Attached files
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EX-3.(II) - KULICKE & SOFFA INDUSTRIES INC | v192180_ex3ii.htm |
EX-32.2 - KULICKE & SOFFA INDUSTRIES INC | v192180_ex32-2.htm |
EX-31.1 - KULICKE & SOFFA INDUSTRIES INC | v192180_ex31-1.htm |
EX-31.2 - KULICKE & SOFFA INDUSTRIES INC | v192180_ex31-2.htm |
EX-32.1 - KULICKE & SOFFA INDUSTRIES INC | v192180_ex32-1.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
x
|
QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
quarterly period ended July 3, 2010
OR
¨
|
TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
transition period from to
.
Commission
File No. 0-121
KULICKE AND SOFFA
INDUSTRIES, INC.
(Exact
name of registrant as specified in its charter)
PENNSYLVANIA
|
23-1498399
|
|
(State
or other jurisdiction of incorporation)
|
(IRS
Employer
|
|
|
Identification
No.)
|
1005 VIRGINIA DRIVE, FORT
WASHINGTON, PENNSYLVANIA 19034
(Address
of principal executive offices and Zip Code)
(215)
784-6000
(Registrant's
telephone number, including area code)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes x No
¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files). Yes ¨ No
¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a smaller reporting company. See definition of “large
accelerated filer,” “accelerated filer” and “smaller reporting company” in
Rule 12b-2 of the Exchange Act. (Check one):
Large
accelerated filer ¨
|
Accelerated
filer x
|
Non-accelerated
filer ¨
|
Smaller
reporting company ¨
|
(Do
not check if a smaller reporting
company)
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No x
As of
August 1, 2010, there were 70,428,342 shares of the Registrant's Common Stock,
no par value, outstanding.
KULICKE
AND SOFFA INDUSTRIES, INC.
FORM
10 – Q
July
3, 2010
Index
Page
Number
|
||||
PART
I.
|
FINANCIAL
INFORMATION
|
|||
Item
1.
|
FINANCIAL
STATEMENTS (Unaudited)
|
|||
Consolidated
Balance Sheets as of October 3, 2009 and July 3, 2010
|
3 | |||
Consolidated
Statements of Operations for the three and nine months ended June 27, 2009
and July 3, 2010
|
4 | |||
Consolidated
Statements of Cash Flows for the nine months ended June 27, 2009 and July
3, 2010
|
5 | |||
Notes
to the Consolidated Financial Statements
|
6 | |||
Item
2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
27 | ||
Item
3.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
46 | ||
Item
4.
|
CONTROLS
AND PROCEDURES
|
46 | ||
PART
II.
|
OTHER
INFORMATION
|
|||
Item
1A.
|
RISK
FACTORS
|
47 | ||
Item
6.
|
EXHIBITS
|
47 | ||
SIGNATURES
|
48 |
2
PART
I. - FINANCIAL INFORMATION
Item
1. – Financial Statements
KULICKE
AND SOFFA INDUSTRIES, INC.
CONSOLIDATED
BALANCE SHEETS
(in
thousands)
(Unaudited)
As
of
|
||||||||
October 3, 2009 *
|
July 3, 2010
|
|||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$ | 144,560 | $ | 162,840 | ||||
Restricted
cash
|
281 | 226 | ||||||
Accounts
and notes receivable, net of allowance for doubtful accounts of $1,378 and
$507, respectively
|
95,779 | 151,583 | ||||||
Inventories,
net
|
41,489 | 68,833 | ||||||
Prepaid
expenses and other current assets
|
11,566 | 13,956 | ||||||
Deferred
income taxes
|
1,786 | 1,783 | ||||||
Total
current assets
|
295,461 | 399,221 | ||||||
Property,
plant and equipment, net
|
36,046 | 29,715 | ||||||
Goodwill
|
26,698 | 26,698 | ||||||
Intangible
assets
|
48,656 | 41,497 | ||||||
Other
assets
|
5,774 | 9,347 | ||||||
Total
assets
|
$ | 412,635 | $ | 506,478 | ||||
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
||||||||
Current
liabilities:
|
||||||||
Current
portion of long-term debt
|
$ | 48,964 | $ | - | ||||
Accounts
payable
|
39,908 | 80,326 | ||||||
Accrued
expenses and other current liabilities
|
32,576 | 38,197 | ||||||
Income
taxes payable
|
1,612 | 894 | ||||||
Total
current liabilities
|
123,060 | 119,417 | ||||||
Long-term
debt
|
92,217 | 96,861 | ||||||
Deferred
income taxes
|
16,282 | 16,864 | ||||||
Other
liabilities
|
10,273 | 9,330 | ||||||
Total
liabilities
|
241,832 | 242,472 | ||||||
Commitments
and contingencies (Note 12)
|
||||||||
Shareholders'
equity:
|
||||||||
Preferred
stock, no par value:
Authorized 5,000 shares; issued - none |
- | - | ||||||
Common
stock, no par value:
Authorized 200,000 shares; issued 74,370 and 75,203 respectively; outstanding 69,415 and 70,249 shares, respectively |
413,092 | 420,370 | ||||||
Treasury
stock, at cost, 4,954 shares
|
(46,356 | ) | (46,356 | ) | ||||
Accumulated
deficit
|
(197,812 | ) | (111,731 | ) | ||||
Accumulated
other comprehensive income
|
1,879 | 1,723 | ||||||
Total
shareholders' equity
|
170,803 | 264,006 | ||||||
TOTAL
LIABILITIES AND SHAREHOLDERS' EQUITY
|
$ | 412,635 | $ | 506,478 |
* As
adjusted for ASC No.
470.20, Debt, Debt With
Conversion Options.
The
accompanying notes are an integral part of these consolidated financial
statements.
3
KULICKE
AND SOFFA INDUSTRIES, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(in
thousands, except per share data)
(Unaudited)
Three months ended
|
Nine months ended
|
|||||||||||||||
June
27,
|
July
3,
|
June
27,
|
July
3,
|
|||||||||||||
2009*
|
2010
|
2009*
|
2010
|
|||||||||||||
Net
revenue
|
$ | 52,076 | $ | 221,254 | $ | 114,724 | $ | 503,507 | ||||||||
Cost
of sales
|
32,407 | 122,070 | 73,082 | 280,178 | ||||||||||||
Gross
profit
|
19,669 | 99,184 | 41,642 | 223,329 | ||||||||||||
Selling,
general and administrative
|
21,887 | 34,446 | 79,575 | 90,142 | ||||||||||||
Research
and development
|
12,264 | 14,686 | 40,922 | 41,827 | ||||||||||||
Impairment
of goodwill
|
- | - | 2,709 | - | ||||||||||||
Total
operating expenses
|
34,151 | 49,132 | 123,206 | 131,969 | ||||||||||||
Income
(loss) from operations
|
(14,482 | ) | 50,052 | (81,564 | ) | 91,360 | ||||||||||
Interest
income
|
75 | 104 | 1,022 | 290 | ||||||||||||
Interest
expense
|
(2,011 | ) | (2,153 | ) | (6,114 | ) | (6,341 | ) | ||||||||
Gain
on extinguishment of debt
|
- | - | 3,965 | - | ||||||||||||
Income
(loss) from continuing operations before tax
|
(16,418 | ) | 48,003 | (82,691 | ) | 85,309 | ||||||||||
Benefit
for income taxes from continuing operations
|
(1,156 | ) | (1,080 | ) | (13,314 | ) | (772 | ) | ||||||||
Income
(loss) from continuing operations, net of tax
|
(15,262 | ) | 49,083 | (69,377 | ) | 86,081 | ||||||||||
Income
from discontinued operations, net of tax
|
- | - | 22,727 | - | ||||||||||||
Net
income (loss)
|
$ | (15,262 | ) | $ | 49,083 | $ | (46,650 | ) | $ | 86,081 | ||||||
Income
(loss) per share from continuing operations:
|
||||||||||||||||
Basic
|
$ | (0.25 | ) | $ | 0.69 | $ | (1.14 | ) | $ | 1.22 | ||||||
Diluted
|
$ | (0.25 | ) | $ | 0.65 | $ | (1.14 | ) | $ | 1.15 | ||||||
Income
per share from discontinued operations:
|
||||||||||||||||
Basic
|
$ | 0.00 | $ | 0.00 | $ | 0.37 | $ | 0.00 | ||||||||
Diluted
|
$ | 0.00 | $ | 0.00 | $ | 0.37 | $ | 0.00 | ||||||||
Net
income (loss) per share:
|
||||||||||||||||
Basic
|
$ | (0.25 | ) | $ | 0.69 | $ | (0.77 | ) | $ | 1.22 | ||||||
Diluted
|
$ | (0.25 | ) | $ | 0.65 | $ | (0.77 | ) | $ | 1.15 | ||||||
Weighted
average shares outstanding:
|
||||||||||||||||
Basic
|
61,220 | 70,131 | 60,908 | 69,873 | ||||||||||||
Diluted
|
61,220 | 74,960 | 60,908 | 74,494 |
* As
adjusted for ASC No.
470.20, Debt, Debt With
Conversion Options.
The
accompanying notes are an integral part of these consolidated financial
statements.
4
KULICKE
AND SOFFA INDUSTRIES, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in
thousands)
(Unaudited)
Nine months ended
|
||||||||
June 27, 2009 *
|
July 3, 2010
|
|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net
income (loss)
|
$ | (46,650 | ) | $ | 86,081 | |||
Less:
Income from discontinued operations
|
22,727 | - | ||||||
Income
(loss) from continuing operations
|
(69,377 | ) | 86,081 | |||||
Adjustments
to reconcile income (loss) from continuing operations to net cash provided
by (used in) operating activities:
|
||||||||
Depreciation
and amortization
|
15,608 | 13,258 | ||||||
Amortization
of debt discount and debt issuance costs
|
4,895 | 5,226 | ||||||
Amortization
of gain on sale of building
|
- | (137 | ) | |||||
Equity-based
compensation and employee benefits
|
1,418 | 5,422 | ||||||
Swiss
pension plan curtailment
|
(1,446 | ) | - | |||||
Provision
for doubtful accounts
|
646 | (481 | ) | |||||
Provision
for inventory valuation
|
8,670 | 797 | ||||||
Deferred
taxes
|
(7,201 | ) | (2,237 | ) | ||||
Impairment
of goodwill
|
2,709 | - | ||||||
Gain
on extinguishment of debt
|
(3,965 | ) | - | |||||
Changes
in operating assets and liabilities, net of businesses acquired or
sold:
|
||||||||
Accounts
and notes receivable
|
28,394 | (55,686 | ) | |||||
Inventory
|
1,266 | (28,179 | ) | |||||
Prepaid
expenses and other current assets
|
8,873 | (2,597 | ) | |||||
Accounts
payable and accrued expenses
|
(7,092 | ) | 49,263 | |||||
Income
taxes payable
|
(26,672 | ) | (721 | ) | ||||
Other,
net
|
2,029 | (2,032 | ) | |||||
Net
cash provided by (used in) continuing operations
|
(41,245 | ) | 67,977 | |||||
Net
cash used in discontinued operations
|
(1,699 | ) | (1,488 | ) | ||||
Net
cash provided by (used in) operating activities
|
(42,944 | ) | 66,489 | |||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Purchases
of property, plant and equipment
|
(4,398 | ) | (3,371 | ) | ||||
Proceeds
from sale of property, plant and equipment
|
- | 3,958 | ||||||
Proceeds
from sales of investments classified as available-for-sale
|
3,824 | - | ||||||
Purchase
of Orthodyne
|
(87,039 | ) | - | |||||
Changes
in restricted cash, net
|
34,719 | 55 | ||||||
Net
cash provided by (used in) continuing operations
|
(52,894 | ) | 642 | |||||
Net
cash provided by (used in) discontinued operations
|
149,857 | (1,838 | ) | |||||
Net
cash provided by investing activities
|
96,963 | (1,196 | ) | |||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Payments
on borrowings
|
(84,358 | ) | (48,964 | ) | ||||
Net
costs from sale of common stock
|
- | (29 | ) | |||||
Proceeds
from exercise of common stock options
|
54 | 1,872 | ||||||
Net
cash provided by (used in) financing activities
|
(84,304 | ) | (47,121 | ) | ||||
Effect
of exchange rate changes on cash and cash equivalents
|
40 | 108 | ||||||
Changes
in cash and cash equivalents
|
(30,245 | ) | 18,280 | |||||
Cash
and cash equivalents at beginning of period
|
144,932 | 144,560 | ||||||
Cash
and cash equivalents at end of period
|
$ | 114,687 | $ | 162,840 | ||||
CASH
PAID FOR:
|
||||||||
Interest
|
$ | 1,463 | $ | 726 | ||||
Income
taxes
|
$ | 1,178 | $ | 1,535 |
* As
adjusted for ASC No.
470.20, Debt, Debt With
Conversion Options.
The
accompanying notes are an integral part of these consolidated financial
statements.
5
KULICKE
AND SOFFA INDUSTRIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
1 – BASIS OF PRESENTATION
Basis
of Consolidation
These
consolidated financial statements include the accounts of Kulicke and Soffa
Industries, Inc. and its subsidiaries (the “Company”), with appropriate
elimination of intercompany balances and transactions.
As of
October 4, 2009, the Company adopted Financial Accounting Standards Board
(“FASB”) Accounting Standards Codification (“ASC”) No. 470.20, Debt, Debt With Conversion
Options (“ASC 470.20”), which requires issuers of convertible debt
instruments that may be settled in cash upon conversion to initially record the
liability and equity components of the convertible debt separately. The Company
adopted the provisions of ASC 470.20 on a retrospective basis for all prior
periods presented (see Note 7).
On
September 29, 2008, the Company completed the sale of its Wire business for net
proceeds of $149.9 million to W.C. Heraeus GmbH (“Heraeus”). The financial
results of the Wire business have been included in discontinued operations in
the consolidated financial statements for all periods presented (see Note
2).
Fiscal
Year
Each of
the Company’s first three fiscal quarters ends on the Saturday that is 13 weeks
after the end of the immediately preceding fiscal quarter. The fourth quarter of
each fiscal year ends on the Saturday closest to September 30 th. The
fiscal 2009 quarters ended on December 27, 2008, March 28,
2009, June 27, 2009 and October 3, 2009. The fiscal 2010 quarters end
on January 2, 2010, April 3, 2010, July 3, 2010 and October 2,
2010. In fiscal years consisting of 53 weeks, the fourth quarter will consist of
14 weeks.
Nature
of Business
The
Company designs, manufactures and sells capital equipment and expendable tools
as well as services, maintains, repairs and upgrades equipment, all used to
assemble semiconductor devices. The Company’s operating results depend upon the
capital and operating expenditures of semiconductor manufacturers and
subcontract assemblers worldwide which, in turn, depend on the current and
anticipated market demand for semiconductors and products utilizing
semiconductors. The semiconductor industry is highly volatile and experiences
downturns and slowdowns which have a severe negative effect on the semiconductor
industry’s demand for semiconductor capital equipment, including assembly
equipment manufactured and sold by the Company and, to a lesser extent,
expendable tools such as those sold by the Company. These downturns and
slowdowns have in the past adversely affected the Company’s operating results.
The Company believes such volatility will continue to characterize the industry
and the Company’s operations in the future.
Basis
of Presentation
The
preparation of the interim consolidated financial statements requires management
to make assumptions, estimates and judgments that affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities as
of the date of the interim consolidated financial statements, and the reported
amounts of revenue and expenses during the reporting periods. On an ongoing
basis, management evaluates these estimates. Authoritative pronouncements,
historical experience and assumptions are used as the basis for making
estimates. Actual results could differ from those estimates. The interim
consolidated financial statements are unaudited and, in management’s opinion,
include all adjustments (consisting only of normal and recurring adjustments)
necessary for a fair presentation of results for these interim periods. The
interim consolidated financial statements do not include all of the information
and footnote disclosures normally included in financial statements prepared in
accordance with U.S. generally accepted accounting principles (“GAAP”) and
should be read in conjunction with the consolidated financial statements and
notes thereto included in the Annual Report on Form 10-K for the year ended
October 3, 2009, filed with the Securities and Exchange Commission, which
includes Consolidated Balance Sheets as of September 27, 2008 and October 3,
2009, and the related Consolidated Statements of Operations, Cash Flows, and
Changes in Shareholders’ Equity for each of the years in the three-year period
ended October 3, 2009. The results of operations for any interim period are not
necessarily indicative of the results of operations for any other interim period
or for a full year.
6
Vulnerability
to Certain Concentrations
Financial
instruments which may subject the Company to concentrations of credit risk as of
October 3, 2009 and July 3, 2010 consisted mainly of trade receivables. The
Company’s trade receivables result primarily from the sale of semiconductor
equipment, related accessories and replacement parts, and expendable tools to a
relatively small number of large manufacturers in a highly concentrated
industry. Write-offs of uncollectible accounts have historically not been
significant; however, the Company closely monitors its customers’ financial
strength to reduce the risk of loss.
The
Company’s products are complex and require raw materials, components and
subassemblies having a high degree of reliability, accuracy and performance. The
Company relies on subcontractors to manufacture many of these components and
subassemblies and it relies on sole source suppliers for some important
components and raw material inventory.
The
Company is also exposed to foreign currency fluctuations that impact the
remeasurement of the net monetary assets of those operations whose functional
currencies differ from their respective local currencies, most notably in
Israel, Malaysia, Singapore and Switzerland. In addition to operations in these
countries, China and Japan have exposure related to the translation of their
financial statements from their respective functional currencies to the U.S.
dollar. The Company’s U.S. operations also have foreign currency exposure due to
net monetary assets denominated in currencies other than the U.S.
dollar.
Allowance
for Doubtful Accounts
The
Company maintains allowances for doubtful accounts for estimated losses
resulting from its customers’ failure to make required payments. If the
financial condition of the Company’s customers were to deteriorate, resulting in
an impairment of their ability to make payments, additional allowances may be
required. The Company is also subject to concentrations of customers and sales
to a few geographic locations, which could also impact the collectibility of
certain receivables. If global economic conditions deteriorate or political
conditions were to change in some of the countries where the Company does
business, it could have a significant impact on the Company’s results of
operations, and the Company’s ability to realize the full value of its accounts
receivable.
Inventories
Inventories
are stated at the lower of cost (on a first-in first-out basis) or market value.
The Company generally provides reserves for obsolete inventory and for inventory
considered to be in excess of demand. In addition, the Company typically records
as accrued expense inventory purchase commitments in excess of demand. Demand is
generally defined as eighteen months forecasted consumption for non-Wedge bonder
equipment, twenty-four months consumption for Wedge bonder equipment and all
spare parts, and twelve months consumption for expendable tools. The forecasted
demand is based upon internal projections, historical sales volumes, customer
order activity and a review of consumable inventory levels at customers’
facilities. The Company communicates forecasts of its future demand to its
suppliers and adjusts commitments to those suppliers accordingly. If required,
the Company reserves the difference between the carrying value of its inventory
and the lower of cost or market value, based upon assumptions about future
demand, market conditions and cyclical market changes. If actual market
conditions are less favorable than projections, additional inventory reserves
may be required.
Foreign
Currency Translation
The
majority of the Company’s business is transacted in U.S. dollars; however, the
functional currencies of some of the Company’s subsidiaries are their local
currencies. In accordance with ASC No. 830, Foreign Currency
Matters (“ASC 830”), for a subsidiary of the Company that has a
functional currency other than the U.S. dollar, gains and losses resulting from
the translation of the functional currency into U.S. dollars for financial
statement presentation are not included in determining net income (loss), but
are accumulated in the cumulative translation adjustment account as a separate
component of shareholders’ equity (accumulated other comprehensive income
(loss)). Under ASC 830, cumulative translation adjustments are not adjusted for
income taxes if they relate to indefinite investments in non-U.S. subsidiaries.
Gains and losses resulting from foreign currency transactions are included in
the determination of net income (loss).
7
Revenue
Recognition
In
accordance with ASC No. 605,
Revenue Recognition, the Company recognizes revenue when persuasive
evidence of an arrangement exists, delivery has occurred or services have been
rendered, the price is fixed or determinable, the collectibility is reasonably
assured, and it has completed its equipment installation obligations and
received customer acceptance, when applicable, or is otherwise released from its
installation or customer acceptance obligations. In the event terms of the sale
provide for a customer acceptance period, revenue is recognized upon the
expiration of the acceptance period or customer acceptance, whichever occurs
first. The Company’s standard terms are Ex Works (the Company’s factory), with
title transferring to its customer at the Company’s loading dock or upon
embarkation. The Company has a small percentage of sales with other terms, and
revenue is recognized in accordance with the terms of the related customer
purchase order. Revenue related to services is recognized upon performance of
the services requested by a customer order. Revenue for extended maintenance
service contracts with a term more than one month is recognized on a prorated
straight-line basis over the term of the contract.
Shipping
and handling costs billed to customers are recognized in net revenue. Shipping
and handling costs are included in cost of sales.
Income Taxes
Deferred
income taxes are determined using the liability method in accordance with ASC
No. 740, Income Taxes
(“ASC 740”). The Company records a valuation allowance to reduce its deferred
tax assets to the amount it expects is more likely than not to be realized.
While the Company has considered future taxable income and its ongoing tax
planning strategies in assessing the need for the valuation allowance, if it
were to determine that it would be able to realize its deferred tax assets in
the future in excess of its net recorded amount, an adjustment to the deferred
tax asset would increase income in the period such determination was made.
Likewise, should the Company determine it would not be able to realize all or
part of its net deferred tax assets in the future, an adjustment to the deferred
tax asset would decrease income in the period such determination was
made.
In
accordance with ASC No. 740 Topic 10, Income Taxes, General (“ASC
740.10”), the Company utilizes a two-step approach for evaluating uncertain tax
positions. Step one or recognition, requires a company to determine if the
weight of available evidence indicates a tax position is more likely than not to
be sustained upon audit, including resolution of related appeals or litigation
processes, if any. Step two or measurement, is based on the largest amount of
benefit, which is more likely than not to be realized on settlement with the
taxing authority.
Earnings
per Share
Earnings
per share (“EPS”) are calculated in accordance with ASC No. 260, Earnings per Share. Basic
EPS include only the weighted average number of common shares outstanding during
the period. Diluted EPS includes the weighted average number of common shares
and the dilutive effect of stock options, restricted stock and share unit awards
and subordinated convertible notes outstanding during the period, when such
instruments are dilutive.
In
accordance with ASC No. 260.10.55, Earnings per Share - Implementation
& Guidance (“ASC 260.10.55”), the Company treats all outstanding
unvested share-based payment awards that contain rights to nonforfeitable
dividends as participating in undistributed earnings with common shareholders.
Awards of this nature are considered participating securities and the two-class
method of computing basic and diluted EPS must be applied. The Company
adopted ASC 260.10.55 on October 4, 2009 and, if necessary, will retrospectively
adjust prior period earnings per share (see Note 11).
8
Equity-Based
Compensation
The
Company accounts for equity-based compensation under the provisions of ASC No.
718, Compensation, Stock
Compensation (“ASC 718”). ASC 718 requires the recognition of the fair
value of equity-based compensation in net income. The fair value of the
Company’s stock option awards are estimated using a Black-Scholes option
valuation model. Compensation expense associated with market-based restricted
stock is determined using a Monte-Carlo valuation model, and compensation
expense associated with time-based and performance-based restricted stock is
determined based on the number of shares granted and the fair value on the date
of grant. In addition, the calculation of equity-based compensation costs
requires that the Company estimate the number of awards that will be forfeited
during the vesting period. The fair value of equity-based awards is amortized
over the vesting period of the award and the Company elected to use the
straight-line method for awards granted after the adoption of ASC
718.
NOTE
2 – DISCONTINUED OPERATIONS
On
September 29, 2008, the Company completed the sale of certain assets and
liabilities associated with its Wire business. The Company recognized net
proceeds of $149.9 million and a net gain of $22.7 million, net of tax, during
the nine months ended June 27, 2009. The Company did not recognize any income or
loss from discontinued operations for the three months ended June 27, 2009, or
the three and nine months ended July 3, 2010.
The
following table reflects operating results of the Wire business discontinued
operations for the nine months ended June 27, 2009:
Nine months ended
|
||||
(in
thousands)
|
June 27, 2009
|
|||
Net
revenue
|
$ | - | ||
Loss
before tax
|
$ | (319 | ) | |
Gain
on sale of Wire business before tax
|
23,524 | |||
Income
from discontinued operations before tax
|
23,205 | |||
Income
tax expense
|
(478 | ) | ||
Income
from discontinued operations, net of tax
|
$ | 22,727 |
9
As of
October 2009, the Company settled all working capital adjustments with Heraeus.
The following table reflects cash flows associated with the Company’s
discontinued operations for the nine months ended June 27, 2009 and July 3,
2010:
Nine months ended
|
||||||||
(in
thousands)
|
June 27, 2009
|
July 3, 2010
|
||||||
Cash
flows provided by (used in):
|
||||||||
Operating
activities: Wire business
|
$ | (319 | ) | $ | - | |||
Operating
activities: Test business (sold in fiscal 2006) (1)
|
(1,380 | ) | (1,488 | ) | ||||
Investing
activities: Wire business (2)
|
149,857 | (1,838 | ) | |||||
Net
cash provided by (used in) discontinued operations
|
$ | 148,158 | $ | (3,326 | ) |
(1)
|
Represents
facility-related costs associated with the Company’s former Test
operations.
|
(2)
|
Fiscal
2010 amount represents final settlement of working capital adjustments
with Heraeus.
|
NOTE
3 – RESTRUCTURING
On
February 15, 2010, the Company committed to a plan to reduce its Irvine,
California workforce by approximately 60 employees over a period of
approximately 26 months. As part of this workforce reduction plan, substantially
all of the Company's California-based wedge bonder manufacturing will be
transferred to the Company's manufacturing facilities in Kuala Lumpur, Malaysia
and Singapore. Certain administrative functions will also be transferred to
Malaysia and Singapore. Management determined that it was in the best interests
of the Company to reduce costs by migrating production and certain
administrative functions from California to Asia.
With
respect to the California-based wedge bonder transfer to Asia, the Company
anticipates $1.5 million of additional pre-tax expense, which will consist of
$1.1 million of severance and $0.4 million of retention costs. The Company
expects substantially all of this expense to be incurred by the end of the
second fiscal quarter of 2011, with corresponding cash payments to be incurred
beginning in the second fiscal quarter of 2011 and ending mid-fiscal 2013.
In March
2009, the Company committed to a plan to reduce its Israel-based workforce by
approximately 155 employees by the end of fiscal 2010. As part of this workforce
reduction plan, substantially all of the Company’s Israel-based manufacturing
has been transferred to the Company’s manufacturing facilities in Suzhou, China.
The Company expects to incur approximately $0.2 million in additional severance
costs and the amounts accrued are expected to be paid out during the fourth
quarter of fiscal 2010. As part of the Israel-based manufacturing transition to
China, in January 2010, the Company sold its facility in Israel and
simultaneously entered into an agreement to leaseback a portion of the building
for five years with an option to extend the lease. The Company realized a $0.7
million gain on the sale which is being recognized over the five year lease
term.
10
The
following table reflects severance activity for all plans during the three and
nine months ended June 27, 2009 and July 3, 2010:
Three months ended
|
Nine months ended
|
|||||||||||||||
(in
thousands)
|
June 27, 2009
|
July 3, 2010
|
June 27, 2009
|
July 3, 2010
|
||||||||||||
Accrual
for estimated severance and benefits, beginning of period
|
$ | 2,420 | $ | 2,073 | $ | - | $ | 2,413 | ||||||||
Provision
for severance and benefits: Equipment
segment (1)
|
- | 619 | 4,639 | 787 | ||||||||||||
Provision
for severance and benefits: Expendable Tools segment (1)
|
567 | 427 | 2,677 | 784 | ||||||||||||
Provision
for severance and benefits required by local law (2)
|
1,035 | - | 1,035 | - | ||||||||||||
Payment
of severance and benefits
|
(558 | ) | (447 | ) | (4,887 | ) | (1,312 | ) | ||||||||
Accrual
for estimated severance and benefits, end of
period (3)
|
$ | 3,464 | $ | 2,672 | $ | 3,464 | $ | 2,672 |
(1)
Provision for severance and benefits is the total amount expected to be incurred
and is included within selling, general and administrative expenses on the
Consolidated Statements of Operations.
(2) The
Company had previously recorded approximately $1.0 million related to severance
and benefits as required by local law.
(3)
Accrual for estimated severance as of June 27, 2009 and July 3, 2010 was
included within accrued expenses and other current liabilities and other
liabilities on the Consolidated Balance Sheet.
As
business has recovered during fiscal 2010 from the fiscal 2009 global economic
downturn and demand for the Company’s products has increased, the Company
increased its number of employees primarily related to manufacturing. The
Company expects to continue to consolidate certain of its operations from the
United States and other areas to Asia. As these consolidation efforts are
finalized in the future, the Company will incur significant severance costs;
however, it expects to realize future benefits from these consolidation
plans.
NOTE
4 – GOODWILL AND INTANGIBLE ASSETS
Goodwill
Intangible
assets classified as goodwill are not amortized. An annual impairment test of
the Company’s goodwill is performed during the fourth quarter of each fiscal
year, which coincides with the completion of its annual forecasting process. The
Company performed its annual impairment test in the fourth quarter of fiscal
2009 and no impairment charge was required. In addition, the Company tests for
impairment between annual tests if a “triggering” event occurs that may have the
effect of reducing the fair value of a reporting unit below its respective
carrying value.
The
following table reflects goodwill as of October 3, 2009 and July 3,
2010:
(in thousands)
|
Equipment segment
|
Expendable Tools
segment
|
Total
|
|||||||||
As
of October 3, 2009 and July 3, 2010:
|
||||||||||||
Beginning
of period, Goodwill, gross
|
$ | 22,999 | $ | 6,408 | $ | 29,407 | ||||||
Accumulated
impairment losses (1)
|
(2,709 | ) | - | (2,709 | ) | |||||||
End
of period, Goodwill, net
|
$ | 20,290 | $ | 6,408 | $ | 26,698 |
(1)
|
During
the nine months ended June 27, 2009, the Company recorded a $2.7 million
impairment charge related to its die bonder
goodwill.
|
11
Intangible
Assets
Intangible
assets with determinable lives are amortized over their estimated useful lives.
The Company’s intangible assets consist primarily of wedge bonder developed
technology and customer relationships.
The
following table reflects the intangible asset balances as of October 3, 2009 and
July 3, 2010:
As
of
|
Average
estimated
useful
|
|||||||||||
(in
thousands)
|
October
3, 2009
|
July
3, 2010
|
lives
(in
years)
|
|||||||||
Wedge
bonder developed technology
|
$ | 33,200 | $ | 33,200 | 7.0 | |||||||
Accumulated
amortization
|
(4,742 | ) | (8,300 | ) | ||||||||
Net
wedge bonder developed technology
|
28,458 | 24,900 | ||||||||||
Wedge
bonder customer relationships
|
19,300 | 19,300 | 5.0 | |||||||||
Accumulated
amortization
|
(3,860 | ) | (6,755 | ) | ||||||||
Net
wedge bonder customer relationships
|
15,440 | 12,545 | ||||||||||
Wedge
bonder trade name
|
4,600 | 4,600 | 8.0 | |||||||||
Accumulated
amortization
|
(575 | ) | (1,006 | ) | ||||||||
Net
wedge bonder trade name
|
4,025 | 3,594 | ||||||||||
Wedge
bonder other intangible assets
|
2,500 | 2,500 | 1.9 | |||||||||
Accumulated
amortization
|
(1,767 | ) | (2,042 | ) | ||||||||
Net
wedge bonder other intangible assets
|
733 | 458 | ||||||||||
Net
intangible assets
|
$ | 48,656 | 41,497 |
The
following table reflects estimated annual amortization expense related to
intangible assets as of July 3, 2010:
(in
thousands)
|
||||
Fiscal
2010 (remaining fiscal year)
|
$ | 2,386 | ||
Fiscal
2011
|
9,545 | |||
Fiscal
2012
|
9,178 | |||
Fiscal
2013
|
9,178 | |||
Fiscal
2014-2016
|
11,210 | |||
Total
amortization expense
|
$ | 41,497 |
12
NOTE
5 – COMPREHENSIVE INCOME (LOSS)
The
following table reflects the components of comprehensive income (loss) for the
three and nine months ended June 27, 2009 and July 3, 2010:
Three months ended
|
Nine months ended
|
|||||||||||||||
(in
thousands)
|
June 27, 2009 *
|
July 3, 2010
|
June 27, 2009 *
|
July 3, 2010
|
||||||||||||
Net
income (loss) (1)
|
$ | (15,262 | ) | $ | 49,083 | $ | (46,650 | ) | $ | 86,081 | ||||||
Gain
(loss) from foreign currency translation adjustments
|
1,064 | 493 | (377 | ) | (162 | ) | ||||||||||
Unrealized
gain on investments, net of taxes
|
14 | - | 18 | - | ||||||||||||
Unrecognized
actuarial net gain (loss), Switzerland pension plan, net of
tax
|
(8 | ) | (3 | ) | 160 | 6 | ||||||||||
Switzerland
pension plan curtailment
|
(388 | ) | (388 | ) | ||||||||||||
Other
comprehensive income (loss)
|
682 | 490 | (587 | ) | (156 | ) | ||||||||||
Comprehensive
income (loss)
|
$ | (14,580 | ) | $ | 49,573 | $ | (47,237 | ) | $ | 85,925 |
* As
adjusted for ASC No. 470.20,
Debt, Debt With Conversion Options.
(1) Net
income (loss) includes continuing and discontinued operations.
The
following table reflects accumulated other comprehensive income reflected on the
Consolidated Balance Sheets as of October 3, 2009 and July 3, 2010:
As
of
|
||||||||
(in
thousands)
|
October 3, 2009
|
July 3, 2010
|
||||||
Gain
from foreign currency translation adjustments
|
$ | 746 | $ | 584 | ||||
Unrecognized
actuarial net gain, Switzerland pension plan, net of taxes
|
1,133 | 1,139 | ||||||
Accumulated
other comprehensive income
|
$ | 1,879 | $ | 1,723 |
13
NOTE
6 – BALANCE SHEET ACCOUNTS
The
following tables reflect significant balance sheet accounts as of October 3,
2009 and July 3, 2010:
As
of
|
||||||||
(in
thousands)
|
October 3, 2009
|
July 3, 2010
|
||||||
Inventories,
net:
|
||||||||
Raw
materials and supplies
|
$ | 30,048 | $ | 37,630 | ||||
Work
in process
|
10,788 | 25,366 | ||||||
Finished
goods
|
13,170 | 15,410 | ||||||
54,006 | 78,406 | |||||||
Inventory
reserves
|
(12,517 | ) | (9,573 | ) | ||||
$ | 41,489 | $ | 68,833 | |||||
Property,
plant and equipment, net:
|
||||||||
Land (1)
|
$ | 2,735 | $ | 2,618 | ||||
Buildings
and building improvements (1)
|
14,351 | 11,601 | ||||||
Leasehold
improvements
|
11,695 | 9,481 | ||||||
Data
processing and hardware equipment and software
|
21,822 | 22,229 | ||||||
Machinery
and equipment
|
40,600 | 37,902 | ||||||
91,203 | 83,831 | |||||||
Accumulated
depreciation
|
(55,157 | ) | (54,116 | ) | ||||
$ | 36,046 | $ | 29,715 | |||||
Accrued
expenses and other current liabilities:
|
||||||||
Wages
and benefits
|
$ | 10,423 | $ | 14,949 | ||||
Accrued
customer obligations (2)
|
4,438 | 8,222 | ||||||
Severance (3)
|
3,264 | 3,330 | ||||||
Commissions
and professional fees
|
2,072 | 3,271 | ||||||
Short-term
facility accrual related to discontinued operations (Test)
|
1,839 | 1,880 | ||||||
Payable
to Heraeus (4)
|
1,857 | - | ||||||
Other
|
8,683 | 6,545 | ||||||
$ | 32,576 | $ | 38,197 |
(1) During the nine
months ended July 3, 2010, the Company sold its facility in Yokneam, Israel for
$4.5 million. Net proceeds of $4.0 million were received and $0.5 million is
held in escrow for taxes. Simultaneous with the sale, the Company entered into
an agreement to leaseback a portion of the building for five years with an
option to extend the lease. The Company realized a $0.7 million gain on the sale
which is being recognized over the five year lease term.
(2) Represents
customer advance payments, customer credit program, accrued warranty expense and
accrued retrofit costs.
(3) Total
severance payable within the next twelve months includes the severance plans
discussed in Note 3, and approximately $0.8 million of other severance
obligations which were not part of the Company’s cost reduction
plans.
(4)
Fiscal 2009 amount related to certain open working capital adjustments with
Heraeus, which were settled in fiscal 2010.
14
NOTE
7 – DEBT OBLIGATIONS
The
following table reflects debt consisting of Convertible Subordinated Notes as of
October 3, 2009 and July 3, 2010:
(in
thousands)
|
|||||||||||||||
Payment
Dates
|
Conversion
|
Maturity
|
As
of
|
||||||||||||
Rate
|
of
each year
|
Price
|
Date
|
October
3, 2009 *
|
July
3, 2010
|
||||||||||
1.000
|
% |
June
30 and December 30
|
$ | 12.84 |
Redeemed
June 30, 2010
|
$ | 48,964 | $ | - | ||||||
0.875
|
% |
June
1 and December 1
|
$ | 14.36 |
June
1, 2012
|
110,000 | 110,000 | ||||||||
Debt
discount on 0.875% Convertible Subordinated Notes due June
2012
|
(17,783 | ) | (13,139 | ) | |||||||||||
$ | 141,181 | $ | 96,861 |
* As
adjusted for ASC No. 470.20,
Debt, Debt With Conversion Options.
0.875%
Convertible Subordinated Notes
Holders
of the 0.875% Convertible Subordinated Notes may convert their notes based on an
initial conversion rate of approximately 69.6621 shares per $1,000 principal
amount of notes (equal to an initial conversion price of approximately $14.355
per share) only under specific circumstances. The initial conversion rate will
be adjusted for certain events. The Company presently intends to satisfy any
conversion of the 0.875% Convertible Subordinated Notes with cash up to the
principal amount of the 0.875% Convertible Subordinated Notes and, with respect
to any excess conversion value, with shares of its common stock. The Company has
the option to elect to satisfy the conversion obligations in cash, common stock
or a combination thereof.
The
0.875% Convertible Subordinated Notes will not be redeemable at the Company’s
option. Holders of the 0.875% Convertible Subordinated Notes will not have the
right to require the Company to repurchase their 0.875% Convertible Subordinated
Notes prior to maturity except in connection with the occurrence of certain
fundamental change transactions. The 0.875% Convertible Subordinated Notes may
be accelerated upon an event of default as described in the Indenture and will
be accelerated upon bankruptcy, insolvency, appointment of a receiver and
similar events with respect to the Company.
As of
October 4, 2009, the Company adopted ASC 470.20, which requires that issuers of
convertible debt that may be settled in cash upon conversion record the
liability and equity components of the convertible debt separately. The Company
estimated the liability component of its 0.875% Convertible Subordinated Notes
by assessing the fair value of debt instruments without an associated equity
component issued by companies with similar credit ratings and terms at the time
the Company’s 0.875% Convertible Subordinated Notes were issued. The effective
interest rate for non-convertible debt with similar credit ratings and terms was
assumed to be 7.85%. The Company determined the fair value of the equity
component of the embedded conversion option by deducting the fair value of the
liability component from the initial proceeds of the convertible debt
instrument. The debt discount will be amortized under the effective interest
method from the original issue date. The Company determined the portion of
issuance costs associated with the equity component of the 0.875% Convertible
Subordinated Notes was $1.0 million. The issuance costs are amortized under the
effective interest method from the original issue date.
The
liability component of the Company’s 0.875% Convertible Subordinated Notes will
continue to be classified as long-term debt and the equity component of the
0.875% Convertible Subordinated Notes is classified as common stock on the
Company’s Consolidated Balance Sheets.
15
The
following tables reflect the effect of the change due to ASC 470.20 on the
Consolidated Statements of Operations for the three and nine months ended June
27, 2009:
Three months ended
|
||||||||||||
(in thousands)
|
June 27, 2009, as
reported
|
June 27, 2009 as
adjusted
|
Effect of
change
|
|||||||||
Interest
expense
|
$ | 607 | $ | 2,011 | $ | 1,404 | ||||||
Loss
from continuing operations before taxes
|
(15,014 | ) | (16,418 | ) | (1,404 | ) | ||||||
Benefit
for income taxes
|
1,156 | 1,156 | - | |||||||||
Loss
from continuing operations
|
$ | (13,858 | ) | $ | (15,262 | ) | $ | (1,404 | ) | |||
Diluted
loss per share from continuing operations
|
$ | (0.23 | ) | $ | (0.25 | ) | $ | (0.02 | ) |
Nine months ended
|
||||||||||||
(in thousands)
|
June 27, 2009, as
reported
|
June 27, 2009 as
adjusted
|
Effect of
change
|
|||||||||
Interest
expense
|
$ | 1,981 | $ | 6,114 | $ | 4,133 | ||||||
Loss
from continuing operations before taxes
|
(78,558 | ) | (82,691 | ) | (4,133 | ) | ||||||
Benefit
for income taxes
|
13,314 | 13,314 | - | |||||||||
Loss
from continuing operations
|
$ | (65,244 | ) | $ | (69,377 | ) | $ | (4,133 | ) | |||
Diluted
loss per share from continuing operations
|
$ | (1.07 | ) | $ | (1.14 | ) | $ | (0.07 | ) |
The
following table reflects the effect of the change due to ASC 470.20 on the
Consolidated Balance Sheet as of October 3, 2009:
As of
|
||||||||||||
(in thousands)
|
October 3, 2009, as
reported
|
October 3, 2009, as
adjusted
|
Effect of
change
|
|||||||||
Other
assets (debt issuance costs)
|
$ | 6,215 | $ | 5,774 | $ | (441 | ) | |||||
Total
assets
|
413,076 | 412,635 | (441 | ) | ||||||||
Long-term
debt
|
110,000 | 92,217 | (17,783 | ) | ||||||||
Total
liabilities
|
259,615 | 241,832 | (17,783 | ) | ||||||||
Common
stock
|
383,417 | 413,092 | 29,675 | |||||||||
Accumulated
deficit
|
(185,479 | ) | (197,812 | ) | (12,333 | ) | ||||||
Total
shareholders' equity
|
153,461 | 170,803 | 17,342 | |||||||||
Total
liabilities and shareholders' equity
|
413,076 | 412,635 | (441 | ) |
16
The
following table reflects the effect of the change due to ASC 470.20 on the
Consolidated Statement of Cash Flows for the nine months ended June 27,
2009:
For the nine months ended
|
||||||||||||
(in thousands)
|
June 27, 2009, as
reported
|
June 27, 2009, as
adjusted
|
Effect of
change
|
|||||||||
Net
loss
|
$ | (42,517 | ) | $ | (46,650 | ) | $ | (4,133 | ) | |||
Loss
from continuing operations
|
(65,244 | ) | (69,377 | ) | (4,133 | ) | ||||||
Amortization
of debt discount and debt issuance costs
|
762 | 4,895 | 4,133 | |||||||||
Net
cash used in continuing operations
|
(41,245 | ) | (41,245 | ) | - |
The
following table reflects amortization expense related to issue costs from the
Company’s Convertible Subordinated Notes for the three and nine months ended
June 27, 2009 and July 3, 2010:
Three months ended
|
Nine months ended
|
|||||||||||||||
(in
thousands)
|
June 27, 2009 *
|
July 3, 2010
|
June 27, 2009 *
|
July 3, 2010
|
||||||||||||
Amortization
expense related to issue costs
|
$ | 187 | $ | 194 | $ | 601 | $ | 582 |
* As
adjusted for ASC No. 470.20,
Debt, Debt With Conversion Options.
The
Company had no purchases of its Convertible Subordinated Notes for the three
months ended June 27, 2009 and July 3, 2010 or the nine months ended July 3,
2010. The following table reflects the Company’s open market purchases of its
Convertible Subordinated Notes for the nine months ended June 27,
2009:
Nine
Months Ended
|
||||
(in
thousands)
|
June 27, 2009
|
|||
0.5%
Convertible Subordinated Notes (1):
|
||||
Face
value purchased
|
$ | 43,050 | ||
Net
cash
|
42,839 | |||
Deferred
financing costs
|
18 | |||
Recognized
gain, net of deferred financing costs
|
193 | |||
1.0%
Convertible Subordinated Notes: (2)
|
||||
Face
value purchased
|
$ | 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
|
$ | 3,965 |
(1) Repurchase
transactions occurred prior to redemption on November 30, 2008.
(2) Activity
during the nine months ended June 27, 2009 reflects repurchases
pursuant to a tender offer.
17
NOTE
8 – SHAREHOLDERS’ EQUITY AND EMPLOYEE BENEFIT PLAN
Common
Stock
As of
October 4, 2009, the Company adopted ASC 470.20 and accordingly common stock
includes the equity component of the Company’s 0.875% Convertible Subordinated
Notes (see Note 7).
In August
2009, the Company sold 8.0 million shares of its common stock in an underwritten
public offering for net proceeds of $38.7 million.
On
October 3, 2008, the Company completed the acquisition of substantially all of
the assets and assumption of certain liabilities of Orthodyne Electronics
Corporation (“Orthodyne”). In connection with the Orthodyne acquisition, the
Company issued 7.1 million common shares with an estimated value on that date of
$46.2 million and paid $87.0 million in cash including capitalized acquisition
costs.
Equity-Based
Compensation
As of
July 3, 2010, the Company had eight equity-based employee compensation plans
(the “Employee Plans”) and three director compensation plans (the “Director
Plans”) (collectively, the “Plans”). Under these Plans, stock options,
performance-based share awards (collectively, “performance-based restricted
stock”), time-based share awards (collectively, “time-based restricted stock”),
market-based share awards (collectively, “market-based restricted stock”) or
common stock have been granted at 100% of the market price of the Company’s
common stock on the date of grant.
|
·
|
In
general, stock options and time-based restricted stock awarded to
employees vest annually over a three year period provided the employee
remains employed. The Company follows the non-substantive vesting method
for stock options and recognizes compensation expense immediately for
awards granted to retirement eligible employees, or over the period from
the grant date to the date retirement eligibility is
achieved.
|
|
·
|
Performance-based
restricted stock entitles the employee to receive common shares of the
Company on the three-year anniversary of the grant date (if employed by
the Company) if return on invested capital and revenue growth targets set
by the Management Development and Compensation Committee of the Board of
Directors on the date of grant are met. If return on invested capital and
revenue growth targets are not met, performance-based restricted stock
does not vest.
|
|
·
|
Market-based
restricted stock entitles the employee to receive common shares of the
Company on the award vesting date, if market performance objectives which
measure relative total shareholder return (“TSR”) are attained. Relative
TSR is calculated based upon the 90-calendar day average price of the
Company’s stock as compared to specific peer companies that comprise the
Philadelphia Semiconductor Index. TSR is measured for the Company and each
peer company over a performance period, which is generally three years.
Vesting percentages range from 0% to 200% of awards granted. The
provisions of the market-based restricted stock are reflected in the grant
date fair value of the award; therefore, compensation expense is
recognized regardless of whether or not the market condition is ultimately
satisfied. Compensation expense is reversed if the award forfeits prior to
the vesting date.
|
Equity-based
compensation expense recognized in the Consolidated Statements of Operations for
the three and nine months ended June 27, 2009 and July 3, 2010 was based upon
awards ultimately expected to vest. In accordance with ASC 718, forfeitures have
been estimated at the time of grant and were based upon historical experience.
The Company reviews the forfeiture rates periodically and makes adjustments as
necessary.
18
The
following table reflects stock options, restricted stock and common stock
granted during the three and nine months ended June 27, 2009 and July 3,
2010:
Three months ended
|
Nine months ended
|
|||||||||||||||
(number
of shares in thousands)
|
June 27, 2009
|
July 3, 2010
|
June 27, 2009
|
July 3, 2010
|
||||||||||||
Market-based
restricted stock
|
- | - | - | 398 | ||||||||||||
Performance-based
restricted stock
|
- | - | 403 | - | ||||||||||||
Time-based
restricted stock
|
- | - | 825 | 784 | ||||||||||||
Stock
options
|
- | 10 | 154 | 36 | ||||||||||||
Common
stock
|
43 | 24 | 149 | 89 | ||||||||||||
Equity-based
compensation in shares
|
43 | 34 | 1,531 | 1,307 |
The
following table reflects equity-based compensation expense (reversal of
expense), by type of award, included in the Consolidated Statements of
Operations during the three and nine months ended June 27, 2009 and July 3,
2010:
Three months ended
|
Nine months ended
|
|||||||||||||||
(in
thousands)
|
June 27, 2009
|
July 3, 2010
|
June 27, 2009
|
July 3, 2010
|
||||||||||||
Market-based
restricted stock
|
$ | - | $ | 271 | $ | - | $ | 659 | ||||||||
Performance-based
restricted stock
|
52 | 586 | (1,485 | ) | 1,324 | |||||||||||
Time-based
restricted stock
|
193 | 464 | 573 | 1,521 | ||||||||||||
Stock
options
|
411 | 108 | 1,254 | 378 | ||||||||||||
Common
stock
|
120 | 180 | 420 | 540 | ||||||||||||
Equity-based
compensation expense
|
$ | 776 | $ | 1,609 | $ | 762 | $ | 4,422 |
As the
global economy improved during fiscal 2010, the Company determined performance
objectives for the performance-based restricted stock issued in fiscal 2007 and
2008 would improve. Accordingly, estimated attainment percentages increased and
total compensation expense for the performance-based restricted stock also
increased for the three and nine months ended July 3, 2010. During the prior
year, in connection with the global economic decline during the nine months
ended June 27, 2009, the Company determined performance objectives for the
performance-based restricted stock issued in fiscal 2007 and 2008 would not be
attained at the previous estimated levels. In accordance with ASC 718, by
lowering estimated attainment percentages, total compensation expense for the
performance-based restricted stock decreased and previously recorded
compensation expense was reversed during fiscal 2009.
The
following table reflects total equity-based compensation expense, which includes
stock options, restricted stock and common stock, included in the Consolidated
Statements of Operations during the three and nine months ended June 27, 2009
and July 3, 2010:
Three months ended
|
Nine months ended
|
|||||||||||||||
(in
thousands)
|
June 27, 2009
|
July 3, 2010
|
June 27, 2009
|
July 3, 2010
|
||||||||||||
Cost
of sales
|
$ | 40 | $ | 44 | $ | 39 | $ | 140 | ||||||||
Selling,
general and administrative
|
499 | 1,231 | 248 | 3,218 | ||||||||||||
Research
and development
|
237 | 334 | 475 | 1,064 | ||||||||||||
Equity-based
compensation expense
|
$ | 776 | $ | 1,609 | $ | 762 | $ | 4,422 |
19
The
following table reflects the unrecognized equity-based compensation
expense, by type of award, as of June 27, 2009 and July 3, 2010:
As of
|
Average remaining
|
||||||||
(dollar
amounts in thousands)
|
June 27, 2009
|
July 3, 2010
|
contractual life in
years
|
||||||
Market-based
restricted stock
|
$ | - | $ | 2,040 |
1.7
|
||||
Performance-based
restricted stock
|
384 | 1,091 |
0.7
|
||||||
Time-based
restricted stock
|
1,737 | 4,069 |
1.9
|
||||||
Stock
options
|
1,327 | 451 |
1.0
|
||||||
Unrecognized
equity-based compensation expense
|
$ | 3,448 | $ | 7,651 |
401(k)
Retirement Income Plan
The
Company has a 401(k) retirement income plan (the “Plan”) for its
employees. During fiscal 2009 and prior years, the Plan allowed for
employee contributions and matching Company contributions in varying
percentages, ranging from 50% to 175% up to 6% of the employee’s contributed
amount based upon employee age and years of service. During the first quarter of
fiscal 2010, the Plan was modified to allow for employee contributions and
matching Company contributions up to 4% or 6% of the employee’s contributed
amount based upon years of service.
The
following table reflects the Company’s matching contributions to the 401(k)
retirement income plan, which were made in the form of issued and contributed
shares of Company common stock, during the three and nine months ended June 27,
2009 and July 3, 2010:
Three months ended
|
Nine months ended
|
|||||||||||||||
(in
thousands)
|
June 27, 2009
|
July 3, 2010
|
June 27, 2009
|
July 3, 2010
|
||||||||||||
Number
of common shares
|
45 | 53 | 318 | 153 | ||||||||||||
Fair
value based upon market price at date of distribution
|
$ | 164 | $ | 402 | $ | 656 | $ | 1,000 |
20
NOTE
9 – INCOME TAXES
The
following table reflects the benefit for income taxes and the effective tax rate
from continuing operations for the nine months ended June 27, 2009 and July 3,
2010:
Nine months ended
|
||||||||
(dollar amounts in thousands)
|
June 27, 2009 *
|
July 3, 2010
|
||||||
Income
(loss) from continuing operations before taxes
|
$ | (82,691 | ) | $ | 85,309 | |||
Benefit
for income taxes
|
(13,314 | ) | (772 | ) | ||||
Income
(loss) from continuing operations
|
$ | (69,377 | ) | $ | 86,081 | |||
Effective
tax rate
|
16.1 | % | -0.9 | % |
* As
adjusted for ASC No. 470.20,
Debt, Debt With Conversion Options.
For the
nine months ended July 3, 2010, the effective income tax rate related to
continuing operations differed from the federal statutory rate primarily due to:
decreases in the valuation allowance, Federal alternative minimum taxes, state
income taxes, tax from foreign operations, impact of tax holidays, an increase
in deferred taxes for un-remitted earnings and other U.S. current and deferred
taxes. The decrease in valuation allowance includes a discrete income tax
benefit recorded in the third quarter of fiscal 2010 for the reduction of the
domestic valuation allowance based on a review of positive and negative evidence
regarding the realization of these assets, including future projected domestic
earnings.
For the
nine months ended June 27, 2009, the effective income tax rate related to
continuing operations differed from the federal statutory rate primarily due to:
increases in the valuation allowance, state income taxes, tax from foreign
operations, impact of tax holidays, decreases in deferred taxes for un-remitted
earnings, and decreases in tax reserves. The increase in the valuation allowance
is net of a discrete income tax benefit recorded for the reduction in the
valuation allowance for a foreign subsidiary.
In
October 2007, the tax authority in Israel issued the Company a preliminary
assessment of income tax, withholding tax and interest of $34.3 million (after
adjusting for the impact of foreign currency fluctuations) for fiscal 2002
through 2004. The Company provided a non-current income tax liability for
uncertain tax positions on its Consolidated Balance Sheet as of September 27,
2008 related to this assessment for fiscal years 2002 through 2007, as required
under ASC 740. On December 24, 2008, the Company, through its Israel
subsidiaries, entered into an agreement with the tax authority in Israel
settling the tax dispute for approximately $12.5 million, which represented
withholding taxes, income taxes, and interest related to fiscal 2002 through
2004. The settlement of $12.5 million was made net of a $4.5 million
reimbursement resulting in a net cash payment of $7.8 million during the second
quarter of fiscal 2009. Following the payment and settlement of the audit for
fiscal 2002 through 2004, the tax authorities in Israel examined the fiscal
years 2005 and 2006. In addition during fiscal 2009, the Company made a payment
of approximately $1.9 million related to income taxes and interest to settle the
fiscal September 30, 2005 and 2006 assessment. As a result of the Israel tax
settlements, the Company recognized a $12.5 million benefit from income taxes
for fiscal 2009. The $12.5 million benefit was a result of reversing the
liability for unrecognized tax benefits on the Consolidated Balance Sheet as of
September 27, 2008 that was in excess of the $14.4 million for which the matter
was settled. The entire amount of the reversal impacted the Company’s effective
tax rate as indicated above.
The U.S.
Internal Revenue Service (“IRS”) audited the Company for the period ended
September 30, 2006. The Company responded to various information requests from
the IRS and the audit was closed in fiscal 2010 with no significant
adjustments.
21
NOTE
10 - SEGMENT INFORMATION
The
Company operates two segments: Equipment and Expendable Tools. The Equipment
segment manufactures and markets a line of ball bonders, wedge bonders and die
bonders. The Expendable Tools segment designs, manufactures, and markets
consumable packaging materials for use on the Company’s equipment as well as on
competitors’ equipment.
The
following table reflects operating results by segment for the three and nine
months ended June 27, 2009 and July 3,
2010:
Three months ending
|
Nine months ending
|
|||||||||||||||
(in thousands)
|
June 27, 2009 *
|
July 3, 2010
|
June 27, 2009 *
|
July 3, 2010
|
||||||||||||
Net
revenue
|
||||||||||||||||
Equipment
|
$ | 37,544 | $ | 202,185 | $ | 78,180 | $ | 450,135 | ||||||||
Expendable
Tools
|
14,532 | 19,069 | 36,544 | 53,372 | ||||||||||||
Net
revenue
|
52,076 | 221,254 | 114,724 | 503,507 | ||||||||||||
Cost
of sales
|
||||||||||||||||
Equipment
|
25,612 | 114,169 | 54,833 | 258,780 | ||||||||||||
Expendable
Tools
|
6,795 | 7,901 | 18,249 | 21,398 | ||||||||||||
Cost
of sales
|
32,407 | 122,070 | 73,082 | 280,178 | ||||||||||||
Gross
profit
|
||||||||||||||||
Equipment
|
11,932 | 88,016 | 23,347 | 191,355 | ||||||||||||
Expendable
Tools
|
7,737 | 11,168 | 18,295 | 31,974 | ||||||||||||
Gross
profit
|
19,669 | 99,184 | 41,642 | 223,329 | ||||||||||||
Operating
Expenses
|
||||||||||||||||
Equipment
|
28,793 | 41,248 | 102,507 | 109,546 | ||||||||||||
Expendable
Tools
|
5,358 | 7,884 | 17,990 | 22,423 | ||||||||||||
Operating
expenses
|
34,151 | 49,132 | 120,497 | 131,969 | ||||||||||||
Impairment
of goodwill
|
||||||||||||||||
Equipment
|
- | - | 2,709 | - | ||||||||||||
Income
(loss) from operations
|
||||||||||||||||
Equipment
|
(16,861 | ) | 46,768 | (81,869 | ) | 81,809 | ||||||||||
Expendable
Tools
|
2,379 | 3,284 | 305 | 9,551 | ||||||||||||
Income
(loss) from operations
|
$ | (14,482 | ) | $ | 50,052 | $ | (81,564 | ) | $ | 91,360 |
The
following table reflects assets by segment as of October 3, 2009 and July 3,
2010:
As of
|
||||||||
(in
thousands)
|
October 3, 2009 *
|
July 3,
2010
|
||||||
Equipment
|
$ | 303,835 | $ | 423,544 | ||||
Expendable
Tools
|
108,800 | 82,934 | ||||||
Segment
assets
|
$ | 412,635 | $ | 506,478 |
* As
adjusted for ASC No. 470.20,
Debt, Debt With Conversion Options.
22
NOTE
11 - EARNINGS PER SHARE
Basic
income (loss) per share is calculated using the weighted average number of
shares of common stock outstanding during the period. In addition, net income
applicable to participating securities and the related participating securities
are excluded from the computation of basic income per share.
Diluted
income per share is calculated using the weighted average number of shares of
common stock outstanding during the period and, if there is net income during
the period, the dilutive impact of common stock equivalents outstanding during
the period. In computing diluted income per share, if convertible debt is
assumed to be converted to common shares, the after-tax amount of interest
expense recognized in the period associated with the convertible debt is added
back to net income.
The
Company’s 0.875% Convertible Subordinated Notes would not result in the issuance
of any dilutive shares, since the Notes are not convertible and the conversion
option was not “in the money” as of June 27, 2009 or July 3, 2010. Accordingly,
diluted EPS excludes the effect of the conversion of the 0.875% Convertible
Subordinated Notes.
The
following tables reflect reconciliations of the shares used in the basic and
diluted net income (loss) per share computation for the three and nine months
ended June 27, 2009 and July 3, 2010:
Three months ended
|
|||||||||||||||||
June 27, 2009 *
|
July 3, 2010
|
||||||||||||||||
(in thousands, except per share data)
|
Basic
|
Diluted
|
Basic
|
Diluted
|
|||||||||||||
NUMERATOR:
|
|||||||||||||||||
Income
(loss) from continuing operations, net of tax
|
$ | (15,262 | ) | $ | (15,262 | ) | $ | 49,083 | $ | 49,083 | |||||||
Less:
income applicable to participating securities
|
- | - | (1) | (523 | ) | (523 | ) | ||||||||||
After-tax
interest expense
|
- | - | (1) | - | 118 | ||||||||||||
Income
(loss) applicable to common shareholders
|
$ | (15,262 | ) | $ | (15,262 | ) | $ | 48,560 | $ | 48,678 | |||||||
DENOMINATOR:
|
|||||||||||||||||
Weighted
average shares outstanding - Basic (3)
|
61,220 | 61,220 | 70,131 | 70,131 | |||||||||||||
Stock
options
|
- | (1) | 221 | ||||||||||||||
Performance-based
restricted stock
|
- | (1) | 101 | ||||||||||||||
Time-based
restricted stock
|