Attached files
file | filename |
---|---|
EX-21 - KULICKE & SOFFA INDUSTRIES INC | v204562_ex21.htm |
EX-23 - KULICKE & SOFFA INDUSTRIES INC | v204562_ex23.htm |
EX-32.1 - KULICKE & SOFFA INDUSTRIES INC | v204562_ex32-1.htm |
EX-31.2 - KULICKE & SOFFA INDUSTRIES INC | v204562_ex31-2.htm |
EX-31.1 - KULICKE & SOFFA INDUSTRIES INC | v204562_ex31-1.htm |
EX-32.2 - KULICKE & SOFFA INDUSTRIES INC | v204562_ex32-2.htm |
EX-10.XLI - KULICKE & SOFFA INDUSTRIES INC | v204562_ex10-xli.htm |
UNITED STATES SECURITIES AND EXCHANGE
COMMISSION
Washington,
D.C. 20549
FORM
10-K
(Mark
One)
x ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
fiscal year ended October 2, 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 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.)
|
6
Serangoon North Avenue 5
#03-16
Singapore
|
554910
|
(Address
of principal executive offices)
|
(Zip
Code)
|
(215)
784-6000
|
|
(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
|
|
Securities
registered pursuant to Section 12(g) of the Act:
|
|
COMMON
STOCK, WITHOUT PAR VALUE
|
|
(Title
of 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 ¨ No
x
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 ¨ No
x
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes x No
¨
Indicate by check mark whether the
registrant 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 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. ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a smaller reporting company. See definition of “large
accelerated filer,” “accelerated filer” and “smaller reporting company” in
Rule 12b-2 of the Exchange Act. (Check one):
Large
accelerated filer ¨
|
Accelerated filer x
|
Non-accelerated
filer ¨
|
Smaller
reporting company ¨
|
(Do
not check if a smaller reporting
company)
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes ¨ No
x
As of
April 2, 2010, the aggregate market value of the registrant's common stock held
by non-affiliates of the registrant was approximately $507.8 million 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, 2010 there were 70,984,802 shares of the registrant's common stock,
without par value, outstanding.
Documents
Incorporated by Reference
Portions
of the registrant's Proxy Statement for the 2011 Annual Meeting of Shareholders
to be filed on or about December 30, 2010 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.
2010
Annual Report on Form 10-K
Table
of Contents
Page
|
||
Part
I
|
||
Item
1.
|
Business
|
1
|
Item
1A.
|
Risks
Related to Our Business and Industry
|
11
|
Item
1B.
|
Unresolved
Staff Comments
|
20
|
Item
2.
|
Properties
|
21
|
Item
3.
|
Legal
Proceedings
|
21
|
Item
4.
|
[Removed
and Reserved]
|
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
|
22
|
Item
7.
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
25
|
Item
7A.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
55
|
Item
8.
|
Financial
Statements and Supplementary Data
|
55
|
Item
9.
|
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
|
93
|
Item
9A.
|
Controls
and Procedures
|
93
|
Item
9B.
|
Other
Information
|
94
|
Part
III
|
||
Item
10.
|
Directors,
Executive Officers and Corporate Governance
|
94
|
Item
11.
|
Executive
Compensation
|
94
|
Item
12.
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
95
|
Item
13.
|
Certain
Relationships and Related Transactions and Director
Independence
|
95
|
Item
14.
|
Principal
Accounting Fees and Services
|
95
|
Part
IV
|
||
Item
15.
|
Exhibits
and Financial Statement Schedules
|
96
|
Signatures
|
102
|
PART
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,
cost reductions, operational flexibility, product development, demand forecasts,
competitiveness, operating expenses, cash flows, profitability, gross margins,
and benefits expected as a result of (among other factors):
|
·
|
projected growth rates in the
overall semiconductor industry, the semiconductor assembly equipment
market, and the market for semiconductor packaging materials;
and
|
|
·
|
projected demand for ball,
wedge and die bonder equipment and for expendable
tools.
|
Generally,
words such as “may,” “will,” “should,” “could,” “anticipate,” “expect,”
“intend,” “estimate,” “plan,” “continue,” “goal” and “believe,” or the negative
of or other variations on these and other similar expressions identify
forward-looking statements. These forward-looking statements are made only as of
the date of this filing. We do not undertake to update or revise the
forward-looking statements, whether as a result of new information, future
events or otherwise.
Forward-looking
statements are based on current expectations and involve risks and
uncertainties. Our future results could differ significantly from those
expressed or implied by our forward-looking statements. These risks and
uncertainties include, without limitation, those described below and under the
heading “Risk Factors” within this Annual Report on Form 10-K for the fiscal
year ended October 2, 2010 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 this Annual Report.
We
operate in a rapidly changing and competitive environment. New risks emerge from
time to time and it is not possible for us to predict all risks that may affect
us. Future events and actual results, performance and achievements could differ
materially from those set forth in, contemplated by or underlying the
forward-looking statements, which speak only as of the date on which they were
made. Except as required by law, we assume no obligation to update or revise any
forward-looking statement to reflect actual results or changes in, or additions
to, the factors affecting such forward-looking statements. Given those risks and
uncertainties, investors should not place undue reliance on forward-looking
statements as predictions of actual results.
Item
1. BUSINESS
Unless
otherwise indicated, the amounts and discussion contained in this Form 10-K
relate to continuing operations only and accordingly do not include amounts
attributable to our Wire business, which we sold on September 29,
2008.
Kulicke
and Soffa Industries, Inc. (the “Company” or “K&S”) designs, manufactures
and sells capital equipment and expendable tools used to assemble semiconductor
devices, including integrated circuits (“IC”), high and low powered discrete
devices, light-emitting diodes (“LEDs”), and power modules. We also service,
maintain, repair and upgrade our equipment. Our customers primarily consist of
semiconductor device manufacturers, outsourced semiconductor assembly and test
providers (“OSAT”), other electronics manufacturers and automotive electronics
suppliers.
We
operate two main business segments, Equipment and Expendable Tools. Our goal is
to be the technology leader and the lowest cost supplier in each of our major
product lines. Accordingly, we invest in research and engineering projects
intended to enhance our position at the leading edge of semiconductor assembly
technology. We also remain focused on our cost structure, through consolidating
operations, moving manufacturing to Asia, moving our supply chain to lower cost
suppliers and designing higher performing, lower cost equipment. Cost reduction
efforts are an important part of our normal ongoing operations, and are expected
to generate savings without compromising overall product quality and service
levels.
1
On
October 3, 2008, we 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, we 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. The
Orthodyne wedge bonding business is the leading supplier of both heavy wire
wedge bonders and wedges (the expendable tools used in wedge bonding) for the
power semiconductor and hybrid module markets.
On
September 29, 2008, we completed the sale of our Wire business for net proceeds
of $149.9 million to W.C. Heraeus GmbH (“Heraeus”). The financial results of the
Wire business have been included in discontinued operations in the consolidated
financial statements for all periods presented.
K&S
was incorporated in Pennsylvania in 1956. Our principal offices are located at 6
Serangoon North Avenue 5, #03-16, Singapore 554910 and our telephone number in
the United States is (215) 784-6000. We maintain a website with the address
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 at www.sec.gov and at
the SEC’s Public Reference Room at 100 F Street NE Washington DC
20549.
Our year
end for fiscal 2010, 2009 and 2008 was October 2, 2010, October 3, 2009, and
September 27, 2008, respectively.
Business
Environment
The
semiconductor business environment is highly volatile, driven by both internal
cyclical dynamics as well as macroeconomic forces. Over the long term,
semiconductor consumption has historically grown, and is forecast to continue to
grow. This growth is driven, in part, by regular advances in device performance
and by price declines that result from improvements in manufacturing technology.
In order to exploit these trends, semiconductor manufacturers, both integrated
device manufacturers (“IDMs”) and OSATs, periodically aggressively invest in
latest generation capital equipment. This buying pattern often leads to periods
of excess supply and reduced capital spending — the so called
semiconductor cycle. Macroeconomic factors also affect the industry, primarily
through their effect on business and consumer demand for electronic devices, as
well as other products that have significant electronic content such as
automobiles, white goods, and telecommunication equipment.
Our
Equipment segment reflects the industry’s cyclical dynamics and is therefore
also highly volatile. The financial performance of this segment is affected,
both positively and negatively, by semiconductor manufacturers’ expectations of
capacity requirements and their plans for upgrading their production
capabilities. Volatility of this segment is further influenced by the relative
mix of IDM and OSAT customers in any period, since changes in the mix of sales
to IDMs and OSATs can affect our products’ average selling prices and gross
margins due to differences in volume purchases and machine configurations
required by each type of customer.
Our
Expendable Tools segment is less volatile than our Equipment segment, since
sales of expendable tools are directly tied to semiconductor unit consumption
rather than their expected growth rate.
2
Though
the semiconductor industry’s cycle can be independent of the general economy,
global economic conditions may have a direct impact on demand for semiconductor
units and ultimately demand for semiconductor capital equipment and expendable
tools. Business conditions in the semiconductor industry improved significantly
during fiscal 2010 after a dramatic deterioration in the global economy and a
corresponding reduction in semiconductor production activity during fiscal 2009.
We expect overall demand to be lower during the first quarter of fiscal 2011 as
compared to the fourth quarter of fiscal 2010. Our visibility into future demand
beyond that is generally limited and forecasting is difficult. There can be no
assurances regarding levels of demand for our products and we believe historic
industry-wide volatility will persist.
To
mitigate possible negative effects of this industry-wide volatility on our
financial position, we have de-leveraged and strengthened our balance sheet.
During fiscal 2010, we reduced our debt by $49.0 million, and ended fiscal 2010
with cash and investments totaling $181.3 million. As of October 2, 2010, our
total cash, cash equivalents and investments exceeded the face value of our
total debt by $71.3 million. We believe a strong cash position allows us to
continue making longer term investments in product development and in cost
reduction activities throughout the semiconductor cycle.
Technology
Leadership
We
compete largely by offering our customers the most advanced equipment and
expendable tools available for the wire, wedge and die bonding processes. Our
equipment is typically the most productive, has the highest levels of process
capability, and as a result, has the lowest cost of ownership available in their
respective markets. Our expendable tools are designed to optimize
the performance of the equipment in which they are used. We believe our
technology leadership contributes to the leading market share positions of our
various wire bonder and expendable tools products. To maintain our competitive
advantage, we invest in product development activities to produce a stream of
improvements to existing products and to deliver next-generation products. These
investments often focus as much on improvements in the semiconductor assembly
process as on specific pieces of assembly equipment or expendable tools. In
order to generate these improvements, we often work in close collaboration with
customers, end users, and other industry members. In addition to producing
technical advances, these collaborative development efforts strengthen customer
relationships and enhance our reputation as a technology leader and solutions
provider.
K&S’s
leadership in the industry’s use of copper wire, instead of gold, for the wire
bonding process is an example of the benefits of collaborative efforts. By
working with customers, material suppliers, and suppliers of equipment used
around the wire bonding process, we have developed a series of robust, high
yielding production processes that have made copper wire commercially viable,
significantly reducing the cost of assembling an integrated circuit. Many of our
customers started large scale conversion of their output to copper wire in
fiscal 2010. We expect this conversion process to continue throughout the
industry for the next several years, potentially driving a significant wire
bonder replacement cycle as we believe much of the industries’ installed base is
not suitable for copper bonding. Based on our industry leading copper bonding
processes, we believe the market share for wire bonders configured for copper
wire is much higher than our already leading market share for ball bonders in
general.
We also
maintain the technology leadership of our equipment by optimizing variants of
our products to serve high growth niche markets. For example, over the last two
years we have developed extensions of our main ball bonding platforms to address
opportunities in LED assembly. We estimate the LED device market to be driven by
the adoption of LED backlights for flat-screen displays as well as other LED
applications in general lighting. In fiscal 2009, we launched two products
optimized for these applications. These products represent our first product
offerings specifically aimed at this high growth market, and since their
introduction we have captured significant market share.
Another
example of our developing equipment for high growth niche markets is our AT
Premier. This machine utilizes a modified wire bonding process to mechanically
place bumps on devices, while still in a wafer format, for variants of the flip
chip assembly process. Typical applications include complimentary metal-oxide
semiconductor (“CMOS”) image sensors, surface acoustical wave (“SAW”) filters
and high brightness LEDs.
Our focus
on technology leadership also extends to die bonding. We offer a new die bonding
platform, our state of the art iStackPS die
bonder for advanced stacked die applications. iStackPS offers best-in-class
throughput and accuracy, and we believe iStackPS
is positioned to lead the market for its targeted applications.
3
We bring
the same technology focus to our expendable tools business, driving tool design
and manufacturing technology to optimize the performance and process capability
of the equipment in which our tools are used. For all our equipment products,
expendable tools are an integral part of their process capability. We believe
our unique ability to simultaneously develop both equipment and tools is one of
the reasons for our technology leadership position.
Products
and Services
We supply
a range of bonding equipment and expendable tools. The following table reflects
net revenue by business segment for fiscal 2010, 2009 and 2008:
(dollar amounts in
thousands)
|
Fiscal 2010
|
% of Fiscal
2010 Net
Revenue
|
Fiscal 2009
|
% of Fiscal
2009 Net
Revenue
|
Fiscal 2008
|
% of Fiscal
2008 Net
Revenue
|
||||||||||||||||||
Equipment
|
$ | 691,988 | 90.7 | % | $ | 170,536 | 75.7 | % | $ | 271,019 | 82.6 | % | ||||||||||||
Expendable
Tools
|
70,796 | 9.3 | % | 54,704 | 24.3 | % | 57,031 | 17.4 | % | |||||||||||||||
Total
|
$ | 762,784 | 100.0 | % | $ | 225,240 | 100.0 | % | $ | 328,050 | 100.0 | % |
See Note
12 to our Consolidated Financial Statements included in Item 8 of this report
for our financial results by business segment.
Equipment
Segment
We
manufacture and sell a line of ball bonders, heavy wire wedge bonders, stud
bumpers, and die bonders that are sold to semiconductor device manufacturers,
OSATs, other electronics manufacturers and automotive electronics suppliers.
Ball bonders are used to connect very fine wires, typically made of gold or
copper, between the bond pads of the semiconductor device, or die, and the leads
on its package. Wedge bonders use either aluminum wire or ribbon to perform the
same function in packages that cannot use gold or copper wire because of either
high electrical current requirements or other package reliability issues. Stud
bumpers mechanically apply bumps to die, typically while still in the wafer
format, for some variants of the flip chip assembly process. Die bonders are
used to attach a die to the substrate or lead frame which will house the
semiconductor device. We believe our equipment offers competitive advantages by
providing customers with high productivity/throughput, superior package
quality/process control, and as a result, a lower cost of
ownership.
4
Our
principal Equipment segment products include:
Business Unit
|
Product Name
|
Typical Served Market
|
||
Ball
bonders
|
IConnPS
|
Advanced
and ultra fine pitch applications using either gold or copper
wire
|
||
IConnPS ProCu
|
Advanced
copper wire applications demanding high productivity
|
|||
IConnPS LA
|
Large
area applications
|
|||
ConnXPS
|
Cost
performance, low pin count applications using either gold or copper
wire
|
|||
ConnXPS
LED
|
LED
applications
|
|||
ConnXPS
VLED
|
Vertical
LED applications
|
|||
ConnXPS LA
|
Large
area applications
|
|||
AT
Premier
|
Stud
bumping applications (high brightness LED and image
sensor)
|
|||
Wedge
bonders
|
3600Plus
|
Power
hybrid and automotive modules using either aluminum wire or
ribbon
|
||
7200Plus
|
Power
semiconductors using either aluminum wire or ribbon
|
|||
7200HD
|
Smaller
power packages using either aluminum wire or ribbon
|
|||
7600HD
|
Power
semiconductors including smaller power packages using either aluminum wire
or ribbon
|
|||
Die
bonder
|
iStackPS
|
Advanced
stacked die and ball grid array
applications
|
Ball
Bonders
Automatic
ball bonders represent the largest portion of our semiconductor equipment
business. Our main product platform for ball bonding is the Power Series (“PS”) — a
family of assembly equipment that is setting new standards for performance,
productivity, upgradeability, and ease of use. Our Power Series consists of our
IConnPS high-performance ball
bonders, and our ConnXPS
cost-performance ball bonders, both of which can be configured for either gold
or copper wire. In addition, targeted specifically at the fast growing LED
market, the Power Series includes our ConnX PS
LED and our ConnX PS
VLED. Targeted for large area applications, the Power Series includes
our IConnPS LA
and ConnXPS LA.
In November 2010, we introduced the IConnPS ProCu
which offers a significant new level of capability for customers transitioning
from gold to copper wire bonding.
Our Power
Series products have advanced industry performance standards. Our ball bonders
are capable of performing very fine pitch bonding, as well as creating the
sophisticated wire loop shapes needed in the assembly of advanced semiconductor
packages. Our ball bonders can also be converted for use to copper applications
through kits we sell separately, a capability that is increasingly important as
bonding with copper continues to grow as an alternative to gold.
5
Heavy
Wire Wedge Bonders
We are
the leaders in the design and manufacture of heavy wire wedge bonders for the
power semiconductor and automotive power module markets. Wedge bonders may 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. In addition, we see some potential
use for our wedge bonder products in select solar applications.
Our
portfolio of wedge bonding products includes:
|
·
|
The
3600Plus: high speed, high accuracy wire bonders designed for
power modules, automotive packages and other large wire multi-chip module
applications.
|
|
·
|
The
7200Plus: dual head wedge bonder designed specifically for
power semiconductor applications.
|
|
·
|
The
7200HD: wedge bonder designed for smaller power packages
using either aluminum wire or
ribbon.
|
|
·
|
The
7600HD: wedge bonder targeted for small power
packages.
|
While
wedge bonding traditionally utilized aluminum wire, all of our wedge bonders are
also available modified to bond aluminum ribbon using our proprietary
PowerRibbon® process. Ribbon offers device makers performance advantages over
traditional round wire and is being increasingly used for high current packages
and automotive applications.
Die
Bonders
Our die
bonder, the iStackPS,
was launched in March of 2009 and focuses on stacked die applications for both
memory and subcontract assembly customers.
iStackPS
is targeted at stacked die and high end ball grid array (“BGA”) applications. In
these applications, we expect up to 40% productivity increases compared to
current generation machines. In addition, iStackPS
has demonstrated superior accuracy and process control.
Other
Equipment Products and Services
We also
sell manual wire bonders, and we offer spare parts, equipment repair, training
services, and upgrades for our equipment through our Support Services business
unit.
Expendable
Tools Segment
We
manufacture and sell a variety of expendable tools for a broad range of
semiconductor packaging applications. Our principal Expendable Tools segment
products include:
|
·
|
Capillaries: expendable
tools used in ball bonders. Made of ceramic, a capillary guides the wire
during the ball bonding process. Its features help control the bonding
process. We design and build capillaries suitable for a broad range of
applications, including for use on our competitors’ equipment. In
addition, our capillaries are used with both gold and copper
wire.
|
|
·
|
Bonding
wedges: expendable tools used in wedge bonders. Like
capillaries, their specific features are tailored to specific
applications. We design and build bonding wedges for use both in our own
equipment and in our competitors’
equipment.
|
|
·
|
Saw
blades: expendable tools used by semiconductor manufacturers to
cut silicon wafers into individual semiconductor die and to cut
semiconductor devices that have been molded in a matrix configuration into
individual units.
|
6
Customers
Our major
customers include IDMs and OSAT companies, industrial manufacturers and
automotive electronics suppliers. Revenue from our customers may vary
significantly from year-to-year based on their capital investments, operating
expense budgets, and overall industry trends.
The
following table reflects our top ten customers, based on net revenue, for each
of the last three fiscal years:
Fiscal
2010
|
Fiscal
2009
|
Fiscal
2008
|
|||||
1.
|
Advance
Semiconductor Engineering *
|
1.
|
Advance
Semiconductor Engineering *
|
1.
|
Advance
Semiconductor Engineering
|
||
2.
|
Siliconware
Precision Industries, Ltd. *
|
2.
|
Amkor
Technology, Inc.
|
2.
|
STATS
ChipPAC
|
||
3.
|
Haoseng
Industrial Co., Ltd. **
|
3.
|
Siliconware
Precision Industries, Ltd.
|
3.
|
Haoseng
Industrial Co., Ltd. **
|
||
4.
|
Amkor
Technology, Inc.
|
4.
|
Haoseng
Industrial Co., Ltd. **
|
4.
|
Amkor
Technology, Inc.
|
||
5.
|
Texas
Instruments, Inc.
|
5.
|
Texas
Instruments, Inc.
|
5.
|
Siliconware
Precision Industries, Ltd.
|
||
6.
|
Untited
Test And Assembley Center
|
6.
|
First
Technology China, Ltd. **
|
6.
|
Sandisk
Semiconductor
|
||
7.
|
First
Technology China, Ltd. **
|
7.
|
Techno
Alpha Co. **
|
7.
|
Immmex
Company, Ltd. **
|
||
8.
|
ST
Microelectronics
|
8.
|
ST
Microelectronics
|
8.
|
Texas
Instruments
|
||
9.
|
HANA
Micron
|
9.
|
Samsung
|
9.
|
ST
Microelectronics
|
||
10.
|
Renesas
Semiconductor
|
10.
|
Micron
Technology Incorporated
|
10.
|
Samsung
|
* Represents
more than 10% of net revenue for the applicable fiscal year.
**
Distributor of our products.
Approximately
98.6%, 97.0%, and 95.6% and of our net revenue for fiscal 2010, 2009 and 2008,
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 net
revenue.
See Note
12 to our Consolidated Financial Statements included in Item 8 of this report
for sales to customers by geographic location.
Sales
and Customer Support
We
believe long-term customer relationships are critical to our success, and
comprehensive sales and customer support are an important means of establishing
those relationships. To maintain these relationships, we utilize multiple
distribution channels using either our own employees, manufacturers’
representatives, distributors, or a combination of the three, depending on the
product, region, or end-use application. In all cases, our goal is to position
our sales and customer support resources near our customers’ facilities so as to
provide support for customers in their own language and consistent with local
customs. Our sales and customer support resources are located primarily in
Taiwan, China, Korea, Malaysia, the Philippines, Japan, Singapore, Thailand, the
United States, and Germany. Supporting these local resources, we have technology
centers offering additional process expertise in China, Singapore, Japan,
Israel, the United States, and Switzerland.
By
establishing relationships with semiconductor manufacturers, OSATs, and
vertically integrated manufacturers of electronic systems, we gain insight into
our customers’ future semiconductor packaging strategies. These insights assist
us in our efforts to develop products and processes that address our customers’
future assembly requirements.
7
Backlog
Because
of the volatility of customer demand, 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 October 2, 2010 and October 3,
2009:
(in
thousands)
|
As
of
|
|||||||
October
2, 2010
|
October
3, 2009
|
|||||||
Backlog
|
$ | 252,459 | $ | 42,181 |
Manufacturing
We
believe excellence in manufacturing can create a competitive advantage, both by
producing at lower costs and by providing superior responsiveness to changes in
customer demand. To achieve these goals, we manage our manufacturing operations
through a single organization and believe that fewer, larger factories allow us
to capture economies of scale and generate cost savings through lower
manufacturing costs.
Equipment
Our
equipment manufacturing activities consist mainly of integrating outsourced
parts and subassemblies and testing finished products to customer
specifications. While we largely utilize an outsource model, allowing us to
minimize our fixed costs and capital expenditures, for certain low-volume, high
customization parts, we manufacture subassemblies ourselves. 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. In addition, we operate a subassembly manufacturing and supply
management facility in Malaysia. 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. When the
transition from California to Singapore is complete, we will manufacture all of
our equipment in Asia.
We have
ISO 9001 certification for our equipment manufacturing facilities in Singapore,
Irvine, California, and Switzerland (legacy model die bonders and spares
manufacturing), and our subassembly manufacturing facility in Malaysia. In
addition, we have ISO 14001 certifications for our equipment manufacturing
facilities in Singapore and Irvine, California.
Expendable
Tools
We
manufacture saw blades and capillaries at our facility in Suzhou, China. The
capillaries are made using blanks produced at our facility in Yokneam, Israel.
We outsource the production of our bonding wedges. Both the Suzhou and Yokneam
facilities are ISO 9001 and ISO 14001 certified.
8
Research
and Product Development
Many of
our customers generate technology roadmaps describing their projected packaging
technology requirements. Our research and product development activities are
focused on delivering robust production solutions to those projected
requirements. We accomplish this by regularly introducing improved versions of
existing products or by developing next-generation products. We follow this
product development methodology in all our major product lines. Research and
development expense was $56.7 million, $53.5 million, and $59.9 million during
fiscal 2010, 2009 and 2008 respectively.
Intellectual
Property
Where
circumstances warrant, we apply 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,
many of which have foreign counterparts. We believe the duration of our patents
often 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, 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
|
|
·
|
Wedge
bonders: F&K Delvotec, Hesse & Knipps and
Cho-Onpa
|
|
·
|
Die
bonders: ASM Pacific Technology, BE Semiconductor Industries
N.V., Hitachi, Shinkawa and Canon
|
Significant
competitive factors in the semiconductor packaging materials industry include
performance, price, delivery, product life, and quality. Our significant
expendable tools competitors include:
|
·
|
Capillaries:
PECO and Small Precision Tools,
Inc.
|
|
·
|
Saw
blades: Disco Corporation
|
|
·
|
Bonding
wedges: Small Precision Tools, Inc.
|
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 expect to 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. However, it is possible that material environmental costs or
liabilities may arise in the future.
9
Employees
As of
October 2, 2010, we had approximately 2,250 regular full-time employees and 700
temporary workers worldwide.
Executive
Officers of the Company
The
following table reflects certain information regarding our executive officers as
of October 2, 2010. 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
|
|||
Bruno
Guilmart
|
49
|
2010
|
President
and Chief Executive Officer
|
|||
C.
Scott Kulicke
|
61
|
1980
|
Retired
Chief Executive Officer
|
|||
Christian
Rheault
|
45
|
2005
|
Senior
Vice President, Business Operations
|
|||
Charles
Salmons
|
55
|
1992
|
Senior
Vice President, Engineering
|
|||
Shay
Torton
|
49
|
2005
|
Senior
Vice President, Worldwide Operations
|
|||
Ran
Bareket
|
44
|
2009
|
Vice
President and interim Principal Accounting Officer
|
|||
Jason
Livingston
|
40
|
2009
|
Former
Vice President of Wedge Bonder business unit
|
|||
Tek
Chee ("TC") Mak
|
56
|
2006
|
Vice
President, Worldwide Sales
|
|||
Michael
J. Morris
|
41
|
2009
|
Vice
President and Chief Financial
Officer
|
Bruno Guilmart joined the
Company as President and Chief Executive Officer (“CEO”) and a member of the
Company’s Board of Directors on October 1, 2010. Mr. Guilmart is located at the
Company’s headquarters in Singapore. Before joining K&S, Mr. Guilmart was
CEO of Lattice Semiconductor. Prior to joining Lattice in June 2008, Mr.
Guilmart was CEO of Unisem group. Mr. Guilmart was, until his appointment with
Unisem, President and CEO of Advanced Interconnect Technologies (“AIT”), a
company acquired by Unisem in July 2007. Prior to AIT, Mr. Guilmart was senior
vice president for worldwide sales and marketing at Chartered Semiconductor
Manufacturing. Mr. Guilmart holds a Master’s degree in Electronics and Business
Management and a Bachelor degree in Electrical Engineering from the Paris XI
Institute of Technology in France.
C. Scott Kulicke served as
Chief Executive Officer and a member of the Company’s Board of Directors from
1980 until his retirement on October 9, 2010. In addition, he served as Chairman
of the Board of Directors from 1984 until May 2010.
Christian Rheault was
appointed Senior Vice President, Business Operations in November 2010 after
serving as Senior Vice President, Marketing since November 2007. In
addition, Mr. Rheault served as Vice President, Equipment
segment during 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 holds an Electrical Engineering degree from Laval
University, Canada and a DSA (Business Administration Diploma) from Sherbrooke
University, Canada.
Charles Salmons has 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 holds a Bachelor of
Arts degree in Economics from Temple University and a Master of Business
Administration degree from LaSalle University.
Shay Torton has served as
Senior Vice President, Worldwide Operations since 2009 after serving as Vice
President, Worldwide Operations and Supply Chain (2005-2009), Vice President,
China Operations and K&S Suzhou General Manager (2002-2005), Vice
President and General Manager, Materials Business Unit (2001-2002), K&S
Bonding Wire Business Unit Managing Director-Singapore (1997) and General
Manager, K&S Bonding Wire-U.S. (1996). Mr. Torton holds a Bachelor of
Science degree in Industrial Engineering and Management from the Israel
Institute of Technology.
10
Ran Bareket was appointed
interim Principal Accounting Officer in July 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 and
Director of Worldwide Financial Operations since 2005. In connection with the
relocation of the Company’s headquarters from the U.S. to Singapore, the
Corporate Controller position will be transitioned to Singapore and Mr. Bareket
is expected to leave the Company on January 1, 2011. Mr. Bareket holds a
Bachelor of Arts degree in Accounting/Management from Tel Aviv Management
College in Israel and a Master of Business Administration from Pennsylvania
State University.
Jason Livingston served as
Vice President of the K&S Wedge Bonder business unit from October 2009 until
his resignation on October 31, 2010, 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. Morris has served
as Vice President and Chief Financial Officer (“CFO”) since August 2009. In
connection with the relocation of the Company’s headquarters from the U.S. to
Singapore, the CFO position will be transitioned to Singapore and Mr. Morris is
expected to leave the Company on January 21, 2011. 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 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 volatile
worldwide economic conditions.
Though
the semiconductor industry’s cycle can be independent of the general economy,
global economic conditions may have direct impact on demand for semiconductor
units and ultimately demand for semiconductor capital equipment and expendable
tools. Accordingly, our business and financial performance is impacted, both
positively and negatively, by fluctuations in the macroeconomic environment.
During the first half of fiscal 2009, we saw a dramatic deterioration in the
global economy and a corresponding reduction in semiconductor production
activity; however, business conditions in the semiconductor industry began to
improve by the end of fiscal 2009 and continued to accelerate through most of
fiscal 2010. We expect demand to soften, at least in early fiscal 2011. Our
visibility into future demand beyond that is generally limited and forecasting
is difficult. There can be no assurances regarding levels of demand for our
products and we believe historic industry-wide volatility will
persist.
The
semiconductor industry is volatile with sharp periodic downturns and slowdowns.
Cyclical industry downturns are made worse by volatile global economic
conditions.
Our
operating results are significantly affected by the capital expenditures of
semiconductor manufacturers, both IDMs and OSATs. Expenditures by our 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 reduce demand for our products and materially
and adversely affect our business, financial condition and operating
results.
11
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.
Downturns have been characterized by, among other things, diminished product
demand, excess production capacity, and accelerated erosion of selling prices.
Historically these downturns have severely and negatively affected the
industry’s demand for capital equipment, including assembly equipment and, to a
lesser extent, expendable tools. There can be no assurances regarding levels of
demand for our products. In any case, we believe the historical volatility of
our business, both upward and downward, will persist.
We
may experience increasing price pressure.
Typically
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. These efforts
may not be able to 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 revenue 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 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 could
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,
restructuring, and other costs of relocating
facilities;
|
·
|
inventory
write-offs due to obsolescence; and
|
·
|
an
increase in the cost of labor or
materials.
|
12
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
may not be able to rapidly develop, manufacture and gain market acceptance of
new and enhanced products required to maintain or expand our
business.
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, or lower prices which 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 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
98.6%, 97.0%, and 95.6% of our net revenue for fiscal 2010, 2009 and 2008,
respectively, were for shipments to customers located outside of the United
States, primarily 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. Some 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 substantially all of our manufacturing operations are located in
countries other than the United States. We manufacture our ball and die bonders
in Singapore, our saw blades and capillaries in China, certain bonder
subassemblies in Malaysia and capillary blanks in Israel. We manufacture wedge
bonder components in California, Singapore and Malaysia. In addition, we have
sales, service and support personnel in China, Israel, Japan, Korea, Malaysia,
the Philippines, Singapore, Switzerland, Taiwan, Thailand, United States and
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, outbreaks of
influenza;
|
·
|
tariff
and currency fluctuations;
|
13
·
|
changing
political conditions;
|
·
|
labor
work stoppages and strikes in our factories or the factories of our
suppliers;
|
·
|
foreign
governments’ monetary policies and regulatory
requirements;
|
·
|
less
protective foreign intellectual property laws;
and
|
·
|
legal
systems which are less developed and 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 strengthening 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
nearly 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, both of which
could have a adverse effect on our cash flows. Our primary exposures include the
Japanese Yen, Singapore Dollar, Malaysian Ringgit, Chinese Yuan, Swiss Franc,
Philippine Peso, Taiwan Dollar, South Korean Won, Israeli Shekel and Euro. 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 have not
entered into foreign exchange forward contracts but may enter into foreign
exchange forward contracts or 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 continue to
migrate manufacturing and other facilities to Asia. We may incur significant and
unexpected costs, delays and disruptions to our business during this 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 we currently expect.
14
Our
business depends on attracting and retaining management, marketing and technical
employees as well as on the succession of senior management.
Our
future success depends on our ability to hire and retain qualified management,
marketing, finance, accounting and technical employees, including senior
management, primarily in Asia. In September 2010, as previously announced,
C. Scott Kulicke retired from his position as CEO and Bruno Guilmart succeeded
Mr. Kulicke as CEO on October 1, 2010. Additionally on November 16, 2010, we
appointed Jonathan H. Chou as Senior Vice President and CFO effective December
13, 2010 and notified Michael J. Morris, our current CFO that in connection with
the relocation of our headquarters to Singapore, Mr. Chou has been hired to
serve as our CFO. Both Mr. Guilmart and Mr. Chou have not been previously
affiliated with us; thus, if we are not successful in effectively transitioning
the CEO and CFO responsibilities to them, our business could be adversely
impacted. We may decide to move additional senior management positions to
Singapore. We also plan to move additional finance and accounting positions
to Singapore. We may experience unanticipated costs and disruptions to our
business as we continue to move management, finance
and accounting positions from the U.S. to Asia. If we are unable to
continue to attract and retain the managerial, marketing, finance,
accounting 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 may be materially and adversely
affected.
Difficulties
in forecasting demand for our product lines may lead to periodic inventory
shortages or excesses.
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. 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 IC package, as compared to traditional wire 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 net 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 revenue. Sales as a percent of net revenue
to our largest customer were 23.0%, 17.7%, and 9.9%, for fiscal 2010, 2009, and
2008, respectively.
We expect
a small number of customers will continue to account for a high percentage of
our net revenue 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.
15
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 many components and raw materials. As a
result, we are exposed to a number of significant risks, including:
·
|
decreased
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 issues 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 customers;
|
·
|
loss
of suppliers as a result of consolidation of suppliers in the industry;
and
|
·
|
loss
of suppliers because of their bankruptcy or
insolvency.
|
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
are unable to maintain acceptable product quality or reliability, 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. We may be
unable to successfully integrate acquired businesses with our existing
businesses and successfully implement, improve and expand our systems,
procedures and controls to accommodate these acquisitions. These transactions
place additional constraints on our management and current labor force.
Additionally, these transactions require significant resources from our legal,
finance and business teams. In addition, we may divest existing businesses,
which would cause a decline in revenue 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 if we do not achieve the perceived benefits
of such acquisitions or divestitures 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.
16
We
may be unable to continue to compete successfully in the highly competitive
semiconductor equipment and packaging materials industries.
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 similar to or better than
ours. New product and material 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 have rights to technology 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 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.
17
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. Any
costs or liabilities to comply with or imposed under these laws and regulations
could 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 0.875% Subordinated Convertible Notes are not converted to
shares of our common stock, we will be required to make annual cash interest
payments of $1.0 million in each fiscal 2011 and 2012 (assuming we do not
purchase any outstanding 0.875% Subordinated Convertible Notes). As of October
2, 2010, a principal payment of $110.0 million on the 0.875% Subordinated
Convertible Notes is due in June 2012. 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
volatile 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 may
not generate cash in an amount sufficient to enable us to service interest,
principal and other payments on our debt, including the 0.875% 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.
18
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 70.5 million shares were outstanding as of October 2, 2010. 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 or our independent registered public accountants may
identify material weaknesses in our internal controls which could adversely
affect our ability to ensure 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% Convertible
Subordinated Notes, are subject to change.
In
calculating our diluted earnings per share, we recognize interest expense at the
stated coupon rate, and shares potentially issuable upon conversion of our
0.875% Convertible Subordinated 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 would 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.
Beginning
fiscal 2010, we implemented the Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) No. 470.20, Debt, Debt With Conversion
Options (“ASC 470.20”). ASC 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.
This
change in the accounting method for convertible debt securities has and will
continue to have an adverse impact on our reported and future results of
operations.
19
Other
Risks
Our
ability to recognize tax benefits on future domestic U.S. tax losses and our
existing U.S. net operating loss position may be limited.
We have
generated net operating loss carry-forwards 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.
Potential
changes to U.S. and foreign tax laws could increase our income tax
expense.
We are
subject to income taxes in the U. S. 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.
Anti-takeover
provisions in our articles of incorporation and bylaws, and under Pennsylvania
law may discourage other companies from attempting to acquire us.
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. 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, China, Malaysia and Israel. 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.
Item
1B. UNRESOLVED STAFF COMMENTS
None.
20
Item
2. PROPERTIES
The
following table reflects our major facilities as of October 2,
2010:
Facility
|
Approximate Size
|
Function
|
Products Manufactured
|
Lease Expiration
Date
|
||||
Singapore
|
129,944
sq. ft. (1)
|
Corporate
headquarters, manufacturing, technology center
|
Wire
and die bonders
|
July
2013
|
||||
Suzhou,
China
|
151,891
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
|
||||
Fort
Washington, Pennsylvania
|
88,000
sq. ft. (1)
|
Technology
center, sales and service, corporate finance
|
Not
applicable
|
September
2028 (3)
|
||||
Berg,
Switzerland
|
71,344
sq. ft. (2)
|
Manufacturing,
technology center
|
Die
bonder sub-assembly and spares
|
N/A
|
||||
Yokneam,
Israel
|
53,820
sq. ft. (1)
|
Manufacturing,
technology center
|
Capillary
blanks (semi-finish)
|
January
2013
|
||||
Petaling
Jaya, Malaysia
|
37,200
sq ft (1)
|
Subassembly
manufacturing and supply chain management
|
Equipment
subassembly
|
August
2012
|
(1)
Leased.
(2)
Owned.
(3)
Includes lease extension periods at the Company’s option. Initial lease expires
September 2018.
(4)
Includes lease extension periods at the Company’s option. Initial lease expires
October 2017.
In
addition, we rent space for sales and service offices and administrative
functions in: Taiwan, China, Korea, Malaysia, the Philippines, Japan, Singapore,
Thailand, and Germany. We believe our facilities are generally in good condition
and suitable to the extent of utilization needed.
Item
3. LEGAL
PROCEEDINGS
From time
to time, we may be a plaintiff or defendant in cases arising out of our
business. We cannot be 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. [REMOVED AND RESERVED]
21
PART
II
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 2010
|
Fiscal 2009
|
|||||||||||||||
High
|
Low
|
High
|
Low
|
|||||||||||||
First
Quarter
|
$ | 6.30 | $ | 4.03 | $ | 4.71 | $ | 1.11 | ||||||||
Second
Quarter
|
$ | 7.67 | $ | 4.55 | $ | 2.67 | $ | 1.15 | ||||||||
Third
Quarter
|
$ | 9.58 | $ | 6.13 | $ | 5.04 | $ | 2.11 | ||||||||
Fourth
Quarter
|
$ | 8.87 | $ | 5.27 | $ | 6.68 | $ | 3.00 |
On
December 5, 2010, there were approximately 380 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 our business.
For the
purpose of calculating the aggregate market value of shares of our common stock
held by non-affiliates, as shown on the cover page of this report, we have
assumed all of our outstanding shares were held by non-affiliates 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 2011 Annual Meeting
of Shareholders to be filed with the Securities and Exchange Commission on or
about December 30, 2010.
Equity
Compensation Plan Information
The
information required hereunder will appear under the heading “Equity
Compensation Plans” in our Proxy Statement for the 2011 Annual Meeting of
Shareholders which information is incorporated herein by reference.
Recent
Sales of Unregistered Securities and Use of Proceeds
None.
Purchases
of Equity Securities by the Issuer and Affiliated Purchasers
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 2010, 2009,
2008, 2007 and 2006.
As of
October 4, 2009, we adopted Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) No. 470.20, Debt, Debt With Conversion
Options (“ASC 470.20”) on a retrospective basis for all prior
periods. Fiscal 2009 includes the assets of Orthodyne which were acquired
on October 3, 2008. Our Wire business was sold on September 29, 2008; therefore,
fiscal 2008, 2007 and 2006 have been reclassified to reflect our Wire business
as a discontinued operation.
This data
should be read in conjunction with our consolidated financial statements,
including notes and other financial information included elsewhere in this
report 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.
22
Fiscal
|
||||||||||||||||||||
(in
thousands, except per share amounts)
|
2010
|
2009 *
|
2008 *
|
2007 *
|
2006 *
|
|||||||||||||||
Statement
of Operations Data:
|
||||||||||||||||||||
Net
revenue:
|
||||||||||||||||||||
Equipment
|
$ | 691,988 | $ | 170,536 | $ | 271,019 | $ | 316,718 | $ | 319,788 | ||||||||||
Expendable
Tools
|
70,796 | 54,704 | 57,031 | 53,808 | 60,508 | |||||||||||||||
Total
net revenue
|
762,784 | 225,240 | 328,050 | 370,526 | 380,296 | |||||||||||||||
Cost
of sales:
|
||||||||||||||||||||
Equipment
|
399,042 | 111,103 | 165,499 | 188,055 | 178,599 | |||||||||||||||
Expendable
Tools
|
28,069 | 25,294 | 28,758 | 27,035 | 28,474 | |||||||||||||||
Total
cost of sales (1)
|
427,111 | 136,397 | 194,257 | 215,090 | 207,073 | |||||||||||||||
Operating
expenses:
|
||||||||||||||||||||
Equipment
|
155,625 | 135,465 | 122,302 | 113,444 | 89,684 | |||||||||||||||
Expendable
Tools
|
32,013 | 24,193 | 26,971 | 24,480 | 23,316 | |||||||||||||||
Impairment
of goodwill: Equipment
|
- | 2,709 | - | - | - | |||||||||||||||
U.S.
pension plan termination: Equipment
|
- | - | 9,152 | - | - | |||||||||||||||
Gain
on sale of assets
|
- | - | - | - | (4,544 | ) | ||||||||||||||
Total
operating expenses (1)
|
187,638 | 162,367 | 158,425 | 137,924 | 108,456 | |||||||||||||||
Income
(loss) from operations:
|
||||||||||||||||||||
Equipment
|
137,321 | (78,741 | ) | (25,934 | ) | 15,219 | 51,505 | |||||||||||||
Expendable
Tools
|
10,714 | 5,217 | 1,302 | 2,293 | 8,718 | |||||||||||||||
Gain
on sale of assets
|
- | - | - | - | 4,544 | |||||||||||||||
Interest
income (expense), net
|
(7,930 | ) | (7,082 | ) | (3,869 | ) | 2,346 | 795 | ||||||||||||
Gain
on extinguishment of debt
|
- | 3,965 | 170 | 2,802 | 4,040 | |||||||||||||||
Income
(loss) from continuing operations before income taxes
|
140,105 | (76,641 | ) | (28,331 | ) | 22,660 | 69,602 | |||||||||||||
Provision
(benefit) for income taxes from continuing operations (2)
|
(2,037 | ) | (13,029 | ) | (3,610 | ) | 5,448 | 8,068 | ||||||||||||
Income
(loss) from continuing operations
|
142,142 | (63,612 | ) | (24,721 | ) | 17,212 | 61,534 | |||||||||||||
Income
(loss) from discontinued operations, net of tax (3)
|
- | 22,011 | 23,441 | 18,874 | (9,364 | ) | ||||||||||||||
Net
income (loss)
|
$ | 142,142 | $ | (41,601 | ) | $ | (1,280 | ) | $ | 36,086 | $ | 52,170 | ||||||||
Per
Share Data:
|
||||||||||||||||||||
Income
(loss) per share from continuing operations (4)
|
||||||||||||||||||||
Basic
|
$ | 2.01 | $ | (1.02 | ) | $ | (0.46 | ) | $ | 0.31 | $ | 1.12 | ||||||||
Diluted
|
$ | 1.92 | $ | (1.02 | ) | $ | (0.46 | ) | $ | 0.27 | $ | 0.91 | ||||||||
Income
(loss) per share from discontinued operations, net of tax:
|
||||||||||||||||||||
Basic
|
$ | - | $ | 0.35 | $ | 0.44 | $ | 0.33 | $ | (0.17 | ) | |||||||||
Diluted
|
$ | - | $ | 0.35 | $ | 0.44 | $ | 0.28 | $ | (0.14 | ) | |||||||||
Net
income (loss) per share: (5)
|
||||||||||||||||||||
Basic
|
$ | 2.01 | $ | (0.67 | ) | $ | (0.02 | ) | $ | 0.64 | $ | 0.95 | ||||||||
Diluted
|
$ | 1.92 | $ | (0.67 | ) | $ | (0.02 | ) | $ | 0.55 | $ | 0.78 | ||||||||
Weighted
average shares outstanding: (5)
|
||||||||||||||||||||
Basic
|
70,012 | 62,188 | 53,449 | 56,221 | 55,089 | |||||||||||||||
Diluted
|
73,548 | 62,188 | 53,449 | 68,274 | 68,881 |
Balance
Sheet Data:
|
||||||||||||||||||||
Cash,
cash equivalents, investments and restricted cash
|
$ | 181,334 | $ | 144,841 | $ | 186,081 | $ | 169,910 | $ | 157,283 | ||||||||||
Working
capital excluding discontinued operations
|
347,560 | 172,401 | 165,543 | 219,755 | 156,237 | |||||||||||||||
Total
assets excluding discontinued operations
|
580,169 | 412,635 | 335,614 | 383,779 | 261,109 | |||||||||||||||
Long-term
debt
|
98,475 | 92,217 | 151,415 | 222,446 | 195,000 | |||||||||||||||
Shareholders'
equity
|
$ | 322,480 | $ | 170,803 | $ | 125,396 | $ | 111,286 | $ | 79,306 |
23
* As
adjusted for ASC No.
470.20, Debt, Debt With
Conversion Options.
(1)
|
During
fiscal 2010 and 2009, we recorded $2.4 and $7.4 million, respectively, in
operating expense for restructuring-related
severance.
|
|
During
fiscal 2010, 2009, 2008, 2007 and 2006, we recorded $17.4 million, $2.7
million, $2.2 million, $4.4 million and $8.4 million, respectively, in
operating expense for incentive
compensation.
|
|
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.
|
(2)
|
The
following are the most significant factors which affect our provision for
income taxes: implementation of our international restructuring plan in
fiscal 2010, 2008, 2007, and 2006; volatility in our earnings each fiscal
year and variation in earnings among various tax jurisdictions in which we
operate; changes in assumptions regarding repatriation of earnings;
changes in tax legislation and our provision for various tax exposure
items.
|
(3)
|
Reflects
the operations of the Company’s Wire business (sold fiscal 2009) and Test
business (sold March 2006).
|
(4)
|
For
fiscal 2010, $1.5 million of net income applicable to participating
securities and the related participating securities were excluded from the
computation of basic income per
share.
|
(5)
|
For
fiscal 2010, 2007 and 2006 the exercise of dilutive stock options and
expected vesting of performance-based restricted stock (fiscal 2010 and
2007 only) and conversion of the Convertible Subordinated Notes were
assumed. In addition for those periods, $0.3 million, $1.3 million and
$1.4 million, respectively, of after-tax interest expense related to our
Convertible Subordinated Notes was added to the Company’s net income to
determine diluted earnings per share. Due to the Company’s net loss from
continuing operations for fiscal 2009 and 2008, potentially dilutive
shares were not assumed since the effect would have been
anti-dilutive.
|
24
Item
7.
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS
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, cost reductions,
operational flexibility, product development, demand forecasts, competitiveness,
operating expenses, cash flows, profitability, gross margins, and benefits
expected as a result of (among other factors):
|
·
|
projected growth rates in the
overall semiconductor industry, the semiconductor assembly equipment
market, and the market for semiconductor packaging materials;
and
|
|
·
|
projected demand for ball,
wedge and die bonder equipment and for expendable
tools.
|
Generally,
words such as “may,” “will,” “should,” “could,” “anticipate,” “expect,”
“intend,” “estimate,” “plan,” “continue,” “goal” and “believe,” or the negative
of or other variations on these and other similar expressions identify
forward-looking statements. These forward-looking statements are made only as of
the date of this filing. We do not undertake to update or revise the
forward-looking statements, whether as a result of new information, future
events or otherwise.
Forward-looking
statements are based on current expectations and involve risks and
uncertainties. Our future results could differ significantly from those
expressed or implied by our forward-looking statements. These risks and
uncertainties include, without limitation, those described below and under the
heading “Risk Factors” in this Annual Report on Form 10-K for the fiscal year
ended October 2, 2010 and our other reports and registration statements filed
from time to time with the Securities and Exchange Commission. This discussion
should be read in conjunction with the Consolidated Financial Statements and
Notes included in this report, as well as our audited financial statements
included in the Annual Report.
We
operate in a rapidly changing and competitive environment. New risks emerge from
time to time and it is not possible for us to predict all risks that may affect
us. Future events and actual results, performance and achievements could differ
materially from those set forth in, contemplated by or underlying the
forward-looking statements, which speak only as of the date on which they were
made. Except as required by law, we assume no obligation to update or revise any
forward-looking statement to reflect actual results or changes in, or additions
to, the factors affecting such forward-looking statements. Given those risks and
uncertainties, investors should not place undue reliance on forward-looking
statements as predictions of actual results.
Introduction
Unless
otherwise indicated, the amounts and discussion contained in this Form 10-K
relate to continuing operations only and accordingly do not include amounts
attributable to our Wire business, which we sold on September 29,
2008.
Kulicke
and Soffa Industries, Inc. (the “Company” or “K&S”) designs, manufactures
and sells capital equipment and expendable tools used to assemble semiconductor
devices, including integrated circuits (“IC”), high and low powered discrete
devices, light-emitting diodes (“LEDs”), and power modules. We also service,
maintain, repair and upgrade our equipment. Our customers primarily consist of
semiconductor device manufacturers, outsourced semiconductor assembly and test
providers (“OSAT”), other electronics manufacturers and automotive electronics
suppliers.
We
operate two main business segments, Equipment and Expendable Tools. Our goal is
to be the technology leader and the lowest cost supplier in each of our major
product lines. Accordingly, we invest in research and engineering projects
intended to enhance our position at the leading edge of semiconductor assembly
technology. We also remain focused on our cost structure, through consolidating
operations, moving manufacturing to Asia, moving our supply chain to lower cost
suppliers and designing higher performing, lower cost equipment. Cost reduction
efforts are an important part of our normal ongoing operations, and are expected
to generate savings without compromising overall product quality and service
levels.
25
On
October 3, 2008, we 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, we 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. The
Orthodyne wedge bonding business is the leading supplier of both heavy wire
wedge bonders and heavy wire wedges (the expendable tools used in wedge bonding)
for the power semiconductor and hybrid module markets.
On
September 29, 2008, we completed the sale of our Wire business for net proceeds
of $149.9 million to W.C. Heraeus GmbH (“Heraeus”). The financial results of the
Wire business have been included in discontinued operations in the consolidated
financial statements for all periods presented.
Business
Environment
The
semiconductor business environment is highly volatile, driven by both internal
cyclical dynamics as well as macroeconomic forces. Over the long term,
semiconductor consumption has historically grown, and is forecast to continue to
grow. This growth is driven, in part, by regular advances in device performance
and by price declines that result from improvements in manufacturing technology.
In order to exploit these trends, semiconductor manufacturers, both integrated
device manufacturers (“IDMs”) and OSATs, periodically aggressively invest in
latest generation capital equipment. This buying pattern often leads to periods
of excess supply and reduced capital spending — the so called
semiconductor cycle. Macroeconomic factors also affect the industry, primarily
through their effect on business and consumer demand for electronic devices, as
well as other products that have significant electronic content such as
automobiles, white goods, and telecommunication equipment.
Our
Equipment segment reflects the industry’s cyclical dynamics and is therefore
also highly volatile. The financial performance of this segment is affected,
both positively and negatively, by semiconductor manufacturers’ expectations of
capacity requirements and their plans for upgrading their production
capabilities. Volatility of this segment is further influenced by the relative
mix of IDM and OSAT customers in any period, since changes in the mix of sales
to IDMs and OSATs can affect our products’ average selling prices and gross
margins due to differences in volume purchases and machine configurations
required by each type of customer.
Our
Expendable Tools segment is less volatile than our Equipment segment, since
sales of expendable tools are directly tied to semiconductor unit consumption
rather than their expected growth rate.
Though
the semiconductor industry’s cycle can be independent of the general economy,
global economic conditions may have a direct impact on demand for semiconductor
units and ultimately demand for semiconductor capital equipment and expendable
tools. Business conditions in the semiconductor industry improved significantly
during fiscal 2010 after a dramatic deterioration in the global economy and a
corresponding reduction in semiconductor production activity during fiscal 2009.
We expect overall demand to be lower during the first quarter of fiscal 2011 as
compared to the fourth quarter of fiscal 2010. Our visibility into future demand
beyond that is generally limited and forecasting is difficult. There can be no
assurances regarding levels of demand for our products and we believe historic
industry-wide volatility will persist.
To
mitigate possible negative effects of this industry-wide volatility on our
financial position, we have de-leveraged and strengthened our balance sheet.
During fiscal 2010, we reduced our debt by $49.0 million, and ended fiscal 2010
with cash, cash equivalents, and investments totaling $181.3 million. As of
October 2, 2010, our total cash, and investments exceeded the face value of
our total debt by $71.3 million. We believe a strong cash position allows us to
continue making longer term investments in product development and in cost
reduction activities throughout the semiconductor cycle.
26
Technology
Leadership
We
compete largely by offering our customers the most advanced equipment and
expendable tools available for the wire, wedge and die bonding processes. Our
equipment is typically the most productive, has the highest levels of process
capability, and as a result, has the lowest cost of ownership available in their
respective markets. Our expendable tools are designed to optimize
the performance of the equipment in which they are used. We believe our
technology leadership contributes to the leading market share positions of our
various wire bonder and expendable tools products. To maintain our competitive
advantage, we invest in product development activities to produce a stream of
improvements to existing products and to deliver next-generation products. These
investments often focus as much on improvements in the semiconductor assembly
process as on specific pieces of assembly equipment or expendable tools. In
order to generate these improvements, we often work in close collaboration with
customers, end users, and other industry members. In addition to producing
technical advances, these collaborative development efforts strengthen customer
relationships and enhance our reputation as a technology leader and solutions
provider.
K&S’s
leadership in the industry’s use of copper wire, instead of gold, for the wire
bonding process is an example of the benefits of collaborative efforts. By
working with customers, material suppliers, and suppliers of equipment used
around the wire bonding process, we have developed a series of robust, high
yielding production processes that have made copper wire commercially viable,
significantly reducing the cost of assembling an integrated circuit. Many of our
customers started large scale conversion of their output to copper wire in
fiscal 2010. We expect this conversion process to continue throughout the
industry for the next several years, potentially driving a significant wire
bonder replacement cycle as we believe much of the industries’ installed base is
not suitable for copper bonding. Based on our industry leading copper bonding
processes, we believe the market share for wire bonders configured for copper
wire is much higher than our already leading market share for ball bonders in
general.
We also
maintain the technology leadership of our equipment by optimizing variants of
our products to serve high growth niche markets. For example, over the last two
years we have developed extensions of our main ball bonding platforms to address
opportunities in LED assembly. We estimate the LED device market to be driven by
the adoption of LED backlights for flat-screen displays as well as other LED
applications in general lighting. In fiscal 2009, we launched two products
optimized for these applications. These products represent our first product
offerings specifically aimed at this high growth market, and since their
introduction we have captured significant market share.
Another
example of our developing equipment for high growth niche markets is our AT
Premier. This machine utilizes a modified wire bonding process to mechanically
place bumps on devices, while still in a wafer format, for variants of the flip
chip assembly process. Typical applications include complimentary metal-oxide
semiconductor (“CMOS”) image sensors, surface acoustical wave (“SAW”) filters
and high brightness LEDs.
Our focus
on technology leadership also extends to die bonding. We offer a new die bonding
platform, our state of the art iStackPS
die bonder for advanced stacked die applications. iStackPS offers best-in-class
throughput and accuracy, and we believe iStackPS
is positioned to lead the market for its targeted applications.
We bring
the same technology focus to our expendable tools business, driving tool design
and manufacturing technology to optimize the performance and process capability
of the equipment in which our tools are used. For all our equipment products,
expendable tools are an integral part of their process capability. We believe
our unique ability to simultaneously develop both equipment and tools is one of
the reasons for our technology leadership position.
Products
and Services
We supply
a range of bonding equipment and expendable tools. Our Equipment segment
represented 90.7%, 75.7% and 82.6% of total net revenue for fiscal 2010, 2009
and 2008. Accordingly, our Expendable Tools segment represented 9.3%, 24.3% and
17.4% of total net revenue for fiscal 2010, 2009 and 2008.
27
Equipment
Segment
We
manufacture and sell a line of ball bonders, heavy wire wedge bonders, stud
bumpers, and die bonders that are sold to semiconductor device manufacturers,
their OSATs, other electronics manufacturers and automotive electronics
suppliers. Ball bonders are used to connect very fine wires, typically made of
gold or copper, between the bond pads of the semiconductor device, or die, and
the leads on its package. Wedge bonders use either aluminum wire or ribbon to
perform the same function in packages that cannot use gold or copper wire
because of either high electrical current requirements or other package
reliability issues. Stud bumpers mechanically apply bumps to die, typically
while still in the wafer format, for some variants of the flip chip assembly
process. Die bonders are used to attach a die to the substrate or lead frame
which will house the semiconductor device. We believe our equipment offers
competitive advantages by providing customers with high productivity/throughput,
superior package quality/process control, and as a result, a lower cost of
ownership.
Our
principal Equipment segment products include:
Business Unit
|
Product Name
|
Typical Served Market
|
||
Ball
bonders
|
IConnPS
|
Advanced
and ultra fine pitch applications using either gold or copper
wire
|
||
IConnPS ProCu
|
Advanced
copper wire applications demanding high productivity
|
|||
IConnPS LA
|
Large
area applications
|
|||
ConnXPS
|
Cost
performance, low pin count applications using either gold or copper
wire
|
|||
ConnXPS
LED
|
LED
applications
|
|||
ConnXPS
VLED
|
Vertical
LED applications
|
|||
ConnXPS LA
|
Large
area applications
|
|||
AT
Premier
|
Stud
bumping applications (high brightness LED and image
sensor)
|
|||
Wedge
bonders
|
3600Plus
|
Power
hybrid and automotive modules using either aluminum wire or
ribbon
|
||
7200Plus
|
Power
semiconductors using either aluminum wire or ribbon
|
|||
7200HD
|
Smaller
power packages using either aluminum wire or ribbon
|
|||
7600HD
|
Power
semiconductors including smaller power packages using either aluminum wire
or ribbon
|
|||
Die
bonder
|
iStackPS
|
Advanced
stacked die and ball grid array
applications
|
Ball
Bonders
Automatic
ball bonders represent the largest portion of our semiconductor equipment
business. Our main product platform for ball bonding is the Power Series (“PS”) — a
family of assembly equipment that is setting new standards for performance,
productivity, upgradeability, and ease of use. Our Power Series consists of our
IConnPS high-performance ball
bonders, and our ConnXPS
cost-performance ball bonders, both of which can be configured for either gold
or copper wire. In addition, targeted specifically at the fast growing LED
market, the Power Series includes our ConnXPS LED and our ConnXPS
VLED. Targeted for large area applications, the Power Series includes
our IConnPS LA
and ConnXPS LA.
In November 2010, we introduced the IConnPS ProCu
which offers a significant new level of capability for customers transitioning
from gold to copper wire bonding.
28
Our Power
Series products have advanced industry performance standards. Our ball bonders
are capable of performing very fine pitch bonding, as well as creating the
sophisticated wire loop shapes needed in the assembly of advanced semiconductor
packages. Our ball bonders can also be converted for use to copper applications
through kits we sell separately, a capability that is increasingly important as
bonding with copper continues to grow as an alternative to gold.
Heavy
Wire Wedge Bonders
We are
the leaders in the design and manufacture of heavy wire wedge bonders for the
power semiconductor and automotive power module markets. Wedge bonders may 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. In addition, we see some potential
use for our wedge bonder products in select solar applications.
Our
portfolio of wedge bonding products includes:
|
·
|
The
3600Plus: high speed, high accuracy wire bonders designed for
power modules, automotive packages and other large wire multi-chip module
applications.
|
|
·
|
The
7200Plus: dual head wedge bonder designed specifically for
power semiconductor applications.
|
|
·
|
The
7200HD: wedge bonder designed for smaller power packages
using either aluminum wire or
ribbon.
|
|
·
|
The
7600HD: wedge bonder targeted for small power
packages.
|
While
wedge bonding traditionally utilized aluminum wire, all of our wedge bonders are
also available modified to bond aluminum ribbon using our proprietary
PowerRibbon® process. Ribbon offers device makers performance advantages over
traditional round wire and is being increasingly used for high current packages
and automotive applications.
Die
Bonders
Our die
bonder, the iStack, was launched in March of 2009, and focuses on stacked die
applications for both memory and OSAT customers.
iStack is
targeted at stacked die and high end ball grid array (BGA) applications. In
these applications, we expect up to 40% productivity increases compared to
current generation machines. In addition, iStack has
demonstrated superior accuracy and process control.
Other
Equipment Products and Services
We also
sell manual wire bonders, and we offer spare parts, equipment repair, training
services, and upgrades for our equipment through our Support Services business
unit.
Expendable
Tools Segment
We
manufacture and sell a variety of expendable tools for a broad range of
semiconductor packaging applications. Our principal Expendable Tools segment
products include:
|
·
|
Capillaries: expendable
tools used in ball bonders. Made of ceramic, a capillary guides the wire
during the ball bonding process. Its features help control the bonding
process. We design and build capillaries suitable for a broad range of
applications, including for use on our competitors’ equipment. In
addition, our capillaries are used with both gold and copper
wire.
|
29
|
·
|
Bonding
wedges: expendable tools used in wedge bonders. Like
capillaries, their specific features are tailored to specific
applications. We design and build bonding wedges for use both in our own
equipment and in our competitors’
equipment.
|
|
·
|
Saw blades: expendable
tools used by semiconductor manufacturers to cut silicon wafers into
individual semiconductor die and to cut semiconductor devices that have
been molded in a matrix configuration into individual
units.
|
Critical
Accounting Policies
The
preparation of consolidated financial statements requires us to make
assumptions, estimates and judgments that affect the reported amounts of assets
and liabilities, net revenue and expenses during the reporting periods, 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 un-remitted foreign subsidiary
earnings, equity-based compensation expense, restructuring, and 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.
We
believe the following critical accounting policies, which have been reviewed
with the Audit Committee of our board of directors, affect our more significant
judgments and estimates used in the preparation of our consolidated financial
statements.
Revenue
Recognition
In
accordance with Accounting Standards Codification (“ASC”) No. 605, Revenue Recognition, 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 equipment installation obligations
have been completed and customer acceptance, when applicable, has been received
or otherwise released from 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. Our standard terms are Ex Works (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 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.
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.
|
|
·
|
Warranties: Our
equipment is generally shipped with a one-year warranty against
manufacturing defects. We establish reserves for estimated warranty
expense when revenue for the related equipment is recognized. The reserve
for estimated warranty expense is based upon historical experience and
management’s estimate of future
expenses.
|
|
·
|
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.
|
30
Shipping
and handling costs billed to customers are recognized in net revenue. Shipping
and handling costs are included in cost of sales.
Allowance
for Doubtful Accounts
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 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 we do business, it could have a significant impact on our
results of operations, and our ability to realize the full value of our accounts
receivable.
Inventories
Inventories
are stated at the lower of cost (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 typically record 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. We communicate forecasts of our future demand to our suppliers and
adjust commitments to those suppliers accordingly. If required, we reserve 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 cyclical market changes. If actual market conditions are
less favorable than projections, additional inventory reserves may be
required.
Income
Taxes
Deferred
income taxes are determined using the liability method in accordance with ASC
No. 740, Income Taxes
(“ASC 740”). 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 our deferred tax assets in the future in excess of our
net recorded amount, an adjustment to the deferred tax asset would increase
income in the period such determination was made. Likewise, should we determine
that we would not be able to realize all or part of our 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 740, we utilize a two-step approach for evaluating uncertain
tax positions. Step one or recognition, requires us 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.
31
Equity-Based
Compensation
We
account 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 our 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.
The
calculation of equity-based compensation costs requires we estimate the number
of awards that will be forfeited during the vesting period. We have estimated
forfeitures at the time of grant based upon historical experience, and review
the forfeiture rates periodically and make adjustments as necessary. In
addition, the fair value of equity-based awards is amortized over the vesting
period of the award and we elected to use the straight-line method for awards
granted after the adoption of ASC 718. In general, equity-based awards vest
annually over a three year period. Our 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. Estimated attainment
percentages and the corresponding equity-based compensation expense reported may
vary from period to period.
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.
Presentation
of non-GAAP measures
Adjusted
net income (loss), adjusted diluted net income (loss) per share and quarterly
adjusted return on invested capital (“ROIC”) are supplemental measures of our
performance that are not presented in accordance with U.S. generally accepted
accounting principles (“GAAP”). We believe certain non-GAAP measures
provide investors with an additional, useful perspective on our performance as
seen through the eyes of management. Beginning fiscal 2009, we have used
non-GAAP measures along with GAAP financial results for: analyzing the
performance of our businesses; strategic and tactical decision making; and
determining compensation. We do not consider non-GAAP measures to be a
substitute for, or superior to, financial results presented in accordance with
GAAP. All of the non-GAAP measures included herein were reconciled to the most
directly comparable GAAP results in the financial statements. These non-GAAP
measures may be calculated differently from non-GAAP measures used by other
companies. In addition, these non-GAAP measures are not based on a comprehensive
set of accounting rules or principles and some of the adjustments reflect the
exclusion of items that are recurring and will be reflected in the our GAAP
financial results for the foreseeable future.
We
exclude the following from our GAAP results in presenting non-GAAP
measures:
Equity-based
compensation expenses
We
recognize the fair value of our equity-based compensation in expense.
Equity-based compensation consists of common stock, stock options and
performance-based, market-based and time-based restricted stock granted under
our equity compensation plans. Equity-based compensation can vary significantly
in amount from period to period.
32
Other
We
believe the exclusion of certain other amounts allows for improved comparisons
of our results to both prior periods and other companies. We exclude the
following other items from non-GAAP measures:
|
·
|
Amortization
of intangibles
|
|
·
|
Restructuring
|
|
·
|
Impairment
of goodwill
|
|
·
|
Switzerland
pension plan curtailment
|
|
·
|
Gain
on extinguishment of debt
|
|
·
|
Non-cash
interest expense
|
|
·
|
Net
tax settlement expense (benefit) and other tax
adjustments
|
Tax Adjustment
Non-GAAP
measures are tax adjusted using the GAAP tax rate associated with each quarterly
period. The tax rate is calculated by dividing each quarter’s GAAP tax expense
(benefit), adjusted for discrete quarterly items, by the GAAP operating income
(loss) for that quarter. Non-GAAP year-to-date measures are calculated by
summing the associated quarterly non-GAAP measures, without further tax
adjustments.
The
specific non-GAAP measures included herein are: adjusted gross profit, adjusted
gross margin, adjusted net income (loss), adjusted net margin, and adjusted
earnings per share (“EPS”). We calculate these measures as follows:
Adjusted
Gross Profit and Adjusted Gross Margin
Our
non-GAAP adjusted gross profit and adjusted gross margin exclude the effects of
equity-based compensation expense recorded within cost of sales.
Adjusted
Net Income (Loss), Adjusted Net Margin and Adjusted EPS
Our
non-GAAP adjusted net income (loss), adjusted net margin and adjusted EPS
exclude equity-based compensation; amortization of intangibles; restructuring;
impairment of goodwill; Switzerland pension plan curtailment; gain on
extinguishment of debt; non-cash interest expense; net tax settlement expense
(benefit); and related tax effects on non-GAAP adjustments.
33
The
following table reflects certain GAAP results and the corresponding non-GAAP
financial measures for fiscal 2010 and 2009:
Unaudited
|
Fiscal
|
|||||||
(in thousands, except per share amounts)
|
2010
|
2009 *
|
||||||
Gross
profit (GAAP
results)
|
$ | 335,673 | $ | 88,843 | ||||
-
Equity-based compensation expense
|
207 | 64 | ||||||
Gross
profit (Non-GAAP
measures)
|
$ | 335,880 | $ | 88,907 | ||||
Income
(loss) from operations (GAAP
results)
|
$ | 148,035 | $ | (73,524 | ) | |||
-
Amortization of intangibles
|
9,545 | 11,092 | ||||||
-
Equity-based compensation expense
|
7,565 | 1,387 | ||||||
-
Restructuring
|
2,402 | 10,959 | ||||||
-
Impairment of goodwill
|
- | 2,709 | ||||||
-
Switzerland pension plan curtailment
|
- | (1,446 | ) | |||||
-
Net tax settlement benefit and other tax adjustments
|
- | 1,812 | ||||||
Income
(loss) from operations (Non-GAAP
measures)
|
$ | 167,547 | $ | (47,011 | ) | |||
Weighted
average shares outstanding (GAAP &
Non-GAAP)
|
||||||||
Basic
|
70,012 | 62,188 | ||||||
Diluted
|
73,548 | 62,188 | ||||||
Income
(loss) per share from continuing operations (GAAP
results)
|
||||||||
Basic
|
$ | 2.01 | $ | (1.02 | ) | |||
Diluted
|
$ | 1.92 | $ | (1.02 | ) | |||
Adjustments
to net income (loss) per share
|
||||||||
Basic
|
$ | 0.37 | $ | 0.24 | ||||
Diluted
|
$ | 0.35 | $ | 0.24 | ||||
Income
(loss) per share from continuing operations (Non-GAAP
measures)
|
||||||||
Basic
|
$ | 2.38 | $ | (0.78 | ) | |||
Diluted
|
$ | 2.27 | $ | (0.78 | ) |
* As
adjusted for ASC No. 470.20,
Debt, Debt With Conversion Options.
34
The
following table reflects our adjusted ROIC for three months ended October 2,
2010:
Three months ended
|
||||||||
October 2, 2010
|
||||||||
Income
from operations
|
$ | 56,675 | ||||||
Adjustment:
Depreciation and amortization (1)
|
4,273 | |||||||
Adjusted
income from operations
|
60,948 | |||||||
Adjusted
income from operations, annualized (2)
|
$ | 243,792 | ||||||
Cash,
cash equivalents, restricted cash and investments
|
$ | 181,334 | ||||||
Adjustment:
cash, cash equivalents, restricted cash and investments
(3)
|
(106,334 | ) | ||||||
Adjusted
cash, cash equivalents and investments
|
$ | 75,000 | ||||||
Total
assets excluding cash, cash equivalents and investments
|
398,835 | |||||||
Adjusted
total assets
|
473,835 | |||||||
Total
current liabilities
|
$ | 125,130 | ||||||
Add:
taxes payable (4)
|
1,968 | |||||||
Adjusted
current liabilities
|
127,098 | |||||||
Adjusted
net invested capital
|
$ | 346,737 | ||||||
ROIC (4)
|
70.3 | % |
(1)
Depreciation and amortization are excluded from the ROIC
calculation.
(2) ROIC
is calculated as non-GAAP adjusted income from operations, annualized by
multiplying the current quarter’s non-GAAP income from operations by 4, then
divided by adjusted net invested capital. Adjusted income from operations is not
intended to forecast the Company's future income from operations.
(3)
Management estimates minimum cash requirement is $75.0 million.
(4)
Adjusted current liabilities includes tax liabilities classified as current in
prior periods but reclassed to long term liabilities as a result of our adoption
of ASC 740.10 during the first quarter of fiscal 2008.
35
Results
of Operations for fiscal 2010 and 2009
The
following table reflects our income (loss) from operations for fiscal 2010 and
2009:
Fiscal
|
||||||||||||||||
(dollar amounts in thousands)
|
2010
|
2009
|
$ Change
|
% Change
|
||||||||||||
Net
revenue
|
$ | 762,784 | $ | 225,240 | $ | 537,544 | 238.7 | % | ||||||||
Cost
of sales
|
427,111 | 136,397 | 290,714 | 213.1 | % | |||||||||||
Gross
profit
|
335,673 | 88,843 | 246,830 | 277.8 | % | |||||||||||
Selling,
general and administrative
|
130,978 | 106,175 | 24,803 | 23.4 | % | |||||||||||
Research
and development
|
56,660 | 53,483 | 3,177 | 5.9 | % | |||||||||||
Impairment
of goodwill
|
- | 2,709 | (2,709 | ) | -100.0 | % | ||||||||||
Operating
expenses
|
187,638 | 162,367 | 25,271 | 15.6 | % | |||||||||||
Income
(loss) from operations
|
$ | 148,035 | $ | (73,524 | ) | $ | 221,559 | 301.3 | % |
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 our
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 backlog as of any
particular date may not be indicative of net revenue for any succeeding
period.
The
following table reflects our bookings in fiscal 2010 and 2009:
Fiscal
|
||||||||
(in
thousands)
|
2010
|
2009
|
||||||
Bookings
|
$ | 973,062 | $ | 208,234 |
The
following table reflects our backlog as of October 2, 2010 and October 3,
2009:
As of
|
||||||||
(in thousands)
|
October 2, 2010
|
October 3, 2009
|
||||||
Backlog
|
$ | 252,459 | $ | 42,181 |
36
Net
Revenue
Approximately
98.6% and 97.0% of our net revenue for fiscal 2010 and 2009, respectively, was
for shipments to customer locations outside of the United States, primarily in
the Asia/Pacific region, and we expect sales outside of the United States to
continue to represent a substantial majority of our future revenue.
The
following table reflects net revenue by business segment for fiscal 2010 and
2009:
Fiscal
|
||||||||||||||||
(dollar amounts in thousands)
|
2010
|
2009
|
$ Change
|
% Change
|
||||||||||||
Equipment
|
$ | 691,988 | $ | 170,536 | $ | 521,452 | 305.8 | % | ||||||||
Expendable
Tools
|
70,796 | 54,704 | 16,092 | 29.4 | % | |||||||||||
Total
|
$ | 762,784 | $ | 225,240 | $ | 537,544 | 238.7 | % |
Equipment
The
following table reflects the components of Equipment net revenue change from
fiscal 2010 to 2009:
Fiscal 2010 vs. 2009
|
||||||||||||
(in thousands)
|
Price
|
Volume
|
$ Change
|
|||||||||
Equipment
|
$ | 669 | $ | 520,783 | $ | 521,452 |
For
fiscal 2010, higher Equipment net revenue was due to a 413.9% increase in volume
for ball bonders and 157.8% increase in volume for wedge bonders. The volume
increases were due to higher semiconductor unit demand and increased capacity
utilization rates of our customers, which in turn increased demand for capital
equipment. In addition, customer investment in new copper bonding capability has
driven a significant proportion of our ball bonder business.
Expendable
Tools
The
following table reflects the components of Expendable Tools net revenue change
from fiscal 2010 to 2009:
Fiscal 2010 vs. 2009
|
||||||||||||
(in thousands)
|
Price
|
Volume
|
$ Change
|
|||||||||
Expendable
Tools
|
$ | (752 | ) | $ | 16,844 | $ | 16,092 |
The
increase in Expendable Tools net revenue from fiscal 2009 to 2010 was due to
volume increases in all our Expendable Tools businesses. Since Expendable
Tools products are consumables used for the connections of Integrated Circuits
(“IC”) units, as overall consumer demand for electronic equipment has increased,
so has the demand for IC units. As a result, volume increased for our Expendable
Tools. Our non-wedge bonder Tools volume increased 31.3% while Blades volume
increased 40.1%. Our wedge bonder tools net revenue also increased
25.7%.
37
Gross
Profit
The
following table reflects gross profit by business segment for fiscal 2010 and
2009:
Fiscal
|
||||||||||||||||
(dollar amounts in thousands)
|
2010
|
2009
|
$ Change
|
% Change
|
||||||||||||
Equipment
|
$ | 292,946 | $ | 59,433 | $ | 233,513 | 392.9 | % | ||||||||
Expendable
Tools
|
42,727 | 29,410 | 13,317 | 45.3 | % | |||||||||||
Total
|
$ | 335,673 | $ | 88,843 | $ | 246,830 | 277.8 | % |
The
following table reflects gross profit as a percentage of net revenue by business
segment for fiscal 2010 and 2009:
Fiscal
|
Basis Point
|
|||||||||||
2010
|
2009
|
Change
|
||||||||||
Equipment
|
42.3 | % | 34.9 | % | 740 | |||||||
Expendable
Tools
|
60.4 | % | 53.8 | % | 660 | |||||||
Total
|
44.0 | % | 39.4 | % | 460 |
Equipment
The
following table reflects the components of Equipment gross profit change from
fiscal 2010 to 2009:
Fiscal 2010 vs. 2009
|
||||||||||||||||
(in thousands)
|
Price
|
Cost
|
Volume
|
$ Change
|
||||||||||||
Equipment
|
$ | 669 | $ | (220 | ) | $ | 233,064 | $ | 233,513 |
For
fiscal 2010, gross profit increased significantly due to volume increases for
ball bonders and wedge bonders. The higher semiconductor unit demand during the
current year increased capacity utilization rates of our customers, which in
turn increased demand for capital equipment.
Expendable
Tools
The
following table reflects the components of Expendable Tools gross profit change
from fiscal 2010 to 2009:
Fiscal 2010 vs. 2009
|
||||||||||||||||
(in thousands)
|
Price
|
Cost
|
Volume
|
$ Change
|
||||||||||||
Expendable
Tools
|
$ | (752 | ) | $ | 6,216 | $ | 7,853 | $ | 13,317 |
The net
increase in Expendable Tools gross profit from fiscal 2009 to 2010 was primarily
due to volume increases in all Expendable Tools businesses. Since
Expendable Tools products are consumables used for the connections of IC units,
as overall consumer demand for electronic equipment increased, so has the demand
for IC units. As a result, volume has increased for our Expendable Tools
segment. Tools volume increased 31.3%, while Blades volume increased 40.1%. The
increase in the gross profit was also due to lower cost from better absorption
of fixed manufacturing costs as our volumes were higher. Consolidating our
capillary tools manufacturing from Israel to China also contributed to our cost
reductions and resulted in improved gross profit.
38
Operating
Expenses
The
following table reflects operating expenses as a percentage of net revenue for
fiscal 2010 and 2009:
Fiscal
|
Basis Point
|
|||||||||||
2010
|
2009
|
Change
|
||||||||||
Selling,
general and administrative
|
17.2 | % | 47.1 | % | 2,990 | |||||||
Research
and development
|
7.4 | % | 23.7 | % | 1,630 | |||||||
Impairment
of goodwill
|
0.0 | % | 1.2 | % | 120 | |||||||
Total
|
24.6 | % | 72.0 | % | 4,740 |
Selling,
general and administrative (“SG&A”)
An
increase in SG&A expenses of $24.8 million during fiscal 2010 as compared to
fiscal 2009 was primarily due to:
|
·
|
$14.7
million higher incentive compensation expense driven by current fiscal
year net income as compared to a net loss during fiscal
2009;
|
|
·
|
$5.4
million increase in sales commissions due to higher net revenue for the
current fiscal year;
|
|
·
|
$5.2
million higher equity-based compensation expense due to the
following:
|
|
·
|
$2.3
million related to higher estimated percentage attainments for
performance-based restricted stock, of which $0.3 million related to
compensation as a result of the retirement of our Chief Executive
Officer;
|
|
·
|
$1.5
million related to market-based restricted stock granted during fiscal
2010, of which $0.9 million related to compensation as a result of the
retirement of our Chief Executive Officer,
and;
|
|
·
|
$1.4
million related to time-based restricted stock granted during fiscal
2010.
|
|
·
|
$4.7
million higher consulting, employee staffing and travel related costs, of
which $1.9 million relates to the retirement of our Chief Executive
Officer and the hiring of his
replacement;
|
|
·
|
$4.1
million higher factory transition costs for the move of additional
production to Asia from Irvine, California and
Israel;
|
|
·
|
$1.9
million pension expense related to a current year increase in our pension
obligation primarily related to sales representatives in Taiwan,
and;
|
|
·
|
$1.0
million unfavorable foreign currency
variance.
|
These
increases in SG&A were partially offset by:
|
·
|
$8.6
million lower severance costs related to prior fiscal year headcount
reductions, and;
|
|
·
|
$2.9
million lower depreciation and amortization expense due to certain
intangible assets and fixed assets becoming fully
depreciated.
|
Research
and development (“R&D”)
The $3.2
million increase of R&D expense during fiscal 2010 compared to fiscal 2009
was mostly attributable to:
|
·
|
$2.1
million higher R&D expense related to set up costs for our Israel
technology center; and
|
|
·
|
$0.8
million higher equity-based compensation expense due to higher estimated
percentage attainments for performance-based restricted stock and
time-based restricted stock granted during fiscal
2010.
|
39
Impairment
of goodwill
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.
Income
(Loss) from Operations
The
following table reflects income (loss) from operations by business segment for
fiscal 2010 and 2009:
Fiscal
|
||||||||||||||||
(dollar amounts in thousands)
|
2010
|
2009 *
|
$ Change
|
% Change
|
||||||||||||
Equipment
|
$ | 137,321 | $ | (78,741 | ) | $ | 216,062 | 274.4 | % | |||||||
Expendable
Tools
|
10,714 | 5,217 | 5,497 | 105.4 | % | |||||||||||
Total
|
$ | 148,035 | $ | (73,524 | ) | $ | 221,559 | 301.3 | % |
* As adjusted for ASC No.
470.20, Debt, Debt With
Conversion Options.
Equipment
For
fiscal 2010, higher Equipment income from operations was due to significantly
improved volume for ball bonders and wedge bonders. In addition for fiscal 2010,
the higher semiconductor unit-demand during the current year increased capacity
utilization rates of our customers, which in turn increased demand for capital
equipment.
Expendable
Tools
The
increase in Expendable Tools income from operations from fiscal 2009 to 2010 was
due to volume increases in all our Expendable Tools businesses.
Accordingly, the net increase in Expendable Tools gross profit from fiscal 2009
to 2010 was primarily due to volume increases in all Expendable Tools
businesses. In addition, the increase in the gross profit was due to lower cost
from better absorption of fixed manufacturing costs as our volumes were higher.
Consolidating our capillary tools manufacturing from Israel to China also
contributed to our cost reductions and resulted in improved gross
profit.
Interest
Income and Expense
The
following table reflects interest income and interest expense for fiscal 2010
and 2009:
Fiscal
|
||||||||||||||||
(dollar amounts in thousands)
|
2010
|
2009 *
|
$ Change
|
% Change
|
||||||||||||
Interest
income
|
$ | 403 | $ | 1,106 | $ | (703 | ) | -63.6 |