described below, none of our other workers are
represented by labour unions.
Pursuant to the requirements of Dutch law, several of our subsidiaries have an
employee works council. A central works council has been established at our Fico
facility. In addition, Meco Equipment Engineers 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 Equipment Engineers and Fico Singulation jointly have the statutory right
to make binding recommendations for up to one third of the members of the
Supervisory Board.
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, Austrian law provides the requirement of the works council's
consent for matters relating 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 PLANS
DESCRIPTION OF SHARE BASED COMPENSATION 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 from 1995
to 2001, we made awards under the Incentive Plan 1995 to our executive officers
and senior employees. Options granted between 1999 and 2001 are fully vested and
have exercise prices that were equal to the market price of Besi's ordinary
shares on the date of grant. The Incentive Plan 1995 expired in 2001.
In 2001, we established the BE Semiconductor Industries Incentive Plan 2001 -
2005 (the "Incentive Plan 2001"). We granted 700,183 options to purchase
ordinary shares ("2001 Plan Shares") under the Incentive Plan 2001. Until 2004,
we made awards under the Incentive Plan 2001 to our executive officers and
employees. Options granted from 2002 through 2004 are fully vested and have
exercise prices that were equal to the market price of Besi's ordinary shares on
the date of grant. The Incentive Plan 2001 expired in 2005.
In the years 2000 through 2001, we granted stock options to all of our employees
under the Incentive Plan 1995 and in the years 2001 through 2004, we granted
stock options to all of our employees under the Incentive Plan 2001. These
options are fully vested and have exercise prices equal to the market price of
Besi's ordinary shares on the date of grant. These options receive variable
accounting treatment due to cash settlement provisions. All other options
granted by us to our executive officers under the Incentive Plan 1995 and 2001
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. For the stock
options granted between 2001 and 2004 that receive variable accounting
treatment, an amount of (euro) 7, net of tax, was recognized as compensation
cost based on the market value of our ordinary shares for the year ended
December 31, 2005. As of December 31, 2005, there were outstanding options to
purchase an aggregate of 947,193 ordinary shares which receive fixed accounting
treatment at a weighted average exercise price of (euro) 9.82 per share. As of
December 31, 2005, 174,981 options that receive variable accounting treatment
were outstanding at a weighted average exercise price of (euro) 7.13 per share.
In 2005, we established the BE Semiconductor Industries Incentive Plan 2005 -
2009 (the "Incentive Plan 2005"). The total number of ordinary shares ("2005
Plan Shares") that we may issue under the Incentive Plan 2005 may not exceed
1.5% 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. 2005 Plan Shares may consist, in whole or
in part, of unauthorized and unissued
48
ordinary shares or treasury shares. We have and we expect that we will continue,
on an annual basis, to make annual and conditional performance stock awards
under the Incentive Plan 2005 to Supervisory Board members, executive officers
and senior employees of the Company. Receipt of annual awards in the form of
rights to receive ordinary shares are based on defined targets ("Annual PSA
Units"). Receipt of conditional awards in the form of rights to receive ordinary
shares depends in any given year on whether the individual achieved the defined
goals ("Conditional PSA Units"). One third of the performance stock awards will
vest annually on each of the first, second and third anniversaries of the date
of grant. For the performance stock awards granted in 2005, an amount of (euro)
75, net of tax, was recognized as compensation cost in the year ended December
31, 2005 based on the market value of Besi's ordinary shares on the date of
grant.
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 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 fixed
options granted under the Besi's 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 discloses the pro forma effect of SFAS No. 123. Effective
January 1, 2006 we adopted SFAS No. 123(R) which requires that all share-based
payments be accounted for based on their fair value.
At March 24, 2005, the Supervisory Board approved the vesting acceleration of
551,783 unvested variable and fixed options outstanding under our employee stock
options plans. This action was taken to reduce the impact of compensation
expense that we otherwise would be required to recognize in future consolidated
statements of operations pursuant to SFAS No. 123(R), which is applicable to us
beginning in the first quarter of 2006. Furthermore, the Supervisory Board
extended the exercise period with respect to 316,866 out-of-the-money stock
options outstanding under our employee stock option plans. (See Note 1 to our
consolidated financial statements included elsewhere in this annual report on
Form 20-F).
Financing of Stock Option Plans
Option plans that were issued in 1999 and 2000 contained a financing arrangement
pursuant to which we 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 us on the exercise date of the respective option,
provided that the option was actually exercised. If the options expire
unexercised, the respective loans are forgiven. We accrue a liability for the
respective fiscal implication of this arrangement.
49
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.
The following table shows the beneficial ownership of the Company's share
capital as of December 31, 2005 for each person or entity who owns beneficially
5% or more of the Company's ordinary shares. Applicable percentage of ownership
is based on 33,728,517 ordinary shares outstanding (including 992,015 ordinary
shares held in treasury) as of December 31, 2005.
Shares Beneficially Percentage Beneficially
Name of Beneficial Owner(1) Owned Owned
-------------------------------------------- ------------------- -----------------------
FMR Corp. (2) 3,325,400 9.9%
Schneider Capital Management Corporation (3) 2,064,870 6.1%
Darlin N.V. (4) 1,703,290 5.1%
All Supervisory Board and Executive members
of the Board of Management as a group(5) 1,050,311 3.1%
(1) Beneficial ownership is determined in accordance with the rules of the
SEC. Shares subject to options currently exercisable or exercisable within
60 days of December 31, 2005 are deemed outstanding for computing shares
beneficially owned and 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 SEC on February 14, 2006.
(3) This information is based solely on a Schedule 13G filed with the SEC on
February 10, 2006.
(4) This information is based on the notification form 1996 Act Part 1 on
December 8, 2005.
(5) Includes 310,042 ordinary shares issuable upon the exercise of outstanding
options and 25,000 ordinary shares subject to annual and conditional
performance stock awards. Mr. Rutterschmidt owns more than one percent of
our outstanding share capital.
The shareholders referenced in the preceding table have the same voting rights
as the other Besi shareholders.
1996 ACT ON THE DISCLOSURE OF HOLDING IN LISTED COMPANIES
On 15 July 1996, Berliner Elektro Holding Aktiengesellschaft notified the
Netherlands Authority for the Financial Market, or 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 AFM, for these purposes. At the General
Meeting of Shareholders held on March 24, 2005, 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.
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.
50
ITEM 8: FINANCIAL INFORMATION
See "Item 18: Financial Statements" and pages F-1 through F-38.
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, if any, 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.
51
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 5,899,376 New York Shares held by 9 record holders as of
December 31, 2005. 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, 2005
First Quarter $ 6.00 $ 5.11 (euro) 4.59 (euro) 3.95
Second Quarter $ 5.55 $ 4.80 (euro) 4.23 (euro) 3.81
Third Quarter $ 5.03 $ 4.12 (euro) 4.14 (euro) 3.51
Fourth Quarter $ 5.32 $ 4.34 (euro) 4.41 (euro) 3.65
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 $ 9.70 $ 3.35 (euro) 10.40 (euro) 3.70
YEAR ENDED DECEMBER 31, 2001 $ 11.63 $ 4.40 (euro) 12.50 (euro) 5.00
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 2006 $5.45 $ 4.96 (euro) 4.59 (euro) 4.19
January 2006 $5.39 $ 4.78 (euro) 4.50 (euro) 4.09
December 2005 $5.32 $ 4.66 (euro) 4.41 (euro) 4.09
November 2005 $4.89 $ 4.47 (euro) 4.14 (euro) 3.85
October 2005 $4.72 $ 4.34 (euro) 3.92 (euro) 3.65
September 2005 $4.75 $ 4.12 (euro) 3.78 (euro) 3.51
On March 3, 2006, the closing sales price per share on the Nasdaq National
Market was $ 5.32 and the closing sales price per share on Euronext Amsterdam
Stock Exchange was (euro) 4.47.
52
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 our Articles of
Association. The full text of the Articles of Association is available in Dutch
and English at our 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
BE Semiconductor Industries N.V. 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 in the form
of New York Shares on the Nasdaq National Market (symbol: BESI). We are 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.
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 the Articles of Association
which is available free of charge at our website (www.besi.com) under the
heading "Corporate Governance". The Articles of Association were last amended by
a notarial deed executed on February 17, 2006 before Mr. H.B.H. Kraak, civil law
notary, practicing in Amsterdam.
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 March 3, 2006, 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 March 3, 2006, a
total of 33,728,517 ordinary shares were outstanding (including 992,015 ordinary
shares held by Besi in treasury) and there were no preference shares
outstanding.
In January 2005, Besi issued (euro) 46 million principal aggregate amount of
convertible notes due 2012, referred to as the Notes. The Notes mature seven
years from the date of issue and carry an interest rate of 5.5% per annum,
payable semi-annually on January 28 and July 28 of each year. The Notes convert
into ordinary shares at a conversion price of (euro) 5.1250. The Notes are
scheduled to be repaid at maturity in 2012 at a price equal to 100% of their
principal amount plus accrued and unpaid interest. If not converted on the date
beginning four years from the issue date, we may redeem the outstanding Notes at
their par value provided that on the date of conversion the market value of our
ordinary shares exceeds 130% of the then effective conversion price.
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.
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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,
2007 the authority to issue ordinary shares up to a maximum of 20% of the
ordinary shares included in the authorized capital.
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, 2007. The designation
may be renewed for a maximum period of five years. In the absence of such
designation, the General Meeting of Shareholders has the power to limit or
exclude such preemptive rights. The Board of Management, with the Supervisory
Board's approval, excluded pre-emptive rights for all ordinary shares issued
during the fiscal year ended December 31, 2005.
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 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 unsolicited 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
unsolicited 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
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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 authority to effect such repurchases, which
authorization may apply for a maximum period of 18 months. The Board of
Management was authorized to repurchase, within the limits set out in the
Articles of Association, up to the maximum number of shares that it is allowed
to acquire at such time pursuant to the provisions of Section 98(2) of Book 2 of
the Netherlands Civil Code through September 24, 2007. 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 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
dividends and distributions, the rights to such 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 at the General Meeting of Shareholders
require the approval of an absolute majority of votes validly cast at the
meeting, 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.
The Dutch Civil Code mandates 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 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.
Pursuant to the Articles of Association, the Supervisory Board consists of three
or more members, to be determined by the Supervisory Board itself. 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 Supervisory Board members are to be appointed by the General
Meeting of Shareholders upon a nomination prepared by the Supervisory Board.
Proposals to appoint, or re-appoint, members of the Supervisory Board must be
reasoned. In case of re-appointment, consideration must be given by the
Supervisory Board members to the manner in which the member under consideration
for re-appointment has fulfilled his/her tasks as a member of the Supervisory
Board in the past.
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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".
The remuneration of the Supervisory Board is established by shareholders
pursuant to a vote take at the General Meeting of Shareholders.
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 establish further rules and regulations with 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 of
Shareholders 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. Besi has a
policy relating to the remuneration of the members of the Board of Management.
This policy is determined by a vote of the shareholders at the General Meeting
of Shareholders. 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 shareholders at 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 a member (or former member) of the Supervisory Board, a member (or former
member) of the Board of Management or an official (or former official) entitled
to represent Besi, or who at Besi's request 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, member (or 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.
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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.
Besi is required to obtain the consent of the shareholders at the General
Meeting of Shareholders of Board of Management with respect to decisions
concerning an important change in the identity or character of Besi, including:
- the transfer of all, or the major part, of a company's business to a third
party;
- entering into, or terminating any material agreements or business
relationship between Besi, or a subsidiary, and a third party, if such
agreement or termination, has a material impact on Besi's operations; and
- acquiring or divesting an interest in another enterprise, with a value
equal to at least one third of the amount of the total assets reflected in
Besi's (consolidated) annual accounts.
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. This policy of the Board of Management is
subject to review by the appropriate court.
Shareholders and holders of New York Shares representing at least 1% of the
issued capital of Besi have the right to request the inclusion of (additional)
items on the agenda of the General Meeting of Shareholders. In case of listed
companies like Besi, shareholders or holders of New York Shares representing an
aggregate value of at least fifty million euro also have the right to request
that the Board of Management refuse to put an item on the agenda for the General
Meeting of Shareholders only if this would prejudice vital interests of Besi.
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 after deadline and the items are not put on the agenda for
the General Meeting of Shareholders, they must be addressed at the subsequent
General Meeting of Shareholders.
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 by the shareholders on such matter.
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 is 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
holders of the preference shares 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 such 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.
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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 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).
Non-compliance with the notification obligations under the Disclosure 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.
CORPORATE GOVERNANCE CODE
The Dutch 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 Dutch Corporate Governance
Code. At the 2004 General Meeting of Shareholders, the shareholders approved the
Besi Corporate Governance Code. This Code is based on both the Dutch Corporate
Governance Code and the Sarbanes-Oxley Act of 2002 and related regulations. 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.
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TAXATION
SUMMARY OF DUTCH TAX CONSIDERATIONS
The following is a summary of the Dutch tax consequences of the acquisition,
holding and disposal (including conversion) of the Notes and ordinary shares
into which the Notes may be converted. This summary does not purport to describe
all possible tax considerations or consequences that may be relevant to a holder
or prospective holder of Notes or of ordinary shares into which the Notes may be
converted. In view of its general nature, it should be treated with
corresponding caution. As to individual tax consequences, holders of Notes or of
ordinary shares are advised to consult their own tax advisors.
WITHHOLDING TAX
INTEREST AND ANY OTHER PAYMENTS UNDER THE NOTES
Under current Dutch law, payment of interest, principal and premium on the
Notes, 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
- 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 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 0%. Except in the case of exempt organizations, the reduced
dividend withholding rate (or exemption from withholding) can be applied at the
source
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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 amends also 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 country, 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.
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) 19,698 ((euro) 39,396 for
partners (statutorily defined term); this amount may be increased with (euro)
2,631 per minor child) of the net investment assets may be available (mentioned
amounts are applicable for 2006). 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 of the Notes, under Article 6(5) of the Terms and Conditions
contained in 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,
60
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 of the Notes, under 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 31.5% (2006: 29.6%), unless the participation
exemption is applicable. An increase of the conversion amount of the Notes,
under 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;
- 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;
- 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;
- 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 of
the Notes, under 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.
61
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
In the event Notes are received by a resident or deemed to be resident in the
Netherlands by gift or on the death of a holder of Notes, 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 at
the time such gift or 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 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, or EU, 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 EU
has signed or is in the process of signing agreements with Switzerland, Andorra,
SanMarino, Monaco, Liechtenstein and the dependent and associated territories of
the United Kingdom and the Netherlands that provides for equivalent measures.
62
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;
- 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 inconnection 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 on our ordinary shares. 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 us 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, a maximum U.S.
federal income tax rate of 15% applies 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
63
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"). 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. However, if the Company is a "passive foreign investment
company" (as discussed below) in the year in which a dividend is paid or the
preceding year, the Company will not b a "qualified foreign corporation" and the
dividend will not qualify for the reduced rate of tax.
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. However, recently enacted legislation will modify
the foreign tax credit rules by reducing the number of classes of foreign source
income to two for taxable years beginning after December 31, 2006. Under such
legislation, dividends distributed by us to U.S. holders would generally
constitute "passive category income", but could, in the case of certain U.S.
holders, constitute "general category income".
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 or New York shares, as applicable 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.
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.
64
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 in
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 tax 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 tax 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. Any gain realized upon disposition of
such holder's ordinary shares will generally be taxed as capital gain.
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.
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
currently 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.
65
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
Besi's management, with the participation of Besi's chief executive officer and
chief financial officer, evaluated the effectiveness of the Company's disclosure
controls and procedures as of December 31, 2005. The term "disclosure controls
and procedures", as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange
Act, means controls and other procedures of a company that are designed to
ensure that information required to be disclosed by a company in the reports
that it files or submits under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the Securities and
Exchange Commission's rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by a company in the reports that it files
or submits under the Exchange Act is accumulated and communicated to the
company's management, including its principal executive and principal financial
officers, as appropriate to allow timely decisions regarding required
disclosure. Management recognizes that any controls and procedures, no matter
how well designed and operated, can provide only reasonable assurance of
achieving their objectives and management necessarily applies its judgment in
evaluating the cost-benefit relationship of possible controls and procedures.
Based on the evaluation of Besi's disclosure controls and procedures as of
December 31, 2005, Besi's chief executive officer and chief financial officer
concluded that, as of such date, Besi's disclosure controls and procedures were
effective at the reasonable assurance level.
No change in Besi's internal control over financial reporting occurred during
the fiscal quarter ended December 31, 2005 that has materially affected, or is
reasonably likely to materially affect, the Company's internal control over
financial reporting.
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 the Securities and Exchange Commission's regulations and
the Nasdaq National Market 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.
66
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, 2005. The following table
presents the aggregate fees for professional audit services and other services
rendered by KPMG in 2004 and 2005:
(Euro in thousands) December 31,
------------------- -------------------
2004 2005
---- ----
Audit fees 213 364
Audit related fees 180 213
Tax fees 42 64
All other fees 110 93
--- ---
Total 545 734
=== ===
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 this
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 the acquisition
of Datacon, IFRS financial statements, convertible notes and 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, 2004 and 2005.
ALL OTHER FEES
All other related fees mainly comprised service to assist Besi in complying with
provisions of the Sarbanes-Oxley Act of 2002.
PRE-APPROVAL POLICIES FOR NON-AUDIT SERVICES
The Audit Committee has approved the external audit plan and related audit fees
for the year 2005. 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. 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 2005.
D. EXEMPTIONS FROM LISTING STANDARDS FOR AUDIT COMMITTEES
Not applicable
E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASES
Not applicable
67
PART III
ITEM 17: FINANCIAL STATEMENTS
Not applicable
ITEM 18: FINANCIAL STATEMENTS
See pages F-1 through F-38
ITEM 19: EXHIBITS
Exhibit No. Description
---------- ----------------------------------------------------------------
1 Articles of Association of BE Semiconductor Industries N.V.
(English translation) (Incorporated by reference from the
registrant's Report of Foreign Private Issuer on Form 6-K as
filed with the Securities and Exchange Commission on January 24,
2005).
4.1 Employment Agreement between BE Semiconductor Industries N.V.
and Richard Blickman, dated August 16, 2001.
4.2 Employment Agreement between Besi USA Inc. and Hans Wunderl,
dated October 27, 2003.
4.3 Agreement for Services between BE Semiconductor Industries N.V.
and Hans Wunderl dated October 2003.
4.4 BE Semiconductor Industries N.V. Incentive Plan 2005-2009
8.1 List of Subsidiaries
12.1 Rule 13(a)-14(a)/15(d)-14(a) Certification of Chief Executive
Officer
12.2 Rule 13(a)-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
68
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for
filing on Form 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 Blickman
--------------------------------------------
Name: Richard Blickman
Title: President and Chief Executive Officer
Date: April 3, 2006
69
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS 2005
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 Income (Loss) F-8
Notes to the Consolidated Financial Statements F-9
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, 2004 and 2005, and the
related consolidated statements of income, stockholders' equity and
comprehensive income, and cash flows for each of the years in the three-year
period ended December 31, 2005. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of BE Semiconductor
Industries N.V. and subsidiaries as of December 31, 2004 and 2005, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2005, in conformity with U.S. generally
accepted accounting principles.
KPMG ACCOUNTANTS N.V.
Arnhem, the Netherlands
February 6, 2006
F-2
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
December 31,
-----------------------------------------------
2004 2005 2005
Notes EURO EURO USD (1)
--------- ------------ --------- --------
ASSETS
Cash and cash equivalents 106,573 72,950 86,387
Accounts receivable 3 20,172 31,456 37,250
Inventories 4 34,118 53,779 63,685
Other current assets 5 14,773 12,737 15,084
------------ ------- --------
Total current assets 175,636 170,922 202,406
Property, plant and equipment 6 28,543 40,398 47,839
Goodwill 7 12,070 68,864 81,549
Other intangible assets 7 10,895 14,619 17,312
Deferred tax assets 9 198 1,359 1,609
Other non-current assets 8 - 4,874 5,772
------------ ------- --------
Total assets 227,342 301,036 356,487
============ ======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable to banks 10 - 5,693 6,742
Current portion of long-term debt and capital leases 12 753 15,457 18,304
Accounts payable 14,331 14,916 17,663
Accrued liabilities 11 18,791 17,663 20,917
------------ ------- --------
Total current liabilities 33,875 53,729 63,626
Convertible notes 12 - 46,000 54,473
Other long-term debt and capital leases 12 13,361 15,636 18,516
Deferred tax liabilities 9 2,156 821 972
Other non-current liabilities 13 842 3,261 3,862
------------ ------- --------
Total non-current liabilities 16,359 65,718 77,823
Minority interest 115 178 211
Ordinary shares 28,023 29,790 35,277
Preference shares - - -
Capital in excess of par value 177,478 183,443 217,233
Retained deficit (20,668) (25,849) (30,610)
Accumulated other comprehensive loss (7,840) (5,973) (7,073)
------------ ------- --------
Total shareholders' equity 176,993 181,411 214,827
------------ ------- --------
Total liabilities and shareholders' equity 227,342 301,036 356,487
============ ======= ========
(1) 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,
-----------------------------------------------------------------
2003 2004 2005 2005
Notes EURO EURO EURO USD (1)
--------- ----------- ----------- ------------ ----------
Net sales 19 85,500 126,341 164,262 194,519
Cost of sales 63,345 88,352 106,897 126,587
----------- ----------- ------------ ----------
Gross profit 22,155 37,989 57,365 67,932
Selling, general and administrative expenses 25,436 27,145 38,697 45,825
Research and development expenses 18 13,564 12,500 17,918 21,219
Restructuring charges 11 - 5,616 2,231 2,642
Impairment of intangibles 287 - - -
Amortization of intangible assets 7 2,522 2,465 3,728 4,415
----------- ----------- ------------ ----------
Total operating expenses 41,809 47,726 62,574 74,101
Operating loss (19,654) (9,737) (5,209) (6,169)
Interest income (expense), net 22 2,815 1,811 (2,711) (3,210)
----------- ----------- ------------ ----------
Loss before taxes and minority interest (16,839) (7,926) (7,920) (9,379)
Income taxes (benefit) 9 (3,292) (2,435) (2,779) (3,291)
----------- ----------- ------------ ----------
Loss before minority interest (13,547) (5,491) (5,141) (6,088)
Minority interest 50 64 (40) (47)
----------- ----------- ------------ ----------
Net loss (13,497) (5,427) (5,181) (6,135)
=========== =========== ============ ==========
Loss per share
Basic (0.44) (0.18) (0.16) (0.19)
Diluted (0.44) (0.18) (0.16) (0.19)
Weighted average number of shares used to compute
loss per share
Basic 30,813,681 30,794,660 32,710,934 32,710,934
Diluted 30,813,681 30,794,660 32,710,934 32,710,934
=========== =========== ============ ==========
(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,
----------------------------------------------
2003 2004 2005 2005
EURO EURO EURO USD (1)
--------- --------- ---------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss (13,497) (5,427) (5,181) (6,135)
Adjustments to reconcile net loss
to net cash provided by (used in) operating activities:
Depreciation of property, plant and equipment 3,947 4,444 5,732 6,788
Amortization of intangible assets 2,522 2,465 3,728 4,415
Impairment of intangibles 287 - - -
Amortization of debt issuance costs - - 314 372
Deferred income taxes (benefits) (610) (810) (2,514) (2,977)
Loss (gain) on disposal of equipment (32) (105) 53 63
Gain on liquidation of subsidiaries - (127) - -
Translation of debt in foreign currency 393 198 (703) (833)
Minority interest (50) (64) 40 47
Share based payments - - 105 124
Effects of changes in assets and liabilities, net of amounts acquired:
Decrease (increase) in accounts receivable 9,961 (2,556) (1,674) (1,982)
Decrease (increase) in inventories 4,764 (6,762) 7,796 9,232
Decrease (increase) in other current assets 108 (3,969) 3,892 4,609
Increase (decrease) in accrued liabilities (2,520) 4,566 (9,129) (10,812)
Increase (decrease) in accounts payable (2,621) 4,106 (3,021) (3,577)
------- ------ ------- -------
Net cash provided by (used in) operating activities 2,652 (4,041) (562) (666)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (11,889) (3,427) (6,418) (7,600)
Proceeds from sale of property, plant and equipment 93 139 730 864
Acquisition of subsidiaries, net of cash acquired - - (62,002) (73,423)
------- ------ ------- -------
Net cash used in investing activities (11,796) (3,288) (67,690) (80,159)
======= ====== ======= =======
(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,
--------------------------------------------
2003 2004 2005 2005
EURO EURO EURO USD (1)
-------- ------- --------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt and capital leases (1,233) (8,384) (8,389) (9,934)
Proceeds from long-term debt and capital leases 1,185 13,801 12,356 14,632
Proceeds from issuance of convertible notes, net of expenses - - 43,624 51,659
Payments of bank lines of credit - - (13,722) (16,249)
Purchase of own shares (346) - - -
Proceeds from exercised stock options - - 27 32
Proceeds from minority shareholder of subsidiary 221 - - -
------- ------- ------- -------
Net cash provided by (used) in financing activities (173) 5,417 33,896 40,140
Net decrease in cash and cash equivalents (9,317) (1,912) (34,356) (40,685)
Effect of changes in exchange rates on cash and cash equivalents (1,652) (412) 733 868
Cash and cash equivalents at beginning of the year 119,866 108,897 106,573 126,204
------- ------- ------- -------
Cash and cash equivalents at end of the year 108,897 106,573 72,950 86,387
======= ======= ======= =======
Supplemental disclosure:
Cash paid for interest 655 825 3,054 3,617
Cash paid for income taxes 117 1,378 2,490 2,949
======= ======= ======= =======
(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
Capital other Total
Number of in excess comprehensive share-
ordinary Share capital of par Retained income holders'
shares at par value value deficit (loss) equity
outstanding EURO EURO EURO EURO EURO
----------- -------------- --------- -------- ------------- --------
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
Net loss - - - (5,181) - (5,181)
Exchange rate changes for the year - - - - 1,827 1,827
Issuance of shares for the acquisition of
Datacon 1,933,842 1,760 5,840 - - 7,600
Reissued treasury shares for the
exercise of stock options 8,000 7 20 - - 27
Change in minimum pension liability, net
of taxes of (euro) 25 - - - - 40 40
Share based payment expenses - - 105 - - 105
---------- -------------- --------- ------- ------------ --------
Balance at December 31, 2005 32,736,502 29,790 183,443 (25,849) (5,973) 181,411
========== ============== ========= ======= ============ ========
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-7
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Amounts in thousands)
Year ended December 31,
--------------------------------------
2003 2004 2005 2005
EURO EURO EURO USD (1)
-------- ------- ------- --------
Net loss (13,497) (5,427) (5,181) (6,135)
Other comprehensive income (loss):
Foreign currency translation adjustment (3,139) (959) 1,827 2,164
Adjustment for exchange rate changes on liquidation of group
companies realized in net loss - (127) - -
Change in minimum pension liability, net of taxes of (euro) 25 - - 40 48
-------- ------- ------- -------
Comprehensive income (loss) (16,636) (6,513) (3,314) (3,923)
======== ======= ======= =======
Accumulated other comprehensive income (loss) consists of:
Year ended December 31,
--------------------------------------
2003 2004 2005 2005
EURO EURO EURO USD (1)
-------- ------- ------- -------
Foreign currency translation adjustment (6,754) (7,840) (6,013) (7,121)
Minimum pension liability, net of taxes of (euro) 25 - - 40 48
-------- ------- ------- -------
Accumulated other comprehensive income (loss) (6,754) (7,840) (5,973) (7,073)
======== ======= ======= =======
(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 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,
Austria, Asia and the United States. Besi operates its business through its
subsidiaries Fico B.V., or Fico, Meco International B.V., or Meco, and their
respective subsidiaries, Laurier Inc., or Laurier and Datacon Technology GmbH,
formerly Datacon Technology AG, or Datacon, and its subsidiaries.
On January 4, 2005, Besi acquired all of the outstanding ordinary shares of
Datacon for total consideration of (euro) 76.0 million, of which (euro) 65.0
million was paid in cash and (euro) 7.6 million through Besi's issuance of
1,933,842 ordinary shares at the date of the acquisition. Acquisition costs
amounted to (euro) 3.4 million.
The results of Datacon are included in Besi's consolidated financial statements
from the date of acquisition. The acquisition was accounted for using the
purchase method of accounting. The purchase price, including acquisition costs,
was allocated as follows:
(In thousands) EURO
---------------------- ------
Net tangible assets 13,113
Patents 297
Customer relationships 6,083
Product backlog 719
Goodwill 55,813
------
76,025
======
An amount of (euro) 1.2 million was accounted for in this purchase acquisition
with respect to net deferred taxes.
The pro forma impact of this acquisition reflects the acquisition of Datacon as
if such transaction had occurred on January 1, 2004. Pro forma 2004 adjustments
include (a) results of operations of Datacon prepared in accordance with
accounting principles generally accepted in the United States, or U.S. GAAP, (b)
the effects of the purchase accounting adjustments relating to the acquisition
of Datacon resulting in the amortization of intangibles in 2004 and (c) the
elimination of interest income related to the (euro) 68.4 million of cash
utilized to help fund the Datacon acquisition. The impact of the Datacon
acquisition on Besi's net sales and net loss on a pro forma basis in 2004 is as
follows:
Pro forma
Unaudited
2004
(In thousands) EURO
------------------------- ---------
Net sales 194,323
Net loss (2,752)
=========
2 SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
PRESENTATION
The accompanying Consolidated Financial Statements include the accounts of Besi
and its consolidated subsidiaries (collectively, "the Company"). The Company
uses U.S. GAAP for the preparation of the Company's Consolidated Financial
Statements.
The accompanying Consolidated Financial Statements are, solely for the
convenience of the reader, also translated into U.S. dollars, or USD or U.S. $,
using the noon buying rate in New York City for cable transfers in foreign
currencies as certified for customs purposes by the Federal Reserve Bank of New
York in effect on December 31, 2005 ((euro) 1.00 = U.S.$ 1.1842). 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.
F-9
All euro and U.S. dollar amounts are expressed in thousands, unless otherwise
stated.
All material operating units qualify for aggregation under Statement of
Financial Accounting Standards, or SFAS, No. 131 "Disclosures about Segments of
an Enterprise and Related Information" 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, all financial segment and product line information
required by SFAS No. 131 can be found in the Company's Consolidated Financial
Statements.
PRINCIPLES OF CONSOLIDATION
As of December 31, 2005, 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%
Besi USA Inc. Londonderry, New Hampshire, USA 100%
Fico B.V. Duiven, the Netherlands 100% (1)
Fico Molding Systems B.V. Duiven, the Netherlands 100% (1)
Fico Trim & Form Integration Systems B.V. Duiven, the Netherlands 100% (1)
Fico Tooling B.V. Duiven, the Netherlands 100% (1)
Fico Tooling Leshan Company Ltd. Leshan, China 87%
Fico Asia SDN. BHD. Shah Alam, Malaysia 100% (2)
ASM Fico (F.E.) SDN. BHD. Shah Alam, Malaysia 99.9% (3)
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%
Meco Equipment Engineers B.V. Drunen, the Netherlands 100%
Besi Japan Co. Ltd. Tokyo, Japan 100%
Fico Singulation B.V. Drunen, the Netherlands 100%
Besi Taiwan Ltd. Taipei, Taiwan 100%
Meco Equipment Engineers (Far East) Pte Ltd. Singapore 100%
Laurier, Inc. Londonderry, New Hampshire, USA 100%
Besi Austria Holding GmbH Vienna, Austria 100%
Datacon Beteiligungs GmbH Vienna, Austria 100%
Datacon Technology GmbH Radfeld, Austria 100%
Datacon Eurotec GmbH Berlin, Germany 100%
Datacon Hungary Termelo Kft. Gyor, Hungary 100% (2)
Datacon Asia Pacific Pte. Ltd. Singapore 100%
Datacon North America Inc. Wilmington, Delaware, USA 100%
Datacon Korea Ltd. Seoul, Korea 100%
Datacon Philippines, Inc. Muntinlupa City, Philippines 100%
(1) Fico Molding Systems B.V., Fico Trim & Form Integrations B.V. and Fico
Tooling B.V. merged effective January 12, 2006 and changed the name of the
combined company to Fico B.V. Fico B.V. was renamed to Fico International
B.V.
(2) In order to comply with local corporate law, a minority shareholding (less
than 0.1%) is held by the management of these respective companies.
(3) In order to comply with local corporate law, a minority shareholding is
held by the management of this company.
The functional currency of the Company's foreign subsidiaries is generally the
local currency of the country of domicile. The balance sheets of the foreign
subsidiaries are translated at the year-end exchange rates. The revenues and
expenses of foreign operations are translated to euro at rates approximating to
the foreign exchange rate in effect at the dates of the transactions.
Translation differences arising from the consolidation of the financial
statements of foreign subsidiaries are recorded directly to accumulated other
comprehensive income (loss).
All intercompany profit, transactions and balances have been eliminated in
consolidation.
F-10
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.
The Company uses forward foreign currency exchange contracts to hedge certain
firm commitments denominated in foreign currencies. The terms of the exchange
contracts used by the Company 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 foreign exchange rates.
Using qualifying criteria defined in SFAS No. 133 and SFAS No. 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) on 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 on the
derivative instrument are initially recorded in accumulated other comprehensive
income or 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 2003, 2004 and 2005, the derivative
instruments used by the Company were fair value hedges. The Company does not use
derivative financial instruments for trading or speculative purposes.
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 as a
component of 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. Balances which are over 90 days past due
and exceed a specific amount are reviewed individually for collectibility.
Accounts receivable balances are charged off against the allowance for doubtful
accounts after all means of collection have been exhausted and the potential for
recovery is considered unlikely. The Company does not have any off-balance sheet
credit exposure related to its customers.
INVENTORIES
Inventories are stated at the lower of cost (using 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.
F-11
LEASES
Assets acquired under capital leases are included in the Consolidated Balance
Sheets at the present value of the minimum future lease payments at the
inception of the lease 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 generated by such asset, 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 those assets, and depreciation ceases. The
amortization of patents and other identifiable intangible assets is based on the
estimated useful lives. The estimated useful lives are as follows:
Category Estimated useful life
-------------------------------------------- ---------------------
Patents and trademarks 8 - 16 years
Customer relationships 12 years
Acquired product backlog < 1 year
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. Goodwill is not
amortized, but is evaluated for impairment at least annually in accordance with
SFAS No. 142 "Goodwill and Other Intangible Assets".
The Company has four business units which aggregate as one reportable segment.
Goodwill and intangible assets not subject to amortization are tested annually
for impairment at the business unit level. 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 intangible assets with indefinite
lives.
INCOME TAXES
The Company applies SFAS No. 109 "Accounting for Income Taxes", which requires
the use of 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 it is more likely than not that
the asset will not be realized.
REVENUE RECOGNITION
Shipment of products generally 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 if and when 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 Emerging Issues
Task Force ("EITF") consensus 00-21 "Accounting for Revenue Arrangements with
Multiple Deliverables". 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 in connection with claims under warranty
provisions and on estimated probable costs related to such current sales.
F-12
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 benefits determined in accordance with the
respective collective bargaining agreements.
A portion of the Company's employees in Austria and Germany participate in
defined benefit plans. The Company accounts for the costs of these defined
benefit plans in accordance with SFAS No. 87 "Employers' Accounting for
Pensions". The Company's net obligation in respect of these defined benefit
plans is calculated separately for each plan by estimating the amount of future
benefit that employees have earned in return for their service in the current
and prior periods; that benefit is discounted to determine its present value,
and the fair value of any plan assets is deducted. The calculation is performed
by a qualified actuary using the projected unit credit method. All other pension
plans are based on a defined contribution plan and operated by insurance
companies. The Company has no other liability regarding pensions other than
payment of annual premiums, which are charged against earnings when incurred.
SEVERANCE PROVISIONS
A provision for severance obligations covers the Company's commitment to pay
employees a lump sum upon reaching retirement age, or upon the employee's
dismissal or resignation.
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 amount 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 under the stock option plans had an exercise price equal to the
market value of the underlying ordinary shares on the date of grant and no cash
settlement provisions. The Company uses variable accounting treatment for
options which contain cash settlement provisions and option granted to employees
provide a right to receive payment of an amount that corresponds with the profit
achieved with the sale of newly issued ordinary shares or treasury shares by the
Company after exercise of the options.
The Company 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 until
January 1, 2006. As of January 2006, the Company will account for share-based
payment transactions in accordance with SFAS 123(R) "Shared Based Payment". SFAS
123(R) eliminates the ability to account for share-based compensation
transactions using the intrinsic method that the Company used through December
2005 and generally requires that such transactions be accounted for using a
"fair-value" based method and recognized as expense in the Consolidated
Statements of Operations.
At March 24, 2005, the Supervisory Board approved the vesting acceleration of
551,783 unvested variable and fixed options outstanding under the Company's
employee stock options plans. This action was taken to reduce the impact of
compensation expense that the Company otherwise would be required to recognize
in future consolidated statements of operations pursuant to SFAS123(R), which is
applicable to the Company beginning in the first quarter of 2006. Furthermore,
the Supervisory Board extended the exercise period with respect to 316,866
out-of-the-money stock options outstanding under the Company's employee stock
option plans. In connection with the modification of the terms of the options to
accelerate their vesting and to extend the exercise period, approximately (euro)
507, net of related tax effects, was recorded as a non-cash compensation expense
on a pro forma basis in accordance with SFAS 123, and this amount is included in
the following pro forma table for the year ended December 31, 2005.
F-13
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.
2003 2004 2005
(Amounts in thousands, except per share data) EURO EURO EURO
------------------------------------------------------------ -------- ------- -------
Net loss as reported (13,497) (5,427) (5,181)
Deduct: Stock-based employee compensation expense
determined under fair value based method for all awards,
net of related tax effects (1,036) (356) (674)
Add: Stock-based compensation expense (release) included
in net loss, net of related tax effect 26 (12) 79
-------- ------- -------
Pro forma net loss (14,507) (5,795) (5,776)
BASIC LOSS PER SHARE:
As reported (0.44) (0.18) (0.16)
Pro forma (0.47) (0.19) (0.18)
DILUTED LOSS PER SHARE:
As reported (0.44) (0.18) (0.16)
Pro forma (0.47) (0.19) (0.18)
======== ======= =======
CONCENTRATION OF CREDIT RISK
A relatively small number of customers accounts 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, performance
stock awards and the conversion of the convertible notes outstanding during the
period, unless the conversion would have an anti-dilutive effect).
RECLASSIFICATIONS
Certain reclassifications have been made to the Consolidated Financial
Statements for 2004 and 2003 to conform to the current year presentation.
USE OF ESTIMATES
The preparation of the Company's Consolidated Financial Statements in conformity
with U.S. GAAP 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 May 2005, the Financial Accounting Standards Board, or FASB, issued SFAS No.
154, "Accounting Changes and Error Corrections -- a Replacement of APB Opinion
No. 20 and FASB Statement No. 3, or SFAS 154", which requires retrospective
application of every voluntary change in accounting principal to prior periods'
financial statements unless it is impracticable to do so. SFAS No. 154 is
effective for accounting changes and corrections of errors beginning in fiscal
2007. The Company does not expect the adoption of this accounting standard to
have a material effect on our financial position or results of operations.
In December 2004, FASB issued a revision of FASB Statement No. 123, "Accounting
for Stock-Based Compensation, SFAS No. 123 (revised 2005)", 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 such
F-14
company or liabilities that are based on the fair value of such 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 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) became effective on January
1, 2006. The effects of the change have not yet been determined by the Company.
In March 2005, the U.S. Securities and Exchange Commission ("SEC") released SEC
Staff Accounting Bulletin ("SAB") No. 107. SAB 107 provides the SEC staff
position regarding the application of SFAS 123R, "Share-Based Payment". SAB 107
contains interpretive guidance relating to the interaction between SFAS 123R and
certain SEC rules and regulations, as well as the staff's views regarding the
valuation of share-based payment arrangements for public companies. SAB 107 also
highlights the importance of disclosures related to the accounting for
share-based payment transactions. The Company is currently evaluating SAB 107
and intends to follow its guidance as part of its adoption of SFAS 123R in the
first quarter of 2006.
3 ACCOUNTS RECEIVABLE
Accounts receivable, net consist of the following:
December 31,
-----------------
2004 2005
EURO EURO
------- -------
Accounts receivable 21,632 32,160
Allowance for doubtful accounts (1,460) (704)
------- -------
Total accounts receivable, net 20,172 31,456
======= =======
A summary of activity in the allowance for doubtful accounts is as follows:
2003 2004 2005
EURO EURO EURO
----- ----- ------
Balance at January 1, 2,912 1,785 1,460
Release for allowance for doubtful accounts (894) (250) (690)
Accounts receivable written off (127) (60) (99)
Foreign currency translation (106) (15) 33
----- ----- ------
Balance at December 31, 1,785 1,460 704
===== ===== ======
4 INVENTORIES
Inventories, net consist of the following:
December 31,
---------------
2004 2005
EURO EURO
------ ------
Raw materials 10,906 19,583
Work in progress 19,921 28,218
Finished goods 3,291 5,978
------ ------
Total inventories, net 34,118 53,779
====== ======
F-15
A summary of activity in the allowance for obsolescence is as follows:
2003 2004 2005
EURO EURO EURO
----- ------- -------
Balance at January 1, 5,198 7,432 8,915
Provision for loss on obsolete inventory 3,362 3,245 1,718
Inventory written off (857) (1,680) (1,301)
Foreign currency translation (271) (82) 189
----- ------- -------
Balance at December 31, 7,432 8,915 9,521
===== ======= =======
5 OTHER CURRENT ASSETS
Other current assets consist of the following:
December 31,
----------------
2004 2005
EURO EURO
------- ------
VAT receivables 2,253 1,326
Income taxes 8,989 7,640
Subsidies and development credits receivable 163 83
Interest receivable 383 540
Deposits 106 217
Prepaid expenses 1,726 1,327
Deferred tax assets 371 1,041
Other 782 563
------ ------
Total other current assets 14,773 12,737
====== ======
F-16
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, 2005:
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
Changes in book value in 2005:
Acquisition of Datacon 8,150 1,673 1,479 - 11,302
Investments 2,098 2,482 871 967 6,418
Disposals (73) (804) (68) - (945)
Depreciation (1,099) (2,986) (1,647) - (5,732)
Foreign currency translation 310 371 94 37 812
--------------- ------------- ------------- ------------ ------
Total changes 9,386 736 729 1,004 11,855
Balance at December 31, 2005:
Cost 31,577 28,588 16,685 1,514 78,364
Accumulated depreciation (7,499) (16,885) (13,582) - (37,966)
--------------- ------------- ------------- ------------ ------
Property, plant and equipment, net 24,078 11,703 3,103 1,514 40,398
=============== ============= ============= ============ =======
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 in 2006. 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
repays the loan. Once the buyer repays the loan, this financial obligation and
the related real estate assets will be derecognized from the balance sheet.
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) 13.1 million at December 31, 2005.
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,
-----------------
2004 2005
EURO EURO
------ ------
Land and buildings 13,140 13,102
Machinery, equipment and office furniture 3,384 3,991
Accumulated depreciation (2,518) (3,335)
------ ------
Total 14,006 13,758
====== ======
The legal ownership of the majority of the assets under capital leases lies with
a third party.
F-17
7 GOODWILL AND OTHER INTANGIBLE ASSETS
In the fourth quarter of the years 2003, 2004 and 2005, the Company tested its
goodwill and certain of its intangibles for impairment at the business unit
level.
As a result, in the fourth quarter of 2003, the Company recorded an impairment
of patents related to certain die handling equipment of (euro) 287. No
impairment on other intangibles was required. In the fourth quarter of 2004 and
2005, no impairment on intangibles was required. The Company does not have any
identifiable intangible assets with indefinite lives.
Goodwill and other intangible assets, net consist of the following:
Customer
Goodwill Patents Trademarks relationships Backlog Total
-------- ------- ---------- ------------- ------- -------
EURO EURO EURO EURO EURO EURO
-------- ------- ---------- ------------- ------- -------
Balance at January 1, 2005:
Cost 19,074 34,186 541 - - 53,801
Accumulated amortization (7,004) (23,652) (180) - - (30,836)
-------- ------- ---------- ------------- ------- -------
Goodwill and other intangible assets 12,070 10,534 361 - - 22,965
Changes in book value in 2005:
Acquisition of Datacon 55,813 297 - 6,083 719 62,912
Tax adjustments on acquisition (326) - - - - (326)
Amortization - (2,456) (46) (507) (719) (3,728)
Foreign currency translation 1,307 299 54 - - 1,660
-------- ------- ---------- ------------- ------- -------
56,794 (1,860) 8 5,576 - 60,518
Balance at December 31, 2005:
Cost 76,369 34,978 625 6,083 719 118,774
Accumulated amortization (7,505) (26,304) (256) (507) (719) (35,291)
-------- ------- ---------- ------------- ------- -------
Goodwill and other intangible assets 68,864 8,674 369 5,576 - 83,483
======== ======= ========== ============= ======= =======
Aggregate amortization expense for the year ended December 31, 2005 was (euro)
3.7 million.
Estimated amortization expense for each of the next five years is as follows:
EURO
-----
2006 3,032
2007 3,032
2008 2,185
2009 1,535
2010 857
=====
F-18
8 OTHER NON-CURRENT ASSETS
Other non-current assets consist of the following
December 31,
----------------
2004 2005
EURO EURO
---- -----
Debt issuance costs, net of amortization - 2,062
Funds with insurance companies for pension liability - 2,710
Other - 102
---- -----
Total other non-current assets - 4,874
==== =====
9 INCOME TAXES
The items giving rise to the deferred tax assets (liabilities), net were as
follows:
December 31,
---------------------
2004 2005
EURO EURO
------- -------
Deferred tax assets
- Operating loss carry forwards 5,171 7,591
- Intangible assets 2,881 1,723
- Intercompany interest 2,065 2,992
- Research and development - 1,287
- Inventories 556 641
- Provisions 290 902
- Other items 264 369
------- -------
Total deferred tax assets, gross 11,227 15,505
- Valuation allowance (10,658) (13,105)
------- -------
Total deferred tax assets, net 569 2,400
Deferred tax liabilities
- Intangible assets (2,849) (721)
- Other items (105) (100)
------- -------
Total deferred tax liabilities (2,954) (821)
------- -------
Total deferred tax assets (liabilities) (2,385) 1,579
======= =======
Deferred tax assets
- Current 371 1,041
- Non-current 198 1,359
------- -------
569 2,400
Deferred tax liabilities
- Current (798) -
- Non-current (2,156) (821)
------- -------
(2,954) (821)
------- -------
Total deferred tax assets (liabilities) (2,385) 1,579
======= =======
The deferred tax assets for operating loss carry forwards are related to the
U.S., Austrian and German operations of the Company. Under applicable U.S. tax
law, the carry forwards related to the U.S. operating losses of (euro) 18.1
million expire during the periods between 2010 and 2025. The carry forwards
related to the Austrian and German operating losses amount to approximately
(euro) 1.7 million and (euro) 1.5 million, respectively, and have no expiration
terms.
F-19
A summary of activity in the valuation allowance on the deferred tax assets is
as follows:
2003 2004 2005
EURO EURO EURO
------- ------ ------
Balance at January 1, 10,114 11,089 10,658
Valuation allowance on acquired tax asset - - 687
Provision for allowance on deferred tax assets 2,777 819 513
Reversal of acquired valuation allowance on tax assets - - (211)
Release due to utilization of net operating losses - (376) -
Release due to expiration of net operating losses
carried forward (98) - -
Foreign currency translation (1,704) (874) 1,458
------- ------ ------
Balance at December 31, 11,089 10,658 13,105
======= ====== ======
The change in the total valuation allowance for the year ended December 31, 2003
was an increase of (euro) 975 as compared to December 31, 2002, 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 as compared to December 31, 2003 principally due to foreign currency
translation differences. The change in the total valuation allowance for the
year ended December 31, 2005 was an increase of (euro) 2,447 as compared to
December 31, 2004 principally due to acquired valuation allowance in the Datacon
acquisition, uncertainty regarding the realization of the deferred tax assets of
the German subsidiary and foreign currency translation adjustments.
In assessing the realizability of deferred tax assets, the Company considers
whether it is more likely than not 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. The Company considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment. In 2002, the Company
recorded 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. The Company has provided a
valuation allowance for the U.S. tax assets arising after 2002. All written down
tax assets of the Company's Japanese subsidiary for which a valuation allowance
had previously been established have been utilized in 2004 resulting in a
release of a valuation allowance.
In connection with the allocation of the purchase price of Datacon, the Company
recorded a valuation allowance of (euro) 0.7 million on deferred tax assets
primarily related to net operating losses carry forwards for its U.S.
subsidiaries. Through this valuation allowance the Company reduced its tax
assets for Datacon's U.S. operation to zero based on the incurred losses. The
income tax benefit of (euro) 0.2 million for 2005 in connection with Datacon's
U.S. subsidiary was applied to reduce goodwill. Subsequently recognized tax
benefits relating to the valuation allowance for deferred tax assets of
Datacon's U.S. subsidiary as of December 31, 2005 in the amount of (euro) 0.6
million will be allocated to goodwill.
In the fourth quarter of 2004, a corporate income tax rate reduction has been
enacted in the Netherlands resulting in a tax benefit in the fourth quarter of
2004 of (euro) 223. In 2005, another corporate income tax rate reduction from
31.5% in 2005 to 29.6% in 2006 has been enacted in the Netherlands.
Consequently, the Company re-assessed the valuation of its tax assets and
liabilities, resulting in a tax benefit in the fourth quarter of 2005 of (euro)
46.
F-20
The components of loss before income taxes and minority interest were as
follows:
Year ended December 31,
--------------------------------------------
2003 2004 2005
EURO EURO EURO
-------- ------ ------
Domestic (9,088) (8,605) (8,519)
Foreign (7,751) 679 599
-------- ------ ------
Total (16,839) (7,926) (7,920)
======== ====== ======
The Dutch domestic statutory tax rate is 34.5% for the years ended December 31,
2003 and 2004 and 31.5% for the year ended December 31, 2005. The reconciliation
between the actual income tax 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,
------------------------
2003 2004 2005
EURO EURO EURO
------ ------ ------
"Expected" income tax benefit based on domestic rate (5,810) (2,734) (2,495)
Non deductible expenses 142 195 27
Foreign tax rate differential (214) 19 (350)
Tax exempt income (32) (142) (248)
Changes in deferred tax assets and liabilities due to adjustment tax
rates - (223) (46)
Increase in valuation allowance, net 2,777 443 513
Other (155) 7 (180)
------ ------ ------
Income taxes (benefit) shown in Statements of Operations (3,292) (2,435) (2,779)
====== ====== ======
The provision for income tax benefit shown in the Statements of Operations
consisted of the following:
Year ended December 31,
----------------------------------------
2003 2004 2005
EURO EURO EURO
------ ------ ------
Current:
- domestic (2,416) (2,019) (758)
- foreign (266) 382 607
Deferred:
- domestic (719) (1,046) (1,971)
- foreign 109 248 (657)
------ ------ ------
(3,292) (2,435) (2,779)
====== ====== ======
10 BORROWING FACILITIES
At December 31, 2005, the Company and its subsidiaries had available credit
facilities amounting to an aggregate of (euro) 26.4 million, under which (euro)
5.7 million of short-term borrowings and (euro) 10.7 million of long-term
borrowings, including current portion of long-term debt of (euro) 1.8 million,
were outstanding. Furthermore, amounts available to be drawn under the lines
were reduced by (euro) 1.7 million in outstanding bank guarantees. At December
31, 2005, (euro) 1.0 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 1.50%, except for certain Datacon borrowings, which are at interest
rates that vary between 1.50% and 4.50% depending on the type of credit facility
and currency utilized. The credit facility agreements include covenants
requiring us to maintain certain financial ratios. The Company and all of its
applicable subsidiaries were in compliance with all loan covenants at December
31, 2005.
F-21
11 ACCRUED LIABILITIES
Accrued liabilities consist of the following:
December 31,
-------------------
2004 2005
EURO EURO
------ ------
Advances from customers 1,991 2,813
Warranty provision 2,578 2,597
Income taxes 300 543
Other taxes and social security 724 892
Salaries and payroll related items 2,920 4,199
Accrued commissions 468 625
Development credits payable 310 52
Restructuring 5,820 764
Provision for purchase obligations 494 458
Deferred tax liabilities 798 -
Interest 109 1,131
Other 2,279 3,589
------ ------
Total accrued liabilities 18,791 17,663
====== ======
WARRANTY PROVISION
A summary of activity in the warranty provision is as follows:
2003 2004 2005
EURO EURO EURO
------- ------- -------
Balance at January 1, 2,446 1,753 2,578
Provision for loss on warranty 1,287 2,693 2,479
Addition due to acquisition of subsidiary - - 415
Cost for warranty (1,947) (1,847) (2,937)
Foreign currency translation (33) (21) 62
------- ------- -------
Balance at December 31, 1,753 2,578 2,597
======= ======= =======
RESTRUCTURING
In December 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 then total fixed headcount worldwide. In
addition, the Company announced that it would phase out approximately 50
temporary workers at the Duiven facility. A component of the restructuring was
the closing of its tooling facility in Brunssum, the Netherlands in the first
half of 2005. Workforce reductions of 81 employees occurred during the first
half of 2005. The Company 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.
In May 2005, the Company announced the further consolidation and integration of
its Dutch Fico packaging and tooling manufacturing operations in Duiven, the
Netherlands. The consolidation involved the termination of 32 employees in the
third quarter of 2005 and the integration of production and administrative
personnel at its Duiven facility. The Company recorded a restructuring charge of
(euro) 1.7 million in the second quarter of 2005 to cover the estimated costs of
this workforce reduction.
In the fourth quarter of 2005, the Company terminated 14 employees at at its
Datacon Eurotec subsidiary in Berlin in an effort to improve the efficiency of
its die bonding operations. The Company recorded a restructuring charge of
(euro) 0.4 million in the fourth quarter of 2005 to cover the estimated costs of
this workforce reduction.
F-22
Changes in the restructuring reserve were as follows:
2003 2004 2005
EURO EURO EURO
----- ----- -------
Balance at January 1, 1,281 521 5,820
Additions - 5,616 2,231
Cash payments (760) (317) (7,287)
----- ----- -------
Balance at December 31, 521 5,820 764
===== ===== =======
The charges associated with the reduction in workforce announced in December
2004 included severance and other benefit payments for 81 employees in the
Netherlands. The charges associated with the reduction in workforce announced in
May 2005 included severance and other benefits for approximately 32 employees,
mainly in the Netherlands. Total remaining cash outlays for the restructuring
activities announced at the end of 2004 and the second quarter of 2005 are
expected to be (euro) 0.2 million which we expect will be paid mostly during the
first half of 2006.
The charges associated with the workforce reduction in the fourth quarter of
2005 at Datacon Eurotec included severance and other benefits for 14 people.
Total remaining cash outlays for these December 2005 restructuring activities
are expected to be (euro) 0.4 million which the Company expects will be paid
mostly during the first half of 2006. The balance of (euro) 0.2 million relates
to prior restructuring activities and mainly consists of pension premiums to be
paid for terminated employees.
12 LONG-TERM DEBT AND CAPITAL LEASES
December 31,
--------------------
2004 2005
EURO EURO
------ -------
Convertible notes, interest rate at 5.5% - 46,000
Other long term debt:
A. Financial obligation of property Duiven, the Netherlands 12,457 11,745
(Interest rate at 4.1% at December 31, 2005)
B. Long-term loans from Industrial & Commercial Bank of China, Leshan, China
(Average interest rate at 6.36% at December 31, 2005) 1,632 1,736
C. Long-term loans from Bank fur Tirol und Vorarlberg,
Radfeld, Austria (Interest rates vary from 2.13 to 3.13% at December 31, 2005) - 9,148
D. Long-term loan from Bank Austria, Kufstein, Austria
(Interest rate at 2.25% at December 31, 2005) - 6,500
E. Research and development loan from Osterreichische Forschungsforderungs-
gesellschaft, Wien, Austria (Interest rates at 2.00% and 2.50% at December 31, 2005) - 1,541
Other capital leases at various interest rates 25 423
------ -------
14,114 77,093
Less: current portion (753) (15,457)
------ -------
Total long-term debt and capital leases 13,361 61,636
====== =======
F-23
Aggregate required principal payments due on long-term debt and capital leases
for 2006 through 2011 and thereafter, assuming no conversions of the Company's
convertible notes occur, are as follows:
Financial
Convertible obligation /
notes Long-term debt Capital leases
EURO EURO EURO
----------- -------------- ---------------
2006 - 3,506 14,777
2007 - 3,477 193
2008 - 4,017 26
2009 - 2,447 -
2010 - 1,347 -
2011 and thereafter 46,000 4,131 -
----------- -------------- ---------------
Total 46,000 18,925 14,996
Less: imputed interest (2,828)
Less: current portion of financial/capitalized lease obligation (11,951)
---------------
Non-current portion of financial/capitalized lease obligation 217
===============
CONVERTIBLE NOTES
In January 2005, the Company issued (euro) 46 million principal amount of
convertible notes due 2012 (the "Notes"). The Notes carry an interest rate of
5.5% per annum, payable semi-annually, with the first payment made on July 28,
2005. The Notes initially convert into ordinary shares at a conversion price of
(euro) 5.1250. The Notes will be repaid at maturity at a price of 100% of their
principal amount plus accrued and unpaid interest. If not converted, on the date
beginning four years from the issue date, the Company may redeem the outstanding
Notes at their par value provided that on the date of conversion the market
value of the Company's ordinary shares exceeds 130% of the then effective
conversion price.
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. Listing of the Notes on the official segment of the Stock Market of
Euronext Amsterdam N.V. took place on January 28, 2005. The fees incurred for
the issuance of the Notes of (euro) 2.4 million are included as debt issuance
costs in the Company's Consolidated Balance Sheet as of December 31, 2005 and
will be amortized using the interest method as interest cost over the life of
the Notes.
OTHER LONG TERM DEBT
A. 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, including the interest rate component, was (euro) 108 per month.
The Company granted the buyer a (euro) 1.5 million loan which is payable
in 2006. 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 is expected in 2006 and will not result in a cash outflow from
the Company.
B. The long-term loans consist of a loan of (euro) 231 and (euro) 829
denominated in Renminbi and three loans totaling (euro) 676 denominated in
U.S. Dollar for the financing of the Company's activities in China. The
interest rates at the end of the year vary from 5.80% to 6.51%. Total
repayment is due between April 2006 and December 2008. The loans are
secured by a mortgage on the Company's premises in Leshan, China.
C. The long-term loans consist of four loans totaling (euro) 9,148 for the
financing of the Company's Datacon subsidiary. The interest rates at
December 31, 2005 vary from 2.13% to 3.13%. Total payments are due between
July 2008 and April 2014. The loans are secured by bill of exchange,
hypothecation of deposit of securities, of land and fire insurance.
D. The long-term loan consists of a loan of (euro) 6,500 for the financing of
the Company's Datacon subsidiary. The interest rate at December 31, 2005
is 2.25%. Total payment is due January 2014. The loan is secured by
pledging of accounts receivables.
E. The research and development loan consists of seven loans aggregating
(euro) 1,541 for the financing of the research and development projects at
the Company's Datacon subsidiary. The interest rates at December 31, 2005
vary from 2.0% to 2.5%. Total payment is due between March 2007 and June
2010.
F-24
13 OTHER NON-CURRENT LIABILITIES
Other non-current liabilities consist of the following:
December 31,
-----------------
2004 2005
EURO EURO
---- -----
Deferred gain on sale and lease back 842 758
Pension liabilities - 1,300
Severance obligations - 1,203
---- -----
Total other non-current liabilities 842 3,261
==== =====
In 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 is being 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.
14 EMPLOYEE BENEFITS
PENSION PLANS
The employees of the Company's Dutch subsidiaries participate in a
multi-employer union plan which consists of defined benefits determined in
accordance with the respective bargaining agreements. Contributions under this
multi-employer union plan were (euro) 3,354 in 2003, (euro) 3,667 in 2004 and
(euro) 3,694 in 2005. Contribution for defined contribution plans, which provide
retirement benefits that cover substantially all other employees was (euro) 200
in 2003, (euro) 235 in 2004 and (euro) 178 in 2005. The Company has no
continuing obligations other than the annual payments.
The Company's U.S., Malaysian, Korean, Japanese and Chinese subsidiaries have
defined contribution plans that supplement the governmental benefits provided
under the laws of U.S., Malaysia, Korea, Japan and China, respectively.
The Company's Austrian and German subsidiaries have defined benefit pension
plans covering a portion of their eligible employees. Benefits under these plans
are typically based on years of service and final average compensation levels.
The Company uses November 30 as a measurement date. The plans are managed in
accordance with applicable local statutes and practices. The Company deposits
funds for these plans with insurance companies, pension trustees,
government-managed accounts, and/or accrues the expense for the unfunded portion
of the benefit obligation on its Consolidated Financial Statements. Plan assets
are invested in equity securities, fixed income securities and other
institutional investments. The Company's practice is to fund the various pension
plans in amounts sufficient to meet the minimum requirements as established by
applicable local governmental oversight and taxing authorities.
A provision for severance obligations is recognized in the Consolidated Balance
Sheet if the Company is obligated to make severance payments, even if future
termination of the contract is initiated by the employee.
Total recognized asset for defined benefit and severance obligations are as
follows:
December 31,
------------
2005
EURO
------------
Present value of unfunded obligations -
Present value of funded obligations 2,503
Fair value of plan assets 2,710
------------
Present value of net obligations (207)
Unrecognized actuarial gains and losses -
------------
Recognized asset for defined benefit obligations (207)
============
F-25
Changes in the liability for defined benefit and severance obligations
recognized in the Consolidated Balance Sheet is as follows:
2005
---------------------------------
Pension Severance
liabilities Obligations Total
EURO EURO EURO
----------- ----------- -----
Liability for defined benefit and severance obligations at January 1, - - -
Acquisition of subsidiary 1,464 1,276 2,740
Service cost 147 172 319
Interest cost 75 65 140
Net actuarial (gain) loss recognized 55 (14) 41
Benefits paid (506) (296) (802)
Charge to other comprehensive income 65 - 65
----------- ----------- -----
Liability for defined benefit and severance obligations at December 31, 1,300 1,203 2,503
=========== =========== =====
The accumulated defined benefit obligations amount to (euro) 1,139 million as of
December 31, 2005. Future expected benefit payments over the next ten fiscal
years are zero.
A summary of the components that comprise net periodic pension costs and the
weighted average assumptions used for net periodic pension cost and benefit
obligation calculations for 2005 is presented below.
December 31,
------------
2005
EURO
------------
COMPONENTS OF NET PERIODIC PENSION COST
Service cost 147
Interest cost 75
Net actuarial (gain) loss recognized 55
------------
Net periodic pension cost 277
WEIGHTED AVERAGE ASSUMPTIONS
Discount rate 4.5%
Expected long-term return on assets 5.5%
Rate of compensation increase 3.5%
============
The discount rate was derived by reference to appropriate benchmark yields on
high quality corporate bonds.
Changes in plan assets related to the liability for defined benefit and
severance obligations recognized in the Consolidated Balance Sheet is as
follows:
December 31,
------------
2005
EURO
------------
Plan assets at January 1, -
Acquisition of subsidiary 4,182
Actual return on plan assets 159
Employer contribution 258
Transfer of plan assets due to resignation of employee (1,889)
------------
Plan assets at December 31, 2,710
============
F-26
The Company's investment strategy for its defined benefit plans is to invest
assets in a prudent manner, maintaining well-diversified portfolios with the
long-term objective of meeting the obligations of the plans as they come due.
The Company's contributions to these plans for fiscal 2006 are expected to be
approximately (euro) 0.2 million.
SHARE BASED COMPENSATION PLANS
Description of Share Based Compensation 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 from 1995 to 2001, the Company made awards under the Incentive
Plan 1995 to its executive officers and senior employees. Options granted
between 1999 and 2001 are fully vested and have exercise prices that were equal
to the market price of the Company's ordinary shares on the date of grant. The
Incentive Plan 1995 expired in 2001.
In 2001, the Company established the BE Semiconductor Industries Incentive Plan
2001 - 2005 (the "Incentive Plan 2001"). The Company granted 700,183 options to
purchase ordinary shares ("2001 Plan Shares") under the Incentive Plan 2001.
Until 2004, the Company made awards under the Incentive Plan 2001 to its
executive officers and employees. Options granted from 2002 through 2004 are
fully vested and have exercise prices that were equal to the market price of the
Company's ordinary shares on the date of grant. The Incentive Plan 2001 expired
in 2005.
In the years 2000 through 2001, the Company granted stock options to all of its
employees under the Incentive Plan 1995 and in the years 2001 through 2004, the
Company granted stock options to all of its employees under the Incentive Plan
2001. These options are fully vested and have exercise prices equal to the
market price of the Company's ordinary shares on the date of grant. These
options receive variable accounting treatment due to cash settlement provisions.
All other options granted by the Company under the Incentive Plan 1995 and 2001
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. For
the stock options granted between 2001 and 2004 that receive variable accounting
treatment, an amount of (euro) 7, net of tax, was recognized as compensation
cost based on the market value of our ordinary shares for the year ended
December 31, 2005. As of December 31, 2005, there were outstanding options to
purchase an aggregate of 947,193 ordinary shares which receive fixed accounting
treatment at a weighted average exercise price of (euro) 9.82 per share. As of
December 31, 2005, 174,981 options that receive variable accounting treatment
were outstanding at a weighted average exercise price of (euro) 7.13 per share.
In 2005, the Company established the BE Semiconductor Industries Incentive Plan
2005 - 2009 (the "Incentive Plan 2005"). The total number of ordinary shares
("2005 Plan Shares") that the Company may issue under the Incentive Plan 2005
may not exceed 1.5% 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. 2005 Plan Shares may consist,
in whole or in part, of unauthorized and unissued ordinary shares or treasury
shares. The Company has and anticipates that it will continue, on an annual
basis, to make annual and conditional performance stock awards under the
Incentive Plan 2005 to supervisory board members, executive officers and senior
employees of the Company. Receipt of annual awards in the form of rights to
receive ordinary shares of the Company are based on defined targets ("Annual PSA
Units"). Receipt of conditional awards in the form of rights to receive ordinary
shares of the Company depends in any given year on whether the individual
achieved the defined goals ("Conditional PSA Units"). One third of the
performance stock awards will vest on each of the following three years. For the
performance stock awards granted in 2005, an amount of (euro) 75, net of tax,
was recognized as compensation cost in the year ended December 31, 2005 based on
the market value of the Company's ordinary shares on the date of grant.
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 fixed 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. Effective January 1,2006, the Company
will be adopting SFAS No. 123(R) which requires that all share-based payments be
accounted for based on their fair value.
F-27
Financing of Stock Option Plans
Option plans that were issued in 1999 and 2000 contained a 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 exercise 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:
2003 2004 2005
Weighted Weighted Weighted
average average average
exercise exercise exercise
Number of price Number of price Number of price
options EURO options EURO options EURO
--------- -------- --------- -------- --------- --------
Fixed option plans
Outstanding, beginning of year 929,095 11.56 975,768 10.25 1,005,181 9.79
Options granted 162,905 3.46 131,363 6.02 - -
Options expired (53,598) 10.05 - - - -
Options exercised - - - - (6,000) 3.22
Options forfeited (62,634) 12.14 (101,950) 9.34 (51,988) 10.00
--------- -------- --------- -------- --------- --------
Outstanding, end of year 975,768 10.25 1,005,181 9.79 947,193 9.82
========= ======== ========= ======== ========= ========
Exercisable, end of year 431,366 13.48 597,426 12.12 947,193 9.82
========= ======== ========= ======== ========= ========
Variable option plans
Outstanding, beginning of year 122,710 9.23 164,105 7.54 229,079 7.06
Options granted 48,466 3.22 69,535 5.95 - -
Options exercised - - - - (2,000) 3.22
Options forfeited (7,071) 7.26 (4,561) 7.19 (52,098) 6.98
--------- -------- --------- -------- --------- --------
Outstanding, end of year 164,105 7.54 229,079 7.06 174,981 7.13
========= ======== ========= ======== ========= ========
Exercisable, end of year - - 55,059 9.55 174,981 7.13
========= ======== ========= ======== ========= ========
Stock options outstanding and exercisable at December 31, 2005:
Options outstanding and exercisable
----------------------------------------------------
Weighted
average Weighted
remaining average
Number contractual exercise price
Range of exercise price of options life (years) in euro
----------------------- ---------- ------------ --------------
Fixed option plans
(euro) 3.22 - (euro) 4.35 153,389 3.49 3.47
(euro) 5.20 - (euro) 7.70 100,413 4.22 5.89
(euro) 8.94 - (euro) 10.31 465,496 3.06 9.5
(euro) 14.65 - (euro) 17.90 227,895 3.26 16.47
========= ============ ==============
Variable option plans
(euro) 3.22 32,746 3.25 3.22
(euro) 5.95 52,282 4.25 5.95
(euro) 8.94 - (euro) 10.31 89,953 1.84 9.24
========= ============ ==============
F-28
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:
2003 2004
----- -----
Expected life (years) 5.7 5.6
Expected stock price volatility 55.0% 52.27%
Risk-free rate 3.7% 3.32%
==== =====
The per share weighted average fair value of options granted during 2003 and
2004 was (euro) 1.85 and (euro) 3.15, respectively.
Summary of Outstanding PSA Units
Following is a summary of changes in Besi performance stock awards:
2005 2005
Annual Conditional
PSA units PSA units
--------- -----------
Outstanding, beginning of year - -
PSA units granted 95,388 17,000
PSA units forfeited (5,200) -
--------- -----------
Outstanding, end of year 90,188 17,000
========= ===========
15 SHARE CAPITAL
As of December 31, 2004 and December 31, 2005, 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, 2004 and 2005, 30,794,660
and 32,736,502 ordinary shares, respectively, were outstanding. No preference
shares were outstanding at December 31, 2004 and December 31, 2005,
respectively.
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 U.S. dollar-linked currencies, since approximately 53% of
its sales in 2005 were denominated in U.S. dollar and U.S. 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 2004 and 2005, 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 foreign currency
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.
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)
823 and (euro) 27 at December 31, 2004 and 2005, 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.
F-29
The following is a summary of the Company's forward foreign currency exchange
contracts at foreign currency contract rate:
December 31,
---------------------
2004 2005
EURO EURO
----- ------
To sell U.S. dollars for euro 9,910 23,418
To sell Japanese yen for euro 1,210 -
===== ======
At December 31, 2004, unrealized gains on forward foreign currency exchange
contracts that were designated as a hedge of firmly committed transactions
amounted to (euro) 815. At December 31, 2005, unrealized loss on forward foreign
currency exchange contracts amounted to (euro) 498.
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,
including the Notes, 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 has been determined based on quoted market rates for similar contracts,
had a positive value of (euro) 823 at December 31, 2004 and a negative value of
(euro) 400 at December 31, 2005, respectively.
Foreign currency transaction results amounted to a loss of (euro) 348 in 2003,
to a gain of (euro) 256 in 2004 and to a loss of (euro) 460 in 2005 and are
reported as part of Selling, General and Administrative Expenses. For the years
ended December 31, 2004 and 2005, an amount of (euro) 617 of foreign currency
gain and an amount of (euro) 320 of foreign currency loss, respectively, is
included in results of operations 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, 2005, the required minimum lease commitments were as follows:
EURO
-----
2006 1,792
2007 1,411
2008 1,205
2009 1,205
2010 970
2011 and thereafter 3,148
------
Total 9,731
======
Committed rental expense was (euro) 7.7 million, (euro) 7.1 million and (euro)
7.7 million as of December 31, 2003, 2004 and 2005, respectively. In addition,
the Company has an unconditional obligation related to the purchase of equipment
and materials totaling (euro) 13.2 million as of December 31, 2005.
Lease and rental expenses amounted to (euro) 1.6 million, (euro) 1.3 million and
(euro) 1.7 million for the years ended December 31, 2003, 2004 and 2005,
respectively
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
F-30
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 2005.
The remaining amount (including interest) contingently repayable was (euro)
4,880 and (euro) 5,168 at December 31, 2004 and 2005, respectively. The amounts
reflected in accrued liabilities at December 31, 2004 and 2005, with respect to
sales of molding systems, were (euro) 117 and (euro) 0 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 1996 and 2005. The remaining amount
(including interest) contingently repayable was (euro) 787 and (euro) 791 at
December 31, 2004 and 2005, respectively. The amounts reflected in accrued
liabilities at December 31, 2004 and 2005, with respect to sales of trim and
form systems were (euro) 193 and (euro) 52 respectively.
The amounts of research and development subsidies and credits offset against
research and development expenses amounted to (euro) 315 in 2003, (euro) 414 in
2004 and (euro) 761 in 2005.
19 SEGMENT, GEOGRAPHIC AND CUSTOMERS' 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 No. 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, all
financial segment and product line information required by SFAS No. 131 can be
found in the Consolidated Financial Statements.
The following table summarizes net sales, net income (loss), long-lived assets
and total assets of the Company's operations in the Netherlands, other countries
in Europe, the U.S. and Asia Pacific region, which are the significant
geographic areas in which the Company operates. Intra-area sales are based on
the sales price to unaffiliated customers:
The United Asia
Netherlands Other Europe States Pacific Elimination Total
EURO EURO EURO EURO EURO EURO
----------- ------------ ------ ------- ----------- --------
Year ended December 31, 2003
Net sales 78,854 - 3,617 8,941 (5,912) 85,500
Net income (loss) (5,969) - (7,539) 27 (16) (13,497)
Long-lived assets 51,003 - 446 5,072 - 56,521
Total assets 194,424 - 17,675 15,607 (6,289) 221,417
Year ended December 31, 2004
Net sales 111,709 - 11,239 12,325 (8,932) 126,341
Net income (loss) (5,443) - (2,472) 2,556 (68) (5,427)
Long-lived assets 35,929 - 11,052 4,527 - 51,508
Total assets 199,094 - 18,190 15,018 (4,960) 227,342
Year ended December 31, 2005
Net sales 87,227 28,921 30,068 35,975 (17,929) 164,262
Net income (loss) (5,533) (2,265) (302) 3,116 (197) (5,181)
Long-lived assets 31,141 73,626 12,430 6,684 - 123,881
Total assets 153,953 110,381 26,596 27,647 (17,541) 301,036
=========== ============ ====== ======= =========== =======
F-31
The following table represents the geographical distribution of the Company's
net sales to unaffiliated companies:
Year ended December 31,
----------------------------------------
2003 2004 2005
EURO EURO EURO
------ ------- -------
Germany 11,750 7,706 22,482
Other Europe 14,691 17,013 22,286
United States 3,452 10,663 21,601
Malaysia 21,306 16,827 15,291
Korea 6,929 15,579 14,293
Taiwan 4,368 13,131 14,326
Other Asia Pacific 22,714 40,014 46,625
Rest of the world 290 5,408 7,358
------ ------- -------
Total net sales 85,500 126,341 164,262
====== ======= =======
The Company's net sales are generated primarily by shipments to Asian
manufacturing operations of 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,
----------------------------------------
2003 2004 2005
EURO EURO EURO
------ ------- -------
Customer:
A 26,664 21,401 17,406
B - 15,219 -
====== ======= =======
20 REMUNERATION BOARD OF MANAGEMENT AND SUPERVISORY BOARD
REMUNERATION OF THE BOARD OF MANAGEMENT
The remuneration of the members of the Board of Management is determined by the
Supervisory Board, all with due observance of the remuneration policy adopted by
the General Meeting of Shareholders at March 24, 2005. 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 cash remuneration and related costs of the individual members of the
Board of Management for the year ended December 31, 2003, 2004 and 2005 was as
follows:
Year ended December 31,
---------------------------------------
(In euros) 2003 2004 2005
---------- ------- -------- -------
R.W. Blickman
Salaries 295,483 301,577 357,000
Other benefits (5) 17,154 16,270 17,553
Bonus (6) 35,458 36,443 53,550
Pension (7) 54,326 55,231 63,339
Other (8) - 344,392 -
J. A. Wunderl (1)
Salaries - 147,952 241,935
Other benefits (5) - 9,594 16,682
Bonus (6) - 34,621 36,290
Pension (7) - 48,085(9) 48,387
F-32
Year ended December 31,
----------------------------------------
(In euros) 2003 2004 2005
---------- ------- ------- -------
H. Rutterschmidt (2)
Salaries - - 274,615
Other benefits (5) - - 11,202
Bonus (6) - - 32,954
Pension (7) - - 60,181
G. Zeindl (3)
Salaries - - 154,700
Other benefits (5) - - 7,465
Pension (7) - - 45,215
M.A.H. Wartenbergh (4)
Salaries 114,479 155,835 -
Other benefits (5) 9,740 13,215 -
Bonus 13,755 - -
Pension (7) 14,329 19,499 -
Severance payment - 395,000 -
J.W. Rischke
Other (8) - 40,884 -
======== ======= =======
(1) Member of the Board of Management from March 25, 2004, remuneration relates
to the period from March 25, 2004 to December 31, 2005. Salary amounts are
translated from U.S. dollars into euro using the average exchange rate of
U.S. $ 1.2478 = (euro) 1.00 for the year ended December 31, 2004 and U.S. $
1.2400 = (euro) 1.00 for the year ended December 31, 2005.
(2) Member of the Board of Management from March 24, 2005, remuneration relates
to the period from March 24, 2005 to December 31, 2005.
(3) Member of the Board of Management from March 24, 2005; remuneration relates
to the period from March 24, 2005 until his exit on September 1, 2005.
(4) Member of the Board of Management from March 27, 2003; remuneration relates
to the period from March 27, 2003 until his exit on January 1, 2005.
(5) Other benefits include expense compensation, medical insurance and premiums
social securities.
(6) This amount represents a bonus earned over the applicable year, which will
be payable in the first quarter of the following year.
(7) The pension arrangements for members of the Board of Management are defined
contribution plans. The Company does not have further pension obligations
beyond an annual contribution.
(8) 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 we should
compensate for dilution that arose as a result of our secondary share
offering in 2000.
(9) This amount relates to services rendered in 2004, but was agreed upon and
paid in 2005.
A portion of the compensation of the Board of Management is performance related.
F-33
REMUNERATION OF THE SUPERVISORY BOARD
The aggregate remuneration paid to current members of the Supervisory Board was
(euro) 93 in 2005. The remuneration of the Supervisory Board is determined by
the General Meeting of Shareholders.
The total cash remuneration of the individual members of the Supervisory Board
for the years ended December 31, 2003, 2004 and 2005 was as follows:
Year ended December 31,
-----------------------------------------------
2003 2004 2005
Total Total Cash
(In euros) remuneration remuneration remuneration
---------- ------------ ------------ ------------
W. D. Maris 15,882 23,038 26,000
E. B. Polak 15,882 19,206 20,000
D. Sinninghe Damste 15,882 26,038 26,000
T. de Waard 15,882 19,206 21,000
============ ============ ============
In 2003 and 2004, part of the cash compensation, not exceeding 50%, paid to
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 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.
In the General Meeting of Shareholders of March 24, 2005, the remuneration for
Supervisory Board members changed as follows:
(i) cash base pay for the chairman of the Supervisory Board and the chairman of
the Audit Committee of (euro) 20,000 (in euros) per annum and for the other
members of (euro) 15,000 (in euros) per annum;
(ii) cash payment of (euro) 1,000 for each board or committee per meeting
attended; and
(iii) a grant of 4,000 ordinary shares of Besi per annum.
Supervisory Board members will no longer have the option to receive ordinary
shares in lieu of a portion of their cash compensation.
ORDINARY SHARES, OPTIONS AND PSA UNITS HELD BY MEMBERS OF THE BOARD OF
MANAGEMENT
The aggregate number of ordinary shares, the aggregate number of options to
purchase ordinary shares and the aggregate number of PSA units owned by the
current members of the Board of Management as of December 31, 2005 are as
follows:
Ordinary shares
Number of
shares
---------
R.W. Blickman 270,485
H. Rutterschmidt 444,784
---------
Total 715,269
=========
F-34
Options
Number of
Expiration Exercise price options
Year of grant date in euros outstanding
------------- ---------- -------------- -----------
R.W. Blickman 1999 2010 4.35 8,500
2000 2011 17.90 20,000
2000 2011 9.80 142,000
2001 2007 9.55 40,000
2002 2008 8.94 36,000
2003 2009 3.22 35,042
2004 2010 5.95 15,000
-----------
296,542
J.A. Wunderl 2003 2009 5.20 8,000
2004 2010 5.95 5,500
-----------
Total 13,500
-----------
310,042
===========
PSA Units
Number of Number of
Annual Conditional
Performance Performance
Stock Award Stock Award
Units Units
Year of grant outstanding outstanding (1)
------------- ----------- ---------------
R.W. Blickman 2005 5,000 10,000
J.A. Wunderl 2005 3,500 7,000
----------- ---------------
Total 8,500 17,000
=========== ===============
(1) The number of shares that will be granted and/or will vest in any given year
will depend on whether the individual achieves defined goals.
At December 31, 2005, there were (euro) 287 of loans outstanding relating to the
stock options granted to the members of the Board of Management. The principal
amount and other loan conditions have not changed since the inception of the
loan agreements in 1999 and 2000.
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OPTIONS AND PSA UNITS HELD BY MEMBERS OF THE SUPERVISORY BOARD
The aggregate number of options to purchase ordinary shares and the average
number of PSA units held by the current members of the Supervisory Board as of
December 31, 2005 are as follows:
Options
Number of
Exercise price options
Year of grant Expiration date in euros outstanding
------------- --------------- -------------- ------------
E.B. Polak 2002 2008 8.94 1,322
2003 2009 3.22 3,667
2004 2010 5.95 1,937
-----------
6,926
D. Sinninghe Damste 2002 2008 8.94 1,322
2003 2009 3.22 3,667
2004 2010 5.95 2,629
-----------
7,618
T. de Waard 2002 2008 8.94 1,322
2003 2009 3.22 3,667
2004 2010 5.95 1,937
-----------
6,926
-----------
Total 21,470
===========
PSA Units
Number of
Annual
Performance
Stock Award
Units
Year of grant outstanding
------------- -----------
W.D. Maris 2005 4,000
E.B. Polak 2005 4,000
D. Sinninghe Damste 2005 4,000
T. de Waard 2005 4,000
-----------
Total 16,000
===========
OPTIONS HELD BY FORMER MEMBERS OF THE BOARD OF MANAGEMENT
The aggregate number of options to purchase ordinary shares held by a former
member of the Board of Management as of December 31, 2005 is as follows:
Number of
Expiration Exercise price options
Year of grant date in euros outstanding
--------------- ---------- -------------- -----------
J.W. Rischke 1999 2010 4.35 8,500
2000 2011 17.90 16,000
2001 2007 9.55 32,000
2002 2008 8.94 23,000
2003 2009 3.22 13,221
-----------
Total 92,721
===========
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At December 31, 2005, there were (euro) 78 of loans outstanding relating to the
stock options granted to the former members of the Board of Management. 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,
-----------------------------------------
2003 2004 2005
EURO EURO EURO
------ ------ ------
Wages and salaries 26,730 29,311 43,234
Social security expenses 2,692 2,931 6,132
Pension and retirement expenses 2,385 2,561 3,291
------ ------ ------
Total personnel expenses 31,807 34,803 52,657
====== ====== ======
The average number of employees during 2003, 2004 and 2005 was 694, 781 and
1,152, respectively.
The total number of personnel employed per department was:
December 31,
-----------------------------------------
2003 2004 2005
---- ---- -----
Sales and Marketing 114 128 216
Manufacturing and Assembly 459 484 574
Research and Development 90 103 189
General and Administrative 83 83 108
---- ---- -----
Total number of personnel 746 798 1,087
==== ==== =====
As of December 31, 2003, 2004 and 2005 a total of 464, 477 and 367 persons,
respectively, were employed in the Netherlands.
22 INTEREST INCOME AND EXPENSE
The components of interest income (expense), net were as follows:
Year ended December 31,
-----------------------------------------
2003 2004 2005
EURO EURO EURO
----- ----- ------
Interest income 3,423 2,665 1,630
Interest expense (608) (854) (4,341)
----- ----- ------
Interest income (expense), net 2,815 1,811 (2,711)
===== ===== ======
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23 EARNINGS PER SHARE
The following table reconciles ordinary shares outstanding at the beginning of
the year to average shares outstanding used to compute loss per share:
2003 2004 2005
---------- ---------- ----------
Shares outstanding at beginning of the year 30,898,228 30,794,660 30,794,660
Weighted average shares issued during the year - - 1,912,649
Weighted average repurchased shares (84,547) - -
Weighted average shares reissued from treasury shares
for the exercise of options - - 3,625
---------- ---------- ----------
Average shares outstanding - basic 30,813,681 30,794,660 32,710,934
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 30,813,681 30,794,660 32,710,934
========== ========== ==========
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.
The following options to purchase ordinary shares and performance stock awards
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.
December 31,
------------------------------------------
2003 2004 2005
--------- --------- ---------
Number of options 1,139,873 1,234,260 1,122,174
Average exercise price of options 9.86 9.28 9.40
Number of performance stock awards - - 90,188
========= ========= =========
For purposes of computing diluted earnings per share, 8,975,610 weighted average
ordinary share equivalents do not assume conversion of the outstanding
convertible notes, as such conversion would have an anti-dilutive effect.
24 SUPPLEMENTAL CASH FLOW INFORMATION
On January 4, 2005, the Company acquired Datacon. The following is a summary of
the net cash paid for acquisition:
EURO
-------
Purchase price of business acquired 72,600
Acquisition cost 3,425
------
Total consideration 76,025
Less: issuance of 1,933,842 ordinary shares (7,600)
------
Cash paid 68,425
Less: cash acquired (6,423)
------
Net cash paid for acquisition 62,002
======
F-38