Attached files
file | filename |
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EX-32.2 - KULICKE & SOFFA INDUSTRIES INC | v172995_ex32-2.htm |
EX-31.1 - KULICKE & SOFFA INDUSTRIES INC | v172995_ex31-1.htm |
EX-10.2 - KULICKE & SOFFA INDUSTRIES INC | v172995_ex10-2.htm |
EX-10.3 - KULICKE & SOFFA INDUSTRIES INC | v172995_ex10-3.htm |
EX-31.2 - KULICKE & SOFFA INDUSTRIES INC | v172995_ex31-2.htm |
EX-10.1 - KULICKE & SOFFA INDUSTRIES INC | v172995_ex10-1.htm |
EX-10.7 - KULICKE & SOFFA INDUSTRIES INC | v172995_ex10-7.htm |
EX-10.6 - KULICKE & SOFFA INDUSTRIES INC | v172995_ex10-6.htm |
EX-10.4 - KULICKE & SOFFA INDUSTRIES INC | v172995_ex10-4.htm |
EX-32.1 - KULICKE & SOFFA INDUSTRIES INC | v172995_ex32-1.htm |
EX-10.5 - KULICKE & SOFFA INDUSTRIES INC | v172995_ex10-5.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
x
|
QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the
quarterly period ended January 2, 2010
OR
o
|
TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the
transition period from to .
Commission
File No. 0-121
KULICKE AND SOFFA
INDUSTRIES, INC.
(Exact
name of registrant as specified in its charter)
PENNSYLVANIA
|
23-1498399
|
(State
or other jurisdiction of incorporation)
|
(IRS
Employer
|
Identification
No.)
|
1005 VIRGINIA DRIVE, FORT
WASHINGTON, PENNSYLVANIA 19034
(Address
of principal executive offices and Zip Code)
(215)
784-6000
(Registrant's
telephone number, including area code)
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
o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files). Yes o No
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a smaller reporting company. See definition of “large
accelerated filer,” “accelerated filer” and “smaller reporting company” in
Rule 12b-2 of the Exchange Act. (Check one):
Large
accelerated filer o
|
Accelerated
filer x
|
Non-accelerated
filer o
|
Smaller
reporting company o
|
(Do
not check if a smaller reporting company)
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No
x
As of
February 1, 2010, there were 69,782,345 shares of the Registrant's Common Stock,
no par value, outstanding.
KULICKE
AND SOFFA INDUSTRIES, INC.
FORM
10 – Q
January
2, 2010
Index
Page Number
|
||
PART
I.
|
FINANCIAL
INFORMATION
|
|
Item
1.
|
FINANCIAL
STATEMENTS (Unaudited)
|
|
Consolidated
Balance Sheets as of October 3, 2009 and January 2, 2010
|
3
|
|
Consolidated
Statements of Operations for the three months ended December 27, 2008
and
January
2, 2010
|
4
|
|
Consolidated
Statements of Cash Flows for the three months ended December 27, 2008
and
January
2, 2010
|
5
|
|
Notes
to the Consolidated Financial Statements
|
6
|
|
Item
2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
|
27
|
Item
3.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
42
|
Item
4.
|
CONTROLS
AND PROCEDURES
|
42
|
PART
II.
|
OTHER
INFORMATION
|
|
Item
1A.
|
RISK
FACTORS
|
43
|
Item
6.
|
EXHIBITS
|
43
|
SIGNATURES
|
44
|
PART
I. - FINANCIAL INFORMATION
Item
1. – Financial Statements
KULICKE
AND SOFFA INDUSTRIES, INC.
CONSOLIDATED
BALANCE SHEETS
(in
thousands)
(Unaudited)
October 3, 2009 *
|
January 2, 2010
|
|||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$ | 144,560 | $ | 175,207 | ||||
Restricted
cash
|
281 | 216 | ||||||
Accounts
and notes receivable, net of allowance for doubtful accounts of $1,378 and
$1,009 respectively
|
95,779 | 84,370 | ||||||
Inventories,
net
|
41,489 | 49,784 | ||||||
Prepaid
expenses and other current assets
|
11,566 | 13,475 | ||||||
Deferred
income taxes
|
1,786 | 1,789 | ||||||
Total
current assets
|
295,461 | 324,841 | ||||||
Property,
plant and equipment, net
|
36,046 | 35,054 | ||||||
Goodwill
|
26,698 | 26,698 | ||||||
Intangible
assets
|
48,656 | 46,270 | ||||||
Other
assets
|
5,774 | 7,369 | ||||||
Total
assets
|
$ | 412,635 | $ | 440,232 | ||||
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
||||||||
Current
liabilities:
|
||||||||
Current
portion of long-term debt
|
$ | 48,964 | $ | 48,964 | ||||
Accounts
payable
|
39,908 | 53,245 | ||||||
Accrued
expenses and other current liabilities
|
32,576 | 29,480 | ||||||
Income
taxes payable
|
1,612 | 1,341 | ||||||
Total
current liabilities
|
123,060 | 133,030 | ||||||
Long-term
debt
|
92,217 | 93,733 | ||||||
Deferred
income taxes
|
16,282 | 16,329 | ||||||
Other
liabilities
|
10,273 | 9,742 | ||||||
Total
liabilities
|
241,832 | 252,834 | ||||||
Commitments
and contingencies (Note 13)
|
||||||||
Shareholders'
equity:
|
||||||||
Preferred
stock, no par value:
|
||||||||
Authorized
5,000 shares; issued - none
|
- | - | ||||||
Common
stock, no par value:
|
||||||||
Authorized
200,000 shares; issued 74,370 and 74,686 respectively;
outstanding
69,415 and 69,731 shares, respectively
|
413,092 | 414,462 | ||||||
Treasury
stock, at cost, 4,954 shares
|
(46,356 | ) | (46,356 | ) | ||||
Accumulated
deficit
|
(197,812 | ) | (181,972 | ) | ||||
Accumulated
other comprehensive income
|
1,879 | 1,264 | ||||||
Total
shareholders' equity
|
170,803 | 187,398 | ||||||
TOTAL
LIABILITIES AND SHAREHOLDERS' EQUITY
|
$ | 412,635 | $ | 440,232 |
* As
adjusted for ASC No.
470.20, Debt, Debt With
Conversion Options.
The
accompanying notes are an integral part of these consolidated financial
statements.
3
KULICKE
AND SOFFA INDUSTRIES, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(in
thousands, except per share data)
(Unaudited)
Three Months Ended
|
||||||||
December 27, 2008 *
|
January 2, 2010
|
|||||||
Net
revenue
|
$ | 37,416 | $ | 128,415 | ||||
Cost
of sales
|
23,488 | 72,042 | ||||||
Gross
profit
|
13,928 | 56,373 | ||||||
Selling,
general and administrative
|
29,852 | 25,226 | ||||||
Research
and development
|
15,400 | 13,161 | ||||||
Operating
expenses
|
45,252 | 38,387 | ||||||
Income
(loss) from operations
|
(31,324 | ) | 17,986 | |||||
Interest
income
|
754 | 97 | ||||||
Interest
expense
|
(2,079 | ) | (2,083 | ) | ||||
Gain
on extinguishment of debt
|
1,179 | - | ||||||
Income
(loss) from continuing operations before taxes
|
(31,470 | ) | 16,000 | |||||
Provision
(benefit) for income taxes from continuing operations
|
(11,882 | ) | 160 | |||||
Income
(loss) from continuing operations
|
(19,588 | ) | 15,840 | |||||
Income
from discontinued operations, net of tax
|
22,727 | - | ||||||
Net
income
|
$ | 3,139 | $ | 15,840 | ||||
Income
(loss) per share from continuing operations:
|
||||||||
Basic
|
$ | (0.32 | ) | $ | 0.23 | |||
Diluted
|
$ | (0.32 | ) | $ | 0.21 | |||
Income
per share from discontinued operations:
|
||||||||
Basic
|
$ | 0.37 | $ | - | ||||
Diluted
|
$ | 0.37 | $ | - | ||||
Net
income per share:
|
||||||||
Basic
|
$ | 0.05 | $ | 0.23 | ||||
Diluted
|
$ | 0.05 | $ | 0.21 | ||||
Weighted
average shares outstanding:
|
||||||||
Basic
|
60,451 | 69,684 | ||||||
Diluted
|
60,451 | 73,687 |
* As
adjusted for ASC No. 470.20,
Debt, Debt With Conversion Options.
The
accompanying notes are an integral part of these consolidated financial
statements.
4
KULICKE
AND SOFFA INDUSTRIES, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in
thousands)
(Unaudited)
Three
months ended
|
||||||||
|
December
27, 2008 *
|
January
2, 2010
|
||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net
income
|
$ | 3,139 | $ | 15,840 | ||||
Less:
Income from discontinued operations
|
22,727 | - | ||||||
Income
(loss) from continuing operations
|
(19,588 | ) | 15,840 | |||||
Adjustments
to reconcile income (loss) from continuing operations to net cash provided
by (used in) operating activities:
|
||||||||
Depreciation
and amortization
|
5,308 | 4,509 | ||||||
Amortization
of debt discount and debt issuance costs
|
1,634 | 1,712 | ||||||
Equity-based
compensation and employee benefits
|
(468 | ) | 1,393 | |||||
Provision
for doubtful accounts
|
1,121 | (99 | ) | |||||
Gain
on extinguishment of debt
|
(1,179 | ) | - | |||||
Provision
for inventory valuation
|
4,054 | 95 | ||||||
Deferred
taxes
|
(6,239 | ) | 111 | |||||
Changes
in operating assets and liabilities, net of businesses acquired or
sold:
|
||||||||
Accounts
and notes receivable
|
37,710 | 9,864 | ||||||
Inventory
|
(4,127 | ) | (8,370 | ) | ||||
Prepaid
expenses and other current assets
|
7,330 | (1,976 | ) | |||||
Accounts
payable and accrued expenses
|
(17,599 | ) | 12,574 | |||||
Income
taxes payable
|
(8,238 | ) | (270 | ) | ||||
Other,
net
|
2,293 | (1,258 | ) | |||||
Net
cash provided by continuing operations
|
2,012 | 34,125 | ||||||
Net
cash used in discontinued operations
|
(779 | ) | (496 | ) | ||||
Net
cash provided by operating activities
|
1,233 | 33,629 | ||||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Purchases
of property, plant and equipment
|
(2,433 | ) | (1,096 | ) | ||||
Proceeds
from sales of investments classified as available-for-sale
|
4,148 | - | ||||||
Purchase
of Orthodyne
|
(85,595 | ) | - | |||||
Changes
in restricted cash, net
|
35,000 | 65 | ||||||
Net
cash used in continuing operations
|
(48,880 | ) | (1,031 | ) | ||||
Net
cash provided by (used in) discontinued operations
|
149,857 | (1,838 | ) | |||||
Net
cash provided by (used in) investing activities
|
100,977 | (2,869 | ) | |||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Net
costs from sale of common stock
|
- | (29 | ) | |||||
Proceeds
from exercise of common stock options
|
3 | 6 | ||||||
Payments
on borrowings
|
(74,190 | ) | - | |||||
Net
cash used in financing activities
|
(74,187 | ) | (23 | ) | ||||
Effect
of exchange rate changes on cash and cash equivalents
|
91 | (90 | ) | |||||
Changes
in cash and cash equivalents
|
28,114 | 30,647 | ||||||
Cash
and cash equivalents at beginning of period
|
144,932 | 144,560 | ||||||
Cash
and cash equivalents at end of period
|
$ | 173,046 | $ | 175,207 | ||||
CASH
PAID FOR:
|
||||||||
Interest
|
$ | 958 | $ | 726 | ||||
Income
taxes
|
$ | 179 | $ | 755 |
* As
adjusted for ASC No. 470.20,
Debt, Debt With Conversion Options.
The
accompanying notes are an integral part of these consolidated financial
statements.
5
KULICKE
AND SOFFA INDUSTRIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
1 – BASIS OF PRESENTATION
Basis
of Consolidation
These
consolidated financial statements include the accounts of Kulicke and Soffa
Industries, Inc. and its subsidiaries (the “Company”), with appropriate
elimination of intercompany balances and transactions.
As of
October 4, 2009, the Company adopted Financial Accounting Standards Board
(“FASB”) Accounting Standards Codification (“ASC”) No. 470.20, Debt, Debt With Conversion
Options (“ASC 470.20”), which requires issuers of convertible debt
instruments that may be settled in cash upon conversion to initially record the
liability and equity components of the convertible debt separately. The Company
adopted the provisions of ASC 470.20 on a retrospective basis for all prior
periods presented (see Note 7).
Management
has evaluated subsequent events through the date these financial statements were
available to be issued which was February 4,
2010.
On
September 29, 2008, the Company completed the sale of its Wire business for net
proceeds of $149.9 million to W.C. Heraeus GmbH (“Heraeus”). The financial
results of the Wire business have been included in discontinued operations in
the consolidated financial statements for all periods presented (see Note
2).
Fiscal
Year
Each of
the Company’s first three fiscal quarters ends on the Saturday that is 13 weeks
after the end of the immediately preceding fiscal quarter. The fourth quarter of
each fiscal year ends on the Saturday closest to September 30 th. The
fiscal 2009 quarters ended on December 27, 2008, March 28,
2009, June 27, 2009 and October 3, 2009. The fiscal 2010 quarters end
on January 2, 2010, April 3, 2010, July 3, 2010 and October 2,
2010. In fiscal years consisting of 53 weeks, the fourth quarter will consist of
14 weeks.
Nature
of Business
The
Company designs, manufactures and sells capital equipment and expendable tools
as well as services, maintains, repairs and upgrades equipment, all used to
assemble semiconductor devices. The Company’s operating results depend upon the
capital and operating expenditures of semiconductor manufacturers and
subcontract assemblers worldwide which, in turn, depend on the current and
anticipated market demand for semiconductors and products utilizing
semiconductors. The semiconductor industry is highly volatile and experiences
downturns and slowdowns which have a severe negative effect on the semiconductor
industry’s demand for semiconductor capital equipment, including assembly
equipment manufactured and sold by the Company and, to a lesser extent,
expendable tools such as those sold by the Company. These downturns and
slowdowns have adversely affected the Company’s operating results. The Company
believes such volatility will continue to characterize the industry and the
Company’s operations in the future.
Management
Estimates
The
preparation of financial statements in conformity with United States Generally
Accepted Accounting Principles (“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 date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. The more significant areas involving the use of estimates in
these financial statements include, but are not limited to, those related to
accounts receivable, reserves for excess and obsolete inventory, carrying value
and lives of fixed assets, goodwill and intangible assets, valuation allowances
for deferred tax assets and deferred tax liabilities, repatriation of unremitted
foreign subsidiary earnings, equity-based compensation expense, resizing, and
warranties. The Company estimates using historical experience and various other
assumptions that it believes to be reasonable. As a result, the Company makes
judgments regarding the carrying values of its assets and liabilities which may
not be readily available from other sources. Actual results may differ from
these estimates under different assumptions or conditions.
6
Vulnerability
to Certain Concentrations
Financial
instruments which may subject the Company to concentrations of credit risk as of
October 3, 2009 and January 2, 2010 consisted mainly of trade receivables. The
Company’s trade receivables result primarily from the sale of semiconductor
equipment, related accessories and replacement parts, and expendable tools to a
relatively small number of large manufacturers in a highly concentrated
industry. Write-offs of uncollectible accounts have historically not been
significant; however, the Company closely monitors its customers’ financial
strength to reduce the risk of loss.
The
Company’s products are complex and require raw materials, components and
subassemblies having a high degree of reliability, accuracy and performance. The
Company relies on subcontractors to manufacture many of these components and
subassemblies and it relies on sole source suppliers for some important
components and raw material inventory.
The
Company is also exposed to foreign currency fluctuations that impact the
remeasurement of the net monetary assets of those operations whose functional
currencies differ from their respective local currencies, most notably in
Israel, Malaysia, Singapore and Switzerland. In addition, operations in these
countries and in China have exposure related to the translation of their
financial statements from their respective functional currencies to the U.S.
dollar.
Cash
Equivalents
The
Company considers all highly liquid investments with original maturities of
three months or less when purchased to be cash equivalents.
Allowance
for Doubtful Accounts
The
Company maintains allowances for doubtful accounts for estimated losses
resulting from its customers’ failure to make required payments. If the
financial condition of the Company’s customers were to deteriorate, resulting in
an impairment of their ability to make payments, additional allowances may be
required. The Company is also subject to concentrations of customers and sales
to a few geographic locations, which could also impact the collectibility of
certain receivables. If global economic conditions deteriorate or political
conditions were to change in some of the countries where the Company does
business, it could have a significant impact on the results of operations, and
the Company’s ability to realize the full value of its accounts
receivable.
Inventories
Inventories
are stated at the lower of cost (on a first-in first-out basis) or market value.
The Company generally provides reserves for obsolete inventory and for inventory
considered to be in excess of demand. In addition, the Company typically records
as accrued expense inventory purchase commitments in excess of demand. Demand is
generally defined as eighteen months forecasted consumption for non-Wedge bonder
equipment, twenty-four months consumption for Wedge bonder equipment and all
spare parts, and twelve months consumption for expendable tools. The forecasted
demand is based upon internal projections, historical sales volumes, customer
order activity and a review of consumable inventory levels at customers’
facilities. The Company communicates forecasts of its future demand to its
suppliers and adjusts commitments to those suppliers accordingly. If required,
the Company reserves the difference between the carrying value of its inventory
and the lower of cost or market value, based upon assumptions about future
demand, market conditions and the next cyclical market upturn. If actual market
conditions are less favorable than projections, additional inventory reserves
may be required.
7
Property,
Plant and Equipment
Property,
plant and equipment are carried at cost. The cost of additions and those
improvements which increase the capacity or lengthen the useful lives of assets
are capitalized while repair and maintenance costs are expensed as incurred.
Depreciation and amortization are provided on a straight-line basis over the
estimated useful lives as follows: buildings 25 to 40 years; machinery and
equipment 3 to 10 years; and leasehold improvements are based on the shorter of
the life of lease or life of asset. Purchased computer software costs related to
business and financial systems are amortized over a five year period on a
straight-line basis.
Valuation
of Long-Lived Assets
The
Company’s long-lived assets are primarily property, plant, intangible assets and
equipment and goodwill. In accordance with the provisions of ASC No. 350, Intangibles, Goodwill and
Other (“ASC 350”) goodwill is not amortized. ASC 350 also requires that,
at least annually, an impairment test be performed to support the carrying value
of goodwill. In addition, whenever events occur that would more likely than not
reduce the fair value of reporting unit below its carrying amount, a goodwill
impairment test will be performed. The fair value of the Company’s goodwill is
based upon estimates of future cash flows and other factors.
In
accordance with ASC No. 360,
Property, Plant & Equipment (“ASC 360”), the Company’s property,
plant and equipment is tested for impairment based on undiscounted cash flows
when triggering events occur, and if impaired, written-down to fair value based
on either discounted cash flows or appraised values. ASC 360 also provides a
single accounting model for long-lived assets to be disposed of by sale and
establishes additional criteria that would have to be met to classify an asset
as held for sale. The carrying amount of an asset or asset group is not
recoverable if it exceeds the sum of the undiscounted cash flows expected to
result from the use and eventual disposition of the asset or asset group.
Estimates of future cash flows used to test the recoverability of a long-lived
asset or asset group must incorporate the entity’s own assumptions about its use
of the asset or asset group and must factor in all available
evidence.
ASC 360
requires that long-lived assets be tested for recoverability whenever events or
changes in circumstances indicate that their carrying amount may not be
recoverable. Such events include significant under-performance relative to the
expected historical or projected future operating results; significant changes
in the manner of use of the assets; significant negative industry or economic
trends and significant changes in market capitalization.
Foreign
Currency Translation
The
majority of the Company’s business is transacted in U.S. dollars; however, the
functional currencies of some of the Company’s subsidiaries are their local
currencies. In accordance with ASC No. 830, Foreign Currency
Matters (“ASC 830”), for a subsidiary of the Company that has a
functional currency other than the U.S. dollar, gains and losses resulting from
the translation of the functional currency into U.S. dollars for financial
statement presentation are not included in determining net income (loss), but
are accumulated in the cumulative translation adjustment account as a separate
component of shareholders’ equity (accumulated other comprehensive income
(loss)). Under ASC 830, cumulative translation adjustments are not adjusted for
income taxes if they relate to indefinite investments in non-U.S. subsidiaries.
Gains and losses resulting from foreign currency transactions are included in
the determination of net income (loss).
Revenue
Recognition
In
accordance with ASC No. 605,
Revenue Recognition, the Company recognizes revenue when persuasive
evidence of an arrangement exists, delivery has occurred or services have been
rendered, the price is fixed or determinable, the collectibility is reasonably
assured, and the Company has completed its equipment installation
obligations and received customer acceptance, when applicable, or is otherwise
released from its installation or customer acceptance obligations. In the event
terms of the sale provide for a customer acceptance period, revenue is
recognized upon the expiration of the acceptance period or customer acceptance,
whichever occurs first. The Company’s standard terms are Ex Works (the Company’s
factory), with title transferring to its customer at the Company’s loading dock
or upon embarkation. The Company has a small percentage of sales with other
terms, and revenue is recognized in accordance with the terms of the related
customer purchase order. Revenue related to services is recognized upon
performance of the services requested by a customer order. Revenue for extended
maintenance service contracts with a term more than one month is recognized on a
prorated straight-line basis over the term of the contract.
8
Shipping
and handling costs billed to customers are recognized in net revenue. Shipping
and handling costs are included in cost of sales.
Research
and Development
The
Company charges research and development costs associated with the development
of new products to expense when incurred. In certain circumstances,
pre-production machines which the Company intends to sell are carried as
inventory until sold.
Income
Taxes
Deferred
income taxes are determined using the liability method in accordance with ASC
No. 740, Income Taxes
(“ASC 740”). The Company records a valuation allowance to reduce its deferred
tax assets to the amount it expects is more likely than not to be realized.
While the Company has considered future taxable income and its ongoing tax
planning strategies in assessing the need for the valuation allowance, if it
were to determine that it would be able to realize its deferred tax assets in
the future in excess of its net recorded amount, an adjustment to the deferred
tax asset would increase income in the period such determination was made.
Likewise, should the Company determine it would not be able to realize all or
part of its net deferred tax assets in the future, an adjustment to the deferred
tax asset would decrease income in the period such determination was
made.
In
accordance with ASC No. 740 Topic 10, Income Taxes, General (“ASC
740.10”), the Company utilizes a two-step approach for evaluating uncertain tax
positions. Step one or recognition, requires a company to determine if the
weight of available evidence indicates a tax position is more likely than not to
be sustained upon audit, including resolution of related appeals or litigation
processes, if any. Step two or measurement, is based on the largest amount of
benefit, which is more likely than not to be realized on settlement with the
taxing authority.
Earnings
per Share
Earnings
per share (“EPS”) are calculated in accordance with ASC No. 260, Earnings per Share. Basic
EPS include only the weighted average number of common shares outstanding during
the period. Diluted EPS include the weighted average number of common shares and
the dilutive effect of stock options, restricted stock and share unit awards and
subordinated convertible notes outstanding during the period, when such
instruments are dilutive.
In
accordance with ASC No. 260.10.55, Earnings per Share - Implementation
& Guidance (“ASC 260.10.55”), the Company treats all outstanding
unvested share-based payment awards that contain rights to nonforfeitable
dividends as participating in undistributed earnings with common shareholders.
Awards of this nature are considered participating securities and the two-class
method of computing basic and diluted earnings per share must be applied. The
Company adopted ASC 260.10.55 on October 4, 2009 and, accordingly, has
retrospectively adjusted prior period earnings per share (see Note
12).
Extinguishment
of Debt
In
accordance with ASC No. 470 Topic 50, Debt, Modifications and
Extinguishments, gains and losses from the extinguishment of debt are
included in income (loss) from continuing operations unless the extinguishment
is both unusual in nature and infrequent in occurrence, in which case the gain
or loss would be presented as an extraordinary item.
9
Equity-Based
Compensation
The
Company accounts for equity based compensation under the provisions of ASC No.
718, Compensation, Stock
Compensation (“ASC 718”). ASC 718 requires the recognition of the fair
value of equity-based compensation in net income. The fair value of the
Company’s stock option awards are estimated using a Black-Scholes option
valuation model. Compensation expense associated with time-based and
performance-based restricted stock is determined based on the number of shares
granted and the fair value on the date of grant. In addition, the calculation of
equity-based compensation costs requires that the Company estimate the number of
awards that will be forfeited during the vesting period. The fair value of
equity-based awards is amortized over the vesting period of the award and the
Company elected to use the straight-line method for awards granted after the
adoption of ASC 718.
Recent
Accounting Pronouncements
Certain
Revenue Arrangements That Include Software Elements
In
October 2009, the FASB issued Accounting Standards Update (“ASU”) No. 2009-14,
Software, Certain Revenue
Arrangements That Include Software Elements (“ASU 2009-14”). ASU 2009-14
clarifies the accounting model for revenue arrangements that include both
tangible products and software elements. In accordance with ASU 2009-14,
tangible products containing software components and non-software components
that function together to deliver the tangible product's essential functionality
are excluded from the software revenue guidance in ASC 605. ASU 2009-14 is
effective prospectively for revenue arrangements entered into or materially
modified in fiscal years beginning on or after June 15, 2010, and early adoption
is permitted. The Company adopted ASU 2009-14 as of October 4, 2009 and the
adoption did not have a material impact on its consolidated results of
operations.
Participating
Securities
In June
2008, the FASB issued ASC No. 260.10.55, Earnings per Share- Implementation
& Guidance (“ASC 260.10.55”). ASC 260.10.55
clarified that all outstanding unvested share-based payment awards that contain
rights to nonforfeitable dividends participate in undistributed earnings with
common shareholders. Awards of this nature are considered participating
securities and the two-class method of computing basic and diluted earnings per
share must be applied. The Company adopted ASC 260.10.55 as of October 4, 2009
and the adoption did not have a material impact on its consolidated results of
operations.
NOTE
2 – DISCONTINUED OPERATIONS
On
September 29, 2008, the Company completed the sale of certain assets and
liabilities associated with its Wire business. The Company recognized net
proceeds of $149.9 million and a net gain of $22.7 million, net of tax, during
the three months ended December 27, 2008. The Company did not recognize any
income or loss from discontinued operations for the three months ended January
2, 2010.
10
The following table reflects operating results of the Wire business discontinued operations for the three months ended December 27, 2008:
Three
months ended
|
||||
(in
thousands)
|
December 27, 2008
|
|||
Net
revenue
|
$ | - | ||
Loss
before tax
|
$ | (319 | ) | |
Gain
on sale of Wire business before tax
|
23,524 | |||
Income
from discontinued operations before tax
|
23,205 | |||
Income
tax expense
|
(478 | ) | ||
Income
from discontinued operations, net of tax
|
$ | 22,727 |
As of
January 2, 2010, the Company has settled all working capital adjustments with
Heraeus. The following table reflects cash flows associated with the Company’s
discontinued operations for the three months ended December 27, 2008 and January
2, 2010:
Three
months ended
|
||||||||
(in
thousands)
|
December
27, 2008
|
January
2, 2010
|
||||||
Cash
flows provided by (used in):
|
||||||||
Operating
activities: Wire business
|
$ | (319 | ) | $ | - | |||
Operating
activities: Test business (sold in fiscal 2006) (1)
|
(460 | ) | (496 | ) | ||||
Investing
activities: Wire business
|
149,857 | (1,838 | ) | |||||
Net
cash provided by (used in) discontinued operations
|
$ | 149,078 | $ | (2,334 | ) |
(1) Represents
facility-related costs associated with the Company’s former Test
operations.
NOTE
3 – COST REDUCTION PLAN
During
fiscal 2009 due to the global economic downturn, the Company reduced its global
workforce by approximately 20% of total employees which minimized cash usage and
reduced employee compensation costs. As business recovered during the first
quarter of fiscal 2010, the Company began to increase its number of employees.
In addition during fiscal 2009, the Company committed to a plan to reduce its
Israel workforce by approximately 170 employees by the end of fiscal 2010. As
part of this workforce reduction plan, substantially all of the Company’s
Israel-based manufacturing will be transferred to the Company’s manufacturing
facilities in Suzhou, China. The Company expects to incur approximately $0.6
million in additional severance costs and the amounts accrued are expected to be
paid out over the next 12 months related to these cost reduction
efforts.
11
The
following table reflects severance activity for both plans during the three
months ended December 27, 2008 and January 2, 2010:
For
the three months ended
|
||||||||
(in
thousands)
|
December 27, 2008
|
January 2, 2010
|
||||||
Provision
for severance, beginning of period
|
$ | - | $ | 2,413 | ||||
Accrual
for estimated severance and benefits (1)
|
2,586 | 199 | ||||||
Payment
of severance and benefits
|
(1,363 | ) | (419 | ) | ||||
Provision
for severance, end of period (2)
|
$ | 1,223 | $ | 2,193 |
(1)
Estimated severance and benefits expense is the total amount expected to be
incurred and is included within selling, general and administrative expenses on
the Consolidated Statements of Operations. Of the $2.6 million severance expense
for the three months ended December 27, 2008, $1.6 million was attributable to
the Company’s Equipment segment and $1.0 million to the Company’s Expendable
Tools segment. The $0.2 million severance expense for the three months ended
January 2, 2010 was primarily attributable to the Company’s Expendable Tools
segment.
(2) The
provision for severance as of December 28, 2008 was included within accrued
expenses and other current liabilities and other liabilities on the Consolidated
Balance Sheet. The provision for severance as of January 2, 2010 was included
within accrued expenses and other current liabilities on the Consolidated
Balance Sheet.
The
Company will continue to consolidate its operations from the United States and
other areas to the Asia/Pacific region. As these consolidation efforts are
finalized in the future, the Company will incur significant severance costs;
however, it expects to realize future cost reduction benefits from these
consolidation plans.
NOTE
4 – GOODWILL AND INTANGIBLE ASSETS
Goodwill
Intangible
assets classified as goodwill are not amortized. The Company performs an annual
impairment test of its goodwill during the fourth quarter of each fiscal year,
which coincides with the completion of its annual forecasting process. The
Company performed its annual impairment test in the fourth quarter of fiscal
2009 and no impairment charge was required. The Company also tests for
impairment between annual tests if a “triggering” event occurs that may have the
effect of reducing the fair value of a reporting unit below its respective
carrying value.
The
following table reflects goodwill as of October 3, 2009 and January 2,
2010:
(in
thousands)
|
Equipment segment
|
Expendable Tools
segment
|
Total
|
|||||||||
As
of October 3, 2009:
|
||||||||||||
Beginning
of period
|
$ | 22,999 | $ | 6,408 | $ | 29,407 | ||||||
Accumulated
impairment losses (1)
|
(2,709 | ) | - | (2,709 | ) | |||||||
End
of period
|
$ | 20,290 | $ | 6,408 | $ | 26,698 | ||||||
As
of January 2, 2010:
|
||||||||||||
Beginning
of period
|
$ | 22,999 | $ | 6,408 | $ | 29,407 | ||||||
Accumulated
impairment losses (1)
|
(2,709 | ) | - | (2,709 | ) | |||||||
End
of period
|
$ | 20,290 | $ | 6,408 | $ | 26,698 |
(1)
|
During
the three months ended March 28, 2009, the Company recorded a $2.7 million
impairment charge related to its die bonder
goodwill.
|
12
Intangible
Assets
Intangible
assets with determinable lives are amortized over their estimated useful lives.
The Company’s intangible assets consist primarily of wedge bonder developed
technology and customer relationships.
The
following table reflects the intangible asset balances as of October 3, 2009 and
January 2, 2010:
As
of
|
Average
estimated useful
|
|||||||||||
(in
thousands)
|
October 3, 2009
|
January 2, 2010
|
lives (in years)
|
|||||||||
Wedge
bonder developed technology
|
$ | 33,200 | $ | 33,200 | 7.0 | |||||||
Accumulated
amortization
|
(4,742 | ) | (5,928 | ) | ||||||||
Net
wedge bonder developed technology
|
28,458 | 27,272 | ||||||||||
Wedge
bonder customer relationships
|
19,300 | 19,300 | 5.0 | |||||||||
Accumulated
amortization
|
(3,860 | ) | (4,825 | ) | ||||||||
Net
wedge bonder customer relationships
|
15,440 | 14,475 | ||||||||||
Wedge
bonder trade name
|
4,600 | 4,600 | 8.0 | |||||||||
Accumulated
amortization
|
(575 | ) | (719 | ) | ||||||||
Net
wedge bonder trade name
|
4,025 | 3,881 | ||||||||||
Wedge
bonder other intangible assets
|
2,500 | 2,500 | 1.9 | |||||||||
Accumulated
amortization
|
(1,767 | ) | (1,858 | ) | ||||||||
Net
wedge bonder other intangible assets
|
733 | 642 | ||||||||||
Net
intangible assets
|
$ | 48,656 | $ | 46,270 |
The
following table reflects estimated annual amortization expense related to
intangible assets as of January 2, 2010:
(in
thousands)
|
||||
Fiscal
2010 (remaining fiscal year)
|
$ | 7,159 | ||
Fiscal
2011
|
9,544 | |||
Fiscal
2012
|
9,178 | |||
Fiscal
2013
|
9,178 | |||
Fiscal
2014-2016
|
11,211 | |||
$ | 46,270 |
13
NOTE
5 – COMPREHENSIVE INCOME (LOSS)
The
following table reflects the components of comprehensive income (loss) for the
three months ended December 27, 2008 and January 2, 2010:
Three months ended
|
||||||||
(in thousands)
|
December 27, 2008 *
|
January 2, 2010
|
||||||
Net
income (1)
|
$ | 3,139 | $ | 15,840 | ||||
Loss
from foreign currency translation adjustments
|
(1,295 | ) | (653 | ) | ||||
Unrecognized
actuarial net gain, Switzerland pension plan, net of tax
|
285 | 38 | ||||||
Other
comprehensive loss
|
$ | (1,010 | ) | $ | (615 | ) | ||
Comprehensive
income
|
$ | 2,129 | $ | 15,225 |
* As
adjusted for ASC No. 470.20,
Debt, Debt With Conversion Options.
(1) Includes
continuing and discontinued operations.
The
following table reflects accumulated other comprehensive income reflected on the
Consolidated Balance Sheets as of October 3, 2009 and January 2,
2010:
As
of
|
||||||||
(in
thousands)
|
October 3, 2009
|
January 2, 2010
|
||||||
Gain
from foreign currency translation adjustments
|
$ | 746 | $ | 93 | ||||
Unrecognized
actuarial net gain, Switzerland pension plan, net of taxes
|
1,133 | 1,171 | ||||||
Accumulated
other comprehensive income
|
$ | 1,879 | $ | 1,264 |
14
NOTE
6 – BALANCE SHEET ACCOUNTS
The
following tables reflect significant balance sheet accounts:
As
of
|
||||||||
(in
thousands)
|
October 3, 2009
|
January 2, 2010
|
||||||
Inventories,
net:
|
||||||||
Raw
materials and supplies
|
$ | 30,048 | $ | 31,339 | ||||
Work
in process
|
10,788 | 14,007 | ||||||
Finished
goods
|
13,170 | 16,222 | ||||||
54,006 | 61,568 | |||||||
Inventory
reserves
|
(12,517 | ) | (11,784 | ) | ||||
$ | 41,489 | $ | 49,784 | |||||
Property,
plant and equipment, net:
|
||||||||
Land (1)
|
$ | 2,735 | $ | 2,735 | ||||
Buildings
and building improvements (1)
|
14,351 | 17,302 | ||||||
Leasehold
improvements
|
11,695 | 9,027 | ||||||
Data
processing and hardware equipment and software
|
21,822 | 21,915 | ||||||
Machinery
and equipment
|
40,600 | 39,740 | ||||||
91,203 | 90,719 | |||||||
Accumulated
depreciation
|
(55,157 | ) | (55,665 | ) | ||||
$ | 36,046 | $ | 35,054 | |||||
Accrued
expenses and other current liabilities:
|
||||||||
Wages
and benefits
|
$ | 10,423 | $ | 10,200 | ||||
Severance (2)
|
3,264 | 3,008 | ||||||
Accrued
customer obligations (4)
|
4,438 | 4,736 | ||||||
Short-term
facility accrual related to discontinued operations (Test)
|
1,839 | 1,791 | ||||||
Payable
to Heraeus (3)
|
1,857 | - | ||||||
Other
|
10,755 | 9,745 | ||||||
$ | 32,576 | $ | 29,480 |
(1) Subsequent to January
2, 2010 the Company entered into an agreement and sold its facility in
Yokneam, Israel (see
Note 15).
(2) Total
severance payable within the next twelve months includes the severance plan
discussed in Note 3, and approximately
$0.8 million of other severance obligations which were not part of the Company’s
cost reduction plan.
(3)
Fiscal 2009 amount related to certain open working capital adjustments with
Heraeus, which were settled in fiscal 2010.
(4) Represents
customer advance payments, customer credit program, accrued warranty and accrued
retrofit costs.
15
NOTE
7 – DEBT OBLIGATIONS
The
following table reflects debt consisting of Convertible Subordinated Notes as of
October 3, 2009 and January 2, 2010:
(in
thousands)
|
|||||||||||||||
As
of
|
|||||||||||||||
Payment
Dates
|
Conversion
|
Maturity
|
|||||||||||||
Rate
|
of
each year
|
Price
|
Date
|
October 3, 2009 *
|
January 2, 2010
|
||||||||||
1.000%
|
June
30 and December 30
|
$ | 12.84 |
June
30, 2010
|
$ | 48,964 | $ | 48,964 | |||||||
0.875%
|
June
1 and December 1
|
$ | 14.36 |
June
1, 2012
|
110,000 | 110,000 | |||||||||
Debt
discount on 0.875% Convertible Subordinated Notes due June
2012
|
(17,783 | ) | (16,267 | ) | |||||||||||
$ | 141,181 | $ | 142,697 |
* As
adjusted for ASC No. 470.20,
Debt, Debt With Conversion Options.
0.875%
Convertible Subordinated Notes
Holders
of the 0.875% Convertible Subordinated Notes may convert their notes based on an
initial conversion rate of approximately 69.6621 shares per $1,000 principal
amount of notes (equal to an initial conversion price of approximately $14.355
per share) only under specific circumstances. The initial conversion rate will
be adjusted for certain events. The Company presently intends to satisfy any
conversion of the 0.875% Convertible Subordinated Notes with cash up to the
principal amount of the 0.875% Convertible Subordinated Notes and, with respect
to any excess conversion value, with shares of its common stock. The Company has
the option to elect to satisfy the conversion obligations in cash, common stock
or a combination thereof.
The
0.875% Convertible Subordinated Notes will not be redeemable at the Company’s
option. Holders of the 0.875% Convertible Subordinated Notes will not have the
right to require us to repurchase their 0.875% Convertible Subordinated Notes
prior to maturity except in connection with the occurrence of certain
fundamental change transactions. The 0.875% Convertible Subordinated Notes may
be accelerated upon an event of default as described in the Indenture and will
be accelerated upon bankruptcy, insolvency, appointment of a receiver and
similar events with respect to the Company.
As of
October 4, 2009, the Company adopted ASC 470.20, which requires that issuers of
convertible debt that may be settled in cash upon conversion record the
liability and equity components of the convertible debt separately. The Company
estimated the liability component of its 0.875% Convertible Subordinated Notes
by assessing the fair value of debt instruments without an associated equity
component issued by companies with similar credit ratings and terms at the time
the Company’s 0.875% Convertible Subordinated Notes were issued. The effective
interest rate for non-convertible debt with similar credit ratings and terms was
assumed to be 7.85%. The Company determined the fair value of the equity
component of the embedded conversion option by deducting the fair value of the
liability component from the initial proceeds of the convertible debt
instrument. The debt discount will be amortized under the effective interest
method from the original issue date. The Company determined the portion of
issuance costs associated with the equity component of the 0.875% Convertible
Subordinated Notes was $1.0 million. The issuance costs will be amortized under
the effective interest method from the original issue date.
The
liability component of the Company’s 0.875% Convertible Subordinated Notes
will continue to be classified as long-term debt and the equity component of the
0.875% Convertible Subordinated Notes has been classified as common stock
on the Company’s Consolidated Balance Sheets (see Note 8).
16
The
following table reflects the effect of the change due to ASC 470.20 on the
Consolidated Statements of Operations for the three months ended December 27,
2008 and January 2, 2010:
Three months ended | ||||||||||||
(in
thousands)
|
December 27, 2008,
as reported
|
December 27, 2008,
as adjusted
|
Effect of
change
|
|||||||||
Interest
expense
|
$ | 734 | $ | 2,079 | $ | 1,345 | ||||||
Loss
from continuing operations before taxes
|
(30,125 | ) | (31,470 | ) | (1,345 | ) | ||||||
Benefit
for income taxes
|
(11,882 | ) | (11,882 | ) | - | |||||||
Loss
from continuing operations
|
$ | (18,243 | ) | $ | (19,588 | ) | $ | (1,345 | ) | |||
Diluted
loss per share from continuing operations
|
$ | (0.30 | ) | $ | (0.32 | ) | $ | (0.02 | ) |
The
following table reflects the effect of the change due to ASC 470.20 on the
Consolidated Balance Sheets as of October 3, 2009:
As of
|
||||||||||||
(in
thousands)
|
October 3, 2009, as
reported |
October 3, 2009, as
adjusted |
Effect of
change
|
|||||||||
Other
assets (debt issuance costs)
|
$ | 6,215 | $ | 5,774 | $ | (441 | ) | |||||
Total
assets
|
413,076 | 412,635 | (441 | ) | ||||||||
Long-term
debt
|
110,000 | 92,217 | (17,783 | ) | ||||||||
Total
liabilities
|
259,615 | 241,832 | (17,783 | ) | ||||||||
Common
stock
|
383,417 | 413,092 | 29,675 | |||||||||
Accumulated
deficit
|
(185,479 | ) | (197,812 | ) | (12,333 | ) | ||||||
Total
shareholders' equity
|
153,461 | 170,803 | 17,342 | |||||||||
Total
liabilities and shareholders' equity
|
413,076 | 412,635 | (441 | ) |
The
following table reflects the effect of the change due to ASC 470.20 on the
Consolidated Statements of Cash Flows for the three months ended December 27,
2008 and January 2, 2010:
For the three months ended
|
||||||||||||
(in
thousands)
|
December 27, 2008,
as reported
|
December 27, 2008,
as adjusted
|
Effect of
change
|
|||||||||
Net
income
|
$ | 4,484 | $ | 3,139 | $ | (1,345 | ) | |||||
Loss
from continuing operations
|
(18,243 | ) | (19,588 | ) | (1,345 | ) | ||||||
Amortization
of debt discount and debt issuance costs
|
289 | 1,634 | 1,345 | |||||||||
Net
cash provided by continuing operations
|
2,012 | 2,012 | - |
17
The
following table reflects amortization expense related to issue costs from the
Company’s Convertible Subordinated Notes for the three months ended
December 27, 2008 and January 2, 2010:
Three
months ended
|
||||||||
(in
thousands)
|
December 27, 2008 *
|
January 2, 2010
|
||||||
Amortization
expense related to issue costs
|
$ | 233 | $ | 196 |
* As
adjusted for ASC No. 470.20,
Debt, Debt With Conversion Options.
The
following table reflects the Company’s open market purchases of its Convertible
Subordinated Notes for the three months ended December 27, 2008:
Three months ended
|
||||
(in
thousands)
|
December 27, 2008
|
|||
0.5%
Convertible Subordinated Notes (1):
|
||||
Face
value purchased
|
$ | 43,050 | ||
Net
cash
|
42,838 | |||
Deferred
financing costs
|
18 | |||
Recognized
gain, net of deferred financing costs
|
194 | |||
1.0%
Convertible Subordinated Notes:
|
||||
Face
value purchased
|
$ | 3,000 | ||
Net
cash
|
1,990 | |||
Deferred
financing costs
|
25 | |||
Recognized
gain, net of deferred financing costs
|
985 | |||
Gain
on extinguishment of debt
|
$ | 1,179 |
(1)
|
Repurchase
transactions occurred prior to redemption on November 30,
2008.
|
NOTE
8 – SHAREHOLDERS’ EQUITY
Common
Stock
As of
October 4, 2009, the Company adopted ASC 470.20 and accordingly common stock
includes the equity component of the Company’s 0.875% Convertible Subordinated
Notes (see Note 7).
On
October 3, 2008, the Company completed the acquisition of substantially all of
the assets and assumption of certain liabilities of Orthodyne Electronics
Corporation (“Orthodyne”). In connection with the Orthodyne acquisition, the
Company issued 7.1 million common shares with an estimated value on that date of
$46.2 million and paid $87.0 million in cash including capitalized acquisition
costs.
18
401(k)
Retirement Income Plan
The
following table reflects the Company’s matching contributions to the 401(k)
retirement income plan which were made in the form of issued and contributed
shares of Company common stock during the three months ended December 27, 2008
and January 2, 2010:
Three
months ended
|
||||||||
(in
thousands)
|
December 27, 2008
|
January 2, 2010
|
||||||
Number
of common shares
|
95 | 50 | ||||||
Fair
value based upon market price at date of distribution
|
$ | 204 | $ | 290 |
Equity-Based
Compensation
As of
January 2, 2010, the Company had eight equity-based employee compensation plans
(the “Employee Plans”) and three director compensation plans (the “Director
Plans”) (collectively, the “Plans”). Under these Plans, stock options,
performance-based share awards (collectively, “performance-based restricted
stock”), time-based share awards (collectively, “time-based restricted stock”),
market-based share awards (collectively, “market-based restricted stock”) or
common stock have been granted at 100% of the market price of the Company’s
common stock on the date of grant.
|
·
|
In
general, stock options and time-based restricted stock awarded to
employees vest annually over a three year period provided that the
employee remains employed. The Company follows the non-substantive vesting
method for stock options and recognizes compensation expense immediately
for awards granted to retirement eligible employees, or over the period
from the grant date to the date retirement eligibility is
achieved.
|
|
·
|
Performance-based
restricted stock entitles the employee to receive common shares of the
Company on the three-year anniversary of the grant date (if employed by
the Company) if return on invested capital and revenue growth targets set
by the Management Development and Compensation Committee of the Board of
Directors on the date of grant are met. If return on invested capital and
revenue growth targets are not met, performance-based restricted stock
does not vest.
|
|
·
|
Market-based
restricted stock entitles the employee to receive common shares of the
Company on the award vesting date, if market performance objectives which
measure relative total shareholder return (“TSR”) are attained. Relative
TSR is calculated based upon the 90-calendar day average price of the
Company’s stock as compared to specific peer companies that comprise the
Philadelphia Semiconductor Index. TSR is measured for the Company and each
peer company over a performance period, which is generally three years.
Vesting percentages range from 0% to 200% of awards granted. The
provisions of the market-based restricted stock are reflected in the grant
date fair value of the award; therefore, compensation expense is
recognized regardless of whether or not the market condition is ultimately
satisfied. Compensation expense is reversed if the award forfeits prior to
the vesting date.
|
Equity-based
compensation expense recognized in the Consolidated Statements of Operations for
the three months ended December 27, 2008 and January 2, 2010 was based upon
awards ultimately expected to vest. In accordance with ASC 718, forfeitures have
been estimated at the time of grant and were based upon historical experience.
The Company reviews the forfeiture rates periodically and makes adjustments as
necessary.
19
The
following table reflects stock options, restricted stock and common stock
granted during the three months ended December 27, 2008 and January 2,
2010:
Three
months ended
|
||||||||
(number
of shares, in thousands)
|
December 27, 2008
|
January 2, 2010
|
||||||
Market-based
restricted stock
|
- | 398 | ||||||
Performance-based
restricted stock
|
401 | - | ||||||
Time-based
restricted stock
|
780 | 784 | ||||||
Stock
options
|
139 | - | ||||||
Common
stock
|
41 | 32 | ||||||
Equity-based
compensation in shares
|
1,361 | 1,214 |
The
following table summarizes equity-based compensation expense (reversal of
expense), by type of award, included in the Consolidated Statements of
Operations during the three months ended December 27, 2008 and January 2,
2010:
Three
months ended
|
||||||||
(in
thousands)
|
December 27, 2008
|
January 2, 2010
|
||||||
Market-based
restricted stock
|
$ | - | $ | 115 | ||||
Performance-based
restricted stock
|
(1,563 | ) | 56 | |||||
Time-based
restricted stock
|
202 | 590 | ||||||
Stock
options
|
509 | 163 | ||||||
Common
stock
|
180 | 180 | ||||||
Equity-based
compensation expense
|
$ | (672 | ) | $ | 1,104 |
In
connection with the global economic decline during the three months ended
December 27, 2008, the Company determined performance objectives for the
performance-based restricted stock issued in fiscal 2007 and 2008 would not be
attained at the previous estimated levels. In accordance with ASC 718, by
lowering estimated attainment percentages, total compensation expense for the
performance-based restricted stock decreased and previously recorded
compensation expense was reversed during fiscal 2009.
The
following table reflects total equity-based compensation expense (reversal of
expense), which includes stock options, restricted stock and common stock,
included in the Consolidated Statements of Operations during the three months
ended December 27, 2008 and January 2, 2010:
Three
months ended
|
||||||||
(in
thousands)
|
December 27, 2008
|
January 2, 2009
|
||||||
Cost
of sales
|
$ | (29 | ) | $ | 46 | |||
Selling,
general and administrative
|
(667 | ) | 714 | |||||
Research
and development
|
24 | 344 | ||||||
Equity-based
compensation expense
|
$ | (672 | ) | $ | 1,104 |
20
The
following table summarizes the unrecognized equity-based compensation expense,
by type of award:
As of
|
Average remaining
|
|||||||||||
(in thousands)
|
December 27, 2008
|
January 2, 2010
|
contractual life in years
|
|||||||||
Market-based
restricted stock
|
$ | - | $ | 2,583 |
2.2
|
|||||||
Performance-based
restricted stock
|
552 | 314 |
1.2
|
|||||||||
Time-based
restricted stock
|
2,219 | 5,072 |
2.4
|
|||||||||
Stock
options
|
2,721 | 617 |
1.0
|
|||||||||
Unrecognized
equity-based compensation expense
|
$ | 5,492 | $ | 8,586 |
NOTE
9 – EMPLOYEE BENEFIT PLANS
U.S.
Plan
The
Company has a 401(k) retirement income plan for its employees. This plan allows
for employee contributions and matching Company contributions in varying
percentages, depending on employee age and years of service, ranging from 50% to
175% of the employees’ contributions.
The
following table reflects the Company’s matching contributions to the 401(k)
retirement income plan which were made in the form of issued and contributed
shares of Company common stock during the three months ended December 27, 2008
and January 2, 2010:
Three months ended
|
||||||||
(in thousands)
|
December 27, 2008
|
January 2, 2010
|
||||||
Number
of common shares
|
95 | 50 | ||||||
Fair
value based upon market price at date of distribution
|
$ | 204 | $ | 290 |
In
addition to the 401(k) retirement income plan discussed above, the Company has a
401(k) retirement income plan for its Wedge bonder employees. Effective January
2009, the Company suspended cash matching contributions to its Wedge bonder
employees’ 401(k) retirement income plan. Cash matching contributions for the
Company’s Wedge bonder retirement income plan were $0.1 million during the three
months ended December 27, 2008.
21
NOTE
10 – INCOME TAXES
The
following table reflects the total provision (benefit) for income taxes and the
effective tax rate from continuing operations for the three months ended
December 27, 2008 and January 2, 2010:
Three months ended
|
||||||||
(in thousands)
|
December 27, 2008 *
|
January 2, 2010
|
||||||
Income
(loss) from continuing operations before taxes
|
$ | (31,470 | ) | $ | 16,000 | |||
Provision
(benefit) for income taxes
|
(11,882 | ) | 160 | |||||
Income
(loss) from continuing operations
|
$ | (19,588 | ) | $ | 15,840 | |||
Effective
tax rate
|
37.8 | % | 1.0 | % |
* As
adjusted for ASC No. 470.20,
Debt, Debt With Conversion Options.
For the
three months ended January 2, 2010, the effective income tax rate related to
continuing operations differed from the federal statutory rate primarily due to:
decreases in the valuation allowance, Federal alternative minimum taxes, state
income taxes, tax from foreign operations, impact of tax holidays, an increase
in deferred taxes for un-remitted earnings and other U.S. current and deferred
taxes.
For the
three months ended December 27, 2008, the effective income tax rate related to
continuing operations differed from the federal statutory rate primarily due to:
increases in the valuation allowance, federal alternative minimum taxes, state
income taxes, tax from foreign operations, impact of tax holidays, decreases in
deferred taxes for un-remitted earnings, and decreases in liabilities for
unrecognized tax benefits as discussed further below.
In
October 2007, the tax authority in Israel issued the Company a preliminary
assessment of income tax, withholding tax and interest of $34.3 million (after
adjusting for the impact of foreign currency fluctuations) for fiscal 2002
through 2004. The Company provided a non-current income tax liability for
uncertain tax positions on its Consolidated Balance Sheet as of September 27,
2008 related to this assessment for fiscal years 2002 through 2007, as required
under ASC 740. On December 24, 2008, the Company, through its Israel
subsidiaries, entered into an agreement with the tax authority in Israel
settling the tax dispute for approximately $12.5 million, which represented
withholding taxes, income taxes, and interest related to fiscal 2002 through
2004. The settlement of $12.5 million was made net of a $4.5 million
reimbursement resulting in a net cash payment of $7.8 million during the second
quarter of fiscal 2009. Following the payment and settlement of the audit for
fiscal 2002 through 2004, the tax authorities in Israel examined the fiscal
years 2005 and 2006. In addition during fiscal 2009, the Company made a payment
of approximately $1.9 million related to income taxes and interest to settle the
fiscal September 30, 2005 and 2006. As a result of the Israel tax settlements,
the Company recognized a $12.5 million benefit from income taxes for fiscal
2009. The $12.5 million benefit was a result of reversing the liability for
unrecognized tax benefits on the Consolidated Balance Sheet as of September 27,
2008 that was in excess of the $14.4 million for which the matter was settled.
The entire amount of the reversal impacted the Company’s effective tax rate as
indicated above.
The
Company is currently under audit by the U.S. Internal Revenue Service (“IRS”)
for the period ended September 30, 2006. The Company has responded to various
information requests from the IRS and is in the closing stages of the audit. The
IRS has not proposed any adjustment that would result in a significant
adjustment to income tax expense; however, the audit is still in
process.
22
NOTE
11 - SEGMENT INFORMATION
The
Company operates two segments: Equipment and Expendable Tools. The Equipment
segment manufactures and markets a line of ball bonders, wedge bonders and die
bonders. The Expendable Tools segment designs, manufactures, and markets
consumable packaging materials for use on the Company’s equipment as well as on
competitors’ equipment. The following table reflects segment information for the
continuing operations of the Company:
Expendable
|
||||||||||||
(in
thousands)
|
Equipment
|
Tools
|
||||||||||
Three months ended December 27, 2008: |
Segment
|
Segment
|
Consolidated
|
|||||||||
Net
revenue
|
$ | 23,659 | $ | 13,757 | $ | 37,416 | ||||||
Cost
of sales
|
16,657 | 6,831 | 23,488 | |||||||||
Gross
profit
|
7,002 | 6,926 | 13,928 | |||||||||
Operating
expenses
|
38,733 | 6,519 | 45,252 | |||||||||
Income
(loss) from operations
|
$ | (31,731 | ) | $ | 407 | $ | (31,324 | ) | ||||
Expendable
|
||||||||||||
Equipment
|
Tools
|
|||||||||||
Three months ended January 2, 2010 |
Segment
|
Segment
|
Consolidated
|
|||||||||
Net
revenue
|
$ | 111,597 | $ | 16,818 | $ | 128,415 | ||||||
Cost
of sales
|
65,145 | 6,897 | 72,042 | |||||||||
Gross
profit
|
46,452 | 9,921 | 56,373 | |||||||||
Operating
expenses
|
31,605 | 6,782 | 38,387 | |||||||||
Income
from operations
|
$ | 14,847 | $ | 3,139 | $ | 17,986 | ||||||
Expendable
|
||||||||||||
Equipment
|
Tools
|
|||||||||||
(in
thousands)
|
Segment
|
Segment
|
Consolidated
|
|||||||||
Segment
Assets as of October 3, 2009*
|
$ | 303,835 | $ | 108,800 | $ | 412,635 | ||||||
Segment
Assets as of January 2, 2010
|
$ | 349,821 | $ | 90,411 | $ | 440,232 |
* As
adjusted for ASC No. 470.20,
Debt, Debt With Conversion Options.
NOTE
12 - EARNINGS PER SHARE
Basic
income (loss) per share is calculated using the weighted average number of
shares of common stock outstanding during the period. Diluted income per share
is calculated using the weighted average number of shares of common stock
outstanding during the period and, if there is net income during the period, the
dilutive impact of common stock equivalents outstanding during the period. In
computing diluted income per share, if convertible debt is assumed to be
converted to common shares, the after-tax amount of interest expense recognized
in the period associated with the convertible debt is added back to net
income.
The
Company’s 0.875% Convertible Subordinated Notes would not result in the issuance
of any dilutive shares, since the conversion option was not “in the money” as of
December 27, 2008 or January 2, 2010. Accordingly, diluted EPS excludes the
effect of the conversion of the 0.875% Convertible Subordinated
Notes.
23
The
following table reflects a reconciliation of the shares used in the basic and
diluted net income (loss) per share computation:
Three
months ended
|
||||||||||||||||
(in
thousands)
|
December 27,
2008 *
|
December 27,
2008 *
|
January 2,
2010
|
January 2,
2010
|
||||||||||||
Basic
|
Diluted
|
Basic
|
Diluted
|
|||||||||||||
NUMERATOR: | ||||||||||||||||
Income
(loss) from continuing operations
|
$ | (19,588 | ) | $ | (19,588 | ) | $ | 15,840 | $ | 15,840 | ||||||
Less:
Income applicable to participating securities
|
- | - | (1) | (172 | ) | (172 | ) | |||||||||
After-tax
interest expense
|
- | - | (1) | - | 122 | |||||||||||
Income
(loss) applicable to common shareholders
|
$ | (19,588 | ) | $ | (19,588 | ) | $ | 15,668 | $ | 15,790 | ||||||
DENOMINATOR:
|
||||||||||||||||
Weighted
average shares outstanding - Basic
|
60,451 | 60,451 | 69,684 | 69,684 | ||||||||||||
Stock
options
|
- | (1) | 149 | |||||||||||||
Time-based
restricted stock
|
- | (1) | 41 | |||||||||||||
0.500
% Convertible Subordinated Notes
|
- | (1) | n/a | |||||||||||||
1.000
% Convertible Subordinated Notes
|
- | (1) | 3,813 | |||||||||||||
0.875
% Convertible Subordinated Notes
|
- | (1) | - | |||||||||||||
Weighted
average shares outstanding - Diluted (2)
|
60,451 | 73,687 | ||||||||||||||
EPS:
|
||||||||||||||||
Income
(loss) per share from continuing operations - Basic
|
$ | (0.32 | ) | $ | (0.32 | ) | $ | 0.23 | $ | 0.23 | ||||||
Effect
of dilutive shares
|
- | (1) | $ | (0.02 | ) | |||||||||||
Income
(loss) per share from continuing operations – Diluted
|
$ | (0.32 | ) | $ | 0.21 |
* As
adjusted for ASC No. 470.20,
Debt, Debt With Conversion Options.
(1) Due
to the Company’s loss from continuing operations for the period, the effect of
participating securities was excluded from the computation of basic and diluted
EPS, and the conversion of Convertible Subordinated Notes and the related
after-tax interest expense was not assumed since the effect would have been
anti-dilutive. In addition, due to the Company’s loss from continuing
operations, potentially dilutive shares were not assumed since the effect would
have been anti-dilutive.
(2) Excludes 167 dilutive participating securities as the
income attributable to these shares was not included in EPS.
24
The
following table reflects the number of potentially dilutive shares which were
excluded from diluted EPS, as their inclusion was anti-dilutive:
Three months ended
|
||||||||
December 27, 2008
|
Janaury 2, 2010
|
|||||||
(in thousands)
|
||||||||
Potentially
dilutive shares related to:
|
||||||||
Stock
options, out of the money
|
6,922 | 4,388 | ||||||
Convertible
Subordinated Notes
|
6,363 | - | ||||||
13,285 | 4,388 |
NOTE 13 –
|
GUARANTOR
OBLIGATIONS, COMMITMENTS, CONTINGENCIES AND
CONCENTRATIONS
|
The
following table reflects guarantees under standby letters of credit as of
January 2, 2010:
(in thousands)
|
||||||
Maximum obligation
|
||||||
Nature of guarantee
|
Term of guarantee
|
under guarantee
|
||||
Security
of employee worker compensation benefit programs
|
Expires
October 2011
|
$ | 95 | |||
Security
for customs bond
|
Expires
July 2010
|
100 | ||||
$ | 195 |
Guarantor
Obligations
The
Company has issued standby letters of credit for security of employee worker
compensation benefit programs and a customs bond.
Warranty
Expense
The
Company’s equipment is generally shipped with a one-year warranty against
manufacturing defects; however, Wedge bonder equipment is generally shipped with
a two-year warranty. The Company does not offer extended warranties in the
normal course of its business. The Company establishes reserves for estimated
warranty expense when revenue for the related equipment is recognized. The
reserve for estimated warranty expense is based upon historical experience and
management’s estimate of future expenses.
25
The
following table reflects the reserve for product warranty activity for the three
months ended December 27, 2008 and January 2, 2010:
Three months ended
|
||||||||
(in thousands)
|
December 27, 2008
|
January 2, 2010
|
||||||
Reserve
for product warranty, beginning of period
|
$ | 918 | $ | 1,003 | ||||
Provision
for product warranty
|
684 | 791 | ||||||
Product
warranty costs paid
|
(820 | ) | (401 | ) | ||||
Reserve
for product warranty, end of period
|
$ | 782 | $ | 1,393 |
Concentrations
The
following table reflects significant customer concentrations for the three
months ended December 27, 2008 and January 2, 2010:
Three months ended
|
||||||||
December 27, 2008
|
Janaury 2, 2010
|
|||||||
Customer
net revenue as a percentage of Net Revenue
|
||||||||
Advanced
Semiconductor Engineering
|
* | 34.5 | % | |||||
Customer
accounts receivable as a percentage of Total Accounts
Receivable
|
||||||||
Advanced
Semiconductor Engineering
|
* | 22.9 | % | |||||
Haoseng
Industrial Company Limited
|
* | 12.6 | % | |||||
First
Technology China Limited
|
14.4 | % | * |
* Represents
less than 10% of net revenue or total accounts receivable, as
applicable.
NOTE
14 – RELATED PARTY TRANSACTIONS
In
connection with the Company’s acquisition of Orthodyne, a subsidiary of the
Company entered into a real property lease agreement with OE Holdings, Inc.
which, with Jason Livingston and its other stockholders, is a more than 5%
stockholder of the Company. Mr. Livingston is the Vice President of the
Company’s wedge bonding division. The lease agreement dated as of October 3,
2008, has a five-year term with a five-year renewal option. Rent is $124,369 per
month in the first year and increases 3.0% per year thereafter. If exercised,
rent during the renewal term will be at fair market value. The Company is
guaranteeing the obligations of its subsidiaries under the lease
agreement.
NOTE
15 – SUBSEQUENT EVENT
Subsequent
to January 2, 2010, the Company entered into an agreement and sold its facility
in Yokneam, Israel for approximately $4.5 million. Simultaneous with the sale,
the Company entered into an agreement to leaseback a portion of the building for
five years with an option to extend the lease. The Company will record a $0.7
million gain on the sale which will be recognized over the five year lease
term.
26
Item 2.
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF
OPERATIONS
|
Forward-Looking
Statements
In
addition to historical information, this filing contains statements relating to
future events or our future results. These statements are forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of
1934, as amended (the “Exchange Act”), and are subject to the safe harbor
provisions created by statute. Such forward-looking statements include, but are
not limited to, statements that relate to our future revenue, product
development, demand forecasts, competitiveness, operating expenses, cash flows,
profitability, gross margins, and benefits expected as a result of (among other
factors):
|
·
|
projected growth rates in the
overall semiconductor industry, the semiconductor assembly equipment
market, and the market for semiconductor packaging materials;
and
|
|
·
|
projected demand for ball,
wedge and die bonder equipment and for expendable
tools.
|
Generally,
words such as “may,” “will,” “should,” “could,” “anticipate,” “expect,”
“intend,” “estimate,” “plan,” “continue,” “goal” and “believe,” or the negative
of or other variations on these and other similar expressions identify
forward-looking statements. These forward-looking statements are made only as of
the date of this filing. We do not undertake to update or revise the
forward-looking statements, whether as a result of new information, future
events or otherwise.
Forward-looking
statements are based on current expectations and involve risks and
uncertainties. Our future results could differ significantly from those
expressed or implied by our forward-looking statements. These risks and
uncertainties include, without limitation, those described below and under the
heading “Risk Factors” in our Annual Report on Form 10-K for the year ended
October 3, 2009 and our other reports and registration statements filed from
time to time with the Securities and Exchange Commission. This discussion should
be read in conjunction with the Consolidated Financial Statements and Notes
included in this report, as well as our audited financial statements included in
the Annual Report.
We
operate in a rapidly changing and competitive environment. New risks emerge from
time to time and it is not possible for us to predict all risks that may affect
us. Future events and actual results, performance and achievements could differ
materially from those set forth in, contemplated by or underlying the
forward-looking statements, which speak only as of the date on which they were
made. Except as required by law, we assume no obligation to update or revise any
forward-looking statement to reflect actual results or changes in, or additions
to, the factors affecting such forward-looking statements. Given those risks and
uncertainties, investors should not place undue reliance on forward-looking
statements as predictions of actual results.
OVERVIEW
Introduction
Kulicke and
Soffa Industries, Inc. (the “Company” or “K&S”) designs, manufactures and
sells capital equipment and expendable tools used to assemble semiconductor
devices, including integrated circuits, high and low powered discrete devices,
light-emitting diodes (“LEDs”), and power modules. We also service, maintain,
repair and upgrade our equipment. Our customers primarily consist of
semiconductor device manufacturers, their subcontract assembly suppliers, other
electronics manufacturers and automotive electronics suppliers.
We
operate two main business segments, Equipment and Expendable Tools. Our goal is
to be the technology leader and the lowest cost supplier in each of our major
product lines. Accordingly, we invest in research and engineering projects
intended to enhance our position at the leading edge of semiconductor assembly
technology. We also remain focused on our cost structure, through consolidating
operations, moving manufacturing to Asia, moving our supply chain to lower cost
suppliers and designing higher performing, lower cost equipment. Cost reduction
efforts are an important part of our normal ongoing operations, and are expected
to generate savings without compromising overall product quality and service
levels.
27
Certain
prior year amounts have been retrospectively adjusted to comply with Financial
Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)
No. 470.20, Debt, Debt With
Conversion Options (“ASC 470.20”).
On
September 29, 2008, we completed the sale of our Wire business for net proceeds
of $149.9 million to W.C. Heraeus GmbH (“Heraeus”). The financial results of the
Wire business have been included in discontinued operations in the consolidated
financial statements for all periods presented.
Business
Environment
The
semiconductor business environment is highly volatile, driven by both internal,
cyclical, dynamics as well as macroeconomic forces. Over the long term,
semiconductor consumption has historically grown, and is forecast to continue to
grow. This growth is driven, in part, by regular advances in device performance
and by price declines that result from improvements in manufacturing technology.
In order to exploit these trends, semiconductor manufacturers, both integrated
device manufacturers (“IDM”) and their subcontractors, periodically aggressively
invest in latest generation capital equipment. This buying pattern often leads
to periods of excess supply and reduced capital spending — the so
called semiconductor cycle. Macroeconomic factors also affect the industry,
primarily through their effect on business and consumer demand for electronic
devices, as well as other products that have significant electronic content such
as automobiles, white goods, and telecommunication equipment.
Our
Equipment segment reflects the industry’s cyclical dynamics and is therefore
also highly volatile. The financial performance of this segment is affected,
both positively and negatively, by semiconductor manufacturers’ expectations of
capacity requirements and their plans for upgrading their production
capabilities. Volatility of this segment is further influenced by the relative
mix of IDM and subcontract customers in any period, since changes in the mix of
sales to IDMs and subcontractors can affect our products’ average selling prices
due to differences in volume purchases and machine configurations required by
each type of customer.
Our
Expendable Tools segment is less volatile than our Equipment Segment, since
sales of expendable tools are directly tied to semiconductor unit consumption
rather than their expected growth rate.
Though
the semiconductor industry’s cycle can be independent of the general economy,
global economic conditions may have direct impact on demand for semiconductor
units and ultimately demand for semiconductor capital equipment and expendable
tools. Following dramatic deterioration in the global economy in the first half
of our fiscal 2009, business conditions in the semiconductor industry began a
recovery that continued through the end of our fiscal 2009. Demand for our core
products continued to improve in the beginning of fiscal 2010 and demand is
projected to remain strong at least through March 2010. However, our visibility
into future demand is generally limited and forecasting is difficult. There can
be no assurances regarding levels of demand for our products, and we believe
historic industry-wide volatility will persist.
To
mitigate possible negative effects of this industry-wide volatility on our
financial position, we have de-leveraged and strengthened our balance sheet.
During fiscal 2009, we reduced our debt by $88.4, and we completed a public
equity offering of 8.0 million common shares which raised $38.7 million of net
proceeds. We ended the first quarter of fiscal 2010 with cash and cash
equivalents totaling $175.2 million, $30.6 million higher than our fiscal year
end. We believe a strong cash position allows us to continue making longer term
investments in product development and in cost reduction activities throughout
the semiconductor cycle.
Technology
Leadership
We
compete largely by offering our customers the most advanced equipment and
expendable tools available for both the wire and die bonding process. Our
equipment is typically the fastest and has the highest levels of process
capability available in their respective categories. Our expendable tools are
designed to optimize the performance of the equipment in which they are
used. We believe our technology leadership contributes to the leading market
share positions of our various wire bonder and expendable tools products. To
maintain our competitive advantage, we invest in product development activities
to produce a stream of improvements to existing products and to deliver
next-generation products. These investments often focus as much on improvements
in the semiconductor assembly process as on specific pieces of assembly
equipment or expendable tools. In order to generate these improvements, we often
work in close collaboration with customers, end users, and other industry
members. In addition to producing technical advances, these collaborative
development efforts strengthen customer relationships and enhance our reputation
as a technology leader and solutions provider.
28
The rise
of copper wire bonding technology as an alternative to gold wire is an example
of our technology leadership and reflects the benefits of collaboration. Over
the last several years, we led an informal working-group of customers and
materials suppliers tasked with solving the technical challenges involved in
substituting copper for gold in the ball bonding process. Working with customers
and suppliers of equipment used upstream and downstream of the wire bonding
process, we developed a robust, high-yielding production process that makes
copper wire bonding commercially viable. Driven by the rising cost of gold,
conversion to copper wire bonding for a wide range of packaging applications has
become a major focus of many semiconductor manufacturers. We believe this
conversion process has the potential to drive a significant wire bonder
replacement cycle, since we believe a substantial portion of the industry’s
installed base is not suitable for copper bonding. Through our research and
development efforts, we are well positioned with both leading products and the
process expertise to capitalize on this potential replacement
cycle.
We also
maintain the technology leadership of our equipment by optimizing our products
to serve high growth niches. For example, over the last two years we have
developed extensions of our main ball bonding platforms to address opportunities
in LED assembly. Industry analysts have estimated the annual growth rate for
total shipments of LED devices to be approximately 15% annually through 2013,
driven by the adoption of LED backlights for flat-screen displays as well as
other LED applications in general lighting. In fiscal 2009, we launched two
products optimized for these applications. These products represent our first
product offerings specifically aimed at this high growth market, and since their
introduction we have captured significant market share.
Our focus
on technology leadership also extends to die bonding. In fiscal 2009, we
launched a new die bonding platform, our state of the art iStackPS
TM die bonder for advanced stacked die applications. iStack offers best-in-class
throughput and accuracy, and we believe the product is positioned to lead the
market for its targeted applications.
We bring
the same technology focus to our expendable tools business, driving tool design
and manufacturing technology to optimize the performance and process capability
of the equipment in which our tools are used. For all our equipment products,
expendable tools are an integral part of their process capability. We believe
our unique ability to simultaneously develop both equipment and tools is one of
the reasons for our technology leadership position.
Products
and Services
We supply
a range of bonding equipment and expendable tools. The following table reflects
net revenue by business segment for the three months ended December 27, 2008 and
January 2, 2010, respectively:
Three months ended
|
||||||||||||||||
December 27, 2008
|
January 2, 2010
|
|||||||||||||||
(dollar amounts in
thousands)
|
Net Revenues
|
% of total
net revenue
|
Net Revenues
|
% of total
net revenue
|
||||||||||||
Equipment
|
$ | 23,659 | 63.2 | % | $ | 111,597 | 86.9 | % | ||||||||
Expendable
Tools
|
13,757 | 36.8 | % | 16,818 | 13.1 | % | ||||||||||
$ | 37,416 | 100.0 | % | $ | 128,415 | 100.0 | % |
Equipment
Segment
We
manufacture and sell a line of ball bonders, heavy wire wedge bonders and die
bonders that are sold to semiconductor device manufacturers, their subcontract
assembly suppliers, other electronics manufacturers and automotive electronics
suppliers. Ball bonders are used to connect very fine wires, typically made of
gold or copper, between the bond pads of the semiconductor device, or die, and
the leads on its package. Wedge bonders use either aluminum wire or ribbon to
perform the same function in packages that cannot use gold or copper wire
because of either high electrical current requirements or other package
reliability issues. Die bonders are used to attach a die to the substrate or
lead frame which will house the semiconductor device. We believe our equipment
offers competitive advantages by providing customers with high
productivity/throughput and superior package quality/process
control.
29
Our
principal Equipment segment products include:
Business Unit
|
Product Name
|
Served Market
|
||
Ball
bonders
|
IConn-Power
Series
|
Advanced,
copper bonding and ultra fine pitch applications
|
||
|
ConnX-Power
Series
|
Cost
performance, low pin count and copper applications
|
||
|
ConnX-LED
Power Series
|
Surface
mount formatted LED applications
|
||
|
ConnX-VLED
Power Series
|
Vertical
LED applications
|
||
AT
Premier
|
Stud
bumping applications
|
|||
|
|
|
||
Wedge
bonders
|
3600
Plus
|
Power
hybrid and automotive modules
|
||
|
7200
Plus
|
Power
semiconductors
|
||
7600
Series
|
Smaller
power packages
|
|||
|
|
|
||
Die
bonders
|
iStack
Power Series
|
Advanced
stack die and ball grid array
applications
|
Ball
Bonders
Automatic
ball bonders represent the largest portion of our semiconductor equipment
business. Our main product platform for ball bonding is the Power
Series — a family of assembly equipment that is setting new standards
for performance, productivity, upgradeability, and ease of use. Our Power Series
initially consisted of the IConnPS
high-performance and ConnX
PS cost-performance ball bonders. In fiscal 2009, we launched
two extensions of our
ConnXPSTM
automatic ball bonder aimed specifically at LED applications — ConnX-LED
PS
TM and
ConnX-VLED
PS
TM. Traditionally, we had not targeted the LED market with our product
portfolio, but through the technology leadership of ConnX
PS
TM and its variants, we now offer excellent cost performance bonding
solutions in an area of the market where some of our competitors were once
dominant.
Our Power
Series products have advanced industry performance standards. Our ball bonders
are capable of performing very fine pitch bonding, as well as creating the
sophisticated wire loop shapes needed in the assembly of advanced semiconductor
packages. Our ball bonders can also be converted for use to copper applications
through kits we sell separately, a capability that is increasingly important as
bonding with copper continues to grow as an alternative to gold.
Heavy
Wire Wedge Bonders
We are
the leaders in the design and manufacture of heavy wire wedge bonders for the
power semiconductor and automotive power module markets. Wedge bonders use
either aluminum wire or aluminum ribbon to connect semiconductor chips in power
packages, power hybrids and automotive modules for products such as motor
control modules or inverters for hybrid cars. Wedge bonders also attach
large-diameter wire or ribbon to semiconductors when high electrical current
requirements or reliability constraints do not allow the use of ball
bonds.
Our
portfolio of wedge bonding products includes:
|
·
|
The
3600 Plus wedge bonders: high speed, high accuracy wire bonders
designed for power modules, automotive packages and other large wire
multi-chip module applications.
|
|
·
|
The
7200 Plus wedge bonders: dual head wedge bonder designed
specifically for power semiconductor
applications.
|
30
|
·
|
The
7600 series wedge bonder: wedge bonder targeted for small power
packages and also intended to extend our product portfolio to include
reel-to-reel type applications.
|
We have
also developed an advanced process for bonding power packages that utilizes
ribbon rather than a round wire. Sold under the trade name PowerRibbon®, the
process offers performance advantages over traditional round wire and is gaining
acceptance in the market for power packages and automotive high current
applications. This process is available on new wedge bonders or as a retrofit
kit for some existing wedge bonders. We expect that our ribbon bonding
capability will open new packaging opportunities for our customers.
Die
Bonders
We sell
die bonder products while developing next-generation die bonders. The first of
those new machines, the
iStack, was launched in March of 2009. We are currently putting iStack qualification
machines in customers’ factories, and received our first purchase order
subsequent to the first fiscal quarter of 2010 in January.
iStack is targeted at stacked
die and high end ball grid array (“BGA”) applications. In these applications, we
expect up to 30% to 50% productivity increases compared to current generation
machines. In addition,
iStack has demonstrated superior accuracy and process control. We
believe iStack
represents a significant opportunity for us to expand our die bonder
business.
During
fiscal 2009 we announced the end of life of our older die bonder
products.
Other
Equipment Products and Services
We also
sell other equipment products including manual wire bonders and stud bump
bonders.
We also
offer spare parts, equipment repair, training services, and upgrades for our
equipment through our Support Services business unit.
Expendable
Tools Segment
We
manufacture and sell a variety of expendable tools for a broad range of
semiconductor packaging applications. Our principal Expendable Tools segment
products include:
|
·
|
Capillaries: expendable
tools used in ball bonders. Made of ceramic, a capillary guides the wire
during the ball bonding process. Its features help control the bonding
process. We design and build capillaries suitable for a broad range of
applications, including for use on our competitors’
equipment.
|
|
·
|
Bonding
wedges: expendable tools used in wedge bonders. Like
capillaries, their specific features are tailored to specific
applications. We design and build bonding wedges for use both in our own
equipment and in our competitors’
equipment.
|
|
·
|
Saw blades: expendable
tools used by semiconductor manufacturers to cut silicon wafers into
individual semiconductor die and to cut semiconductor devices that have
been molded in a matrix configuration into individual
units.
|
31
RESULTS
OF OPERATIONS
Net Revenue
Approximately
92.5% and 97.4% of our net revenue for the three months ended December 27, 2008
and January 2, 2010, respectively, was for shipments to customer locations
outside of the United States, primarily in the Asia/Pacific region, and we
expect sales outside of the United States to continue to represent a substantial
majority of our future revenue.
The
following table reflects net revenue by business segment for the three months
ended December 27, 2008 and January 2, 2010:
(dollar amounts in
|
Three months ended
|
|||||||||||||||
thousands)
|
December 27, 2008
|
January 2, 2010
|
$ Change
|
% Change
|
||||||||||||
Equipment
|
$ | 23,659 | $ | 111,597 | $ | 87,938 | 371.7 | % | ||||||||
Expendable
Tools
|
13,757 | 16,818 | 3,061 | 22.3 | % | |||||||||||
Total
|
$ | 37,416 | $ | 128,415 | $ | 90,999 | 243.2 | % |
Equipment
The
following table reflects the components of Equipment net revenue change between
the three months ended December 27, 2008 and January 2, 2010:
December 27, 2008 vs. January 2, 2010
|
||||||||||||
(in thousands)
|
Price
|
Volume
|
$ Change
|
|||||||||
Equipment
|
$ | (129 | ) | $ | 88,067 | $ | 87,938 |
For the
three months ended January 2, 2010, higher equipment net revenue was due to a
dramatic increase in volume for ball bonders and 58.6% increase in volume for
wedge bonders. The improvement in volume was mainly due to the global economic
recovery from the prior years’ downturn. The higher semiconductor unit demand
during the recovery drove capacity utilization rates of our customers, which in
turn increased demand for capital equipment. In addition, increased
customer investment in copper bonding capability and our penetration of the LED
market also represented additional incremental ball bonder volume. The ball and
wedge bonder volume increases were partially offset by a decrease in volume for
die bonders due to the end of life of our older models.
Expendable
Tools
The
following table reflects the components of Expendable Tools net revenue change
between the three months ended December 27, 2008 and January 2,
2010:
December 27, 2008 vs. January 2, 2010
|
||||||||||||
(in thousands)
|
Price
|
Volume
|
$ Change
|
|||||||||
Expendable
Tools
|
$ | 143 | $ | 2,918 | $ | 3,061 |
Expendable
Tools net revenue for the three months ended January 2, 2010 was higher
primarily due to volume increases in both our Tools, which is made up of our
capillaries and wedges, and Blades businesses. As overall consumer demand for
electronic equipment increased, so has the demand for IC units. As a result,
volume increased for our Expendable Tools segment. Tools volumes increased
37.3%, while Blades volumes increased 40.8%. There was no significant change in
market share during the quarter ended January 2, 2010.
32
Gross
Profit
The
following table reflects gross profit by business segment for the three months
ended December 27, 2008 and January 2, 2010:
(dollar amounts in
|
Three months ended
|
|||||||||||||||
thousands)
|
December 27, 2008
|
January 2, 2010
|
$ Change
|
% Change
|
||||||||||||
Equipment
|
$ | 7,002 | $ | 46,452 | $ | 39,450 | 563.4 | % | ||||||||
Expendable
Tools
|
6,926 | 9,921 | 2,995 | 43.2 | % | |||||||||||
Total
|
$ | 13,928 | $ | 56,373 | $ | 42,445 | 304.7 | % |
The
following table reflects gross profit as a percentage of net revenue by business
segment:
Three months ended
|
||||||||||||
December 27, 2008
|
January 2, 2010
|
Basis Point Change
|
||||||||||
Equipment
|
29.6 | % | 41.6 | % | 1,202.9 | |||||||
Expendable
Tools
|
50.3 | % | 59.0 | % | 864.5 | |||||||
Total
|
37.2 | % | 43.9 | % | 667.4 |
Equipment
The
following table reflects the components of Equipment gross profit change between
the three months ended December 27, 2008 and January 2, 2010:
December 27, 2008 vs. January 2, 2010
|
||||||||||||||||
(in thousands)
|
Price
|
Cost
|
Volume
|
Change
|
||||||||||||
Equipment
|
$ | (129 | ) | $ | (208 | ) | $ | 39,787 | $ | 39,450 |
For the
three months ended January 2, 2010, gross profit increased due to significant
increases in volume for ball bonders and wedge bonders. The improvement in
volume was mainly due to the global economic recovery from the prior years’
downturn. The higher semiconductor unit demand during the recovery drove the
capacity utilization rate of our customers, which in turn increased demand for
capital equipment. In addition, increased customer investment in copper bonding
capability and our penetration of the LED market also represented additional
incremental ball bonder volume. The ball and wedge bonder volume increases were
partially offset by a decrease in volume for die bonders due to the end of life
of our older models.
33
Expendable
Tools
The
following table reflects the components of Expendable Tools gross profit change
between the three months ended December 27, 2008 and January 2,
2010:
December 27, 2008 vs. January 2, 2010
|
||||||||||||||||
(in thousands)
|
Price
|
Cost
|
Volume
|
Change
|
||||||||||||
Expendable
Tools
|
$ | 143 | $ | 842 | $ | 2,010 | $ | 2,995 |
For the
three months ended January 2, 2010, Expendable Tools gross profit increased
mainly due to higher volume and lower costs in both our Tools and Blades
businesses. The decrease in cost, and resultant improved gross profit, was
primarily due to higher volume absorbing fixed manufacturing costs.
Consolidating most of our Tools manufacturing from Israel to China also
contributed to our cost reductions and resulted in improved gross
profit.
Operating
Expenses
The
following table reflects operating expenses for the three months ended December
27, 2008 and January 2, 2010:
Three months ended
|
||||||||||||||||
(dollar amounts in thousands)
|
December 27, 2008
|
January 2, 2010
|
$ Change
|
% Change
|
||||||||||||
Selling,
general & administrative
|
$ | 29,852 | $ | 25,226 | $ | (4,626 | ) | -15.5 | % | |||||||
Research
& development
|
15,400 | 13,161 | (2,239 | ) | -14.5 | % | ||||||||||
Total
|
$ | 45,252 | $ | 38,387 | $ | (6,865 | ) | -15.2 | % |
The
following table reflects operating expenses as a percentage of net
revenue:
Three months ended
|
||||||||||||
December 27, 2008
|
January 2, 2010
|
Basis point change
|
||||||||||
Selling,
general & administrative
|
79.8 | % | 19.6 | % | (6,014.0 | ) | ||||||
Research
& development
|
41.2 | % | 10.2 | % | (3,091.0 | ) | ||||||
Total
|
120.9 | % | 29.9 | % | (9,105.0 | ) |
Selling,
general and administrative (“SG&A”)
SG&A
decreased $4.6 million during the three months ended January 2, 2010 as compared
to the same period a year ago primarily due to the following:
|
·
|
$3.3
million of overall cost reductions mainly driven by lower
headcount;
|
|
·
|
$2.6
million of lower one-time expense related to contractual commitments for
our former Test facilities;
|
|
·
|
$2.2
million of lower severance expense,
and;
|
|
·
|
$2.2
million of lower legal expense.
|
34
These
decreases in SG&A were partially offset by the following:
|
·
|
$1.9
million of higher incentive compensation expense since no incentive
compensation was paid in the prior year period due to our net loss in that
period;
|
|
·
|
$1.4
million of lower foreign currency transaction
gains;
|
|
·
|
$1.4
million of higher equity-based compensation expense due to the prior
year’s reversal of expense as a result of lower estimated percentage
attainments for fiscal 2007 and 2008 performance-based restricted stock,
and;
|
|
·
|
$1.0
million of higher factory transition expense related to moving additional
production to Singapore, China and
Malaysia.
|
Research
and development (“R&D”)
R&D
expenses decreased $2.2 million during the three months ended January 2, 2010 as
compared to the same period a year ago primarily due to overall cost reductions
in our Equipment businesses. These cost reductions were driven by $1.3 million
of lower prototype and other supply expenses given the prior year releases of
our latest ball and die bonder products as well as $0.9 million of fiscal 2009
headcount reductions.
Income
(Loss) from Operations
The
following table reflects income (loss) from continuing operations for the three
months ended December 27, 2008 and January 2, 2010:
Three months ended
|
||||||||||||||||
(dollar amounts in thousands)
|
December 27, 2008 *
|
January 2, 2010
|
$ Change
|
% Change
|
||||||||||||
Equipment
|
$ | (31,731 | ) | $ | 14,847 | $ | 46,578 | 146.8 | % | |||||||
Expendable
Tools
|
407 | 3,139 | 2,732 | 671.3 | % | |||||||||||
$ | (31,324 | ) | $ | 17,986 | $ | 49,310 | 157.4 | % |
* As
adjusted for ASC No. 470.20,
Debt, Debt With Conversion Options.
Equipment
For the
three months ended January 2, 2010, higher Equipment income from continuing
operations was driven by increased volumes and higher gross profits for the ball
bonder and wedge bonder business. In addition, SG&A and R&D expenses
were lower during the current quarter.
Expendable
Tools
For the
three months ended January 2, 2010, higher Expendable Tools income from
continuing operations was driven by higher volumes and lower manufacturing costs
which resulted in improved gross profit primarily for our Blades and Tools
business. In addition, SG&A expenses were lower during the current
quarter.
35
Interest
Income and Expense
The
following table reflects interest income and interest expense for the three
months ended December 27, 2008 and January 2, 2010:
Three months ended
|
||||||||||||||||
(dollar amounts in thousands)
|
December 27, 2008 *
|
January 2, 2010
|
$ Change
|
% Change
|
||||||||||||
Interest
income
|
$ | 754 | $ | 97 | $ | (657 | ) | -87.1 | % | |||||||
Interest
expense: cash
|
(437 | ) | (363 | ) | 74 | -16.9 | % | |||||||||
Interest
expense: non-cash
|
(1,642 | ) | (1,720 | ) | (78 | ) | 4.8 | % |
* As adjusted for ASC No.
470.20, Debt, Debt With
Conversion Options.
The
decline in interest income from the first quarter of fiscal 2009 to the first
quarter of fiscal 2010 was due to lower rates of return on invested cash
balances. The decrease in cash interest expense from the first quarter of fiscal
2009 to the first quarter of fiscal 2010 was due to the retirement and
redemption of our 0.5% Convertible Subordinated Notes and retirement of $16.0
million (face value) of our 1.0% Convertible Subordinated Notes during the
second quarter of fiscal 2009. Non-cash interest expense is a primarily the
result of amortization of debt discount in accordance with ASC
470.20.
Gain
on Extinguishment of Debt
The
following table reflects open market purchases of our Convertible Subordinated
Notes for the three months ended December 27, 2008:
Three months ended
|
||||
(in thousands)
|
December 27, 2008
|
|||
0.5%
Convertible Subordinated Notes (1):
|
||||
Face
value purchased
|
$ | 43,050 | ||
Net
cash
|
42,838 | |||
Deferred
financing costs
|
18 | |||
Recognized
gain, net of deferred financing costs
|
194 | |||
1.0%
Convertible Subordinated Notes:
|
||||
Face
value purchased
|
$ | 3,000 | ||
Net
cash
|
1,990 | |||
Deferred
financing costs
|
25 | |||
Recognized
gain, net of deferred financing costs
|
985 | |||
Gain
on extinguishment of debt
|
$ | 1,179 |
(1)
|
Repurchase
transactions occurred prior to redemption on November 30,
2008.
|
36
Provision
(Benefit) for Income Taxes
The
following table reflects the total provision (benefit) for income taxes and the
effective tax rate from continuing operations for the three months ended
December 27, 2008 and January 2, 2010:
Three months ended
|
||||||||
(in thousands)
|
December 27, 2008 *
|
January 2, 2010
|
||||||
Income (loss)
from continuing operations before taxes
|
$ | (31,470 | ) | $ | 16,000 | |||
Provision
(benefit) for income taxes
|
(11,882 | ) | 160 | |||||
Income
(loss) from continuing operations
|
$ | (19,588 | ) | $ | 15,840 | |||
Effective
tax rate
|
37.8 | % | 1.0 | % |
* As
adjusted for ASC No. 470.20,
Debt, Debt With Conversion Options.
For the
three months ended January 2, 2010, the effective income tax rate related to
continuing operations differed from the federal statutory rate primarily due to:
decreases in the valuation allowance, federal alternative minimum taxes, state
income taxes, tax from foreign operations, impact of tax holidays, an increase
in deferred taxes for un-remitted earnings and other U.S. current and deferred
taxes.
For the
three months ended December 27, 2008, the effective income tax rate related to
continuing operations differed from the federal statutory rate primarily due to:
increases in the valuation allowance, Federal alternative minimum taxes, state
income taxes, tax from foreign operations, impact of tax holidays, decreases in
deferred taxes for un-remitted earnings, and decreases in liabilities for
unrecognized tax benefits as discussed further below.
In
October 2007, the tax authority in Israel issued us a preliminary assessment of
income tax, withholding tax and interest of $34.3 million (after adjusting for
the impact of foreign currency fluctuations) for fiscal 2002 through 2004. We
provided a non-current income tax liability for uncertain tax positions on our
Consolidated Balance Sheet as of September 27, 2008 related to this assessment
for fiscal years 2002 through 2007, as required under ASC 740. On December 24,
2008, we, through our Israel subsidiaries, entered into an agreement with the
tax authority in Israel settling the tax dispute for approximately $12.5
million, which represented withholding taxes, income taxes, and interest related
to fiscal 2002 through 2004. The settlement of $12.5 million was made net of a
$4.5 million reimbursement resulting in a net cash payment of $7.8 million
during the second quarter of fiscal 2009. Following the payment and settlement
of the audit for fiscal 2002 through 2004, the tax authorities in Israel
examined the fiscal years 2005 and 2006. In addition during fiscal 2009, we made
a payment of approximately $1.9 million related to income taxes and interest to
settle the fiscal September 30, 2005 and 2006. As a result of the Israel tax
settlements, we recognized a $12.5 million benefit from income taxes for fiscal
2009. The $12.5 million benefit was a result of reversing the liability for
unrecognized tax benefits on the Consolidated Balance Sheet as of September 27,
2008 that was in excess of the $14.4 million for which the matter was settled.
The entire amount of the reversal impacted our effective tax rate as indicated
above.
We are
currently under audit by the U.S. Internal Revenue Service (“IRS”) for the
period ended September 30, 2006. We have responded to various information
requests from the IRS and are in the closing stages of the audit. The IRS has
not proposed any adjustment that would result in a significant adjustment to
income tax expense; however, the audit is still in process.
Income
from Discontinued Operations, net of tax
On
September 29, 2008, we completed the sale of certain assets and liabilities
associated with our Wire business. We recognized net proceeds of $149.9 million
and a net gain of $22.7 million, net of tax, during the three months ended
December 27, 2008. We did not recognize any income or loss from discontinued
operations for the three months ended January 2, 2010.
37
The
following table reflects operating results of our Wire business discontinued
operations for the three months ended December 27, 2008:
Three months ended
|
||||
(in thousands)
|
December 27, 2008
|
|||
Net
revenue : Wire
|
$ | - | ||
Loss
before tax
|
$ | (319 | ) | |
Gain
on sale of Wire business before tax
|
23,524 | |||
Income
from discontinued operations before tax
|
23,205 | |||
Income
tax expense
|
(478 | ) | ||
Income
from discontinued operations, net of tax
|
$ | 22,727 |
LIQUIDITY
AND CAPITAL RESOURCES
The
following table reflects cash, cash equivalents, and restricted cash as of
October 3, 2009 and January 2, 2010:
As of
|
||||||||||||
(dollar
amounts in thousands)
|
October 3, 2009
|
January 2, 2010
|
$ Change
|
|||||||||
Cash
and cash equivalents
|
$ | 144,560 | $ | 175,207 | $ | 30,647 | ||||||
Restricted
cash (1)
|
281 | 216 | (65 | ) | ||||||||
Total
cash and cash equivalents
|
$ | 144,841 | $ | 175,423 | $ | 30,582 | ||||||
Percentage
of total assets
|
35.1 | % | 39.8 | % |
(1) Relates
to foreign customs’ requirements.
38
The
following table reflects summary Consolidated Statement of Cash Flow information
for the three months ended December 27, 2008 and January 2, 2010:
Three months ended
|
||||||||
(in thousands)
|
December 27, 2008
|
January 2, 2010
|
||||||
Net
cash provided by continuing operations
|
$ | 2,012 | $ | 34,125 | ||||
Net
cash used in discontinued operations
|
(779 | ) | (496 | ) | ||||
Net
cash provided by operating activities
|
$ | 1,233 | $ | 33,629 | ||||
Net
cash used in investing activities, continuing operations
|
(48,880 | ) | (1,031 | ) | ||||
Net
cash provided by (used in) investing activities, discontinued
operations
|
149,857 | (1,838 | ) | |||||
Net
cash provided by (used in) investing activities
|
$ | 100,977 | $ | (2,869 | ) | |||
Net
cash used in financing activities, continuing operations
|
(74,187 | ) | (23 | ) | ||||
Effect
of exchange rate changes on cash and cash equivalents
|
91 | (90 | ) | |||||
Changes
in cash and cash equivalents
|
$ | 28,114 | $ | 30,647 | ||||
Cash
and cash equivalents, beginning of period
|
144,932 | 144,560 | ||||||
Cash
and cash equivalents, end of period
|
$ | 173,046 | $ | 175,207 |
Three
months ended January 2, 2010
Continuing
Operations
Net cash
provided by operating activities was primarily the result of $15.8 million net
income from continuing operations and $7.7 million of non-cash adjustments. In
addition, working capital changes provided $10.6 million primarily driven by
increases in accounts payable and accrued expenses, decreases in accounts
receivable and increases in inventories.
Net cash
used in investing activities was primarily for capital expenditures which
totaled $1.1 million during the three months ended January 2, 2010.
Discontinued
Operations
Net cash
used in discontinued operations related to facility payments for our former Test
business.
Net cash
used in investing activities of discontinued operations was the result of
settlement of remaining liabilities, related to working capital adjustments, in
connection with the sale of our Wire business.
Three
months ended December 27, 2008
Continuing
Operations
Net cash
provided by operating activities was primarily attributable to our net loss from
continuing operations of $19.6 million offset by non-cash adjustments of $4.2
million and net cash inflows from operating assets and liabilities of $17.4
million. The net inflow of cash from operating assets and liabilities of $17.4
million was primarily due to decreases in accounts receivable of $37.7 million,
and decreases in current income taxes receivable (recorded within other current
assets) of $4.9 million. These net increases to cash were partially offset by
decreases in accounts payable and accrued expenses of $17.6 million, and income
taxes payable of $8.2 million. The change in income taxes payable and current
income taxes receivable was due to our tax audit in Israel.
39
Net cash
used in investing activities was primarily due to the purchase of Orthodyne for
$85.6 million partially offset by the reduction in restricted cash of $35.0
million that was used to support gold financing for our former Wire business.
Net proceeds from the sale of investments were $4.1 million and cash used for
capital expenditures totaled $2.4 million.
Net cash
used in financing activities included $74.2 million for the repurchase and
redemption of 0.5% and 1.0% Convertible Subordinated Notes.
Discontinued
Operations
Net cash
used in discontinued operations related to facility payments for our former Test
business of $0.5 million and $0.3 million of shutdown activity costs for our
former Wire business.
Net cash
provided by investing activities of discontinued operations of $149.9 million
was the result of the sale of our Wire business.
Fiscal
2010 Liquidity and Capital Resource Outlook
We expect
our remaining fiscal 2010 capital expenditures to be $6.0 to $7.0 million.
Expenditures are expected to be primarily used for the expansion of our
operations infrastructure in Asia. In addition during June 2010, our 1.0%
Subordinated Convertible Notes will mature and be redeemed for $49.0 million
(face value). Subsequent to January 2, 2010, we entered into an agreement and
sold our facility in Yokneam, Israel for approximately $4.5
million.
We
believe that our existing cash reserves and anticipated cash flows from
operations will be sufficient to meet our liquidity and capital requirements for
at least the next twelve months. Our liquidity is affected by many factors, some
based on normal operations of our business and others related to global economic
conditions and industry uncertainties, which we cannot predict. We also cannot
predict economic conditions and industry downturns or the timing, strength or
duration of recoveries. We will continue to use our cash for working capital
needs, general corporate purposes, and to repay and/or refinance our Convertible
Subordinated Notes.
We may
seek, as we believe appropriate, additional debt or equity financing which would
provide capital for corporate purposes, working capital funding, and additional
liquidity if current economic and industry conditions remain weak or to fund
future growth opportunities. The timing and amount of potential capital
requirements cannot be determined at this time and will depend on a number of
factors, including our actual and projected demand for our products,
semiconductor and semiconductor capital equipment industry conditions,
competitive factors, and the condition of financial markets.
Convertible
Subordinated Notes
The
following table reflects our debt, consisting of Convertible Subordinated Notes,
as of January 2, 2010:
Type
|
Maturity Date
|
Par Value
|
Fair Value as of
January 2, 2010 (1) |
Standard &
Poor's rating
(2) |
|||||||
(dollar
amounts in thousands)
|
|||||||||||
1.000
% Convertible Subordinated Notes
|
June
30, 2010
|
$ | 48,964 | $ | 47,250 |
Not rated
|
|||||
0.875
% Convertible Subordinated Notes
|
June
1, 2012
|
$ | 110,000 | $ | 97,350 |
Not
rated
|
|||||
Debt
discount on 0.875% Convertible Subordinated Notes due June 2012
*
|
$ | (16,267 | ) | n/a |
40
* As adjusted for ASC No.
470.20, Debt, Debt With
Conversion Options.
(1) In
accordance with ASC
No. 820, Investments-Debt
& Equity Securities, we rely upon quoted market prices.
(2) As a result of
our request, Standard & Poor’s withdrew its “B+” corporate credit rating on
us as well as its “B+” issue-level rating on our 1.0% Convertible Subordinated
Notes. Our 0.875% Convertible Subordinated Notes are not rated. We determined
that maintenance of the corporate rating and the rating on our 1.0% Notes was
not necessary.
Other
Obligations and Contingent Payments
Under
generally accepted accounting principles, certain obligations and commitments
are not required to be included in the Consolidated Balance Sheets and
Statements of Operations. These obligations and commitments, while entered into
in the normal course of business, may have a material impact on our liquidity.
Certain of the following commitments as of January 2, 2010 are appropriately not
included in the Consolidated Balance Sheets and Statements of Operations
included in this Form 10-Q; however, they have been disclosed in the following
table for additional information.
The
following table identifies obligations and contingent payments under various
arrangements as of January 2, 2010:
Payments due by fiscal period
|
||||||||||||||||||||||||
Less than
|
1 - 3
|
3 - 5
|
More than
|
Due date not
|
||||||||||||||||||||
(in thousands)
|
Total
|
1 year
|
years
|
years
|
5 years
|
determinable
|
||||||||||||||||||
Contractual Obligations:
|
||||||||||||||||||||||||
Convertible
Subordinated Notes, par value (1)
|
$ | 158,964 | $ | 48,964 | $ | 110,000 | ||||||||||||||||||
Current
and long-term liabilities:
|
||||||||||||||||||||||||
Facility
accrual related to discontinued operations (Test)
|
4,233 | 1,791 | 2,442 | |||||||||||||||||||||
Switzerland
pension plan obligation
|
1,463 | $ | 1,463 | |||||||||||||||||||||
Long-term
income taxes payable
|
1,406 | 1,406 | ||||||||||||||||||||||
Operating
lease retirement obligations
|
1,364 | $ | 1,364 | |||||||||||||||||||||
Post-employment
foreign severance obligations
|
748 | 748 | ||||||||||||||||||||||
Total
Obligations and Contingent Payments reflected on the Consolidated
Financial Statements
|
$ | 168,178 | $ | 50,755 | $ | 112,442 | $ | - | $ | 1,364 | $ | 3,617 | ||||||||||||
Contractual
Obligations:
|
||||||||||||||||||||||||
Inventory
purchase obligations (2)
|
$ | 72,147 | $ | 72,147 | ||||||||||||||||||||
Operating
lease obligations (3)
|
35,559 | 6,604 | $ | 12,912 | $ | 6,667 | $ | 9,376 | ||||||||||||||||
Cash
paid for interest on Convertible Subordinated Notes
|
2,651 | 1,207 | 1,444 | |||||||||||||||||||||
Commercial
Commitments:
|
||||||||||||||||||||||||
Standby
Letters of Credit (4)
|
195 | 195 | ||||||||||||||||||||||
Total
Obligations and Contingent Payments not reflected on the Consolidated
Financial Statements
|
$ | 110,552 | $ | 80,153 | $ | 14,356 | $ | 6,667 | $ | 9,376 | $ | - |
(1) Does
not reflect $16.3 million debt discount in accordance with ASC
470.20.
(2) We order
inventory components in the normal course of our business. A portion of these
orders are non-cancelable and a portion may have varying penalties and charges
in the event of cancellation.
(3) We have minimum
rental commitments under various leases (excluding taxes, insurance, maintenance
and repairs, which are also paid by us) primarily for various facility and
equipment leases, which expire periodically through 2018 (not including lease
extension options, if applicable).
(4) We provide
standby letters of credit which represent obligations in lieu of security
deposits for employee benefit programs and a customs bond.
41
We may
seek, as we believe appropriate, additional debt or equity financing which would
provide capital for corporate purposes, working capital funding, and additional
liquidity if current economic and industry conditions remain weak or to fund
future growth opportunities. The timing and amount of potential capital
requirements cannot be determined at this time and will depend on a number of
factors, including our actual and projected demand for our products,
semiconductor and semiconductor capital equipment industry conditions,
competitive factors, and the condition of financial markets.
We
currently do not have any off-balance sheet arrangements.
RECENT
ACCOUNTING PRONOUNCEMENTS
See Note
1 to the consolidated financial statements in Item 1 for a description of
certain recent accounting pronouncements including the expected dates of
adoption and effects on our consolidated results of operations and financial
condition.
Item
3.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
|
Interest
Rate Risk
As of
January 2, 2010, we held no available-for-sale investments; however, financial
instruments which may subject us to interest rate risk are available-for-sale
securities which could consist of fixed income investments (such as corporate
bonds, commercial paper, time deposits and U.S. Treasury and Agency securities,
or mutual funds that invest in these instruments). We continually monitor our
exposure to changes in interest rates and credit ratings of issuers with respect
to any available-for-sale securities and target an average life to maturity of
less than eighteen months. Accordingly, we believe that the effects to us of
changes in interest rates and credit ratings of issuers are limited and would
not have a material impact on our financial condition or results of
operations.
Foreign
Currency Risk
Our
international operations are exposed to changes in foreign currency exchange
rates due to transactions denominated in currencies other than the location’s
functional currency. We are also exposed to foreign currency fluctuations that
impact the remeasurement of net monetary assets of those operations whose
functional currency, the U.S. dollar, differs from their respective local
currencies, most notably in Israel, Malaysia, Singapore and Switzerland. In
addition to net monetary remeasurement, we have exposures related to the
translation of subsidiary financial statements from their functional currency,
the local currency, into our reporting currency, the U.S. dollar, most notably
in China. Based on our overall currency rate exposure as of January 2, 2010, a
near term 10% appreciation or depreciation in the foreign currency portfolio to
the U.S. dollar could have a material impact on our financial position, results
of operations or cash flows. Our Board of Directors has granted management the
authority to enter into foreign exchange forward contracts and other instruments
designed to minimize the short term impact currency fluctuations have on our
business. We may enter into foreign exchange forward contracts and other
instruments in the future; however, our attempts to hedge against these risks
may not be successful and may result in a material adverse impact on our
financial results and cash flow.
Item
4.
|
CONTROLS
AND PROCEDURES
|
Evaluation
of Disclosure Controls and Procedures
Our
management, with the participation of our Chief Executive Officer and Chief
Financial Officer, evaluated the effectiveness of our disclosure controls and
procedures as of January 2, 2010. Based on that evaluation, the Chief Executive
Officer and Chief Financial Officer concluded that, as of January 2, 2010 our
disclosure controls and procedures were effective in providing reasonable
assurance the information required to be disclosed by us in reports filed under
the Securities Exchange Act of 1934, as amended, is (i) recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commission’s rules and forms and (ii) accumulated and communicated to
our management, including the Chief Executive Officer and Chief Financial
Officer, as appropriate to allow timely decisions regarding
disclosure.
42
Change
in Internal Control Over Financial Reporting
As
permitted by Securities and Exchange Commission rules and regulations,
management excluded Orthodyne from its assessment of internal control over
financial reporting as of October 3, 2009 because it was acquired in fiscal
2009. During the fiscal 2010, Orthodyne will be included in management’s
assessment of internal controls over financial reporting. There were no other
changes in our internal controls over financial reporting that occurred during
the three months ended January 2, 2010 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
PART
II Other information
Item
1A. RISK FACTORS
CERTAIN
RISKS RELATED TO OUR BUSINESS
Risks
related to our business are detailed in our Annual Report on Form 10-K for the
year ended October 3, 2009 filed with the Securities and Exchange
Commission.
Item
6.
|
Exhibits
|
(a)
|
Exhibits.
|
Exhibit No.
|
Description
|
|
10.1
|
Officer
Performance Share Unit Award Agreement regarding the 2009 Equity Plan
between the Company and C. Scott Kulicke, executed January 25, 2010.
*
|
|
10.2
|
Officer
Performance Share Unit Award Agreement regarding the 2009 Equity Plan
between the Company and Michael J. Morris, executed January 25, 2010.
*
|
|
10.3
|
Officer
Performance Share Unit Award Agreement regarding the 2009 Equity Plan
between the Company and Christian Rheault, executed January 28, 2010.
*
|
|
10.4
|
Officer
Restricted Stock Award Agreement regarding the 2009 Equity Plan between
the Company and Michael J. Morris, executed January 25, 2010.
*
|
|
10.5
|
Officer
Restricted Stock Award Agreement regarding the 2009 Equity Plan between
the Company and Christian Rheault, executed January 28, 2010.
*
|
|
10.6
|
Officer
Restricted Stock Award Agreement regarding the 2009 Equity Plan between
the Company and Christian Rheault, executed January 28, 2010.
*
|
|
10.7
|
Employment
Agreement between the Company and Jason Livingston dated October 3, 2008.
*
|
31.1
|
Certification
of C. Scott Kulicke, Chief Executive Officer of Kulicke and Soffa
Industries, Inc., pursuant to Rule 13a-14(a) or Rule
15d-14(a).
|
|
31.2
|
Certification
of Maurice E. Carson, Chief Financial Officer of Kulicke and Soffa
Industries, Inc., pursuant to Rule 13a-14(a) or Rule
15d-14(a).
|
|
32.1
|
Certification
of C. Scott Kulicke, Chief Executive Officer of Kulicke and Soffa
Industries, Inc., pursuant to 18 U.S.C. Section 1350 as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
32.2
|
Certification
of Maurice E. Carson, Chief Financial Officer of Kulicke and Soffa
Industries, Inc., pursuant to 18 U.S.C. Section 1350 as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of
2002.
|
*
Indicates a management contract or compensatory plan or
arrangement.
43
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
KULICKE
AND SOFFA INDUSTRIES, INC.
|
|
Date: February
5, 2010
|
By: /s/ MICHAEL J.
MORRIS
|
Michael
J. Morris
|
|
Vice
President and Chief Financial Officer
|
|
(Chief
Financial Officer)
|
44