Attached files
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EX-31.1 - KULICKE & SOFFA INDUSTRIES INC | v183458_ex31-1.htm |
EX-31.2 - KULICKE & SOFFA INDUSTRIES INC | v183458_ex31-2.htm |
EX-32.2 - KULICKE & SOFFA INDUSTRIES INC | v183458_ex32-2.htm |
EX-32.1 - KULICKE & SOFFA INDUSTRIES INC | v183458_ex32-1.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 April 3, 2010
OR
¨
TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the transition period from to
.
Commission
File No. 0-121
KULICKE AND SOFFA
INDUSTRIES, INC.
(Exact
name of registrant as specified in its charter)
PENNSYLVANIA
|
23-1498399
|
(State
or other jurisdiction 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
¨
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 ¨ No
¨
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 ¨
|
Accelerated
filer x
|
Non-accelerated
filer ¨
|
Smaller
reporting company ¨
|
(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 ¨ No
x
As of May
3, 2010, there were 70,121,905 shares of the Registrant's Common Stock, no par
value, outstanding.
KULICKE
AND SOFFA INDUSTRIES, INC.
FORM
10 – Q
April
3, 2010
Index
Page Number
|
||
PART
I.
|
FINANCIAL
INFORMATION
|
|
Item
1.
|
FINANCIAL
STATEMENTS (Unaudited)
|
|
Consolidated
Balance Sheets as of October 3, 2009 and April 3, 2010
|
3
|
|
Consolidated
Statements of Operations for the three and six months ended March 28, 2009
and April 3, 2010
|
4
|
|
Consolidated
Statements of Cash Flows for the six months ended March 28, 2009 and April
3, 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
|
47
|
Item
4.
|
CONTROLS
AND PROCEDURES
|
47
|
PART
II.
|
OTHER
INFORMATION
|
|
Item
1A.
|
RISK
FACTORS
|
48
|
Item
6.
|
EXHIBITS
|
48
|
SIGNATURES
|
49
|
2
PART
I. - FINANCIAL INFORMATION
Item
1. – Financial Statements
KULICKE
AND SOFFA INDUSTRIES, INC.
CONSOLIDATED
BALANCE SHEETS
(in
thousands)
(Unaudited)
As of
|
||||||||
October 3, 2009 *
|
April 3, 2010
|
|||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$ | 144,560 | $ | 184,081 | ||||
Restricted
cash
|
281 | 216 | ||||||
Accounts
and notes receivable, net of allowance for doubtful
accounts of $1,378 and $999, respectively
|
95,779 | 108,015 | ||||||
Inventories,
net
|
41,489 | 57,100 | ||||||
Prepaid
expenses and other current assets
|
11,566 | 13,090 | ||||||
Deferred
income taxes
|
1,786 | 1,798 | ||||||
Total
current assets
|
295,461 | 364,300 | ||||||
Property,
plant and equipment, net
|
36,046 | 30,385 | ||||||
Goodwill
|
26,698 | 26,698 | ||||||
Intangible
assets
|
48,656 | 43,884 | ||||||
Other
assets
|
5,774 | 7,130 | ||||||
Total
assets
|
$ | 412,635 | $ | 472,397 | ||||
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
||||||||
Current
liabilities:
|
||||||||
Current
portion of long-term debt
|
$ | 48,964 | $ | 48,964 | ||||
Accounts
payable
|
39,908 | 58,602 | ||||||
Accrued
expenses and other current liabilities
|
32,576 | 31,737 | ||||||
Income
taxes payable
|
1,612 | 630 | ||||||
Total
current liabilities
|
123,060 | 139,933 | ||||||
Long-term
debt
|
92,217 | 95,287 | ||||||
Deferred
income taxes
|
16,282 | 16,742 | ||||||
Other
liabilities
|
10,273 | 9,673 | ||||||
Total
liabilities
|
241,832 | 261,635 | ||||||
Commitments
and contingencies (Note 12)
|
||||||||
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 74,814 respectively;
outstanding 69,415 and 69,860 shares, respectively
|
413,092 | 416,699 | ||||||
Treasury
stock, at cost, 4,954 shares
|
(46,356 | ) | (46,356 | ) | ||||
Accumulated
deficit
|
(197,812 | ) | (160,814 | ) | ||||
Accumulated
other comprehensive income
|
1,879 | 1,233 | ||||||
Total
shareholders' equity
|
170,803 | 210,762 | ||||||
TOTAL
LIABILITIES AND SHAREHOLDERS' EQUITY
|
$ | 412,635 | $ | 472,397 |
* 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
|
Six months ended
|
|||||||||||||||
March 28,
|
April 3,
|
March 28,
|
April 3,
|
|||||||||||||
2009
*
|
2010
|
2009
*
|
2010
|
|||||||||||||
Net
revenue
|
$ | 25,232 | $ | 153,838 | $ | 62,648 | $ | 282,253 | ||||||||
Cost
of sales
|
17,187 | 86,066 | 40,675 | 158,108 | ||||||||||||
Gross
profit
|
8,045 | 67,772 | 21,973 | 124,145 | ||||||||||||
Selling,
general and administrative
|
27,836 | 30,470 | 57,688 | 55,696 | ||||||||||||
Research
and development
|
13,258 | 13,980 | 28,658 | 27,141 | ||||||||||||
Impairment
of goodwill
|
2,709 | - | 2,709 | - | ||||||||||||
Total
operating expenses
|
43,803 | 44,450 | 89,055 | 82,837 | ||||||||||||
Income
(loss) from operations
|
(35,758 | ) | 23,322 | (67,082 | ) | 41,308 | ||||||||||
Interest
income
|
193 | 89 | 947 | 186 | ||||||||||||
Interest
expense
|
(2,024 | ) | (2,105 | ) | (4,103 | ) | (4,188 | ) | ||||||||
Gain
on extinguishment of debt
|
2,786 | - | 3,965 | - | ||||||||||||
Income
(loss) from continuing operations before tax
|
(34,803 | ) | 21,306 | (66,273 | ) | 37,306 | ||||||||||
Provision
(benefit) for income taxes from continuing operations
|
(276 | ) | 148 | (12,158 | ) | 308 | ||||||||||
Income
(loss) from continuing operations, net of tax
|
(34,527 | ) | 21,158 | (54,115 | ) | 36,998 | ||||||||||
Income
from discontinued operations, net of tax
|
- | - | 22,727 | - | ||||||||||||
Net
income (loss)
|
$ | (34,527 | ) | $ | 21,158 | $ | (31,388 | ) | $ | 36,998 | ||||||
Income
(loss) per share from continuing operations:
|
||||||||||||||||
Basic
|
$ | (0.57 | ) | $ | 0.30 | $ | (0.89 | ) | $ | 0.52 | ||||||
Diluted
|
$ | (0.57 | ) | $ | 0.28 | $ | (0.89 | ) | $ | 0.50 | ||||||
Income
per share from discontinued operations:
|
||||||||||||||||
Basic
|
$ | 0.00 | $ | 0.00 | $ | 0.37 | $ | 0.00 | ||||||||
Diluted
|
$ | 0.00 | $ | 0.00 | $ | 0.37 | $ | 0.00 | ||||||||
Net
income (loss) per share:
|
||||||||||||||||
Basic
|
$ | (0.57 | ) | $ | 0.30 | $ | (0.52 | ) | $ | 0.52 | ||||||
Diluted
|
$ | (0.57 | ) | $ | 0.28 | $ | (0.52 | ) | $ | 0.50 | ||||||
Weighted
average shares outstanding:
|
||||||||||||||||
Basic
|
61,054 | 69,806 | 60,752 | 69,745 | ||||||||||||
Diluted
|
61,054 | 74,371 | 60,752 | 74,143 |
* 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)
|
Six months ended
|
|||||||
March 28, 2009 *
|
April 3, 2010
|
|||||||
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net
income (loss)
|
$ | (31,388 | ) | $ | 36,998 | |||
Less:
Income from discontinued operations
|
22,727 | - | ||||||
Income
(loss) from continuing operations
|
(54,115 | ) | 36,998 | |||||
Adjustments
to reconcile income (loss) from continuing operations to net
cash provided by (used in) operating activities:
|
||||||||
Depreciation
and amortization
|
10,755 | 8,919 | ||||||
Amortization
of debt discount and debt issuance costs
|
3,247 | 3,458 | ||||||
Amortization
of gain on sale of building
|
- | (54 | ) | |||||
Equity-based
compensation and employee benefits
|
478 | 3,411 | ||||||
Provision
for doubtful accounts
|
984 | 15 | ||||||
Provision
for inventory valuation
|
5,365 | 169 | ||||||
Deferred
taxes
|
(6,099 | ) | 8 | |||||
Impairment
of goodwill
|
2,709 | |||||||
Gain
on extinguishment of debt
|
(3,965 | ) | - | |||||
Changes
in operating assets and liabilities, net of businesses acquired or
sold:
|
||||||||
Accounts
and notes receivable
|
46,608 | (12,557 | ) | |||||
Inventory
|
(1,630 | ) | (15,787 | ) | ||||
Prepaid
expenses and other current assets
|
6,655 | (1,661 | ) | |||||
Accounts
payable and accrued expenses
|
(20,687 | ) | 20,371 | |||||
Income
taxes payable
|
(20,771 | ) | (984 | ) | ||||
Other,
net
|
633 | (1,987 | ) | |||||
Net
cash provided by (used in) continuing operations
|
(29,833 | ) | 40,319 | |||||
Net
cash used in discontinued operations
|
(1,218 | ) | (906 | ) | ||||
Net
cash provided by (used in) operating activities
|
(31,051 | ) | 39,413 | |||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Purchases
of property, plant and equipment
|
(3,346 | ) | (2,106 | ) | ||||
Proceeds
from sale of property, plant and equipment
|
- | 3,958 | ||||||
Proceeds
from sales of investments classified as available-for-sale
|
3,779 | - | ||||||
Purchase
of Orthodyne
|
(87,039 | ) | - | |||||
Changes
in restricted cash, net
|
34,717 | 65 | ||||||
Net
cash provided by (used in) continuing operations
|
(51,889 | ) | 1,917 | |||||
Net
cash provided by (used in) discontinued operations
|
149,857 | (1,838 | ) | |||||
Net
cash provided by investing activities
|
97,968 | 79 | ||||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Net
costs from sale of common stock
|
- | (29 | ) | |||||
Proceeds
from exercise of common stock options
|
3 | 212 | ||||||
Payments
on borrowings
|
(84,358 | ) | - | |||||
Net
cash provided by (used in) financing activities
|
(84,355 | ) | 183 | |||||
Effect
of exchange rate changes on cash and cash equivalents
|
113 | (154 | ) | |||||
Changes
in cash and cash equivalents
|
(17,325 | ) | 39,521 | |||||
Cash
and cash equivalents at beginning of period
|
144,932 | 144,560 | ||||||
Cash
and cash equivalents at end of period
|
$ | 127,607 | $ | 184,081 | ||||
CASH
PAID FOR:
|
||||||||
Interest
|
$ | 981 | $ | 726 | ||||
Income
taxes
|
$ | 3,466 | $ | 1,725 |
* 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).
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.
Basis
of Presentation
The
preparation of the interim consolidated financial statements requires management
to make assumptions, estimates and judgments that affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities as
of the date of the interim consolidated financial statements, and the reported
amounts of revenue and expenses during the reporting periods. On an ongoing
basis, management evaluates these estimates. Authoritative pronouncements,
historical experience and assumptions are used as the basis for making
estimates. Actual results could differ from those estimates. The interim
consolidated financial statements are unaudited and, in management’s opinion,
include all adjustments (consisting only of normal and recurring adjustments)
necessary for a fair presentation of results for these interim periods. The
interim consolidated financial statements do not include all of the information
and footnote disclosures normally included in financial statements prepared in
accordance with U.S. generally accepted accounting principles (“GAAP”) and
should be read in conjunction with the consolidated financial statements and
notes thereto included in the Annual Report on Form 10-K for the year ended
October 3, 2009, filed with the Securities and Exchange Commission, which
includes Consolidated Balance Sheets as of September 27, 2008 and October 3,
2009, and the related Consolidated Statements of Operations, Cash Flows, and
Changes in Shareholders’ Equity for each of the years in the three-year period
ended October 3, 2009. The results of operations for any interim period are not
necessarily indicative of the results of operations for any other interim period
or for a full year.
6
Vulnerability
to Certain Concentrations
Financial
instruments which may subject the Company to concentrations of credit risk as of
October 3, 2009 and April 3, 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.
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 Company’s 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 cyclical market changes. If actual market
conditions are less favorable than projections, additional inventory reserves
may be required.
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).
7
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 it 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.
Shipping
and handling costs billed to customers are recognized in net revenue. Shipping
and handling costs are included in cost of sales.
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, if necessary, will
retrospectively adjust prior period earnings per share (see Note
11).
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 market-based restricted
stock is determined using a Monte-Carlo valuation model, and 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.
8
Recent
Accounting Pronouncements
Improvements
to Financial Reporting by Enterprises Involved with Variable Interest
Entities
In
December 2009, the FASB issued Accounting Standards Update (“ASU”) No. 2009-17,
Improvements
to Financial Reporting by Enterprises Involved with Variable Interest
Entities (“ASU 2009-17”). ASU 2009-17 clarifies the application of
consolidation guidance for variable interest entities (“VIEs”) in which the
party with the controlling financial interest might not be solely identified
through voting rights. ASU 2009-17 amends the guidance for determining the
accounting model of VIEs from a quantitative analysis to a qualitative analysis.
The amended guidance was effective in December of 2009. ASU 2009-17 will not
impact the Company’s consolidated results of operations and financial
position.
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 six months ended March 28, 2009. The Company did not recognize any income or
loss from discontinued operations for the three months ended March 28, 2009, or
the three and six months ended April 3, 2010.
The
following table reflects operating results of the Wire business discontinued
operations for the six months ended March 28, 2009:
Six months ended
|
||||
(in thousands)
|
March 28, 2009
|
|||
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 |
9
As of
April 3, 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 six months ended March 28, 2009 and April 3,
2010:
Six months ended
|
||||||||
(in thousands)
|
March 28, 2009
|
April 3, 2010
|
||||||
Cash
flows provided by (used in):
|
||||||||
Operating
activities: Wire business
|
$ | (319 | ) | $ | - | |||
Operating
activities: Test business (sold in fiscal 2006) (1)
|
(899 | ) | (906 | ) | ||||
Investing
activities: Wire business (2)
|
149,857 | (1,838 | ) | |||||
Net
cash provided by (used in) discontinued operations
|
$ | 148,639 | $ | (2,744 | ) |
(1)
|
Represents
facility-related costs associated with the Company’s former Test
operations.
|
(2)
|
Fiscal
2010 amount represents final settlement of working capital adjustments
with Heraeus.
|
NOTE
3 – COST REDUCTION PLAN
On
February 15, 2010, the Company committed to a plan to reduce its Irvine,
California workforce by approximately 56 employees over a period of
approximately 26 months. As part of this workforce reduction plan, substantially
all of the Company's California-based wedge bonder manufacturing will be
transferred to the Company's manufacturing facilities in Kuala Lumpur, Malaysia
and Singapore. Certain administrative functions will also be transferred to
Malaysia and Singapore. Management determined that it was in the best interests
of the Company to reduce costs by migrating production and certain
administrative functions from California to Asia.
With
respect to the California-based wedge bonder transfer to Asia, the Company
anticipates $2.0 million of additional pre-tax expense, consisting of $1.4
million of severance and $0.6 million of retention costs. The Company expects
substantially all of this expense to be incurred by the end of the second fiscal
quarter of 2011, with corresponding cash payments to be incurred beginning in
the first fiscal quarter of 2011 and ending in the first fiscal quarter of
2013.
During
fiscal 2009, the Company committed to a plan to reduce its Israel-based
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 has been transferred to the Company’s manufacturing facilities in
Suzhou, China. The Company expects to incur approximately $0.4 million in
additional severance costs and the amounts accrued are expected to be paid out
over the next 6 months related to these cost reduction efforts. As part of the
Israel-based manufacturing transition to China, during the three months ended
April 3, 2010, the Company sold its facility in Israel and simultaneously
entered into an agreement to leaseback a portion of the building for five years
with an option to extend the lease. The Company realized a $0.7 million gain on
the sale which will be recognized over the five year lease term.
Separately
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.
10
The
following table reflects severance activity for all plans during the three and
six months ended March 28, 2009 and April 3, 2010:
Three months ended
|
Six months ended
|
|||||||||||||||
(in thousands)
|
March 28, 2009
|
April 3, 2010
|
March 28, 2009
|
April 3, 2010
|
||||||||||||
Accrual
for estimated severance and benefits, beginning of period
|
$ | 1,223 | $ | 2,193 | $ | - | $ | 2,413 | ||||||||
Provision
for severance and benefits: Equipment
segment (1)
|
3,039 | 202 | 4,638 | 168 | ||||||||||||
Provision
for severance and benefits: Expendable Tools segment (1)
|
1,124 | 124 | 2,110 | 357 | ||||||||||||
Payment
of severance and benefits
|
(2,966 | ) | (446 | ) | (4,328 | ) | (865 | ) | ||||||||
Accrual
for estimated severance and benefits, end of
period (2)
|
$ | 2,420 | $ | 2,073 | $ | 2,420 | $ | 2,073 |
(1)
Provision for severance and benefits is the total amount expected to be incurred
and is included within selling, general and administrative expenses on the
Consolidated Statements of Operations.
(2)
Accrual for estimated severance as of March 28, 2009 and April 3, 2010 was
included within accrued expenses and other current liabilities and other
liabilities on the Consolidated Balance Sheet.
As
business recovered during the first half of fiscal 2010 and demand for the
Company’s
products increased, the Company increased its number of employees primarily
related to manufacturing. The Company expects to continue to consolidate certain
of its operations from the United States and other areas to Asia. As these
consolidation efforts are finalized in the future, the Company will incur
significant severance costs; however, it expects to realize future benefits from
these consolidation plans.
NOTE
4 – GOODWILL AND INTANGIBLE ASSETS
Goodwill
Intangible
assets classified as goodwill are not amortized. An annual impairment test of
the Company’s goodwill is performed 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. In addition, the Company 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 April 3,
2010:
(in thousands)
|
Equipment segment
|
Expendable Tools
segment
|
Total
|
|||||||||
As of October 3, 2009 and April 3, 2010:
|
||||||||||||
Beginning
of period, Goodwill, gross
|
$ | 22,999 | $ | 6,408 | $ | 29,407 | ||||||
Accumulated
impairment losses (1)
|
(2,709 | ) | - | (2,709 | ) | |||||||
End
of period, Goodwill, net
|
$ | 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.
|
11
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
April 3, 2010:
As
of
|
Average
|
|||||||||||
(in
thousands)
|
October
3, 2009
|
April
3, 2010
|
estimated
useful lives (in
years) |
|||||||||
Wedge
bonder developed technology
|
$ | 33,200 | $ | 33,200 | 7.0 | |||||||
Accumulated
amortization
|
(4,742 | ) | (7,114 | ) | ||||||||
Net
wedge bonder developed technology
|
28,458 | 26,086 | ||||||||||
Wedge
bonder customer relationships
|
19,300 | 19,300 | 5.0 | |||||||||
Accumulated
amortization
|
(3,860 | ) | (5,790 | ) | ||||||||
Net
wedge bonder customer relationships
|
15,440 | 13,510 | ||||||||||
Wedge
bonder trade name
|
4,600 | 4,600 | 8.0 | |||||||||
Accumulated
amortization
|
(575 | ) | (863 | ) | ||||||||
Net
wedge bonder trade name
|
4,025 | 3,737 | ||||||||||
Wedge
bonder other intangible assets
|
2,500 | 2,500 | 1.9 | |||||||||
Accumulated
amortization
|
(1,767 | ) | (1,949 | ) | ||||||||
Net
wedge bonder other intangible assets
|
733 | 551 | ||||||||||
Net
intangible assets
|
$ | 48,656 | $ | 43,884 |
The
following table reflects estimated annual amortization expense related to
intangible assets as of April 3, 2010:
(in
thousands)
|
||||
Fiscal
2010 (remaining fiscal year)
|
$ | 4,773 | ||
Fiscal
2011
|
9,544 | |||
Fiscal
2012
|
9,178 | |||
Fiscal
2013
|
9,178 | |||
Fiscal
2014-2016
|
11,211 | |||
$ | 43,884 |
12
NOTE
5 – COMPREHENSIVE INCOME (LOSS)
The
following table reflects the components of comprehensive income (loss) for the
three and six months ended March 28, 2009 and April 3, 2010:
Three months ended
|
Six months ended
|
|||||||||||||||
(in thousands)
|
March 28, 2009 *
|
April 3, 2010
|
March 28, 2009 *
|
April 3, 2010
|
||||||||||||
Net
income (loss) (1)
|
$ | (34,527 | ) | $ | 21,158 | $ | (31,388 | ) | $ | 36,998 | ||||||
Loss
from foreign currency translation adjustments
|
(143 | ) | (2 | ) | (1,438 | ) | (655 | ) | ||||||||
Unrealized
gain on investments, net of taxes
|
3 | - | 3 | - | ||||||||||||
Unrecognized
actuarial net gain (loss), Switzerland pension plan, net of
tax
|
(119 | ) | (29 | ) | 166 | 9 | ||||||||||
Other
comprehensive loss
|
$ | (259 | ) | $ | (31 | ) | $ | (1,269 | ) | $ | (646 | ) | ||||
Comprehensive
income (loss)
|
$ | (34,786 | ) | $ | 21,127 | $ | (32,657 | ) | $ | 36,352 |
* As
adjusted for ASC No. 470.20,
Debt, Debt With Conversion Options.
(1) Net
income (loss) 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 April 3,
2010:
As of
|
||||||||
(in thousands)
|
October 3, 2009
|
April 3, 2010
|
||||||
Gain
from foreign currency translation adjustments
|
$ | 746 | $ | 91 | ||||
Unrecognized
actuarial net gain, Switzerland pension plan, net of taxes
|
1,133 | 1,142 | ||||||
Accumulated
other comprehensive income
|
$ | 1,879 | $ | 1,233 |
13
NOTE
6 – BALANCE SHEET ACCOUNTS
The
following tables reflect significant balance sheet accounts as of October 3,
2009 and April 3, 2010:
As of
|
||||||||
(in thousands)
|
October 3, 2009
|
April 3, 2010
|
||||||
Inventories,
net:
|
||||||||
Raw
materials and supplies
|
$ | 30,048 | $ | 33,250 | ||||
Work
in process
|
10,788 | 17,907 | ||||||
Finished
goods
|
13,170 | 15,614 | ||||||
54,006 | 66,771 | |||||||
Inventory
reserves
|
(12,517 | ) | (9,671 | ) | ||||
$ | 41,489 | $ | 57,100 | |||||
Property,
plant and equipment, net:
|
||||||||
Land (1)
|
$ | 2,735 | $ | 2,618 | ||||
Buildings
and building improvements (1)
|
14,351 | 11,601 | ||||||
Leasehold
improvements
|
11,695 | 9,219 | ||||||
Data
processing and hardware equipment and software
|
21,822 | 22,162 | ||||||
Machinery
and equipment
|
40,600 | 39,493 | ||||||
91,203 | 85,093 | |||||||
Accumulated
depreciation
|
(55,157 | ) | (54,708 | ) | ||||
$ | 36,046 | $ | 30,385 | |||||
Accrued
expenses and other current liabilities:
|
||||||||
Wages
and benefits
|
$ | 10,423 | $ | 11,641 | ||||
Accrued
customer obligations (2)
|
4,438 | 6,482 | ||||||
Severance (3)
|
3,264 | 2,806 | ||||||
Short-term
facility accrual related to discontinued operations (Test)
|
1,839 | 1,819 | ||||||
Payable
to Heraeus (4)
|
1,857 | - | ||||||
Other
|
10,755 | 8,989 | ||||||
$ | 32,576 | $ | 31,737 |
(1) During the
three months ended April 3, 2010, the Company sold its facility in Yokneam,
Israel for $4.5 million. Net proceeds of $4.0 million were received and $0.5
million is held in escrow for taxes. 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 realized a $0.7 million gain on
the sale which will be recognized over the five year lease term.
(2) Represents
customer advance payments, customer credit program, accrued warranty expense and
accrued retrofit costs.
(3) Total
severance payable within the next twelve months includes the severance plans
discussed in Note 3, and approximately
$0.7 million of other severance obligations which were not part of the Company’s
cost reduction plans.
(4)
Fiscal 2009 amount related to certain open working capital adjustments with
Heraeus, which were settled in fiscal 2010.
14
NOTE
7 – DEBT OBLIGATIONS
The
following table reflects debt consisting of Convertible Subordinated Notes as of
October 3, 2009 and April 3, 2010:
(in
thousands)
|
|||||||||||||||
As
of
|
|||||||||||||||
Payment
Dates
|
Conversion
|
Maturity
|
|||||||||||||
Rate
|
of
each year
|
Price
|
Date
|
October
3, 2009 *
|
April
3, 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 | ) | (14,713 | ) | |||||||||||
$ | 141,181 | $ | 144,251 |
* As
adjusted for ASC No. 470.20,
Debt, Debt With Conversion Options.
1.0%
Convertible Subordinated Notes
The
Company’s 1.0% Notes are general obligations and are subordinated to all senior
debt. The 1.0% Notes rank equally with the Company’s other Convertible
Subordinated Notes. There are no financial covenants associated with the 1.0%
Notes and there are no restrictions on incurring additional debt or issuing or
repurchasing the securities.
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 are 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 is classified as common stock on the
Company’s Consolidated Balance Sheets.
15
The
following tables reflect the effect of the change due to ASC 470.20 on the
Consolidated Statements of Operations for the three and six months ended March
28, 2009:
Three
months ended
|
||||||||||||
(in
thousands)
|
March
28, 2009, as
reported
|
March
28, 2009 as
adjusted
|
Effect
of
change
|
|||||||||
Interest
expense
|
$ | 640 | $ | 2,024 | $ | 1,384 | ||||||
Loss
from continuing operations before taxes
|
(33,419 | ) | (34,803 | ) | (1,384 | ) | ||||||
Benefit
for income taxes
|
(276 | ) | (276 | ) | - | |||||||
Loss
from continuing operations
|
$ | (33,143 | ) | $ | (34,527 | ) | $ | (1,384 | ) | |||
Diluted
loss per share from continuing operations
|
$ | (0.54 | ) | $ | (0.57 | ) | $ | (0.03 | ) |
Six
months ended
|
||||||||||||
March
28, 2009, as
|
March
28, 2009 as
|
Effect
of
|
||||||||||
(in
thousands)
|
reported
|
adjusted
|
change
|
|||||||||
Interest
expense
|
$ | 1,374 | $ | 4,103 | $ | 2,729 | ||||||
Loss
from continuing operations before taxes
|
(63,544 | ) | (66,273 | ) | (2,729 | ) | ||||||
Benefit
for income taxes
|
(12,158 | ) | (12,158 | ) | - | |||||||
Loss
from continuing operations
|
$ | (51,386 | ) | $ | (54,115 | ) | $ | (2,729 | ) | |||
Diluted
loss per share from continuing operations
|
$ | (0.85 | ) | $ | (0.89 | ) | $ | (0.04 | ) |
The
following table reflects the effect of the change due to ASC 470.20 on the
Consolidated Balance Sheet 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 | ) |
16
The
following table reflects the effect of the change due to ASC 470.20 on the
Consolidated Statement of Cash Flows for the six months ended March 28,
2009:
For
the six months ended
|
||||||||||||
(in
thousands)
|
March
28, 2009, as
reported
|
March
28, 2009, as
adjusted
|
Effect
of
change
|
|||||||||
Net
loss
|
$ | (28,659 | ) | $ | (31,388 | ) | $ | (2,729 | ) | |||
Loss
from continuing operations
|
(51,386 | ) | (54,115 | ) | (2,729 | ) | ||||||
Amortization
of debt discount and debt issuance costs
|
518 | 3,247 | 2,729 | |||||||||
Net
cash used in continuing operations
|
(29,833 | ) | (29,833 | ) | - |
The
following table reflects amortization expense related to issue costs from the
Company’s Convertible Subordinated Notes for the three and six months ended
March 28, 2009 and April 3, 2010:
Three
months ended
|
Six
months ended
|
|||||||||||||||
(in
thousands)
|
March
28, 2009 *
|
April
3, 2010
|
March
28, 2009 *
|
April
3, 2010
|
||||||||||||
Amortization
expense related to issue costs
|
$ | 181 | $ | 192 | $ | 414 | $ | 388 |
* 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 and six months ended March 28,
2009:
Three Months Ended
|
Six Months Ended
|
|||||||
(in thousands)
|
March 28, 2009
|
March 28, 2009
|
||||||
0.5%
Convertible Subordinated Notes (1):
|
||||||||
Face
value purchased
|
$ | - | $ | 43,050 | ||||
Net
cash
|
- | 42,839 | ||||||
Deferred
financing costs
|
- | 18 | ||||||
Recognized
gain, net of deferred financing costs
|
- | 193 | ||||||
1.0%
Convertible Subordinated Notes: (2)
|
||||||||
Face
value purchased
|
$ | 13,036 | $ | 16,036 | ||||
Net
cash
|
10,168 | 12,158 | ||||||
Deferred
financing costs
|
82 | 106 | ||||||
Recognized
gain, net of deferred financing costs
|
2,786 | 3,772 | ||||||
Gain
on early extinguishment of debt
|
$ | 2,786 | $ | 3,965 |
(1) Repurchase
transactions occurred prior to redemption on November 30, 2008.
(2) Activity
during the three months ended March 28, 2009 reflects repurchases pursuant to a
tender offer.
17
NOTE
8 – SHAREHOLDERS’ EQUITY AND EMPLOYEE BENEFIT PLAN
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).
In August
2009, the Company sold 8.0 million shares of its common stock in an underwritten
public offering for net proceeds of $38.7 million.
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.
Equity-Based
Compensation
As of
April 3, 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 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 and six months ended March 28, 2009 and April 3, 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.
18
The
following table reflects stock options, restricted stock and common stock
granted during the three and six months ended March 28, 2009 and April 3,
2010:
Three months ended
|
Six months ended
|
|||||||||||||||
(number of shares in thousands)
|
March 28, 2009
|
April 3, 2010
|
March 28, 2009
|
April 3, 2010
|
||||||||||||
Market-based
restricted stock
|
- | - | - | 398 | ||||||||||||
Performance-based
restricted stock
|
2 | - | 403 | - | ||||||||||||
Time-based
restricted stock
|
45 | - | 825 | 784 | ||||||||||||
Stock
options
|
15 | 26 | 154 | 26 | ||||||||||||
Common
stock
|
65 | 33 | 106 | 65 | ||||||||||||
Equity-based
compensation in shares
|
127 | 59 | 1,488 | 1,273 |
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 and six months ended March 28, 2009 and April 3,
2010:
Three months ended
|
Six months ended
|
|||||||||||||||
(in thousands)
|
March 28, 2009
|
April 3, 2010
|
March 28, 2009
|
April 3, 2010
|
||||||||||||
Market-based
restricted stock
|
$ | - | $ | 273 | $ | - | $ | 388 | ||||||||
Performance-based
restricted stock
|
25 | 682 | (1,537 | ) | 738 | |||||||||||
Time-based
restricted stock
|
179 | 467 | 380 | 1,057 | ||||||||||||
Stock
options
|
334 | 107 | 843 | 270 | ||||||||||||
Common
stock
|
120 | 180 | 300 | 360 | ||||||||||||
Equity-based
compensation expense
|
$ | 658 | $ | 1,709 | $ | (14 | ) | $ | 2,813 |
As the
global economy improved during the three months ended April 3, 2010, the Company
determined performance objectives for the performance-based restricted stock
issued in fiscal 2007 and 2008 would improve. Accordingly, estimated attainment
percentages increased and total compensation expense for the performance-based
restricted stock also increased for the three months ended April 3, 2010. During
the prior year in connection with the global economic decline during the six
months ended March 28, 2009, 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 and six
months ended March 28, 2009 and April 3, 2010:
Three months ended
|
Six months ended
|
|||||||||||||||
(in thousands)
|
March 28, 2009
|
April 3, 2010
|
March 28, 2009
|
April 3, 2010
|
||||||||||||
Cost
of sales
|
$ | 28 | $ | 50 | $ | (1 | ) | $ | 96 | |||||||
Selling,
general and administrative
|
416 | 1,273 | (251 | ) | 1,987 | |||||||||||
Research
and development
|
214 | 386 | 238 | 730 | ||||||||||||
Equity-based
compensation expense
|
$ | 658 | $ | 1,709 | $ | (14 | ) | $ | 2,813 |
19
The
following table summarizes the unrecognized equity-based compensation expense,
by type of award, as of March 28, 2009 and April 3, 2010:
As
of
|
Average
remaining
|
|||||||||||
(dollar
amounts in thousands)
|
March
28, 2009
|
April
3, 2010
|
contractual
life in years
|
|||||||||
Market-based
restricted stock
|
$ | - | $ | 2,310 | 1.9 | |||||||
Performance-based
restricted stock
|
438 | 1,179 | 1.0 | |||||||||
Time-based
restricted stock
|
1,931 | 5,005 | 2.2 | |||||||||
Stock
options
|
1,775 | 585 | 1.4 | |||||||||
Unrecognized
equity-based compensation expense
|
$ | 4,144 | $ | 9,079 |
401(k)
Retirement Income Plan
The
Company has a 401(k) retirement income plan for its employees. During
fiscal 2009 and prior years, the Plan allowed for employee contributions and
matching Company contributions in varying percentages, ranging from 50% to 175%
up to 6% of the employee’s contributed amount based upon employee age and years
of service. During the first quarter of fiscal 2010, the Plan was modified to
allow for employee contributions and matching Company contributions up to 4% or
6% of the employee’s contributed amount based upon years of
service.
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 and six months ended March 28,
2009 and April 3, 2010:
Three months ended
|
Six months ended
|
|||||||||||||||
(in thousands)
|
March 28, 2009
|
April 3, 2010
|
March 28, 2009
|
April 3, 2010
|
||||||||||||
Number
of common shares
|
177 | 50 | 273 | 100 | ||||||||||||
Fair
value based upon market price at date of distribution
|
$ | 288 | $ | 308 | $ | 492 | $ | 598 |
20
NOTE
9 – INCOME TAXES
The
following table reflects the provision (benefit) for income taxes and the
effective tax rate from continuing operations for the six months ended March 29,
2009 and April 3, 2010:
Six months ended
|
||||||||
(dollar amounts in thousands)
|
March 28, 2009 *
|
April 3, 2010
|
||||||
Income
(loss) from continuing operations before taxes
|
$ | (66,273 | ) | $ | 37,306 | |||
Provision
(benefit) for income taxes
|
(12,158 | ) | 308 | |||||
Income
(loss) from continuing operations
|
$ | (54,115 | ) | $ | 36,998 | |||
Effective
tax rate
|
18.3 | % | 0.8 | % |
* As
adjusted for ASC No. 470.20,
Debt, Debt With Conversion Options.
For the
six months ended April 3, 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
six months ended March 28, 2009, the effective income tax rate related to
continuing operations differed from the federal statutory rate primarily due to:
increases in the valuation allowance, state income taxes, tax from foreign
operations, impact of tax holidays, decreases in deferred taxes for un-remitted
earnings, and decreases in tax reserves.
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 assessment. 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 U.S.
Internal Revenue Service (“IRS”) audited the Company for the period ended
September 30, 2006. The Company responded to various information requests from
the IRS and the audit was closed with no significant
adjustments.
21
NOTE
10 - 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 operating results by segment for the three and six
months ended March 28, 2009 and April 3,
2010:
|
Three months ending
|
Six months ending
|
||||||||||||||
(in thousands)
|
March 28, 2009
|
April 3, 2010
|
March 28, 2009
|
April 3, 2010
|
||||||||||||
Net
revenue
|
||||||||||||||||
Equipment
|
$ | 16,977 | $ | 136,353 | $ | 40,636 | $ | 247,950 | ||||||||
Expendable
Tools
|
8,255 | 17,485 | 22,012 | 34,303 | ||||||||||||
Net
revenue
|
25,232 | 153,838 | 62,648 | 282,253 | ||||||||||||
Cost
of sales
|
||||||||||||||||
Equipment
|
12,564 | 79,466 | 29,221 | 144,611 | ||||||||||||
Expendable
Tools
|
4,623 | 6,600 | 11,454 | 13,497 | ||||||||||||
Cost
of sales
|
17,187 | 86,066 | 40,675 | 158,108 | ||||||||||||
Gross
profit
|
||||||||||||||||
Equipment
|
4,413 | 56,887 | 11,415 | 103,339 | ||||||||||||
Expendable
Tools
|
3,632 | 10,885 | 10,558 | 20,806 | ||||||||||||
Gross
profit
|
8,045 | 67,772 | 21,973 | 124,145 | ||||||||||||
Operating
Expenses
|
||||||||||||||||
Equipment
|
34,981 | 36,693 | 73,714 | 68,298 | ||||||||||||
Expendable
Tools
|
6,113 | 7,757 | 12,632 | 14,539 | ||||||||||||
Operating
expenses
|
41,094 | 44,450 | 86,346 | 82,837 | ||||||||||||
Impairment
of goodwill
|
||||||||||||||||
Equipment
|
2,709 | - | 2,709 | - | ||||||||||||
Income
(loss) from operations
|
||||||||||||||||
Equipment
|
(33,277 | ) | 20,194 | (65,008 | ) | 35,041 | ||||||||||
Expendable
Tools
|
(2,481 | ) | 3,128 | (2,074 | ) | 6,267 | ||||||||||
Income
(loss) from operations
|
$ | (35,758 | ) | $ | 23,322 | $ | (67,082 | ) | $ | 41,308 |
The
following table reflects assets by segment as of October 3, 2009 and April 3,
2010:
|
As of
|
|||||||
(in thousands)
|
October 3, 2009 *
|
April 3, 2010
|
||||||
Equipment
|
$ | 303,835 | $ | 386,891 | ||||
Expendable
Tools
|
108,800 | 85,506 | ||||||
Segment
assets
|
$ | 412,635 | $ | 472,397 |
* As
adjusted for ASC No. 470.20,
Debt, Debt With Conversion Options.
22
NOTE
11 - EARNINGS PER SHARE
Basic
income (loss) per share is calculated using the weighted average number of
shares of common stock outstanding during the period. In addition, net income
applicable to participating securities and the related participating securities
are excluded from the computation of basic income per share.
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 Notes are not convertible and the conversion
option was not “in the money” as of March 28, 2009 or April 3, 2010.
Accordingly, diluted EPS excludes the effect of the conversion of the 0.875%
Convertible Subordinated Notes.
The
following tables reflect reconciliations of the shares used in the basic and
diluted net income (loss) per share computation for the three and six months
ended March 28, 2009 and April 3, 2010:
Three months ended
|
||||||||||||||||
|
March 28, 2009 *
|
April 3, 2010
|
||||||||||||||
(in thousands, except per share data)
|
Basic
|
Diluted
|
Basic
|
Diluted
|
||||||||||||
NUMERATOR: | ||||||||||||||||
Income
(loss) from continuing operations
|
$ | (34,527 | ) | $ | (34,527 | ) | $ | 21,158 | $ | 21,158 | ||||||
Less:
Income applicable to participating securities
|
- | - | (1) | (227 | ) | (227 | ) | |||||||||
After-tax
interest expense
|
- | - | (1) | - | 122 | |||||||||||
Income
(loss) applicable to common shareholders
|
$ | (34,527 | ) | $ | (34,527 | ) | $ | 20,931 | $ | 21,053 | ||||||
DENOMINATOR:
|
||||||||||||||||
Weighted
average shares outstanding - Basic (3)
|
61,054 | 61,054 | 69,806 | 69,806 | ||||||||||||
Stock
options
|
- | (1) | 192 | |||||||||||||
Time-based
restricted stock
|
- | (1) | 234 | |||||||||||||
Market-based
restricted stock
|
n/a | 326 | ||||||||||||||
1.000
% Convertible Subordinated Notes
|
- | (1) | 3,813 | |||||||||||||
0.875
% Convertible Subordinated Notes
|
- | (1) | n/a | |||||||||||||
Weighted
average shares outstanding - Diluted (2)
|
61,054 | 74,371 | ||||||||||||||
EPS:
|
||||||||||||||||
Income
(loss) per share from continuing operations - Basic
|
$ | (0.57 | ) | $ | (0.57 | ) | $ | 0.30 | $ | 0.30 | ||||||
Effect
of dilutive shares
|
- | (1) | $ | (0.02 | ) | |||||||||||
Income
(loss) per share from continuing operations - Diluted
|
$ | (0.57 | ) | $ | 0.28 |
23
Six months ended
|
||||||||||||||||
March 28, 2009 *
|
April 3, 2010
|
|||||||||||||||
(in thousands, except per share data)
|
Basic
|
Diluted
|
Basic
|
Diluted
|
||||||||||||
NUMERATOR:
|
||||||||||||||||
Income
(loss) from continuing operations
|
$ | (54,115 | ) | $ | (54,115 | ) | $ | 36,998 | $ | 36,998 | ||||||
Less:
Income applicable to participating securities
|
- | - | (1) | (398 | ) | (398 | ) | |||||||||
After-tax
interest expense
|
- | - | (1) | - | 245 | |||||||||||
Income
(loss) applicable to common shareholders
|
$ | (54,115 | ) | $ | (54,115 | ) | $ | 36,600 | $ | 36,845 | ||||||
DENOMINATOR:
|
||||||||||||||||
Weighted
average shares outstanding - Basic (3)
|
60,752 | 60,752 | 69,745 | 69,745 | ||||||||||||
Stock
options
|
- | (1) | 171 | |||||||||||||
Time-based
restricted stock
|
- | (1) | 137 | |||||||||||||
Market-based
restricted stock
|
n/a | 277 | ||||||||||||||
1.000
% Convertible Subordinated Notes
|
- | (1) | 3,813 | |||||||||||||
0.875
% Convertible Subordinated Notes
|
- | (1) | n/a | |||||||||||||
Weighted
average shares outstanding - Diluted (2)
|
60,752 | 74,143 | ||||||||||||||
EPS:
|
||||||||||||||||
Income
(loss) per share from continuing operations - Basic
|
$ | (0.89 | ) | $ | (0.89 | ) | $ | 0.52 | $ | 0.52 | ||||||
Effect
of dilutive shares
|
- | (1) | $ | (0.02 | ) | |||||||||||
Income
(loss) per share from continuing operations - Diluted
|
$ | (0.89 | ) | $ | 0.50 |
* 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) Three
and six months ended April 3, 2010, excludes 284 and 325 dilutive participating
securities, respectively, as the income attributable to these shares was not
included in EPS.
(3) Increase
in weighted average shares outstanding primarily due to issuance of 7.1 common
shares on October 3, 2008 in connection with the acquisition of
Orthodyne.
24
The
following table reflects the number of potentially dilutive shares which were
excluded from diluted EPS, as their inclusion was anti-dilutive, for the three
and six months ended March 28, 2009 and April 3, 2010:
Three months ended
|
Six months ended
|
|||||||||||||||
March 28, 2009
|
April 3, 2010
|
March 28, 2009
|
April 3, 2010
|
|||||||||||||
(in
thousands)
|
||||||||||||||||
Potentially
dilutive shares related to:
|
||||||||||||||||
Stock
options, out of the money
|
6,616 | 2,881 | 6,769 | 3,707 | ||||||||||||
Convertible
Subordinated Notes
|
4,572 | - | 5,467 | - | ||||||||||||
11,188 | 2,881 | 12,236 | 3,707 |
NOTE
12 – GUARANTOR OBLIGATIONS, COMMITMENTS, CONTINGENCIES AND CONCENTRATIONS
Guarantor
Obligations
The
following table reflects guarantees under standby letters of credit as of April
3, 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 |
The
Company has issued standby letters of credit for security of employee worker
compensation benefit programs and a customs bond.
Additionally,
on behalf of its wholly-owned subsidiary in Israel, the Company has guaranteed
rent and building management payments should its subsidiary fail to meet such
obligations.
Warranty
Expense
The
Company’s non-Wedge bonder equipment is generally shipped with a one-year
warranty against manufacturing defects, and Wedge bonder equipment is generally
shipped with a two-year warranty against manufacturing defects. 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.
The
following table reflects product warranty activity included in accrued expenses
for the three and six months ended March 28,
2009 and April 3, 2010:
Three months ended
|
Six months ended
|
|||||||||||||||
(in thousands)
|
March 28, 2009
|
April 3, 2010
|
March 28, 2009
|
April 3, 2010
|
||||||||||||
Reserve
for product warranty, beginning of period
|
$ | 782 | $ | 1,393 | $ | 918 | $ | 1,003 | ||||||||
Provision
for product warranty
|
297 | 744 | 981 | 1,535 | ||||||||||||
Product
warranty costs paid
|
(511 | ) | (467 | ) | (1,331 | ) | (868 | ) | ||||||||
Reserve
for product warranty, end of period
|
$ | 568 | $ | 1,670 | $ | 568 | $ | 1,670 |
25
Concentrations
The
following table reflects significant customer concentrations as a percent of net
revenue for the six months ended March 28, 2009 and April 3, 2010:
Six Months Ended
|
||||||||
March 28, 2009
|
April 3, 2010
|
|||||||
Advanced
Semiconductor Engineering
|
* | 29.1 | % |
The
following table reflects significant customer concentrations as a percent of
total accounts receivable as of October 3, 2009 and April 3, 2010:
As of
|
||||||||
October 3, 2009
|
April 3, 2010
|
|||||||
Siliconware
Precision Industries Co., Ltd.
|
* | 16.5 | % | |||||
Haoseng
Industrial Co. Ltd.
|
* | 11.8 | % | |||||
Advanced
Semiconductor Engineering
|
32.4 | % | * | |||||
Amkor
Technology Inc
|
11.6 | % | * |
*
Represents less than ten percent of net revenue or total accounts receivable, as
applicable.
NOTE
13 – RELATED PARTY TRANSACTIONS
In
connection with the Company’s acquisition of Orthodyne, the Company entered into
a real property lease agreement with OE Holdings, Inc. Jason Livingston is the
Vice President of the Company’s wedge bonding division and also a shareholder of
OE Holdings, Inc. The lease agreement dated as of October 3, 2008 has a
five-year term with a five-year renewal option. Rent was $124,369 per month in
the first year and increases 3.0% per year thereafter. If the lease agreement
renewal is exercised, rent during the renewal term will be at fair market value.
The Company is guaranteeing the obligations of its subsidiary under the lease
agreement.
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 and Section 21E of the Securities Exchange Act of 1934, 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. Business conditions in the semiconductor industry began a recovery during
the end of fiscal 2009, and demand for our core products has been improving
during fiscal 2010. This improvement followed a dramatic deterioration in the
global economy during the first half of fiscal 2009. Demand is projected to
remain strong at least through the beginning of our fourth fiscal quarter of
2010; however, our visibility into future demand beyond that time 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 million, and we completed
a public equity offering of 8.0 million common shares which raised $38.7 million
of net proceeds. We ended the second quarter of fiscal 2010 with cash and cash
equivalents totaling $184.1 million, $39.5 million higher than our fiscal year
end. As of April 3, 2010, our total cash and cash equivalents exceeded our total
debt. 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. We estimate the annual growth rate for LED device sales to be
approximately 30% annually through 2014, 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 iStack is positioned to lead
the market for its targeted applications. We continue to put iStack qualification
machines in customers’ factories, sold our first machine in the second
fiscal quarter of 2010, and have received additional iStack machine orders during
the third quarter of 2010.
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 offer
a range of bonding equipment and expendable tools. The following table reflects
net revenue by business segment for the three and six months ended March 28,
2009 and April 3, 2010, respectively:
Three months ended
|
Six months ended
|
|||||||||||||||||||||||||||||||
March 28, 2009
|
April 3, 2010
|
March 28, 2009
|
April 3, 2010
|
|||||||||||||||||||||||||||||
(dollar amounts
in thousands)
|
Net Revenues
|
% of Total
Revenue
|
Net
Revenues
|
% of Total
Revenue
|
Net
Revenues
|
% of Total
Revenue
|
Net
Revenues
|
% of Total
Revenue
|
||||||||||||||||||||||||
Equipment
|
$ | 16,977 | 67.3 | % | $ | 136,353 | 88.6 | % | $ | 40,636 | 64.9 | % | $ | 247,950 | 87.8 | % | ||||||||||||||||
Expendable
Tools
|
8,255 | 32.7 | % | 17,485 | 11.4 | % | 22,012 | 35.1 | % | 34,303 | 12.2 | % | ||||||||||||||||||||
$ | 25,232 | 100.0 | % | $ | 153,838 | 100.0 | % | $ | 62,648 | 100.0 | % | $ | 282,253 | 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.
|
|
·
|
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.
|
30
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 our ribbon bonding capability
will open new packaging opportunities for our customers.
Die
Bonders
Our
next-generation die bonder, the iStack, was launched in
March of 2009. We continue to put iStack qualification
machines in customers’ factories, sold our first machine in the second
fiscal quarter of 2010, and have received additional iStack machine orders during
the third quarter of 2010.
iStack is targeted at stacked
die and high end ball grid array (BGA) applications. In these applications, we
expect up to 20% to 40% 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.
In
addition, we 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.
|
Presentation
of non-GAAP measures
Adjusted
net income (loss), adjusted diluted net income (loss) per share and adjusted
return on invested capital (“ROIC”) are supplemental measures of our performance
that are not presented in accordance with U.S. generally accepted accounting
principles (“GAAP”). We believe certain non-GAAP measures provide investors
with an additional, useful perspective on our performance as seen through the
eyes of management. We use non-GAAP measures along with GAAP financial results
for: analyzing the performance of our businesses; strategic and tactical
decision making; and determining compensation. We do not consider non-GAAP
measures to be a substitute for, or superior to, financial results presented in
accordance with GAAP. All of the non-GAAP measures included herein are
reconciled to the most directly comparable GAAP results in the financial
statements. These non-GAAP measures may be calculated differently from non-GAAP
measures used by other companies. In addition, these non-GAAP measures are not
based on a comprehensive set of accounting rules or principles and some of the
adjustments reflect the exclusion of items that are recurring and will be
reflected in the our GAAP financial results for the foreseeable
future.
31
We
exclude the following from our GAAP results in presenting non-GAAP
measures:
Equity-based
compensation expenses
We
recognize the fair value of our equity-based compensation in expense.
Equity-based compensation consists of common stock, stock options and
performance-based, market-based and time-based restricted stock granted under
our equity compensation plans. Equity-based compensation is a non-cash expense
that can vary significantly in amount from period to period.
Other
We
believe the exclusion of certain other non-GAAP amounts allows for improved
comparisons of our results to both prior periods and other companies. We exclude
the following other items from non-GAAP measures:
|
·
|
Severance
plan
|
|
·
|
Impairment
of goodwill
|
|
·
|
Facilities
contractual commitments
|
|
·
|
Tax
settlement expense
|
|
·
|
Amortization
of intangibles
|
|
·
|
Gain
on extinguishment of debt
|
|
·
|
Non-cash
interest expense
|
|
·
|
Tax
settlement benefit
|
Tax Adjustment
Non-GAAP
measures are tax adjusted using the GAAP tax rate associated with each quarterly
period. The tax rate is calculated by dividing each quarter’s GAAP tax expense
(benefit), adjusted for discrete quarterly items, by the GAAP operating income
(loss) for that quarter. Non-GAAP year-to-date measures are calculated by
summing the associated quarterly non-GAAP measures, without further tax
adjustments.
The
specific non-GAAP measures included herein are: adjusted gross profit, adjusted
gross margin, adjusted net income (loss), adjusted net margin, and adjusted
earnings per share (“EPS”). We calculate these measures as follows:
Adjusted Gross
Profit
Our
non-GAAP adjusted gross profit excludes the effects of equity-based compensation
expense recorded within cost of sales.
Adjusted Gross
Margin
Our
non-GAAP adjusted gross margin excludes the impact of equity-based compensation
expense recorded within cost of sales.
Adjusted
Net Income (Loss) and EPS
Our
non-GAAP adjusted net income (loss) and EPS exclude equity-based compensation;
severance; impairment of goodwill; facilities contractual commitments; tax
settlement expense; amortization of intangibles; gain on extinguishment of debt;
non-cash interest expense; tax settlement benefit; and related tax effects on
non-GAAP adjustments.
Adjusted Net
Margin
Our
non-GAAP adjusted net margin reflects our net margin excluding equity-based
compensation; severance; impairment of goodwill; facilities contractual
commitments; tax settlement expense; amortization of intangibles; gain on
extinguishment of debt; non-cash interest expense; tax settlement benefit; and
related tax effects on non-GAAP adjustments.
32
The
following table reflects certain GAAP results and the corresponding non-GAAP
financial measures for the three and six months ending March 28, 2009 and April
3, 2010:
Unaudited
|
Three months ended
|
Six months ended
|
||||||||||||||
March 28,
|
April 3,
|
March 28,
|
April 3,
|
|||||||||||||
(in thousands, except per share amounts)
|
2009*
|
2010
|
2009*
|
2010
|
||||||||||||
Gross
profit (GAAP
results)
|
$ | 8,045 | $ | 67,772 | $ | 21,973 | $ | 124,145 | ||||||||
-
Equity-based compensation expense
|
28 | 50 | (1 | ) | 96 | |||||||||||
Gross
profit (Non-GAAP
measures)
|
$ | 8,073 | $ | 67,822 | $ | 21,972 | $ | 124,241 | ||||||||
Income
(loss) from continuing operations (GAAP
results)
|
$ | (34,527 | ) | $ | 21,158 | $ | (54,115 | ) | $ | 36,998 | ||||||
-
Equity-based compensation expense
|
658 | 1,709 | (14 | ) | 2,813 | |||||||||||
-
Severance plan
|
3,969 | 406 | 6,555 | 605 | ||||||||||||
-Impairment
of goodwill
|
2,709 | 2,709 | ||||||||||||||
-
Facilities contractual commitments
|
- | - | 2,608 | - | ||||||||||||
-
Tax settlement expense
|
- | - | 2,212 | - | ||||||||||||
-
Amortization of intangibles
|
2,775 | 2,386 | 5,528 | 4,774 | ||||||||||||
-
Gain on extinguishment of debt
|
(2,786 | ) | - | (3,965 | ) | - | ||||||||||
-
Non cash interest expense
|
1,628 | 1,747 | 3,270 | 3,467 | ||||||||||||
-
Tax settlement benefit
|
- | - | (12,154 | ) | - | |||||||||||
-
Tax effect of non-GAAP adjustments
|
(71 | ) | (196 | ) | (157 | ) | (251 | ) | ||||||||
Income
(loss) from continuing operations (Non-GAAP
measures)
|
$ | (25,645 | ) | $ | 27,210 | $ | (47,523 | ) | $ | 48,406 | ||||||
Weighted
average shares outstanding (GAAP &
Non-GAAP)
|
||||||||||||||||
Basic
|
61,054 | 69,806 | 60,752 | 69,745 | ||||||||||||
Diluted
|
61,054 | 74,371 | 60,752 | 74,143 | ||||||||||||
Income
(loss) per share from continuing operations (GAAP
results)
|
||||||||||||||||
Basic
|
$ | (0.57 | ) | $ | 0.30 | $ | (0.89 | ) | $ | 0.52 | ||||||
Diluted
|
$ | (0.57 | ) | $ | 0.28 | $ | (0.89 | ) | $ | 0.50 | ||||||
Adjustments
to net income (loss) per share
|
||||||||||||||||
Basic
|
$ | 0.15 | $ | 0.09 | $ | 0.11 | $ | 0.17 | ||||||||
Diluted
|
$ | 0.15 | $ | 0.08 | $ | 0.11 | $ | 0.15 | ||||||||
Income
(loss) per share from continuing operations (Non-GAAP
measures)
|
||||||||||||||||
Basic
|
$ | (0.42 | ) | $ | 0.39 | $ | (0.78 | ) | $ | 0.69 | ||||||
Diluted
|
$ | (0.42 | ) | $ | 0.36 | $ | (0.78 | ) | $ | 0.65 |
* As
adjusted for ASC No. 470.20,
Debt, Debt With Conversion Options.
33
The
following table reflects our adjusted ROIC for the three months ended April 3,
2010:
Unaudited
|
Three months ended
|
|||||||
April 3, 2010
|
||||||||
(in
thousands)
|
||||||||
Income
from operations
|
$ | 23,322 | ||||||
Adjustment:
Depreciation and amortization (1)
|
4,409 | |||||||
Adjusted
income from operations
|
27,731 | |||||||
Adjusted
income from operations, annualized (2)
|
$ | 110,924 | ||||||
Cash,
cash equivalents, restricted cash and investments
|
$ | 184,297 | ||||||
Adjustment:
cash, cash equivalents, restricted cash and investments
(3)
|
(109,297 | ) | ||||||
Adjusted
cash, cash equivalents and investments
|
$ | 75,000 | ||||||
Total
assets excluding cash, cash equivalents, restricted cash and
investments
|
288,100 | |||||||
Adjusted
total assets
|
363,100 | |||||||
Total
current liabilities
|
$ | 139,933 | ||||||
Less:
current portion of long-term debt
|
(48,964 | ) | ||||||
Add:
taxes payable (4)
|
1,552 | |||||||
Adjusted
current liabilities
|
92,521 | |||||||
Adjusted
net invested capital
|
$ | 270,579 | ||||||
ROIC (2)
|
41.0 | % |
(1)
Depreciation and amortization are excluded from the ROIC
calculation.
(2) ROIC
calculated as adjusted income from operations, annualized through multiplying
the current quarter's income from operations by 4, then divided by adjusted net
invested capital. Adjusted income from operations does not, nor is it intended
to, forecast the Company's future income from operations.
(3) Management
estimates minimum cash requirement is $75.0 million.
(4)
Adjusted current liabilities includes tax liabilities classified as current in
prior periods but reclassed to long term liabilities as a result of our adoption
of ASC 740.10 during the first quarter of fiscal 2008.
RESULTS
OF OPERATIONS
Net Revenue
Approximately
96.2% and 98.9% of our net revenue for the three months ended March 28, 2009 and
April 3, 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. Likewise, approximately 93.4% and 98.2% of our
net revenue for the six months ended March 28, 2009 and April 3, 2010,
respectively, was for shipments to customer locations outside of the United
States.
The
following table reflects net revenue by business segment for the three and six
months ended March 28, 2009 and April 3, 2010:
Three months ended
|
Six months ended
|
|||||||||||||||||||||||||||||||
(dollar amounts
in thousands)
|
March 28,
2009
|
April 3,
2010
|
$ Change
|
% Change
|
March 28,
2009
|
April 3,
2010
|
$ Change
|
% Change
|
||||||||||||||||||||||||
Equipment
|
$ | 16,977 | $ | 136,353 | $ | 119,376 | 703.2 | % | $ | 40,636 | $ | 247,950 | $ | 207,314 | 510.2 | % | ||||||||||||||||
Expendable
Tools
|
8,255 | 17,485 | 9,230 | 111.8 | % | 22,012 | 34,303 | 12,291 | 55.8 | % | ||||||||||||||||||||||
$ | 25,232 | $ | 153,838 | $ | 128,606 | 509.7 | % | $ | 62,648 | $ | 282,253 | $ | 219,605 | 350.5 | % |
34
Equipment
The
following table reflects the components of Equipment net revenue change between
the three and six months ended March 28, 2009 and April 3, 2010:
March 28, 2009 vs. April 3, 2010
|
||||||||||||||||||||||||
Three months ended
|
Six months ended
|
|||||||||||||||||||||||
(in thousands)
|
Price
|
Volume
|
$ Change
|
Price
|
Volume
|
$ Change
|
||||||||||||||||||
Equipment
|
$ | 222 | $ | 119,154 | $ | 119,376 | $ | 217 | $ | 207,097 | $ | 207,314 |
For the
three months ended April 3, 2010, higher Equipment net revenue was due to a
2600.0% increase in volume for ball bonders, 257.1% increase in volume for wedge
bonders and 131.1% increase in volume for Support Services. The large volume
increases were due to the global downturn during the three months ended March
28, 2009 and a strong recovery for the three months ended April 3, 2010. The
ongoing higher semiconductor unit demand during the recovery increased capacity
utilization rates of our customers, which in turn increased demand for capital
equipment. In addition, customer investment in copper bonding capability has
increased as a significant proportion of our ball bonders are sold with copper
bonding capability. During the three months ended April 3, 2010, 63.8% of ball
bonders shipped were configured with copper kits. This is a significant increase
from the three months ended March 28, 2009 when only 5.3% of ball bonders
shipped were configured with copper kits.
For the
six months ended April 3, 2010, higher Equipment net revenue was due to a
2214.1% increase in volume for ball bonders, 120.9% increase in volume for wedge
bonders, 62.8% increase in volume for Support Services. The large volume
increase was due to the global downturn during the six months ended March 28,
2009 and a strong recovery for the six months ended April 3, 2010. The higher
semiconductor unit demand during the recovery increased capacity utilization
rates of our customers, which in turn increased demand for capital equipment. In
addition, customer investment in copper bonding capability has increased as a
significant proportion of our ball bonders are sold with copper bonding
capability. During the six months ended April 3, 2010, 56.6% of ball
bonders shipped were configured with copper kits, which is a significant
increase from the three months ended March 28, 2009 when very few ball bonders
shipped were configured with copper kits.
Expendable
Tools
The
following table reflects the components of Expendable Tools net revenue change
between the three and six months ended March 28, 2009 and April 3,
2010:
March
28, 2009 vs. April 3, 2010
|
||||||||||||||||||||||||
Three
months ended
|
Six
months ended
|
|||||||||||||||||||||||
(in
thousands)
|
Price
|
Volume
|
$
Change
|
Price
|
Volume
|
$
Change
|
||||||||||||||||||
Expendable
Tools
|
$ | (298 | ) | $ | 9,528 | $ | 9,230 | $ | (414 | ) | $ | 12,705 | $ | 12,291 |
Net
revenue for the three months ended April 3, 2010 was higher due to volume
increases in all our Expendable Tools businesses. Since Expendable Tools
products are consumables used for the connections of IC units, as overall
consumer demand for electronic equipment has increased, so has the demand for IC
units. As a result, volume has increased for our Expendable Tools. For our
non-wedge bonder tools, which consist primarily of capillaries and wedges,
volume increased 111.9%, while Blades volume increased 147.0%. Our wedge bonder
tools revenue also increased 112.3%.
Net
revenue for the six months ended April 3, 2010 was higher due to volume
increases in all our Expendable Tools businesses. Since Expendable Tools
products are consumables used for the connections of IC units, as overall
consumer demand for electronic equipment has increased, so has the demand for IC
units. As a result, volume has increased for our Expendable Tools. Our non-wedge
bonder tools volume increased 65.1%, while Blades volume increased 79.9%. Wedge
bonder tools revenue increased 36.4%.
35
Gross
Profit
The
following table reflects gross profit by business segment for the three and six
months ended March 28, 2009 and April 3, 2010:
Three months ended
|
Six months ended
|
|||||||||||||||||||||||||||||||
(dollar amounts in
thousands)
|
March 28, 2009
|
April 3, 2010
|
$ Change
|
% Change
|
March 28, 2009
|
April 3, 2010
|
$ Change
|
% Change
|
||||||||||||||||||||||||
Equipment
|
$ | 4,413 | $ | 56,887 | $ | 52,474 | 1189.1 | % | $ | 11,415 | $ | 103,339 | $ | 91,924 | 805.3 | % | ||||||||||||||||
Expendable
Tools
|
3,632 | 10,885 | 7,253 | 199.7 | % | 10,558 | 20,806 | 10,248 | 97.1 | % | ||||||||||||||||||||||
Total
|
$ | 8,045 | $ | 67,772 | $ | 59,727 | 742.4 | % | $ | 21,973 | $ | 124,145 | $ | 102,172 | 465.0 | % | ||||||||||||||||
Total
gross profit
|
31.9 | % | 44.1 | % | 35.1 | % | 44.0 | % |
The
following table reflects gross profit as a percentage of net revenue by business
segment for the three and six months ended March 28, 2009 and April 3,
2010.
Three months ended
|
Basis Point
|
Six months months ended
|
Basis Point
|
|||||||||||||||||||||
March 28, 2009
|
April 3, 2010
|
Change
|
March 29, 2009
|
April 3, 2010
|
Change
|
|||||||||||||||||||
Equipment
|
26.0 | % | 41.7 | % | 1,570.0 | 28.1 | % | 41.7 | % | 1,360.0 | ||||||||||||||
Expendable
Tools
|
44.0 | % | 62.3 | % | 1,830.0 | 48.0 | % | 60.7 | % | 1,270.0 | ||||||||||||||
Total
|
31.9 | % | 44.1 | % | 1,220.0 | 35.1 | % | 44.0 | % | 890.0 |
Equipment
The
following table reflects the components of Equipment gross profit change between
the three and six months ended March 28, 2009 and April 3, 2010:
March 28, 2009 vs. April 3, 2010
|
||||||||||||||||||||||||||||||||
Three months ended
|
Six months ended
|
|||||||||||||||||||||||||||||||
(in thousands)
|
Price
|
Cost
|
Volume
|
Change
|
Price
|
Cost
|
Volume
|
Change
|
||||||||||||||||||||||||
Equipment
|
$ | 222 | $ | 28 | $ | 52,224 | $ | 52,474 | $ | 217 | $ | (160 | ) | $ | 91,867 | $ | 91,924 |
For the
three months ended April 3, 2010, gross profit increased significantly due
to significant volume increases for ball bonders, wedge bonders and Support
Services. The volume increases were due to the global downturn during the three
months ended March 28, 2009 and a strong recovery for the three months ended
April 3, 2010. The ongoing higher semiconductor unit demand during the recovery
increased capacity utilization rates of our customers, which in turn increased
demand for capital equipment.
For the
six months ended April 3, 2010, gross profit increased significantly due to
volume increases for ball bonders, wedge bonders and Support Services. The
volume increases were due to the global downturn during the six months ended
March 28, 2009 and a strong recovery for the six months end April 3, 2010. The
higher semiconductor unit demand during the recovery increased capacity
utilization rates of our customers, which in turn increased demand for capital
equipment.
36
Expendable
Tools
The
following table reflects the components of Expendable Tools gross profit change
between the three and six months ended March 28, 2009 and April 3,
2010:
March
28, 2009 vs. April 3, 2010
|
||||||||||||||||||||||||||||||||
Three
months ended
|
Six
months ended
|
|||||||||||||||||||||||||||||||
(in
thousands)
|
Price
|
Cost
|
Volume
|
Change
|
Price
|
Cost
|
Volume
|
Change
|
||||||||||||||||||||||||
Expendable
Tools
|
$ | (298 | ) | $ | 3,659 | $ | 3,892 | $ | 7,253 | $ | (414 | ) | $ | 4,937 | $ | 5,725 | $ | 10,248 |
For the
three months ended April 3, 2010, gross profit increased due to higher volume as
well as lower costs. Since Expendable Tools products are consumables used for
the connections of IC units, as overall consumer demand for electronic equipment
increased, so has the demand for IC units. As a result, volume has increased for
our Expendable Tools segment. Non-wedge bonder tools volume increased 111.9%,
while Blades volume increased 147.0%. Our wedge bonder tools gross profit also
increased 112.3%. The increase in the gross profit was also due to lower cost
from better absorption of fixed manufacturing costs as our volumes were higher.
Consolidating our capillary tools manufacturing from Israel to China also
contributed to our cost reductions and resulted in improved gross
profit.
For the
six months ended April 3, 2010, gross profit increased due to higher volume and
lower costs. Since Expendable Tools products are consumables used for the
connections of IC units, as overall consumer demand for electronic equipment
increased, so has the demand for IC units. As a result, volume has increased for
our Expendable Tools segment. Tools volume increased 65.1%, while Blades volume
increased 79.9%. The increase in the gross profit was also due to lower cost
from better absorption of fixed manufacturing costs as our volumes were higher.
Consolidating our capillary 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 during the three and six months
ended March 28, 2009 and April 3, 2010:
Three months ended
|
Six months ended
|
|||||||||||||||||||||||||||||||
(dollar amounts in thousands)
|
March 28, 2009
|
April 3, 2010
|
$ Change
|
%
Change
|
March 28, 2009
|
April 3, 2010
|
$ Change
|
% Change
|
||||||||||||||||||||||||
Selling,
general and administrative
|
$ | 27,836 | $ | 30,470 | $ | 2,634 | 9.5 | % | $ | 57,688 | $ | 55,696 | $ | (1,992 | ) | -3.5 | % | |||||||||||||||
Research
and development
|
13,258 | 13,980 | 722 | 5.4 | % | 28,658 | 27,141 | (1,517 | ) | -5.3 | % | |||||||||||||||||||||
Impairment
of goodwill
|
2,709 | - | (2,709 | ) | -100.0 | % | 2,709 | - | (2,709 | ) | -100.0 | % | ||||||||||||||||||||
Total
|
$ | 43,803 | $ | 44,450 | $ | 647 | 1.5 | % | $ | 89,055 | $ | 82,837 | $ | (6,218 | ) | -7.0 | % |
37
The
following table reflects operating expenses as a percentage of net
revenue:
Three months ended
|
Six months ended
|
|||||||||||||||||||||||
March 28,
2009
|
April 3,
2010
|
Basis Point
Change
|
March 28,
2009
|
April 3,
2010
|
Basis Point
Change
|
|||||||||||||||||||
Selling,
general and administrative
|
110.3 | % | 19.8 | % | (9,050.0 | ) | 92.1 | % | 19.7 | % | (7,240.0 | ) | ||||||||||||
Research
and development
|
52.5 | % | 9.1 | % | (4,340.0 | ) | 45.7 | % | 9.6 | % | (3,610.0 | ) | ||||||||||||
Impairment
of goodwill
|
10.7 | % | 0.0 | % | (1,070.0 | ) | 4.3 | % | 0.0 | % | (430.0 | ) | ||||||||||||
Total
|
173.5 | % | 28.9 | % | (14,460.0 | ) | 142.1 | % | 29.3 | % | (11,280.0 | ) |
Selling,
general and administrative (“SG&A”)
SG&A
increased a net of $2.6 million for the three months ended April 3, 2010 as
compared to the same period last year primarily due to:
|
·
|
$4.0
million higher incentive compensation expense since no incentive
compensation had been paid in the prior year period due to our net
loss;
|
|
·
|
$1.8
million higher sales commission expense which correlates to our higher net
revenue during the current three month
period;
|
|
·
|
$1.0
million higher factory transition expense related to moving production to
Asia;
|
|
·
|
$0.9
million higher equity-based compensation expense mainly due to the higher
estimated percentage attainment for our performance-based restricted
stock; and
|
|
·
|
$0.7
million higher foreign currency transaction
losses.
|
These
increases in SG&A expense were partially offset by the
following:
·
|
$3.6
million of lower severance expense during the current fiscal
quarter;
|
·
|
$1.2
million one-time tax audit fee related to our former Test business during
the fiscal 2009 period, and;
|
·
|
$1.0
million lower depreciation and amortization
expense.
|
SG&A
decreased a net of $2.0 million during the six months ended April 3, 2010 as
compared to the same period a year ago primarily due to:
|
·
|
$5.8
million lower severance expense related to prior year headcount
reductions;
|
|
·
|
$2.6
million lower expense related to contractual commitments for former Test
facilities incurred in the prior year
period;
|
|
·
|
$2.6
million lower corporate expenses mainly due to headcount reductions and
prior year system implementations;
|
|
·
|
$2.2
million lower legal expense during the current year
period;
|
|
·
|
$1.3
million one-time tax audit fee related to our former Test business during
the prior year period;
|
|
·
|
$1.1
million lower depreciation and amortization expense,
and;
|
|
·
|
$0.9
million lower bad debt expense during the current fiscal
period.
|
These
decreases in SG&A were partially offset by:
|
·
|
$5.9
million higher incentive compensation expense since no incentive
compensation had been paid in the prior year period due to our net
loss;
|
|
·
|
$2.3
million higher sales commission expense which correlates to our higher net
revenue during the current fiscal
year;
|
|
·
|
$2.2
million higher equity-based compensation expense mainly due to the higher
estimated percentage attainment for our performance-based restricted
stock;
|
|
·
|
$1.9
million higher foreign currency transaction losses;
and
|
|
·
|
$2.0
million higher factory transition expense related to moving additional
production to Asia.
|
38
Research
and development (“R&D”)
R&D
expense increased $0.7 million for the three months ended April 3, 2010 mostly
due to higher spending related to our Israel technology center.
R&D
expense decreased a net of $1.5 million for the six months ended April 3, 2010
mostly due to:
|
·
|
$2.8
million in reductions related to our Equipment business with the prior
year release of our latest die bonder product platform, offset
by;
|
|
·
|
$0.8
million in higher R&D expense for Expendable Tools due to higher
spending related to our Israel technology center as we transfer capillary
production to China, and;
|
|
·
|
$0.5
million in higher equity-based compensation
expense.
|
Impairment
of Goodwill
Due to
the earlier than anticipated end of product life cycle for our EasyLine and
SwissLine die bonders, during the three months ended March 28, 2009, we recorded
a non-cash impairment charge of $2.7 million and reduced the value of the die
bonder goodwill to zero.
Income
(Loss) from Operations
The
following table reflects business segment income (loss) from operations for the
three months and six months ended March 28, 2009 and April 3, 2010:
Three
months ended
|
Six
months ended
|
|||||||||||||||||||||||||||||||
(dollar amounts in thousands)
|
March 28,
2009
|
% of net
revenue
|
April 3, 2010
|
% of net
revenue
|
March 28,
2009
|
% of net
revenue
|
April 3, 2010
|
% of net
revenue
|
||||||||||||||||||||||||
Equipment
|
$ | (33,277 | ) | -196.0 | % | $ | 20,194 | 14.8 | % | $ | (65,008 | ) | -160.0 | % | $ | 35,041 | 14.2 | % | ||||||||||||||
Expendable
Tools
|
(2,481 | ) | -30.1 | % | 3,128 | 17.9 | % | (2,074 | ) | -9.4 | % | 6,267 | 18.3 | % | ||||||||||||||||||
Total
|
$ | (35,758 | ) | -141.7 | % | $ | 23,322 | 15.2 | % | $ | (67,082 | ) | 107.1 | % | $ | 41,308 | 14.6 | % |
Equipment
Higher
Equipment segment income from operations for both the three and six months ended
April 3, 2010 was due to higher gross profit for the fiscal 2010 periods.
The large Equipment volume increases were due to the global downturn during the
six months ended March 28, 2009 and a strong recovery for the six months ended
April 3, 2010. The ongoing higher semiconductor unit demand during the recovery
continues to drive capacity utilization rates of our customers, which in turn
increased demand for capital equipment. In addition, customer investment in
copper bonding capability has increased as a significant proportion of our ball
bonders are sold with copper bonding capability.
Expendable
Tools
Our
higher Expendable Tools segment income from operations for both the three and
six months ended April 3, 2010 was due to higher gross profit for the fiscal
2010 periods. The large volume increases were due to the global downturn during
the six months ended March 28, 2009 and a strong recovery for the six months
ended April 3, 2010. The decrease in cost, and resultant improved gross profit,
was primarily due to higher volume absorbing fixed manufacturing costs.
Consolidating most of our capillary tools manufacturing from Israel to China
also contributed to our cost reductions and resulted in improved gross
profit.
39
Interest
Income and Expense
The
following table reflects interest income and interest expense for the three and
six months ended March 29, 2009 and April 3,
2010:
Three months ended
|
Six months ended
|
|||||||||||||||||||||||||||||||
(dollar amounts in thousands)
|
March 28,
2009 *
|
April 3,
2010
|
$
Change
|
%
Change
|
March 28,
2009 *
|
April 3,
2010
|
$ Change
|
%
Change
|
||||||||||||||||||||||||
Interest
income
|
$ | 193 | $ | 89 | $ | (104 | ) | -53.9 | % | $ | 947 | $ | 186 | $ | (761 | ) | -80.4 | % | ||||||||||||||
Interest
expense
|
(402 | ) | (359 | ) | 43 | -10.7 | % | (843 | ) | (730 | ) | 113 | -13.4 | % | ||||||||||||||||||
Interest
expense: non-cash
|
(1,622 | ) | (1,746 | ) | (124 | ) | 7.6 | % | (3,260 | ) | (3,458 | ) | (198 | ) | 6.1 | % |
* 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 and six months ended March 28, 2009:
Three Months Ended
|
Six Months Ended
|
|||||||
(in thousands)
|
March 28, 2009
|
March 28, 2009
|
||||||
0.5%
Convertible Subordinated Notes (1):
|
||||||||
Face
value purchased
|
$ | - | $ | 43,050 | ||||
Net
cash
|
- | 42,839 | ||||||
Deferred
financing costs
|
- | 18 | ||||||
Recognized
gain, net of deferred financing costs
|
- | 193 | ||||||
1.0%
Convertible Subordinated Notes: (2)
|
||||||||
Face
value purchased
|
$ | 13,036 | $ | 16,036 | ||||
Net
cash
|
10,168 | 12,158 | ||||||
Deferred
financing costs
|
82 | 106 | ||||||
Recognized
gain, net of deferred financing costs
|
2,786 | 3,772 | ||||||
Gain
on early extinguishment of debt
|
$ | 2,786 | $ | 3,965 |
(1)
Repurchase transactions occurred prior to redemption on November 30,
2008.
(2)
Activity during the three and six months ended March 28, 2009 reflects
repurchases pursuant to a tender offer.
40
Provision
(Benefit) for Income Taxes
The
following table reflects the provision (benefit) for income taxes and the
effective tax rate from continuing operations for the six months ended March 29,
2009 and April 3, 2010:
Six months ended
|
||||||||
(in thousands)
|
March 28, 2009 *
|
April 3, 2010
|
||||||
Income
(loss) from continuing operations before taxes
|
$ | (66,273 | ) | $ | 37,306 | |||
Provision
(benefit) for income taxes
|
(12,158 | ) | 308 | |||||
Income
(loss) from continuing operations
|
$ | (54,115 | ) | $ | 36,998 | |||
Effective
tax rate
|
18.3 | % | 0.8 | % |
* As
adjusted for ASC No. 470.20,
Debt, Debt With Conversion Options.
For the
six months ended April 3, 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
six months ended March 28, 2009, the effective income tax rate related to
continuing operations differed from the federal statutory rate primarily due to:
increases in the valuation allowance, state income taxes, tax from foreign
operations, impact of tax holidays, decreases in deferred taxes for un-remitted
earnings, and decreases in tax reserves.
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. 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 assessment. 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 U.S.
Internal Revenue Service (“IRS”) audited us for the period ended September 30,
2006. We responded to various information requests from the IRS and the audit
was closed with no significant adjustments.
41
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 six months ended March
28, 2009. We did not recognize any income or loss from discontinued operations
for the three months ended March 28, 2009 or the three and six months ended
April 3, 2010.
The
following table reflects operating results of our Wire business discontinued
operations for the six months ended March 28, 2009:
Six months ended
|
||||
(in thousands)
|
March 28, 2009
|
|||
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 April 3, 2010:
As of
|
||||||||||||
(dollar amounts in thousands)
|
October 3, 2009
|
April 3, 2010
|
$ Change
|
|||||||||
Cash
and cash equivalents
|
$ | 144,560 | $ | 184,081 | $ | 39,521 | ||||||
Restricted
cash (1)
|
281 | 216 | (65 | ) | ||||||||
Total
cash and cash equivalents
|
$ | 144,841 | $ | 184,297 | $ | 39,456 | ||||||
Percentage
of total assets
|
35.1 | % | 39.0 | % |
(1) Relates
to foreign customs’ requirements.
42
The
following table reflects summary Consolidated Statement of Cash Flow information
for the six months ended March 28, 2009 and April 3, 2010:
|
Six months ended
|
|||||||
(in thousands)
|
March 28, 2009
|
April 3, 2010
|
||||||
|
||||||||
Cash
flows provided by (used in):
|
||||||||
|
||||||||
Operating
activities, continuing operations
|
$ | (29,833 | ) | $ | 40,319 | |||
Operating
activities, discontinued operations
|
(1,218 | ) | (906 | ) | ||||
Operating
activities
|
(31,051 | ) | 39,413 | |||||
|
||||||||
Investing
activities, continuing operations
|
(51,889 | ) | 1,917 | |||||
Investing
activities, discontinued operations
|
149,857 | (1,838 | ) | |||||
Investing
activities
|
97,968 | 79 | ||||||
|
||||||||
Financing
activities
|
(84,355 | ) | 183 | |||||
|
||||||||
Effect
of exchange rate on cash and cash equivalents
|
113 | (154 | ) | |||||
|
||||||||
Changes
in cash and cash equivalents
|
(17,325 | ) | 39,521 | |||||
Cash
and cash equivalents, beginning of period
|
144,932 | 144,560 | ||||||
Cash
and cash equivalents, end of period
|
127,607 | 184,081 | ||||||
Restricted
cash and short-term investments
|
2,635 | 216 | ||||||
Total
cash and investments
|
$ | 130,242 | $ | 184,297 |
Six
months ended April 3, 2010
Continuing
Operations
Net cash
provided by operating activities was primarily the result of $37.0 million net
income from continuing operations plus $15.9 million of non-cash adjustments.
Offsetting cash provided by net income were working capital changes of $12.6
million primarily driven by net increases in inventory and accounts receivable
and decreases in accounts payable.
Net cash
provided by investing activities was primarily the result of the sale of our
building in Israel for $4.0 million partially offset by capital expenditures
which totaled $2.1 million.
Net cash
provided by financing activities of $0.2 million represented proceeds from the
exercise of common stock options.
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.
Six
months ended March 28, 2009
Continuing
Operations
Net cash
used in operating activities was primarily attributable to our net loss from
continuing operations of $54.1 million partially offset by non-cash adjustments
of $13.5 million and net cash inflows from operating assets and liabilities of
$10.8 million. The non-cash adjustment was primarily due to depreciation of
$10.8 million. The net inflow of cash from operating assets and liabilities of
$10.8 million was primarily due to $46.6 million decrease in accounts
receivable, $6.7 million decrease in prepaid expenses and other current assets,
partially offset by decreases in accounts payable and accrued expenses of $20.7
million, and a decrease in income taxes payable of $20.8 million. The accounts
receivable change of $10.8 million was due to the fiscal 2009 inclusion of
Orthodyne. Remaining changes in operating assets and liabilities were primarily
due to the impact of lower sales volumes. The change in income taxes payable was
due to the settlement of our tax audit in Israel.
43
Net cash
used in investing activities was primarily due to the purchase of Orthodyne for
$87.0 million partially offset by the net reduction in restricted cash of $34.7
million that was used to support gold financing for our former Wire business.
Net proceeds from the sale of investments were $3.8 million and cash used for
capital expenditures totaled $3.3 million.
Net cash
used in financing activities included $84.4 million for the repurchase of 0.5%
and 1.0% Convertible Subordinated Notes and payment upon maturity of the
remaining 0.5% Convertible Subordinated Notes.
Discontinued
Operations
Net cash
used in operating activities of discontinued operations of $1.2 million was a
result of facility payments for our former Test business and costs for the
shutdown of our Wire business.
Net cash
provided by investing activities of discontinued operations of $149.9 million
was a result of $155.0 million paid to us by Heraeus for our Wire business less
related transaction costs.
Fiscal
2010 Liquidity and Capital Resource Outlook
We expect
our remaining fiscal 2010 capital expenditures to be approximately $6.0 million.
Expenditures are expected to be primarily used for the expansion of our
manufacturing 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).
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. As of April 3, 2010, our total cash and cash
equivalents exceeded our total debt. 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. While
we have seen a steady recovery in the economy, we 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 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 to fund future growth opportunities. The timing and amount of
potential capital requirements cannot be determined at this time and would
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.
44
Convertible
Subordinated Notes
The
following table reflects our debt, consisting of Convertible Subordinated Notes,
as of April 3, 2010:
Type
|
Maturity Date
|
Par Value
|
Fair Value as of April
3, 2010 (1)
|
Standard & Poor's
rating (2)
|
|||||||
(dollar
amounts in thousands)
|
|||||||||||
1.000
% Convertible Subordinated Notes
|
June
30, 2010
|
$ | 48,964 | $ | 48,964 |
Not
rated
|
|||||
0.875
% Convertible Subordinated Notes
|
June
1, 2012
|
$ | 110,000 | $ | 102,300 |
Not
rated
|
|||||
Debt
discount on 0.875% Convertible Subordinated Notes due June 2012
*
|
$ | (14,713 | ) | n/a |
* 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 April 3, 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.
45
The
following table identifies obligations and contingent payments under various
arrangements as of April 3, 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)
|
3,861 | 1,819 | 2,042 | |||||||||||||||||||||
Switzerland
pension plan obligation
|
1,424 | $ | 1,424 | |||||||||||||||||||||
Long-term
income taxes payable
|
1,553 | 1,553 | ||||||||||||||||||||||
Operating
lease retirement obligations
|
1,926 | 30 | 684 | $ | 559 | $ | 653 | |||||||||||||||||
Post-employment
foreign severance obligations
|
1,662 | 1,662 | ||||||||||||||||||||||
Total
Obligations and Contingent Payments reflected on the Consolidated
Financial Statements
|
$ | 169,390 | $ | 50,813 | $ | 112,726 | $ | 559 | $ | 653 | $ | 4,639 | ||||||||||||
Contractual
Obligations:
|
||||||||||||||||||||||||
Inventory
purchase obligations (2)
|
$ | 161,873 | $ | 161,873 | ||||||||||||||||||||
Operating
lease obligations (3)
|
35,084 | 9,420 | $ | 12,046 | $ | 6,069 | $ | 7,549 | ||||||||||||||||
Cash
paid for interest
|
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
|
$ | 199,803 | $ | 172,695 | $ | 13,490 | $ | 6,069 | $ | 7,549 | $ | - |
(1) Does
not reflect debt discount of $14.7 million related to our 0.875%
Notes.
(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. The significant increase in inventory purchase
obligations is attributable to anticipated higher sales.
(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.
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 to fund future growth opportunities. The timing and amount of
potential capital requirements cannot be determined at this time and would
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.
46
Item 3.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
|
Interest
Rate Risk
As of
April 3, 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 April 3, 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 April 3, 2010. Based on that evaluation, the Chief Executive
Officer and Chief Financial Officer concluded that, as of April 3, 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.
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 six months ended April 3, 2010 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
47
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
|
|
31.1
|
Certification
of C. Scott Kulicke, Chief Executive Officer of Kulicke and Soffa
Industries, Inc., pursuant to Rule 13a-14(a) or
Rule15d-14(a).
|
|
31.2
|
Certification
of Michael J. Morris, 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 Michael J. Morris, 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.
|
48
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:
May 6, 2010
|
By: /s/ MICHAEL J.
MORRIS
|
Michael
J. Morris
|
|
Vice
President and Chief Financial Officer
|
|
(Chief
Financial Officer)
|
49