Attached files
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EX-32.1 - KULICKE & SOFFA INDUSTRIES INC | v209977_ex32-1.htm |
EX-31.2 - KULICKE & SOFFA INDUSTRIES INC | v209977_ex31-2.htm |
EX-32.2 - KULICKE & SOFFA INDUSTRIES INC | v209977_ex32-2.htm |
EX-31.1 - KULICKE & SOFFA INDUSTRIES INC | v209977_ex31-1.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
x
|
QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the quarterly period ended January
1, 2011
OR
¨
|
TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the transition period
from ______ to ______ .
Commission
File No. 0-121
KULICKE AND SOFFA
INDUSTRIES, INC.
(Exact
name of registrant as specified in its charter)
PENNSYLVANIA
|
23-1498399
|
(State
or other jurisdiction of incorporation)
|
(IRS
Employer
|
Identification
No.)
|
6 Serangoon North Avenue 5,
#03-16, Singapore 554910
(Address
of principal executive offices and Zip Code)
(215)
784-6000
(Registrant's
telephone number, including area code)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes x No
¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files). Yes ¨ No
¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a smaller reporting company. See definition of “large
accelerated filer,” “accelerated filer” and “smaller reporting company” in
Rule 12b-2 of the Exchange Act. (Check one):
Large
accelerated filer ¨
|
Accelerated
filer x
|
Non-accelerated
filer ¨
|
Smaller
reporting company ¨
|
(Do
not check if a smaller reporting
company) |
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes ¨ No
x
As of
February 2, 2011, there were 71,406,866 shares of the Registrant's Common
Stock, no par value, outstanding.
KULICKE
AND SOFFA INDUSTRIES, INC.
FORM
10 – Q
January
1, 2011
Index
Page Number
|
||
PART
I.
|
FINANCIAL
INFORMATION
|
|
Item
1.
|
FINANCIAL
STATEMENTS (Unaudited)
|
|
Consolidated
Balance Sheets as of January 1, 2011 and October 2, 2010
|
3
|
|
Consolidated
Statements of Operations for the three months ended January 1, 2011 and
January 2, 2010
|
4
|
|
Consolidated
Statements of Cash Flows for the three months ended January 1, 2011 and
January 2, 2010
|
5
|
|
Notes
to the Consolidated Financial Statements
|
6
|
|
Item
2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
22
|
Item
3.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
35
|
Item
4.
|
CONTROLS
AND PROCEDURES
|
36
|
PART
II.
|
OTHER
INFORMATION
|
|
Item
1A.
|
RISK
FACTORS
|
36
|
Item
6.
|
EXHIBITS
|
36
|
SIGNATURES
|
37
|
2
PART
I. - FINANCIAL INFORMATION
Item
1. – Financial Statements
KULICKE
AND SOFFA INDUSTRIES, INC.
CONSOLIDATED
BALANCE SHEETS
(in
thousands)
Unaudited
As of
|
||||||||
January 1, 2011
|
October 2, 2010
|
|||||||
ASSETS
|
||||||||
Current
Assets:
|
||||||||
Cash
and cash equivalents
|
$ | 197,551 | $ | 178,112 | ||||
Restricted
cash
|
- | 237 | ||||||
Short-term
investments
|
6,074 | 2,985 | ||||||
Accounts
and notes receivable, net of allowance for doubtful
|
||||||||
accounts
of $1,261 and $980, respectively
|
161,045 | 196,035 | ||||||
Inventories,
net
|
74,661 | 73,893 | ||||||
Prepaid
expenses and other current assets
|
13,224 | 15,985 | ||||||
Deferred
income taxes
|
5,445 | 5,443 | ||||||
TOTAL
CURRENT ASSETS
|
458,000 | 472,690 | ||||||
Property,
plant and equipment, net
|
30,766 | 30,059 | ||||||
Goodwill
|
26,698 | 26,698 | ||||||
Intangible
assets
|
36,726 | 39,111 | ||||||
Other
assets
|
11,641 | 11,611 | ||||||
TOTAL
ASSETS
|
$ | 563,831 | $ | 580,169 | ||||
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
||||||||
Current
Liabilities:
|
||||||||
Current
portion of long-term debt
|
$ | - | $ | - | ||||
Accounts
payable
|
41,567 | 82,353 | ||||||
Accrued
expenses and other current liabilities
|
40,781 | 41,498 | ||||||
Income
taxes payable
|
3,904 | 1,279 | ||||||
TOTAL
CURRENT LIABILITIES
|
86,252 | 125,130 | ||||||
Long-term
debt
|
100,110 | 98,475 | ||||||
Deferred
income taxes
|
20,896 | 20,355 | ||||||
Other
liabilities
|
14,657 | 13,729 | ||||||
TOTAL
LIABILITIES
|
221,915 | 257,689 | ||||||
Commitments
and contingent liabilities (Note 10)
|
||||||||
SHAREHOLDERS'
EQUITY:
|
||||||||
Preferred
stock; without par value:
|
||||||||
Authorized
- 5,000 shares; issued - none
|
- | - | ||||||
Common
stock, no par value:
|
||||||||
Authorized
200,000 shares; issued 75,972 and 75,429, respectively; Outstanding 71,018
and 70,475 shares, respectively
|
427,397 | 423,715 | ||||||
Treasury
stock, at cost, 4,954 shares
|
(46,356 | ) | (46,356 | ) | ||||
Accumulated
deficit
|
(40,571 | ) | (55,670 | ) | ||||
Accumulated
other comprehensive income
|
1,446 | 791 | ||||||
TOTAL
SHAREHOLDERS' EQUITY
|
341,916 | 322,480 | ||||||
TOTAL
LIABILITIES AND SHAREHOLDERS' EQUITY
|
$ | 563,831 | $ | 580,169 |
The
accompanying notes are an integral part of these consolidated financial
statements.
3
KULICKE
AND SOFFA INDUSTRIES, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(in
thousands, except per share data)
Unaudited
Three Months Ended
|
||||||||
January 1, 2011
|
January 2, 2010
|
|||||||
Net
revenue
|
$ | 148,863 | $ | 128,415 | ||||
Cost
of sales
|
76,751 | 72,042 | ||||||
Gross
profit
|
72,112 | 56,373 | ||||||
Selling,
general and administrative
|
34,850 | 25,226 | ||||||
Research
and development
|
15,195 | 13,161 | ||||||
Operating
expenses
|
50,045 | 38,387 | ||||||
Income
from operations
|
22,067 | 17,986 | ||||||
Interest
income
|
105 | 97 | ||||||
Interest
expense
|
(2,014 | ) | (2,083 | ) | ||||
Income
from operations before income taxes
|
20,158 | 16,000 | ||||||
Provision
for income taxes
|
5,059 | 160 | ||||||
Net
income
|
$ | 15,099 | $ | 15,840 | ||||
Net
income per share:
|
||||||||
Basic
|
$ | 0.21 | $ | 0.23 | ||||
Diluted
|
$ | 0.21 | $ | 0.21 | ||||
Weighted
average shares outstanding:
|
||||||||
Basic
|
70,881 | 69,684 | ||||||
Diluted
|
71,706 | 73,687 |
The
accompanying notes are an integral part of these consolidated financial
statements.
4
KULICKE
AND SOFFA INDUSTRIES, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in
thousands)
Unaudited
Three
months ended
|
||||||||
January
1, 2011
|
January
2, 2010
|
|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net
income
|
$ | 15,099 | $ | 15,840 | ||||
Adjustments
to reconcile net income to net cash provided by (used in) operating
activities:
|
||||||||
Depreciation
and amortization
|
4,407 | 4,509 | ||||||
Amortization
of debt discount and debt issuance costs
|
1,772 | 1,712 | ||||||
Equity-based
compensation and employee benefits
|
1,566 | 1,393 | ||||||
Provision
for doubtful accounts
|
282 | (99 | ) | |||||
Provision
for inventory valuation
|
1,325 | 95 | ||||||
Deferred
taxes
|
2,425 | 111 | ||||||
Changes
in operating assets and liabilities, net of businesses acquired or
sold:
|
||||||||
Accounts
and notes receivable
|
34,120 | 9,864 | ||||||
Inventory
|
(2,232 | ) | (8,370 | ) | ||||
Prepaid
expenses and other current assets
|
2,707 | (1,976 | ) | |||||
Accounts
payable, accrued expenses and other current liabilities
|
(40,749 | ) | 12,574 | |||||
Income
taxes payable
|
2,636 | (270 | ) | |||||
Other,
net
|
1,952 | (1,258 | ) | |||||
Net
cash provided by continuing operations
|
25,310 | 34,125 | ||||||
Net
cash used in discontinued operations
|
(524 | ) | (496 | ) | ||||
Net
cash provided by operating activities
|
24,786 | 33,629 | ||||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Purchases
of property, plant and equipment
|
(2,705 | ) | (1,096 | ) | ||||
Purchases
of investments classified as available-for-sale
|
(3,180 | ) | - | |||||
Changes
in restricted cash, net
|
237 | 65 | ||||||
Net
cash used in continuing operations
|
(5,648 | ) | (1,031 | ) | ||||
Net
cash used in discontinued operations
|
- | (1,838 | ) | |||||
Net
cash used in investing activities
|
(5,648 | ) | (2,869 | ) | ||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Proceeds
from exercise of common stock options
|
125 | 6 | ||||||
Net
costs from sale of common stock
|
- | (29 | ) | |||||
Net
cash provided by (used in) financing activities
|
125 | (23 | ) | |||||
Effect
of exchange rate changes on cash and cash equivalents
|
176 | (90 | ) | |||||
Changes
in cash and cash equivalents
|
19,439 | 30,647 | ||||||
Cash
and cash equivalents at beginning of period
|
178,112 | 144,560 | ||||||
Cash
and cash equivalents at end of period
|
$ | 197,551 | $ | 175,207 | ||||
CASH
PAID FOR:
|
||||||||
Interest
|
$ | 481 | $ | 726 | ||||
Income
taxes
|
$ | 634 | $ | 755 |
The
accompanying notes are an integral part of these consolidated financial
statements.
5
KULICKE
AND SOFFA INDUSTRIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
NOTE
1: BASIS OF PRESENTATION
These
consolidated financial statements include the accounts of Kulicke and Soffa
Industries, Inc. and its subsidiaries (the “Company”), with appropriate
elimination of intercompany balances and transactions.
The
interim consolidated financial statements are unaudited and, in management’s
opinion, include all adjustments (consisting only of normal and recurring
adjustments) necessary for a fair presentation of results for these interim
periods. The interim consolidated financial statements do not include all of the
information and footnote disclosures normally included in financial statements
prepared in accordance with U.S. generally accepted accounting principles
(“GAAP”) and should be read in conjunction with the consolidated financial
statements and notes thereto included in the Annual Report on Form 10-K for the
year ended October 2, 2010, filed with the Securities and Exchange Commission,
which includes Consolidated Balance Sheets as of October 2, 2010 and October 3,
2009, and the related Consolidated Statements of Operations, Cash Flows, and
Changes in Shareholders’ Equity for each of the years in the three-year period
ended October 2, 2010. The results of operations for any interim period are not
necessarily indicative of the results of operations for any other interim period
or for a full year.
Each of
the Company’s first three fiscal quarters end on the Saturday that is 13 weeks
after the end of the immediately preceding fiscal quarter. The fourth quarter of
each fiscal year ends on the Saturday closest to September 30th. The
fiscal 2011 quarters end on January 1, 2011, April 2,
2011, July 2, 2011 and October 1, 2011. The fiscal 2010 quarters ended
on January 2, 2010, April 3, 2010, July 3, 2010 and October 2,
2010. In fiscal years consisting of 53 weeks, the fourth quarter will consist of
14 weeks.
Nature
of Business
The
Company designs, manufactures and sells capital equipment and expendable tools
as well as services, maintains, repairs and upgrades equipment, all used to
assemble semiconductor devices. The Company’s operating results depend upon the
capital and operating expenditures of semiconductor manufacturers and outsourced
semiconductor assembly and test providers (“OSATs”) worldwide which, in turn,
depend on the current and anticipated market demand for semiconductors and
products utilizing semiconductors. The semiconductor industry is highly volatile
and experiences downturns and slowdowns which have a severe negative effect on
the semiconductor industry’s demand for semiconductor capital equipment,
including assembly equipment manufactured and sold by the Company and, to a
lesser extent, expendable tools such as those sold by the Company. These
downturns and slowdowns have in the past adversely affected the Company’s
operating results. The Company believes such volatility will continue to
characterize the industry and the Company’s operations in the
future.
Use
of Estimates
The
preparation of the interim consolidated financial statements requires management
to make assumptions, estimates and judgments that affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities as
of the date of the interim consolidated financial statements, and the reported
amounts of revenue and expenses during the reporting periods. On an ongoing
basis, management evaluates these estimates. Authoritative pronouncements,
historical experience and assumptions are used as the basis for making
estimates. Actual results could differ from those estimates.
Vulnerability
to Certain Concentrations
Financial
instruments which may subject the Company to concentrations of credit risk as of
January 1, 2011 and October 2, 2010 consisted primarily of short-term
investments and trade receivables. The Company manages credit risk associated
with investments by investing its excess cash in highly rated debt instruments
of the U.S. Government and its agencies, financial institutions, and
corporations. The Company has established investment guidelines relative to
diversification and maturities designed to maintain safety and liquidity. These
guidelines are periodically reviewed and modified as appropriate. The Company
does not have any exposure to sub-prime financial instruments or auction rate
securities.
6
The
Company’s trade receivables result primarily from the sale of semiconductor
equipment, related accessories and replacement parts, and expendable tools to a
relatively small number of large manufacturers in a highly concentrated
industry. Write-offs of uncollectible accounts have historically not been
significant; however, the Company closely monitors its customers’ financial
strength to reduce the risk of loss.
The
Company’s products are complex and require raw materials, components and
subassemblies having a high degree of reliability, accuracy and performance. The
Company relies on subcontractors to manufacture many of these components and
subassemblies and it relies on sole source suppliers for some important
components and raw material inventory.
The
Company’s international operations are exposed to changes in foreign currency
exchange rates due to transactions denominated in currencies other than the
location’s functional currency. The Company is also exposed to foreign currency
fluctuations that impact the remeasurement of net monetary assets of those
operations whose functional currency, the U.S. dollar, differs from their
respective local currencies, most notably in Israel, Malaysia, Singapore and
Switzerland. In addition to net monetary remeasurement, the Company has
exposures related to the translation of subsidiary financial statements from
their functional currency, the local currency, into our reporting currency, the
U.S. dollar, most notably in China and Japan. The Company’s U.S. operations also
have foreign currency exposure due to net monetary assets denominated in
currencies other than the U.S. dollar.
Foreign
Currency Translation
The
majority of the Company’s business is transacted in U.S. dollars; however, the
functional currencies of some of the Company’s subsidiaries are their local
currencies. In accordance with Accounting Standards Codification (“ASC”) No. 830, Foreign Currency Matters
(“ASC 830”), for a subsidiary of the Company that has a functional currency
other than the U.S. dollar, gains and losses resulting from the translation of
the functional currency into U.S. dollars for financial statement presentation
are not included in determining net income (loss), but are accumulated in the
cumulative translation adjustment account as a separate component of
shareholders’ equity (accumulated other comprehensive income (loss)). Under ASC
830, cumulative translation adjustments are not adjusted for income taxes as
they relate to indefinite investments in non-U.S. subsidiaries. Gains and losses
resulting from foreign currency transactions are included in the determination
of net income (loss).
Allowance
for Doubtful Accounts
The
Company maintains allowances for doubtful accounts for estimated losses
resulting from its customers' failure to make required payments. If the
financial condition of the Company's customers were to deteriorate, resulting in
an impairment of their ability to make payments, additional allowances may be
required. The Company is also subject to concentrations of customers and sales
to a few geographic locations, which could also impact the collectibility of
certain receivables. If global economic conditions deteriorate or political
conditions were to change in some of the countries where the Company does
business, it could have a significant impact on the results of operations, and
the Company's ability to realize the full value of its accounts
receivable.
Inventories
Inventories
are stated at the lower of cost (on a first-in first-out basis) or market value.
The Company generally provides reserves for obsolete inventory and for inventory
considered to be in excess of demand. In addition, the Company generally records
as accrued expense inventory purchase commitments in excess of demand. Demand is
generally defined as eighteen months future consumption for non-Wedge bonder
equipment, twenty-four months consumption for Wedge bonder equipment and all
spare parts, and twelve months consumption for expendable tools. The forecasted
demand is based upon internal projections, historical sales volumes, customer
order activity and a review of consumable inventory levels at customers’
facilities. The Company communicates forecasts of its future demand to its
suppliers and adjusts commitments to those suppliers accordingly. If required,
the Company reserves the difference between the carrying value of its inventory
and the lower of cost or market value, based upon assumptions about future
demand, and market conditions. If actual market conditions are less favorable
than projections, additional inventory reserves may be
required.
7
Revenue
Recognition
In
accordance with ASC No. 605, Revenue Recognition, the
Company recognizes revenue when persuasive evidence of an arrangement exists,
delivery has occurred or services have been rendered, the price is fixed or
determinable, the collectibility is reasonably assured, and 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. The Company’s
standard terms are Ex Works (the Company’s factory), with title transferring to
its customer at the Company’s loading dock or upon embarkation. The Company has
a small percentage of sales with other terms, and revenue is recognized in
accordance with the terms of the related customer purchase order. Revenue
related to services is recognized upon performance of the services requested by
a customer order. Revenue for extended maintenance service contracts with a term
more than one month is recognized on a prorated straight-line basis over the
term of the contract.
Shipping
and handling costs billed to customers are recognized in net revenue. Shipping
and handling costs are included in cost of sales.
Income Taxes
Deferred
income taxes are determined using the liability method in accordance with ASC
No. 740, Income Taxes
(“ASC 740”). The
Company records a valuation allowance to reduce its deferred tax assets to the
amount it expects is more likely than not to be realized. While the Company has
considered future taxable income and its ongoing tax planning strategies in
assessing the need for the valuation allowance, if it were to determine that it
would be able to realize its deferred tax assets in the future in excess of its
net recorded amount, an adjustment to the deferred tax asset would increase
income in the period such determination was made. Likewise, should the Company
determine it would not be able to realize all or part of its net deferred tax
assets in the future, an adjustment to the deferred tax asset would decrease
income in the period such determination was made.
In
accordance with ASC No. 740 Topic 10, Income Taxes, General (“ASC
740.10”), the Company accounts for uncertain tax positions taken or expected to
be taken in its income tax return. Under ASC 740.10, the Company utilizes a
two-step approach for evaluating uncertain tax positions. Step one or
recognition, requires a company to determine if the weight of available evidence
indicates a tax position is more likely than not to be sustained upon audit,
including resolution of related appeals or litigation processes, if any. Step
two or measurement, is based on the largest amount of benefit, which is more
likely than not to be realized on settlement with the taxing
authority.
NOTE
2: RESTRUCTURING
During
fiscal 2010, the Company committed to a plan to reduce its Irvine, California
workforce by approximately 60 employees over a period of approximately 26
months. As part of this workforce reduction plan, substantially all of the
Company's California-based wedge bonder manufacturing, as well as certain
administrative functions, will be transferred to the Company's manufacturing
facilities in Kuala Lumpur, Malaysia and Singapore. Management determined that
it was in the best interests of the Company to migrate production and certain
administrative functions from California to Asia. With respect to the
California-based wedge bonder transfer to Asia, the Company anticipates $0.6
million of additional pre-tax expense, which will consist of $0.4 million of
severance and $0.2 million of retention costs. The Company expects substantially
all of this expense to be incurred by the end of the second quarter of fiscal
2011, with corresponding cash payments to be incurred from the second quarter of
fiscal 2011 until the end of fiscal 2012.
8
In
addition to the California-based transition to Asia, the Company is
consolidating certain of its other U.S.-based operations to
Asia.
The
following table reflects severance activity, for both the California-based
transition and the other U.S.-based operations move to Asia, during the three
months ended January 1, 2011 and January 2, 2010:
For the three months ended
|
||||||||
(in thousands)
|
January 1, 2011
|
January 2, 2010
|
||||||
Accrual
for estimated severance and benefits, beginning of period
|
$ | 2,395 | $ | 2,413 | ||||
Provision
for estimated severance and benefits: Equipment segment
(1)
|
1,144 | - | ||||||
Provision
for estimated severance and benefits: Expendable Tools segment
(1)
|
324 | 199 | ||||||
Payment
of severance and benefits
|
(390 | ) | (419 | ) | ||||
Accrual
for estimated severance and benefits, end of period (2)
|
$ | 3,473 | $ | 2,193 |
(1)
Provision for severance and benefits is the total amount incurred and is
included within selling, general and administrative expenses on the Consolidated
Statements of Operations.
(2) The
accrual for estimated severance as of January 1, 2011 was included within
accrued expenses and other current liabilities and other liabilities on the
Consolidated Balance Sheet. The accrual for estimated severance as of January 2,
2010 was included within accrued expenses and other current liabilities on the
Consolidated Balance Sheet. In addition to these restructuring amounts, as of
January 1, 2011, the Company has other non-restructuring severance obligations
included within accrued expenses and other current liabilities and other
liabilities on the Consolidated Balance Sheets.
9
NOTE
3: BALANCE SHEET COMPONENTS
The
following tables reflect the components of significant balance sheet accounts as
of January 1, 2011 and October 2, 2010:
As of
|
||||||||
(in thousands)
|
January 1, 2011
|
October 2, 2010
|
||||||
Short
term investments, available for sale:
|
||||||||
Deposits
maturing within one year (1)
|
$ | 6,074 | $ | 2,985 | ||||
6,074 | 2,985 | |||||||
Inventories,
net:
|
||||||||
Raw
materials and supplies
|
$ | 43,821 | $ | 41,693 | ||||
Work
in process
|
27,444 | 26,682 | ||||||
Finished
goods
|
14,358 | 15,658 | ||||||
85,623 | 84,033 | |||||||
Inventory
reserves
|
(10,962 | ) | (10,140 | ) | ||||
$ | 74,661 | $ | 73,893 | |||||
Property,
plant and equipment, net:
|
||||||||
Land
|
$ | 2,086 | $ | 2,086 | ||||
Buildings
and building improvements
|
11,601 | 11,601 | ||||||
Leasehold
improvements
|
10,229 | 9,966 | ||||||
Data
processing equipment and software
|
23,001 | 22,280 | ||||||
Machinery,
equipment, furniture and fixtures
|
38,833 | 37,007 | ||||||
85,750 | 82,940 | |||||||
Accumulated
depreciation
|
(54,984 | ) | (52,881 | ) | ||||
$ | 30,766 | $ | 30,059 | |||||
Accrued
expenses and other current liabilities:
|
||||||||
Wages
and benefits
|
$ | 15,036 | $ | 15,836 | ||||
Accrued
customer obligations (2)
|
9,452 | 8,918 | ||||||
Commissions
and professional fees (3)
|
5,410 | 6,639 | ||||||
Severance (4)
|
3,093 | 2,947 | ||||||
Short-term
facility accrual related to discontinued operations (Test)
|
1,661 | 1,734 | ||||||
Other
|
6,129 | 5,424 | ||||||
$ | 40,781 | $ | 41,498 |
(1) All
short-term investments were classified as available for sale and were measured
at fair value based on level one measurement, or quoted market prices, as
defined by ASC 820. As of January 1, 2011 and October 2, 2010, fair value
approximated the cost basis for short-term investments. The Company did not
recognize any realized gains or losses on the sale of investments during the
three months ended January 1, 2011 and January 2, 2010.
(2)
Represents customer advance payments, customer credit program, accrued warranty
expense and accrued retrofit costs.
(3)
Balances as of January 1, 2011 and October 2, 2010 include $0.8 million and $0.9
million, respectively, of liability classified stock compensation expenses in
connection with the September 2010 retirement of the Company’s former Chief
Executive Officer (“CEO”). In addition, balances for both periods include $0.3
million related to his three year consulting arrangement. An additional $0.3
million and $0.2 million of liability classified stock compensation expenses was
recorded in other liabilities related to the long term portion of his agreement
(see Note 6) as of January 1, 2011 and October 2, 2010, respectively. In
addition, $0.5 million and $0.6 million were recorded within other liabilities
related to the long term portion of his consulting agreement as of January 1,
2011 and October 2, 2010, respectively.
10
(4) Total severance
payable within the next twelve months includes restructuring plan discussed in
Note 2 and approximately $0.9 million of other severance not part of the
Company’s transition and consolidation of operations to Asia.
NOTE
4: GOODWILL AND INTANGIBLE ASSETS
Goodwill
Intangible
assets classified as goodwill are not amortized. The Company performs an annual
impairment test of its goodwill during the fourth quarter of each fiscal year,
which coincides with the completion of its annual forecasting process. The
Company performed its annual impairment test in the fourth quarter of fiscal
2010 and no impairment charge was required.
The
Company also tests for impairment between annual tests if a “triggering” event
occurs that may have the effect of reducing the fair value of a reporting unit
below its respective carrying value.
On
October 3, 2008, the Company completed the acquisition of Orthodyne Electronics
Corporation (“Orthodyne”) and agreed to pay Orthodyne an additional amount in
the future based upon the gross profit realized by the acquired business over a
three year period from date of acquisition pursuant to an Earnout Agreement (the
“Earnout”). As of January 1, 2011, the maximum potential payout under the
Earnout could be $20.0 million; however, as of January 1, 2011, no Earnout was
accrued or recorded as an adjustment to goodwill.
Intangible
Assets
Intangible
assets with determinable lives are amortized over their estimated useful lives.
The Company’s intangible assets consist primarily of wedge bonder developed
technology and customer relationships.
The
following table reflects net intangible assets as of January 1, 2011and October
2, 2010:
As of
|
Average estimated
|
|||||||||||
(dollar amounts in thousands)
|
January 1, 2011
|
October 2, 2010
|
useful lives (in years)
|
|||||||||
Wedge
bonder developed technology
|
$ | 33,200 | $ | 33,200 | 7.0 | |||||||
Accumulated
amortization
|
(10,670 | ) | (9,486 | ) | ||||||||
Net
wedge bonder developed technology
|
22,530 | 23,714 | ||||||||||
Wedge
bonder customer relationships
|
19,300 | 19,300 | 5.0 | |||||||||
Accumulated
amortization
|
(8,685 | ) | (7,720 | ) | ||||||||
Net
wedge bonder customer relationships
|
10,615 | 11,580 | ||||||||||
Wedge
bonder trade name
|
4,600 | 4,600 | 8.0 | |||||||||
Accumulated
amortization
|
(1,294 | ) | (1,150 | ) | ||||||||
Net
wedge bonder trade name
|
3,306 | 3,450 | ||||||||||
Wedge
bonder other intangible assets
|
2,500 | 2,500 | 1.9 | |||||||||
Accumulated
amortization
|
(2,225 | ) | (2,133 | ) | ||||||||
Net
wedge bonder other intangible assets
|
275 | 367 | ||||||||||
Net
intangible assets
|
$ | 36,726 | $ | 39,111 |
11
The
following table reflects estimated annual amortization expense related to
intangible assets as of January 1, 2011:
(in
thousands)
|
||||
Remaining
fiscal 2011
|
$ | 7,159 | ||
Fiscal
2012
|
9,178 | |||
Fiscal
2013
|
9,178 | |||
Fiscal
2014
|
5,318 | |||
Fiscal
2015-2016
|
5,893 | |||
Total
amortization expense
|
$ | 36,726 |
NOTE
5: DEBT AND OTHER OBLIGATIONS
The
following table reflects debt consisting of Convertible Subordinated Notes as of
January 1, 2011 and October 2, 2010:
(in thousands)
|
||||||||||||||||
As of
|
||||||||||||||||
Rate
|
Payment date of each year
|
Conversion price
|
Maturity date
|
January 1, 2011
|
October 2, 2010
|
|||||||||||
0.875
|
% |
June
1 and December 1
|
$ | 14.36 |
June
1, 2012
|
$ | 110,000 | $ | 110,000 | |||||||
Debt
discount on 0.875% Convertible Subordinated Notes due June
2012
|
(9,890 | ) | (11,525 | ) | ||||||||||||
$ | 100,110 | $ | 98,475 |
The
following table reflects the estimated fair value of the Company’s Convertible
Subordinated Notes as of January 1, 2011 and October 2, 2010:
(in thousands)
|
||||||||
Fair value as of (1)
|
||||||||
Description
|
January 1, 2011
|
October 2, 2010
|
||||||
0.875%
Convertible Subordinated Notes
|
$ | 106,843 | $ | 102,025 |
(1)
|
In
accordance with ASC 820, the Company relies
upon observable market data such as its common stock price,
interest rates, and other market
factors.
|
The
following table reflects amortization expense related to issue costs from the
Company’s Convertible Subordinated Notes for the three months ended January 1,
2011 and January 2, 2010:
Three Months Ended
|
||||||||
(in thousands)
|
January 1, 2011
|
January 2, 2010
|
||||||
Amortization
expense related to issue costs
|
$ | 138 | $ | 196 |
12
0.875%
Convertible Subordinated Notes
Holders
of the 0.875% Convertible Subordinated Notes may convert their notes based on an
initial conversion rate of approximately 69.6621 shares per $1,000 principal
amount of notes (equal to an initial conversion price of approximately $14.355
per share) only under specific circumstances. The initial conversion rate will
be adjusted for certain events. The Company presently intends to satisfy any
conversion of the 0.875% Convertible Subordinated Notes with cash up to the
principal amount of the 0.875% Convertible Subordinated Notes and, with respect
to any excess conversion value, with shares of its common stock. The Company has
the option to elect to satisfy the conversion obligations in cash, common stock
or a combination thereof.
The
0.875% Convertible Subordinated Notes will not be redeemable at the Company’s
option. Holders of the 0.875% Convertible Subordinated Notes will not have the
right to require the Company to repurchase their 0.875% Convertible Subordinated
Notes prior to maturity except in connection with the occurrence of certain
fundamental change transactions. The 0.875% Convertible Subordinated Notes may
be accelerated upon an event of default as described in the Indenture and will
be accelerated upon bankruptcy, insolvency, appointment of a receiver and
similar events with respect to the Company.
The
Company adopted ASC 470.20, which requires that issuers of convertible debt that
may be settled in cash upon conversion record the liability and equity
components of the convertible debt separately. The liability component of the
Company’s 0.875% Convertible Subordinated Notes will continue to be classified
as long-term debt and the equity component of the 0.875% Convertible
Subordinated Notes is classified as common stock on the Company’s Consolidated
Balance Sheets.
Credit
Facility
On
September 29, 2010, Kulicke and Soffa Global Holding Corporation (“GHC”), the
Company’s wholly-owned subsidiary, entered into a Short Term Credit Facilities
Agreement (the “Facilities Agreement”) with DBS Bank Ltd. Labuan Branch (“DBS
Bank”). In accordance with the Facilities Agreement, DBS Bank has agreed to make
available to GHC the following banking facilities:
(i) a
short term loan facility of up to $12.0 million (the “STL Facility”);
and
(ii) a
revolving credit facility of up to $8.0 million (the “RC
Facility”).
The STL
Facility is an uncommitted facility, and therefore, cancellable by DBS Bank at
any time in its sole discretion. Borrowings under the STL Facility bear interest
at the Singapore Interbank Offered Rate (“SIBOR”) plus 1.5%. The RC Facility is
a committed facility and is available to GHC until September 10, 2013, the
maturity date. Borrowings under the RC Facility bear interest at SIBOR plus
2.5%. The Facilities Agreement has been entered into in order to provide
support, if needed, to fund GHC’s working capital requirements. The Company did
not have any borrowings under the Facilities Agreement as of or during the three
months ended January 1, 2011 or October 2, 2010.
13
NOTE
6: SHAREHOLDERS’ EQUITY AND EMPLOYEE BENEFIT PLANS
Common
Stock
The
Company has a 401(k) retirement income plan (the “Plan”) for its employees. The
Company’s matching contributions to the Plan are made in the form of issued and
contributed shares of Company common stock. The Plan allows for employee
contributions and matching Company contributions up to 4% or 6% of the
employee’s contributed amount based upon years of service. Beginning January 2,
2011, matching contributions to the Plan will be made in cash rather than shares
of the Company’s common stock.
The
following table reflects the Company’s matching contributions to the Plan which
were made in the form of issued and contributed shares of Company common stock
for the three months ended January 1, 2011 and January 2, 2010:
Three Months Ended
|
||||||||
(in thousands)
|
January 1, 2011
|
January 2, 2010
|
||||||
Number
of common shares
|
42 | 50 | ||||||
Fair
value based upon market price at date of distribution
|
$ | 279 | $ | 290 |
Accumulated
Other Comprehensive Income
The
following table reflects accumulated other comprehensive income reflected on the
Consolidated Balance Sheets as of January 1, 2011 and October 2,
2010:
As of
|
||||||||
(in thousands)
|
January 1, 2011
|
October 2, 2010
|
||||||
Gain
from foreign currency translation adjustments
|
$ | 2,464 | $ | 1,767 | ||||
Unrecognized
actuarial net loss, Switzerland pension plan, net of tax
|
(630 | ) | (588 | ) | ||||
Switzerland
pension plan curtailment
|
(388 | ) | (388 | ) | ||||
Accumulated
other comprehensive income
|
$ | 1,446 | $ | 791 |
The
following table reflects the components of comprehensive income (loss) for the
three months ended January 1, 2011 and January 2, 2010:
Three Months Ended
|
||||||||
(in thousands)
|
January 1, 2011
|
January 2, 2010
|
||||||
Net
income
|
$ | 15,099 | $ | 15,840 | ||||
Gain
(loss) from foreign currency translation adjustments
|
697 | (653 | ) | |||||
Unrecognized
actuarial net gain (loss), Switzerland pension plan, net of
tax
|
(42 | ) | 38 | |||||
Other
comprehensive income (loss)
|
$ | 655 | $ | (615 | ) | |||
Comprehensive
income
|
$ | 15,754 | $ | 15,225 |
14
Equity-Based
Compensation
As of
January 1, 2011, the Company had nine equity-based employee compensation plans
(the “Employee Plan”) and three director compensation plans (the “Director
Plans”) (collectively, the “Plans”). Under these Plans, stock options,
performance-based share awards (collectively, “performance-based restricted
stock”), time-based share awards (collectively, “time-based restricted stock”),
market-based share awards (collectively, “market-based restricted stock”) or
common stock have been granted at 100% of the market price of the Company’s
common stock on the date of grant. As of January 1, 2011, the Company’s one
active plan, the 2009 Equity Plan, had 6.1 million shares of common stock
available for grant to its employees and directors.
|
·
|
In
general, stock options and time-based restricted stock awarded to
employees vest annually over a three year period provided the employee
remains employed. The Company follows the non-substantive vesting method
for stock options and recognizes compensation expense immediately for
awards granted to retirement eligible employees, or over the period from
the grant date to the date retirement eligibility is
achieved.
|
|
·
|
Performance-based
restricted stock entitles the employee to receive common shares of the
Company on the three-year anniversary of the grant date (if employed by
the Company) if return on invested capital and revenue growth targets set
by the Management Development and Compensation Committee of the Board of
Directors on the date of grant are met. If return on invested capital and
revenue growth targets are not met, performance-based restricted stock
does not vest.
|
|
·
|
Market-based
restricted stock entitles the employee to receive common shares of the
Company on the award vesting date, if market performance objectives which
measure relative total shareholder return (“TSR”) are attained. Relative
TSR is calculated based upon the 90-calendar day average price of the
Company’s stock as compared to specific peer companies that comprise the
Philadelphia Semiconductor Index. TSR is measured for the Company and each
peer company over a performance period, which is generally three years.
Vesting percentages range from 0% to 200% of awards granted. The
provisions of the market-based restricted stock are reflected in the grant
date fair value of the award; therefore, compensation expense is
recognized regardless of whether or not the market condition is ultimately
satisfied. Compensation expense is reversed if the award forfeits prior to
the vesting date.
|
Equity-based
compensation expense recognized in the Consolidated Statements of Operations for
the three months ended January 1, 2011 and January 2, 2010 was based upon awards
ultimately expected to vest. In accordance with ASC 718, forfeitures have been
estimated at the time of grant and were based upon historical experience. The
Company reviews the forfeiture rates periodically and makes adjustments as
necessary.
The
Company did not grant any performance-based restricted stock or stock options
during the three months ended January 1, 2011 or January 2, 2010. The following
table reflects stock options, restricted stock and common stock granted during
the three months ended January 1, 2011 and January 2, 2010:
Three months ended
|
||||||||
(number of shares, in thousands)
|
January 1, 2011
|
January 2, 2010
|
||||||
Market-based
restricted stock
|
349 | 398 | ||||||
Time-based
restricted stock
|
616 | 784 | ||||||
Common
stock
|
29 | 32 | ||||||
Equity-based
compensation in shares
|
994 | 1,214 |
15
The
following table reflects equity-based compensation expense, which includes
restricted stock, stock options and common stock, for the three months ended
January 1, 2011 and January 2, 2010:
Three Months Ended
|
||||||||
(in thousands)
|
January 1, 2011
|
January 2, 2010
|
||||||
Cost
of sales
|
$ | 48 | $ | 46 | ||||
Selling,
general and administrative (1)
|
963 | 714 | ||||||
Research
and development
|
276 | 344 | ||||||
Equity-based
compensation expense
|
$ | 1,287 | $ | 1,104 |
The
following table reflects equity-based compensation expense, by type of award,
for the three months ended January 1, 2011 and January 2, 2010:
Three Months Ended
|
||||||||
(in thousands)
|
January 1, 2011
|
January 2, 2010
|
||||||
Market-based
restricted stock (1)
|
$ | 2 | $ | 115 | ||||
Time-based
restricted stock
|
999 | 56 | ||||||
Performance-based
restricted stock (1)
|
71 | 590 | ||||||
Stock
options
|
35 | 163 | ||||||
Common
stock
|
180 | 180 | ||||||
Equity-based
compensation expense
|
$ | 1,287 | $ | 1,104 |
(1) Fiscal
2011 selling, general and administrative expense includes a credit of $0.1
million related to the liability classified stock compensation expense for the retired former Chief
Executive Officer. In connection with his retirement, deferred cash payments
equal to the difference, if any, between (i) the fair market value of the shares
of common stock of the Company to which he would have been entitled pursuant to
the performance share unit awards granted to him in fiscal 2008 and 2009 had
he remained employed through June 30, 2011 and (ii) the fair market value of the
shares of common stock of the Company actually received by him pursuant to such
awards. The deferred cash payments, if any, will be paid in July 2011 and February 2012, respectively. An
accrual for estimated deferred cash payments measured at fair value as of
January 1, 2011 and October 2, 2010 was included within accrued expenses and
other current liabilities and other liabilities on the Consolidated Balance
Sheets.
NOTE
7: EARNINGS PER SHARE
Basic
income (loss) per share is calculated using the weighted average number of
shares of common stock outstanding during the period. In addition, net income
applicable to participating securities and the related participating securities
are excluded from the computation of basic income per share.
Diluted
income per share is calculated using the weighted average number of shares of
common stock outstanding during the period and, if there is net income during
the period, the dilutive impact of common stock equivalents outstanding during
the period. In computing diluted income per share, if convertible debt is
assumed to be converted to common shares, the after-tax amount of interest
expense recognized in the period associated with the convertible debt is added
back to net income.
The
Company’s 0.875% Convertible Subordinated Notes would not result in the issuance
of any dilutive shares, since the Notes were not convertible and the conversion
option was not “in the money” as of January 1, 2011 and January 2, 2010.
Accordingly, diluted EPS excludes the effect of the conversion of the 0.875%
Convertible Subordinated Notes.
16
The
following table reflects a reconciliation of the shares used in the basic and
diluted net income per share computation:
Three months ended
|
||||||||||||||||
(in thousands, except per share)
|
January 1,
2011
|
January 1,
2011
|
January 2,
2010
|
January 2,
2010
|
||||||||||||
Basic
|
Diluted
|
Basic
|
Diluted
|
|||||||||||||
NUMERATOR:
|
||||||||||||||||
Net
income
|
$ | 15,099 | $ | 15,099 | $ | 15,840 | $ | 15,840 | ||||||||
Less:
Income applicable to participating securities
|
(96 | ) | (96 | ) | (172 | ) | (172 | ) | ||||||||
After-tax
interest expense
|
- | n/a | - | 122 | ||||||||||||
Net
income applicable to common shareholders
|
$ | 15,003 | $ | 15,003 | $ | 15,668 | $ | 15,790 | ||||||||
DENOMINATOR:
|
||||||||||||||||
Weighted
average shares outstanding - Basic
|
70,881 | 70,881 | 69,684 | 69,684 | ||||||||||||
Stock
options
|
107 | 149 | ||||||||||||||
Time-based
restricted stock
|
401 | 41 | ||||||||||||||
Market-based
restricted stock
|
172 | - | ||||||||||||||
Performance-based
restricted stock
|
145 | - | ||||||||||||||
1.00
% Convertible Subordinated Notes
|
- | 3,813 | ||||||||||||||
Weighted
average shares outstanding - Diluted (1)
|
71,706 | 73,687 | ||||||||||||||
EPS:
|
||||||||||||||||
Net
income per share - Basic
|
$ | 0.21 | $ | 0.21 | $ | 0.23 | $ | 0.23 | ||||||||
Effect
of dilutive shares
|
- | $ | (0.02 | ) | ||||||||||||
Net
income per share - Diluted
|
$ | 0.21 | $ | 0.21 |
(1)
Excludes 298 dilutive participating securities as the income attributable to
these shares was not included in EPS.
For the
three months ended January 1, 2011 and January 2, 2010, 1.6 million and 4.4
million potentially dilutive shares related to out of the money stock options
were excluded from EPS.
17
NOTE
8: INCOME TAXES
The
following table reflects the total provision for income taxes and the effective
tax rate for the three months ended January 1, 2011 and January 2,
2010:
Three months ended
|
||||||||
(in thousands)
|
January 1, 2011
|
January 2, 2010
|
||||||
Income
from operations before taxes
|
$ | 20,158 | $ | 16,000 | ||||
Provision
for income taxes
|
5,059 | 160 | ||||||
Net
income
|
$ | 15,099 | $ | 15,840 | ||||
Effective
tax rate
|
25.1 | % | 1.0 | % |
For the
three months ended January 1, 2011, the effective income tax rate differed from
the federal statutory rate primarily due to tax from foreign operations at a
lower effective tax rate than the U.S. statutory rate, the impact of tax
holidays, decreases in the valuation allowance offset by an increase for
deferred taxes on un-remitted earnings as well as other U.S. current and
deferred taxes.
For the
three months ended January 2, 2010, the effective income tax rate differed from
the federal statutory rate primarily due to decreases in the valuation
allowance, federal alternative minimum taxes, state income taxes, tax from
foreign operations, the impact of tax holidays, an increase in deferred taxes
for un-remitted earnings and other U.S. current and deferred taxes.
The
Company’s future effective tax rate would be affected if earnings were lower
than anticipated in countries where it has lower statutory rates and higher than
anticipated in countries where it has higher statutory rates, by changes in the
valuation of its deferred tax assets and liabilities, or by changes in tax laws,
regulations, accounting principles, or interpretations thereof. The Company
regularly assesses the effects resulting from these factors to determine the
adequacy of its provision for income taxes.
In
addition, the Company is currently in negotiations with a foreign tax
jurisdiction which could result in a decreased effective tax rate in that
jurisdiction for a limited period of time. Any impact on current or
deferred taxes as a result of these negotiations will be reflected in the
quarter in which these negotiations are finalized and could result in future
decrease to the Company’s overall effective tax rate.
NOTE
9: SEGMENT INFORMATION
The
Company operates two segments: Equipment and Expendable Tools. The Equipment
segment manufactures and sells a line of ball bonders, heavy wire wedge bonders
and die bonders that are sold to semiconductor device manufacturers, their
outsourced semiconductor assembly and test subcontractors, other electronics
manufacturers and automotive electronics suppliers. The Company also services,
maintains, repairs and upgrades its equipment. The Expendable Tools segment
manufactures and sells a variety of expendable tools for a broad range of
semiconductor packaging applications.
18
The
following table reflects operating information by segment for the three months
ended January 1, 2011 and January 2, 2010:
Three Months Ended
|
||||||||
(in thousands)
|
January 1, 2011
|
January 2, 2010
|
||||||
Net
revenue:
|
||||||||
Equipment
|
$ | 132,698 | $ | 111,597 | ||||
Expendable
Tools
|
16,165 | 16,818 | ||||||
Net
revenue
|
148,863 | 128,415 | ||||||
Cost
of sales :
|
||||||||
Equipment
|
70,238 | 65,145 | ||||||
Expendable
Tools
|
6,513 | 6,897 | ||||||
Cost
of sales
|
76,751 | 72,042 | ||||||
Gross
profit :
|
||||||||
Equipment
|
62,460 | 46,452 | ||||||
Expendable
Tools
|
9,652 | 9,921 | ||||||
Gross
profit
|
72,112 | 56,373 | ||||||
Operating
expenses:
|
||||||||
Equipment
|
43,276 | 31,605 | ||||||
Expendable
Tools
|
6,769 | 6,782 | ||||||
Operating
expenses
|
50,045 | 38,387 | ||||||
Income
from operations
|
||||||||
Equipment
|
19,184 | 14,847 | ||||||
Expendable
Tools
|
2,883 | 3,139 | ||||||
$ | 22,067 | $ | 17,986 |
The
following tables reflect assets by segment as of January 1, 2011 and
October 2, 2010, and capital expenditures and depreciation expense for the three
months ended January 1, 2011 and January 2, 2010:
As Of
|
||||||||
(in thousands)
|
January 1, 2011
|
October 2, 2010
|
||||||
Segment
assets:
|
||||||||
Equipment
|
$ | 490,045 | $ | 493,712 | ||||
Expendable
Tools
|
73,786 | 86,457 | ||||||
Segment
assets
|
$ | 563,831 | $ | 580,169 |
Three Months Ended
|
||||||||
(in
thousands)
|
January 1, 2011
|
January
2, 2010
|
||||||
Capital
expenditures:
|
||||||||
Equipment
|
$ | 1,487 | $ | 475 | ||||
Expendable
Tools
|
1,218 | 621 | ||||||
Capital
expenditures
|
$ | 2,705 | $ | 1,096 | ||||
Depreciation
expense
|
||||||||
Equipment
|
$ | 1,522 | $ | 1,398 | ||||
Expendable
Tools
|
499 | 727 | ||||||
Depreciation
expense
|
$ | 2,021 | $ | 2,125 |
19
NOTE
10: COMMITMENTS, CONTINGENCIES AND CONCENTRATIONS
Warranty
Expense
The
Company’s equipment is generally shipped with a one-year warranty against
manufacturing defects. The Company establishes reserves for estimated warranty
expense when revenue for the related equipment is recognized. The reserve for
estimated warranty expense is based upon historical experience and management’s
estimate of future expenses.
The
following table reflects the reserve for product warranty activity for the three
months ended January 1, 2011 and January 2, 2010:
Three months ended
|
||||||||
(in thousands)
|
January 1, 2011
|
January 2, 2010
|
||||||
Reserve
for product warranty, beginning of period
|
$ | 2,657 | $ | 1,003 | ||||
Provision
for product warranty
|
408 | 791 | ||||||
Product
warranty costs paid
|
(829 | ) | (401 | ) | ||||
Reserve
for product warranty, end of period
|
$ | 2,236 | $ | 1,393 |
Orthodyne
Earnout
As of
January 1, 2011, the maximum potential payout under the Earnout could be $20.0
million; however, the Company estimated that its maximum exposure would not
exceed $9.2 million. As of January 1, 2011, no Earnout was accrued or recorded
as an adjustment to goodwill on the Consolidated Balance Sheet.
Other
Commitments and Contingencies
The
following table reflects operating lease obligations not reflected on the
Consolidated Balance Sheet as of January 1, 2011:
Payments due by fiscal year
|
||||||||||||||||||||||||
(in thousands)
|
Total
|
2011
|
2012
|
2013
|
2014
|
2015 and
thereafter
|
||||||||||||||||||
Operating
lease obligations (1)
|
$ | 32,735 | $ | 6,612 | $ | 6,968 | $ | 5,386 | $ | 2,771 | $ | 10,998 |
(1) The
Company has minimum rental commitments under various leases (excluding taxes,
insurance, maintenance and repairs, which are also paid by the Company)
primarily for various facility and equipment leases, which expire periodically
through 2018 (not including lease extension options, if
applicable).
20
Concentrations
The
following table reflects significant customer concentrations for the three
months ended January 1, 2011 and January 2, 2010:
Three months ended
|
||||||||
January 1, 2011
|
Janaury 2, 2010
|
|||||||
Customer
net revenue as a percentage of Net Revenue
|
||||||||
Advanced
Semiconductor Engineering
|
* | 34.5 | % | |||||
Customer
accounts receivable as a percentage of Total Accounts
Receivable
|
||||||||
Haoseng
Industrial Company Limited
|
11.4 | % | 12.6 | % | ||||
Siliconware
Precision Industries Co. Limited
|
10.4 | % | * | |||||
Advanced
Semiconductor Engineering
|
* | 22.9 | % |
* Represents
less than 10% of net revenue or total accounts receivable, as
applicable.
NOTE
11: RELATED PARTY TRANSACTIONS
In
connection with the Company’s acquisition of its wedge bonder division,
Orthodyne Electronics Corporation, on October 3, 2008, the Company entered into
a real property lease agreement with OE Holdings, Inc. Jason Livingston was the
Vice President of the Company’s wedge bonder division until his resignation in
October 2010 and is also a shareholder of OE Holdings, Inc. The lease agreement
dated as of October 3, 2008 has a five-year term with a five-year renewal
option. Rent was $124,369 per month in the first year and increases 3.0% per
year thereafter. If the lease agreement renewal is exercised, rent during the
renewal term will be at fair market value. The Company is guaranteeing the
obligations of its subsidiary under the lease agreement.
21
Item
2.
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
Forward-Looking
Statements
In
addition to historical information, this filing contains statements relating to
future events or our future results. These statements are forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of
1934, as amended (the “Exchange Act”), and are subject to the safe harbor
provisions created by statute. Such forward-looking statements include, but are
not limited to, statements that
relate to increasing, continuing or strengthening demand for our products, and
our future revenue and operational flexibility 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.
OVERVIEW
Introduction
Kulicke
and Soffa Industries, Inc. (the “Company” or “K&S”) designs, manufactures
and sells capital equipment and expendable tools used to assemble semiconductor
devices, including integrated circuits (“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.
22
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.
Although net revenue in the first quarter of fiscal 2011 was sequentially lower
than the fourth quarter of fiscal 2010, net revenue was higher than we expected.
We anticipate demand to be stronger during the second quarter of fiscal 2011 as
compared to the first quarter of 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.
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 as of January 1,
2011, our total cash, cash equivalents and investments exceeded the face value
of our total debt by $93.6 million, a $22.3 million increase from our fiscal
year end. We believe a strong cash position allows us to continue making longer
term investments in product development and in cost reduction activities
throughout the semiconductor cycle.
Technology
Leadership
We
compete largely by offering our customers the most advanced equipment and
expendable tools available for 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.
23
K&S’s
leadership in the industries’ 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 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. The following table reflects
net revenue by business segment for the three months January 1, 2011 and January
2, 2010, respectively:
Three months ended
|
||||||||||||||||
January 1, 2011
|
January 2, 2010
|
|||||||||||||||
(dollar amounts in thousands)
|
Net Revenues
|
% of total net
revenue
|
Net Revenues
|
% of total net
revenue
|
||||||||||||
Equipment
|
$ | 132,698 | 89.1 | % | $ | 111,597 | 86.9 | % | ||||||||
Expendable
Tools
|
16,165 | 10.9 | % | 16,818 | 13.1 | % | ||||||||||
$ | 148,863 | 100.0 | % | $ | 128,415 | 100.0 | % |
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.
24
Our
principal Equipment segment products include:
Business Unit
|
Product Name (1)
|
Typical Served Market
|
||
Ball
bonders
|
IConnPS
|
Advanced
and ultra fine pitch applications using either gold or copper
wire
|
||
IConnPS ProCu
|
High-end
copper wire applications demanding advanced process capability and high
productivity
|
|||
IConnPS LA
|
Large
area substrate and matrix 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
|
Cost
performance large area substrate and matrix
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
|
(1)
|
Power Series (“PS”)
|
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 LED PS
and our ConnX VLED PS.
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.
25
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 iStackPS,
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.
|
26
|
·
|
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.
|
RESULTS
OF OPERATIONS
Results
of Operations for fiscal 2011 and 2010
The
following table reflects our income from operations for the three months ended
January 1, 2011 and January 2, 2010:
Three Months Ended
|
||||||||||||||||
(dollar amounts in thousands)
|
January 1, 2011
|
January 2, 2010
|
$ Change
|
% Change
|
||||||||||||
Net
revenue
|
$ | 148,863 | $ | 128,415 | $ | 20,448 | 15.9 | % | ||||||||
Cost
of sales
|
76,751 | 72,042 | 4,709 | 6.5 | % | |||||||||||
Gross
profit
|
72,112 | 56,373 | 15,739 | 27.9 | % | |||||||||||
Selling,
general and administrative
|
34,850 | 25,226 | 9,624 | 38.2 | % | |||||||||||
Research
and development
|
15,195 | 13,161 | 2,034 | 15.5 | % | |||||||||||
Operating
expenses
|
50,045 | 38,387 | 11,658 | 30.4 | % | |||||||||||
Income
from operations
|
$ | 22,067 | $ | 17,986 | $ | 4,081 | 22.7 | % |
Net Revenue
Approximately
97.0% and 97.4% of our net revenue for the three months ended January 1, 2011
and January 2, 2010, respectively, was for shipments to customer locations
outside of the United States, primarily in the Asia/Pacific region, and we
expect sales outside of the United States to continue to represent a substantial
majority of our future revenue.
The
following table reflects net revenue by business segment for the three months
ended January 1, 2011 and January 2, 2010:
Three months ended
|
||||||||||||||||
(dollar amounts in thousands)
|
January 1, 2011
|
January 2, 2010
|
$ Change
|
% Change
|
||||||||||||
Equipment
|
$ | 132,698 | $ | 111,597 | $ | 21,101 | 18.9 | % | ||||||||
Expendable
Tools
|
16,165 | 16,818 | (653 | ) | -3.9 | % | ||||||||||
Total
|
$ | 148,863 | $ | 128,415 | $ | 20,448 | 15.9 | % |
27
Equipment
The
following table reflects the components of Equipment net revenue change between
the three months ended January 1, 2011 and January 2, 2010:
January 1, 2011 vs. January 2, 2010
|
||||||||||||
(in thousands)
|
Price
|
Volume
|
$ Change
|
|||||||||
Equipment
|
$ | 6,336 | $ | 14,765 | $ | 21,101 |
For the
three months ended January 1, 2011, higher equipment net revenue as compared to
the prior year period was due to a 202.2% unit volume increase for our wedge
bonders partially offset by a 17.4% decline in ball bonder volume. The
improvement in wedge bonder volume was due to significant demand for power
management products. The favorable price change was due to customer mix within
our ball bonder product lines.
Expendable
Tools
We
realized a slight decline in Expendable Tools net revenue during the three
months ended January 1, 2011 as compared to the three months ended January 2,
2010. The decrease was primarily due lower volumes for our non-wedge bonder
tools products.
Gross
Profit
The
following table reflects gross profit by business segment for the three months
ended January 1, 2011 and January 2, 2010:
Three months ended
|
||||||||||||||||
(dollar amounts in thousands)
|
January 1, 2011
|
January 2, 2010
|
$ Change
|
% Change
|
||||||||||||
Equipment
|
$ | 62,460 | $ | 46,452 | $ | 16,008 | 34.5 | % | ||||||||
Expendable
Tools
|
9,652 | 9,921 | (269 | ) | -2.7 | % | ||||||||||
Total
|
$ | 72,112 | $ | 56,373 | $ | 15,739 | 27.9 | % |
The
following table reflects gross profit as a percentage of net revenue by business
segment:
Three months ended
|
Basis Point
|
|||||||||||
January 1, 2011
|
January 2, 2010
|
Change
|
||||||||||
Equipment
|
47.1 | % | 41.6 | % | 550 | |||||||
Expendable
Tools
|
59.7 | % | 59.0 | % | 70 | |||||||
Total
|
48.4 | % | 43.9 | % | 450 |
28
Equipment
The
following table reflects the components of Equipment gross profit change between
the three months ended January 1, 2011 and January 2, 2010:
January 1, 2011 vs. January 2, 2010
|
||||||||||||||||
(in thousands)
|
Price
|
Cost
|
Volume
|
Change
|
||||||||||||
Equipment
|
$ | 6,336 | $ | (213 | ) | $ | 9,885 | $ | 16,008 |
For the
three months ended January 1, 2011, gross profit increased as compared to the
prior year period mainly due to higher volume for wedge bonders and
improved prices for ball bonders. The improvement in wedge bonder volume
was due to significant demand for power management products. The favorable price
change was due to customer mix within our ball bonder product
lines.
Expendable
Tools
We
realized a small decline in Expendable Tools gross profit during the three
months ended January 1, 2011 as compared to the three months ended January 2,
2010. This small decrease was primarily due lower volumes for our non-wedge
bonder tools products.
Operating
Expenses
The
following table reflects operating expenses as a percentage of net
revenue:
Three months ended
|
Basis point
|
|||||||||||
January 1, 2011
|
January 2, 2010
|
change
|
||||||||||
Selling,
general & administrative
|
23.4 | % | 19.6 | % | (380 | ) | ||||||
Research
& development
|
10.2 | % | 10.2 | % | - | |||||||
Total
|
33.6 | % | 29.8 | % | (380 | ) |
Selling,
general and administrative (“SG&A”)
SG&A
increased a net of $9.6 million during the three months ended January 1, 2011 as
compared to the same period a year ago primarily due to the
following:
|
·
|
$3.2
million higher incentive compensation expense driven by the current fiscal
quarter’s net income;
|
|
·
|
$2.5
million increase in sales commissions due to higher net revenue for the
current fiscal quarter;
|
|
·
|
$1.6
million higher severance expense related the current quarter’s U.S.-based
corporate transition to Singapore and the wedge bonder manufacturing
transition from the U.S. to Asia;
|
|
·
|
$1.0
million higher staffing costs to support our installed machine base and
higher information technology consulting and related project costs during
the current fiscal quarter, and;
|
|
·
|
$0.8
million unfavorable foreign currency
variance.
|
29
Research
and development (“R&D”)
R&D
expenses increased $2.0 million during the three months ended January 1, 2011 as
compared to the same period a year ago primarily due to $1.6 million of higher
employee staffing costs attributed to additional headcount in our technology
centers.
Income
from Operations
The
following table reflects income from operations for the three months ended
January 1, 2011 and January 2, 2010:
Three months ended
|
||||||||||||||||
(dollar amounts in thousands)
|
January 1, 2011
|
January 2, 2010
|
$ Change
|
% Change
|
||||||||||||
Equipment
|
$ | 19,184 | $ | 14,847 | $ | 4,337 | 29.2 | % | ||||||||
Expendable
Tools
|
2,883 | 3,139 | (256 | ) | -8.2 | % | ||||||||||
$ | 22,067 | $ | 17,986 | $ | 4,081 | 22.7 | % |
Equipment
For the
three months ended January 1, 2011, income from operations was higher as
compared to the prior year period mainly due to higher volume for wedge bonders
and improved prices for ball bonders. The improvement in wedge bonder
volume was due to significant demand for power management products. The
favorable price change was due to customer mix within our ball bonder product
lines.
Expendable
Tools
We
realized a small decline in Expendable Tools income from operations during the
three months ended January 1, 2011 as compared to the three months ended January
2, 2010. This small decrease was primarily due lower volumes for our non-wedge
bonder tools products.
Interest
Income and Expense
The
following table reflects interest income and interest expense for the three
months ended January 1, 2011 and January 2, 2010:
Three months ended
|
||||||||||||||||
(dollar amounts in thousands)
|
January 1, 2011
|
January 2, 2010
|
$ Change
|
% Change
|
||||||||||||
Interest
income
|
$ | 105 | $ | 97 | $ | 8 | 8.2 | % | ||||||||
Interest
expense: cash
|
(242 | ) | (371 | ) | 129 | -34.8 | % | |||||||||
Interest
expense: non-cash
|
(1,772 | ) | (1,712 | ) | (60 | ) | 3.5 | % |
The
increase in interest income from the first quarter of fiscal 2010 to the first
quarter of fiscal 2011 was due to higher invested cash balances.
The
decrease in interest for the first quarter of fiscal 2011 as compared to the
prior year period was attributable to the retirement of our 1.0% Convertible
Subordinated Notes in June 2010.
30
Provision
for Income Taxes
The
following table reflects the provision for income taxes and the effective tax
rate for the three months ended January 1, 2011 and January 2,
2010:
Three months ended
|
||||||||
(in thousands)
|
January 1, 2011
|
January 2, 2010
|
||||||
Income
from operations before taxes
|
$ | 20,158 | $ | 16,000 | ||||
Provision
for income taxes
|
5,059 | 160 | ||||||
Net
income
|
$ | 15,099 | $ | 15,840 | ||||
Effective
tax rate
|
25.1 | % | 1.0 | % |
For the
three months ended January 1, 2011, the effective income tax rate differed from
the federal statutory rate primarily due to tax from foreign operations at a
lower effective tax rate than the U.S. statutory rate, the impact of tax
holidays, decreases in the valuation allowance offset by an increase for
deferred taxes on un-remitted earnings as well as other U.S. current and
deferred taxes.
For the
three months ended January 2, 2010, the effective income tax rate differed from
the federal statutory rate primarily due to decreases in the valuation
allowance, Federal alternative minimum taxes, state income taxes, tax from
foreign operations, the impact of tax holidays, an increase in deferred taxes
for un-remitted earnings and other U.S. current and deferred taxes.
Our
future effective tax rate would be affected if earnings were lower than
anticipated in countries where we have lower statutory rates and higher than
anticipated in countries where we have higher statutory rates, by changes in the
valuation of our deferred tax assets and liabilities, or by changes in tax laws,
regulations, accounting principles, or interpretations thereof. We regularly
assess the effects resulting from these factors to determine the adequacy of our
provision for income taxes.
In
addition, we are currently in negotiations with a foreign tax jurisdiction which
could result in a decreased effective tax rate in that jurisdiction for a
limited period of time. Any impact on current or deferred taxes as a
result of these negotiations will be reflected in the quarter in which these
negotiations are finalized and could result in future decrease to our overall
effective tax rate.
LIQUIDITY
AND CAPITAL RESOURCES
The
following table reflects total cash and investments as of January 1, 2011 and
October 2, 2010:
As of
|
||||||||||||
(dollar amounts in thousands)
|
January 1, 2011
|
October 2, 2010
|
$ Change
|
|||||||||
Cash
and cash equivalents
|
$ | 197,551 | $ | 178,112 | $ | 19,439 | ||||||
Restricted
cash (1)
|
- | 237 | (237 | ) | ||||||||
Short-term
investments
|
6,074 | 2,985 | 3,089 | |||||||||
Total
cash and cash equivalents
|
$ | 203,625 | $ | 181,334 | $ | 22,291 | ||||||
Percentage
of total assets
|
36.1 | % | 31.3 | % |
(1) Related
to customs requirements in Malaysia.
31
The
following table reflects summary Consolidated Statement of Cash Flow information
for the three months ended January 1, 2011 and January 2, 2010:
Three months ended
|
||||||||
(in thousands)
|
January 1, 2011
|
January 2, 2010
|
||||||
Net
cash provided by continuing operations
|
$ | 25,310 | $ | 34,125 | ||||
Net
cash used in discontinued operations
|
(524 | ) | (496 | ) | ||||
Net
cash provided by operating activities
|
$ | 24,786 | $ | 33,629 | ||||
Net
cash used in investing activities, continuing operations
|
(5,648 | ) | (1,031 | ) | ||||
Net
cash used in investing activities, discontinued operations
|
- | (1,838 | ) | |||||
Net
cash used in investing activities
|
$ | (5,648 | ) | $ | (2,869 | ) | ||
Net
cash used in financing activities
|
125 | (23 | ) | |||||
Effect
of exchange rate changes on cash and cash equivalents
|
176 | (90 | ) | |||||
Changes
in cash and cash equivalents
|
$ | 19,439 | $ | 30,647 | ||||
Cash
and cash equivalents, beginning of period
|
178,112 | 144,560 | ||||||
Cash
and cash equivalents, end of period
|
$ | 197,551 | $ | 175,207 |
Three
months ended January 1, 2011
Continuing
Operations
Net cash
provided by operating activities was primarily the result of net income of $15.1
million plus non-cash adjustments of $11.8 million partially offset by a net
decrease in net working capital of $1.6 million. The net decrease in working
capital was primarily driven by decreases in accounts payable, accrued expenses,
and other current liabilities and decreases in accounts receivable.
Net cash
used in investing activities of $5.6 million was comprised of capital
expenditures of $2.7 million and purchases of short term investments of $3.2
million.
Discontinued
Operations
Net cash
used in operating activities was related to facility payments for our former
Test business.
Three
months ended January 2, 2010
Continuing
Operations
Net cash
provided by operating activities was primarily the result of net income of $15.8
million plus non-cash adjustments of $7.7 million. In addition, net working
capital provided $10.6 million, primarily driven by increases in accounts
payable, accrued expenses, and other current liabilities, decreases in accounts
receivable and increases in inventories.
Net cash
used in investing activities was comprised of capital expenditures of $1.1
million.
Discontinued
Operations
Net cash
used in operating activities was related to facility payments for our former
Test business.
32
Net cash
used in investing activities was the result of settlement of remaining
liabilities, related to working capital adjustments in connection with the
fiscal 2009 sale of our Wire business.
Fiscal
2011 Liquidity and Capital Resource Outlook
We expect
our remaining fiscal 2011 capital expenditures to be $11.0 to $12.0 million.
Expenditures are anticipated to be primarily used for R&D projects and the
expansion of our manufacturing operations infrastructure in Asia.
We
believe that our existing cash and investments, anticipated cash flows from
operations and available credit facility will be sufficient to meet our
liquidity and capital requirements for at least the next twelve months. Our
liquidity is affected by many factors, some based on normal operations of our
business and others related to global economic conditions and industry
uncertainties, which we cannot predict. We also cannot predict economic
conditions and industry downturns or the timing, strength or duration of
recoveries. We will continue to use our cash for working capital needs, general
corporate purposes, and to repay our Convertible Subordinated
Notes.
We may
seek, as we believe appropriate, additional debt or equity financing which would
provide capital for corporate purposes, working capital funding, additional
liquidity needs or to fund future growth opportunities. The timing
and amount of potential capital requirements cannot be determined at this time
and will depend on a number of factors, including our actual and projected
demand for our products, semiconductor and semiconductor capital equipment
industry conditions, competitive factors, and the condition of financial
markets.
Convertible
Subordinated Notes
The
following table reflects additional information regarding our Convertible
Subordinated Notes as of
January
1, 2011:
Description
|
Maturity Date
|
Par Value
|
Fair Value as of
January 1, 2011 (1)
|
|||||||
(in
thousands)
|
||||||||||
0.875%
Convertible Subordinated Notes (2)
|
June
1, 2012
|
$ | 110,000 | $ | 106,843 |
(1) In
accordance with ASC 820, we rely
upon observable market data such as our common stock price, interest
rates, and other market factors.
(2) We
determined maintenance of our corporate rating was not necessary; therefore, our
0.875% Convertible Subordinated Notes are not rated.
Other
Obligations and Contingent Payments
In
accordance with U.S. generally accepted accounting principles, certain
obligations and commitments are not required to be included in the Consolidated
Balance Sheets and Statements of Operations. These obligations and commitments,
while entered into in the normal course of business, may have a material impact
on our liquidity. Certain of the following commitments as of January 1, 2011 are
appropriately not included in the Consolidated Balance Sheets and Statements of
Operations included in this Form 10-Q; however, they have been disclosed in the
following table for additional information.
33
Other
Obligations and Contingent Payments
The
following table identifies obligations and contingent payments under various
arrangements as of January 1, 2011:
Payments due by fiscal period
|
||||||||||||||||||||||||
Less than
|
1 - 3
|
3 - 5
|
More than
|
Due date not
|
||||||||||||||||||||
(in thousands)
|
Total
|
1 year
|
years
|
years
|
5 years
|
determinable
|
||||||||||||||||||
Contractual
Obligations:
|
||||||||||||||||||||||||
Convertible
Subordinated Notes, par
value (1)
|
$ | 110,000 | $ | 110,000 | ||||||||||||||||||||
Current
and long-term liabilities:
|
||||||||||||||||||||||||
Pension
plan obligations
|
4,932 | $ | 4,932 | |||||||||||||||||||||
Severance
|
6,393 | $ | 3,093 | 1,278 | 2,022 | |||||||||||||||||||
Facility
accrual related to discontinued operations (Test)
|
2,547 | 1,661 | 886 | |||||||||||||||||||||
Obligations
related to Chief Executive Officer
transition (2)
|
2,869 | 2,075 | 794 | |||||||||||||||||||||
Operating
lease retirement obligations
|
2,295 | 141 | 679 | $ | 644 | $ | 831 | |||||||||||||||||
Long-term
income taxes payable
|
1,968 | 1,968 | ||||||||||||||||||||||
Total
Obligations and Contingent Payments reflected on the Consolidated
Financial Statements
|
$ | 131,004 | $ | 6,970 | $ | 113,637 | $ | 644 | $ | 831 | $ | 8,922 | ||||||||||||
Contractual
Obligations:
|
||||||||||||||||||||||||
Inventory
purchase obligations (3)
|
$ | 82,978 | $ | 82,978 | $ | - | ||||||||||||||||||
Operating
lease obligations (4)
|
32,735 | 8,506 | $ | 11,178 | $ | 5,278 | $ | 7,773 | ||||||||||||||||
Cash
paid for interest
|
1,445 | 482 | 963 | |||||||||||||||||||||
Total
Obligations and Contingent Payments not reflected on the Consolidated
Financial Statements
|
$ | 117,158 | $ | 91,966 | $ | 12,141 | $ | 5,278 | $ | 7,773 | $ | - | ||||||||||||
(1)
Does not reflect debt discount of $9.9 million related to our 0.875% Convertible
Subordinated Notes.
(2) In
connection with the September 2010 retirement of our former Chief Executive
Officer (“CEO”), we entered into a three year consulting arrangement with him.
Additionally in
connection with his retirement, deferred cash payments equal to the difference,
if any, between (i) the fair market value of
our shares of
common stock to which he would have been entitled pursuant to the performance
share unit awards granted to him in fiscal 2008 and 2009 had
he remained employed through June 30, 2011 and (ii) the fair market value of
our shares of common stock
actually received by him pursuant to such awards. The deferred cash
payments, if any, will be paid in July 2011 and February
2012,
respectively. In addition, in connection with the employment agreement
for our recently hired CEO, we are obligated to pay certain bonus and relocation
payments.
(3) We
order inventory components in the normal course of our business. A portion of
these orders are non-cancelable and a portion may have varying penalties and
charges in the event of cancellation.
(4) We
have minimum rental commitments under various leases (excluding taxes,
insurance, maintenance and repairs, which are also paid by us) primarily for
various facility and equipment leases, which expire periodically through 2018
(not including lease extension options, if applicable).
Credit
Facility
On
September 29, 2010, Kulicke and Soffa Global Holding Corporation (“GHC”), the
Company’s wholly-owned subsidiary, entered into a Short Term Credit Facilities
Agreement (the “Facilities Agreement”) with DBS Bank Ltd. Labuan Branch (“DBS
Bank”). In accordance with the Facilities Agreement, DBS Bank has agreed to make
available to GHC the following banking facilities:
(i) a
short term loan facility of up to $12.0 million (the “STL Facility”);
and
(ii) a
revolving credit facility of up to $8.0 million (the “RC
Facility”).
The STL
Facility is an uncommitted facility, and therefore, cancellable by DBS Bank at
any time in its sole discretion. Borrowings under the STL Facility bear interest
at the Singapore Interbank Offered Rate (“SIBOR”) plus 1.5%. The RC Facility is
a committed facility and is available to GHC until September 10, 2013, the
maturity date. Borrowings under the RC Facility bear interest at SIBOR plus
2.5%. The Facilities Agreement has been entered into in order to provide
support, if needed, to fund GHC’s working capital requirements. We did not have
any borrowings under the Facilities Agreement as of or during the three months
ended January 1, 2011 or October 2, 2010.
34
Orthodyne
Earnout
On
October 3, 2008, we completed the acquisition of Orthodyne Electronics
Corporation (“Orthodyne”) and agreed to pay Orthodyne an additional amount in
the future based upon the gross profit realized by the acquired business over a
three year period from date of acquisition pursuant to an Earnout Agreement (the
“Earnout”). As of January 1, 2011, the maximum potential payout under the
Earnout could be $20.0 million; however, as of January 1, 2011, no Earnout was
accrued or recorded as an adjustment to goodwill.
Off-Balance
Sheet Arrangements
We
currently do not have any off-balance sheet arrangements such as derivatives,
indirect guarantees of indebtedness, contingent interests, or obligations
associated with variable interest entities.
Item
3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK.
Interest
Rate Risk
As of
January 1, 2011, we held $6.1 million of available-for-sale investments which
subject us to interest rate risk. Our available-for-sale securities consist of
fixed income investments (such as corporate bonds, commercial paper, time
deposits and U.S. Treasury and Agency securities, or mutual funds that invest in
these instruments). We continually monitor our exposure to changes in interest
rates and credit ratings of issuers with respect to any available-for-sale
securities and target an average life to maturity of less than eighteen months.
Accordingly, we believe that the effects to us of changes in interest rates and
credit ratings of issuers are limited and would not have a material impact on
our financial condition or results of operations.
Foreign
Currency Risk
Based on
our overall currency rate exposure as of January 1, 2011, a near term 10%
appreciation or depreciation in the foreign currency portfolio to the U.S.
dollar could impact on our financial position, results of operations or cash
flows by $1.0 to $2.0 million. Our board of directors has granted management the
authority to enter into foreign exchange forward contracts and other instruments
designed to minimize the short term impact currency fluctuations have on our
business. We may enter into foreign exchange forward contracts and other
instruments in the future; however, our attempts to hedge against these risks
may not be successful and may result in a material adverse impact on our
financial results and cash flow.
35
Item
4. CONTROLS AND
PROCEDURES
Evaluation
of Disclosure Controls and Procedures
Our
management, with the participation of our Chief Executive Officer and Chief
Financial Officer, evaluated the effectiveness of our disclosure controls and
procedures as of January 1, 2011. Based on that evaluation, the Chief Executive
Officer and Chief Financial Officer concluded that, as of January 1, 2011 our
disclosure controls and procedures were effective in providing reasonable
assurance the information required to be disclosed by us in reports filed under
the Securities Exchange Act of 1934, as amended, is (i) recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission’s rules and forms and (ii) accumulated
and communicated to our management, including the Chief Executive Officer and
Chief Financial Officer, as appropriate to allow timely decisions regarding
disclosure.
PART
II Other information
Item
1A. RISK FACTORS
CERTAIN
RISKS RELATED TO OUR BUSINESS
Risks
related to our business are detailed in our Annual Report on Form 10-K for the
year ended October 2, 2010 filed with the Securities and Exchange
Commission.
Item
6. Exhibits
Exhibit No.
|
Description
|
10.1
|
Letter
Agreement between the Company and Jason Livingston, dated October 18,
2010, incorporated by reference from Exhibit 10.1 to the Company’s Current
Report on Form 8-K dated October 18, 2010.*
|
10.2
|
Offer
Letter between the Company and Jonathan H. Chou, dated November 16, 2010,
incorporated by reference from Exhibit 10.1 to the Company’s Current
Report on Form 8-K dated November 16, 2010.*
|
10.3
|
Letter
Agreement between the Company and Michael J. Morris, dated November 16,
2010, incorporated by reference from Exhibit 10.2 to the Company’s Current
Report on Form 8-K dated November 16, 2010.*
|
10.4
|
Form
of Officer Performance Share Award Agreement regarding the 2009 Equity
Plan, incorporated by reference from Exhibit 10.4 to the Company’s Current
Report on Form 8-K dated December 9, 2010.*
|
10.5
|
Form
of Officer Restricted Share Unit Award Agreement regarding the 2009 Equity
Plan, incorporated by reference from Exhibit 10.5 to the Company’s Current
Report on Form 8-K dated December 9, 2010.*
|
31.1
|
Certification
of Bruno Guilmart, Chief Executive Officer of Kulicke and Soffa
Industries, Inc., pursuant to Rule 13a-14(a) or
Rule15d-14(a).
|
31.2
|
Certification
of Jonathan Chou, Chief Financial Officer of Kulicke and Soffa Industries,
Inc., pursuant to Rule 13a-14(a) or Rule 15d-14(a).
|
32.1
|
Certification
of Bruno Guilmart, Chief Executive Officer of Kulicke and Soffa
Industries, Inc., pursuant to 18 U.S.C. Section 1350 as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
|
32.2
|
Certification
of Jonathan Chou, Chief Financial Officer of Kulicke and Soffa Industries,
Inc., pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of
2002.
|
*
Indicates a management contract or a compensatory plan or
arrangement.
36
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
KULICKE
AND SOFFA INDUSTRIES, INC.
|
|
Date: February
9, 2011
|
By: /s/ JONATHAN CHOU
|
Jonathan
Chou
|
|
Senior
Vice President and Chief Financial Officer
|
|
(Chief
Financial Officer and Principal Accounting
Officer)
|
37