The accompanying notes are an integral part
of these consolidated financial statements.
The accompanying notes are an integral part
of these consolidated financial statements.
The accompanying notes are an integral part
of these consolidated financial statements.
The accompanying notes are an integral part
of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
NOTE 1: BASIS OF PRESENTATION
Basis of Consolidation
These consolidated financial statements
include the accounts of Kulicke and Soffa Industries, Inc. and its subsidiaries (the “Company”), with appropriate elimination
of intercompany balances and transactions.
The interim consolidated financial statements
are unaudited and, in management’s opinion, include all adjustments (consisting only of normal and recurring adjustments)
necessary for a fair presentation of results for these interim periods. The interim consolidated financial statements do not include
all of the information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally
accepted accounting principles (“GAAP”) and should be read in conjunction with the consolidated financial statements
and notes thereto included in the Annual Report on Form 10-K for the year ended September 29, 2012, filed with the Securities and
Exchange Commission, which includes Consolidated Balance Sheets as of September 29, 2012 and October 1, 2011, and the related Consolidated
Statements of Operations, Cash Flows, and Changes in Shareholders’ Equity for each of the years in the three-year period
ended September 29, 2012. The results of operations for any interim period are not necessarily indicative of the results of operations
for any other interim period or for a full year.
Fiscal Year
Each of the Company’s first three
fiscal quarters end on the Saturday that is 13 weeks after the end of the immediately preceding fiscal quarter. The fourth quarter
of each fiscal year ends on the Saturday closest to September 30
th
. Fiscal 2013 quarters end on December 29, 2012, March
30, 2013, June 29, 2013 and September 28, 2013. Fiscal 2012 quarters ended on December 31, 2011, March 31, 2012, June 30,
2012 and September 29, 2012. In fiscal years consisting of 53 weeks, the fourth quarter will consist of 14 weeks.
Nature of Business
The Company designs, manufactures and sells
capital equipment and expendable tools as well as services, maintains, repairs and upgrades equipment, all used to assemble semiconductor
devices. The Company’s operating results depend upon the capital and operating expenditures of semiconductor manufacturers
and outsourced semiconductor assembly and test providers (“OSATs”) worldwide which, in turn, depend on the current
and anticipated market demand for semiconductors and products utilizing semiconductors. The semiconductor industry is highly volatile
and experiences downturns and slowdowns which have a severe negative effect on the semiconductor industry’s demand for semiconductor
capital equipment, including assembly equipment manufactured and sold by the Company and, to a lesser extent, expendable tools,
including those sold by the Company. These downturns and slowdowns have in the past adversely affected the Company’s operating
results. The Company believes such volatility will continue to characterize the industry and the Company’s operations in
the future.
Use of Estimates
The preparation of consolidated financial
statements requires management 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, management evaluates 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. Management bases its estimates on historical experience
and on various other assumptions believed to be reasonable. As a result, management makes judgments regarding the carrying values
of its assets and liabilities that are not readily apparent from other sources. Authoritative pronouncements, historical experience
and assumptions are used as the basis for making estimates, and on an ongoing basis, management evaluates these estimates. Actual
results may differ from these estimates under different assumptions or conditions.
Vulnerability to Certain Concentrations
Financial instruments which may subject
the Company to concentrations of credit risk as of December 29, 2012 and September 29, 2012 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 subcontractors to manufacture many of these components and subassemblies and it relies on sole source suppliers for some
important components and raw material inventory.
The Company’s international operations
are exposed to changes in foreign currency exchange rates due to transactions denominated in currencies other than the location’s
functional currency. The Company is also exposed to foreign currency fluctuations that impact the remeasurement of net monetary
assets of those operations whose functional currency, the U.S. dollar, differs from their respective local currencies, most notably
in Israel, Malaysia, Singapore and Switzerland. In addition to net monetary remeasurement, the Company has exposures related to
the translation of subsidiary financial statements from their functional currency, the local currency, into our reporting currency,
the U.S. dollar, most notably in China, Taiwan and Japan. The Company’s U.S. operations also have foreign currency exposure
due to net monetary assets denominated in currencies other than the U.S. dollar.
Foreign Currency Translation
The majority of the Company’s business
is transacted in U.S. dollars; however, the functional currencies of some of the Company’s subsidiaries are their local currencies.
In accordance with 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, 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.
Cash Equivalents
The Company considers all highly liquid
investments with original maturities of three months or less when purchased to be cash equivalents. Cash equivalents are measured
at fair value based on level one measurement, or quoted market prices, as defined by ASC No. 820,
Fair Value Measurements and
Disclosures
. As of December 29, 2012 and September 29, 2012, fair value approximated the cost basis for cash equivalents.
Investments
Investments, other than cash equivalents,
are classified as “trading,” “available-for-sale” or “held-to-maturity”, in accordance with
ASC No. 320,
Investments-Debt & Equity Securities,
and depending upon the nature of the investment, its ultimate maturity
date in the case of debt securities, and management’s intentions with respect to holding the securities. Investments classified
as “trading” are reported at fair market value, with unrealized gains or losses included in earnings. Investments classified
as “available-for-sale” are reported at fair market value, with net unrealized gains or losses reflected as a separate
component of shareholders’ equity (accumulated other comprehensive income (loss)). The fair market value of trading and available-for-sale
securities is determined using quoted market prices at the balance sheet date. Investments classified as held-to-maturity are reported
at amortized cost. Realized gains and losses are determined on the basis of specific identification of the securities sold.
Allowance for Doubtful Accounts
The Company maintains allowances for doubtful
accounts for estimated losses resulting from its 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 collectability 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. Demand is generally defined as 18 months future consumption for equipment, 24 months consumption
for all spare parts, and 12 months consumption for expendable tools. Forecasted demand is based upon internal projections, historical
sales volumes, customer order activity and a review of consumable inventory levels at customers’ facilities. The Company
communicates forecasts of its future demand to its suppliers and adjusts commitments to those suppliers accordingly. If required,
the Company reserves the difference between the carrying value of its inventory and the lower of cost or market value, based upon
assumptions about future demand, and market conditions. If actual market conditions are less favorable than projections, additional
inventory reserves may be required.
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 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
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.
Accounting for Impairment
of Goodwill
The Company operates two reportable segments:
Equipment and Expendable Tools. Goodwill was recorded in 2009 for the acquisition of Orthodyne Electronics Inc., which added wedge
bonder products to the Equipment business.
Accounting Standard Update 2011-08,
Testing
Goodwill for Impairment
provides companies with the option to assess qualitative factors to determine whether it is more likely
than not that the fair value of a reporting unit is less than its carrying value. If, after assessing the qualitative factors,
a company determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying value,
then performing the two-step impairment test is unnecessary. However, if a company concludes otherwise, then it is required
to perform the first step of the two-step goodwill impairment test. If the carrying value of a reporting unit exceeds its
fair value, then a company is required to perform the second step of the two-step goodwill impairment test.
As part of the annual evaluation of the
goodwill, the Company performs an impairment test of its goodwill in the fourth quarter of each fiscal year to coincide with the
completion of our annual forecasting process. The Company tests for impairment 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 the three months
ended December 29, 2012, no triggering events occurred.
Impairment assessments inherently involve
judgment as to assumptions about expected future cash flows and the impact of market conditions on those assumptions. Future events
and changing market conditions may impact the assumptions as to prices, costs, growth rates or other factors that may result in
changes in the estimates of future cash flows. Although the Company believes the assumptions that it has used in testing for impairment
are reasonable, significant changes in any one of the assumptions could produce a significantly different result. Indicators of
potential impairment may lead the Company to perform interim goodwill impairment assessments including, significant and unforeseen
customer losses, a significant adverse change in legal factors or in the business climate, a significant adverse action or assessment
by a regulator, a significant stock price decline or unanticipated competition.
For further information on goodwill and
other intangible assets, see Note 3 below.
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 collectability 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. If 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 paid by the Company 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
In accordance with ASC No. 740,
Income
Taxes
, deferred income taxes are determined using the liability method
.
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. 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 fair value of
the Company’s stock option awards are estimated using a Black-Scholes option valuation model. 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.
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 (see Note 6).
Prior Period Adjustment
During the three months ended December
29, 2012, the Company identified a prior period adjustment of $1.1 million relating to the recognition of government grants that
resulted in increased R&D expenses and a reduction of grants receivable. This error was corrected during the quarter ended
December 29, 2012 and management has deemed that the adjustment was not material to the previous fiscal year ended September 29,
2012 or the expected full year results of the current year ending September 28, 2013.
Recent Accounting Pronouncements
There were no new accounting pronouncements
during the three months ended December 29, 2012, as compared to the recent accounting pronouncements described in the Company’s
Annual Report on Form 10-K for the fiscal year ended September 29, 2012, that are of significance, or potential significance, to
the Company.
NOTE 2: BALANCE SHEET COMPONENTS
The following tables reflect the components
of significant balance sheet accounts as of December 29, 2012 and
September 29, 2012:
|
|
|
As of
|
|
|
(in thousands)
|
|
December 29, 2012
|
|
|
September 29, 2012
|
|
|
|
|
|
|
|
|
|
|
Inventories, net:
|
|
|
|
|
|
|
|
|
|
Raw materials and supplies
|
|
$
|
35,067
|
|
|
$
|
26,660
|
|
|
Work in process
|
|
|
20,883
|
|
|
|
23,352
|
|
|
Finished goods
|
|
|
17,649
|
|
|
|
27,599
|
|
|
|
|
|
73,599
|
|
|
|
77,611
|
|
|
Inventory reserves
|
|
|
(19,271
|
)
|
|
|
(18,617
|
)
|
|
|
|
$
|
54,328
|
|
|
$
|
58,994
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net:
|
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
2,086
|
|
|
$
|
2,086
|
|
|
Buildings and building improvements
|
|
|
4,823
|
|
|
|
4,830
|
|
|
Leasehold improvements
|
|
|
16,056
|
|
|
|
16,005
|
|
|
Data processing equipment and software
|
|
|
22,968
|
|
|
|
23,819
|
|
|
Machinery, equipment, furniture and fixtures
|
|
|
40,445
|
|
|
|
40,580
|
|
|
Construction in progress (1)
|
|
|
4,462
|
|
|
|
3,219
|
|
|
|
|
|
90,840
|
|
|
|
90,539
|
|
|
Accumulated depreciation
|
|
|
(62,059
|
)
|
|
|
(62,098
|
)
|
|
|
|
$
|
28,781
|
|
|
$
|
28,441
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued expenses and other current liabilities:
|
|
|
|
|
|
|
|
|
|
Wages and benefits
|
|
$
|
13,523
|
|
|
$
|
18,734
|
|
|
Accrued customer obligations (2)
|
|
|
12,651
|
|
|
|
22,984
|
|
|
Commissions and professional fees (3)
|
|
|
2,913
|
|
|
|
2,776
|
|
|
Severance (4)
|
|
|
2,607
|
|
|
|
2,840
|
|
|
Other
|
|
|
10,346
|
|
|
|
10,612
|
|
|
|
|
$
|
42,040
|
|
|
$
|
57,946
|
|
|
|
(1)
|
Pursuant to ASC No. 840,
Leases,
for lessee's involvement in asset construction, the Company
is considered the owner of the building during the construction phase for the Agreement to Develop and Lease (the “ADL”)
facility being developed by Mapletree Industrial Trust in Singapore - see Note 9. The estimated construction costs incurred
to date in relation to the relevant proportion of the Company’s lease is recognized on the balance sheet as at December 29,
2012 and September 29, 2012. Applicable ground lease expense was accrued.
|
|
|
(2)
|
Represents customer advance payments, customer credit program, accrued warranty expense and accrued
retrofit costs.
|
|
|
(3)
|
In connection with the September 2010 retirement of the Company’s former Chief Executive
Officer (“CEO”), balances as of December 29, 2012 and September 29, 2012 include $0.2 million and $0.3 million, respectively,
related to his three-year consulting arrangement.
|
|
|
(4)
|
Total severance payable within the next twelve months includes approximately $1.2 million of other
severance not part of the Company’s plan for transition and consolidation of operations to Asia.
|
NOTE 3: 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 2012 and concluded that no impairment charge was required. The Company also tests for impairment if a
“triggering” event occurs that may have the effect of reducing the fair value of a reporting unit below its respective
carrying value. No triggering event occurred during the three months ended December 29, 2012.
On October 3, 2008, the Company completed
the acquisition of Orthodyne Electronics Corporation (“Orthodyne”) and agreed to pay Orthodyne an additional amount
in the future based upon the gross profit realized by the acquired business over a three year period from date of acquisition pursuant
to an Earnout Agreement entered into in connection with the acquisition. At the end of fiscal 2011, the Company accrued $14.8 million
as an adjustment to goodwill which was paid during the first quarter of fiscal 2012.
Following the acquisition of Orthodyne,
wedge bonder products were added to the Equipment business.
Intangible Assets
Intangible assets with determinable lives
are amortized over their estimated useful lives. The Company’s intangible assets consist primarily of wedge bonder developed
technology and customer relationships.
The following table reflects net intangible assets as of December
29, 2012 and September 29, 2012:
|
|
|
As of
|
|
|
Average estimated
|
|
(dollar amounts in thousands)
|
|
December 29, 2012
|
|
|
September 29, 2012
|
|
|
useful lives
(in years)
|
|
Wedge bonder developed technology
|
|
$
|
33,200
|
|
|
$
|
33,200
|
|
|
7.0
|
|
Accumulated amortization
|
|
|
(20,158
|
)
|
|
|
(18,973
|
)
|
|
|
|
Net wedge bonder developed technology
|
|
|
13,042
|
|
|
|
14,227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wedge bonder customer relationships
|
|
|
19,300
|
|
|
|
19,300
|
|
|
5.0
|
|
Accumulated amortization
|
|
|
(16,405
|
)
|
|
|
(15,440
|
)
|
|
|
|
Net wedge bonder customer relationships
|
|
|
2,895
|
|
|
|
3,860
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wedge bonder trade name
|
|
|
4,600
|
|
|
|
4,600
|
|
|
8.0
|
|
Accumulated amortization
|
|
|
(2,445
|
)
|
|
|
(2,300
|
)
|
|
|
|
Net wedge bonder trade name
|
|
|
2,155
|
|
|
|
2,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wedge bonder other intangible assets
|
|
|
2,500
|
|
|
|
2,500
|
|
|
1.9
|
|
Accumulated amortization
|
|
|
(2,500
|
)
|
|
|
(2,500
|
)
|
|
|
|
Net wedge bonder other intangible assets
|
|
|
-
|
|
|
|
-
|
|
|
|
|
Net intangible assets
|
|
$
|
18,092
|
|
|
$
|
20,387
|
|
|
|
The following table reflects estimated
annual amortization expense related to intangible assets as of December 29, 2012:
|
|
|
As of
|
|
|
(in thousands)
|
|
December, 29, 2012
|
|
|
Remaining fiscal 2013
|
|
$
|
6,883
|
|
|
Fiscal 2014
|
|
|
5,318
|
|
|
Fiscal 2015
|
|
|
5,318
|
|
|
Fiscal 2016
|
|
|
573
|
|
|
Total amortization expense
|
|
$
|
18,092
|
|
NOTE 4: DEBT AND OTHER OBLIGATIONS
Bank Guarantee
On May 9, 2012, Kulicke & Soffa Pte
Ltd. (“Pte”), the Company’s wholly owned subsidiary, obtained a bank guarantee (“Bank Guarantee”)
from DBS Bank Ltd. in the amount of $3.4 million Singapore dollars. Pte furnished the Bank Guarantee to Mapletree Industrial Trust
in lieu of a cash deposit in connection with building and leasing of a new facility in Singapore.
0.875% Convertible Subordinated Notes
The following table reflects amortization
expense related to issue costs from the Company’s Convertible Subordinated Notes for the three months ended December 31,
2011:
|
|
|
Three months ended
|
|
|
(in thousands)
|
|
December 31, 2011
|
|
|
Amortization expense related to issue costs
|
|
$
|
147
|
|
The 0.875% Convertible Subordinated Notes (the “Notes”)
matured on June 1, 2012. Prior to maturity, holders of the Notes were entitled to 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, subject to adjustment for certain events) only under specific circumstances. The Company had the option to elect
to satisfy the conversion obligations in cash, common stock or a combination thereof. The Company repaid the entire principal balance
of the Notes of $110.0 million plus interest of $0.5 million in cash in fiscal 2012. No common shares were issued in connection
with repayment of the Notes.
The Notes were not redeemable at the Company’s
option. Holders of the Notes did not have the right to require the Company to repurchase their Notes prior to maturity except in
connection with the occurrence of certain fundamental change transactions. The Notes could have been accelerated upon an event
of default as described in the Indenture and would have been accelerated upon bankruptcy, insolvency, appointment of a receiver
and similar events with respect to the Company.
The Company adopted ASC 470.20,
Debt,
Debt with Conversion Options
, which requires that issuers of convertible debt that may be settled in cash upon conversion record
the liability and equity components of the convertible debt separately. The liability component of the Company’s Notes was
classified as debt and the equity component of the Notes was classified as common stock on the Company’s Consolidated Balance
Sheets.
NOTE 5: SHAREHOLDERS’ EQUITY AND
EMPLOYEE BENEFIT PLANS
Common Stock and 401(k) Retirement
Income Plan
The Company has a 401(k) retirement income
plan (the “Plan”) for its employees. Historically, the Company’s matching contributions to the Plan were made
in the form of issued and contributed shares of Company common stock; however, beginning January 2, 2011, matching contributions
to the Plan are made in cash instead of stock. The Plan allows for employee contributions and matching Company contributions up
to 4% or 6% of the employee’s contributed amount, based upon years of service.
The following table reflects the Company’s
matching contributions to the Plan which were made in the form of cash during the three months ended December 29, 2012 and December
31, 2011:
|
|
|
Three months ended
|
|
|
(in thousands)
|
|
December 29, 2012
|
|
|
December 31, 2011
|
|
|
Cash
|
|
$
|
723
|
|
|
$
|
246
|
|
Accumulated Other Comprehensive Income
The following table reflects accumulated
other comprehensive income reflected on the Consolidated Balance Sheets as of December 29, 2012 and September 29, 2012:
|
|
|
As of
|
|
|
(in thousands)
|
|
December 29, 2012
|
|
|
September 29, 2012
|
|
|
Gain from foreign currency translation adjustments
|
|
$
|
3,707
|
|
|
$
|
2,996
|
|
|
Unrecognized actuarial gain, Switzerland pension plan, net of tax
|
|
|
(244
|
)
|
|
|
(227
|
)
|
|
Switzerland pension plan curtailment
|
|
|
(388
|
)
|
|
|
(388
|
)
|
|
Accumulated other comprehensive income
|
|
$
|
3,075
|
|
|
$
|
2,381
|
|
Equity-Based Compensation
As of December 29, 2012, the Company had
seven equity-based employee compensation plans (the “Employee Plan”) and three director compensation plans (the “Director
Plans”) (collectively, the “Plans”). Under these Plans, market-based share awards (collectively, “market-based
restricted stock”), time-based share awards (collectively, “time-based restricted stock”), performance-based
share awards (collectively, “performance-based restricted stock”), stock options 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 December 29, 2012, the Company’s
one active plan, the 2009 Equity Plan, had 4.5 million shares of common stock available for grant to its employees and directors.
|
|
·
|
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
is forfeited prior to the vesting date.
|
|
|
·
|
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.
|
|
|
·
|
In general, performance-based restricted stock (“PSU”) 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 (“MDCC”) 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. Certain PSUs vest based on achievement of strategic goals over a certain time period or periods
set by the MDCC. If the strategic goals are not achieved, the PSUs do not vest.
|
Equity-based compensation expense
recognized in the Consolidated Statements of Operations for the three months ended December 29, 2012 and December 31, 2011 was
based upon awards ultimately expected to vest. In accordance with ASC No. 718,
Stock Based Compensation
, 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 restricted
stock and common stock granted during the three months ended December 29, 2012 and December 31, 2011:
|
|
|
Three months ended
|
|
|
(shares in thousands)
|
|
December 29, 2012
|
|
|
December 31, 2011
|
|
|
Market-based restricted stock
|
|
|
343
|
|
|
|
428
|
|
|
Time-based restricted stock
|
|
|
528
|
|
|
|
686
|
|
|
Performance-based restricted stock
|
|
|
57
|
|
|
|
-
|
|
|
Common stock
|
|
|
20
|
|
|
|
25
|
|
|
Equity-based compensation in shares
|
|
|
948
|
|
|
|
1,139
|
|
The following table reflects total equity-based
compensation expense, which includes restricted stock, stock options and common stock, included in the Consolidated Statements
of Operations during the three months ended December 29, 2012 and December 31, 2011:
|
|
|
Three months ended
|
|
|
(in thousands)
|
|
December 29, 2012
|
|
|
December 31, 2011
|
|
|
Cost of sales
|
|
$
|
148
|
|
|
$
|
85
|
|
|
Selling, general and administrative
|
|
|
2,326
|
|
|
|
1,611
|
|
|
Research and development
|
|
|
727
|
|
|
|
403
|
|
|
Total equity-based compensation expense
|
|
$
|
3,201
|
|
|
$
|
2,099
|
|
The following table reflects equity-based
compensation expense, by type of award, for the three months December 29, 2012 and December 31, 2011:
|
|
|
Three months ended
|
|
|
(in thousands)
|
|
December 29, 2012
|
|
|
December 31, 2011
|
|
|
Market-based restricted stock
|
|
$
|
1,225
|
|
|
$
|
598
|
|
|
Time-based restricted stock
|
|
|
1,732
|
|
|
|
1,140
|
|
|
Performance-based restricted stock
|
|
|
9
|
|
|
|
172
|
|
|
Stock options
|
|
|
25
|
|
|
|
9
|
|
|
Common stock
|
|
|
210
|
|
|
|
180
|
|
|
Total equity-based compensation expense
|
|
$
|
3,201
|
|
|
$
|
2,099
|
|
Pension Plan
In accordance with regulations in Switzerland,
the Company sponsors a Switzerland pension plan covering active employees whose minimum benefits are guaranteed. During fiscal
2012, the Company announced the intention to reduce its Switzerland workforce by approximately 41 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, the Company recognized a pretax curtailment and settlement gain of $1.8 million
during the first quarter of fiscal 2012.
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 as they are defined contribution plans.
NOTE 6: 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.
As of October 1, 2011, the Company had
the Notes that would not result in the issuance of any dilutive shares, since the conversion option was not “in the money”
as of October 1, 2011. The Notes matured on June 1, 2012. The Company repaid the entire principal balance of the Notes of $110.0
million plus interest of $0.5 million in cash. No common shares were issued in connection with repayment of the Notes. Accordingly,
diluted EPS excludes the effect of the conversion of the Notes.
The following tables reflect a reconciliation of the shares
used in the basic and diluted net income per share computation for the three months ended December 29, 2012 and December 31, 2011:
|
|
|
Three months ended
|
|
|
(in thousands, except per share)
|
|
December 29, 2012
|
|
|
December 31, 2011
|
|
|
|
|
Basic
|
|
|
Diluted
|
|
|
Basic
|
|
|
Diluted
|
|
|
NUMERATOR:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
3,604
|
|
|
$
|
3,604
|
|
|
$
|
8,507
|
|
|
$
|
8,507
|
|
|
Less: income applicable to participating securities
|
|
|
-
|
|
|
|
-
|
|
|
|
(20
|
)
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income applicable to common shareholders
|
|
$
|
3,604
|
|
|
$
|
3,604
|
|
|
$
|
8,487
|
|
|
$
|
8,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DENOMINATOR:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding - Basic
|
|
|
74,852
|
|
|
|
74,852
|
|
|
|
73,540
|
|
|
|
73,540
|
|
|
Stock options
|
|
|
|
|
|
|
105
|
|
|
|
|
|
|
|
104
|
|
|
Time-based restricted stock
|
|
|
|
|
|
|
430
|
|
|
|
|
|
|
|
457
|
|
|
Market-based restricted stock
|
|
|
|
|
|
|
822
|
|
|
|
|
|
|
|
527
|
|
|
Weighted average shares outstanding - Diluted (1)
|
|
|
|
|
|
|
76,209
|
|
|
|
|
|
|
|
74,628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share - Basic
|
|
$
|
0.05
|
|
|
$
|
0.05
|
|
|
$
|
0.12
|
|
|
$
|
0.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive shares
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share - Diluted
|
|
|
|
|
|
$
|
0.05
|
|
|
|
|
|
|
$
|
0.11
|
|
|
|
1.
|
For the three months ended December 29, 2012 and December 31, 2011, excludes 0 and 10 dilutive
participating securities, respectively, as the income attributable to these shares was not included in EPS.
|
For the three months ended December
29, 2012 and December 31, 2011, 0.0 million and 0.3 million potentially dilutive shares related to out of the money stock options,
respectively, were excluded from EPS.
NOTE 7: INCOME TAXES
The following table reflects the provision
for income taxes and the effective tax rate for the three months ended December 29, 2012 and December 31, 2011:
|
|
|
Three months ended
|
|
|
(dollar amounts in thousands)
|
|
December 29, 2012
|
|
|
December 31, 2011
|
|
|
Income from operations before income taxes
|
|
$
|
4,379
|
|
|
$
|
10,484
|
|
|
Provision for income taxes
|
|
|
775
|
|
|
|
1,977
|
|
|
Net income
|
|
$
|
3,604
|
|
|
$
|
8,507
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
17.7
|
%
|
|
|
18.9
|
%
|
For the three months ended December 29,
2012 and December 31, 2011, the effective income tax rate differed from the federal statutory rate primarily due to tax from foreign
operations at a lower effective tax rate than the U.S. statutory rate and the impact of tax holidays, offset by an increase for
deferred taxes on un-remitted earnings as well as other U.S. current and deferred taxes.
During the three months ended December
29, 2012, the effective income tax rate increased as compared to the effective tax rate for the fiscal year ended September 29,
2012 due to the recording of a valuation allowance against certain deferred tax assets.
The Company’s future effective tax
rate would be affected if earnings were lower than anticipated in countries where it has lower statutory rates and higher than
anticipated in countries where it has higher statutory rates, by changes in the valuation of its deferred tax assets and liabilities,
or by changes in tax laws, regulations, accounting principles, or interpretations thereof. The Company regularly assesses the effects
resulting from these factors to determine the adequacy of its provision for income taxes.
NOTE 8: SEGMENT INFORMATION
The Company operates two reportable 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.
The following table reflects operating
information by segment for the three months ended December 29, 2012 and December 31, 2011:
|
|
|
Three months ended
|
|
|
(in thousands)
|
|
December 29, 2012
|
|
|
December 31, 2011
|
|
|
Net revenue:
|
|
|
|
|
|
|
|
|
|
Equipment
|
|
$
|
99,902
|
|
|
$
|
106,149
|
|
|
Expendable Tools
|
|
|
14,137
|
|
|
|
13,875
|
|
|
Net revenue
|
|
|
114,039
|
|
|
|
120,024
|
|
|
Cost of sales :
|
|
|
|
|
|
|
|
|
|
Equipment
|
|
|
56,432
|
|
|
|
59,004
|
|
|
Expendable Tools
|
|
|
6,082
|
|
|
|
5,744
|
|
|
Cost of sales
|
|
|
62,514
|
|
|
|
64,748
|
|
|
Gross profit :
|
|
|
|
|
|
|
|
|
|
Equipment
|
|
|
43,470
|
|
|
|
47,145
|
|
|
Expendable Tools
|
|
|
8,055
|
|
|
|
8,131
|
|
|
Gross profit
|
|
|
51,525
|
|
|
|
55,276
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
Equipment
|
|
|
41,725
|
|
|
|
37,268
|
|
|
Expendable Tools
|
|
|
5,595
|
|
|
|
5,632
|
|
|
Operating expenses
|
|
|
47,320
|
|
|
|
42,900
|
|
|
Income from operations:
|
|
|
|
|
|
|
|
|
|
Equipment
|
|
|
1,745
|
|
|
|
9,877
|
|
|
Expendable Tools
|
|
|
2,460
|
|
|
|
2,499
|
|
|
Income from operations
|
|
$
|
4,205
|
|
|
$
|
12,376
|
|
The following table reflects assets by
segment as of December 29, 2012 and September 29, 2012:
|
|
|
As of
|
|
|
(in thousands)
|
|
December 29, 2012
|
|
|
September 29, 2012
|
|
|
Segment assets:
|
|
|
|
|
|
|
|
|
|
Equipment
|
|
$
|
679,556
|
|
|
$
|
746,636
|
|
|
Expendable Tools
|
|
|
89,932
|
|
|
|
68,973
|
|
|
Total assets
|
|
$
|
769,488
|
|
|
$
|
815,609
|
|
The following tables reflect capital expenditures and depreciation
expense for the three months ended December 29, 2012 and December 31, 2011:
|
|
|
Three months ended
|
|
|
(in thousands)
|
|
December 29, 2012
|
|
|
December 31, 2011
|
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
|
Equipment
|
|
$
|
779
|
|
|
$
|
1,187
|
|
|
Expendable Tools
|
|
|
837
|
|
|
|
311
|
|
|
Capital expenditures
|
|
$
|
1,616
|
|
|
$
|
1,498
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense
|
|
|
|
|
|
|
|
|
|
Equipment
|
|
$
|
1,896
|
|
|
$
|
1,400
|
|
|
Expendable Tools
|
|
|
611
|
|
|
|
563
|
|
|
Depreciation expense
|
|
$
|
2,507
|
|
|
$
|
1,963
|
|
NOTE 9: COMMITMENTS, CONTINGENCIES AND CONCENTRATIONS
Agreement to Develop and Lease
On May 7, 2012, Pte entered into the ADL
and a Lease Agreement with DBS Trustee Limited as trustee of Mapletree Industrial Trust (the “Landlord”). Pursuant
to the ADL, the Landlord agreed to develop a building at Lot 17622A Pt Mukim 18 at Serangoon North Avenue 5 (the “Building”)
and Pte agreed to lease from the Landlord 198,134 square feet (the “Initial Premises”) representing approximately 69%
of the Building. The Building is expected to be completed and ready for occupancy in the second half of 2013. Subject to approval
from the relevant authorities, the Building will bear a name to be chosen by Pte.
Warranty Expense
The Company’s equipment is generally
shipped with a one-year warranty against manufacturing defects. The Company establishes reserves for estimated warranty expense
when revenue for the related equipment is recognized. The reserve for estimated warranty expense is based upon historical experience
and management’s estimate of future expenses.
The following table reflects the reserve
for product warranty activity for the three months ended December 29, 2012 and December 31, 2011:
|
|
|
Three months ended
|
|
|
(in thousands)
|
|
December 29, 2012
|
|
|
Decembeer 31, 2011
|
|
|
Reserve for product warranty, beginning of period
|
|
$
|
2,412
|
|
|
$
|
2,245
|
|
|
Provision for product warranty
|
|
|
65
|
|
|
|
174
|
|
|
Product warranty costs paid
|
|
|
(793
|
)
|
|
|
(805
|
)
|
|
Reserve for product warranty, end of period
|
|
$
|
1,684
|
|
|
$
|
1,614
|
|
Other Commitments and Contingencies
The following table reflects obligations
not reflected on the Consolidated Balance Sheet as of December 29, 2012:
|
|
|
|
|
|
Payments due by fiscal year
|
|
|
(in thousands)
|
|
Total
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
2015 and
thereafter
|
|
|
Inventory purchase obligation(1)
|
|
$
|
62,953
|
|
|
$
|
62,953
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Operating lease obligations(2)
|
|
$
|
25,669
|
|
|
$
|
5,976
|
|
|
$
|
3,582
|
|
|
$
|
3,152
|
|
|
$
|
2,470
|
|
|
$
|
10,489
|
|
|
Total
|
|
$
|
88,622
|
|
|
$
|
68,929
|
|
|
$
|
3,582
|
|
|
$
|
3,152
|
|
|
$
|
2,470
|
|
|
$
|
10,489
|
|
|
|
(1)
|
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.
|
|
|
(2)
|
We have minimum rental commitments under various leases (excluding taxes, insurance, maintenance
and repairs, which are also paid by us) primarily for various facility and equipment leases, which expire periodically through
2018 (not including lease extension options, if applicable).
|
Pursuant to ASC No. 840,
Leases,
for lessee's involvement in asset construction, the Company is considered the owner of the building during the construction
phase of the ADL. As of December 29, 2012, the Company has recorded a financing obligation of $4.4 million related to the
building and is expected to record an additional $20.4 million over the construction term, which is expected to be completed in
the next twelve months. The financing obligation is not reflected in the table above.
Under the lease
agreement contemplated by the ADL, (the “Lease Agreement”), the term for the rental of the Initial Premises is expected to be 10 years, (the “Initial Term”). Pte
will have the option to renew for two additional ten-year terms. The combined annual rent and service charge for the Initial
Term will range between approximately $4.0 to $5.0 million Singapore dollars. Subject to renting a minimum amount of space,
Pte will have a right of first refusal for all space that becomes available in the Building, and the Landlord has agreed to
make available a certain amount of additional space for rental at Pte’s option which may be exercised at certain points
during the second half of the Initial Term. Subject to renting a minimum amount of space for a certain period, Pte will have
partial surrender rights. In addition, Pte will have termination rights after renting the Initial Premises for a certain
period of time. The Lease Agreement is not in effect as of the date of this report and is not reflected in the above
table.
Concentrations
The following tables reflect significant customer concentrations
as a percentage of net revenue for the three months ended December 29, 2012 and December 31, 2011:
|
|
|
Three months ended
|
|
|
|
|
December 29, 2012
|
|
|
December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
Advanced Semiconductor Engineering
|
|
|
12.7
|
%
|
|
|
15.3
|
%
|
|
STATS ChipPAC Ltd
|
|
|
11.1
|
%
|
|
|
*
|
|
|
Haoseng Industrial Company Limited
|
|
|
*
|
|
|
|
10.0
|
%
|
* Represents less than 10% of net revenue
The following table reflects significant customer concentrations
as a percentage of total accounts receivable as of December 29, 2012 and December 31, 2011:
|
|
|
As of
|
|
|
|
|
December 29, 2012
|
|
|
December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
Haoseng Industrial Company Limited
|
|
|
23.6
|
%
|
|
|
15.0
|
%
|
|
STATS ChipPAC Ltd
|
|
|
13.0
|
%
|
|
|
*
|
|
|
Advanced Semiconductor Engineering
|
|
|
*
|
|
|
|
17.7
|
%
|
* Represents less than 10% of total accounts receivable
