Annual Report — Form 10-K Filing Table of Contents
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(Exact
Name of Registrant as Specified in Its Charter)
PENNSYLVANIA
23-1498399
(State
or other jurisdiction of incorporation or organization)
(IRS
Employer Identification No.)
6
Serangoon North Avenue 5
#03-16
Singapore
554910
(Address
of principal executive offices)
(Zip
Code)
(215)
784-6000
(Registrants
telephone number, including area code)
N/A
(Former
name, former address and former fiscal year, if changed since last
report)
Securities
registered pursuant to Section 12(b) of the Act:
None
Securities
registered pursuant to Section 12(g) of the Act:
COMMON
STOCK, WITHOUT PAR VALUE
(Title
of each class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes ¨ No
x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Exchange Act. Yes ¨ No
x
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes x No
¨
Indicate by check mark whether the
registrant has submitted electronically and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted and posted pursuant to
Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files).
Yes ¨ No ¨
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of the registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a smaller reporting company. See definition of “large
accelerated filer,”“accelerated filer” and “smaller reporting company” in
Rule 12b-2 of the Exchange Act. (Check one):
Large
accelerated filer ¨
Accelerated filer x
Non-accelerated
filer ¨
Smaller
reporting company ¨
(Do
not check if a smaller reporting
company)
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes ¨ No
x
As of
April 2, 2010, the aggregate market value of the registrant's common stock held
by non-affiliates of the registrant was approximately $507.8 million based on
the closing sale price as reported on The NASDAQ Global Market (Reference is
made to Part II, Item 5 herein for a statement of assumptions upon which this
calculation is based).
Portions
of the registrant's Proxy Statement for the 2011 Annual Meeting of Shareholders
to be filed on or about December 30, 2010 are incorporated by reference into
Part II, Item 5 and Part III, Items 10, 11, 12, 13 and 14 herein of this Report.
Such Proxy Statement, except for the parts therein which have been specifically
incorporated by reference, shall not be deemed “filed” for the purposes of this
Report on Form 10-K.
KULICKE
AND SOFFA INDUSTRIES, INC.
2010
Annual Report on Form 10-K
Table
of Contents
Page
Part
I
Item
1.
Business
1
Item
1A.
Risks
Related to Our Business and Industry
11
Item
1B.
Unresolved
Staff Comments
20
Item
2.
Properties
21
Item
3.
Legal
Proceedings
21
Item
4.
[Removed
and Reserved]
21
Part
II
Item
5.
Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
22
Item
6.
Selected
Consolidated Financial Data
22
Item
7.
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
25
Item
7A.
Quantitative
and Qualitative Disclosures about Market Risk
55
Item
8.
Financial
Statements and Supplementary Data
55
Item
9.
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
93
Item
9A.
Controls
and Procedures
93
Item
9B.
Other
Information
94
Part
III
Item
10.
Directors,
Executive Officers and Corporate Governance
94
Item
11.
Executive
Compensation
94
Item
12.
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
95
Item
13.
Certain
Relationships and Related Transactions and Director
Independence
95
Item
14.
Principal
Accounting Fees and Services
95
Part
IV
Item
15.
Exhibits
and Financial Statement Schedules
96
Signatures
102
PART
I
Forward-Looking
Statements
In
addition to historical information, this filing contains statements relating to
future events or our future results. These statements are forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933,
as amended (the “Securities Act”) and Section 21E of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), and are subject to the
safe harbor provisions created by statute. Such forward-looking statements
include, but are not limited to, statements that relate to our future revenue,
cost reductions, operational flexibility, product development, demand forecasts,
competitiveness, operating expenses, cash flows, profitability, gross margins,
and benefits expected as a result of (among other factors):
·
projected growth rates in the
overall semiconductor industry, the semiconductor assembly equipment
market, and the market for semiconductor packaging materials;
and
·
projected demand for ball,
wedge and die bonder equipment and for expendable
tools.
Generally,
words such as “may,”“will,”“should,”“could,”“anticipate,”“expect,”“intend,”“estimate,”“plan,”“continue,”“goal” and “believe,” or the negative
of or other variations on these and other similar expressions identify
forward-looking statements. These forward-looking statements are made only as of
the date of this filing. We do not undertake to update or revise the
forward-looking statements, whether as a result of new information, future
events or otherwise.
Forward-looking
statements are based on current expectations and involve risks and
uncertainties. Our future results could differ significantly from those
expressed or implied by our forward-looking statements. These risks and
uncertainties include, without limitation, those described below and under the
heading “Risk Factors” within this Annual Report on Form 10-K for the fiscal
year ended October 2, 2010 and our other reports and registration statements
filed from time to time with the Securities and Exchange Commission. This
discussion should be read in conjunction with the Consolidated Financial
Statements and Notes included in this report, as well as our audited financial
statements included in this Annual Report.
We
operate in a rapidly changing and competitive environment. New risks emerge from
time to time and it is not possible for us to predict all risks that may affect
us. Future events and actual results, performance and achievements could differ
materially from those set forth in, contemplated by or underlying the
forward-looking statements, which speak only as of the date on which they were
made. Except as required by law, we assume no obligation to update or revise any
forward-looking statement to reflect actual results or changes in, or additions
to, the factors affecting such forward-looking statements. Given those risks and
uncertainties, investors should not place undue reliance on forward-looking
statements as predictions of actual results.
Item
1. BUSINESS
Unless
otherwise indicated, the amounts and discussion contained in this Form 10-K
relate to continuing operations only and accordingly do not include amounts
attributable to our Wire business, which we sold on September 29,2008.
Kulicke
and Soffa Industries, Inc. (the “Company” or “K&S”) designs, manufactures
and sells capital equipment and expendable tools used to assemble semiconductor
devices, including integrated circuits (“IC”), high and low powered discrete
devices, light-emitting diodes (“LEDs”), and power modules. We also service,
maintain, repair and upgrade our equipment. Our customers primarily consist of
semiconductor device manufacturers, outsourced semiconductor assembly and test
providers (“OSAT”), other electronics manufacturers and automotive electronics
suppliers.
We
operate two main business segments, Equipment and Expendable Tools. Our goal is
to be the technology leader and the lowest cost supplier in each of our major
product lines. Accordingly, we invest in research and engineering projects
intended to enhance our position at the leading edge of semiconductor assembly
technology. We also remain focused on our cost structure, through consolidating
operations, moving manufacturing to Asia, moving our supply chain to lower cost
suppliers and designing higher performing, lower cost equipment. Cost reduction
efforts are an important part of our normal ongoing operations, and are expected
to generate savings without compromising overall product quality and service
levels.
1
On
October 3, 2008, we completed the acquisition of substantially all of the assets
and assumption of certain liabilities of Orthodyne Electronics Corporation
(“Orthodyne”). In connection with the Orthodyne acquisition, we issued 7.1
million common shares with an estimated value on that date of $46.2 million and
paid $87.0 million in cash including capitalized acquisition costs. The
Orthodyne wedge bonding business is the leading supplier of both heavy wire
wedge bonders and wedges (the expendable tools used in wedge bonding) for the
power semiconductor and hybrid module markets.
On
September 29, 2008, we completed the sale of our Wire business for net proceeds
of $149.9 million to W.C. Heraeus GmbH (“Heraeus”). The financial results of the
Wire business have been included in discontinued operations in the consolidated
financial statements for all periods presented.
K&S
was incorporated in Pennsylvania in 1956. Our principal offices are located at 6
Serangoon North Avenue 5, #03-16, Singapore 554910 and our telephone number in
the United States is (215) 784-6000. We maintain a website with the address
www.kns.com. We
are not including the information contained on our website as a part of, or
incorporating it by reference into, this filing. We make available free of
charge (other than an investor’s own Internet access charges) on or through our
website our annual reports on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, and any amendments to these reports, as soon as reasonably
practicable after the material is electronically filed with or otherwise
furnished to the Securities and Exchange Commission (“SEC”). Our annual reports
on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and
amendments to those reports are also available on the SEC website at www.sec.gov and at
the SEC’s Public Reference Room at 100 F Street NE Washington DC
20549.
The
semiconductor business environment is highly volatile, driven by both internal
cyclical dynamics as well as macroeconomic forces. Over the long term,
semiconductor consumption has historically grown, and is forecast to continue to
grow. This growth is driven, in part, by regular advances in device performance
and by price declines that result from improvements in manufacturing technology.
In order to exploit these trends, semiconductor manufacturers, both integrated
device manufacturers (“IDMs”) and OSATs, periodically aggressively invest in
latest generation capital equipment. This buying pattern often leads to periods
of excess supply and reduced capital spending — the so called
semiconductor cycle. Macroeconomic factors also affect the industry, primarily
through their effect on business and consumer demand for electronic devices, as
well as other products that have significant electronic content such as
automobiles, white goods, and telecommunication equipment.
Our
Equipment segment reflects the industry’s cyclical dynamics and is therefore
also highly volatile. The financial performance of this segment is affected,
both positively and negatively, by semiconductor manufacturers’ expectations of
capacity requirements and their plans for upgrading their production
capabilities. Volatility of this segment is further influenced by the relative
mix of IDM and OSAT customers in any period, since changes in the mix of sales
to IDMs and OSATs can affect our products’ average selling prices and gross
margins due to differences in volume purchases and machine configurations
required by each type of customer.
Our
Expendable Tools segment is less volatile than our Equipment segment, since
sales of expendable tools are directly tied to semiconductor unit consumption
rather than their expected growth rate.
2
Though
the semiconductor industry’s cycle can be independent of the general economy,
global economic conditions may have a direct impact on demand for semiconductor
units and ultimately demand for semiconductor capital equipment and expendable
tools. Business conditions in the semiconductor industry improved significantly
during fiscal 2010 after a dramatic deterioration in the global economy and a
corresponding reduction in semiconductor production activity during fiscal 2009.
We expect overall demand to be lower during the first quarter of fiscal 2011 as
compared to the fourth quarter of fiscal 2010. Our visibility into future demand
beyond that is generally limited and forecasting is difficult. There can be no
assurances regarding levels of demand for our products and we believe historic
industry-wide volatility will persist.
To
mitigate possible negative effects of this industry-wide volatility on our
financial position, we have de-leveraged and strengthened our balance sheet.
During fiscal 2010, we reduced our debt by $49.0 million, and ended fiscal 2010
with cash and investments totaling $181.3 million. As of October 2, 2010, our
total cash, cash equivalents and investments exceeded the face value of our
total debt by $71.3 million. We believe a strong cash position allows us to
continue making longer term investments in product development and in cost
reduction activities throughout the semiconductor cycle.
Technology
Leadership
We
compete largely by offering our customers the most advanced equipment and
expendable tools available for the wire, wedge and die bonding processes. Our
equipment is typically the most productive, has the highest levels of process
capability, and as a result, has the lowest cost of ownership available in their
respective markets. Our expendable tools are designed to optimize
the performance of the equipment in which they are used. We believe our
technology leadership contributes to the leading market share positions of our
various wire bonder and expendable tools products. To maintain our competitive
advantage, we invest in product development activities to produce a stream of
improvements to existing products and to deliver next-generation products. These
investments often focus as much on improvements in the semiconductor assembly
process as on specific pieces of assembly equipment or expendable tools. In
order to generate these improvements, we often work in close collaboration with
customers, end users, and other industry members. In addition to producing
technical advances, these collaborative development efforts strengthen customer
relationships and enhance our reputation as a technology leader and solutions
provider.
K&S’s
leadership in the industry’s use of copper wire, instead of gold, for the wire
bonding process is an example of the benefits of collaborative efforts. By
working with customers, material suppliers, and suppliers of equipment used
around the wire bonding process, we have developed a series of robust, high
yielding production processes that have made copper wire commercially viable,
significantly reducing the cost of assembling an integrated circuit. Many of our
customers started large scale conversion of their output to copper wire in
fiscal 2010. We expect this conversion process to continue throughout the
industry for the next several years, potentially driving a significant wire
bonder replacement cycle as we believe much of the industries’ installed base is
not suitable for copper bonding. Based on our industry leading copper bonding
processes, we believe the market share for wire bonders configured for copper
wire is much higher than our already leading market share for ball bonders in
general.
We also
maintain the technology leadership of our equipment by optimizing variants of
our products to serve high growth niche markets. For example, over the last two
years we have developed extensions of our main ball bonding platforms to address
opportunities in LED assembly. We estimate the LED device market to be driven by
the adoption of LED backlights for flat-screen displays as well as other LED
applications in general lighting. In fiscal 2009, we launched two products
optimized for these applications. These products represent our first product
offerings specifically aimed at this high growth market, and since their
introduction we have captured significant market share.
Another
example of our developing equipment for high growth niche markets is our AT
Premier. This machine utilizes a modified wire bonding process to mechanically
place bumps on devices, while still in a wafer format, for variants of the flip
chip assembly process. Typical applications include complimentary metal-oxide
semiconductor (“CMOS”) image sensors, surface acoustical wave (“SAW”) filters
and high brightness LEDs.
Our focus
on technology leadership also extends to die bonding. We offer a new die bonding
platform, our state of the art iStackPS die
bonder for advanced stacked die applications. iStackPS offers best-in-class
throughput and accuracy, and we believe iStackPS
is positioned to lead the market for its targeted applications.
3
We bring
the same technology focus to our expendable tools business, driving tool design
and manufacturing technology to optimize the performance and process capability
of the equipment in which our tools are used. For all our equipment products,
expendable tools are an integral part of their process capability. We believe
our unique ability to simultaneously develop both equipment and tools is one of
the reasons for our technology leadership position.
Products
and Services
We supply
a range of bonding equipment and expendable tools. The following table reflects
net revenue by business segment for fiscal 2010, 2009 and 2008:
(dollar amounts in
thousands)
Fiscal 2010
% of Fiscal
2010 Net
Revenue
Fiscal 2009
% of Fiscal
2009 Net
Revenue
Fiscal 2008
% of Fiscal
2008 Net
Revenue
Equipment
$
691,988
90.7
%
$
170,536
75.7
%
$
271,019
82.6
%
Expendable
Tools
70,796
9.3
%
54,704
24.3
%
57,031
17.4
%
Total
$
762,784
100.0
%
$
225,240
100.0
%
$
328,050
100.0
%
See Note
12 to our Consolidated Financial Statements included in Item 8 of this report
for our financial results by business segment.
Equipment
Segment
We
manufacture and sell a line of ball bonders, heavy wire wedge bonders, stud
bumpers, and die bonders that are sold to semiconductor device manufacturers,
OSATs, other electronics manufacturers and automotive electronics suppliers.
Ball bonders are used to connect very fine wires, typically made of gold or
copper, between the bond pads of the semiconductor device, or die, and the leads
on its package. Wedge bonders use either aluminum wire or ribbon to perform the
same function in packages that cannot use gold or copper wire because of either
high electrical current requirements or other package reliability issues. Stud
bumpers mechanically apply bumps to die, typically while still in the wafer
format, for some variants of the flip chip assembly process. Die bonders are
used to attach a die to the substrate or lead frame which will house the
semiconductor device. We believe our equipment offers competitive advantages by
providing customers with high productivity/throughput, superior package
quality/process control, and as a result, a lower cost of
ownership.
4
Our
principal Equipment segment products include:
Business Unit
Product Name
Typical Served Market
Ball
bonders
IConnPS
Advanced
and ultra fine pitch applications using either gold or copper
wire
IConnPS ProCu
Advanced
copper wire applications demanding high productivity
IConnPS LA
Large
area applications
ConnXPS
Cost
performance, low pin count applications using either gold or copper
wire
ConnXPS
LED
LED
applications
ConnXPS
VLED
Vertical
LED applications
ConnXPS LA
Large
area applications
AT
Premier
Stud
bumping applications (high brightness LED and image
sensor)
Wedge
bonders
3600Plus
Power
hybrid and automotive modules using either aluminum wire or
ribbon
7200Plus
Power
semiconductors using either aluminum wire or ribbon
7200HD
Smaller
power packages using either aluminum wire or ribbon
7600HD
Power
semiconductors including smaller power packages using either aluminum wire
or ribbon
Die
bonder
iStackPS
Advanced
stacked die and ball grid array
applications
Ball
Bonders
Automatic
ball bonders represent the largest portion of our semiconductor equipment
business. Our main product platform for ball bonding is the Power Series (“PS”) — a
family of assembly equipment that is setting new standards for performance,
productivity, upgradeability, and ease of use. Our Power Series consists of our
IConnPS high-performance ball
bonders, and our ConnXPS
cost-performance ball bonders, both of which can be configured for either gold
or copper wire. In addition, targeted specifically at the fast growing LED
market, the Power Series includes our ConnX PS
LED and our ConnX PS
VLED. Targeted for large area applications, the Power Series includes
our IConnPS LA
and ConnXPS LA.
In November 2010, we introduced the IConnPS ProCu
which offers a significant new level of capability for customers transitioning
from gold to copper wire bonding.
Our Power
Series products have advanced industry performance standards. Our ball bonders
are capable of performing very fine pitch bonding, as well as creating the
sophisticated wire loop shapes needed in the assembly of advanced semiconductor
packages. Our ball bonders can also be converted for use to copper applications
through kits we sell separately, a capability that is increasingly important as
bonding with copper continues to grow as an alternative to gold.
5
Heavy
Wire Wedge Bonders
We are
the leaders in the design and manufacture of heavy wire wedge bonders for the
power semiconductor and automotive power module markets. Wedge bonders may use
either aluminum wire or aluminum ribbon to connect semiconductor chips in power
packages, power hybrids and automotive modules for products such as motor
control modules or inverters for hybrid cars. In addition, we see some potential
use for our wedge bonder products in select solar applications.
Our
portfolio of wedge bonding products includes:
·
The
3600Plus: high speed, high accuracy wire bonders designed for
power modules, automotive packages and other large wire multi-chip module
applications.
·
The
7200Plus: dual head wedge bonder designed specifically for
power semiconductor applications.
·
The
7200HD: wedge bonder designed for smaller power packages
using either aluminum wire or
ribbon.
·
The
7600HD: wedge bonder targeted for small power
packages.
While
wedge bonding traditionally utilized aluminum wire, all of our wedge bonders are
also available modified to bond aluminum ribbon using our proprietary
PowerRibbon® process. Ribbon offers device makers performance advantages over
traditional round wire and is being increasingly used for high current packages
and automotive applications.
Die
Bonders
Our die
bonder, the iStackPS,
was launched in March of 2009 and focuses on stacked die applications for both
memory and subcontract assembly customers.
iStackPS
is targeted at stacked die and high end ball grid array (“BGA”) applications. In
these applications, we expect up to 40% productivity increases compared to
current generation machines. In addition, iStackPS
has demonstrated superior accuracy and process control.
Other
Equipment Products and Services
We also
sell manual wire bonders, and we offer spare parts, equipment repair, training
services, and upgrades for our equipment through our Support Services business
unit.
Expendable
Tools Segment
We
manufacture and sell a variety of expendable tools for a broad range of
semiconductor packaging applications. Our principal Expendable Tools segment
products include:
·
Capillaries: expendable
tools used in ball bonders. Made of ceramic, a capillary guides the wire
during the ball bonding process. Its features help control the bonding
process. We design and build capillaries suitable for a broad range of
applications, including for use on our competitors’ equipment. In
addition, our capillaries are used with both gold and copper
wire.
·
Bonding
wedges: expendable tools used in wedge bonders. Like
capillaries, their specific features are tailored to specific
applications. We design and build bonding wedges for use both in our own
equipment and in our competitors’
equipment.
·
Saw
blades: expendable tools used by semiconductor manufacturers to
cut silicon wafers into individual semiconductor die and to cut
semiconductor devices that have been molded in a matrix configuration into
individual units.
6
Customers
Our major
customers include IDMs and OSAT companies, industrial manufacturers and
automotive electronics suppliers. Revenue from our customers may vary
significantly from year-to-year based on their capital investments, operating
expense budgets, and overall industry trends.
The
following table reflects our top ten customers, based on net revenue, for each
of the last three fiscal years:
Fiscal
2010
Fiscal
2009
Fiscal
2008
1.
Advance
Semiconductor Engineering *
1.
Advance
Semiconductor Engineering *
1.
Advance
Semiconductor Engineering
2.
Siliconware
Precision Industries, Ltd. *
2.
Amkor
Technology, Inc.
2.
STATS
ChipPAC
3.
Haoseng
Industrial Co., Ltd. **
3.
Siliconware
Precision Industries, Ltd.
3.
Haoseng
Industrial Co., Ltd. **
4.
Amkor
Technology, Inc.
4.
Haoseng
Industrial Co., Ltd. **
4.
Amkor
Technology, Inc.
5.
Texas
Instruments, Inc.
5.
Texas
Instruments, Inc.
5.
Siliconware
Precision Industries, Ltd.
6.
Untited
Test And Assembley Center
6.
First
Technology China, Ltd. **
6.
Sandisk
Semiconductor
7.
First
Technology China, Ltd. **
7.
Techno
Alpha Co. **
7.
Immmex
Company, Ltd. **
8.
ST
Microelectronics
8.
ST
Microelectronics
8.
Texas
Instruments
9.
HANA
Micron
9.
Samsung
9.
ST
Microelectronics
10.
Renesas
Semiconductor
10.
Micron
Technology Incorporated
10.
Samsung
* Represents
more than 10% of net revenue for the applicable fiscal year.
**
Distributor of our products.
Approximately
98.6%, 97.0%, and 95.6% and of our net revenue for fiscal 2010, 2009 and 2008,
respectively, were for shipments to customer locations outside of the United
States, primarily in the Asia/Pacific region, and we expect sales outside of the
United States to continue to represent a substantial majority of our future net
revenue.
See Note
12 to our Consolidated Financial Statements included in Item 8 of this report
for sales to customers by geographic location.
Sales
and Customer Support
We
believe long-term customer relationships are critical to our success, and
comprehensive sales and customer support are an important means of establishing
those relationships. To maintain these relationships, we utilize multiple
distribution channels using either our own employees, manufacturers’
representatives, distributors, or a combination of the three, depending on the
product, region, or end-use application. In all cases, our goal is to position
our sales and customer support resources near our customers’ facilities so as to
provide support for customers in their own language and consistent with local
customs. Our sales and customer support resources are located primarily in
Taiwan, China, Korea, Malaysia, the Philippines, Japan, Singapore, Thailand, the
United States, and Germany. Supporting these local resources, we have technology
centers offering additional process expertise in China, Singapore, Japan,
Israel, the United States, and Switzerland.
By
establishing relationships with semiconductor manufacturers, OSATs, and
vertically integrated manufacturers of electronic systems, we gain insight into
our customers’ future semiconductor packaging strategies. These insights assist
us in our efforts to develop products and processes that address our customers’
future assembly requirements.
7
Backlog
Because
of the volatility of customer demand, customer changes in delivery schedules, or
cancellations and potential delays in product shipments, our backlog as of any
particular date may not be indicative of revenue for any succeeding period. Our
backlog consists of customer orders that are scheduled for shipment within the
next 12 months. A majority of our orders are subject to cancellation or deferral
by our customers with limited or no penalties.
We
believe excellence in manufacturing can create a competitive advantage, both by
producing at lower costs and by providing superior responsiveness to changes in
customer demand. To achieve these goals, we manage our manufacturing operations
through a single organization and believe that fewer, larger factories allow us
to capture economies of scale and generate cost savings through lower
manufacturing costs.
Equipment
Our
equipment manufacturing activities consist mainly of integrating outsourced
parts and subassemblies and testing finished products to customer
specifications. While we largely utilize an outsource model, allowing us to
minimize our fixed costs and capital expenditures, for certain low-volume, high
customization parts, we manufacture subassemblies ourselves. Just-in-time
inventory management has reduced our manufacturing cycle times and lowered our
on-hand inventory requirements.
Our ball
bonder and die bonder manufacturing and assembly is performed at our facility in
Singapore. In addition, we operate a subassembly manufacturing and supply
management facility in Malaysia. During fiscal 2009, we announced plans to move
manufacturing of wedge bonders from Irvine, California to Singapore. This
transition is underway and is expected to be completed in 2011. When the
transition from California to Singapore is complete, we will manufacture all of
our equipment in Asia.
We have
ISO 9001 certification for our equipment manufacturing facilities in Singapore,
Irvine, California, and Switzerland (legacy model die bonders and spares
manufacturing), and our subassembly manufacturing facility in Malaysia. In
addition, we have ISO 14001 certifications for our equipment manufacturing
facilities in Singapore and Irvine, California.
Expendable
Tools
We
manufacture saw blades and capillaries at our facility in Suzhou, China. The
capillaries are made using blanks produced at our facility in Yokneam, Israel.
We outsource the production of our bonding wedges. Both the Suzhou and Yokneam
facilities are ISO 9001 and ISO 14001 certified.
8
Research
and Product Development
Many of
our customers generate technology roadmaps describing their projected packaging
technology requirements. Our research and product development activities are
focused on delivering robust production solutions to those projected
requirements. We accomplish this by regularly introducing improved versions of
existing products or by developing next-generation products. We follow this
product development methodology in all our major product lines. Research and
development expense was $56.7 million, $53.5 million, and $59.9 million during
fiscal 2010, 2009 and 2008 respectively.
Intellectual
Property
Where
circumstances warrant, we apply for patents on inventions governing new products
and processes developed as part of our ongoing research, engineering, and
manufacturing activities. We currently hold a number of United States patents,
many of which have foreign counterparts. We believe the duration of our patents
often exceeds the life cycles of the technologies disclosed and claimed in the
patents. Additionally, we believe much of our important technology resides in
our trade secrets and proprietary software.
Competition
The
market for semiconductor equipment and packaging materials products is intensely
competitive. Significant competitive factors in the semiconductor equipment
market include price, speed/throughput, production yield, process control,
delivery time and customer support, each of which contribute to lower the
overall cost per package being manufactured. Our major equipment competitors
include:
·
Ball
bonders: ASM Pacific Technology and
Shinkawa
·
Wedge
bonders: F&K Delvotec, Hesse & Knipps and
Cho-Onpa
·
Die
bonders: ASM Pacific Technology, BE Semiconductor Industries
N.V., Hitachi, Shinkawa and Canon
Significant
competitive factors in the semiconductor packaging materials industry include
performance, price, delivery, product life, and quality. Our significant
expendable tools competitors include:
·
Capillaries:
PECO and Small Precision Tools,
Inc.
·
Saw
blades: Disco Corporation
·
Bonding
wedges: Small Precision Tools, Inc.
In each
of the markets we serve, we face competition and the threat of competition from
established competitors and potential new entrants, some of which may have
greater financial, engineering, manufacturing, and marketing
resources.
Environmental
Matters
We are
subject to various federal, state, local and foreign laws and regulations
governing, among other things, the generation, storage, use, emission,
discharge, transportation and disposal of hazardous materials and the health and
safety of our employees. In addition, we are subject to environmental laws which
may require investigation and cleanup of any contamination at facilities we own
or operate or at third party waste disposal sites we use or have
used.
We have
in the past, and expect to in the future, incur costs to comply with
environmental laws. We are not, however, currently aware of any material costs
or liabilities relating to environmental matters, including any claims or
actions under environmental laws or obligations to perform any cleanups at any
of our facilities or any third party waste disposal sites, that we expect to
have a material adverse effect on our business, financial condition or operating
results. However, it is possible that material environmental costs or
liabilities may arise in the future.
9
Employees
As of
October 2, 2010, we had approximately 2,250 regular full-time employees and 700
temporary workers worldwide.
The
following table reflects certain information regarding our executive officers as
of October 2, 2010. Our executive officers are appointed by, and serve at the
discretion of, the Board of Directors.
Name
Age
First Became an Officer
(calendar year)
Position
Bruno
Guilmart
49
2010
President
and Chief Executive Officer
C.
Scott Kulicke
61
1980
Retired
Chief Executive Officer
Christian
Rheault
45
2005
Senior
Vice President, Business Operations
Charles
Salmons
55
1992
Senior
Vice President, Engineering
Shay
Torton
49
2005
Senior
Vice President, Worldwide Operations
Ran
Bareket
44
2009
Vice
President and interim Principal Accounting Officer
Jason
Livingston
40
2009
Former
Vice President of Wedge Bonder business unit
Tek
Chee ("TC") Mak
56
2006
Vice
President, Worldwide Sales
Michael
J. Morris
41
2009
Vice
President and Chief Financial
Officer
Bruno Guilmart joined the
Company as President and Chief Executive Officer (“CEO”) and a member of the
Company’s Board of Directors on October 1, 2010. Mr. Guilmart is located at the
Company’s headquarters in Singapore. Before joining K&S, Mr. Guilmart was
CEO of Lattice Semiconductor. Prior to joining Lattice in June 2008, Mr.
Guilmart was CEO of Unisem group. Mr. Guilmart was, until his appointment with
Unisem, President and CEO of Advanced Interconnect Technologies (“AIT”), a
company acquired by Unisem in July 2007. Prior to AIT, Mr. Guilmart was senior
vice president for worldwide sales and marketing at Chartered Semiconductor
Manufacturing. Mr. Guilmart holds a Master’s degree in Electronics and Business
Management and a Bachelor degree in Electrical Engineering from the Paris XI
Institute of Technology in France.
C. Scott Kulicke served as
Chief Executive Officer and a member of the Company’s Board of Directors from
1980 until his retirement on October 9, 2010. In addition, he served as Chairman
of the Board of Directors from 1984 until May 2010.
Christian Rheault was
appointed Senior Vice President, Business Operations in November 2010 after
serving as Senior Vice President, Marketing since November 2007. In
addition, Mr. Rheault served as Vice President, Equipment
segment during 2006. Prior to that time, he served as Vice President and
General Manager of our Ball Bonder Business Unit and Director of Strategic
Marketing and Vice President, General Manager of the Microelectronics Business
Unit. Mr. Rheault holds an Electrical Engineering degree from Laval
University, Canada and a DSA (Business Administration Diploma) from Sherbrooke
University, Canada.
Charles Salmons has served as
Senior Vice President, Engineering since March 2008, after serving as Senior
Vice President, Acquisition Integration (September 2006-March 2008), Senior Vice
President, Wafer Test (November 2004-September 2006), Senior Vice President,
Product Development (September 2002-November 2004), Senior Vice President
Operations (1999 to 2004), General Manager, Ball Bonder operations (1998-1999),
and Vice President of Operations (1994-1998). Mr. Salmons holds a Bachelor of
Arts degree in Economics from Temple University and a Master of Business
Administration degree from LaSalle University.
Shay Torton has served as
Senior Vice President, Worldwide Operations since 2009 after serving as Vice
President, Worldwide Operations and Supply Chain (2005-2009), Vice President,
China Operations and K&S Suzhou General Manager (2002-2005), Vice
President and General Manager, Materials Business Unit (2001-2002), K&S
Bonding Wire Business Unit Managing Director-Singapore (1997) and General
Manager, K&S Bonding Wire-U.S. (1996). Mr. Torton holds a Bachelor of
Science degree in Industrial Engineering and Management from the Israel
Institute of Technology.
10
Ran Bareket was appointed
interim Principal Accounting Officer in July 2009. Prior to this appointment,
Mr. Bareket served as our Vice President and Corporate Controller since July
2006. In addition, he served as Vice President of Financial Operations and
Director of Worldwide Financial Operations since 2005. In connection with the
relocation of the Company’s headquarters from the U.S. to Singapore, the
Corporate Controller position will be transitioned to Singapore and Mr. Bareket
is expected to leave the Company on January 1, 2011. Mr. Bareket holds a
Bachelor of Arts degree in Accounting/Management from Tel Aviv Management
College in Israel and a Master of Business Administration from Pennsylvania
State University.
Jason Livingston served as
Vice President of the K&S Wedge Bonder business unit from October 2009 until
his resignation on October 31, 2010, after serving as Vice President of Finance
for the Wedge Bonding Business Unit. Mr. Livingston joined K&S through the
acquisition of Orthodyne Electronics, where he served as Chief Financial Officer
since April 1998. Prior to joining Orthodyne Electronics, Mr. Livingston was
with McGladrey & Pullen, LLP. Mr. Livingston is a CPA and holds a Bachelor
of Arts degree in Accounting from California State University.
Tek Chee (“TC”) Mak has served as
Vice President of Worldwide Sales since September 2006 after serving as Vice
President of Sales for the Equipment and Expendable Tools businesses since
November 2004. Prior to that time, he served as Vice President of Asia Sales
since February 2001. Mr. Mak holds a Higher Diploma of Electronic Engineering
from Hong Kong Polytechnic University.
Michael J. Morris has served
as Vice President and Chief Financial Officer (“CFO”) since August 2009. In
connection with the relocation of the Company’s headquarters from the U.S. to
Singapore, the CFO position will be transitioned to Singapore and Mr. Morris is
expected to leave the Company on January 21, 2011. Mr. Morris previously served
as Vice President of Finance and Treasurer. Before joining K&S in October
2006, Mr. Morris was Assistant Treasurer at Constellation Energy Group. Prior to
joining Constellation in 2005, Mr. Morris held various positions of increasing
responsibility at the Treasurer’s Office of General Motors. Mr. Morris holds a
Bachelor of Arts degree in Economics from the University of Pennsylvania and a
Master of Business Administration from the University of Michigan.
Item
1A. RISKS RELATED TO OUR BUSINESS AND INDUSTRY
Our
operating results and financial condition are adversely impacted by volatile
worldwide economic conditions.
Though
the semiconductor industry’s cycle can be independent of the general economy,
global economic conditions may have direct impact on demand for semiconductor
units and ultimately demand for semiconductor capital equipment and expendable
tools. Accordingly, our business and financial performance is impacted, both
positively and negatively, by fluctuations in the macroeconomic environment.
During the first half of fiscal 2009, we saw a dramatic deterioration in the
global economy and a corresponding reduction in semiconductor production
activity; however, business conditions in the semiconductor industry began to
improve by the end of fiscal 2009 and continued to accelerate through most of
fiscal 2010. We expect demand to soften, at least in early fiscal 2011. Our
visibility into future demand beyond that is generally limited and forecasting
is difficult. There can be no assurances regarding levels of demand for our
products and we believe historic industry-wide volatility will
persist.
The
semiconductor industry is volatile with sharp periodic downturns and slowdowns.
Cyclical industry downturns are made worse by volatile global economic
conditions.
Our
operating results are significantly affected by the capital expenditures of
semiconductor manufacturers, both IDMs and OSATs. Expenditures by our customers
depend on the current and anticipated market demand for semiconductors and
products that use semiconductors, including personal computers,
telecommunications equipment, consumer electronics and automotive
goods. Significant downturns in the market for semiconductor devices
or in general economic conditions reduce demand for our products and materially
and adversely affect our business, financial condition and operating
results.
11
The
semiconductor industry is volatile, with periods of rapid growth followed by
industry-wide retrenchment. These periodic downturns and slowdowns have
adversely affected our business, financial condition and operating results.
Downturns have been characterized by, among other things, diminished product
demand, excess production capacity, and accelerated erosion of selling prices.
Historically these downturns have severely and negatively affected the
industry’s demand for capital equipment, including assembly equipment and, to a
lesser extent, expendable tools. There can be no assurances regarding levels of
demand for our products. In any case, we believe the historical volatility of
our business, both upward and downward, will persist.
We
may experience increasing price pressure.
Typically
our average selling prices have declined over time. We seek to offset this
decline by continually reducing our cost structure by consolidating operations
in lower cost areas, reducing other operating costs, and by pursuing product
strategies focused on product performance and customer service. These efforts
may not be able to fully offset price declines; therefore, our financial
condition and operating results may be materially and adversely
affected.
Our
quarterly operating results fluctuate significantly and may continue to do so in
the future.
In the
past, our quarterly operating results have fluctuated significantly. We expect
quarterly results will continue to fluctuate. Although these fluctuations are
partly due to the volatile nature of the semiconductor industry, they also
reflect other factors, many of which are outside of our control.
Some of
the factors that may cause our net revenue and operating margins to fluctuate
significantly from period to period are:
·
market
downturns;
·
the
mix of products we sell because, for
example:
o
certain
lines of equipment within our business segments are more profitable than
others; and
o
some
sales arrangements have higher gross margins than
others;
·
cancelled
or deferred orders;
·
competitive
pricing pressures may force us to reduce
prices;
·
higher
than anticipated costs of development or production of new equipment
models;
·
the
availability and cost of the components for our
products;
·
delays
in the development and manufacture of our new products and upgraded
versions of our products and market acceptance of these products when
introduced;
·
customers’
delay in purchasing our products due to anticipation that we or our
competitors may introduce new or upgraded products;
and
·
our
competitors’ introduction of new
products.
Many of
our expenses, such as research and development, selling, general and
administrative expenses, and interest expense, do not vary directly with our net
revenue. Our research and development efforts include long-term projects lasting
a year or more, which require significant investments. In order to realize the
benefits of these projects, we believe that we must continue to fund them during
periods when our revenue has declined. As a result, a decline in our net revenue
would adversely affect our operating results as we continue to make these
expenditures. In addition, if we were to incur additional expenses in a quarter
in which we did not experience comparable increased net revenue, our operating
results would decline. In a downturn, we may have excess inventory, which could
be written off. Some of the other factors that may cause our expenses to
fluctuate from period-to-period include:
·
timing
and extent of our research and development
efforts;
·
severance,
restructuring, and other costs of relocating
facilities;
·
inventory
write-offs due to obsolescence; and
·
an
increase in the cost of labor or
materials.
12
Because
our net revenue and operating results are volatile and difficult to predict, we
believe consecutive period-to-period comparisons of our operating results may
not be a good indication of our future performance.
We
may not be able to rapidly develop, manufacture and gain market acceptance of
new and enhanced products required to maintain or expand our
business.
We
believe our continued success depends on our ability to continuously develop and
manufacture new products and product enhancements on a timely and cost-effective
basis. We must introduce these products and product enhancements into the market
in a timely manner in response to customers’ demands for higher performance
assembly equipment and leading-edge materials customized to address rapid
technological advances in integrated circuits, and capital equipment designs.
Our competitors may develop new products or enhancements to their products that
offer improved performance and features, or lower prices which may render our
products less competitive. The development and commercialization of new products
requires significant capital expenditures over an extended period of time, and
some products we seek to develop may never become profitable. In addition, we
may not be able to develop and introduce products incorporating new technologies
in a timely manner that will satisfy our customers’ future needs or achieve
market acceptance.
Substantially
all of our sales and manufacturing operations are located outside of the United
States, and we rely on independent foreign distribution channels for certain
product lines; all of which subject us to risks, including risks from changes in
trade regulations, currency fluctuations, political instability and
war.
Approximately
98.6%, 97.0%, and 95.6% of our net revenue for fiscal 2010, 2009 and 2008,
respectively, were for shipments to customers located outside of the United
States, primarily in the Asia/Pacific region. Our future performance will depend
on our ability to continue to compete in foreign markets, particularly in the
Asia/Pacific region. Some of these economies have been highly volatile,
resulting in significant fluctuation in local currencies, and political and
economic instability. These conditions may continue or worsen, which may
materially and adversely affect our business, financial condition and operating
results.
We also
rely on non-United States suppliers for materials and components used in our
products, and substantially all of our manufacturing operations are located in
countries other than the United States. We manufacture our ball and die bonders
in Singapore, our saw blades and capillaries in China, certain bonder
subassemblies in Malaysia and capillary blanks in Israel. We manufacture wedge
bonder components in California, Singapore and Malaysia. In addition, we have
sales, service and support personnel in China, Israel, Japan, Korea, Malaysia,
the Philippines, Singapore, Switzerland, Taiwan, Thailand, United States and
Germany. We also rely on independent foreign distribution channels for certain
of our product lines. As a result, a major portion of our business is subject to
the risks associated with international, and particularly Asia/Pacific,
commerce, such as:
·
risks
of war and civil disturbances or other events that may limit or disrupt
manufacturing and markets;
·
seizure
of our foreign assets, including
cash;
·
longer
payment cycles in foreign markets;
·
international
exchange restrictions;
·
restrictions
on the repatriation of our assets, including
cash;
·
significant
foreign and United States taxes on repatriated
cash;
·
difficulties
of staffing and managing dispersed international
operations;
·
possible
disagreements with tax authorities regarding transfer pricing
regulations;
·
episodic
events outside our control such as, for example, outbreaks of
influenza;
·
tariff
and currency fluctuations;
13
·
changing
political conditions;
·
labor
work stoppages and strikes in our factories or the factories of our
suppliers;
·
foreign
governments’ monetary policies and regulatory
requirements;
·
less
protective foreign intellectual property laws;
and
·
legal
systems which are less developed and may be less predictable than those in
the United States.
Because
most of our foreign sales are denominated in U.S. dollars, an increase in value
of the U.S. dollar against foreign currencies will make our products more
expensive than those offered by some of our foreign competitors. In addition, a
weakening of the U.S. dollar against foreign currencies could make our costs in
non-U.S. locations more expensive to fund. Our ability to compete overseas may
be materially and adversely affected by a strengthening of the U.S. dollar
against foreign currencies.
Our
international operations also depend upon favorable trade relations between the
United States and those foreign countries in which our customers, subcontractors
and materials suppliers have operations. A protectionist trade environment in
either the United States or those foreign countries in which we do business,
such as a change in the current tariff structures, export compliance or other
trade policies, may materially and adversely affect our ability to sell our
products in foreign markets.
We
are exposed to fluctuations in currency exchange rates that could negatively
impact our financial results and cash flows.
Because
nearly all of our business is conducted outside the United States, we face
exposure to adverse movements in foreign currency exchange rates which could
have a material adverse impact on our financial results and cash flows.
Historically, our primary exposures have related to net working capital
exposures denominated in currencies other than the foreign subsidiaries’
functional currency, and remeasurement of our foreign subsidiaries’ net monetary
assets from the subsidiaries’ local currency into the subsidiaries’ functional
currency. In general, an increase in the value of the U.S. dollar could require
certain of our foreign subsidiaries to record translation and remeasurement
gains. Conversely, a decrease in the value of the U.S. dollar could require
certain of our foreign subsidiaries to record losses on translation and
remeasurement. An increase in the value of the U.S. dollar could increase the
cost to our customers of our products in those markets outside the United States
where we sell in U.S. dollars, and a weakened U.S. dollar could increase the
cost of local operating expenses and procurement of raw materials, both of which
could have a adverse effect on our cash flows. Our primary exposures include the
Japanese Yen, Singapore Dollar, Malaysian Ringgit, Chinese Yuan, Swiss Franc,
Philippine Peso, Taiwan Dollar, South Korean Won, Israeli Shekel and Euro. Our
board of directors has granted management with limited authority to enter into
foreign exchange forward contracts and other instruments designed to minimize
the short term impact currency fluctuations have on our business. We have not
entered into foreign exchange forward contracts but may enter into foreign
exchange forward contracts or other instruments in the future. Our attempts to
hedge against these risks may not be successful and may result in a material
adverse impact on our financial results and cash flows.
We
may not be able to consolidate manufacturing and other facilities without
incurring unanticipated costs and disruptions to our business.
As part
of our ongoing efforts to further reduce our cost structure, we continue to
migrate manufacturing and other facilities to Asia. We may incur significant and
unexpected costs, delays and disruptions to our business during this process.
Because of unanticipated events, including the actions of governments,
suppliers, employees or customers, we may not realize the synergies, cost
reductions and other benefits of any consolidation to the extent or within the
timeframe we currently expect.
14
Our
business depends on attracting and retaining management, marketing and technical
employees as well as on the succession of senior management.
Our
future success depends on our ability to hire and retain qualified management,
marketing, finance, accounting and technical employees, including senior
management, primarily in Asia. In September 2010, as previously announced,
C. Scott Kulicke retired from his position as CEO and Bruno Guilmart succeeded
Mr. Kulicke as CEO on October 1, 2010. Additionally on November 16, 2010, we
appointed Jonathan H. Chou as Senior Vice President and CFO effective December13, 2010 and notified Michael J. Morris, our current CFO that in connection with
the relocation of our headquarters to Singapore, Mr. Chou has been hired to
serve as our CFO. Both Mr. Guilmart and Mr. Chou have not been previously
affiliated with us; thus, if we are not successful in effectively transitioning
the CEO and CFO responsibilities to them, our business could be adversely
impacted. We may decide to move additional senior management positions to
Singapore. We also plan to move additional finance and accounting positions
to Singapore. We may experience unanticipated costs and disruptions to our
business as we continue to move management, finance
and accounting positions from the U.S. to Asia. If we are unable to
continue to attract and retain the managerial, marketing, finance,
accounting and technical personnel we require, and if we are unable to
effectively provide for the succession of senior management, our business,
financial condition and operating results may be materially and adversely
affected.
Difficulties
in forecasting demand for our product lines may lead to periodic inventory
shortages or excesses.
We
typically operate our business with limited visibility of future demand. As a
result, we sometimes experience inventory shortages or excesses. We generally
order supplies and otherwise plan our production based on internal forecasts for
demand. We have in the past, and may again in the future, fail to accurately
forecast demand for our products. This has led to, and may in the future lead
to, delays in product shipments or, alternatively, an increased risk of
inventory obsolescence. If we fail to accurately forecast demand for our
products, our business, financial condition and operating results may be
materially and adversely affected.
Alternative
packaging technologies may render some of our products obsolete.
Alternative
packaging technologies have emerged that may improve device performance or
reduce the size of an IC package, as compared to traditional wire bonding. These
technologies include flip chip and chip scale packaging. Some of these
alternative technologies eliminate the need for wires to establish the
electrical connection between a die and its package. The semiconductor industry
may, in the future, shift a significant part of its volume into alternative
packaging technologies, such as those discussed above, which do not employ our
products. If a significant shift to alternative packaging technologies were to
occur, demand for our equipment and related packaging materials may be
materially and adversely affected.
Because
a small number of customers account for most of our sales, our net revenue could
decline if we lose a significant customer.
The
semiconductor manufacturing industry is highly concentrated, with a relatively
small number of large semiconductor manufacturers and their subcontract
assemblers and vertically integrated manufacturers of electronic systems
purchasing a substantial portion of our semiconductor assembly equipment and
packaging materials. Sales to a relatively small number of customers account for
a significant percentage of our net revenue. Sales as a percent of net revenue
to our largest customer were 23.0%, 17.7%, and 9.9%, for fiscal 2010, 2009, and
2008, respectively.
We expect
a small number of customers will continue to account for a high percentage of
our net revenue for the foreseeable future. Thus, our business success depends
on our ability to maintain strong relationships with our customers. Any one of a
number of factors could adversely affect these relationships. If, for example,
during periods of escalating demand for our equipment, we were unable to add
inventory and production capacity quickly enough to meet the needs of our
customers, they may turn to other suppliers making it more difficult for us to
retain their business. Similarly, if we are unable for any other reason to meet
production or delivery schedules, particularly during a period of escalating
demand, our relationships with our key customers could be adversely affected. If
we lose orders from a significant customer, or if a significant customer reduces
its orders substantially, these losses or reductions may materially and
adversely affect our business, financial condition and operating
results.
15
We
depend on a small number of suppliers for raw materials, components and
subassemblies. If our suppliers do not deliver their products to us, we would be
unable to deliver our products to our customers.
Our
products are complex and require raw materials, components and subassemblies
having a high degree of reliability, accuracy and performance. We rely on
subcontractors to manufacture many of these components and subassemblies and we
rely on sole source suppliers for many components and raw materials. As a
result, we are exposed to a number of significant risks, including:
·
decreased
control over the manufacturing process for components and
subassemblies;
·
changes
in our manufacturing processes, in response to changes in the market,
which may delay our shipments;
·
our
inadvertent use of defective or contaminated raw
materials;
·
the
relatively small operations and limited manufacturing resources of some of
our suppliers, which may limit their ability to manufacture and sell
subassemblies, components or parts in the volumes we require and at
acceptable quality levels and
prices;
·
the
reliability or quality issues with certain key subassemblies provided by
single source suppliers as to which we may not have any short term
alternative;
·
shortages
caused by disruptions at our suppliers and subcontractors for a variety of
reasons, including work stoppage or fire, earthquake, flooding or other
natural disasters;
·
delays
in the delivery of raw materials or subassemblies, which, in turn, may
delay shipments to our customers;
·
loss
of suppliers as a result of consolidation of suppliers in the industry;
and
·
loss
of suppliers because of their bankruptcy or
insolvency.
If we are
unable to deliver products to our customers on time for these or any other
reasons, or we are unable to meet customer expectations as to cycle time, or we
are unable to maintain acceptable product quality or reliability, our business,
financial condition and operating results may be materially and adversely
affected.
We
may acquire or divest businesses or enter into joint ventures or strategic
alliances, which may materially affect our business, financial condition and
operating results.
We
continually evaluate our portfolio of businesses and may decide to buy or sell
businesses or enter into joint ventures or other strategic alliances. We may be
unable to successfully integrate acquired businesses with our existing
businesses and successfully implement, improve and expand our systems,
procedures and controls to accommodate these acquisitions. These transactions
place additional constraints on our management and current labor force.
Additionally, these transactions require significant resources from our legal,
finance and business teams. In addition, we may divest existing businesses,
which would cause a decline in revenue and may make our financial results more
volatile. If we fail to integrate and manage acquired businesses
successfully or to manage the risks associated with divestitures, joint ventures
or other alliances, our business, financial condition and operating results may
be materially and adversely affected.
The
market price of our common shares and our earnings per share may decline as a
result of any acquisitions or divestitures.
The
market price of our common shares may decline as a result of any acquisitions or
divestitures made by us if we do not achieve the perceived benefits
of such acquisitions or divestitures as rapidly or to the extent anticipated by
financial or industry analysts or if the effect on our financial results is not
consistent with the expectations of financial or industry analysts. In addition,
the failure to achieve expected benefits and unanticipated costs relating to our
acquisitions could reduce our future earnings per share.
16
We
may be unable to continue to compete successfully in the highly competitive
semiconductor equipment and packaging materials industries.
The
semiconductor equipment and packaging materials industries are very competitive.
In the semiconductor equipment industry, significant competitive factors include
performance, quality, customer support and price. In the semiconductor packaging
materials industry, competitive factors include price, delivery and
quality.
In each
of our markets, we face competition and the threat of competition from
established competitors and potential new entrants. In addition, established
competitors may combine to form larger, better capitalized companies. Some of
our competitors have or may have significantly greater financial, engineering,
manufacturing and marketing resources. Some of these competitors are Asian and
European companies that have had, and may continue to have, an advantage over us
in supplying products to local customers who appear to prefer to purchase from
local suppliers, without regard to other considerations.
We expect
our competitors to improve their current products’ performance, and to introduce
new products and materials with improved price and performance characteristics.
Our competitors may independently develop technology similar to or better than
ours. New product and material introductions by our competitors or by new market
entrants could hurt our sales. If a particular semiconductor manufacturer or
subcontract assembler selects a competitor’s product or materials for a
particular assembly operation, we may not be able to sell products or materials
to that manufacturer or assembler for a significant period of time.
Manufacturers and assemblers sometimes develop lasting relationships with
suppliers and assembly equipment providers in our industry and often go years
without requiring replacement. In addition, we may have to lower our prices in
response to price cuts by our competitors, which may materially and adversely
affect our business, financial condition and operating results. If we cannot
compete successfully, we could be forced to reduce prices and could lose
customers and experience reduced margins and profitability.
Our
success depends in part on our intellectual property, which we may be unable to
protect.
Our
success depends in part on our proprietary technology. To protect this
technology, we rely principally on contractual restrictions (such as
nondisclosure and confidentiality provisions) in our agreements with employees,
subcontractors, vendors, consultants and customers and on the common law of
trade secrets and proprietary “know-how.” We also rely, in some cases, on patent
and copyright protection. We may not be successful in protecting our technology
for a number of reasons, including the following:
·
employees,
subcontractors, vendors, consultants and customers may violate their
contractual agreements, and the cost of enforcing those agreements may be
prohibitive, or those agreements may be unenforceable or more limited than
we anticipate;
·
foreign
intellectual property laws may not adequately protect our intellectual
property rights; and
·
our
patent and copyright claims may not be sufficiently broad to effectively
protect our technology; our patents or copyrights may be challenged,
invalidated or circumvented; or we may otherwise be unable to obtain
adequate protection for our
technology.
In
addition, our partners and alliances may have rights to technology developed by
us. We may incur significant expense to protect or enforce our intellectual
property rights. If we are unable to protect our intellectual property rights,
our competitive position may be weakened.
Third
parties may claim we are infringing on their intellectual property, which could
cause us to incur significant litigation costs or other expenses, or prevent us
from selling some of our products.
The
semiconductor industry is characterized by rapid technological change, with
frequent introductions of new products and technologies. Industry participants
often develop products and features similar to those introduced by others,
creating a risk that their products and processes may give rise to claims they
infringe on the intellectual property of others. We may unknowingly infringe on
the intellectual property rights of others and incur significant liability for
that infringement. If we are found to have infringed on the intellectual
property rights of others, we could be enjoined from continuing to manufacture,
market or use the affected product, or be required to obtain a license to
continue manufacturing or using the affected product. A license could be very
expensive to obtain or may not be available at all. Similarly, changing or
re-engineering our products or processes to avoid infringing the rights of
others may be costly, impractical or time consuming.
17
Occasionally,
third parties assert that we are, or may be, infringing on or misappropriating
their intellectual property rights. In these cases, we defend, and will continue
to defend, against claims or negotiate licenses where we consider these actions
appropriate. Intellectual property cases are uncertain and involve complex legal
and factual questions. If we become involved in this type of litigation, it
could consume significant resources and divert our attention from our
business.
We
may be materially and adversely affected by environmental and safety laws and
regulations.
We are
subject to various federal, state, local and foreign laws and regulations
governing, among other things, the generation, storage, use, emission,
discharge, transportation and disposal of hazardous material, investigation and
remediation of contaminated sites and the health and safety of our employees.
Increasingly, public attention has focused on the environmental impact of
manufacturing operations and the risk to neighbors of chemical releases from
such operations.
Proper
waste disposal plays an important role in the operation of our manufacturing
plants. In many of our facilities we maintain wastewater treatment systems that
remove metals and other contaminants from process wastewater. These facilities
operate under permits that must be renewed periodically. A violation of those
permits may lead to revocation of the permits, fines, penalties or the
incurrence of capital or other costs to comply with the permits, including
potential shutdown of operations.
Compliance
with existing or future, land use, environmental and health and safety laws and
regulations may: (1) result in significant costs to us for additional
capital equipment or other process requirements, (2) restrict our ability
to expand our operations and/or (3) cause us to curtail our operations. We
also could incur significant costs, including cleanup costs, fines or other
sanctions and third-party claims for property damage or personal injury, as a
result of violations of or liabilities under such laws and regulations. Any
costs or liabilities to comply with or imposed under these laws and regulations
could materially and adversely affect our business, financial condition and
operating results.
We
may be unable to generate enough cash to repay our debt.
Our
ability to make payments on our indebtedness and to fund planned capital
expenditures and other activities will depend on our ability to generate cash in
the future. If our 0.875% Subordinated Convertible Notes are not converted to
shares of our common stock, we will be required to make annual cash interest
payments of $1.0 million in each fiscal 2011 and 2012 (assuming we do not
purchase any outstanding 0.875% Subordinated Convertible Notes). As of October2, 2010, a principal payment of $110.0 million on the 0.875% Subordinated
Convertible Notes is due in June 2012. Our ability to make payments on our
indebtedness is affected by the volatile nature of our business, and general
economic, competitive and other factors that are beyond our control, including
volatile global economic conditions. Our indebtedness poses risks to our
business, including that:
·
insufficient
cash flow from operations to repay our outstanding indebtedness when it
becomes due may force us to sell assets, or seek additional capital, which
we may be unable to do at all or on terms favorable to us;
and
·
our
level of indebtedness may make us more vulnerable to economic or industry
downturns.
We may
not generate cash in an amount sufficient to enable us to service interest,
principal and other payments on our debt, including the 0.875% Subordinated
Convertible Notes, or to fund our other liquidity needs. We are not restricted
under the agreements governing our existing indebtedness from incurring
additional debt in the future. If new debt is added to our current levels, our
leverage and our debt service obligations would increase and the related risks
described above could intensify.
18
We
have the ability to issue additional equity securities, which would lead to
dilution of our issued and outstanding common shares.
The
issuance of additional equity securities or securities convertible into equity
securities will result in dilution of our existing shareholders’ equity
interests in us. Our board of directors has the authority to issue, without vote
or action of shareholders, preferred shares in one or more series, and has the
ability to fix the rights, preferences, privileges and restrictions of any such
series. Any such series of preferred shares could contain dividend rights,
conversion rights, voting rights, terms of redemption, redemption prices,
liquidation preferences or other rights superior to the rights of holders of our
common shares. In addition, we are authorized to issue, without shareholder
approval, up to an aggregate of 200 million common shares, of which
approximately 70.5 million shares were outstanding as of October 2, 2010. We are
also authorized to issue, without shareholder approval, securities convertible
into either common shares or preferred shares.
Weaknesses
in our internal controls and procedures could result in material misstatements
in our financial statements.
Pursuant
to the Sarbanes-Oxley Act, management is responsible for establishing and
maintaining adequate internal control over financial reporting. Our internal
controls over financial reporting are processes designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements in accordance with U.S. generally accepted
accounting principles. A material weakness is a control deficiency, or
combination of control deficiencies, that results in a more than remote
likelihood that a material misstatement of annual or interim financial
statements will not be prevented or detected.
Our
internal controls may not prevent all potential errors or fraud, because any
control system, no matter how well designed and implemented, can only provide
reasonable and not absolute assurance that the objectives of the control system
will be achieved. We or our independent registered public accountants may
identify material weaknesses in our internal controls which could adversely
affect our ability to ensure proper financial reporting and could affect
investor confidence in us and the price of our common shares.
Accounting
methods, including but not limited to the accounting method for convertible debt
securities with net share settlement, such as our 0.875% Convertible
Subordinated Notes, are subject to change.
In
calculating our diluted earnings per share, we recognize interest expense at the
stated coupon rate, and shares potentially issuable upon conversion of our
0.875% Convertible Subordinated Notes are excluded from the calculation of
diluted earnings per share until the market price of our common shares exceeds
the conversion price (i.e., the conversion price is “in the money”). Once the
conversion price is in the money, the shares that we would issue upon assumed
conversion of the debt would be included in the calculation of fully diluted
earnings per share using the “treasury stock” method. No separate value is
attributed to the conversion feature of the debt at the time of
issuance.
Beginning
fiscal 2010, we implemented the Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) No. 470.20, Debt, Debt With Conversion
Options (“ASC 470.20”). ASC 470.20 specifies that issuers of convertible
debt instruments that may be settled in cash upon conversion should separately
account for the liability and equity components in a manner that will reflect
the entity’s nonconvertible debt borrowing rate when interest cost is recognized
in subsequent periods.
This
change in the accounting method for convertible debt securities has and will
continue to have an adverse impact on our reported and future results of
operations.
19
Other
Risks
Our
ability to recognize tax benefits on future domestic U.S. tax losses and our
existing U.S. net operating loss position may be limited.
We have
generated net operating loss carry-forwards and other tax attributes for
U.S. tax purposes (“Tax Benefits”) that can be used to reduce our future federal
income tax obligations. Under the Tax Reform Act of 1986, the potential future
utilization of our Tax Benefits for U.S. tax purposes may be limited following
an ownership change. An ownership change is generally defined as a greater
than 50% point increase in equity ownership by 5% shareholders in any three-year
period under Section 382 of the Internal Revenue Code. An ownership change
may significantly limit our ability to fully utilize our net operating losses
which could materially and adversely affect our financial condition and
operating results.
Potential
changes to U.S. and foreign tax laws could increase our income tax
expense.
We are
subject to income taxes in the U. S. and many foreign jurisdictions. There have
been proposals to reform U.S. tax laws that would significantly impact how U.S.
multinational corporations, such as us, are taxed on foreign earnings. It is
unclear whether these proposed tax revisions will be enacted, or, if enacted,
what the scope of the revisions will be. Changes in U.S. and foreign tax laws,
if enacted, could materially and adversely affect our financial condition and
operating results.
Anti-takeover
provisions in our articles of incorporation and bylaws, and under Pennsylvania
law may discourage other companies from attempting to acquire us.
Some
provisions of our articles of incorporation and bylaws as well as Pennsylvania
law may discourage some transactions where we would otherwise experience a
fundamental change. For example, our articles of incorporation and bylaws
contain provisions that:
·
classify
our board of directors into four classes, with one class being elected
each year;
·
permit
our board to issue “blank check” preferred shares without shareholder
approval; and
·
prohibit
us from engaging in some types of business combinations with a holder of
20% or more of our voting securities without super-majority board or
shareholder approval.
Further,
under the Pennsylvania Business Corporation Law, because our shareholders
approved bylaw provisions that provide for a classified board of directors,
shareholders may remove directors only for cause. These provisions and some
other provisions of the Pennsylvania Business Corporation Law could delay, defer
or prevent us from experiencing a fundamental change and may adversely affect
our common shareholders’ voting and other rights.
Terrorist
attacks, or other acts of violence or war may affect the markets in which we
operate and our profitability.
Terrorist
attacks may negatively affect our operations. There can be no assurance that
there will not be further terrorist attacks against the United States or United
States businesses. Terrorist attacks or armed conflicts may directly impact our
physical facilities or those of our suppliers or customers. Our primary
facilities include administrative, sales and research and development facilities
in the United States and manufacturing facilities in the United States,
Singapore, China, Malaysia and Israel. Additional terrorist attacks may disrupt
the global insurance and reinsurance industries with the result that we may not
be able to obtain insurance at historical terms and levels for all of our
facilities. Furthermore, additional attacks may make travel and the
transportation of our supplies and products more difficult and more expensive
and ultimately affect the sales of our products in the United States and
overseas. Additional attacks or any broader conflict, could negatively impact
our domestic and international sales, our supply chain, our production
capability and our ability to deliver products to our customers. Political and
economic instability in some regions of the world could negatively impact our
business. The consequences of terrorist attacks or armed conflicts are
unpredictable, and we may not be able to foresee events that could have an
adverse effect on our business.
Item
1B. UNRESOLVED STAFF COMMENTS
None.
20
Item
2. PROPERTIES
The
following table reflects our major facilities as of October 2,2010:
Facility
Approximate Size
Function
Products Manufactured
Lease Expiration
Date
Singapore
129,944
sq. ft. (1)
Corporate
headquarters, manufacturing, technology center
Wire
and die bonders
July
2013
Suzhou,
China
151,891
sq. ft. (1)
Manufacturing,
technology center
Capillaries,
dicing blades
October
2022 (4)
Irvine,
California
121,805
sq. ft. (1)
Manufacturing,
technology center
Wedge
bonders
September
2013
Fort
Washington, Pennsylvania
88,000
sq. ft. (1)
Technology
center, sales and service, corporate finance
Not
applicable
September
2028 (3)
Berg,
Switzerland
71,344
sq. ft. (2)
Manufacturing,
technology center
Die
bonder sub-assembly and spares
N/A
Yokneam,
Israel
53,820
sq. ft. (1)
Manufacturing,
technology center
Capillary
blanks (semi-finish)
January
2013
Petaling
Jaya, Malaysia
37,200
sq ft (1)
Subassembly
manufacturing and supply chain management
Equipment
subassembly
August
2012
(1)
Leased.
(2)
Owned.
(3)
Includes lease extension periods at the Company’s option. Initial lease expires
September 2018.
(4)
Includes lease extension periods at the Company’s option. Initial lease expires
October 2017.
In
addition, we rent space for sales and service offices and administrative
functions in: Taiwan, China, Korea, Malaysia, the Philippines, Japan, Singapore,
Thailand, and Germany. We believe our facilities are generally in good condition
and suitable to the extent of utilization needed.
Item
3. LEGAL
PROCEEDINGS
From time
to time, we may be a plaintiff or defendant in cases arising out of our
business. We cannot be assured of the results of any pending or future
litigation, but we do not believe resolution of these matters will materially or
adversely affect our business, financial condition or operating
results.
Item
4. [REMOVED AND RESERVED]
21
PART
II
Item
5.
MARKET
FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
Our
common stock is traded on The Nasdaq Global Market (“Nasdaq”) under the symbol
“KLIC.” The following table reflects the ranges of high and low sale prices for
our common stock as reported on Nasdaq for the periods indicated:
Fiscal 2010
Fiscal 2009
High
Low
High
Low
First
Quarter
$
6.30
$
4.03
$
4.71
$
1.11
Second
Quarter
$
7.67
$
4.55
$
2.67
$
1.15
Third
Quarter
$
9.58
$
6.13
$
5.04
$
2.11
Fourth
Quarter
$
8.87
$
5.27
$
6.68
$
3.00
On
December 5, 2010, there were approximately 380 holders of record of the shares
of outstanding common stock. The payment of dividends on our common stock is
within the discretion of our board of directors; however, we have not
historically paid any dividends on our common stock. In addition, we do not
expect to declare dividends on our common stock in the near future, since we
intend to retain earnings to finance our business.
For the
purpose of calculating the aggregate market value of shares of our common stock
held by non-affiliates, as shown on the cover page of this report, we have
assumed all of our outstanding shares were held by non-affiliates except for
shares held by our directors and executive officers. However, this does not
necessarily mean that all directors and executive officers of the Company are,
in fact, affiliates of the Company, or there are no other persons who may be
deemed to be affiliates of the Company. Further information concerning the
beneficial ownership of our executive officers, directors and principal
shareholders will be included in our Proxy Statement for the 2011 Annual Meeting
of Shareholders to be filed with the Securities and Exchange Commission on or
about December 30, 2010.
Equity
Compensation Plan Information
The
information required hereunder will appear under the heading “Equity
Compensation Plans” in our Proxy Statement for the 2011 Annual Meeting of
Shareholders which information is incorporated herein by reference.
Recent
Sales of Unregistered Securities and Use of Proceeds
None.
Purchases
of Equity Securities by the Issuer and Affiliated Purchasers
None.
Item
6. SELECTED CONSOLIDATED FINANCIAL DATA
The
following table reflects selected historical consolidated financial data derived
from the consolidated financial statements of Kulicke and Soffa Industries, Inc.
and subsidiaries as of and for each of the five fiscal years ended 2010, 2009,
2008, 2007 and 2006.
As of
October 4, 2009, we adopted Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) No. 470.20, Debt, Debt With Conversion
Options (“ASC 470.20”) on a retrospective basis for all prior
periods. Fiscal 2009 includes the assets of Orthodyne which were acquired
on October 3, 2008. Our Wire business was sold on September 29, 2008; therefore,
fiscal 2008, 2007 and 2006 have been reclassified to reflect our Wire business
as a discontinued operation.
This data
should be read in conjunction with our consolidated financial statements,
including notes and other financial information included elsewhere in this
report or current reports on Form 8-K filed previously by us in respect of the
fiscal years identified in the column headings of the tables below.
22
Fiscal
(in
thousands, except per share amounts)
2010
2009 *
2008 *
2007 *
2006 *
Statement
of Operations Data:
Net
revenue:
Equipment
$
691,988
$
170,536
$
271,019
$
316,718
$
319,788
Expendable
Tools
70,796
54,704
57,031
53,808
60,508
Total
net revenue
762,784
225,240
328,050
370,526
380,296
Cost
of sales:
Equipment
399,042
111,103
165,499
188,055
178,599
Expendable
Tools
28,069
25,294
28,758
27,035
28,474
Total
cost of sales (1)
427,111
136,397
194,257
215,090
207,073
Operating
expenses:
Equipment
155,625
135,465
122,302
113,444
89,684
Expendable
Tools
32,013
24,193
26,971
24,480
23,316
Impairment
of goodwill: Equipment
-
2,709
-
-
-
U.S.
pension plan termination: Equipment
-
-
9,152
-
-
Gain
on sale of assets
-
-
-
-
(4,544
)
Total
operating expenses (1)
187,638
162,367
158,425
137,924
108,456
Income
(loss) from operations:
Equipment
137,321
(78,741
)
(25,934
)
15,219
51,505
Expendable
Tools
10,714
5,217
1,302
2,293
8,718
Gain
on sale of assets
-
-
-
-
4,544
Interest
income (expense), net
(7,930
)
(7,082
)
(3,869
)
2,346
795
Gain
on extinguishment of debt
-
3,965
170
2,802
4,040
Income
(loss) from continuing operations before income taxes
140,105
(76,641
)
(28,331
)
22,660
69,602
Provision
(benefit) for income taxes from continuing operations (2)
(2,037
)
(13,029
)
(3,610
)
5,448
8,068
Income
(loss) from continuing operations
142,142
(63,612
)
(24,721
)
17,212
61,534
Income
(loss) from discontinued operations, net of tax (3)
-
22,011
23,441
18,874
(9,364
)
Net
income (loss)
$
142,142
$
(41,601
)
$
(1,280
)
$
36,086
$
52,170
Per
Share Data:
Income
(loss) per share from continuing operations (4)
Basic
$
2.01
$
(1.02
)
$
(0.46
)
$
0.31
$
1.12
Diluted
$
1.92
$
(1.02
)
$
(0.46
)
$
0.27
$
0.91
Income
(loss) per share from discontinued operations, net of tax:
Basic
$
-
$
0.35
$
0.44
$
0.33
$
(0.17
)
Diluted
$
-
$
0.35
$
0.44
$
0.28
$
(0.14
)
Net
income (loss) per share: (5)
Basic
$
2.01
$
(0.67
)
$
(0.02
)
$
0.64
$
0.95
Diluted
$
1.92
$
(0.67
)
$
(0.02
)
$
0.55
$
0.78
Weighted
average shares outstanding: (5)
Basic
70,012
62,188
53,449
56,221
55,089
Diluted
73,548
62,188
53,449
68,274
68,881
Balance
Sheet Data:
Cash,
cash equivalents, investments and restricted cash
$
181,334
$
144,841
$
186,081
$
169,910
$
157,283
Working
capital excluding discontinued operations
347,560
172,401
165,543
219,755
156,237
Total
assets excluding discontinued operations
580,169
412,635
335,614
383,779
261,109
Long-term
debt
98,475
92,217
151,415
222,446
195,000
Shareholders'
equity
$
322,480
$
170,803
$
125,396
$
111,286
$
79,306
23
* As
adjusted for ASC No.
470.20, Debt, Debt With
Conversion Options.
(1)
During
fiscal 2010 and 2009, we recorded $2.4 and $7.4 million, respectively, in
operating expense for restructuring-related
severance.
During
fiscal 2010, 2009, 2008, 2007 and 2006, we recorded $17.4 million, $2.7
million, $2.2 million, $4.4 million and $8.4 million, respectively, in
operating expense for incentive
compensation.
During
fiscal 2006, we recorded the following charges in continuing operations:
$3.5 million in cost of sales and $0.8 million in operating expenses for
the cumulative adjustment to correct immaterial errors in the consolidated
financial statements.
(2)
The
following are the most significant factors which affect our provision for
income taxes: implementation of our international restructuring plan in
fiscal 2010, 2008, 2007, and 2006; volatility in our earnings each fiscal
year and variation in earnings among various tax jurisdictions in which we
operate; changes in assumptions regarding repatriation of earnings;
changes in tax legislation and our provision for various tax exposure
items.
(3)
Reflects
the operations of the Company’s Wire business (sold fiscal 2009) and Test
business (sold March 2006).
(4)
For
fiscal 2010, $1.5 million of net income applicable to participating
securities and the related participating securities were excluded from the
computation of basic income per
share.
(5)
For
fiscal 2010, 2007 and 2006 the exercise of dilutive stock options and
expected vesting of performance-based restricted stock (fiscal 2010 and
2007 only) and conversion of the Convertible Subordinated Notes were
assumed. In addition for those periods, $0.3 million, $1.3 million and
$1.4 million, respectively, of after-tax interest expense related to our
Convertible Subordinated Notes was added to the Company’s net income to
determine diluted earnings per share. Due to the Company’s net loss from
continuing operations for fiscal 2009 and 2008, potentially dilutive
shares were not assumed since the effect would have been
anti-dilutive.
24
Item
7.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS
OF OPERATIONS
In
addition to historical information, this filing contains statements relating to
future events or our future results. These statements are forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of
1934, as amended (the “Exchange Act”), and are subject to the safe harbor
provisions created by statute. Such forward-looking statements include, but are
not limited to, statements that relate to our future revenue, cost reductions,
operational flexibility, product development, demand forecasts, competitiveness,
operating expenses, cash flows, profitability, gross margins, and benefits
expected as a result of (among other factors):
·
projected growth rates in the
overall semiconductor industry, the semiconductor assembly equipment
market, and the market for semiconductor packaging materials;
and
·
projected demand for ball,
wedge and die bonder equipment and for expendable
tools.
Generally,
words such as “may,”“will,”“should,”“could,”“anticipate,”“expect,”“intend,”“estimate,”“plan,”“continue,”“goal” and “believe,” or the negative
of or other variations on these and other similar expressions identify
forward-looking statements. These forward-looking statements are made only as of
the date of this filing. We do not undertake to update or revise the
forward-looking statements, whether as a result of new information, future
events or otherwise.
Forward-looking
statements are based on current expectations and involve risks and
uncertainties. Our future results could differ significantly from those
expressed or implied by our forward-looking statements. These risks and
uncertainties include, without limitation, those described below and under the
heading “Risk Factors” in this Annual Report on Form 10-K for the fiscal year
ended October 2, 2010 and our other reports and registration statements filed
from time to time with the Securities and Exchange Commission. This discussion
should be read in conjunction with the Consolidated Financial Statements and
Notes included in this report, as well as our audited financial statements
included in the Annual Report.
We
operate in a rapidly changing and competitive environment. New risks emerge from
time to time and it is not possible for us to predict all risks that may affect
us. Future events and actual results, performance and achievements could differ
materially from those set forth in, contemplated by or underlying the
forward-looking statements, which speak only as of the date on which they were
made. Except as required by law, we assume no obligation to update or revise any
forward-looking statement to reflect actual results or changes in, or additions
to, the factors affecting such forward-looking statements. Given those risks and
uncertainties, investors should not place undue reliance on forward-looking
statements as predictions of actual results.
Introduction
Unless
otherwise indicated, the amounts and discussion contained in this Form 10-K
relate to continuing operations only and accordingly do not include amounts
attributable to our Wire business, which we sold on September 29,2008.
Kulicke
and Soffa Industries, Inc. (the “Company” or “K&S”) designs, manufactures
and sells capital equipment and expendable tools used to assemble semiconductor
devices, including integrated circuits (“IC”), high and low powered discrete
devices, light-emitting diodes (“LEDs”), and power modules. We also service,
maintain, repair and upgrade our equipment. Our customers primarily consist of
semiconductor device manufacturers, outsourced semiconductor assembly and test
providers (“OSAT”), other electronics manufacturers and automotive electronics
suppliers.
We
operate two main business segments, Equipment and Expendable Tools. Our goal is
to be the technology leader and the lowest cost supplier in each of our major
product lines. Accordingly, we invest in research and engineering projects
intended to enhance our position at the leading edge of semiconductor assembly
technology. We also remain focused on our cost structure, through consolidating
operations, moving manufacturing to Asia, moving our supply chain to lower cost
suppliers and designing higher performing, lower cost equipment. Cost reduction
efforts are an important part of our normal ongoing operations, and are expected
to generate savings without compromising overall product quality and service
levels.
25
On
October 3, 2008, we completed the acquisition of substantially all of the assets
and assumption of certain liabilities of Orthodyne Electronics Corporation
(“Orthodyne”). In connection with the Orthodyne acquisition, we issued 7.1
million common shares with an estimated value on that date of $46.2 million and
paid $87.0 million in cash including capitalized acquisition costs. The
Orthodyne wedge bonding business is the leading supplier of both heavy wire
wedge bonders and heavy wire wedges (the expendable tools used in wedge bonding)
for the power semiconductor and hybrid module markets.
On
September 29, 2008, we completed the sale of our Wire business for net proceeds
of $149.9 million to W.C. Heraeus GmbH (“Heraeus”). The financial results of the
Wire business have been included in discontinued operations in the consolidated
financial statements for all periods presented.
Business
Environment
The
semiconductor business environment is highly volatile, driven by both internal
cyclical dynamics as well as macroeconomic forces. Over the long term,
semiconductor consumption has historically grown, and is forecast to continue to
grow. This growth is driven, in part, by regular advances in device performance
and by price declines that result from improvements in manufacturing technology.
In order to exploit these trends, semiconductor manufacturers, both integrated
device manufacturers (“IDMs”) and OSATs, periodically aggressively invest in
latest generation capital equipment. This buying pattern often leads to periods
of excess supply and reduced capital spending — the so called
semiconductor cycle. Macroeconomic factors also affect the industry, primarily
through their effect on business and consumer demand for electronic devices, as
well as other products that have significant electronic content such as
automobiles, white goods, and telecommunication equipment.
Our
Equipment segment reflects the industry’s cyclical dynamics and is therefore
also highly volatile. The financial performance of this segment is affected,
both positively and negatively, by semiconductor manufacturers’ expectations of
capacity requirements and their plans for upgrading their production
capabilities. Volatility of this segment is further influenced by the relative
mix of IDM and OSAT customers in any period, since changes in the mix of sales
to IDMs and OSATs can affect our products’ average selling prices and gross
margins due to differences in volume purchases and machine configurations
required by each type of customer.
Our
Expendable Tools segment is less volatile than our Equipment segment, since
sales of expendable tools are directly tied to semiconductor unit consumption
rather than their expected growth rate.
Though
the semiconductor industry’s cycle can be independent of the general economy,
global economic conditions may have a direct impact on demand for semiconductor
units and ultimately demand for semiconductor capital equipment and expendable
tools. Business conditions in the semiconductor industry improved significantly
during fiscal 2010 after a dramatic deterioration in the global economy and a
corresponding reduction in semiconductor production activity during fiscal 2009.
We expect overall demand to be lower during the first quarter of fiscal 2011 as
compared to the fourth quarter of fiscal 2010. Our visibility into future demand
beyond that is generally limited and forecasting is difficult. There can be no
assurances regarding levels of demand for our products and we believe historic
industry-wide volatility will persist.
To
mitigate possible negative effects of this industry-wide volatility on our
financial position, we have de-leveraged and strengthened our balance sheet.
During fiscal 2010, we reduced our debt by $49.0 million, and ended fiscal 2010
with cash, cash equivalents, and investments totaling $181.3 million. As of
October 2, 2010, our total cash, and investments exceeded the face value of
our total debt by $71.3 million. We believe a strong cash position allows us to
continue making longer term investments in product development and in cost
reduction activities throughout the semiconductor cycle.
26
Technology
Leadership
We
compete largely by offering our customers the most advanced equipment and
expendable tools available for the wire, wedge and die bonding processes. Our
equipment is typically the most productive, has the highest levels of process
capability, and as a result, has the lowest cost of ownership available in their
respective markets. Our expendable tools are designed to optimize
the performance of the equipment in which they are used. We believe our
technology leadership contributes to the leading market share positions of our
various wire bonder and expendable tools products. To maintain our competitive
advantage, we invest in product development activities to produce a stream of
improvements to existing products and to deliver next-generation products. These
investments often focus as much on improvements in the semiconductor assembly
process as on specific pieces of assembly equipment or expendable tools. In
order to generate these improvements, we often work in close collaboration with
customers, end users, and other industry members. In addition to producing
technical advances, these collaborative development efforts strengthen customer
relationships and enhance our reputation as a technology leader and solutions
provider.
K&S’s
leadership in the industry’s use of copper wire, instead of gold, for the wire
bonding process is an example of the benefits of collaborative efforts. By
working with customers, material suppliers, and suppliers of equipment used
around the wire bonding process, we have developed a series of robust, high
yielding production processes that have made copper wire commercially viable,
significantly reducing the cost of assembling an integrated circuit. Many of our
customers started large scale conversion of their output to copper wire in
fiscal 2010. We expect this conversion process to continue throughout the
industry for the next several years, potentially driving a significant wire
bonder replacement cycle as we believe much of the industries’ installed base is
not suitable for copper bonding. Based on our industry leading copper bonding
processes, we believe the market share for wire bonders configured for copper
wire is much higher than our already leading market share for ball bonders in
general.
We also
maintain the technology leadership of our equipment by optimizing variants of
our products to serve high growth niche markets. For example, over the last two
years we have developed extensions of our main ball bonding platforms to address
opportunities in LED assembly. We estimate the LED device market to be driven by
the adoption of LED backlights for flat-screen displays as well as other LED
applications in general lighting. In fiscal 2009, we launched two products
optimized for these applications. These products represent our first product
offerings specifically aimed at this high growth market, and since their
introduction we have captured significant market share.
Another
example of our developing equipment for high growth niche markets is our AT
Premier. This machine utilizes a modified wire bonding process to mechanically
place bumps on devices, while still in a wafer format, for variants of the flip
chip assembly process. Typical applications include complimentary metal-oxide
semiconductor (“CMOS”) image sensors, surface acoustical wave (“SAW”) filters
and high brightness LEDs.
Our focus
on technology leadership also extends to die bonding. We offer a new die bonding
platform, our state of the art iStackPS
die bonder for advanced stacked die applications. iStackPS offers best-in-class
throughput and accuracy, and we believe iStackPS
is positioned to lead the market for its targeted applications.
We bring
the same technology focus to our expendable tools business, driving tool design
and manufacturing technology to optimize the performance and process capability
of the equipment in which our tools are used. For all our equipment products,
expendable tools are an integral part of their process capability. We believe
our unique ability to simultaneously develop both equipment and tools is one of
the reasons for our technology leadership position.
Products
and Services
We supply
a range of bonding equipment and expendable tools. Our Equipment segment
represented 90.7%, 75.7% and 82.6% of total net revenue for fiscal 2010, 2009
and 2008. Accordingly, our Expendable Tools segment represented 9.3%, 24.3% and
17.4% of total net revenue for fiscal 2010, 2009 and 2008.
27
Equipment
Segment
We
manufacture and sell a line of ball bonders, heavy wire wedge bonders, stud
bumpers, and die bonders that are sold to semiconductor device manufacturers,
their OSATs, other electronics manufacturers and automotive electronics
suppliers. Ball bonders are used to connect very fine wires, typically made of
gold or copper, between the bond pads of the semiconductor device, or die, and
the leads on its package. Wedge bonders use either aluminum wire or ribbon to
perform the same function in packages that cannot use gold or copper wire
because of either high electrical current requirements or other package
reliability issues. Stud bumpers mechanically apply bumps to die, typically
while still in the wafer format, for some variants of the flip chip assembly
process. Die bonders are used to attach a die to the substrate or lead frame
which will house the semiconductor device. We believe our equipment offers
competitive advantages by providing customers with high productivity/throughput,
superior package quality/process control, and as a result, a lower cost of
ownership.
Our
principal Equipment segment products include:
Business Unit
Product Name
Typical Served Market
Ball
bonders
IConnPS
Advanced
and ultra fine pitch applications using either gold or copper
wire
IConnPS ProCu
Advanced
copper wire applications demanding high productivity
IConnPS LA
Large
area applications
ConnXPS
Cost
performance, low pin count applications using either gold or copper
wire
ConnXPS
LED
LED
applications
ConnXPS
VLED
Vertical
LED applications
ConnXPS LA
Large
area applications
AT
Premier
Stud
bumping applications (high brightness LED and image
sensor)
Wedge
bonders
3600Plus
Power
hybrid and automotive modules using either aluminum wire or
ribbon
7200Plus
Power
semiconductors using either aluminum wire or ribbon
7200HD
Smaller
power packages using either aluminum wire or ribbon
7600HD
Power
semiconductors including smaller power packages using either aluminum wire
or ribbon
Die
bonder
iStackPS
Advanced
stacked die and ball grid array
applications
Ball
Bonders
Automatic
ball bonders represent the largest portion of our semiconductor equipment
business. Our main product platform for ball bonding is the Power Series (“PS”) — a
family of assembly equipment that is setting new standards for performance,
productivity, upgradeability, and ease of use. Our Power Series consists of our
IConnPS high-performance ball
bonders, and our ConnXPS
cost-performance ball bonders, both of which can be configured for either gold
or copper wire. In addition, targeted specifically at the fast growing LED
market, the Power Series includes our ConnXPS LED and our ConnXPS
VLED. Targeted for large area applications, the Power Series includes
our IConnPS LA
and ConnXPS LA.
In November 2010, we introduced the IConnPS ProCu
which offers a significant new level of capability for customers transitioning
from gold to copper wire bonding.
28
Our Power
Series products have advanced industry performance standards. Our ball bonders
are capable of performing very fine pitch bonding, as well as creating the
sophisticated wire loop shapes needed in the assembly of advanced semiconductor
packages. Our ball bonders can also be converted for use to copper applications
through kits we sell separately, a capability that is increasingly important as
bonding with copper continues to grow as an alternative to gold.
Heavy
Wire Wedge Bonders
We are
the leaders in the design and manufacture of heavy wire wedge bonders for the
power semiconductor and automotive power module markets. Wedge bonders may use
either aluminum wire or aluminum ribbon to connect semiconductor chips in power
packages, power hybrids and automotive modules for products such as motor
control modules or inverters for hybrid cars. In addition, we see some potential
use for our wedge bonder products in select solar applications.
Our
portfolio of wedge bonding products includes:
·
The
3600Plus: high speed, high accuracy wire bonders designed for
power modules, automotive packages and other large wire multi-chip module
applications.
·
The
7200Plus: dual head wedge bonder designed specifically for
power semiconductor applications.
·
The
7200HD: wedge bonder designed for smaller power packages
using either aluminum wire or
ribbon.
·
The
7600HD: wedge bonder targeted for small power
packages.
While
wedge bonding traditionally utilized aluminum wire, all of our wedge bonders are
also available modified to bond aluminum ribbon using our proprietary
PowerRibbon® process. Ribbon offers device makers performance advantages over
traditional round wire and is being increasingly used for high current packages
and automotive applications.
Die
Bonders
Our die
bonder, the iStack, was launched in March of 2009, and focuses on stacked die
applications for both memory and OSAT customers.
iStack is
targeted at stacked die and high end ball grid array (BGA) applications. In
these applications, we expect up to 40% productivity increases compared to
current generation machines. In addition, iStack has
demonstrated superior accuracy and process control.
Other
Equipment Products and Services
We also
sell manual wire bonders, and we offer spare parts, equipment repair, training
services, and upgrades for our equipment through our Support Services business
unit.
Expendable
Tools Segment
We
manufacture and sell a variety of expendable tools for a broad range of
semiconductor packaging applications. Our principal Expendable Tools segment
products include:
·
Capillaries: expendable
tools used in ball bonders. Made of ceramic, a capillary guides the wire
during the ball bonding process. Its features help control the bonding
process. We design and build capillaries suitable for a broad range of
applications, including for use on our competitors’ equipment. In
addition, our capillaries are used with both gold and copper
wire.
29
·
Bonding
wedges: expendable tools used in wedge bonders. Like
capillaries, their specific features are tailored to specific
applications. We design and build bonding wedges for use both in our own
equipment and in our competitors’
equipment.
·
Saw blades: expendable
tools used by semiconductor manufacturers to cut silicon wafers into
individual semiconductor die and to cut semiconductor devices that have
been molded in a matrix configuration into individual
units.
Critical
Accounting Policies
The
preparation of consolidated financial statements requires us to make
assumptions, estimates and judgments that affect the reported amounts of assets
and liabilities, net revenue and expenses during the reporting periods, and
disclosures of contingent assets and liabilities as of the date of the
consolidated financial statements. On an on-going basis, we evaluate estimates,
including but not limited to, those related to accounts receivable, reserves for
excess and obsolete inventory, carrying value and lives of fixed assets,
goodwill and intangible assets, valuation allowances for deferred tax assets and
deferred tax liabilities, repatriation of un-remitted foreign subsidiary
earnings, equity-based compensation expense, restructuring, and warranties. We
base our estimates on historical experience and on various other assumptions
that we believe to be reasonable. As a result, we make judgments regarding the
carrying values of our assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.
We
believe the following critical accounting policies, which have been reviewed
with the Audit Committee of our board of directors, affect our more significant
judgments and estimates used in the preparation of our consolidated financial
statements.
Revenue
Recognition
In
accordance with Accounting Standards Codification (“ASC”) No. 605, Revenue Recognition, we
recognize revenue when persuasive evidence of an arrangement exists, delivery
has occurred or services have been rendered, the price is fixed or determinable,
the collectibility is reasonably assured, and equipment installation obligations
have been completed and customer acceptance, when applicable, has been received
or otherwise released from installation or customer acceptance obligations. In
the event terms of the sale provide for a customer acceptance period, revenue is
recognized upon the expiration of the acceptance period or customer acceptance,
whichever occurs first. Our standard terms are Ex Works (our factory), with
title transferring to our customer at our loading dock or upon embarkation. We
have a small percentage of sales with other terms, and revenue is recognized in
accordance with the terms of the related customer purchase order. Revenue
related to services is recognized upon performance of the services requested by
a customer order. Revenue for extended maintenance service contracts with a term
more than one month is recognized on a prorated straight-line basis over the
term of the contract.
Our
business is subject to contingencies related to customer orders as
follows:
·
Right of Return: A
large portion of our revenue comes from the sale of machines used in the
semiconductor assembly process. Other product sales relate to consumable
products, which are sold in high-volume quantities, and are generally
maintained at low stock levels at our customer’s facility. Customer
returns have historically represented a very small percentage of customer
sales on an annual basis.
·
Warranties: Our
equipment is generally shipped with a one-year warranty against
manufacturing defects. We establish reserves for estimated warranty
expense when revenue for the related equipment is recognized. The reserve
for estimated warranty expense is based upon historical experience and
management’s estimate of future
expenses.
·
Conditions of Acceptance:
Sales of our consumable products generally do not have customer
acceptance terms. In certain cases, sales of our equipment have customer
acceptance clauses which may require the equipment to perform in
accordance with customer specifications or when installed at the
customer’s facility. In such cases, if the terms of acceptance are
satisfied at our facility prior to shipment, the revenue for the equipment
will be recognized upon shipment. If the terms of acceptance are satisfied
at our customers’ facilities, the revenue for the equipment will be not be
recognized until acceptance, which typically consists of installation and
testing, is received from the
customer.
30
Shipping
and handling costs billed to customers are recognized in net revenue. Shipping
and handling costs are included in cost of sales.
Allowance
for Doubtful Accounts
We
maintain allowances for doubtful accounts for estimated losses resulting from
our customers’ failure to make required payments. If the financial condition of
our customers were to deteriorate, resulting in an impairment of their ability
to make payments, additional allowances may be required. We are subject to
concentrations of customers and sales to a few geographic locations, which could
also impact the collectibility of certain receivables. If global economic
conditions deteriorate or political conditions were to change in some of the
countries where we do business, it could have a significant impact on our
results of operations, and our ability to realize the full value of our accounts
receivable.
Inventories
Inventories
are stated at the lower of cost (on a first-in first-out basis) or market value.
We generally provide reserves for obsolete inventory and for inventory
considered to be in excess of demand. In addition, we typically record as
accrued expense inventory purchase commitments in excess of demand. Demand is
generally defined as eighteen months forecasted consumption for non-Wedge bonder
equipment, twenty-four months consumption for Wedge bonder equipment and all
spare parts, and twelve months consumption for expendable tools. The forecasted
demand is based upon internal projections, historical sales volumes, customer
order activity and a review of consumable inventory levels at customers’
facilities. We communicate forecasts of our future demand to our suppliers and
adjust commitments to those suppliers accordingly. If required, we reserve the
difference between the carrying value of our inventory and the
lower of cost or market value, based upon assumptions about future demand,
market conditions and cyclical market changes. If actual market conditions are
less favorable than projections, additional inventory reserves may be
required.
Income
Taxes
Deferred
income taxes are determined using the liability method in accordance with ASC
No. 740, Income Taxes
(“ASC 740”). We record a valuation allowance to reduce our deferred tax assets
to the amount we expect is more likely than not to be realized. While we have
considered future taxable income and our ongoing tax planning strategies in
assessing the need for the valuation allowance, if we were to determine that we
would be able to realize our deferred tax assets in the future in excess of our
net recorded amount, an adjustment to the deferred tax asset would increase
income in the period such determination was made. Likewise, should we determine
that we would not be able to realize all or part of our net deferred tax assets
in the future, an adjustment to the deferred tax asset would decrease income in
the period such determination was made.
In
accordance with ASC 740, we utilize a two-step approach for evaluating uncertain
tax positions. Step one or recognition, requires us to determine if the weight
of available evidence indicates a tax position is more likely than not to be
sustained upon audit, including resolution of related appeals or litigation
processes, if any. Step two or measurement, is based on the largest amount of
benefit, which is more likely than not to be realized on settlement with the
taxing authority.
31
Equity-Based
Compensation
We
account for equity-based compensation under the provisions of ASC No. 718, Compensation, Stock
Compensation (“ASC 718”). ASC 718 requires the recognition of the fair
value of equity-based compensation in net income. The fair value of our stock
option awards are estimated using a Black-Scholes option valuation model.
Compensation expense associated with market-based restricted stock is determined
using a Monte-Carlo valuation model, and compensation expense associated with
time-based and performance-based restricted stock is determined based on the
number of shares granted and the fair value on the date of grant.
The
calculation of equity-based compensation costs requires we estimate the number
of awards that will be forfeited during the vesting period. We have estimated
forfeitures at the time of grant based upon historical experience, and review
the forfeiture rates periodically and make adjustments as necessary. In
addition, the fair value of equity-based awards is amortized over the vesting
period of the award and we elected to use the straight-line method for awards
granted after the adoption of ASC 718. In general, equity-based awards vest
annually over a three year period. Our performance-based restricted stock
entitles the employee to receive common shares of the Company on the three-year
anniversary of the grant date (if employed by the Company) if return on invested
capital and revenue growth targets set by the Management Development and
Compensation Committee of the Board of Directors on the date of grant are met.
If return on invested capital and revenue growth targets are not met,
performance-based restricted stock does not vest. Estimated attainment
percentages and the corresponding equity-based compensation expense reported may
vary from period to period.
RECENT
ACCOUNTING PRONOUNCEMENTS
See Note
1 to the consolidated financial statements in Item 8 for a description of
certain recent accounting pronouncements including the expected dates of
adoption and effects on our consolidated results of operations and financial
condition.
Presentation
of non-GAAP measures
Adjusted
net income (loss), adjusted diluted net income (loss) per share and quarterly
adjusted return on invested capital (“ROIC”) are supplemental measures of our
performance that are not presented in accordance with U.S. generally accepted
accounting principles (“GAAP”). We believe certain non-GAAP measures
provide investors with an additional, useful perspective on our performance as
seen through the eyes of management. Beginning fiscal 2009, we have used
non-GAAP measures along with GAAP financial results for: analyzing the
performance of our businesses; strategic and tactical decision making; and
determining compensation. We do not consider non-GAAP measures to be a
substitute for, or superior to, financial results presented in accordance with
GAAP. All of the non-GAAP measures included herein were reconciled to the most
directly comparable GAAP results in the financial statements. These non-GAAP
measures may be calculated differently from non-GAAP measures used by other
companies. In addition, these non-GAAP measures are not based on a comprehensive
set of accounting rules or principles and some of the adjustments reflect the
exclusion of items that are recurring and will be reflected in the our GAAP
financial results for the foreseeable future.
We
exclude the following from our GAAP results in presenting non-GAAP
measures:
Equity-based
compensation expenses
We
recognize the fair value of our equity-based compensation in expense.
Equity-based compensation consists of common stock, stock options and
performance-based, market-based and time-based restricted stock granted under
our equity compensation plans. Equity-based compensation can vary significantly
in amount from period to period.
32
Other
We
believe the exclusion of certain other amounts allows for improved comparisons
of our results to both prior periods and other companies. We exclude the
following other items from non-GAAP measures:
·
Amortization
of intangibles
·
Restructuring
·
Impairment
of goodwill
·
Switzerland
pension plan curtailment
·
Gain
on extinguishment of debt
·
Non-cash
interest expense
·
Net
tax settlement expense (benefit) and other tax
adjustments
Tax Adjustment
Non-GAAP
measures are tax adjusted using the GAAP tax rate associated with each quarterly
period. The tax rate is calculated by dividing each quarter’s GAAP tax expense
(benefit), adjusted for discrete quarterly items, by the GAAP operating income
(loss) for that quarter. Non-GAAP year-to-date measures are calculated by
summing the associated quarterly non-GAAP measures, without further tax
adjustments.
The
specific non-GAAP measures included herein are: adjusted gross profit, adjusted
gross margin, adjusted net income (loss), adjusted net margin, and adjusted
earnings per share (“EPS”). We calculate these measures as follows:
Adjusted
Gross Profit and Adjusted Gross Margin
Our
non-GAAP adjusted gross profit and adjusted gross margin exclude the effects of
equity-based compensation expense recorded within cost of sales.
Adjusted
Net Income (Loss), Adjusted Net Margin and Adjusted EPS
Our
non-GAAP adjusted net income (loss), adjusted net margin and adjusted EPS
exclude equity-based compensation; amortization of intangibles; restructuring;
impairment of goodwill; Switzerland pension plan curtailment; gain on
extinguishment of debt; non-cash interest expense; net tax settlement expense
(benefit); and related tax effects on non-GAAP adjustments.
33
The
following table reflects certain GAAP results and the corresponding non-GAAP
financial measures for fiscal 2010 and 2009:
Unaudited
Fiscal
(in thousands, except per share amounts)
2010
2009 *
Gross
profit (GAAP
results)
$
335,673
$
88,843
-
Equity-based compensation expense
207
64
Gross
profit (Non-GAAP
measures)
$
335,880
$
88,907
Income
(loss) from operations (GAAP
results)
$
148,035
$
(73,524
)
-
Amortization of intangibles
9,545
11,092
-
Equity-based compensation expense
7,565
1,387
-
Restructuring
2,402
10,959
-
Impairment of goodwill
-
2,709
-
Switzerland pension plan curtailment
-
(1,446
)
-
Net tax settlement benefit and other tax adjustments
-
1,812
Income
(loss) from operations (Non-GAAP
measures)
$
167,547
$
(47,011
)
Weighted
average shares outstanding (GAAP &
Non-GAAP)
Basic
70,012
62,188
Diluted
73,548
62,188
Income
(loss) per share from continuing operations (GAAP
results)
Basic
$
2.01
$
(1.02
)
Diluted
$
1.92
$
(1.02
)
Adjustments
to net income (loss) per share
Basic
$
0.37
$
0.24
Diluted
$
0.35
$
0.24
Income
(loss) per share from continuing operations (Non-GAAP
measures)
Basic
$
2.38
$
(0.78
)
Diluted
$
2.27
$
(0.78
)
* As
adjusted for ASC No. 470.20,
Debt, Debt With Conversion Options.
34
The
following table reflects our adjusted ROIC for three months ended October 2,2010:
Cash,
cash equivalents, restricted cash and investments
$
181,334
Adjustment:
cash, cash equivalents, restricted cash and investments
(3)
(106,334
)
Adjusted
cash, cash equivalents and investments
$
75,000
Total
assets excluding cash, cash equivalents and investments
398,835
Adjusted
total assets
473,835
Total
current liabilities
$
125,130
Add:
taxes payable (4)
1,968
Adjusted
current liabilities
127,098
Adjusted
net invested capital
$
346,737
ROIC (4)
70.3
%
(1)
Depreciation and amortization are excluded from the ROIC
calculation.
(2) ROIC
is calculated as non-GAAP adjusted income from operations, annualized by
multiplying the current quarter’s non-GAAP income from operations by 4, then
divided by adjusted net invested capital. Adjusted income from operations is not
intended to forecast the Company's future income from operations.
(3)
Management estimates minimum cash requirement is $75.0 million.
(4)
Adjusted current liabilities includes tax liabilities classified as current in
prior periods but reclassed to long term liabilities as a result of our adoption
of ASC 740.10 during the first quarter of fiscal 2008.
35
Results
of Operations for fiscal 2010 and 2009
The
following table reflects our income (loss) from operations for fiscal 2010 and
2009:
Fiscal
(dollar amounts in thousands)
2010
2009
$ Change
% Change
Net
revenue
$
762,784
$
225,240
$
537,544
238.7
%
Cost
of sales
427,111
136,397
290,714
213.1
%
Gross
profit
335,673
88,843
246,830
277.8
%
Selling,
general and administrative
130,978
106,175
24,803
23.4
%
Research
and development
56,660
53,483
3,177
5.9
%
Impairment
of goodwill
-
2,709
(2,709
)
-100.0
%
Operating
expenses
187,638
162,367
25,271
15.6
%
Income
(loss) from operations
$
148,035
$
(73,524
)
$
221,559
301.3
%
Bookings
and Backlog
A booking
is recorded when a customer order is reviewed and it is determined that all
specifications can be met, production (or service) can be scheduled, a delivery
date can be set, and the customer meets our credit requirements. Our backlog
consists of customer orders that are scheduled for shipment within the next 12
months. A majority of our orders are subject to cancellation or deferral by our
customers with limited or no penalties. Also, customer demand for our products
can vary dramatically without prior notice. Because of the volatility of
customer demand, possibility of customer changes in delivery schedules or
cancellations and potential delays in product shipments, our backlog as of any
particular date may not be indicative of net revenue for any succeeding
period.
The
following table reflects our bookings in fiscal 2010 and 2009:
Approximately
98.6% and 97.0% of our net revenue for fiscal 2010 and 2009, respectively, was
for shipments to customer locations outside of the United States, primarily in
the Asia/Pacific region, and we expect sales outside of the United States to
continue to represent a substantial majority of our future revenue.
The
following table reflects net revenue by business segment for fiscal 2010 and
2009:
Fiscal
(dollar amounts in thousands)
2010
2009
$ Change
% Change
Equipment
$
691,988
$
170,536
$
521,452
305.8
%
Expendable
Tools
70,796
54,704
16,092
29.4
%
Total
$
762,784
$
225,240
$
537,544
238.7
%
Equipment
The
following table reflects the components of Equipment net revenue change from
fiscal 2010 to 2009:
Fiscal 2010 vs. 2009
(in thousands)
Price
Volume
$ Change
Equipment
$
669
$
520,783
$
521,452
For
fiscal 2010, higher Equipment net revenue was due to a 413.9% increase in volume
for ball bonders and 157.8% increase in volume for wedge bonders. The volume
increases were due to higher semiconductor unit demand and increased capacity
utilization rates of our customers, which in turn increased demand for capital
equipment. In addition, customer investment in new copper bonding capability has
driven a significant proportion of our ball bonder business.
Expendable
Tools
The
following table reflects the components of Expendable Tools net revenue change
from fiscal 2010 to 2009:
Fiscal 2010 vs. 2009
(in thousands)
Price
Volume
$ Change
Expendable
Tools
$
(752
)
$
16,844
$
16,092
The
increase in Expendable Tools net revenue from fiscal 2009 to 2010 was due to
volume increases in all our Expendable Tools businesses. Since Expendable
Tools products are consumables used for the connections of Integrated Circuits
(“IC”) units, as overall consumer demand for electronic equipment has increased,
so has the demand for IC units. As a result, volume increased for our Expendable
Tools. Our non-wedge bonder Tools volume increased 31.3% while Blades volume
increased 40.1%. Our wedge bonder tools net revenue also increased
25.7%.
37
Gross
Profit
The
following table reflects gross profit by business segment for fiscal 2010 and
2009:
Fiscal
(dollar amounts in thousands)
2010
2009
$ Change
% Change
Equipment
$
292,946
$
59,433
$
233,513
392.9
%
Expendable
Tools
42,727
29,410
13,317
45.3
%
Total
$
335,673
$
88,843
$
246,830
277.8
%
The
following table reflects gross profit as a percentage of net revenue by business
segment for fiscal 2010 and 2009:
Fiscal
Basis Point
2010
2009
Change
Equipment
42.3
%
34.9
%
740
Expendable
Tools
60.4
%
53.8
%
660
Total
44.0
%
39.4
%
460
Equipment
The
following table reflects the components of Equipment gross profit change from
fiscal 2010 to 2009:
Fiscal 2010 vs. 2009
(in thousands)
Price
Cost
Volume
$ Change
Equipment
$
669
$
(220
)
$
233,064
$
233,513
For
fiscal 2010, gross profit increased significantly due to volume increases for
ball bonders and wedge bonders. The higher semiconductor unit demand during the
current year increased capacity utilization rates of our customers, which in
turn increased demand for capital equipment.
Expendable
Tools
The
following table reflects the components of Expendable Tools gross profit change
from fiscal 2010 to 2009:
Fiscal 2010 vs. 2009
(in thousands)
Price
Cost
Volume
$ Change
Expendable
Tools
$
(752
)
$
6,216
$
7,853
$
13,317
The net
increase in Expendable Tools gross profit from fiscal 2009 to 2010 was primarily
due to volume increases in all Expendable Tools businesses. Since
Expendable Tools products are consumables used for the connections of IC units,
as overall consumer demand for electronic equipment increased, so has the demand
for IC units. As a result, volume has increased for our Expendable Tools
segment. Tools volume increased 31.3%, while Blades volume increased 40.1%. The
increase in the gross profit was also due to lower cost from better absorption
of fixed manufacturing costs as our volumes were higher. Consolidating our
capillary tools manufacturing from Israel to China also contributed to our cost
reductions and resulted in improved gross profit.
38
Operating
Expenses
The
following table reflects operating expenses as a percentage of net revenue for
fiscal 2010 and 2009:
Fiscal
Basis Point
2010
2009
Change
Selling,
general and administrative
17.2
%
47.1
%
2,990
Research
and development
7.4
%
23.7
%
1,630
Impairment
of goodwill
0.0
%
1.2
%
120
Total
24.6
%
72.0
%
4,740
Selling,
general and administrative (“SG&A”)
An
increase in SG&A expenses of $24.8 million during fiscal 2010 as compared to
fiscal 2009 was primarily due to:
·
$14.7
million higher incentive compensation expense driven by current fiscal
year net income as compared to a net loss during fiscal
2009;
·
$5.4
million increase in sales commissions due to higher net revenue for the
current fiscal year;
·
$5.2
million higher equity-based compensation expense due to the
following:
·
$2.3
million related to higher estimated percentage attainments for
performance-based restricted stock, of which $0.3 million related to
compensation as a result of the retirement of our Chief Executive
Officer;
·
$1.5
million related to market-based restricted stock granted during fiscal
2010, of which $0.9 million related to compensation as a result of the
retirement of our Chief Executive Officer,
and;
·
$1.4
million related to time-based restricted stock granted during fiscal
2010.
·
$4.7
million higher consulting, employee staffing and travel related costs, of
which $1.9 million relates to the retirement of our Chief Executive
Officer and the hiring of his
replacement;
·
$4.1
million higher factory transition costs for the move of additional
production to Asia from Irvine, California and
Israel;
·
$1.9
million pension expense related to a current year increase in our pension
obligation primarily related to sales representatives in Taiwan,
and;
·
$1.0
million unfavorable foreign currency
variance.
These
increases in SG&A were partially offset by:
·
$8.6
million lower severance costs related to prior fiscal year headcount
reductions, and;
·
$2.9
million lower depreciation and amortization expense due to certain
intangible assets and fixed assets becoming fully
depreciated.
Research
and development (“R&D”)
The $3.2
million increase of R&D expense during fiscal 2010 compared to fiscal 2009
was mostly attributable to:
·
$2.1
million higher R&D expense related to set up costs for our Israel
technology center; and
·
$0.8
million higher equity-based compensation expense due to higher estimated
percentage attainments for performance-based restricted stock and
time-based restricted stock granted during fiscal
2010.
39
Impairment
of goodwill
Due to
the earlier than anticipated end of product life cycle for our EasyLine and
SwissLine die bonders, during fiscal 2009, we recorded a non-cash goodwill
impairment charge of $2.7 million which reduced the value of the die bonder
goodwill to zero.
Income
(Loss) from Operations
The
following table reflects income (loss) from operations by business segment for
fiscal 2010 and 2009:
Fiscal
(dollar amounts in thousands)
2010
2009 *
$ Change
% Change
Equipment
$
137,321
$
(78,741
)
$
216,062
274.4
%
Expendable
Tools
10,714
5,217
5,497
105.4
%
Total
$
148,035
$
(73,524
)
$
221,559
301.3
%
* As adjusted for ASC No.
470.20, Debt, Debt With
Conversion Options.
Equipment
For
fiscal 2010, higher Equipment income from operations was due to significantly
improved volume for ball bonders and wedge bonders. In addition for fiscal 2010,
the higher semiconductor unit-demand during the current year increased capacity
utilization rates of our customers, which in turn increased demand for capital
equipment.
Expendable
Tools
The
increase in Expendable Tools income from operations from fiscal 2009 to 2010 was
due to volume increases in all our Expendable Tools businesses.
Accordingly, the net increase in Expendable Tools gross profit from fiscal 2009
to 2010 was primarily due to volume increases in all Expendable Tools
businesses. In addition, the increase in the gross profit was due to lower cost
from better absorption of fixed manufacturing costs as our volumes were higher.
Consolidating our capillary tools manufacturing from Israel to China also
contributed to our cost reductions and resulted in improved gross
profit.
Interest
Income and Expense
The
following table reflects interest income and interest expense for fiscal 2010
and 2009:
Fiscal
(dollar amounts in thousands)
2010
2009 *
$ Change
% Change
Interest
income
$
403
$
1,106
$
(703
)
-63.6
%
Interest
expense
(1,348
)
(1,594
)
246
-15.4
%
Interest
expense: non-cash*
(6,985
)
(6,594
)
(391
)
5.9
%
* Fiscal 2009 adjusted for ASC
No. 470.20, Debt, Debt With
Conversion Options.
The
decline in interest income during fiscal 2010 was due to lower rates of return
on invested cash balances because of lower prevailing interest rates. The
decrease in interest expense during fiscal 2010 was attributable to the
retirement of our 1.0% Convertible Subordinated Notes.
40
Gain
on Extinguishment of Debt
There
were no purchases of Convertible Subordinated Notes during fiscal 2010. The
following table reflects purchases of our Convertible Subordinated Notes during
fiscal 2009:
Fiscal
(in
thousands)
2009
0.5%
Convertible Subordinated Notes (1):
Face
value purchased
$
43,050
Net
cash
42,839
Deferred
financing costs
18
Recognized
gain, net of deferred financing costs
193
1.0%
Convertible Subordinated Notes: (2)
Face
value purchased
$
16,036
Net
cash
12,158
Deferred
financing costs
106
Recognized
gain, net of deferred financing costs
3,772
Gain
on extinguishment of debt
$
3,965
(1)
Fiscal
2009 repurchase transactions occurred prior to redemption on November 30,2008.
(2)
Activity
during fiscal 2009 reflects repurchases pursuant to a tender
offer.
Provision
(Benefit) for Income Taxes for fiscal 2010 and 2009
The
following table reflects the provision (benefit) for income taxes and the
effective tax rate from continuing operations for fiscal 2010 and
2009:
Fiscal
(dollar
amounts in thousands)
2010
2009 *
Income
(loss) from continuing operations before taxes
$
140,105
$
(76,641
)
Benefit
for income taxes
(2,037
)
(13,029
)
Income
(loss) from continuing operations
$
142,142
$
(63,612
)
Effective
tax rate
-1.5
%
17.0
%
* As
adjusted for ASC No. 470.20,
Debt, Debt With Conversion Options.
Our
effective tax rate of -1.5% for fiscal 2010 is lower than the U.S. statutory
rate of 35.0% primarily due to certain domestic and foreign valuation allowance
releases, permanent items, state taxes, and federal alternative minimum taxes.
We continue to maintain a valuation allowance against a majority of our state
deferred tax assets and deferred tax assets in certain foreign jurisdictions as
the realization of these assets is not more likely than not given uncertainty of
future earnings in these jurisdictions.
Our
effective tax rate of 17.0% for fiscal 2009 is lower than the U.S. statutory
rate of 35.0% primarily due to settlements of certain foreign income tax
exposures, losses in foreign jurisdictions with tax holidays, permanent items,
state taxes, and increases in the valuation allowance.
41
Our
future effective tax rate would be affected if earnings were lower than
anticipated in countries where we have lower statutory rates and higher than
anticipated in countries where we have higher statutory rates, by changes in the
valuation of our deferred tax assets and liabilities, or by changes in tax laws,
regulations, accounting principles, or interpretations thereof. We regularly
assess the effects resulting from these factors to determine the adequacy of our
provision for income taxes.
Income
from Discontinued Operations, net of tax
We
committed to a plan of disposal for our Wire business in fiscal 2008, and on
September 29, 2008, completed the sale of certain assets and liabilities
associated with the Wire business. Included in discontinued operations for
fiscal 2009 are net proceeds of $149.9 million and a net gain of $22.0 million,
net of tax, related to the Wire sale.
The
following table reflects operating results of the Wire business discontinued
operations for fiscal 2009:
Fiscal
(in
thousands)
2009
Net
revenue
$
-
Income
(loss) before tax
$
(319
)
Gain
on sale of Wire business before tax
23,026
Income
from discontinued operations before tax
22,707
Income
tax expense
(696
)
Income
from discontinued operations, net of tax
$
22,011
Results
of Operations for fiscal 2009 and 2008
The
following table reflects our loss from operations for fiscal 2009 and
2008:
Fiscal
(in thousands)
2009
2008
$ Change
% Change
Net
revenue
$
225,240
$
328,050
$
(102,810
)
-31.3
%
Cost
of sales
136,397
194,257
(57,860
)
-29.8
%
Gross
profit
88,843
133,793
(44,950
)
-33.6
%
Selling,
general and administrative
106,175
89,356
16,819
18.8
%
Research
and development
53,483
59,917
(6,434
)
-10.7
%
Impairment
of goodwill
2,709
-
2,709
0.0
%
U.S.
pension plan termination
-
9,152
(9,152
)
0.0
%
Operating
expenses
162,367
158,425
3,942
43.1
%
Loss
from operations
$
(73,524
)
$
(24,632
)
$
(48,892
)
-198.5
%
42
Bookings
and Backlog
The
following table reflects our bookings in fiscal 2009 and 2008:
Approximately
97.0% and 95.6% of our net revenue for fiscal 2009 and 2008, respectively, was
from shipments to customer locations outside of the United States, primarily in
the Asia/Pacific region.
The
following table reflects net revenue by business segment for fiscal 2009 and
2008:
Fiscal
(dollar
amounts in thousands)
2009
2008
$ Change
% Change
Equipment
$
170,536
$
271,019
$
(100,483
)
-37.1
%
Expendable
Tools
54,704
57,031
(2,327
)
-4.1
%
Total
$
225,240
$
328,050
$
(102,810
)
-31.3
%
43
Equipment
The
following table reflects the components of Equipment net revenue change from
fiscal 2009 to 2008:
Fiscal
2009 vs. 2008
(in
thousands)
Price
Volume
Orthodyne
$
Change
Equipment
$
(5,901
)
$
(120,824
)
$
26,242
$
(100,483
)
The
decrease in net revenue from fiscal 2008 to fiscal year 2009 was mainly due to a
45.8% decrease in volume for Ball Bonders, 52.7% decrease in volume for Die
Bonders and 31.8% decrease in Support Services. The fiscal 2009 decrease in
volume was mainly due to a decline in global demand for assembly equipment
during the first half of fiscal 2009 driven by the global economic downturn. As
overall consumer demand for electronic equipment declined, so did factory
utilization of our OSAT and IDM customers. The overall volume decrease was
partially offset by net revenue from our Wedge Bonder Equipment business
acquired during fiscal year 2009.
Expendable
Tools
The
following table reflects the components of Expendable Tools net revenue change
from fiscal 2009 to 2008:
Fiscal 2009 vs. 2008
(in thousands)
Price
Volume
Orthodyne
$ Change
Expendable
Tools
$
2
$
(17,764
)
$
15,437
$
(2,327
)
The net
decrease in Expendable Tools revenue from fiscal 2008 to 2009 was due to volume
decreases in both our Tools and Blades businesses. Tools volumes decreased
31.0%, while Blades volumes decreased 30.6%. Our Expendable Tools products are
consumables used for the connections of IC units; therefore, as overall
consumer demand for electronic equipment declined in the first half of fiscal
2009, due to the economic downturn, the demand for IC units also declined. As a
result, volume declined for our Expendable Tools segment. Offsetting this volume
decrease was the net revenue from our newly acquired Wedge bonder Tools
business.
Gross
Profit
The
following table reflects gross profit by business segment for fiscal 2009 and
2008:
Fiscal
(dollar amounts in thousands)
2009
2008
$ Change
% Change
Equipment
$
59,433
$
105,520
$
(46,087
)
-43.7
%
Expendable
Tools
29,410
28,273
1,137
4.0
%
Total
$
88,843
$
133,793
$
(44,950
)
-33.6
%
The
following table reflects gross profit as a percentage of net revenue by business
segment for fiscal 2009 and 2008:
Fiscal
Basis Point
2009
2008
Change
Equipment
34.9
%
38.9
%
(408
)
Expendable
Tools
53.8
%
49.6
%
419
Total
39.4
%
40.8
%
(134
)
44
Equipment
The
following table reflects the components of Equipment gross profit change from
fiscal 2009 to 2008:
Fiscal 2009 vs. 2008
(in thousands)
Price
Cost
Volume
Orthodyne
$ Change
Equipment
$
(5,901
)
$
1,201
$
(49,298
)
$
7,911
$
(46,087
)
The
decrease in gross profit from fiscal 2008 to 2009 was mainly due to decrease in
volume for Ball Bonders and Die Bonders as well as decline in Support Services.
The fiscal 2009 decrease in volume was mainly due to a decline in global demand
for assembly equipment during the first half of fiscal 2009 driven by the global
economic downturn. As overall consumer demand for electronic equipment declined,
so did the factory utilization of our OSAT and IDM customers. The decrease in
gross profit was partially offset by gross profit from our Wedge Bonder
Equipment business acquired during fiscal 2009. The improvement in cost is
primarily due to cost reduction efforts related to material
purchases.
Expendable
Tools
The
following table reflects the components of Expendable Tools gross profit change
from fiscal 2009 to 2008:
Fiscal 2009 vs. 2008
(in thousands)
Price
Cost
Volume
Orthodyne
$ Change
Expendable
Tools
$
2
$
(970
)
$
(8,818
)
$
10,923
$
1,137
The net
increase in Expendable Tools gross profit from fiscal 2008 to 2009 was primarily
due to the newly acquired Wedge Bonder Tools business, offset by volume
decreases in both our Tools and Blades businesses. The decrease in both Tools
and Blades volume in fiscal 2009 was due to the economic downturn during the
first half of fiscal 2009, which decreased demand for IC units. The increase in
cost was primarily due to fixed manufacturing costs not being fully absorbed by
the lower volumes during fiscal 2009.
Operating
Expenses
The
following table reflects operating expenses as a percentage of net revenue for
fiscal 2009 and 2008:
Fiscal
Basis Point
2009
2008
Change
Selling,
general and administrative
47.1
%
27.2
%
1,990
Research
and development
23.7
%
18.3
%
548
Impairment
of goodwill
1.2
%
0.0
%
120
U.S.
pension plan termination
0.0
%
2.8
%
(279
)
Total
72.0
%
48.3
%
2,379
The
SG&A increase of $16.8 million during fiscal 2009 as compared to fiscal 2008
was primarily due to:
·
$29.8
million of expense related to our Wedge bonder business acquired during
fiscal 2009 of which $10.9 million related to amortization of intangible
assets and $1.9 million was for
severance;
·
$4.0
million of severance costs related to our fiscal 2009 plan to reduce our
global workforce;
·
$2.7
million expense related to contractual commitments for former Test
facilities;
·
$1.8
million of legal expense; and
·
$1.7
million of factory transition expense related to moving additional
production to Singapore, China and
Malaysia.
45
These
increases in SG&A were partially offset by:
·
$20.3
million of overall cost reductions due mainly to our fiscal 2009 global
workforce reduction;
·
$2.3 million of lower foreign
currency exchange losses;
·
$1.4 million curtailment of our
Switzerland pension plan in fiscal 2009;
and
·
$1.3
million lower incentive compensation and equity-based compensation
expense.
Research
and development (“R&D”)
The $6.4
million decrease of R&D expense during fiscal 2009 compared to 2008 was
mostly attributable to:
·
$15.6
million of lower Equipment segment costs due to reduced headcount,
and
·
$1.6
million less prototype spending with the releases of our latest ball
bonder and die bonder product
platforms.
These
decreases were partially offset by $10.8 million of R&D costs related to our
Wedge Bonder business acquired during fiscal 2009.
Impairment
of goodwill
Due to
the earlier than anticipated end of product life cycle for our EasyLine and
SwissLine die bonders, during fiscal 2009, we recorded a non-cash goodwill
impairment charge of $2.7 million which reduced the value of the die bonder
goodwill to zero.
U.S.
pension plan termination
Fiscal
2008 operating expenses included a one-time, non-cash expense of $9.2 million
related to the termination of our U.S. pension plan.
Income
(Loss) from Operations
The
following table reflects income (loss) from operations by business segment for
fiscal 2009 and 2008:
Fiscal
(dollar
amounts in thousands)
2009
2008
$ Change
% Change
Equipment
$
(78,741
)
$
(25,934
)
$
(52,807
)
203.6
%
Expendable
Tools
5,217
1,302
3,915
300.7
%
Total
$
(73,524
)
$
(24,632
)
$
(48,892
)
198.5
%
Equipment
The
higher net loss from operations from fiscal 2008 to 2009 was mainly due to
decreases in volume for Ball Bonders and Die Bonders as well as decline in
Support Services. In addition, higher operating expenses for Wedge bonder
amortization of intangibles and severance increased the Equipment net
loss.
46
Expendable
Tools
The
higher Expendable Tools net income from operations from fiscal 2008 to 2009 was
primarily due to the newly acquired Wedge bonder Tools business partially offset
by our Tools and Blades businesses. In addition, lower operating expenses due to
overall cost reduction measures increased our Expendable Tools net
income.
Interest
Income and Expense
The
following table reflects interest income and interest expense for fiscal 2009
and 2008:
Fiscal
(dollar amounts in thousands)
2009
2008
$ Change
% Change
Interest
income
$
1,106
$
4,732
$
(3,626
)
-76.6
%
Interest
expense
(1,594
)
(1,985
)
391
-19.7
%
Interest
expense: non-cash *
(6,594
)
(6,616
)
22
-0.3
%
* As adjusted for ASC No.
470.20, Debt, Debt With
Conversion Options.
The
decline in interest income during fiscal 2009 was due to lower rates of return
on invested cash balances and overall lower average cash balances. The decrease
in interest expense during fiscal 2009 was attributable to the retirement of our
0.5% Convertible Subordinated Notes and repurchase of $16.0 million (face value)
of our 1.0% Convertible Subordinated Notes.
Gain
on Extinguishment of Debt
The
following table reflects purchases of our Convertible Subordinated Notes during
fiscal 2009 and 2008:
Fiscal
(in
thousands)
2009
2008
0.5%
Convertible Subordinated Notes (1):
Face
value purchased
$
43,050
$
4,000
Net
cash
42,839
3,815
Deferred
financing costs
18
15
Recognized
gain, net of deferred financing costs
193
170
1.0%
Convertible Subordinated Notes: (2)
Face
value purchased
$
16,036
$
-
Net
cash
12,158
-
Deferred
financing costs
106
-
Recognized
gain, net of deferred financing costs
3,772
-
Gain
on extinguishment of debt
$
3,965
$
170
(1)
Fiscal 2009 repurchase transactions occurred prior to redemption on November 30,2008.
(2)
Activity during fiscal 2009 reflects repurchases pursuant to a tender
offer.
47
Benefit
for Income Taxes for fiscal 2009 and 2008
The
following table reflects the provision (benefit) for income taxes and the
effective tax rate from continuing operations for fiscal 2009 and
2008:
Fiscal
(dollar
amounts in thousands)
2009 *
2008 *
Loss
from continuing operations before taxes
$
(76,641
)
$
(28,331
)
Benefit
for income taxes
(13,029
)
(3,610
)
Loss
from continuing operations
$
(63,612
)
$
(24,721
)
Effective
tax rate
17.0
%
12.7
%
* As
adjusted for ASC No. 470.20,
Debt, Debt With Conversion Options.
Our
provision for income taxes from continuing operations for fiscal 2009 reflects
an income tax benefit of $13.0 million which primarily consists of $12.4 million
of net income tax benefit for the settlement of certain foreign income tax
exposures and $0.4 million for the reduction in deferred tax liabilities related
to potential repatriation of foreign earnings. These amounts are offset by $0.2
million for state taxes, $0.1 million for income tax related to foreign
operations, $0.1 million for foreign withholding taxes and $0.1 million of other
U.S. current and deferred taxes.
Our
income tax benefit for fiscal 2008 reflects income tax expense on foreign
income tax exposures, foreign withholding taxes, repatriation of foreign
earnings, federal alternative minimum taxes and state taxes offset by income tax
benefits related to the termination of the pension plan and income tax benefits
on loses in foreign jurisdictions.
Our
effective tax rate of 17.0% for fiscal 2009 is lower than the U.S. statutory
rate of 35% primarily due to settlements of certain foreign income tax
exposures, losses in foreign jurisdictions with tax holidays, permanent items,
state taxes, and increases in the valuation allowance. We continue to
maintain a valuation allowance against certain deferred tax assets which, based
on an analysis of positive and negative evidence are more likely than
not to not be realized. This evidence includes analysis of past
results, uncertainty with respect to the impact of restructuring of certain
international operations, projections of future results and the significant
historic volatility of our Equipment segment.
Our
future effective tax rate would be affected if earnings were lower than
anticipated in countries where we have lower statutory rates and higher than
anticipated in countries where we have higher statutory rates, by changes in the
valuation of our deferred tax assets and liabilities, or by changes in tax laws,
regulations, accounting principles, or interpretations thereof. We regularly
assess the effects resulting from these factors to determine the adequacy of our
provision for income taxes.
Income
from Discontinued Operations, net of tax
We
committed to a plan of disposal for our Wire business in fiscal 2008, and on
September 29, 2008, completed the sale of certain assets and liabilities
associated with the Wire business. Included in discontinued operations for
fiscal 2009 are net proceeds of $149.9 million and a net gain of $22.0 million,
net of tax, related to the Wire sale.
48
The
following table reflects operating results of the Wire business discontinued
operations for fiscal 2009 and 2008:
Fiscal
(in
thousands)
2009
2008
Net
revenue
$
-
$
423,971
Income
(loss) before tax
$
(319
)
$
23,690
Gain
on sale of Wire business before tax
23,026
-
Income
from discontinued operations before tax
22,707
23,690
Income
tax expense
(696
)
(249
)
Income
from discontinued operations, net of tax
$
22,011
$
23,441
LIQUIDITY
AND CAPITAL RESOURCES
During
fiscal 2010, our working capital needs were funded through cash from operating
activities. Our net increase in cash was primarily due to fiscal 2010 net income
partially offset by cash used to repay our Convertible Subordinated Notes that
matured and were redeemed during fiscal 2010.
The
following table reflects cash, cash equivalents, restricted cash, and short-term
investments as of October 2, 2010 and October 3, 2009:
(1) Fiscal
2010 and 2009 restricted cash related to customs requirements in Malaysia and
China, respectively.
49
The
following table reflects summary Consolidated Statement of Cash Flow information
for fiscal 2010 and 2009:
Fiscal
(in
thousands)
2010
2009
Cash
flows provided by (used in):
Operating
activities, continuing operations
$
87,638
$
(51,406
)
Operating
activities, discontinued operations
(1,839
)
(2,116
)
Operating
activities
85,799
(53,522
)
Investing
activities, continuing operations
(4,591
)
(51,453
)
Investing
activities, discontinued operations
(1,838
)
149,857
Investing
activities
(6,429
)
98,404
Financing
activities
(46,121
)
(45,439
)
Effect
of exchange rate on cash and cash equivalents
303
185
Changes
in cash and cash equivalents
33,552
(372
)
Cash
and cash equivalents, beginning of period
144,560
144,932
Cash
and cash equivalents, end of period
178,112
144,560
Restricted
cash and short-term investments
3,222
281
Total
cash and investments
$
181,334
$
144,841
Fiscal
2010
Continuing
Operations
Net cash
provided by operating activities was primarily a result of net income of $142.1
million plus non-cash adjustments of $30.3 million partially offset by a net
increase in net working capital of $84.8 million. The net increase in working
capital was primarily driven by increases in accounts receivable and inventory
offset by increases in accounts payable.
Net cash
used in investing activities of $4.6 million was comprised of capital
expenditures of $6.3 million and purchases of investments of $3.0 million
partially offset by $3.9 million of net proceeds from the sale of our building
in Israel and $0.7 million of net proceeds from the sale of a portion of land in
Berg, Switzerland.
Net cash
used in financing activities was due to the maturity and redemption of our 1.0%
Convertible Subordinated Notes for $49.0 million partially offset by proceeds
from stock option exercises of $2.9 million.
Discontinued
Operations
Net cash
used in operating activities was primarily facility payments related to our
former Test business of $1.8 million.
Net cash
used in investing activities of $1.8 million was the result of the sale of our
Wire business.
Fiscal
2009
Continuing
Operations
Net cash
used in operating activities was primarily a result of a $63.6 million net loss
partially offset by other non-cash adjustments and increases in net working
capital. The net increase in working capital were primarily driven by changes in
income taxes payable, accounts receivable, and accounts
payable.
50
Net cash
used in investing activities of $51.5 million was primarily due to the purchase
of Orthodyne for $87.0 million and capital purchases of $5.3 million partially
offset by net changes in restricted cash of $34.7 million.
Net cash
used in financing activities was due to the purchase and retirement of our
convertible subordinated notes for $84.4 million partially offset by our sale of
8.0 million shares of our common stock for $38.7 million.
Discontinued
Operations
Net cash
used in operating activities was primarily facility payments related to our
former Test business of $1.8 million and $0.3 million of shutdown activities for
our former Wire business.
Net cash
provided by investing activities of $149.9 million was the result of the sale of
our Wire business.
Fiscal
2011 Liquidity and Capital Resource Outlook
We expect
our fiscal 2011 capital expenditures to be $13.0 to $14.0 million. Expenditures
are anticipated to be primarily used for the expansion of our manufacturing
operations infrastructure in Asia and various R&D projects.
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 and/or refinance 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 debt, consisting of Convertible Subordinated Notes, as
of October 2, 2010 and October 3, 2009:
In
accordance with ASC 820, we rely upon quoted market
prices.
(2)
We
determined our corporate rating was not necessary; therefore, our 0.875%
Convertible Subordinated Notes are not
rated.
The
following table reflects amortization expense related to issuance costs from our
Subordinated Convertible Notes for fiscal 2010, 2009, and 2008:
Fiscal
(in thousands)
2010
2009 *
2008 *
Amortization
expense related to issue costs
$
718
$
791
$
1,236
* As adjusted for ASC No.
470.20, Debt, Debt With
Conversion Options.
0.875%
Convertible Subordinated Notes
On
June 6, 2007, we issued $110.0 million aggregate principal amount of 0.875%
Convertible Subordinated Notes due 2012. Net proceeds from the issuance were
$106.4 million. Debt issuance costs of $3.6 million were incurred in
connection with the issuance of the 0.875% Convertible Subordinated Notes and
are amortized to expense over 60 months.
Holders
of the 0.875% Convertible Subordinated Notes may convert their notes based on an
initial conversion rate of approximately 69.6621 shares per $1,000 principal
amount of notes (equal to an initial conversion price of approximately $14.355
per share) only under specific circumstances. The initial conversion rate will
be adjusted for certain events.
1.00%
Convertible Subordinated Notes
During
fiscal 2010 our outstanding 1.0% Notes matured in June 2010 and were
redeemed.
During
fiscal 2009, we repurchased $3.0 million (face value) of our 1.0%
Convertible Subordinated Notes for net cash of $2.0 million and recognized a net
gain of $1.0 million. In addition during fiscal 2009, we conducted a tender
offer and purchased $13.0 million (face value) of our 1.0% Convertible
Subordinated Notes for net cash of $10.1 million and recognized a net gain of
$2.8 million, net of unamortized deferred financing costs.
52
0.50%
Convertible Subordinated Notes
During
fiscal 2009, we purchased in the open market $43.1 million (face value) of our
0.5% Convertible Subordinated Notes for net cash of $42.8 million. A net gain of
$0.2 million was recognized during fiscal 2009 related to these repurchases. The
remaining 0.5% Convertible Subordinated Notes matured November 2008 and were
redeemed.
In
addition during fiscal 2008, we purchased in the open market $4.0 million (face
value) of the outstanding notes for net cash of $3.8 million and recognized a
net gain of $0.2 million, net of unamortized deferred financing costs related to
these repurchases.
Other
Obligations and Contingent Payments
Under
GAAP, certain obligations and commitments are not required to be included in the
Consolidated Balance Sheets and Statements of Operations. These obligations and
commitments, while entered into in the normal course of business, may have a
material impact on our liquidity. Certain of the following commitments as of
October 2, 2010 are appropriately not included in the Consolidated Balance
Sheets and Statements of Operations included in this Form 10-K;
however, they have been disclosed in the following table for additional
information.
The
following table identifies obligations and contingent payments under various
arrangements as of October 2, 2010:
Payments due by fiscal period
Less than
1 - 3
3 - 5
More than
Due date not
(in
thousands)
Total
1
year
years
years
5
years
determinable
Contractual
Obligations:
Convertible
Subordinated Notes, par
value (1)
$
110,000
$
110,000
Current
and long-term liabilities:
Pension
plan obligations
4,659
$
4,659
Severance
5,169
$
2,947
281
1,941
Facility
accrual related to discontinued operations (Test)
3,061
1,734
1,327
Obligations
related to Chief Executive Officer
transition (2)
3,024
2,201
823
Operating
lease retirement obligations
2,226
140
669
$
622
$
795
Long-term
income taxes payable
1,968
1,968
Total
Obligations and Contingent Payments reflected on the Consolidated
Financial Statements
$
130,107
$
7,022
$
113,100
$
622
$
795
$
8,568
Contractual
Obligations:
Inventory
purchase obligations (3)
$
99,231
$
99,231
$
-
Operating
lease obligations (4)
32,596
8,710
$
11,846
$
5,295
$
6,745
Cash
paid for interest
1,926
963
963
Commercial
Commitments:
Standby
Letters of Credit (5)
95
95
Total
Obligations and Contingent Payments not reflected on the Consolidated
Financial Statements
$
133,848
$
108,999
$
12,809
$
5,295
$
6,745
$
-
(1) Does
not reflect debt discount of $11.5 million related to our 0.875%
Notes.
(2) In
connection with the September 2010 retirement of our Chief Executive Officer
(“CEO”), we entered into a three year consulting arrangement with him. 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. The significant increase in inventory purchase
obligations is attributable to anticipated higher sales.
53
(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).
(5) We provide
standby letters of credit which represent obligations in lieu of security
deposits for employee benefit programs and a customs bond.
Credit
Facility
On
September 29, 2010, Kulicke and Soffa Global Holding Corporation (“GHC”), our
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. There are
currently no outstanding amounts under the Facilities Agreement. The Facilities
Agreement contains customary representations and warranties and covenants for
agreements of this nature, including covenants that require GHC to maintain a
positive net worth and to maintain all of our material operating accounts with
DBS Bank Ltd, Singapore. Events of default under the Facilities Agreement
include: (i) the failure to make payments when due, (ii) breach of covenants,
(iii) breach of representations and warranties, (iv) insolvency, and (v) any
material adverse change in GHC or our financial condition which would affect
GHC’s ability to perform its obligations under the Facilities Agreement and the
related security documents. We have agreed to guarantee GHC’s obligations under
the Facilities Agreement pursuant to a Guaranty Agreement, dated as September29, 2010, by and between us and DBS Bank.
In
connection with the Facilities Agreement, on September 29, 2010, GHC and DBS
Bank entered into a Debenture, pursuant to which GHC granted a security interest
in substantially all of its assets, which include most of our consolidated
accounts receivable and inventory, to secure the obligations under the
Facilities Agreement.
Orthodyne
Earnout
On
October 3, 2008, we completed the acquisition of certain assets of 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”). A former owner of
Orthodyne was employed by us until his resignation on October 31, 2010. Payment
from the Earnout is not contingent upon his employment. As of October 2, 2010,
the maximum payout under the Earnout was $10.0 million; however, we estimated
that our maximum exposure would not exceed $2.8 million. As of October 2, 2010,
no Earnout was accrued.
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.
54
Item
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Interest
Rate Risk
As of
October 2, 2010, we held $3.0 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
Our
international operations are exposed to changes in foreign currency exchange
rates due to transactions denominated in currencies other than the location’s
functional currency. We are also exposed to foreign currency fluctuations that
impact the remeasurement of net monetary assets of those operations whose
functional currency, the U.S. dollar, differs from their respective local
currencies, most notably in Israel, Malaysia, Singapore and Switzerland. In
addition to net monetary remeasurement, we have exposures related to the
translation of subsidiary financial statements from their functional currency,
the local currency, into our reporting currency, the U.S. dollar, most notably
in China and Japan. Our U.S. operations also have foreign currency exposure due
to net monetary assets denominated in currencies other than the U.S.
dollar.
Based on
our overall currency rate exposure as of October 2, 2010, 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 $3.0 to $4.0 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.
Item
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The
consolidated financial statements of Kulicke and Soffa Industries, Inc. listed
in the index appearing under Item 15 (a)(1) herein are filed as part of this
Report under this Item 8.
55
Report
of Independent Registered Public Accounting Firm
To the
Board of Directors and Shareholders of Kulicke and Soffa Industries,
Inc.:
In our
opinion, the consolidated financial statements listed in the index appearing
under Item 15(a)(1) present fairly, in all material respects, the financial
position of Kulicke and Soffa Industries, Inc., and its subsidiaries (the
"Company") at October 2, 2010 and October 3, 2009, and the results of their
operations and their cash flows for each of the three years in the period ended
October 2, 2010 in conformity with accounting principles generally accepted in
the United States of America. In addition, in our opinion, the
financial statement schedule listed in the index appearing under Item
15(a)(2) presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. Also
in our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of October 2, 2010, based on
criteria established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). The Company's management is responsible
for these financial statements and financial statement schedule, for maintaining
effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting, included in
Management's Report on Internal Control Over Financial Reporting appearing under
Item 9A. Our responsibility is to express opinions on these financial
statements, on the financial statement schedule, and on the Company's internal
control over financial reporting based on our integrated audits. We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement and whether effective
internal control over financial reporting was maintained in all material
respects. Our audit of the financial statements included examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement
presentation. Our audit of internal control over financial reporting
included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on
the assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We believe that our
audits provide a reasonable basis for our opinions.
As
discussed in Note 6 to the consolidated financial statements, the Company
changed the manner in which it accounts for convertible debt instruments that
may be settled in cash upon conversion (including partial cash settlements) in
fiscal 2010.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that
(i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of
the company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and
(iii) provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
* As adjusted for ASC No.
470.20, Debt, Debt With
Conversion Options
(1)
Includes
continuing and discontinued operations (see Note
2).
The
accompanying notes are an integral part of these consolidated financial
statements.
60
KULICKE
AND SOFFA INDUSTRIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Consolidation
These
consolidated financial statements include the accounts of Kulicke and Soffa
Industries, Inc. and its subsidiaries (the “Company”), with appropriate
elimination of intercompany balances and transactions.
As of
October 4, 2009, the Company adopted Financial Accounting Standards Board
(“FASB”) Accounting Standards Codification (“ASC”) No. 470.20, Debt, Debt With Conversion
Options (“ASC 470.20”), which requires issuers of convertible debt
instruments that may be settled in cash upon conversion to initially record the
liability and equity components of the convertible debt separately. The Company
adopted the provisions of ASC 470.20 on a retrospective basis for all prior
periods presented (see Note 6).
On
October 3, 2008, the Company completed the acquisition of substantially all of
the assets and assumption of certain liabilities of Orthodyne Electronics
Corporation (“Orthodyne”). In connection with the Orthodyne acquisition, the
Company issued 7.1 million common shares with an estimated value on that date of
$46.2 million and paid $87.0 million in cash including capitalized acquisition
costs.
On
September 29, 2008, the Company completed the sale of its Wire business for net
proceeds of $149.9 million to W.C. Heraeus GmbH (“Heraeus”). The financial
results of the Wire business have been included in discontinued operations in
the consolidated financial statements for all periods presented (see Note
2).
Fiscal
Year
Each of
the Company’s first three fiscal quarters ends on the Saturday that is 13 weeks
after the end of the immediately preceding fiscal quarter. The fourth quarter of
each fiscal year ends on the Saturday closest to September 30th. In fiscal
years consisting of 53 weeks, the fourth quarter will consist of 14 weeks. The
fiscal year end for 2010, 2009 and 2008 ended on October 2, 2010, October 3,2009 and September 27, 2008, respectively.
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 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.
Management
Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles (“GAAP”) requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. The more significant areas involving the use of estimates in these
financial statements include, but are not limited to, those related to accounts
receivable, reserves for excess and obsolete inventory, carrying value and lives
of fixed assets, goodwill and intangible assets, valuation allowances for
deferred tax assets and deferred tax liabilities, repatriation of un-remitted
foreign subsidiary earnings, equity-based compensation expense, restructuring,
and warranties. The Company estimates on historical experience and on various
other assumptions that it believes to be reasonable. As a result, the Company
makes judgments regarding the carrying values of its assets and liabilities that
are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.
61
Vulnerability
to Certain Concentrations
Financial
instruments which may subject the Company to concentrations of credit risk as of
October 2, 2010 and October 3, 2009 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.
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 OSATs to manufacture many of these components and
subassemblies and it relies on sole source suppliers for some important
components and raw material inventory.
The
Company is also exposed to foreign currency fluctuations that impact the
remeasurement of the net monetary assets of those operations whose functional
currencies differ from their respective local currencies, most notably in
Israel, Malaysia, Singapore and Switzerland. In addition to operations in these
countries, Japan and China have exposure related to the translation of their
financial statements from their respective functional currencies to 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 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).
Cash Equivalents
The
Company considers all highly liquid investments with original maturities of
three months or less when purchased to be cash equivalents.
Investments
Investments,
other than cash equivalents, are classified as “trading,”“available-for-sale”
or “held-to-maturity”, in accordance with ASC No. 820, Investments-Debt & Equity
Securities (“ASC 820”), and depending upon the
nature of the investment, its ultimate maturity date in the case of debt
securities, and management’s intentions with respect to holding the securities.
Investments classified as “trading” are reported at fair market value, with
unrealized gains or losses included in earnings. Investments classified as
“available-for-sale” are reported at fair market value, with net unrealized
gains or losses reflected as a separate component of shareholders’ equity
(accumulated other comprehensive income (loss)). The fair market value of
trading and available-for-sale securities is determined using quoted market
prices at the balance sheet date. Investments classified as held-to-maturity are
reported at amortized cost. Realized gains and losses are determined on the
basis of specific identification of the securities sold.
62
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, market conditions and the next cyclical market upturn. If actual market
conditions are less favorable than projections, additional inventory reserves
may be required.
Property,
Plant and Equipment
Property,
plant and equipment are carried at cost. The cost of additions and those
improvements which increase the capacity or lengthen the useful lives of assets
are capitalized while repair and maintenance costs are expensed as incurred.
Depreciation and amortization are provided on a straight-line basis over the
estimated useful lives as follows: buildings 25 to 40 years; machinery and
equipment 3 to 10 years; and leasehold improvements are based on the shorter of
the life of lease or life of asset. Purchased computer software costs related to
business and financial systems are amortized over a five year period on a
straight-line basis.
Valuation
of Long-Lived Assets
The
Company's long-lived assets are primarily property, plant, intangible assets and
equipment and goodwill. In accordance with the provisions of ASC No. 350, Intangibles, Goodwill and
Other ("ASC 350") goodwill is not amortized. ASC 350 also requires that,
at least annually, an impairment test be performed to support the carrying value
of goodwill. In addition, whenever events occur that would more likely than not
reduce the fair value of reporting unit below its carrying amount, a goodwill
impairment test will be performed. The fair value of the Company's goodwill is
based upon estimates of future cash flows and other factors.
In
accordance with ASC No. 360, Property, Plant &
Equipment ("ASC 360"), the Company's property, plant and equipment is
tested for impairment based on undiscounted cash flows when triggering events
occur, and if impaired, written-down to fair value based on either discounted
cash flows or appraised values. ASC 360 also provides a single accounting model
for long-lived assets to be disposed of by sale and establishes additional
criteria that would have to be met to classify an asset as held for sale. The
carrying amount of an asset or asset group is not recoverable if it exceeds the
sum of the undiscounted cash flows expected to result from the use and eventual
disposition of the asset or asset group. Estimates of future cash flows used to
test the recoverability of a long-lived asset or asset group must incorporate
the entity's own assumptions about its use of the asset or asset group and must
factor in all available evidence.
ASC 360
requires that long-lived assets be tested for recoverability whenever events or
changes in circumstances indicate that their carrying amount may not be
recoverable. Such events include significant under-performance relative to the
expected historical or projected future operating results; significant changes
in the manner of use of the assets; significant negative industry or economic
trends and significant changes in market capitalization.
63
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.
Research
and Development
The
Company charges research and development costs associated with the development
of new products to expense when incurred. In certain circumstances,
pre-production machines which the Company intends to sell are carried as
inventory until sold.
Income Taxes
Deferred
income taxes are determined using the liability method in accordance
with 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.
Equity-Based
Compensation
The
Company accounts for equity-based compensation under the provisions of ASC No.
718, Compensation, Stock
Compensation (“ASC 718”). ASC 718 requires the recognition of the fair
value of the equity-based compensation in net income. The fair value of the
Company’s stock option awards are estimated using a Black-Scholes option
valuation model. Compensation expense associated with market-based restricted
stock is determined using a Monte-Carlo valuation model, and compensation
expense associated with time-based and performance-based restricted stock is
determined based on the number of shares granted and the fair value on the date
of grant. In addition, the calculation of equity-based compensation costs
requires that the Company estimate the number of awards that will be forfeited
during the vesting period. The fair value of equity-based awards is amortized
over the vesting period of the award and the Company elected to use the
straight-line method for awards granted after the adoption of ASC
718.
64
Earnings
per Share
Earnings
per share (“EPS”) are calculated in accordance with ASC No. 260, Earnings per Share. Basic
EPS include only the weighted average number of common shares outstanding during
the period. Diluted EPS includes the weighted average number of common shares
and the dilutive effect of stock options, restricted stock and share unit awards
and convertible subordinated notes outstanding during the period, when such
instruments are dilutive.
In
accordance with ASC No. 260.10.55, Earnings per Share - Implementation
& Guidance (“ASC 260.10.55”), the Company treats all outstanding
unvested share-based payment awards that contain rights to nonforfeitable
dividends as participating in undistributed earnings with common shareholders.
Awards of this nature are considered participating securities and the two-class
method of computing basic and diluted EPS must be applied. The Company adopted
ASC 260.10.55 on October 4, 2009 and has retrospectively adjusted prior period
earnings per share (see Note 10).
NOTE
2: DISCONTINUED OPERATIONS
On
September 29, 2008, the Company completed the sale of certain assets and
liabilities associated with its Wire business. The Company recognized net
proceeds of $149.9 million and a net gain of $22.7 million, net of tax, during
fiscal 2009. The Company did not recognize any income or loss from discontinued
operations during fiscal 2010.
The
following table reflects operating results of the Wire business discontinued
operations for fiscal 2009 and 2008:
Fiscal
(in thousands)
2009
2008
Net
revenue
$
-
$
423,971
Income
(loss) before tax
$
(319
)
$
23,690
Gain
on sale of Wire business before tax
23,026
-
Income
from discontinued operations before tax
22,707
23,690
Income
tax expense
(696
)
(249
)
Income
from discontinued operations, net of tax
$
22,011
$
23,441
The
following table reflects cash flows associated with the Company’s discontinued
operations for fiscal 2010, 2009 and 2008:
Fiscal
(in thousands)
2010
2009
2008
Cash
flows provided by (used in):
Operating
activities: Wire business
$
-
$
(319
)
$
2,680
Operating
activities: Test business (sold fiscal 2006) (1)
(1,839
)
(1,797
)
(1,554
)
Operating
cash flows from discontinued operations
$
(1,839
)
$
(2,116
)
$
1,126
Investing
activities: Wire business (2)
(1,838
)
149,857
(193
)
Net
cash provided by discontinued operations
$
(3,677
)
$
147,741
$
933
(1)
Represents
facility-related costs associated with the Company’s former Test
operations which will continue until fiscal
2012.
(2)
Fiscal
2010 amount represents final settlement of working capital adjustments
with Heraeus.
65
NOTE
3: 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 will be transferred to the
Company's manufacturing facilities in Kuala Lumpur, Malaysia and Singapore.
Certain administrative functions will also be transferred to Malaysia and
Singapore. Management determined that it was in the best interests of the
Company to reduce costs by migrating production and certain administrative
functions from California to Asia.
With
respect to the California-based wedge bonder transfer to Asia, the Company
anticipates $1.1 million of additional pre-tax expense, which will consist of
$0.8 million of severance and $0.3 million of retention costs. The Company
expects substantially all of this expense to be incurred by the end of the
second fiscal quarter of 2011, with corresponding cash payments to be incurred
from the second fiscal quarter of 2011 until the end of fiscal 2012.
In fiscal
2009, the Company committed to a plan to reduce its Israel-based workforce by
approximately 155 employees by the end of fiscal 2010. This workforce reduction
plan was a result of substantially all of the Company’s Israel-based
manufacturing has been transferred to the Company’s manufacturing facilities in
Suzhou, China. As part of the Israel-based manufacturing transition to China, in
January 2010, the Company sold its facility in Israel and simultaneously entered
into an agreement to leaseback a portion of the building for five years with an
option to extend the lease. The Company realized a $0.7 million gain on the sale
which is being recognized over the five year lease term.
During
fiscal 2009, the Company committed to a plan and reduced its global workforce by
approximately 490 employees. These workforce reductions represented
approximately 20% of total employees and were completed to minimize cash usage
and reduce employee compensation costs.
The
following table reflects severance activity for fiscal 2010 and
2009:
Fiscal
(in thousands)
2010
2009
Accrual
for estimated severance and benefits, beginning of period
$
2,413
$
-
Provision
for severance and benefits: Equipment segment (1)
1,400
4,598
Provision
for severance and benefits: Expendable Tools segment (1)
921
2,804
Provision
for severance and benefits required by local law (2)
-
1,035
Payment
of severance and benefits
(2,339
)
(6,024
)
Accrual
for estimated severance and benefits, end of period
(3)
$
2,395
$
2,413
(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 Company had previously recorded approximately $1.0 million related to
severance and benefits as required by local law.
(3) The
accrual for estimated severance as of October 2, 2010 and October 3, 2009 was
included within accrued expenses and other current liabilities and other
liabilities on the Consolidated Balance Sheet. In addition to these
restructuring amounts, the Company has other severance obligations included
within accrued expenses and other current liabilities and other liabilities on
the Consolidated Balance Sheet.
As
business has recovered during fiscal 2010 from the fiscal 2009 global economic
downturn and demand for the Company’s products increased, the Company increased
its number of employees primarily related to manufacturing. The Company expects
to continue to consolidate certain of its operations from the United States and
other areas to Asia.
66
NOTE
4: BALANCE SHEET COMPONENTS
The
following tables reflect the components of significant balance sheet accounts as
of October 2, 2010 and October 3, 2009:
Short-term
facility accrual related to discontinued operations (Test)
1,734
1,839
Other
5,424
9,613
$
41,498
$
32,576
(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 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 fiscal 2010 or
2009.
(2) During fiscal
2010, the Company sold its facility in Yokneam, Israel for $4.5 million. Net
proceeds of $3.9 million were received and $0.5 million is held in escrow for
taxes. Simultaneous with the sale, the Company entered into an agreement to
leaseback a portion of the building for five years with an option to extend the
lease. The Company realized a $0.7 million gain on the sale which is being
recognized over the five year lease term. In addition during fiscal 2010, the
Company sold a portion of its land in Berg, Switzerland for net proceeds of $0.7
million. Approximately $6.7 million of fully depreciated property, plant and
equipment were written off during fiscal 2010 since the assets were no longer in
use.
(3)
Includes $1.0 million of accrued bonus and relocation payments in accordance
with the employment agreement for the Company’s recently hired Chief Executive
Officer (“CEO”).
(5) Total
severance payable within the next twelve months includes restructuring plan
discussed in Note 3 and approximately $0.8 million of other severance not part
of the Company’s cost reduction plan.
67
(6)
Fiscal 2010 include $0.3 million of accrued consulting and $0.9 million of
liability classified equity-based compensation expenses in connection
with the September 2010 retirement of the Company’s CEO. An additional, $0.6
million of accrued consulting and $0.2 million of liability classified
equity-based compensation expenses are recorded in Other Liabilities related to
the long term portion of his agreement (see Note 7).
(7)
Fiscal 2009 amount related to certain open working capital adjustments with
Heraeus, which were settled in fiscal 2010.
NOTE
5: 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. During fiscal 2009, due to the earlier than
anticipated end of product life cycle for the Company’s EasyLine and SwissLine
die bonders, the Company concluded there was a triggering event and tested
long-lived assets for impairment. The Company concluded there was no impairment
for long-lived assets tested under ASC 360 on an undiscounted basis. However,
when conducting its goodwill impairment analysis, the Company calculated its
potential impairment charges based on the two-step test identified in ASC 350
using the estimated fair value of the respective reporting unit. The Company
uses the present value of future cash flows from the respective reporting units
to determine the estimated fair value of the reporting unit and the implied fair
value of goodwill. As a result, the Company recorded a non-cash impairment
charge of $2.7 million and reduced the value of the die bonder goodwill to
zero.
During
fiscal 2009, the Company recorded a $2.7 million impairment charge related
to its die bonder goodwill.
68
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.
In
accordance with ASC 820, the Company relies
upon observable market data such as its common stock price,
interest rates, and other market
factors.
0.875%
Convertible Subordinated Notes
Holders
of the 0.875% Convertible Subordinated Notes may convert their notes based on an
initial conversion rate of approximately 69.6621 shares per $1,000 principal
amount of notes (equal to an initial conversion price of approximately $14.355
per share) only under specific circumstances. The initial conversion rate will
be adjusted for certain events. The Company presently intends to satisfy any
conversion of the 0.875% Convertible Subordinated Notes with cash up to the
principal amount of the 0.875% Convertible Subordinated Notes and, with respect
to any excess conversion value, with shares of its common stock. The Company has
the option to elect to satisfy the conversion obligations in cash, common stock
or a combination thereof.
The
0.875% Convertible Subordinated Notes will not be redeemable at the Company’s
option. Holders of the 0.875% Convertible Subordinated Notes will not have the
right to require the Company to repurchase their 0.875% Convertible Subordinated
Notes prior to maturity except in connection with the occurrence of certain
fundamental change transactions. The 0.875% Convertible Subordinated Notes may
be accelerated upon an event of default as described in the Indenture and will
be accelerated upon bankruptcy, insolvency, appointment of a receiver and
similar events with respect to the Company.
As of
October 4, 2009, the Company adopted ASC 470.20, which requires that issuers of
convertible debt that may be settled in cash upon conversion record the
liability and equity components of the convertible debt separately. The Company
estimated the liability component of its 0.875% Convertible Subordinated Notes
by assessing the fair value of debt instruments without an associated equity
component issued by companies with similar credit ratings and terms at the time
the Company’s 0.875% Convertible Subordinated Notes were issued. The effective
interest rate for non-convertible debt with similar credit ratings and terms was
estimated to be 7.85%. The Company determined the fair value of the equity
component of the embedded conversion option by deducting the fair value of the
liability component from the initial proceeds of the convertible debt
instrument. The debt discount will be amortized under the effective interest
method from the original issue date. The Company determined the portion of
issuance costs associated with the equity component of the 0.875% Convertible
Subordinated Notes was $1.0 million. The issuance costs are amortized under the
effective interest method from the original issue date.
70
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.
The
following tables reflect the effect of the change due to ASC 470.20 on the
Consolidated Statements of Operations for fiscal 2009 and 2008:
(in thousands)
As reported
As adjusted
Effect of
change
Fiscal
2009:
Interest
expense
$
2,601
$
8,188
$
5,587
Loss
from continuing operations before taxes
(71,054
)
(76,641
)
(5,587
)
Benefit
for income taxes
(13,029
)
(13,029
)
-
Loss
from continuing operations
$
(58,025
)
$
(63,612
)
$
(5,587
)
Diluted
loss per share from continuing operations
$
(0.93
)
$
(1.02
)
$
(0.09
)
Fiscal
2008:
Interest
expense
$
3,499
$
8,601
$
5,102
Loss
from continuing operations before taxes
(23,229
)
(28,331
)
(5,102
)
Benefit
for income taxes
(3,610
)
(3,610
)
-
Loss
from continuing operations
$
(19,619
)
$
(24,721
)
$
(5,102
)
Diluted
loss per share from continuing operations
$
(0.37
)
$
(0.46
)
$
(0.09
)
The
following table reflects the effect of the change due to ASC 470.20 on the
Consolidated Balance Sheet as of October 3, 2009:
As reported
As adjusted
Effect of
change
(in
thousands)
Other
assets (debt issuance costs)
$
6,215
$
5,774
$
(441
)
Total
assets
413,076
412,635
(441
)
Long-term
debt
110,000
92,217
(17,783
)
Total
liabilities
259,615
241,832
(17,783
)
Common
stock
383,417
413,092
29,675
Accumulated
deficit
(185,479
)
(197,812
)
(12,333
)
Total
shareholders' equity
153,461
170,803
17,342
Total
liabilities and shareholders' equity
413,076
412,635
(441
)
71
The
following tables reflect the effect of the change due to ASC 470.20 on the
Consolidated Statement of Cash Flows for fiscal 2009 and 2008:
(in thousands)
As reported
As adjusted
Effect of
change
Fiscal
2009:
Net
loss
$
(36,014
)
$
(41,601
)
$
(5,587
)
Loss
from continuing operations
(58,025
)
(63,612
)
(5,587
)
Amortization
of debt discount and debt issuance costs
1,006
6,593
5,587
Net
cash used in continuing operations
(51,406
)
(51,406
)
-
Fiscal
2008:
Net
income (loss)
$
3,822
$
(1,280
)
$
(5,102
)
Loss
from continuing operations
(19,619
)
(24,721
)
(5,102
)
Amortization
of debt discount and debt issuance costs
1,514
6,616
5,102
Net
cash provided by continuing operations
26,936
26,936
-
The
following table reflects amortization expense related to issue costs from the
Company’s Convertible Subordinated Notes for fiscal 2010, 2009, and
2008:
Fiscal
(in thousands)
2010
2009 *
2008 *
Amortization
expense related to issue costs
$
718
$
791
$
1,236
* As
adjusted for ASC No. 470.20,
Debt, Debt With Conversion Options.
The
Company had no purchases of its Convertible Subordinated Notes during fiscal
2010. The following table reflects the Company’s repurchase of its Subordinated
Convertible Notes for fiscal 2009 and 2008:
Fiscal
(in thousands)
2009
2008
0.5%
Convertible Subordinated Notes (1):
Face
value purchased
$
43,050
$
4,000
Net
cash
42,839
3,815
Deferred
financing costs
18
15
Recognized
gain, net of deferred financing costs
193
170
1.0%
Convertible Subordinated Notes: (2)
Face
value purchased
$
16,036
$
-
Net
cash
12,158
-
Deferred
financing costs
106
-
Recognized
gain, net of deferred financing costs
3,772
-
Gain
on early extinguishment of debt
$
3,965
$
170
(1)
Fiscal
2009 repurchase transactions occurred prior to redemption on November 30,2008.
(2)
Activity
during fiscal 2009 reflects repurchases pursuant to a tender
offer.
72
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. There are
currently no outstanding amounts under the Facilities Agreement. The Facilities
Agreement contains customary representations and warranties and covenants for
agreements of this nature, including covenants that require GHC to maintain a
positive net worth and to maintain all of its material operating accounts with
DBS Bank Ltd, Singapore. Events of default under the Facilities Agreement
include: (i) the failure to make payments when due, (ii) breach of covenants,
(iii) breach of representations and warranties, (iv) insolvency, and (v) any
material adverse change in GHC or the Company’s financial condition which would
affect GHC’s ability to perform its obligations under the Facilities Agreement
and the related security documents. The Company has agreed to guarantee GHC’s
obligations under the Facilities Agreement pursuant to a Guaranty Agreement,
dated as September 29, 2010, by and between the Company and DBS
Bank.
In
connection with the Facilities Agreement, on September 29, 2010, GHC and DBS
Bank entered into a Debenture, pursuant to which GHC granted a security interest
in substantially all of its assets, which include most of the Company’s
consolidated accounts receivable and inventory, to secure the obligations under
the Facilities Agreement.
NOTE
7: SHAREHOLDERS' EQUITY
Common
Stock
The
Company’s matching contributions to the 401(k) retirement income plan are made
in the form of issued and contributed shares of Company common stock (see Note
8).
As of
October 4, 2009, the Company adopted ASC 470.20 and accordingly common stock
includes the equity component of the Company’s 0.875% Convertible Subordinated
Notes (see Note 6).
In August
2009, the Company sold 8.0 million shares of its common stock in an underwritten
public offering for net proceeds of $38.7 million.
On
October 3, 2008, the Company completed the acquisition of substantially all of
the assets and assumption of certain liabilities of Orthodyne Electronics
Corporation (“Orthodyne”). In connection with the Orthodyne acquisition, the
Company issued 7.1 million common shares with an estimated value on that date of
$46.2 million and paid $87.0 million in cash including capitalized acquisition
costs.
Treasury
Stock
During
fiscal 2009 in connection with the exercise of employee stock options, the
Company repurchased 44,000 shares of its common stock for $0.2
million.
73
Accumulated
Other Comprehensive Income
The
following table reflects accumulated other comprehensive income reflected on the
Consolidated Balance Sheets as of October 2, 2010 and October 3,2009:
Gain
from foreign currency translation adjustments
$
1,767
$
746
Unrecognized
actuarial net gain (loss), Switzerland pension plan, net of
tax
(588
)
1,521
Switzerland
pension plan curtailment
(388
)
(388
)
Accumulated
other comprehensive income
$
791
$
1,879
The
following table reflects the components of comprehensive income (loss) for
fiscal 2010 and 2009:
Fiscal
(in thousands)
2010
2009 *
Net
income (loss) (1)
$
142,142
$
(41,601
)
Gain
(loss) from foreign currency translation adjustments
1,021
(151
)
Unrealized
gain on investments, net of tax
-
16
Unrecognized
actuarial net gain (loss), Switzerland pension plan, net of
tax
(2,109
)
193
Switzerland
pension plan curtailment
-
(388
)
Other
comprehensive income (loss)
$
(1,088
)
$
(330
)
Comprehensive
income (loss)
$
141,054
$
(41,931
)
* As adjusted for ASC No.
470.20, Debt, Debt With
Conversion Options
(1) Net
income (loss) includes continuing and discontinued operations.
Equity-Based
Compensation
As of
October 2, 2010, 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 October 2, 2010, the Company’s one
active plan, the 2009 Equity Plan, has 6.8 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.
74
·
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
fiscal 2010, 2009 and 2008 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
following table reflects equity-based compensation expense, which includes
restricted stock, stock options and common stock, for fiscal 2010, 2009 and
2008:
Fiscal
(in thousands)
2010
2009
2008
Cost
of sales
$
207
$
64
$
252
Selling,
general and administrative (1)
5,846
649
3,711
Research
and development
1,512
674
1,442
Equity-based
compensation expense
$
7,565
$
1,387
$
5,405
The
following table reflects equity-based compensation expense (reversal of
expense), by type of award, for fiscal 2010, 2009 and 2008:
Fiscal
(in thousands)
2010
2009
2008
Market-based
restricted stock (1)
$
1,996
$
-
$
-
Time-based
restricted stock
2,161
672
-
Performance-based
restricted stock (1) (2)
2,029
(1,546
)
946
Stock
options
659
1,721
3,739
Common
stock
720
540
720
Equity-based
compensation expense
$
7,565
$
1,387
$
5,405
(1)
Fiscal 2010 SG&A expense includes $1.2 million ($0.9 million
market-based and $0.3 million performance-based) of liability classified equity
compensation expense related to the retired 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 February 2012
and July 2011, respectively. An accrual for estimated deferred cash
payments measured at fair value as of October 2, 2010 was included within
accrued expenses and other current liabilities and other liabilities on the
Consolidated Balance Sheet.
(2)
As the global economy improved from prior year levels during fiscal 2010, the
Company determined performance objectives for the performance-based restricted
stock issued in fiscal 2008 and 2007 would improve. Accordingly, estimated
attainment percentages increased and total compensation expense for the
performance-based restricted stock also increased during fiscal 2010. During
fiscal 2009 in connection with the global economic decline, the Company
determined performance objectives for the performance-based restricted stock
issued in fiscal 2008 and 2007 would not be attained at the previous estimated
levels.
No
performance-based restricted stock was issued during fiscal 2010. The following
table reflects the assumptions used to calculate compensation expense related to
the Company’s performance-based restricted stock issued during fiscal 2009 and
2008:
Performance-based
restricted stock outstanding as of October 3, 2009
1,013
242
1.8
Granted
-
Forfeited
or expired
(387
)
Performance-based
restricted stock outstanding as of October 2, 2010
626
$
228
0.2
No
performance-based restricted stock vested during fiscal 2010, 2009 or
2008.
77
Equity-Based
Compensation: employee stock options
The
following table reflects the weighted-average assumptions for the Black-Scholes
option pricing model used to estimate the fair value of stock options granted
for fiscal 2010, 2009 and 2008:
Fiscal
2010
2009
2008
Expected
dividend yield
NA
NA
NA
Expected
stock price volatility
61.64
%
51.18
%
51.18
%
Risk-free
interest rate
2.22
%
2.70
%
4.24
%
Expected
life (in years)
5
5
5
Weighted-average
fair value at grant date
$
3.18
$
1.61
$
4.05
Expected
volatility for 2010 and 2009 was based on historical volatility. Expected
volatility for fiscal 2008 was based upon historical volatility, implied
volatility of the Company’s market traded options, and the implied volatility of
the convertible feature of the Company’s convertible debt securities. The
risk-free interest rate was calculated using the U.S. Treasury yield curves in
effect at the time of grant, commensurate with the expected life of the
options.
The
following table reflects employee stock option activity for fiscal 2010, 2009
and 2008:
On
average, 15% of stock options granted by the Company become vested each year,
and on average, 19% of stock options granted by the Company are forfeited each
year. Intrinsic value of stock options exercised is determined by calculating
the difference between the market value of the Company’s stock price at the time
an option is exercised and the exercise price, multiplied by the number of
shares. The intrinsic value of stock options outstanding and stock options
exercisable is determined by calculating the difference between the Company’s
closing stock price on the last trading day of fiscal 2010 and the exercise
price of in-the-money stock options, multiplied by the number of underlying
shares. During fiscal 2010, the Company received $2.9 million in cash from the
exercise of stock options.
As of
October 2, 2010, total unrecognized compensation cost related to unvested
employee stock options was $0.2 million, which will be amortized over the
weighted average remaining service period of approximately 2.2 years.
78
The
following table reflects outstanding and exercisable employee stock options as
of October 2, 2010:
Options Outstanding
Options Exercisable
Range of
exercise prices
Options outstanding
(in thousands)
Weighted average
remaining contractual life
(in years)
Weighted average
exercise price
Options exercisable
(in thousands)
Weighted average
exercise price
$2.95
or less
102
2.7
$
2.77
91
$
2.95
$3.06
- $7.31
852
4.9
6.62
702
7.11
$7.84
- $8.50
495
6.0
8.47
495
8.47
$8.57
- $8.74
644
6.9
8.72
623
8.72
$9.64
- $10.07
72
1.9
10.01
70
10.02
$12.05
- $16.12
1,145
1.5
13.97
1,145
13.97
3,310
4.2
$
9.80
3,126
$
10.10
Equity-Based
Compensation: non-employee directors
The 2007
Equity Plan for Non-Employee Directors (the “2007 Plan”) provides for the grant
of common shares to each non-employee director upon initial election to the
board and on the first business day of each calendar quarter while serving on
the board. The grant to a non-employee director upon initial election to the
board, and each quarterly grant, is that number of common shares closest in
value to, without exceeding, $30,000. For the second, third and fourth quarters
of fiscal 2009, in light of the Company’s historically low stock price, the
non-employee directors reduced their quarterly stock grant to be that number of
common shares closest in value to, without exceeding $20,000.
The
following table reflects shares of common stock issued to non-employee directors
and the corresponding fair value for fiscal 2010, 2009 and 2008:
Fiscal
(in
thousands)
2010
2009
2008
Number
of commons shares issued
114
181
107
Fair
value based upon market price at time of issue
$
720
$
540
$
720
79
The
following table reflects non-employee director stock option activity for fiscal
2010, 2009 and 2008:
No
non-employee director stock options were granted during fiscal 2010, 2009 or
2008.
NOTE
8: EMPLOYEE BENEFIT PLANS
401(k)
Retirement Income Plan
The
Company has a 401(k) retirement income plan (the “Plan”) for its
employees. During the first quarter of fiscal 2010, the Plan was modified
to allow for employee contributions and matching Company contributions up to 4%
or 6% of the employee’s contributed amount based upon years of service. During
fiscal 2009 and prior years, the Plan allowed for employee contributions and
matching Company contributions in varying percentages, ranging from 50% to
175% up to 6% of the employee’s contributed amount based upon employee age
and years of service.
The
following table reflects the Company’s matching contributions to the 401(k)
retirement income plan which were made in the form of issued and contributed
shares of Company common stock for fiscal 2010 and 2009:
Fiscal
(in thousands)
2010
2009
Number
of common shares
212
357
Fair
value based upon market price at date of distribution
$
1,384
$
811
Pension
Plans
On a
consolidated basis, pension expense was $3.4 million, $0.4 million, and $10.7
million in fiscal 2010, 2009 and 2008, respectively. The total defined benefit
pension liability was $4.7 million and $2.3 million at October 2, 2010 and
October 3, 2009, respectively.
Fiscal
2010 pension expense included a charge driven by a current year increase in the
Company’s pension obligation due to higher current year compensation and
retirement of certain sales representatives in Taiwan. In accordance with
regulations in Taiwan, the Company sponsors a Taiwan defined-benefit retirement
plan covering regular employees hired prior to July 1, 2005. An employee may
apply for voluntary retirement under certain specified situations. The Taiwan
net pension plan liability was $1.3 million as of October 2,2010.
80
In
accordance with regulations in Switzerland, the Company sponsors a Switzerland
pension plan covering active employees whose minimum benefits are guaranteed.
During fiscal 2009, the Company reduced its Switzerland workforce by
approximately 70 employees, which triggered a curtailment of the
Switzerland pension plan under ASC No. 715, Topic 30, Compensation – Retirement Benefits,
Defined Benefit Plans. As a result during fiscal 2009,
the Company recognized a pretax curtailment and settlement gain of $1.4
million. The Switzerland net pension plan liability was $3.4 million as of
October 2, 2010.
Fiscal
2008 included U.S. pension plan expense of $9.2 million, which related to the
February 2007 termination of the Company’s U.S. non-contributory defined benefit
pension plan which had been frozen since December 31, 1995.
Other
Plans
Some of
the Company’s other foreign subsidiaries have retirement plans that are
integrated with and supplement the benefits provided by laws of the various
countries. These other plans are not required to report nor do they determine
the actuarial present value of accumulated benefits or net assets available for
plan benefits.
NOTE
9: OTHER FINANCIAL DATA
The
following table reflects other financial data for fiscal 2010, 2009 and
2008:
Fiscal
(in thousands)
2010
2009
2008
Selling,
general and administrative incentive compensation expense
$
17,449
$
2,740
$
2,167
Rent
expense
$
6,662
$
6,218
$
5,057
Warranty
and retrofit expense
$
4,225
$
2,567
$
1,840
NOTE
10: 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 October 2, 2010 and October 3, 2009.
Accordingly, diluted EPS excludes the effect of the conversion of the 0.875%
Convertible Subordinated Notes.
81
The
following tables reflect reconciliations of the shares used in the basic and
diluted net income (loss) per share computation for fiscal 2010, 2009 and
2008:
Fiscal
(in thousands, except per share data)
2010
2009
*
2008
*
NUMERATOR:
Basic
Diluted
Basic
Diluted
Basic
Diluted
Income
(loss) from continuing operations, net of tax
$
142,142
$
142,142
$
(63,612
)
$
(63,612
)
$
(24,721
)
$
(24,721
)
Less:
income applicable to participating securities
(1,516
)
(1,516
)
-
-
(1)
-
-
(1)
After-tax
interest expense
n/a
272
n/a
-
(1)
n/a
-
(1)
Income
(loss) applicable to common shareholders
$
140,626
$
140,898
$
(63,612
)
$
(63,612
)
$
(24,721
)
$
(24,721
)
DENOMINATOR:
Weighted
average shares outstanding - Basic
70,012
70,012
62,188
62,188
53,449
53,449
Stock
options
156
-
(1)
-
(1)
Performance-based
restricted stock
110
-
(1)
-
(1)
Time-based
restricted stock
247
-
(1)
-
(1)
Market-based
restricted stock
195
n/a
n/a
1.000
% Convertible Subordinated Notes
2,828
-
(1)
-
(1)
0.875
% Convertible Subordinated Notes
n/a
n/a
n/a
Weighted
average shares outstanding - Diluted (2)
73,548
62,188
53,449
EPS:
Income
(loss) per share from continuing operations - Basic
$
2.01
$
2.01
$
(1.02
)
$
(1.02
)
$
(0.46
)
$
(0.46
)
Effect
of dilutive shares
$
(0.09
)
$
-
(1)
$
-
(1)
Income
(loss) per share from continuing operations - Diluted
$
1.92
$
(1.02
)
$
(0.46
)
* As
adjusted for ASC No. 470.20,
Debt, Debt With Conversion Options.
(1)
Due to the Company’s loss from continuing operations for the period, the effect
of participating securities was excluded from the computation of basic and
diluted EPS, and the conversion of convertible subordinated notes and the
related after-tax interest expense was not assumed since the effect would have
been anti-dilutive. In addition, due to the Company’s loss from continuing
operations, potentially dilutive shares were not assumed since the effect would
have been anti-dilutive.
(2)
Fiscal 2009 exclude 69 dilutive participating securities as the income
attributable to these shares was not included in EPS.
82
The
following table reflects the number of potentially dilutive shares which were
excluded from diluted EPS, as their inclusion was anti-dilutive for fiscal 2010,
2009 and 2008:
Fiscal
2010
2009
2008
(in
thousands)
Potentially
dilutive shares related to:
Stock
options, out of the money
2,612
5,982
7,033
Stock
options, in the money but excluded due to the Company's net
loss
-
31
253
Performance-based
and time-based restricted stock
-
69
91
Convertible
Subordinated Notes
-
4,625
8,624
2,612
10,707
16,001
NOTE
11: INCOME TAXES
The
following table reflects income (loss) from continuing operations before income
taxes for fiscal 2010, 2009 and 2008:
Fiscal
(in thousands)
2010
2009 *
2008 *
United
States operations
$
(7,061
)
$
(35,380
)
$
(943
)
Foreign
operations
147,166
(41,261
)
(27,388
)
Total
$
140,105
$
(76,641
)
$
(28,331
)
* As
adjusted for ASC No.
470.20, Debt, Debt With
Conversion Options.
The
following table reflects the provision (benefit) for income taxes from
continuing operations for fiscal 2010, 2009 and 2008:
Fiscal
(in thousands)
2010
2009 *
2008 *
Current:
Federal
$
710
$
(263
)
$
3
State
594
150
78
Foreign
1,394
(6,110
)
(540
)
Deferred:
Federal
247
354
(2,993
)
State
548
41
(411
)
Foreign
(5,530
)
(7,201
)
253
Total
$
(2,037
)
$
(13,029
)
$
(3,610
)
* As
adjusted for ASC No.
470.20, Debt, Debt With
Conversion Options.
83
The
following table reflects the difference between the provision (benefit) for
income taxes and the amount computed by applying the statutory federal income
tax rate for fiscal 2010, 2009 and 2008:
Fiscal
(in thousands)
2010
2009 *
2008 *
Computed
income tax (benefit) expense based on U.S. statutory rate
$
49,037
$
(26,821
)
$
(9,923
)
Effect
of earnings of foreign subsidiaries subject to different tax
rates
(15,564
)
2,945
1,835
Benefits
from foreign approved enterprise zones
(33,790
)
11,839
4,928
Effect
of permanent items
1,125
731
742
Benefits
of net operating loss and tax credit
carryforwards
and changes in valuation allowance
(9,381
)
13,887
(3,120
)
Foreign
operations
7,131
(2,514
)
1,176
Settlement
of tax audit
-
(12,510
)
-
State
income tax expense
(1,554
)
777
2,783
Other,
net
959
(1,363
)
(2,031
)
Total
$
(2,037
)
$
(13,029
)
$
(3,610
)
* As
adjusted for ASC No.
470.20, Debt, Debt With
Conversion Options.
Undistributed
earnings of certain foreign subsidiaries for which taxes have not been provided
approximate $192.8 million as of October 2, 2010. Such undistributed earnings
are considered to be indefinitely reinvested in foreign operations.
Undistributed
earnings of approximately $83.1 million are not considered to be indefinitely
reinvested in foreign operations. As part of the global restructuring that
occurred during fiscal 2006, the Company determined that these earnings would be
repatriated during the domestic net operating loss carryforward period and this
taxable income related to these earnings could be offset with the utilization of
the net operating loss carryforwards. As of October 2, 2010, the Company had
provided a deferred tax liability of approximately $15.9 million for withholding
taxes associated with future repatriation of earnings for certain
subsidiaries.
84
The
following table reflects the net deferred tax balance, composed of the tax
effects of cumulative temporary differences for fiscal 2010 and
2009:
Fiscal
(in
thousands)
2010
2009 *
Inventory
reserves
$
1,551
$
827
Other
accruals and reserves
6,136
4,423
Deferred
revenue
90
23
Valuation
allowance
(2,334
)
(3,487
)
Total
short-term deferred tax asset
$
5,443
$
1,786
Other
-
66
Total
short-term deferred tax liability
$
-
$
66
Net
short-term deferred tax asset
$
5,443
$
1,720
Domestic
tax credit carryforwards
$
3,866
$
3,224
Net
operating loss carryforwards
44,183
50,780
Stock
options
2,970
1,579
Other
7,386
5,757
$
58,405
$
61,340
Valuation
allowance
(25,522
)
(32,712
)
Total
long-term deferred tax asset (1)
$
32,883
$
28,628
Repatriation
of foreign earnings, including foreign withholding taxes
$
39,396
$
33,658
Non-cash
interest on debt
4,752
6,858
Depreciable
assets
1,424
1,838
Prepaid
expenses and other
-
59
Total
long-term deferred tax liability
$
45,572
$
42,413
Net
long-term deferred tax liability
$
12,689
$
13,785
Total
net deferred tax liability
$
7,246
$
12,065
* As adjusted for ASC No. 470.20, Debt, Debt With
Conversion Options and an
adjustment to the prior year domestic net operating loss with no material impact
to the financial statement position.
(1)
Included
in other assets on the Consolidated Balance Sheets are deferred tax assets
of $7.7 million and $2.5 million as of October 2, 2010 and as of October3, 2009, respectively.
As of
October 2, 2010, the Company has U.S. federal net operating loss carryforwards,
foreign net operating loss carryforwards, state net operating loss
carryforwards, and tax credit carryforwards of approximately $38.1 million,
$99.7 million, $152.7 million, and $3.9 million, respectively, that will reduce
future taxable income. These carryforwards can be utilized in the future, prior
to expiration of certain carryforwards in fiscal years 2011 through 2030 with
the exception of certain foreign net operating losses and U.S. credits that have
no expiration date. Federal and Pennsylvania tax law limits the time during
which carryforwards may be applied against future taxes and Pennsylvania tax law
limits the utilization of state net operating loss carryforwards to $3.0 million
annually.
85
Of the
total net operating losses as of October 2, 2010, approximately $1.9 million
were attributable to stock option exercises. If the tax benefits associated with
the Company’s net operating carryforwards are recognized in the future, the
amounts attributable to stock option exercises will be recorded as additional
paid in capital in shareholders’ equity.
The
Company continues to evaluate the realizability of all of its net deferred tax
assets at each reporting date and records a benefit for deferred tax assets to
the extent it has deferred tax liabilities that provide a source of income to
benefit the deferred tax asset. As a result of this analysis, during the fourth
quarter of fiscal 2010, the Company released $0.8
million of its valuation allowance related to federal deferred tax
assets with the exception of a valuation allowance against a portion of the
company’s deferred tax asset related to certain federal tax credits. The Company
continues to maintain a valuation allowance against a majority of their state
deferred tax assets as the realization of these assets is not more likely then
not given uncertainty of future earnings in these jurisdictions. In addition,
the Company reduced the valuation allowance against its net deferred tax assets
for a foreign subsidiary based on future projected income. The Company
determined that it was more likely than not to recognize all of the net deferred
tax assets, primarily net operating losses, based on positive evidence of
projected future projected earnings and recorded a tax benefit of approximately
$5.6 million in fiscal 2010 for future years.
The
following table reflects a reconciliation of the beginning and ending
unrecognized tax benefits for fiscal 2010:
If
recognized, the $6.4 million would impact the Company’s effective tax rate
excluding the impact valuation allowances.
During
2010, the U.S. Internal Revenue Service (“IRS”) completed an audit of the
Company for the period ended September 30, 2006. The Company responded to
various information requests from the IRS and the audit was closed with no
significant adjustments to income tax expense.
In
October 2007, the tax authority in Israel issued the Company a preliminary
assessment of income tax, withholding tax and interest of $34.3 million (after
adjusting for the impact of foreign currency fluctuations) for fiscal 2002
through 2004. The Company provided a non-current income tax liability for
uncertain tax positions on its Consolidated Balance Sheet as of
September 27, 2008 related to this assessment for fiscal years 2002 through
2007, as required under FIN 48. On December 24, 2008, the Company, through
its Israel subsidiaries, entered into an agreement with the tax authority in
Israel settling the tax dispute for approximately $12.5 million, which
represented withholding taxes, income taxes, and interest related to fiscal 2002
through 2004. The settlement of $12.5 million was made net of a $4.5 million
reimbursement resulting in a cash payment of $7.8 million during fiscal 2009.
Following the payment and settlement of the audit for fiscal 2002 through 2004,
the tax authorities in Israel examined the fiscal years 2005 and 2006. In
addition during fiscal 2009, the Company made a payment of approximately $1.9
million related to income taxes and interest to settle the fiscal September 30,2005 and 2006. As a result of the Israel tax settlements, the Company recognized
a $12.5 million benefit from income taxes for fiscal 2009. The $12.5 million
benefit was a result of reversing the liability for unrecognized tax benefits on
the Consolidated Balance Sheet as of September 27, 2008 that was in excess
of the $14.4 million for which the matter was settled. The entire amount of
the reversal impacted the Company’s effective tax rate as indicated
above.
86
The
Company recognizes interest and penalties accrued related to unrecognized tax
benefits as a component of income tax expense. There were no additional accruals
of interest expense on various uncertain tax positions during fiscal
2010. It is reasonably possible that the amount of the unrecognized tax
benefit with respect to certain unrecognized tax positions will increase or
decrease during the next 12 months; however, the Company does not expect the
change to have a material effect on its results of operations or its financial
position.
The
Company files U.S. Federal income tax returns, as well as, income tax returns in
various state and foreign jurisdictions. For the U.S. Federal income tax returns
and most state tax returns, tax years following fiscal 2000 remain subject to
examination as a result of the generation of net operating loss carryforwards.
The statutes of limitations with respect to the foreign jurisdictions in which
the company files vary from jurisdiction to jurisdiction and range from 4 to 6
years.
As a
result of committing to certain capital investments and employment levels,
income from operations in China, Singapore and Malaysia are subject to reduced
tax rates, and in some cases are wholly exempt from taxes. In China, the Company
expects to benefit from a 50% tax holiday through fiscal 2012 for a subsidiary.
In connection with certain Singapore operations, the Company is benefiting from
a 100% tax holiday for 10 years which expired in February 2010. The Company is
in ongoing negotiations to extend the tax holiday in Singapore. One of the
Company’s subsidiaries in Malaysia is wholly exempt from taxes through
2014.
NOTE
12: SEGMENT AND GEOGRAPHIC INFORMATION
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. Fiscal 2008 segment information for both
Equipment and Expendable Tools does not include the Company’s Wedge bonder
business acquired during fiscal 2009.
87
The
following table reflects operating information by segment for fiscal 2010, 2009
and 2008:
Fiscal
(in thousands)
2010
2009
2008
Net
revenue
Equipment
$
691,988
$
170,536
$
271,019
Expendable
Tools
70,796
54,704
57,031
Net
revenue
762,784
225,240
328,050
Cost
of sales
Equipment
399,042
111,103
165,499
Expendable
Tools
28,069
25,294
28,758
Cost
of sales
427,111
136,397
194,257
Gross
profit
Equipment
292,946
59,433
105,520
Expendable
Tools
42,727
29,410
28,273
Gross
profit
335,673
88,843
133,793
Operating
expenses
Equipment
155,625
135,465
122,302
Expendable
Tools
32,013
24,193
26,971
Operating
expenses
187,638
159,658
149,273
Impairment
of goodwill: Equipment
-
2,709
-
U.S.
pension plan termination: Equipment
-
-
9,152
Gain
on sale of assets
-
Income
(loss) from operations
Equipment
137,321
(78,741
)
(25,934
)
Expendable
Tools
10,714
5,217
1,302
Income
(loss) from operations
$
148,035
$
(73,524
)
$
(24,632
)
The
following table reflects assets by segment, capital expenditures and
depreciation expense as of and for fiscal 2010, 2009 and 2008:
* As
adjusted for ASC No.
470.20, Debt, Debt With
Conversion Options.
88
Geographic
information
The
following table reflects destination sales to unaffiliated customers by country
for fiscal 2010, 2009 and 2008:
Fiscal
2010
2009
2008
(in
thousands)
Taiwan
$
222,919
$
42,360
$
41,938
China
142,467
38,505
81,035
Korea
88,289
24,256
34,897
Hong
Kong
83,713
24,183
17,964
Malaysia
43,191
11,959
32,083
Philippines
35,029
-
-
Japan
31,651
12,150
26,211
Thailand
24,766
-
-
Singapore
22,603
10,315
13,811
United
States
10,470
6,860
14,306
All
other
57,686
54,652
65,805
Total
$
762,784
$
225,240
$
328,050
The
following table reflects long-lived assets by country for fiscal 2010, 2009 and
2008:
Fiscal
2010
2009
2008
(in
thousands)
United
States
$
81,849
$
90,914
$
13,398
Switzerland
10,307
10,793
15,782
Israel
2,637
7,202
7,750
China
4,207
3,969
4,978
Singapore
4,530
2,121
2,228
All
other
3,949
2,175
33,580
Total
$
107,479
$
117,174
$
77,716
NOTE
13: GUARANTOR OBLIGATIONS, COMMITMENTS, CONTINGENCIES AND
CONCENTRATIONS
Guarantor
Obligations
The
Company has issued a standby letter of credit of approximately $0.1 million for
employee benefit programs. The standby letter of credit automatically renews at
the end of each fiscal year.
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.
89
The
following table reflects the reserve for product warranty which is included in
accrued expenses and other current liabilities on the Consolidated Balances
Sheets as of fiscal 2010, 2009 and 2008:
Fiscal
(in thousands)
2010
2009
2008
Reserve
for product warranty, beginning of year
$
1,003
$
918
$
1,975
Orthodyne
warranty reserve at the date of acquisition
-
150
-
Provision
for product warranty expense
3,842
2,297
1,315
Product
warranty costs incurred
(2,188
)
(2,362
)
(2,372
)
Reserve
for product warranty, end of year
$
2,657
$
1,003
$
918
Orthodyne
Earnout
On
October 3, 2008, the Company completed the acquisition of 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”). A former owner of
Orthodyne was employed by the Company until his resignation on October 31, 2010.
Payment from the Earnout is not contingent upon his employment. As of October 2,2010, the maximum payout under the Earnout was $10.0 million; however, the
Company estimated that its maximum exposure would not exceed $2.8 million. As of
October 2, 2010, no Earnout was accrued.
Other
Commitments and Contingencies
The
following table reflects operating lease obligations not reflected on the
Consolidated Balance Sheet as of October2, 2010:
Payments due by fiscal year
(in thousands)
Total
2011
2012
2013
2014
2015 and
thereafter
Operating
lease obligations
$
32,596
$
8,710
$
7,246
$
4,600
$
2,783
$
9,257
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).
90
Concentrations
The
following table reflects significant customer concentrations for fiscal 2010,
2009 and 2008:
Fiscal
2010
2009
2008
Customer
net revenue as a percentage of total Net Revenue
Advanced
Semiconductor Engineering
23.0
%
17.7
%
*
Siliconware
Precision Industries Ltd
10.3
%
*
*
Customer
accounts receivable as a percentage of total Accounts
Receivable
Siliconware
Precision Industries, Ltd.
19.5
%
*
14.5
%
Haoseng
Industries Company, Ltd.
11.0
%
*
10.2
%
Advanced
Semiconductor Engineering
*
32.4
%
*
Amkor
Technology Inc.
*
11.6
%
*
*
Represents less than 10% of net revenue or total accounts receivable, as
applicable.
91
NOTE
14: SELECTED QUARTERLY FINANCIAL DATA (unaudited)
The
following table reflects selected quarterly financial data for fiscal 2010 and
2009:
Fiscal 2010 for the Quarter Ended
(in thousands, except per
share amounts)
January 2
April 3
July 3
October 2
Fiscal 2010
Net
revenue
$
128,415
$
153,838
$
221,254
$
259,277
$
762,784
Gross
profit
$
56,373
$
67,772
$
99,184
$
112,344
$
335,673
Income
from operations
$
17,986
$
23,322
$
50,052
$
56,675
$
148,035
Net
income
$
15,840
$
21,158
$
49,083
$
56,061
$
142,142
Net
income per share (1):
Basic
$
0.23
$
0.30
$
0.69
$
0.79
$
2.01
Diluted
$
0.21
$
0.28
$
0.65
$
0.78
$
1.92
Weighted
average shares outstanding:
Basic
69,684
69,806
70,131
70,426
70,012
Diluted
73,687
74,371
74,960
71,229
73,548
Fiscal 2009 for the Quarter Ended
(in thousands, except per share
amounts)
December 27 *
March 28 *
June 27 *
October 3 *
Fiscal 2009 *
Net
revenue
$
37,416
$
25,232
$
52,076
$
110,516
$
225,240
Gross
profit
$
13,928
$
8,045
$
19,669
$
47,201
$
88,843
Income
(loss) from operations
$
(31,324
)
$
(35,758
)
$
(14,482
)
$
8,040
$
(73,524
)
Income
(loss) from discontinued operations, net of tax
$
22,727
$
-
$
-
$
(716
)
$
22,011
Net
income (loss)
$
3,139
$
(34,527
)
$
(15,262
)
$
5,049
$
(41,601
)
Net
income (loss) per share (1):
Basic
$
(0.32
)
$
(0.57
)
$
(0.25
)
$
0.09
$
(1.02
)
Diluted
$
(0.32
)
$
(0.57
)
$
(0.25
)
$
0.08
$
(1.02
)
Weighted
average shares outstanding:
Basic
60,451
61,054
61,220
65,754
62,188
Diluted
60,451
61,054
61,220
70,082
62,188
*
As adjusted for ASC No. 470.20, Debt, Debt With Conversion Options.
(1) EPS
for the year may not equal the sum of quarterly EPS due to changes in weighted
share calculations.
On
November 16, 2010, the Company appointed Jonathan H. Chou as Senior Vice
President and Chief Financial Officer (“CFO”) effective December 13, 2010 and
notified Michael J. Morris, its current CFO that in connection with the
relocation of the Company’s headquarters to Singapore, Mr. Chou has been hired
to serve as CFO.
Item
9.
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
Item 9A. CONTROLS AND
PROCEDURES
Evaluation
of Disclosure Controls and Procedures
Our
management, with the participation of our Chief Executive Officer and Chief
Financial Officer, evaluated the effectiveness of our disclosure controls and
procedures as of October 2, 2010. Based on that evaluation, the Chief Executive
Officer and Chief Financial Officer concluded that, as of October 2, 2010 our
disclosure controls and procedures were effective in providing reasonable
assurance the information required to be disclosed by us in reports filed under
the Securities Exchange Act of 1934, as amended, is (i) recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission’s rules and forms and (ii) accumulated
and communicated to our management, including the Chief Executive Officer and
Chief Financial Officer, as appropriate to allow timely decisions regarding
disclosure.
Management’s
Report on Internal Control Over Financial Reporting
The
management of Kulicke and Soffa Industries, Inc. (the “Company”) is responsible
for establishing and maintaining adequate internal control over financial
reporting as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934,
as amended. The Company’s internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. The Company’s internal
control over financial reporting includes those policies and procedures that
pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the Company;
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, provide reasonable assurance that receipts and
expenditures of the Company are being made only in accordance with
authorizations of management and directors of the Company; and provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the Company’s assets that could have a
material effect on the financial statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
93
Management
evaluated the Company’s internal control over financial reporting as of October2, 2010. In making this assessment, management used the framework established
in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (“COSO”). Management’s assessment included an evaluation of
the design of our internal control over financial reporting and testing of the
operational effectiveness of our internal control over financial reporting.
Management reviewed the results of its assessment with the Audit Committee of
the Company’s Board of Directors. Based on that assessment and based on the
criteria in the COSO framework, management has concluded that, as of October 2,2010, the Company’s internal control over financial reporting was
effective.
The effectiveness of the Company’s
internal control over financial reporting as of October 2, 2010 has been audited
by PricewaterhouseCoopers LLP, an independent registered public accounting firm,
as stated in its report, which appears herein.
Item
9B.
OTHER
INFORMATION
None.
PART
III
Item
10.
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
Information
required by Item 401 of Regulation S-K with respect to the directors will appear
under the heading “ELECTION OF DIRECTORS” in the Company's Proxy Statement for
the 2011 Annual Meeting of Shareholders, which information is incorporated
herein by reference. The information required by Item 401 of Regulation S-K with
respect to executive officers appears at the end of Part I, Item 1 of this
report under the heading “Executive Officers of the Company.” The other
information required by Item 401 of Regulation S-K will appear under the heading
“CORPORATE GOVERNANCE” in the Company's Proxy Statement for the 2011 Annual
Meeting of Shareholders, which information is incorporated herein by
reference.
The
information required by Item 405 of Regulation S-K will appear under the heading
“CORPORATE GOVERNANCE – Section 16(a) Beneficial Ownership Reporting
Compliance” in the Company's Proxy Statement for the 2011 Annual Meeting of
Shareholders, which information is incorporated herein by
reference.
The
information required by Item 406 of Regulation S-K will appear under the heading
“CORPORATE GOVERNANCE - Code of Ethics” in the Company's Proxy Statement for the
2011 Annual Meeting of Shareholders, which information is incorporated herein by
reference.
The
information required by Item 407(c)(3) of Regulation will appear under the
headings “CORPORATE GOVERNANCE—Nominating and Governance Committee” and
“SHAREHOLDER PROPOSALS” in the Company's Proxy Statement for the 2011 Annual
Meeting of Shareholders, which information is incorporated herein by
reference.
The
information required by Items 407(d)(4) and (d)(5) of Regulation S-K will appear
under the heading “CORPORATE GOVERNANCE—Audit Committee” in the Company's Proxy
Statement for the 2011 Annual Meeting of Shareholders, which information is
incorporated herein by reference.
Item
11.
EXECUTIVE
COMPENSATION
The
information required by Item 402 of Regulation S-K will appear under the heading
“COMPENSATION OF EXECUTIVE OFFICERS,” in the Company's Proxy Statement for the
2011 Annual Meeting of Shareholders, which information is incorporated herein by
reference.
94
The
information required by Item 407(e)(4) of Regulation S-K will appear under the
heading “CORPORATE GOVERNANCE— Management Development
and Compensation Committee Interlocks and Insider Participation” in the
Company’s Proxy Statement for the 2011 Annual Meeting of Shareholders, which
information is incorporated herein by reference.
The
information required by Item 407(e)(5) of Regulation S-K will appear under the
heading “REPORT OF THE MANAGEMENT DEVELOPMENT AND COMPENSATION COMMITTEE” in the
Company’s Proxy Statement for the 2011 Annual Meeting of Shareholders, which
information is incorporated herein by reference.
Item
12.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The
information required hereunder concerning security ownership of certain
beneficial owners and management will appear under the heading “CORPORATE
GOVERNANCE - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS” in the Company’s
Proxy Statement for the 2011 Annual Meeting of Shareholders, which information
is incorporated herein by reference. The information required hereunder
concerning security ownership of management will appear under the
heading “ELECTION OF DIRECTORS” in the Company’s Proxy Statement for
the 2011 Annual Meeting of Shareholders, which information is incorporated
herein by reference. The information required by this item relating to
securities authorized for issuance under equity compensation plans is included
under the heading “EQUITY COMPENSATION PLAN INFORMATION” in the Company’s Proxy
Statement for the 2011 Annual Meeting of Shareholders, which is incorporated
herein by reference.
Item
13.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
The
information required by Item 404 of Regulation S-K will appear under the heading
“CORPORATE GOVERNANCE – Certain Relationships and Related Transactions” in the
Company’s Proxy Statement for the 2011 Annual Meeting of
Shareholders, which information is incorporated herein by
reference.
The
information required by Section 407(a) of Regulation S-K will appear under the
heading “CORPORATE GOVERNANCE – Board Matters” in the Company’s Proxy Statement
for the 2011 Annual Meeting of Shareholders, which information is incorporated
herein by reference.
Item
14.
PRINCIPAL
ACCOUNTING FEES AND SERVICES
The
information required hereunder will appear under the heading “AUDIT AND RELATED
FEES” in the Company’s Proxy Statement for the 2011 Annual Meeting of
Shareholders, which information is incorporated herein by
reference.
95
Part
IV
Item
15.
EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES
(a)
The
following documents are filed as part of this
report:
(1)
Financial
Statements - Kulicke and Soffa Industries, Inc.:
Page
Report
of Independent Registered Public Accounting Firm
Consolidated
Statements of Operations for fiscal years 2010, 2009 and
2008
58
Consolidated
Statements of Cash Flows for fiscal 2010, 2009 and 2008
59
Consolidated
Statements of Changes in Shareholders' Equity for fiscal 2010, 2009 and
2008
60
Notes
to Consolidated Financial Statements
61
(2)
Financial
Statement Schedules:
Schedule
II - Valuation and Qualifying Accounts
101
All other schedules
are omitted because they are not applicable or the required information is
shown in the Consolidated
Financial Statements or notes
thereto.
Amendment
No. 1 to the Master Sale and Purchase Agreement between W.C. Heraeus GmbH
and the Company, dated as of September 5, 2008, is incorporated herein by
reference to Exhibit 2.2 to the Company’s Current Report on Form 8-K filed
on October 2, 2008.
2004
Israeli Addendum to the Company’s 1994 Employee Incentive Stock Option and
Non-Qualified Stock Option Plan (as amended and restated effective March21, 2003), is incorporated herein by reference to Exhibit 10(iv) to the
Company’s Post-Effective Amendment No.4 on Form S-1 to the Registration
Statement on Form S-3 filed on December 14, 2004, SEC file number
333-111478.*
10(ii)
The
Company’s 1997 Non-Qualified Stock Option Plan for Non-Employee Directors
(as amended and restated effective March 21, 2003), is incorporated herein
by reference to Exhibit 10(vi) to the Company’s Annual Report on Form 10-K
for the fiscal year ended September 30, 2003, SEC file number
000-00121.*
10(iii)
2004
Israeli Addendum to the Company’s 1998 Employee Incentive Stock Option and
Non-Qualified Stock Option Plan (as amended and restated effective March21, 2003), is incorporated herein by reference to Exhibit 10(vii) to the
Company’s Post-Effective Amendment No.4 on Form S-1 to the Registration
Statement on Form S-3 filed on December 14, 2004, SEC file number
333-111478.*
2004
Israeli Addendum to the Company’s 1999 Non-Qualified Stock Option Plan (as
amended and restated effective March 21, 2003), is incorporated herein by
reference to Exhibit 10(ix) to the Company’s Post-Effective Amendment No.4
on Form S-1 to the Registration Statement on Form S-3 filed on December14, 2004, SEC file number 333-111478.*
2004
Israeli Addendum to the Company’s 2001 Employee Incentive Stock Option and
Non-Qualified Stock Option Plan (as amended and restated effective March21, 2003), is incorporated herein by reference to Exhibit 10(xii) to the
Company’s Post-Effective Amendment No.4 on Form S-1 to the Registration
Statement on Form S-3 filed on December 14, 2004, SEC file number
333-111478.*
Officer
Incentive Compensation Plan, dated August 2, 2005, is incorporated herein
by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form
10-Q for the quarterly period ended June 30, 2005, SEC file number
000-00121.*
10(xiii)
2007
Equity Plan for Non-Employee Directors, is incorporated herein by
reference to Appendix A to the Company’s Proxy Statement on Schedule 14A
for the annual meeting of shareholders on February 13,2007.*
Form
of New Employee Inducement Stock Option Grant Letter, is incorporated
herein by reference to Exhibit 4.1 to the Company’s Registration Statement
on Form S-8 filed on December 13, 2007.*
Form
of Nonqualified Stock Option Agreement, is incorporated herein by
reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K
dated October 8, 2008.*
Joint
Development and Engineering Services Agreement between W.C. Heraeus GmbH
and the Company, dated as of September 29, 2008, is incorporated herein by
reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
filed on October 2, 2008.
Form
of Officer Performance Share Award Agreement regarding the 2009 Equity
Plan, is incorporated herein by reference to Exhibit 10(xxxiii) to the
Company’s Annual Report on Form 10-K for the fiscal year ended October 3,2009.*
Consent
of PricewaterhouseCoopers LLP (Independent Registered Public Accounting
Firm).
31.1
Certification
of Bruno Guilmart, Chief Executive Officer of Kulicke and Soffa
Industries, Inc., pursuant to Rule 13a-14(a) or Rule
15d-14(a).
99
31.2
Certification
of Michael J. Morris, Chief Financial Officer of Kulicke and Soffa
Industries, Inc., pursuant to Rule 13a-14(a) or Rule
15d-14(a).
32.1
Certification
of 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 Michael J. Morris, Chief Financial Officer of Kulicke and Soffa
Industries, Inc., pursuant to 18 U.S.C. Section 1350 as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
99.1
Agreement
for Commitment to Make Plan Sufficient, is incorporated herein by
reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K
dated May 7, 2007.
*
Indicates
a management contract or compensatory plan or
arrangement.
100
KULICKE
AND SOFFA INDUSTRIES, INC.
Schedule
II-Valuation and Qualifying Accounts
Balance
Charged to
Other
Balance
at beginning
costs and
additions
Deductions
at end
(in thousands)
of period
expenses
(describe)
(describe)
of period
Fiscal
2010:
Allowance
for doubtful accounts
$
1,378
$
32
$
-
$
(430
)
(1)
$
980
Inventory
reserve
$
12,517
$
1,519
$
-
$
(3,896
)
(2)
$
10,140
Valuation
allowance for deferred taxes
$
36,199
$
(1,951
)
(3)
$
-
$
(6,392
)
(7)
$
27,856
Fiscal
2009:
Allowance
for doubtful accounts
$
1,376
$
291
$
-
$
(289
)
(1)
$
1,378
Inventory
reserve
$
6,497
$
8,154
$
(488
)
(4)
$
(1,646
)
(2)
$
12,517
Valuation
allowance for deferred taxes *
$
16,171
$
20,220
(3)
$
-
$
(192
)
(6)
$
36,199
Fiscal
2008:
Allowance
for doubtful accounts
$
1,586
$
361
$
(24
)
$
(547
)
(1)
$
1,376
Inventory
reserve
$
8,428
$
3,999
$
(3,321
)
(4)
$
(2,609
)
(2)
$
6,497
Valuation
allowance for deferred taxes *
$
23,851
$
(2,935
)
(3)
$
(4,745
)
(5)
$
-
$
16,171
*
As adjusted for ASC No. 470.20, Debt, Debt With Conversion Options.
(1)
Represents write offs of specific accounts receivable.
(2)
Disposal of excess and obsolete inventory.
(3)
Reflects increase (decrease) in the valuation allowance primarily associated
with the Company's U.S. and foreign net operating losses and other deferred tax
assets.
(4)
Reclassification of fully depreciated demonstration and evaluation equipment
from inventory to plant, property and equipment, net.
(5)
Primarily reflects decrease in valuation allowance as a result of adoption of
ASC 740.10.
(6)
Represents decrease in valuation allowance applied to reduce die bonder
intangible assets, since a portion of the valuation allowance was originally
established in purchase accounting.
(7) Represents the release
in valuation allowance for a foreign subsidiary and the domestic partial
valuation allowance release.
101
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.