TECHNOLOGY
INNOVATION
SOLUTIONS
2014 ANNUAL REPORT
KULICKE & SOFFA
IS A GLOBAL LEADER IN THE DESIGN
AND MANUFACTURE OF
SEMICONDUCTOR ASSEMBLY EQUIPMENT.
HEADQUARTERS
MANUFACTURING
RESEARCH & DEVELOPMENT
SALES & SERVICE
SHARED SERVICE OPERATIONS
AMERICA
EUROPE
ASIA
As one of the pioneers of the industry, K&S has provided customers with market leading packaging solutions
for decades. In recent years K&S has expanded its product offerings through strategic acquisitions, adding
wedge bonding and a broader range of expendable tools to its core ball bonding products. Combined with its
extensive expertise in process technology, K&S is well positioned to help customers meet the challenges of
assembling the “next-generation of semiconductor” devices. Kulicke & Soffa, incorporated in 1951, currently
employs approximately 2,300 regular full-time employees worldwide. The Company provides equipment and
tools used in the production of a wide range of semiconductor devices.
Kulicke & Soffa’s customers produce the “chips” that drive the information economy and enable products such
as computers, smart phones, media tablets, LED TVs, and pacemakers.
KULICKE & SOFFA 2014 ANNUAL REPORT
SELECTED FINANCIAL HIGHLIGHTS
Fiscal Year
(in thousands, except per share amounts)
Statement of Operations Data:
Net revenue
Research and development
Other operating expenses
Other income (expense)
2014
2013
2012
2011
2010
$ 568,569
$ 534,938
$ 791,023
$ 830,401
$ 762,784
83,056
113,514
149
61,620
63,446
65,135
56,660
119,519
124,718
152,714
130,978
862
(4,975)
(7,632)
(7,930)
Income (loss) from continuing operations after income tax
$ 62,988
$ 59,358
$ 160,580
$ 127,610
$ 142,142
Income (loss) per share from continuing operations, Basic
Income (loss) per share from continuing operations, Diluted
$
$
0.82
0.81
$
$
0.79
0.78
$
$
2.17
2.13
$
$
1.77
1.73
$
$
2.01
1.92
Balance Sheet Data:
Working capital excluding discontinued operations
$ 756,340
$ 676,986
$ 589,947
$ 405,659
$ 347,560
Property, plant and equipment, net
Total assets excluding discontinued operations
Long-term debt and current portion of long-term debt
Shareholders’ equity
Other Selected Data:
0.0
Capital expenditures
59.7
Depreciation and amortization expense
Notes:
52,755
944,448
—
47,541
28,441
26,501
30,059
862,994
815,609
728,391
580,169
—
—
105,224
98,475
$ 789,242
$ 716,665
$ 643,667
$ 469,877
$ 322,480
119.4
179.1
238.8
298.5
358.2
417.9
477.6
537.3
597.0
$ 12,401
$ 13,520
$ 17,172
$ 6,902
$ 7,688
$ 6,271
$ 18,489
$ 17,265
$ 17,761
$ 17,531
The financial data presented above should be read in conjunction with the consolidated financial statements, related notes, and other financial information included
and incorporated by reference herein. See Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Item 8. “Financial
Statements and Supplementary Data” of our Annual Report on Form 10-K for the fiscal year ended September 27, 2014 included herein.
In addition to historical information, this report, including the chief executive officer’s letter to shareholders on the next page, contains statements relating to future
events or our future results. These statements are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of
the Securities Exchange Act of 1934 and are subject to the safe harbor provisions created by these statutes. See Item 1A. “Risks Related to Our Business and Industry”
and Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended
September 27, 2014 for a discussion of important factors that could cause actual results to differ significantly from those expressed or implied by forward-looking
statements contained in this report.
CASH AND CASH EQUIVALENTS NET OF DEBT (in millions)
$82.9
2010
2011
2012
2013
2014
$279.3
$440.2
$525.0
$597.1
1
KULICKE & SOFFA 2014 ANNUAL REPORT
DEAR SHAREHOLDERS
Fiscal 2014 has closed as another solid, profitable and accelerating year for Kulicke &
Soffa. During the year we generated $569 million of revenue, $63 million of net income,
and drove a 17% increase in operating profit. This robust performance was achieved dur-
ing a year in which we made sizeable strategic investments and mobilized arguably one
of the largest organic development initiatives in the company’s history.
Our dominant market leadership positions, cohesive set of
interconnect process used. Demand continues to be largely
core values, ongoing R&D investments and continual drive
driven by broad macro trends and growth markets such as
towards operational excellence all serve as critical assets in
smartphones, tablets, LEDs and advanced packaging.
supporting fiscal year 2014 accomplishments and also pro-
vide a solid platform to support our longer-term strategy.
Over 80% of all semiconductors produced require a
During the past year we continued to enhance our core-
ball bonding, wedge bonding or stud bumping assembly
market positions within all business lines, entered the fast-
proc ess. Improving global macro forces continue to drive
growing advanced packaging market, further improved our
increasing demand for semiconductors. With current esti-
operational structure and began aggressively executing on
mates up nearly 9% over the last calender year, 2014 semi-
the Company’s first stock repurchase program.
conductor production can potentially reach 784 billion
units. This higher level of activity supports all of our busi-
We introduced 8 new and updated solutions within our core
nesses and has facilitated sales growth within our core
markets over the past fiscal year. These releases enable us
equipment and expendable tools markets.
to further strengthen our core businesses, expand the
applications served within current segments and provide
Within our ball bonding line we continue to lead the indus-
access to new and exciting market opportunities.
try’s copper transition, support a very broad base of cus-
WE ARE THE DOMINANT MARKET LEADER AND REMAIN
During the year we released three updated offerings, these
FIRMLY ENTRENCHED, WITH #1 MARKET SHARE, IN FOUR
provide several feature enhancements driving productivity
tomers and selectively participate in the LED business.
CORE MARKET SEGMENTS:
• Wire Bonders
• Wedge Bonders
• Wafer Level Stud Bump Bonders
• Capillaries
and process capability improvements which fur ther
strengthen our leadership position.
Similarly, new solutions within our wedge bonding line
introduced in fiscal 2014 as well as fiscal 2013 have
solidified our position in the growing power semi conductor
During the year, our wire bonder technology continued to
and power module markets. Timing of these releases
remain the superior semiconductor assembly process of
enabled us to capture incremental opportunities as
choice across the overwhelming majority of end-markets.
demand meaningfully accelerated in the second half
Since the advent of the semiconduc tor industr y wire
of fiscal 2014. In the second half of fiscal 2014, sales of our
bonding has and continues to be the most prominent
wedge bonding equipment increased by over 80% from
2
KULICKE & SOFFA 2014 ANNUAL REPORT
Bruno Guilmart
President and Chief Executive Officer
Jonathan Chou
Senior Vice President, Chief Financial Officer
and Chief Information Officer
the first half. From a fiscal year perspective, 2014 sales
initiatives and has provided us with incremental manufac-
have outperformed 2013 by over 60%. Our strong product
turing capacity as well as a cost reduction from a square
positioning has enabled this performance ahead of broader
footage perspective.
segment recoveries in the automotive, industrial and power
segment markets. Furthermore we experienced incremen-
As our optimism has grown along with our market posi-
tal demand for white goods and industrial power manage-
tioning and product portfolio, we continue to believe our
ment within emerging countries.
market valuation does not adequately represent these
opportunities. Due to this gap, as well as our significant
Turning to Advanced Packaging, our efforts are coming to
cash balance, our board of directors authorized a $100
fruition. After nearly 2 years of dedication across a diverse
million stock repurchase program on August 27, 2014.
and highly talented group of employees, we introduced
Over the subsequent 2 months, we executed this program
our APAMA C2S—a chip-to-substrate and chip-to-chip—
aggressively and repurchased $6.8 million of open market
thermo-compression bonder at Semicon Taiwan in September
repurchases.
2014. The industry’s broadening requirements to find new
and innovative packaging solutions addressing the 2.5D
We continue to believe that a repurchase program com-
and 3D markets present monumental opportunities for the
bined with core market leadership, operational excellence
organization. Due to the significance of the opportunities,
and ongoing execution in new product development is
we have increased our global R&D team by over 8% and
collectively the best path towards meaningful value cre-
invested more than $34.5 million dollars in our advanced
ation. As we look ahead towards 2015 and beyond, we
packaging programs within the past year alone. We con-
remain increasingly confident in our ability to progress
tinue to receive tremendous interest from potential cus-
down this path of value creation.
tomers and expect APAMA C2S, like our other equipment
solutions, to be the industry’s preferred solution.
Sincerely,
To support our expansion into new markets, enable our
customer’s success, and continue driving operational excel-
lence, we’ve completed our move into our new Singapore
Corporate Headquarters and manufacturing facility. This
scalable platform serves to consolidate our equipment
integration facilities, is well aligned with our development
Bruno Guilmart
President and Chief Executive Officer
3
KULICKE & SOFFA 2014 ANNUAL REPORT
TECHNOLOGY
INNOVATION
SOLUTIONS
The Internet of Things, mobile computing,
LEDs and advanced packaging represent
only a sample of the markets that drive
demand for our solutions.
By 2018
these select markets are expected
to reach a significant size.
3.0
2.5
2.0
1.5
1.0
0.5
0.0
26
Billion Units
INTERNET OF THINGS
2.5
Billion Units
SMARTPHONES AND TABLETS
77
Billion Units
LEDS FOR GENERAL LIGHTING
6
Billion Units
2.5D & 3D ADVANCED PACKAGES
8
Sources: Gartner, November 2013; Gartner, June 2014; Prismark, July 2014; Yole Développement, October 2014
4
2014 FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended September 27, 2014
OR
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
(State or other jurisdiction of incorporation)
23-1498399
(IRS Employer Identification No.)
23A Serangoon North, Avenue 5, #01-01 K&S Corporate
Headquarters, Singapore
(Address of principal executive offices)
554369
(Zip Code)
(215) 784-7518
(Registrants telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, WITHOUT PAR VALUE
(Title of each class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.
Yes
No
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
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a smaller reporting company. See
definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
(Check one):
Large accelerated filer
Accelerated filer
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
As of March 29, 2014, the aggregate market value of the registrant's common stock held by non-affiliates of the registrant was
approximately $1,001.8 million based on the closing sale price as reported on The NASDAQ Global Market (reference is made
to Part II, Item 5 herein for a statement of assumptions upon which this calculation is based).
As of November 7, 2014 there were 76,988,338 shares of the registrant's common stock, without par value, outstanding.
Documents Incorporated by Reference
Portions of the registrant's Proxy Statement for the 2015 Annual Meeting of Shareholders to be filed on or about December 24,
2014 are incorporated by reference into Part II, Item 5 and Part III, Items 10, 11, 12, 13 and 14 herein of this Report. Such
Proxy Statement, except for the parts therein which have been specifically incorporated by reference, shall not be deemed
“filed” for the purposes of this Report on Form 10-K.
KULICKE AND SOFFA INDUSTRIES, INC.
2014 Annual Report on Form 10-K
September 27, 2014
Index
Page Number
Item 1.
Business
Part I
Item 1A. Risks Related to Our Business and Industry
Item 1B. Unresolved Staff Comments
Item 2.
Properties
Item 3.
Legal Proceedings
Item 4. Mine Safety Disclosures
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Part II
Item 6.
Selected Consolidated Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Item 8.
Financial Statements and Supplementary Data
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Item 10. Directors, Executive Officers and Corporate Governance
Part III
Item 11. Executive Compensation
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Item 13. Certain Relationships and Related Transactions and Director Independence
Item 14.
Principal Accounting Fees and Services
Item 15. Exhibits and Financial Statement Schedules
Part IV
Signatures
1
11
19
20
20
20
21
22
24
45
46
78
78
78
79
79
79
79
80
81
85
Forward-Looking Statements
PART I
In addition to historical information, this filing contains statements relating to future events or our future results. These statements
are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the
Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”), and are subject to the safe harbor provisions created by statute. Such forward-looking statements include,
but are not limited to, our future revenue, sustained, increasing, continuing or strengthening demand for our products, the continuing
transition from gold to copper wire bonding, replacement demand, our research and development efforts, our ability to identify
and realize new growth opportunities, our ability to control costs and our operational flexibility as a result of (among other factors):
•
•
projected growth rates in the overall semiconductor industry, the semiconductor assembly equipment
market, and the market for semiconductor packaging materials; and
projected demand for ball and wedge bonder equipment and for expendable tools.
Generally, words such as “may,” “will,” “should,” “could,” “anticipate,” “expect,” “intend,” “estimate,” “plan,” “continue,”
“goal” and “believe,” or the negative of or other variations on these and other similar expressions identify forward-looking
statements. These forward-looking statements are made only as of the date of this filing. We do not undertake to update or revise
the forward-looking statements, whether as a result of new information, future events or otherwise.
Forward-looking statements are based on current expectations and involve risks and uncertainties. Our future results could differ
significantly from those expressed or implied by our forward-looking statements. These risks and uncertainties include, without
limitation, those described below and under the heading “Risk Factors” within this Annual Report on Form 10-K for the fiscal
year ended September 27, 2014 (the “Annual Report”) and our other reports and registration statements filed from time to time
with the Securities and Exchange Commission. This discussion should be read in conjunction with the Consolidated Financial
Statements and Notes included in this report, as well as our audited financial statements included in the Annual Report.
We operate in a rapidly changing and competitive environment. New risks emerge from time to time and it is not possible for us
to predict all risks that may affect us. Future events and actual results, performance and achievements could differ materially from
those set forth in, contemplated by or underlying the forward-looking statements, which speak only as of the date on which they
were made. Except as required by law, we assume no obligation to update or revise any forward-looking statement to reflect actual
results or changes in, or additions to, the factors affecting such forward-looking statements. Given those risks and uncertainties,
investors should not place undue reliance on forward-looking statements as predictions of actual results.
Item 1. BUSINESS
Kulicke and Soffa Industries, Inc. (the "Company" or "K&S") designs, manufactures and sells capital equipment and expendable
tools used to assemble semiconductor devices, including integrated circuits (“ICs”), high and low powered discrete devices, light-
emitting diodes (“LEDs”), and power modules. We also service, maintain, repair and upgrade our equipment. Our customers
primarily consist of semiconductor device manufacturers, outsourced semiconductor assembly and test providers (“OSATs”),
other electronics manufacturers and automotive electronics suppliers.
We operate two main business segments, Equipment and Expendable Tools. Our goal is to be the technology leader and the most
competitive supplier in terms of cost and performance in each of our major product lines. Accordingly, we invest in research and
engineering projects intended to enhance our position at the leading edge of semiconductor assembly technology. We also remain
focused on cost structure through continuing improvements and optimization of our operations. Cost reduction efforts remain an
important part of our normal ongoing operations and are expected to generate savings without compromising overall product
quality and service levels.
K&S was incorporated in Pennsylvania in 1956. Our principal offices are located at 23A Serangoon North Avenue 5, #01-01,
Singapore 554369 and our telephone number in the United States is (215) 784-7518. We maintain a website with the address
www.kns.com. We are not including the information contained on our website as a part of, or incorporating it by reference into,
this filing. We make available free of charge (other than an investor's own Internet access charges) on or through our website our
annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to these reports,
as soon as reasonably practicable after the material is electronically filed with or otherwise furnished to the Securities and Exchange
Commission (“SEC”). Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and
amendments to those reports are also available on the SEC website at www.sec.gov and at the SEC's Public Reference Room at
100 F Street, NE, Washington, DC 20549 or by calling the SEC at 1-800-SEC-0330.
1
Our year end for each of fiscal 2014, 2013 and 2012 was September 27, 2014, September 28, 2013, and September 29, 2012,
respectively.
Business Environment
The semiconductor business environment is highly volatile, driven by internal dynamics, both cyclical and seasonal, in addition
to macroeconomic forces. Over the long term, semiconductor consumption has historically grown, and is forecast to continue to
grow. This growth is driven, in part, by regular advances in device performance and by price declines that result from improvements
in manufacturing technology. In order to exploit these trends, semiconductor manufacturers, both integrated device manufacturers
(“IDMs”) and OSATs, periodically invest aggressively in latest generation capital equipment. This buying pattern often leads to
periods of excess supply and reduced capital spending - the so called semiconductor cycle. Within this broad semiconductor cycle
there are also, generally weaker, seasonal effects that are specifically tied to annual, end-consumer purchasing patterns. Typically,
semiconductor manufacturers prepare for heightened demand by adding or replacing equipment capacity by the end of the September
quarter. Occasionally, this results in subsequent reductions in the December quarter. This annual seasonality can occasionally be
overshadowed by effects of the broader semiconductor cycle. Macroeconomic factors also affect the industry, primarily through
their effect on business and consumer demand for electronic devices, as well as other products that have significant electronic
content such as automobiles, white goods, and telecommunication equipment.
Our Equipment segment is primarily affected by the industry's internal cyclical and seasonal dynamics in addition to broader
macroeconomic factors that positively and negatively affect our financial performance. The sales mix of IDM and OSAT customers
in any period also impacts financial performance, as changes in this mix can affect our products' average selling prices and gross
margins due to differences in volume purchases and machine configurations required by each customer type.
Our Expendable Tools segment is less volatile than our Equipment segment. Expendable Tools sales are more directly tied to
semiconductor unit consumption rather than capacity requirements and production capability improvements.
We continue to position our business to leverage our research and development leadership and innovation and to focus our efforts
on mitigating volatility, improving profitability and ensuring longer-term growth. We remain focused on operational excellence,
expanding our product offerings and managing our business efficiently throughout the business cycles. Our visibility into future
demand is generally limited, forecasting is difficult, and we generally experience typical industry seasonality.
To limit potential adverse cyclical, seasonal and macroeconomic effects on our financial position, we have de-leveraged and
strengthened our balance sheet. As of September 27, 2014, our total cash, cash equivalents and investments were $597.1 million,
a $72.1 million increase from the prior fiscal year end. We believe this strong cash position will allow us to continue to invest in
organic product development and non-organic opportunities.
On August 14, 2014, the Company’s Board of Directors authorized a program (the "Program") to repurchase up to $100 million
of the Company’s common stock on or before August 14, 2017. The Company has entered into a written trading plan under Rule
10b5-1 of the Exchange Act to facilitate repurchases under the Program. The Program may be suspended or discontinued at any
time and will be funded using the Company's available cash. Under the Program, shares may be repurchased through open market
and/or privately negotiated transactions at prices deemed appropriate by management. The timing and amount of repurchase
transactions under the Program will depend on market conditions as well as corporate and regulatory considerations. During the
year ended September 27, 2014, the Company repurchased a total of 43.5 thousand shares of common stock at a cost of $0.6
million under the Program. As of September 27, 2014, our remaining stock repurchase authorization under the Program was
approximately $99.4 million.
Technology Leadership
We compete largely by offering our customers among the most advanced equipment and expendable tools available for the wire
and wedge bonding processes. Our equipment is typically the most productive and has the highest levels of process capability,
and as a result, has a lower cost of ownership compared to other equipment in the market. Our expendable tools are designed to
optimize the performance of the equipment in which they are used. We believe our technology leadership contributes to the strong
market positions of our ball bonder, wedge bonder and expendable tools products. To maintain our competitive advantage, we
invest in product development activities designed to produce a stream of improvements to existing products and to deliver next-
generation products. These investments often focus as much on improvements in the semiconductor assembly process as on specific
pieces of assembly equipment or expendable tools. In order to generate these improvements, we often work in close collaboration
with customers, end users, and other industry members. In addition to producing technical advances, these collaborative
development efforts strengthen customer relationships and enhance our reputation as a technology leader and solutions provider.
2
In addition to gold, silver alloy wire and aluminum wire, our leadership in the industry's use of copper wire for the bonding process
is an example of the benefits of our collaborative efforts. By working with customers, material suppliers, and other equipment
suppliers, we have developed a series of robust, high-yielding production processes, which have made copper wire widely accepted
and significantly reduced the cost of assembling an integrated circuit. Based on our industry leading copper bonding processes
and the continued high price of gold, we believe the demand for copper configured wire bonders is likely to remain solid.
Our leadership also has allowed us to maintain a competitive position in the latest generations of gold and copper ball bonders,
which enable our customers to handle the leading technologies in terms of bond pad pitch, silicon with the latest node and complex
wire bonding requirement. We continue to see demand for our large bondable area (“LA”) configured machines. This LA option
is now available on all of our Power Series (“PS”) models and allows our customers to gain added efficiencies and to reduce the
cost of packaging.
We also leverage the technology leadership of our equipment by optimizing our bonder platforms, and we deliver variants of our
products to serve emerging high-growth markets. For example, we have developed extensions of our main ball bonding platforms
to address opportunities in LED assembly, in particular for general lighting. We expect the next wave of growth in the LED market
to be high brightness LED for general lighting. We also believe there is an opportunity for growth in wire bonding sales at wafer
level using our AT Premier Plus.
Furthermore, we gain synergies by leveraging technologies between our unique platforms. Our leading technology for wedge
bonder equipment uses aluminum ribbon or heavy wire as opposed to fine gold and fine copper wire used in ball bonders. In 2013,
we launched a new line of high performance wedge bonder products, PowerFusionPS. The advanced interconnect capabilities of
PowerFusionPS improve the processing of high-density power packages, due to an expanded bondable area, wider leadframe
capability, superior indexing accuracy and teach mode. We have also initiated the design and development of our next generation
hybrid wedge bonder, which we currently expect to release in 2015. In both cases, we are making a concerted effort to develop
commonality of subsystems and design practices, in order to improve performance and design efficiencies. We believe this will
benefit us in maintaining our leadership position in the wedge bonding market and increase synergies between the various
engineering product groups. Furthermore, we continually research adjacent market segments where our technologies could be
used. Many of these initiatives are in the early stages of development and may become business opportunities in the future.
Another example of our developing equipment for high-growth niche markets is our AT Premier Plus. This machine utilizes a
modified wire bonding process to mechanically place bumps on devices in a wafer format, for variants of the flip chip assembly
process. Typical applications include complementary metal-oxide semiconductor (“CMOS”) image sensors, surface acoustical
wave (“SAW”) filters and high brightness LEDs. These applications are commonly used in most, if not all, smartphones available
today in the market. We also have expanded the use of AT Premier Plus for wafer level wire bonding for micro-electro-mechanical
systems (“MEMS”) and other sensors.
Our technology leadership and bonding process know-how have enabled us to develop highly function-specific equipment with
best-in-class throughput and accuracy. This forms the foundation for our advanced packaging equipment development. We
established a dedicated team to develop and manufacture advanced packaging bonders for the emerging 2.5 dimensional (“2.5D
IC”) and 3 dimensional integrated circuit (“3D IC”) markets. In November 2013, we shipped the first TCB (Thermo-Compression
Bonder) C2S (Chip-to-Substrate) alpha machine to an initial strategic customer and have subsequently shipped additional variants
to other customers. By reducing the interconnect dimensions, 2.5D and 3D ICs are expected to provide form factor, performance
and power efficiency enhancements over traditional flip-chip packages in production today. High-performance processing and
memory applications, in addition to mobile devices such as smartphones and tablets, are anticipated to be earlier adopters of this
new packaging technology.
We bring the same technology focus to our expendable tools business, driving tool design and manufacturing technology to optimize
the performance and process capability of the equipment in which our tools are used. For all our equipment products, expendable
tools are an integral part of their process capability. We believe our unique ability to simultaneously develop both equipment and
tools is a core strength supporting our products' technological differentiation.
3
Products and Services
The Company operates two segments: Equipment and Expendable Tools. The following table reflects net revenue by business
segment for fiscal 2014, 2013, and 2012:
2014
Fiscal
2013
2012
(dollar amounts in thousands) Net revenues
503,049
Equipment
65,520
Expendable Tools
568,569
$
$
% of total
net revenue
Net revenues
472,567
62,371
534,938
88.5% $
11.5%
100.0% $
% of total
net revenue
Net revenues
727,082
63,941
791,023
88.3% $
11.7%
100.0% $
% of total
net revenue
91.9%
8.1%
100.0%
See Note 12 to our Consolidated Financial Statements included in Item 8 of this report for our financial results by business segment.
Equipment Segment
We manufacture and sell a line of ball bonders, wafer level bonders and heavy wire wedge bonders that are sold to semiconductor
device manufacturers, OSATs, other electronics manufacturers and automotive electronics suppliers. Ball bonders are used to
connect very fine wires, typically made of gold or copper, between the bond pads of the semiconductor device, or die, and the
leads on its package. Wafer level bonders mechanically apply bumps to die, typically while still in the wafer format, for some
variants of the flip chip assembly process. Heavy wire wedge bonders use either aluminum wire or ribbon to perform the same
function in packages that cannot use gold or copper wire because of either high electrical current requirements or other package
reliability issues. In September 2014, we introduced the APAMA (Advanced Packaging with Adaptive Machine Analytics) C2S
bonder, which is designed for performance and high accuracy applications, delivering die-stacking solutions for 2.5 Dimensional,
3 Dimensional or Through Silicon Via (TSV) integrated chips. We believe our equipment offers competitive advantages by providing
customers with high productivity/throughput, superior package quality/process control, and, as a result, a lower cost of ownership.
4
Our principal Equipment segment products include:
Business Unit
Product Name (1)
Typical Served Market
Ball bonders
IConnPS
Advanced and ultra fine pitch applications
IConnPS Plus
Advanced and ultra fine pitch applications
IConnPS LA
Large area substrate and matrix applications
IConnPS Plus LA
Large area substrate and matrix applications
IConnPS ProCu
High-end copper wire applications demanding advanced process
capability and high productivity
IConnPS ProCu Plus
High-end copper wire applications demanding advanced process
capability and high productivity
IConnPS ProCu LA
Large area substrate and matrix applications for copper wire
IConnPS ProCu Plus LA
Large area substrate and matrix applications for copper wire
ConnXPS Plus
High productivity bonder for low-to-medium pin count applications
ConnXPS LED
LED applications
ConnXPS VLED
Vertical LED applications
ConnXPS Plus LA
Cost performance large area substrate and matrix applications
AT Premier Plus
Advanced wafer level bonding application
Wedge bonders
3600Plus
Power hybrid and automotive modules using either heavy aluminum
wire or PowerRibbon®
3700Plus
7200Plus
7200HD
Hybrid and automotive modules using thin aluminum wire
Power semiconductors using either aluminum wire or PowerRibbon®
Smaller power packages using either aluminum wire or PowerRibbon®
PowerFusionPS TL
Power semiconductors using either aluminum wire or PowerRibbon®
PowerFusionPS HL
Smaller power packages using either aluminum wire or PowerRibbon®
Advanced Packaging APAMA C2S
Flip chip thermo-compression bonding applications
(1) Power Series (“PS”)
5
Ball Bonders
Automatic ball bonders represent the largest portion of our semiconductor equipment business. Our main product platform for
ball bonding is the Power Series - a family of assembly equipment that is setting new standards for performance, productivity,
upgradeability, and ease of use.
Our portfolio of ball bonding products includes:
• The IConnPS: high-performance ball bonders which can be configured for either gold or copper wire.
• The IConnPS LA: high-performance large area ball bonders which can be configured for either gold or copper wire.
• The ConnXPS Plus: cost-performance ball bonders which can be configured for either gold or copper wire.
• The ConnXPS Plus LA: cost-performance large area ball bonders which can be configured for either gold or copper wire.
• The ConnXPS LED and ConnXPS VLED: ball bonders targeted specifically at the fast growing LED market.
• The IConnPS ProCu Plus: high-performance copper wire ball bonders for advanced wafer nodes at 28 nanometer and
below.
• The IConnPS ProCu Plus LA: high-performance large area copper wire ball bonders for advanced wafer nodes at 28
nanometer and below.
• The AT Premier Plus: ball bonders which utilize a modified wire bonding process to mechanically place bumps on devices,
while still in a wafer format for variants of the flip chip assembly process. Typical applications include CMOS image
sensors, SAW filters, MEMS and high brightness LEDs. These applications are commonly used in most, if not all,
smartphones available today in the market.
In March 2014, we introduced the IConnPS Plus and IConnPS Plus LA, which offer new capabilities and enhanced features. IConnPS
Plus LA is the large area version which extends the bondable width up to 87 millimeters. In September 2014, we introduced
ConnXPS LED Plus, which offers higher performance and a larger bondable area for the LED market.
Our Power Series products are setting new standards in wire bonding. Our ball bonders are capable of performing very fine pitch
bonding, as well as creating the complex loop shapes needed in the assembly of advanced semiconductor packages and bonding
on the latest silicon node-28 nanometer. Most of our installed base of gold wire bonders can also be retrofitted for copper applications
through kits we sell separately.
Heavy Wire Wedge Bonders
We are the leaders in the design and manufacture of heavy wire wedge bonders for the power semiconductor and automotive power
module markets. Heavy wire wedge bonders may use either aluminum wire or aluminum ribbon to connect semiconductor chips
in power packages, power hybrids and automotive modules for products such as motor control modules or inverters for hybrid
cars. In addition, we see some potential use for our wedge bonder products in high reliability interconnections of rechargeable
batteries in hybrid and electric automotive applications.
Our portfolio of wedge bonding products includes:
• The 3600Plus: high speed, high accuracy wire bonders designed for power modules, automotive packages and other heavy
wire multi-chip module applications.
• The 3700Plus: wire bonders designed for hybrid and automotive modules using thin aluminum wire.
• The 7200Plus: dual head wedge bonders designed specifically for power semiconductor applications.
• The 7200HD: heavy wire wedge bonders designed for smaller power packages using either aluminum wire or ribbon.
• The PowerFusionPS Semiconductor Wedge Bonders - Configurable in single, dual and multi-head configurations using
aluminum wire and PowerRibbonTM:
The PowerFusionPS TL: designed for low-cost, high volume power semiconductor applications.
The PowerFusionPS HL: designed for advanced power semiconductor applications.
While wedge bonding traditionally utilizes aluminum wire, all of our heavy wire wedge bonders are also available to be modified
to bond aluminum ribbon using our proprietary PowerRibbon® process. Aluminum ribbon offers device makers performance
advantages over traditional round wire and is being increasingly used for high current packages and automotive applications.
6
Our PowerFusionPS series are driven by new powerful direct-drive motion systems and expanded pattern recognition capabilities.
The advanced interconnect capabilities of PowerFusionPS improves the processing of high-density power packages, due to an
expanded bondable area, wider leadframe capability, superior indexing accuracy and teach mode.
In September 2014, we introduced the PowerFusionPS HLx, which has similar capabilities of the PowerFusionPS HL and extends
the bondable width up to 105 millimeters.
Advanced Packaging Bonders
In September 2014, we introduced the APAMA C2S bonder, which is designed for performance and high accuracy applications,
delivering die-stacking solutions for 2.5 Dimensional, 3 Dimensional or Through Silicon Via (TSV) integrated chips.
Other Equipment Products and Services
We also sell manual wire bonders, and we offer spare parts, equipment repair, maintenance and servicing, training services, and
upgrades for our equipment through our Support Services business unit.
Our K&S Care service is designed to help customers operate their machines at an optimum level under the care of our trained
specialists. K&S Care includes a range of programs, offering different levels of service depending on customer needs.
Expendable Tools Segment
We manufacture and sell a variety of expendable tools for a broad range of semiconductor packaging applications. Our principal
Expendable Tools segment products include:
• Capillaries: expendable tools used in ball bonders. Made of ceramic and other elements, a capillary guides the wire during
the ball bonding process. Its features help control the bonding process. We design and build capillaries suitable for a broad
range of applications, including for use on our competitors' equipment. In addition to capillaries used for gold wire bonding,
we have developed capillaries for use with copper wire to achieve optimal performance in copper wire bonding.
• Bonding wedges: expendable tools used in heavy wire wedge bonders. Like capillaries, their specific features are tailored
to specific applications. We design and build bonding wedges for use both in our own equipment and in our competitors'
equipment.
• Dicing blades: expendable tools used by semiconductor manufacturers to cut silicon wafers into individual semiconductor
die and to cut semiconductor devices that have been moulded in a matrix configuration into individual units.
The Optoceramic and OptoPCB package singulation blades for the LED market enable an improvement on package singulation quality,
precision and productivity by providing a significantly longer life blade, and improved stability. We also offer ACS Pro Capillary,
which is a new generation of copper capillary for advanced copper wire bonding applications.
In March 2014, we expanded the ACS series capillaries through the introduction of ACS Max and ACS Lite. ACS Max Capillary
and ACS Lite Capillary are the new generation of copper capillary for medium-pin count and low-pin count copper wire applications.
7
Customers
Our major customers include IDMs and OSATs, industrial manufacturers and automotive electronics suppliers. Revenue from our
customers may vary significantly from year-to-year based on their respective capital investments, operating expense budgets, and
overall industry trends.
The following table reflects our top ten customers, based on net revenue, for each of the last three fiscal years:
Fiscal 2014
Fiscal 2013
Fiscal 2012
1 Haoseng Industrial Co., Ltd. **
1 Siliconware Precision Industries, Ltd. *
1 Advance Semiconductor Engineering *
2 Advance Semiconductor Engineering
2 Advance Semiconductor Engineering
2 Siliconware Precision Industries, Ltd. *
3 Amkor Technology Inc.
3 STATS ChipPAC Ltd
3 Haoseng Industrial Co., Ltd. **
4 Skyworks Solutions Incorporated
4 Haoseng Industrial Co., Ltd. **
4 Rohm Intergrated Systems
5 Powertech Technology Inc.
5 Amkor Technology Inc.
6 Orient Semiconductor Electronics, Ltd.
6 Rohm Intergrated Systems
5 Amkor Technology Inc.
6 STATS ChipPAC Ltd
7 Texas Instruments, Inc.
8 Greatek Electronics Inc.
7 Orient Semiconductor Electronics, Ltd.
7 LG Innotek Co. Ltd.
8 Super Power International Ltd **
8 First Technology China, Ltd. **
9 Super Power International Ltd **
9 ST Microelectronics
9 Super Power International Ltd **
10 Freescale Semiconductor, Inc.
10 First Technology China, Ltd. **
10 ST Microelectronics
* Represents more than 10% of our net revenue for the applicable fiscal year.
** Distributor of our products.
Approximately 94.4%, 97.3%, and 98.3% of our net revenue for fiscal 2014, 2013, and 2012, respectively, were for shipments to
customer locations outside of the U.S., primarily in the Asia/Pacific region, and we expect sales outside of the U.S. to continue to
represent a substantial majority of our future net revenue.
See Note 12 to our Consolidated Financial Statements included in Item 8 of this report for sales to customers by geographic
location.
Sales and Customer Support
We believe long-term customer relationships are critical to our success, and comprehensive sales and customer support are an
important means of establishing those relationships. To maintain these relationships, we primarily utilize our direct sales force, as
well as distribution channels such as agents and distributors, depending on the product, region, or end-user application. In all cases,
our goal is to position our sales and customer support resources near our customers' facilities so as to provide support for customers
in their own language and consistent with local customs. Our sales and customer support resources are located primarily in
Singapore, Taiwan, China, Korea, Malaysia, the Philippines, Japan, Thailand, the U.S., and Germany. Supporting these local
resources, we have technology centers offering additional process expertise in Singapore, China, Israel, and the U.S.
By establishing relationships with semiconductor manufacturers, OSATs, and vertically integrated manufacturers of electronic
systems, we gain insight into our customers' future semiconductor packaging strategies. These insights assist us in our efforts to
develop products and processes that address our customers' future assembly requirements.
Backlog
Our backlog consists of customer orders scheduled for shipment within the next twelve months. A majority of our orders are subject
to cancellation or deferral by our customers with limited or no penalties. Also, customer demand for our products can vary
dramatically without prior notice. Because of the volatility of customer demand, possibility of customer changes in delivery
schedules or cancellations and potential delays in product shipments, our backlog as of any particular date may not be indicative
of net revenue for any succeeding period.
The following table reflects our backlog as of September 27, 2014 and September 28, 2013:
(in thousands)
Backlog
As of
September 27, 2014
79,100
$
September 28, 2013
52,100
$
8
Manufacturing
We believe excellence in manufacturing can create a competitive advantage, both by producing at lower costs and by providing
superior responsiveness to changes in customer demand. To achieve these goals, we manage our manufacturing operations through
a single organization and believe that fewer, larger factories allow us to capture economies of scale and generate cost savings
through lower manufacturing costs.
Equipment
Our equipment manufacturing activities consist mainly of integrating outsourced parts and subassemblies and testing finished
products to customer specifications. While we largely utilize an outsource model, allowing us to minimize our fixed costs and
capital expenditures, for certain low-volume, high customization parts, we manufacture subassemblies ourselves. Just-in-time
inventory management has reduced our manufacturing cycle times and lowered our on-hand inventory requirements. Raw materials
used in our equipment manufacturing are generally available from multiple sources; however, many outsourced parts and
components are only available from a single or limited number of sources.
Our ball bonder and wedge bonder manufacturing and assembly is done at our facility in Singapore. We have ISO 9001 and ISO
14001 certifications for our equipment manufacturing facilities in Singapore.
Expendable Tools
We manufacture dicing blades, capillaries and a portion of our bonding wedge inventory at our facility in Suzhou, China. The
capillaries are made using blanks produced at our facility in Yokneam, Israel. We both produce and outsource the production of
our bonding wedges. Both the Suzhou and Yokneam facilities are ISO 9001 certified. The Suzhou facility is also ISO 14001 and
ISO 18001 certified.
Research and Product Development
Many of our customers generate technology roadmaps describing their projected packaging technology requirements. Our research
and product development activities are focused on delivering robust production solutions to those projected requirements. We
accomplish this by regularly introducing improved versions of existing products or by developing next-generation products. We
follow this product development methodology in all our major product lines. Research and development expense was $83.1 million,
$61.6 million, and $63.4 million during fiscal 2014, 2013, and 2012, respectively. The higher research and development expense
in 2014 primarily relates to the development of the advanced packaging bonder and other new products.
Intellectual Property
Where circumstances warrant, we apply for patents on inventions governing new products and processes developed as part of our
ongoing research, engineering, and manufacturing activities. We currently hold a number of U.S. patents, many of which have
foreign counterparts. We believe the duration of our patents often exceeds the commercial life cycles of the technologies disclosed
and claimed in the patents. Additionally, we believe much of our important technology resides in our trade secrets and proprietary
software.
Competition
The market for semiconductor equipment and packaging materials products is intensely competitive. Significant competitive
factors in the semiconductor equipment market include price, speed/throughput, production yield, process control, delivery time
and customer support, each of which contribute to lower the overall cost per package being manufactured. Our major equipment
competitors include:
• Ball bonders: ASM Pacific Technology and Shinkawa
• Wedge bonders: ASM Pacific Technology, Cho-Onpa, F&K Delvotec, and Hesse Mechatronics
Significant competitive factors in the semiconductor packaging materials industry include performance, price, delivery, product
life, and quality. Our significant expendable tools competitors include:
• Capillaries: PECO, Small Precision Tools, Inc., and Coorstek (formerly Gaiser)
• Dicing blades: Disco Corporation
• Bonding wedges: Small Precision Tools, Inc.
In each of the markets we serve, we face competition and the threat of competition from established competitors and potential
new entrants, some of which may have greater financial, engineering, manufacturing, and marketing resources.
9
Environmental Matters
We are subject to various federal, state, local and foreign laws and regulations governing, among other things, the generation,
storage, use, emission, discharge, transportation and disposal of hazardous materials and the health and safety of our employees.
In addition, we are subject to environmental laws which may require investigation and cleanup of any contamination at facilities
we own or operate or at third-party waste disposal sites we use or have used.
We have incurred in the past, and expect in the future to incur costs to comply with environmental laws. We are not, however,
currently aware of any material costs or liabilities relating to environmental matters, including any claims or actions under
environmental laws or obligations to perform any cleanups at any of our facilities or any third-party waste disposal sites, that we
expect to have a material adverse effect on our business, financial condition or operating results. However, it is possible that
material environmental costs or liabilities may arise in the future.
Business Continuity Management Plan
We have developed and implemented a global Business Continuity Management Plan ("Plan") for our business operations. The
Plan is designed to facilitate the prompt resumption of our business operations and functions arising from an event which impacts
or potentially impacts our business operations. As the scale, timing, and impact of disasters and disruptions are unpredictable, the
Plan has been designed to be flexible in responding to actual events as they occur. The Plan provides a structured framework for
safeguarding our employees and property, making a financial and operational assessment, protecting our books and records,
perpetuating critical business functions, and enabling the continuation of customer transactions.
Employees
As of September 27, 2014, we had approximately 1,943 regular full-time employees and 335 temporary workers worldwide.
10
Item 1A. RISKS RELATED TO OUR BUSINESS AND INDUSTRY
Our operating results and financial condition are adversely impacted by volatile worldwide economic conditions.
Though the semiconductor industry's cycle can be independent of the general economy, global economic conditions may have a
direct impact on demand for semiconductor units and ultimately demand for semiconductor capital equipment and expendable
tools. Accordingly, our business and financial performance is impacted, both positively and negatively, by fluctuations in the
macroeconomic environment. Our visibility into future demand is generally limited and forecasting is difficult. There can be no
assurances regarding levels of demand for our products and we believe historic industry-wide volatility will persist.
Unpredictable spending by our customers due to uncertainties in the macroeconomic environment could adversely affect our
net revenue and profitability.
We depend upon demand from our customers including IDMs and OSATs, industrial manufacturers and automotive electronics
suppliers. Our net revenue and profitability is based upon our customers' level of anticipated sales. Reductions or other fluctuations
in their spending as a result of uncertain conditions in the macroeconomic environment, such as government, economic or fiscal
instability, restricted global credit conditions, reduced demand, unbalanced inventory levels, fluctuations in interest rates, higher
energy prices, or other conditions, could adversely affect our net revenue and profitability. The impact of general economic
slowdowns could make our customers cautious and delay orders until the economic environment becomes clearer.
The semiconductor industry is volatile with sharp periodic downturns and slowdowns. Cyclical industry downturns are made
worse by volatile global economic conditions.
Our operating results are significantly affected by the capital expenditures of semiconductor manufacturers, both IDMs and OSATs.
Expenditures by our customers depend on the current and anticipated market demand for semiconductors and products that use
semiconductors, including mobile devices, personal computers, consumer electronics, telecommunications equipment, automotive
goods and other industrial products. Significant downturns in the market for semiconductor devices or in general economic
conditions reduce demand for our products and can materially and adversely affect our business, financial condition and operating
results.
The semiconductor industry is volatile, with periods of rapid growth followed by industry-wide retrenchment. These periodic
downturns and slowdowns have adversely affected our business, financial condition and operating results. Downturns have been
characterized by, among other things, diminished product demand, excess production capacity, and accelerated erosion of selling
prices. Historically these downturns have severely and negatively affected the industry's demand for capital equipment, including
assembly equipment and, to a lesser extent, expendable tools. There can be no assurances regarding levels of demand for our
products. In any case, we believe the historical volatility of our business, both upward and downward, will persist.
We may experience increasing price pressure.
Typically our average selling prices have declined over time. We seek to offset this decline by continually reducing our cost structure
by consolidating operations in lower cost areas, reducing other operating costs, and by pursuing product strategies focused on
product performance and customer service. These efforts may not be able to fully offset price declines; therefore, our financial
condition and operating results may be materially and adversely affected.
Our quarterly operating results fluctuate significantly and may continue to do so in the future.
In the past, our quarterly operating results have fluctuated significantly. We expect quarterly results will continue to fluctuate.
Although these fluctuations are partly due to the cyclical and volatile nature of the semiconductor industry, they also reflect other
factors, many of which are outside of our control.
Some of the factors that may cause our net revenue and operating margins to fluctuate significantly from period to period are:
• market downturns;
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industry inventory level;
the mix of products we sell because, for example:
certain lines of equipment within our business segments are more profitable than others; and
some sales arrangements have higher gross margins than others;
cancelled or deferred orders;
seasonality;
competitive pricing pressures may force us to reduce prices;
11
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higher than anticipated costs of development or production of new equipment models;
the availability and cost of the components for our products;
delays in the development and manufacture of our new products and upgraded versions of our products and market
acceptance of these products when introduced;
customers' delay in purchasing our products due to anticipation that we or our competitors may introduce new or upgraded
products; and
our competitors' introduction of new products.
Many of our expenses, such as research and development, selling, general and administrative expenses, and interest expense, do
not vary directly with our net revenue. Our research and development efforts include long-term projects lasting a year or more,
which require significant investments. In order to realize the benefits of these projects, we believe that we must continue to fund
them even during periods when our revenue has declined. As a result, a decline in our net revenue would adversely affect our
operating results as we continue to make these expenditures. In addition, if we were to incur additional expenses in a quarter in
which we did not experience comparable increased net revenue, our operating results would decline. In a downturn, we may have
excess inventory, which could be written off. Some of the other factors that may cause our expenses to fluctuate from period-to-
period include:
•
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•
timing and extent of our research and development efforts;
severance, restructuring, and other costs of relocating facilities;
inventory write-offs due to obsolescence; and
an increase in the cost of labor or materials.
Because our net revenue and operating results are volatile and difficult to predict, we believe consecutive period-to-period
comparisons of our operating results may not be a good indication of our future performance.
We may not be able to rapidly develop, manufacture and gain market acceptance of new and enhanced products required to
maintain or expand our business.
We believe our continued success depends on our ability to continuously develop and manufacture new products and product
enhancements on a timely and cost-effective basis. We must introduce these products and product enhancements into the market
in a timely manner in response to customers' demands for higher performance assembly equipment and leading-edge materials
customized to address rapid technological advances in integrated circuits, and capital equipment designs. Our competitors may
develop new products or enhancements to their products that offer improved performance and features, or lower prices which may
render our products less competitive. The development and commercialization of new products require significant capital
expenditures over an extended period of time, and some products we seek to develop may never become profitable. In addition,
we may not be able to develop and introduce products incorporating new technologies in a timely manner that will satisfy our
customers' future needs or achieve market acceptance.
The pace of transition from gold to copper wire bonding by our customers and the industry may slow down.
Since fiscal 2010, many of our customers have converted their bonding wire from gold to copper wire. Since this initial conversion,
a majority of our wire bonder sales are copper capable bonders. In fiscal 2014, 76% of total ball bonders sold by the Company
were copper capable bonders. If the pace of transition from gold to copper wire bonding by our customers slows down or customers
transition away from copper wire bonding, there may be a reduced demand for our wire bonders and our financial condition and
operating results may be materially and adversely affected.
Substantially all of our sales and manufacturing operations are located outside of the U.S., and we rely on independent foreign
distribution channels for certain product lines, all of which subject us to risks, including risks from changes in trade regulations,
currency fluctuations, political instability and conflicts.
Approximately 94.4%, 97.3%, and 98.3% of our net revenue for fiscal 2014, 2013, and 2012, respectively, were for shipments to
customers located outside of the U.S., primarily in the Asia/Pacific region. We expect our future performance to depend on our
ability to continue to compete in foreign markets, particularly in the Asia/Pacific region. Some of these economies have been
highly volatile, resulting in significant fluctuation in local currencies, and political and economic instability. These conditions may
continue or worsen, which may materially and adversely affect our business, financial condition and operating results.
We also rely on non-U.S. suppliers for materials and components used in our products, and substantially all of our manufacturing
operations are located in countries other than the U.S. We manufacture our ball and wedge bonders in Singapore, our dicing blades,
capillaries and bonding wedges in China and capillary blanks in Israel. In addition, our corporate headquarters is in Singapore and
12
we have sales, service and support personnel in China, Israel, Japan, Korea, Malaysia, the Philippines, Singapore, Taiwan, Thailand,
the U.S. and Germany. We also rely on independent foreign distribution channels for certain of our product lines. As a result, a
major portion of our business is subject to the risks associated with international, and particularly Asia/Pacific, commerce, such
as:
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risks of war and civil disturbances or other events that may limit or disrupt manufacturing and markets;
seizure of our foreign assets, including cash;
longer payment cycles in foreign markets;
foreign exchange restrictions and capital controls;
restrictions on the repatriation of our assets, including cash;
significant foreign and U.S. taxes on repatriated cash;
difficulties of staffing and managing dispersed international operations;
possible disagreements with tax authorities;
episodic events outside our control such as, for example, outbreaks of influenza or other illnesses;
natural disasters such as earthquakes, fires or floods;
tariff and currency fluctuations;
changing political conditions;
labor work stoppages and strikes in our factories or the factories of our suppliers;
foreign governments' monetary policies and regulatory requirements;
less protective foreign intellectual property laws; and
legal systems which are less developed and may be less predictable than those in the U.S.
In addition, there is a potential risk of conflict and instability in the relationship between Taiwan and China. Conflict or instability
could disrupt the operations of our customers and/or suppliers in both Taiwan and China. Additionally, our manufacturing operations
in China could be disrupted by any conflict.
Our international operations also depend upon favorable trade relations between the U.S. and those foreign countries in which our
customers, subcontractors and materials suppliers have operations. A protectionist trade environment in either the U.S. or those
foreign countries in which we do business, such as a change in the current tariff structures, export compliance or other trade policies,
may materially and adversely affect our ability to sell our products in foreign markets.
Increased labor costs and competition for qualified personnel may reduce the efficiency of our flexible manufacturing model
and adversely impact our operating results.
There is some uncertainty with respect to the pace of rising labor costs in the various countries in which we operate. In addition,
there is substantial competition in China and Singapore for qualified and capable personnel, which may make it difficult for us to
recruit and retain qualified employees. If we are unable to staff sufficient personnel at our China and Singapore facilities or if there
are increases in labor costs that we are unable to recover in our pricing to our customers, we may experience increased manufacturing
costs, which would adversely affect our operating results.
We are exposed to fluctuations in currency exchange rates that could negatively impact our financial results and cash flows.
Because most of our foreign sales are denominated in U.S. dollars, an increase in value of the U.S. dollar against foreign currencies
will make our products more expensive than those offered by some of our foreign competitors. In addition, a weakening of the
U.S. dollar against foreign currencies could make our costs in non-U.S. locations more expensive to fund. Our ability to compete
overseas may therefore be materially and adversely affected by the fluctuations of the U.S. dollar against foreign currencies.
Because nearly all of our business is conducted outside the U.S., we face exposure to adverse movements in foreign currency
exchange rates which could have a material adverse impact on our financial results and cash flows. Historically, our primary
exposures have related to net working capital exposures denominated in currencies other than the foreign subsidiaries' functional
currency, and remeasurement of our foreign subsidiaries' net monetary assets from the subsidiaries' local currency into the
subsidiaries' functional currency. In general, an increase in the value of the U.S. dollar could require certain of our foreign subsidiaries
to record translation and remeasurement gains. Conversely, a decrease in the value of the U.S. dollar could require certain of our
foreign subsidiaries to record losses on translation and remeasurement. An increase in the value of the U.S. dollar could increase
the cost to our customers of our products in those markets outside the U.S. where we sell in U.S. dollars, and a weakened U.S.
dollar could increase the cost of local operating expenses and procurement of raw materials, both of which could have an adverse
13
effect on our cash flows. Our primary exposures include the Singapore Dollar, Chinese Yuan, Japanese Yen, Malaysian Ringgit,
Swiss Franc, Philippine Peso, Thai Baht, Taiwan Dollar, South Korean Won, Israeli Shekel and Euro. Although we from time to
time have entered into foreign exchange forward contracts to hedge certain foreign currency exposure of our operating expenses,
our attempts to hedge against these risks may not be successful and may result in a material adverse impact on our financial results
and cash flows.
We may not be able to continue to consolidate manufacturing and other facilities without incurring unanticipated costs and
disruptions to our business.
As part of our ongoing efforts to drive further efficiency, we may consolidate other manufacturing facilities. Should we consolidate,
we may experience unanticipated events, including the actions of governments, suppliers, employees or customers, which may
result in unanticipated costs and disruptions to our business.
Our business depends on attracting and retaining management, marketing and technical employees as well as on the succession
of senior management.
Our future success depends on our ability to hire and retain qualified management, marketing, finance, accounting and technical
employees, including senior management. Experienced personnel with the relevant and necessary skill sets in our industry are in
high demand and competition for their talents is intense, especially in Asia, where most of the Company’s key personnel are located.
If we are unable to continue to attract and retain the managerial, marketing, finance, accounting and technical personnel we require,
and if we are unable to effectively provide for the succession of senior management, our business, financial condition and operating
results may be materially and adversely affected.
Difficulties in forecasting demand for our product lines may lead to periodic inventory shortages or excesses.
We typically operate our business with limited visibility of future demand. As a result, we sometimes experience inventory shortages
or excesses. We generally order supplies and otherwise plan our production based on internal forecasts for demand. We have in
the past failed, and may again in the future fail, to accurately forecast demand for our products. This has led to, and may in the
future lead to, delays in product shipments or, alternatively, an increased risk of inventory obsolescence. If we fail to accurately
forecast demand for our products, our business, financial condition and operating results may be materially and adversely affected.
Alternative packaging technologies may render some of our products obsolete and materially and adversely affect our overall
business and financial results.
Alternative packaging technologies have emerged that may improve device performance or reduce the size of an integrated circuit
package, as compared to traditional wire bonding. These technologies include flip chip and wafer level packaging. Some of these
alternative technologies eliminate the need for wires to establish the electrical connection between a die and its package. The
semiconductor industry may, in the future, shift a significant part of its volume into alternative packaging technologies, such as
those discussed above, which do not employ our products. If a significant shift to alternative packaging technologies to a technology
not offered by us were to occur, demand for our equipment and related packaging materials may be materially and adversely
affected. Given the lack of a significant alternate revenue stream other than wire bonding, a reduced demand for our equipment
could materially and adversely affect our financial results.
Because a small number of customers account for most of our sales, our net revenue could decline if we lose a significant
customer.
The semiconductor manufacturing industry is highly concentrated, with a relatively small number of large semiconductor
manufacturers and their subcontract assemblers and vertically integrated manufacturers of electronic systems purchasing a
substantial portion of our semiconductor assembly equipment and packaging materials. Sales to a relatively small number of
customers have historically accounted for a significant percentage of our net revenue. Sales to our largest customers, defined as
more than 10% of our net revenue, comprised 11.0% and 37.3% of our net revenue for fiscal 2013 and 2012, respectively, and in
the future could again represent a significant percentage of our sales. No customer accounted for more than 10% of our net revenue
in fiscal 2014.
We expect a small number of customers will continue to account for a high percentage of our net revenue for the foreseeable future.
Thus, our business success depends on our ability to maintain strong relationships with our customers. Any one of a number of
factors could adversely affect these relationships. If, for example, during periods of escalating demand for our equipment, we were
unable to add inventory and production capacity quickly enough to meet the needs of our customers, they may turn to other suppliers
making it more difficult for us to retain their business. Similarly, if we are unable for any other reason to meet production or
delivery schedules, particularly during a period of escalating demand, our relationships with our key customers could be adversely
14
affected. If we lose orders from a significant customer, or if a significant customer reduces its orders substantially, these losses or
reductions may materially and adversely affect our business, financial condition and operating results.
We maintain a backlog of customer orders that is subject to cancellation, reduction or delay in delivery schedules, which may
result in lower than expected revenues.
We manufacture products primarily pursuant to purchase orders for current delivery or to forecast, rather than pursuant to long-
term supply contracts. The semiconductor industry is occasionally subject to double-booking and rapid changes in customer
outlooks or unexpected build ups of inventory in the supply channel as a result of shifts in end market demand and macro-economic
conditions. Accordingly, many of these purchase orders or forecasts may be revised or canceled without penalty. As a result, we
must commit resources to the manufacture of products without binding purchase commitments from customers. Even in cases
where our standard terms and conditions of sale or other contractual arrangements do not permit a customer to cancel an order
without penalty, we may from time to time accept cancellations to maintain customer relationships or because of industry practice,
custom or other factors. Our inability to sell products after we devote significant resources to them could have a material adverse
effect on both our levels of inventory and revenues. While we currently believe our inventory levels are appropriate for the current
economic environment, continued global economic uncertainty may result in lower than expected demand.
Undetected problems in our products could directly impair our financial results.
If flaws in design, production, assembly or testing of our products (by us or our suppliers) were to occur, we could experience a
rate of failure in our products that would result in substantial repair, replacement or service costs and potential damage to our
reputation. Continued improvement in manufacturing capabilities, control of material and manufacturing quality and costs and
product testing are critical factors in our future growth. There can be no assurance that our efforts to monitor, develop, modify and
implement appropriate tests and manufacturing processes for our products will be sufficient to permit us to avoid a rate of failure
in our products that results in substantial delays in shipment, significant repair or replacement costs or potential damage to our
reputation, any of which could have a material adverse effect on our business, results of operations or financial condition.
Costs related to product defect and errata may harm our results of operations and business.
Costs of product defects and errata (deviations from product specifications) due to, for example, problems in our design and
manufacturing processes, or those of our suppliers, could include:
•
•
•
•
•
writing off the value of inventory;
disposing of products that cannot be fixed;
retrofitting products that have been shipped;
providing product replacements or modifications; and
defending against litigation.
These costs could be large and may increase expenses and lower our operating profits. Our reputation with customers or end users
could be damaged as a result of product defects and errata, and product demand could be reduced. These factors could harm our
business and financial results.
We depend on our suppliers, including sole source suppliers, for critical raw materials, components and subassemblies. If our
suppliers do not deliver their products to us, we would be unable to deliver our products to our customers.
Our products are complex and require raw materials, components and subassemblies having a high degree of reliability, accuracy
and performance. We rely on subcontractors to manufacture many of these components and subassemblies and we rely on sole
source suppliers for many components and raw materials. As a result, we are exposed to a number of significant risks, including:
•
•
•
•
•
•
decreased control over the manufacturing process for components and subassemblies;
changes in our manufacturing processes, in response to changes in the market, which may delay our shipments;
our inadvertent use of defective or contaminated raw materials;
the relatively small operations and limited manufacturing resources of some of our suppliers, which may limit their
ability to manufacture and sell subassemblies, components or parts in the volumes we require and at acceptable quality
levels and prices;
the inability of suppliers to meet customer demand requirements during volatile cycles;
reliability or quality issues with certain key subassemblies provided by single source suppliers as to which we may not
have any short term alternative;
15
•
•
•
•
shortages caused by disruptions at our suppliers and subcontractors for a variety of reasons, including work stoppage or
fire, earthquake, flooding or other natural disasters;
delays in the delivery of raw materials or subassemblies, which, in turn, may delay shipments to our customers;
loss of suppliers as a result of consolidation of suppliers in the industry; and
loss of suppliers because of their bankruptcy or insolvency.
If we are unable to deliver products to our customers on time and at expected cost for these or any other reasons, or we are unable
to meet customer expectations as to cycle time, or we are unable to maintain acceptable product quality or reliability, our business,
financial condition and operating results may be materially and adversely affected.
New regulations related to “conflict minerals” may force us to incur additional expenses, may make our supply chain more
complex and may result in damage to our reputation with customers.
In 2012, under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act, the SEC adopted
requirements for companies that use certain minerals and metals, known as conflict minerals, in their products, regardless of
whether these products are manufactured by third parties. These requirements require companies to conduct due diligence and
disclose whether or not such minerals originate from the Democratic Republic of Congo and certain adjoining countries. These
requirements could adversely affect the sourcing, availability and pricing of minerals used in the manufacture of semiconductor
devices, including our products. In addition, since our supply chain is complex, we may not be able to sufficiently verify the
origins for these minerals and metals used in our products through the due diligence procedures that we implement, which may
harm our reputation. In such event, we may also face difficulties in satisfying customers who require that all of the components
of our products are certified as conflict mineral free.
We may acquire or divest businesses or enter into joint ventures or strategic alliances, which may materially affect our business,
financial condition and operating results.
We continually evaluate our portfolio of businesses and may decide to buy or sell businesses or enter into joint ventures or other
strategic alliances. We may be unable to successfully integrate acquired businesses with our existing businesses and successfully
implement, improve and expand our systems, procedures and controls to accommodate these acquisitions. These transactions place
additional constraints on our management and current labor force. Additionally, these transactions require significant resources
from our legal, finance and business teams. In addition, we may divest existing businesses, which would cause a decline in revenue
and may make our financial results more volatile. If we fail to integrate and manage acquired businesses successfully or to manage
the risks associated with divestitures, joint ventures or other alliances, our business, financial condition and operating results may
be materially and adversely affected.
The market price of our common shares and our earnings per share may decline as a result of any acquisitions or divestitures.
The market price of our common shares may decline as a result of any acquisitions or divestitures made by us if we do not achieve
the perceived benefits of such acquisitions or divestitures as rapidly or to the extent anticipated by financial or industry analysts
or if the effect on our financial results is not consistent with the expectations of financial or industry analysts. In addition, the
failure to achieve expected benefits and unanticipated costs relating to our acquisitions could reduce our future earnings per share.
We may be unable to continue to compete successfully in the highly competitive semiconductor equipment and packaging
materials industries.
The semiconductor equipment and packaging materials industries are very competitive. In the semiconductor equipment industry,
significant competitive factors include performance, quality, customer support and price. In the semiconductor packaging materials
industry, competitive factors include price, delivery and quality.
In each of our markets, we face competition and the threat of competition from established competitors and potential new entrants.
In addition, established competitors may combine to form larger, better capitalized companies. Some of our competitors have or
may have significantly greater financial, engineering, manufacturing and marketing resources. Some of these competitors are Asian
and European companies that have had, and may continue to have, an advantage over us in supplying products to local customers
who appear to prefer to purchase from local suppliers, without regard to other considerations.
We expect our competitors to improve their current products' performance, and to introduce new products and materials with
improved price and performance characteristics. Our competitors may independently develop technology similar to or better than
ours. New product and material introductions by our competitors or by new market entrants could hurt our sales. If a particular
semiconductor manufacturer or subcontract assembler selects a competitor's product or materials for a particular assembly operation,
we may not be able to sell products or materials to that manufacturer or assembler for a significant period of time. Manufacturers
16
and assemblers sometimes develop lasting relationships with suppliers and assembly equipment providers in our industry and
often go years without requiring replacement. In addition, we may have to lower our prices in response to price cuts by our
competitors, which may materially and adversely affect our business, financial condition and operating results. If we cannot
compete successfully, we could be forced to reduce prices and could lose customers and experience reduced margins and
profitability.
Our success depends in part on our intellectual property, which we may be unable to protect.
Our success depends in part on our proprietary technology. To protect this technology, we rely principally on contractual restrictions
(such as nondisclosure and confidentiality provisions) in our agreements with employees, subcontractors, vendors, consultants
and customers and on the common law of trade secrets and proprietary “know-how.” We also rely, in some cases, on patent and
copyright protection, although this protection may in some cases be insufficient as the duration of our patents often exceeds the
commercial life cycles of the technologies disclosed and claimed in the patents due to the rapid development of technology in our
industry. We may not be successful in protecting our technology for a number of reasons, including the following:
•
•
•
employees, subcontractors, vendors, consultants and customers may violate their contractual agreements, and the cost of
enforcing those agreements may be prohibitive, or those agreements may be unenforceable or more limited than we
anticipate;
foreign intellectual property laws may not adequately protect our intellectual property rights; and
our patent and copyright claims may not be sufficiently broad to effectively protect our technology; our patents or copyrights
may be challenged, invalidated or circumvented; or we may otherwise be unable to obtain adequate protection for our
technology.
In addition, our partners and alliances may have rights to technology developed by us. We may incur significant expense to protect
or enforce our intellectual property rights. If we are unable to protect our intellectual property rights, our competitive position may
be weakened.
Third parties may claim we are infringing on their intellectual property, which could cause us to incur significant litigation
costs or other expenses, or prevent us from selling some of our products.
The semiconductor industry is characterized by rapid technological change, with frequent introductions of new products and
technologies. Industry participants often develop products and features similar to those introduced by others, creating a risk that
their products and processes may give rise to claims they infringe on the intellectual property of others. We may unknowingly
infringe on the intellectual property rights of others and incur significant liability for that infringement. If we are found to have
infringed on the intellectual property rights of others, we could be enjoined from continuing to manufacture, market or use the
affected product, or be required to obtain a license to continue manufacturing or using the affected product. A license could be
very expensive to obtain or may not be available at all. Similarly, changing or re-engineering our products or processes to avoid
infringing the rights of others may be costly, impractical or time consuming.
Occasionally, third parties assert that we are, or may be, infringing on or misappropriating their intellectual property rights. In
these cases, we defend, and will continue to defend, against claims or negotiate licenses where we consider these actions appropriate.
Intellectual property cases are uncertain and involve complex legal and factual questions. If we become involved in this type of
litigation, it could consume significant resources and divert our attention from our business.
We may be materially and adversely affected by environmental and safety laws and regulations.
We are subject to various federal, state, local and foreign laws and regulations governing, among other things, the generation,
storage, use, emission, discharge, transportation and disposal of hazardous material, investigation and remediation of contaminated
sites and the health and safety of our employees. Increasingly, public attention has focused on the environmental impact of
manufacturing operations and the risk to neighbors of chemical releases from such operations.
Proper waste disposal plays an important role in the operation of our manufacturing plants. In many of our facilities we maintain
wastewater treatment systems that remove metals and other contaminants from process wastewater. These facilities operate under
permits that must be renewed periodically. A violation of those permits may lead to revocation of the permits, fines, penalties or
the incurrence of capital or other costs to comply with the permits, including potential shutdown of operations.
Compliance with existing or future, land use, environmental and health and safety laws and regulations may: (1) result in significant
costs to us for additional capital equipment or other process requirements, (2) restrict our ability to expand our operations and/or
(3) cause us to curtail our operations. We also could incur significant costs, including cleanup costs, fines or other sanctions and
third-party claims for property damage or personal injury, as a result of violations of or liabilities under such laws and regulations.
17
Any costs or liabilities to comply with or imposed under these laws and regulations could materially and adversely affect our
business, financial condition and operating results.
We have the ability to issue additional equity securities, which would lead to dilution of our issued and outstanding common
shares.
The issuance of additional equity securities or securities convertible into equity securities will result in dilution of our existing
shareholders' equity interests in us. Our board of directors has the authority to issue, without vote or action of shareholders, preferred
shares in one or more series, and has the ability to fix the rights, preferences, privileges and restrictions of any such series. Any
such series of preferred shares could contain dividend rights, conversion rights, voting rights, terms of redemption, redemption
prices, liquidation preferences or other rights superior to the rights of holders of our common shares. In addition, we are authorized
to issue, without shareholder approval, up to an aggregate of 200 million common shares, of which approximately 76.6 million
shares were outstanding as of September 27, 2014. We are also authorized to issue, without shareholder approval, securities
convertible into either common shares or preferred shares.
Weaknesses in our internal controls and procedures could result in material misstatements in our financial statements.
Pursuant to the Sarbanes-Oxley Act, management is responsible for establishing and maintaining adequate internal control over
financial reporting. Our internal controls over financial reporting are processes designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements in accordance with U.S. generally accepted
accounting principles. A material weakness is a control deficiency, or combination of control deficiencies, that results in a more
than remote likelihood that a material misstatement of annual or interim financial statements will not be prevented or detected.
Our internal controls may not prevent all potential errors or fraud. Any control system, no matter how well designed and
implemented, can only provide reasonable and not absolute assurance that the objectives of the control system will be achieved.
We or our independent registered public accountants may identify material weaknesses in our internal controls which could
adversely affect our ability to ensure proper financial reporting and could affect investor confidence in us and the price of our
common shares.
We may be subject to disruptions or failures in our information technology systems and network infrastructures that could
have a material adverse effect on us.
We maintain and rely extensively on information technology systems and network infrastructures for the effective operation of
our business. We also hold large amounts of data in data center facilities around the world, primarily in Singapore and the U.S.,
which our business depends upon. A disruption, infiltration or failure of our information technology systems or any of our data
centers as a result of software or hardware malfunctions, computer viruses, cyber-attacks, employee theft or misuse, power
disruptions, natural disasters or accidents could cause breaches of data security and loss of critical data, which in turn could
materially adversely affect our business. Our security procedures, such as virus protection software and our business continuity
planning, such as our disaster recovery policies and back-up systems, may not be adequate or implemented properly to fully address
the adverse effect of such events, which could adversely impact our operations. In addition, our business could be adversely affected
to the extent we do not make the appropriate level of investment in our technology systems as our technology systems become
out-of-date or obsolete and are not able to deliver the type of data integrity and reporting we need to run our business. Furthermore,
when we implement new systems and or upgrade existing systems, we could be faced with temporary or prolonged disruptions
that could adversely affect our business.
Other Risks
Our ability to recognize tax benefits on future domestic U.S. tax losses and our existing U.S. net operating loss position may
be limited.
We have generated net operating loss carry-forwards and other tax attributes for U.S. tax purposes (“Tax Benefits”) that can be
used to reduce our future federal income tax obligations. Under the Tax Reform Act of 1986, the potential future utilization of our
Tax Benefits for U.S. tax purposes may be limited following an ownership change. An ownership change is generally defined as
a greater than 50% point increase in equity ownership by 5% shareholders in any three-year period under Section 382 of the Internal
Revenue Code. An ownership change may significantly limit our ability to fully utilize our net operating losses which could
materially and adversely affect our financial condition and operating results. As of September 27, 2014, we have foreign net
operating loss carryforwards of $80.6 million, domestic state net operating loss carryforwards of $177.8 million, domestic federal
net operating loss carryforwards of $6.9 million, and tax credit carryforwards of $0.7 million.
18
Potential changes to U.S. and foreign tax laws could increase our income tax expense.
We are subject to income taxes in the U. S. and many foreign jurisdictions. Officials in some of the jurisdictions in which we do
business have proposed, or announced that they are reviewing, tax changes that could potentially increase taxes, and other revenue-
raising laws and regulations. It is unclear whether these proposed tax revisions will be enacted, or, if enacted, what the scope of
the revisions will be. Changes in U.S. and foreign tax laws, if enacted, could materially and adversely affect our financial condition
and operating results.
Anti-takeover provisions in our articles of incorporation and bylaws, and under Pennsylvania law may discourage other
companies from attempting to acquire us.
Some provisions of our articles of incorporation and bylaws as well as Pennsylvania law may discourage some transactions where
we would otherwise experience a fundamental change. For example, our articles of incorporation and bylaws contain provisions
that:
•
•
•
classify our board of directors into four classes, with one class being elected each year;
permit our board to issue “blank check” preferred shares without shareholder approval; and
prohibit us from engaging in some types of business combinations with a holder of 20% or more of our voting securities
without super-majority board or shareholder approval.
Further, under the Pennsylvania Business Corporation Law, because our shareholders approved bylaw provisions that provide for
a classified board of directors, shareholders may remove directors only for cause. These provisions and some other provisions of
the Pennsylvania Business Corporation Law could delay, defer or prevent us from experiencing a fundamental change and may
adversely affect our common shareholders' voting and other rights.
Terrorist attacks, or other acts of violence or war may affect the markets in which we operate and our profitability.
Terrorist attacks may negatively affect our operations. There can be no assurance that there will not be further terrorist attacks
against the U.S. or U.S. businesses. Terrorist attacks or armed conflicts may directly impact our physical facilities or those of our
suppliers or customers. Our primary facilities include administrative, sales and research and development facilities in Singapore
and the U.S. and manufacturing and research and development facilities in China, and Israel. Additional terrorist attacks may
disrupt the global insurance and reinsurance industries with the result that we may not be able to obtain insurance at historical
terms and levels for all of our facilities. Furthermore, additional attacks may make travel and the transportation of our supplies
and products more difficult and more expensive and ultimately affect the sales of our products in the U.S. and overseas. Additional
attacks or any broader conflict, could negatively impact our domestic and international sales, our supply chain, our production
capability and our ability to deliver products to our customers. Political and economic instability in some regions of the world
could negatively impact our business. The consequences of terrorist attacks or armed conflicts are unpredictable, and we may not
be able to foresee events that could have an adverse effect on our business.
Item 1B. UNRESOLVED STAFF COMMENTS
None.
19
Item 2. PROPERTIES
The following table reflects our major facilities as of September 27, 2014:
Facility (1)
Approximate Size Function
Singapore
198,000 sq. ft.
Corporate headquarters,
manufacturing, technology, sales and
service center
Suzhou, China
155,000 sq. ft.
Manufacturing, technology and
shared support services center
Business Segment and
Products
Manufactured
Lease Expiration
Date
Equipment: ball and
wedge bonders
Expendable Tools:
capillaries, dicing
blades and bonding
wedges
November 2043 (2)
(3)
September 2033
(4)
Fort Washington,
Pennsylvania
Santa Ana,
California
88,000 sq. ft.
Technology, sales and service center
Not applicable
65,000 sq. ft.
Technology, sales and service center
Not applicable
August 2036 (5)
Yokneam, Israel
21,000 sq. ft.
Manufacturing and technology
center
Expendable Tools:
capillary blanks (semi-
finish)
January 2018 (6)
Damansara
Uptown,
Malaysia
12,000 sq ft
Shared support services, sales and
service center
Not applicable
July 2017 (7)
(1) Each of the facilities listed in this table is leased other than the facility in Suzhou, China - see (3) below.
(2) Includes lease extension periods at the Company's option. Initial lease expires in November 2023.
(3) On September 25, 2013, the Company completed the building purchase.
(4) Includes lease extension periods at the Company's option. Initial lease expires in September 2023.
(5) Includes lease extension periods at the Company's option. Initial lease expires in August 2026.
(6) Includes lease extension periods at the Company's option. Initial lease expires in January 2015.
(7) Includes lease extension periods at the Company's option. Initial lease expires in July 2015.
In addition, the Company rents space for sales and service offices and administrative functions in China, Germany, Japan, Malaysia,
South Korea, Switzerland, Taiwan, Thailand and the Philippines. The Company believes the facilities are generally in good condition
and suitable to the extent of utilization needed.
Item 3. LEGAL PROCEEDINGS
From time to time, we may be a plaintiff or defendant in cases arising out of our business. We cannot be assured of the results of
any pending or future litigation, but we do not believe resolution of these matters will materially or adversely affect our business,
financial condition or operating results.
Item 4. MINE SAFETY DISCLOSURES
Not applicable.
20
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
Our common stock is traded on The Nasdaq Global Market (“Nasdaq”) under the symbol “KLIC.” The following table reflects
the ranges of high and low sale prices for our common stock as reported on Nasdaq for the periods indicated:
PART II
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Fiscal 2014
Fiscal 2013
High
Low
High
Low
$
$
$
$
13.70
13.30
15.10
15.23
$
$
$
$
11.19
10.73
11.74
13.44
$
$
$
$
12.04
12.95
12.56
12.27
$
$
$
$
9.41
10.58
10.08
10.91
On November 7, 2014, there were approximately 285 holders of record of the shares of outstanding common stock. The payment
of dividends on our common stock is within the discretion of our board of directors; however, we have not historically paid any
dividends on our common stock. In addition, we do not expect to declare dividends on our common stock in the near future, since
we intend to retain earnings to finance our business.
For the purpose of calculating the aggregate market value of shares of our common stock held by non-affiliates, as shown on the
cover page of this report, we have assumed all of our outstanding shares were held by non-affiliates except for shares held by our
directors and executive officers. However, this does not necessarily mean that all directors and executive officers of the Company
are, in fact, affiliates of the Company, or there are no other persons who may be deemed to be affiliates of the Company. Further
information concerning the beneficial ownership of our executive officers, directors and principal shareholders will be included
in our Proxy Statement for the 2015 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission
on or about December 24, 2014.
Recent Sales of Unregistered Securities and Use of Proceeds
None.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Share repurchase activity during the year ended September 27, 2014 was as follows (in millions, except number of shares, which
are reflected in thousands, and per share amounts):
Periods
Total
Number of
Shares
Purchased
Average Price
Paid Per Share
Total Number
of Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs
Approximate
Dollar Value of
Shares That
May Yet Be
Purchase Under
the Plans or
Programs (1)
August 14, 2014 to September 27, 2014
43.5
$
14.40
43.50
$
99.4
(1) On August 14, 2014, the Company’s Board of Directors authorized a program (the "Program") to repurchase up to $100 million
of the Company’s common stock on or before August 14, 2017. The Company has entered into a written trading plan under
Rule 10b5-1 of the Exchange Act, to facilitate repurchases under the Program. The Program may be suspended or discontinued
at any time and will be funded using the Company's available cash. Under the Program, shares may be repurchased through
open market and/or privately negotiated transactions at prices deemed appropriate by management. The timing and amount of
repurchase transactions under this program will depend on market conditions as well as corporate and regulatory considerations.
The $99.4 million represents the remaining amount available to repurchase shares under the Program.
21
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following tables reflect selected historical consolidated financial data derived from the consolidated financial statements of
Kulicke and Soffa Industries, Inc. and subsidiaries as of and for each of the five fiscal years ended 2014, 2013, 2012, 2011, and
2010.
This data should be read in conjunction with our consolidated financial statements, including notes and other financial information
included elsewhere in this report or other reports filed previously by us in respect of the fiscal years identified in the column
headings of the tables below.
(in thousands)
Statement of Operations Data:
Net revenue:
Equipment
Expendable Tools
Total net revenue
Cost of sales:
Equipment
Expendable Tools
Total cost of sales
Operating expenses:
Equipment
Expendable Tools
Total operating expenses (1)
Income from operations:
Equipment
Expendable Tools
Interest income (expense), net
2014
2013
Fiscal
2012
2011
2010
$
503,049
$
472,567
$
727,082
$
759,331
$
691,988
65,520
568,569
268,934
26,081
295,015
174,346
22,224
196,570
59,769
17,215
149
62,371
534,938
261,270
26,723
287,993
158,306
22,833
181,139
52,991
12,815
862
63,941
791,023
397,210
26,423
423,633
164,081
24,083
188,164
71,070
830,401
412,914
29,578
442,492
189,631
28,218
217,849
70,796
762,784
399,042
28,069
427,111
155,625
32,013
187,638
165,791
156,786
137,321
13,435
(4,975)
13,274
(7,632)
10,714
(7,930)
Income from continuing operations before income
tax
Provision (benefit) for income taxes from continuing
operations (2)
Net income
77,133
66,668
174,251
162,428
140,105
14,145
7,310
13,671
34,818
$
62,988
$
59,358
$
160,580
$
127,610
$
(2,037)
142,142
(1) During fiscal 2014, 2013, 2012, 2011 and 2010, we recorded $1.1 million, $1.9 million, $1.7 million, $2.5 million and $2.4
million, respectively, in operating expense for restructuring-related severance.
During fiscal 2014, 2013, 2012, 2011 and 2010, we recorded $17.6 million, $17.2 million, $22.0 million, $24.3 million and
$17.4 million, respectively, in operating expense for incentive compensation.
(2) The following are the most significant factors that affected our provision for income taxes: implementation of our international
restructuring plan in fiscal 2011 and 2010; volatility in our earnings each fiscal year and variation in earnings among various
tax jurisdictions in which we operate; changes in assumptions regarding repatriation of earnings; changes in tax legislation;
and our provision for various tax exposure items.
22
Per Share Data:
Net income per share: (1) (2)
Basic
Diluted
2014
2013
Fiscal
2012
2011
2010
$
$
0.82
0.81
$
$
0.79
0.78
$
$
2.17
2.13
$
$
1.77
1.73
$
$
2.01
1.92
Weighted average shares outstanding: (1) (2)
Basic
Diluted
76,396
77,292
75,132
76,190
73,887
75,502
71,820
73,341
70,012
73,548
(1) For fiscal 2014, 2013, 2012, 2011 and 2010, the exercise of dilutive stock options and expected vesting of time-based
and market-based restricted stock were included.
(2) For fiscal 2010, expected vesting of performance-based restricted stock and conversion of the 1% Convertible Subordinated
Notes were included. For fiscal 2010, $0.3 million of after-tax interest expense related to our 1% Convertible Subordinated
Notes was added to the Company's net income to determine diluted earnings per share.
(in thousands)
Balance Sheet Data:
2014
2013
Fiscal
2012
2011
2010
Cash, cash equivalents, investments and restricted cash $
597,086
$ 525,040
$ 440,244
$ 384,552
$ 181,334
Working capital excluding discontinued operations
Total assets excluding discontinued operations
Long-term debt and current portion of long-term debt
Long-term and current portion of financing obligation
Shareholders' equity
756,340
944,448
—
19,616
789,242
676,986
862,994
—
19,396
716,665
589,947
815,609
—
—
405,659
728,391
105,224
—
347,560
580,169
98,475
—
643,667
469,877
322,480
23
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
In addition to historical information, this filing contains statements relating to future events or our future results. These statements
are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the
Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”), and are subject to the safe harbor provisions created by statute. Such forward-looking statements include,
but are not limited to, our future revenue, sustained, increasing, continuing or strengthening demand for our products, the continuing
transition from gold to copper wire bonding, replacement demand, our research and development efforts, our ability to identify
and realize new growth opportunities, our ability to control costs and our operational flexibility as a result of (among other factors):
•
•
projected growth rates in the overall semiconductor industry, the semiconductor assembly equipment
market, and the market for semiconductor packaging materials; and
projected demand for ball and wedge bonder equipment and for expendable tools.
Generally, words such as “may,” “will,” “should,” “could,” “anticipate,” “expect,” “intend,” “estimate,” “plan,” “continue,”
“goal” and “believe,” or the negative of or other variations on these and other similar expressions identify forward-looking
statements. These forward-looking statements are made only as of the date of this filing. We do not undertake to update or revise
the forward-looking statements, whether as a result of new information, future events or otherwise.
Forward-looking statements are based on current expectations and involve risks and uncertainties. Our future results could differ
significantly from those expressed or implied by our forward-looking statements. These risks and uncertainties include, without
limitation, those described below and under the heading “Risk Factors” within this Annual Report on Form 10-K for the fiscal
year ended September 27, 2014 (the “Annual Report”) and our other reports and registration statements filed from time to time
with the Securities and Exchange Commission. This discussion should be read in conjunction with the Consolidated Financial
Statements and Notes included in this report, as well as our audited financial statements included in the Annual Report.
We operate in a rapidly changing and competitive environment. New risks emerge from time to time and it is not possible for us
to predict all risks that may affect us. Future events and actual results, performance and achievements could differ materially from
those set forth in, contemplated by or underlying the forward-looking statements, which speak only as of the date on which they
were made. Except as required by law, we assume no obligation to update or revise any forward-looking statement to reflect actual
results or changes in, or additions to, the factors affecting such forward-looking statements. Given those risks and uncertainties,
investors should not place undue reliance on forward-looking statements as predictions of actual results.
Introduction
Kulicke and Soffa Industries, Inc. (the "Company" or "K&S") designs, manufactures and sells capital equipment and expendable
tools used to assemble semiconductor devices, including integrated circuits (“ICs”), high and low powered discrete devices, light-
emitting diodes (“LEDs”), and power modules. We also service, maintain, repair and upgrade our equipment. Our customers
primarily consist of semiconductor device manufacturers, outsourced semiconductor assembly and test providers (“OSATs”),
other electronics manufacturers and automotive electronics suppliers.
We operate two main business segments, Equipment and Expendable Tools. Our goal is to be the technology leader and the most
competitive supplier in terms of cost and performance in each of our major product lines. Accordingly, we invest in research and
engineering projects intended to enhance our position at the leading edge of semiconductor assembly technology. We also remain
focused on our cost structure through continuing improvement and optimization of operations. Cost reduction efforts remain an
important part of our normal ongoing operations and are expected to generate savings without compromising overall product
quality and service levels.
Business Environment
The semiconductor business environment is highly volatile, driven by internal dynamics, both cyclical and seasonal, in addition
to macroeconomic forces. Over the long term, semiconductor consumption has historically grown, and is forecast to continue to
grow. This growth is driven, in part, by regular advances in device performance and by price declines that result from improvements
in manufacturing technology. In order to exploit these trends, semiconductor manufacturers, both integrated device manufacturers
(“IDMs”) and OSATs, periodically invest aggressively in latest generation capital equipment. This buying pattern often leads to
periods of excess supply and reduced capital spending - the so called semiconductor cycle. Within this broad semiconductor cycle
there are also, generally weaker, seasonal effects that are specifically tied to annual, end-consumer purchasing patterns. Typically,
semiconductor manufacturers prepare for heightened demand by adding or replacing equipment capacity by the end of the September
quarter. Occasionally, this results in subsequent reductions in the December quarter. This annual seasonality can occasionally be
24
overshadowed by effects of the broader semiconductor cycle. Macroeconomic factors also affect the industry, primarily through
their effect on business and consumer demand for electronic devices, as well as other products that have significant electronic
content such as automobiles, white goods, and telecommunication equipment.
Our Equipment segment is primarily affected by the industry's internal cyclical and seasonal dynamics in addition to broader
macroeconomic factors that positively and negatively affect our financial performance. The sales mix of IDM and OSAT customers
in any period also impacts financial performance, as changes in this mix can affect our products' average selling prices and gross
margins due to differences in volume purchases and machine configurations required by each customer type.
Our Expendable Tools segment is less volatile than our Equipment segment. Expendable Tools sales are more directly tied to
semiconductor unit consumption rather than capacity requirements and production capability improvements.
We continue to position our business to leverage our research and development leadership and innovation and to focus our efforts
on mitigating volatility, improving profitability and ensuring longer-term growth. We remain focused on operational excellence,
expanding our product offerings and managing our business efficiently throughout the business cycles. Our visibility into future
demand is generally limited, forecasting is difficult, and we generally experience typical industry seasonality.
To limit potential adverse cyclical, seasonal and macroeconomic effects on our financial position, we have de-leveraged and
strengthened our balance sheet. As of September 27, 2014, our total cash, cash equivalents and investments were $597.1 million,
a $72.1 million increase from the prior fiscal year end. We believe this strong cash position will allow us to continue to invest in
product development and pursue organic and non-organic opportunities.
On August 14, 2014, the Company’s Board of Directors authorized a program (the "Program") to repurchase up to $100 million
of the Company’s common stock on or before August 14, 2017. The Company has entered into a written trading plan under Rule
10b5-1 of the Exchange Act, to facilitate repurchases under the Program. The Program may be suspended or discontinued at any
time and will be funded using the Company's available cash. Under the Program, shares may be repurchased through open market
and/or privately negotiated transactions at prices deemed appropriate by management. The timing and amount of repurchase
transactions under the Program will depend on market conditions as well as corporate and regulatory considerations. During the
year ended September 27, 2014, the Company repurchased a total of 43.5 thousand shares of common stock at a cost of $0.6
million under the Program. As of September 27, 2014, our remaining stock repurchase authorization under the Program was
approximately $99.4 million.
Technology Leadership
We compete largely by offering our customers among the most advanced equipment and expendable tools available for the wire
and wedge bonding processes. Our equipment is typically the most productive and has the highest levels of process capability,
and as a result, has a lower cost of ownership compared to other equipment in its market. Our expendable tools are designed to
optimize the performance of the equipment in which they are used. We believe our technology leadership contributes to the strong
market positions of our ball bonder, wedge bonder and expendable tools products. To maintain our competitive advantage, we
invest in product development activities designed to produce a stream of improvements to existing products and to deliver next-
generation products. These investments often focus as much on improvements in the semiconductor assembly process as on specific
pieces of assembly equipment or expendable tools. In order to generate these improvements, we often work in close collaboration
with customers, end users, and other industry members. In addition to producing technical advances, these collaborative
development efforts strengthen customer relationships and enhance our reputation as a technology leader and solutions provider.
In addition to gold, silver alloy wire and aluminum wire, our leadership in the industry's use of copper wire for the bonding process
is an example of the benefits of our collaborative efforts. By working with customers, material suppliers, and other equipment
suppliers, we have developed a series of robust, high-yielding production processes, which have made copper wire widely accepted
and significantly reduced the cost of assembling an integrated circuit. Based on our industry leading copper bonding processes
and the continued high price of gold, we believe the demand for copper configured wire bonders is likely to remain solid.
Our leadership also has allowed us to maintain a competitive position in the latest generations of gold and copper ball bonders,
which enable our customers to handle the leading technologies in terms of bond pad pitch, silicon with the latest node and complex
wire bonding requirement. We continue to see demand for our large bondable area (“LA”) configured machines. This LA option
is now available on all of our Power Series (“PS”) models and allows our customers to gain added efficiencies and to reduce the
cost of packaging.
We also leverage the technology leadership of our equipment by optimizing our bonder platforms, and we deliver variants of our
products to serve emerging high-growth markets. For example, we have developed extensions of our main ball bonding platforms
to address opportunities in LED assembly, in particular for general lighting. We expect the next wave of growth in the LED market
25
to be high brightness LED for general lighting. We also believe there is an opportunity for growth in wire bonding sales at wafer
level using our AT Premier Plus.
Furthermore, we gain synergies by leveraging technologies between our unique platforms. Our leading technology for wedge
bonder equipment uses aluminum ribbon or heavy wire as opposed to fine gold and fine copper wire used in ball bonders. In 2013,
we launched a new line of high performance wedge bonder products, PowerFusionPS. The advanced interconnect capabilities of
PowerFusionPS improve the processing of high-density power packages, due to an expanded bondable area, wider leadframe
capability, superior indexing accuracy and teach mode. We have also initiated the design and development of our next generation
hybrid wedge bonder, which we currently expect to release in 2015. In both cases, we are making a concerted effort to develop
commonality of subsystems and design practices, in order to improve performance and design efficiencies. We believe this will
benefit us in maintaining our leadership position in the wedge bonding market and increase synergies between the various
engineering product groups. Furthermore, we continually research adjacent market segments where our technologies could be
used. Many of these initiatives are in the early stages of development and may become business opportunities in the future.
Another example of our developing equipment for high-growth niche markets is our AT Premier Plus. This machine utilizes a
modified wire bonding process to mechanically place bumps on devices in a wafer format, for variants of the flip chip assembly
process. Typical applications include complementary metal-oxide semiconductor (“CMOS”) image sensors, surface acoustical
wave (“SAW”) filters and high brightness LEDs. These applications are commonly used in most, if not all, smartphones available
today in the market. We also have expanded the use of AT Premier Plus for wafer level wire bonding for micro-electro-mechanical
systems (“MEMS”) and other sensors.
Our technology leadership and bonding process know-how have enabled us to develop highly function-specific equipment with
best-in-class throughput and accuracy. This forms the foundation for our advanced packaging equipment development. We
established a dedicated team to develop and manufacture advanced packaging bonders for the emerging 2.5 dimensional (“2.5D
IC”) and 3 dimensional integrated circuit (“3D IC”) markets. In November 2013, we shipped the first TCB (Thermo-Compression
Bonder) C2S (Chip-to-Substrate) alpha machine to an initial strategic customer and have subsequently shipped additional variants
to other customers. By reducing the interconnect dimensions, 2.5D and 3D ICs are expected to provide form factor, performance
and power efficiency enhancements over traditional flip-chip packages in production today. High-performance processing and
memory applications, in addition to mobile devices such as smartphones and tablets, are anticipated to be earlier adopters of this
new packaging technology.
We bring the same technology focus to our expendable tools business, driving tool design and manufacturing technology to optimize
the performance and process capability of the equipment in which our tools are used. For all our equipment products, expendable
tools are an integral part of their process capability. We believe our unique ability to simultaneously develop both equipment and
tools is a core strength supporting our products' technological differentiation.
Products and Services
We supply a range of bonding equipment and expendable tools. The following tables reflect net revenue by business segment for
fiscal 2014, 2013, and 2012:
2014
Fiscal
2013
2012
(dollar amounts in thousands) Net revenues
503,049
Equipment
65,520
Expendable Tools
568,569
$
$
% of total
net revenue
Net revenues
472,567
62,371
534,938
88.5% $
11.5%
100.0% $
% of total
net revenue
Net revenues
727,082
63,941
791,023
88.3% $
11.7%
100.0% $
% of total
net revenue
91.9%
8.1%
100.0%
See Note 12 to our Consolidated Financial Statements included in Item 8 of this report for our financial results by business segment.
26
Equipment Segment
We manufacture and sell a line of ball bonders, wafer level bonders and heavy wire wedge bonders that are sold to semiconductor
device manufacturers, OSATs, other electronics manufacturers and automotive electronics suppliers. Ball bonders are used to
connect very fine wires, typically made of gold or copper, between the bond pads of the semiconductor device, or die, and the
leads on its package. Wafer level bonders mechanically apply bumps to die, typically while still in the wafer format, for some
variants of the flip chip assembly process. Heavy wire wedge bonders use either aluminum wire or ribbon to perform the same
function in packages that cannot use gold or copper wire because of either high electrical current requirements or other package
reliability issues. In September 2014, we introduced the APAMA (Advanced Packaging with Adaptive Machine Analytics) C2S
bonder, which is designed for performance and high accuracy applications, delivering die-stacking solutions for 2.5 Dimensional,
3 Dimensional or Through Silicon Via (TSV) integrated chips. We believe our equipment offers competitive advantages by providing
customers with high productivity/throughput, superior package quality/process control, and, as a result, a lower cost of ownership.
27
Our principal Equipment segment products include:
Business Unit
Product Name (1)
Typical Served Market
Ball bonders
IConnPS
Advanced and ultra fine pitch applications
IConnPS Plus
Advanced and ultra fine pitch applications
IConnPS LA
Large area substrate and matrix applications
IConnPS Plus LA
Large area substrate and matrix applications
IConnPS ProCu
High-end copper wire applications demanding advanced process
capability and high productivity
IConnPS ProCu Plus
High-end copper wire applications demanding advanced process
capability and high productivity
IConnPS ProCu LA
Large area substrate and matrix applications for copper wire
IConnPS ProCu Plus LA Large area substrate and matrix applications for copper wire
ConnXPS Plus
High productivity bonder for low-to-medium pin count applications
ConnXPS LED
LED applications
ConnXPS VLED
Vertical LED applications
ConnXPS Plus LA
Cost performance large area substrate and matrix applications
AT Premier Plus
Advanced wafer level bonding application
Wedge bonders
3600Plus
Power hybrid and automotive modules using either heavy aluminum
wire or PowerRibbon®
3700Plus
7200Plus
7200HD
Hybrid and automotive modules using thin aluminum wire
Power semiconductors using either aluminum wire or PowerRibbon®
Smaller power packages using either aluminum wire or PowerRibbon®
PowerFusionPS TL
Power semiconductors using either aluminum wire or PowerRibbon®
PowerFusionPS HL
Smaller power packages using either aluminum wire or PowerRibbon®
Advanced Packaging
APAMA C2S
Flip chip thermo-compression bonding applications
(1) Power Series (“PS”)
28
Ball Bonders
Automatic ball bonders represent the largest portion of our semiconductor equipment business. Our main product platform for
ball bonding is the Power Series - a family of assembly equipment that is setting new standards for performance, productivity,
upgradeability, and ease of use.
Our portfolio of ball bonding products includes:
• The IConnPS: high-performance ball bonders which can be configured for either gold or copper wire.
• The IConnPS LA: high-performance large area ball bonders which can be configured for either gold or copper wire.
• The ConnXPS Plus: cost-performance ball bonders which can be configured for either gold or copper wire.
• The ConnXPS Plus LA: cost-performance large area ball bonders which can be configured for either gold or copper wire.
• The ConnXPS LED and ConnXPS VLED: ball bonders targeted specifically at the fast growing LED market.
• The IConnPS ProCu Plus: high-performance copper wire ball bonders for advanced wafer nodes at 28 nanometer and
below.
• The IConnPS ProCu Plus LA: high-performance large area copper wire ball bonders for advanced wafer nodes at 28
nanometer and below.
• The AT Premier Plus: ball bonders which utilize a modified wire bonding process to mechanically place bumps on devices,
while still in a wafer format for variants of the flip chip assembly process. Typical applications include CMOS image
sensors, SAW filters, MEMS and high brightness LEDs. These applications are commonly used in most, if not all,
smartphones available today in the market.
In March 2014, we introduced the IConnPS Plus and IConnPS Plus LA, which offer new capabilities and enhanced features. IConnPS
Plus LA is the large area version which extends the bondable width up to 87 millimeters. In September 2014, we introduced
ConnXPS LED Plus, which offers higher performance and a larger bondable area for the LED market.
Our Power Series products are setting new standards in wire bonding. Our ball bonders are capable of performing very fine pitch
bonding, as well as creating the complex loop shapes needed in the assembly of advanced semiconductor packages and bonding
on the latest silicon node-28 nanometer. Most of our installed base of gold wire bonders can also be retrofitted for copper applications
through kits we sell separately.
Heavy Wire Wedge Bonders
We are the leaders in the design and manufacture of heavy wire wedge bonders for the power semiconductor and automotive power
module markets. Heavy wire wedge bonders may use either aluminum wire or aluminum ribbon to connect semiconductor chips
in power packages, power hybrids and automotive modules for products such as motor control modules or inverters for hybrid
cars. In addition, we see some potential use for our wedge bonder products in high reliability interconnections of rechargeable
batteries in hybrid and electric automotive applications.
Our portfolio of wedge bonding products includes:
• The 3600Plus: high speed, high accuracy wire bonders designed for power modules, automotive packages and other heavy
wire multi-chip module applications.
• The 3700Plus: wire bonders designed for hybrid and automotive modules using thin aluminum wire.
• The 7200Plus: dual head wedge bonders designed specifically for power semiconductor applications.
• The 7200HD: heavy wire wedge bonders designed for smaller power packages using either aluminum wire or ribbon.
• The PowerFusionPS Semiconductor Wedge Bonders - Configurable in single, dual and multi-head configurations using
aluminum wire and PowerRibbonTM:
The PowerFusionPS TL: designed for low-cost, high volume power semiconductor applications.
The PowerFusionPS HL: designed for advanced power semiconductor applications.
While wedge bonding traditionally utilizes aluminum wire, all of our heavy wire wedge bonders are also available to be modified
to bond aluminum ribbon using our proprietary PowerRibbon® process. Aluminum ribbon offers device makers performance
advantages over traditional round wire and is being increasingly used for high current packages and automotive applications.
29
Our PowerFusionPS series are driven by new powerful direct-drive motion systems and expanded pattern recognition capabilities.
The advanced interconnect capabilities of PowerFusionPS improves the processing of high-density power packages, due to an
expanded bondable area, wider leadframe capability, superior indexing accuracy and teach mode.
In September 2014, we introduced the PowerFusionPS HLx, which has similar capabilities of the PowerFusionPS HL and extends
the bondable width up to 105 millimeters.
Advanced Packaging Bonders
In September 2014, we introduced the APAMA C2S bonder, which is designed for performance and high accuracy applications,
delivering die-stacking solutions for 2.5 Dimensional, 3 Dimensional or Through Silicon Via (TSV) integrated chips.
Other Equipment Products and Services
We also sell manual wire bonders, and we offer spare parts, equipment repair, maintenance and servicing, training services, and
upgrades for our equipment through our Support Services business unit.
Our K&S Care service is designed to help customers operate their machines at an optimum level under the care of our trained
specialists. K&S Care includes a range of programs, offering different levels of service depending on customer needs.
Expendable Tools Segment
We manufacture and sell a variety of expendable tools for a broad range of semiconductor packaging applications. Our principal
Expendable Tools segment products include:
• Capillaries: expendable tools used in ball bonders. Made of ceramic and other elements, a capillary guides the wire during
the ball bonding process. Its features help control the bonding process. We design and build capillaries suitable for a broad
range of applications, including for use on our competitors' equipment. In addition to capillaries used for gold wire bonding,
we have developed capillaries for use with copper wire to achieve optimal performance in copper wire bonding.
• Bonding wedges: expendable tools used in heavy wire wedge bonders. Like capillaries, their features are tailored to
specific applications. We design and build bonding wedges for use both in our own equipment and in our competitors'
equipment.
• Dicing blades: expendable tools used by semiconductor manufacturers to cut silicon wafers into individual semiconductor
die and to cut semiconductor devices that have been moulded in a matrix configuration into individual units.
The Optoceramic and OptoPCB package singulation blades for the LED market enable an improvement on package singulation quality,
precision and productivity by providing a significantly longer life blade, and improved stability. We also offer ACS Pro Capillary,
which is a new generation of copper capillary for advanced copper wire bonding applications.
In March 2014, we expanded the ACS series capillaries through the introduction of ACS Max and ACS Lite. ACS Max Capillary
and ACS Lite Capillary are the new generation of copper capillary for medium-pin count and low-pin count copper wire applications.
Critical Accounting Policies
The preparation of consolidated financial statements requires us to make assumptions, estimates and judgments that affect the
reported amounts of assets and liabilities, net revenue and expenses during the reporting periods, and disclosures of contingent
assets and liabilities as of the date of the consolidated financial statements. On an on-going basis, we evaluate estimates, including
but not limited to, those related to accounts receivable, reserves for excess and obsolete inventory, carrying value and lives of fixed
assets, goodwill and intangible assets, valuation allowances for deferred tax assets and deferred tax liabilities, tax provisions,
repatriation of un-remitted foreign subsidiary earnings, equity-based compensation expense, restructuring, and warranties. We
base our estimates on historical experience and on various other assumptions that we believe to be reasonable. As a result, we
make judgments regarding the carrying values of our assets and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions or conditions.
We believe the following critical accounting policies, which have been reviewed with the Audit Committee of our Board of
Directors, reflect our more significant judgments and estimates used in the preparation of our consolidated financial statements.
30
Revenue Recognition
In accordance with ASC No. 605, Revenue Recognition, we recognize revenue when persuasive evidence of an arrangement exists,
delivery has occurred or services have been rendered, the price is fixed or determinable, the collectability is reasonably assured,
and customer acceptance, when applicable, has been received or we otherwise have been released from customer acceptance
obligations. If terms of the sale provide for a customer acceptance period, revenue is recognized upon the expiration of the
acceptance period or customer acceptance, whichever occurs first. Our standard terms are ex works (our factory), with title
transferring to our customer at our loading dock or upon embarkation. We have a small percentage of sales with other terms, and
revenue is recognized in accordance with the terms of the related customer purchase order.
Our business is subject to contingencies related to customer orders, including:
• Right of Return: A large portion of our revenue comes from the sale of machines used in the semiconductor assembly
process. Other product sales relate to consumable products, which are sold in high-volume quantities, and are generally
maintained at low stock levels at our customer's facility. Customer returns have historically represented a very small
percentage of customer sales on an annual basis.
• Warranties: Our equipment is generally shipped with a one-year warranty against manufacturing defects. We establish
reserves for estimated warranty expense when revenue for the related equipment is recognized. The reserve for estimated
warranty expense is based upon historical experience and management's estimate of future expenses.
• Conditions of Acceptance: Sales of our consumable products generally do not have customer acceptance terms. In certain
cases, sales of our equipment have customer acceptance clauses which may require the equipment to perform in accordance
with customer specifications or when installed at the customer's facility. In such cases, if the terms of acceptance are
satisfied at our facility prior to shipment, the revenue for the equipment will be recognized upon shipment. If the terms of
acceptance are satisfied at our customers' facilities, the revenue for the equipment will not be recognized until acceptance,
which typically consists of installation and testing, is received from the customer.
Shipping and handling costs billed to customers are recognized in net revenue. Shipping and handling costs paid by us are included
in cost of sales.
Allowance for Doubtful Accounts
We maintain allowances for doubtful accounts for estimated losses resulting from our customers' failure to make required payments.
If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments,
additional allowances may be required. We are subject to concentrations of customers and sales to concentrated geographic locations,
which could also impact the collectability of certain receivables. If global economic conditions deteriorate or political conditions
were to change in some of the countries where we do business, it could have a significant impact on our results of operations, and
our ability to realize the full value of our accounts receivable.
Inventories
Inventories are stated at the lower of cost (on a first-in first-out basis) or market value. We generally provide reserves for obsolete
inventory and for inventory considered to be in excess of demand. Demand is generally defined as 18 months forecasted future
consumption for equipment, 24 months forecasted future consumption for all spare parts, and 12 months forecasted future
consumption for expendable tools. Forecasted consumption is based upon internal projections, historical sales volumes, customer
order activity and a review of consumable inventory levels at customers' facilities. We communicate forecasts of our future
consumption to our suppliers and adjust commitments to those suppliers accordingly. If required, we reserve the difference between
the carrying value of our inventory and the lower of cost or market value, based upon assumptions about future consumption, and
market conditions. If actual market conditions are less favorable than projections, additional inventory reserves may be required.
Accounting for Impairment of Goodwill
The Company operates two reportable segments: Equipment and Expendable Tools. Goodwill was recorded in 2009 for the
acquisition of Orthodyne Electronics Inc., which added wedge bonder products to the Equipment business.
Accounting Standard Update 2011-08, Testing Goodwill for Impairment provides companies with the option to assess qualitative
factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If, after
assessing the qualitative factors, a company determines that it is not more likely than not that the fair value of a reporting unit is
less than its carrying value, then performing the two-step impairment test is unnecessary. However, if a company concludes
otherwise, then it is required to perform the first step of the two-step goodwill impairment test. If the carrying value of a reporting
31
unit exceeds its fair value in the first step of the test, then a company is required to perform the second step of the goodwill
impairment test to measure the amount of the reporting unit's goodwill impairment loss, if any.
In fiscal 2013 and 2014, we chose to bypass the qualitative assessment and proceed directly to performing the quantitative evaluation
of the fair value of the reporting unit, to compare against the carrying value of the reporting unit.
As part of our annual evaluation of the goodwill, we perform an impairment test of our goodwill in the fourth quarter of each fiscal
year to coincide with the completion of our annual forecasting process and refreshing of our business outlook processes. On an
ongoing basis, we monitor whether a "triggering" event has occurred that may have the effect of reducing the fair value of a
reporting unit below its respective carrying value. Adverse changes in expected operating results and/or unfavorable changes in
other economic factors used to estimate fair values could result in a non-cash impairment charge in the future.
Impairment assessments inherently involve judgment as to assumptions about expected future cash flows and the impact of market
conditions on those assumptions. Future events and changing market conditions may impact our assumptions as to prices, costs,
growth rates or other factors that may result in changes in our estimates of future cash flows. Although we believe the assumptions
we have used in testing for impairment are reasonable, significant changes in any one of our assumptions could produce a
significantly different result. Indicators of potential impairment may lead us to perform interim goodwill impairment assessments,
including significant and unforeseen customer losses, a significant adverse change in legal factors or in the business climate, a
significant adverse action or assessment by a regulator, a significant stock price decline, unforeseen changes in technology or
unanticipated competition.
For further information on goodwill and other intangible assets, see Note 3 to our Consolidated Financial Statements included in
Item 8.
Income Taxes
In accordance with ASC No. 740, Income Taxes, deferred income taxes are determined using the liability method. We record a
valuation allowance to reduce our deferred tax assets to the amount we expect is more likely than not to be realized. While we
have considered future taxable income and our ongoing tax planning strategies in assessing the need for the valuation allowance,
if we were to determine that we would be able to realize our deferred tax assets in the future in excess of our net recorded amount,
an adjustment to the deferred tax asset would increase income in the period such determination was made. Likewise, should we
determine that we would not be able to realize all or part of our net deferred tax assets in the future, an adjustment to the deferred
tax asset would decrease income in the period such determination was made.
In accordance with ASC No. 740 Topic 10, Income Taxes, General (“ASC 740.10”), we account for uncertain tax positions taken
or expected to be taken in the Company's income tax return. Under ASC 740.10, we utilize a two-step approach for evaluating
uncertain tax positions. Step one, or recognition, requires us to determine if the weight of available evidence indicates a tax
position is more likely than not to be sustained upon audit, including resolution of related appeals or litigation processes, if any.
Step two, or measurement, is based on the largest amount of benefit, which is more likely than not to be realized on settlement
with the taxing authority.
Equity-Based Compensation
We account for equity-based compensation under the provisions of ASC No. 718, Compensation-Stock Compensation (“ASC
718”). ASC 718 requires the recognition of the fair value of equity-based compensation in net income. Compensation expense
associated with market-based restricted stock is determined using a Monte-Carlo valuation model, and compensation expense
associated with time-based and performance-based restricted stock is determined based on the number of shares granted and the
fair value on the date of grant. The fair value of our stock option awards are estimated using a Black-Scholes option valuation
model.
The calculation of equity-based compensation costs requires us to estimate the number of awards that will be forfeited during the
vesting period. We have estimated forfeitures at the time of grant based upon historical experience, and review the forfeiture rates
periodically and make adjustments as necessary. In addition, the fair value of equity-based awards is amortized over the vesting
period of the award and we have elected to use the straight-line method for awards granted after the adoption of ASC 718. In
general, equity-based awards vest annually over a three year period. Our performance-based restricted stock entitles the employee
to receive common shares of the Company on the three-year anniversary of the grant date (if employed by the Company) if return
on invested capital and revenue growth targets set by the Management Development and Compensation Committee of the Board
of Directors on the date of grant are met. If return on invested capital and revenue growth targets are not met, performance-based
restricted stock does not vest. Estimated attainment percentages and the corresponding equity-based compensation expense
reported may vary from period to period.
32
RECENT ACCOUNTING PRONOUNCEMENTS
See Note 1 to our consolidated financial statements in Item 8 for a description of certain recent accounting pronouncements
including the expected dates of adoption and effects on our consolidated results of operations and financial condition.
RESULTS OF OPERATIONS
Results of Operations for fiscal 2014 and 2013
The following table reflects our income from operations for fiscal 2014 and 2013:
(dollar amounts in thousands)
Net revenue
Cost of sales
Gross profit
Selling, general and administrative
Research and development
Operating expenses
Fiscal
2014
2013
$ Change
% Change
$
$
568,569
295,015
273,554
$
534,938
287,993
246,945
113,514
83,056
196,570
119,519
61,620
181,139
33,631
7,022
26,609
(6,005)
21,436
15,431
6.3 %
2.4 %
10.8 %
(5.0)%
34.8 %
8.5 %
Income from operations
$
76,984
$
65,806
$
11,178
17.0 %
Bookings and Backlog
A booking is recorded when a customer order is reviewed and it is determined that all specifications can be met, production (or
service) can be scheduled, a delivery date can be set, and the customer meets our credit requirements. We use bookings to evaluate
the results of our operations, generate future operating plans and assess the performance of our company. While we believe that
this non-GAAP financial measure is useful in evaluating our business, this information should be considered as supplemental in
nature and is not meant as a substitute for revenue recognized in accordance with GAAP. In addition, other companies, including
companies in our industry, may calculate bookings differently or not at all, which reduces its usefulness as a comparative measure.
Reconciliation of bookings to net revenue is not practicable. Our backlog consists of customer orders scheduled for shipment
within the next twelve months. A majority of our orders are subject to cancellation or deferral by our customers with limited or
no penalties. Also, customer demand for our products can vary dramatically without prior notice. Because of the volatility of
customer demand, possibility of customer changes in delivery schedules or cancellations and potential delays in product shipments,
our backlog as of any particular date may not be indicative of net revenue for any succeeding period.
The following tables reflect our bookings and backlog for fiscal 2014 and 2013:
(in thousands)
Bookings
(in thousands)
Backlog
Net Revenue
Fiscal
2014
2013
$
595,565
$
497,335
As of
September 27, 2014
79,100
$
September 28, 2013
52,100
$
Approximately 94.4% and 97.3% of our net revenue for fiscal 2014 and 2013, respectively, was for shipments to customer locations
outside of the U.S., primarily in the Asia/Pacific region, and we expect sales outside of the U.S. to continue to represent the majority
of our future revenue.
33
The following table reflects net revenue by business segment for fiscal 2014 and 2013:
(dollar amounts in thousands)
Equipment
Expendable Tools
Total net revenue
Equipment
Fiscal
2014
2013
$ Change
% Change
$
$
503,049
65,520
568,569
$
$
472,567
62,371
534,938
$
$
30,482
3,149
33,631
6.5%
5.0%
6.3%
The following table reflects the components of Equipment net revenue change between fiscal 2014 and 2013:
(in thousands)
Equipment
Price
Fiscal 2014 vs. 2013
Volume
$ Change
$
9,224
$
21,258
$
30,482
For fiscal 2014, the higher Equipment net revenue as compared to fiscal 2013 was primarily due to the higher volume of both ball
bonder and wedge bonder sales and a favorable product mix. The higher volume on ball bonders was driven primarily by higher
demand for mobile devices. The higher volume on wedge bonders was driven primarily by sales of the new product family which
was introduced in the third quarter of fiscal 2013.
Expendable Tools
The following table reflects the components of Expendable Tools net revenue change between fiscal 2014 and 2013:
(in thousands)
Expendable Tools
Price
Fiscal 2014 vs. 2013
Volume
$ Change
$
(1,017) $
4,166
$
3,149
For fiscal 2014, the higher Expendable Tools net revenue as compared to fiscal 2013 was primarily due to higher volume. This
was partially offset by price reduction in wire bonding tools business and wedge bonder tools business. The price reduction in
wedge bonder tools business was primarily due to an adjustment of the pricing discounts given to certain distributors, which
resulted in the decrease in the selling, general and administrative ("SG&A") expense and the revenue in our wedge bonder tools
business, partially offset by favorable product mix.
Gross Profit
The following table reflects gross profit by business segment for fiscal 2014 and 2013:
(dollar amounts in thousands)
Equipment
Expendable Tools
Total gross profit
Fiscal
2014
2013
$ Change
% Change
$
$
234,115
39,439
273,554
$
$
211,297
35,648
246,945
$
$
22,818
3,791
26,609
10.8%
10.6%
10.8%
The following table reflects gross profit as a percentage of net revenue by business segment for fiscal 2014 and 2013:
Equipment
Expendable Tools
Total gross margin
Fiscal
2014
2013
Basis Point
Change
46.5%
60.2%
48.1%
44.7%
57.2%
46.2%
180
300
190
34
Equipment
The following table reflects the components of Equipment gross profit change between fiscal 2014 and 2013:
(in thousands)
Equipment
Price
Fiscal 2014 vs. 2013
Cost
Volume
$ Change
$
9,224
$
(5,062) $
18,656
$
22,818
For fiscal 2014, the higher Equipment gross profit as compared to fiscal 2013 was primarily due to the higher volume of both ball
bonder and wedge bonder sales and a favorable product mix as described above. This was partially offset by higher production
costs for our ball bonders and wedge bonders, which was primarily due to product mix.
Expendable Tools
The following table reflects the components of Expendable Tools gross profit change between fiscal 2014 and 2013:
(in thousands)
Expendable Tools
Price
Fiscal 2014 vs. 2013
Cost
Volume
$ Change
$
(1,017) $
2,333
$
2,475
$
3,791
For fiscal 2014, the higher Expendable Tools gross profit as compared to fiscal 2013 was primarily due to the higher volume and
lower cost. This was partially offset by price reduction in wire bonding tools business and wedge bonder tools business. The price
reduction in wedge bonder tools business was primarily due to an adjustment of the pricing discounts given to certain distributors,
which resulted in the decrease in the SG&A expense and the revenue in our wedge bonder tools business, partially offset by
favorable product mix.
Operating Expenses
The following table reflects operating expenses as a percentage of net revenue for fiscal 2014 and 2013:
Selling, general & administrative
Research & development
Total
Selling, General and Administrative (“SG&A”)
Fiscal
2014
2013
Basis point
change
20.0%
14.6%
34.6%
22.3%
11.5%
33.8%
(230)
310
80
SG&A expense decreased $6.0 million during fiscal 2014 as compared to fiscal 2013 primarily due to a decrease in amortization
expenses of $3.9 million as the intangible assets relating to the Orthodyne customer relationships have been fully amortized, net
favorable variance of $2.8 million in foreign exchange rates due to strengthening of the U.S dollar against foreign currency
denominated liabilities which increased in the current period, and net impact of adjustment of the pricing discounts given to certain
distributors of $1.5 million that resulted in a decrease in the SG&A expense and revenue. These decreases were partially offset
by a gain of $2.1 million related to the curtailment of our Swiss pension plan in fiscal 2013.
Research and Development (“R&D”)
R&D expense increased $21.4 million during fiscal 2014 as compared to fiscal 2013, during which we recognized a Research
Incentive Scheme for Companies grant of $0.7 million. In fiscal 2014, we invested an additional $20.7 million of materials and
other expenses in the development of new products.
35
Income from Operations
For fiscal 2014, total income from operations was higher by $11.2 million. This was due primarily to higher revenue and margin
for equipment sales as explained above.
Interest Income and Expense
The following table reflects interest income and interest expense for fiscal 2014 and 2013:
(dollar amounts in thousands)
Interest income
Interest expense
Fiscal
2014
2013
$ Change
% Change
$
$
$
1,197
(1,048) $
$
883
(21) $
314
(1,027)
35.6%
100.0%
Interest income in fiscal 2014 was higher as compared to fiscal 2013 due to higher interest income derived from short term
investments and a larger cash and cash equivalents balance.
The higher interest expense for fiscal 2014 was attributable to the interest on financing obligation relating to the new building
(Refer to Note 7 of our Consolidated Financial Statements included in Item 8 of this report).
Provision for Income Taxes
The following table reflects the provision for income taxes and the effective tax rate for fiscal 2014 and 2013:
(in thousands)
Income from operations before income taxes
Provision for income taxes
Net income
Effective tax rate
Fiscal
2014
2013
$
$
77,133
14,145
62,988
$
$
66,668
7,310
59,358
18.3%
11.0%
For fiscal 2014, the effective income tax rate increased from fiscal 2013 by 7.3% due primarily to a shift in earnings to tax
jurisdictions with higher effective tax rates, certain changes in estimates that were recorded upon filing tax returns in foreign
jurisdictions and the release of a reserve in fiscal 2013.
For fiscal 2013, the effective income tax rate differed from the federal statutory rate due primarily to tax from foreign operations
at a lower effective tax rate than the U.S. statutory rate and the impact of tax holidays, release of tax reserves, offset by an increase
for deferred taxes on un-remitted earnings as well as other U.S. current and deferred taxes.
Our future effective tax rate would be affected if earnings were lower than anticipated in countries where we have lower statutory
rates and higher than anticipated in countries where we have higher statutory rates, by changes in the valuation of our deferred tax
assets and liabilities, a change in our assertion for un-remitted foreign earnings, or by changes in tax laws, regulations, accounting
principles, or interpretations thereof. We regularly assess the effects resulting from these factors to determine the adequacy of our
provision for income taxes.
36
Results of Operations for fiscal 2013 and 2012
The following table reflects our income from operations for fiscal 2013 and 2012:
(dollar amounts in thousands)
Net revenue
Cost of sales
Gross profit
Selling, general and administrative
Research and development
Operating expenses
Fiscal
2013
2012
$ Change
% Change
$
$
534,938
287,993
246,945
$
791,023
423,633
367,390
(256,085)
(135,640)
(120,445)
119,519
61,620
181,139
124,718
63,446
188,164
(5,199)
(1,826)
(7,025)
(32.4)%
(32.0)%
(32.8)%
(4.2)%
(2.9)%
(3.7)%
Income from operations
$
65,806
$
179,226
$
(113,420)
(63.3)%
Bookings and Backlog
A booking is recorded when a customer order is reviewed and it is determined that all specifications can be met, production (or
service) can be scheduled, a delivery date can be set, and the customer meets our credit requirements. Our backlog consists of
customer orders scheduled for shipment within the next twelve months. A majority of our orders are subject to cancellation or
deferral by our customers with limited or no penalties. Also, customer demand for our products can vary dramatically without
prior notice. Because of the volatility of customer demand, possibility of customer changes in delivery schedules or cancellations
and potential delays in product shipments, our backlog as of any particular date may not be indicative of net revenue for any
succeeding period.
The following tables reflect our bookings and backlog for fiscal 2013 and 2012:
(in thousands)
Bookings
(in thousands)
Backlog
Fiscal
2013
2012
$
497,335
$
778,000
As of
September 28, 2013
52,100
$
September 29, 2012
90,000
$
Our net revenues for fiscal 2013 decreased significantly as compared to our net revenues for fiscal 2012 due to reduced customer
demand. The semiconductor industry is volatile and our operating results have fluctuated significantly in the past. Customer
demand for our products could continue to remain weak and lead to a decline in our net revenues. If there is a significant slowdown
of transition from gold to copper wire bonding by our customers, then our net revenues may continue to decline.
Net Revenue
Approximately 97.3% and 98.3% of our net revenue for fiscal 2013 and 2012, respectively, was for shipments to customer locations
outside of the U.S., primarily in the Asia/Pacific region, and we expect sales outside of the U.S. to continue to represent a substantial
majority of our future revenue.
The following table reflects net revenue by business segment for fiscal 2013 and 2012:
(dollar amounts in thousands)
Equipment
Expendable Tools
Total net revenue
Fiscal
2013
2012
$ Change
% Change
$
$
472,567
62,371
534,938
$
$
727,082
63,941
791,023
$
$
(254,515)
(1,570)
(256,085)
(35.0)%
(2.5)%
(32.4)%
37
Equipment
The following table reflects the components of Equipment net revenue change between fiscal 2013 and 2012:
(in thousands)
Equipment
Price
Fiscal 2013 vs. 2012
Volume
$ Change
$
(10,255) $
(244,260) $
(254,515)
For fiscal 2013, the lower Equipment net revenue as compared to fiscal 2012 was due primarily to the lower volume from our ball
bonders and heavy wire wedge bonders. The volume reduction in ball bonders and heavy wire wedge bonders was mainly attributable
to the lower demand in the market due to uncertainties around technology migration and the weakness in the discrete market. In
addition to lower volume, pricing on our ball bonders was also lower due to change in customer and product mix.
Expendable Tools
The following table reflects the components of Expendable Tools net revenue change between fiscal 2013 and 2012:
(in thousands)
Expendable Tools
Price
Fiscal 2013 vs. 2012
Volume
$ Change
$
1,176
$
(2,746) $
(1,570)
For fiscal 2013, the Expendable Tools net revenue decreased 2.5% as compared to the prior year. This was due primarily to the
volume decrease in both our wire bonding tools business and wedge bonder tools businesses as a result of the lower demand in
the market due to uncertainties around technology migration and the weakness in the discrete market. The lower volume was
partially offset by favorable selling prices due to change in product mix.
Gross Profit
The following table reflects gross profit by business segment for fiscal 2013 and 2012:
(dollar amounts in thousands)
Equipment
Expendable Tools
Total gross profit
Fiscal
2013
2012
$ Change
% Change
$
$
211,297
35,648
246,945
$
$
329,872
37,518
367,390
$
$
(118,575)
(1,870)
(120,445)
(35.9)%
(5.0)%
(32.8)%
The following table reflects gross profit as a percentage of net revenue by business segment for fiscal 2013 and 2012:
Equipment
Expendable Tools
Total gross margin
Equipment
Fiscal
2013
2012
Basis Point
Change
44.7%
57.2%
46.2%
45.4%
58.7%
46.4%
(70)
(150)
(20)
The following table reflects the components of Equipment gross profit change between fiscal 2013 and 2012:
(in thousands)
Equipment
Price
Fiscal 2013 vs. 2012
Cost
Volume
$ Change
$
(10,255) $
10,631
$
(118,951) $
(118,575)
For fiscal 2013, the lower Equipment gross profit as compared to fiscal 2012 was due primarily to the lower volume from our ball
bonders and heavy wire wedge bonders. The volume reduction in ball bonders and heavy wire wedge bonders was mainly attributable
to lower demand in the market due to uncertainties around technology migration and the weakness in the discrete market. In
addition to volume, pricing on our ball bonders was lower due to changes in customer and product mix.
The lower volume and less favorable pricing were offset partially by lower costs for our die bonders and heavy wire wedge bonders
as compared to fiscal 2012. The manufacturing costs were lower due to the continued consolidation of our production facilities
38
and die bonder costs were lower due to sales of certain die bonders that were previously reserved, which resulted in lower costs
of goods sold. In addition, in 2012, we recorded a reserve for inventory relating to heavy wire wedge bonders legacy spares.
Expendable Tools
The following table reflects the components of Expendable Tools gross profit change between fiscal 2013 and 2012:
(in thousands)
Expendable Tools
Price
Fiscal 2013 vs. 2012
Cost
Volume
$ Change
$
1,176
$
(1,317) $
(1,729) $
(1,870)
For fiscal 2013, Expendable Tools gross profit decreased 5.0% as compared to the prior year was due primarily to lower volume
in both our wire bonding tools business and wedge bonder tools business. The lower volume resulted in increased manufacturing
costs due to lower absorption of the fixed manufacturing costs.
Operating Expenses
The following table reflects operating expenses as a percentage of net revenue for fiscal 2013 and 2012:
Selling, general & administrative
Research & development
Total
Selling, General and Administrative (“SG&A”)
Fiscal
2013
2012
Basis point
change
22.3%
11.5%
33.8%
15.8%
8.0%
23.8%
650
350
1,000
SG&A decreased by $5.2 million during fiscal 2013 as compared to fiscal 2012, in which we experienced a $1.6 million gain in
foreign exchange rates due to the strengthening of foreign currencies against the U.S. dollar and we recorded a favorable change
in the accounts receivable reserve of $0.9 million as we were able to collect outstanding balances from customers that were
previously reserved. In the twelve months ended September 28, 2013, sales commissions and incentive compensation decreased
by $6.7 million driven by lower net revenue for the current fiscal year. We also experienced a favorable variance of $2.6 million
for severance expenses relating to the our continued consolidation of our operations and a gain of $0.4 million relating to the
curtailment of our Swiss pension plan. Offsetting this was a loss of $1.9 million in foreign exchange rates due to the strengthening
of the U.S. dollar against foreign currencies.
Research and Development (“R&D”)
R&D expense decreased $1.8 million during fiscal 2013 as compared to fiscal 2012 due primarily to a $0.9 million reduction in
staff costs as a result of consolidation and reduction of headcount to further streamline our R&D technology centers and release
of a reserve of $0.8 million for a Research Incentive Scheme for Companies (“RISC”) grant relating to product development
activities. The RISC grant reserve was released after receiving confirmation of the grant from the Economic Development Board,
Singapore.
Income from Operations
For fiscal 2013, total income from operations was lower by $113.4 million. This was due primarily to lower revenue and margin
for equipment sales as explained above.
Interest Income and Expense
The following table reflects interest income and interest expense for fiscal 2013 and 2012:
(dollar amounts in thousands)
Interest income
Interest expense: cash
Interest expense: non-cash
Fiscal
2013
2012
$ Change
% Change
$
$
$
883
$
(21) $
— $
833
$
(633) $
(5,175) $
50
612
5,175
6.0 %
(96.7)%
(100.0)%
39
The non-cash interest expense for fiscal 2012 was attributable to the amortization of the debt discount relating to the Notes, which
matured on June 1, 2012. We repaid the entire principal balance of the Notes in cash in fiscal 2012. See Note 6 of Item 1 for
additional details.
Provision for Income Taxes
The following table reflects the provision for income taxes and the effective tax rate for fiscal 2013 and 2012:
(in thousands)
Income from operations before income taxes
Provision for income taxes
Net income
Effective tax rate
Fiscal
2013
66,668
7,310
59,358
$
$
$
$
2012
174,251
13,671
160,580
11.0%
7.8%
For fiscal 2013, the effective income tax rate increased from fiscal 2012 by 3.2% due primarily to a shift in foreign earnings to
tax jurisdictions with higher effective tax rates, certain changes in estimates that were recorded upon filing tax returns in foreign
jurisdictions and the recording of a valuation allowance against certain deferred tax assets in foreign jurisdictions.
For fiscal 2012, the effective income tax rate differed from the federal statutory rate due primarily to tax from foreign operations
at a lower effective tax rate than the U.S. statutory rate and the impact of tax holidays, offset by an increase for deferred taxes on
un-remitted earnings as well as other U.S. current and deferred taxes. In addition, during the fourth quarter of fiscal 2012, we
reached a favorable settlement with the tax authorities of a foreign jurisdiction and we reversed an accrual for an uncertain tax
position of $7.5 million, recording it as an income tax benefit. This benefit was offset by additional taxes due to deemed distributions
from certain foreign subsidiaries.
Our future effective tax rate would be affected if earnings were lower than anticipated in countries where we have lower statutory
rates and higher than anticipated in countries where we have higher statutory rates, by changes in the valuation of our deferred tax
assets and liabilities, or by changes in tax laws, regulations, accounting principles, or interpretations thereof. We regularly assess
the effects resulting from these factors to determine the adequacy of our provision for income taxes.
40
LIQUIDITY AND CAPITAL RESOURCES
The following table reflects total cash and investments as of September 27, 2014 and September 28, 2013:
(dollar amounts in thousands)
Cash and cash equivalents
Percentage of total assets
As of
September 27, 2014
587,981
$
September 28, 2013
521,788
$
Change
$
66,193
62.3%
60.5%
The following table reflects summary Consolidated Statement of Cash Flow information for fiscal 2014 and 2013:
(in thousands)
Net cash provided by operating activities
Net cash used in investing activities
Net cash (used in) provided by financing activities
Effect of exchange rate changes on cash and cash equivalents
Changes in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
Short-term investments
Total cash and investments
Fiscal 2014
Continuing Operations
Fiscal
2014
2013
$
$
82,460
(15,974)
(164)
(129)
66,193
521,788
587,981
9,105
597,086
$
$
94,824
(15,114)
1,733
101
81,544
440,244
521,788
3,252
525,040
Net cash provided by operating activities was primarily the result of net income of $63.0 million, non-cash adjustments of $33.6
million and offset by the working capital changes of $14.1 million. The change in working capital was primarily driven by an
increase in inventories of $14.6 million and an increase in accounts receivable of $9.3 million. This was partially offset by a
decrease in prepaid expenses and other current assets of $8.9 million and a decrease in accounts payable of $1.0 million.
The increase in inventories was due to higher inventories held at year-end in anticipation of a scheduled scale down of manufacturing
activity in the first quarter of fiscal 2015. The higher accounts receivable were due to higher sales in the fourth quarter of fiscal
2014. The reduction in prepaid expenses and other current assets was due to net refunds of a $2.7 million deposit in relation to the
Agreement to Develop and Lease (the “ADL”) following the execution of the Lease Agreement, and a reduction of $6.3 million
due to tax refunds.
Net cash used in investing activities was primarily the purchase of short-term investments of $18.2 million and capital expenditures
of $10.1 million offset by the maturity of short-term investments of $12.4 million.
Net cash used in financing activities was primarily the reversal of excess tax benefits from stock-based compensation arrangements
of $0.8 million and the repurchase of common stock of $0.4 million offset by proceeds from the exercise of stock options of $1.0
million.
Fiscal 2013
Continuing Operations
Net cash provided by operating activities was due primarily to net income of $59.4 million plus non-cash adjustments of $35.5
million contributed to net cash provided by continuing operations.
Net cash used by investing activities was primarily capital expenditures of $17.2 million and the purchase of short term investments
of $3.2 million, offset by proceeds from a building disposal of $5.3 million.
Net cash provided by financing activities related to proceeds from the exercise of stock options.
41
Fiscal 2015 Liquidity and Capital Resource Outlook
We expect our fiscal 2015 capital expenditures to be between $17.0 and $19.0 million. Expenditures are anticipated to be primarily
used for R&D projects, enhancements to our manufacturing operations in Asia and improvements to our information technology
infrastructure.
We believe that our existing cash and investments and anticipated cash flows from operations will be sufficient to meet our liquidity
and capital requirements for at least the next twelve months. Our liquidity is affected by many factors, some based on normal
operations of our business and others related to global economic conditions and industry uncertainties, which we cannot predict.
We also cannot predict economic conditions and industry downturns or the timing, strength or duration of recoveries. We intend
to continue to use our cash for working capital needs and for general corporate purposes.
We may seek, as we believe appropriate, additional debt or equity financing which would provide capital for corporate purposes,
working capital funding, additional liquidity needs or to fund future growth opportunities. The timing and amount of potential
capital requirements cannot be determined at this time and will depend on a number of factors, including our actual and projected
demand for our products, semiconductor and semiconductor capital equipment industry conditions, competitive factors, and the
condition of financial markets.
On August 14, 2014, the Company’s Board of Directors authorized a program to repurchase up to $100 million of the Company’s
common stock on or before August 14, 2017. The Company has entered into a written trading plan under Rule 10b5-1 of the
Exchange Act to facilitate repurchases under the repurchase program. The repurchase program is effective immediately, may be
suspended or discontinued at any time and will be funded using the Company's available cash. Under the program, shares may be
repurchased through open market and/or privately negotiated transactions at prices deemed appropriate by management. The timing
and amount of repurchase transactions under this program will depend on market conditions as well as corporate and regulatory
considerations. During the year ended September 27, 2014, the Company repurchased a total of 43.5 thousand shares of common
stock at a cost of $0.6 million under the repurchase program. As of September 27, 2014, our remaining stock repurchase authorization
under the repurchase program was approximately $99.4 million.
Other Obligations and Contingent Payments
Agreement to Develop and Lease and Lease Agreement
On May 7, 2012, Kulicke & Soffa Pte Ltd. (“Pte”), the Company's wholly owned subsidiary, entered into the Agreement to Develop
and Lease (the “ADL”) with DBS Trustee Limited as trustee of Mapletree Industrial Trust (the “Landlord”). Pursuant to the ADL,
the Landlord agreed to develop a building in Singapore as our corporate headquarters, manufacturing, technology, sales and service
center (the "Building"). The lease has a ten-year non-cancellable initial term (the "Initial Term") and contains options to renew for
a further two ten-year terms. The annual rent and service charge for the initial term range between approximately $4 million to
approximately $5 million Singapore dollars. Pte has a right of first refusal for all space that becomes available in the Building,
and the Landlord has agreed to make available a certain amount of additional space for rental by Pte at Pte’s option, which may
be exercised at certain points during the second half of the initial term. Subject to Pte renting a minimum amount of space for a
certain period, Pte has partial surrender rights. In addition, Pte has termination rights after renting the premises for a certain period
of time.
The Building was completed on December 1, 2013 and Pte signed a Lease Agreement with the Landlord to lease from the Landlord
approximately 198,000 square feet, representing approximately 70% of the Building. In accordance with ASC No. 840, Leases
("ASC 840"), the Company was considered to be the owner of the Building during the construction phase due to its involvement
in the asset construction. Following the completion of construction, we performed a sale-leaseback analysis pursuant to ASC
840-40 and determined that because of our continuing involvement, ASC 840-40 precluded us from derecognizing the asset and
associated financing obligation.
As such, we reclassified the asset from construction in progress to Property, Plant and Equipment and began to depreciate the
building over its estimated useful life of twenty five years. We concluded that the term of the financing obligation is ten years.
This is equal to the non-cancellable term of our lease agreement with the Landlord. At the inception of the lease, the asset and
financing obligation recorded on the balance sheet were each $20.0 million, which was based on using an interest rate of 6.3%
over the initial term. The financing obligation will be settled through a combination of periodic cash rental payments and the
return of the leased property at the expiration of the lease. We do not report rent expense for the property which is deemed owned
for accounting purposes. Rather, rental payments required under the lease are considered debt service and applied to the deemed
landlord financing obligation and interest expense. The Building and financing obligation are being amortized in a manner that
will not generate a gain or loss upon lease termination.
42
Other Obligations and Contingent Payments
In accordance with U.S. generally accepted accounting principles, certain obligations and commitments are not required to be
included in the Consolidated Balance Sheets and Statements of Operations. These obligations and commitments, while entered
into in the normal course of business, may have a material impact on our liquidity. Certain of the following commitments as of
September 27, 2014 are appropriately not included in the Consolidated Balance Sheets and Statements of Operations included in
this Form 10-K; however, they have been disclosed in the table below for additional information.
The following table reflects obligations and contingent payments under various arrangements as of September 27, 2014:
(in thousands)
Current and long-term liabilities:
Pension plan obligations
Severance (1)
Operating lease retirement obligations
Long-term income taxes payable
Total Obligations and Contingent Payments reflected on
the Consolidated Financial Statements
Contractual Obligations:
Inventory purchase obligations (2)
Operating lease obligations (3)
Total Obligations and Contingent Payments not
reflected on the Consolidated Financial Statements
Payments due by fiscal period
Total
Less than 1
year
1 - 3 years
3 - 5 years
More than
5 years
$
$
$
2,268
3,487
1,525
3,395
$
— $
1,067
410
—
10,675
$
1,477
84,240
29,525
84,240
3,702
$
$
— $
788
23
—
— $
—
31
—
2,268
1,632
1,061
3,395
811
$
31
$
8,356
— $
— $
6,520
5,080
—
14,223
$ 113,765
$
87,942
$
6,520
$
5,080
$
14,223
(1) In accordance with regulations in some of our foreign subsidiaries, we are required to provide for severance obligations
that are payable when an employee leaves the Company.
(2) We order inventory components in the normal course of our business. A portion of these orders are non-cancelable and
a portion may have varying penalties and charges in the event of cancellation.
(3) We have minimum rental commitments under various leases (excluding taxes, insurance, maintenance and repairs, which
are also paid by us) primarily for various facility and equipment leases, which expire periodically through 2026 (not
including lease extension options, if applicable).
The annual rent and service charge for the Initial Term for the Building under the ADL range from approximately $4
million to approximately $5 million Singapore dollars and is not included in the table above.
In accordance with ASC No. 840, Leases ("ASC 840"), the Company was considered to be the owner of the Building
during the construction phase due to its involvement in the asset construction. As a result of the Company's continued
involvement during the lease term, the Company did not fulfill the criteria to apply sale-leaseback accounting under ASC
840. Therefore, at completion, the building remained on the Consolidated Balance Sheet, and the corresponding financing
obligation was reclassified to long-term liability. As of September 27, 2014, we recorded a financing obligation of $19.1
million. The financing obligation is not reflected in the table above.
43
Off-Balance Sheet Arrangements
Bank Guarantee
On May 7, 2012, Pte obtained a bank guarantee from DBS Bank Ltd., which was furnished to the Landlord and expired on May
9, 2013, at which time Pte replaced the bank guarantee with a cash deposit of an equivalent amount. The cash deposit was refunded
on December 6, 2013.
Credit facility
On November 22, 2013, the Company obtained a $5.0 million credit facility with Citibank in connection with the issuance of a
bank guarantee of $3.4 million Singapore dollars to the Landlord in connection with the Lease Agreement. The bank guarantee is
effective from December 1, 2013 to November 30, 2014.
As of September 27, 2014, we did not have any other off-balance sheet arrangements, such as derivatives, contingent interests or
obligations associated with variable interest entities.
44
Item 7A. - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
Our available-for-sale securities, if applicable, may consist of short-term investments in highly rated debt instruments of the U.S.
Government and its agencies, financial institutions, and corporations. We continually monitor our exposure to changes in interest
rates and credit ratings of issuers with respect to any available-for-sale securities and target an average life to maturity of less than
18 months. Accordingly, we believe that the effects to us of changes in interest rates and credit ratings of issuers are limited and
would not have a material impact on our financial condition or results of operations. As of September 27, 2014, we had no available-
for-sale investments.
Foreign Currency Risk
Our international operations are exposed to changes in foreign currency exchange rates due to transactions denominated in currencies
other than the location's functional currency. Our international operations are also exposed to foreign currency fluctuations that
impact the remeasurement of net monetary assets of those operations whose functional currency, the U.S. dollar, differs from their
respective local currencies, most notably in Israel, Malaysia, Singapore and Switzerland. In addition to net monetary remeasurement,
we have exposures related to the translation of subsidiary financial statements from their functional currency, the local currency,
into its reporting currency, the U.S. dollar, most notably in China, Taiwan, Japan and Germany. Our U.S. operations also have
foreign currency exposure due to net monetary assets denominated in currencies other than the U.S. dollar.
Based on our foreign currency exposure as of September 27, 2014, a 10.0% fluctuation could impact our financial position, results
of operations or cash flows by $3.0 to $4.0 million. We may enter into foreign exchange forward contracts and other instruments
in the future; however, our attempts to hedge against these risks may not be successful and may result in a material adverse impact
on our financial results and cash flow. We had no foreign exchange forward contracts or other instruments as of September 27,
2014.
45
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of Kulicke and Soffa Industries, Inc. listed in the index appearing under Item 15 (a)(1)
herein are filed as part of this Report under this Item 8.
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Kulicke & Soffa Industries, Inc.:
In our opinion, the accompanying consolidated balance sheets and the related consolidated statement of operations, comprehensive
income, changes in shareholders’ equity, and cash flows present fairly, in all material respects, the financial position of Kulicke
& Soffa Industries, Inc. and its subsidiaries at September 27, 2014 and September 28, 2013, and the results of their operations and
their cash flows for each of the three years in the period ended September 27, 2014 in conformity with accounting principles
generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index
appearing under Item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of September 27, 2014, based on criteria established in Internal Control - Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's
management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control
over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in
Management's Report on Internal Control over Financial Reporting included in Item 9A of this report. Our responsibility is to
express opinions on these financial statements, on the financial statement schedule, and on the Company's internal control over
financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material misstatement and whether effective internal control over
financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal
control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets
of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
Singapore
November 12, 2014
46
KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
As of
September 27, 2014 September 28, 2013
ASSETS
Current assets:
Cash and cash equivalents
Short-term investments
Accounts and notes receivable, net of allowance for doubtful accounts of $143 and
$504, respectively
Inventories, net
Prepaid expenses and other current assets
Deferred income taxes
Total current assets
Property, plant and equipment, net
Goodwill
Intangible assets, net
Other assets
TOTAL ASSETS
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable
Accrued expenses and other current liabilities
Income taxes payable
Total current liabilities
Financing obligation
Deferred income taxes
Other liabilities
TOTAL LIABILITIES
Commitments and contingent liabilities (Note 13)
SHAREHOLDERS' EQUITY:
Preferred stock, without par value:
Authorized 5,000 shares; issued - none
Common stock, no par value:
Authorized 200,000 shares; issued 81,624 and 80,237, respectively; outstanding
76,626 and 75,283 shares, respectively
Treasury stock, at cost, 4,998 and 4,954 shares, respectively
Accumulated income
Accumulated other comprehensive income
TOTAL SHAREHOLDERS' EQUITY
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$
$
$
$
$
$
$
587,981
9,105
$
171,530
49,694
15,090
4,291
837,691
52,755
41,546
5,891
6,565
944,448
35,132
43,731
2,488
81,351
19,102
44,963
9,790
155,206
$
$
$
521,788
3,252
162,714
38,135
24,012
4,487
754,388
47,541
41,546
11,209
8,310
862,994
37,030
38,868
1,504
77,402
19,396
40,709
8,822
146,329
— $
—
479,116
(46,984)
354,866
2,244
789,242
944,448
$
$
467,525
(46,356)
291,878
3,618
716,665
862,994
The accompanying notes are an integral part of these consolidated financial statements.
47
KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Net revenue
Cost of sales
Gross profit
Selling, general and administrative
Research and development
Operating expenses
Income from operations
Interest income
Interest expense
Income from operations before income taxes
Provision for income taxes
Net income
Net income per share:
Basic
Diluted
Weighted average shares outstanding:
Basic
Diluted
2014
$
568,569
295,015
273,554
Fiscal
2013
$
534,938
287,993
246,945
113,514
83,056
196,570
119,519
61,620
181,139
2012
791,023
423,633
367,390
124,718
63,446
188,164
76,984
65,806
179,226
1,197
(1,048)
77,133
14,145
62,988
0.82
0.81
$
$
$
883
(21)
66,668
7,310
59,358
0.79
0.78
$
$
$
833
(5,808)
174,251
13,671
160,580
2.17
2.13
$
$
$
$
76,396
77,292
75,132
76,190
73,887
75,502
The accompanying notes are an integral part of these consolidated financial statements.
48
KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Net income
Other comprehensive income (loss):
Foreign currency translation adjustment
Unrecognized actuarial gain, Switzerland pension plan, net of tax
Total other comprehensive (loss) income
Comprehensive income
2014
Fiscal
2013
2012
62,988
$
59,358
$
160,580
(983)
(391)
(1,374)
61,614
1,186
51
1,237
$
60,595
$
207
(370)
(163)
160,417
$
$
The accompanying notes are an integral part of these consolidated financial statements.
49
KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(in thousands)
Balances as of October 1, 2011
Issuance of stock for services rendered
Exercise of stock options
Issuance of shares for market-based restricted stock
and time-based restricted stock
Excess tax benefits from stock based compensation
Equity-based compensation expense
Components of comprehensive income:
Net income
Translation adjustment
Unamortized pension costs
Total comprehensive income
Balances as of September 29, 2012
Issuance of stock for services rendered
Exercise of stock options
Issuance of shares for market-based restricted stock
and time-based restricted stock
Excess tax benefits from stock based compensation
Equity-based compensation expense
Components of comprehensive income:
Net income
Translation adjustment
Unamortized pension costs
Total comprehensive income
Balances as of September 28, 2013
Issuance of stock for services rendered
Repurchase of common stock
Exercise of stock options
Issuance of shares for market-based restricted stock
and time-based restricted stock
Reversal of excess tax benefits from stock based
compensation
Equity-based compensation expense
Components of comprehensive income:
Net income
Translation adjustment
Unamortized pension costs
Total comprehensive income
Balances as of September 27, 2014
Common Stock
Shares
Amount
Treasury
Stock
Accumulated
Income
Accumulated
Other
Comprehensive
Income
Shareholders'
Equity
72,779
$
441,749
$
(46,356) $
71,940
$
2,544
$
469,877
78
436
852
—
—
—
—
—
—
720
3,325
—
1,537
7,791
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
160,580
—
—
160,580
—
—
—
—
—
—
207
(370)
(163)
720
3,325
—
1,537
7,791
160,580
207
(370)
160,417
74,145
$
455,122
$
(46,356) $
232,520
$
2,381
$
643,667
74
101
963
—
—
—
—
—
—
840
908
—
825
9,830
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
59,358
—
—
59,358
—
—
—
—
—
—
1,186
51
1,237
840
908
—
825
9,830
59,358
1,186
51
60,595
75,283
$
467,525
$
(46,356) $
291,878
$
3,618
$
716,665
63
(43)
131
1,192
—
—
—
—
—
—
809
—
1,080
—
(825)
10,527
—
—
—
—
—
(628)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
62,988
—
—
—
—
—
—
—
—
—
(983)
(391)
809
(628)
1,080
—
(825)
10,527
—
62,988
(983)
(391)
62,988
(1,374)
61,614
76,626
$
479,116
$
(46,984) $
354,866
$
2,244
$
789,242
The accompanying notes are an integral part of these consolidated financial statements.
50
KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Amortization of debt discount and debt issuance costs
Equity-based compensation
Reversal of excess tax benefits (Excess tax benefits from stock based
compensation)
Adjustment for doubtful accounts
Adjustment for inventory valuation
Deferred taxes
Impairment of buildings and building improvements
Switzerland pension plan curtailment gain
Loss (Gain) on disposal of property, plant and equipment
Asset retirement obligation
Changes in operating assets and liabilities, net of businesses acquired or sold:
Accounts and notes receivable
Inventory
Prepaid expenses and other current assets
Accounts payable, accrued expenses and other current liabilities
Income taxes payable
Other, net
Net cash provided by continuing operations
Net cash used in discontinued operations
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment
Proceeds from sales of property, plant and equipment
Purchases of short term investment
Proceeds from maturity of short term investment
Sales of investments classified as available-for-sale
Earnout payment related to prior acquisition
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on debt
Proceeds from exercise of common stock options
Repurchase of common stock
(Reversal of excess tax benefits) Excess tax benefits from stock based
compensation
Net cash (used in) provided by financing activities
Effect of exchange rate changes on cash and cash equivalents
Changes in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
CASH PAID FOR:
Interest
Income taxes
2014
Fiscal
2013
2012
$
62,988
$
59,358
$
160,580
13,520
—
11,336
825
320
3,060
4,494
—
(84)
90
—
(9,294)
(14,618)
8,866
(1,269)
1,030
1,196
82,460
—
82,460
(10,138)
44
(18,236)
12,356
—
—
(15,974)
—
1,080
(419)
(825)
(164)
(129)
66,193
521,788
587,981
1,048
4,603
$
$
$
18,489
—
10,670
(825)
371
3,561
5,901
—
(2,100)
(147)
(368)
26,408
17,056
(2,421)
(36,066)
(6,832)
1,769
94,824
—
94,824
(17,172)
5,310
(3,252)
—
—
—
(15,114)
17,265
5,174
8,511
(1,537)
(1,239)
6,060
3,964
206
(1,690)
—
—
(49,111)
8,144
(46)
33,550
(6,071)
209
183,969
(1,498)
182,471
(6,902)
—
—
—
6,364
(14,848)
(15,386)
—
908
—
825
1,733
101
81,544
440,244
521,788
(110,000)
3,325
—
1,537
(105,138)
109
62,056
378,188
440,244
$
— $
$
8,382
633
10,854
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
51
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION
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.
Fiscal Year
Each of the Company's first three fiscal quarters ends on the Saturday that is 13 weeks after the end of the immediately preceding
fiscal quarter. The fourth quarter of each fiscal year ends on the Saturday closest to September 30th. In fiscal years consisting of
53 weeks, the fourth quarter will consist of 14 weeks. The 2014, 2013, and 2012 fiscal years ended on September 27, 2014,
September 28, 2013 and September 29, 2012, respectively.
Nature of Business
The Company designs, manufactures and sells capital equipment and expendable tools as well as services, maintains, repairs and
upgrades equipment, all used to assemble semiconductor devices. The Company's operating results depend upon the capital and
operating expenditures of semiconductor manufacturers and outsourced semiconductor assembly and test providers (“OSATs”)
worldwide which, in turn, depend on the current and anticipated market demand for semiconductors and products utilizing
semiconductors. The semiconductor industry is highly volatile and experiences downturns and slowdowns which can have a severe
negative effect on the semiconductor industry's demand for semiconductor capital equipment, including assembly equipment
manufactured and sold by the Company and, to a lesser extent, expendable tools, including those sold by the Company. These
downturns and slowdowns have in the past adversely affected the Company's operating results. The Company believes such
volatility will continue to characterize the industry and the Company's operations in the future.
Use of Estimates
The preparation of consolidated financial statements requires management to make assumptions, estimates and judgments that
affect the reported amounts of assets and liabilities, net revenue and expenses during the reporting periods, and disclosures of
contingent assets and liabilities as of the date of the consolidated financial statements. On an ongoing basis, management evaluates
estimates, including but not limited to, those related to accounts receivable, reserves for excess and obsolete inventory, carrying
value and lives of fixed assets, goodwill and intangible assets, valuation allowances for deferred tax assets and deferred tax
liabilities, repatriation of un-remitted foreign subsidiary earnings, equity-based compensation expense, restructuring, and
warranties. Management bases its estimates on historical experience and on various other assumptions believed to be reasonable.
As a result, management makes judgments regarding the carrying values of its assets and liabilities that are not readily apparent
from other sources. Authoritative pronouncements, historical experience and assumptions are used as the basis for making estimates,
and on an ongoing basis, management evaluates these estimates. Actual results may differ from these estimates.
Vulnerability to Certain Concentrations
Financial instruments which may subject the Company to concentrations of credit risk as of September 27, 2014 and September 28,
2013 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 monitors its customers' financial strength to
reduce the risk of loss.
The Company's products are complex and require raw materials, components and subassemblies having a high degree of reliability,
accuracy and performance. The Company relies on subcontractors to manufacture many of these components and subassemblies
and it relies on sole source suppliers for some important components and raw material inventory.
The Company's international operations are exposed to changes in foreign currency exchange rates due to transactions denominated
in currencies other than the location's functional currency. The Company is also exposed to foreign currency fluctuations that
impact the remeasurement of net monetary assets of those operations whose functional currency, the U.S. dollar, differs from their
respective local currencies, most notably in Israel, Malaysia, Singapore and Switzerland. In addition to net monetary remeasurement,
the Company has exposures related to the translation of subsidiary financial statements from their functional currency, the local
52
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
currency, into its reporting currency, the U.S. dollar, most notably in China, Taiwan, Japan and Germany. The Company's U.S.
operations also have foreign currency exposure due to net monetary assets denominated in currencies other than the U.S. dollar.
Foreign Currency Translation
The majority of the Company's business is transacted in U.S. dollars; however, the functional currencies of some of the Company's
subsidiaries are their local currencies. In accordance with ASC No. 830, Foreign Currency Matters (“ASC 830”), for a subsidiary
of the Company that has a functional currency other than the U.S. dollar, gains and losses resulting from the translation of the
functional currency into U.S. dollars for financial statement presentation are not included in determining net income, but are
accumulated in the cumulative translation adjustment account as a separate component of shareholders' equity (accumulated other
comprehensive income (loss)). Under ASC 830, cumulative translation adjustments are not adjusted for income taxes as they relate
to indefinite investments in non-U.S. subsidiaries. Gains and losses resulting from foreign currency transactions are included in
the determination of net income.
Derivative Financial Instruments
The Company’s primary objective for holding derivative financial instruments is to manage the fluctuation in foreign exchange
rates and accordingly is not speculative in nature. The Company’s international operations are exposed to changes in foreign
exchange rates as described above. The Company has established a program to monitor the forecasted transaction currency risk
to protect against foreign exchange rate volatility. Generally, the Company uses foreign exchange forward contracts in these hedging
programs. The instruments, which have maturities of up to six months, are recorded at fair value and are included in prepaid
expenses and other current assets, or other accrued expenses and other current liabilities.
Our accounting policy for derivative financial instruments is based on whether they meet the criteria for designation as a cash flow
hedge. A designated hedge with exposure to variability in the functional currency equivalent of the future foreign currency cash
flows of a forecasted transaction is referred to as a cash flow hedge. The criteria for designating a derivative as a cash flow hedge
include the assessment of the instrument’s effectiveness in risk reduction, matching of the derivative instrument to its underlying
transaction, and the assessment of the probability that the underlying transaction will occur. For derivatives with cash flow hedge
accounting designation, we report the after-tax gain / (loss) from the effective portion of the hedge as a component of accumulated
other comprehensive income / (loss) and reclassify it into earnings in the same period in which the hedged transaction affects
earnings and in the same line item on the consolidated statement of income as the impact of the hedged transaction. Derivatives
that we designate as cash flow hedges are classified in the consolidated statement of cash flows in the same section as the underlying
item, primarily within cash flows from operating activities.
The hedge effectiveness of these derivative instruments is evaluated by comparing the cumulative change in the fair value of the
hedge contract with the cumulative change in the fair value of the forecasted cash flows of the hedged item.
If a cash flow hedge is discontinued because it is no longer probable that the original hedged transaction will occur as previously
anticipated, the cumulative unrealized gain or loss on the related derivative is reclassified from accumulated other comprehensive
income / (loss) into earnings. Subsequent gain / (loss) on the related derivative instrument is recognized into earnings in each
period until the instrument matures, is terminated, is re-designated as a qualified cash flow hedge, or is sold. Ineffective portions
of cash flow hedges, as well as amounts excluded from the assessment of effectiveness, are recognized in earnings.
Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less when purchased to be cash
equivalents. Cash equivalents are measured at fair value based on level one measurement, or quoted market prices, as defined by
ASC No. 820, Fair Value Measurements and Disclosures. As of September 27, 2014 and September 28, 2013, fair value
approximated the cost basis for cash equivalents.
Investments
Investments, other than cash equivalents, are classified as “trading,” “available-for-sale” or “held-to-maturity,” in accordance with
ASC No. 320, Investments-Debt & Equity Securities, and depending upon the nature of the investment, its ultimate maturity date
in the case of debt securities, and management's intentions with respect to holding the securities. Investments classified as “trading”
are reported at fair market value, with unrealized gains or losses included in earnings. Investments classified as “available-for-
sale” are reported at fair market value, with net unrealized gains or losses reflected as a separate component of shareholders' equity
(accumulated other comprehensive income (loss)). The fair market value of trading and available-for-sale securities is determined
using quoted market prices at the balance sheet date. Investments classified as held-to-maturity are reported at amortized cost.
Realized gains and losses are determined on the basis of specific identification of the securities sold.
53
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Allowance for Doubtful Accounts
The Company maintains allowances for doubtful accounts for estimated losses resulting from its customers' failure to make required
payments. If the financial condition of the Company's customers were to deteriorate, resulting in an impairment of their ability to
make payments, additional allowances may be required. The Company is also subject to concentrations of customers and sales to
a few geographic locations, which could also impact the collectability of certain receivables. If global economic conditions
deteriorate or political conditions were to change in some of the countries where the Company does business, it could have a
significant impact on the results of operations, and the Company's ability to realize the full value of its accounts receivable.
Inventories
Inventories are stated at the lower of cost (on a first-in first-out basis) or market value. The Company generally provides reserves
for obsolete inventory and for inventory considered to be in excess of demand. Demand is generally defined as 18 months forecasted
future consumption for equipment, 24 months forecasted future consumption for all spare parts, and 12 months forecasted future
consumption for expendable tools. Forecasted consumption 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 consumption to its suppliers and adjusts commitments to those suppliers accordingly. If required, the Company reserves
the difference between the carrying value of its inventory and the lower of cost or market value, based upon assumptions about
future consumption, and market conditions. If actual market conditions are less favorable than projections, additional inventory
reserves may be required.
Property, Plant and Equipment
Property, plant and equipment are carried at cost. The cost of additions and those improvements which increase the capacity or
lengthen the useful lives of assets are capitalized while repair and maintenance costs are expensed as incurred. Depreciation and
amortization are provided on a straight-line basis over the estimated useful lives as follows: buildings 25 years; machinery and
equipment 3 to 10 years; and leasehold improvements are based on the shorter of the life of lease or life of asset. Purchased
computer software costs related to business and financial systems are amortized over a five-year period on a straight-line basis.
Valuation of Long-Lived Assets
In accordance with ASC No. 360, Property, Plant & Equipment ("ASC 360"), the Company's property, plant and equipment is
tested for impairment based on undiscounted cash flows when triggering events occur, and if impaired, written-down to fair value
based on either discounted cash flows or appraised values. ASC 360 also provides a single accounting model for long-lived assets
to be disposed of by sale and establishes additional criteria that would have to be met to classify an asset as held for sale. The
carrying amount of an asset or asset group is not recoverable to the extent it exceeds the sum of the undiscounted cash flows
expected to result from the use and eventual disposition of the asset or asset group. Estimates of future cash flows used to test the
recoverability of a long-lived asset or asset group must incorporate the entity's own assumptions about its use of the asset or asset
group and must factor in all available evidence.
ASC 360 requires that long-lived assets be tested for recoverability whenever events or changes in circumstances indicate that
their carrying amount may not be recoverable. Such events include significant under-performance relative to historical internal
forecasts 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. During the fiscal years ended September 27, 2014 and
September 28, 2013, no triggering events occurred.
Accounting for Impairment of Goodwill
The Company operates two reportable segments: Equipment and Expendable Tools. Goodwill was recorded in 2009 for the
acquisition of Orthodyne Electronics Corporation ("Orthodyne"), which added wedge bonder products (also known as "reporting
unit") to the Equipment business.
Accounting Standard Update 2011-08, Testing Goodwill for Impairment (“ASU 2011-08”), provides companies with the option
to assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its
carrying value. If, after assessing the qualitative factors, a company determines that it is not more likely than not that the fair value
of a reporting unit is less than its carrying value, then performing the two-step impairment test is unnecessary. However, if a
company concludes otherwise, then it is required to perform the first step of the two-step goodwill impairment test. If the carrying
value of a reporting unit exceeds its fair value in the first step of the test, then a company is required to perform the second step
of the goodwill impairment test to measure the amount of the reporting unit’s goodwill impairment loss, if any.
54
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
In fiscal 2013 and 2014, the Company chose to bypass the qualitative assessment and proceed directly to performing the quantitative
evaluation of the fair value of the reporting unit, to compare against the carrying value of the reporting unit.
As part of our annual evaluation, the Company performs an impairment test of its goodwill in the fourth quarter of each fiscal year
to coincide with the completion of its annual forecasting and refreshing of its business outlook processes. On an ongoing basis,
the Company monitors if a “triggering” event has occurred that may have the effect of reducing the fair value of a reporting unit
below its respective carrying value. Adverse changes in expected operating results and/or unfavorable changes in other economic
factors used to estimate fair values could result in a non-cash impairment charge in the future.
As of September 27, 2014, the Company concluded that the fair value of the Wedge bonder reporting unit exceeded its carrying
value. Accordingly, no impairment of goodwill has been recorded. Impairment assessments inherently involve judgment as to
assumptions about expected future cash flows and the impact of market conditions on those assumptions. The assumptions include
prices, costs, and growth rates. The Company will perform interim goodwill impairment assessments if there are indicators of
potential impairment. These include significant and unforeseen customer losses, a significant adverse change in legal factors or
in the business climate, a significant adverse action or assessment by a regulator, a significant stock price decline, unforeseen
changes in technology or unanticipated competition.
For further information on goodwill and other intangible assets, see Note 3 below.
Revenue Recognition
In accordance with ASC No. 605, Revenue Recognition, the Company recognizes revenue when persuasive evidence of an
arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable, the collectability is
reasonably assured, and customer acceptance, when applicable, has been received or we otherwise have been released from customer
acceptance obligations. If terms of the sale provide for a customer acceptance period, revenue is recognized upon the expiration
of the acceptance period or customer acceptance, whichever occurs first. The Company’s standard terms are ex works (the
Company’s factory), with title transferring to its customer at the Company’s loading dock or upon embarkation. The Company
has a small percentage of sales with other terms, and revenue is recognized in accordance with the terms of the related customer
purchase order.
Shipping and handling costs billed to customers are recognized in net revenue. Shipping and handling costs paid by the Company
are included in cost of sales.
Research and Development
The Company charges research and development costs associated with the development of new products to expense when incurred.
In certain circumstances, pre-production machines which the Company intends to sell are carried as inventory until sold.
Income Taxes
In accordance with ASC No. 740, Income Taxes, deferred income taxes are determined using the liability method. The Company
records a valuation allowance to reduce its deferred tax assets to the amount it expects is more likely than not to be realized. While
the Company has considered future taxable income and its ongoing tax planning strategies in assessing the need for the valuation
allowance, if it were to determine that it would be able to realize its deferred tax assets in the future in excess of its net recorded
amount, an adjustment to the deferred tax asset would increase income in the period such determination was made. Likewise,
should the Company determine it would not be able to realize all or part of its net deferred tax assets in the future, an adjustment
to the deferred tax asset would decrease income in the period such determination was made.
In accordance with ASC No. 740 Topic 10, Income Taxes, General (“ASC 740.10”), the Company accounts for uncertain tax
positions taken or expected to be taken in its income tax return. Under ASC 740.10, the Company utilizes a two-step approach for
evaluating uncertain tax positions. Step one, or recognition, requires a company to determine if the weight of available evidence
indicates a tax position is more likely than not to be sustained upon audit, including resolution of related appeals or litigation
processes, if any. Step two, or measurement, is based on the largest amount of benefit, which is more likely than not to be realized
on settlement with the taxing authority.
Equity-Based Compensation
The Company accounts for equity-based compensation under the provisions of ASC No. 718, Compensation - Stock Compensation
(“ASC 718”). ASC 718 requires the recognition of the fair value of the equity-based compensation in net income. Compensation
expense associated with market-based restricted stock is determined using a Monte-Carlo valuation model, and compensation
expense associated with time-based and performance-based restricted stock is determined based on the number of shares granted
and the fair value on the date of grant. The fair value of the Company's stock option awards are estimated using a Black-Scholes
55
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
option valuation model. In addition, the calculation of equity-based compensation costs requires that the Company estimate the
number of awards that will be forfeited during the vesting period. The fair value of equity-based awards is amortized over the
vesting period of the award and the Company elected to use the straight-line method for awards granted after the adoption of ASC
718.
Earnings per Share
Earnings per share (“EPS”) are calculated in accordance with ASC No. 260, Earnings per Share. Basic EPS include only the
weighted average number of common shares outstanding during the period. Diluted EPS includes the weighted average number
of common shares and the dilutive effect of stock options, restricted stock and share unit awards and convertible subordinated
notes outstanding during the period, when such instruments are dilutive.
In accordance with ASC No. 260.10.55, Earnings per Share - Implementation & Guidance, the Company treats all outstanding
unvested share-based payment awards that contain rights to nonforfeitable dividends as participating in undistributed earnings
with common shareholders. Awards of this nature are considered participating securities and the two-class method of computing
basic and diluted EPS must be applied.
Prior Period Adjustment
During the three months ended December 28, 2013, the Company identified a prior period adjustment of $0.8 million relating to
the provision of input tax receivables that resulted in increased selling, general and administrative expense and a reduction of input
tax receivable that should have been recorded during the three months ended September 28, 2013. This error was corrected during
the quarter ended December 28, 2013 and management has deemed that the adjustment was not material to the quarter ended
September 28, 2013, the fiscal year ended September 28, 2013, or the fiscal year ended September 27, 2014.
During the three months ended June 28, 2014, the Company identified a prior period adjustment of $1.6 million relating to the
pricing discounts given to certain distributors that resulted in the decrease of the selling, general and administrative expense and
the revenue that should have been recorded during the six months ended March 29, 2014. This error was corrected during the
quarter ended June 28, 2014 and management has assessed that the adjustment was not material to the six months ended March
29, 2014, or the fiscal year ended September 27, 2014.
Recent Accounting Pronouncements
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue
recognition requirements in Accounting Standards Codification (“ASC”) 605, Revenue Recognition. The new revenue recognition
standard requires entities to recognize revenue in a way that reflects the transfer of promised goods or services to customers in an
amount based on the consideration to which the entity expects to be entitled to in exchange for those goods or services. ASU
2014-09 is effective for interim and annual reporting periods beginning after December 15, 2016 and early adoption is not permitted.
The Company is currently assessing the impact of this new guidance.
56
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 2: BALANCE SHEET COMPONENTS
The following tables reflect the components of significant balance sheet accounts as of September 27, 2014 and September 28,
2013:
(in thousands)
Short term investments, available-for-sale:
Deposits maturing within one year (1)
Inventories, net:
Raw materials and supplies
Work in process
Finished goods
Inventory reserves
Property, plant and equipment, net:
Buildings and building improvements
Leasehold improvements
Data processing equipment and software
Machinery, equipment, furniture and fixtures
Construction in progress (2)
Accumulated depreciation
Accrued expenses and other current liabilities:
Wages and benefits
Accrued customer obligations (3)
Commissions and professional fees
Deferred Rent
Severance
Other
As of
September 27, 2014
September 28, 2013
$
$
$
$
$
$
$
9,105
$
3,252
22,184
18,783
22,590
63,557
(13,863)
49,694
31,159
13,962
27,538
45,442
—
118,101
(65,346)
52,755
21,498
8,999
1,961
2,161
1,067
8,045
43,731
$
$
$
$
$
$
19,703
12,219
20,333
52,255
(14,120)
38,135
3,060
15,763
24,549
48,998
19,396
111,766
(64,225)
47,541
19,779
8,270
2,640
1,097
1,468
5,614
38,868
(1) All short-term investments were classified as available-for-sale and were measured at fair value based on level one measurement,
or quoted market prices, as defined by ASC 820. As of September 27, 2014, fair value approximated the cost basis for short-
term investments. The Company did not recognize any realized gains or losses on the sale of investments during fiscal 2014.
(2) Pursuant to ASC No. 840, Leases, the Company was considered to be the owner of the building during the construction phase
for the Agreement to Develop and Lease (the “ADL”) facility being developed by Mapletree Industrial Trust (the “Landlord”)
in Singapore—see Notes 7 and 13 below. The building was completed on December 1, 2013 and the construction costs incurred
in relation to the relevant proportion of the Company's lease were recognized on the Consolidated Balance Sheet as of
September 27, 2014 and September 28, 2013.
(3) Represents customer advance payments, customer credit program, accrued warranty expense and accrued retrofit obligations.
57
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 3: GOODWILL AND INTANGIBLE ASSETS
Goodwill
Intangible assets classified as goodwill are not amortized. The Company performs an annual impairment test of its goodwill during
the fourth quarter of each fiscal year, which coincides with the completion of its annual forecasting and refreshing of its business
outlook processes. The Company performed its annual impairment test in the fourth quarter of fiscal 2014 and concluded that no
impairment charge was required. The Company also periodically tested for impairment if a “triggering” event occurs that may
have the effect of reducing the fair value of a reporting unit below its carrying value and concluded that no triggering event had
occurred in fiscal 2014.
In 2009, the Company acquired Orthodyne and added wedge bonder products to the business.
Intangible Assets
Intangible assets with determinable lives are amortized over their estimated useful lives. The Company's intangible assets consist
primarily of wedge bonder developed technology and customer relationships.
The following table reflects net intangible assets as of September 27, 2014 and September 28, 2013:
(dollar amounts in thousands)
Wedge bonder developed technology
Accumulated amortization
Net wedge bonder developed technology
As of
September 27, 2014
33,200
$
(28,458)
4,742
September 28, 2013
33,200
$
(23,715)
9,485
Average estimated
useful lives (in years)
7.0
Wedge bonder customer relationships
Accumulated amortization
Net wedge bonder customer relationships
Wedge bonder trade name
Accumulated amortization
Net wedge bonder trade name
Wedge bonder other intangible assets
Accumulated amortization
Net wedge bonder other intangible assets
19,300
(19,300)
—
4,600
(3,451)
1,149
2,500
(2,500)
—
19,300
(19,300)
—
4,600
(2,876)
1,724
2,500
(2,500)
—
Net intangible assets
$
5,891
$
11,209
5.0
8.0
1.9
The following table reflects estimated annual amortization expense related to intangible assets as of September 27, 2014:
(in thousands)
Fiscal 2015
Fiscal 2016
Total amortization expense
As of
September 27, 2014
5,318
$
573
$
5,891
$
58
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 4: CASH AND CASH EQUIVALENTS
Cash equivalents consist of instruments with remaining maturities of three months or less at the date of purchase. In general, these
investments are free of trading restrictions. We carry these investments at fair value, based on quoted market prices or other readily
available market information.
Cash and cash equivalents consisted of the following as of September 27, 2014:
(dollar amounts in thousands)
Current assets:
Cash
Cash equivalents
Money market funds
Time deposits
Commercial paper
Total cash and cash equivalents
Short-term investments
Time deposits
Total short-term investments
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Estimated
Fair Value
$
130,668
$
— $
— $
130,668
295,529
132,284
29,500
587,981
9,105
9,105
—
—
—
—
—
—
—
—
—
—
—
—
295,529
132,284
29,500
587,981
9,105
9,105
Total cash, cash equivalents and short-term investments
$
597,086
$
— $
— $
597,086
Cash and cash equivalents consisted of the following as of September 28, 2013:
(dollar amounts in thousands)
Current assets:
Cash
Cash equivalents
Money market funds
Time deposits
Total cash and cash equivalents
Short-term investments
Time deposits
Total short-term investments
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Estimated
Fair Value
$
113,295
$
— $
— $
113,295
226,272
182,221
—
—
—
—
$
521,788
$
— $
— $
3,252
3,252
—
—
—
—
226,272
182,221
521,788
3,252
3,252
Total cash, cash equivalents and short-term investments
$
525,040
$
— $
— $
525,040
NOTE 5: FAIR VALUE MEASURMENTS
Accounting standards establish three levels of inputs that may be used to measure fair value: quoted prices in active markets for
identical assets or liabilities (referred to as Level 1), inputs other than Level 1 that are observable for the asset or liability either
directly or indirectly (referred to as Level 2) and unobservable inputs to the valuation methodology that are significant to the
measurement of fair value of assets or liabilities (referred to as Level 3).
Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis
We measure certain financial assets and liabilities at fair value on a recurring basis. There have been no transfers between fair
value measurement levels during the year ended September 27, 2014.
Fair Value Measurements on a Nonrecurring Basis
Our non-financial assets such as intangible assets and property, plant equipment are carried at cost unless impairment is deemed
to have occurred.
59
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Fair Value of Financial Instruments
Amounts reported as cash and equivalents, short-term investments, accounts receivables, prepaid expenses and other current assets,
accounts payable and accrued expenses approximate fair value.The fair value of our financial assets and liabilities at September 27,
2014 was determined using the following inputs:
(dollar amounts in thousands)
Fair Value Measurements at Reporting Date Using
Assets:
Cash
Cash equivalents
Money market funds
Time deposits
Commercial paper
Short-term investments
Time deposits
Total assets
Quoted Prices
in Active
Markets for
Identical Assets
Significant
Other
Observable
Inputs
Significant
Unobservable
Inputs
Total
(Level 1)
(Level 2)
(Level 3)
$
130,668
$
130,668
$
— $
295,529
132,284
29,500
295,529
132,284
29,500
9,105
9,105
—
—
—
—
$
597,086
$
597,086
$
— $
—
—
—
—
—
—
The fair value of our financial assets and liabilities at September 28, 2013 was determined using the following inputs:
(dollar amounts in thousands)
Fair Value Measurements at Reporting Date Using
Assets:
Cash
Cash equivalents
Money market funds
Time deposits
Short-term investments
Time deposits
Total assets
Quoted Prices
in Active
Markets for
Identical Assets
Significant
Other
Observable
Inputs
Significant
Unobservable
Inputs
Total
(Level 1)
(Level 2)
(Level 3)
$
113,295
$
113,295
$
— $
226,272
182,221
226,272
182,221
3,252
3,252
—
—
—
$
525,040
$
525,040
$
— $
—
—
—
—
—
NOTE 6: DERIVATIVE FINANCIAL INSTRUMENTS
The Company’s international operations are exposed to changes in foreign exchange rates due to transactions denominated in
currencies other than U.S. dollars. Most of the Company’s revenue and cost of materials are transacted in U.S. dollars. However,
a significant amount of the Company’s operating expenses are denominated in foreign currencies, primarily in Singapore.
The foreign currency exposure of our operating expenses are generally hedged with foreign exchange forward contracts. The
Company’s foreign exchange risk management programs include using foreign exchange forward contracts with cash flow hedge
accounting designation to hedge exposures to the variability in the U.S.-dollar equivalent of forecasted non-U.S.-dollar-
denominated operating expenses. These instruments generally mature within 6 months. For these derivatives, we report the after-
tax gain or loss from the effective portion of the hedge as a component of accumulated other comprehensive income (loss), and
we reclassify it into earnings in the same period or periods in which the hedged transaction affects earnings and in the same line
item on the consolidated statements of income as the impact of the hedged transaction.
60
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
There were no outstanding derivative instruments as of September 27, 2014 and September 28, 2013.
The effect of derivative instruments designated as cash flow hedges in our Consolidated Statements of Income for the year ended
September 27, 2014 and September 28, 2013 was as follows:
(in thousands)
Foreign exchange forward contract in cash flow hedging relationships:
Net gain recognized in OCI, net of tax(1)
Net gain reclassified from accumulated OCI into income, net of tax(2)
Net gain recognized in income(3)
Fiscal
2014
2013
$
$
$
114
114
$
$
— $
—
—
—
(1) Net change in the fair value of the effective portion classified in other comprehensive income (“OCI”).
(2) Effective portion classified as selling, general and administrative expense.
(3) Ineffective portion and amount excluded from effectiveness testing classified in selling, general and administrative
expense.
NOTE 7: DEBT AND OTHER OBLIGATIONS
Agreement to Develop and Lease and Lease Agreement
On May 7, 2012, Kulicke & Soffa Pte Ltd. (“Pte”), the Company's wholly owned subsidiary, entered into the ADL with Landlord.
Pursuant to the ADL, the Landlord agreed to develop a building in Singapore as our corporate headquarters, manufacturing,
technology, sales and service center (the "Building")..
The lease has a ten year non-cancellable term (the "Initial Term") and contains options to renew for two further ten-year terms.
The annual rent and service charge for the initial term range from approximately $4 million to approximately $5 million Singapore
dollars. Pte has a right of first refusal for all space that becomes available in the Building and the Landlord has agreed to make
available a certain amount of additional space for rental by Pte at Pte’s option which may be exercised at certain points during the
second half of the Initial Term. Subject to Pte renting a minimum amount of space for a certain period, Pte has partial surrender
rights. In addition, Pte has termination rights after renting the premises for a certain period of time.
The Building was completed on December 1, 2013 and Pte signed a Lease Agreement with the Landlord to lease from the Landlord
approximately 198,000 square feet, representing approximately 70% of the Building. In accordance with ASC No. 840, Leases
("ASC 840"), the Company was considered to be the owner of the Building during the construction phase due to its involvement
in the asset construction. Following the completion of construction, we performed a sale-leaseback analysis pursuant to ASC
840-40 and determined that because of our continuing involvement, ASC 840-40 precluded us from derecognizing the asset and
associated financing obligation. As such, we reclassified the asset from construction in progress to Property, Plant and Equipment
and began to depreciate the building over its estimated useful life of twenty-five years. We concluded that the term of the financing
obligation is ten years. This is equal to the non-cancellable term of our lease agreement with the Landlord. At the inception of the
lease, the asset and financing obligation recorded on the balance sheet were each $20.0 million, which was based on using an
interest rate of 6.3% over the Initial Term. The financing obligation will be settled through a combination of periodic cash rental
payments and the return of the leased property at the expiration of the lease. We do not report rent expense for the property which
is deemed owned for accounting purposes. Rather, rental payments required under the lease are considered debt service and applied
to the deemed landlord financing obligation and interest expense. The Building and financing obligation are being amortized in a
manner that will not generate a gain or loss upon lease termination.
Bank Guarantee
On May 7, 2012, Pte obtained a bank guarantee from DBS Bank Ltd., which was furnished to the Landlord and expired on May
9, 2013, at which time Pte replaced the bank guarantee with a cash deposit of an equivalent amount. The cash deposit was refunded
on December 6, 2013.
Credit facility
On November 22, 2013, the Company obtained a $5.0 million credit facility with Citibank in connection with the issuance of a
bank guarantee of $3.4 million Singapore dollars to the Landlord in connection with the Lease Agreement. The bank guarantee is
effective from December 1, 2013 to November 30, 2014.
61
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 8: SHAREHOLDERS’ EQUITY AND EMPLOYEE BENEFIT PLANS
Common Stock and 401(k) Retirement Income Plan
The Company has a 401(k) retirement income plan (the “Plan”) for its employees. Historically, the Company's matching
contributions to the Plan were made in the form of issued and contributed shares of Company common stock; however, beginning
January 2, 2011, matching contributions to the Plan are made in cash instead of stock. The Plan allows for employee contributions
and matching Company contributions up to 4% or 6% of the employee's contributed amount based upon years of service.
The following table reflects the Company’s matching contributions to the Plan during fiscal 2014 and 2013:
(in thousands)
Cash
Stock Repurchase Program
Fiscal
2014
2013
$
1,278
$
1,478
On August 14, 2014, the Company’s Board of Directors authorized a program (the "Program") to repurchase up to $100 million
of the Company’s common stock on or before August 14, 2017. The Company has entered into a written trading plan under Rule
10b5-1 of the Exchange Act, to facilitate repurchases under the Program. The Program may be suspended or discontinued at any
time and will be funded using the Company's available cash. Under the Program, shares may be repurchased through open market
and/or privately negotiated transactions at prices deemed appropriate by management. The timing and amount of repurchase
transactions under this program will depend on market conditions as well as corporate and regulatory considerations. During the
year ended September 27, 2014, the Company repurchased a total of 43.5 thousand shares of common stock at a cost of $0.6
million. The stock repurchases were recorded in the periods they were delivered, and the payment of $0.4 million was accounted
for as treasury stock in the Company’s Consolidated Balance Sheet. The Company records treasury stock purchases under the cost
method using first-in, first-out (FIFO) method. Upon reissuance of treasury stock, amount in excess of the acquisition cost are
credited to additional paid-in capital. If the Company reissues treasury stock at an amount below its acquisition cost and additional
paid-in capital associated with prior treasury stock transaction is insufficient to cover the difference between acquisition cost and
the reissue price, this difference is recorded against retained earnings.
Accumulated Other Comprehensive Income
The following table reflects accumulated other comprehensive income reflected on the Consolidated Balance Sheets as of
September 27, 2014 and September 28, 2013:
(in thousands)
Gain from foreign currency translation adjustments
Unrecognized actuarial gain, Switzerland pension plan, net of tax
Switzerland pension plan curtailment
Accumulated other comprehensive income
Equity-Based Compensation
As of
September 27, 2014
3,199
$
(609)
(346)
2,244
$
September 28, 2013
4,182
$
(227)
(337)
3,618
$
As of September 27, 2014, the Company had seven equity-based employee compensation plans (the “Employee Plans”) and three
director compensation plans (the “Director Plans”) (collectively, the “Plans”). Under these Plans, market-based share awards
(collectively, “market-based restricted stock”), time-based share awards (collectively, “time-based restricted stock”), performance-
based share awards (collectively, “performance-based restricted stock”), stock options, or common stock have been granted at
100% of the market price of the Company's common stock on the date of grant. As of September 27, 2014, the Company’s one
active plan, the 2009 Equity Plan, had 3.7 million shares of common stock available for grant to its employees and directors.
• Market-based restricted stock entitles the employee to receive common shares of the Company on the award vesting date
if market performance objectives which measure relative total shareholder return (“TSR”) are attained. Relative TSR is
calculated based upon the 90-calendar day average price of the Company's stock as compared to specific peer companies
that comprise the Philadelphia Semiconductor Index. TSR is measured for the Company and each peer company over a
performance period, which is generally three years. Vesting percentages range from 0% to 200% of awards granted. The
provisions of the market-based restricted stock are reflected in the grant date fair value of the award; therefore,
62
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
•
•
compensation expense is recognized regardless of whether or not the market condition is ultimately satisfied.
Compensation expense is reversed if the award is forfeited prior to the vesting date.
In general, stock options and time-based restricted stock awarded to employees vest annually over a three-year period
provided the employee remains employed by the Company. The Company follows the non-substantive vesting method
for stock options and recognizes compensation expense immediately for awards granted to retirement-eligible employees,
or over the period from the grant date to the date retirement eligibility is achieved.
In general, performance-based restricted stock (“PSU”) entitles the employee to receive common shares of the Company
on the three-year anniversary of the grant date (if employed by the Company) if return on invested capital and revenue
growth targets set by the Management Development and Compensation Committee (“MDCC”) of the Board of Directors
on the date of grant are met. If return on invested capital and revenue growth targets are not met, performance-based
restricted stock does not vest. Certain PSUs vest based on achievement of strategic goals over a certain time period or
periods set by the MDCC. If the strategic goals are not achieved, the PSUs do not vest.
Equity-based compensation expense recognized in the Consolidated Statements of Operations for fiscal 2014, 2013, and 2012 was
based upon awards ultimately expected to vest. In accordance with ASC No. 718, Compensation - Stock Compensation, forfeitures
have been estimated at the time of grant and were based upon historical experience. The Company reviews the forfeiture rates
periodically and makes adjustments as necessary.
The following table reflects total equity-based compensation expense, which includes restricted stock, stock options and common
stock, included in the Consolidated Statements of Operations for fiscal 2014, 2013, and 2012:
(in thousands)
Cost of sales
Selling, general and administrative
Research and development
Total equity-based compensation expense
2014
344
8,906
2,086
11,336
$
$
$
$
Fiscal
2013
295
8,457
1,918
10,670
$
$
2012
312
6,602
1,777
8,691
The following table reflects equity-based compensation expense, by type of award, for fiscal 2014, 2013, and 2012:
(in thousands)
Market-based restricted stock
Time-based restricted stock
Performance-based restricted stock
Stock options
Common stock
Total equity-based compensation expense
2014
Fiscal
2013
2012
$
$
4,960
5,419
131
17
809
11,336
$
$
4,135
5,545
107
43
840
10,670
$
$
2,929
4,732
269
41
720
8,691
63
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Equity-Based Compensation: employee market-based restricted stock
The following table reflects employee market-based restricted stock activity for fiscal 2014, 2013, and 2012:
Number of shares
(in thousands)
Unrecognized
compensation
expense (in
thousands)
Average remaining
service period (in
years)
Weighted average
grant date fair
value per share
Market-based restricted stock
outstanding as of October 1, 2011
Granted
Forfeited or expired
Market-based restricted stock
outstanding as of September 29, 2012
Granted
Forfeited or expired
Vested
Market-based restricted stock
outstanding as of September 28, 2013
Granted
Forfeited or expired
Vested
3,674
6,175
5,913
$
$
487
437
(10)
914
344
(49)
(124)
1,085
335
(19)
(333)
Market-based restricted stock
outstanding as of September 27, 2014
1,068
$
5,271
12.56
13.89
13.46
$
$
$
1.9
1.5
1.1
1.0
64
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Equity-Based Compensation: employee time-based restricted stock
The following table reflects employee time-based restricted stock activity for fiscal 2014, 2013, and 2012:
Number of shares
(in thousands)
Unrecognized
compensation
expense (in
thousands)
Average remaining
service period (in
years)
Weighted average
grant date fair
value per share
Time-based restricted stock
outstanding as of October 1, 2011
1,599
$
6,096
Granted
Forfeited or expired
Vested
695
(76)
(686)
Time-based restricted stock
outstanding as of September 29, 2012
1,532
$
7,070
Granted
Forfeited or expired
Vested
Time-based restricted stock
outstanding as of September 28, 2013
Granted
Forfeited or expired
Vested
620
(132)
(804)
1,216
$
6,028
649
(52)
(756)
Time-based restricted stock
outstanding as of September 27, 2014
1,057
$
6,720
Equity-Based Compensation: employee performance-based restricted stock
No performance-based restricted stock was issued during fiscal 2012.
9.15
10.59
11.48
$
$
$
1.7
1.4
1.2
1.4
The following table reflects employee performance-based restricted stock activity for fiscal 2014, 2013, and 2012:
Performance-based restricted stock outstanding as of October
1, 2011
Vested
Performance-based restricted stock outstanding as of
September 29, 2012
Granted
Performance-based restricted stock outstanding as of
September 28, 2013
Granted
Performance-based restricted stock outstanding as of
September 27, 2014
Number of shares
(in thousands)
Unrecognized
compensation
expense (in
thousands)
Average remaining
service period (in
years)
169
(169)
—
57
57
—
57
—
—
550
419
—
—
4.2
3.2
65
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following table reflects employee stock option activity for fiscal 2014, 2013, and 2012:
Number of
shares (in
thousands)
Weighted
average
exercise price
Average
remaining
contractual
life (in years)
Aggregate
intrinsic value
(in thousands)
Options outstanding as of October 1, 2011
Granted
Exercised
Forfeited or expired
Options outstanding as of September 29, 2012
Granted
Exercised
Forfeited or expired
Options outstanding as of September 28, 2013
Exercised
Forfeited or expired
Options outstanding as of September 27, 2014
Options vested and expected to vest as of September 27, 2014
Options exercisable as of September 27, 2014
In the money exercisable options as of September 27, 2014
1,509
$
—
(374) $
(432) $
$
703
—
(101) $
(40) $
562
$
(121) $
(221) $
$
220
$
$
218
217
218
10.11
—
7.70
13.35
9.40
8.96
9.59
9.56
7.84
11.92
8.14
8.14
8.16
$
$
$
$
$
$
2.5
2.5
2.5
829
292
654
1,358
1,358
1,338
Since 2010, on average, 10% of stock options granted by the Company become vested each year, and on average, 22% of stock
options granted by the Company are forfeited or expire each year. Intrinsic value of stock options exercised is determined by
calculating the difference between the market value of the Company's stock price at the time an option is exercised and the exercise
price, multiplied by the number of shares. The intrinsic value of stock options outstanding and stock options exercisable is determined
by calculating the difference between the Company's closing stock price on the last trading day of fiscal 2014 and the exercise
price of in-the-money stock options, multiplied by the number of underlying shares. During fiscal 2014, the Company received
$1.1 million in cash from the exercise of employee and non-employee director stock options.
As of September 27, 2014, total unrecognized compensation cost related to unvested employee stock options was $3,292, which
will be amortized over the weighted average remaining service period of less than a 1 year.
The following table reflects outstanding and exercisable employee stock options as of September 27, 2014:
Range of
exercise prices
3.06 - 7.08
7.14 - 7.31
8.43 - 9.64
Options outstanding
(in thousands)
Options Outstanding
Weighted average
remaining contractual
life (in years)
Options Exercisable
Weighted
average exercise
price
Options exercisable
(in thousands)
Weighted
average exercise
price
19
27
174
220
5.1
0.1
2.7
2.5
$
$
4.94
7.14
8.65
8.14
16
27
174
217
$
$
4.73
7.14
8.65
8.16
Equity-Based Compensation: non-employee directors
The 2009 Equity Plan provides for the grant of common shares to each non-employee director upon initial election to the board
and on the first business day of each calendar quarter while serving on the board. The grant to a non-employee director upon initial
election to the board is that number of common shares closest in value to, without exceeding, $120,000. The quarterly grant to a
non-employee director upon the first business day of each calendar year quarter is that number of common shares closest in value
to, without exceeding, $30,000.
66
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following table reflects shares of common stock issued to non-employee directors and the corresponding fair value for fiscal
2014, 2013, and 2012:
(in thousands)
Number of common shares issued
Fair value based upon market price at time of issue
$
2014
Fiscal
2013
63
810
$
74
908
$
2012
78
720
The following table reflects non-employee director stock option activity for fiscal 2014, 2013, and 2012:
Options outstanding as of October 1, 2011
Exercised
Forfeited or expired
Options outstanding as of September 29, 2012
and September 28, 2013
Exercised
Forfeited or expired
Options outstanding as of September 27, 2014
Options vested and expected to vest as of
September 27, 2014
Options exercisable as of September 27, 2014
In the money exercisable options as of
September 27, 2014
Number of shares
(in thousands)
Weighted
average
exercise price
Average
remaining
contractual life
(in years)
Aggregate
intrinsic value
(in thousands)
11.78
6.89
17.62
11.45
11.2
12.45
10.22
10.22
10.22
258
$
(63) $
(60) $
135
$
(10) $
(70) $
$
55
$
$
55
55
55
$
$
$
$
$
1.3
1.3
1.3
300
614
225
225
225
No non-employee director stock options were granted during fiscal 2014, 2013, and 2012.
67
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Pension Plan
The following table reflects the Company's defined benefits pension obligations as of September 27, 2014 and September 28,
2013:
(in thousands)
Switzerland pension obligation
Taiwan pension obligation
Total pension obligation
As of
September 27, 2014
September 28, 2013
$
$
703
1,323
2,026
$
$
388
1,323
1,711
In accordance with regulations in Switzerland, the Company sponsors in Switzerland a pension plan covering active employees
whose minimum benefits are guaranteed. During fiscal 2012, the Company announced the intention to reduce its Switzerland
workforce by approximately 41 employees, which triggered a further curtailment of the Switzerland pension plan under ASC No.
715, Topic 30, Compensation - Retirement Benefits, Defined Benefit Plans. As a result, the Company recognized a pretax curtailment
and settlement gain of $1.7 million and $2.1 million in fiscal 2012 and 2013, respectively. There were no significant pre-tax
curtailment settlement gain for fiscal 2014.
Other Plans
Some of the Company's other foreign subsidiaries have retirement plans that are integrated with and supplement the benefits
provided by laws of the various countries. These other plans are not required to report nor do they determine the actuarial present
value of accumulated benefits or net assets available for plan benefits as they are defined contribution plans.
NOTE 9: EARNINGS PER SHARE
Basic income per share is calculated using the weighted average number of shares of common stock outstanding during the period.
In addition, net income applicable to participating securities and the related participating securities are excluded from the
computation of basic income per share.
Diluted income per share is calculated using the weighted average number of shares of common stock outstanding during the
period and, if there is net income during the period, the dilutive impact of common stock equivalents outstanding during the period.
In computing diluted income per share, if convertible debt is assumed to be converted to common shares, the after-tax amount of
interest expense recognized in the period associated with the convertible debt is added back to net income.
The Company previously held 0.875% Convertible Subordinated Notes (the "Notes") which matured on June 1, 2012. The Company
repaid the entire principal balance of the Notes of $110.0 million plus interest of $0.5 million in cash in fiscal 2012. As the
conversion option of the Notes was not "in the money," no common shares were issued in connection with repayment of the Notes.
Accordingly, diluted EPS excludes the effect of the conversion of the Notes.
68
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following tables reflect a reconciliation of the shares used in the basic and diluted net income per share computation for fiscal
2014, 2013, and 2012:
(in thousands, except per share)
2014
Fiscal
2013
2012
Basic
Diluted
Basic
Diluted
Basic
Diluted
NUMERATOR:
Net income
Less: income applicable to
participating securities
Net income applicable to common
shareholders
DENOMINATOR:
Weighted average shares outstanding
- Basic
Stock options
Time-based restricted stock
Market-based restricted stock
Weighted average shares outstanding
- Diluted (1)
EPS:
$
62,988
$
62,988
$
59,358
$
59,358
$
160,580
$
160,580
—
—
—
—
(5)
(5)
$
62,988
$
62,988
$
59,358
$
59,358
$
160,575
$
160,575
76,396
76,396
75,132
75,132
73,887
73,887
117
398
381
77,292
110
512
436
660
813
142
76,190
75,502
Net income per share - Basic
$
0.82
Effect of dilutive shares
Net income per share - Diluted
$
0.79
$
$
0.82
(0.01)
0.81
$
2.17
$
$
$
0.79
(0.01)
0.78
$
$
$
2.17
(0.04)
2.13
(1) There were no potentially dilutive shares excluded for fiscal 2014 and 2013. Fiscal 2012 excluded 0.1 million dilutive
participating securities, as the income attributable to these shares was not included in EPS.
NOTE 10: INCOME TAXES
The following table reflects income from continuing operations by location, the provision for income taxes and the effective tax
rate for fiscal 2014, 2013, and 2012:
(dollar amounts in thousands)
United States operations
Foreign operations
Income from operations before tax
Provision for income taxes
Net income
Effective tax rate
2014
7,700
69,433
77,133
14,145
62,988
$
$
$
$
Fiscal
2013
(4,340)
71,008
66,668
7,310
59,358
$
$
2012
(6,111)
180,362
174,251
13,671
160,580
18.3%
11.0%
7.8%
69
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following table reflects the provision for income taxes from continuing operations for fiscal 2014, 2013, and 2012:
(in thousands)
Current:
Federal
State
Foreign
Deferred:
Federal
State
Foreign
Provision for income taxes
2014
Fiscal
2013
2012
$
$
843
78
5,534
5,474
5
2,211
14,145
$
$
(212) $
291
1,732
985
5
4,509
7,310
$
4,103
942
5,497
4,169
48
(1,088)
13,671
The following table reflects the difference between the provision for income taxes and the amount computed by applying the
statutory federal income tax rate for fiscal 2014, 2013, and 2012:
(in thousands)
Computed income tax expense based on U.S. statutory rate
Effect of earnings of foreign subsidiaries subject to different tax rates
Benefits from foreign approved enterprise zones
Dividend income
Effect of permanent items
Changes in valuation allowance
Foreign operations (withholding taxes, deferred taxes on unremitted
earnings, US taxation of foreign earnings)
Reserve for uncertain tax positions
State income tax expense
Other, net
Provision for income taxes
2014
Fiscal
2013
2012
26,997
(9,763)
(17,423)
8,190
(298)
(1,820)
5,906
131
2,241
(16)
14,145
$
$
23,334
(11,193)
(9,626)
—
664
1,429
1,789
683
(734)
964
7,310
$
$
60,988
(30,067)
(22,138)
—
152
1,261
12,604
(7,626)
(394)
(1,109)
13,671
$
$
Income tax expense for the current year includes approximately $1.2 million, $0.3 million and $3.0 million of taxes payable for
deemed distributions from earnings for the years ended September 27, 2014, September 28, 2013 and September 29, 2012,
respectively.
Undistributed earnings of certain foreign subsidiaries for which taxes have not been provided were approximately $460.5 million
as of September 27, 2014. Such undistributed earnings are considered to be indefinitely reinvested in foreign operations.
Determination of the amount of unrecognized deferred tax liability related to these earnings is not practicable.
Undistributed earnings of approximately $89.6 million are not considered to be indefinitely reinvested in foreign operations. As
of September 27, 2014, the Company has provided a deferred tax liability of approximately $18.2 million for withholding taxes
associated with future repatriation of earnings for certain subsidiaries.
70
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following table reflects the net deferred tax balance, composed of the tax effects of cumulative temporary differences for fiscal
2014 and 2013:
(in thousands)
Inventory reserves
Other accruals and reserves
Net operating loss carryforwards
Valuation allowance
Total short-term deferred tax asset
Total short-term deferred tax liability
Net short-term deferred tax asset
Domestic tax credit carryforwards
Net operating loss carryforwards
Stock options
Other
Valuation allowance
Total long-term deferred tax asset (1)
Repatriation of foreign earnings, including foreign withholding taxes
Depreciable assets
Prepaid expenses and other
Total long-term deferred tax liability
Net long-term deferred tax liability
Total net deferred tax liability
Fiscal
2014
2013
692
3,713
666
(780)
4,291
106
4,185
688
27,361
703
400
29,152
(23,844)
5,308
43,204
3,013
300
46,517
41,209
37,024
$
$
$
$
$
$
$
$
$
1,127
3,349
779
(768)
4,487
221
4,266
1,611
28,138
1,299
926
31,974
(25,676)
6,298
41,322
1,887
—
43,209
36,911
32,645
$
$
$
$
$
$
$
$
$
(1) Included in other assets on the Consolidated Balance Sheets are deferred tax assets of $3.8 million and $3.8 million as of
September 27, 2014 and September 28, 2013, respectively.
As of September 27, 2014, the Company has foreign net operating loss carryforwards of $80.6 million, domestic state net operating
loss carryforwards of $177.8 million, domestic federal net operating loss carryforwards of $6.9 million, and tax credit carryforwards
of $0.7 million that will reduce future taxable income. These carryforwards can be utilized in the future, prior to expiration of
certain carryforwards in fiscal years 2015 through 2033 with the exception of certain credits and foreign net operating losses that
have no expiration date. Pennsylvania tax law limits the time during which carryforwards may be applied against future taxes and
also limits the utilization of domestic state net operating loss carryforwards to as little as $3.0 million annually, but recent tax law
changes may increase this amount in future years.
The Company continues to evaluate the realizability of all of its net deferred tax assets at each reporting date and records a benefit
for deferred tax assets to the extent it has deferred tax liabilities that provide a source of income to benefit the deferred tax asset.
As a result of this analysis, the Company continues to maintain a valuation allowance against a majority of its state deferred tax
assets as the realization of these assets is not more likely than not given uncertainty of future earnings in these jurisdictions.
71
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The beginning and ending balances of the Company's unrecognized tax benefits are reconciled below for fiscal 2014, 2013, and
2012:
(in thousands)
Unrecognized tax benefit, beginning of year
Additions for tax positions, current year
Additions for tax positions, prior year
Reductions for tax positions, prior year
Unrecognized tax benefit, end of year
2014
Fiscal
2013
$
$
6,869
—
717
(394)
7,192
$
$
6,186
—
2,485
(1,802)
6,869
$
$
2012
13,702
—
110
(7,626)
6,186
If recognized, the $7.2 million of unrecognized tax benefit as of September 27, 2014 would impact the Company's effective tax
rate.
In fiscal 2013, the Company recognized a benefit of $1.7 million related to the reversal of a reserve for uncertain tax positions
based on administrative practices in a foreign jurisdiction and an additional $0.1 million related to a position effectively settled
upon audit in a different foreign jurisdiction. The Company has also taken a position on a tax return in a foreign jurisdiction that
does meet the recognition and measurement criteria under ASC 740 and as a result it has provided a reserve for uncertain tax
position of $2.1 million.
During the fourth quarter of fiscal 2012, the Company reached a favorable settlement with the tax authorities of a foreign jurisdiction.
As a result, the previously recorded current liability of $7.5 million was no longer necessary and an income tax benefit was
recognized in fiscal 2012.
The Company recognizes interest and penalties accrued related to unrecognized tax benefits as a component of income tax expense.
There were no additional accruals of interest expense on various uncertain tax positions during fiscal 2014 for matters involving
jurisdictions where interest is not assessed.
It is reasonably possible that the amount of the unrecognized tax benefit with respect to certain unrecognized tax positions will
increase or decrease during the next 12 months; however, the Company does not expect the change to have a material effect on
its results of operations or its financial position.
The Company files U.S. federal income tax return, as well as income tax returns in various state and foreign jurisdictions. For the
U.S. federal income tax returns and most state tax returns, tax years following fiscal 2001 remain subject to examination as a result
of the generation of net operating loss carry-forwards. The statutes of limitations with respect to the foreign jurisdictions in which
the Company files vary from jurisdiction to jurisdiction and range from 4 to 6 years.
As a result of committing to certain capital investments and employment levels, income from operations in Singapore and Malaysia
is subject to reduced tax rates, and in some cases income from operations in Malaysia is wholly exempt from taxes. In connection
with Singapore operations, the Company has been granted a decreased effective tax rate of five percent in that jurisdiction until
February 1, 2020 subject to the fulfillment of certain continuing conditions. In fiscal 2014, 2013, and 2012, the preferential rate
reduced income tax expense by approximately $17.4 million or $0.23 per share, $9.6 million or $0.13 per share and $22.1 million
or $0.30 per share, respectively.
72
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 11: OTHER FINANCIAL DATA
The following table reflects other financial data for fiscal 2014, 2013, and 2012:
(in thousands)
Incentive compensation expense (1)
Rent expense (1)
Warranty and retrofit expense (2)
(1) Included in selling, general and administrative expense.
(2) Included in cost of sales.
NOTE 12: SEGMENT INFORMATION
2014
Fiscal
2013
$
$
$
17,596
4,608
3,261
$
$
$
17,194
7,765
711
$
$
$
2012
21,988
7,202
3,726
The Company operates two reportable segments: Equipment and Expendable Tools. The Equipment segment manufactures and
sells a line of ball bonders and heavy wire wedge bonders that are sold to semiconductor device manufacturers, their outsourced
semiconductor assembly and test subcontractors, other electronics manufacturers and automotive electronics suppliers. The
Company also services, maintains, repairs and upgrades its equipment. The Expendable Tools segment manufactures and sells a
variety of expendable tools for a broad range of semiconductor packaging applications.
The following table reflects operating information by segment for fiscal 2014, 2013, and 2012:
(in thousands)
Net revenue:
Equipment
Expendable Tools
Net revenue
Cost of sales:
Equipment
Expendable Tools
Cost of sales
Gross profit:
Equipment
Expendable Tools
Gross profit
Operating expenses:
Equipment
Expendable Tools
Operating expenses
Income from operations:
Equipment
Expendable Tools
Income from operations
2014
Fiscal
2013
2012
$
$
503,049
65,520
568,569
$
472,567
62,371
534,938
268,934
26,081
295,015
234,115
39,439
273,554
174,346
22,224
196,570
261,270
26,723
287,993
211,297
35,648
246,945
158,306
22,833
181,139
59,769
17,215
76,984
$
52,991
12,815
65,806
$
$
727,082
63,941
791,023
397,210
26,423
423,633
329,872
37,518
367,390
164,081
24,083
188,164
165,791
13,435
179,226
73
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following tables reflect assets, capital expenditures and depreciation expense by segment as of and for fiscal 2014, 2013, and
2012:
(in thousands)
Segment assets:
Equipment
Expendable Tools
Total assets
(in thousands)
Capital expenditures:
Equipment
Expendable Tools
Capital expenditures
(in thousands)
Depreciation expense:
Equipment
Expendable Tools
Depreciation expense
September 27, 2014
As of
September 28, 2013
September 29, 2012
$
$
$
$
$
$
839,847
104,601
944,448
$
$
764,793
98,201
862,994
$
$
746,636
68,973
815,609
2014
2014
9,560
2,841
12,401
5,662
2,540
8,202
$
$
$
$
Fiscal
2013
Fiscal
2013
11,704
5,468
17,172
6,936
2,375
9,311
$
$
$
$
2012
2012
5,318
1,584
6,902
5,745
2,342
8,087
74
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Geographic information
The following tables reflect destination sales to unaffiliated customers by country and long-lived assets by country for fiscal
2014, 2013, and 2012:
(in thousands)
2014
Fiscal
2013
2012
China
Taiwan
Malaysia
Japan
United States
Philippines
Korea
Hong Kong
Singapore
Vietnam
Thailand
Germany
All other
Total destination sales to unaffiliated
customers
(in thousands)
Long-lived assets:
Singapore
United States
China
Israel
Switzerland
All other
Total long-lived assets
$
144,134
$
140,586
46,033
34,480
31,645
31,371
31,284
23,709
21,934
11,355
9,386
8,496
34,156
124,272 $
150,271
23,799
17,680
14,652
30,257
36,949
28,911
35,833
4,639
9,143
5,822
52,710
160,573
251,128
39,447
24,755
13,433
33,715
71,552
76,964
23,045
10,019
21,828
7,319
57,245
$
568,569 $
534,938 $
791,023
2014
Fiscal
2013
2012
$
$
86,386 $
6,757
7,295
4,668
311
1,340
106,757 $
87,104 $
7,525
6,718
5,674
252
1,333
108,606 $
67,060
14,193
4,438
8,078
6,101
2,423
102,293
NOTE 13: COMMITMENTS, CONTINGENCIES AND CONCENTRATIONS
Agreement to Develop and Lease
On May 7, 2012, Pte entered into the ADL and a Lease Agreement with DBS Trustee Limited as trustee of the Landlord. Pursuant
to the ADL, the Landlord agreed to develop a building in Singapore as our corporate headquarters manufacturing, technology,
sales and service center and Pte agreed to lease from the Landlord 198,000 square feet, representing approximately 70% of the
building. The building was completed on December 1, 2013.
Warranty Expense
The Company's equipment is generally shipped with a one-year warranty against manufacturing defects. The Company establishes
reserves for estimated warranty expense when revenue for the related equipment is recognized. The reserve for estimated warranty
expense is based upon historical experience and management's estimate of future warranty costs.
The following table reflects the reserve for product warranty activity for fiscal 2014, 2013, and 2012:
75
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(in thousands)
Reserve for product warranty, beginning of period
Provision for product warranty
Product warranty costs paid
Reserve for product warranty, end of period
Other Commitments and Contingencies
2014
1,194
2,099
(1,751)
1,542
$
$
$
$
Fiscal
2013
2,412
1,093
(2,311)
1,194
$
$
2012
2,245
3,521
(3,354)
2,412
The following table reflects obligations not reflected on the Consolidated Balance Sheet as of September 27, 2014:
(in thousands)
Inventory purchase obligation (1)
Operating lease obligations (2)
Total
Total
84,240
29,525
113,765
$
$
$
$
2014
84,240
3,702
87,942
$
$
Payments due by fiscal year
2016
2015
2017
thereafter
— $
3,462
3,462
$
— $
3,058
3,058
$
— $
2,584
2,584
$
—
16,719
16,719
(1) The Company orders inventory components in the normal course of its business. A portion of these orders are non-
cancelable and a portion may have varying penalties and charges in the event of cancellation.
(2) The Company has minimum rental commitments under various leases (excluding taxes, insurance, maintenance and
repairs, which are also paid by the Company) primarily for various facility and equipment leases, which expire periodically
through 2023 (not including lease extension options, if applicable).
Pursuant to ASC No. 840, Leases, for lessee's involvement in asset construction, the Company was considered the owner
of the Building during the construction phase of the ADL. The building was completed on December 1, 2013 and Pte
signed a Lease Agreement with the Landlord to lease from the Landlord approximately 198,000 square feet , representing
approximately 70% of the Building. Following the completion of construction, we performed a sale-leaseback analysis
pursuant to ASC 840-40 and determined that because of our continuing involvement, ASC 840-40 precluded us from
derecognizing the asset and associated financing obligation. As such, we reclassified the asset from construction in
progress to Property, Plant and Equipment and began to depreciate the building over its estimated useful life of twenty-
five years. We concluded that the term of the financing obligation is 10 years. This is equal to the non-cancellable term
of our lease agreement with the Landlord. As of September 27, 2014, we recorded a financing obligation of $19.1 million.
The financing obligation is not reflected in the table above.
Concentrations
The following tables reflect significant customer concentrations as a percentage of net revenue for fiscal 2014, 2013, and 2012:
Siliconware Precision Industries Ltd.
Advanced Semiconductor Engineering
* Represents less than 10% of net revenue
2014
*
*
Fiscal
2013
11.0%
*
2012
14.9%
22.4%
The following table reflects significant customer concentrations as a percentage of total accounts receivable as of
September 27, 2014 and September 28, 2013:
Haoseng Industrial Co., Ltd
Siliconware Precision Industries Ltd.
STATS ChipPAC Ltd
* Represents less than 10% of total accounts receivable
76
As of
September 27, 2014
21.5%
*
*
September 28, 2013
11.9%
19.5%
14.5%
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 14: SELECTED QUARTERLY FINANCIAL DATA (unaudited)
The following table reflects selected quarterly financial data for fiscal 2014 and 2013:
Fiscal 2014 for the Quarter Ended
$
$
$
$
$
$
$
$
(in thousands, except per
share amounts)
Net revenue
Gross profit
Income from operations
Provision for income taxes
Net income
Net income per share (1):
Basic
Diluted
Weighted average shares
outstanding:
Basic
Diluted
(in thousands, except per
share amounts)
Net revenue
Gross profit
Income from operations
Provision for income taxes
Net income
Net income per share (1):
Basic
Diluted
Weighted average shares
outstanding:
Basic
Diluted
December 28
March 29
June 28
September 27
Fiscal 2014
79,113
$
114,206
$
180,517
$
194,733
$
38,365
(2,208)
(91)
57,672
10,111
1,087
85,157
31,584
4,908
92,360
37,497
8,241
(1,957) $
9,070
$
26,616
$
29,259
$
568,569
273,554
76,984
14,145
62,988
(0.03) $
(0.03) $
0.12
0.12
$
$
0.35
0.34
$
$
0.38 $
$
0.38
0.82
0.81
75,912
75,912
76,404
77,021
76,596
77,605
76,658
77,925
76,396
77,292
Fiscal 2013 for the Quarter Ended
December 29
March 30
June 29
September 28
Fiscal 2013
114,039
$
106,110
$
141,181
$
173,608
$
51,525
4,205
775
48,820
8,190
1,041
65,914
18,867
247
80,686
34,544
5,247
3,604
$
7,336
$
18,887
$
29,531
$
534,938
246,945
65,806
7,310
59,358
0.05
0.05
$
$
0.10
0.10
$
$
0.25
0.25
$
$
0.39
0.39
$
$
0.79
0.78
74,852
76,209
75,166
76,553
75,231
76,473
75,279
76,565
75,132
76,190
(1) EPS for the year may not equal the sum of quarterly EPS due to changes in weighted share calculations.
77
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 15: SUBSEQUENT EVENTS
On October 10, 2014, the Company entered into foreign exchange forward contracts with notional amount of $23.9 million. We
entered into these foreign exchange forward contracts to hedge a portion of our forecasted foreign currency-denominated expenses
in the normal course of business and, accordingly, they are not speculative in nature. These foreign exchange forward contracts
have maturities of up to six months.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
Item 9A. - CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness
of our disclosure controls and procedures as of September 27, 2014. Based on that evaluation, the Chief Executive Officer and
Chief Financial Officer concluded that, as of September 27, 2014 our disclosure controls and procedures were effective in providing
reasonable assurance that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934,
as amended, is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange
Commission's rules and forms and (ii) accumulated and communicated to our management, including the Chief Executive Officer
and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure.
Management's Report on Internal Control Over Financial Reporting
The management of Kulicke and Soffa Industries, Inc. (the “Company”) is responsible for establishing and maintaining adequate
internal control over financial reporting as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934, as amended. The
Company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. The Company's internal control over financial reporting includes those policies and procedures that pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets
of the Company; provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, provide reasonable assurance that receipts and expenditures
of the Company are being made only in accordance with authorizations of management and directors of the Company; and provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company's
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management evaluated the Company's internal control over financial reporting as of September 27, 2014. In making this assessment,
management used the framework established in Internal Control-Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (“COSO”). Management's assessment included an evaluation of the design
of our internal control over financial reporting and testing of the operational effectiveness of our internal control over financial
reporting. Management reviewed the results of its assessment with the Audit Committee of the Company's Board of Directors.
Based on that assessment and based on the criteria in the COSO framework, management has concluded that, as of September 27,
2014, the Company's internal control over financial reporting was effective.
The effectiveness of the Company's internal control over financial reporting as of September 27, 2014 has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in its report, which appears herein.
Changes in internal control over financial reporting
In connection with the evaluation by our management, including with the participation of our Chief Executive Officer and Chief
Financial Officer, of our internal control over financial reporting, no changes during the three months ended September 27, 2014
were identified to have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. OTHER INFORMATION
None.
78
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information required by Item 401 of Regulation S-K with respect to the directors and executive officers will appear under the
heading “ITEM 1 - ELECTION OF DIRECTORS” in the Company's Proxy Statement for the 2015 Annual Meeting of Shareholders,
which information is incorporated herein by reference. The other information required by Item 401 of Regulation S-K will appear
under the heading “CORPORATE GOVERNANCE” in the Company's Proxy Statement for the 2015 Annual Meeting of
Shareholders, which information is incorporated herein by reference.
The information required by Item 405 of Regulation S-K will appear under the heading “CORPORATE GOVERNANCE - Section
16(a) Beneficial Ownership Reporting Compliance” in the Company's Proxy Statement for the 2015 Annual Meeting of
Shareholders, which information is incorporated herein by reference.
The information required by Item 406 of Regulation S-K will appear under the heading “CORPORATE GOVERNANCE - Code
of Ethics” in the Company's Proxy Statement for the 2015 Annual Meeting of Shareholders, which information is incorporated
herein by reference.
The information required by Item 407(c)(3) of Regulation will appear under the headings “CORPORATE GOVERNANCE-
Nominating and Governance Committee” and “Shareholder Proposals” in the Company's Proxy Statement for the 2015 Annual
Meeting of Shareholders, which information is incorporated herein by reference.
The information required by Items 407(d)(4) and (d)(5) of Regulation S-K will appear under the heading “CORPORATE
GOVERNANCE-Audit Committee” in the Company's Proxy Statement for the 2015 Annual Meeting of Shareholders, which
information is incorporated herein by reference.
Item 11. EXECUTIVE COMPENSATION
The information required by Item 402 of Regulation S-K will appear under the heading “COMPENSATION OF EXECUTIVE
OFFICERS,” in the Company's Proxy Statement for the 2015 Annual Meeting of Shareholders, which information is incorporated
herein by reference.
The information required by Item 407(e)(4) of Regulation S-K will appear under the heading “CORPORATE GOVERNANCE-
Management Development and Compensation Committee Interlocks and Insider Participation” in the Company's Proxy Statement
for the 2015 Annual Meeting of Shareholders, which information is incorporated herein by reference.
The information required by Item 407(e)(5) of Regulation S-K will appear under the heading “MANAGEMENT DEVELOPMENT
AND COMPENSATION COMMITTEE REPORT” in the Company's Proxy Statement for the 2015 Annual Meeting of
Shareholders, which information is incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The information required hereunder concerning security ownership of certain beneficial owners and management will appear under
the headings “CORPORATE GOVERNANCE - Security Ownership Of Certain Beneficial Owners” and “CORPORATE
GOVERANCE - SECURITY OWNERSHIP OF DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS”, in the Company's
Proxy Statement for the 2015 Annual Meeting of Shareholders, which information is incorporated herein by reference. The
information required by this item relating to securities authorized for issuance under equity compensation plans is included under
the heading “EQUITY COMPENSATION PLAN INFORMATION” in the Company's Proxy Statement for the 2015 Annual
Meeting of Shareholders, which is incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
The information required by Item 404 of Regulation S-K will appear under the heading “CORPORATE GOVERNANCE - Certain
Relationships and Related Transactions” in the Company's Proxy Statement for the 2015 Annual Meeting of Shareholders, which
information is incorporated herein by reference.
The information required by Section 407(a) of Regulation S-K will appear under the heading “CORPORATE GOVERNANCE -
Board Matters” in the Company's Proxy Statement for the 2015 Annual Meeting of Shareholders, which information is incorporated
herein by reference.
79
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required hereunder will appear under the heading “AUDIT AND RELATED FEES” in the Company's Proxy
Statement for the 2015 Annual Meeting of Shareholders, which information is incorporated herein by reference.
80
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as part of this report:
Part IV
(1)
Financial Statements - Kulicke and Soffa Industries, Inc.:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of September 27, 2014 and September 28, 2013
Consolidated Statements of Operations for fiscal 2014, 2013 and 2012
Consolidated Statements of Comprehensive Income for fiscal 2014, 2013 and 2012
Consolidated Statements of Changes in Shareholders' Equity for fiscal 2014, 2013 and 2012
Consolidated Statements of Cash Flows for fiscal 2014, 2013 and 2012
Notes to Consolidated Financial Statements
(2)
(3)
Financial Statements and Schedules:
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or the required information is
shown in the Consolidated Financial Statements or notes thereto.
Exhibits:
Page
46
47
48
49
50
51
52
84
EXHIBIT
NUMBER
3.1
3.2
4.1
10.1
10.2
10.3
10.4
10.5
10.6
ITEM
The Company's Amended and Restated Articles of Incorporation, dated December 5, 2007, is
incorporated herein by reference to Exhibit 3(i) to the Company's Annual Report on Form 10-K for the
fiscal year ended September 29, 2007, SEC file number 000-00121.
The Company's Amended and Restated By-Laws, dated June 5, 2012, is incorporated herein by reference
to Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30,
2012.
Specimen Common Share Certificate of Kulicke and Soffa Industries Inc., is incorporated herein by
reference to Exhibit 4 to the Company's Form-8A12G/A dated September 11, 1995, SEC file number
000-00121.
1997 Non-Qualified Stock Option Plan for Non-Employee Directors (as amended and restated effective
March 21, 2003), is incorporated herein by reference to Exhibit 10(vi) to the Company's Annual Report
on Form 10-K for the fiscal year ended September 30, 2003, SEC file number 000-00121.*
2004 Israeli Addendum to 1998 Employee Incentive Stock Option and Non-Qualified Stock Option Plan
(as amended and restated effective March 21, 2003), is incorporated herein by reference to Exhibit 10
(vii) to the Company's Post-Effective Amendment No.4 on Form S-1 to the Registration Statement on
Form S-3 filed on December 14, 2004, SEC file number 333-111478.*
Form of Nonqualified Stock Option Agreement regarding the 1998 Employee Incentive Stock Option
and Non-Qualified Stock Option Plan, is incorporated herein by reference to Exhibit 99.1 to the
Company's Current Report on Form 8-K dated October 8, 2008, SEC file number 000-00121.*
Form of Incentive Stock Option Agreement regarding the Employee Incentive Stock Option and Non-
Qualified Stock Option Plan, is incorporated herein by reference to Exhibit 99.2 to the Company's
Current Report on Form 8-K dated October 8, 2008, SEC file number 000-00121.*
1999 Nonqualified Employee Stock Option Plan (as amended and restated effective March 21, 2003),
is incorporated herein by reference to Exhibit 10(xv) to the Company's Annual Report on Form 10-K
for the fiscal year ended September 30, 2003, SEC file number 000-00121.*
2004 Israeli Addendum to the 1999 Non-Qualified Stock Option Plan (as amended and restated effective
March 21, 2003), is incorporated herein by reference to Exhibit 10(ix) to the Company's Post-Effective
Amendment No.4 on Form S-1 to the Registration Statement on Form S-3 filed on December 14, 2004,
SEC file number 333-111478.*
81
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
2001 Employee Incentive Stock Option and Non-Qualified Stock Option Plan (as amended and restated
effective March 21, 2003), is incorporated herein by reference to Exhibit 10(xix) to the Company's
Annual Report on Form 10-K for the fiscal year ended September 30, 2003, SEC file number 000-00121.*
2004 Israeli Addendum to the 2001 Employee Incentive Stock Option and Non-Qualified Stock
Option Plan (as amended and restated effective March 21, 2003), is incorporated herein by reference
to Exhibit 10(xii) to the Company's Post-Effective Amendment No.4 on Form S-1 to the Registration
Statement on Form S-3 filed on December 14, 2004, SEC file number 333-111478.*
Officer Incentive Compensation Plan, dated August 2, 2005, is incorporated herein by reference to
Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30,
2005, SEC file number 000-00121.*
2008 Equity Plan is incorporated herein by reference to Appendix A to the Company's Proxy Statement
on Schedule 14A for the annual meeting of shareholders on February 12, 2008, SEC file number
000-00121.*
2009 Equity Plan is incorporated herein by reference to Appendix A to the Company's Proxy Statement
on Schedule 14A for the annual meeting of shareholders on February 10, 2009.*
Amendment No. 1 to the Kulicke and Soffa Industries, Inc. 2009 Equity Plan, effective September 15,
2009, is incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-
K filed on September 18, 2009.*
Amendment No. 2 to the Kulicke and Soffa Industries, Inc. 2009 Equity Plan, effective September 30,
2009, is incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-
K filed on September 18, 2009.*
Amendment No. 3 to the Kulicke and Soffa Industries, Inc. 2009 Equity Plan, effective September 21,
2012.*
Form of Officer Performance Share Award Agreement regarding the 2009 Equity Plan, is incorporated
herein by reference to Exhibit 10(xxxiii) to the Company's Annual Report on Form 10-K for the fiscal
year ended October 3, 2009.*
Form of Officer Performance Share Award Agreement regarding the 2009 Equity Plan, is incorporated
herein by reference to Exhibit 10.4 to the Company's Current Report on Form 8-K dated December 9,
2010.*
Form of Officer Restricted Share Award Agreement regarding the 2009 Equity Plan is incorporated
herein by reference to Exhibit 10(xxxiv) to the Company's Annual Report on Form 10-K for the fiscal
year ended October 3, 2009.*
Form of Officer Restricted Share Unit Award Agreement regarding the 2009 Equity Plan, is incorporated
herein by reference to Exhibit 10.5 to the Company's Current Report on Form 8-K dated December 9,
2010.*
Form of Officer Restricted Share Unit Award Agreement regarding the 2009 Equity Plan.*
Kulicke & Soffa Industries, Inc. Executive Severance Pay Plan, dated as of August 9, 2011, is
incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed
on August 12, 2011.*
Kulicke & Soffa Industries, Inc. Officer Severance Pay Plan, dated as of August 9, 2011, is incorporated
herein by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on August 12,
2011.*
Form of Change of Control Agreement, dated as of March 25, 2009, is incorporated herein by reference
to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on March 31, 2009.*
Form of Change of Control Agreement, is incorporated herein by reference to Exhibit 10.3 to the
Company's Current Report on Form 8-K filed on August 12, 2011.*
Offer Letter between the Company and Bruno Guilmart dated August 6, 2010, is incorporated herein
by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K dated August 6, 2010.*
Offer Letter between the Company and Jonathan H. Chou, dated November 16, 2010, is incorporated
herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K dated November 16,
2010.*
Letter Agreement between the Company and Alan Schindler, dated March 9, 2011, is incorporated herein
by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarterly period
ended April 2, 2011.*
82
10.27
10.28
10.29
10.30
10.31
10.32
10.33
10.34
10.35
10.36
10.37
10.38
10.39
21
23
31.1
31.2
32.1
32.2
Employment Agreement between the Company and Christian Rheault, dated June 25, 2009, is
incorporated herein by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for
the quarterly period ended June 27, 2009.*
Letter Agreement between the Company and Shay Torton, dated March 15, 2011, is incorporated herein
by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarterly period
ended April 2, 2011.*
Letter Agreement between the Company and Tek Chee Mak, as of October 26, 2011.*
Facilities Agreement between Kulicke and Soffa Ptd. Ltd. and DBS Bank Ltd., dated April 4, 2011, is
incorporated herein by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for
the quarterly period ended April 2, 2011.
Debenture between Kulicke and Soffa Pte. Ltd. and DBS Bank Ltd., dated April 4, 2011, is incorporated
herein by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the quarterly
period ended April 2, 2011.
Agreement to Develop and Lease between DBS Trustee Limited, as trustee of Mapletree Industrial Trust,
and the Kulicke & Soffa Pte. Ltd, dated May 7, 2012, is incorporated herein by reference to Exhibit
10.1 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2012.
**
Form of Officer Strategic Performance Share Unit Award Agreement regarding the 2009 Equity Plan
is incorporated herein by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
for the quarterly period ended December 29, 2012.*
Form of Director Indemnification Agreement is incorporated herein by reference to Exhibit 10.1 to
the Company’s Current Report on Form 8-K filed on October 10, 2013.*
Lease Agreement between DBS Trustee Limited, as trustee of Mapletree Industrial Trust, and the
Kulicke & Soffa Pte. Ltd, dated December 1, 2013, is incorporated herein by reference to Exhibit
10.1 to the Company’s Current Report on Form 8-K filed on December 5, 2013.
Lease Agreement Variation Letter between DBS Trustee Limited, as trustee of Mapletree Industrial
Trust, and the Kulicke & Soffa Pte. Ltd, dated December 1, 2013, is incorporated herein by reference
to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on December 5, 2013.
Form of Officer Indemnification Agreement is incorporated herein by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed on December 11, 2013.*
Amended and Restated Incentive Compensation Plan, incorporated herein by reference to Exhibit
10.1 of the Company's Current Report on Form 8-K filed on May 8, 2014.*
Incentive Compensation Plan, incorporated herein by reference to Exhibit 10.1 of the Company's
Current Report on Form 8-K filed on September 18, 2014.*
Subsidiaries of the Company.
Consent of PricewaterhouseCoopers LLP (Independent Registered Public Accounting Firm).
Certification of Bruno Guilmart, Chief Executive Officer of Kulicke and Soffa Industries, Inc., pursuant
to Rule 13a-14(a) or Rule 15d-14(a).
Certification of Jonathan Chou, Chief Financial Officer of Kulicke and Soffa Industries, Inc., pursuant
to Rule 13a-14(a) or Rule 15d-14(a).
Certification of Bruno Guilmart, Chief Executive Officer of Kulicke and Soffa Industries, Inc., pursuant
to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of Jonathan Chou, Chief Financial Officer of Kulicke and Soffa Industries, Inc., pursuant
to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS
101.SCH
101.CAL
101.LAB
101.PRE
XBRL Instance Document.
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Extension Calculation Linkbase Document.
XBRL Taxonomy Extension Label Linkbase Document.
XBRL Taxonomy Extension Presentation Linkbase Document.
* Indicates a management contract or compensatory plan or arrangement
** Portions of this exhibit have been omitted pursuant to an order granted confidential treatment under the
Securities Exchange Act of 1934 issued by the Securities and Exchange Commission.
83
Fiscal 2014:
Allowance for doubtful
accounts
Inventory reserve
Valuation allowance for
deferred taxes
Fiscal 2013:
Allowance for doubtful
accounts
Inventory reserve
Valuation allowance for
deferred taxes
Fiscal 2012:
Allowance for doubtful
accounts
Inventory reserve
KULICKE AND SOFFA INDUSTRIES, INC.
Schedule II-Valuation and Qualifying Accounts
Beginning
of period
Charged to
Costs and
Expenses
Other
Additions
Other
Deductions
End of
period
$
$
$
$
$
$
$
$
504
14,120
26,444
937
18,617
25,015
2,194
15,099
$
$
$
$
$
$
$
$
$
(320)
3,060
$
$
(1,820) (3) $
(371)
3,561
$
$
1,429 (3) $
(1,239)
6,060
$
$
—
—
—
—
—
—
—
—
1,261 (3) $
—
$
$
$
$
$
$
$
$
$
(41) (1) $
143
(3,317) (2) $
13,863
—
$
24,624
(62) (1) $
504
(8,058) (2) $
14,120
—
$
26,444
(18) (1) $
937
(2,542) (2) $
18,617
(23)
$
25,015
Valuation allowance for
deferred taxes
$
23,777
(1) Represents write-offs of specific accounts receivable.
(2) Sale or scrap of previously reserved inventory.
(3)
Reflects increase/decrease in the valuation allowance primarily associated with the Company's U.S. and foreign net
operating losses and other deferred tax assets.
84
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
SIGNATURES
KULICKE AND SOFFA INDUSTRIES, INC.
By:
/s/ BRUNO GUILMART
Bruno Guilmart
President and Chief Executive Officer
Dated: November 12, 2014
Signature
Title
Date
/s/ BRUNO GUILMART
President and Chief Executive Officer and Director
November 12, 2014
Bruno Guilmart
(principal executive officer)
/s/ JONATHAN CHOU
Senior Vice President, Chief Financial Officer
November 12, 2014
Jonathan Chou
(principal financial officer)
/s/ JOYCE SOO LI LAM
Joyce Soo Li Lam
Principal Accounting Officer
(principal accounting officer)
November 12, 2014
/s/ GARRETT E. PIERCE
Director
November 12, 2014
Garrett E. Pierce
/s/ BRIAN R. BACHMAN
Director
November 12, 2014
Brian R. Bachman
/s/ CHIN HU LIM
Chin Hu Lim
Director
November 12, 2014
/s/ GREGORY F. MILZCIK
Director
November 12, 2014
Gregory F. Milzcik
/s/ MUI SUNG YEO
Mui Sung Yeo
/s/ PETER T. KONG
Peter T. Kong
Director
Director
85
November 12, 2014
November 12, 2014
EXHIBIT
NUMBER
EXHIBIT INDEX
ITEM
3.1
3.2
4.1
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
The Company's Amended and Restated Articles of Incorporation, dated December 5, 2007, is
incorporated herein by reference to Exhibit 3(i) to the Company's Annual Report on Form 10-K for the
fiscal year ended September 29, 2007, SEC file number 000-00121.
The Company's Amended and Restated By-Laws, dated June 5, 2012, is incorporated herein by reference
to Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30,
2012.
Specimen Common Share Certificate of Kulicke and Soffa Industries Inc., is incorporated herein by
reference to Exhibit 4 to the Company's Form-8A12G/A dated September 11, 1995, SEC file number
000-00121.
1997 Non-Qualified Stock Option Plan for Non-Employee Directors (as amended and restated effective
March 21, 2003), is incorporated herein by reference to Exhibit 10(vi) to the Company's Annual Report
on Form 10-K for the fiscal year ended September 30, 2003, SEC file number 000-00121.*
2004 Israeli Addendum to 1998 Employee Incentive Stock Option and Non-Qualified Stock Option Plan
(as amended and restated effective March 21, 2003), is incorporated herein by reference to Exhibit 10
(vii) to the Company's Post-Effective Amendment No.4 on Form S-1 to the Registration Statement on
Form S-3 filed on December 14, 2004, SEC file number 333-111478.*
Form of Nonqualified Stock Option Agreement regarding the 1998 Employee Incentive Stock Option
and Non-Qualified Stock Option Plan, is incorporated herein by reference to Exhibit 99.1 to the
Company's Current Report on Form 8-K dated October 8, 2008, SEC file number 000-00121.*
Form of Incentive Stock Option Agreement regarding the Employee Incentive Stock Option and Non-
Qualified Stock Option Plan, is incorporated herein by reference to Exhibit 99.2 to the Company's
Current Report on Form 8-K dated October 8, 2008, SEC file number 000-00121.*
1999 Nonqualified Employee Stock Option Plan (as amended and restated effective March 21, 2003),
is incorporated herein by reference to Exhibit 10(xv) to the Company's Annual Report on Form 10-K
for the fiscal year ended September 30, 2003, SEC file number 000-00121.*
2004 Israeli Addendum to the 1999 Non-Qualified Stock Option Plan (as amended and restated effective
March 21, 2003), is incorporated herein by reference to Exhibit 10(ix) to the Company's Post-Effective
Amendment No.4 on Form S-1 to the Registration Statement on Form S-3 filed on December 14, 2004,
SEC file number 333-111478.*
2001 Employee Incentive Stock Option and Non-Qualified Stock Option Plan (as amended and restated
effective March 21, 2003), is incorporated herein by reference to Exhibit 10(xix) to the Company's
Annual Report on Form 10-K for the fiscal year ended September 30, 2003, SEC file number 000-00121.*
2004 Israeli Addendum to the 2001 Employee Incentive Stock Option and Non-Qualified Stock
Option Plan (as amended and restated effective March 21, 2003), is incorporated herein by reference
to Exhibit 10(xii) to the Company's Post-Effective Amendment No.4 on Form S-1 to the Registration
Statement on Form S-3 filed on December 14, 2004, SEC file number 333-111478.*
Officer Incentive Compensation Plan, dated August 2, 2005, is incorporated herein by reference to
Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30,
2005, SEC file number 000-00121.*
2008 Equity Plan is incorporated herein by reference to Appendix A to the Company's Proxy Statement
on Schedule 14A for the annual meeting of shareholders on February 12, 2008, SEC file number
000-00121.*
2009 Equity Plan is incorporated herein by reference to Appendix A to the Company's Proxy Statement
on Schedule 14A for the annual meeting of shareholders on February 10, 2009.*
Amendment No. 1 to the Kulicke and Soffa Industries, Inc. 2009 Equity Plan, effective September 15,
2009, is incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-
K filed on September 18, 2009.*
Amendment No. 2 to the Kulicke and Soffa Industries, Inc. 2009 Equity Plan, effective September 30,
2009, is incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-
K filed on September 18, 2009.*
Amendment No. 3 to the Kulicke and Soffa Industries, Inc. 2009 Equity Plan, effective September 21,
2012.*
86
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
10.34
Form of Officer Performance Share Award Agreement regarding the 2009 Equity Plan, is incorporated
herein by reference to Exhibit 10(xxxiii) to the Company's Annual Report on Form 10-K for the fiscal
year ended October 3, 2009.*
Form of Officer Performance Share Award Agreement regarding the 2009 Equity Plan, is incorporated
herein by reference to Exhibit 10.4 to the Company's Current Report on Form 8-K dated December 9,
2010.*
Form of Officer Restricted Share Award Agreement regarding the 2009 Equity Plan is incorporated
herein by reference to Exhibit 10(xxxiv) to the Company's Annual Report on Form 10-K for the fiscal
year ended October 3, 2009.*
Form of Officer Restricted Share Unit Award Agreement regarding the 2009 Equity Plan, is incorporated
herein by reference to Exhibit 10.5 to the Company's Current Report on Form 8-K dated December 9,
2010.*
Form of Officer Restricted Share Unit Award Agreement regarding the 2009 Equity Plan.*
Kulicke & Soffa Industries, Inc. Executive Severance Pay Plan, dated as of August 9, 2011, is
incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed
on August 12, 2011.*
Kulicke & Soffa Industries, Inc. Officer Severance Pay Plan, dated as of August 9, 2011, is incorporated
herein by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on August 12,
2011.*
Form of Change of Control Agreement, dated as of March 25, 2009, is incorporated herein by reference
to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on March 31, 2009.*
Form of Change of Control Agreement, is incorporated herein by reference to Exhibit 10.3 to the
Company's Current Report on Form 8-K filed on August 12, 2011.*
Offer Letter between the Company and Bruno Guilmart dated August 6, 2010, is incorporated herein
by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K dated August 6, 2010.*
Offer Letter between the Company and Jonathan H. Chou, dated November 16, 2010, is incorporated
herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K dated November 16,
2010.*
Letter Agreement between the Company and Alan Schindler, dated March 9, 2011, is incorporated herein
by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarterly period
ended April 2, 2011.*
Employment Agreement between the Company and Christian Rheault, dated June 25, 2009, is
incorporated herein by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for
the quarterly period ended June 27, 2009.*
Letter Agreement between the Company and Shay Torton, dated March 15, 2011, is incorporated herein
by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarterly period
ended April 2, 2011.*
Letter Agreement between the Company and Tek Chee Mak, as of October 26, 2011.*
Facilities Agreement between Kulicke and Soffa Ptd. Ltd. and DBS Bank Ltd., dated April 4, 2011, is
incorporated herein by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for
the quarterly period ended April 2, 2011.
Debenture between Kulicke and Soffa Pte. Ltd. and DBS Bank Ltd., dated April 4, 2011, is incorporated
herein by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the quarterly
period ended April 2, 2011.
Agreement to Develop and Lease between DBS Trustee Limited, as trustee of Mapletree Industrial Trust,
and the Kulicke & Soffa Pte. Ltd, dated May 7, 2012, is incorporated herein by reference to Exhibit
10.1 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2012.
**
Form of Officer Strategic Performance Share Unit Award Agreement regarding the 2009 Equity Plan
is incorporated herein by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
for the quarterly period ended December 29, 2012.*
Form of Director Indemnification Agreement is incorporated herein by reference to Exhibit 10.1 to
the Company’s Current Report on Form 8-K filed on October 10, 2013.*
87
10.35
10.36
10.37
10.38
10.39
21
23
31.1
31.2
32.1
32.2
Lease Agreement between DBS Trustee Limited, as trustee of Mapletree Industrial Trust, and the
Kulicke & Soffa Pte. Ltd, dated December 1, 2013, is incorporated herein by reference to Exhibit
10.1 to the Company’s Current Report on Form 8-K filed on December 5, 2013.
Lease Agreement Variation Letter between DBS Trustee Limited, as trustee of Mapletree Industrial
Trust, and the Kulicke & Soffa Pte. Ltd, dated December 1, 2013, is incorporated herein by reference
to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on December 5, 2013.
Form of Officer Indemnification Agreement is incorporated herein by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed on December 11, 2013.*
Amended and Restated Incentive Compensation Plan, incorporated herein by reference to Exhibit
10.1 of the Company's Current Report on Form 8-K filed on May 8, 2014.*
Incentive Compensation Plan, incorporated herein by reference to Exhibit 10.1 of the Company's
Current Report on Form 8-K filed on September 18, 2014.*
Subsidiaries of the Company.
Consent of PricewaterhouseCoopers LLP (Independent Registered Public Accounting Firm).
Certification of Bruno Guilmart, Chief Executive Officer of Kulicke and Soffa Industries, Inc., pursuant
to Rule 13a-14(a) or Rule 15d-14(a).
Certification of Jonathan Chou, Chief Financial Officer of Kulicke and Soffa Industries, Inc., pursuant
to Rule 13a-14(a) or Rule 15d-14(a).
Certification of Bruno Guilmart, Chief Executive Officer of Kulicke and Soffa Industries, Inc., pursuant
to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of Jonathan Chou, Chief Financial Officer of Kulicke and Soffa Industries, Inc., pursuant
to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS
101.SCH
101.CAL
101.LAB
101.PRE
XBRL Instance Document.
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Extension Calculation Linkbase Document.
XBRL Taxonomy Extension Label Linkbase Document.
XBRL Taxonomy Extension Presentation Linkbase Document.
* Indicates a management contract or compensatory plan or arrangement
** Portions of this exhibit have been omitted pursuant to an order granted confidential treatment under the
Securities Exchange Act of 1934 issued by the Securities and Exchange Commission.
88
Stock Performance Graph
The graph set forth below compares, for fiscal years 2010 through 2014, the yearly change in the cumulative total returns to
holders of common shares of the Company with the cumulative total return of a peer group selected by the Company and of
the NASDAQ Composite Index. The peer group is focused on companies that manufacture equipment and materials similar
to the equipment and materials manufactured by the Company, and is composed, in part, by reference to peer group lists that
the Company believes are commonly used by institutional investors and financial research analysts when evaluating
Company performance. The Company believes that the peer group provides a useful reference point for investors when
evaluating Company performance across the semiconductor assembly equipment industry business cycle. The peer group
is composed of ASM Pacific Technology Ltd., BE Semiconductor Industries, N.V., Brooks Automation Inc., Cohu, Inc.,
KLA-Tencor Corp., LAM Research Corp., Xcerra Corporation, Shinkawa Ltd., Teradyne Inc., Ultratech, Inc., and Veeco
Instruments Inc. The graph assumes that the value of the investment in the relevant stock or index was $100 at October 3,
2009 and that all dividends were reinvested. Total returns are calculated based on the Kulicke & Soffa Industries, Inc. fiscal
year calendar. For purposes of the peer group index, the peer group companies have been weighted based upon their relative
market capitalization. The closing sale price of the Company’s common shares as of September 27, 2014 was $14.31.
Comparison of 5 Year Cumulative Total Return
Among Kulicke & Soffa Industries, Inc.
NASDAQ Composite Index and Peer Group
Assumes Initial Investment of $100
Company Information
December 2014
Corporate Locations
Additional Information
Corporate Headquarters
Independent Accountants
Kulicke and Soffa Industries, Inc.
23A Serangoon North Avenue 5
#01-01
Singapore 554369
PricewaterhouseCoopers, LLP
Singapore
Technology Centers
Registrar and Transfer Agent
Singapore
Fort Washington, Pennsylvania
Santa Ana, California
Berg, Switzerland
Yokneam Elite, Israel
Suzhou, China
American Stock Transfer & Trust
6201 15th Avenue
Brooklyn, New York 11219
800-937-5449
NASDAQ Symbol: KLIC
Equipment Manufacturing Facilities
Supplemental Investor Information
Singapore
Santa Ana, California
Expendable Tools Manufacturing Facilities
Suzhou, China
Yokneam Elite, Israel
An electronic copy of the 2014 Annual Report, the
2014 Proxy Statement, SEC filings and supplemental
investor information are available in the Investors
section of the Company’s corporate website at
investor.kns.com.
For additional information please contact:
Joseph Elgindy
Investor Relations & Strategic Planning
+1-215-784-7518
jelgindy@kns.com
LEADERSHIP
TEAM
Kulicke & Soffa’s highly experienced Board of Directors
and Executive Officers continue to leverage the
Company’s strengths and execute on new and challeng-
ing corporate objectives. The unique perspective and
broad diversity of the management team are important
factors to the Company’s ongoing success in the dynamic
and evolving markets it serves.
EXECUTIVE OFFICERS
BOARD OF DIRECTORS
Bruno Guilmart
President and
Chief Executive Officer
Jonathan Chou
Senior Vice President, Chief Financial
Officer and Chief Information Officer
Lester Wong
Senior Vice President, Legal Affairs
and General Counsel
Yih-Neng Lee
Senior Vice President,
Global Sales and Service
Irene Lee
Senior Vice President,
Global Operations and
Chief Quality Officer
Deepak Sood
Vice President,
Global Engineering
Nelson Wong
Vice President,
Wire Bond Solutions Business Unit
Bruno Guilmart
Jonathan Chou
Lester Wong
Yih-Neng Lee
Irene Lee
Deepak Sood
Nelson Wong
Annual Report Design by Curran & Connors, Inc. / www.curran-connors.com
Garrett E. Pierce
Chairman of the Board
Kulicke & Soffa Industries, Inc.
Vice Chairman and Chief Financial Officer
Orbital Sciences Corporation
Brian R. Bachman
Private Investor
Retired Chief Executive Officer and
Vice Chairman
Axcelis Technologies, Inc.
Bruno Guilmart
President and Chief Executive Officer
Kulicke & Soffa Industries, Inc.
Director
Avago Technologies Limited
Member of the Board
Singapore Economic
Development Board (EDB)
Lim Chin Hu
Managing Partner
Stream Global Pte. Ltd.
Independent Director
Telstra Corporation Ltd.
Gregory F. Milzcik
Retired President and
Chief Executive Officer
Barnes Group Inc.
Director
IDEX Corporation
Yeo Mui Sung
Chief Campus Officer
MediaCorp Pte. Ltd.
Executive Chairman
Singapore Media Academy
Private Limited
Executive Chairman
MediaCorp VizPro International Pte. Ltd.
Peter T. Kong
Retired President
Arrow Global Components
Director
Ferro Corporation
Director
Global Advanced Metals
CORPORATE HEADQUARTERS:
23A Serangoon North Ave 5 #01-01, Singapore 554369 › (P) +65-6880-9600 › (F) +65-6880-9580