PHOTRONICS INC - Quarter Report: 2010 August (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 August 1, 2010 OR
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

 

Connecticut	06-0854886
(State or other jurisdiction	(IRS Employer
of incorporation or organization)	Identification Number)

 

 

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 periods 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 o

 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer o Accelerated Filer x Non-Accelerated Filer o Smaller Reporting Company o

 

 

 

Class	Outstanding at September 1, 2010
Common Stock, $0.01 par value	53,735,648 Shares

 

 

     The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements made by or on behalf of Photronics, Inc. ("Photronics" or the "Company"). These statements are based on management's beliefs, as well as assumptions made by, and information currently available to, management. Forward-looking statements may be identified by words like "expect", "anticipate", "believe", "plan", "projects", and similar expressions. All forward-looking statements involve risks and uncertainties that are difficult to predict. In particular, any statement contained in this quarterly report on Form 10-Q, in press releases, written statements, or other documents filed with the Securities and Exchange Commission or, in the Company's communications and discussions with investors and analysts in the normal course of business through meetings, phone calls, or conference calls, regarding the consummation and benefits of future acquisitions, expectations with respect to future sales, financial performance, operating efficiencies, or product expansion, are subject to known and unknown risks, uncertainties, and contingencies, many of which are beyond the control of the Company. These factors may cause actual results, performance, or achievements to differ materially from anticipated results, performance, or achievements. Factors that might affect such forward-looking statements include, but are not limited to, overall economic and business conditions; economic and political conditions in international markets; the demand for the Company's products; competitive factors in the industries and geographic markets in which the Company competes; changes in federal, state and international tax requirements (including tax rate changes, new tax laws and revised tax law interpretations); interest rate fluctuations and other capital market conditions, including changes in the market price of the Company's common stock; foreign currency exchange rate fluctuations; changes in technology; the timing, impact, and other uncertainties of future acquisitions; the seasonal and cyclical nature of the semiconductor and flat panel display industries; management changes; damage or destruction to the Company's facilities by natural disasters, labor strikes, political unrest, or terrorist activity; the ability of the Company to place new equipment in service on a timely basis; obtain additional financing; achieve anticipated synergies and other cost savings in connection with acquisitions and productivity programs; fully utilize its tools; achieve desired yields, pricing, product mix, and market acceptance of its products; and obtain necessary export licenses. Any forward-looking statements should be considered in light of these factors. Accordingly, there is no assurance that the Company's expectations will be realized. The Company does not assume responsibility for the accuracy and completeness of the forward-looking statements and does not assume an obligation to provide revisions to any forward-looking statements except as otherwise required by securities and other applicable laws.

 

 

 

 

PART I.		FINANCIAL INFORMATION	Page
Item 1.		Condensed Consolidated Financial Statements
		Condensed Consolidated Balance Sheets at August 1, 2010 and November 1, 2009	4
		Condensed Consolidated Statements of Operations for the Three and Nine Months Ended August 1, 2010 and August 2, 2009	5
		Condensed Consolidated Statements of Cash Flows for the Nine Months Ended August 1, 2010 and August 2, 2009	6
		Notes to Condensed Consolidated Financial Statements	7
Item 2.		Management's Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.		Quantitative and Qualitative Disclosures about Market Risk	28
Item 4.		Controls and Procedures	29
PART II.		OTHER INFORMATION
Item 1A.		Risk Factors	30
Item 6.		Exhibits	30

 

 

 

 

		August 1,				November 1,
		2010				2009
ASSETS
Current assets:
Cash and cash equivalents		$	104,027			$	88,539
Accounts receivable, net of allowance of $4,054 in 2010
and $2,669 in 2009			79,995				66,920
Inventories			14,328				14,826
Deferred income taxes			3,321				3,264
Prepaid expenses			5,811				3,792
Other current assets			3,950				2,656
Total current assets			211,432				179,997
Property, plant and equipment, net			354,422				347,889
Investment in joint venture			60,914				60,945
Intangible assets, net			49,261				55,054
Other assets			18,535				19,771
		$	694,564			$	663,656
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term borrowings		$	11,577			$	10,301
Accounts payable			93,210				59,187
Accrued liabilities			29,471				20,967
Total current liabilities			134,258				90,455
Long-term borrowings			76,439				112,137
Deferred income taxes			1,328				1,487
Other liabilities			9,085				9,881
Total liabilities			221,110				213,960
Commitments and contingencies
Equity:
Preferred stock, $0.01 par value,
2,000 shares authorized, none issued and outstanding			-				-
Common stock, $0.01 par value,
150,000 shares authorized, 53,515 shares issued and outstanding
at August 1, 2010 and 53,011 at November 1, 2009			535				530
Additional paid-in capital			435,467				432,160
Accumulated deficit			(10,768	)			(26,546	)
Accumulated other comprehensive loss			(4,648	)			(6,389	)
Total Photronics, Inc. shareholders' equity			420,586				399,755
Non-controlling interests			52,868				49,941
Total equity			473,454				449,696
		$	694,564			$	663,656

 

 

 

		Three Months Ended								Nine Months Ended
		August 1,				August 2,				August 1,				August 2,
		2010				2009				2010				2009
Net sales		$	112,251			$	95,401			$	315,518			$	266,676
Costs and expenses:
Cost of sales			(85,979	)			(77,347	)			(248,979	)			(226,622	)
Selling, general and administrative			(11,068	)			(9,963	)			(32,086	)			(30,995	)
Research and development			(3,427	)			(3,854	)			(10,983	)			(11,655	)
Consolidation, restructuring and
related (charges) credits			(26	)			(10,660	)			4,810				(12,746	)
Impairment of long-lived assets			-				-				-				(1,458	)
Operating income (loss)			11,751				(6,423	)			28,280				(16,800	)
Other income (expense):
Interest expense			(1,827	)			(5,351	)			(7,807	)			(14,427	)
Investment and other income (expense), net			593				(8,869	)			1,937				(8,418	)
Income (loss) before income taxes			10,517				(20,643	)			22,410				(39,645	)
Income tax provision			(2,910	)			(1,805	)			(5,790	)			(2,927	)
Net income (loss)			7,607				(22,448	)			16,620				(42,572	)
Net (income) loss attributable to noncontrolling
interests			84				(399	)			(842	)			(580	)
Net income (loss) attributable to Photronics, Inc.		$	7,691			$	(22,847	)		$	15,778			$	(43,152	)
Income (loss) per share:
Basic		$	0.14			$	(0.55	)		$	0.30			$	(1.03	)
Diluted		$	0.13			$	(0.55	)		$	0.29			$	(1.03	)
Weighted average number of common shares
outstanding:
Basic			53,516				41,819				53,341				41,772
Diluted			66,280				41,819				65,689				41,772

 

 

 

		Nine Months Ended
		August 1,				August 2,
		2010				2009
Cash flows from operating activities:
Net income (loss)		$	16,620			$	(42,572	)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization			67,786				64,419
Consolidation, restructuring and related charges (credits)			(5,059	)			10,517
Impairment of long-lived assets			-				1,458
Changes in assets and liabilities:
Accounts receivable			(12,419	)			(247	)
Inventories			630				2,204
Other current assets			(3,592	)			1,767
Accounts payable, accrued liabilities and other			10,211				4,061
Net cash provided by operating activities			74,177				41,607
Cash flows from investing activities:
Purchases of property, plant and equipment			(38,040	)			(29,867	)
Proceeds from sale of facility			12,880				-
Proceeds from sales of investments and other			288				996
Distribution from joint venture			-				5,000
Net cash used in investing activities			(24,872	)			(23,871	)
Cash flows from financing activities:
Repayments of long-term borrowings			(62,288	)			(39,342	)
Proceeds from long-term borrowings			28,680				27,204
Payments of deferred financing fees			(1,225	)			(4,317	)
Other			75				(88	)
Net cash used in financing activities			(34,758	)			(16,543	)
Effect of exchange rate changes on cash			941				575
Net increase in cash and cash equivalents			15,488				1,768
Cash and cash equivalents at beginning of period			88,539				83,763
Cash and cash equivalents at end of period		$	104,027			$	85,531
Supplemental disclosure of cash flow information:
Change in accrual for purchases of property, plant
and equipment		$	35,735			$	(18,712	)
Change in capital lease obligation for purchases
of property, plant and equipment		$	-			$	(28,244	)
Common stock warrants issuance and fair value adjustment		$	-			$	10,086
Non-cash reduction of notes payable		$	475			$	-

 

 

 

 

     Photronics, Inc. and its subsidiaries ("Photronics" or the "Company") is one of the world's leading manufacturers of photomasks, which are high precision photographic quartz plates containing microscopic images of electronic circuits. Photomasks are a key element in the manufacture of semiconductors and flat panel displays ("FPDs"), and are used as masters to transfer circuit patterns onto semiconductor wafers and flat panel substrates during the fabrication of integrated circuits ("ICs") and a variety of FPDs and, to a lesser extent, other types of electrical and optical components. The Company currently operates principally from nine manufacturing facilities, two of which are located in Europe, two in Taiwan, one in Korea, one in Singapore, and three in the United States.

 

     The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the interim period are not necessarily indicative of the results that may be expected for the fiscal year ending October 31, 2010. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended November 1, 2009.

 

     Certain amounts in the November 1, 2009 condensed consolidated financial statements were reclassified to conform with the current period presentation related to noncontrolling interests (see Note 2).

 

 

     On November 2, 2009, the Company adopted new accounting standards for noncontrolling interests as set forth in the Consolidation Topic No. 810 of the Accounting Standards Codification. These standards require companies to classify expenses related to noncontrolling interests' share in income (loss) below net income (loss). Earnings per share continues to be determined after the impact of the noncontrolling interests' share in net income (loss) of the Company. In addition, these standards require noncontrolling interests to be presented on the condensed consolidated balance sheets as a separate caption within equity. The presentation and disclosure requirements of these standards were retrospectively applied. The adoption of these standards resulted in the reclassification of $49.9 million of noncontrolling interests in the condensed consolidated balance sheet to equity on November 2, 2009.

 

 

     The following tables set forth the Company's consolidated changes in equity for the three and nine months ended August 1, 2010 and August 2, 2009:

 

		Three Months Ended August 1, 2010
		Photronics, Inc. Shareholders
															Accumulated
															Other
							Add'l								Comprehensive				Total				Non-
		Common Stock					Paid-in				Accumulated				Income				Photronics,				controlling				Total
		Shares		Amount			Capital				Deficit				(Loss)				Inc.				Interests				Equity
Balance at May 2, 2010		53,497		$	535		$	434,976			$	(18,459	)		$	6,217			$	423,269			$	52,900			$	476,169
Comprehensive income:
Net income (loss)		-			-			-				7,691				-				7,691				(84	)			7,607
Reclassification adjustment – unrealized holding gain		-			-			-				-				(76	)			(76	)			(56	)			(132	)
Amortization of cash flow hedges		-			-			-				-				31				31				-				31
Foreign currency translation
adjustments		-			-			-				-				(10,820	)			(10,820	)			108				(10,712	)
Total comprehensive loss		-			-			-				-				-				(3,174	)			(32	)			(3,206	)
Sale of common stock through		-			-			-				-				-
employee stock option and
purchase plans		5			-			4				-				-				4				-				4
Share-based compensation expense		13			-			487				-				-				487				-				487
Balance at August 1, 2010		53,515		$	535		$	435,467			$	(10,768	)		$	(4,648	)		$	420,586			$	52,868			$	473,454
		Three Months Ended August 2, 2009
		Photronics, Inc. Shareholders
															Accumulated
							Add'l								Other				Total				Non-
		Common Stock					Paid-in				Accumulated				Comprehensive				Photronics,				controlling				Total
		Shares		Amount			Capital				Deficit				Loss				Inc.				Interests				Equity
Balance at May 3, 2009		41,777		$	418		$	385,826			$	(4,941	)		$	(22,007	)		$	359,296			$	48,799			$	408,095
Comprehensive income:
Net income (loss)		-			-			-				(22,847	)			-				(22,847	)			399				(22,448	)
Reclassification adjustment – unrealized holding gain		-			-			-				-				(31	)			(31	)			-				(31	)
Amortization of cash flow hedges		-			-			-				-				32				32				-				32
Foreign currency translation
adjustments		-			-			-				-				8,924				8,924				497				9,421
Total comprehensive income (loss)		-			-			-				-				-				(13,922	)			896				(13,026	)
Sale of common stock through
employee stock option and
purchase plans		-			-			8				-				-				8				-				8
Share-based compensation expense		34			-			374				-				-				374				-				374
Common stock warrants exercised		67			1			339				-				-				340				-				340
Common stock registration fees		-			-			(87	)			-				-				(87	)			-				(87	)
Balance at August 2, 2009		41,878		$	419		$	386,460			$	(27,788	)		$	(13,082	)		$	346,009			$	49,695			$	395,704

 

		Nine Months Ended August 1, 2010
		Photronics, Inc. Shareholders
															Accumulated
							Add'l								Other				Total				Non-
		Common Stock					Paid-in				Accumulated				Comprehensive				Photronics,				controlling				Total
		Shares		Amount			Capital				Deficit				Loss				Inc.				Interests				Equity
Balance at November 1, 2009		53,011		$	530		$	432,160			$	(26,546	)		$	(6,389	)		$	399,755			$	49,941			$	449,696
Comprehensive income:
Net income		-			-			-				15,778				-				15,778				842				16,620
Unrealized holding gain		-			-			-				-				76				76				56				132
Reclassification adjustment – unrealized holding gain		-			-			-				-				(76	)			(76	)			(56	)			(132	)
Amortization of cash flow hedges		-			-			-				-				96				96				-				96
Foreign currency translation
adjustments		-			-			-				-				1,645				1,645				2,085				3,730
Total comprehensive income		-			-			-				-				-				17,519				2,927				20,446
Sale of common stock through
employee stock option and
purchase plans		98			1			108				-				-				109				-				109
Share-based compensation expense		56			-			1,518				-				-				1,518				-				1,518
Common stock warrants exercised		350			4			1,681				-				-				1,685				-				1,685
Balance at August 1, 2010		53,515		$	535		$	435,467			$	(10,768	)		$	(4,648	)		$	420,586			$	52,868			$	473,454
		Nine Months Ended August 2, 2009
		Photronics, Inc. Shareholders
															Accumulated
							Add'l				Accumulated				Other				Total				Non-
		Common Stock					Paid-in				Earnings				Comprehensive				Photronics,				controlling				Total
		Shares		Amount			Capital				(Deficit)				Loss				Inc.				Interests				Equity
Balance at November 2, 2008		41,712		$	417		$	384,502			$	15,364			$	(17,501	)		$	382,782			$	49,616			$	432,398
Comprehensive income:
Net income (loss)		-			-			-				(43,152	)			-				(43,152	)			580				(42,572	)
Reclassification adjustment – unrealized holding gain		-			-			-				-				59				59				39				98
Amortization of cash flow hedges		-			-			-				-				545				545				-				545
Foreign currency translation
adjustments		-			-			-				-				3,815				3,815				(103	)			3,712
Total comprehensive income (loss)		-			-			-				-				-				(38,733	)			516				(38,217	)
Sale of common stock through
employee stock option and
purchase plans		-			-			46				-				-				46				-				46
Share-based compensation expense		99			1			1,660				-				-				1,661				-				1,661
Common stock warrants exercised		67			1			339				-				-				340				-				340
Common stock registration fees		-			-			(87	)			-				-				(87	)			-				(87	)
Noncontrolling interests’ subsidiary dividend		-			-			-				-				-				-				(437	)			(437	)
Balance at August 2, 2009		41,878		$	419		$	386,460			$	(27,788	)		$	(13,082	)		$	346,009			$	49,695			$	395,704

 

 

     On May 5, 2006, Photronics and Micron Technology, Inc. ("Micron") entered into the MP Mask joint venture, which develops and produces photomasks for leading-edge and advanced next generation semiconductors. As part of the formation of the joint venture, Micron contributed its existing photomask technology center located at its Boise, Idaho, headquarters to MP Mask and Photronics invested $135 million in exchange for a 49.99% interest in MP Mask (to which $64.2 million of the original investment was allocated), a license for photomask technology of Micron, and certain supply agreements.

 

 

 

 

 

 

 

     The calculation of basic and diluted earnings (loss) per share is presented below.

 

		Three Months Ended								Nine Months Ended
		August 1,				August 2,				August 1,			August 2,
		2010				2009				2010			2009
Net income (loss) attributable to Photronics, Inc.		$	7,691			$	(22,847	)		$	15,778		$	(43,152	)
Effect of dilutive securities:
Interest expense on convertible notes,
net of related tax effects			1,022				-				3,063			-
Gain related to common stock warrants
fair value adjustment			(388	)			-				-			-
Earnings (loss) for diluted earnings (loss) per share		$	8,325			$	(22,847	)		$	18,841		$	(43,152	)
Weighted-average common shares computations:
Weighted-average common shares used for
basic earnings (loss) per share			53,516				41,819				53,341			41,772
Effect of dilutive securities:
Convertible notes			11,311				-				11,311			-
Employee stock options and restricted shares			969				-				983			-
Common stock warrants			484				-				54			-
Potentially dilutive common shares			12,764				-				12,348			-
Weighted-average common shares used for
diluted earnings (loss) per share			66,280				41,819				65,689			41,772
Basic earnings (loss) per share		$	0.14			$	(0.55	)		$	0.30		$	(1.03	)
Diluted earnings (loss) per share		$	0.13			$	(0.55	)		$	0.29		$	(1.03	)

     The table below shows the outstanding weighted-average employee stock options, restricted shares and common stock warrants that were excluded from the calculation of diluted earnings per share because their exercise price exceeded the average market value of the common shares for the period or, under application of the treasury stock method, they were otherwise determined to be anti-dilutive.

 

		Three Months Ended				Nine Months Ended
		August 1,		August 2,		August 1,		August 2,
		2010		2009		2010		2009
Employee stock options and restricted shares		2,700		1,950		2,668		2,064
Common stock warrants		250		1,793		792		598
Total potentially dilutive shares excluded		2,950		3,743		3,460		2,662

     In periods in which the Company incurred a net loss, the assumed exercise of certain outstanding employee stock options and the vesting of restricted shares had an antidilutive effect. Had the Company recognized sufficient net income, there would have been 0.2 million of incremental weighted-average shares of these employee stock options and restricted shares outstanding during both the three and nine month periods ended August 2, 2009, respectively.

 

 

 

     In March 2007, the Company’s shareholders approved a new share-based compensation plan ("Plan"), under which options, restricted stock, restricted stock units, stock appreciation rights, performance stock, performance units, and other awards based on, or related to, shares of the Company's common stock may be granted from shares authorized but unissued, shares previously issued and reacquired by the Company, or both. The maximum number of shares of common stock approved by the Company’s shareholders to be issued under the Plan was increased from three million shares to six million shares during the three month period ended May 2, 2010. Awards may be granted to officers, employees, directors, consultants, advisors, and independent contractors of the Company or its subsidiaries. In the event of a change in control (as defined in the Plan) the vesting of awards may be accelerated. The Plan, aspects of which are more fully described below, prohibits further awards from being issued under prior plans. The Company incurred total share-based compensation expense for the three and nine month periods ended August 1, 2010 of $0.5 million and $1.5 million, respectively, and $0.4 million and $1.7 million for the three and nine month periods ended August 2, 2009, respectively. The Company received cash from option exercises of $0.1 million during the nine month period ended August 1, 2010, respectively, and did not receive any cash from option exercises during the three and nine month periods ended August 2, 2009. No share-based compensation cost was capitalized as part of inventory and no related income tax benefits were recorded during the periods presented.

 

 

 

	Three Months Ended				Nine Months Ended
	August 1,		August 2,		August 1,		August 2,
	2010		2009		2010		2009
Expected volatility	91.6%		N/A		89.5%		69.8%
Risk free rate of return	1.7%		N/A		1.7% - 2.4%		1.9% - 2.5%
Dividend yield	0.0%		N/A		0.0%		0.0%
Expected term	4.3 years		N/A		4.5 years		4.7 years

 

							Weighted
				Weighted			Average
				Average			Remaining		Aggregate
				Exercise			Contractual		Intrinsic
Options		Shares		Price			Life		Value
Outstanding at August 1, 2010		3,911,740		$	9.33		6.7 years		$	4,766
Exercisable at August 1, 2010		1,928,686		$	16.22		4.6 years		$	878

 

     There were 80,000 share options granted during the three month period ended August 1, 2010 with a weighted-average grant date fair value of $3.08 per share. There were no share options issued during the three month period ended August 2, 2009. There were 926,400 share options granted during the nine month period ended August 1, 2010, with a weighted-average grant date fair value of $2.98 per share and 1,348,250 share options granted during the nine month period ended August 2, 2009, with a weighted-average grant date fair value of $0.44 per share. As of August 1, 2010, the total unrecognized compensation cost related to non-vested option awards was approximately $2.3 million, which is expected to be recognized over a weighted-average amortization period of 3.2 years.

 

 

 

 

 

 

 

 

		Three Months Ended													Nine Months Ended
		August 1, 2010													August 1, 2010
		May 3,										August 1,			November 2,			Charges								August 1,
		2010			Charges			Utilized				2010			2009			(credits)				Utilized				2010
Net gain on sales of assets		$	218		$	-		$	(21	)		$	197		$	-		$	(5,020	)		$	5,217			$	197
Employee terminations
and other			-			26			(26	)			-			134			210				(344	)			-
		$	218		$	26		$	(47	)		$	197		$	134		$	(4,810	)		$	4,873			$	197

 

		Three Months Ended													Nine Months Ended
		August 2, 2009													August 2, 2009
		May 4,										August 2,			November 3,										August 2,
		2009			Charges			Utilized				2009			2008			Charges			Utilized				2009
Asset write-downs		$	-		$	9,898		$	(9,898	)		$	-		$	-		$	9,898		$	(9,898	)		$	-
Other			-			183			-				183			-			183			-				183
		$	-		$	10,081		$	(9,898	)		$	183		$	-		$	10,081		$	(9,898	)		$	183

 

     During the three months ended February 1, 2009, the Company ceased the manufacture of photomasks at its Manchester, U.K., facility and, in connection therewith, incurred total restructuring charges of $3.3 million through its completion in the fourth quarter of fiscal 2009, primarily for employee termination costs and asset write-downs. Approximately 85 employees were affected by this restructuring. The following table sets forth the Company's 2009 restructuring reserve related to its Manchester, U.K., facility as of August 2, 2009, and reflects the activity affecting the reserve for the three and nine month periods then ended.

 

		Three Months Ended													Nine Months Ended
		August 2, 2009													August 2, 2009
		May 4,										August 2,			November 3,										August 2,
		2009			Charges			Utilized				2009			2008			Charges			Utilized				2009
Employee terminations		$	-		$	498		$	(498	)		$	-		$	-		$	1,888		$	(1,888	)		$	-
Asset write-downs
and other			-			81			(81	)			-			-			777			(777	)			-
		$	-		$	579		$	(579	)		$	-		$	-		$	2,665		$	(2,665	)		$	-

 

 

 

 

 

 

     PKLT, the Company's FPD manufacturing facility in Taiwan, is accorded a tax holiday, which expires in 2012. In addition, the Company has been accorded a tax holiday in China which is expected to expire in 2011. These tax holidays had no dollar or per share effect in the three and nine month periods ended August 1, 2010 and August 2, 2009.

 

 

 

 

 

 

 

 

Derivatives
Not Designated
as Hedging				Fair Value at
Instruments Under				August 1,			November 1,
ASC 815		Balance Sheet Location		2010			2009
Warrants on common stock		Other liabilities		$	1,884		$	3,205

 

     The table below presents the effect of derivative instruments on the Company's condensed consolidated statements of operations for the three and nine month periods ended August 1, 2010 and August 2, 2009.

 

Derivatives
Not Designated		Location of Gain (Loss)		Amount of Gain (Loss) Recognized in Income on Derivatives
as Hedging		Recognized in		Three Months Ended							Nine Months Ended
Instruments Under		Income on		August 1,			August 2,				August 1,				August 2,
ASC 815		Derivatives		2010			2009				2010				2009
Warrants on common stock		Investment and other income
		(expense), net		$	388		$	(6,848	)		$	(363	)		$	(6,848	)
Foreign exchange contracts		Investment and other income
		(expense), net		$	-		$	-			$	-			$	93

 

 

	August 1,			November 1,
	2010			2009
5.5% convertible senior notes due
on October 1, 2014	$	57,500		$	57,500
Borrowings under revolving credit facility, which
bears interest at a variable rate, as defined (4.06% at
August 1, 2010 and 8.0% November 1, 2009)		-			2,568
8.0% capital lease obligation payable through
January 2013		17,850			22,552
5.6% capital lease obligation payable through
October 2012		9,659			12,614
4.75% financing loan with customer		3,007			-
Term loan which bore interest at a variable rate
as defined (8.0% at November 1, 2009)		-			27,204
		88,016			122,438
Less current portion		11,577			10,301
	$	76,439		$	112,137

 

 

     The credit facility, which matures on February 12, 2013, is secured by substantially all of the Company's assets in the United States as well as common stock the Company owns in certain of its foreign subsidiaries. The credit facility is subject to the following financial covenants: fixed charge coverage ratio, total leverage ratio, minimum unrestricted cash balance, and maximum capital expenditures, all as defined in the agreement.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

		August 1, 2010
		Quoted
		Prices
		in Active			Significant
		Markets			Other				Significant
		for Identical			Observable				Unobservable
		Instruments			Inputs				Inputs
		(Level 1)			(Level 2)				(Level 3)			Total
Common stock warrants		$	-		$	(1,884	)		$	-		$	(1,884	)
Total liabilities		$	-		$	(1,884	)		$	-		$	(1,884	)

		November 1, 2009
		Quoted
		Prices
		in Active			Significant
		Markets			Other				Significant
		for Identical			Observable				Unobservable
		Instruments			Inputs				Inputs
		(Level 1)			(Level 2)				(Level 3)			Total
Foreign bond fund		$	-		$	-			$	148		$	148
Total assets		$	-		$	-			$	148		$	148
Common stock warrants		$	-		$	(3,205	)		$	-		$	(3,205	)
Total liabilities		$	-		$	(3,205	)		$	-		$	(3,205	)

 

     The foreign bond fund above represents the Company's investment in a fund whose fair value was provided by the trust. During the three month period ended August 1, 2010, the Company determined that its investment in the fund was not recoverable. As a result of this determination the Company wrote off its entire investment in the fund. This resulted in a net of tax charge of $0.2 million (included in investment and other income (expense), net) and a reclassification adjustment of an unrealized holding gain to earnings of $0.1 million.

 

 

 

 

 

 

 

 

 

		Three Months Ended						Nine Months Ended
		August 1,			August 2,			August 1,			August 2,
		2010			2009			2010			2009
Net sales
Asia		$	70,349		$	60,278		$	192,977		$	167,461
Europe			11,116			10,373			31,298			28,458
North America			30,786			24,750			91,243			70,757
		$	112,251		$	95,401		$	315,518		$	266,676
		As of
		August 1,			November 1,
		2010			2009
Long-lived assets
Asia		$	207,293		$	199,179
Europe			13,794			9,579
North America			133,335			139,131
		$	354,422		$	347,889