Edgar Filing: KULICKE & SOFFA INDUSTRIES INC

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 June 27, 2009

o	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 July 27, 2009, there were 61,306,612 shares of the Registrant's Common Stock, no par value, outstanding.

KULICKE AND SOFFA INDUSTRIES, INC.

FORM 10 – Q

June 27, 2009

Index

		Page Number

PART I.	FINANCIAL INFORMATION

Item 1.	FINANCIAL STATEMENTS (Unaudited)

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

	Consolidated Statements of Operations for the three and nine months ended June 28, 2008 and June 27, 2009	4

	Consolidated Statements of Cash Flows for the nine months ended June 28, 2008 and June 27, 2009	5

	Notes to the Consolidated Financial Statements	6

Item 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	30

Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	45

Item 4.	CONTROLS AND PROCEDURES	46

PART II.	OTHER INFORMATION

Item 1A.	RISK FACTORS	46

Item 6.	EXHIBITS	47

	SIGNATURES	48

PART I. - FINANCIAL INFORMATION

Item 1. – Financial Statements

KULICKE AND SOFFA INDUSTRIES, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands)

				(Unaudited)
	September 27, 2008			June 27, 2009
ASSETS
Current assets:
Cash and cash equivalents	$	144,932		$	114,687
Restricted cash		35,000			281
Short-term investments		6,149			2,317
Accounts and notes receivable, net of allowance for doubtful accounts of $1,376 and $1,784 respectively		56,643			50,542
Inventories, net		27,236			42,103
Prepaid expenses and other current assets		18,729			10,508
Deferred income taxes		2,118			1,162
Current assets of discontinued operations		127,958			-
Total current assets		418,765			221,600

Property, plant and equipment, net		36,900			38,250
Goodwill		2,709			26,698
Intangible assets		386			51,647
Other assets		5,468			5,767
Non-current assets of discontinued operations		32,909			-
Total assets	$	497,137		$	343,962

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt	$	72,412		$	-
Accounts payable		25,028			20,682
Accrued expenses and other current liabilities		27,255			30,689
Income taxes payable		569			586
Current liabilities of discontinued operations		34,411			-
Total current liabilities		159,675			51,957

Long-term debt		175,000			158,964
Deferred income taxes		21,591			15,319
Other liabilities		37,780			10,666
Other liabilities of discontinued operations		624			-
Total liabilities		394,670			236,906

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 61,251 shares, respectively		295,841			343,534
Treasury stock, at cost, 4,910 shares		(46,118	)		(46,118	)
Accumulated deficit		(149,465	)		(191,982	)
Accumulated other comprehensive income		2,209			1,622
Total shareholders' equity		102,467			107,056

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	497,137		$	343,962

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						Nine months ended
	June 28,			June 27,			June 28,			June 27,
	2008			2009			2008			2009
Net revenue	$	72,507		$	52,076		$	266,820		$	114,724

Cost of sales		42,805			32,407			157,893			73,082

Gross profit		29,702			19,669			108,927			41,642

Selling, general and administrative		22,180			21,887			67,052			79,575
Research and development		15,012			12,264			45,234			40,922
Impairment of goodwill		-			-			-			2,709
U.S. pension plan termination		-			-			9,152			-
Total operating expenses		37,192			34,151			121,438			123,206

Loss from operations		(7,490	)		(14,482	)		(12,511	)		(81,564	)
Interest income		968			75			3,728			1,022
Interest expense		(850	)		(607	)		(2,607	)		(1,981	)
Gain on extinguishment of debt		-			-			170			3,965
Loss from continuing operations before tax		(7,372	)		(15,014	)		(11,220	)		(78,558	)
Benefit for income taxes from continuing operations		(2,629	)		(1,156	)		(2,618	)		(13,314	)
Loss from continuing operations, net of tax		(4,743	)		(13,858	)		(8,602	)		(65,244	)
Income from discontinued operations, net of tax		2,946			-			17,033			22,727
Net income (loss)	$	(1,797	)	$	(13,858	)	$	8,431		$	(42,517	)

Loss per share from continuing operations:
Basic	$	(0.09	)	$	(0.23	)	$	(0.16	)	$	(1.07	)
Diluted	$	(0.09	)	$	(0.23	)	$	(0.16	)	$	(1.07	)

Income per share from discontinued operations:
Basic	$	0.06		$	-		$	0.32		$	0.37
Diluted	$	0.06		$	-		$	0.32		$	0.37

Net income (loss) per share:
Basic	$	(0.03	)	$	(0.23	)	$	0.16		$	(0.70	)
Diluted	$	(0.03	)	$	(0.23	)	$	0.16		$	(0.70	)

Weighted average shares outstanding:
Basic		53,528			61,220			53,392			60,908
Diluted		53,528			61,220			53,392			60,908

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)

	Nine months ended
	June 28, 2008			June 27, 2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	8,431		$	(42,517	)
Less: income from discontinued operations		17,033			22,727
Loss from continuing operations		(8,602	)		(65,244	)
Adjustments to reconcile loss from continuing operations to net cash provided by (used in) operating activities:
U.S. pension plan termination		9,152			-
Swiss pension curtailment and settlement		-			(1,446	)
Gain on early extinguishment of debt		(170	)		(3,965	)
Impairment of goodwill		-			2,709
Depreciation and amortization		6,647			16,370
Equity-based compensation and non-cash employee benefits		5,544			1,418
Provision for doubtful accounts		284			646
Provision for inventory valuation		4,207			8,670
Deferred taxes		(3,718	)		(7,201	)
Changes in operating assets and liabilities, net of businesses acquired or sold:
Accounts and notes receivable		49,674			28,394
Inventory		5,276			1,266
Prepaid expenses and other current assets		(1,848	)		8,873
Accounts payable and accrued expenses		(43,679	)		(7,092	)
Income taxes payable		1,303			(26,672	)
Other, net		866			2,029
Net cash provided by (used in) continuing operations		24,936			(41,245	)
Net cash used in discontinued operations		(1,893	)		(1,699	)
Net cash provided by (used in) operating activities		23,043			(42,944	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Orthodyne		-			(87,039	)
Proceeds from sales of investments classified as available-for-sale		40,136			6,226
Purchases of investments classified as available-for-sale		(29,311	)		(2,402	)
Purchases of property, plant and equipment		(6,269	)		(4,398	)
Changes in restricted cash, net		(10,000	)		34,719
Net cash used in continuing operations		(5,444	)		(52,894	)
Net cash provided by (used in) discontinued operations		(156	)		149,857
Net cash provided by (used in) investing activities		(5,600	)		96,963

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of common stock options		544			54
Payments on borrowings		(3,831	)		(84,358	)
Net cash used in financing activities, continuing operations		(3,287	)		(84,304	)
Effect of exchange rate changes on cash and cash equivalents		(531	)		40
Changes in cash and cash equivalents		13,625			(30,245	)
Cash and cash equivalents, beginning of period		150,571			144,932
Cash and cash equivalents, end of period	$	164,196		$	114,687

CASH PAID FOR:
Interest	$	1,971		$	1,463
Income taxes	$	4,478		$	1,178

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. 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 (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.

Management has evaluated subsequent events through the date these financial statements were available to be issued which was July 28, 2009.

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, power semiconductors, power modules, LEDs and discrete devices. The Company’s equipment portfolio includes ball bonders (used to connect fine wires in semiconductor devices), wedge bonders (used to connect heavier wire or ribbon in power semiconductors and modules), and die bonders (used to attach die to the semiconductor package). 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, including the present economic downturn, 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 and intangible 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 June 27, 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 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 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 as of the balance sheet date. Quoted market prices are considered level one measurements as detailed in SFAS No. 157, Fair Value Measurements (“SFAS 157”). 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 and spare parts, and twelve months historical consumption for expendable tools. The forecasted demand is based upon internal projections, historical sales volumes, customer order activity and a review of consumable inventory levels at customers’ facilities. The Company communicates forecasts of its future demand to its suppliers and adjusts commitments to those suppliers accordingly. If required, the Company reserves 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 losses of $1.6 million and $0.9 million for the three months ended June 28, 2008 and June 27, 2009, respectively. In addition, the Company recorded net foreign currency transaction loss of $1.9 million and a gain of $0.8 million for the nine months ended June 28, 2008 and June 27, 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 Accounting Principles Board (“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 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. Beginning fiscal 2010,, the Company will adopt FSP APB 14-1 retrospectively to convertible debt instruments that are within the scope of this guidance and were outstanding during any period presented in the financial statements. The adoption of FSP APB 14-1 will have a material impact on the Company’s consolidated results of operations.

As of June 27, 2009, $110.0 million aggregate principal amount of 0.875% Convertible Subordinated Notes due 2012 were outstanding. The Company determined the liability component of its 0.875% Convertible Subordinated Notes by assessing the fair value of debt instruments without an associated equity component issued by companies with similar credit ratings and terms at the time the Company’s Notes were issued. The effective interest rate for non-convertible debt with similar credit ratings and terms was 7.85%. Next, the Company determined the fair value of the equity component of the embedded conversion option by deducting the fair value of the liability component from the initial proceeds of the convertible debt instrument. The Company determined the fair value of the embedded equity component of the Notes at the time of issuance was $30.7 million. Upon adoption, the Company will restate historical periods to reflect the application of FSP APB 14-1, and the $30.7 million debt discount will be reclassified as a reduction to accumulated deficit. The debt discount will be amortized under the effective interest method from the original issue date. As of October 4, 2009, the remaining unamortized debt discount will be $14.7 million and will be amortized over the remaining life of the Notes ending at maturity in June 2012.

Debt issuance costs of $3.6 million were incurred in connection with the 0.875% Convertible Subordinated Notes. The Company determined the portion of these costs associated with the equity component was $1.0 million. Upon adoption, the Company will restate historical periods to reflect the application of FSB APB 14-1, and the $1.0 million of debt issuance costs will be reclassified as a reduction to accumulated deficit. The debt issuance costs will be amortized under the effective interest method from the original issue date. As of October 4, 2009, the remaining unamortized debt issuance costs will be $1.5 million and will be amortized over the remaining life of the Notes ending at maturity in June 2012.

As a result of the adoption of FSP APB 14-1, in the first quarter of fiscal 2010, the Company will record $1.4 million additional net interest expense attributable to the amortization of the debt discount related to the equity component and a corresponding amount of amortization of debt issuance costs. For fiscal 2010, the Company will record additional net interest expense of $6.1 million and a corresponding offset to accumulated amortization of debt issuance costs.

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 will adopt FSP EITF 03-6-1 beginning fiscal 2010; however, the adoption will not have any impact on the Company’s 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 will adopt FSP EITF 07-5 for fiscal 2010; however, the adoption will not have any impact on the Company’s consolidated results of operations or financial condition.

FSP SFAS 107-1

In April 2009, the FASB issued FSP SFAS No. 107-1, Interim Disclosures about Fair Value of Financial Instruments (“FSP SFAS 107-1”), with APB Opinion No. 28-1, Interim Financial Reporting (“APB 28-1”). The two amendments require disclosures about the fair value of financial instruments in the interim and annual financial statements. Both FSP SFAS 107-1 and APB 28-1 are effective for interim periods ending after June 15, 2009. The adoption of FSP SFAS 107-1 resulted in the disclosure of fair values attributable to debt instruments within the Company’s financial statements as of June 27, 2009.

FSP SFAS 157-4

In April 2009, the FASB issued FSP SFAS No. 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly (“FSP SFAS 157-4”). FSP SFAS 157-4 provides additional guidance on enhanced disclosures, including interim and annual disclosure of the input and valuation techniques, or changes in techniques, used to measure fair value and the defining of the major security types comprising debt and equity securities held based upon the nature and risk of the security. Applicable to all assets and liabilities, FSP SFAS 157-4 is effective for interim and annual periods ending after June 15, 2009. The Company adopted FSP SFAS 157-4 for the period ended June 27, 2009; however, the adoption did not have a material impact on the Company’s consolidated financial statements and related disclosures.

SFAS 165

In May 2009, the FASB issued SFAS No. 165, Subsequent Events (“SFAS 165”). SFAS 165 establishes general standards of accounting for, and disclosure of, events that occur after the balance sheet date but before financial statements are issued or are available to be issued. SFAS 165 sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. SFAS 165 is effective for interim and annual periods ending after June 15, 2009. The Company adopted SFAS 165 for the period ended June 27, 2009. The adoption does not result in any significant changes in the subsequent events that an entity reports, either through recognition or disclosure, in its financial statements. The Company has performed an evaluation of subsequent events through the date these financial statements were available to be issued, which was July 28, 2009.

SFAS 168

In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles (“SFAS 168”). SFAS 168 replaces SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles, and establishes the FASB Accounting Standards Codification as the authoritative source for accounting principles of non-governmental entities to conform to Generally Accepted Accounting Principles used in the preparation of financial statements. SFAS 168 is effective for interim and annual periods ending after September 15, 2009. The Company will adopt SFAS 168 on October 3, 2009 and will monitor the impact on its consolidated financial statements.

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, are net proceeds of $149.9 million and a net gain of $22.7 million, net of tax, related to the sale of the Wire business.

The following table reflects operating results of the Wire business discontinued operations for the three and nine months ended June 28, 2008 and June 27, 2009:

	Three months ended					Nine months ended
(in thousands)	June 28, 2008			June 27, 2009		June 28, 2008			June 27, 2009

Net revenue	$	107,612		$	-	$	315,889		$	-

Income (loss) before tax	$	5,690		$	-	$	17,537		$	(319	)
Gain on sale of Wire business before tax		-			-		-			23,524
Income from discontinued operations before tax		5,690			-		17,537			23,205
Income tax expense		(2,744	)		-		(504	)		(478	)
Income from discontinued operations, net of tax	$	2,946		$	-	$	17,033		$	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 nine months ended June 28, 2008 and June 27, 2009:

	Nine months ended
(in thousands)	June 28, 2008			June 27, 2009

Cash flows provided by (used in):
Operating activities: Wire business	$	(689	)	$	(319	)
Operating activities: Test business (sold in fiscal 2006) (1)		(1,204	)		(1,380	)
Investing activities: Wire business		(156	)		149,857

Net cash provided by (used in) discontinued operations	$	(2,049	)	$	148,158

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

The Company has certain open working capital adjustments in dispute with Heraeus, and has reserved $1.3 million for these adjustments, which is included in other current liabilities on the Consolidated Balance Sheet.

NOTE 3 – COST REDUCTION PLAN

During the first and second fiscal quarters of 2009, the Company committed to a plan to reduce its global workforce by approximately 240 and 250 employees, respectively. These workforce reductions represented approximately 20% of total employees and were done to minimize cash usage and reduce employee compensation costs.

In addition, during the second fiscal quarter of 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. Additionally, the Company suspended cash matching contributions to the Wedge bonder employees’ 401(k) retirement income plan.

During the three months ended June 27, 2009, the Company committed to a plan to reduce its Israel workforce by approximately 170 employees over an estimated period of 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.

Beginning in the fourth quarter of 2009, the Company partially reinstated employee wage reductions.

The following table reflects severance activity during the three and nine months ended June 27, 2009:

(in thousands)	Three months ended June 27, 2009			Nine months ended June 27, 2009

Accrual for estimated severance and benefits, beginning of period	$	2,420		$	-
Provision for severance and benefits (1)		567			7,316
Provision for severance and benefits required by local law (2)		1,035			1,035
Payment of severance and benefits		(558	)		(4,887	)
Accrual for estimated severance and benefits as of June 27, 2009 (3)	$	3,464		$	3,464

(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 June 27, 2009, the $0.6 million severance was attributable to the Company’s Expendable Tools segment. For the nine months ended June 27, 2009, of the $7.3 million severance, $4.6 million was attributable to the Company’s Equipment segment and $2.7 million to the Company’s Expendable Tools segment. The Company anticipates an additional $0.4 million of severance and benefits expense over the next 12 months related to its cost reduction plan.

(2) The Company had previously recorded approximately $1.0 million related to severance and benefits as required by local Israel law.

(3) 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 (the “Earnout”) 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 the 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 Orthodyne occurred at the beginning of the first quarter of fiscal 2009; therefore, its results are not included in the Company’s Consolidated Statement of Operations for the three and nine months ended June 28, 2008. 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:

(in thousands, except per share data)	Three months ended June 28, 2008			Nine months ended June 28, 2008
Unaudited
Net revenues	$	99,065		$	343,576
Gross profit		43,951			152,477
Loss from continuing operations		(7,008	)		(9,760	)
Loss from continuing operations, net of tax	$	(4,320	)	$	(6,035	)

Loss per share from continuing operations:
Basic	$	(0.07	)	$	(0.10	)
Diluted	$	(0.07	)	$	(0.10	)

Weighted average shares outstanding:
Basic		60,646			60,510
Diluted		60,646			60,510

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 June 27, 2009:

	As of
(in thousands)	September 27, 2008		June 27, 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 2).

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 June 27, 2009:

							Average original
	As of						estimated useful
(in thousands)	September 27, 2008			June 27, 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		-			(8,189	)
Net wedge bonder (Note 4)		-			51,411
Die bonder trademarks and technology licenses		767			767			4.5
Accumulated amortization		(381	)		(531	)
Net die bonder		386			236
Net intangible assets	$	386		$	51,647

The following table reflects estimated annual amortization expense related to intangible assets as of June 27, 2009:

(in thousands)
2009 (remaining for fiscal year)	$	2,779
2010		9,655
2011		9,646
2012		9,178
2013		9,178
2014-2016		11,211

	$	51,647

NOTE 6 – COMPREHENSIVE INCOME (LOSS)

The following table reflects the components of comprehensive income (loss) for the three and nine months ended June 28, 2008 and June 27, 2009:

	Three months ended						Nine months ended
(in thousands)	June 28, 2008			June 27, 2009			June 28, 2008			June 27, 2009
Net income (loss) (1)	$	(1,797	)	$	(13,858	)	$	8,431		$	(42,517	)
Gain (loss) from foreign currency translation adjustments		(1,000	)		1,064			205			(377	)
Unrealized gain (loss) on investments, net of taxes		(5	)		14			(5	)		18
Unrecognized actuarial net gain (loss), Switzerland pension plan		(40	)		(8	)		1,427			160
Swiss pension curtailment		-			(388	)		-			(388	)
Unrecognized actuarial net gain, U.S. pension plan		-			-			153			-
Reclassification adjustment related to U.S. pension plan termination, net of tax		-			-			5,749			-
Other comprehensive income (loss)	$	(1,045	)	$	682		$	7,529		$	(587	)
Comprehensive income (loss)	$	(2,842	)	$	(13,176	)	$	15,960		$	(43,104	)

(1) Includes continuing and discontinued operations.

The following table reflects accumulated other comprehensive income reflected on the Consolidated Balance Sheets as of September 27, 2008 and June 27, 2009:

	As of
(in thousands)	September 27, 2008			June 27, 2009
Gain from foreign currency translation adjustments	$	897		$	523
Unrealized gain (loss) on investments, net of taxes		(16	)		1
Unrecognized actuarial net gain, net of taxes		1,328			1,486
Swiss pension curtailment		-			(388	)
Accumulated other comprehensive income	$	2,209		$	1,622

NOTE 7 – BALANCE SHEET COMPONENTS

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

	As of
(in thousands)	September 27, 2008			June 27, 2009
Cash, cash equivalents, restricted cash and short-term investments:
Cash, money market bank deposits and other cash equivalents	$	144,932		$	114,687
Restricted cash (1)		35,000			281
Short-term investments (2)		6,149			2,317
	$	186,081		$	117,285

Accounts and notes receivable, net:
Customer accounts receivable	$	57,997		$	51,542
Other accounts receivable		22			784
		58,019			52,326
Allowance for doubtful accounts		(1,376	)		(1,784	)
	$	56,643		$	50,542

Inventories, net (3):
Raw materials and supplies	$	22,678		$	38,135
Work in process		8,328			12,700
Finished goods		6,697			9,178
		37,703			60,013
Inventory reserves		(10,467	)		(17,910	)
	$	27,236		$	42,103

Property, plant and equipment, net:
Land	$	2,735		$	2,735
Buildings and building improvements		14,361			14,024
Leasehold improvements		9,560			9,267
Data processing and hardware equipment and software		17,243			23,121
Machinery and equipment		42,571			44,199
		86,470			93,346
Accumulated depreciation		(49,570	)		(55,096	)
	$	36,900		$	38,250

	As of
(in thousands)	September 27, 2008		June 27, 2009
Accrued expenses and other current liabilities:
Wages and benefits	$	9,195	$	7,844
Severance (4)		1,530		3,770
Payable to Heraeus (5)		-		2,247
Short-term facility accrual related to discontinued operations (Test) (6)		1,403		1,884
Customer advances		1,543		1,638
Inventory purchase commitment accruals		2,663		1,326
Deferred rent		1,264		1,307
Sales and use tax payable		-		1,186
Professional fees and services		1,610		739
Other		8,047		8,748
	$	27,255	$	30,689

Other liabilities:
Long-term facility accrual related to discontinued operations (Test) (6)	$	2,544	$	3,440
Long-term income taxes payable (see Note 11)		26,691		1,684
Post employment foreign severance obligations		3,291		1,545
Operating lease retirement obligations		1,822		1,410
Switzerland pension plan obligation		2,500		1,321
Other		932		1,266
	$	37,780	$	10,666

(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 June 27, 2009, the Company’s restricted cash was related to customs in China.

(2) Short-term investments which are available-for-sale are measured at fair value based on level one measurements, or quoted market prices, as defined by SFAS 157.

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

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

(5) Amounts relate to certain open working capital adjustments in dispute with Heraeus.

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

NOTE 8 – DEBT OBLIGATIONS

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

						(in thousands)
						As of
		Payment Dates	Conversion		Maturity	September 27,		June 27,
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 the fair value of Convertible Subordinated Notes as of September 27, 2008 and June 27, 2009:

Rate		Maturity Date	Fair Value as of September 27, 2008 (in thousands) (1)		Fair Value as of June 27, 2009 (in thousands) (1)

0.500	%	Matured November 30, 2008	$	70,602	$	-
1.000	%	June 30, 2010		52,975		42,844
0.875	%	June 1, 2012		77,000		73,117

			$	200,577	$	115,961

(1)

In accordance with SFAS 157, Fair Value Measurement, the Company relies upon observable market data such as its common stock price, interest rates, and other market factors.

The following table reflects amortization expense related to issue costs from the Company’s Subordinated Convertible Notes for the three and nine months ended June 28, 2008 and June 27, 2009:

	Three months ended				Nine months ended
(in thousands)	June 28, 2008		June 27, 2009		June 28, 2008		June 27, 2009
Amortization expense related to issue costs	$	362	$	244	$	1,119	$	762

The Company had no purchases of its Convertible Subordinated Notes for the three months ended June 28, 2008 and June 27, 2009. The following table reflects the Company’s purchases of its Convertible Subordinated Notes for nine months ended June 28, 2008 and June 27, 2009:

	Nine months ended
(in thousands)	June 28, 2008		June 27, 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	$	-	$	16,036
Net cash		-		12,158
Deferred financing costs		-		106
Recognized gain, net of deferred financing costs		-		3,772
Gain on early extinguishment of debt	$	170	$	3,965

(1)

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

(2)

Activity during the nine months ended June 27, 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 nine months ended June 28, 2008 and June 27, 2009:

	Three months ended				Nine months ended
(in thousands)	June 28, 2008		June 27, 2009		June 28, 2008		June 27, 2009
Number of common shares		40		45		148		318
Fair value based upon market price at date of distribution	$	236	$	164	$	910	$	656

Equity-Based Compensation

As of June 27, 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 nine months ended June 28, 2008 and June 27, 2009.

The following table reflects stock options, restricted stock and common stock granted during the three and nine months ended June 28, 2008 and June 27, 2009:

	Three months ended				Nine months ended
(number of shares in thousands)	June 28, 2008		June 27, 2009		June 28, 2008		June 27, 2009
Performance-based restricted stock		-		-		536		403
Time-based restricted stock		-		-		-		825
Stock options		4		-		944		154
Common stock		36		43		84		149
Equity-based compensation in shares		40		43		1,564		1,531

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 nine months ended June 28, 2008 and June 27, 2009:

	Three months ended				Nine months ended
(in thousands)	June 28, 2008		June 27, 2009		June 28, 2008		June 27, 2009
Performance-based restricted stock	$	388	$	52	$	1,058	$	(1,485	)
Time-based restricted stock		-		193		-		573
Stock options		608		411		3,037		1,254
Common stock		180		120		540		420
Equity-based compensation expense	$	1,176	$	776	$	4,635	$	762

In connection with the global economic decline 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 during the first quarter of fiscal 2009 in accordance with SFAS 123R.

The following table reflects total equity-based compensation expense, which includes stock options, restricted stock and common stock, included in the Consolidated Statements of Operations during the three and nine months ended June 28, 2008 and June 27, 2009:

	Three months ended				Nine months ended
(in thousands)	June 28, 2008		June 27, 2009		June 28, 2008		June 27, 2009
Cost of sales	$	58	$	40	$	187	$	39
Selling, general and administrative		884		499		3,198		248
Research and development		234		237		1,250		475
Equity-based compensation expense	$	1,176	$	776	$	4,635	$	762

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

	As of				Average remaining
(in thousands)	June 28, 2008		June 27, 2009		contractual life in years
Performance-based restricted stock	$	2,933	$	384	1.9
Time-based restricted stock		-		1,737	2.3
Stock options		4,283		1,327	1.3
Unrecognized equity-based compensation expense	$	7,216	$	3,448

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 months ended June 28, 2008, and three and nine months ending June 27, 2009 as the U.S. pension plan was terminated. The following table reflects net periodic pension expense for the nine months ended June 27, 2008:

	Nine months ended
(in thousands)	June 28, 2008
Interest expense	$	702
Amortization of net loss, including termination charge		9,310
Expected return on plan assets		(702	)

Net periodic pension expense	$	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 nine months ended June 28, 2008 and June 27, 2009:

	Three months ended				Nine months ended
(in thousands)	June 28, 2008		June 27, 2009		June 28, 2008		June 27, 2009
Number of common shares		40		45		148		318
Fair value based upon market price at date of distribution	$	236	$	164	$	910	$	656

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, the Company suspended cash matching contributions to its Wedge bonder employees’ 401(k) retirement income plan; therefore, the Company had no cash matching contributions during the three months ended June 27, 2009. For the nine months ended June 27, 2009 the Wedge bonder employees’ 401(k) retirement income plan cash matching contributions was $0.1 million.

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.

During fiscal 2009, the Company reduced its Switzerland workforce by approximately 70 employees, which triggered a curtailment of the Switzerland pension plan under SFAS No. 88, Employers’ Accounting For Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits. As a result, during the three months ended June 27, 2009, the Company recognized a pretax curtailment and settlement gain of $1.4 million. The remeasurement of the plan assets and liabilities decreased the Company’s net pension liability by $1.2 million to $1.3 million as of June 27, 2009. Based upon fiscal 2009 assumptions, the curtailment is expected to reduce the Company’s retirement-related expense by $0.03 million for the three months ended October 3, 2009 and $0.1 million in fiscal 2010.

The following table reflects the Switzerland net periodic pension expense for the three months and nine months ended June 28, 2008 and June 27, 2009:

	Three months ended						Nine months ended
(in thousands)	June 28, 2008			June 27, 2009			June 28, 2008			June 27, 2009
Service cost	$	210		$	78		$	630		$	444
Interest expense		105			62			314			269
Expected return on plan assets		(101	)		(55	)		(303	)		(252	)
Amortization of net gain		(6	)		(13	)		(18	)		(38	)
Curtailment gain recognized		-			(976	)		-			(976	)
Settlement gain recognized		-			(470	)		-			(470	)
Net periodic pension expense	$	208		$	(1,374	)	$	623		$	(1,023	)

The Switzerland pension plan obligations are no longer material and the Company will not disclose the details of the Swiss pension plan in the future.

NOTE 11 – INCOME TAXES

The following table reflects the benefit for income taxes and the effective tax rate from continuing operations for the nine months ended June 28, 2008 and June 27, 2009:

	Nine months ended
(in thousands)	June 28, 2008			June 27, 2009
Loss from continuing operations before taxes	$	(11,220	)	$	(78,558	)
Benefit for income taxes		(2,618	)		(13,314	)

Loss from continuing operations	$	(8,602	)	$	(65,244	)

Effective tax rate		23.3	%		16.9	%

For the nine months ended June 27, 2009, the effective income tax rate related to continuing operations differed from the federal statutory rate primarily due to: net 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. The net increase in valuation allowance includes a discrete income tax benefit for the reduction in valuation allowance for a foreign subsidiary based on future anticipated earnings.

For the nine months ended June 28, 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, decreases in deferred taxes for un-remitted earnings, the tax effect of the termination of the U.S. pension plan, increases in tax reserves and certain intercompany adjustments.

In October 2007, the tax authority in Israel issued the Company a preliminary assessment of income tax, withholding tax and interest of $34.3 million (after adjusting for the impact of foreign currency fluctuations) for fiscal 2002 through 2004. The Company recorded a non-current income tax liability for uncertain tax positions on its Consolidated Balance Sheet as of September 27, 2008 related to this assessment for fiscal years 2002 through 2007, as required under FIN 48. On December 24, 2008, the Company, through its Israel subsidiaries, entered into an agreement with the tax authority in Israel settling the tax dispute for approximately $12.5 million, which represented withholding taxes, income taxes, and interest related to fiscal 2002 through 2004. The settlement of $12.5 million was paid during the Company’s second quarter of fiscal 2009. Following the payment and settlement of the audit for fiscal 2002 through 2004, the tax authorities in Israel examined fiscal years 2005 and 2006. During the third quarter of fiscal 2009, the Company made a payment of approximately $1.9 million related to income taxes and interest to settle the fiscal 2005 and 2006 examinations. As a result of the Israel tax settlement, the Company recognized a $12.4 million benefit from income taxes through the nine months ended June 27, 2009. The $12.4 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 Company is currently under audit by the Internal Revenue Service (“IRS”) for the period ended September 30, 2006. The Company has responded to various information requests from the IRS. The IRS has not proposed any adjustments at this time; however, the audit is still in process.

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 nine months ended June 28, 2008 and June 27, 2009:

	Three months ending June 28, 2008
	Equipment			Expendable Tools
(in thousands)	Segment			Segment		Consolidated
Net revenue	$	59,043		$	13,464	$	72,507
Cost of sales		35,954			6,851		42,805
Gross profit		23,089			6,613		29,702
Operating expenses		30,308			6,884		37,192
Loss from operations	$	(7,219	)