UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number 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 or organization) | (IRS Employer Identification No.) |
| ||
1005 Virginia Drive, Fort Washington, Pennsylvania | 19034 | |
(Address of principal executive offices) | (Zip Code) |
(Registrants telephone number,
including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
None
None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, WITHOUT PAR VALUE
(Title of each class)Each Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes Act.Yes¨o Nox
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes Act.Yes¨o Nox
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 days.Yesx No¨o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yeso Noo
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. xo
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 Filerx | Non-Accelerated Filer | ||||||||
Smaller Reporting Companyo | ||||||||||
(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 .Yes¨o Nox
As of March 29, 2008,28, 2009, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately $247,631,429$154,570,908 based on the closing sale price as reported on The NASDAQ Global Market (Reference is made to Part II, Item 5 herein for a statement of assumptions upon which this calculation is based).
As of December 5, 200810, 2009 there were 60,881,34369,724,817 shares of the registrant’s common stock, without par value, outstanding.
Documents Incorporated by Reference
Portions of the registrant’s Proxy Statement for the 20092010 Annual Meeting of Shareholders to be filed on or about December 31, 20082009 are incorporated by reference into Part II, Item 5 and Part III, Items 10, 11, 12, 13 and 14 herein of this Report. Such Proxy Statement, except for the parts therein which have been specifically incorporated by reference, shall not be deemed “filed” for the purposes of this Report on Form 10-K.
KULICKE AND SOFFA INDUSTRIES, INC.
2008
2009 Annual Report on Form 10-K
Table of Contents
Page | ||||||
Part I | ||||||
Item 1. Business | 1 | |||||
Item Risks Related to Our Business and Industry | ||||||
Item Properties | ||||||
Item Legal Proceedings | ||||||
| ||||||
Item 4. | Submission of Matters to a Vote of Security Holders | |||||
| 21 | |||||
Part II | ||||||
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | ||||||
| 22 | |||||
Item 6. Selected Consolidated Financial Data | ||||||
| 23 | |||||
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | ||||||
| 25 | |||||
Item 7A. Quantitative and Qualitative Disclosures about Market Risk | ||||||
| 48 | |||||
Item 8. Financial Statements and Supplementary Data | ||||||
| 49 | |||||
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | ||||||
| 88 | |||||
Item 9A. Controls and Procedures | ||||||
| ||||||
Item Other Information | 89 | |||||
Part III | ||||||
Item 10. Directors, Executive Officers and Corporate Governance | ||||||
| ||||||
Item Executive Compensation | 89 | |||||
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | ||||||
| 90 | |||||
Item 13. Certain Relationships and Related Transactions and Director Independence | ||||||
| 90 | |||||
Item 14. Principal Accounting Fees and Services | ||||||
| 90 | |||||
Part IV | ||||||
Item 15. Exhibits and Financial Statement Schedules | 91 | |||||
Signatures |
i
Forward-Looking Statements
In addition to historical information, this filing contains statements relating to future events or our future results. These statements are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and are subject to the safe harbor provisions created by statute. Such forward-looking statements include, but are not limited to, statements that relate to our future revenue, product development, demand forecasts, competitiveness, operating expenses, cash flows, profitability, gross margins, and benefits expected as a result of (among other factors):
• | projected growth rates in the overall semiconductor industry, the semiconductor assembly equipment market, and the market for semiconductor packaging materials; and |
• | projected demand for ball, wedge and die bonder |
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” within our 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.
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 predictionpredictions of actual results.
Unless otherwise indicated, amounts provided throughout this Form 10-K relate to continuing operations only and accordingly do not include amounts attributable to our Wire business.business, which we sold on September 29, 2008. In fiscal 2009, our Packaging Materials segment was renamed Expendable Tools.
Kulicke and& Soffa Industries, Inc. (“K(the “Company” or “K&S”) designs, manufactures and marketssells capital equipment and packaging materials as well as services, maintains, repairs and upgrades equipment, allexpendable tools used to assemble semiconductor devices.devices, including integrated circuits, high and low powered discrete devices, LEDs, and power modules. We also service, maintain, repair and upgrade our equipment. Our customers primarily consist of Integrated Device Manufacturers (“IDM”)semiconductor device manufacturers, their subcontract assembly suppliers, other electronics manufacturers and subcontractor assembly facilities. According to VLSI Research, Inc., we are currently the world’s leading supplier of semiconductor wire bonding assembly equipment.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 main business segments which are:
equipment; and
packaging materials.
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 certain manufacturing to Asia, moving a portion of 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 efficiencies while maintainingsavings without compromising overall product quality.quality and service levels.
Subsequent to year end, onOn September 29, 2008, we completed the sale of our Wire business for $155.0net proceeds of $149.9 million (subject to working capital adjustment) to W.C. Heraeus GmbH (“Heraeus”), a precious metals and technology company based in Hanau, Germany.. The working capital requirements of our Wire business had become significant in recent years and we believe could no longer be justified. As a result of the salefinancial results of the Wire business we improved our working capital position. Our Wire business hadhave been previously reported within our Packaging Materials segment, but is now reported asincluded in discontinued operations. We expect the gain on the sale of our Wire business to be approximately $22.1 million to $25.1 million and will be recognizedoperations in the first quarter of fiscal 2009.consolidated financial statements for all periods presented.
Subsequent to year end, onOn October 3, 2008, we completed the acquisition of substantially all of the assets and assumption of certain liabilities of Orthodyne Electronics Corporation (“Orthodyne”), a privately held company based in Irvine, California. Orthodyne is the leading supplier of both wedge bonders and wedges (the consumable product used in wedge bonding) for the power management and hybrid module markets.. In connection with the Orthodyne acquisition, we issued 7.1 million common shares with an estimated value on that date of $46.2 million and paid $82.5$87.0 million in cash including working capital. A totalcapitalized acquisition costs. Orthodyne is the leading supplier of 15% ofboth heavy wire wedge bonders and heavy wire wedges (the expendable tools used in wedge bonding) for the purchase price was deposited into a third-party escrow account as partial security for Orthodyne’s indemnification obligations under the asset purchase agreement. In addition we agreed to pay up to an additional $40.0 million in cash, if certain significant objectives related to gross profit are met by the Orthodyne business over the next three years.
We believe the Orthodyne acquisition will benefit us strategically by providing deeper penetration into the discrete side of thepower semiconductor market, and in the attractive power management and hybrid module markets. We expect wedge bonding will benefit from increased focus on energy efficient solutions in the years ahead, and that Orthodyne’s market leading position in this area will allow us to address a larger Total Available Market (“TAM”). We now offer a broad suite of interconnect technologies for a variety of semiconductor packaging applications, and we believe the acquisition of Orthodyne will enhance our position as the leading supplier of interconnect solutions. We believe that on a combined basis, the sale of our Wire business and the purchase of Orthodyne will provide us with both the financial resources and technical focus necessary to pursue growth opportunities in other areas of our business.
K&S was incorporated in Pennsylvania in 1956. Our principal offices are located at 1005 Virginia Drive, Fort Washington, Pennsylvania 19034 and our telephone number is (215) 784-6000. We maintain a website with the address www.kns.com.www.kns.com. We are not including the information contained on our website as a part of, or incorporating it by reference into, this filing. We make available free of charge (other than an investor’s own Internet access charges) on or through our website our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to these reports, as soon as reasonably practicable after the material is electronically filed with or otherwise furnished to the Securities and Exchange Commission (“SEC”). Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports are also available on the SEC website atwww.sec.gov.
Our fiscal year end for fiscal 2006, 2007, 2008 and 20082009 was September 30, 2006, September 29, 2007, and September 27, 2008, and October 3, 2009, respectively.
Business Environment
Global economic conditionsThe 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 semiconductor capital equipmentelectronic devices, as well as other products that have significant electronic content such as automobiles, white goods, and packaging systems. Accordingly, our businesstelecommunication equipment.
Our Equipment segment reflects the industry’s cyclical dynamics and is therefore also highly volatile. The financial performance of this segment is impacted,affected, both positively and negatively, by fluctuations in the macroeconomic environment. Conditions in the global economy deteriorated dramatically near the end of our fiscal year and in subsequent weeks. Current industry forecasts for calendar 2009 point to significant weakening in consumer and business electronics spending. We expect demand to remain weak and visibility to be poor through at least the second quarter of fiscal 2009.
Our equipment business is cyclical and highly dependent on semiconductor manufacturers’ expectationexpectations of capacity requirements and their plans for future integrated circuit (“IC”) demand, as well asupgrading their demand for new semiconductor manufacturing technologies. During the first quarterproduction capabilities. Volatility of fiscal 2009, our bookings slowed as customers respond to the weakening economic conditions.
Our Equipmentthis segment sales have historically been highly volatile due to the semiconductor industry’s cyclical need for new capability and capacity. Volatility is further influenced by the relative mix of IDM and subcontractorsubcontract customers in any period, since subcontractors tend to purchase larger volumes in less predictable patterns. Variancechanges in the mix of sales to IDMs and subcontractors can also affect our products’ average selling priceprices due to differences in volume purchases and different machine configurations required by each type of customer.
Packaging Materials unit sales tend to beOur 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 sales as these products represent consumable purchasesand expendable tools. In the first half of fiscal 2009, conditions in the global economy deteriorated dramatically, leading to a sharp contraction in consumer and business electronics spending, which in turn reduced demand throughout the semiconductor supply chain. Business conditions began to improve near the end of our second fiscal quarter and continued to improve through the remainder of fiscal 2009. Customer orders have remained strong during the first quarter of fiscal 2010. However, our visibility into future demand is generally limited, and forecasting is difficult. There can be no assurances regarding levels of demand for our customersproducts, and volumes follow the trendwe believe historic industry-wide volatility will persist.
To mitigate possible negative effects of total semiconductor interconnect unit production.
We continually seek ways to maintain the strength ofthis industry-wide volatility on our financial position, we are de-leveraging and have strengthened our balance sheet. Fiscal 2008During fiscal 2009, we reduced our debt by $88.4 million to $159.0 million. We also completed a public equity offering of 8.0 million common shares which raised $38.7 million of net proceeds. We ended fiscal 2009 with cash and investments of $186.1 million reflectcash equivalents totaling $144.8 million. We believe a $16.2 million increase from fiscal 2007. Additionally, the impact of the Wire business divestiture and the Orthodyne acquisition, both of which closed after the year-end, was to add approximately $70.0 million in cash to our Consolidated Balance Sheet. The strongerstrong cash position allows us to manage volatile buying patternscontinue making longer term investments in product development and in cost reduction activities throughout the semiconductor cycle.
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 control 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 customersvarious wire bonder and continue toexpendable tools products.
To maintain our competitive advantage, we invest in researchproduct development activities to produce a stream of improvements to existing products and development through downturnsto deliver next-generation products. These investments often focus as much on improvements in the global economy and our industry.
Macroeconomic Factors: Foreign Currency
We are exposed to fluctuations in foreign currency exchange rates. Certain of our assets and liabilities are denominated in foreign currencies and are affected by changes in exchange rates for those currencies which impact our business. For fiscal year 2008, our foreign exchange transaction loss was $1.8 million compared to $0.1 million for fiscal 2007. The higher foreign exchange loss was due to the unfavorable exchange rates primarily driven by the Swiss Franc and Israeli Shekel. During fiscal 2008, we restructured our Swiss entity, which reduced our exposure to US Dollar/Swiss Franc fluctuations. To mitigate our market risk, we periodically adjust our subsidiaries’ holdings of foreign currency denominated working capital, and we may enter into foreign exchange forward contracts or other hedging instruments.
Technology Leadership
In March 2008, we launched a new generation of semiconductor assembly equipment—the Power Series which currently features the IConnPSprocess 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 ConnXPS ball bonders. The Power Series is setting new standards for performance, productivity, upgradeability, and ease of use. Sales of the IConnPS machines began during the quarter ended June 28, 2008, and sales of the ConnXPS began in our first quarter of fiscal 2009. Initial customer response has been positive, and performance for these machines has met or exceeded our expectations. The improvement in productivity and reliability represented by the Power Series translates into lower cost of ownership for our customers, and we believe will give us competitive advantage going forward.other industry members. In 2008, the IConnPSmachine won the Advanced Packaging magazine award for top new product in its class, the second time in three years a K&S product received this recognition.
We are currently in the later development stages of the next addition to the Power Series—producing technical advances, these collaborative development efforts strengthen customer relationships and enhance our next generation die bonder machine, code named “Discovery”. Discovery will allow us to compete aggressively in the growing advanced packaging/stacked die market space. Alpha evaluationsreputation as a technology leader and solutions provider.
The rise of Discovery have been underway with a select customer since July 2008, and the initial customer feedback has been very positive. We anticipate launching this machine in the second quarter of fiscal 2009.
Coppercopper wire bonding continues to gain market interesttechnology 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 asprocess. Working with customers seek ways to reduce the costand suppliers of equipment used upstream and downstream of the wire bonding process.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 significant portion of the industry’s installed base is not suitable for copper is a viable alternativebonding. Through our research and development efforts, we are well positioned with both leading products and the process expertise to gold,capitalize on this potential replacement cycle.
We also maintain the technology leadership of our equipment by optimizing our products to serve high growth niches. For example, over the last two years we have developed extensions of our main ball bonding platforms to address opportunities in LED assembly. Industry analysts have estimated the annual growth rate for total shipments of LED devices to be approximately 15% annually through 2013, driven by the adoption of LED backlights for flat-screen displays as well as other LED applications in general lighting. In fiscal 2009, we launched two products optimized for these applications. These products represent our first product offerings specifically aimed at this high growth market, and a copper solution spanning all manufacturing materials and processes, not just those involved in wire bonding, will leadsince their introduction we have captured significant market share.
Our focus on technology leadership also extends to greater customer adoption. Accordingly,die bonding. In fiscal 2009, we launched a copper wirenew die bonding initiative with the goal of working withplatform, our customers and partners to find an integrated solution from the front-end through the back-endstate of the IC manufacturing process. Currently, copper represents a small but promising wire bonding technology thatartiStackPSTM die bonder for advanced stacked die applications.iStack offers best-in-class throughput and accuracy, and we believe will extend wire bonding’s position as the dominant interconnect platform.product is positioned to lead the market for its targeted applications.
ThroughWe bring the acquisition of Orthodyne, we now are the leaders in thesame technology focus to our expendable tools business driving tool design and manufacturemanufacturing technology to optimize the performance and process capability of wedge bondersthe 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 the power semiconductor, automotive power module, and sensor markets. Wedge bonders use wire or ribbon to attach high-current capacity aluminum wire to power semiconductors in discrete power devices or in modules, such as inverters for hybrid cars. Wedge bonds also attach large-diameter wire to semiconductors when packaging or reliability constraints do not allow the use of ball bonds.our technology leadership position.
Products and Services
We offersupply a range of bonding equipment and packaging materials.expendable tools. The following table reflects net revenue by business segment for fiscal 2006, 2007, 2008 and 2008:2009:
Fiscal | Fiscal | ||||||||||||||||||||
(in thousands) | 2006 | 2007 | 2008 | ||||||||||||||||||
(in thousands) | 2007 | 2008 | 2009 | ||||||||||||||||||
Equipment | $ | 319,788 | $ | 316,718 | $ | 271,019 | $ | 316,718 | $ | 271,019 | $ | 170,536 | |||||||||
Packaging Materials | 60,508 | 53,808 | 57,031 | ||||||||||||||||||
Expendable Tools | 53,808 | 57,031 | 54,704 | ||||||||||||||||||
Total | $ | 380,296 | $ | 370,526 | $ | 328,050 | $ | 370,526 | $ | 328,050 | $ | 225,240 | |||||||||
See Note 13 to our Consolidated Financial Statements included in Item 8 of this report for our financial results by business segment.
We aremanufacture and sell a global leader in the designline of ball bonders, heavy wire wedge bonders and manufacture of semiconductor assembly equipment. In recent years, we have expanded our product offerings beyond our core ball bonding products to include die bonders that are sold to semiconductor device manufacturers, their subcontract assembly suppliers, other electronics manufacturers and wedge bonders.automotive electronics suppliers. Ball bonders are used to connect very fine wires, typically made of gold aluminum 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 packagesubstrate 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.
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 | Horizontal 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 |
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. Launched in 2008, the Power Series initially consisted of theIConnPS high-performance andConnXPSTM cost-performance ball bonders.
In particular,fiscal 2009, we launched two extensions of ourConnX automatic ball bonder aimed specifically at LED applications — ConnX-LEDPSTM and ConnX-VLEDPSTM.Traditionally, we had not targeted the LED market with our product portfolio but through the technology leadership ofConnXPSTM 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 that are needed in the assembly of advanced semiconductor packages. Our principal products are:
IC Ball Bonders
Automatic IC ball bonders representcan also be converted for use to copper applications through kits we sell separately, a significant portioncapability that is increasingly important as bonding with copper continues to grow as an alternative to gold.
Through the acquisition of ourOrthodyne, we are now the leaders in the design and manufacture of heavy wire wedge bonders for the power semiconductor equipment business. As partand 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 our competitive strategy, we seek to continually improve our models and periodically introduce new or improved models of our IC ball bonders. Each new or improved model is designed to increase both productivity and process capability compared to the predecessor model.bonds.
|
|
|
|
IC Die Bonders
We utilize the same competitive strategy for our IC die bonders as we use for our ball bonder business, including developing new models which both improve the productivity of the die bonders and increase the size of the market for our products.
Wedge Bonders
Beginning in fiscal 2009, we offer through the Orthodyne acquisition, a broadOur portfolio of wedge bonding products.
products includes:
The 3600plus and 7200plus3600 Plus wedge bonders: high speed, high accuracy wire bonders are currently the leading choicesdesigned for power interconnects in both themodules, automotive packages and other large wire multi-chip module applications.
We will launch the latest 7600 series wedge bonderbonder: first introduced in March of 2009, the first half of calendar 2009. This product7600 is targeted primarily at the market for small power packages and will also extend our product portfolio to include reel-to-reel type applications.
We have also developed an advanced process for bonding power packages that utilizes ribbon rather than a round wire. Sold under the trade name PowerRibbon®, the process offers performance advantages over traditional round wire and is gaining acceptance in the market for power packages and automotive high current applications. This process is available on new wedge bonders or as a retrofit kit for some existing wedge bonders. We expect that our ribbon bonding capability will open new packaging opportunities for our customers.
|
|
We entered the die bonder market through the fiscal 2007 acquisition of Alphasem. Our die bonder strategy included continuing to sell the existing Alphasem products while developing a family of next-generation die bonders. The first of those new machines, thePackaging MaterialsiStack, was launched in March of 2009. We are currently puttingiStack qualification machines in customers’ factories, and expect first purchase orders in the March 2010 fiscal quarter.
iStack is targeted at stacked die and high end BGA applications. In these applications, we expect up to 30% to 50% productivity increases compared to current generation machines. In addition,iStack has demonstrated superior accuracy and process control. We believeiStack represents a significant opportunity for us to expand our die bonder business.
During fiscal 2009 we announced the end of life of our older Alphasem die bonder products.
We also sell other equipment products, including manual wire bonders and stud bump bonders.
We marketalso offer spare parts, equipment repair, training services, and upgrades for our equipment through our Support Services business unit.
We manufacture and sell a rangevariety of expendable tools for the semiconductor packaging and assembly market. Our packaging materials are designed for use on both our own and our competitors’ assembly equipment. Ball and wedge bonders use a capillary or wedge tool much like a sewing machine uses a needle.
Our expendable tools include a wide variety of capillaries, wedges tools, clamp tooling, cutter blades, wire guides, and wafer saw blades. These tools are developed for a broad range of semiconductor packaging applications such as:
applications. Our principal Expendable Tools segment products include:
Capillaries and wedge tools- attach the wire to the semiconductor chip, guide the wire during loop formation, attach the wire to the package substrate and cut the wire allowing the bonding process to be repeated.
Clamp tooling - holds the lead frame securelyCapillaries: expendable tools used in place during the bonding process and are typically custom-designed to meet individual customer needs.
Cutter blades- cutball bonders. Made of ceramic, a large-diameter of wire in wedge bonding applications.
Wirecapillary guides – precisely guide the wire during the loop formation.
Wafer saw blades -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.
In addition to the expandable tools discussed above, beginning in fiscal 2009 through the acquisition of Orthodyne, we will offer expendable wedge tools, clamp tooling, cutter bladesdie and wire guides used for wedge and ribbon bonders. The wedge tools are used to attach the wire to the die or lead frame, while a precision wire guide is used to guide the wire during the loop formation. For wedge bonding with large-diameter wire, a cutter blade is used to cut the wire after the bonding process is complete and allow the process to be repeated. Clamp tooling products are used to securely hold the lead framesemiconductor devices that have been molded in place during the bonding process, and are typically custom-designed to meeta matrix configuration into individual customer needs. Orthodyne’s expendable products business is well positioned to benefit from future synergies with our existing Packaging Materials business.
units.
Our major customers include large semiconductorIDM and subcontract assembly companies, industrial manufacturers and their subcontract assemblers and vertically integrated manufacturers of electronic systems. Customersautomotive electronics suppliers. Revenue from our customers may vary significantly from year-to-year based on their capital investment andinvestments, operating expense budgets, and overall industry trends.
The following chart reflects our top ten end-use customers, based on net revenue, for each of the last three fiscal years:
Fiscal 2007
1. | Advanced Semiconductor Engineering* |
2. | ||||
|
|
| ||
|
|
| ||
|
|
3. |
| |
|
|
4. | Samsung |
5. | Hynix Semiconductor Inc. |
6. | STATS ChipPAC |
7. | Texas Instruments |
8. | Sandisk Semiconductor |
9. | ST Microelectronics |
10. | Chipmos Technology Inc. |
Fiscal 2008
1. | Advanced Semiconductor Engineering |
2. | STATS ChipPac |
3. | Amkor Technology Inc. |
| 4. |
|
|
| 5. |
|
|
| 6. |
|
|
| 7. |
|
|
| 8. |
|
9. |
| |||
|
|
|
| 10. |
|
|
Fiscal 2009
1. | Advanced Semiconductor Engineering* |
2. | Amkor Technology Inc.* |
3. | Siliconware Precision Industries, Ltd. |
4. | Texas Instruments, Inc. |
5. | First Technology China, Ltd.** |
6. | Techno Alpha Co.** |
7. | ST Microelectronics |
8. | Samsung |
9. | Micron Technology Incorporated |
10. | Intel Corporation |
* | Accounted for more than 10% of |
** | First Technology China, Ltd. and Techno Alpha Co. are our distributors of wedge bonders and wedge bonding consumables in China and Japan, respectively. |
We believe developing long-term relationships with our customers is critical to our success. By establishing these relationships with semiconductor manufacturers, semiconductor subcontract assemblers,
Approximately 96.8%, 95.6% and vertically integrated manufacturers of electronic systems, we gain insight into our customers’ future IC packaging strategies. This insight assists us in our efforts to develop material, equipment, and process solutions that address our customers’ future assembly requirements.
International Operations
Our customers are primarily located or have operations in the Asia/Pacific region. Approximately 97%97.0% of our net revenue for fiscal 20062007, 2008 and 2007 and 96% for fiscal 20082009, respectively, were 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.
For a discussion of our financial information about geographic areas, see our Consolidated Financial Statements and corresponding Notes included in Item 8 of this report.
We believe providingmaintaining long term customer relationships is critical to our success, and comprehensive worldwide sales service, training, and customer support are an important competitive factors in the semiconductor equipment industry, andmeans of establishing those relationships. To maintain these relationships, we manage these functions throughutilize multiple distribution channels using either our global customer operations group. We rely onown employees, manufacturers’ representatives, distributors, or a combination of a direct sales force, manufacturers’ representatives and distributors for the sale ofthree, depending on the product, region, or application. In all cases, our various product lines. We provide timely customer service and sales support by positioninggoal is to position our sales service representativesand customer support resources near customerour customers’ facilities which providesso as to provide support for customers with the ability to place orders locally and to deal with service and support personnel who speak the customer’sin their own language and are familiarconsistent with local country practices. In order tocustoms. Our sales and customer support our customers whose semiconductor assembly operationsresources are located primarily outside of the United States, we have sales, service, and support personnel based in China, Japan, Korea, Malaysia, the Philippines, Singapore, Switzerland, Taiwan, Thailand, the United States, and throughout Europe, and applicationsin Germany. Supporting these local resources, we have application labs in China, Israel, Japan, Singapore and Switzerland that offer additional process expertise.
By establishing relationships with semiconductor manufacturers, their subcontract assembly suppliers, and Taiwan.
Backlog
The following table reflectsvertically integrated manufacturers of electronic systems, we gain insight into our backlog as of September 29, 2007customers’ future semiconductor packaging strategies. These insights assist us in our efforts to develop products and September 27, 2008:
As of | ||||||
(in thousands) | September 29, 2007 | September 27, 2008 | ||||
Backlog | $ | 85,563 | $ | 49,508 |
Our backlog consists of customer ordersprocesses that are scheduled for shipment within the next 12 months. A majority ofaddress our orders are subjectcustomers’ future assembly requirements.
We organize and manage our business to cancellation or deferral by the customer with limited or no penalties. Also, customer demand for our products can vary dramatically without prior notice.maintain a low backlog. Because of the volatility of customer demand, possibility of customer changes in delivery schedules, or cancellations and potential delays in product shipments, our backlog as of any particular date may not be indicative of revenue for any succeeding period. Our backlog consists of customer orders that are scheduled for shipment within the next 12 months. A majority of our orders are subject to cancellation or deferral by our customers with limited or no penalties.
The following table reflects our backlog as of September 27, 2008 and October 3, 2009:
As of | ||||||||
(in thousands) | September 27, 2008 | October 3, 2009 | ||||||
Backlog | $ | 49,508 | $ | 42,181 |
We believe excellence in manufacturing can create a competitive advantage, both throughfrom producing at lower costs and by providing superior responsiveness. In orderresponsiveness to changes in customer demand. To achieve these goals, we seek to manage our manufacturing operations through a single organization and believe that fewer, larger factories take advantage ofallow us to capture economies of scale and result ingenerate cost savings through lower manufacturing costs.
Equipment
Our equipment manufacturing activities consist primarily of integrating outsourced parts and subassemblies and testing finished products to customer specifications. During fiscal 2007 and 2008, most of our ball bonder manufacturing took place in Singapore. Our die bonder manufacturing took place in Switzerland and Suzhou, China. We believe the outsourcing manufacturingoutsource model enablesallows us to minimize our fixed costs and capital expenditures and focus on product differentiation through technology innovations in system design and manufacturing quality control.expenditures. Just-in-time inventory management has reduced our manufacturing cycle times and lowered our on-hand inventory requirements.
Our ball bonder and die bonder manufacturing and assembly is performed at our facility in Singapore. During fiscal 2009, we announced plans to move manufacturing of wedge bonders from Irvine, California to Singapore. This transition is underway and is expected to be completed in 2011. During the year, we also began investing in a subassembly manufacturing and supply management facility in Malaysia that will manufacture subassemblies currently manufactured in the U.S. and Singapore. We expect this facility to be fully operational in the second half of fiscal 2010. When these projects are completed, we will manufacture all of our equipment in Asia.
We have ISO 9001 certification for our equipment manufacturing facilities in Singapore, Switzerland (legacy model die bonders and China,spares manufacturing) and Irvine, California. In addition, we have ISO 14001 certifications for our equipment manufacturing facilities in Singapore and China.Irvine, California.
Packaging MaterialsTABLE OF CONTENTS
We manufacture expendable tools at our facility in Yokneam, Israelsaw blades and expendable tools and blades for wafer sawingcapillaries at our facility in Suzhou, China. The capillaries are made using blanks produced at our facility in Yokneam, Israel. Historically, we also made a small percentage of capillaries in Yokneam; however, in fiscal 2009, we announced a plan to consolidate all capillary manufacturing in Suzhou, leaving only blank manufacturing in Yokneam. We outsource the production of our bonding wedges. Both the Suzhou and Yokneam facilities are ISO 9001 and ISO 14001 certificated.certified.
Research and Product Development
Many of our customers generate technology roadmaps describing the futuretheir projected manufacturing capability requirements needed to support their product development plans.technology requirements. Our research and product development activities are organized so that our products anticipate our customers’focused on delivering robust production solutions to those projected requirements. This happens through continuous improvementWe accomplish this by regularly introducing improved versions of our existing products through upgrades for products already installed in customers’ facilities or through the creation ofby developing next-generation products. Examples of our continuous improvement strategy include our copper kits for existing ball bonder models. In addition, our next-generation products include the Power Series IConnPS ball bonder and ConnXPS ball bonder, both introduced during fiscal 2008. In addition, aWe follow this product development program is underway for our next generation die bonders. Our goal is technology leadershipmethodology in each ofall our major product lines.
Research and development expense was $36.3 million, $49.1 million, $59.9 million and $59.9$53.5 million during fiscal 2006, 2007, 2008 and 2008,2009 respectively.
Intellectual Property
Where circumstances warrant, we seek to obtainapply for patents on inventions governing new products and processes developed as part of our ongoing research, engineering, and manufacturing activities. We currently hold a number of United States patents, somemany of which have foreign counterparts. We believe the duration of our patents generally exceeds the life cycles of the technologies disclosed and claimed in the patents. Additionally, we believe much of our important technology resides in our trade secrets and proprietary software.
Competition
The market for semiconductor equipment and packaging materials products is intensely competitive. Significant competitive factors in the semiconductor equipment market include price, as well as speed/throughput, production yield, process control, delivery time and customer support, each of which contribute to lower the overall cost per package being manufactured. Our major equipment competitors include:
Ball bonders: ASM Pacific Technology and Shinkawa
Die bonders: ASM Pacific Technology, ESEC, Renesas and Shinkawa
Wedge bonders: F&K Delvotec, Hesse & Knipps and Cho-Onpa
Significant competitive factors in the semiconductor packaging materials industry include performance, price, delivery, product life, and quality. Our significant packaging materialsexpendable tools competitors include:
Bonding tools: CoorsTek,Capillaries: PECO and Small Precision Tools, Inc.
Saw blades: Disco Corporation
Wedge bonding tools:Bonding wedges: Micro-Mechanics, and Small Precision Tool
In each of the markets we serve, we face competition and the threat of competition from established competitors and potential new entrants, some of which may have greater financial, engineering, manufacturing, and marketing resources.
Environmental Matters
We are subject to various federal, state, local and foreign laws and regulations governing, among other things, the generation, storage, use, emission, discharge, transportation and disposal of hazardous materials and the health and safety of our employees. In addition, we are subject to environmental laws which may require investigation and cleanup of any contamination at facilities we own or operate or at third party waste disposal sites we use or have used.
We have in the past, and will in the future, incur costs to comply with environmental laws. We are not, however, currently aware of any material costs or liabilities relating to environmental matters, including any claims or actions under environmental laws or obligations to perform any cleanups at any of our facilities or
any third party waste disposal sites, that we expect to have a material adverse effect on our business, financial condition or operating results. ItHowever, it is possible however, that material environmental costs or liabilities may arise in the future.
Employees
As of September 27, 2008,October 3, 2009, we had 2,4962,132 regular full-time employees and 7735 temporary and contract workers worldwide.
Subsequent to year end on November 12, 2008, we announced a headcount reduction of 240 positions and a cancellation of annual salary increases scheduled for January 1, 2009. We took these actions to reduce costs due to deteriorating conditions in the global economy and projected weaker demand for our products and services.
Executive Officers of the Company
The following table sets forthreflects certain information regarding theour executive officers of the Company as of September 27, 2008.October 3, 2009. Our executive officers are appointed by, and serve at the discretion of, the Board of Directors.
Name | Age | First Became an Officer (calendar year) | Position | Age | First Became an Officer (calendar year) | Position | ||||||
C. Scott Kulicke | 59 | 1976 | Chairman of the Board of Directors and Chief Executive Officer | 60 | 1976 | Chairman of the Board of Directors and Chief Executive Officer | ||||||
Maurice E. Carson | 51 | 2003 | Senior Vice President and Chief Financial Officer | |||||||||
Christian Rheault | 43 | 2005 | Senior Vice President, Equipment segment | 44 | 2005 | Senior Vice President, Marketing | ||||||
Charles Salmons | 53 | 1992 | Senior Vice President, Engineering | 54 | 1992 | Senior Vice President, Engineering | ||||||
Jagdish (Jack) Belani | 55 | 1999 | Senior Vice President, Packaging Materials segment and Corporate Marketing | |||||||||
Shay Torton | 48 | 2005 | Senior Vice President, Worldwide Operations | |||||||||
Ran Bareket | 43 | 2009 | Vice President and interim Principal Accounting Officer | |||||||||
Jason Livingston | 39 | 2009 | Vice President, Wedge Bonding business unit | |||||||||
Tek Chee (“TC”) Mak | 55 | 2006 | Vice President, Worldwide Sales | |||||||||
Michael J. Morris | 40 | 2009 | Vice President and interim Chief Financial Officer |
C. Scott Kulickehas served as Chief Executive Officer since 19791980 and Chairman of the Board of Directors since 1984. His present term as a director expires in 2011. Mr. Kulicke earnedholds a Bachelor of Science degree in Economics from the Wharton School of Business of the University of Pennsylvania.
Maurice E. CarsonChristian Rheaultbecame has served as Senior Vice President, and Chief Financial Officer (“CFO”) in November 2007 after serving as Vice President, CFOMarketing since September 2003. From 1996 until 2003, Mr. Carson served in various finance positions culminating as the Vice President, Finance and Corporate Controller for Cypress Semiconductor Corporation. Mr. Carson earned a Bachelor of Science degree from the University of Colorado and a Masters in Business Administration degree from the University of Chicago.
Christian Rheault became Senior Vice President, Equipment segment in November 2007 after serving as Vice President, Equipment segment since 2006. Prior to that time, he served as Vice President and General Manager of our Ball Bonder Business Unit and Director of Strategic Marketing and Vice President, General Manager of the Microelectronics Business Unit. Mr. Rheault earnedholds an Electrical Engineering degree from Laval University, Canada and a DSA (Business Administration Diploma) from Sherbrooke University, Canada.
Charles Salmonshas served as Senior Vice President, Engineering since March 2008, after serving as Senior Vice President, Acquisition Integration (September 2006-March 2008), Senior Vice President, Wafer Test (November 2004-September 2006), Senior Vice President, Product Development (September 2002-November 2004), Senior Vice President Operations (1999 to 2004), General Manager, Ball Bonder operations (1998-1999), and Vice President of Operations (1994-1998). Mr. Salmons earnedholds a MastersBachelor of Arts degree in Economics from Temple University and a Master of Business Administration degree from LaSalle University.
Jagdish (Jack) G. BelaniShay Tortonhas served as Senior Vice President, of Packaging Materials segment and Corporate Marketing from November 2005 until the sale of our Wire business on September 29, 2008. From 1999 until November 2005, Mr. Belani servedWorldwide Operations since 2009 after serving as Vice President, of Wire BondingWorldwide Operations and Corporate Marketing;Supply Chain (2005-2009), Vice President, ofChina Operations and K&S Suzhou General Manager (2002-2005), Vice President and General Manager, Materials Business UnitsUnit (2001-2002), K&S Bonding Wire Business Unit Managing Director-Singapore (1997) and Marketing, President of the WireGeneral Manager, K&S Bonding Division and President of XLAM, our high density substrate group.Wire-U.S. (1996). Mr. Belani earnedTorton holds a Bachelor of Science degree in chemical engineeringIndustrial Engineering and Management from Indianthe Israel Institute of Technology, Madras, India;Technology.
Ran Bareketwas appointed interim Principal Accounting Officer in August 2009. Prior to this appointment, Mr. Bareket served as our Vice President and Corporate Controller since July 2006. In addition, he served as Vice President of Financial Operations since 2005. Prior to 2005, Mr. Bareket served as our Director of Worldwide Financial Operations. Mr. Bareket holds a MastersBachelor of ScienceArts degree in metallurgical and materials engineeringAccounting/Management from Illinois Institute of TechnologyTel Aviv Management College in Israel and a Juris DoctorMaster of Business Administration from Pennsylvania State University.
Jason Livingstonwas appointed Vice President of the K&S Wedge Bonding Business Unit in October 2009, after serving as Vice President of Finance for the Wedge Bonding Business Unit. Mr. Livingston joined K&S through the acquisition of Orthodyne Electronics, where he served as Chief Financial Officer since April 1998. Prior to joining Orthodyne Electronics, Mr. Livingston was with McGladrey & Pullen, LLP. Mr. Livingston is a CPA and holds a Bachelor of Arts degree in Accounting from California State University.
Tek Chee (“TC”) Mak has served as Vice President of Worldwide Sales since September 2006 after serving as Vice President of Sales for the Equipment and Expendable Tools businesses since November 2004. Prior to that time, he served as Vice President of Asia Sales since February 2001. Mr. Mak holds a Higher Diploma of Electronic Engineering from Hong Kong Polytechnic University.
Michael J. Morriswas appointed interim Chief Financial Officer (“CFO”) in August 2009. Mr. Morris previously served as Vice President of Finance and Treasurer. Before joining K&S in October 2006, Mr. Morris was Assistant Treasurer at Constellation Energy Group. Prior to joining Constellation in 2005, Mr. Morris held various positions of increasing responsibility at the Treasurer’s Office of General Motors. Mr. Morris holds a Bachelor of Arts degree in Economics from the University of Santa Clara.Pennsylvania and a Master of Business Administration from the University of Michigan.
Item 1A. RISKS RELATED TO OUR BUSINESS AND INDUSTRY
Our operating results and financial condition are adversely impacted by
the currentvolatile worldwide economic conditions.
In 2008, general worldwideGlobal economic conditions affect demand for semiconductor capital equipment and expendable tools. Accordingly, our business and financial performance is impacted, both positively and negatively, by fluctuations in the macroeconomic environment. Conditions in the global economy deteriorated sharply duedramatically in the first half of our fiscal 2009, leading to a sharp contraction in consumer and business electronics spending, which reduced demand throughout the sub-prime lending crisis, general credit market crisis, collateral effects onsemiconductor supply chain. Though industry conditions improved significantly in the financesecond half of the fiscal year, visibility continues to be limited and banking industries, decreased consumer confidence, reduced corporate profits and capital spending, and liquidity concerns. These conditions make it difficult for our customers, our vendors and us to accurately forecast and plan futureforecasting in the current business activities, and have caused customers to reduce spending on our products.environment remains extremely difficult. We cannot predict the timing or duration of the global economic crisis or the timing or strength of a subsequentan economic recovery. If the economy or markets in which we operate experience continuedfurther weakness, at current levels or deteriorate further, our business, financial condition and results of operations will be materially and adversely affected.
The semiconductor industry is volatile with sharp periodic downturns and slowdowns.
The current downturn has beenCyclical industry downturns are made worse by deterioratingvolatile global economic conditions.
Our operating results are significantly affected by the capital expenditures of large semiconductor manufacturers, both IDMs and their subcontract assemblers and vertically integrated manufacturers of electronic systems.subcontractors. Expenditures by semiconductor manufacturers and their subcontract assemblers and vertically integrated manufacturers of electronic systemsour customers depend on the current and anticipated market demand for semiconductors and products that use semiconductors, including personal computers, telecommunications equipment, consumer electronics and automotive goods. Significant downturns in the market for semiconductor devices or in general economic conditions, such as the recent severe deterioration in worldwide economic conditions reduce demand for our products and materially and adversely affect our business, financial condition and operating results.
The semiconductor industry is volatile, with periods of rapid growth followed by industry-wide retrenchment. These periodic downturns and slowdowns have adversely affected our business, financial condition and operating results. TheyDownturns have been characterized by, among other things, diminished product demand, excess production capacity, and accelerated erosion of selling prices. TheseHistorically these downturns historically have severely and negatively affected the industry’s demand for capital equipment, including the assembly equipment and, to a lesser extent, the packaging materialsexpendable tools that we sell. The sharp deterioration in worldwideglobal economic conditions that beganoccurred in mid-2008 hasthe first half of fiscal 2009 made the current industry downturn during that same period more severe than any recent downturn.industry downturns. There can be no assurances regarding levels of demand
for our products, especially in light of currentuncertain global economic conditions. In any case, we believe the historical volatility of our business, – both upward and downward, – will persist.
We may experience increasing price pressure.
Our business strategy focusesTypically our average selling prices have declined over time. We seek to offset this decline by continually reducing our cost structure by consolidating operations in lower cost areas, reducing other operating costs, and by pursuing product strategies focused on product performance, and customer service and price. We continually seek to reduce our cost structure including moving operations to lower cost areas and reducing other operating costs. Weservice. These efforts may not be able to continue to compete on the basis of performance, service, and price;fully offset price declines; therefore, our financial condition and operating results may be materially and adversely affected.
Our quarterly operating results fluctuate significantly and may continue to do so in the future.
In the past, our quarterly operating results have fluctuated significantly. We expect quarterly results will continue to fluctuate. Although these fluctuations are partly due to the volatile nature of the semiconductor industry, they also reflect other factors, many of which are outside of our control.
Some of the factors that may cause our net revenues and/orrevenue and operating margins to fluctuate significantly from period to period are:
market downturns;
the mix of products we sell because, for example:
º | certain lines of equipment within our business segments are more profitable than others; and |
º | some sales arrangements have higher gross margins than others; |
cancelled or deferred orders;
competitive pricing pressures may force us to reduce prices;
higher than anticipated costs of development or production of new equipment models;
the availability and cost of the components for our products;
delays in the development and manufacture of our new products and upgraded versions of our products and market acceptance of these products when introduced;
customers’ delay in purchasing our products due to anticipation that we or our competitors may introduce new or upgraded products; and
our competitors’ introduction of new products.
Many of our expenses, such as research and development, selling, general and administrative expenses, and interest expense, do not vary directly with our net revenue. Our research and development efforts include long-term projects lasting a year or more, which require significant investments. In order to realize the benefits of these projects, we believe that we must continue to fund them during periods when our revenue has declined. As a result, a decline in our net revenue would adversely affect our operating results.results as we continue to make these expenditures. In addition, if we were to incur additional expenses in a quarter in which we did not experience comparable increased net revenue, our operating results would decline. In a downturn, we may have excess inventory, which is required tocould be written off. Some of the other factors that may cause our expenses to fluctuate from period-to-period include:
timing and extent of our research and development efforts;
severance, resizing, and other costs of relocating facilities;
inventory write-offs due to obsolescence; and
increasesan increase in the cost of labor or materials.
Because our net revenue and operating results are volatile and difficult to predict, we believe consecutive period-to-period comparisons of our operating results may not be a good indication of our future performance.
We believe our continued success depends on our ability to continuously develop and manufacture new products and product enhancements on a timely and cost-effective basis. We must introduce these products and product enhancements into the market in a timely manner in response to customers’ demands for higher performance assembly equipment and leading-edge materials customized to address rapid technological advances in integrated circuits, and capital equipment designs. Our competitors may develop new products or enhancements to their products that offer improved performance and features, andor lower prices thatwhich may render our products less competitive. The development and commercialization of new products requires significant capital expenditures over an extended period of time, and some products that we seek to develop may never become profitable. In addition, we may not be able to develop and introduce products incorporating new technologies in a timely manner that will satisfy our customers’ future needs or achieve market acceptance.
Substantially all of our sales and manufacturing operations are located outside of the United States, and we rely on independent foreign distribution channels for certain product lines; all of which subject us to risks, including risks from changes in trade regulations, currency fluctuations, political instability and war.
Approximately 97%96.8%, 95.6% and 97.0% of our net salesrevenues for fiscal 20062007, 2008 and 2007 and 96% for fiscal 20082009, respectively, were to customers located outside of the United States, in particular to customers locatedprimarily in the Asia/Pacific region.
Our future performance will depend on our ability to continue to compete in foreign markets, particularly in the Asia/Pacific region. TheseSome of these economies have been highly volatile, resulting in significant fluctuation in local currencies, and political and economic instability. These conditions may continue or worsen, which may materially and adversely affect our business, financial condition and operating results.
We also rely on non-United States suppliers for materials and components used in our products, and nearly allmost of our manufacturing operations are located in countries other than the United States. We manufacture our ball bonders in Singapore, bonding tools in Israel and China, and die bonders in SwitzerlandSingapore, and China.certain bonder subassemblies in Malaysia. In addition, we have sales, service and support personnel in China, Japan, Korea, Malaysia, the Philippines, Singapore, Switzerland, Taiwan, Thailand, United States and throughout Europe.Germany. We also rely on independent foreign distribution channels for certain of our product lines. As a result, a major portion of our business is subject to the risks associated with international, and particularly Asia/Pacific, commerce, such as:
risks of war and civil disturbances or other events that may limit or disrupt manufacturing and markets;
seizure of our foreign assets, including cash;
longer payment cycles in foreign markets;
international exchange restrictions;
restrictions on the repatriation of our assets, including cash;
significant foreign and United States taxes on repatriated cash;
difficulties of staffing and managing dispersed international operations;
possible disagreements with tax authorities regarding transfer pricing regulations;
episodic events outside our control such as, for example, an outbreakoutbreaks of Severe Acute Respiratory Syndrome or influenza;
tariff and currency fluctuations;
changing political conditions;
labor conditions and costs;
foreign governments’ monetary policies and regulatory requirements;
less protective foreign intellectual property laws; and
legal systems which are less developed and which may be less predictable than those in the United States.
Because most of our foreign sales are denominated in U.S. dollars, an increase in value of the U.S. dollar against foreign currencies will make our products more expensive than those offered by some of our foreign competitors. In addition, a weakening of the U.S. dollar against foreign currencies could make our costs in non-U.S. locations more expensive to fund. Our ability to compete overseas may be materially and adversely affected by a strengtheningchanges in the value of the U.S. dollar against foreign currencies.
Our international operations also depend upon favorable trade relations between the United States and those foreign countries in which our customers, subcontractors and materials suppliers have operations. A protectionist trade environment in either the United States or those foreign countries in which we do business, such as a change in the current tariff structures, export compliance or other trade policies, may materially and adversely affect our ability to sell our products in foreign markets.
We are exposed to fluctuations in currency exchange rates that could negatively impact our financial results and cash flows.
Because a significant portionnearly all of our business is conducted outside the United States, we face exposure to adverse movements in foreign currency exchange rates which could have a material adverse impact on our financial results and cash flows. Historically, our primary exposures have related to net working capital exposures denominated in currencies other than the foreign subsidiaries’ functional currency, and remeasurement of our foreign subsidiaries’ net monetary assets from the subsidiaries’ local currency into the
subsidiaries’ functional currency. In general, an increase in the value of the U.S. dollar could require certain of our foreign subsidiaries to record translation and remeasurement gains. Conversely, a decrease in the value of the U.S. dollar could require certain of our foreign subsidiaries to record losses on translation and remeasurement. An increase in the value of the U.S. dollar could increase the cost to our customers of our products in those markets outside the United States where we sell in U.S. dollars, and a weakened U.S. dollar could increase the cost of local operating expenses and procurement of raw materials.materials, both of which could have an adverse effect on our cash flows. Our primary exposures include the Swiss Franc, Chinese Yuan, Euro, Singapore Dollar, Israeli Shekel and Japanese Yen. Our board of directors has granted management with limited 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 currently have enteredno foreign exchange forward contracts in place but may enter into foreign exchange forward contracts and may enter into additional foreign exchange forward contracts andor other instruments in the future. 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 flows.
We may not be able to consolidate manufacturing and other facilities without incurring unanticipated costs and disruptions to our business.
As part of our ongoing efforts to further reduce our cost structure, we may seekcontinue to consolidate ourmigrate manufacturing facilities. If this occurs, weand other facilities to Asia. We may incur significant and unexpected costs, delays and disruptions to our business during this consolidation process. Because of unanticipated events, including the actions of governments, suppliers, employees or customers, we may not realize the synergies, cost reductions and other benefits of any consolidation to the extent or within the timeframe that we currently expect.
Our business depends on attracting and retaining management, marketing and technical
employees.
Our future success depends on our ability to hire and retain qualified management, marketing and technical employees. In particular, we periodically experience shortages of technical personnel.employees, primarily in Asia. If we are unable to continue to attract and retain the managerial, marketing and technical personnel we require, and if we are unable to effectively provide for the succession of senior management, our business, financial condition and operating results couldmay be materially and adversely affected.
In December 2009, we announced plans for the succession of C. Scott Kulicke, our Chairman and Chief Executive Officer. Mr. Kulicke’s planned retirement date is June 30, 2011. Our Board of Directors will conduct a search for a new Chief Executive Officer to succeed Mr. Kulicke. Our Board of Directors is taking steps to ensure an orderly succession, but we may not be able to identify and hire a suitable successor in the anticipated time period and the succession process may cause disruptions to our business.
We typically operate our business with limited visibility of future demand. As a result, we sometimes experience inventory shortages or excesses. We generally order supplies and otherwise plan our production based on internal forecasts for demand. We have in the past, and may again in the future, fail to accurately forecast demand for our products. This has led to, and may in the future lead to, delays in product shipments or, alternatively, an increased risk of inventory obsolescence.obsolescence and contractual commitments to purchase excess inventory. If we fail to accurately forecast demand for our products, our business, financial condition and operating results may be materially and adversely affected.
Alternative packaging technologies may render some of our products obsolete.
Alternative packaging technologies have emerged that may improve device performance or reduce the size of an integrated circuit package, as compared to traditional die bonding. These technologies include flip chip and chip scale packaging. Some of these alternative technologies eliminate the need for wires to establish the electrical connection between a die and its package. The semiconductor industry may, in the future, shift a significant part of its volume into alternative packaging technologies, such as those discussed above, which do not employ our products. If a significant shift to alternative packaging technologies were to occur, demand for our equipment and related packaging materials may be materially and adversely affected.
Because a small number of customers account for most of our sales, our
revenuesnet revenue could decline if we lose a significant customer.
The semiconductor manufacturing industry is highly concentrated, with a relatively small number of large semiconductor manufacturers and their subcontract assemblers and vertically integrated manufacturers of electronic systems purchasing a substantial portion of our semiconductor assembly equipment and packaging materials. Sales to a relatively small number of customers account for a significant percentage of our net sales. During fiscal 2006, salesrevenue. Sales as a percent of net revenue to STATS Chippac, our largest customer accountedwere 10.7%, 9.9%, and 17.7% for 10.7% of our net revenue. During fiscal 2007, 2008, and 2008, sales to Advanced Semiconductor Engineering, our largest customer accounted for 10.7% and 9.9% of our net revenue,2009, respectively.
We expect that sales of our products to a small number of customers will continue to account for a high percentage of our net salesrevenue for the foreseeable future. Thus, our business success depends on our ability to maintain strong relationships with our customers. Any one
of a number of factors could adversely affect these relationships. If, for example, during periods of escalating demand for our equipment, we were unable to add inventory and production capacity quickly enough to meet the needs of our customers, they may turn to other suppliers making it more difficult for us to retain their business. Similarly, if we are unable for any other reason to meet production or delivery schedules, particularly during a period of escalating demand, our relationships with our key customers could be adversely affected. If we lose orders from a significant customer, or if a significant customer reduces its orders substantially, these losses or reductions may materially and adversely affect our business, financial condition and operating results.
We depend on a small number of suppliers for raw materials, components and subassemblies. If our suppliers do not deliver their products to us, we would be unable to deliver our products to our customers.
Our products are complex and require raw materials, components and subassemblies having a high degree of reliability, accuracy and performance. We rely on subcontractors to manufacture many of these components and subassemblies and we rely on sole source suppliers for some importantmany components and raw materials. As a result, we are exposed to a number of significant risks, including:
lack ofdecreased control over the manufacturing process for components and subassemblies;
changes in our manufacturing processes, in response to changes in the market, which may delay our shipments;
our inadvertent use of defective or contaminated raw materials;
the relatively small operations and limited manufacturing resources of some of our suppliers, which may limit their ability to manufacture and sell subassemblies, components or parts in the volumes we require and at acceptable quality levels and prices;
the reliability or quality problemsissues with certain key subassemblies provided by single source suppliers as to which we may not have any short term alternative;
shortages caused by disruptions at our suppliers and subcontractors for a variety of reasons, including work stoppage or fire, earthquake, flooding or other natural disasters;
delays in the delivery of raw materials or subassemblies, which, in turn, may delay shipments to our shipments;
loss of suppliers as a result of consolidation of suppliers in the industry; and
loss of suppliers because of their bankruptcy or insolvency as a result of the global economic crisis.
If we are unable to deliver products to our customers on time for these or any other reasons, or we are unable to meet customer expectations as to cycle time, or we may beare unable to maintain acceptable product quality or reliability, and our business, financial condition and operating results may be materially and adversely affected.
We may acquire or divest businesses or enter into joint ventures or strategic alliances, which may materially affect our business, financial condition and operating results.
We continually evaluate our portfolio of businesses and may decide to buy or sell businesses or enter into joint ventures or other strategic alliances. During fiscal 2007, we acquired Alphasem, a manufacturer of die bonders. During fiscal 2009, we both acquired the assets of Orthodyne, a manufacturer of heavy wire wedge bonders and heavy wire wedges, and sold our Wire business to Heraeus, a precious metals and technology group that has a leading position in its markets.group. We may be unable to successfully integrate Orthodyne with our existing businesses and successfully implement, improve and expand our systems, procedures and controls to accommodate the acquisition. In addition, we may not ultimately achieve anticipated benefits or cost reductions from the divestiture of our Wire business and may incur significant restructuring costs.business. These transactions may place additional constraints on our management and current labor force. TheseAdditionally, these transactions may also require significant resources from our legal, finance and business teams. If we fail to successfully manage the risks associated with these transactions, our business, financial condition and operating results may be materially and adversely affected.
We may from time to time in the future seek to acquire or divest other businesses or enter into alliances with other companies. Significant acquisitions and alliances may increase demands on management, engineering, and financial resources, and information and internal control systems. Our success with respect to acquisitions and alliances will depend, in part, on our ability to manage and integrate acquired businesses and alliances with our existing businesses and to successfully implement, improve and expand our systems, procedures and controls. In addition, we may divest existing businesses, which would cause a decline in revenues and may make our financial results more volatile. If we fail to integrate and manage acquired businesses successfully or to manage the risks associated with divestitures, joint ventures or other alliances, our business, financial condition and operating results may be materially and adversely affected.
The market price of our common shares and our earnings per share may decline as a result of any acquisitions or divestitures.
The market price of our common shares may decline as a result of any acquisitions or divestitures made by us, including among other things, the acquisition of Orthodyne, and the sale of our Wire business, if we do not achieve the perceived benefits of such acquisitionacquisitions or divestituredivestitures as rapidly or to the extent anticipated by financial or industry analysts or if the effect on our financial results is not consistent with the expectations of financial or industry analysts. In addition, the failure to achieve expected benefits and unanticipated costs relating to our acquisitions could reduce our future earnings per share.
The semiconductor equipment and packaging materials industries are very competitive. In the semiconductor equipment industry, significant competitive factors include performance, quality, customer support and price. In the semiconductor packaging materials industry, competitive factors include price, delivery and quality.
In each of our markets, we face competition and the threat of competition from established competitors and potential new entrants. In addition, established competitors may combine to form larger, better capitalized companies. Some of our competitors have or may have significantly greater financial, engineering, manufacturing and marketing resources. Some of these competitors are Asian and European companies that have had, and may continue to have, an advantage over us in supplying products to local customers who appear to prefer to purchase from local suppliers, without regard to other considerations.
We expect our competitors to improve their current products’ performance, and to introduce new products and materials with improved price and performance characteristics. Our competitors may independently develop technology that is similar to or better than ours. New product and materialsmaterial introductions by our competitors or by new market entrants could hurt our sales. If a particular semiconductor manufacturer or subcontract assembler selects a competitor’s product or materials for a particular assembly operation, we may not be able to sell products or materials to that manufacturer or assembler for a significant period of time. Manufacturers and assemblers sometimes develop lasting relationships with suppliers and assembly equipment providers in our industry and often go years without requiring replacement. In addition, we may have to lower our prices in response to price cuts by our competitors, which may materially and adversely affect our business, financial condition and operating results. If we cannot compete successfully, we could be forced to reduce prices and could lose customers and experience reduced margins and profitability.
Our success depends in part on our intellectual property, which we may be unable to protect.
Our success depends in part on our proprietary technology. To protect this technology, we rely principally on contractual restrictions (such as nondisclosure and confidentiality provisions) in our agreements with employees, subcontractors, vendors, consultants and customers and on the common law of trade secrets and proprietary “know-how.” We also rely, in some cases, on patent and copyright protection. We may not be successful in protecting our technology for a number of reasons, including the following:
employees, subcontractors, vendors, consultants and customers may violate their contractual agreements, and the cost of enforcing those agreements may be prohibitive, or those agreements may be unenforceable or more limited than we anticipate;
foreign intellectual property laws may not adequately protect our intellectual property rights; and
our patent and copyright claims may not be sufficiently broad to effectively protect our technology; our patents or copyrights may be challenged, invalidated or circumvented; or we may otherwise be unable to obtain adequate protection for our technology.
In addition, our partners and alliances may also have rights to technology that we develop.developed by us. We may incur significant expense to protect or enforce our intellectual property rights. If we are unable to protect our intellectual property rights, our competitive position may be weakened.
Third parties may claim we are infringing on their intellectual property, which could cause us to incur significant litigation costs or other expenses, or prevent us from selling some of our products.
The semiconductor industry is characterized by rapid technological change, with frequent introductions of new products and technologies. Industry participants often develop products and features similar to those introduced by others, creating a risk that their products and processes may give rise to claims that they infringe on the intellectual property of others. We may unknowingly infringe on the intellectual property rights of others and incur significant liability for that infringement. If we are found to have infringed on the intellectual property rights of others, we could be enjoined from continuing to manufacture, market or use the affected product, or be required to obtain a license to continue manufacturing or using the affected product. A license
could be very expensive to obtain or may not be available at all. Similarly, changing or re-engineering our products or processes to avoid infringing the rights of others may be costly, impractical or time consuming.
Occasionally, third parties assert that we are, or may be, infringing on or misappropriating their intellectual property rights. In these cases, we defend, and will continue to defend, against claims or negotiate licenses where we consider these actions appropriate. Intellectual property cases are uncertain and involve complex legal and factual questions. If we become involved in this type of litigation, it could consume significant resources and divert our attention from our business.
We may be materially and adversely affected by environmental and safety laws and regulations.
We are subject to various federal, state, local and foreign laws and regulations governing, among other things, the generation, storage, use, emission, discharge, transportation and disposal of hazardous material, investigation and remediation of contaminated sites and the health and safety of our employees. Increasingly, public attention has focused on the environmental impact of manufacturing operations and the risk to neighbors of chemical releases from such operations.
Proper waste disposal plays an important role in the operation of our manufacturing plants. In many of our facilities we maintain wastewater treatment systems that remove metals and other contaminants from process wastewater. These facilities operate under permits that must be renewed periodically. A violation of those permits may lead to revocation of the permits, fines, penalties or the incurrence of capital or other costs to comply with the permits, including potential shutdown of operations.
Compliance with existing or future, land use, environmental and health and safety laws and regulations may: (1) result in significant costs to us for additional capital equipment or other process requirements, (2) restrict our ability to expand our operations and/or (3) cause us to curtail our operations. We also could incur significant costs, including cleanup costs, fines or other sanctions and third-party claims for property damage or personal injury, as a result of violations of or liabilities under such laws and regulations. We cannot assure you that anyAny costs or liabilities to comply with or imposed under these laws and regulations will notcould materially and adversely affect our business, financial condition and operating results.
We may be unable to generate enough cash to repay our debt.
Our ability to make payments on our indebtedness and to fund planned capital expenditures and other activities will depend on our ability to generate cash in the future. If our convertible debt isSubordinated Convertible Notes are not converted to shares of our common shares,stock, we will be required to make annual cash interest payments of $1.7$1.5 million in fiscal 2009, $1.6 million in fiscal 2010 and $1.0 million in fiscal 2011 and $1.0 million in fiscal 2012 on an aggregate $204.4 million of convertible subordinated debt (assuming that we do not purchase any additional outstanding Subordinated Convertible Notes). As of September 27, 2008,October 3, 2009, principal payments of $72.4 million, $65.0$48.9 million and $110.0 million on the convertible subordinated debt wereSubordinated Convertible Notes are due in fiscal 2009, 2010 and 2012, respectively. During October 2008, $43.1 million of our 0.5% Subordinated Convertible Notes were repurchased. Accordingly as of December 1, 2008, we repaid the $29.3 million in principal payments that were due in fiscal 2009. Our ability to make payments on our indebtedness is affected by the volatile nature of our business, and general economic, competitive and other factors that are beyond our control, including deteriorating global economic conditions. Our indebtedness poses risks to our business, including that:
insufficient cash flow from operations to repay our outstanding indebtedness when it becomes due may force us to sell assets, or seek additional capital, which we may be unable to do at all or on terms favorable to us; and
our level of indebtedness may make us more vulnerable to economic or industry downturns.
We cannot assure you that our business willmay not generate cash in an amount sufficient to enable us to service interest, principal and other payments on our debt, including the notes,Subordinated Convertible Notes, or to fund our other liquidity needs. We are not restricted under the agreements governing our existing indebtedness from incurring additional debt in the future. If new debt is added to our current levels, our leverage and our debt service obligations would increase and the related risks described above could intensify.
We have the ability to issue additional equity securities, which would lead to dilution of our issued and outstanding common shares.
The issuance of additional equity securities or securities convertible into equity securities will result in dilution of our existing shareholders’ equity interests in us. Our board of directors has the authority to issue,
without vote or action of shareholders, preferred shares in one or more series, and has the ability to fix the rights, preferences, privileges and restrictions of any such series. Any such series of preferred shares could contain dividend rights, conversion rights, voting rights, terms of redemption, redemption prices, liquidation preferences or other rights superior to the rights of holders of our common shares. In addition, we are authorized to issue, without shareholder approval, up to an aggregate of 200 million common shares, of which approximately 60,881,34369.4 million shares were outstanding as of December 5, 2008.October 3, 2009. We are also authorized to issue, without shareholder approval, securities convertible into either common shares or preferred shares.
Weaknesses in our internal controls and procedures could result in material misstatements in our financial statements.
Pursuant to the Sarbanes-Oxley Act, management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal controls over financial reporting are processes designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with U.S. generally accepted accounting principles. A material weakness is a control deficiency, or combination of control deficiencies, that results in a more than remote likelihood that a material misstatement of annual or interim financial statements will not be prevented or detected.
Our internal controls may not prevent all potential errors or fraud, because any control system, no matter how well designed and implemented, can only provide reasonable and not absolute assurance that the objectives of the control system will be achieved. We cannot assure you that we or our independent registered public accountants will not in the futuremay identify other material weaknesses in our internal controls which could adversely affect our ability to insureensure proper financial reporting and could affect investor confidence in us and the price of our common shares.
Accounting methods, including but not limited to the accounting method for convertible debt securities with net share settlement, such as our 0.875% Subordinated Convertible Notes, are subject to change.
In calculating our diluted earnings per share, we currently account for the 0.875% Subordinated Convertible Notes in accordance with Financial Accounting Standards Board (“FASB”) Emerging Issues Task Force (“EITF”) Issue No. 90-19,Convertible Bonds with Issuer Option to Settle for Cash upon Conversion(“EITF 90-19”). The accounting method for a convertible debt security that meets the requirements of EITF 90-19 is similar to the accounting for non-convertible debt. We recognize interest expense at the stated coupon rate, and shares potentially issuable upon conversion of the debtour 0.875% Subordinated Convertible Notes are excluded from the calculation of diluted earnings per share until the market price of our common shares exceeds the conversion price (i.e., the conversion price is “in the money”). Once the conversion price is in the money, the shares that we would issue upon assumed conversion of the debt arewould be included in the calculation of fully diluted earnings per share using the “treasury stock” method. No separate value is attributed to the conversion feature of the debt at the time of issuance.
In May 2008, the FASBFinancial Accounting Standards Board (“FASB”) issued FASB Staff PositionAccounting Standards Codification (“FSP”ASC”) APB 14-1,No. 470.20, Debt, Debt With Conversion Options (“ASC 470.20”), which is effective for fiscal years beginning after December 15, 2008. FSP APB 14-1ASC 470.20 specifies that issuers of convertible debt instruments that may be settled in cash upon conversion should separately account for the liability and equity components in a manner that will reflect the entity’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods.
As compared to the current accounting method, the proposalASC 470.20 would reduce the amount recognized as debt and increase the amount recognized as shareholder’sshareholders’ equity at the time of issuance. The amount of debt recognized at time of issuance would increase over the life of the notes, with a corresponding increase in non-cash interest expense and reduction of net income and earnings per share (net of tax), for the amortization of the original issue discount. We will adopt FSP APB 14-1ASC 470.20 beginning fiscal 2010, with retrospective application to financial statements for periods prior to the date of adoption.
This change in the accounting method for convertible debt securities will have an adverse impact on our reported and future results of operations, and could adversely affect the trading price of our common shares or the trading price of the notes.Subordinated Convertible Notes.
Other Risks
We have generated net operating loss carryforwards and other tax attributes for U.S. tax purposes (“Tax Benefits”) that can be used to reduce our future federal income tax obligations. Under the Tax Reform Act of 1986, the potential future utilization of our Tax Benefits for U.S. tax purposes may be limited following an ownership change. An ownership change is generally defined as a greater than 50% point increase in equity ownership by 5% shareholders in any three-year period under Section 382 of the Internal Revenue Code. An ownership change may significantly limit our ability to fully utilize our net operating losses which could materially and adversely affect our financial condition and operating results.
We are subject to income taxes in the United States and many foreign jurisdictions. There have been proposals to reform U.S. tax laws that would significantly impact how U.S. multinational corporations, such as us, are taxed on foreign earnings. It is unclear whether these proposed tax revisions will be enacted, or, if enacted, what the scope of the revisions will be. Changes in U.S. and foreign tax laws, if enacted, could materially and adversely affect our financial condition and operating results.
Some provisions of our articles of incorporation and bylaws as well as Pennsylvania law may discourage some transactions where we would otherwise experience a fundamental change. For example, our articles of incorporation and bylaws contain provisions that:
classify our board of directors into four classes, with one class being elected each year;
permit our board to issue “blank check” preferred shares without shareholder approval; and
prohibit us from engaging in some types of business combinations with a holder of 20% or more of our voting securities without super-majority board or shareholder approval.
Further, under the Pennsylvania Business Corporation Law, because our shareholders approved bylaw provisions that provide for a classified board of directors, shareholders may remove directors only for cause. These provisions and some other provisions of the Pennsylvania Business Corporation Law could delay, defer or prevent us from experiencing a fundamental change and may adversely affect our common shareholders’ voting and other rights.
Terrorist attacks, or other acts of violence or war may affect the markets in which we operate and our profitability.
Terrorist attacks may negatively affect our operations. There can be no assurance that there will not be further terrorist attacks against the United States or United States businesses.businesses, or in any other country we do business. Terrorist attacks or armed conflicts may directly impact our physical facilities or those of our suppliers or customers. Our primary facilities include administrative, sales and research and development facilities in the United States and manufacturing facilities in the United States, Singapore, Switzerland, China, Malaysia and Israel. We also have an administrative office in Malaysia. Additional terrorist attacks may disrupt the global insurance and reinsurance industries with the result that we may not be able to obtain insurance at historical terms and levels for all of our facilities. Furthermore, additional attacks may make travel and the transportation of our supplies and products more difficult and more expensive and ultimately affect the sales of our products in the United States and overseas. Additional attacks or any broader conflict, could negatively impact our domestic and international sales, our supply chain, our production capability and our ability to deliver products to our customers. Political and economic instability in some regions of the world could negatively impact our business. The consequences of terrorist attacks or armed conflicts are unpredictable, and we may not be able to foresee events that could have an adverse effect on our business.
Certain provisions of our outstanding Subordinated Convertible Notes could make it more difficult or more expensive for a third party to acquire us. Upon the occurrence of certain transactions constituting a fundamental change as defined in our Subordinated Convertible Notes, holders of the Subordinated Convertible Notes will have the right, at their option, to require us to repurchase all of their notes at a price equal to 100% of the principal amount of notes to be repurchased, plus accrued and unpaid interest, plus a premium, if applicable. In addition, pursuant to the terms of the 0.875% Subordinated Convertible Notes, we may not enter into certain mergers unless, among other things, the surviving entity assumes all of our obligations under the indenture and the notes.Subordinated Convertible Notes.
The following table reflects our major operating facilities:
|
|
| ||||||
Facility | Approximate Size | Function | Products Manufactured | Lease Expiration Date | ||||
Fort Washington, Pennsylvania | 88,000 sq. ft.(1) | Corporate headquarters, technology center, sales and service | Not applicable | September 2028(3) | ||||
Suzhou, China | 136,386 sq. ft.(1) | Manufacturing, technology center | Capillaries, dicing blades | October 2022(4) | ||||
Irvine, California | 121,805 sq. ft.(1) | Manufacturing, technology center | Wedge bonders | September 2013 | ||||
Singapore | 77,500 sq. ft.(1) | Manufacturing, technology center | Wire and die bonders | August 2011 | ||||
Berg, Switzerland | 61,896 sq. ft.(2) | Manufacturing, technology center | Die | |||||
| ||||||||
Yokneam, Israel | 53,820 sq. ft.(2) | Manufacturing, technology center | Capillaries, wedges, die collets | N/A | ||||
|
| ||||||||
|
(1) | Leased. |
(2) | Owned. |
(3) |
(4) | Includes lease extension periods at the Company’s option. Initial lease expires October 2017. |
(5) |
In addition, we rent space for sales and service offices and administrative functions in: China, Germany, Japan, Korea, Malaysia, the Philippines, Taiwan, Thailand, and the United States.Thailand. We believe our facilities are generally are in good condition.condition and suitable to the extent of utilization needed.
From time to time, we may be a plaintiff or defendant in cases arising out of our business. We cannot assure yoube assured of the results of any pending or future litigation, but we do not believe resolution of these matters will materially or adversely affect our business, financial condition or operating results.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Item 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Our common stock is traded on The Nasdaq Global Market (“Nasdaq”) under the symbol “KLIC.” The following table reflects the ranges of high and low sale prices for our common stock as reported on Nasdaq for the periods indicated:
Fiscal year ended | Fiscal year ended | |||||||||||||||||||||||||||
September 29, 2007 | September 27, 2008 | September 27, 2008 | October 3, 2009 | |||||||||||||||||||||||||
High | Low | High | Low | High | Low | High | Low | |||||||||||||||||||||
First Quarter | $ | 9.67 | $ | 7.92 | $ | 8.89 | $ | 6.47 | $ | 8.89 | $ | 6.47 | $ | 4.71 | $ | 1.11 | ||||||||||||
Second Quarter | $ | 10.19 | $ | 8.17 | $ | 6.93 | $ | 4.55 | $ | 6.93 | $ | 4.55 | $ | 2.67 | $ | 1.15 | ||||||||||||
Third Quarter | $ | 11.04 | $ | 9.11 | $ | 7.95 | $ | 4.66 | $ | 7.95 | $ | 4.66 | $ | 5.04 | $ | 2.11 | ||||||||||||
Fourth Quarter | $ | 12.46 | $ | 7.34 | $ | 7.49 | $ | 4.53 | $ | 7.49 | $ | 4.53 | $ | 6.68 | $ | 3.00 |
On December 5, 2008,10, 2009, there were approximately 426406 holders of record of the shares of outstanding common stock. The payment of dividends on our common stock is within the discretion of our board of directors; however, we have not historically paid any dividends on our common stock. In addition, we do not expect to declare dividends on our common stock in the near future, since we intend to retain earnings to finance the growth of our business.
For the purpose of calculating the aggregate market value of shares of our common stock held by nonaffiliates, as shown on the cover page of this report, we have assumed all of our outstanding shares were held by nonaffiliates except for shares held by our directors and executive officers. However, this does not necessarily mean that all directors and executive officers of the Company are, in fact, affiliates of the Company, or there are no other persons who may be deemed to be affiliates of the Company. Further information concerning the beneficial ownership of our executive officers, directors and principal shareholders will be included in our Proxy Statement for the 20092010 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission on or about December 31, 2008.2009.
Equity Compensation Plan Information
The information required hereunder will appear under the heading “Equity Compensation Plans” in our Proxy Statement for the 20092010 Annual Meeting of Shareholders which information is incorporated herein by reference.
Recent Sales of Unregistered Securities and Use of Proceeds
None.
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table reflects selected historical consolidated financial data derived from the consolidated financial statements of Kulicke and Soffa Industries, Inc. and subsidiaries as of and for each of the five fiscal years ended 2004, 2005, 2006, 2007, 2008 and 2009. Fiscal 2009 includes Orthodyne which was acquired on October 3, 2008. AllIn addition, all periods have been reclassified to reflect our Wire business as a discontinued operation. Due to this change, fiscal 2004, 2005, 2006, and 2007 do not agree tofinancial data have been revised from our previously issued consolidated financial statements. This data should be read in conjunction with our consolidated financial statements, including notes and other financial information included elsewhere in this report or in annual reports or current reports on Form 8-K filed previously by us in respect of the fiscal years identified in the column headings of the tables below.
Fiscal | |||||||||||||||||||||||||||||||||||||||
(in thousands, except per share amounts) | 2004 | 2005 | 2006 | 2007 | 2008 | ||||||||||||||||||||||||||||||||||
Fiscal | |||||||||||||||||||||||||||||||||||||||
(in thousands, except per share amounts) | 2005 | 2006 | 2007 | 2008 | 2009 | ||||||||||||||||||||||||||||||||||
Statement of Operations Data: | |||||||||||||||||||||||||||||||||||||||
Net revenue: | |||||||||||||||||||||||||||||||||||||||
Equipment | $ | 361,244 | $ | 201,608 | $ | 319,788 | $ | 316,718 | $ | 271,019 | $ | 201,608 | $ | 319,788 | $ | 316,718 | $ | 271,019 | $ | 170,536 | |||||||||||||||||||
Packaging Materials | 62,887 | 58,394 | 60,508 | 53,808 | 57,031 | ||||||||||||||||||||||||||||||||||
Expendable Tools | 58,394 | 60,508 | 53,808 | 57,031 | 54,704 | ||||||||||||||||||||||||||||||||||
Total net revenue | 424,131 | 260,002 | 380,296 | 370,526 | 328,050 | 260,002 | 380,296 | 370,526 | 328,050 | 225,240 | |||||||||||||||||||||||||||||
Cost of sales: | |||||||||||||||||||||||||||||||||||||||
Equipment | 208,616 | 115,645 | 178,599 | 188,055 | 165,499 | 115,645 | 178,599 | 188,055 | 165,499 | 111,103 | |||||||||||||||||||||||||||||
Packaging Materials | 28,008 | 27,409 | 28,474 | 27,035 | 28,758 | ||||||||||||||||||||||||||||||||||
Expendable Tools | 27,409 | 28,474 | 27,035 | 28,758 | 25,294 | ||||||||||||||||||||||||||||||||||
Total cost of sales (1) | 236,624 | 143,054 | 207,073 | 215,090 | 194,257 | 143,054 | 207,073 | 215,090 | 194,257 | 136,397 | |||||||||||||||||||||||||||||
Operating expenses: | |||||||||||||||||||||||||||||||||||||||
Equipment | 79,674 | 70,628 | 89,684 | 113,444 | 122,302 | 70,628 | 89,684 | 113,444 | 122,302 | 135,465 | |||||||||||||||||||||||||||||
Packaging Materials | 18,236 | 22,578 | 23,316 | 24,480 | 26,971 | ||||||||||||||||||||||||||||||||||
Expendable Tools | 22,578 | 23,316 | 24,480 | 26,971 | 24,193 | ||||||||||||||||||||||||||||||||||
Impairment of goodwill | — | — | — | — | 2,709 | ||||||||||||||||||||||||||||||||||
U.S. pension plan termination | — | — | — | — | 9,152 | — | — | — | 9,152 | — | |||||||||||||||||||||||||||||
Gain on sale of assets | — | (1,690 | ) | (4,544 | ) | — | — | (1,690 | ) | (4,544 | ) | — | — | — | |||||||||||||||||||||||||
Total operating expenses (1) | 97,910 | 91,516 | 108,456 | 137,924 | 158,425 | 91,516 | 108,456 | 137,924 | 158,425 | 162,367 | |||||||||||||||||||||||||||||
Income (loss) from operations: | |||||||||||||||||||||||||||||||||||||||
Equipment | 72,954 | 15,335 | 51,505 | 15,219 | (16,782 | ) | |||||||||||||||||||||||||||||||||
Packaging Materials | 16,643 | 8,407 | 8,718 | 2,293 | 1,302 | ||||||||||||||||||||||||||||||||||
U.S. pension plan termination | — | — | — | — | (9,152 | ) | |||||||||||||||||||||||||||||||||
Segment income (loss) from operations: | |||||||||||||||||||||||||||||||||||||||
Equipment including U.S. pension plan termination of $9,152 in 2008 | 15,335 | 51,505 | 15,219 | (25,934 | ) | (78,741) | |||||||||||||||||||||||||||||||||
Expendable Tools | 8,407 | 8,718 | 2,293 | 1,302 | 5,217 | ||||||||||||||||||||||||||||||||||
Gain on sale of assets | — | 1,690 | 4,544 | — | — | 1,690 | 4,544 | — | — | — | |||||||||||||||||||||||||||||
Interest income (expense), net | (9,357 | ) | (1,578 | ) | 795 | 3,990 | 1,233 | (1,578 | ) | 795 | 3,990 | 1,233 | (1,495) | ||||||||||||||||||||||||||
Gain (loss) on extinguishment of debt (5) | (10,510 | ) | — | 4,040 | 2,802 | 170 | |||||||||||||||||||||||||||||||||
Income (loss) from continuing operations before taxes | 69,730 | 23,854 | 69,602 | 24,304 | (23,229 | ) | |||||||||||||||||||||||||||||||||
Provision for income taxes from continuing operations (2) | 4,705 | 1,468 | 8,068 | 5,448 | (3,610 | ) | |||||||||||||||||||||||||||||||||
Gain on extinguishment of debt | — | 4,040 | 2,802 | 170 | 3,965 | ||||||||||||||||||||||||||||||||||
Income (loss) from continuing operations before income taxes | 23,854 | 69,602 | 24,304 | (23,229 | ) | (71,054) | |||||||||||||||||||||||||||||||||
Provision (benefit) for income taxes from continuing operations(2) | 1,468 | 8,068 | 5,448 | (3,610 | ) | (13,029) | |||||||||||||||||||||||||||||||||
Income (loss) from continuing operations | 65,025 | 22,386 | 61,534 | 18,856 | (19,619 | ) | 22,386 | 61,534 | 18,856 | (19,619 | ) | (58,025) | |||||||||||||||||||||||||||
Income (loss) from discontinued operations, net of tax (2)(3) | (9,145 | ) | (126,468 | ) | (9,364 | ) | 18,874 | 23,441 | |||||||||||||||||||||||||||||||
Income (loss) from discontinued operations, net of tax(2)(3) | (126,468 | ) | (9,364 | ) | 18,874 | 23,441 | 22,011 | ||||||||||||||||||||||||||||||||
Net income (loss) | $ | 55,880 | $ | (104,082 | ) | $ | 52,170 | $ | 37,730 | $ | 3,822 | $ | (104,082 | ) | $ | 52,170 | $ | 37,730 | $ | 3,822 | $ | (36,014) | |||||||||||||||||
Per Share Data: | |||||||||||||||||||||||||||||||||||||||
Income (loss) per share from continuing operations (4) | |||||||||||||||||||||||||||||||||||||||
Basic | $ | 1.28 | $ | 0.43 | $ | 1.12 | $ | 0.34 | $ | (0.37 | ) | $ | 0.43 | $ | 1.12 | $ | 0.34 | $ | (0.37 | ) | $ | (0.93) | |||||||||||||||||
Diluted | $ | 1.03 | $ | 0.36 | $ | 0.91 | $ | 0.29 | $ | (0.37 | ) | $ | 0.36 | $ | 0.91 | $ | 0.29 | $ | (0.37 | ) | $ | (0.93) | |||||||||||||||||
Discontinued operations, net of tax per share: (4) | |||||||||||||||||||||||||||||||||||||||
Income (loss) per share from discontinued operations, net of tax:(4) | |||||||||||||||||||||||||||||||||||||||
Basic | $ | (0.18 | ) | $ | (2.45 | ) | $ | (0.17 | ) | $ | 0.33 | $ | 0.44 | $ | (2.45 | ) | $ | (0.17 | ) | $ | 0.33 | $ | 0.44 | $ | 0.35 | ||||||||||||||
Diluted | $ | (0.07 | ) | $ | (1.84 | ) | $ | (0.14 | ) | $ | 0.28 | $ | 0.44 | $ | (1.87 | ) | $ | (0.14 | ) | $ | 0.28 | $ | 0.44 | $ | 0.35 | ||||||||||||||
Net income (loss) per share: (4) | |||||||||||||||||||||||||||||||||||||||
Basic | $ | 1.10 | $ | (2.02 | ) | $ | 0.95 | $ | 0.67 | $ | 0.07 | $ | (2.02 | ) | $ | 0.95 | $ | 0.67 | $ | 0.07 | $ | (0.58) | |||||||||||||||||
Diluted | $ | 0.96 | $ | (1.48 | ) | $ | 0.78 | $ | 0.57 | $ | 0.07 | $ | (1.51 | ) | $ | 0.78 | $ | 0.57 | $ | 0.07 | $ | (0.58) | |||||||||||||||||
Weighted average shares outstanding: (4) | |||||||||||||||||||||||||||||||||||||||
Basic | 50,746 | 51,619 | 55,089 | 56,221 | 53,449 | 51,619 | 55,089 | 56,221 | 53,449 | 62,188 | |||||||||||||||||||||||||||||
Diluted | 68,582 | 67,662 | 68,881 | 68,274 | 53,449 | 67,662 | 68,881 | 68,274 | 53,449 | 62,188 | |||||||||||||||||||||||||||||
Balance Sheet Data: | |||||||||||||||||||||||||||||||||||||||
Cash, cash equivalents, investments and restricted stock | $ | 95,766 | $ | 95,369 | $ | 157,283 | $ | 169,910 | $ | 186,081 | |||||||||||||||||||||||||||||
Cash, cash equivalents, investments and restricted cash | $ | 95,369 | $ | 157,283 | $ | 169,910 | $ | 186,081 | $ | 144,841 | |||||||||||||||||||||||||||||
Working capital excluding discontinued operations | 108,573 | 105,764 | 156,237 | 219,755 | 165,543 | 105,764 | 156,237 | 219,755 | 165,543 | 172,401 | |||||||||||||||||||||||||||||
Total assets excluding discontinued operations | 221,053 | 241,134 | 261,109 | 384,713 | 336,270 | 241,134 | 261,109 | 384,713 | 336,270 | 413,076 | |||||||||||||||||||||||||||||
Long-term debt (5) | 270,000 | 270,000 | 195,000 | 251,412 | 175,000 | ||||||||||||||||||||||||||||||||||
Long-term debt | 270,000 | 195,000 | 251,412 | 175,000 | 110,000 | ||||||||||||||||||||||||||||||||||
Shareholders’ equity (deficit) | 67,020 | (31,748 | ) | 79,306 | 83,255 | 102,467 | (31,748 | ) | 79,306 | 83,255 | 102,467 | 153,461 |
(1) | During fiscal |
During fiscal 2005, we recorded the following charges as operating expenses in continuing operations: severance charges of $0.9 million; China start-up costs of $1.2 million; and inventory write-downs of $1.0 million. We also recorded a gain on the sale of assets of $1.7 million within fiscal 2005 operating expenses.
During fiscal 2006, we recorded the following charges in continuing operations: $3.5 million in cost of sales and $0.8 million in operating expenses for the cumulative adjustment to correct immaterial errors in the consolidated financial statements; $0.6 million in cost of sales and $4.1 million in operating expenses for SFAS 123R equity compensation expense; $8.4 million in operating expenses for incentive compensation and a gain on the sale of assets of $4.5 million in operating expenses.
During fiscal 2007, 2008 and 2009, we recorded the following charges in continuing operations: $0.2$4.4 million, in cost of sales$2.2 million and $5.3$2.7 million, in operating expenses for SFAS 123R equity compensation expense; and $4.4 millionrespectively, in operating expense for incentive compensation.
DuringIn addition, during fiscal 2008,2009, we recorded the following charges in continuing operations: $0.3 million in cost of sales and $4.4 million in operating expenses for SFAS 123R equity compensation expense; and $2.2$7.4 million in operating expense for incentive compensation.
severance.
(2) | The following are the |
(3) | Reflects the operations of the Company’s |
(4) | For fiscal |
Item 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
In addition to historical information, this filing contains statements relating to future events or our future results. These statements are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and are subject to the safe harbor provisions created by statute. Such forward-looking statements include, but are not limited to, statements that relate to our future revenue, product development, demand forecasts, competitiveness, operating expenses, cash flows, profitability, gross margins, product prices, 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 |
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 this Annual Report on Form 10-K for the year ended September 27, 2008October 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 predictionpredictions of actual results.
Introduction
Unless otherwise indicated, amounts provided throughout this Form 10-K relate to continuing operations only and accordingly do not include amounts attributable to our Wire business.business, which we sold on September 29, 2008.In fiscal 2009, our Packaging Materials segment was renamed Expendable Tools.
Kulicke and& Soffa Industries, Inc. (“K(the “Company” or “K&S”) designs, manufactures and marketssells capital equipment and packaging materials as well as services, maintains, repairs and upgrades equipment, allexpendable tools used to assemble semiconductor devices.devices, including integrated circuits, high and low powered discrete devices, LEDs, and power modules. We also service, maintain, repair and upgrade our equipment. Our customers primarily consist of Integrated Device Manufacturers (“IDM”)semiconductor device manufacturers, their subcontract assembly suppliers, other electronics manufacturers and subcontractor assembly facilities. According to VLSI Research, Inc., we are currently the world’s leading supplier of semiconductor ball bonding assembly equipment.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 main business segments which are:
equipment; and
packaging materials.
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 certain manufacturing to Asia, moving a portion of 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 efficiencies while maintainingsavings without compromising overall product quality.quality and service levels.
Our fiscal year end for fiscal 2006, 2007 and 2008 was September 30, 2006, September 29, 2007, and September 27, 2008, respectively.
Divesture of the Wire Business
Subsequent to year end, onOn September 29, 2008, we completed the sale of our Wire business for $155.0net proceeds of $149.9 million (subject to working capital adjustment) to W.C. Heraeus GmbH (“Heraeus”), a precious metals and technology company based in Hanau, Germany.. The working capital requirements of our Wire business had become significant in recent years, and we believe could no longer be justified. As a result of the salefinancial results of the Wire business we improved our working capital position. Our Wire business hadhave been previously reported within our Packaging Materials segment, but is now reported asincluded in discontinued operations. We expect the gain on the sale of our Wire business to be approximately $22.1 million to $25.1 million and will be recognizedoperations in the first quarter of fiscal 2009.consolidated financial statements for all periods presented.
The sale of our Wire business provided us with the financial resources and technical focus necessary to pursue growth opportunities within our Equipment segment. In addition, we will continue to have a strategic technical alliance with Heraeus in the development of wire bonding solutions.
Acquisition of Wedge Bonding Business
Subsequent to year end onOn October 3, 2008, we completed the acquisition of substantially all of the assets and assumption of certain liabilities of Orthodyne Electronics Corporation (“Orthodyne”), a privately held company based in Irvine, California. Orthodyne is the leading supplier of both wedge bonders and wedges (the consumable product used in wedge bonding) for the power management and hybrid module markets.. In connection with the Orthodyne acquisition, we issued 7.1 million common shares with an estimated value on that date of $46.2 million and paid $82.5$87.0 million in cash including working capital. A totalcapitalized acquisition costs. Orthodyne is the leading supplier of 15% ofboth heavy wire wedge bonders and heavy wire wedges (the expendable tools used in wedge bonding) for the purchase price was deposited into a third-party escrow account as partial security for Orthodyne’s indemnification obligations under the asset purchase agreement. In addition, we agreed to pay up to $40.0 million in cash, if certain significant objectives related to gross profit are met by the Orthodyne business over the next three years.
We believe the Orthodyne acquisition will benefit us strategically by providing deeper penetration into the discrete side of thepower semiconductor market, and in the attractive power management and hybrid module markets. We expect wedge bonding will benefit
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 increased focusimprovements 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 energy efficient solutions in the years ahead, and that Orthodyne’s market leading position in this area will allow us to address a larger Total Available Market (“TAM”). We now offer a broad suite of interconnect technologies for a variety of semiconductor packaging applications, and we believe the acquisition of Orthodyne will enhance our position as the leading supplier of interconnect solutions. We believe that on a combined basis, the sale of our Wire business and the purchase of Orthodyne will provide us with both the financial resources and technical focus necessary to pursue growth opportunities inconsumer demand for electronic devices, as well as other areas of our business.
Technology Leadership
In March 2008, we launched a new generation of semiconductor assembly equipment—the Power Series which currently features the IConnPS and ConnXPS ball bonders. The Power Series is setting new standards for performance, productivity, upgradeability, and ease of use. Sales of the IConnPS machines began during the quarter ended June 28, 2008, and sales of the ConnXPS began in our first quarter of fiscal 2009. Initial customer response has been positive, and performance for these machines has met or exceeded our expectations. The improvement in productivity and reliability represented by the Power Series translates into lower cost of ownership for our customers, and we believe will give us competitive advantage going forward. In 2008, the IConnPSmachine won the Advanced Packaging magazine award for top new product in its class, the second time in three years a K&S product received this recognition.
We are currently in the later development stages of the next addition to the Power Series—our next generation, die bonder machine, code named “Discovery”. Discovery will allow us to compete aggressively in the growing advanced packaging/stacked die market space. Alpha evaluations of Discoveryproducts that have been underway with a select customer since July 2008, and the initial customer feedback has been very positive. We anticipate launching this machine in the second quarter of fiscal 2009.
Copper wire bonding continues to gain market interest as an alternative to gold wire bonding as customers seek ways to reduce the cost of the wire bonding process. We believe that for copper to become viable alternative to gold, a solution spanning all
manufacturing materials and processes, not just those involved in wire bonding, will be needed. Accordingly, we launched a copper wire bonding initiative with the goal of working with our customers and partners to find an integrated solution from the front-end through the back-end of the integrated circuit (“IC”) manufacturing process. Currently, copper wire bonding represents a small but packaging technology, and we believe gold wire bonding will continue to be the dominant interconnect platform.
Through the purchase of Orthodyne, we now are the leaders in the design and manufacture of wedge bonders for the power semiconductor, automotive power module, and sensor markets. Wedge bonders use wire or ribbon bonds to attach high-current-capacity aluminum wire to power semiconductors in discrete power devices or in modules,significant electronic content such as inverters for hybrid cars. Wedge bondsautomobiles, white goods, and telecommunication equipment.
Our Equipment segment reflects the industry’s cyclical dynamics and is therefore also attach large-diameter wire to semiconductors when packaging or reliability constraints do not allow the use of ball bonds.
Business Environment
Global economic conditions affect demand for semiconductor capital equipment and packaging systems. Accordingly, our business andhighly volatile. The financial performance of this segment is impacted,affected, both positively and negatively, by fluctuations in the macroeconomic environment. Conditions in the global economy deteriorated dramatically near the end of our fiscal year and in subsequent weeks. Current industry forecasts for calendar 2009 point to significant weakening in consumer and business electronics spending. We expect demand to remain weak and visibility to be poor through at least the second quarter of fiscal 2009.
Our equipment business is cyclical and highly dependent on semiconductor manufacturers’ expectationexpectations of capacity requirements and their plans for future IC demand, as well asupgrading their demand for new semiconductor manufacturing technologies. During the first quarterproduction capabilities. Volatility of fiscal 2009, our bookings slowed as customers respond to the weakening economic conditions.
Our Equipmentthis segment sales have historically been highly volatile due to the semiconductor industry’s cyclical need for new capability and capacity. Volatility is further influenced by the relative mix of IDM and subcontractorsubcontract customers in any period, since subcontractors tend purchase larger volumes in less predictable patterns. Variancechanges in the mix of sales to IDMs and subcontractors can also affect our products’ average selling priceprices due to differences in volume purchases and different machine configurations required by each type of customer.
Packaging Materials sales tend to beOur 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 sales as these products represent consumable purchasesand expendable tools. In the first half of fiscal 2009, conditions in the global economy deteriorated dramatically, leading to a sharp contraction in consumer and business electronics spending, which in turn reduced demand throughout the semiconductor supply chain. Business conditions began to improve near the end of our second fiscal quarter and continued to improve through the remainder of fiscal 2009. Customer orders have remained strong during the first quarter of fiscal 2010. However, our visibility into future demand is generally limited and forecasting is difficult. There can be no assurances regarding levels of demand for our customersproducts, and volumes follow the trendwe believe historic industry-wide volatility will persist.
To mitigate possible negative effects of total semiconductor interconnect unit production.
Balance Sheet Strength
We continually seek ways to maintain the strength ofthis industry-wide volatility on our financial position, we are de-leveraging and have strengthened our balance sheet. Fiscal 2008During fiscal 2009, we reduced our debt by $88.4 million to $159.0 million. We also completed a public equity offering of 8.0 million common shares which raised $38.7 million of net proceeds. We ended fiscal 2009 with cash and investments of $186.1 million reflectcash equivalents totaling $144.8 million. We believe a $16.2 million increase from fiscal 2007. Additionally, the impact of the Wire business divestiture and the Orthodyne acquisition, both of which closed after the year-end, was to add approximately $70.0 million in cash to our Consolidated Balance Sheet. Our strongerstrong cash position allows us to manage volatile buying patternscontinue making longer term investments in product development and in cost reduction activities throughout the semiconductor cycle.
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 control 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 customers, servicevarious wire bonder and expendable tools products.
To maintain our debt and continue tocompetitive 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.
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 significant portion of the industry’s installed base is not suitable for copper bonding. Through our research and development through downturns inefforts, we are well positioned with both leading products and the global economy and our industry.
Macroeconomic Factors: Foreign Currencyprocess expertise to capitalize on this potential replacement cycle.
We are exposed to fluctuations in foreign currency exchange rates. Certainalso maintain the technology leadership of our assets and liabilities are denominatedequipment 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 foreign currencies and are affected by changes in exchange ratesLED assembly. Industry analysts have estimated the annual growth rate for those currencies which impact our business. For fiscal year 2008, our foreign exchange transaction loss was $1.8 million comparedtotal shipments of LED devices to $0.1 million for fiscal 2007. The higher foreign exchange loss was due to the unfavorable exchange rates primarilybe approximately 15% annually through 2013, driven by the Swiss Francadoption 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 Israeli Shekel. Duringsince their introduction we have captured significant market share.
Our focus on technology leadership also extends to die bonding. In fiscal 2008,2009, we restructuredlaunched a new die bonding platform, our Swiss entity, which reduced our exposure to US Dollar/Swiss Franc fluctuations. To mitigate our market risk, we periodically adjust our subsidiaries’ holdingsstate of foreign currency denominated working capital,the artiStackPSTM die bonder for advanced stacked die applications.iStack offers best-in-class throughput and accuracy, and we may enter into foreign exchange forward contracts or other hedging instruments.
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.
We offersupply a range of bonding equipment and packaging materials.expendable tools. The following table reflects the percentage of our net revenue by business segment for fiscal 2006, 2007, 2008 and 2008:2009:
Fiscal | Fiscal | |||||||||||||||||||||||||||||||||||||||||
2006 | 2007 | 2008 | 2007 | 2008 | 2009 | |||||||||||||||||||||||||||||||||||||
(dollar amounts in thousands) | Net Revenues | % of Total Net Revenues | Net Revenues | % of Total Net Revenues | Net Revenues | % of Total Net Revenues | ||||||||||||||||||||||||||||||||||||
(dollar amounts in thousands) | Net Revenue | % of Total Revenue | Net Revenue | % of Total Revenue | Net Revenue | % of Total Revenue | ||||||||||||||||||||||||||||||||||||
Equipment | $ | 319,788 | 84.1 | % | $ | 316,718 | 85.5 | % | $ | 271,019 | 82.6 | % | $ | 316,718 | 85.5 | % | $ | 271,019 | 82.6 | % | $ | 170,536 | 75.7 | % | ||||||||||||||||||
Packaging Materials | 60,508 | 15.9 | % | 53,808 | 14.5 | % | 57,031 | 17.4 | % | |||||||||||||||||||||||||||||||||
Expendable Tools | 53,808 | 14.5 | % | 57,031 | 17.4 | % | 54,704 | 24.3 | % | |||||||||||||||||||||||||||||||||
$ | 370,526 | 100.0 | % | $ | 328,050 | 100.0 | % | $ | 225,240 | 100.0 | % | |||||||||||||||||||||||||||||||
$ | 380,296 | 100.0 | % | $ | 370,526 | 100.0 | % | $ | 328,050 | 100.0 | % | |||||||||||||||||||||||||||||||
See Note 11 to our Consolidated Financial Statements included in Item 8 of this report for financial results by business segment.TABLE OF CONTENTS
Equipment
We manufacture and marketsell a line of ball bonders, heavy wire wedge bonders and die bonders whichthat are sold to many of the same customers.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 aluminum 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 packagesubstrate 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.
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 | Horizontal 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 |
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. Launched in 2008, the Power Series initially consisted of the IConnPS high-performance and ConnXPS cost-performance ball bonders.
In particular,fiscal 2009, we launched two extensions of ourConnXPSTM automatic ball bonder aimed specifically at LED applications — ConnX-LEDPSTMandConnX-VLEDPSTM. Traditionally, we had not targeted the LED market with our product portfolio but through the technology leadership ofConnXPSTM 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 that are needed in the assembly of advanced semiconductor packages. Our principal products are:
Integrated Circuit Ball Bonders
Automatic IC ball bonders representcan also be converted for use to copper applications through kits we sell separately, a significant portioncapability that is increasingly important as bonding with copper continues to grow as an alternative to gold.
Through the acquisition of ourOrthodyne, we are now the leaders in the design and manufacture of heavy wire wedge bonders for the power semiconductor equipment business. As partand 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 our competitive strategy, we seek to continually improve our models and periodically introduce new or improved models of our IC ball bonders. Each new or improved model is designed to increase both productivity and process capability compared to the predecessor model.bonds.
|
|
|
|
IC Die Bonders
We utilize the same competitive strategy for our IC die bonders as we use for our ball bonder business, including developing new models which both improve the productivity of the die bonders and increase the size of the market for our products.
Wedge Bonders
Beginning in fiscal 2009, we offer through the Orthodyne acquisition, a broadOur portfolio of wedge bonding products.
products includes:
The 3600plus and 7200plus3600 Plus wedge bonders: high speed, high accuracy wire bonders are currently the leading choicesdesigned for power interconnects in both themodules, automotive packages and other large wire multi-chip module applications.
We will launch the latest 7600 series wedge bonderbonder: first introduced in March of 2009, the first half of calendar 2009. This product7600 is targeted primarily at the market for small power packages and will also extend our product portfolio to include reel-to-reel type applications.
We have also developed an advanced process for bonding power packages that utilizes ribbon rather than a round wire. Sold under the trade name PowerRibbon®, the process offers performance advantages over traditional round wire and is gaining acceptance in the market for power packages and automotive high current applications. This process is available on new wedge bonders or as a retrofit kit for some existing wedge bonders. We expect that our ribbon bonding capability will open new packaging opportunities for our customers.
|
|
We entered the die bonder market through the fiscal 2007 acquisition of Alphasem. Our die bonder strategy included continuing to sell the existing Alphasem products while developing a family of next-generation die bonders. The first of those new machines, thePackaging MaterialsiStack, was launched in March of 2009. We are currently puttingiStack qualification machines in customers’ factories, and expect first purchase orders in the March 2010 fiscal quarter.
OuriStack is targeted at stacked die and high end BGA applications. In these applications, we expect up to 30% to 50% productivity increases compared to current generation machines. In addition,iStack has demonstrated superior accuracy and process control. We believeiStack represents a significant opportunity for us to expand our die bonder business.
During fiscal 2009 we announced the end of life of our older Alphasem die bonder products.
We also sell other equipment products including manual wire bonders and stud bump bonders.
We also offer spare parts, equipment repair, training services, and upgrades for our equipment through our Support Services business unit.
We manufacture and sell a variety of expendable tools include a wide variety of capillaries, wedges tools, clamp tooling, cutter blades, wire guides, and wafer saw blades. These tools are developed for a broad range of semiconductor packaging applications such as:
applications. Our principal Expendable Tools segment products include:
Capillaries and wedge tools- attach the wire to the semiconductor chip, guide the wire during loop formation, attach the wire to the package substrate and cut the wire allowing the bonding process to be repeated.
Clamp tooling - holds the lead frame securelyCapillaries: expendable tools used in place during the bonding process and are typically custom-designed to meet individual customer needs.
Cutter blades- cutball bonders. Made of ceramic, a large-diameter of wire in wedge bonding applications.
Wirecapillary guides – precisely guide the wire during the loop formation.
Wafer saw blades -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.
In addition to the expandable tools discussed above, beginning in fiscal 2009 through the acquisition of Orthodyne, we will offer expendable wedge tools, clamp tooling, cutter bladesdie and wire guides used for wedge and ribbon bonders. The wedge tools are used to attach the wire to the die or lead frame, while a precision wire guide is used to guide the wire during the loop formation. For wedge bonding with large-diameter of wire, a cutter blade is used to cut the wire after the bonding process is complete and allow the process to be repeated. Clamp tooling products are used to securely hold the lead framesemiconductor devices that have been molded in place during the bonding process, and are typically custom-designed to meeta matrix configuration into individual customer needs. Orthodyne’s expendable products business is well positioned to benefit from future synergies with our existing Packaging Materials business.
units.
The preparation of consolidated financial statements requires us to make assumptions, estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and disclosures of contingent assets and liabilities as of the date of the consolidated financial statements. On an on-going basis, we evaluate
estimates, including but not limited to, those related to accounts receivable, reserves for excess and obsolete inventory, carrying value and lives of fixed assets, goodwill and intangible assets, valuation allowances for deferred tax assets and deferred tax liabilities, repatriation of unremitted foreign subsidiary earnings, pension benefit liabilities, equity-based compensation expense, resizing, warranties, and litigation.warranties. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable. As a result, we make judgments regarding the carrying values of our assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
In June 2009, the Financial Accounting Standards Board (“FASB”) issued revised accounting guidance which establishes the FASB Accounting Standards Codification (“ASC”) as the authoritative source for accounting principles of non-governmental entities to conform to United States Generally Accepted Accounting Principles (“GAAP”) used in the preparation of financial statements. The ASC is not intended to change existing guidance for public companies. The new guidance is effective for interim and annual reporting periods ending after September 15, 2009.
We believe the following critical accounting policies, which have been reviewed with the Audit Committee, affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.
In accordance with ASC No. 605,Revenue Recognition
We recognize revenue in accordance with Staff Accounting Bulletin (“SAB”) No. 104,Revenue Recognition(“SAB 104”). We, we recognize 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 we have satisfiedcompleted the equipment installation obligations and received
customer acceptance, when applicable, or areis otherwise released from ourits installation or customer acceptance obligations. In the event terms of the sale provide for a lapsing customer acceptance period, we recognize revenue basedis recognized upon the expiration of the lapsing acceptance period or customer acceptance, whichever occurs first. Our standard shipping terms are Ex Works (Kulicke & Soffa(our factory), with title transferring to our customer at our loading dock or upon embarkation. We have 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.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. We do not provide price protection to our customers.
Our business is subject to contingencies related to customer orders as follows:
• | Right of Return:A large portion of our revenue comes from the sale of machines used in the semiconductor assembly process. Other product sales relate to consumable products, which are sold in high-volume quantities, and are generally maintained at low stock levels at our customer’s facility. Customer returns have historically represented a very small percentage of customer sales on an annual basis. Our policy is to provide an allowance for customer returns based upon our historical experience and management assumptions. |
• | Warranties:Our equipment is generally shipped with a one-year warranty against manufacturer’s defects. We recognize a liability for estimated warranty expense when revenue for the related product is recognized. The estimated liability for warranty expense is based upon historical experience and our estimates of future expenses. |
• | Conditions of Acceptance:Sales of our consumable products generally do not have customer acceptance terms. In certain cases, sales of our equipment have customer acceptance clauses which may require the equipment to perform in accordance with customer specifications or when installed at the customer’s facility. In such cases, if the terms of acceptance are satisfied at our facility prior to shipment, the revenue for the equipment will be recognized upon shipment. If the terms of acceptance are satisfied at our customers’ facilities, the revenue for the equipment will be not be recognized until acceptance, which typically consists of installation and testing, is received from the customer. |
Shipping and handling costs billed to customers are recognized in net revenue. Shipping and handling costs are included in cost of sales.
We maintain allowances for doubtful accounts for estimated losses resulting from our customers’ failure to make required payments. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. We are also subject to concentrations of customers and sales to a few geographic locations, which could also impact the collectbility of certain receivables. If global economic conditions continue to deteriorate or political conditions were to change in some of the countries where we do business, it could have a significant impact on the results of our operations, and our ability to realize the full value of our accounts receivable.
Inventories
Inventories are stated at the lower of standard cost (which approximates actual cost on(on a first-in first-out basis) or market value. We generally provide reserves for obsolete inventory and for inventory considered to be in excess of demand. In addition, we generally record as accrued expense inventory purchase commitments in excess of demand. Demand is generally defined as eighteen months forecasted future consumption for non-Wedge bonder equipment, twenty-four months consumption for Wedge bonder equipment and all spare parts, and twelve months historical consumption for packaging materials and twenty-four months historical consumption for spare parts.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. We communicate forecasts of our future demand to our suppliers and adjust commitments to those suppliers accordingly. If required, we reserve for the difference between the carrying value of our inventory and the lower of cost or market value, based upon assumptions about future demand, market conditions and the next cyclical market upturn. If actual market conditions are less favorable than our projections, additional inventory reserves may be required.
Valuation of
Long-livedLong-Lived Assets
Our long-lived assets are primarily property, plant and equipment, intangible assets and goodwill. In accordance with the provisions of Statements of Financial Accounting Standards (“SFAS”)ASC No. 142,350,Intangibles, Goodwill and Other Intangible Assets(“SFAS 142” (“ASC 350”), our goodwill is not amortized. SFAS 142ASC 350 also requires that, at least annually, we perform an impairment test be performed to support the carrying value of goodwill. In addition, whenever events occur that may impactwould more likely than not reduce the carryingfair value of reporting unit below its carrying amount, a goodwill an impairment test will be performed. The fair value of our goodwill is based upon our estimates of future cash flows and other factors. We manage and value our intangible technology assets in the aggregate, as one asset group, not by individual technology.
In accordance with SFASASC No. 144,360,Accounting for Impairment or Disposal of Long-Lived AssetsProperty, Plant & Equipment(“SFAS 144” (“ASC 360”), our property, plant and equipment is tested for impairment based on undiscounted cash flows when triggering events occur, and if impaired, written-down to fair value based on either discounted cash flows or appraised values. SFAS 144ASC 360 also provides a single accounting model for long-lived assets to be disposed of by sale and establishes additional criteria that would have to be met to classify an asset as held for sale. The carrying amount of an asset or asset group is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset or asset group. Estimates of future cash flows used to test the recoverability of a long-lived asset or asset group must incorporate the entity’s own assumptions about its use of the asset or asset group and must factor in all available evidence. SFAS 144
ASC 360 requires that long-lived assets be tested for recoverability whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Such events include significant under-performance relative to the expected historical or projected future operating results; significant changes in the manner of use of the assets; significant negative industry or economic trends and significant changes in market capitalization.
Deferred income taxes are determined using the liability method in accordance with ASC No. 740,Income TaxesTaxes.
We record a valuation allowance to reduce our deferred tax assets to the amount we expect is more likely than not to be realized. While we have considered future taxable income and our ongoing tax planning strategies in assessing the need for the valuation allowance, if we were to determine that we would be able to realize oura deferred tax assetsasset in the future in excess of ourits net recorded amount, an adjustment to the deferred tax asset would increase income in the period such determination was made. Likewise, should we determine we would not be able to realize all or part of oura net deferred tax assetsasset in the future, an adjustment to the deferred tax asset would decrease income in the period such determination was made. In fiscal 2002 and 2003, we established a valuation allowance against our deferred tax assets generated from our U.S. net operating losses. In fiscal 2004 through 2008, we reversed the portion of the valuation allowance that was equal to the U.S. federal income tax expense on our U.S. income for that fiscal year or related to our plans to repatriate certain unremitted foreign earnings. Due to the restructuring of our international operations, projections of future earnings and the significant historic volatility of our Equipment segment, which will be the primary income source for the U.S. in the future, we do not believe it is more likely than not the remaining deferred tax assets will be realized.
Effective September 30, 2007, we adopted the Financial Accounting Standards Board (“FASB”) InterpretationASC No. 48,740 Topic 10, Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109Taxes, General (“FIN 48”ASC 740.10”). FIN 48ASC 740.10 prescribes, among other things, a recognition threshold and measurement attributes for the financial statement recognition and measurement of uncertain tax positions taken or expected to be taken in a company’s income tax return. FIN 48 utilizesWe utilize a two-step approach for evaluating uncertain tax positions accounted for in accordance with SFAS 109,Accounting for Income Taxes.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.
Equity-based Compensation
We account for equity-basedequity based compensation under the provisions of SFASASC No. 123R,718,Share-Based PaymentsCompensation, Stock Compensation (“SFAS 123R”ASC 718”). SFAS 123RASC 718 requires the recognition of the fair value of equity-based compensation in net income.income (loss). The fair value of our Company’s stock option awards are estimated using a Black-Scholes option valuation model. This model requires the input of highly subjective assumptions and elections including expected stock price volatility and the estimated life of each award. In addition, the calculation of equity-based compensation costcosts requires that weus to 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 we have elected to use the straight-line method for awards granted after the adoption of SFAS 123R and continue to use a graded vesting method for awards granted prior to the adoption of SFAS 123R.ASC 718.
RECENT ACCOUNTING PRONOUNCEMENTS
See Note 1 to the consolidated financial statements in Item 8 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.
Results of Operations for fiscal
20072008 and 2008
The following table reflects bookings and backlog as of September 29, 2007 and September 27, 2008:
As of | ||||||
(in thousands) | September 29, 2007 | September 27, 2008 | ||||
Bookings | $ | 412,199 | $ | 291,994 | ||
Backlog | $ | 85,563 | $ | 49,508 |
2009Bookings and Backlog
A booking is recorded when a customer order is reviewed and it is determined that all specifications can be met, production (or service) can be scheduled, a delivery date can be set, and the customer meets our credit requirements. Our backlog consists of customer orders that are scheduled for shipment within the next 12 months. A majority of our orders are subject to cancellation or deferral by the customerour customers with limited or no penalties. Also, customer demand for our products can vary dramatically without prior notice. Because of the volatility of customer demand, possibility of customer changes in delivery schedules or cancellations and potential delays in product shipments, our bookings and backlog as of any particular date may not be indicative of revenuesnet revenue for any succeeding period.
The following table reflects our bookings in fiscal 2008 and 2009:
Fiscal | ||||||||
(in thousands) | 2008 | 2009 | ||||||
Bookings | $ | 291,994 | $ | 208,234 |
The following table reflects our backlog as of September 27, 2008 and October 3, 2009:
As of | ||||||||
(in thousands) | September 27, 2008 | October 3, 2009 | ||||||
Backlog | $ | 49,508 | $ | 42,181 |
Our customers areApproximately 96.8%, 95.6% and 97.0% of our net revenue for fiscal 2007, 2008 and 2009, respectively, was for shipments to customer locations outside of the United States, primarily located or have operations in the Asia/Pacific region. region, and we expect sales outside of the United States to continue to represent a substantial majority of our future revenue.
The following table reflects net revenue by business segment for fiscal 2008 and 2009:
Fiscal | ||||||||||||||||
(dollar amounts in thousands) | 2008 | 2009 | $ Change | % Change | ||||||||||||
Equipment | $ | 271,019 | $ | 170,536 | $ | (100,483 | ) | -37.1 | % | |||||||
Expendable Tools | 57,031 | 54,704 | (2,327 | ) | -4.1 | % | ||||||||||
Total | $ | 328,050 | $ | 225,240 | $ | (102,810 | ) | -31.3 | % |
The following table reflects the components of Equipment net revenue change from fiscal 2008 to 2009:
Fiscal 2008 vs. 2009 | ||||||||||||||||
(in thousands) | Price | Volume | Orthodyne | $ Change | ||||||||||||
Equipment | $ | (5,901 | ) | $ | (120,824 | ) | $ | 26,242 | $ | (100,483 | ) |
The decrease in net revenue from fiscal 2008 to fiscal year 2009 was mainly due to a 45.8% decrease in volume for Ball Bonders, 52.7% decrease in volume for Die Bonders and 31.8% decrease in Support Services. The fiscal 2009 decrease in volume was mainly due to a decline in global demand for assembly equipment during the first half of fiscal 2009 driven by the global economic downturn. As overall consumer demand for electronic equipment declined, so did factory utilization of our subcontractor and IDM customers. The overall volume decrease was partially offset by net revenue from our Wedge Bonder Equipment business acquired during fiscal year 2009.
The following table reflects the components of Expendable Tools net revenue variance from fiscal 2008 to 2009:
Fiscal 2008 vs. 2009 | ||||||||||||||||
(in thousands) | Price | Volume | Orthodyne | $ Change | ||||||||||||
Expendable Tools | $ | 2 | $ | (17,764 | ) | $ | 15,437 | $ | (2,327 | ) |
The net decrease in Expendable Tools revenue from fiscal 2008 to 2009 was due to volume decreases in both our Tools and Blades businesses. Tools volumes decreased 31.0%, while Blades volumes decreased 30.6%. Our Expendable Tools products are consumables used for the connections of IC units; therefore, as overall consumer demand for electronic equipment declined in the first half of fiscal 2009 due to the economic downturn, the demand for integrated circuit (“IC”) units also declined. As a result, volume declined for our Expendable Tools segment. Offsetting this volume decrease was the net revenue from our newly acquired Wedge bonder Tools business.
The following table reflects gross profit by business segment for fiscal 2008 and 2009:
Fiscal | ||||||||||||||||
(dollar amounts in thousands) | 2008 | 2009 | $ Change | % Change | ||||||||||||
Equipment | $ | 105,520 | $ | 59,433 | $ | (46,087 | ) | -43.7 | % | |||||||
Expendable Tools | 28,273 | 29,410 | 1,137 | 4.0 | % | |||||||||||
Total | $ | 133,793 | $ | 88,843 | $ | (44,950 | ) | -33.6 | % |
The following table reflects gross profit as a percentage of net revenue by business segment for fiscal 2008 and 2009:
Fiscal | ||||||||||||
2008 | 2009 | Basis Point Change | ||||||||||
Equipment | 38.9 | % | 34.9 | % | (408 | ) | ||||||
Expendable Tools | 49.6 | % | 53.8 | % | 419 | |||||||
Total | 40.8 | % | 39.4 | % | (134 | ) |
The following table reflects the components of Equipment gross profit change from fiscal 2008 to 2009:
Fiscal 2008 vs. 2009 | ||||||||||||||||||||
(in thousands) | Price | Cost | Volume/Mix | Orthodyne | $ Change | |||||||||||||||
Equipment | $ | (5,901 | ) | $ | 1,201 | $ | (49,298 | ) | $ | 7,911 | $ | (46,087 | ) |
The decrease in gross profit from fiscal 2008 to 2009 was mainly due to decrease in volume for Ball Bonders and Die Bonders as well as decline in Support Services. The fiscal 2009 decrease in volume was mainly due to a decline in global demand for assembly equipment during the first half of fiscal 2009 driven by the global economic downturn. As overall consumer demand for electronic equipment declined, so did the factory
utilization of our subcontractor and IDM customers. The decrease in gross profit was partially offset by gross profit from our Wedge Bonder Equipment business acquired during fiscal 2009. The improvement in cost is primarily due to cost reduction efforts related to material purchases.
The following table reflects the components of Expendable Tools gross profit change from fiscal 2008 to 2009:
Fiscal 2008 vs. 2009 | ||||||||||||||||||||
(in thousands) | Price | Cost | Volume/Mix | Orthodyne | $ Change | |||||||||||||||
Expendable Tools | $ | 2 | $ | (970 | ) | $ | (8,818 | ) | $ | 10,923 | $ | 1,137 |
The net increase in Expendable Tools gross profit from fiscal 2008 to 2009 was primarily due to the newly acquired Wedge Bonder Tools business, offset by volume decreases in both our Tools and Blades businesses. The decrease in both Tools and Blades volume in fiscal 2009 was due to the economic downturn during the first half of fiscal 2009, which decreased demand for IC units. The increase in cost was primarily due to fixed manufacturing costs not being fully absorbed by the lower volumes during fiscal 2009.
The following table reflects operating expenses for fiscal 2008 and 2009:
Fiscal | ||||||||||||||||
(dollar amounts in thousands) | 2008 | 2009 | $ Change | % Change | ||||||||||||
Selling, general and administrative | $ | 89,356 | $ | 106,175 | $ | 16,819 | 18.8 | % | ||||||||
Research and development | 59,917 | 53,483 | (6,434 | ) | -10.7 | % | ||||||||||
Impairment of goodwill | — | 2,709 | 2,709 | — | ||||||||||||
U.S. pension plan termination | 9,152 | — | (9,152 | ) | — | |||||||||||
Total | $ | 158,425 | $ | 162,367 | $ | 3,942 | 2.5 | % |
The following table reflects operating expenses as a percentage of net revenue for fiscal 2008 and 2009:
Fiscal | ||||||||||||
2008 | 2009 | Basis Point Change | ||||||||||
Selling, general and administrative | 27.2 | % | 47.1 | % | 1,990 | |||||||
Research and development | 18.3 | % | 23.7 | % | 548 | |||||||
Impairment of goodwill | 0.0 | % | 1.2 | % | 120 | |||||||
U.S. pension plan termination | 2.8 | % | 0.0 | % | (279 | ) | ||||||
Total | 48.3 | % | 72.0 | % | 2,379 |
The SG&A increase of $16.8 million during fiscal 2009 as compared to fiscal 2008 was primarily due to:
These increases in SG&A were partially offset by:
The $6.4 million decrease of R&D expense during fiscal 2009 compared to 2008 was mostly attributable to:
These decreases were partially offset by $10.8 million of R&D costs related to our Wedge Bonder business acquired during fiscal 2009.
Due to the earlier than anticipated end of product life cycle for our EasyLine and SwissLine die bonders, during fiscal 2009, we recorded a non-cash goodwill impairment charge of $2.7 million which reduced the value of the die bonder goodwill to zero.
Fiscal 2008 operating expenses included a one-time, non-cash expense of $9.2 million related to the termination of our U.S. pension plan.
The following table reflects interest income and interest expense for fiscal 2008 and 2009:
Fiscal | ||||||||||||||||
(dollar amounts in thousands) | 2008 | 2009 | $ Change | % Change | ||||||||||||
Interest income | $ | 4,732 | $ | 1,106 | $ | (3,626 | ) | -76.6 | % | |||||||
Interest expense | (3,499 | ) | (2,601 | ) | 898 | -25.7 | % |
The decline in interest income during fiscal 2009 was due to lower rates of return on invested cash balances and overall lower average cash balances. The decrease in interest expense during fiscal 2009 was attributable to the retirement of our 0.5% Convertible Subordinated Notes and repurchase of $16.0 million (face value) of our 1.0% Convertible Subordinated Notes.
The following table reflects purchases of our Convertible Subordinated Notes during fiscal 2008 and 2009:
Fiscal | ||||||||
(in thousands) | 2008 | 2009 | ||||||
0.5% Convertible Subordinated Notes(1): | ||||||||
Face value purchased | $ | 4,000 | $ | 43,050 | ||||
Net cash | 3,815 | 42,839 | ||||||
Deferred financing costs | 15 | 18 | ||||||
Recognized gain, net of deferred financing costs | 170 | 193 | ||||||
1.0% Convertible Subordinated Notes:(2) | ||||||||
Face value purchased | $ | — | $ | 16,036 | ||||
Net cash | — | 12,158 | ||||||
Deferred financing costs | — | 106 | ||||||
Recognized gain, net of deferred financing costs | — | 3,772 | ||||||
Gain on extinguishment of debt | $ | 170 | $ | 3,965 |
(1) | Fiscal 2009 repurchase transactions occurred prior to redemption on November 30, 2008. |
(2) | Activity during fiscal 2009 reflects repurchases pursuant to a tender offer. |
The following table reflects income (loss) from continuing operations by business segment for fiscal 2008 and 2009:
Fiscal | ||||||||||||||||
(dollar amounts in thousands) | 2008 | 2009 | $ Change | % Change | ||||||||||||
Equipment | $ | (25,934 | ) | $ | (78,741 | ) | $ | (52,807 | ) | 203.6 | % | |||||
Expendable Tools | 1,302 | 5,217 | 3,915 | 300.7 | % | |||||||||||
Total | $ | (24,632 | ) | $ | (73,524 | ) | $ | (48,892 | ) | 198.5 | % |
The higher net loss from continuing operations from fiscal 2008 to 2009 was mainly due to decreases in volume for Ball Bonders and Die Bonders as well as decline in Support Services. In addition, higher operating expenses for Wedge bonder amortization of intangibles and severance increased the Equipment net loss.
The net increase in Expendable Tools net income from fiscal 2008 to 2009 was primarily due to the newly acquired Wedge bonder Tools business partially offset by our Tools and Blades businesses. In addition, lower operating expenses due to overall cost reduction measures increased our Expendable Tools net income.
Our provision for income taxes from continuing operations for fiscal 2009 reflects an income tax benefit of $13.0 million which primarily consists of $12.4 million of net income tax benefit for the settlement of certain foreign income tax exposures and $0.6 million for income tax expense related to foreign operations and $0.4 million for the reduction in deferred tax liabilities related to potential repatriation of foreign earnings. These amounts are partially offset by $0.2 million for state tax expense, $0.1 million for foreign withholding tax expense and $0.1 million of other U.S. current and deferred taxes.
Our income tax benefit in fiscal 2008 reflects income tax expense on foreign income tax exposures, foreign withholding taxes, repatriation of foreign earnings, federal alternative minimum taxes and state taxes offset by income tax benefits related to the termination of the pension plan and income tax benefits on loses in foreign jurisdictions.
Our effective tax rate of 18.3% for fiscal 2009 is lower than the U.S. statutory rate of 35% primarily due to settlements of certain foreign income tax exposures, losses in foreign jurisdictions with tax holidays, permanent items, state taxes, and increases in the valuation allowance. We continue to maintain a valuation allowance against certain deferred tax assets which, based on an analysis of positive and negative evidence are more likely than not to not be realized. This evidence includes analysis of past results, uncertainty with respect to the impact of restructuring of certain international operations, projections of future results and the significant historic volatility of our Equipment segment.
Our future effective tax rate would be affected if earnings were lower than anticipated in countries where we have lower statutory rates and higher than anticipated in countries where we have higher statutory rates, by changes in the valuation of our deferred tax assets and liabilities, or by changes in tax laws, regulations, accounting principles, or interpretations thereof. We regularly assess the effects resulting from these factors to determine the adequacy of our provision for income taxes.
We committed to a plan of disposal for our Wire business in fiscal 2008, and on September 29, 2008, completed the sale of certain assets and liabilities associated with the Wire business. Included in discontinued operations for fiscal 2009 are net proceeds of $149.9 million and a net gain of $22.0 million, net of tax, related to the Wire sale.
The following table reflects operating results of the Wire business discontinued operations for fiscal 2008 and 2009:
Fiscal | ||||||||
(in thousands) | 2008 | 2009 | ||||||
Net revenue | $ | 423,971 | $ | — | ||||
Income (loss) before tax | $ | 23,690 | $ | (319 | ) | |||
Gain on sale of Wire business before tax | — | 23,026 | ||||||
Income from discontinued operations before tax | 23,690 | 22,707 | ||||||
Income tax expense | (249 | ) | (696 | ) | ||||
Income from discontinued operations, net of tax | $ | 23,441 | $ | 22,011 |
The following table reflects our bookings in fiscal 2007 and 2008:
Fiscal | ||||||||
(in thousands) | 2007 | 2008 | ||||||
Bookings | $ | 412,199 | $ | 291,994 |
The following table reflects our backlog as of September 29, 2007 and September 27, 2008:
As of | ||||||||
(in thousands) | September 29, 2007 | September 27, 2008 | ||||||
Backlog | $ | 85,563 | $ | 49,508 |
The following table reflects net revenues by business segment for fiscal 2007 and 2008:
Fiscal | ||||||||||||||||
(dollar amounts in thousands) | 2007 | 2008 | $ Change | % Change | ||||||||||||
Equipment | $ | 316,718 | $ | 271,019 | $ | (45,699 | ) | -14.4 | % | |||||||
Expendable Tools | 53,808 | 57,031 | 3,223 | 6.0 | % | |||||||||||
Total | $ | 370,526 | $ | 328,050 | $ | (42,476 | ) | -11.5 | % |
Approximately 97%96.8% and 96%95.6% of our net revenue for fiscal 2007 and 2008, respectively, was from shipments to customer locations outside of the United States, and we expect sales outside ofprimarily in the United States to continue to represent a substantial majority of our future revenues.
The following table reflects net revenue by business segment for fiscal 2007 and 2008:Asia/Pacific region.
Fiscal | |||||||||||||
(dollar amounts in thousands) | 2007 | 2008 | $ Change | % Change | |||||||||
Equipment | $ | 316,718 | $ | 271,019 | $ | (45,699 | ) | -14.4 | % | ||||
Packaging Materials | 53,808 | 57,031 | 3,223 | 6.0 | % | ||||||||
Total | $ | 370,526 | $ | 328,050 | $ | (42,476 | ) | -11.5 | % | ||||
Equipment
The following table reflects the components of Equipment net revenue change from fiscal 2007 to 2008:
Fiscal 2007 vs. 2008 | Fiscal 2007 vs. 2008 | |||||||||||||||||||||||
(in thousands) | Price | Volume | Change | |||||||||||||||||||||
(in thousands) | Price | Volume | $ Change | |||||||||||||||||||||
Equipment | $ | (359 | ) | $ | (45,340 | ) | $ | (45,699 | ) | $ | (359 | ) | $ | (45,340 | ) | $ | (45,699 | ) |
The decrease in net revenue from fiscal year 2007 to fiscal year 2008 was mainly due to a 15.8% decrease in volume for IC ball bonders and 47.1% decrease in volume for IC die bonders. The fiscal 2008 decrease in volume iswas mainly due to a decline in global demand for assembly equipment due to the global economic crisis.downturn. Fiscal 2007 was stronger due to increased demand for capacity for the memory market. Additionally, the capacity utilization rate of our customers was lower in the first half of fiscal 2008 thenthan it was for any quarter in fiscal 2007. The small decrease in price is due to our IC ball bonders selling price falling by 0.9% as a result of the mix of sales to our subcontractors and IDMs in fiscal 2008 compared to fiscal 2007. Our selling prices to subcontractor customers are lower due to larger volume purchases. The lower IC ball bonder prices were partially offset by the higher price for our latest generation IC ball bonder machine introduced in March 2008.
Packaging Materials
The following table reflects the components of Packaging MaterialsExpendable Tools net revenue variance from fiscal 2007 to 2008:
Fiscal 2007 vs. 2008 | Fiscal 2007 vs. 2008 | |||||||||||||||||||||
(in thousands) | Price | Volume | Change | |||||||||||||||||||
Packaging Materials | $ | (3,003 | ) | $ | 6,226 | $ | 3,223 | |||||||||||||||
(in thousands) | Price | Volume | $ Change | |||||||||||||||||||
Expendable Tools | $ | (3,003 | ) | $ | 6,226 | $ | 3,223 |
The net increase in Packaging MaterialExpendable Tools revenue from fiscal 2007 to 2008 was primarily due to volume increases in both our Tools and Blades businesses. Tools volumes increased 11.5%, while Blades volumes increased 11.7%. The increase in both Tools and Blades volume was mainly due to an 11.9% increase in IC unit demand. From fiscal 2007 to fiscal 2008, Tools average selling pricesprice decreased by 6.3% due to normal price erosion as well as change in customer mix. This was slightly offset by a 3.4% increase in Blades average selling prices due to a change in product mix.
Gross Profit
The following table reflects gross profit by business segment for fiscal 2007 and 2008:
Fiscal | Fiscal | ||||||||||||||||||||||||||||
(dollar amounts in thousands) | 2007 | 2008 | $ Change | % Change | |||||||||||||||||||||||||
(dollar amounts in thousands) | 2007 | 2008 | $ Change | % Change | |||||||||||||||||||||||||
Equipment | $ | 128,663 | $ | 105,520 | $ | (23,143 | ) | -18.0 | % | $ | 128,663 | $ | 105,520 | $ | (23,143 | ) | -18.0 | % | |||||||||||
Packaging Materials | 26,773 | 28,273 | 1,500 | 5.6 | % | ||||||||||||||||||||||||
Expendable Tools | 26,773 | 28,273 | 1,500 | 5.6 | % | ||||||||||||||||||||||||
Total | $ | 155,436 | $ | 133,793 | $ | (21,643 | ) | -13.9 | % | $ | 155,436 | $ | 133,793 | $ | (21,643 | ) | -13.9 | % | |||||||||||
The following table reflects gross profit as a percentage of net revenue by business segment for fiscal 2007 and 2008:
Fiscal | |||||||||
2007 | 2008 | Basis Point Change | |||||||
Equipment | 40.6 | % | 38.9 | % | (169 | ) | |||
Packaging Materials | 49.8 | % | 49.6 | % | (18 | ) | |||
Total | 42.0 | % | 40.8 | % | (117 | ) |
Fiscal 2007 2008 Basis Point
ChangeEquipment 40.6 % 38.9 % (170 ) Expendable Tools 49.8 % 49.6 % (20 ) Total 42.0 % 40.8 % (120 ) Equipment
The following table reflects the components of Equipment gross profit variance from fiscal 2007 to 2008:
Fiscal 2007 vs. 2008 | Fiscal 2007 vs. 2008 | |||||||||||||||||||||||||||||||
(in thousands) | Price | Cost | Volume | Change | ||||||||||||||||||||||||||||
(in thousands) | Price | Cost | Volume | $ Change | ||||||||||||||||||||||||||||
Equipment | $ | (359 | ) | $ | (3,163 | ) | $ | (19,621 | ) | $ | (23,143 | ) | $ | (359 | ) | $ | (3,163 | ) | $ | (19,621 | ) | $ | (23,143 | ) |
The decrease in gross profit from fiscal 2007 to fiscal 2008 was primarily due to decreased industry-wide demand for back-end semiconductor equipment as IC ball bonder volumes were 15.8% lower during the current fiscal year.2008. The fiscal 2008 decrease in volume is mainly due to a decline in global demand for assembly equipment due to the global economic crisis.downturn. Fiscal 2007 was stronger due to increased demand for capacity for the memory market. Also, the capacity utilization rate of our customers was lower in the first half of fiscal 2008 thenthan it was for any quarter in fiscal 2007. The increase in cost is primarily due to absorption costs from lower volumes in our IC ball bonders and IC die bonders along with inventory excess and obsolete expense related to our specialty ball bonders.
Packaging Materials
The following table reflects the components of Packaging MaterialsExpendable Tools gross profit change from fiscal 2007 to 2008:
Fiscal 2007 vs. 2008 | |||||||||||||
(in thousands) | Price | Cost | Volume | Change | |||||||||
Packaging Materials | $ | (3,003 | ) | $ | 1,404 | $ | 3,099 | $ | 1,500 |
Fiscal 2007 vs. 2008 | ||||||||||||||||
(in thousands) | Price | Cost | Volume | $ Change | ||||||||||||
Expendable Tools | $ | (3,003 | ) | $ | 1,404 | $ | 3,099 | $ | 1,500 |
The net increase in Packaging Material gross profitExpendable Tools revenue from fiscal 2007 to 2008 was primarily due to volume increases in both our Tools and Blades businesses. Tools volumes increased 11.5%, while Blades volumes increased 11.7%. The increase in both Tools and Blades volume was mainly due to an 11.9% increase in IC unit demand. From fiscal 2007 to fiscal 2008, Tools average selling pricesprice decreased by 6.3% due to normal price erosion as well as change in customer mix. This was slightly offset by a 3.4% increase in Blades average selling prices due to a change in product mix. The decrease in Tools costs were due to a higher mix of lower cost products. The decrease in Blades costs was due to in-house production of semi-finished products as well as manufacturing productivity improvements.
Operating Expenses
The following table reflects operating expenses for fiscal 2007 and 2008:
Fiscal | Fiscal | |||||||||||||||||||||||||||
(dollar amounts in thousands) | 2007 | 2008 | $ Change | % Change | ||||||||||||||||||||||||
(dollar amounts in thousands) | 2007 | 2008 | $ Change | % Change | ||||||||||||||||||||||||
Selling, general and administrative | $ | 88,839 | $ | 89,356 | $ | 517 | 0.6 | % | $ | 88,839 | $ | 89,356 | $ | 517 | 0.6 | % | ||||||||||||
Research and development | 49,085 | 59,917 | 10,832 | 22.1 | % | 49,085 | 59,917 | 10,832 | 22.1 | % | ||||||||||||||||||
U.S. pension plan termination | — | 9,152 | 9,152 | 0.0 | % | |||||||||||||||||||||||
U.S pension plan termination | — | 9,152 | 9,152 | 0.0 | % | |||||||||||||||||||||||
Total | $ | 137,924 | $ | 158,425 | $ | 20,501 | 14.9 | % | $ | 137,924 | $ | 158,425 | $ | 20,501 | 14.9 | % | ||||||||||||
The following table reflects operating expenses as a percentage of net revenue for fiscal 2007 and 2008:
Fiscal | |||||||||
2007 | 2008 | Change | |||||||
Selling, general and administrative | 24.0 | % | 27.2 | % | 3.3 | % | |||
Research and development | 13.2 | % | 18.3 | % | 5.0 | % | |||
U.S. pension plan termination | 0.0 | % | 2.8 | % | 2.8 | % | |||
Total | 37.2 | % | 48.3 | % | 11.1 | % | |||
Fiscal 2007 2008 Basis Point Change Selling, general and administrative 24.0 % 27.2 % 322 Research and development 13.2 % 18.3 % 505 U.S. pension plan termination 0.0 % 2.8 % 280 Total 37.2 % 48.3 % 1,108 Selling, general and administrative
The increase in selling, general and administrative (“SG&A”)&A expense of $0.5 million in fiscal 2008 compared to fiscal 2007 was due to an increase in foreign currency exchange expense of $1.6 million, additional marketing expense of $1.1 million and higher equipment selling, service and support cost of $0.7 million. These higher SG&A expenses were offset by lower incentive compensation costs of $2.2 million and lower die bonder integration cost of $0.8 million.
Research and development
Research and development (“R&D”)&D expense for fiscal 2008 increased $10.8 million compared to fiscal 2007. The increase was primarily due to $8.8 million of additional spending for our new die bonder platform and $1.8 million of costs to complete our recently released IconnIConn and ConnX ball bonder products.
U.S.
Pension Plan Termination
For fiscalFiscal 2008 operating expenses included a one-time, non-cash expense of $9.2 million related to the termination of the U.S. pension plan.
The following table reflects interest income and interest expense for fiscal 2007 and 2008: Interest income during fiscal 2008 was lower than fiscal 2007 due to lower invested cash balances. Fiscal 2008 increase in interest expense of $0.6 million from fiscal 2007 was primarily due to in the issuance of our Convertible Subordinated Notes in fiscal 2007. The following table reflects purchases of our Convertible Subordinated Notes during fiscal 2007 and 2008:Interest Income
(loss)and Expense Fiscal (dollar amounts in thousands) 2007 2008 $ Change % Change Interest income $ 6,866 $ 4,732 $ (2,134 ) -31.1 % Interest expense (2,876 ) (3,499 ) (623 ) 21.7 % Gain on Extinguishment of Debt
Fiscal (in thousands) 2007 2008 0.5% Convertible Subordinated Notes: Face value purchased $ 53,588 $ 4,000 Net cash 50,433 3,815 Deferred financing costs 353 15 Recognized gain, net of deferred financing costs $ 2,802 $ 170
The following table reflects income (loss) from continuing operations by business segment for fiscal 2007 and 2008:
Fiscal | Fiscal | |||||||||||||||||||||||||||||
(dollar amounts in thousands) | 2007 | 2008 | $ Change | % Change | ||||||||||||||||||||||||||
(dollar amounts in thousands) | 2007 | 2008 | $ Change | % Change | ||||||||||||||||||||||||||
Equipment | $ | 15,219 | $ | (25,934 | ) | $ | (41,153 | ) | -270.4 | % | $ | 15,219 | $ | (25,934 | ) | $ | (41,153 | ) | -270.4 | % | ||||||||||
Packaging materials | 2,293 | 1,302 | (991 | ) | -43.2 | % | ||||||||||||||||||||||||
Expendable Tools | 2,293 | 1,302 | (991 | ) | -43.2 | % | ||||||||||||||||||||||||
Total | $ | 17,512 | $ | (24,632 | ) | $ | (42,144 | ) | -240.7 | % | $ | 17,512 | $ | (24,632 | ) | $ | (42,144 | ) | -240.7 | % | ||||||||||
Equipment
The main contributors to the fiscal 2008 increase in the loss from continuing operations for our Equipment segment were: $23.1 million lower gross profit due to decreased industry-wide demand for back-end semiconductor equipment as IC ball bonder volumes were 15.8% lower during the current fiscal year;2008; a one-time, non-cash expense of $9.2 million related to the termination of the U.S. pension plan during fiscal 2008; higher fiscal 2008 R&D costs of $10.8 million primarily due to the development of our next generation IC die bonders and IC ball bonders; and, higher marketing, selling, service and support costs of $2.0 million, and; $1.9 million of lower incentive compensation costs.
Packaging Materials
Lower income from continuing operations for our Packaging MaterialsExpendable Tools segment of $1.0 million during fiscal 2008 was primarily due to $2.2 million increase in foreign currency exchange losses offset by increased gross margin of $1.5 million due to volume increases in both our Tools and Blades businesses offset by higher operating expenses primarily due to an additional $2.2 million of foreign currency exchange losses.
Interest Income and Expense
The following table reflects interest income and interest expense for fiscal 2007 and 2008:businesses.
Fiscal | |||||||||||||||
(dollar amounts in thousands) | 2007 | 2008 | $ Change | % Change | |||||||||||
Interest income | $ | 6,866 | $ | 4,732 | $ | (2,134 | ) | -31.1 | % | ||||||
Interest expense | (2,876 | ) | (3,499 | ) | (623 | ) | 21.7 | % |
Interest income during fiscal 2008 was lower than fiscal 2007 due to lower invested cash balances. Fiscal 2008 increase in interest expense of $0.6 million from fiscal 2007 was primarily due to an increase in our Convertible Subordinated Notes outstanding.
Provision for Income Taxes
Our provision for income taxes from continuing operations for fiscal 2008 reflects an income tax benefit of $3.6 million which primarily consists of $2.2 million of income tax expense for additional foreign income tax exposures, $0.3 million for potential repatriation of foreign earnings, and $0.2 for foreign withholding taxes. These tax expense timesitems were offset by tax benefits of $3.4 million for the termination of the pension plan and income tax benefits on losses in foreign jurisdictions of $2.9 million. Our tax expense in fiscal 2007 reflects income tax expense on foreign and domestic income tax exposures, foreign withholding taxes, repatriation of foreign earnings, federal alternative minimum taxes and state taxes.
Our effective tax rate of 15.5% for fiscal 2008 is lower than the U.S. statutory rate of 35%35.0% primarily due to losses in foreign jurisdictions with tax holidays, permanent items and state taxes offset in part by a release in the valuation allowance related to current year earnings.fiscal 2008. The reversal of the valuation allowance is limited to the deferred tax assets utilized in the current fiscal year,2008, as we do not believe sufficient positive evidence exists with respect to our ability to generate sufficient future earnings to utilize these deferred tax assets. We continue to maintain a valuation allowance against our remaining deferred tax assets as we do not believe it is more likely than not that the remaining deferred tax assets will be realized due to the restructuring of international operations, projections of future earnings and the significant historic volatility of our Equipment segment, which will be the primary source for the U.S. in the future.
Our future effective tax rate would be affected if earnings were lower than anticipated in countries where we have lower statutory rates and higher than anticipated in countries where we have higher statutory rates by changes in the valuation of our deferred tax assets and liabilities, or by changes in tax laws, regulations, accounting principles, or interpretations thereof. We regularly assess the effects resulting from these factors to determine the adequacy of our provision for income taxes.
Subsequent to year end, on September 29, 2008, we completed the sale of certain assets associated with our Wire business. As a result, the Wire business is reflected as a discontinued operation for all periods, including fiscal 2007 and 2008 (see the description of the sale of this business in the introduction to this Management’s Discussion Analysis of Financial Condition and Results of Operations).
The following table reflects operating results of the Wire business discontinued operationoperations for fiscal 2007 and 2008:
Fiscal | ||||||||
(in thousands) | 2007 | 2008 | ||||||
Net revenue : Wire | $ | 329,878 | $ | 423,971 | ||||
Income from discontinued operations before tax | $ | 18,934 | $ | 23,690 | ||||
Income tax expense | (60 | ) | (249 | ) | ||||
Income from discontinued operations, net of tax | $ | 18,874 | $ | 23,441 | ||||
The increase in income from discontinued operations, net of tax was primarily due to higher gold prices for our former Wire business.
Results of Operations for fiscal 2006 and 2007
The following table reflects bookings and backlog as of September 30, 2006 and September 29, 2007:
Fiscal | ||||||||
(in thousands) | 2007 | 2008 | ||||||
Net revenue | $ | 329,878 | $ | 423,971 | ||||
Income before tax | $ | 18,934 | $ | 23,690 | ||||
Gain on sale of Wire business before tax | — | — | ||||||
Income from discontinued operations before tax | 18,934 | 23,690 | ||||||
Income tax expense | (60 | ) | (249 | ) | ||||
Income from discontinued operations, net of tax | $ | 18,874 | $ | 23,441 |
As of | ||||||
(in thousands) | September 30, 2006 | September 29, 2007 | ||||
Bookings | $ | 345,069 | $ | 412,199 | ||
Backlog | $ | 43,892 | $ | 85,563 |
Bookings and Backlog
A booking is recorded when a customer order is reviewed and it is determined that all specifications can be met, production (or service) can be scheduled, a delivery date can be set, and the customer meets our credit requirements. Our backlog consists of customer orders that are scheduled for shipment within the next 12 months. A majority of our orders are subject to cancellation or deferral by the customer with limited or no penalties. Also, customer demand for our products can vary dramatically without prior notice. Because of the volatility of customer demand, possibility of customer changes in delivery schedules or cancellations and potential delays in product shipments, our bookings and backlog as of any particular date may not be indicative of revenues for any succeeding period.
Net Revenue
The following table reflects net revenues by business segment for fiscal 2006 and 2007:
Fiscal | |||||||||||||
(dollar amounts in thousands) | 2006 | 2007 | $ Change | % Change | |||||||||
Equipment | $ | 319,788 | $ | 316,718 | $ | (3,070 | ) | -1.0 | % | ||||
Packaging Materials | 60,508 | 53,808 | (6,700 | ) | -11.1 | % | |||||||
Total | $ | 380,296 | $ | 370,526 | $ | (9,770 | ) | -2.6 | % | ||||
Our customers are primarily located in or have operations in the Asia/Pacific region. Approximately 97% of our fiscal 2006 and 2007 net revenues were to customer locations outside of the United States, and we expect sales outside of the United States to continue to represent a substantial majority of our future revenues.
Equipment
The following table reflects the components of Equipment net revenue change from fiscal 2006 to 2007:
Fiscal 2006 vs. 2007 | |||||||||||
(in thousands) | Price | Volume | Change | ||||||||
Equipment | $ | (22,475 | ) | $ | 19,405 | $ | (3,070 | ) |
The decrease in net revenue was primarily due to our IC ball bonders selling price falling by 8.5%. This decrease is due to customer mix as we sold a higher proportion of machines to our customers who are subcontractors and distributors in fiscal 2007 as compared to fiscal 2006. The increase in volume of $19.4 million was due to our newly acquired IC die bonder business partially offset by lower volume from our specialty ball bonders.
Packaging Materials
The following table reflects the components of Packaging Materials net revenue variance from fiscal 2006 to 2007:
Fiscal 2006 vs. 2007 | ||||||||||||
(in thousands) | Price | Volume | Change | |||||||||
Packaging Materials | $ | (919 | ) | $ | (5,781 | ) | $ | (6,700 | ) |
For fiscal 2007, the decrease in packaging material revenue is primarily due to a 5.0% decrease in Capillary unit sales and the 3.6% decrease in Capillary average selling prices. The decrease in volume is due to market acceptance of more durable consumables while the decrease in average selling price can be attributed to the overall industry dynamic of continual price reductions. In our remaining packaging materials businesses there was a higher market demand for more durable consumables and share loss in smaller packaging materials businesses.
Gross Profit
The following table reflects gross profit by business segment for fiscal 2006 and 2007:
Fiscal | |||||||||||||
(dollar amounts in thousands) | 2006 | 2007 | $ Change | % Change | |||||||||
Equipment | $ | 141,189 | $ | 128,663 | $ | (12,526 | ) | -8.9 | % | ||||
Packaging Materials | 32,034 | 26,773 | (5,261 | ) | -16.4 | % | |||||||
Total | $ | 173,223 | $ | 155,436 | $ | (17,787 | ) | -10.3 | % | ||||
The following table reflects gross profit as a percentage of net revenue by business segment for fiscal 2006 and 2007:
Fiscal | |||||||||
2006 | 2007 | Basis Point Change | |||||||
Equipment | 44.2 | % | 40.6 | % | (353 | ) | |||
Packaging Materials | 52.9 | % | 49.8 | % | (319 | ) | |||
Total | 45.5 | % | 42.0 | % | (360 | ) | |||
Equipment
The following table reflects the components of Equipment gross profit variance from fiscal 2006 to 2007:
Fiscal 2006 vs. 2007 | ||||||||||||||
(in thousands) | Price | Cost | Volume | Change | ||||||||||
Equipment | $ | (22,475 | ) | $ | 6,918 | $ | 3,031 | $ | (12,526 | ) |
The net decrease in Equipment gross profit was primarily due to an 8.5% decrease in the selling price of IC ball bonders. In addition, we achieved a $6.8 million decrease in cost due to our continuous effort to reduce IC ball bonder expenses, and a favorable $3.0 million net volume increase due to our newly acquired IC die bonder business partially offset by lower volume from our specialty die bonders. Fiscal 2006 gross profit included a one time $3.5 million favorable correction of errors.
Packaging Materials
The following table reflects the components of Packaging Materials gross profit change from fiscal 2006 to 2007:
Fiscal 2006 vs. 2007 | ||||||||||||||||
(in thousands) | Price | Cost | Volume | Change | ||||||||||||
Packaging Materials | $ | (919 | ) | $ | (1,723 | ) | $ | (2,619 | ) | $ | (5,261 | ) |
The net decrease in Packaging Material gross profit was primarily due to a 5.0% decrease in capillary unit sales and 3.6% decrease in capillary average selling prices. The decrease in volume is due to market acceptance of more durable consumables while the decrease in average selling price can be attributed to the overall industry dynamic of continual price reductions.
Operating Expenses
The following table reflects operating expenses for fiscal 2006 and 2007:
Fiscal | |||||||||||||
(dollar amounts in thousands) | 2006 | 2007 | $ Change | % Change | |||||||||
Selling, general and administrative | $ | 76,709 | $ | 88,839 | $ | 12,130 | 15.8 | % | |||||
Research and development | 36,291 | 49,085 | 12,794 | 35.3 | % | ||||||||
Gain on sale of assets | (4,544 | ) | — | 4,544 | -100.0 | % | |||||||
Total | $ | 108,456 | $ | 137,924 | $ | 29,468 | 27.2 | % | |||||
The following table reflects operating expenses as a percentage of net revenue for fiscal 2006 and 2007:
Fiscal | |||||||||
2006 | 2007 | Change | |||||||
Selling, general and administrative | 20.2 | % | 24.0 | % | 3.8 | % | |||
Research and development | 9.5 | % | 13.2 | % | 3.7 | % | |||
Gain on sale of assets | -1.2 | % | 0.0 | % | 1.2 | % | |||
Total | 28.5 | % | 37.2 | % | 8.7 | % | |||
Selling, general and administrative
The increase in SG&A expenses of $12.1 million in fiscal 2007 compared to the previous year was primarily due to the addition of the die bonder business.
Research and development
The increase in R&D expenses of $12.8 million in fiscal 2007 compared to previous year was primarily due to the addition of the die bonder business.
Gain on sale of assets
For fiscal 2006, the $4.5 million net gain on sale of assets represents the gain recognized on the sale of the land and building of our former corporate headquarters location in Willow Grove, Pennsylvania.
Income from Operations
The following table reflects income from continuing operations by business segment for fiscal 2006 and 2007:
Fiscal | |||||||||||||
(dollar amounts in thousands) | 2006 | 2007 | $ Change | % Change | |||||||||
Equipment | $ | 51,505 | $ | 15,219 | $ | (36,286 | ) | -70.5 | % | ||||
Packaging Materials | 8,718 | 2,293 | (6,425 | ) | -73.7 | % | |||||||
Gain on sale of assets | 4,544 | — | (4,544 | ) | -100.0 | % | |||||||
Total | $ | 64,767 | $ | 17,512 | $ | (47,255 | ) | -73.0 | % | ||||
Equipment
For fiscal 2007, income from operations for our equipment business segment decreased $36.3 million due to the continued investment in the die bonder business as well as this segment absorbing increased allocation of our SG&A expenses that were previously allocated to divested businesses.
Packaging Materials
For fiscal 2007, income from operations for our packaging materials business segment decreased $6.4 million due to our increased investment in engineering of each of the business units as well as this segment absorbing increased allocation of our SG&A expenses that were previously allocated to divested businesses.
Interest Income and Expense
The following table reflects interest income and interest expense for fiscal 2006 and 2007:
Fiscal | ||||||||||||||
(dollar amounts in thousands) | 2006 | 2007 | $ Change | % Change | ||||||||||
Interest income | $ | 3,921 | $ | 6,866 | $ | 2,945 | 75.1 | % | ||||||
Interest expense | (3,126 | ) | (2,876 | ) | 250 | -8.0 | % |
Interest income during fiscal 2007 was higher than fiscal 2006 due to higher rates of return on invested cash balances and higher invested cash balances. Interest expense in both fiscal 2006 and 2007 primarily reflects interest on our Convertible Subordinated Notes. The higher interest expense in fiscal 2006 reflected interest expense on the sale-leaseback of our former corporate headquarters.
Gain on Early Extinguishment of Debt
In fiscal 2006, we exchanged a total of 3.6 million shares of our common stock and $26.4 million of cash for $75.0 million (face value) of our 0.5% Convertible Subordinated Notes outstanding, and in accordance with Accounting Principles Board (“APB”) No. 26,Early Extinguishment of Debt(“APB 26”), we recorded a gain on early extinguishment of debt of $4.0 million, net of deferred amortization costs written off of $1.3 million. The exchanges included a number of shares that was less than the original number of shares issuable under the conversion terms. In fiscal 2007, we purchased in the open market $53.6 million (face value) of our 0.5% Convertible Subordinated Notes outstanding for net cash of $50.4 million. We recorded a gain of extinguishment of debt of $2.8 million, net of deferred amortization costs written off of $0.4 million.
Provision for Income Taxes
Our provision for income taxes from continuing operations for fiscal 2007 reflects income tax expense of $5.5 million, which primarily consists of $1.3 million for federal alternative minimum taxes, $2.2 million for state income taxes, $3.5 million of income tax expense for additional foreign and domestic income tax exposures, $0.1 for foreign withholding taxes and is offset by $1.6 million for potential repatriation of foreign earnings. Our tax expense in fiscal 2006 reflects income tax expense on income in foreign jurisdictions, foreign income tax exposures, foreign withholding taxes, potential repatriation of foreign earnings, federal alternative minimum taxes and state taxes.
Our effective tax rate of 22.4% for fiscal 2007 is lower than the U.S. statutory rate of 35% primarily due to the reversal of the valuation allowance associated with our domestic deferred tax assets due to current year operating results and benefits from foreign approved enterprise zones. The reversal of the valuation allowance is limited to the deferred tax assets utilized in the current fiscal year, as we do not believe sufficient positive evidence exists with respect to our ability to generate sufficient future earnings to utilize these deferred tax assets. We continue to maintain a valuation allowance against our remaining deferred tax assets as we do not believe it is more likely than not that the remaining deferred tax assets will be realized due to the restructuring of international operations in fiscal 2006 and fiscal 2007 and the significant historic volatility of our Equipment segment, which will be the primary source for the U.S. in the future.
Our future effective tax rate would be affected if earnings were lower than anticipated in countries where we have lower statutory rates and higher than anticipated in countries where we have higher statutory rates by changes in the valuation of our deferred tax assets and liabilities, or by changes in tax laws, regulations, accounting principles, or interpretations thereof. We regularly assess the effects resulting from these factors to determine the adequacy of our provision for income taxes.
Income (Loss) from Discontinued Operations, net of tax
Discontinued operations for fiscal 2006 and 2007 consisted of our former Wire and Test businesses. The following table reflects operating results of the discontinued operations for fiscal 2006 and 2007:
Fiscal | ||||||||
(in thousands) | 2006 | 2007 | ||||||
Net revenue : Wire | $ | 316,015 | $ | 329,878 | ||||
Net revenue : Test | 42,698 | — | ||||||
Net revenue from discontinued operations | $ | 358,713 | $ | 329,878 | ||||
Income (loss) from discontinued operations before tax | $ | (12,706 | ) | $ | 18,934 | |||
Income tax benefit (expense) | 3,342 | (60 | ) | |||||
Income (loss) from discontinued operations, net of tax | $ | (9,364 | ) | $ | 18,874 | |||
The Test business was sold in fiscal 2006, but had net revenue of $42.7 million through the date of sale. The loss from the Test business’ operations for fiscal 2006 was $24.9 million, including a loss on disposal of $0.8 million, net of a benefit from income taxes of $1.4 million. Included in the loss from discontinued operations are operating losses of $10.6 million, and accrued severance and facilities costs of approximately $6.4 million and $6.1 million, respectively. The facilities costs of $6.1 million are net of estimated sublease income from the affected facilities. These estimates of sublease income are subject to change, and such changes could result in an increase or decrease to the estimated facilities charges previously recorded. These payments are expected to be paid out through September 2012.
The following table reflects accrued expenses recorded, and included in continuing operations, in fiscal 2007 for obligations associated with the discontinuation of the Test business:
(in thousands) | Severance and related benefits | Facilities | Total | |||||||||
As of September 30, 2006 | $ | 1,538 | $ | 5,454 | $ | 6,992 | ||||||
Change in estimate included in continuing operations | 43 | 1,570 | 1,613 | |||||||||
Payment of obligations | (1,581 | ) | (1,763 | ) | (3,344 | ) | ||||||
As of September 29, 2007 | $ | — | $ | 5,261 | $ | 5,261 | ||||||
LIQUIDITY AND CAPITAL RESOURCES
Our working capital needs are generally funded through cash flows from operations, and borrowings under credit arrangements, and sale of our credit arrangements. Duringcommon stock.
Our decrease in cash was primarily due to:
These uses of cash flowswere partially offset by:
The following table reflects cash, cash equivalents, restricted cash, and short-term investments as of September 29, 200727, 2008 and September 27, 2008:October 3, 2009:
As of | As of | |||||||||||||||||||||||
(dollar amounts in thousands) | September 29, 2007 | September 27, 2008 | $ Change | |||||||||||||||||||||
(dollar amounts in thousands) | September 27, 2008 | October 3, 2009 | $ Change | |||||||||||||||||||||
Cash and cash equivalents | $ | 150,571 | $ | 144,932 | $ | (5,639 | ) | $ | 144,932 | $ | 144,560 | $ | (372 | ) | ||||||||||
Restricted cash (1) | — | 35,000 | 35,000 | 35,000 | 281 | (34,719 | ) | |||||||||||||||||
Short-term investments | 19,339 | 6,149 | (13,190 | ) | 6,149 | — | (6,149 | ) | ||||||||||||||||
Total cash and investments | $ | 169,910 | $ | 186,081 | $ | 16,171 | $ | 186,081 | $ | 144,841 | $ | (41,240 | ) | |||||||||||
Percentage of total assets | 44 | % | 55 | % | 55 | % | 35 | % | ||||||||||||||||
(1) |
The following table reflects summary Consolidated Statement of Cash Flow information for fiscal 20072008 and 2008:2009:
Fiscal | ||||||||
(in thousands) | 2007 | 2008 | ||||||
Cash provided by (used in) continuing operations: | ||||||||
Operating activities | $ | (2,017 | ) | $ | 26,936 | |||
Investing activities (2) | (29,762 | ) | (29,599 | ) | ||||
Financing activities | 14,385 | (3,282 | ) | |||||
Effect of exchange rate changes on cash and cash equivalents | 408 | (627 | ) | |||||
Net cash provided by (used in) continuing operations | (16,986 | ) | (6,572 | ) | ||||
Cash provided by (used in) discontinued operations: | ||||||||
Operating activities | 33,780 | 1,126 | ||||||
Investing activities | (190 | ) | (193 | ) | ||||
Net cash provided by discontinued operations | 33,590 | 933 | ||||||
Changes in cash and cash equivalents | $ | 16,604 | $ | (5,639 | ) | |||
Fiscal (in thousands) 2008 2009 Cash flows provided by (used in): Operating activities, continuing operations $ 26,936 $ (51,406 ) Operating activities, discontinued operations 1,126 (2,116 ) Operating activities 28,062 (53,522 ) Investing activities, continuing operations (29,599 ) (51,453 ) Investing activities, discontinued operations (193 ) 149,857 Investing activities (29,792 ) 98,404 Financing activities (3,282 ) (45,439 ) Effect of exchange rate on cash and cash equivalents (627 ) 185 Changes in cash and cash equivalents (5,639 ) (372 ) Cash and cash equivalents, beginning of period 150,571 144,932 Cash and cash equivalents, end of period 144,932 144,560 Restricted cash and short-term investments 41,149 281 Total cash and investments $ 186,081 $ 144,841 Fiscal
2007
2009Continuing Operations
Fiscal 2007 netNet cash used in operating activities was primarily attributable toa result of a $58.0 million net income of $18.9 million plusloss partially offset by other non-cash adjustments of $13.0 million offset by netand changes in operating assets and liabilities of $33.9 million.net working capital. The net outflow of cash from operating assets and liabilities of $33.9 million wasdecrease in working capital were primarily due to increasesdriven by changes in income taxes payable, accounts receivable, of $60.1 million and inventories of $8.1 million offset by an increase in accounts payable and accrued expenses of $36.8 million.payable.
Net cash used in investing activities of $51.5 million was primarily due to the $28.1purchase of Orthodyne for $87.0 million acquisition of Alphasem Corporation and capital expenditurespurchases of $5.6$5.3 million partially offset by net sales of short-term investments of $2.0 million and changes in restricted cash of $2.0$34.7 million.
Net cash provided by financing activities included $106.4 million proceeds from the issuance of $110.0 million (face value) of 0.875% Convertible Subordinated Notes. In addition, net cash used in financing activities included $50.4was due to the purchase and retirement of our convertible subordinated notes for $84.4 million for the repurchasepartially offset by our sale of $53.68.0 million (face value) of 0.5% Convertible Subordinated Notes and $46.1 million for the repurchaseshares of our common stock.stock for $38.7 million.
Discontinued Operations
Net cash provided byused in discontinued operations of $33.6 million was primarily the result of Wire business operating activities of $37.1 million offset by $3.3 million of severance and facility payments related to our former Test business.business of $1.8 million and $0.3 million of shutdown activities for our former Wire operatingbusiness.
Net cash provided by investing activities were aof $149.9 million was the result of $18.9 millionthe sale of net income and changes in working capital.our Wire business.
Fiscal 2008
Continuing Operations
Net cash provided by operating activities was primarily a result of a $19.6 million net loss offset by $25.8 million of non-cash adjustments, and decreases in net working capital.
Net cash used in investing activities was primarily due to an increase in restricted cash of $35.0 million and $7.9 million of capital expenditures partially offset by $13.3 million net proceeds from the sale of short-term investments. Subsequent to year end in connection with the sale of our Wire business, the restriction on the $35.0 million was released.
Net cash used in financing activities was primarily due to payments on debt of $3.8 million partially offset by $0.5 million of proceeds from option exercises.
Discontinued OperationsTABLE OF CONTENTS
Net cash provided by discontinued operations of $0.9 million for fiscal 2008 primarily represents $2.7 million of operating activities for our former Wire business partially offset by $1.6 million of facility payments related to our former Test business. Wire operating activities were a result of $23.4 million of net income partially offset by increases in working capital.
Fiscal
20092010 Liquidity and Capital Resource Outlook
On September 29, 2008, we completed the sale of certain assets associated with our Wire business. At closing on September 29, 2008, we recognized net proceeds of $155.0 million. Accordingly on September 29, 2008, our guarantee for payment under our gold supply financing arrangement was terminated and restricted cash of $35.0 million was returned to us. In addition, on October 3, 2008, in connection with the Orthodyne acquisition, we issued 7.1 million common shares with an estimated value of $46.2 million and paid $82.5 million in cash including working capital. The sale of our Wire business and the Orthodyne acquisition, both of which closed after the fiscal year end, increased cash by approximately $70.0 million.
We expect our fiscal 20092010 capital expenditure needsexpenditures to be approximately $5.0$7.0 to $8.0 million. Expenditures willare expected to be primarily used for the implementationexpansion of a new worldwide software system, infrastructure to support our die bonder and wedge bonder platforms, and for our operations infrastructure in Asia.
Early in fiscal 2009, we purchased in the open market $43.1 million (face value) of our 0.5% Convertible Subordinated Notes for net cash of $42.8 million. The remaining 0.5% Convertible Subordinated Notes matured November 2008 and were redeemed. In addition during November 2008, we purchased in the open market $3.0 million (face value) of our 1.0% Convertible Subordinated Notes for net cash of $2.0 million. The 1.0% Convertible Subordinated Notes mature June 2010.
Subsequent to year end, on November 12, 2008, we announced a headcount reduction of 240 positions and a cancellation of annual salary increases scheduled for January 1, 2009. We took these actions to reduce compensation expenses due to deteriorating conditions in the global economy and projected weaker demand for our products and services. Pre-tax expense of approximately $2.6 million will be recorded in fiscal 2009, primarily related to severance costs. The cash expenditures related to these measures is expected to be approximately $3.0 million in fiscal 2009. As a result of these actions, we anticipate approximately $8.0 million in annualized savings. We expect to take further cost reduction measures in fiscal 2009 if the global economy or the markets in which we operate do not improve.
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. However, ourOur liquidity is affected by many factors, some based on normal operations of theour business and others related to global economic conditions and industry uncertainties, which we cannot predict. We also cannot predict economic conditions and global economic conditions.industry downturns or the timing, strength or duration of recoveries. We maywill continue to use our excess cash for working capital needs, general corporate purposes, and to purchaserepay and/or refinance our Convertible Subordinated Notes priorNotes.
We may seek, as we believe appropriate, additional debt or equity financing which would provide capital for corporate purposes, working capital funding, and additional liquidity if current economic and industry conditions remain weak or to maturity, purchase shares of our common stock in open market transactions, and/or fund our future growth opportunities. The timing and amount of potential capital requirements cannot be determined at this time and will depend on a number of factors, including our actual and projected demand for our products, semiconductor and semiconductor capital equipment industry conditions, competitive factors, and the condition of financial markets.
Convertible Subordinated Notes
The following table reflects debt, consisting of Convertible Subordinated Notes, as of September 29, 200727, 2008 and September 27, 2008:October 3, 2009:
As of | ||||||||||||||||||||
Rate | Payment dates of each year | Conversion price | Maturity date | September 27, 2008 | October 3, 2009 | |||||||||||||||
(in thousands) | ||||||||||||||||||||
0.500% | May 30 and November 30 | $ | 20.33 | Matured November 30, 2008 | $ | 72,412 | $ | — | ||||||||||||
1.000% | June 30 and December 30 | $ | 12.84 | June 30, 2010 | 65,000 | 48,964 | ||||||||||||||
0.875% | June 1 and December 1 | $ | 14.36 | June 1, 2012 | 110,000 | 110,000 | ||||||||||||||
$ | 247,412 | $ | 158,964 |
The following table reflects additional information regarding our Convertible Subordinated Notes as of October 3, 2009:
Description | Maturity date | Par value | Fair value as of October 3, 2009(1) | Standard & Poor's rating(2) | ||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
1.000% Convertible Subordinated Notes | June 30, 2010 | $ | 48,964 | $ | 47,005 | Not rated | ||||||||||
0.875% Convertible Subordinated Notes | June 1, 2012 | $ | 110,000 | $ | 90,266 | Not rated | ||||||||||
$ | 158,964 | $ | 137,271 |
(1) | In accordance with ASC 820, 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. |
(in thousands) | |||||||||||||
Rate | Payment Dates of each year | Conversion Price | Maturity Date | As of | |||||||||
September 29, 2007 | September 27, 2008 | ||||||||||||
0.500% | May 30 and November 30 | $ | 20.33 | November 30, 2008 | $ | 76,412 | $ | 72,412 | |||||
1.000% | June 30 and December 30 | $ | 12.84 | June 30, 2010 | 65,000 | 65,000 | |||||||
0.875% | June 1 and December 1 | $ | 14.36 | June 1, 2012 | 110,000 | 110,000 | |||||||
Total | $ | 251,412 | $ | 247,412 | |||||||||
The following table reflects amortization expense related to issue costs from the Company’sour Subordinated Convertible Notes for fiscal 2007, 2008 and 2008:2009:
Fiscal | ||||||||||||
(in thousands) | 2007 | 2008 | 2009 | |||||||||
Amortization expense related to issue costs | $ | 1,275 | $ | 1,514 | $ | 1,006 |
Fiscal | ||||||
(in thousands) | 2007 | 2008 | ||||
Amortization expense related to issue costs | $ | 1,275 | $ | 1,514 |
0.5%0.500% Convertible Subordinated Notes
During fiscal 2004, we issued $205.0 million aggregate principal amount of 0.5% Convertible Subordinated Notes which are general obligations of the Company and are subordinated to all senior debt. The notes rank equally with our other Convertible Subordinated Notes. There are no financial covenants associated with the notes and there are no restrictions on incurring additional debt or issuing or repurchasing our securities.
During 2006, we purchased $75.0 million (face value) of the outstanding 0.5% Convertible Subordinated Notes for consideration consisting of 3.6 million shares of common stock with an aggregate fair value of $42.7 million and $26.7 million in cash. In accordance with APB 26, we recorded a net gain of $4.0 million, net of deferred financing cost of $1.3 million.
During fiscal 2007 and 2008, we purchased in the open market $53.6 million (face value) and $4.0 million (face value), respectively, of the outstanding notes for net cash of $50.4 million and $3.8 million, respectively. During fiscal 2007 and 2008, we recognized a net gain of $2.8 million and $0.2 million, respectively, net of unamortized deferred financing costs.costs related to these repurchases.
Subsequent toDuring fiscal 2008,2009, we purchased in the open market $43.1 million (face value) of our 0.5% Convertible Subordinated Notes for net cash of $42.8 million. A net gain of $0.2 million will bewas recognized induring fiscal 2009.2009 related to these repurchases. The remaining 0.5% Convertible Subordinated Notes matured November 2008 and were redeemed.
During fiscal 2009, we repurchased $3.0 million (face value) of our 1.0% Convertible Subordinated Notes
During 2004, for net cash of $2.0 million and recognized a net gain of $1.0 million. In addition during fiscal 2009, we issued $65.0conducted a tender offer and purchased $13.0 million aggregate principal amount(face value) of our 1.0% Convertible Subordinated Notes.Notes for net cash of $10.1 million and recognized a net gain of $2.8 million, net of unamortized deferred financing costs. The conversion rights of the notesthese Convertible Subordinated Notes may be terminated if the closing price of our common stock has exceeded 140% of the conversion price then in effect for at least 20 trading days within a period of 30 consecutive trading days. The notes are general obligations of the Company and are subordinated to all senior debt. The notes rank equally with our other Convertible Subordinated Notes. There are no financial covenants associated with the notes and there are no restrictions on incurring additional debt or issuing or repurchasing our securities.
Subsequent to fiscal 2008, we purchased in the open market $3.0 million (face value) of our 1.0% Convertible Subordinated Notes for net cash of $2.0 million. A net gain of $1.0 million will be recognized in fiscal 2009.
0.875% Convertible Subordinated Notes
On June 6, 2007, we issued $110.0 million aggregate principal amount of 0.875% Convertible Subordinated Notes due 2012, including exercise of the initial purchaser’s over-allotment option for $10.0 million aggregate principal amount.2012. Net proceeds from the issuance were $106.4 million. The 0.875% Convertible Subordinated Notes were issued pursuant to an indenture dated as of June 6, 2007, between the Company and The Bank of New York, as trustee. The 0.875% Convertible Subordinated Notes are unsecured subordinated obligations of the Company. Debt issuance costs of $3.6 million were incurred in connection with the issuance of the 0.875% Convertible Subordinated Notes and will beare amortized to expense over 60 months.
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 the following circumstances: (1) during specified periods, if the price of the Company’s common stock exceeds specified thresholds; (2) during specified periods, if the trading price of the 0.875% Convertible Subordinated Notes is below a specified threshold; (3) at any time on or after May 1, 2012 or (4) upon the occurrence of certain corporate transactions.specific circumstances. The initial conversion rate will be adjusted for certain events. We presently intend 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 our common stock. We have 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.
In connection with the issuance of the 0.875% Convertible Subordinated Notes, on June 6, 2007, we entered into a registration rights agreement with Banc of America Securities LLC, as the initial purchaser (the “Registration Rights Agreement”). Pursuant to the Registration Rights Agreement, we filed a shelf registration statement with the Securities and Exchange Commission covering resale of the 0.875% Convertible Subordinated Notes and the shares of our common stock issuable upon conversion of the 0.875% Convertible Subordinated Notes within 120 days after issuance of the 0.875% Convertible Subordinated Notes. The shelf registration statement became effective on September 10, 2007.
Other Obligations and Contingent Payments
Under generally accepted accounting principles,GAAP, 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 September 27, 2008October 3, 2009 are appropriately not included in the Consolidated Balance SheetSheets and Statements of Operations included in this Form 10-K; however, they have been disclosed in the following table for additional information.
The following table identifies obligations and contingent payments under various arrangements as of September 27, 2008:October 3, 2009:
Payments due by period | ||||||||||||||||||
(in thousands) | Total | Less than 1 year | 1 - 3 years | 3 - 5 years | More than 5 years | Due date not determinable | ||||||||||||
Contractual Obligations: | ||||||||||||||||||
Current portion of long-term debt | $ | 72,412 | $ | 72,412 | ||||||||||||||
Long-term debt | 175,000 | $ | 65,000 | $ | 110,000 | |||||||||||||
Long-term liabilities (1): | ||||||||||||||||||
Long-term income taxes payable | 26,691 | $ | 26,691 | |||||||||||||||
Post-employment foreign severance obligations | 3,291 | 3,291 | ||||||||||||||||
Facility accruals related to former Test business | 2,544 | 2,544 | ||||||||||||||||
Obligation to our Switzerland pension plan | 2,500 | 650 | 1,850 | |||||||||||||||
Operating lease retirement obligations | 1,822 | 1,822 | ||||||||||||||||
Total Obligations and Commitments reflected on the Consolidated Financial Statements | $ | 284,260 | $ | 73,062 | $ | 67,544 | $ | 110,000 | $ | 1,822 | $ | 31,832 | ||||||
Contractual Obligations: | ||||||||||||||||||
Interest expense | 5,249 | 1,711 | 2,575 | 963 | — | — | ||||||||||||
Operating lease obligations (2) | 35,923 | 7,452 | 11,657 | 5,812 | 11,002 | 11,002 | ||||||||||||
Inventory purchase obligations (3) | 35,375 | 35,375 | — | — | — | — | ||||||||||||
Commercial Commitments: | ||||||||||||||||||
Standby Letters of Credit (4) | 818 | 818 | — | — | — | — | ||||||||||||
Total Obligations and Commitments not reflected on the Consolidated Financial Statements | $ | 77,365 | $ | 45,356 | $ | 14,232 | $ | 6,775 | $ | 11,002 | $ | 11,002 | ||||||
Payments due by fiscal period | ||||||||||||||||||||||||
(in thousands) | Total | Less than 1 year | 1 – 3 years | 3 – 5 years | More than 5 years | Due date not determinable | ||||||||||||||||||
Contractual Obligations: | ||||||||||||||||||||||||
Convertible Subordinated Notes | $ | 158,964 | $ | 48,964 | $ | 110,000 | ||||||||||||||||||
Current and long-term liabilities: | ||||||||||||||||||||||||
Facility accrual related to discontinued operations (Test) | 4,689 | 1,839 | 2,850 | |||||||||||||||||||||
Long-term income taxes payable | 1,699 | $ | 1,699 | |||||||||||||||||||||
Switzerland pension plan obligation | 1,399 | 388 | 1,011 | |||||||||||||||||||||
Operating lease retirement obligations | 1,352 | $ | 1,352 | |||||||||||||||||||||
Post-employment foreign severance obligations | 930 | 930 | ||||||||||||||||||||||
Total Obligations and Contingent Payments reflected on the Consolidated Financial Statements | $ | 169,033 | $ | 51,191 | $ | 112,850 | $ | — | $ | 1,352 | $ | 3,640 | ||||||||||||
Contractual Obligations: | ||||||||||||||||||||||||
Inventory purchase obligations(1) | $ | 72,147 | $ | 72,147 | ||||||||||||||||||||
Operating lease obligations(2) | 38,871 | 9,196 | $ | 14,060 | $ | 6,670 | $ | 8,945 | ||||||||||||||||
Cash paid for interest | 3,377 | 1,452 | 1,925 | |||||||||||||||||||||
Commercial Commitments: | ||||||||||||||||||||||||
Standby letters of credit(3) | 195 | 195 | ||||||||||||||||||||||
Total Obligations and Contingent Payments not reflected on the Consolidated Financial Statements | $ | 114,590 | $ | 82,990 | $ | 15,985 | $ | 6,670 | $ | 8,945 | $ | — |
(1) |
(2) | 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). |
We provide standby letters of credit which represent obligations in lieu of security deposits for employee benefit programs and a customs bond. |
The following table reflects debt as of September 27, 2008:
Type | Maturity Date | Par Value (in thousands) | Fair Value as of September 27, 2008 (quoted market price, in thousands) | Standard & Poor’s rating | ||||||
0.5 % Convertible Subordinated Notes | November 30, 2008 | $ | 72,412 | $ | 70,602 | B+ | ||||
1.0 % Convertible Subordinated Notes | June 30, 2010 | $ | 65,000 | $ | 52,975 | B+ | ||||
0.875 % Convertible Subordinated Notes | June 1, 2012 | $ | 110,000 | $ | 77,000 | Not rated | ||||
$ | 247,412 | $ | 200,577 | |||||||
TheWe are currently under audit by the U.S. Internal Revenue Service (“IRS”) isfor the period ended September 30, 2006. We have responded to various information requests from the IRS. The IRS has not proposed any adjustment that would result in the initial stages of ana significant adjustment to income tax expense; however, the audit for the fiscal 2006 tax year. As of December 5, 2008, the IRS auditor has submitted an initial information request and we areis still in the process of responding to that request. No further information is available with respect to this audit.process.
We may seek, as we believe appropriate, additional debt or equity financing towhich would provide capital for corporate purposes. We may also seekpurposes, working capital funding, and additional debt or equity financing for the refinancing or redemption of existing debt, to repurchase our common stock and/liquidity if current economic and industry conditions remain weak or to fund strategic business opportunities, including possible acquisitions, joint ventures, alliances or other business arrangements which could require substantial capital outlays.future growth opportunities. The timing and amount of such potential capital requirements cannot be determined at this time and will depend on a number of factors, including our actual and projected demand for our products, semiconductor and semiconductor capital equipment industry conditions, competitive factors, and the condition of financial markets and the nature and size of strategic business opportunities which we may elect to pursue.markets.
We currently do not have any off-balance sheet arrangements.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
We are exposed to changes in interest rates primarily from our investments in certain available-for-sale securities. Financial instruments which may have subjected us to interest rate risk as of September 27, 2008 consisted primarily of short-term investments; however, as of October 3, 2009, we held no investments. Our available-for-sale securities consist primarily of fixed income investments (such as corporate bonds, commercial paper, time deposits and U.S. Treasury and Agency securities)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 our 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. As of September 27, 2008, we had a non-trading investment portfolio of fixed income securities, excluding those classified as cash and cash equivalents, of $4.1 million. IfWe have determined if market interest rates were to increase immediately and uniformly by 10% from levels as of September 27, 2008,October 3, 2009, the impact on the fair market value of theour portfolio would decline by less than $100,000.be immaterial.
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 the net monetary assets of ourthose operations whose functional currencies differcurrency, 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 operations in China have translation exposure fromreporting currency, the U.S. dollar, to their respective functional currencies.most notably in China. Based on our overall currency rate exposure as of September 27, 2008,October 3, 2009, 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 boardBoard of Directors has granted management withthe 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 flows.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of Kulicke and Soffa Industries, Inc. listed in the index appearing under Item 15 (a)(1) herein are filed as part of this Report under this Item 8.
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Kulicke and Soffa Industries, Inc.:
In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) present fairly, in all material respects, the financial position of Kulicke and Soffa Industries, Inc., and its subsidiaries (the “Company”) at October 3, 2009 and September 27, 2008, and September 29, 2007, and the results of their operations and their cash flows for each of the three years in the period ended September 27, 2008October 3, 2009 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2)presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 27, 2008,October 3, 2009, based on criteria established inInternal Control -— Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audit of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
As discussed in Note 1012 to the consolidated financial statements, the Company changed its method for accounting for uncertain tax positions in fiscal 2008.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As described in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A, Management has excluded Orthodyne Electronics from its assessment of internal control over financial reporting as of October 3, 2009, because it was acquired by the Company in a purchase business combination
in fiscal 2009. We have also excluded Orthodyne Electronics from our audit of internal control over financial reporting. Orthodyne Electronics is a wholly-owned subsidiary whose total assets and total revenues represent 26.8% and 18.5%, respectively, of the related consolidated financial statement amounts as of and for the year ended October 3, 2009.
/s/ PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
December 10, 200816, 2009
KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
((in thousands)thousands)
As of | ||||||||
September 27, 2008 | October 3, 2009 | |||||||
ASSETS | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 144,932 | $ | 144,560 | ||||
Restricted cash | 35,000 | 281 | ||||||
Short-term investments | 6,149 | — | ||||||
Accounts and notes receivable, net of allowance for doubtful accounts of $1,376 and $1,378 respectively | 56,643 | 95,779 | ||||||
Inventories, net | 27,236 | 41,489 | ||||||
Prepaid expenses and other current assets | 18,729 | 11,566 | ||||||
Deferred income taxes | 2,118 | 1,786 | ||||||
Current assets of discontinued operations | 127,958 | — | ||||||
TOTAL CURRENT ASSETS | 418,765 | 295,461 | ||||||
Property, plant and equipment, net | 36,900 | 36,046 | ||||||
Goodwill | 2,709 | 26,698 | ||||||
Intangible assets | 386 | 48,656 | ||||||
Other assets | 5,468 | 6,215 | ||||||
Non-current assets of discontinued operations | 32,909 | — | ||||||
TOTAL ASSETS | $ | 497,137 | $ | 413,076 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Current Liabilities: | ||||||||
Current portion of long-term debt | $ | 72,412 | $ | 48,964 | ||||
Accounts payable | 25,028 | 39,908 | ||||||
Accrued expenses and other current liabilities | 27,255 | 32,576 | ||||||
Income taxes payable | 569 | 1,612 | ||||||
Current liabilities of discontinued operations | 34,411 | — | ||||||
TOTAL CURRENT LIABILITIES | 159,675 | 123,060 | ||||||
Long-term debt | 175,000 | 110,000 | ||||||
Deferred income taxes | 21,591 | 16,282 | ||||||
Other liabilities | 37,780 | 10,273 | ||||||
Other liabilities of discontinued operations | 624 | — | ||||||
TOTAL LIABILITIES | 394,670 | 259,615 | ||||||
Commitments and contingent liabilities (Note 16) | ||||||||
SHAREHOLDERS’ EQUITY: | ||||||||
Preferred stock; without par value: | ||||||||
Authorized – 5,000 shares; issued – none | — | — | ||||||
Common stock, no par value: | ||||||||
Authorized 200,000 shares; issued 58,558 and 74,326, respectively; | ||||||||
Outstanding 53,648 and 69,415 shares, respectively | 295,841 | 383,417 | ||||||
Treasury stock, at cost, 4,910 and 4,954 shares, respectively | (46,118 | ) | (46,356 | ) | ||||
Accumulated deficit | (149,465 | ) | (185,479 | ) | ||||
Accumulated other comprehensive income | 2,209 | 1,879 | ||||||
TOTAL SHAREHOLDERS’ EQUITY | 102,467 | 153,461 | ||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 497,137 | $ | 413,076 |
As of | ||||||||
September 29, 2007 | September 27, 2008 | |||||||
ASSETS | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 150,571 | $ | 144,932 | ||||
Restricted cash | — | 35,000 | ||||||
Short-term investments | 19,339 | 6,149 | ||||||
Accounts and notes receivable, net of allowance for doubtful accounts of $1,586 and $1,376, respectively | 116,693 | 56,643 | ||||||
Inventories, net | 37,838 | 27,236 | ||||||
Prepaid expenses and other current assets | 12,023 | 18,729 | ||||||
Deferred income taxes | 3,540 | 2,118 | ||||||
Current assets of discontinued operations | 94,205 | 127,958 | ||||||
TOTAL CURRENT ASSETS | 434,209 | 418,765 | ||||||
Property, plant and equipment, net | 34,108 | 36,900 | ||||||
Goodwill | 3,528 | 2,709 | ||||||
Intangible assets | 500 | 386 | ||||||
Other assets | 6,573 | 5,468 | ||||||
Non-current assets of discontinued operations | 33,682 | 32,909 | ||||||
TOTAL ASSETS | $ | 512,600 | $ | 497,137 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Current Liabilities: | ||||||||
Current portion of long-term debt | $ | — | $ | 72,412 | ||||
Accounts payable | 62,870 | 25,028 | ||||||
Accrued expenses | 34,714 | 27,255 | ||||||
Income taxes payable | 22,665 | 569 | ||||||
Current liabilities of discontinued operations | 22,201 | 34,411 | ||||||
TOTAL CURRENT LIABILITIES | 142,450 | 159,675 | ||||||
Long term debt | 251,412 | 175,000 | ||||||
Deferred income taxes | 22,525 | 21,591 | ||||||
Other liabilities | 12,149 | 37,780 | ||||||
Other liabilities of discontinued operations | 809 | 624 | ||||||
TOTAL LIABILITIES | 429,345 | 394,670 | ||||||
Commitments and contingent liabilities (Note 14) | ||||||||
SHAREHOLDERS’ EQUITY: | ||||||||
Preferred stock; without par value: | ||||||||
Authorized - 5,000 shares; issued - none | — | — | ||||||
Common stock, no par value: | ||||||||
Authorized 200,000 shares; issued 58,128 and 58,558, respectively; | ||||||||
Outstanding 53,218 and 53,648 shares, respectively | 288,714 | 295,841 | ||||||
Treasury stock, at cost, 4,910 shares | (46,118 | ) | (46,118 | ) | ||||
Accumulated deficit | (154,094 | ) | (149,465 | ) | ||||
Accumulated other comprehensive income (loss) | (5,247 | ) | 2,209 | |||||
TOTAL SHAREHOLDERS’ EQUITY | 83,255 | 102,467 | ||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 512,600 | $ | 497,137 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
((in thousands, except per share amounts)amounts)
Fiscal | ||||||||||||
2007 | 2008 | 2009 | ||||||||||
Net revenue | $ | 370,526 | $ | 328,050 | $ | 225,240 | ||||||
Cost of sales | 215,090 | 194,257 | 136,397 | |||||||||
Gross profit | 155,436 | 133,793 | 88,843 | |||||||||
Selling, general and administrative | 88,839 | 89,356 | 106,175 | |||||||||
Research and development | 49,085 | 59,917 | 53,483 | |||||||||
Impairment of goodwill | — | — | 2,709 | |||||||||
U.S. pension plan termination | — | 9,152 | — | |||||||||
Operating expenses | 137,924 | 158,425 | 162,367 | |||||||||
Income (loss) from operations | 17,512 | (24,632 | ) | (73,524 | ) | |||||||
Interest income | 6,866 | 4,732 | 1,106 | |||||||||
Interest expense | (2,876 | ) | (3,499 | ) | (2,601 | ) | ||||||
Gain on extinguishment of debt | 2,802 | 170 | 3,965 | |||||||||
Income (loss) from continuing operations before income taxes | 24,304 | (23,229 | ) | (71,054 | ) | |||||||
Provision (benefit) for income taxes from continuing operations | 5,448 | (3,610 | ) | (13,029 | ) | |||||||
Income (loss) from continuing operations | 18,856 | (19,619 | ) | (58,025 | ) | |||||||
Income from discontinued operations, net of tax | 18,874 | 23,441 | 22,011 | |||||||||
Net income (loss) | $ | 37,730 | $ | 3,822 | $ | (36,014 | ) | |||||
Income (loss) per share from continuing operations: | ||||||||||||
Basic | $ | 0.34 | $ | (0.37 | ) | $ | (0.93 | ) | ||||
Diluted | $ | 0.29 | $ | (0.37 | ) | $ | (0.93 | ) | ||||
Income per share from discontinued operations: | ||||||||||||
Basic | $ | 0.33 | $ | 0.44 | $ | 0.35 | ||||||
Diluted | $ | 0.28 | $ | 0.44 | $ | 0.35 | ||||||
Net income (loss) per share: | ||||||||||||
Basic | $ | 0.67 | $ | 0.07 | $ | (0.58 | ) | |||||
Diluted | $ | 0.57 | $ | 0.07 | $ | (0.58 | ) | |||||
Weighted average shares outstanding: | ||||||||||||
Basic | 56,221 | 53,449 | 62,188 | |||||||||
Diluted | 68,274 | 53,449 | 62,188 |
Fiscal | ||||||||||||
2006 | 2007 | 2008 | ||||||||||
Net revenue | $ | 380,296 | $ | 370,526 | $ | 328,050 | ||||||
Cost of sales | 207,073 | 215,090 | 194,257 | |||||||||
Gross profit | 173,223 | 155,436 | 133,793 | |||||||||
Selling, general and administrative | 76,710 | 88,839 | 89,356 | |||||||||
Research and development | 36,290 | 49,085 | 59,917 | |||||||||
U.S. pension plan termination | — | — | 9,152 | |||||||||
Gain on sale of assets | (4,544 | ) | — | — | ||||||||
Operating expenses | 108,456 | 137,924 | 158,425 | |||||||||
Income (loss) from operations | 64,767 | 17,512 | (24,632 | ) | ||||||||
Interest income | 3,921 | 6,866 | 4,732 | |||||||||
Interest expense | (3,126 | ) | (2,876 | ) | (3,499 | ) | ||||||
Gain on extinguishment of debt | 4,040 | 2,802 | 170 | |||||||||
Income (loss) from continuing operations before income taxes | 69,602 | 24,304 | (23,229 | ) | ||||||||
Provision (benefit) for income taxes from continuing operations | 8,068 | 5,448 | (3,610 | ) | ||||||||
Income (loss) from continuing operations | 61,534 | 18,856 | (19,619 | ) | ||||||||
Income (loss) from discontinued operations, net of tax | (9,364 | ) | 18,874 | 23,441 | ||||||||
Net income | $ | 52,170 | $ | 37,730 | $ | 3,822 | ||||||
Income (loss) per share from continuing operations: | ||||||||||||
Basic | $ | 1.12 | $ | 0.34 | $ | (0.37 | ) | |||||
Diluted | $ | 0.91 | $ | 0.29 | $ | (0.37 | ) | |||||
Income (loss) per share from discontinued operations: | ||||||||||||
Basic | $ | (0.17 | ) | $ | 0.33 | $ | 0.44 | |||||
Diluted | $ | (0.14 | ) | $ | 0.28 | $ | 0.44 | |||||
Net income per share: | ||||||||||||
Basic | $ | 0.95 | $ | 0.67 | $ | 0.07 | ||||||
Diluted | $ | 0.78 | $ | 0.57 | $ | 0.07 | ||||||
Weighted average shares outstanding: | ||||||||||||
Basic | 55,089 | 56,221 | 53,449 | |||||||||
Diluted | 68,881 | 68,274 | 53,449 |
The accompanying notes are an integral part of these consolidated financial statements.
KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
((in thousands)thousands)
Fiscal | ||||||||||||
2007 | 2008 | 2009 | ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||
Net income (loss) | $ | 37,730 | $ | 3,822 | $ | (36,014 | ) | |||||
Less: Income from discontinued operations | 18,874 | 23,441 | 22,011 | |||||||||
Income (loss) from continuing operations | 18,856 | (19,619 | ) | (58,025 | ) | |||||||
Adjustments to reconcile income (loss) from continuing operations to net cash provided by (used in) operating activities: | ||||||||||||
Impairment of goodwill | — | — | 2,709 | |||||||||
U.S. pension plan termination | — | 9,152 | — | |||||||||
Gain on extinguishment of debt | (2,802 | ) | (170 | ) | (3,965 | ) | ||||||
Depreciation and amortization | 9,654 | 9,077 | 22,231 | |||||||||
Switzerland pension plan curtailment | — | — | (1,446 | ) | ||||||||
Contribution to U.S. defined benefit pension plan | (1,901 | ) | — | — | ||||||||
Provision for inventory valuation | 2,445 | 3,999 | 8,154 | |||||||||
Equity-based compensation and employee benefits | 6,993 | 6,578 | 2,198 | |||||||||
Deferred taxes | (1,950 | ) | (3,151 | ) | (6,806 | ) | ||||||
Provision for doubtful accounts | 552 | 361 | 291 | |||||||||
Changes in operating assets and liabilities, net of businesses acquired or sold: | ||||||||||||
Accounts and notes receivable | (60,126 | ) | 60,984 | (16,566 | ) | |||||||
Inventory | (8,121 | ) | 6,949 | 2,333 | ||||||||
Prepaid expenses and other current assets | (945 | ) | (5,130 | ) | 7,979 | |||||||
Accounts payable, accrued expenses and other current liabilities | 36,807 | (44,033 | ) | 13,996 | ||||||||
Income taxes payable | 3,426 | 1,598 | (25,633 | ) | ||||||||
Other, net | (4,905 | ) | 341 | 1,144 | ||||||||
Net cash provided by (used in) continuing operations | (2,017 | ) | 26,936 | (51,406 | ) | |||||||
Net cash provided by (used in) discontinued operations | 33,780 | 1,126 | (2,116 | ) | ||||||||
Net cash provided by (used in) operating activities | 31,763 | 28,062 | (53,522 | ) | ||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||
Purchase of Orthodyne | — | — | (87,039 | ) | ||||||||
Purchase of Alphasem, net of $1,111 cash acquired | (28,155 | ) | — | — | ||||||||
Proceeds from sales of investments classified as available-for-sale | 39,308 | 44,583 | 8,536 | |||||||||
Purchase of investments classified as available-for-sale | (37,315 | ) | (31,331 | ) | (2,406 | ) | ||||||
Purchases of property, plant and equipment | (5,573 | ) | (7,851 | ) | (5,263 | ) | ||||||
Changes in restricted cash, net | 1,973 | (35,000 | ) | 34,719 | ||||||||
Net cash used in continuing operations | (29,762 | ) | (29,599 | ) | (51,453 | ) | ||||||
Net cash provided by (used in) discontinued operations | (190 | ) | (193 | ) | 149,857 | |||||||
Net cash provided by (used in) investing activities | (29,952 | ) | (29,792 | ) | 98,404 | |||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||
Net proceeds from sale of common stock | — | — | 38,696 | |||||||||
Proceeds from exercise of stock options | 4,527 | 549 | 223 | |||||||||
Payments on borrowings | (50,433 | ) | (3,831 | ) | (84,358 | ) | ||||||
Net proceeds from debt offering | 106,409 | — | — | |||||||||
Purchase of treasury stock | (46,118 | ) | — | — | ||||||||
Net cash provided by (used in) financing activities | 14,385 | (3,282 | ) | (45,439 | ) | |||||||
Effect of exchange rate changes on cash and cash equivalents | 408 | (627 | ) | 185 | ||||||||
Changes in cash and cash equivalents | 16,604 | (5,639 | ) | (372 | ) | |||||||
Cash and cash equivalents at beginning of period | 133,967 | 150,571 | 144,932 | |||||||||
Cash and cash equivalents at end of period | $ | 150,571 | $ | 144,932 | $ | 144,560 | ||||||
CASH PAID DURING THE PERIOD FOR: | ||||||||||||
Interest | $ | 1,363 | $ | 1,971 | $ | 1,708 | ||||||
Income taxes | $ | 2,686 | $ | 4,704 | $ | 11,032 |
Fiscal | ||||||||||||
2006 | 2007 | 2008 | ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||
Net income | $ | 52,170 | $ | 37,730 | $ | 3,822 | ||||||
Less: Income (loss) from discontinued operations | (9,364 | ) | 18,874 | 23,441 | ||||||||
Income (loss) from continuing operations | 61,534 | 18,856 | (19,619 | ) | ||||||||
Adjustments to reconcile income (loss) from continuing operations to net cash provided by (used in) operating activities: | ||||||||||||
Depreciation and amortization | 8,281 | 9,654 | 9,077 | |||||||||
Equity-based compensation and non-cash employee benefits | 9,064 | 6,993 | 6,578 | |||||||||
Gain on early extinguishment of debt | (4,040 | ) | (2,802 | ) | (170 | ) | ||||||
Gain on sale of assets | (4,544 | ) | — | — | ||||||||
Provision for doubtful accounts | (654 | ) | 552 | 361 | ||||||||
Provision for inventory valuations | 1,164 | 2,445 | 3,999 | |||||||||
Deferred taxes | 522 | (1,950 | ) | (3,151 | ) | |||||||
U.S. pension plan termination | — | — | 9,152 | |||||||||
Contribution to U.S. defined benefit pension plan | — | (1,901 | ) | — | ||||||||
Changes in operating assets and liabilities, net of businesses acquired or sold: | ||||||||||||
Accounts receivable | 35,464 | (60,126 | ) | 60,984 | ||||||||
Inventory | 1,522 | (8,121 | ) | 6,949 | ||||||||
Prepaid expenses and other assets | 381 | (945 | ) | (5,130 | ) | |||||||
Accounts payable and accrued expenses | (24,009 | ) | 36,807 | (44,033 | ) | |||||||
Income taxes payable | 2,045 | 3,426 | 1,598 | |||||||||
Other, net | 1,033 | (4,905 | ) | 342 | ||||||||
Net cash provided by (used in) continuing operations | 87,763 | (2,017 | ) | 26,937 | ||||||||
Net cash provided by (used in) discontinued operations | (24,561 | ) | 33,780 | 1,126 | ||||||||
Net cash provided by operating activities | 63,202 | 31,763 | 28,063 | |||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||
Purchase of Alphasem, net of $1,111 cash acquired | — | (28,155 | ) | — | ||||||||
Proceeds from sales of investments classified as available-for-sale | 29,775 | 39,308 | 44,583 | |||||||||
Purchase of investments classified as available-for-sale | (36,607 | ) | (37,315 | ) | (31,331 | ) | ||||||
Purchases of property, plant and equipment | (8,610 | ) | (5,573 | ) | (7,851 | ) | ||||||
Changes in restricted cash, net | (592 | ) | 1,973 | (35,000 | ) | |||||||
Net cash used in continuing operations | (16,034 | ) | (29,762 | ) | (29,599 | ) | ||||||
Net cash provided by (used in) discontinued operations | 27,012 | (190 | ) | (193 | ) | |||||||
Net cash provided by (used in) investing activities | 10,978 | (29,952 | ) | (29,792 | ) | |||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||
Net proceeds from debt offering | — | 106,409 | — | |||||||||
Proceeds from exercise of common stock options | 7,028 | 4,527 | 549 | |||||||||
Payments on borrowings | (26,634 | ) | (50,433 | ) | (3,831 | ) | ||||||
Purchase of treasury stock | — | (46,118 | ) | — | ||||||||
Net cash provided by (used in) financing activities | (19,606 | ) | 14,385 | (3,282 | ) | |||||||
Effect of exchange rate changes on cash and cash equivalents | (62 | ) | 408 | (627 | ) | |||||||
Changes in cash and cash equivalents | 54,512 | 16,604 | (5,638 | ) | ||||||||
Cash and cash equivalents at beginning of period | 79,455 | 133,967 | 150,571 | |||||||||
Cash and cash equivalents at end of period | $ | 133,967 | $ | 150,571 | $ | 144,933 | ||||||
CASH PAID DURING THE PERIOD FOR: | ||||||||||||
Interest | $ | 1,538 | $ | 1,363 | $ | 1,971 | ||||||
Income Taxes | $ | 1,871 | $ | 2,686 | $ | 4,704 |
The accompanying notes are an integral part of these consolidated financial statements.
KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT)
((in thousands)thousands)
Common Stock | Treasury Stock | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) | Shareholders’ Equity | ||||||||||||||||||||
Shares | Amount | |||||||||||||||||||||||
Balances as of September 30, 2006 | 57,208 | $ | 277,194 | $ | — | $ | (191,824 | ) | $ | (6,064 | ) | $ | 79,306 | |||||||||||
Employer contribution to the Company’s 401(k) plan | 126 | 1,143 | 1,143 | |||||||||||||||||||||
Issuance of stock for services rendered | 37 | 360 | 360 | |||||||||||||||||||||
Exercise of stock options | 757 | 4,428 | 4,428 | |||||||||||||||||||||
Tax benefit from exercise of stock options | 99 | 99 | ||||||||||||||||||||||
Equity-based compensation expense | 5,490 | 5,490 | ||||||||||||||||||||||
Purchase of treasury stock | (4,910 | ) | (46,118 | ) | (46,118 | ) | ||||||||||||||||||
Impact of U.S. pension plan contribution | 5,902 | 5,902 | ||||||||||||||||||||||
Impact ofCompensation adoption | (5,902 | ) | (5,902 | ) | ||||||||||||||||||||
Components of comprehensive income: | ||||||||||||||||||||||||
Net income(1) | 37,730 | 37,730 | ||||||||||||||||||||||
Translation adjustment | 259 | 259 | ||||||||||||||||||||||
Unrealized gain on investments, net | 4 | 4 | ||||||||||||||||||||||
Unamortized pension costs | 554 | 554 | ||||||||||||||||||||||
Total comprehensive income | 38,547 | |||||||||||||||||||||||
Balances as of September 29, 2007 | 53,218 | $ | 288,714 | $ | (46,118 | ) | $ | (154,094 | ) | $ | (5,247 | ) | $ | 83,255 | ||||||||||
Employer contribution to the Company’s 401(k) plan | 193 | 1,174 | 1,174 | |||||||||||||||||||||
Issuance of stock for services rendered | 107 | 720 | 720 | |||||||||||||||||||||
Exercise of stock options | 130 | 549 | 549 | |||||||||||||||||||||
Equity-based compensation expense | 4,684 | 4,684 | ||||||||||||||||||||||
Impact ofIncome Taxes, General adoption (Note 12) | 807 | 807 | ||||||||||||||||||||||
Components of comprehensive income: | ||||||||||||||||||||||||
Net income(1) | 3,822 | 3,822 | ||||||||||||||||||||||
Translation adjustment | 244 | 244 | ||||||||||||||||||||||
Unrealized loss on investments, net | (18 | ) | (18 | ) | ||||||||||||||||||||
Unamortized pension costs | 7,230 | 7,230 | ||||||||||||||||||||||
Total comprehensive income | 11,278 | |||||||||||||||||||||||
Balances as of September 27, 2008 | 53,648 | $ | 295,841 | $ | (46,118 | ) | $ | (149,465 | ) | $ | 2,209 | $ | 102,467 | |||||||||||
Employer contribution to the Company’s 401(k) plan | 357 | 811 | 811 | |||||||||||||||||||||
Issuance of stock for services rendered | 181 | 540 | 540 | |||||||||||||||||||||
Exercise of stock options | 156 | 461 | 461 | |||||||||||||||||||||
Purchase of treasury stock | (44 | ) | (238 | ) | (238 | ) | ||||||||||||||||||
Equity-based compensation expense | 847 | 847 | ||||||||||||||||||||||
Shares issued for purchase of Orthodyne | 7,117 | 46,221 | 46,221 | |||||||||||||||||||||
Sale of common stock | 8,000 | 38,696 | 38,696 | |||||||||||||||||||||
Components of comprehensive loss: | ||||||||||||||||||||||||
Net loss(1) | (36,014 | ) | (36,014 | ) | ||||||||||||||||||||
Translation adjustment | (151 | ) | (151 | ) | ||||||||||||||||||||
Unrealized gain on investments, net | 16 | 16 | ||||||||||||||||||||||
Switzerland pension plan curtailment | 193 | 193 | ||||||||||||||||||||||
Unamortized pension costs | (388 | ) | (388 | ) | ||||||||||||||||||||
Total comprehensive loss | (36,344 | ) | ||||||||||||||||||||||
Balances as of October 3, 2009 | 69,415 | $ | 383,417 | $ | (46,356 | ) | $ | (185,479 | ) | $ | 1,879 | $ | 153,461 |
Common Stock | Treasury Stock | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) | Shareholders’ Equity (Deficit) | ||||||||||||||||||
Shares | Amount | |||||||||||||||||||||
Balances as of September 30, 2005 | 51,981 | $ | 218,426 | $ | — | $ | (243,994 | ) | $ | (6,180 | ) | $ | (31,748 | ) | ||||||||
Employer contribution to the Company’s 401(k) plan | 215 | 1,898 | 1,898 | |||||||||||||||||||
Employer contribution to Company’s pension plan | 200 | 1,804 | 1,804 | |||||||||||||||||||
Exercise of stock options | 1,212 | 7,028 | 7,028 | |||||||||||||||||||
Equity-based compensation expense | 5,362 | 5,362 | ||||||||||||||||||||
Debt repurchase | 3,600 | 42,676 | 42,676 | |||||||||||||||||||
Components of comprehensive income: | ||||||||||||||||||||||
Net income (1) | 52,170 | 52,170 | ||||||||||||||||||||
Translation adjustment | 320 | 320 | ||||||||||||||||||||
Unrealized gain on investments, net | 5 | 5 | ||||||||||||||||||||
Minimum pension liability (no tax impact) | (209 | ) | (209 | ) | ||||||||||||||||||
Total comprehensive income | 52,286 | |||||||||||||||||||||
Balances as of September 30, 2006 | 57,208 | $ | 277,194 | $ | — | $ | (191,824 | ) | $ | (6,064 | ) | $ | 79,306 | |||||||||
Employer contribution to the Company’s 401(k) plan | 126 | 1,143 | 1,143 | |||||||||||||||||||
Issuance of stock for services rendered | 37 | 360 | 360 | |||||||||||||||||||
Exercise of stock options | 757 | 4,428 | 4,428 | |||||||||||||||||||
Tax benefit from exercise of stock options | 99 | 99 | ||||||||||||||||||||
Equity-based compensation expense | 5,490 | 5,490 | ||||||||||||||||||||
Purchase of treasury stock | (4,910 | ) | (46,118 | ) | (46,118 | ) | ||||||||||||||||
Impact of U.S. pension plan contribution | 5,902 | 5,902 | ||||||||||||||||||||
Impact of SFAS 158 adoption | (5,902 | ) | (5,902 | ) | ||||||||||||||||||
Components of comprehensive income: | ||||||||||||||||||||||
Net income (1) | 37,730 | 37,730 | ||||||||||||||||||||
Translation adjustment | 259 | 259 | ||||||||||||||||||||
Unrealized gain on investments, net | 4 | 4 | ||||||||||||||||||||
Unamortized pension costs | 554 | 554 | ||||||||||||||||||||
Total comprehensive income | 38,547 | |||||||||||||||||||||
Balances as of September 29, 2007 | 53,218 | $ | 288,714 | $ | (46,118 | ) | $ | (154,094 | ) | $ | (5,247 | ) | $ | 83,255 | ||||||||
Employer contribution to the Company’s 401(k) plan | 193 | 1,174 | 1,174 | |||||||||||||||||||
Issuance of stock for services rendered | 107 | 720 | 720 | |||||||||||||||||||
Exercise of stock options | 130 | 549 | 549 | |||||||||||||||||||
Equity-based compensation expense | 4,684 | 4,684 | ||||||||||||||||||||
Impact of FIN 48 adoption | 807 | 807 | ||||||||||||||||||||
Components of comprehensive income: | ||||||||||||||||||||||
Net income (1) | 3,822 | 3,822 | ||||||||||||||||||||
Translation adjustment | 244 | 244 | ||||||||||||||||||||
Unrealized loss on investments, net | (18 | ) | (18 | ) | ||||||||||||||||||
Unamortized pension costs | 7,230 | 7,230 | ||||||||||||||||||||
Total comprehensive income | 11,278 | |||||||||||||||||||||
Balances as of September 27, 2008 | 53,648 | $ | 295,841 | $ | (46,118 | ) | $ | (149,465 | ) | $ | 2,209 | $ | 102,467 | |||||||||
(1) | Includes continuing and discontinued operations |
The accompanying notes are an integral part of these consolidated financial statements.
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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. In fiscal 2009, the Company’s Packaging Materials segment was renamed Expendable Tools.
SubsequentManagement has evaluated subsequent events through the date these financial statements were available to year end, onbe issued which was December 16, 2009.
On September 29, 2008, the Company completed the sale of its Wire business for $155.0net proceeds of $149.9 million (subject to working capital adjustment) to W.C. Heraeus GmbH (“Heraeus”), a precious metals and technology company based in Hanau, Germany. In addition, during fiscal 2006, the Company sold its Test business.. The financial results of the Wire and Test businessesbusiness have been classified asincluded in discontinued operations in the consolidated financial statements for all periods presented (see Note 2).
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 (see Note 4).
In June 2009, the Financial Accounting Standards Board (“FASB”) issued revised accounting guidance which establishes the FASB Accounting Standards Codification (“ASC”) as the authoritative source for accounting principles of non-governmental entities to conform to United States Generally Accepted Accounting Principles (“GAAP”) used in the preparation of financial statements. The ASC is not intended to change existing guidance for public companies. The new guidance is effective for interim and annual reporting periods ending after September 15, 2009.
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 30th. In fiscal years consisting of 53 weeks, the fourth quarter will consist of 14 weeks. The fiscal year end for fiscal 2006, 2007, 2008, and 2008 was September 30, 2006,2009 ended on September 29, 2007, and September 27, 2008, and October 3, 2009, respectively.
Nature of Business
The Company designs, manufactures and marketssells capital equipment and packaging materialsexpendable 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 periodic downturns and slowdowns which have a severe negative effect on the semiconductor industry’s demand for semiconductor capital equipment, including assembly equipment manufactured and marketedsold by the Company and, to a lesser extent, packaging materialsexpendable tools such as those sold by the Company. Over time, theseThese downturns and slowdowns have also adversely affected the Company’s operating results. The Company believes such volatility will continue to characterize the industry and the Company’s operations in the future.
Management Estimates
The preparation of financial statements in conformity with generally accepted accounting principlesGAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The more significant areas involving the use of estimates in these financial statements include, allowances for uncollectiblebut are not limited to, those related to accounts receivable, reserves for excess and obsolete inventory, carrying value and lives of fixed assets, goodwill and intangible assets, valuation allowances for deferred tax
assets and deferred tax liabilities, for undistributedrepatriation of unremitted foreign subsidiary earnings, equity-based compensation expense, resizing, and warranties. The Company estimates on historical experience and on various other assumptions that it believes to be reasonable. As a result, the Company makes judgments regarding the carrying values of certain foreign subsidiaries, tax contingencies, pension benefit liabilities, warranty expenseits assets and liabilities share-based payments and litigation.that are not readily apparent from other sources. Actual results couldmay differ from those estimated.these estimates under different assumptions or conditions.
Vulnerability to Certain Concentrations
Financial instruments which may subject the Company to concentrations of credit risk as of September 29, 200727, 2008 and September 27, 2008October 3, 2009 consisted primarily of short termshort-term investments and trade receivables. As of October 3, 2009, the Company had no short-term or long-term investments. The Company manages credit risk associated with investments by investing its excess cash in highly rated debt instruments of the U.S. Government and its agencies, financial institutions, and corporations. The Company has established investment guidelines relative to diversification and maturities designed to maintain safety and liquidity. These guidelines are periodically reviewed and modified as appropriate. The Company does not have any exposure to sub-prime financial instruments or auction rate securities.
The Company’s trade receivables result primarily from the sale of semiconductor equipment, related accessories and replacement parts, and packaging materialsexpendable tools to a relatively small number of large manufacturers in a highly concentrated industry. The Company continually assesses the financial strength of its customers to reduce the risk of loss. Write-offs of uncollectible accounts have historically not been significant. Wesignificant; 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 ourthose operations whose functional currencies differ from their respective local currencies, most notably in Israel, Malaysia, Singapore and Switzerland. In addition, the Company’s operations in these countries and in China have exposure related to the translation exposureof their financial statements from the U.S. dollar to their respective functional currency.currencies to the U.S. dollar.
Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less when purchased to be cash equivalents.
Investments
Investments, other than cash equivalents, are classified as “trading,” “available-for-sale” or “held-to-maturity”, in accordance with Statements of Financial Accounting Standards (“SFAS”)ASC No. 115,820,Accounting for Certain Investments in— Debt and& Equity Securities (“ASC 820”), and depending upon the nature of the investment, its ultimate maturity date in the case of debt securities, and management’s intentions with respect to holding the securities. Investments classified as “trading” are reported at fair market value, with unrealized gains or losses included in earnings. Investments classified as “available-for-sale” are reported at fair market value, with net unrealized gains or losses reflected as a separate component of shareholders’ equity (accumulated other comprehensive income (loss)). The fair market value of trading and available-for-sale securities is determined using quoted market prices at the balance sheet date. Investments classified as held-to-maturity are reported at amortized cost. Realized gains and losses are determined on the basis of specific identification of the securities sold.
Allowance for Doubtful Accounts
The Company maintains allowances for doubtful accounts for estimated losses resulting from its customer’scustomers’ 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 is subject to concentrations of customers and sales to a few geographic locations, which maycould also impact the collectibility of certain receivables. If global economic conditions continue to deteriorate or political
conditions were to change in some of the countries where the Company does business, it could have a significant impact on the results of its operations, and itsthe Company’s ability to realize the full value of its accounts receivable.
Inventories
Inventories are stated at the lower of standard cost (which approximates actual cost on(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 generally records as accrued expense inventory purchase commitments in excess of demand. Demand is generally defined as eighteen months forecasted future consumption for non-Wedge bonder equipment, twenty-four months consumption for Wedge bonder equipment and all spare parts, and twelve months historical consumption for packaging materials and twenty-four months historical consumption for spare parts.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 for the difference between the carrying value of its inventory and the lower of cost or market value, based upon assumptions about future demand, market conditions and the next cyclical market upturn. If actual market conditions are less favorable than its projections, additional inventory reserves may be required.
Property, Plant and Equipment
Property, plant and equipment are carried at cost. The cost of additions and those improvements which increase the capacity or lengthen the useful lives of assets are capitalized while repair and maintenance costs are expensed as incurred. Depreciation and amortization are provided on a straight-line basis over the estimated useful lives as follows: buildings 25 to 40 years; machinery and equipment 3 to 10 years; and leasehold improvements are based on the shorter of the life of lease or life of asset. Purchased computer software costs related to business and financial systems are amortized over a five year period on a straight-line basis.
Valuation of Long-Lived Assets
The Company’s long-lived assets are primarily property, plant, intangible assets and equipment and goodwill. In accordance with the provisions of SFASASC No. 142,350,Intangibles, Goodwill and Other Intangible Assets(“SFAS 142” (“ASC 350”), goodwill is not amortized. SFAS 142ASC 350 also requires that, at least annually, an impairment test be performed to support the carrying value of goodwill. In addition, whenever events occur that may impactwould more likely than not reduce the carryingfair value of reporting unit below its carrying amount, a goodwill an impairment test will be performed. The fair value of the Company’s goodwill is based upon estimates of future cash flows and other factors. The Company’s intangible technology assets are managed and valued in the aggregate, as one asset group, not by individual technology.
In accordance with SFASASC No. 144,360,Accounting for Impairment or Disposal of Long-Lived AssetsProperty, Plant & Equipment(“SFAS 144” (“ASC 360”),the Company’s property, plant and equipment is tested for impairment based on undiscounted cash flows when triggering events occur, and if impaired, written-down to fair value based on either discounted cash flows or appraised values. SFAS 144ASC 360 also provides a single accounting model for long-lived assets to be disposed of by sale and establishes additional criteria that would have to be met to classify an asset as held for sale. The carrying amount of an asset or asset group is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset or asset group. Estimates of future cash flows used to test the recoverability of a long-lived asset or asset group must incorporate the entity’s own assumptions about its use of the asset or asset group and must factor in all available evidence. SFAS 144
ASC 360 requires that long-lived assets be tested for recoverability whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Such events include significant under-performance relative to the expected historical or projected future operating results; significant changes in the manner of use of the assets; significant negative industry or economic trends and significant changes in market capitalization.
Foreign Currency Translation
The majority of the Company’s business is transacted in U.S. dollars,dollars; however, the functional currencycurrencies of some of the Company’s subsidiaries isare their local currency. Forcurrencies. In accordance with ASC No. 830,Foreign Currency Matters (“ASC 830”), for a subsidiary of the Company’s subsidiariesCompany that havehas 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)), in accordance with SFAS No. 52,Foreign Currency Translation. CumulativeUnder ASC 830, cumulative translation adjustments are not adjusted for income taxes as 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. Net exchange and transaction losses were $0.6 million, $0.1 million and $1.8 million, for fiscal 2006, 2007 and 2008, respectively.income (loss).
In accordance with ASC No. 605,Revenue Recognition
The Company recognizes revenue in accordance with Staff Accounting Bulletin (“SAB”) No. 104,Revenue Recognition(“SAB 104”). The, 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 lapsing customer acceptance period, revenue is recognized based upon the expiration of the lapsing 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. The Company does not provide price protection to its customers.
Shipping and handling costs billed to customers are recognized in net revenue. Shipping and handling costs are included in cost of sales.
Research and Development
The Company charges all research and development costs associated with the development of new products to expense when incurred. In certain circumstances, pre-production machines which the Company intends to sell are carried as inventory until sold.
Income Taxes
Deferred income taxes are determined using the liability method in accordance with SFASASC No. 109,740,Accounting for Income Taxes (“SFAS 109”(“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 ourits 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.
Effective September 30, 2007, the Company adopted the Financial Accounting Standards Board (“FASB”) InterpretationASC No. 48,740 Topic 10, Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109Taxes, General (“FIN 48”(“ASC 740.10”). FIN 48ASC 740.10 prescribes, among other things, a recognition threshold and measurement attributes for the financial statement recognition and measurement of uncertain tax positions taken or expected to be taken in a company’s income tax return. FIN 48The Company utilizes a two-step approach for evaluating uncertain tax positions accounted for in accordance with SFAS 109.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 SFASASC No. 128,260,Earnings Perper Share. Basic EPS includesinclude only the weighted average number of common shares outstanding during the period. Diluted EPS includesinclude the weighted average number of common shares and the dilutive effect of stock options, performancerestricted stock and share unit awards and subordinated convertible notes outstanding during the period, when such instruments are dilutive.
In accordance with Accounting Principles Board, (“APB”) No.26,ASC No. 470 Topic 50,Early Extinguishment of Debt, Modifications and Extinguishments (“APB 26”), gains and losses from the extinguishment of debt are included in income (loss) from continuing operations unless the extinguishment is both unusual in nature and infrequent in occurrence, in which case the gain or loss would be presented as an extraordinary item.
Equity-Based Compensation
The Company accounts for equity based compensation under the provisions of SFASASC No. 123R,718,Share-Based PaymentsCompensation, Stock Compensation (“SFAS 123R”ASC 718”). SFAS 123RASC 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. This model requires the input of highly subjective assumptions and elections including expected stock price volatility and the estimated life of each award. 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 SFAS 123R and continue to use a graded vesting method for awards granted prior to the adoption of SFAS 123R.ASC 718.
Recent Accounting Pronouncements
SFAS 157
In September 2006,May 2008, the FASB issued SFASASC No. 157,470.20,Fair Value Measurements Debt, Debt With Conversion Options (“SFAS 157”ASC 470.20”). SFAS 157 clarifies the definition of fair value, establishes a framework for measuring fair value of financial assets and liabilities, as well as for any other assets and liabilities that are carried at fair value on a recurring basis in financial statements, and expands disclosures on fair value measurements. SFAS 157, which is effective for financial statements issued for fiscal years beginning after November 15, 2007; however, FASB Staff Position (“FSP”) No. 157-2,Effective Date of FASB Statement No. 157 (“FSP 157-2”), delayed the effective date of SFAS 157 by one year for nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. In addition, the FASB issued FSP No. 157-3,Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active (“FSP 157-3”), which clarifies the application of SFAS 157 in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. The Company does not believe SFAS 157, FSP 157-2 or FSP 157-3 will have a material impact on its consolidated results of operations and financial condition.
SFAS 159
In February 2007, the FASB issued SFAS No. 159,The Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment of FASB Statement No. 115 (“SFAS 159”). SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value at specified election dates. Under SFAS 159, any unrealized holding gains and losses on items for which the fair value option has been elected are reported in earnings at each subsequent reporting date. If elected, the fair value option (1) may be applied instrument by instrument, with a few exceptions, such as investments otherwise accounted for by the equity method; (2) is irrevocable (unless a new election date occurs); and (3) is applied only to entire instruments and not to portions of instruments. SFAS 159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provisions of SFAS 157. The Company is does not believe SFAS 159 will have a material impact on its consolidated results of operations and financial condition.
SFAS 141(R)
In December 2007, the FASB issued SFAS No. 141(R),Business Combinations (“SFAS 141(R)”), to create greater consistency with the International Accounting Standards Board in the accounting and financial reporting of business combinations. SFAS 141(R) establishes principles and requirements for how the acquirer in a business combination (i) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest, (ii) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase, and (iii) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS 141(R) applies to fiscal years beginning after December 15, 2008,2008. ASC 470.20 clarifies that convertible debt instruments that may be settled in cash upon conversion are not addressed by paragraph 12 of APB No. 14,Accounting for Convertible Debt and earlierDebt Issued with Stock Purchase Warrants. ASC 470.20 also specifies that issuers of such instruments should separately account for the liability and equity components in a manner that will reflect the entity’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. Beginning fiscal 2010, the Company will adopt ASC 470.20 retrospectively to convertible debt instruments that are within the scope of this guidance and were outstanding during any period presented in the financial statements. The adoption is prohibited. SFAS 141(R)of ASC 470.20 will be adopted prospectively for any business combinations occurring after the adoption date, and could have a material impact on the Company’s consolidated results of operationsoperations.
As of October 3, 2009, the Company’s $110.0 million aggregate principal amount of 0.875% Convertible Subordinated Notes due 2012 were outstanding and financial conditionwithin the scope of ASC 470.20. The Company has 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 any business combinations occurring afternon-convertible debt with similar credit ratings and terms was assumed to be 7.85%. Next, 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 Company determined the fair value of the embedded equity component of the Convertible Subordinated Notes at the time of issuance was $30.7 million. Upon adoption, the Company will revise historical periods to reflect the application of ASC 470.20, and the $30.7 million debt discount will be reclassified as a reduction to accumulated deficit. The debt discount will be amortized under the effective interest method from the original issue date. As of October 4, 2009, the remaining unamortized debt discount will be $14.7 million and will be amortized over the remaining life of the Convertible Subordinated Notes ending at maturity in June 2012.
Debt issuance costs of $3.6 million were incurred in connection with the 0.875% Convertible Subordinated Notes. The Company determined the portion of these costs associated with the equity component was $1.0 million. Upon adoption, the Company will revise historical periods to reflect the application ASC 470.20, and the $1.0 million debt issuance costs as a reduction to accumulated deficit. The debt issuance costs will be amortized under the effective interest method from the original issue date. As of October 4, 2009, the remaining unamortized debt issuance costs will be $1.5 million and will be amortized over the remaining life of the Convertible Subordinated Notes ending at maturity in June 2012.
As a result of the adoption date.of ASC 470.20, in the first quarter of fiscal 2010, the Company expects to record $1.4 million additional non-cash net interest expense attributable to the amortization of the debt discount related to the equity component and a corresponding amount of amortization of debt issuance costs. For fiscal 2010, the Company will record additional non-cash net interest expense of $6.1 million and a corresponding offset to accumulated amortization of debt issuance costs.
SFAS 160
In December 2007,June 2008, the FASB issued SFASASC No. 160,260.10.55,Noncontrolling InterestsEarnings per Share — Implementation & Guidance(“ASC 260.10.55”). ASC 260.10.55 clarified that all outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends participate in Consolidated Financial Statements — an amendmentundistributed earnings with common shareholders. Awards of ARB No. 51 (“SFAS 160”), to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 establishes accounting and reporting standards that require (i) the ownership interest in subsidiaries held by parties other than the parent to be clearly identified and presented in the consolidated balance sheet within equity, but separate from the parent’s equity, (ii) the amount of consolidated net income attributable to the parentthis nature are considered participating securities and the noncontrolling interest totwo-class method of computing basic and diluted earnings per share must be clearly identified and presented on the face of the consolidated statement of income, and (iii) changes in a parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary to be accountedapplied. ASC 260.10.55 is effective for as an equity transaction. SFAS 160 applies to fiscal years beginning after December 15, 2008, and earlierthe Company will adopt beginning fiscal 2010. The adoption is prohibited. The Company doeswill not believe SFAS 160 will have a materialmaterially impact on itsthe Company’s consolidated results of operations and financial condition.
SFAS 161
In March 2008, the FASB issued SFAS No. 161,Disclosures about Derivative Instruments and Hedging Activities - an amendment of FASB Statement No. 133 (“SFAS 161”). SFAS 161 changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS 133,Accounting for Derivative Instruments and Hedging Activities, and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. The guidance in SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. SFAS 161 encourages, but does not require, comparative disclosures for earlier periods at initial adoption. The Company does not currently have any derivative instruments or engage in hedging activities; therefore, the Company does not believe SFAS 161 will have a material impact on its consolidated financial statements and related disclosures.
SFAS 162
In May 2008, the FASB issued SFAS No. 162,The Hierarchy of Generally Accepted Accounting Principles (“SFAS 162”). This standard is intended to improve financial reporting by identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with generally accepted accounting principles in the United States for non-governmental entities. SFAS 162 is effective 60 days following the Securities and Exchange Commission’s approval by the Public Company Accounting Oversight Board of amendments to AU Section 411,The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. The Company does not expect SFAS 162 to have a material impact on the preparation of its consolidated financial statements.
FSP 142-3
In April 2008, the FASB issued ASC No. 350.35, Intangibles, Goodwill and OtherIn April 2008, the FASB issued FSP No. 142-3,Determination of the Useful Life of Intangible Assets
(“FSP 142-3”(“ASC 350.35”). FSP 142-3ASC 350.35 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS 142 and requires enhanced disclosures relating to: (a) the entity’s accounting policy on the treatment of costs incurred to renew or extend the term of a recognized intangible asset; (b) in the period of acquisition or renewal, the weighted-average period prior to the next renewal or extension (both explicit and implicit), by major intangible asset class and (c) for an entity that capitalizes renewal or extension costs, the total amount of costs incurred in the period to renew or extend the term of a recognized intangible asset for each period for which a statement of financial position is presented, by major intangible asset class. FSP 142-3ASC 350.35 must be applied prospectively to all intangible assets acquired as ofduring and subsequent to fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. The Company is currently evaluatingadoption of ASC 350.35 will not materially impact the potential impact that FSP 142-3 will have on itsCompany’s consolidated results of operations and financial condition.
FSP APB 14-1
In May 2008, the FASB issued FSP No. APB 14-1,Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash Settlement) (“FSP APB 14-1”), which is effective for fiscal years beginning after December 15, 2008. FSP APB 14-1 clarifies that convertible debt instruments that may be settled in cash upon conversion are not addressed by paragraph 12 of APB No. 14,Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants. FSP APB 14-1 also specifies that issuers of such instruments should separately account for the liability and equity components in a manner that will reflect the entity’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. The Company will adopt FSP APB 14-1 beginning fiscal 2010. The adoption will have a material impact on the Company’s consolidated results of operations.
FSP EITF 03-6-1
In June 2008, the FASB issued FSP Emerging Issues Task Force (“EITF”) Issue No. 03-6-1,Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities (“FSP EITF 03-6-1”).FSP EITF 03-6-1 clarified that all outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends participate in undistributed earnings with common shareholders. Awards of this nature are considered participating securities and the two-class method of computing basic and diluted earnings per share must be applied. FSP EITF 03-6-1 is effective for fiscal years beginning after December 15, 2008. The Company is currently evaluating the potential impact that FSP EITF 03-6-1 will have on its consolidated results of operations and financial condition.
EITF 07-5
In June 2008, the FASB ratified EITF Issue No. 07-5,Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock (“EITF 07-5”). EITF 07-5 provides that an entity should use a two step approach to evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock, including evaluating the instrument’s contingent exercise and settlement provisions. It also clarifies on the impact of foreign currency denominated strike prices and market-based employee stock option valuation instruments on the evaluation. EITF 07-5 is effective for fiscal years beginning after December 15, 2008. The Company is currently evaluating the potential impact that EITF 07-5 will have on its consolidated results of operations and financial condition.
EITF 08-3
In June 2008, the FASB ratified EITF Issue No. 08-3,Accounting by Lessees for Nonrefundable Maintenance Deposits(“EITF 08-3”). EITF 08-3 applies to the lessee’s accounting for maintenance deposits paid by a lessee under an arrangement accounted for as a lease that are refunded only if the lessee performs specified maintenance activities. EITF 08-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008. The Company does not believe EITF 08-3 will have a material impact on its consolidated results of operations and financial condition.
NOTE 2: DISCONTINUED OPERATIONS
The Company committed to a plan of disposal for its Wire business in Julyfiscal 2008, and subsequent to year end on September 29, 2008, the Company completed the sale of certain assets and liabilities associated with its Wire businessbusiness. Included in discontinued operations for fiscal 2009, are net proceeds of $149.9 million and a net gain of $22.0 million, net of tax, related to Heraeus. Discontinued operations consist of the former Wire business and former Test business (sold during fiscal 2006).sale.
The following table reflects operating results of the Wire business discontinued operations for fiscal 2006, 2007, 2008 and 2008:2009:
Fiscal | ||||||||||||
(in thousands) | 2006 | 2007 | 2008 | |||||||||
Net revenue : Wire | $ | 316,015 | $ | 329,878 | $ | 423,971 | ||||||
Net revenue : Test | 42,698 | — | — | |||||||||
Net revenue from discontinued operations | $ | 358,713 | $ | 329,878 | $ | 423,971 | ||||||
Income (loss) from discontinued operations before tax | $ | (12,706 | ) | $ | 18,934 | $ | 23,690 | |||||
Income tax benefit (expense) | 3,342 | (60 | ) | (249 | ) | |||||||
Income (loss) from discontinued operations, net of tax | $ | (9,364 | ) | $ | 18,874 | $ | 23,441 | |||||
Fiscal | ||||||||||||
(in thousands) | 2007 | 2008 | 2009 | |||||||||
Net revenue | $ | 329,878 | $ | 423,971 | $ | — | ||||||
Income (loss) before tax | $ | 18,934 | $ | 23,690 | $ | (319 | ) | |||||
Gain on sale of Wire business before tax | — | — | 23,026 | |||||||||
Income from discontinued operations before tax | 18,934 | 23,690 | 22,707 | |||||||||
Income tax expense | (60 | ) | (249 | ) | (696 | ) | ||||||
Income from discontinued operations, net of tax | $ | 18,874 | $ | 23,441 | $ | 22,011 |
The following table reflects the major classes of assets and liabilities associated with the Company’s Wire business discontinued operations as of September 29, 2007 and September 27, 2008:
As of | ||||||||||
(in thousands) | September 29, 2007 | September 27, 2008 | ||||||||
(in thousands) | As of September 27, 2008 | |||||||||
Accounts receivable, net | $ | 60,819 | $ | 78,573 | $ | 78,573 | ||||
Inventories, net | 31,117 | 48,907 | 48,907 | |||||||
Other current assets | 2,269 | 478 | 478 | |||||||
Plant, property and equipment, net | 3,845 | 3,053 | 3,053 | |||||||
Goodwill | 29,684 | 29,684 | 29,684 | |||||||
Other assets | 153 | 172 | 172 | |||||||
Total assets of discontinued operations | $ | 127,887 | $ | 160,867 | 160,867 | |||||
Accounts payable | 19,745 | 32,275 | 32,275 | |||||||
Accrued expenses and other current liabilities | 2,456 | 2,136 | 2,136 | |||||||
Other liabilities | 809 | 624 | 624 | |||||||
Net assets of discontinued operations: Wire | $ | 104,877 | $ | 125,832 | ||||||
Total liabilities of discontinued operations | 35,035 | |||||||||
Net assets of discontinued operations: | $ | 125,832 |
The following table reflects cash flows associated with the Company’s discontinued operations for fiscal 2007, 2008 and 2009:
Fiscal | ||||||||||||
(in thousands) | 2007 | 2008 | 2009 | |||||||||
Cash flows provided by (used in): | ||||||||||||
Operating activities: Wire business | $ | 37,124 | $ | 2,680 | $ | (319 | ) | |||||
Operating activities: Test business (sold in fiscal 2006)(1) | (3,344 | ) | (1,554 | ) | (1,797 | ) | ||||||
Operating cash flows from discontinued operations | $ | 33,780 | $ | 1,126 | $ | (2,116 | ) | |||||
Investing activities: Wire business | (190 | ) | (193 | ) | 149,857 | |||||||
Net cash provided by discontinued operations | $ | 33,590 | $ | 933 | $ | 147,741 |
(1) | Represents facility-related costs associated with the Company’s former Test operations. |
The Company had no assets orhas settled all working capital adjustments with Heraeus, the buyer of the Wire business, and has reserved $1.9 million for these adjustments, which is included in accrued expenses and other current liabilities associated with its former Test business as of September 29, 2007 or September 27, 2008.
Wire Business
on the Consolidated Balance Sheet. Subsequent to year end on September 29, 2008, the Company completed the sale of certain assets associated with its Wire business and recognized net proceeds of $155.0 million, subjectduring October 2009, this liability was paid to certain working capital adjustments. The Company expects the gain on the sale of its Wire business to be approximately $22.1 million to $25.1 million and will be recognized in the first quarter ofHeraeus.
During fiscal 2009.
Test Business
During the fiscal 2006,2009, the Company committed to a plan and reduced its global workforce by approximately 490 employees. These workforce reductions represented approximately 20% of disposaltotal employees and sold its Test business in two separate transactions as follows:were completed to minimize cash usage and reduce employee compensation costs.
During the third quarter of fiscal 2006,2009, the Company recordedcommitted to a lossplan to reduce its Israel workforce by approximately 170 employees over an estimated period of $0.8 million on18 months from the disposaldate of its Test business.the announcement. As part of this workforce reduction plan, substantially all of the Company’s Israel-based manufacturing will be transferred to the Company’s manufacturing facilities in Suzhou, China.
The following table reflects facilities-related accrued expenses associated withseverance activity during fiscal 2009:
(in thousands) | Fiscal 2009 | |||
Accrual for estimated severance and benefits, beginning of period(2) | $ | 1,035 | ||
Provision for severance and benefits(1) | 7,402 | |||
Payment of severance and benefits | (6,024 | ) | ||
Accrual for estimated severance and benefits as of October 3, 2009(3) | $ | 2,413 |
(1) | Provision for severance and benefits expense is included within selling, general and administrative expenses on the Consolidated Statements of Operations. For fiscal 2009, $4.6 million and $2.8 million of the provision for severance were attributable to the Company’s Equipment and Expendable Tools segments, respectively. The Company anticipates an additional $0.3 million of severance and benefits expense, attributable to the Expendable Tools segment, over the next 15 months related to its cost reduction plan in Israel. |
(2) | The Company had recorded during prior years approximately $1.0 million related to severance and benefits as required by local Israel law. |
(3) | Accrual for estimated severance and benefits is included within accrued expenses and other current liabilities on the Consolidated Balance Sheet and will be paid within the next 12 months. |
On October 3, 2008, the discontinuationCompany completed the acquisition of substantially all of the Testassets and assumption of certain liabilities of Orthodyne pursuant to an Asset Purchase Agreement. The purchase price for Orthoydne consisted of approximately 7.1 million common shares with an estimated value at issuance of $46.2 million and $87.0 million in cash including capitalized acquisition costs. In addition, the Company agreed to pay Orthodyne an additional amount based upon the gross profit realized by the acquired business over a three year period from date of acquisition pursuant to an Earnout Agreement (the “Earnout”). As of October 3, 2009, the maximum attainable under the Earnout is approximately $30.0 million. A former owner of Orthodyne is currently employed by the Company, although payment from the Earnout is not contingent upon his continued employment.
In accordance with ASC No. 805,Business Combinations, the Company has accounted for the acquisition under the purchase method of accounting. Accordingly, respective balances and the results from operations for Orthodyne, since the acquisition date, have been included in continuing operationsthe Company’s Consolidated Financial Statements. The Company recorded the Wedge bonder intangible assets at fair market value. The preliminary allocation of the purchase price for this acquisition may change due to the Earnout.
The following table summarizes the estimated fair values of assets acquired and liabilities assumed as of the acquisition date:
(in thousands) | As of October 3, 2008 | |||||||
Accounts and notes receivable | $ | 22,240 | ||||||
Inventories(1) | 24,805 | |||||||
Other current assets | 298 | |||||||
Plant, property & equipment | 4,264 | |||||||
Wedge bonder intangible assets (see Note 5) | 59,600 | |||||||
Other assets | 444 | |||||||
Total assets acquired | $ | 111,651 | ||||||
Current liabilities | (5,089 | ) | ||||||
Total liabilities assumed | (5,089 | ) | ||||||
Net assets acquired | 106,562 | |||||||
Cost of Orthodyne(2) | 133,260 | |||||||
Goodwill (see Note 5) | $ | 26,698 |
(1) | Includes adjustment of $1.8 million to record inventory at market value. As inventory was sold, the Company’s gross profit reflected this market value adjustment. |
(2) | Consisted of: $83.7 million of cash, 7.1 million common shares valued at $46.2 million, and $3.4 million of capitalized acquisition costs. |
The acquisition of Orthodyne occurred at the beginning of fiscal 2009; therefore, Orthodyne’s results are not included in the Company’s Consolidated Statement of Operations for fiscal 2007 and 2008:2008. The following table reflects pro forma unaudited operating results for the Company, assuming the acquisition of Orthodyne had occurred as of the beginning of each of the periods presented and including certain pro forma adjustments, primarily related to amortization of acquired intangible assets:
Fiscal | ||||||||
(in thousands, except per share data) | 2007 | 2008 | ||||||
Unaudited | ||||||||
Net revenues | $ | 480,949 | $ | 430,274 | ||||
Gross profit | 216,112 | 191,940 | ||||||
Income (loss) from continuing operations before tax | 35,972 | (19,884 | ) | |||||
Income (loss) from continuing operations | $ | 29,772 | $ | (16,490 | ) | |||
Income (loss) per share from continuing operations: | ||||||||
Basic | $ | 0.47 | $ | (0.27 | ) | |||
Diluted | $ | 0.41 | $ | (0.27 | ) | |||
Weighted average shares outstanding: | ||||||||
Basic | 63,338 | 60,566 | ||||||
Diluted | 75,392 | 60,566 |
(in thousands) | Facilities | |||
Balance as of September 30, 2006 | $ | 5,454 | ||
Change in estimate included in continuing operations | 1,570 | |||
Payment of obligations | (1,763 | ) | ||
Balance as of September 29, 2007 | $ | 5,261 | ||
Change in estimate included in continuing operations | 239 | |||
Payment of obligations | (1,554 | ) | ||
Balance as of September 27, 2008 | $ | 3,946 | ||
Facility estimates are subject to change, and such changes could result in an increase or decrease to the estimated facilities charges previously recorded. Payments of facility obligations are expected to be paid out through September 2012.
NOTE
3:5: GOODWILL AND INTANGIBLE ASSETS
Goodwill
Intangible assets classified as goodwill are not amortized. The Company performs an annual impairment test of its goodwill at the end ofduring 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 20082009 and no impairment charge was required.
The Company also tests for impairment between annual tests if a “triggering” event occurs that may have the effect of reducing the fair value of a reporting unit below theirits respective carrying values. Novalue. During fiscal 2009, due to the earlier than anticipated end of product life cycle for the Company’s EasyLine and SwissLine die bonders, the Company concluded there was a triggering events occurred during fiscal 2008 that would have the effect of reducing the fair value of goodwill below its carrying value. Whenevent and tested long-lived assets for impairment. The Company concluded there was no impairment for long-lived assets tested under ASC 360 on an undiscounted basis. However, when conducting its goodwill impairment analysis, the Company calculatescalculated its potential impairment charges based on the two-step test identified in SFAS 142 andASC 350 using the estimated fair value of the respective reporting units.unit. The Company uses the present value of future cash flows from the respective reporting units to determine the estimated fair value of the reporting unit and the implied fair value of goodwill.
Equipment segment goodwill was As a result, the Company recorded a non-cash impairment charge of $2.7 million and reduced the value of the Company’s fiscal 2007 acquisition of its die bonder business, Alphasem. Asgoodwill to zero.
The following table reflects goodwill as of September 29, 2007 and September 27, 2008 goodwill was $3.5 million and $2.7 million, respectively. The decrease in Equipment segment goodwill from September 29, 2007 to September 27, 2008 was due to the final valuation of die bonder inventory acquired.October 3, 2009:
As of | ||||||||
(in thousands) | September 27, 2008 | October 3, 2009 | ||||||
Equipment segment – wedge bonder | $ | — | $ | 20,290 | ||||
Expendable Tools segment – wedge bonder | — | 6,408 | ||||||
Equipment segment – die bonder | 2,709 | — | ||||||
$ | 2,709 | $ | 26,698 |
Goodwill related to the Company’s Wire business of $29.7 million as of September 29, 2007 and September 27, 2008 iswas reflected in non-current assets of discontinued operations.operations (see Note 2).
Intangible Assets
Intangible assets with determinable lives are amortized over their estimated useful lives of one to five years.lives. The Company’s intangible assets consistedconsist primarily of diewedge bonder trademarksdeveloped technology and developed technology.customer relationships.
The following table reflects the intangible asset balances as of September 29, 2007 and September 27, 2008:
As of | ||||||||
(in thousands) | September 29, 2007 | September 27, 2008 | ||||||
Trademarks and technology licenses (see Note 3) | $ | 660 | $ | 767 | ||||
Accumulated amortization | (160 | ) | (381 | ) | ||||
Net | $ | 500 | $ | 386 | ||||
The increase in intangible assets from September 29, 2007 to September 27, 2008 was due to exchange rate changes as the intangible assets were carried in Swiss Francs.and October 3, 2009:
As of | Average estimated useful lives (in years) | |||||||||||
(in thousands) | September 27, 2008 | October 3, 2009 | ||||||||||
Wedge bonder developed technology | $ | — | $ | 33,200 | 7.0 | |||||||
Accumulated amortization | — | (4,742 | ) | |||||||||
Net wedge bonder developed technology | — | 28,458 | ||||||||||
Wedge bonder customer relationships | — | 19,300 | 5.0 | |||||||||
Accumulated amortization | — | (3,860 | ) | |||||||||
Net wedge bonder customer relationships | — | 15,440 | ||||||||||
Wedge bonder trade name | — | 4,600 | 8.0 | |||||||||
Accumulated amortization | — | (575 | ) | |||||||||
Net wedge bonder trade name | — | 4,025 | ||||||||||
Wedge bonder other intangible assets | — | 2,500 | 1.9 | |||||||||
Accumulated amortization | — | (1,767 | ) | |||||||||
Net wedge bonder other intangible assets | — | 733 | ||||||||||
Net wedge bonder intangible assets (Note 4) | — | 48,656 | ||||||||||
Die bonder trademarks and technology licenses | 767 | — | — | |||||||||
Accumulated amortization(1) | (381 | ) | — | |||||||||
Net die bonder intangible assets | 386 | — | ||||||||||
Net intangible assets | $ | 386 | $ | 48,656 |
(1) | The die bonder intangible assets were fully amortized during fiscal 2009. |
The following table reflects estimated annual amortization expense related to intangible assets as of September 27, 2008:October 3, 2009:
Fiscal Year | (in thousands) | ||
2009 | $ | 203 | |
2010 | 183 | ||
$ | 386 | ||
(in thousands) Fiscal 2010 $ 9,545 Fiscal 2011 9,544 Fiscal 2012 9,178 Fiscal 2013 9,178 Fiscal 2014 – 2016 11,211 $ 48,656 NOTE
4:6: COMPREHENSIVE INCOME
The following table reflects the components of comprehensive income (loss) for the period ended September 29, 2007fiscal 2008 and September 27, 2008:2009:
Fiscal | |||||||
(in thousands) | September 29, 2007 | September 27, 2008 | |||||
Net income (1) | $ | 37,730 | $ | 3,822 | |||
Gain from foreign currency translation | 259 | 244 | |||||
Unrealized gain (loss) on investments, net of tax | 4 | (18 | ) | ||||
Unamortized pension costs | 554 | — | |||||
Unrecognized actuarial net gain, Switzerland pension plan | — | 1,328 | |||||
Unrecognized actuarial net loss, U.S. pension plan | — | 153 | |||||
Reclassification adjustment related to U.S. pension plan termination, net of tax | — | 5,749 | |||||
Other comprehensive income | $ | 817 | $ | 7,456 | |||
Comprehensive income | $ | 38,547 | $ | 11,278 | |||
Fiscal | ||||||||
(in thousands) | 2008 | 2009 | ||||||
Net income (loss)(1) | $ | 3,822 | $ | (36,014 | ) | |||
Gain (loss) from foreign currency translation | 244 | (151 | ) | |||||
Unrealized gain (loss) on investments, net of tax | (18 | ) | 16 | |||||
Unrecognized actuarial net gain, Switzerland pension plan, net of tax | 1,328 | 193 | ||||||
Switzerland pension plan curtailment | — | (388 | ) | |||||
Unrecognized actuarial net loss, U.S. pension plan | 153 | — | ||||||
Reclassification adjustment related to U.S. pension plan termination, net of tax | 5,749 | — | ||||||
Other comprehensive income (loss) | $ | 7,456 | $ | (330 | ) | |||
Comprehensive income (loss) | $ | 11,278 | $ | (36,344 | ) |
(1) |
The following table reflects accumulated other comprehensive income (loss) reflected on the Consolidated Balance Sheets as of September 29, 200727, 2008 and September 27, 2008:October 3, 2009:
As of | ||||||||
(in thousands) | September 29, 2007 | September 27, 2008 | ||||||
Gain from foreign currency translation adjustments | $ | 653 | $ | 897 | ||||
Unrealized gain (loss) on investments, net of tax | 2 | (16 | ) | |||||
Unrecognized actuarial net gain (loss), net of tax | (5,902 | ) | 1,328 | |||||
Accumulated other comprehensive income (loss) | $ | (5,247 | ) | $ | 2,209 | |||
As of (in thousands) September 27,
2008 October 3,
2009Gain from foreign currency translation $ 897 $ 746 Unrealized loss on investments, net of tax (16 ) — Unrecognized actuarial net gain, Switzerland pension plan, net of tax 1,328 1,521 Switzerland pension plan curtailment — (388 ) Accumulated other comprehensive income $ 2,209 $ 1,879 NOTE
5:7: INVESTMENTS
The Company did not have any investments as of October 3, 2009. As of September 29, 2007 and September 27, 2008 all investments were classified as available-for-sale. The following table reflects investments classified as available-for-sale, excluding cash equivalents, as of September 29, 2007 and September 27, 2008:
(in thousands) | |||||||||||||||||||||||||||||
Available-for-sale: | Fair Value | Unrealized Gains | Unrealized Losses | Amortized Cost Basis | |||||||||||||||||||||||||
As of September 29, 2007: | |||||||||||||||||||||||||||||
(in thousands) | Fair Value | Unrealized Gains | Unrealized Losses | Amortized Cost Basis | |||||||||||||||||||||||||
Government and Corporate debt securities with maturities of less than one year | $ | 19,339 | $ | 4 | $ | (2 | ) | $ | 19,337 | $ | 6,149 | $ | — | $ | (18 | ) | $ | 6,167 | |||||||||||
Total short-term investments | $ | 19,339 | $ | 4 | $ | (2 | ) | $ | 19,337 | $ | 6,149 | $ | — | $ | (18 | ) | $ | 6,167 | |||||||||||
As of September 27, 2008: | |||||||||||||||||||||||||||||
Government and Corporate debt securities with maturities of less than one year | $ | 6,149 | $ | — | $ | (18 | ) | $ | 6,167 | ||||||||||||||||||||
Total short-term investments | $ | 6,149 | $ | — | $ | (18 | ) | $ | 6,167 | ||||||||||||||||||||
In fiscal 2007, the Company purchased $37.3 million of securities it classified as available-for-sale and sold $39.3 million of available-for-sale securities. InTABLE OF CONTENTS
During fiscal 2008, the Company purchased $31.3 million of securities classified as available-for-sale and sold $44.6 million of available-for-sale securities. During fiscal 2009, the Company purchased $2.4 million of securities classified as available-for-sale and sold $8.5 million of available-for-sale securities. The Company did not recognize any realized gains or losses on the sale of its investments.investments during fiscal 2008 or 2009.
NOTE
6:8: BALANCE SHEET COMPONENTS
The following tables reflect the components of significant balance sheet accounts:
As of | ||||||||
(in thousands) | September 29, 2007 | September 27, 2008 | ||||||
Cash, cash equivalents, restricted cash and short-term investments: | ||||||||
Cash, money market bank deposits and other cash equivalents | $ | 150,571 | $ | 144,932 | ||||
Restricted cash (1) | — | 35,000 | ||||||
Short-term investments | 19,339 | 6,149 | ||||||
$ | 169,910 | $ | 186,081 | |||||
Accounts and notes receivable: | ||||||||
Customer accounts receivable | $ | 113,671 | $ | 57,997 | ||||
Other accounts receivable | 4,608 | 22 | ||||||
118,279 | 58,019 | |||||||
Allowance for doubtful accounts | (1,586 | ) | (1,376 | ) | ||||
$ | 116,693 | $ | 56,643 | |||||
Inventories, net: | ||||||||
Raw materials and supplies | $ | 29,973 | $ | 18,708 | ||||
Work in process | 13,667 | 8,328 | ||||||
Finished goods | 2,626 | 6,697 | ||||||
46,266 | 33,733 | |||||||
Inventory reserves | (8,428 | ) | (6,497 | ) | ||||
$ | 37,838 | $ | 27,236 | |||||
Property, plant and equipment, net: | ||||||||
Land | $ | 2,385 | $ | 2,735 | ||||
Buildings and building improvements | 13,711 | 14,361 | ||||||
Leasehold improvements | 9,434 | 9,560 | ||||||
Data processing and hardware equipment and software | 17,430 | 13,421 | ||||||
Machinery and equipment | 42,243 | 46,393 | ||||||
85,203 | 86,470 | |||||||
Accumulated depreciation | (51,095 | ) | (49,570 | ) | ||||
$ | 34,108 | $ | 36,900 | |||||
Accrued expenses: | ||||||||
Wages and benefits | $ | 13,426 | $ | 9,195 | ||||
Inventory purchase commitment accruals | 3,156 | 2,663 | ||||||
Professional fees and services | 1,412 | 1,610 | ||||||
Customer advances | 2,213 | 1,543 | ||||||
Severance | 1,377 | 1,530 | ||||||
Contractual commitments on closed facilities | 1,722 | 1,403 | ||||||
Deferred rent | 1,174 | 1,264 | ||||||
Other | 10,234 | 8,047 | ||||||
$ | 34,714 | $ | 27,255 | |||||
Other liabilities: | ||||||||
Long-term income taxes payable (Note 10) | $ | — | $ | 26,691 | ||||
Post employment foreign severance obligations | 3,013 | 3,291 | ||||||
Facility accrual related to discontinued operations (Test) | 3,539 | 2,544 | ||||||
Switzerland pension plan obligation | 3,464 | 2,500 | ||||||
Operating lease retirement obligations | 1,512 | 1,822 | ||||||
Other | 621 | 932 | ||||||
$ | 12,149 | $ | 37,780 | |||||
As of | ||||||||
(in thousands) | September 27, 2008 | October 3, 2009 | ||||||
Cash, cash equivalents, restricted cash and short-term investments: | ||||||||
Cash, money market bank deposits and other cash equivalents | $ | 144,932 | $ | 144,560 | ||||
Restricted cash(1) | 35,000 | 281 | ||||||
Short-term investments(2) | 6,149 | — | ||||||
$ | 186,081 | $ | 144,841 | |||||
Accounts and notes receivable, net: | ||||||||
Customer accounts receivable | $ | 57,997 | $ | 96,097 | ||||
Other accounts receivable | 22 | 1,060 | ||||||
58,019 | 97,157 | |||||||
Allowance for doubtful accounts | (1,376 | ) | (1,378 | ) | ||||
$ | 56,643 | $ | 95,779 | |||||
Inventories, net(3): | ||||||||
Raw materials and supplies | $ | 18,708 | $ | 30,048 | ||||
Work in process | 8,328 | 10,788 | ||||||
Finished goods | 6,697 | 13,170 | ||||||
33,733 | 54,006 | |||||||
Inventory reserves | (6,497 | ) | (12,517 | ) | ||||
$ | 27,236 | $ | 41,489 | |||||
Property, plant and equipment, net(3): | ||||||||
Land | $ | 2,735 | $ | 2,735 | ||||
Buildings and building improvements | 14,361 | 14,351 | ||||||
Leasehold improvements | 9,560 | 11,695 | ||||||
Data processing and hardware equipment and software | 13,421 | 21,822 | ||||||
Machinery and equipment | 46,393 | 40,600 | ||||||
86,470 | 91,203 | |||||||
Accumulated depreciation | (49,570 | ) | (55,157 | ) | ||||
$ | 36,900 | $ | 36,046 | |||||
Accrued expenses and other current liabilities: | ||||||||
Wages and benefits | $ | 9,195 | $ | 10,423 | ||||
Severance(4) | 1,530 | 3,264 | ||||||
Customer advances | 1,543 | 3,026 | ||||||
Payable to Heraeus(5) | — | 1,857 | ||||||
Short-term facility accrual related to discontinued operations (Test) | 1,403 | 1,839 | ||||||
Deferred rent | 1,264 | 1,321 | ||||||
Professional fees and services | 1,610 | 999 | ||||||
Inventory purchase commitment accruals | 2,663 | 671 | ||||||
Other | 8,047 | 9,176 | ||||||
$ | 27,255 | $ | 32,576 |
As of | ||||||||
(in thousands) | September 27, 2008 | October 3, 2009 | ||||||
Other liabilities: | ||||||||
Long-term facility accrual related to discontinued operations (Test) | $ | 2,544 | $ | 2,850 | ||||
Long-term income taxes payable (see Note 12) | 26,691 | 1,699 | ||||||
Switzerland pension plan obligation | 2,500 | 1,399 | ||||||
Operating lease retirement obligations | 1,822 | 1,352 | ||||||
Post employment foreign severance obligations | 3,291 | 930 | ||||||
Other | 932 | 2,043 | ||||||
$ | 37,780 | $ | 10,273 |
(1) |
(2) | Short-term investments which are available-for-sale are measured at fair value based on level one measurements, or quoted market prices, as |
(3) | Inventories, net and property, plant and equipment, net increased from September 27, 2008 |
(4) | Total severance payable within the next twelve months includes severance plan discussed in Note 3 and approximately $0.8 million of other severance obligations not part of the Company’s cost reduction plan. |
(5) | Amount relates to certain open working capital adjustments with Heraeus, which were settled subsequent to year end in October 2009. |
NOTE
7:9: DEBT OBLIGATIONS
The following table reflects long-term debt consisting of Convertible Subordinated Notes as of September 29, 200727, 2008 and October 3, 2009:
As of | ||||||||||||||||||||
Rate | Payment dates of each year | Conversion price | Maturity date | September 27, 2008 | October 3, 2009 | |||||||||||||||
(in thousands) | ||||||||||||||||||||
0.500% | May 30 and November 30 | $ | 20.33 | Matured November 30, 2008 | $ | 72,412 | $ | — | ||||||||||||
1.000% | June 30 and December 30 | $ | 12.84 | June 30, 2010 | 65,000 | 48,964 | ||||||||||||||
0.875% | June 1 and December 1 | $ | 14.36 | June 1, 2012 | 110,000 | 110,000 | ||||||||||||||
$ | 247,412 | $ | 158,964 |
The following table reflects additional information regarding the Company’s Convertible Subordinated Notes as of September 27, 2008:2008 and October 3, 2009:
(in thousands) | |||||||||||||
Payment dates of each year | Maturity Date | Conversion Price | As of | ||||||||||
Rate | September 29, 2007 | September 27, 2008 | |||||||||||
0.500% | May 30 and November 30 | November 30, 2008 | $ | 20.33 | $ | 76,412 | $ | 72,412 | |||||
1.000% | June 30 and December 30 | June 30, 2010 | $ | 12.84 | 65,000 | 65,000 | |||||||
0.875% | June 1 and December 1 | June 1, 2012 | $ | 14.36 | 110,000 | 110,000 | |||||||
$ | 251,412 | $ | 247,412 | ||||||||||
Fair value as of(1) | ||||||||||||
Description | Maturity date | September 27, 2008 | October 3, 2009 | |||||||||
(in thousands) | ||||||||||||
0.500% Convertible Subordinated Notes | Matured November 30, 2008 | $ | 70,602 | $ | — | |||||||
1.000% Convertible Subordinated Notes | June 30, 2010 | 52,975 | 47,005 | |||||||||
0.875% Convertible Subordinated Notes | June 1, 2012 | 77,000 | 90,266 | |||||||||
$ | 200,577 | $ | 137,271 |
(1) | In accordance with ASC 820, the Company relies upon observable market data such as its common stock price, interest rates, and other market factors. |
The following table reflects amortization expense related to issue costs from the Company’s Subordinated Convertible Notes:
Fiscal | Fiscal | ||||||||||||||||||||
(in thousands) | 2006 | 2007 | 2008 | ||||||||||||||||||
(in thousands) | 2007 | 2008 | 2009 | ||||||||||||||||||
Amortization expense related to issue costs | $ | 1,302 | $ | 1,275 | $ | 1,514 | $ | 1,275 | $ | 1,514 | $ | 1,006 |
0.5%
The following table reflects the Company’s repurchase of its Subordinated Convertible Notes during fiscal 2007, 2008, and 2009 respectively:
Fiscal | ||||||||||||
(in thousands) | 2007 | 2008 | 2009 | |||||||||
0.5% Convertible Subordinated Notes:(1) | ||||||||||||
Face value purchased | $ | 53,588 | $ | 4,000 | $ | 43,050 | ||||||
Net cash | 50,433 | 3,815 | 42,839 | |||||||||
Deferred financing costs | 353 | 15 | 18 | |||||||||
Recognized gain, net of deferred financing costs | 2,802 | 170 | 193 | |||||||||
1.0% Convertible Subordinated Notes:(2) | ||||||||||||
Face value purchased | $ | — | $ | — | $ | 16,036 | ||||||
Net cash | — | — | 12,158 | |||||||||
Deferred financing costs | — | — | 106 | |||||||||
Recognized gain, net of deferred financing costs | — | — | 3,772 | |||||||||
Gain on early extinguishment of debt | $ | 2,802 | $ | 170 | $ | 3,965 |
(1) | Fiscal 2009 repurchase transactions occurred prior to redemption on November 30, 2008. |
(2) | Activity during fiscal 2009 reflects repurchases pursuant to a tender offer. |
During fiscal 2004, the Company issued $205.0 million aggregate principal amount of 0.5% Convertible Subordinated Notes in a private placement to qualified institutional investors. The notes are general obligations of the Company and are subordinated to all senior debt. The notes rank equally with the Company’s other Convertible Subordinated Notes. There are no financial covenants associated with the notes and there are no restrictions on incurring additional debt or issuing or repurchasing the securities.
During 2006, the Company purchased $75.0 million (face value) of the outstanding 0.5% Convertible Subordinated Notes for consideration consisting of 3.6 million shares of common stock with an aggregate fair value of $42.7 million and $26.7 million in cash. The Company recorded a net gain of $4.0 million, net of deferred financing cost of $1.3 million.
During fiscal 2007 and 2008, the Company purchased in the open market $53.6 million (face value) and $4.0 million (face value), respectively, of the outstanding notes for net cash of $50.4 million and $3.8 million, respectively. During fiscal 2007 and 2008, the Company recognized a net gain of $2.8 million and $0.2 million, respectively, net of unamortized deferred financing costs.
Subsequent toDuring fiscal 2008,2009, the Company purchased in the open market $43.1 million (face value) of ourits 0.5% Convertible Subordinated Notes for net cash of $42.8 million. A net gain of $0.2 million will bewas recognized induring fiscal 2009. The remaining 0.5% Convertible Subordinated Notes matured November 2008 and were redeemed.
1.0%1.000% Convertible Subordinated Notes
During 2004,fiscal 2009, the Company issued $65.0repurchased $3.0 million aggregate principal amount(face value) of its 1.0% Convertible Subordinated Notes infor net cash of $2.0 million and recognized a private placementnet gain of $1.0 million related to qualified institutional investors. No principal payments are required until maturity. these repurchases. In addition during fiscal 2009, the Company conducted a tender offer and purchased $13.0 million (face value) of its 1.0% Convertible Subordinated Notes for net cash of $10.1 million and recognized a net gain of $2.8 million, net of unamortized deferred financing costs related to these repurchases.
The conversion rights of these notesthe Convertible Subordinated Notes may be terminated on or after June 30, 2006 if the closing price of the Company’sour common stock has exceeded 140% of the conversion price then in effect for at least 20 trading days within a period of 30 consecutive trading days. The notes are general obligations of the Company and are subordinated to all senior debt. The notes rank equally with the Company’s other Convertible Subordinated Notes. There are no financial covenants associated with the notes and there are no restrictions on incurring additional debt or issuing or repurchasing the securities.
Subsequent to fiscal 2008, the Company purchased in the open market $3.0 million (face value) of its 1.0% Convertible Subordinated Notes for net cash of $2.0 million. A net gain of $1.0 million will be recognized in fiscal 2009.
0.875% Convertible Subordinated Notes
On June 6, 2007, the Company issued $110.0 million aggregate principal amount of 0.875% Convertible Subordinated Notes due 2012, including exercise of the initial purchaser’s over-allotment option for $10.0 million aggregate principal amount.2012. Net proceeds from the issuance were $106.4 million. The 0.875% Convertible Subordinated Notes were issued pursuant to an indenture dated as of June 6, 2007, between the Company and The Bank of New York, as trustee. The 0.875% Convertible Subordinated Notes are unsecured subordinated obligations of the Company. Debt issuance costs of $3.6 million were incurred in connection with the offeringissuance of the 0.875% Convertible Subordinated Convertible Notes will beand are amortized to expense over 60 months.
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 the following circumstances: (1) during specified periods, if the price of the Company’s common stock exceeds specified thresholds; (2) during specified periods, if the trading price of the 0.875% Convertible Subordinated Notes is below a specified threshold; (3) at any time on or after May 1, 2012 or (4) upon the occurrence of certain corporate transactions.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 the Company’sits common stock. The Company has the option to elect to satisfy itsthe conversion obligations in cash, common stock or a combination thereof.
The 0.875% Convertible Subordinated Notes arewill not be redeemable at the Company’s option. Holders of the 0.875% Convertible Subordinated Notes dowill not have the right to require the Companyus 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.
In connection with the issuance of the 0.875% Convertible Subordinated Notes, on June 6, 2007, the Company entered into a registration rights agreement with Banc of America Securities LLC, as the initial purchaser (the “Registration Rights Agreement”). Pursuant to the Registration Rights Agreement, the Company filed a shelf registration statement with the Securities and Exchange Commission covering resale of the 0.875% Convertible Subordinated Notes and the shares of its common stock issuable upon conversion of the 0.875% Convertible Subordinated Notes within 120 days after issuance of the 0.875% Convertible Subordinated Notes. The shelf registration statement became effective on September 10, 2007.
NOTE
8:10: SHAREHOLDERS’ EQUITY
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, in connection with the acquisition of Orthodyne, the Company issued approximately 7.1 million shares of its common stock valued at $46.2 million (see Note 4).
During fiscal 2009 in connection with the exercise of employee stock options, the Company repurchased 44,000 shares of its common stock for $0.2 million. During fiscal 2007, the Company repurchased 4.9 million shares of its common stock for $46.1 million in open market transactions.
Defined Benefit Pension Plan
During fiscal 2006, the Company issued and contributed 200,000 shares of its common stock valued at $1.8 million to its defined benefit pension plan (see Note 10). There were not contributionsno treasury stock transactions during for fiscal 2007 and 2008.
401(k) Retirement Income Plan
The following table reflects the Company’s matching contributions to the 401(k) retirement income plan which were made in the form of issued and contributed shares of Company common stock for fiscal 2006, 2007, 2008 and 2008:2009:
Number of Common Shares | Fair Value* (in thousands) | ||||
Fiscal 2006 | 215,000 | $ | 1,898 | ||
Fiscal 2007 | 126,000 | 1,143 | |||
Fiscal 2008 | 193,000 | 1,174 |
Number of Common Shares | Fair Value(1) | |||||||
(in thousands) | ||||||||
Fiscal 2007 | 126,000 | $ | 1,143 | |||||
Fiscal 2008 | 193,000 | $ | 1,174 | |||||
Fiscal 2009 | 357,000 | $ | 811 |
(1) | Fair value based upon the market price at the time of contribution. |
As of September 27, 2008,October 3, 2009, the Company had seveneight equity-based employee compensation plans (the “Employee Plans”) and three director compensation plans (the “Director Plans”) (collectively, the “Plans”), under which. Under these Plans, stock options, performance-based share awards (collectively, “performance-based restricted stock”), time-based share awards (collectively, “time-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. The Company has granted performance-basedIn general, stock options and
time-based restricted stock fromawarded to employees vest annually over a three year period. Performance-based restricted stock entitles the Company’s approved 2006 Equity Plan, which is partemployee to receive common shares of the Employee Plans. Each shareCompany on the three-year anniversary of performance-based restricted stock granted from this Plan reduces the aggregate numbergrant date (if employed by the Company) if return on invested capital and revenue growth targets set by the Management Development and Compensation Committee of stock options that may be granted under this Plan by two shares. Stock options and performance-based restricted stock granted under the Plans vest at such dates as are determined in connection with their issuance, but not later than five years fromBoard 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 options expire ten years from date of grant. Upon share option exercise or upon attainment of designated performance goals, new shares of the Company’s common stock are issued.does not vest.
The Company follows the non-substantive vesting method 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. Equity-based compensation expense recognized in the Consolidated Statements of Operations for fiscal 2006, 2007, 2008 and 20082009 is based upon awards ultimately expected to vest. In accordance with SFAS 123R,ASC 718, forfeitures have been estimated at the time of grant and were estimated based upon historical experience. The Company reviews the forfeiture raterates periodically and makes adjustments as necessary. If
As of October 3, 2009, the actual forfeiture rate at the end of the vesting period is lower than had been estimated, additional compensation expense will be recorded. If the actual forfeiture rate at the end of the period is higher than had been estimated, the Company will record a recovery of compensation expense previously recorded.
The following table reflectsCompany’s 2009 Equity Plan has 8.1 million shares of commonscommon stock reserved for issuance and available for grant under the equity compensation plans as of September 27, 2008:to its employees and directors.
Available for Grant | ||||||||
(in thousands) | Reserved for Issuance | 2007 Plan | 2008 Plan | Other Equity Plans | ||||
Employee Plans | 17,400 | N/A | 3,900 | 543 | ||||
Director Plans | 280 | 136 | N/A | N/A |
The following table summarizes equity-based compensation expense including employee(reversal of expense), by type of award, included in the Consolidated Statements of Operations during fiscal 2007, 2008 and 2009:
Fiscal | ||||||||||||
(in thousands) | 2007 | 2008 | 2009 | |||||||||
Performance-based restricted stock | $ | 798 | $ | 946 | $ | (1,546 | ) | |||||
Time-based restricted stock | — | — | 672 | |||||||||
Stock options | 4,692 | 3,739 | 1,721 | |||||||||
Common stock | 360 | 720 | 540 | |||||||||
Equity-based compensation expense | $ | 5,850 | $ | 5,405 | $ | 1,387 |
In connection with the global economic decline during fiscal 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 equity-based compensation expense, which includes restricted stock, stock options and performance-based restricted stock and common stock, issued to non-employee directors, included in the Consolidated Statements of Operations for fiscal 2006, 2007, 2008 and 2008:2009:
Fiscal | ||||||||||||
(in thousands) | 2007 | 2008 | 2009 | |||||||||
Cost of sales | $ | 236 | $ | 252 | $ | 64 | ||||||
Selling, general and administrative | 4,038 | 3,711 | 649 | |||||||||
Research and development | 1,576 | 1,442 | 674 | |||||||||
Equity-based compensation expense | $ | 5,850 | $ | 5,405 | $ | 1,387 |
Fiscal | |||||||||
(in thousands) | 2006 | 2007 | 2008 | ||||||
Cost of sales | $ | 619 | $ | 236 | $ | 252 | |||
Selling, general and administrative | 2,996 | 4,038 | 3,711 | ||||||
Research and development | 1,121 | 1,576 | 1,442 | ||||||
Effect of equity-based compensation in continuing operations, net of tax (1) | 4,736 | 5,850 | 5,405 | ||||||
Equity-based compensation in discontinued operations (Test), net of tax | 626 | — | — | ||||||
Net effect of equity-based compensation expense | $ | 5,362 | $ | 5,850 | $ | 5,405 | |||
Equity-Based Compensation: Employee stock options
The following table reflects the weighted-average assumptions for the Black-Scholes option pricing model used to estimate the fair value of stock options granted for fiscal 2006, 2007, 2008 and 2008:2009:
Fiscal | Fiscal | |||||||||||||||||||||||
2006 | 2007 | 2008 | 2007 | 2008 | 2009 | |||||||||||||||||||
Expected dividend yield | NA | NA | NA | NA | NA | NA | ||||||||||||||||||
Expected stock price volatility | 51.35 | % | 58.03 | % | 51.18 | % | 58.03 | % | 51.18 | % | 51.18 | % | ||||||||||||
Risk-free interest rate | 4.50 | % | 4.56 | % | 4.24 | % | 4.56 | % | 4.24 | % | 2.70 | % | ||||||||||||
Expected life (in years) | 5 | 5 | 5 | 5 | 5 | 5 | ||||||||||||||||||
Weighted-average fair value at grant date | $ | 4.04 | $ | 4.37 | $ | 4.05 | $ | 4.37 | $ | 4.05 | $ | 1.61 |
Expected volatility for fiscal 2006, 2007 and 2008 iswas based upon historical volatility, implied volatility of the Company’s market traded options, and the implied volatility of the convertible feature of the Company’s convertible debt securities. Expected volatility for fiscal 2009 was based upon historical volatility. The risk-free interest rate iswas calculated using the U.S. Treasury yield curves in effect at the time of grant, commensurate with the expected life of the options.
The following table reflects employee stock option activity for fiscal 2006, 2007, 2008 and 2008:2009:
(in thousands) Number of Shares | Weighted Average Exercise Price | Average Remaining Contractual Life in Years | (in thousands) Aggregate Intrinsic Value | Number of Shares | Weighted Average Exercise Price | Average Remaining Contractual Life in Years | Aggregate Intrinsic Value | ||||||||||||||||||||
Options outstanding as of September 30, 2005 | 10,273 | $ | 9.82 | ||||||||||||||||||||||||
Granted | 245 | 7.73 | |||||||||||||||||||||||||
Exercised | (1,300 | ) | 5.88 | $ | 4,542 | ||||||||||||||||||||||
Terminated or cancelled | (1,813 | ) | 11.11 | ||||||||||||||||||||||||
(in thousands) | (in thousands) | ||||||||||||||||||||||||||
Options outstanding as of September 30, 2006 | 7,405 | 10.11 | 7,405 | $ | 10.11 | ||||||||||||||||||||||
Granted | 1,154 | 9.04 | 1,154 | 9.04 | |||||||||||||||||||||||
Exercised | (739 | ) | 5.85 | 2,858 | (739 | ) | 5.85 | $ | 2,858 | ||||||||||||||||||
Terminated or cancelled | (811 | ) | 12.24 | (811 | ) | 12.24 | |||||||||||||||||||||
Options outstanding as of September 29, 2007 | 7,009 | 10.05 | 7,009 | 10.05 | |||||||||||||||||||||||
Granted | 965 | 8.59 | 965 | 8.59 | |||||||||||||||||||||||
Exercised | (130 | ) | 4.22 | 276 | (130 | ) | 4.22 | 276 | |||||||||||||||||||
Terminated or cancelled | (1,403 | ) | 11.15 | (1,403 | ) | 11.15 | |||||||||||||||||||||
Options outstanding as of September 27, 2008 | 6,441 | $ | 9.71 | 5.2 | $ | 848 | 6,441 | 9.71 | |||||||||||||||||||
Options vested and expected to vest as of September 27, 2008 | 5,338 | $ | 10.00 | 4.5 | $ | 848 | |||||||||||||||||||||
Options exercisable as of September 27, 2008 | 4,450 | $ | 10.38 | 4.0 | $ | 848 | |||||||||||||||||||||
In the money exercisable options as of September 27, 2008 | 453 | ||||||||||||||||||||||||||
Granted | 160 | 3.41 | |||||||||||||||||||||||||
Exercised | (156 | ) | 2.95 | 9 | |||||||||||||||||||||||
Terminated or cancelled | (1,904 | ) | 10.09 | ||||||||||||||||||||||||
Options outstanding as of October 3, 2009 | 4,541 | $ | 9.56 | 4.3 | $ | 905 | |||||||||||||||||||||
Options vested and expected to vest as of October 3, 2009 | 4,321 | $ | 9.63 | 4.1 | $ | 892 | |||||||||||||||||||||
Options exercisable as of October 3, 2009 | 3,828 | $ | 9.98 | 3.7 | |||||||||||||||||||||||
In the money exercisable options as of October 3, 2009 | 263 | $ | 651 |
On average, 15%13% of stock options granted by the Company become vested each year, and on average, 16%21% of stock options granted by the Company are forfeited each year. Intrinsic value of stock options exercised is determined by calculating the difference between the market value of the Company’s stock price at the time an option is exercised and the exercise price, multiplied by the number of shares. The intrinsic value of stock options outstanding and stock options exercisable is determined by calculating the difference between the Company’s closing stock price on the last trading day of fiscal 20082009 and the exercise price of in-the-money stock options, multiplied by the number of underlying shares. During fiscal 2008,2009, the Company received $0.5$0.2 million in cash from the exercise of stock options.
As of September 27, 2008,October 3, 2009, total unrecognized compensation cost related to unvested employee stock options was $3.5$0.7 million, which will be amortized over the weighted average remaining service period of approximately 1.81.3 years.
The following table reflects outstanding and exercisable employee stock options as of September 27, 2008:October 3, 2009:
Options Outstanding | Options Exercisable | |||||||||||||||||||
Range of Exercise Prices | Options outstanding | Weighted average remaining contractual life (in years) | Weighted average exercise price | Options exercisable | Weighted average exercise price | |||||||||||||||
(in thousands) | (in thousands) | |||||||||||||||||||
less than $1.45 | 15 | 9.4 | $ | 1.34 | — | $ | — | |||||||||||||
$2.95 | 259 | 2.7 | 2.95 | 259 | 2.95 | |||||||||||||||
$3.06 – $6.23 | 136 | 8.6 | 4.14 | 17 | 5.84 | |||||||||||||||
$7.08 – $7.31 | 1,194 | 4.1 | 7.14 | 1,012 | 7.14 | |||||||||||||||
$7.84 – $8.74 | 1,298 | 7.0 | 8.61 | 913 | 8.60 | |||||||||||||||
$9.04 – $10.07 | 95 | 3.2 | 9.94 | 83 | 10.00 | |||||||||||||||
$12.05 – $14.38 | 1,134 | 2.0 | 13.05 | 1,134 | 13.05 | |||||||||||||||
$16.12 – $17.78 | 410 | 1.8 | 16.17 | 410 | 16.17 | |||||||||||||||
4,541 | 4.3 | $ | 9.56 | 3,828 | $ | 9.98 |
Options Outstanding | Options Exercisable | |||||||||||
Range of Exercise Prices | (in thousands) Options Outstanding | Weighted Average Remaining Contractual Life in Years | Weighted Average Exercise Price | (in thousands) Options Exercisable | Weighted Average Exercise Price | |||||||
$2.95 | 453 | 3.8 | $ | 2.95 | 453 | $ | 2.95 | |||||
$5.02 - $7.08 | 63 | 8.7 | 5.83 | 11 | 5.87 | |||||||
$7.14 - $7.89 | 1,619 | 5.5 | 7.15 | 1,081 | 7.15 | |||||||
$8.28 - $8.74 | 1,729 | 8.2 | 8.61 | 419 | 8.49 | |||||||
$9.02 - $11.19 | 250 | 5.3 | 9.90 | 159 | 10.14 | |||||||
$12.05 - $12.94 | 1,235 | 3.4 | 12.38 | 1,235 | 12.38 | |||||||
$14.38 - $17.78 | 1,092 | 2.4 | 15.22 | 1,092 | 15.20 | |||||||
6,441 | 5.2 | $ | 9.71 | 4,450 | $ | 10.38 | ||||||
Equity-Based Compensation: Employee
performance-based restricted stock
The following table reflects performance-based restricted stock activity for fiscal 2007 and 2008:
(in thousands) | Number of shares | Unrecognized compensation expense | Average remaining service period (in years) | |||||
Performance-based restricted stock outstanding as of September 30, 2006 | — | $ | — | |||||
Granted | 492 | |||||||
Terminated or cancelled | (20 | ) | ||||||
Performance-based restricted stock outstanding as of September 29, 2007 | 472 | $ | 1,400 | 2.0 | ||||
Granted | 536 | |||||||
Terminated or cancelled | (61 | ) | ||||||
Performance-based restricted stock outstanding as of September 27, 2008 | 947 | $ | 2,186 | 1.8 | ||||
The following table reflects the assumptions used to estimatecalculate compensation expense related to the fair value ofCompany’s performance-based restricted stock issued during fiscal 20072008 and 2008:2009:
Performance-based restricted stock issued fiscal 2007 | Performance-based restricted stock issued fiscal 2008 | Performance-based restricted stock issued fiscal 2009 | ||||||||||
Assumptions as of September 27, 2008: | ||||||||||||
Expected forfeiture rate | 9.9 | % | 9.9 | % | n/a | |||||||
Estimated attainment of performance goals | 47.0 | % | 80.0 | % | n/a | |||||||
Assumptions as of October 3, 2009: | ||||||||||||
Expected forfeiture rate | 11.6 | % | 11.9 | % | 4.4 | % | ||||||
Estimated attainment of performance goals | 0.0 | % | 7.0 | % | 30.0 | % |
Performance-based restricted stock issued fiscal 2007 | Performance-based restricted stock issued fiscal 2008 | |||||
Assumptions as of September 29, 2007: | ||||||
Expected forfeiture rate | 8.8 | % | n/a | |||
Estimated attainment of performance goals | 72.0 | % | n/a | |||
Assumptions as of September 27, 2008: | ||||||
Expected forfeiture rate | 9.9 | % | 9.9 | % | ||
Estimated attainment of performance goals | 47.0 | % | 80.0 | % |
There was noThe following table reflects employee performance-based stock activity for fiscal 2007, 2008 and 2009:
Number of shares | Unrecognized compensation expense | Average remaining service period (in years) | ||||||||||
(in thousands) | (in thousands) | |||||||||||
Performance-based restricted stock outstanding as of September 30, 2006 | — | |||||||||||
Granted | 492 | |||||||||||
Terminated or cancelled | (20 | ) | ||||||||||
Performance-based restricted stock outstanding as of September 29, 2007 | 472 | $ | 1,400 | 2.0 | ||||||||
Granted | 536 | |||||||||||
Terminated or cancelled | (61 | ) | ||||||||||
Performance-based restricted stock outstanding as of September 27, 2008 | 947 | $ | 2,186 | 1.8 | ||||||||
Granted | 402 | |||||||||||
Terminated or cancelled | (336 | ) | ||||||||||
Performance-based restricted stock outstanding as of October 3, 2009 | 1,013 | $ | 242 | 1.8 |
The following table reflects employee time-based restricted stock issued or outstanding inactivity for fiscal 2006.
Number of shares | Unrecognized compensation expense | Average remaining service period (in years) | Weighted average grant date fair value per share | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
Time-based restricted stock outstanding as of September 27, 2008 | — | |||||||||||||||
Granted | 825 | |||||||||||||||
Terminated or cancelled | (126 | ) | $ | 3.53 | ||||||||||||
Time-based restricted stock outstanding as of October 3, 2009 | 699 | $ | 1,356 | 2.0 |
Equity-based compensation:
In fiscal 2007, the Company’s board of directors adopted and the shareholders approved, the 2007 Equity Plan for Non-Employee Directors (the “2007 Plan”). The 2007 Plan provides for the grant of common shares to each non-employee director upon initial election to the board and on the first business day of each calendar quarter while serving on the board. The grant to a non-employee director upon initial election to the board, and each quarterly grant, shallis that number of common shares closest in value to, without exceeding, $30,000. For the second, third and fourth quarters of fiscal 2009, in light of the Company’s historically low stock price, the non-employee directors reduced their quarterly stock grant to be that number of common shares closest in value to, without exceeding $30,000. During$20,000. Subsequent to fiscal 2007 and 2008,2009, for the Company issued 36,618first quarter of fiscal 2010, the non-employee directors had their stock grant restored to previous levels.
The following table reflects shares of common stock valued at $360,000issued to non-employee directors and 107,460 shares of common stock valued at $720,000, respectively, in accordance with the corresponding fair value for fiscal 2007, Plan.2008 and 2009:
Fiscal | ||||||||||||
(in thousands) | 2007 | 2008 | 2009 | |||||||||
Number of commons shares issued | 37 | 107 | 181 | |||||||||
Fair value based upon market price at time of issue | $ | 360 | $ | 720 | $ | 540 |
The following table reflects non-employee director stock option activity for fiscal 2006, 2007, 2008 and 2008:2009:
Number of shares | Weighted average exercise price | Average remaining contractual life in years | Aggregate intrinsic value | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
Options outstanding as of September 30, 2006 | 585 | $ | 14.42 | |||||||||||||
Granted | — | — | ||||||||||||||
Exercised | (18 | ) | 5.80 | 60 | ||||||||||||
Terminated or cancelled | (39 | ) | 13.25 | |||||||||||||
Options outstanding as of September 29, 2007 | 528 | $ | 14.79 | |||||||||||||
Granted | — | — | ||||||||||||||
Exercised | — | — | — | |||||||||||||
Terminated or cancelled | (50 | ) | 13.88 | |||||||||||||
Options outstanding as of September 27, 2008 | 478 | $ | 14.89 | |||||||||||||
Granted | — | — | ||||||||||||||
Exercised | — | — | — | |||||||||||||
Terminated or cancelled | (60 | ) | 12.69 | |||||||||||||
Options outstanding as of October 3, 2009 | 418 | $ | 15.21 | 3.6 | $ | — | ||||||||||
Options vested and expected to vest as of October 3, 2009 | 418 | $ | 15.21 | 3.6 | $ | — | ||||||||||
Options exercisable as of October 3, 2009 | 400 | $ | 15.40 | 3.4 | $ | — | ||||||||||
In the money exercisable options as of October 3, 2009 | — |
(in thousands) Number of Shares | Weighted Average Exercise Price | Average Remaining Contractual Life in Years | (in thousands) Aggregate Intrinsic Value | ||||||||
Options outstanding as of September 30, 2005 | 560 | $ | 14.42 | ||||||||
Granted | 42 | 5.16 | |||||||||
Exercised | (17 | ) | 6.10 | $ | 79 | ||||||
Terminated or cancelled | — | — | |||||||||
Options outstanding as of September 30, 2006 | 585 | 14.42 | |||||||||
Granted | — | — | |||||||||
Exercised | (18 | ) | 5.80 | 60 | |||||||
Terminated or cancelled | (39 | ) | 13.25 | ||||||||
Options outstanding as of September 29, 2007 | 528 | 14.79 | |||||||||
Granted | — | — | |||||||||
Exercised | — | — | — | ||||||||
Terminated or cancelled | (50 | ) | 13.88 | ||||||||
Options outstanding as of September 27, 2008 | 478 | $ | 14.89 | 4.1 | $ | — | |||||
Options vested and expected to vest as of September 27, 2008 | 460 | $ | 15.05 | 3.9 | $ | — | |||||
Options exercisable as of September 27, 2008 | 428 | $ | 15.52 | 3.7 | $ | — | |||||
In the money exercisable options as of September 27, 2008 | — | ||||||||||
NOTE
9:11: EMPLOYEE BENEFIT PLANS
U.S. Pension Plan
The Company hadOn a non-contributory defined benefitconsolidated basis, pension plan (the “U.S. pension plan”) covering all U.S. employees who were employed on September 30, 1995. The benefits for thisexpense was $2.0 million, $10.7 million and $0.4 million in fiscal 2007, 2008 and 2009, respectively. Fiscal 2008 included U.S. pension plan were based ontermination expense of $9.2 million and fiscal 2009 included the employees’ yearsSwitzerland curtailment gain of service and the employees’ compensation during the earlier of the three calendar years before retirement or the three years ended December 31, 1995. Effective December 31, 1995, the benefits under the $1.4 million.
In February 2007, the Company’s Board of Directors approved the termination of the Company’s U.S. non-contributory defined benefit pension plan. Participant benefits were not adversely impacted by this termination, and inplan (the “U.S. pension plan”), which had been frozen since December 31, 1995. In July 2007, the Company made a $1.9 million cash contribution to fully fund the U.S. pension plan. The U.S. pension plan, subsequentlywhich in turn purchased a group annuity contract on a revocable basis, pending approvalto cover participant benefits. During fiscal 2008, following the expiration of the proposed plan termination by the Pension Benefit Guaranty Corporation (“PBGC”) and issuance of a favorable determination letter by the Internal Revenue Service (“IRS”). The PBGCCorporations’ review period expiredfor the proposed termination, and on March 26, 2008, the Company receivedreceipt of a favorable determination letter from the IRS. Accordingly, during fiscal 2008,Internal Revenue Service (“IRS”), the group annuity contract became irrevocable, a termination of the U.S. pension plan occurred,was terminated and the Company recognized one-time non-cash expense of $9.2 million, offset by a $3.5 million tax benefit, associated with recognizing unamortized actuarial losses.
Other U.S. Plan
The Company has a 401(k) retirement income plan.plan for its employees. This plan allows for employee contributions and matching Company contributions in varying percentages, depending on employee age and years of service, ranging from 50% to 175% of the employees’ contributions.
The following table reflects the Company’s matching contributions underto the 401(k) retirement income plan totaled $2.1 million, $2.0 millionwhich were made in the form of issued and $1.1 million in fiscal 2005, 2006 and 2007 respectively, and were satisfied by contributions ofcontributed shares of Company common stock valued atduring fiscal 2008 and 2009:
Fiscal | ||||||||
(in thousands) | 2008 | 2009 | ||||||
Number of common shares | 193 | 357 | ||||||
Fair value based upon market price at date of distribution | $ | 1,174 | $ | 811 |
In addition to the market price on the date of the matching contribution.
Switzerland Plan
During fiscal 2007,401(k) retirement income plan discussed above, the Company purchased Alphasem,has a 401(k) retirement income plan for its Wedge bonder employees. Effective January 2009, the Company suspended cash matching contributions to its Wedge bonder employees’ 401(k) retirement income plan. Cash matching contributions for the Company’s Wedge bonder retirement income plan were $0.1 million for fiscal 2009.
In accordance with regulations in Switzerland, regulations, Alphasem sponsoredthe Company sponsors a Switzerland pension plan covering active employees whose minimum benefits are guaranteed. This Switzerland pension plan has been funded to the legal requirement, and the Company is current in all required pension contributions. However, in accordance with U.S. generally accepted accounting principles of pension accounting, even thoughAlthough the Switzerland pension plan is fully funded for local statutory purposes, the Switzerland pension plan must be treated as an under-funded defined benefit plan for U.S. reporting, since the fair value of the plan’s assets is less than the plan’s projected benefit obligation.
During fiscal 2009, the Company reduced its Switzerland workforce by approximately 70 employees, which triggered a curtailment of the Switzerland pension plan under ASC No. 715, Topic 30,Compensation — Retirement Benefits, Defined Benefit Plans. As a result during fiscal 2009, the Company recognized a pretax curtailment and settlement gain of $1.4 million. The remeasurement of the plan assets and liabilities decreased the Company’s net pension plan liability to $1.4 million as of October 3, 2009. Based upon fiscal 2009 assumptions, the curtailment is expected to reduce the Company’s retirement-related expense by $0.2 million in fiscal 2010.
The following table reflects the Switzerland net periodic pension plan’s activityexpense for fiscal 2007, 2008, and 2008:2009:
Fiscal | ||||||||
(dollar amounts in thousands) | 2007 | 2008 | ||||||
Change in projected benefit obligation | ||||||||
Projected benefit obligations, beginning of year | $ | 9,797 | $ | 11,831 | ||||
Service cost (excluding administrative expenses) | 775 | 795 | ||||||
Interest cost | 258 | 396 | ||||||
Benefits paid | (64 | ) | (81 | ) | ||||
Insurance premiums | (266 | ) | (343 | ) | ||||
Plan participant contributions | 521 | 639 | ||||||
Actuarial gain | — | (1,450 | ) | |||||
Loss on foreign exchange | 810 | 922 | ||||||
Projected benefit obligations at the end of the year | $ | 11,831 | $ | 12,709 | ||||
Change in plan assets | ||||||||
Fair value of plan assets, beginning of year | $ | 6,813 | $ | 8,367 | ||||
Actual return on plan assets | 231 | 382 | ||||||
Benefits paid | (64 | ) | (81 | ) | ||||
Insurance premiums | (266 | ) | (343 | ) | ||||
Employer contributions | 562 | 679 | ||||||
Plan participant contributions | 521 | 639 | ||||||
Actuarial loss | — | (86 | ) | |||||
Gain on foreign exchange | 570 | 664 | ||||||
Fair value of plan assets at the end of the year | $ | 8,367 | $ | 10,221 | ||||
Funded status | $ | (3,464 | ) | $ | (2,488 | ) | ||
Amounts recognized in statement of financial position | $ | (3,464 | ) | $ | (2,488 | ) | ||
Net amount recognized at the end of the year | $ | (3,464 | ) | $ | (2,488 | ) | ||
Amounts recognized in accumulated other comprehensive income | ||||||||
Actuarial net (gain) loss | 11 | (1,343 | ) | |||||
Net amount recognized in accumulated other comprehensive income (pre tax) | $ | 11 | $ | (1,343 | ) | |||
Components of net periodic pension cost | ||||||||
Service cost | $ | 775 | $ | 795 | ||||
Interest cost | 258 | 396 | ||||||
Expected return on plan assets | (243 | ) | (382 | ) | ||||
Amortization of net gain | — | (22 | ) | |||||
Total net periodic pension cost | $ | 790 | $ | 787 | ||||
Weighted average assumptions at the end of the year | ||||||||
Discount rate | 3.55 | % | 3.90 | % | ||||
Expected long-term rate of return on plan assets | 4.10 | % | 4.46 | % | ||||
Rate of compensation increase | 1.50 | % | 1.50 | % |
Fiscal | ||||||||||||
(dollar amounts in thousands) | 2007 | 2008 | 2009 | |||||||||
Change in projected benefit obligation: | ||||||||||||
Projected benefit obligations, beginning of year | $ | 9,797 | $ | 11,831 | $ | 12,709 | ||||||
Service cost | 775 | 795 | 572 | |||||||||
Interest cost | 258 | 396 | 346 | |||||||||
Benefits paid | (64 | ) | (81 | ) | (77 | ) | ||||||
Insurance premiums | (266 | ) | (343 | ) | (253 | ) | ||||||
Plan participant contributions | 521 | 639 | 520 | |||||||||
Plan curtailment | — | — | (943 | ) | ||||||||
Plan settlement | — | — | (3,328 | ) | ||||||||
Actuarial gain | — | (1,450 | ) | (401 | ) | |||||||
(Gain) loss on foreign exchange | 810 | 922 | (1,448 | ) | ||||||||
Projected benefit obligations, end of the year | $ | 11,831 | $ | 12,709 | $ | 7,697 | ||||||
Change in plan assets: | ||||||||||||
Fair value of the plan assets, beginning of year | $ | 6,813 | $ | 8,367 | $ | 10,221 | ||||||
Actual return on plan assets | 231 | 382 | 325 | |||||||||
Benefits paid | (64 | ) | (81 | ) | (77 | ) | ||||||
Insurance premiums | (266 | ) | (343 | ) | (254 | ) | ||||||
Employer contributions | 562 | 679 | 520 | |||||||||
Plan participant contributions | 521 | 639 | 520 | |||||||||
Plan settlement | — | — | (3,328 | ) | ||||||||
Actuarial loss | — | (86 | ) | — | ||||||||
Gain (loss) on foreign exchange | 570 | 664 | (1,629 | ) | ||||||||
Fair value of the plan assets, end of year | $ | 8,367 | $ | 10,221 | $ | 6,298 | ||||||
Funded status | $ | (3,464 | ) | $ | (2,488 | ) | $ | (1,399 | ) | |||
Amounts recognized in statement of financial position: | ||||||||||||
Noncurrent liabilities | $ | (3,464 | ) | $ | (2,488 | ) | $ | (1,399 | ) | |||
Net amount recognized, end of the year | $ | (3,464 | ) | $ | (2,488 | ) | $ | (1,399 | ) | |||
Amounts recognized in accumulated other comprehensive income: | ||||||||||||
Actuarial net gain (loss) | $ | 11 | $ | (1,343 | ) | $ | 49 | |||||
Settlement gain recognized | — | — | 454 | |||||||||
Net amount recognized in accumulated other comprehensive income (pretax) | $ | 11 | $ | (1,343 | ) | $ | 503 | |||||
Components of net periodic pension cost: | ||||||||||||
Service cost | $ | 775 | $ | 795 | $ | 572 | ||||||
Interest cost | 258 | 396 | 346 | |||||||||
Expected return on plan assets | (243 | ) | (382 | ) | (325 | ) | ||||||
Amortization of net gain | — | (22 | ) | (49 | ) | |||||||
Total net periodic pension cost | $ | 790 | $ | 787 | $ | 544 | ||||||
Weighted average assumptions, end of the year: | ||||||||||||
Discount rate | 3.55 | % | 3.90 | % | 3.30 | % | ||||||
Expected long-term rate of return on plan assets | 4.10 | % | 4.46 | % | 3.30 | % | ||||||
Rate of compensation increase | 1.50 | % | 1.50 | % | 1.50 | % |
The discount rate is established based on yields on long-term government bonds corresponding to the expected duration of the benefit obligation, and the difference between the yields on high quality corporate fixed-income investments and government fixed-income investments.
Net periodic pension cost for the current year is based on assumptions at the valuation date of the prior year.
The amounts in accumulated other comprehensive income that are expected to be recognized in net periodic pension expense during fiscal 20092010 are immaterial.
The accumulated benefit obligation for the Switzerland pension plan was $9.6$7.5 million as of September 27, 2008.October 3, 2009.
The assets of the Switzerland pension plan are invested with the multi-employer foundation that guarantees minimum participant benefit, as required under Switzerland regulations.
The following table reflects fiscal 20092010 expected contributions to the Switzerland pension plan:
(in thousands) | |||||||
(in thousands) | |||||||
Employer contributions | $ | 650 | $ | 388 | |||
Employee contributions | 650 | 388 | |||||
Total contributions | $ | 1,300 | $ | 776 | |||
The following table reflects the Switzerland pension plan’s estimated future benefit payments for each of the next five fiscal years and the following five fiscal years in aggregate:years:
(in thousands) | ||||
Fiscal 2010 | $ | 77 | ||
Fiscal 2011 | 87 | |||
Fiscal 2012 | 99 | |||
Fiscal 2013 | 116 | |||
Fiscal 2014 – 2019 | 1,049 |
Fiscal year: | (in thousands) | ||
2009 | $ | 79 | |
2010 | 92 | ||
2011 | 108 | ||
2012 | 139 | ||
2013 | 166 | ||
2014-2018 | 1,123 |
Other Plans
TheSome of the Company’s other foreign subsidiaries have retirement plans that are integrated with and supplement the benefits of provided by laws of the various countries. These other plans are not required to report nor do they determine the actuarial present value of accumulated benefits or net assets available for plan benefits. On a consolidated basis, pension expense was $1.8 million, $2.0 million and $10.7 million in fiscal 2006, 2007 and 2008 respectively. Fiscal 2008 included U.S. pension plan termination expense of $9.2 million.
NOTE
10:12: INCOME TAXES
The following table reflects income (loss) from continuing operations before income taxes:
Fiscal | Fiscal | ||||||||||||||||||||||
(in thousands) | 2006 | 2007 | 2008 | ||||||||||||||||||||
(in thousands) | 2007 | 2008 | 2009 | ||||||||||||||||||||
United States operations | $ | 47,928 | $ | 36,462 | $ | 4,179 | $ | 36,462 | $ | 4,179 | $ | (29,804 | ) | ||||||||||
Foreign operations | 21,674 | (12,158 | ) | (27,408 | ) | (12,158 | ) | (27,408 | ) | (41,250 | ) | ||||||||||||
Total | $ | 69,602 | $ | 24,304 | $ | (23,229 | ) | $ | 24,304 | $ | (23,229 | ) | $ | (71,054 | ) | ||||||||
The following table reflects the provision (benefit) for income taxes from continuing operations:
Fiscal | Fiscal | |||||||||||||||||||||||
(in thousands) | 2006 | 2007 | 2008 | |||||||||||||||||||||
(in thousands) | 2007 | 2008 | 2009 | |||||||||||||||||||||
Current: | ||||||||||||||||||||||||
Federal | $ | 1,048 | $ | 1,214 | $ | 3 | $ | 1,214 | $ | 3 | $ | (263 | ) | |||||||||||
State | 2,185 | 3,159 | 78 | 3,159 | 78 | 150 | ||||||||||||||||||
Foreign | 4,061 | 2,961 | (540 | ) | 2,961 | (540 | ) | (6,110 | ) | |||||||||||||||
Deferred: | ||||||||||||||||||||||||
Federal | 553 | — | (2,993 | ) | — | (2,993 | ) | 354 | ||||||||||||||||
State | (106 | ) | (620 | ) | (411 | ) | (620 | ) | (411 | ) | 41 | |||||||||||||
Foreign | 327 | (1,266 | ) | 253 | (1,266 | ) | 253 | (7,201 | ) | |||||||||||||||
Total | $ | 8,068 | $ | 5,448 | $ | (3,610 | ) | $ | 5,448 | $ | (3,610 | ) | $ | (13,029 | ) | |||||||||
The following table reflects the difference between the provision (benefit) for income taxes and the amount computed by applying the statutory federal income tax rate:
Fiscal | Fiscal | |||||||||||||||||||||||
(in thousands) | 2006 | 2007 | 2008 | |||||||||||||||||||||
(in thousands) | 2007 | 2008 | 2009 | |||||||||||||||||||||
Computed income tax (benefit) expense based on U.S. statutory rate | $ | 24,360 | $ | 8,506 | $ | (8,130 | ) | $ | 8,506 | $ | (8,130 | ) | $ | (24,869 | ) | |||||||||
Effect of earnings of foreign subsidiaries subject to different tax rates | (1,278 | ) | 2,104 | 1,835 | 2,104 | 1,835 | 2,945 | |||||||||||||||||
Benefits from foreign approved enterprise zones | (3,773 | ) | 5,664 | 4,928 | 5,664 | 4,928 | 11,839 | |||||||||||||||||
Effect of permanent items | (248 | ) | (68 | ) | 742 | (68 | ) | 742 | 731 | |||||||||||||||
Benefits of net operating loss and tax credit carryforwards and changes in valuation allowance | (48,700 | ) | (21,074 | ) | (5,126 | ) | (21,074 | ) | (5,126 | ) | 11,732 | |||||||||||||
Foreign operations | 33,924 | 4,401 | 1,176 | 4,401 | 1,176 | (2,514 | ) | |||||||||||||||||
Settlement of tax audit | — | — | (12,510 | ) | ||||||||||||||||||||
State income tax expense | 2,707 | 3,517 | 2,996 | 3,517 | 2,996 | 980 | ||||||||||||||||||
Other, net | 1,076 | 2,398 | (2,031 | ) | 2,398 | (2,031 | ) | (1,363 | ) | |||||||||||||||
Total | $ | 8,068 | $ | 5,448 | $ | (3,610 | ) | $ | 5,448 | $ | (3,610 | ) | $ | (13,029 | ) | |||||||||
Undistributed earnings of certain foreign subsidiaries for which taxes have not been provided approximate $64.5$73.2 million as of September 27, 2008.October 3, 2009. Such undistributed earnings are considered to be indefinitely reinvested in foreign operations.
Undistributed earnings of approximately $97.2$67.5 million are not considered to be indefinitely reinvested in foreign operations. As part of the global restructuring that occurred during fiscal 2006, the Company determined that these earnings would be repatriated during the domestic net operating loss carryforward period and this taxable income related to these earnings could be offset with the utilization of the net operating loss carryforwards. Accordingly, as a result of the restructuring, no valuation allowance has been provided against the deferred tax asset related to these net operating losses that will offset these earnings. This resulted in a decrease in tax expense as a result of the reduction of the valuation allowance. As of September 27, 2008,October 3, 2009, the Company had provided a deferred tax liability of approximately $20.9$15.2 million for withholding taxes associated with future repatriation of earnings for certain subsidiaries.
The following table reflects the net deferred tax balance, composed of the tax effects of cumulative temporary differences:
Fiscal | Fiscal | |||||||||||||||
(in thousands) | 2007 | 2008 | ||||||||||||||
(in thousands) | 2008 | 2009 | ||||||||||||||
Inventory reserves | $ | 1,452 | $ | 908 | $ | 908 | $ | 827 | ||||||||
Warranty accrual | 354 | — | ||||||||||||||
Other accruals and reserves | 4,757 | 2,892 | 2,892 | 4,423 | ||||||||||||
Revenue recognition | 113 | 396 | ||||||||||||||
Deferred revenue | 396 | 23 | ||||||||||||||
Valuation allowance | (3,136 | ) | (2,078 | ) | (2,078 | ) | (3,487 | ) | ||||||||
Total short-term deferred tax asset | $ | 3,540 | $ | 2,118 | $ | 2,118 | $ | 1,786 | ||||||||
Other | — | 66 | ||||||||||||||
Total short-term deferred tax liability | $ | — | $ | 66 | ||||||||||||
Net short-term deferred asset | $ | 2,118 | $ | 1,720 | ||||||||||||
Domestic tax credit carryforwards | $ | 7,478 | $ | 3,285 | $ | 3,285 | $ | 3,224 | ||||||||
Net operating loss carryforwards | 58,473 | 52,967 | 52,967 | 65,305 | ||||||||||||
Unrecognized actuarial net loss | 3,259 | — | ||||||||||||||
Stock options | 2,543 | 1,477 | 1,477 | 1,579 | ||||||||||||
Other | 4,117 | 1,791 | 1,791 | 5,757 | ||||||||||||
59,520 | 75,865 | |||||||||||||||
75,870 | 59,520 | |||||||||||||||
Valuation allowance | (46,572 | ) | (37,842 | ) | (37,842 | ) | (54,095 | ) | ||||||||
Total long-term deferred tax asset (1) | $ | 29,298 | $ | 21,678 | $ | 21,678 | $ | 21,770 | ||||||||
Repatriation of foreign earnings, including foreign withholding taxes | $ | 47,181 | $ | 42,488 | $ | 42,488 | $ | 33,658 | ||||||||
Depreciable assets | 915 | 315 | 315 | 1,838 | ||||||||||||
Prepaid expenses and other | 3,498 | 58 | 58 | 59 | ||||||||||||
Total long-term deferred tax liability | $ | 51,594 | $ | 42,861 | $ | 42,861 | $ | 35,555 | ||||||||
Net long-term deferred liability | $ | 22,296 | $ | 21,183 | ||||||||||||
Net long-term deferred tax liability | $ | 21,183 | $ | 13,785 | ||||||||||||
Total net deferred tax liability | $ | 19,065 | $ | 12,065 |
(1) | Included in other assets on the Consolidated Balance Sheets are deferred tax assets of |
The Company has U.S. federal net operating loss carryforwards, foreign net operating loss carryforwards, state net operating loss carryforwards, and tax credit carryforwards of approximately $110.7$116.4 million, $195.5$64.8 million, $183.9 million, and $3.3$3.2 million, respectively, that will reduce future taxable income. These carryforwards can be utilized in the future, prior to expiration of certain carryforwards in 20092010 through 20252030 with the exception of certain credits that have no expiration date.
Of the total net operating losses as of September 27, 2008,October 3, 2009, approximately $1.9 million iswere attributable to stock option exercises. If the tax benefits associated with ourthe Company’s net operating carryforward are recognized in the future, the amounts attributable to stock option exercises will be recorded as additional paid in capital in shareholders’ equity.
InDuring the fourth quarter of fiscal 2002, as part of the income tax provision for the period, the Company recorded a charge of $65.3 million for the establishment ofestablished a valuation allowance against its domestic deferred tax asset consisting primarily of U.S. net operating loss carryforwards.assets. The Company had determined that it was more likely than not that the net deferred tax assets would not be realized and that a valuation allowance was requiredrequired. This was based on itsan analysis of both positive and negative evidence including a history of cumulative losses which are given substantially more weight than forecastsand future projected losses. The Company continues to evaluate the realizability of future profitability in the evaluation. In fiscal 2004, 2005, 2006 and 2007, the valuation allowance was reduced to the extent thatall of their net operating losses were utilized against current year federal and state taxable income. During fiscal 2005, $3.9 million of the valuation allowance was reduced due to the planned repatriation of foreign earnings in fiscal 2006. The Company’s valuation allowance was reduced by $9.0 million, $22.1 million and $4.6 million in fiscal 2006, 2007 and 2008 respectively, as the result of the utilization of deferred tax assets for whichat each reporting date. As a full valuation allowance had previously been provided, to offset current year earnings. As partresult of this analysis, the 2006 international reorganization, the determination made by the Company with regard to future repatriations during the domestic net operating loss carryforward period, the Company further reduced the valuation allowance by $29.1 million during fiscal 2006. The Company has determined the valuation allowance against the U.S. deferred tax assets,
particularly with the federal andexception of certain state net operating losses,tax credits, is still necessary as of September 27, 2008October 3, 2009 as the Company does not believe that it is more likely than not that the remaining deferred tax assets will be realized due tobased on an analysis of positive and negative evidence including an analysis of historical results, the impact of international restructuring, of its international operations, projectionprojections of future earnings and the
significant historic volatility of its Equipment segment, which will be the primary income source for the U.S. in the future. The Company will continue to evaluate the realizability of all of their deferred taxes and adjust the valuation allowance accordingly.
Of the total valuation allowance through September 27, 2008, approximately $3.6 million of subsequently recognized tax benefits relating to the valuation allowancerecords a benefit for deferred tax assets to the extent it has deferred tax liabilities that provide a source of income to benefit the deferred tax asset. However, to the extent that a deferred tax liability will not reverse in the same period as a deferred tax asset, it is not considered a piece of positive evidence, and will not result in the benefit of a deferred tax asset. As a result of a taxable acquisition in the current year, the Company has recorded a deferred tax liability related to the amortization of tax goodwill. This deferred tax liability is indefinite in nature and as a result will not reverse in the same period as the Company’s deferred tax assets and can not be applied to reduce goodwill, intangibleconsidered positive evidence for recording the benefit for a domestic deferred tax asset, with the exception of certain tax credits which are also indefinite in nature.
During fiscal 2009, the Company reduced a portion of the valuation allowance against its net deferred tax assets or additional paid in capital.
for certain foreign subsidiaries based on future projected income. The Company also has generated losses in certain foreign jurisdictions totaling approximately $28.4 million. Similar to the U.S. net operating losses, realization of the benefit associated with certain foreign loss carryforwards is notdetermined that it was more likely than not to be realized andrecognize a full valuation allowance has been provided againstportion of the net deferred tax assets, associated with these carryforwards.primarily net operating losses, based on positive evidence from current year earnings as well as future projected earnings. Approximately $0.2 million of the reversal was applied to reduce intangible assets since a portion of the valuation allowance was originally established in purchase accounting. The remaining reversal of $2.8 million was recorded as a deferred tax benefit.
Upon adoption of FIN 48ASC 740.10 related to accounting for uncertain tax positions on September 30, 2007, the Company recorded a reduction to its accumulated deficit of $0.8 million. In addition, after accounting for the cumulative effect reduction to the accumulated deficit, the Company’s unrecognized tax benefits was $25.0 million and accrued interest related to unrecognized income tax benefits of $2.9 million was recognized as a component of the provision for income taxes.
The following table reflects a reconciliation of the beginning and ending unrecognized tax benefits for fiscal 2008:2009:
(in thousands) | ||||
Unrecognized tax benefit as of September 27, 2008 | $ | 31,023 | ||
Additions for tax positions of current year | 135 | |||
Additions for tax positions of prior years | 7 | |||
Reductions for tax positions of prior years | (13,583 | ) | ||
Settlements | (11,562 | ) | ||
Unrecognized tax benefit as of October 3, 2009 | $ | 6,020 |
(in thousands) | ||||
Unrecognized tax benefit as of September 29, 2007 | $ | 24,962 | ||
Additions based on tax positions related to the current year | 2,460 | |||
Additions for tax positions of prior years | 4,103 | |||
Settlements | (502 | ) | ||
Unrecognized tax benefit as of September 27, 2008 | $ | 31,023 | ||
The additions and reductions based on tax positions of prior years of $0.1 and ($13.6) million, respectively, includes $1.1 million related to currency fluctuations and were charged to currency gain.
If recognized, the $31.0$6.0 million would impact ourthe Company’s effective tax rate excluding the impact valuation allowances.
The additions based onCompany is currently under audit by the IRS for the period ended September 30, 2006. The Company has responded to various information requests from the IRS. The IRS has not proposed any adjustment that would result in a significant adjustment to income tax expense; however, the audit is still in process.
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 FIN 48. On December 24, 2008, the current yearCompany, 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 $2.5$12.5 million includes $0.1was made net of a $4.5 million reimbursement resulting in a net cash payment of $7.8 million during 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 currency fluctuationsincome taxes and were charged
interest to currency expense.settle the fiscal September 30, 2005 and 2006. As a result of the Israel tax settlements, the Company recognized a $12.5 million benefit from income taxes for fiscal 2009. The additions$12.5 million benefit was a result of reversing the liability for unrecognized tax positionsbenefits on the Consolidated Balance Sheet as of prior yearsSeptember 27, 2008 that was in excess of $4.1the $14.4 million relate to currency fluctuations and were charged to currency expense.for which the matter was settled. The entire amount of the reversal impacted the Company’s effective tax rate as indicated above.
The Company recognizes interest and penalties accrued related to unrecognized tax benefits as a component of income tax expense. There were no additional accruals of interest expense on various uncertain tax positions during fiscal 2008.2009.
The Company files U.S. Federal income tax returns, as well as, income tax returns in various state and foreign jurisdictions. For the U.S. Federal income tax returns and most state tax returns, tax years following fiscal 2000 remain subject to examination as a result of the generation of net operating loss carryforwards. The statutes of limitations with respect to the foreign jurisdictions in which the company files vary from jurisdiction to jurisdiction and range from 4 to 6 years.
The IRS is in the initial stages of an income tax audit for the fiscal 2006 tax year. As of December 5, 2008, the IRS auditor has submitted an initial information request and the Company is in the process of responding to that request. No further information is available with respect to this audit.
In October 2007, the tax authority in Israel notified the Company that it believes withholding and income taxes of approximately $34.3 million, after adjustment for foreign currency changes, are owed by the Company for the 2002 through 2004 tax years. The Company does not agree with this assessment and filed an objection with the tax authority in Israel. The Company is currently in discussions with the tax authority in Israel regarding the assessment and believes that it has adequate tax reserves for this assessment.
It is reasonably possible that the amount of the unrecognized tax benefit with respect to certain unrecognized tax positions will increase or decrease during the next 12 months; however, the Company does not expect the change to have a material effect on its results of operations or our financial position.
As a result of committing to certain capital investments and employment levels, income from operations in China, Singapore Malaysia and IsraelMalaysia are subject to reduced tax rates, and in some cases are wholly exempt from taxes.
In China, the Company expects to benefit from a 100% tax holiday for two years commencing in the first year in which the Company earns taxable income and then a 50% tax holiday for an additional three years. One of the subsidiaries in China was granted “Hi Tech Enterprise” status by the taxing authorities inthrough fiscal 2008. As a result of the “Hi Tech Enterprise” status, the subsidiary qualifies2012 for a reduced corporate income tax rate of 15% and continues to benefit from the tax holiday. The subsidiary applies a current corporate income tax rate of .56% after the application of 15% tax rate and tax holidays. The taxing authorities will review the subsidiary’s qualification for “Hi Tech Enterprise” status every 2 years.
subsidiary. In connection with certain Singapore operations, the Company expects to benefitis benefiting from a 100% tax holiday for 10 years effectivewhich expires in February 1, 2000. In Israel, the Company may benefit from a reduced tax rate of 10% through fiscal 2008 provided certain revenue requirements are met.
2010. One of the Company’s subsidiaries in Malaysia is wholly exempt from taxes through 2014.
NOTE
11:13: SEGMENT INFORMATION
The Company evaluates performance of its segmentsIn fiscal 2009, the Company’s Packaging Materials segment was renamed Expendable Tools. In addition, fiscal 2009 segment information, for both Equipment and allocates resources to them based on income from operations before interest, allocations of corporate expenses and income taxes.Expendable Tools, includes the Company’s Wedge bonder business acquired during fiscal 2009.
The Company operates in two segments: equipmentEquipment and packaging materials.Expendable Tools. The equipmentEquipment segment designs, manufactures and markets capital equipment,a line of ball bonders, wedge bonders and related spare parts for use in the semiconductor assembly process.die bonders. The equipment segment also services, maintains, repairs, and upgrades assembly equipment. The packaging materialsExpendable Tools segment designs, manufactures, and markets consumable packaging materials for use on the Company’s equipment the Company markets as well as on competitors’ equipment. The packaging materials products have different manufacturing processes, distribution channels and a less volatile revenue pattern than the Company’s capital equipment segment.
The following table reflects segment information for the Company’s reporting segments:continuing operations of the Company:
(in thousands) | |||||||||||||||||||||||
Fiscal 2006 | Equipment Segment | Packaging Materials Segment | Consolidated | ||||||||||||||||||||
(in thousands) Fiscal 2007 | Equipment Segment | Expendable Tools Segment | Consolidated | ||||||||||||||||||||
Net revenue | $ | 319,788 | $ | 60,508 | $ | 380,296 | $ | 316,718 | $ | 53,808 | $ | 370,526 | |||||||||||
Cost of sales | 178,599 | 28,474 | 207,073 | 188,055 | 27,035 | 215,090 | |||||||||||||||||
Gross profit | 141,189 | 32,034 | 173,223 | 128,663 | 26,773 | 155,436 | |||||||||||||||||
Operating expenses | 89,684 | 23,316 | 113,000 | 113,444 | 24,480 | 137,924 | |||||||||||||||||
Gain on sale of assets | — | — | 4,544 | ||||||||||||||||||||
Income from operations | $ | 51,505 | $ | 8,718 | $ | 64,767 | $ | 15,219 | $ | 2,293 | $ | 17,512 | |||||||||||
Segment assets | $ | 161,342 | $ | 99,767 | $ | 261,109 | $ | 264,875 | $ | 119,838 | $ | 384,713 | |||||||||||
Capital expenditures | 1,992 | �� | 6,634 | 8,626 | 3,704 | 1,871 | 5,575 | ||||||||||||||||
Depreciation expense | 3,021 | 4,087 | 7,108 | 3,743 | 4,382 | 8,125 | |||||||||||||||||
Fiscal 2007 | Equipment Segment | Packaging Materials Segment | Consolidated | ||||||||||||||||||||
Net revenue | $ | 316,718 | $ | 53,808 | $ | 370,526 | |||||||||||||||||
Cost of sales | 188,055 | 27,035 | 215,090 | ||||||||||||||||||||
Gross profit | 128,663 | 26,773 | 155,436 | ||||||||||||||||||||
Operating expenses | 113,444 | 24,480 | 137,924 | ||||||||||||||||||||
Income from operations | $ | 15,219 | $ | 2,293 | $ | 17,512 | |||||||||||||||||
Segment assets | $ | 264,875 | $ | 119,838 | $ | 384,713 | |||||||||||||||||
Capital expenditures | 3,704 | 1,871 | 5,575 | ||||||||||||||||||||
Depreciation expense | 3,743 | 4,382 | 8,125 | ||||||||||||||||||||
Fiscal 2008 | Equipment Segment | Packaging Materials Segment | Consolidated | ||||||||||||||||||||
Net revenue | $ | 271,019 | $ | 57,031 | $ | 328,050 | |||||||||||||||||
Cost of sales | 165,499 | 28,758 | 194,257 | ||||||||||||||||||||
Gross profit | 105,520 | 28,273 | 133,793 | ||||||||||||||||||||
Operating expenses | 122,302 | 26,971 | 149,273 | ||||||||||||||||||||
U.S. pension plan termination | 9,152 | — | 9,152 | ||||||||||||||||||||
Income (loss) from operations | $ | (25,934 | ) | $ | 1,302 | $ | (24,632 | ) | |||||||||||||||
Segment assets | $ | 215,953 | $ | 120,317 | $ | 336,270 | |||||||||||||||||
Capital expenditures | 4,697 | 3,153 | 7,850 | ||||||||||||||||||||
Depreciation expense | 3,597 | 3,783 | 7,380 |
Fiscal 2008 | Equipment Segment | Expendable Tools Segment | Consolidated | |||||||||
Net revenue | $ | 271,019 | $ | 57,031 | $ | 328,050 | ||||||
Cost of sales | 165,499 | 28,758 | 194,257 | |||||||||
Gross profit | 105,520 | 28,273 | 133,793 | |||||||||
Operating expenses | 122,302 | 26,971 | 149,273 | |||||||||
U.S. pension plan termination | 9,152 | — | 9,152 | |||||||||
Income (loss) from operations | $ | (25,934 | ) | $ | 1,302 | $ | (24,632 | ) | ||||
Segment assets | $ | 215,953 | $ | 120,317 | $ | 336,270 | ||||||
Capital expenditures | 4,697 | 3,153 | 7,850 | |||||||||
Depreciation expense | 3,597 | 3,783 | 7,380 |
Fiscal 2009 | Equipment Segment | Expendable Tools Segment | Consolidated | |||||||||
Net revenue | $ | 170,536 | $ | 54,704 | $ | 225,240 | ||||||
Cost of sales | 111,103 | 25,294 | 136,397 | |||||||||
Gross profit | 59,433 | 29,410 | 88,843 | |||||||||
Operating expenses | 135,465 | 24,193 | 159,658 | |||||||||
Impairment of goodwill | 2,709 | — | 2,709 | |||||||||
Income (loss) from operations | $ | (78,741 | ) | $ | 5,217 | $ | (73,524 | ) | ||||
Segment assets | $ | 304,160 | $ | 108,916 | $ | 413,076 | ||||||
Capital expenditures | 3,245 | 2,018 | 5,263 | |||||||||
Depreciation expense | 6,551 | 3,581 | 10,132 |
The Company’s market for its products is worldwide. The following table reflects, for the Company’s continuing operations, the destination sales to unaffiliated customers and long-lived assets by country:
(in thousands) | ||||||||||||||
Fiscal 2006 | Destination Sales | Long-lived Assets | ||||||||||||
Taiwan | $ | 80,649 | $ | 361 | ||||||||||
China | 62,262 | 6,708 | ||||||||||||
Korea | 44,069 | 95 | ||||||||||||
Malaysia | 36,875 | 434 | ||||||||||||
Japan | 32,213 | 290 | ||||||||||||
Singapore | 21,204 | 1,828 | ||||||||||||
Philippines | 20,728 | 17 | ||||||||||||
Thailand | 14,482 | 11 | ||||||||||||
United States | 12,035 | 9,518 | ||||||||||||
Hong Kong | 7,709 | 15 | ||||||||||||
Israel | 194 | 7,101 | ||||||||||||
All other | 47,876 | 202 | ||||||||||||
Total | $ | 380,296 | $ | 26,580 | ||||||||||
Fiscal 2007 | Destination Sales | Long-lived Assets | ||||||||||||
(in thousands) Fiscal 2007 | Destination Sales | Long-lived Assets | ||||||||||||
Taiwan | $ | 91,788 | $ | 235 | $ | 91,788 | $ | 235 | ||||||
Korea | 74,716 | 33 | 74,716 | 33 | ||||||||||
China | 37,881 | 5,328 | 37,881 | 5,328 | ||||||||||
Hong Kong | 28,691 | 11 | 28,691 | 11 | ||||||||||
Singapore | 26,662 | 2,116 | 26,662 | 2,116 | ||||||||||
Malaysia | 20,785 | 290 | 20,785 | 290 | ||||||||||
Japan | 18,602 | 285 | 18,602 | 285 | ||||||||||
Philippines | 12,158 | 3 | ||||||||||||
United States | 11,744 | 12,586 | 11,744 | 12,586 | ||||||||||
Thailand | 8,454 | — | ||||||||||||
Malta | 4,516 | — | ||||||||||||
Germany | 4,139 | 90 | ||||||||||||
Switzerland | 576 | 16,086 | 576 | 16,086 | ||||||||||
Israel | 231 | 7,405 | 231 | 7,405 | ||||||||||
All other | 29,584 | 241 | 58,851 | 334 | ||||||||||
Total | $ | 370,526 | $ | 44,709 | $ | 370,526 | $ | 44,709 | ||||||
Fiscal 2008 | Destination Sales | Long-lived Assets | ||||||||||||
China | $ | 81,035 | $ | 4,978 | ||||||||||
Taiwan | 41,938 | 162 | ||||||||||||
Korea | 34,897 | 13 | ||||||||||||
Malaysia | 32,083 | 149 | ||||||||||||
Japan | 26,211 | 313 | ||||||||||||
Hong Kong | 17,964 | 150 | ||||||||||||
United States | 14,306 | 13,398 | ||||||||||||
Singapore | 13,811 | 2,228 | ||||||||||||
Thailand | 12,891 | — | ||||||||||||
Philippines | 12,001 | 57 | ||||||||||||
Germany | 3,841 | 67 | ||||||||||||
Switzerland | 434 | 15,782 | ||||||||||||
Israel | 300 | 7,750 | ||||||||||||
All other | 36,338 | 416 | ||||||||||||
Total | $ | 328,050 | $ | 45,463 | ||||||||||
Fiscal 2008 | Destination Sales | Long-lived Assets | ||||||
China | $ | 81,035 | $ | 4,978 | ||||
Taiwan | 41,938 | 162 | ||||||
Korea | 34,897 | 13 | ||||||
Malaysia | 32,083 | 149 | ||||||
Japan | 26,211 | 313 | ||||||
Hong Kong | 17,964 | 150 | ||||||
United States | 14,306 | 13,398 | ||||||
Singapore | 13,811 | 2,228 | ||||||
Switzerland | 434 | 15,782 | ||||||
Israel | 300 | 7,750 | ||||||
All other | 65,071 | 540 | ||||||
Total | $ | 328,050 | $ | 45,463 |
Fiscal 2009 | Destination Sales | Long-lived Assets | ||||||
Taiwan | $ | 42,360 | $ | 452 | ||||
China | 38,505 | 3,969 | ||||||
Korea | 24,256 | 7 | ||||||
Hong Kong | 24,183 | — | ||||||
Japan | 12,150 | 483 | ||||||
Malaysia | 11,959 | 205 | ||||||
Singapore | 10,315 | 2,121 | ||||||
United States | 6,860 | 90,914 | ||||||
Israel | 2,540 | 7,202 | ||||||
Switzerland | 1,478 | 10,793 | ||||||
All other | 50,634 | 1,469 | ||||||
Total | $ | 225,240 | $ | 117,615 |
NOTE
12:14: OTHER FINANCIAL DATA
The following table reflects other financial data:
Fiscal | Fiscal | ||||||||||||||||||||
(in thousands) | 2006 | 2007 | 2008 | ||||||||||||||||||
(in thousands) | 2007 | 2008 | 2009 | ||||||||||||||||||
Rent expense | $ | 4,907 | $ | 4,673 | $ | 5,057 | $ | 4,673 | $ | 5,057 | $ | 6,218 | |||||||||
Selling, general and administrative incentive compensation expense | $ | 8,311 | $ | 4,262 | $ | 2,167 | $ | 4,262 | $ | 2,167 | $ | 2,740 | |||||||||
Warranty and retrofit expense | $ | 3,238 | $ | 2,281 | $ | 1,840 | $ | 2,281 | $ | 1,840 | $ | 2,567 |
NOTE
13:15: EARNINGS PER SHARE
Basic net income (loss) per share is calculated using the weighted average number of shares of common stock outstanding during the period. The calculation of diluted net income (loss) per share assumes the exercise of stock options and the conversion of convertible securities to common shares unless the inclusion of these will have an anti-dilutive impact on net income (loss) per share. In addition, in computing diluted net income (loss) per share, if convertible securities are assumed to be converted to common shares, the after-tax amount of interest expense recognized in the period associated with the convertible securities is added back to net income.
The Company’s 0.875% Convertible Subordinated Notes would not result in the issuance of any dilutive shares, since the conversion option was not “in the money” as of September 29, 2007, September 27, 2008 or October 3, 2009. Accordingly, diluted EPS excludes the effect of the conversion of the 0.875% Convertible Subordinated Notes (see Note 9).
The following table reflects after-tax interest expense related to the Company’s 0.5% and 1.0% Convertible Subordinated Notes which was added to income from continuing operations to determine diluted EPS:
Fiscal | Fiscal | |||||||||||||||||||||
(in thousands) | 2006 | 2007 | 2008 | |||||||||||||||||||
(in thousands) | 2007 | 2008 | 2009 | |||||||||||||||||||
Income (loss) from continuing operations | $ | 61,534 | $ | 18,856 | $ | (19,619 | ) | $ | 18,856 | $ | (19,619 | ) | $ | (58,025 | ) | |||||||
After-tax interest expense | 1,441 | 1,271 | — | (1) | 1,271 | — | (1) | — | (1) | |||||||||||||
$ | 20,127 | N/A | N/A | |||||||||||||||||||
$ | 62,975 | $ | 20,127 | N/A | ||||||||||||||||||
(1) | Due to the Company’s |
The following table reconciles Basic weighted average shares outstanding to Diluted weighted average shares outstanding:
Fiscal | Fiscal | ||||||||||||||||||
(in thousands) | 2006 | 2007 | 2008 | ||||||||||||||||
Weighted average shares outstanding - Basic | 55,089 | 56,221 | 53,449 | ||||||||||||||||
(in thousands) | 2007 | 2008 | 2009 | ||||||||||||||||
Weighted average shares outstanding – Basic | 56,221 | 53,449 | 62,188 | ||||||||||||||||
Stock options | 945 | 807 | — | (2) | 807 | — | (2) | — | (2) | ||||||||||
Performance-based restricted stock | n/a | 77 | — | (2) | 77 | — | (2) | — | (2) | ||||||||||
0.50% Convertible Subordinated Notes | 7,785 | 6,107 | — | (2) | 6,107 | — | (2) | — | (2) | ||||||||||
1.00% Convertible Subordinated Notes | 5,062 | 5,062 | — | (2) | 5,062 | — | (2) | — | (2) | ||||||||||
0.875% Convertible Subordinated Notes | n/a | n/a | — | (2) | n/a | — | (2) | — | (2) | ||||||||||
Total potentially dilutive securities | 13,792 | 12,053 | 53,449 | 12,053 | 53,449 | 62,188 | |||||||||||||
Weighted average shares outstanding - Diluted | 68,881 | 68,274 | 53,449 | ||||||||||||||||
Weighted average shares outstanding – Diluted | 68,274 | 53,449 | 62,188 |
(2) | Due to the Company’s |
Diluted EPS excludes the effect of the conversion of the 0.875% Convertible Subordinated Notes since the 0.875% Convertible Subordinated Notes would not result in the issuance of any dilutive shares because the conversion option was not in the money as of September 27, 2008 (see Note 8).TABLE OF CONTENTS
The following table reflects the number of potentially dilutive shares which were excluded from diluted EPS, as their inclusion was anti-dilutive:
Fiscal | Fiscal | |||||||||||||||||
(in thousands) | 2006 | 2007 | 2008 | |||||||||||||||
(in thousands) | 2007 | 2008 | 2009 | |||||||||||||||
Potentially dilutive shares related to: | ||||||||||||||||||
Stock options | 4,759 | 780 | 7,286 | |||||||||||||||
Performance-based restricted stock | — | — | 91 | |||||||||||||||
Stock options, out-of-the money | 780 | 7,033 | 5,982 | |||||||||||||||
Stock options, in-the-money but excluded due to Company’s net loss | — | 253 | 31 | |||||||||||||||
Performance-based and time based restricted stock | — | 91 | 69 | |||||||||||||||
Convertible Subordinated Notes | — | — | 8,624 | — | 8,624 | 4,625 | ||||||||||||
780 | 16,001 | 10,707 | ||||||||||||||||
4,759 | 780 | 16,001 | ||||||||||||||||
Subsequent to year end, on October 3, 2008, in connection with the acquisition of Orthodyne Electronics Corporation (“Orthodyne”), the Company issued 7.1 million common shares to the seller (see Note 16 for a description of the acquisition).
NOTE
14:16: GUARANTOR OBLIGATIONS, COMMITMENTS, CONTINGENCIES
AND CONCENTRATIONS
The following table reflects guarantees under standby letters of credit as of September 27, 2008:October 3, 2009:
(in thousands) | |||||
Nature of guarantee | Term of guarantee | Maximum obligation under guarantee | |||
Security for the Company’s gold financing arrangement (1) | Guarantee terminated September 29, 2008 | $ | 35,000 | ||
Security for payment of employee health benefits | Expires June 2009 | 480 | |||
Security for payment of employee worker compensation benefits | Expires October 2009 | 238 | |||
Security for customs bond | Expires July 2009 | 100 | |||
$ | 35,818 | ||||
Nature of guarantee Term of guarantee Maximum obligation
under guarantee (in thousands) Security for payment of employee worker compensation benefits Expires October 2010 $ 95 Security for customs bond Expires July 2010 100 $ 195 Guarantor Obligations
continuing operations
The Company has issued standby letters of credit for employee benefit programs and a customs bond.
Guarantor Obligations, discontinued operation
The Company’s wire manufacturing subsidiaries had issued a guarantee for payment under their gold supply financing arrangement, which was terminated with the sale of the Company’s Wire business. This gold supply agreement required the Company to provide letters of credit or cash to secure its obligations to the supplier. Accordingly, the Company entered into a credit facility with a bank in an amount up to $35.0 million. The term of the credit facility was two years, but was granted on an uncommitted basis and was repayable on demand. In connection with this credit facility the Company granted the bank a security interest in its assets related to the manufacture and sale of gold wire, including all gold inventories and all accounts receivable arising from the sale of gold wire and the proceeds thereof. The credit facility contained financial and non-financial covenants. The financial covenants contained restrictions on the Company’s gold wire manufacturing subsidiaries’ net worth, ratio of total liabilities to Earnings Before Interest and Taxes and Discontinued Operations, and those subsidiaries’ ability to pay dividends.
Warranty Expense
The Company’s equipment is generally shipped with a one-year warranty against manufacturing defects and thedefects; however, Wedge bonder equipment is generally shipped with a two-year warranty. The Company does not offer extended warranties in the normal course of its business. The Company establishes reserves for estimated warranty expense when revenue for the related equipment is recognized. The reserve for estimated warranty expense is based upon historical experience and management estimatesmanagement’s estimate of future expenses.
The following table reflects the reserve for product warrantieswarranty which is included in accrued expenses and other current liabilities on the Consolidated Balances Sheets as of fiscal 2006, 2007, 2008 and 2008:2009:
Fiscal | Fiscal | |||||||||||||||||||||||
(in thousands) | 2006 | 2007 | 2008 | |||||||||||||||||||||
(in thousands) | 2007 | 2008 | 2009 | |||||||||||||||||||||
Reserve for product warranty, beginning of year | $ | 853 | $ | 2,309 | $ | 1,975 | $ | 2,309 | $ | 1,975 | $ | 918 | ||||||||||||
Orthodyne warranty reserve at the date of acquisition | — | — | 150 | |||||||||||||||||||||
Provision for product warranty expense | 1,903 | 2,254 | 1,315 | 2,254 | 1,315 | 2,297 | ||||||||||||||||||
Product warranty costs incurred | (2,044 | ) | (2,588 | ) | (2,372 | ) | (2,588 | ) | (2,372 | ) | (2,362 | ) | ||||||||||||
Reserve for product warranty, end of year | $ | 712 | $ | 1,975 | $ | 918 | $ | 1,975 | $ | 918 | $ | 1,003 | ||||||||||||
The following table reflects operating lease obligations not reflected on the Consolidated Balance Sheets:Sheet as of October 3, 2009:
Payments due by period | Payments due by fiscal period | |||||||||||||||||||||||||||||||||||||||||
(in thousands) | Total | Fiscal 2009 | Fiscal 2010 | Fiscal 2011 | Fiscal 2012 | Fiscal 2013 and thereafter | ||||||||||||||||||||||||||||||||||||
(in thousands) | Total | 2010 | 2011 | 2012 | 2013 | 2014 and thereafter | ||||||||||||||||||||||||||||||||||||
Operating lease obligations (1) | $ | 35,923 | $ | 7,452 | $ | 6,238 | $ | 5,419 | $ | 3,357 | $ | 13,457 | $ | 38,871 | $ | 9,196 | $ | 8,235 | $ | 5,825 | $ | 4,177 | $ | 11,438 |
(1) | The Company has minimum rental commitments under various leases (excluding taxes, insurance, maintenance and repairs, which are also paid by the Company) primarily for |
In October 2007, the tax authority in Israel notified the Company that it believes withholding and income taxes and interest of approximately 117.3 million Israeli shekels, with a value of $29.0 million as of the assessment date, are owed by the Company for the 2002 through 2004 tax years. As of September 27, 2008, the assessment is valued at $34.3 million after adjustment for foreign currency changes. The Company does not agree with this assessment and has filed an objection with the tax authority in Israel. Discussions between the Company and the tax authority in Israel regarding the assessment began in fiscal 2008 and are ongoing. The Company believes it has adequate tax reserves for this assessment.
Concentrations
The following table reflects significant customer concentrations:
Fiscal | Fiscal | ||||||||||||||||||||
2006 | 2007 | 2008 | 2007 | 2008 | 2009 | ||||||||||||||||
Customer net revenue as a percentage of Net Revenue | |||||||||||||||||||||
STATS Chippac | 10.7 | % | * | * | |||||||||||||||||
Advanced Semiconductor Engineering | * | 10.7 | % | * | 10.7 | % | * | 17.7 | % | ||||||||||||
Customer accounts receivable as a percentage of total Accounts Receivable | |||||||||||||||||||||
Advanced Semiconductor Engineering | 16.0 | % | * | 32.4 | % | ||||||||||||||||
Amkor Technology Inc. | 13.8 | % | * | 11.6 | % | ||||||||||||||||
Siliconware Precision Industries, Ltd. | 10.5 | % | * | 14.5 | % | * | 14.5 | % | * | ||||||||||||
Haoseng Industries Company, Ltd. | * | * | 10.2 | % | * | 10.2 | % | * | |||||||||||||
Advanced Semiconductor Engineering | * | 16.0 | % | * | |||||||||||||||||
Amkor Technology Inc. | * | 13.8 | % | * |
* |
No other customer accounted for more than 10% of total accounts receivable as of fiscal 2006, 2007 and 2008.
NOTE
15:17: SELECTED QUARTERLY FINANCIAL DATA (unaudited)
The following table reflects selected quarterly financial data:
Fiscal 2007 For Quarter Ended | Fiscal 2009 For Quarter Ended | ||||||||||||||||||||||||||||||||||||||
(in thousands, except per share amounts) | December 30 | March 31 | June 30 | September 29 | Total | ||||||||||||||||||||||||||||||||||
(in thousands, except per share amounts) | December 27 | March 28 | June 27 | October 3 | Total | ||||||||||||||||||||||||||||||||||
Net revenue | $ | 71,852 | $ | 61,525 | $ | 85,549 | $ | 151,600 | $ | 370,526 | $ | 37,416 | $ | 25,232 | $ | 52,076 | $ | 110,516 | $ | 225,240 | |||||||||||||||||||
Gross profit | $ | 32,440 | $ | 25,323 | $ | 36,616 | $ | 61,057 | $ | 155,436 | $ | 13,928 | $ | 8,045 | $ | 19,669 | $ | 47,201 | $ | 88,843 | |||||||||||||||||||
Income (loss) from continuing operations | $ | 333 | $ | (6,745 | ) | $ | 853 | $ | 24,415 | $ | 18,856 | $ | (31,324 | ) | $ | (35,758 | ) | $ | (14,482 | ) | $ | 8,040 | $ | (73,524 | ) | ||||||||||||||
Income from discontinued operations, net of tax | $ | 3,840 | $ | 4,531 | $ | 4,667 | $ | 5,836 | $ | 18,874 | |||||||||||||||||||||||||||||
Income (loss) from discontinued operations, net of tax | $ | 22,727 | $ | — | $ | — | $ | (716 | ) | $ | 22,011 | ||||||||||||||||||||||||||||
Net income (loss) | $ | 4,173 | $ | (2,214 | ) | $ | 5,520 | $ | 30,251 | $ | 37,730 | $ | 4,484 | $ | (33,143 | ) | $ | (13,858 | ) | $ | 6,503 | $ | (36,014 | ) | |||||||||||||||
Net income (loss) per share (1): | |||||||||||||||||||||||||||||||||||||||
Net income (loss) per share(1): | |||||||||||||||||||||||||||||||||||||||
Basic | $ | 0.07 | $ | (0.04 | ) | $ | 0.10 | $ | 0.56 | $ | 0.67 | $ | 0.07 | $ | (0.54 | ) | $ | (0.23 | ) | $ | 0.10 | $ | (0.58 | ) | |||||||||||||||
Diluted | $ | 0.06 | $ | (0.04 | ) | $ | 0.08 | $ | 0.47 | $ | 0.57 | $ | 0.07 | $ | (0.54 | ) | $ | (0.23 | ) | $ | 0.09 | $ | (0.58 | ) | |||||||||||||||
Shares used in basic per share calculations | 57,301 | 57,580 | 56,456 | 53,546 | 56,221 | ||||||||||||||||||||||||||||||||||
Shares used in diluted per share calculations | 69,456 | 57,580 | 68,951 | 64,702 | 68,274 | ||||||||||||||||||||||||||||||||||
Fiscal 2008 For Quarter Ended | |||||||||||||||||||||||||||||||||||||||
(in thousands, except per share amounts) | December 29 | March 29 | June 28 | September 27 | Total | ||||||||||||||||||||||||||||||||||
Net revenue | $ | 123,532 | $ | 70,781 | $ | 72,507 | $ | 61,230 | $ | 328,050 | |||||||||||||||||||||||||||||
Gross profit | $ | 50,618 | $ | 28,607 | $ | 29,702 | $ | 24,866 | $ | 133,793 | |||||||||||||||||||||||||||||
Income (loss) from continuing operations | $ | 7,033 | $ | (10,892 | ) | $ | (4,743 | ) | $ | (11,017 | ) | $ | (19,619 | ) | |||||||||||||||||||||||||
Income from discontinued operations, net of tax | $ | 9,329 | $ | 4,758 | $ | 2,946 | $ | 6,408 | $ | 23,441 | |||||||||||||||||||||||||||||
Net income (loss) | $ | 16,362 | $ | (6,134 | ) | $ | (1,797 | ) | $ | (4,609 | ) | $ | 3,822 | ||||||||||||||||||||||||||
Net income (loss) per share (1): | |||||||||||||||||||||||||||||||||||||||
Weighted average shares outstanding: | |||||||||||||||||||||||||||||||||||||||
Basic | $ | 0.31 | $ | (0.11 | ) | $ | (0.03 | ) | $ | (0.09 | ) | $ | 0.07 | 60,451 | 61,054 | 61,220 | 65,754 | 62,188 | |||||||||||||||||||||
Diluted | $ | 0.27 | $ | (0.11 | ) | $ | (0.03 | ) | $ | (0.09 | ) | $ | 0.07 | 60,451 | 61,054 | 61,220 | 70,082 | 62,188 | |||||||||||||||||||||
Shares used in basic per share calculations | 53,264 | 53,384 | 53,528 | 53,621 | 53,449 | ||||||||||||||||||||||||||||||||||
Shares used in diluted per share calculations | 62,425 | 53,384 | 53,528 | 53,621 | 53,449 |
Fiscal 2008 For Quarter Ended | ||||||||||||||||||||
(in thousands, except per share amounts) | December 29 | March 29 | June 28 | September 27 | Total | |||||||||||||||
Net revenue | $ | 123,532 | $ | 70,781 | $ | 72,507 | $ | 61,230 | $ | 328,050 | ||||||||||
Gross profit | $ | 50,618 | $ | 28,607 | $ | 29,702 | $ | 24,866 | $ | 133,793 | ||||||||||
Income (loss) from continuing operations | $ | 7,033 | $ | (10,892 | ) | $ | (4,743 | ) | $ | (11,017 | ) | $ | (19,619 | ) | ||||||
Income from discontinued operations, net of tax | $ | 9,329 | $ | 4,758 | $ | 2,946 | $ | 6,408 | $ | 23,441 | ||||||||||
Net income (loss) | $ | 16,362 | $ | (6,134 | ) | $ | (1,797 | ) | $ | (4,609 | ) | $ | 3,822 | |||||||
Net income (loss) per share(1): | ||||||||||||||||||||
Basic | $ | 0.31 | $ | (0.11 | ) | $ | (0.03 | ) | $ | (0.09 | ) | $ | 0.07 | |||||||
Diluted | $ | 0.27 | $ | (0.11 | ) | $ | (0.03 | ) | $ | (0.09 | ) | $ | 0.07 | |||||||
Weighted average shares outstanding: | ||||||||||||||||||||
Basic | 53,264 | 53,384 | 53,528 | 53,621 | 53,449 | |||||||||||||||
Diluted | 62,425 | 53,384 | 53,528 | 53,621 | 53,449 |
(1) |
On October 3, 2008,In connection with the Company’s acquisition of Orthodyne, a subsidiary of the Company completed the acquisition of substantially allentered into a real property lease agreement with OE Holdings, Inc. which, with Jason Livingston and its other stockholders, is a more than 5% stockholder of the assetsCompany. Mr. Livingston is the Vice President of Orthodyne pursuant to the Asset Purchase Agreement dated as of July 31, 2008 between the Company and Orthodyne, as amended by that certain Amendment to Asset Purchase AgreementCompany’s wedge bonding division. The lease agreement dated as of October 3, 2008, (as amended, the “Agreement”). Pursuant to the Agreement, the Company purchased substantially all of Orthodyne’s assets used in connectionhas a five-year term with its business of designing, manufacturing and selling wedge bonder and heavy wire wedges, and assumed certain liabilities related thereto (the “Orthodyne Transaction”).
The purchase price for the Orthodyne Transaction consisted of approximately 7.1 million shares of the Company’s common stock (the “Shares”) plus approximately $82.6 million in cash, which included an estimated working capital adjustment of approximately $2.6 million. The purchase pricea five-year renewal option. Rent is subject to a post-closing working capital adjustment as set forth$124,369 per month in the Agreement. Subject to certain limitations, Orthodyne agreed to indemnifyfirst year and increases 3.0% per year thereafter. If exercised, rent during the renewal term will be at fair market value. The Company for breachesis guaranteeing the obligations of Orthodyne’s representations, warranties and covenants. A total of 15% of the purchase price was placed in escrow as partial security for Orthodyne’s indemnification obligationsits subsidiary under the Agreement. In addition, the Company agreed to pay Orthodyne up to an additional $40.0 million in cash based upon the gross profit realized by the acquired business over the next three years pursuant to an Earnout Agreement entered into between the Company and Orthodyne on July 31, 2008. The transaction was reported by the Company on its current reports on Form 8-K filed with the Securities and Exchange Commission (“SEC”) on July 31, 2008 and October 8, 2008 and its current report on Form 8-K/A filed with the SEC on October 28, 2008. As part of the Agreement, the Company filed a registration statement covering the Shares on October 28, 2008 which became effective on November 3, 2008. The Company also entered into employment agreements with three key Orthodyne employees.lease agreement.
Subsequent to year end, on November 12, 2008, the Company announced a headcount reduction of 240 positions and a cancellation of annual salary increases scheduled for January 1, 2009. The Company took these actions to manage its cost structure due to deteriorating conditions in the global economy and projected weaker demand for the Company’s products and services. Pre-tax expense of approximately $2.6 million will be recorded in fiscal 2009, primarily related to severance costs, and the cash expenditures related to these measures is expected to be approximately $3.0 million. As a result of these actions, the Company anticipates approximately $8.0 million in annualized savings.
Item 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None.
Item 9A. 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 September 27, 2008.October 3, 2009. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of September 27, 2008October 3, 2009 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 SEC’sSecurities 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.
Management’s Report on Internal Control Over Financial Reporting
The management of Kulicke and Soffa Industries, Inc. (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934.1934, as amended. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, provide reasonable assurance that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management evaluated the Company’s internal control over financial reporting as of September 27, 2008.October 3, 2009. In making this assessment, management used the framework established in Internal Control-IntegratedControl — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Management’s assessment included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness of our internal control over financial reporting. As permitted by Securities and Exchange Commission rules and regulations, management has excluded Orthodyne from its assessment of internal control over financial reporting as of October 3, 2009 because it was acquired in fiscal 2009. Total assets and total net revenue of Orthodyne, our wholly-owned subsidiary, represented 26.8% and 18.5%, respectively, of the related Consolidated Financial Statement amounts as of and for the year ended October 3, 2009. Refer to Note 4 of our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for more information about the purchase of Orthodyne. Management reviewed the results of its assessment with the Audit Committee of the Company’s Board of Directors. Based on that assessment and based on the criteria in the COSO framework, management has concluded that, as of September 27, 2008,October 3, 2009, the Company’s internal control over financial reporting was effective.
The effectiveness of the Company’s internal control over financial reporting as of September 27, 2008October 3, 2009 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in its report, which appears herein.
Change in Internal Control Over Financial Reporting
There were no material changes in our internal control over financial reporting that occurred during fiscal 20082009 that have materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
None.
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information required by Item 401 of Regulation S-K with respect to the directors will appear under the heading “ELECTION OF DIRECTORS” in the Company’s Proxy Statement for the 20092010 Annual Meeting of Shareholders, which information is incorporated herein by reference. The information required by Item 401 of Regulation S-K with respect to executive officers appears at the end of Part I, Item 1 of this report under the heading “Executive Officers of the Company.” The other information required by Item 401 of Regulation S-K will appear under the heading “CORPORATE GOVERNANCE” in the Company’s Proxy Statement for the 20092010 Annual Meeting of Shareholders, which information is incorporated herein by reference.
The information required by Item 405 of Regulation S-K will appear under the heading “CORPORATE GOVERNANCE –— Section 16(a) Beneficial Ownership Reporting Compliance” in the Company’s Proxy Statement for the 20092010 Annual Meeting of Shareholders, which information is incorporated herein by reference.
The information required by Item 406 of Regulation S-K will appear under the heading “CORPORATE GOVERNANCE -— Code of Ethics” in the Company’s Proxy Statement for the 20092010 Annual Meeting of Shareholders, which information is incorporated herein by reference.
The information required by Item 407(c)(3) of Regulation will appear under the headings “CORPORATE GOVERNANCE—GOVERNANCE — Nominating and Governance Committee” and “SHAREHOLDER PROPOSALS” in the Company’s Proxy Statement for the 20092010 Annual Meeting of Shareholders, which information is incorporated herein by reference.
The information required by Items 407(d)(4) and (d)(5) of Regulation S-K will appear under the heading “CORPORATE GOVERNANCE—GOVERNANCE — Audit Committee” in the Company’s Proxy Statement for the 20092010 Annual Meeting of Shareholders, which information is incorporated herein by reference.
Item 11. EXECUTIVE COMPENSATION
The information required by Item 402 of Regulation S-K will appear under the heading “COMPENSATION OF EXECUTIVE OFFICERS,” in the Company’s Proxy Statement for the 20092010 Annual Meeting of Shareholders, which information is incorporated herein by reference.
The information required by Item 407(e)(4) of Regulation S-K will appear under the heading “CORPORATE GOVERNANCE—GOVERNANCE — Management Development and Compensation Committee Interlocks and Insider Participation” in the Company’s Proxy Statement for the 20092010 Annual Meeting of Shareholders, which information is incorporated herein by reference.
The information required by Item 407(e)(5) of Regulation S-K will appear under the heading “REPORT OF THE MANAGEMENT DEVELOPMENT AND COMPENSATION COMMITTEE” in the Company’s Proxy Statement for the 20092010 Annual Meeting of Shareholders, which information is incorporated herein by reference.
Item 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
The information required hereunder concerning security ownership of certain beneficial owners and management will appear under the heading “Security Ownership of Certain beneficial Owners”“CORPORATE GOVERNANCE — SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS” in the Company’s Proxy Statement for the 20092010 Annual Meeting of Shareholders, which information is incorporated herein by reference. The information required hereunder concerning security ownership of management will appear under the heading “ELECTION OF DIRECTORS” in the Company’s Proxy Statement for the 20092010 Annual Meeting of Shareholders, which information is incorporated herein by reference. The information required by this item relating to securities authorized for issuance under equity compensation plans is included under the heading “EQUITY COMPENSATION PLANS”PLAN INFORMATION” in the Company’s Proxy Statement for the 20092010 Annual Meeting of Shareholders, which is incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
Item 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE |
The information required by Item 404 of Regulation S-K will appear under the heading “CORPORATE GOVERNANCE –— Certain Relationships and Related Transactions” in the Company’s Proxy Statement for the 20092010 Annual Meeting of Shareholders which information is incorporated herein by reference.
The information required by Section 407(a) of Regulation S-K will appear under the heading “CORPORATE GOVERNANCE –— Board Matters” in the Company’s Proxy Statement for the 20092010 Annual Meeting of Shareholders, which information is incorporated herein by reference.
Item 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required hereunder will appear under the heading “AUDIT AND RELATED FEES” in the Company’s Proxy Statement for the 20092010 Annual Meeting of Shareholders, which information is incorporated herein by reference.
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) | The following documents are filed as part of this report: |
(1) | ||
|
(2) | |
|
All other schedules are omitted because they are not applicable or the required information is shown in the
consolidated financial statements or notes thereto.
(3) Exhibits:
(3) | Exhibits: |
|
| |
EXHIBIT NUMBER | ITEM | |
2(i) | Master Sale and Purchase Agreement between W.C. Heraeus GmbH and Kulicke and Soffa Industries, Inc., dated July 31, 2008 is incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed on July 31, 2008. | |
2(ii) | Amendment No. 1 to the Master Sale and Purchase Agreement between W.C. Heraeus GmbH and Kulicke and Soffa Industries, Inc., dated as of September 5, 2008 is incorporated by reference to Exhibit 2.2 of the Company’s Form 8-K filed on October 2, 2008. | |
2(iii) | Asset Purchase Agreement between Orthodyne Electronics Corporation and Kulicke and Soffa Industries, Inc., dated July 31, 2008 is incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K filed on July 31, 2008. | |
2(iv) | Amendment to the Asset Purchase Agreement between Orthodyne and the Company, dated as of October 3, 2008 is incorporated by reference to Exhibit 2.2 of the Company’s Form 8-K filed on October 8, 2008. | |
3(i) | The Company’s Form of Amended and Restated Articles of Incorporation dated December 5, 2007, filed as Exhibit 3(i) to the Company’s annual report on Form 10-K for the year ended September 29, 2007, is incorporated herein by reference. | |
3(ii) | The Company’s Form of Amended and Restated By-Laws dated December 5, 2007, filed as Exhibit 3(ii) to the Company’s annual report on Form 10-K for the year ended September 29, 2007, are incorporated herein by reference. | |
4(i) | Specimen Common Share Certificate of Kulicke and Soffa Industries, Inc., filed as Exhibit 4 to the Company’s Form 8-A12G/A dated September 11, 1995, SEC file number 000-00121, is incorporated herein by reference. | |
4(ii) | ||
Indenture dated as of June 30, 2004 between the Company and J.P. Morgan Trust Company, National Association, as Trustee, filed as Exhibit 4.1 to the Company’s quarterly report on Form 10-Q for the quarterly period ended June 30, 2004, is incorporated herein by reference. | ||
Form of Note (included in Exhibit |
NUMBER | ITEM | |
4(iv) | Indenture dated as of June 6, 2007 between the Company and Bank of New York, as Trustee, filed as Exhibit 4.1 to the Company’s form 8-K dated June 6, 2007, is incorporated by reference. | |
Registration Rights Agreement dated as of June 6, 2007, between the Company and Bank of America Securities, LLC as Initial Purchaser, filed as Exhibit 10.1 to the Company’s Form 8-K dated June 6, 2007, is incorporated by reference. | ||
10(i) | ||
2004 Israeli Addendum to the Company’s 1994 Employee Incentive Stock Option and Non-Qualified Stock Option Plan (as amended and restated effective March 21, 2003), filed as Exhibit 10(iv) to the Company’s Post-Effective Amendment No.4 on Form S-1 to the Registration Statement on Form S-3 filed December 14, 2004, is incorporated herein by reference.* | ||
The Company’s 1997 Non-Qualified Stock Option Plan for Non-Employee Directors (as amended and restated effective March 21, 2003), filed as Exhibit 10(vi) to the Company’s Annual Report on Form 10-K for the year ended September 30, 2003 is incorporated herein by reference.* | ||
2004 Israeli Addendum to the Company’s 1998 Employee Incentive Stock Option and Non-Qualified Stock Option Plan (as amended and restated effective March 21, 2003), filed as Exhibit 10(vii) to the Company’s Post-Effective Amendment No.4 on Form S-1 to the Registration Statement on Form S-3 filed December 14, 2004, is incorporated herein by reference.* | ||
The Company’s 1999 Nonqualified Employee Stock Option Plan (as amended and restated effective March 21, 2003), filed as Exhibit 10(xv) to the Company’s Annual Report on Form 10-K for the year ended September 30, 2003 is incorporated herein by reference.* | ||
2004 Israeli Addendum to the Company’s 1999 Non-Qualified Stock Option Plan (as amended and restated effective March 21, 2003), filed as Exhibit 10(ix) to the Company’s Post-Effective Amendment No.4 on Form S-1 to the Registration Statement on Form S-3 filed December 14, 2004, is incorporated herein by reference.* | ||
The Company’s 2001 Employee Incentive Stock Option and Non-Qualified Stock Option Plan (as amended and restated effective March 21, 2003), filed as Exhibit 10(xix) to the Company’s Annual Report on Form 10-K for the year ended September 30, 2003 is incorporated herein by reference.* | ||
2004 Israeli Addendum to the Company’s 2001 Employee Incentive Stock Option and Non-Qualified Stock Option Plan (as amended and restated effective March 21, 2003), filed as Exhibit 10(xii) to the Company’s Post-Effective Amendment No.4 on Form S-1 to the Registration Statement on Form S-3 filed December 14, 2004, is incorporated herein by reference.* | ||
The Company’s 2006 Equity Plan, filed as Appendix A to the Company’s proxy statement on Schedule 14A for the annual meeting of shareholders on February 14, 2006, is incorporated herein by reference.* |
Form of Stock Option Award Letter regarding the 2006 Equity Plan, filed as Exhibit 99.1 to the Company’s report on Form 8-K dated October 3, 2006, is incorporated herein by reference.* | ||
Form of Performance Share Award Agreement regarding the 2006 Equity Plan, filed as Exhibit 99.2 to the Company’s report on Form 8-K dated October 3, 2006, is incorporated herein by reference.* | ||
Form of Performance Share Award Agreement regarding the 2006 Equity Plan, filed as Exhibit 99.2 to the Company’s report on Form 8-K dated October 2, 2007, is incorporated herein by reference.* |
NUMBER | ITEM | |
10(xii) | Facility Letter Agreement dated June 7, 2006 between Kulicke & Soffa (SEA) PTE LTD, Kulicke And Soffa Global Holding Corporation and Citibank, N.A., Singapore Branch, filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended July 1, 2006, is incorporated herein by reference. | |
Agreement of Lease, by and between the Company and 1005 Virginia Associates, L.P., dated June 30, 2005, filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2005, is incorporated herein by reference. | ||
Officer Incentive Compensation Plan, dated August 2, 2005, filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2005, is incorporated herein by reference.* | ||
2007 Equity Plan for Non-employee Directors, filed as Appendix A to the Company’s proxy statement on Schedule 14A for the annual meeting of shareholders on February 13, 2007, is incorporated herein by reference.* | ||
Earnout Agreement between Orthodyne Electronics Corporation and Kulicke and Soffa Industries, Inc., dated July 31, 2008 is incorporated by reference to Exhibit 10.3 of the Company’s Form 8-K filed on July 31, 2008. | ||
2008 Equity Plan, filed as Appendix A to the Company’s proxy statement on Schedule 14A for the annual meeting of shareholders on February 12, 2008, is incorporated herein by reference.* | ||
Form of New Employee Inducement Stock Option Grant Letter, filed as Exhibit 4.1 to the Company’s Registration Statement on Form S-8 filed December 13, 2007, is incorporated herein by reference.* | ||
2007 Alphasem Employee Stock Option Plan, filed as Exhibit 4.2 to the Company’s Registration Statement on Form S-8 filed December 13, 2007, is incorporated herein by reference.* | ||
Form of Nonqualified Stock Option Agreement, filed as Exhibit 99.1 to the Company’s report on Form 8-K, dated October 8, 2008, is incorporated herein by reference.* | ||
Form of Incentive Stock Option Agreement, filed as Exhibit 99.2 to the Company’s report on Form 8-K, dated October 8, 2008, is incorporated herein by reference.* | ||
Form of Performance Unit Award Agreement, filed as Exhibit 99.3 to the Company’s report on Form 8-K, dated October 8, 2008, is incorporated herein by reference.* | ||
Form of Performance Unit Award Agreement, filed as Exhibit 99.4 to the Company’s report on Form 8-K, dated October 8, 2008, is incorporated herein by reference.* | ||
Form of Restricted Stock Agreement Award, filed as Exhibit 99.5 to the Company’s report on Form 8-K, dated October 8, 2008, is incorporated herein by reference.* | ||
Joint Development and Engineering Services Agreement between W.C. Heraeus GmbH and Kulicke and Soffa Industries, Inc., dated as of September 29, 2008 is incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed on October 2, 2008. | ||
Lease Agreement between Orthodyne Electronics Corporation and Kulicke and Soffa Industries, dated as of October 3, 2008 is incorporated by reference to Exhibit 99.1 of the Company’s Form 8-K filed on October 8, 2008. | ||
10(xxvii) | Kulicke and Soffa Industries, Inc. Officer Severance Pay Plan dated as of March 2009 is incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed on March 31, 2009.* | |
10(xxviii) | Form of Change of Control Agreement, dated as of March 25, 2009, is incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K filed on March 31, 2009.* |
EXHIBIT NUMBER | ITEM | |
10(xxix) | Employment Agreement by and between the Company and Christian Rheault dated June 25, 2009 is incorporated by reference to Exhibit 10.1 of the Company’s quarterly report on Form 10-Q for the quarterly period ended June 27, 2009.* | |
10(xxx) | Amendment No. 1 to the Kulicke and Soffa Industries, Inc. 2009 Equity Plan effective September 15, 2009 is incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed on September 18, 2009.* | |
10(xxxi) | Amendment No. 2 to the Kulicke and Soffa Industries, Inc. 2009 Equity Plan effective September 30, 2009 is incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed on September 18, 2009.* | |
10(xxxii) | Letter Agreement between Michael J. Morris and Kulicke and Soffa Industries, Inc. dated September 24, 2009 is incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K filed on September 24, 2009.* | |
10(xxxiii) | Form of Officer Performance Share Award Agreement regarding the 2009 Equity Plan.* | |
10(xxxiv) | Form of Officer Restricted Share Award Agreement regarding the 2009 Equity Plan.* | |
21 | Subsidiaries of the Company. | |
23 | Consent of PricewaterhouseCoopers LLP (Independent Registered Public Accounting Firm) |
31.1 | Certification of C. Scott Kulicke, Chief Executive Officer of Kulicke and Soffa Industries, Inc., pursuant to Rule 13a-14(a) or Rule 15d-14(a). | |
31.2 | Certification of | |
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 | |
99.1 | Agreement for Commitment to Make Plan Sufficient, filed as Exhibit 99.1 to the Company’s report on Form 8-K dated May 7, 2007, is incorporated herein by reference. |
* | Indicates a management contract or compensatory plan or arrangement. |
KULICKE AND SOFFA INDUSTRIES, INC.
Schedule II-ValuationII — Valuation and Qualifying Accounts
(in thousands) | Balance at beginning of period | Charged to costs and expenses | Other additions (describe) | Deductions (describe) | Balance at end of period | |||||||||||||||
Fiscal 2007 | ||||||||||||||||||||
Allowance for doubtful accounts | $ | 2,470 | $ | 552 | $ | 602 | $ | (2,038 | )(1) | $ | 1,586 | |||||||||
Inventory reserve | $ | 7,372 | $ | 2,445 | $ | — | $ | (1,389 | )(2) | $ | 8,428 | |||||||||
Valuation allowance for deferred taxes | $ | 70,288 | $ | (20,580 | )(3) | $ | — | $ | — | $ | 49,708 | |||||||||
Fiscal 2008 | ||||||||||||||||||||
Allowance for doubtful accounts | $ | 1,586 | $ | 361 | $ | (24 | ) | $ | (547 | )(1) | $ | 1,376 | ||||||||
Inventory reserve | $ | 8,428 | $ | 3,999 | $ | (3,321 | )(4) | $ | (2,609 | )(2) | $ | 6,497 | ||||||||
Valuation allowance for deferred taxes | $ | 49,708 | $ | (5,043 | )(3) | $ | (4,745 | )(5) | $ | — | $ | 39,920 | ||||||||
Fiscal 2009 | ||||||||||||||||||||
Allowance for doubtful accounts | $ | 1,376 | $ | 291 | $ | — | $ | (289 | )(1) | $ | 1,378 | |||||||||
Inventory reserve | $ | 6,497 | $ | 8,154 | $ | (488 | )(4) | $ | (1,646 | )(2) | $ | 12,517 | ||||||||
Valuation allowance for deferred taxes | $ | 39,920 | $ | 17,854 | (3) | $ | — | $ | (192 | )(6) | $ | 57,582 |
(in thousands) | Balance at beginning of period | Charged to costs and expenses | Other additions (describe) | Deductions (describe) | Balance at end of period | |||||||||||||
Fiscal 2006 | ||||||||||||||||||
Allowance for doubtful accounts | $ | 1,483 | $ | (654 | ) | $ | 1,641 | (4) | $ | — | $ | 2,470 | ||||||
Inventory reserve | $ | 8,805 | $ | 1,164 | $ | — | $ | (2,597 | ) (2) | $ | 7,372 | |||||||
Valuation allowance for deferred taxes | $ | 108,458 | $ | (38,170 | ) (3) | $ | — | $ | — | $ | 70,288 | |||||||
Fiscal 2007 | ||||||||||||||||||
Allowance for doubtful accounts | $ | 2,470 | $ | 552 | $ | 602 | $ | (2,038 | ) (1) | $ | 1,586 | |||||||
Inventory reserve | $ | 7,372 | $ | 2,445 | $ | — | $ | (1,389 | ) (2) | $ | 8,428 | |||||||
Valuation allowance for deferred taxes | $ | 70,288 | $ | (20,580 | ) (3) | $ | — | $ | — | $ | 49,708 | |||||||
Fiscal 2008 | ||||||||||||||||||
Allowance for doubtful accounts | $ | 1,586 | $ | 361 | $ | (24 | ) | $ | (547 | ) (1) | $ | 1,376 | ||||||
Inventory reserve | $ | 8,428 | $ | 3,999 | $ | (3,321 | ) (5) | $ | (2,609 | ) (2) | $ | 6,497 | ||||||
Valuation allowance for deferred taxes | $ | 49,708 | $ | (5,043 | ) (3) | $ | (4,745 | ) (6) | $ | — | $ | 39,920 | ||||||
(1) | Represents write offs of specific accounts receivable. |
(2) | Disposal of excess and obsolete inventory. |
(3) | Reflects |
Reclassification of fully depreciated demonstration and evaluation equipment from inventory to plant, property and equipment, net. |
(5) | Primarily reflects decrease in valuation allowance as a result of adoption of |
(6) | Represents decrease in valuation allowance applied to reduce die bonder intangible assets, since a portion of the valuation allowance was originally established in purchase accounting. |
Pursuant to the requirements of Section 13 or 15(d) 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. | ||
By: /s/ C. SCOTT KULICKE | ||
C. Scott Kulicke | ||
Chairman of the Board and Chief Executive Officer | ||
| ||
| Dated: December |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
|
|
| ||
Signature | Title | Date | ||
/
| Chairman of the Board of Directors and Chief Executive Officer (principal executive officer) | December | ||
/s/
Officer) | Chief Financial Officer | December | ||
/s/ RAN BAREKET Ran Bareket (Principal Accounting Officer) | Vice President and Principal Accounting Officer | December 16, 2009 | ||
/s/ BRIAN R. BACHMAN
| Director | December | ||
/s/ JOHN A. O’STEEN
| Director | December | ||
/s/ GARRETT E. PIERCE
| Director | December | ||
/s/ MACDONELL ROEHM, JR.
| Director | December | ||
/s/ BARRY WAITE
| Director | December | ||
/s/ C. WILLIAM ZADEL
| Director | December |
96
90