Edgar Filing: KULICKE & SOFFA INDUSTRIES INC

Unassociated Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 28, 2009

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to ..

Commission File No. 0-121

KULICKE AND SOFFA INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)

PENNSYLVANIA	23-1498399
(State or other jurisdiction of incorporation)	(IRS Employer
	Identification No.)

1005 VIRGINIA DRIVE, FORT WASHINGTON, PENNSYLVANIA 19034

(Address of principal executive offices and Zip Code)

(215) 784-6000

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨		Accelerated filer x
Non-accelerated filer ¨		(Do not check if a smaller reporting company)
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 May 4, 2009, there were 61,216,073 shares of the Registrant's Common Stock, no par value, outstanding.

KULICKE AND SOFFA INDUSTRIES, INC.

FORM 10 – Q

March 28, 2009

Index

		Page Number

PART I.	FINANCIAL INFORMATION

Item 1.	FINANCIAL STATEMENTS (Unaudited)

	Consolidated Balance Sheets as of September 27, 2008 and March 28, 2009	3

	Consolidated Statements of Operations for the three and six months ended March 29, 2008 and March 28, 2009	4

	Consolidated Statements of Cash Flows for the six months ended March 29, 2008 and March 28, 2009	5

	Notes to the Consolidated Financial Statements	6

Item 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	28

Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	44

Item 4.	CONTROLS AND PROCEDURES	45

PART II.	OTHER INFORMATION

Item 1A.	RISK FACTORS	45

Item 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	46

Item 6.	EXHIBITS	46

	SIGNATURES	47

PART I. - FINANCIAL INFORMATION

Item 1. – Financial Statements

KULICKE AND SOFFA INDUSTRIES, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands)

				(Unaudited)
	September 27, 2008			March 28, 2009
ASSETS
Current assets:
Cash and cash equivalents	$	144,932		$	127,607
Restricted cash		35,000			281
Short-term investments		6,149			2,354
Accounts and notes receivable, net of allowance for doubtful accounts of $1,376 and $2,247 respectively		56,643			32,020
Inventories, net		27,236			48,303
Prepaid expenses and other current assets		18,729			12,646
Deferred income taxes		2,118			1,834
Current assets of discontinued operations		127,958			-
Total current assets		418,765			225,045

Property, plant and equipment, net		36,900			39,641
Goodwill		2,709			26,698
Intangible assets		386			54,412
Other assets		5,468			4,648
Non-current assets of discontinued operations		32,909			-
Total assets	$	497,137		$	350,444

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt	$	72,412		$	-
Accounts payable		25,028			9,632
Accrued expenses and other current liabilities		27,255			29,801
Income taxes payable		569			6,496
Current liabilities of discontinued operations		34,411			-
Total current liabilities		159,675			45,929

Long-term debt		175,000			158,964
Deferred income taxes		21,591			15,729
Other liabilities		37,780			10,581
Other liabilities of discontinued operations		624			-
Total liabilities		394,670			231,203

Commitments and contingencies (Note 14)

Shareholders' equity:
Preferred stock, no par value:
Authorized 5,000 shares; issued - none
Common stock, no par value:
Authorized 200,000 shares; issued 58,558 and 66,056 respectively; outstanding 53,648 and 61,146 shares, respectively		295,841			342,543
Treasury stock, at cost, 4,910 shares		(46,118	)		(46,118	)
Accumulated deficit		(149,465	)		(178,124	)
Accumulated other comprehensive income		2,209			940
Total shareholders' equity		102,467			119,241

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	497,137		$	350,444

The accompanying notes are an integral part of these consolidated financial statements.

KULICKE AND SOFFA INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(Unaudited)

	Three months ended						Six months ended
	March 29,			March 28,			March 29,			March 28,
	2008			2009			2008			2009
Net revenue	$	70,781		$	25,232		$	194,313		$	62,648

Cost of sales		42,174			17,187			115,088			40,675

Gross profit		28,607			8,045			79,225			21,973

Selling, general and administrative		19,721			27,836			44,872			57,688
Research and development		15,690			13,258			30,222			28,658
Impairment of goodwill		-			2,709			-			2,709
U.S. pension plan termination		9,152			-			9,152			-
Total operating expenses		44,563			43,803			84,246			89,055

Loss from operations		(15,956	)		(35,758	)		(5,021	)		(67,082	)
Interest income		1,191			193			2,760			947
Interest expense		(885	)		(640	)		(1,757	)		(1,374	)
Gain on extinguishment of debt		-			2,786			170			3,965
Loss from continuing operations before tax		(15,650	)		(33,419	)		(3,848	)		(63,544	)
Provision (benefit) for income taxes from continuing operations		(4,758	)		(276	)		11			(12,158	)
Loss from continuing operations, net of tax		(10,892	)		(33,143	)		(3,859	)		(51,386	)
Income from discontinued operations, net of tax		4,758			-			14,087			22,727
Net income (loss)	$	(6,134	)	$	(33,143	)	$	10,228		$	(28,659	)

Loss per share from continuing operations:
Basic	$	(0.20	)	$	(0.54	)	$	(0.07	)	$	(0.85	)
Diluted	$	(0.20	)	$	(0.54	)	$	(0.07	)	$	(0.85	)

Income per share from discontinued operations:
Basic	$	0.09		$	0.00		$	0.26		$	0.38
Diluted	$	0.09		$	0.00		$	0.26		$	0.38

Net income (loss) per share:
Basic	$	(0.11	)	$	(0.54	)	$	0.19		$	(0.47	)
Diluted	$	(0.11	)	$	(0.54	)	$	0.19		$	(0.47	)

Weighted average shares outstanding:
Basic		53,384			61,054			53,324			60,752
Diluted		53,384			61,054			53,324			60,752

The accompanying notes are an integral part of these consolidated financial statements.

KULICKE AND SOFFA INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

	Six months ended
	March 29, 2008			March 28, 2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	10,228		$	(28,659	)
Less: income from discontinued operations		14,087			22,727
Loss from continuing operations		(3,859	)		(51,386	)
Adjustments to reconcile loss from continuing operations to net cash provided by (used in) operating activities:
U.S. pension plan termination		9,152			-
Gain on extinguishment of debt		(170	)		(3,965	)
Impairment of goodwill		-			2,709
Depreciation and amortization		4,581			11,273
Equity-based compensation and non-cash employee benefits		4,133			478
Provision for doubtful accounts		118			984
Provision for inventory valuation		4,080			5,365
Deferred taxes		(3,648	)		(6,099	)
Changes in operating assets and liabilities, net of businesses acquired or sold:
Accounts and notes receivable		38,703			46,608
Inventory		4,288			(1,630	)
Prepaid expenses and other current assets		(760	)		6,655
Accounts payable and accrued expenses		(40,404	)		(20,687	)
Income taxes payable		1,063			(20,771	)
Other, net		698			633
Net cash provided by (used in) continuing operations		17,975			(29,833	)
Net cash used in discontinued operations		(7,857	)		(1,218	)
Net cash provided by (used in) operating activities		10,118			(31,051	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Orthodyne		-			(87,039	)
Proceeds from sales of investments classified as available-for-sale		30,751			3,779
Purchases of investments classified as available-for-sale		(20,756	)		-
Purchases of property, plant and equipment		(4,702	)		(3,346	)
Changes in restricted cash, net		(10,000	)		34,717
Net cash used in continuing operations		(4,707	)		(51,889	)
Net cash provided by (used in) discontinued operations		(103	)		149,857
Net cash provided by (used in) investing activities		(4,810	)		97,968

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of common stock options		319			3
Payments on borrowings		(3,831	)		(84,358	)
Net cash used in financing activities		(3,512	)		(84,355	)
Effect of exchange rate changes on cash and cash equivalents		(620	)		113
Changes in cash and cash equivalents		1,176			(17,325	)
Cash and cash equivalents, beginning of period		150,571			144,932
Cash and cash equivalents, end of period	$	151,747		$	127,607

CASH PAID FOR:
Interest	$	984		$	981
Income taxes	$	4,152		$	3,466

The accompanying notes are an integral part of these consolidated financial statements.

KULICKE AND SOFFA INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 – BASIS OF PRESENTATION

Basis of Consolidation

These consolidated financial statements include the accounts of Kulicke and Soffa Industries, Inc. and its subsidiaries (the “Company”), with appropriate elimination of intercompany balances and transactions. Beginning in fiscal 2009, the Company’s Packaging Materials segment was renamed Expendable Tools.

On September 29, 2008, the Company completed the sale of its Wire business for gross proceeds of $155.0 million to W.C. Heraeus GmbH (“Heraeus”), a precious metals and technology company based in Hanau, Germany. 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).

On October 3, 2008, the Company completed the acquisition of substantially all of the assets of Orthodyne Electronics Corporation (“Orthodyne”), a privately held company based in Irvine, California. In connection with the Orthodyne acquisition, the Company issued 7.1 million common shares with an estimated value at issuance of $46.2 million and paid $82.6 million in cash subject to further working capital adjustments (see Note 4).

The consolidated financial statements are unaudited with the exception of the September 27, 2008 consolidated balance sheet which was derived from the audited financial statements included in the Company’s Fiscal 2008 Annual Report on Form 10-K.

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 fiscal quarter in each year (and the fiscal year) ends on the Saturday closest to September 30th. The fiscal 2008 quarters ended on December 29, 2007, March 29, 2008, June 28, 2008 and September 27, 2008. The fiscal 2009 quarters end on December 27, 2008, March 28, 2009, June 27, 2009 and October 3, 2009. In fiscal years consisting of 53 weeks, the fourth quarter will consist of 14 weeks.

Nature of Business

The Company designs, manufactures and markets capital equipment and expendable tools as well as services, maintains, repairs and upgrades equipment, all used to assemble semiconductor devices. The Company’s operating results depend upon the capital and operating expenditures of semiconductor manufacturers and subcontract assemblers worldwide which, in turn, depend on the current and anticipated market demand for semiconductors and products utilizing semiconductors. The semiconductor industry is highly volatile and experiences downturns and slowdowns which have a severe negative effect on the semiconductor industry’s demand for semiconductor capital equipment, including assembly equipment manufactured and marketed by the Company and, to a lesser extent, expendable tools such as those sold by the Company. These downturns and slowdowns have 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 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 revenues and expenses during the reporting period. The more significant areas involving the use of estimates in these financial statements include allowances for uncollectible accounts receivable, reserves for excess and obsolete inventory, carrying value and lives of fixed assets, goodwill, valuation allowances for deferred tax assets, deferred tax liabilities for undistributed earnings of certain foreign subsidiaries, tax contingencies, pension benefit liabilities, warranty expense and liabilities, share-based payments and litigation. Actual results could differ from those estimated.

Vulnerability to Certain Concentrations

Financial instruments which may subject the Company to concentrations of credit risk as of September 27, 2008 and March 28, 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 is also exposed to foreign currency fluctuations that impact the remeasurement of net monetary assets of those operations whose functional currency, the US Dollar, differs from their respective local currencies, most notably in Israel, Malaysia, and Singapore. 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 the Company’s reporting currency, the U.S. dollar, most notably in China.

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 Statements of Financial Accounting Standards (“SFAS”) SFAS No. 115, Accounting for Certain Investments in Debt and 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.

Inventories

Inventories are stated at the lower of standard cost (which approximates actual 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 forecasted future consumption for non-Wedge bonder equipment, twenty-four months historical consumption for Wedge bonder equipment, twelve months historical consumption for expendable tools and twenty-four months historical consumption for spare parts. 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 for 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 its 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.

Long-Lived Assets

The Company’s long-lived assets are primarily property, plant and equipment, intangible assets and goodwill. In accordance with the provisions of SFAS No. 142, Goodwill and Other Intangible Assets (“SFAS 142”), goodwill is not amortized. SFAS 142 also requires that, at least annually, an impairment test be performed to support the carrying value of goodwill. In addition, whenever events occur that may impact the carrying value of goodwill an impairment test will be performed. The fair value of the Company’s goodwill is based upon estimates of future cash flows and other factors. The Company’s intangible technology assets are managed and valued in the aggregate, as one asset group, not by individual technology. Due to the earlier than anticipated end of product life cycle for the Company’s EasyLine and SwissLine die bonders, during the three months ended March 28, 2009, the Company recorded a non-cash impairment charge of $2.7 million and reduced the value of its die bonder goodwill, which is reported within our Equipment segment, to zero.

In accordance with SFAS No. 144, Accounting for Impairment or Disposal of Long-Lived Assets (“SFAS 144”), 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. SFAS 144 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.

SFAS 144 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. Weak conditions in the global economy are affecting the semiconductor industry and as a result are negatively impacting the Company’s Equipment business. As a result, the Company will continue to monitor its long-lived assets for impairment.

Foreign Currency Translation

The majority of the Company’s business is transacted in U.S. dollars, however, the functional currency of some of the Company’s subsidiaries is their local currency. For the Company’s subsidiaries that have 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)), in accordance with SFAS No. 52, Foreign Currency Translation. 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. The Company recorded net foreign currency transaction gains of $1.0 million and $0.1 million for the three months ended March 29, 2008 and March 28, 2009, respectively. In addition, the Company recorded net foreign currency transaction losses of $0.2 million and gains of $1.7 million for the six months ended March 29, 2008 and March 28, 2009, respectively.

Revenue Recognition

In accordance with Staff Accounting Bulletin (“SAB”) No. 104, Revenue Recognition (“SAB 104”), the Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable, the collectibility is reasonably assured, and it has completed its equipment installation obligations and received customer acceptance, or is otherwise released from its installation or customer acceptance obligations. In the event terms of the sale provide for a customer acceptance period, revenue is recognized upon the expiration of the acceptance period or customer acceptance, whichever occurs first. The Company’s standard terms are Ex Works (the Company’s factory), with title transferring to its customer at the Company’s loading dock or upon embarkation. The Company has a small percentage of sales with other terms, and revenue is recognized in accordance with the terms of the related customer purchase order. Revenue related to services is recognized upon performance of the services requested by a customer order. Revenue for extended maintenance service contracts with a term more than one month is recognized on a prorated straight-line basis over the term of the contract.

Shipping and handling costs billed to customers are recognized in net revenue. Shipping and handling costs are included in cost of sales.

Research and Development

The Company charges research and development costs associated with the development of new products to expense when incurred, except for pre-production machines which are carried as inventory until sold.

Income Taxes

Deferred income taxes are determined using the liability method in accordance with SFAS No. 109, Accounting for Income Taxes (“SFAS 109”). 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 our 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.

Effective September 30, 2007, the Company adopted the Financial Accounting Standards Board (“FASB”) Interpretation No. 48, Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109 (“FIN 48”). FIN 48 prescribes, among other things, a recognition threshold and measurement attributes for the financial statement recognition and measurement of uncertain tax positions taken or expected to be taken in a company’s income tax return. FIN 48 utilizes a two-step approach for evaluating uncertain tax positions accounted for in accordance with SFAS 109. Step one or recognition, requires a company to determine if the weight of available evidence indicates a tax position is more likely than not to be sustained upon audit, including resolution of related appeals or litigation processes, if any. Step two or measurement, is based on the largest amount of benefit, which is more likely than not to be realized on settlement with the taxing authority.

Earnings per Share

Earnings per share (“EPS”) are calculated in accordance with SFAS No. 128, Earnings per Share. Basic EPS include only the weighted average number of common shares outstanding during the period. Diluted EPS include the weighted average number of common shares and the dilutive effect of stock options, restricted stock and share unit awards and subordinated convertible notes outstanding during the period, when such instruments are dilutive.

Extinguishment of Debt

In accordance with SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64: Amendment of FASB Statement No. 13; and Technical Corrections, and APB No. 30, Reporting Results of Operations – Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary Items, gains and losses from the extinguishment of debt are included in income (loss) from operations unless the extinguishment is both unusual in nature and infrequent in occurrence, in which case the gain or loss would be presented as an extraordinary item.

Equity-Based Compensation

The Company accounts for equity based compensation under the provisions of SFAS No. 123R, Share-Based Payments (“SFAS 123R”). SFAS 123R requires the recognition of the fair value of equity-based compensation in net income. The fair value of the Company’s stock option awards are estimated using a Black-Scholes option valuation model. This model requires the input of highly subjective assumptions and elections including expected stock price volatility and the estimated life of each award. 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 SFAS 123R and continues to use a graded vesting method for awards granted prior to the adoption of SFAS 123R.

Recent Accounting Pronouncements

FSP 142-3

In April 2008, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”) No. 142-3, Determination of the Useful Life of Intangible Assets (“FSP 142-3”). FSP 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS 142 and requires enhanced disclosures relating to: (a) the entity's accounting policy on the treatment of costs incurred to renew or extend the term of a recognized intangible asset; (b) in the period of acquisition or renewal, the weighted-average period prior to the next renewal or extension (both explicit and implicit), by major intangible asset class and (c) for an entity that capitalizes renewal or extension costs, the total amount of costs incurred in the period to renew or extend the term of a recognized intangible asset for each period for which a statement of financial position is presented, by major intangible asset class. FSP 142-3 must be applied prospectively to all intangible assets acquired during and subsequent to fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. The Company is currently evaluating the potential impact that FSP 142-3 will have on its consolidated results of operations and financial condition.

FSP APB 14-1

In May 2008, the FASB issued FSP No. APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash Settlement) (“FSP APB 14-1”), which is effective for fiscal years beginning after December 15, 2008. FSP APB 14-1 clarifies that convertible debt instruments that may be settled in cash upon conversion are not addressed by paragraph 12 of APB No. 14, Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants. FSP APB 14-1 also specifies that issuers of such instruments 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. The Company will adopt FSP APB 14-1 beginning fiscal 2010. The adoption will have a material impact on the Company’s consolidated results of operations.

FSP EITF 03-6-1

In June 2008, the FASB issued FSP Emerging Issues Task Force (“EITF”) Issue No. 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities (“FSP EITF 03-6-1”). FSP EITF 03-6-1 clarified that all outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends participate in undistributed earnings with common shareholders. Awards of this nature are considered participating securities and the two-class method of computing basic and diluted earnings per share must be applied. FSP EITF 03-6-1 is effective for fiscal years beginning after December 15, 2008. The Company is currently evaluating the potential impact that FSP EITF 03-6-1 will have on its consolidated results of operations and financial condition.

EITF 07-5

In June 2008, the FASB ratified EITF Issue No. 07-5, Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock (“EITF 07-5”). EITF 07-5 provides that an entity should use a two step approach to evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock, including evaluating the instrument’s contingent exercise and settlement provisions. It also clarifies on the impact of foreign currency denominated strike prices and market-based employee stock option valuation instruments on the evaluation. EITF 07-5 is effective for fiscal years beginning after December 15, 2008. The Company is currently evaluating the potential impact that EITF 07-5 will have on its consolidated results of operations and financial condition.

NOTE 2 – DISCONTINUED OPERATIONS

The Company committed to a plan of disposal for its Wire business in fiscal 2008, and on September 29, 2008, completed the sale of certain assets and liabilities associated with its Wire business. Included in discontinued operations for the six months ended March 28, 2009, the Company recognized net proceeds of $149.9 million and a net gain of $22.7 million, net of tax.

The following table reflects operating results of the Wire business discontinued operations for the three and six months ended March 29, 2008 and March 28, 2009:

	Three months ended					Six months ended
(in thousands)	March 29, 2008			March 28, 2009		March 29, 2008		March 28, 2009

Net revenue	$	105,559		$	-	$	208,277	$	-

Income (loss) before tax	$	5,318		$	-	$	11,847	$	(319	)
Gain on sale of Wire business before tax		-			-		-		23,524
Income from discontinued operations before tax		5,318			-		11,847		23,205
Income tax benefit (expense)		(560	)		-		2,240		(478	)
Income from discontinued operations, net of tax	$	4,758		$	-	$	14,087	$	22,727

The following table reflects the major classes of assets and liabilities associated with the Company’s Wire business discontinued operations as of September 27, 2008:

	As of
(in thousands)	September 27, 2008

Accounts receivable, net	$	78,573
Inventories, net		48,907
Other current assets		478
Plant, property and equipment, net		3,053
Goodwill		29,684
Other assets		172
Total assets of discontinued operations		160,867
Accounts payable		32,275
Accrued expenses and other current liabilities		2,136
Other liabilities		624
Total liabilities of discontinued operations		35,035
Net assets of discontinued operations	$	125,832

The following table reflects cash flows associated with the Company’s discontinued operations for the three and six months ended March 29, 2008 and March 28, 2009:

	Six months ended
(in thousands)	March 29, 2008			March 28, 2009

Cash flows provided by (used in):
Operating activities: Wire business	$	(7,124	)	$	(319	)
Operating activities: Test business (sold in fiscal 2006) (1)		(733	)		(899	)
Investing activities: Wire business		(103	)		149,857

Net cash provided by (used in) discontinued operations	$	(7,960	)	$	148,639

(1) Represents facility-related costs associated with the Company’s former Test operations.

The Company owes Heraeus, the buyer of the Wire business, $1.9 million for certain working capital adjustments, and Heraeus owes the Company $0.1 million for certain transition services. These amounts are included in other current liabilities on the Consolidated Balance Sheet.

NOTE 3 – COST REDUCTION PLAN

Due to deteriorating conditions in the global economy and projected weaker demand for the Company’s products and services, management determined that it was in the best interests of the Company to minimize cash usage and reduce employee compensation costs. Accordingly, the Company has committed to a plan to reduce its global workforce and during the first and second fiscal quarters of 2009, it announced the reduction of approximately 240 and 250 employees, respectively. These workforce reductions represent approximately 20% of total employees.

In addition, during the three months ended March 28, 2009, the Company announced employee wage reductions of 5% to 20% except for manufacturing direct labor employees. Direct labor employees had their work schedules reduced on a factory-by-factory basis according to manufacturing demand levels. Salary reductions were effective February 2009, subject to local labor regulations outside the U.S., and will continue until business conditions improve. Additionally, the Company suspended cash matching contributions to the Wedge bonder employees’ 401(k) retirement income plan.

Subsequent to quarter end on March 29, 2009, the Company committed to a plan to reduce its Israel workforce by approximately 170 employees over a period of approximately 18 months. As part of this workforce reduction plan, substantially all of the Company’s Israel-based manufacturing will be transferred to the Company’s manufacturing facilities in Suzhou, China. Management determined that it was in the best interests of the Company to reduce compensation and other costs by migrating production from Israel to China. The Company anticipates it will incur pre-tax expense of approximately $2.1 million primarily for severance and retention costs, and estimates its accrual for severance benefits to be approximately $1.6 million.

The following table reflects severance activity during the three and six months ended March 28, 2009:

(in thousands)	Three months ended March 28, 2009			Six months ended March 28, 2009

Accrual for estimated severance and benefits, beginning of period	$	1,223		$	-
Provision for severance and benefits (1)		4,163			6,748
Payment of severance and benefits		(2,966	)		(4,328	)
Accrual for estimated severance and benefits as of March 28, 2009 (2)	$	2,420		$	2,420

(1) Provision for severance and benefits expense is included within selling, general and administrative expenses on the Consolidated Statements of Operations. For the three months ended March 28, 2009, of the $4.2 million severance expense, $3.1 million is attributable to the Company’s Equipment segment and $1.1 million to the Company’s Expendable Tools segment. For the six months ended March 28, 2009, of the $6.7 million severance expense, $4.6 million is attributable to the Company’s Equipment segment and $2.1 million to the Company’s Expendable Tools segment. Accrual for severance benefits does not include approximately $1.6 million related to the Israel workforce reduction announced on March 29, 2009 since their terminations occurred subsequent to quarter end.

(2) Accrual for estimated severance and benefits is included within accrued expenses and other current liabilities and other liabilities on the Consolidated Balance Sheet.

NOTE 4 – PURCHASE OF ORTHODYNE

On October 3, 2008, the Company completed the acquisition of substantially all of the assets and assumption of certain liabilities of Orthodyne pursuant to an Asset Purchase Agreement (the “Agreement”). The purchase price for Orthoydne consisted of approximately 7.1 million common shares with an estimated value at issuance of $46.2 million and $82.6 million in cash subject to working capital adjustments, which were settled during the three months ended March 28, 2009. Subject to certain limitations, Orthodyne agreed to indemnify the Company for breaches of Orthodyne's representations, warranties and covenants. A total of 15% of the purchase price was placed in escrow as partial security for Orthodyne's indemnification obligations under the Agreement. In addition, the Company agreed to pay Orthodyne up to an additional $40.0 million in cash based upon the gross profit realized by the acquired business over the next three years pursuant to an Earnout Agreement entered into between the Company and Orthodyne on July 31, 2008. The former owners of Orthodyne are currently employed by the Company, although payment of the Earnout is not contingent upon their respective continued employment.

In accordance with SFAS No. 141, Business Combinations, the Company has accounted for the acquisition under the purchase method of accounting. Accordingly, respective balances and the results of operations of Orthodyne, since the acquisition date, have been included in the Company’s interim Consolidated Financial Statements. The Company recorded the Wedge bonder intangible assets at fair market value. The preliminary allocation of the purchase price for this acquisition may change due to Earnout Agreement.

The following table summarizes the estimated fair values of assets acquired and liabilities assumed as of the acquisition date:

	As of
(in thousands)	October 3, 2008

Accounts and notes receivable	$	22,240
Inventories (1)		24,805
Other current assets		298
Plant, property & equipment		4,264
Wedge bonder intangible assets (see Note 5)		59,600
Other assets		444
Total assets acquired				$	111,651

Current liabilities		(5,089	)
Total liabilities assumed					(5,089	)

Net assets acquired					106,562

Cost of Orthodyne (2)					133,260

Goodwill (see Note 5)				$	26,698

(1) Includes adjustment of $1.8 million to record inventory at market value. As inventory is sold, the Company’s gross profit will reflect this market value adjustment.

(2) Consisted of: $82.6 million of cash, 7.1 million common shares with an estimated value at issuance of $46.2 million, final working capital adjustments and capitalized acquisition costs.

The acquisition of Orthoydne occurred at the beginning of the first quarter of fiscal 2009; therefore, its results are included in the Company’s Consolidated Statement of Operations for the three and six months ended March 28, 2009. The following table reflects pro forma unaudited operating results for the Company, assuming the acquisition of Orthodyne had occurred as of the beginning of each of the periods presented and including certain pro forma adjustments:

	Three months ended March 29, 2008			Six months ended March 29, 2008
(in thousands, except per share data)
Unaudited
Net revenues	$	97,339		$	251,736
Gross profit		42,856			111,247
Income (loss) from continuing operations		(13,559	)		261
Income (loss) from continuing operations, net of tax	$	(8,581	)	$	1,271

Income (loss) per share from continuing operations:
Basic	$	(0.14	)	$	0.02
Diluted	$	(0.14	)	$	0.02

Weighted average shares outstanding:
Basic		60,501			60,441
Diluted		60,501			60,719

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 at the end of 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 2008 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 their respective carrying values.

Due to the earlier than anticipated end of product life cycle for the Company’s EasyLine and SwissLine die bonders, during the three months ended March 28, 2009, 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 SFAS 144 on an undiscounted basis; however, the Company recorded a non-cash impairment charge of $2.7 million and reduced the value of the die bonder goodwill to zero. When conducting its goodwill impairment analysis, the Company calculated its potential impairment charges based on the two-step test identified in SFAS 142 and 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.

The following table reflects goodwill as of September 27, 2008 and March 28, 2009:

	As of
(in thousands)	September 27, 2008		March 28, 2009

Equipment segment - wedge bonder	$	-	$	20,290
Expendable Tools segment - wedge bonder		-		6,408
Equipment segment - die bonder		2,709		-
	$	2,709	$	26,698

Goodwill related to the Company’s Wire business of $29.7 million as of September 27, 2008 is reflected in non-current assets of discontinued operations (see Note 4).

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 and die bonder trademarks and developed technology.

The following table reflects the intangible asset balances as of September 27, 2008 and March 28, 2009:

	As of						Average original estimated useful
(in thousands)	September 27, 2008			March 28, 2009			lives (in years)
Wedge bonder developed technology	$	-		$	33,200			7.0
Wedge bonder customer relationships		-			19,300			5.0
Wedge bonder trade name		-			4,600			8.0
Wedge bonder other intangible assets		-			2,500			1.9
Accumulated amortization		-			(5,472	)
Net wedge bonder (Note 4)		-			54,128
Die bonder trademarks and technology licenses		767			767			4.5
Accumulated amortization		(381	)		(483	)
Net die bonder		386			284
Net intangible assets	$	386		$	54,412

The following table reflects estimated annual amortization expense related to intangible assets as of March 28, 2009:

(in thousands)
2009 (remaining for fiscal year)	$	5,544
2010		9,655
2011		9,646
2012		9,178
2013		9,178
2014-2016		11,211

	$	54,412

NOTE 6 – COMPREHENSIVE INCOME (LOSS)

The following table reflects the components of comprehensive income (loss) for the three and six months ended March 29, 2008 and March 28, 2009:

	Three months ended						Six months ended
(in thousands)	March 29, 2008			March 28, 2009			March 29, 2008		March 28, 2009
Net income (loss) (1)	$	(6,134	)	$	(33,143	)	$	10,228	$	(28,659	)
Gain (loss) from foreign currency translation adjustments		309			(143	)		1,205		(1,438	)
Unrealized gain on investments, net of taxes		8			3			-		3
Unrecognized actuarial net gain (loss), Switzerland pension plan		1,467			(119	)		1,467		166
Unrecognized actuarial net gain, U.S. pension plan		-			-			153		-
Reclassification adjustment related to U.S. pension plan termination, net of tax		5,749			-			5,749		-
Other comprehensive income (loss)	$	7,533		$	(259	)	$	8,574	$	(1,269	)
Comprehensive income (loss)	$	1,399		$	(33,402	)	$	18,802	$	(29,928	)

(1) Includes continuing and discontinued operations.

The following table reflects accumulated other comprehensive income (loss) reflected on the Consolidated Balance Sheets as of September 27, 2008 and March 28, 2009:

	As of
(in thousands)	September 27, 2008			March 28, 2009
Gain (loss) from foreign currency translation adjustments	$	897		$	(541	)
Unrealized loss on investments, net of taxes		(16	)		(13	)
Unrecognized actuarial net gain, net of taxes		1,328			1,494
Accumulated other comprehensive income	$	2,209		$	940

NOTE 7 – BALANCE SHEET COMPONENTS

The following tables reflect the components of significant balance sheet accounts:

	As of
(in thousands)	September 27, 2008			March 28, 2009
Cash, cash equivalents, restricted cash and short-term investments:
Cash, money market bank deposits and other cash equivalents	$	144,932		$	127,607
Restricted cash (1)		35,000			281
Short-term investments		6,149			2,354
	$	186,081		$	130,242
Accounts and notes receivable, net:
Customer accounts receivable	$	57,997		$	31,824
Other accounts receivable		22			2,443
		58,019			34,267
Allowance for doubtful accounts		(1,376	)		(2,247	)
	$	56,643		$	32,020

Inventories, net (2):
Raw materials and supplies	$	18,708		$	42,760
Work in process		8,328			9,260
Finished goods		6,697			9,198
		33,733			61,218
Inventory reserves		(6,497	)		(12,915	)
	$	27,236		$	48,303

Property, plant and equipment, net (2):
Land	$	2,735		$	2,735
Buildings and building improvements		14,361			14,039
Leasehold improvements		9,560			9,161
Data processing and hardware equipment and software		17,243			21,534
Machinery and equipment		42,571			46,053
		86,470			93,522
Accumulated depreciation		(49,570	)		(53,881	)
	$	36,900		$	39,641

	As of
(in thousands)	September 27, 2008		March 28, 2009
Accrued expenses and other current liabilities:
Wages and benefits	$	9,195	$	7,824
Inventory purchase commitment accruals		2,663		3,483
Severance (3)		1,530		3,281
Professional fees and services		1,610		2,466
Short-term facility accrual related to discontinued operations (Test) (4)		1,403		1,923
Payable to Heraeus (5)		-		1,808
Deferred rent		1,264		1,292
Sales and use tax payable		-		1,174
Customer advances		1,543		966
Other		8,047		5,584
	$	27,255	$	29,801

Other liabilities:
Long-term facility accrual related to discontinued operations (Test) (4)	$	2,544	$	3,726
Post employment foreign severance obligations		3,291		2,615
Switzerland pension plan obligation		2,500		2,162
Operating lease retirement obligations		1,822		1,624
Long-term income taxes payable (see Note 11)		26,691		-
Other		932		454
	$	37,780	$	10,581

(1) As of September 27, 2008, the Company’s restricted cash was used to support its gold financing arrangement, which was terminated upon the sale of the Wire business. As of March 28, 2009, the Company’s restricted cash was related to customs in China.

(2) Inventories, net and property, plant and equipment, net increased from September 27, 2008 to March 28, 2009 primarily due to the acquisition of Orthodyne.

(3) Total severance payable within the next twelve month and includes severance plan discussed in Note 3.

(4) Liabilities increased due to change in assumptions for closed Test facilities.

(5) Amounts owed to Heraeus for working capital adjustments.

NOTE 8 – DEBT OBLIGATIONS

The following table reflects debt consisting of Convertible Subordinated Notes as of September 27, 2008 and March 28, 2009:

					(in thousands)
					As of
	Payment Dates	Conversion		Maturity	September 27,		March 28
Rate	of each year	Price		Date	2008		2009
0.500%	May 30 and November 30	$	20.33	Matured November 30, 2008	$	72,412	$	-
1.000%	June 30 and December 30	$	12.84	June 30, 2010		65,000		48,964
0.875%	June 1 and December 1	$	14.36	June 1, 2012		110,000		110,000
					$	247,412	$	158,964

The following table reflects amortization expense related to issue costs from the Company’s Subordinated Convertible Notes for the three and six months ended March 29, 2008 and March 28, 2009:

	Three months ended				Six months ended
(in thousands)	March 29, 2008		March 28, 2009		March 29, 2008		March 28, 2009
Amortization expense related to issue costs	$	378	$	229	$	756	$	518

The following table reflects the Company’s purchases of its Convertible Subordinated Notes for the three and six months ended March 29, 2008 and March 28, 2009:

	Three months ended				Six months ended
(in thousands)	March 29, 2008		March 28, 2009		March 29, 2008		March 28, 2009
0.5% Convertible Subordinated Notes (1):
Face value purchased	$	-	$	-	$	4,000	$	43,050
Net cash		-		-		3,815		42,839
Deferred financing costs		-		-		15		18
Recognized gain, net of deferred financing costs		-		-		170		193

1.0% Convertible Subordinated Notes: (2)
Face value purchased	$	-	$	13,036	$	-	$	16,036
Net cash		-		10,168		-		12,158
Deferred financing costs		-		82		-		106
Recognized gain, net of deferred financing costs		-		2,786		-		3,772
Gain on early extinguishment of debt	$	-	$	2,786	$	170	$	3,965

(1)	Fiscal 2009 repurchase transactions occurred prior to redemption on November 30, 2008.

(2)	Activity during the three months ended March 28, 2009 reflects repurchases pursuant to a tender offer.

NOTE 9 - SHAREHOLDERS’ EQUITY

Common stock

On October 3, 2008, in connection with the acquisition of Orthodyne, the Company issued approximately 7.1 million shares of its common stock valued at $46.2 million and filed with the Securities and Exchange Commission a registration statement covering the resale of those common shares on October 28, 2008. This registration statement became effective on November 3, 2008 (see Note 4).

401(k) Retirement Income Plan

The following table reflects the Company’s matching contributions to its 401(k) retirement income plan which were made in the form of issued and contributed shares of Company common stock during the three and six months ended March 29, 2008 and March 28, 2009:

	Three months ended				Six months ended
(in thousands)	March 29, 2008		March 28, 2009		March 29, 2008		March 28, 2009
Number of common shares		74		177		108		273
Fair value based upon market price at date of distribution	$	417	$	288	$	674	$	492

Equity-Based Compensation

As of March 28, 2009, the Company had eight equity-based employee compensation plans (the “Employee Plans”) and three director compensation plans (the “Director Plans”) (collectively, the “Plans”) under which stock options, share awards or common stock have been granted at 100% of the market price of the Company’s common stock on the date of grant. In general, stock options and time-based restricted stock awarded to employees vest annually over a three year period. 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. In accordance with the Plans, non-employee directors were granted common stock during the three and six months ended March 28, 2009.

The following table reflects stock options, restricted stock and common stock granted during the three and six months ended March 29, 2008 and March 28, 2009:

	Three months ended				Six months ended
(number of shares in thousands)	March 29, 2008		March 28, 2009		March 29, 2008		March 28, 2009
Performance-based restricted stock		-		2		536		403
Time-based restricted stock		-		45		-		825
Stock options		17		15		940		154
Common stock		28		65		48		106
Equity-based compensation in shares		45		127		1,524		1,488

The following table summarizes equity-based compensation expense (reversal of expense), by type of award, included in the Consolidated Statements of Operations during the three and months ended March 29, 2008 and March 28, 2009:

	Three months ended				Six months ended
(in thousands)	March 29, 2008		March 28, 2009		March 29, 2008		March 28, 2009
Performance-based restricted stock	$	351	$	25	$	670	$	(1,537	)
Time-based restricted stock		-		179		-		380
Stock options		684		334		2,429		843
Common stock		180		120		360		300
Equity-based compensation expense	$	1,215	$	658	$	3,459	$	(14	)

In light of the deteriorating economic conditions that worsened in fiscal 2009, the Company reevaluated its revenue forecasts for fiscal 2009. In connection with the continuing global economic decline and its reduced revenue forecasts, during the first quarter of fiscal 2009, the Company determined that performance objectives for the performance-based restricted stock issued in fiscal 2007 and fiscal 2008 would not be attained at the previous estimated levels. By lowering estimated attainment percentages, total compensation expense for the performance-based restricted stock decreased and previously recorded compensation expense was reversed in accordance with SFAS 123R.

The following table reflects total equity-based compensation expense (reversal of expense), which includes stock options, restricted stock and common stock, included in the Consolidated Statements of Operations during the three and six months ended March 29, 2008 and March 28, 2009:

	Three months ended				Six months ended
(in thousands)	March 29, 2008		March 28, 2009		March 29, 2008		March 28, 2009
Cost of sales	$	62	$	28	$	129	$	(1	)
Selling, general and administrative		844		416		2,314		(251	)
Research and development		309		214		1,016		238
Equity-based compensation expense	$	1,215	$	658	$	3,459	$	(14	)

The following table summarizes the unrecognized equity-based compensation expense, by type of award:

	As of				Average remaining
(in thousands)	March 29, 2008		March 28, 2009		contractual life in years
Performance-based restricted stock	$	3,774	$	438		2.2
Time-based restricted stock		-		1,931		2.5
Stock options		5,962		1,775		1.5
Unrecognized equity-based compensation expense	$	9,736	$	4,144

NOTE 10 – EMPLOYEE BENEFIT PLANS

U.S. Pension Plan

In February 2007, the Company’s Board of Directors approved the termination of the Company’s non-contributory defined benefit pension plan (the “U.S. pension plan”). Participant benefits were not adversely impacted by this termination, and in July 2007, the Company made a $1.9 million cash contribution to fully fund the U.S. pension plan. The U.S. pension plan subsequently purchased a group annuity contract on a revocable basis, pending approval of the proposed plan termination by the Pension Benefit Guaranty Corporation (“PBGC”) and issuance of a favorable determination letter by the Internal Revenue Service (“IRS”). The PBGC review period expired and on March 26, 2008, the Company received a favorable determination letter from the IRS. Accordingly, during fiscal 2008, the group annuity contract became irrevocable, a termination of the U.S. pension plan occurred, and the Company recognized one-time non-cash expense of $9.2 million, offset by a $3.5 million tax benefit, associated with recognizing unamortized actuarial losses.

There was no net periodic pension expense for the three and six months ending March 28, 2009 as the U.S. pension plan was terminated. The following table reflects net periodic pension expense for the three and six months ended March 29, 2008:

	Three months ended			Six months ended
(in thousands)	March 29, 2008			March 29, 2008
Interest expense	$	351		$	702
Amortization of net loss, including termination charge		9,152			9,310
Expected return on plan assets		(351	)		(702	)

Net periodic pension expense	$	9,152		$	9,310

Other U.S. Plans

The Company has a 401(k) retirement income plan for its employees. This plan allows for employee contributions and matching Company contributions in varying percentages, depending on employee age and years of service, ranging from 50% to 175% of the employees’ contributions. The following table reflects the Company’s matching contributions to the 401(k) retirement income plan which were made in the form of issued and contributed shares of Company common stock during the three and six months ended March 29, 2008 and March 28, 2009:

	Three months ended				Six months ended
(in thousands)	March 29, 2008		March 28, 2009		March 29, 2008		March 28, 2009
Number of common shares		74		177		108		273
Fair value based upon market price at date of distribution	$	417	$	288	$	674	$	492

In addition to the 401(k) retirement income plan discussed above, the Company has a 401(k) retirement income plan for its Wedge bonder employees. Effective January 2009, to minimize cash usage during the current economic downturn, the Company suspended cash matching contributions to its Wedge bonder employees’ 401(k) retirement income plan. The following table reflects Wedge bonder employees’ 401(k) retirement income plan cash matching contributions:

	Three months ended		Six months ended
(in thousands)	March 28, 2009		March 28, 2009
Cash contributions to Wedge bonder employees' 401(k) retirement income plan	$	-	$	139

Switzerland Pension Plan

Per Switzerland regulations, the Company sponsors a Switzerland pension plan covering active employees whose minimum benefits are guaranteed. This Switzerland pension plan has been funded to the legal requirement, and the Company is current in all required pension contributions. However, in accordance with U.S. generally accepted accounting principles of pension accounting, even though the Switzerland pension plan is fully funded for local statutory purposes, the Switzerland pension plan must be treated as an under-funded defined benefit plan for U.S. reporting, since the fair value of the plan’s assets is less than the plan’s projected benefit obligation.

The following table reflects the Switzerland net periodic pension expense for the three months and six months ended March 28, 2008 and March 29, 2009:

	Three months ended						Six months ended
(in thousands)	March 29, 2008			March 28, 2009			March 29, 2008			March 28, 2009
Service cost	$	192		$	173		$	428		$	346
Interest expense		84			98			213			196
Expected return on plan assets		(93	)		(93	)		(206	)		(187	)
Amortization of net gain		-			(12	)		(12	)		(24	)
Net periodic pension expense	$	183		$	166		$	423		$	331

NOTE 11 – INCOME TAXES

The following table reflects the provision (benefit) for income taxes and the effective tax rate from continuing operations for the six months ended March 29, 2008 and March 28, 2009:

	Six months ended
(in thousands)	March 29, 2008			March 28, 2009
Loss from continuing operations before taxes	$	(3,848	)	$	(63,544	)
Provision (benefit) for income taxes		11			(12,158	)

Loss from continuing operations	$	(3,859	)	$	(51,386	)

Effective tax rate		-0.3	%		19.1	%

For the six months ended March 28, 2009, the effective income tax rate related to continuing operations differed from the federal statutory rate primarily due to: increases in the valuation allowance, state income taxes, tax from foreign operations, impact of tax holidays, decreases in deferred taxes for un-remitted earnings, and decreases in tax reserves.

For the six months ended March 29, 2008, the effective income tax rate related to continuing operations differed from the federal statutory rate primarily due to: decreases in the valuation allowance, Federal alternative minimum taxes, state income taxes, taxes from foreign operations, benefits related to tax holidays, various permanent items, increases in deferred taxes for unremitted earnings, the tax effect of the termination of the U.S. pension plan and increases in tax reserves.

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). 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, 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. The settlement was paid during the Company’s second fiscal quarter. As a result of the Israel tax settlement, the Company recognized a $12.1 million benefit from income taxes through the six months ended March 28, 2009. The $12.1 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 $12.5 million for which the matter was settled. The entire amount of the reversal impacted the Company’s effective tax rate as indicated above.

The U.S. Internal Revenue Service (“IRS”) is in the initial stages of an income tax audit for the fiscal 2006 tax year. As of March 28, 2009, the IRS auditor has submitted an initial information request and the Company is in the process of responding to that request. No further information is available with respect to this audit.

NOTE 12 - SEGMENT INFORMATION

Fiscal 2009 segment information includes the Company’s Wedge bonder business acquired during fiscal 2009, which is included within both the Equipment and Expendable Tools segments. The following table reflects selected segment information for the three and six months ended March 29, 2008 and March 28, 2009 and as of September 27, 2008 and March 28, 2009:

	Three months ending March 29, 2008

	Equipment			Expendable Tools
(in thousands)	Segment			Segment			Consolidated
Net revenue	$	57,560		$	13,221		$	70,781
Cost of sales		34,803			7,371			42,174
Gross profit		22,757			5,850			28,607
Operating expenses		27,486			7,925			35,411
U.S. pension plan termination		9,152			-			9,152
Loss from operations	$	(13,881	)	$	(2,075	)	$	(15,956	)

	Six months ending March 29, 2008

	Equipment			Expendable Tools
(in thousands)	Segment			Segment			Consolidated
Net revenue	$	165,018		$	29,295		$	194,313
Cost of sales		100,596			14,492			115,088
Gross profit		64,422			14,803			79,225
Operating expenses		60,760			14,334			75,094
U.S. pension plan termination		9,152			-			9,152