Kulicke and Soffa Industries
Annual Report 2015

Plain-text annual report

2015 ANNUAL REPORT FOCUS ON GROWTH Kulicke & Soffa continues to leverage its market leadership positions, operational flexibility, debt-free balance sheet and technological competencies to expand its market reach and capture sizeable growth opportunities to drive long-term shareholder value creation. NEW FEATURE DEVELOPMENT INITIATIVES TARGET VALUE-ADDED SOLUTIONS FOR HIGHER-GROWTH APPLICATIONS AQUIRED ASSEMBLÉON IN STRATEGIC TRANSACTION A d v a n c e d P E q uip C A G a c k R 2 m e a gin nt T g A M 015 – 2 018 61% >60% R&D Focused on New Growth Initiatives OVER 90,000 K&S machines around the world served 80% of all semiconductor units produced in 2015. This sizeable existing served market combined with focused R&D efforts, operational efficiency and an expanded solution-driven portfolio provides a robust platform for long-term, sustainable growth. > 7 0 N E W E N G I N E E R S Expanded Served Accessible Market by 6 0 % OPERATING MODEL ADJUSTMENTS ENHANCE Through-Cycle Performance and Improve Profitability REPURCHASED 6.4 MILLION SHARES Equivalent to >8% of Weighted Average Shares Outstanding Since Program Initiation DEPLOYED $168.9M OF CAPITAL FOR STRATEGIC INITIATIVES DURING FISCAL YEAR 2015 USA, SANTA ANA (CA) NETHERLANDS, EINDHOVEN GERMANY, K ASSEL THAILAND, BANGKOK CHINA, SHANGHAI Research & Development Research & Development Sales & Service Sales & Service Sales & Service Sales & Service Sales & Service Manufacturing GERMANY, NUREMBERG Sales & Service SWITZERLAND, BERG Research & Development USA, ALPHARETTA (GA) Sales & Service USA, FORT WASHINGTON (PA) Research & Development Sales & Service ISRAEL, YOKNEAM Research & Development Manufacturing MALAYSIA, KUALA LUMPUR Sales & Service Shared Service Operations SOUTH KOREA, SEOUL Sales & Service JAPAN, TOKYO Sales & Service CHINA, SUZHOU Research & Development Sales & Service Manufacturing TAIWAN, TAIPEI Sales & Service PHILIPPINES, MUNTINLUPA CITY Sales & Service SINGAPORE (CORPORATE HQ) Research & Development Sales & Service Manufacturing FOCUS ON GROWTH Kulicke & Soffa continues to leverage its market leadership positions, operational flexibility, debt-free balance sheet and technological competencies to expand its market reach and capture sizeable growth opportunities to drive long-term shareholder value creation. NEW FEATURE DEVELOPMENT INITIATIVES TARGET VALUE-ADDED SOLUTIONS FOR HIGHER-GROWTH APPLICATIONS AQUIRED ASSEMBLÉON IN STRATEGIC TRANSACTION A d v a n c e E q d P C A G uip a c k R 2 m e 015 a gin nt T g A M – 2 018 61% >60% R&D Focused on New Growth Initiatives OVER 90,000 K&S machines around the world served 80% of all semiconductor units produced in 2015. This sizeable existing served market combined with focused R&D efforts, operational efficiency and an expanded solution-driven portfolio provides a robust platform for long-term, sustainable growth. > 7 0 N E W E N G I N E E R S Expanded Served Accessible Market by 6 0 % OPERATING MODEL ADJUSTMENTS ENHANCE Through-Cycle Performance and Improve Profitability REPURCHASED 6.4 MILLION SHARES Equivalent to >8% of Weighted Average Shares Outstanding Since Program Initiation DEPLOYED $168.9M OF CAPITAL FOR STRATEGIC INITIATIVES DURING FISCAL YEAR 2015 KULICKE & SOFFA (NASDAQ: KLIC) IS A GLOBAL LEADER IN THE DESIGN AND MANUFACTURE OF SEMICONDUCTOR, LED AND ELECTRONIC ASSEMBLY EQUIPMENT. As a pioneer in this 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 and organic development, adding advanced packaging, advanced SMT, 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 semiconductor and LED devices. USA, SANTA ANA (CA) NETHERLANDS, EINDHOVEN GERMANY, K ASSEL THAILAND, BANGKOK CHINA, SHANGHAI Sales & Service Sales & Service Sales & Service Research & Development Sales & Service Research & Development Sales & Service Manufacturing SWITZERLAND, BERG Research & Development GERMANY, NUREMBERG Sales & Service SOUTH KOREA, SEOUL Sales & Service JAPAN, TOKYO Sales & Service CHINA, SUZHOU Research & Development Sales & Service Manufacturing TAIWAN, TAIPEI Sales & Service PHILIPPINES, MUNTINLUPA CITY Sales & Service SINGAPORE (CORPORATE HQ) Research & Development Sales & Service Manufacturing USA, ALPHARETTA (GA) Sales & Service USA, FORT WASHINGTON (PA) Research & Development Sales & Service ISRAEL, YOKNEAM Research & Development Manufacturing MALAYSIA, KUALA LUMPUR Sales & Service Shared Service Operations K ULICK E & SOF FA :: 01 :: 2015 A NNUA L REP OR T DEAR SHAREHOLDERS Fiscal 2015 was a transformational year for Kulicke & Soffa. We have maintained leadership positions within core markets, increased exposure into new higher-growth segments, closed and drove the integration of Assembléon and aggressively executed our share repurchase program all while driving structural changes to reduce our break-even point. These initiatives, aligned with our longer-term corporate growth strategy, are designed to deliver meaningful shareholder value into the future. Throughout the year, our global R&D team continued to be central We are particularly excited about technology inceptions within in maintaining our core market leadership positions and a key the advanced packaging market, most notably the slowing driver to support future growth. Specifically, within our core of transistor scaling, driving demand for innovative package markets we have continued our focused, customer-centric types such as System-in-Package (SiP), Fan-Out-Wafer-Level development initiatives while leveraging our rapid development Package (FOWLP), Package-on-Package (PoP), and Wafer- process to drive advanced capabilities and process innovations. Level-Chip-Scale-Packages (WLCSP). These unique package Our release of the Asterion hybrid wedge bonder, which serves designs feature greater chip integration, higher I/O densities the growing advanced interconnect market, as well as our ball and are generally more complex, requiring a broader range of bonder feature enhancements, which address the needs of the advanced packaging solutions with superior precision and proc- high-growth quad-flat-no-leads (QFN) segment, are specific ess capability. examples of this very targeted and rapid development process. During the year, we have greatly enhanced and broadened our Collectively, our interconnect solutions continue to be utilized portfolio of advanced packaging solutions through organic globally and are an essential portion of the industry’s produc- and inorganic initiatives. From an organic perspective, we have tion capacity. During 2015, we estimate our install base, of over leveraged an agile development process and modular APAMA 90,000 machines across our 5 key equipment lines, served Chip-to-Substrate (C2S) platform design to successfully bring nearly 80% of the global silicon demand. Our leadership posi- the APAMA Chip-to-Wafer (C2W) solution to market. To date tions in these sizeable and established segments provide meaningful revenue opportunities as well as a broad set of we deployed more than 10 APAMA C2S and C2W thermo- compression bonders at customer sites around the world, unique technologies and features to resolve the industry’s next enabling us to gain tremendous feedback and capture valuable set of challenges. EXPANDING OUR SERVED MARKET insights. The APAMA platform allows us to provide high accu- racy flip chip and high density FOWLP solutions to the market. Our continual refinements over the past three years, supported During 2015, slightly more than 20% of global silicon demand by customer collaborations, organizational agility and technology utilized an advanced packaging process traditionally beyond the innovation, have generated a distinct competitive advantage reach of our core markets. At a broad level, demand for greater and positioned our portfolio of solutions for market adoption. semiconductor performance, higher bandwidth, enhanced func- tionalities, smaller form-factor and improvements in power efficiency, and challenges regarding node shrink, are collec- tively driving the advanced packaging market. As the industry moves to adopt advanced packaging technologies, exciting new meaningful growth opportunities are emerging for K&S. K ULICK E & SOF FA :: 02 :: 2015 A NNUA L REP OR T 120000 100000 80000 60000 40000 120 80 40 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Advanced Packaging Wire Bonding 2010 2011 2012 2013 2014 2015 2016 E 2017 E 2018 E 2019 E 2020 E Sources: Yole Développement, VLSI Research, K&S Internal Estimates Advanced Packaging comprised of: Traditional Flip Chip, High Accuracy Flip Chip & Thermo-Compression Bonding Additionally, throughout the year we further strengthened our Beyond the current initiatives, our strategic business devel- competitive advantage by closing the Assembléon acquisition opment team comprising cross-functional leaders continues and driving meaningful progress in its integration into K&S. Our to allow us to actively screen and pursue meaningful non- priorities of the integration are focused on technology and organic opportunities. Throughout 2015, we’ve examined many sales collaborations targeting the sizeable advanced SMT mar- promising targets ranging from smaller technology-focused ket, which serves the increasing complexity of the industrial acquisitions to larger multi-entity global organizations. Our and automotive markets, as well as their growing advanced cross-functional business development teams continue to packaging market, which expands our exposure within key follow a very structured and methodical approach to examining areas of the semiconductor interconnect space. From a devel- potential opportunities. opment standpoint, we quickly identified specific feature releases targeting meaningful opportunities in both markets. Along with our expanding product portfolio, our capacity for We are executing on our strategy to accelerate development in future value creation continues to grow. We continue to believe these areas by lever aging our collective institutional knowledge our market valuation throughout 2015 has discounted these and through re-use of existing technical features. These technol- opportunities; therefore we have executed nearly 80% of our ogy developments combined with our deep-rooted and estab- $100 million share repurchase program since its inception just lished internal sales network are expanding our served market over a year ago. Going forward, we remain fully committed to and broadening our reach. We look forward to sharing our deploying cash to supplement our broader business initiatives progress on these initiatives with the investment community. where the opportunities are financially justified. TREMENDOUS CAPACITY FOR ONGOING VALUE CREATION As we look ahead to 2016 and beyond, we’re confident that Holistically, these growth initiatives represent the largest our market leadership, emerging growth opportunities, efficient transformational process and mobilization efforts in the com- use of resources and capital deployment collectively provide a pany’s history. We continue to gain momentum as we leverage secure platform for future growth and shareholder value creation. our debt-free balance sheet, leadership positions within large We greatly value the support of customers, suppliers, sharehold- stable markets, operational excellence, advanced R&D com- ers and fellow colleagues of the Kulicke & Soffa team worldwide. petencies and go-to-market strategies to expand our served markets, drive revenue diversification and generate mean- Sincerely, ingful shareholder value. To that end, during 2015 our transfor- mational process has expanded our capacity for deploying resources efficiently, prudently and in a value-oriented manner Garrett E. Pierce Chairman of the Board making K&S a fundamentally stronger company better posi- tioned to execute on future growth opportunities. Jonathan H. Chou Chief Financial Officer and Interim Chief Executive Officer K ULICK E & SOF FA :: 03 :: 2015 A NNUA L REP OR T SILICON DEMANDHISTORIC & FORECASTMILLIONS OF WAFER STARTS PER YEAR (300mm WAFER EQUIVALENTS)FINANCIAL HIGHLIGHTS SELECTED Fiscal Year (in thousands, except per share amounts) Statement of Operations Data: Net revenue Research and development Other operating expenses Other income (expense) 2015 2014 2013 2012 2011 $ 536,471 $ 568,569 $ 534,938 $ 791,023 $ 830,401 90,033 83,056 61,620 63,446 65,135 131,808 113,514 119,519 124,718 152,714 454 149 862 (4,975) (7,632) Income (loss) from continuing operations after income tax $ 50,639 $ 62,988 $ 59,358 $ 160,580 $ 127,610 Income (loss) per share from continuing operations, Basic Income (loss) per share from continuing operations, Diluted $ $ 0.67 0.67 $ $ 0.82 0.81 $ $ 0.79 0.78 $ $ 2.17 2.13 $ $ 1.77 1.73 Balance Sheet Data: Working capital excluding discontinued operations $633,435 $ 756,340 $ 676,986 $ 589,947 $ 405,659 Property, plant and equipment, net 53,234 52,755 47,541 28,441 26,501 Total assets excluding discontinued operations 904,466 944,448 862,994 815,609 728,391 Long-term debt and current portion of long-term debt — — — — 105,224 Shareholders’ equity $ 771,891 $ 789,242 $ 716,665 $ 643,667 $ 469,877 Other Selected Data: Capital expenditures $ 9,519 $ 12,401 $ 17,172 $ 6,902 $ 7,688 Depreciation and amortization expense $ 18,972 $ 13,520 $ 18,489 $ 17,265 $ 17,761 Notes: 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 October 3, 2015 included herein. In addition to historical information, this report, including the letter to shareholders, 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 October 3, 2015 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. K ULICK E & SOF FA :: 04 :: 2015 A NNUA L REP OR T 2015 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 October 3, 2015 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) 784-6000 (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 27, 2015, the aggregate market value of the registrant's common stock held by non-affiliates of the registrant was approximately $1,283.1 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 16, 2015 there were 70,694,772 shares of the registrant's common stock, without par value, outstanding. Documents Incorporated by Reference Portions of the registrant's Proxy Statement for the 2016 Annual Meeting of Shareholders to be filed on or about January 4, 2016 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. 2015 Annual Report on Form 10-K October 3, 2015 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 21 21 21 21 22 23 24 45 46 79 79 80 81 81 81 81 82 83 87 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, or decreasing or weakening, 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, wedge bonder, advanced packaging and surface mount technology 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” in this Annual Report on Form 10-K for the fiscal year ended October 3, 2015 (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 our cost structure through continuous improvement and optimization of operations. Cost reduction efforts remain an important part of our normal ongoing operations and are intended 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) 784-6000. 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 1 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. Our year end for each of fiscal 2015, 2014 and 2013 was October 3, 2015, September 27, 2014, and September 28, 2013, 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 can 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 continued our efforts to maintain a strong balance sheet. As of October 3, 2015, our total cash, cash equivalents and short-term investments were $498.6 million, a $98.5 million decrease from the prior fiscal year end (related primarily to our share repurchase program and our Assembléon acquisition, offset in part by earnings). We believe this strong cash position will allow us to continue to invest in product development and pursue 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 is 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 depend on market conditions as well as corporate and regulatory considerations. During the year ended October 3, 2015, the Company repurchased a total of 6.4 million shares of common stock at a cost of $77.9 million under the Program. As of October 3, 2015, our remaining stock repurchase authorization under the Program was approximately $21.5 million. On January 9, 2015, Kulicke & Soffa Holdings B.V. (“KSH”), the Company's wholly owned subsidiary, acquired Assembléon B.V. (“Assembléon”), a subsidiary of Assembléon Holding B.V. The cash purchase price of approximately $97.4 million (EUR80 million) consisted of $72.5 million for the equity of Assembléon and $24.9 million which was used by Assembléon to settle intercompany loans with its parent company. Assembléon is a leading technology solutions provider that, together with its subsidiaries, offers assembly equipment, processes and services for the automotive, industrial, and advanced packaging markets. The acquisition has expanded the Company's presence in automotive, industrial and advanced packaging markets. 2 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, we believe it 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. 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. Our leadership also has allowed us to maintain a competitive position in the latest generations of gold and copper ball bonders, which enables 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. Our leading technology for wedge bonder equipment uses ribbon or heavy wire for different applications such as power electronics, automotive and semiconductor applications. 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 completed the design and development of our next generation hybrid wedge bonder, Asterion, which was launched in March 2015. In all 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 some have yielded results. 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 integrated circuit (“2.5D IC”) and 3 dimensional integrated circuit (“3D IC”) markets. By reducing the interconnect dimensions, 2.5D ICs 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. 3 With the acquisition of Assembléon, we broadened our advanced packaging solutions for mass reflow ("APMR") to include flip chip, wafer level packaging ("WLP"), fan-out wafer level packaging ("FOWLP"), advanced package-on-package, embedded die, and System-in-Package ("SiP"). The acquisition has also enabled us to diversify our business into the automotive, medical and industrial markets with advanced surface-mount technology ("SMT") pick and place solutions. 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 The Company operates two segments: Equipment and Expendable Tools. The following table reflects net revenue by business segment for fiscal 2015, 2014, and 2013: 2015 Fiscal 2014 2013 (dollar amounts in thousands) Net revenues 472,002 Equipment 64,469 Expendable Tools 536,471 $ $ % of total net revenue Net revenues 503,049 65,520 568,569 88.0% $ 12.0% 100.0% $ % of total net revenue Net revenues 472,567 62,371 534,938 88.5% $ 11.5% 100.0% $ % of total net revenue 88.3% 11.7% 100.0% See Note 14 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. 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 PLUS Advanced and ultra fine pitch applications IConnPS PLUS LA Large area substrate and matrix applications IConnPS PLUS ELA Extended 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 IConnPS ProCu PLUS ELA Extended 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 LED PLUS LED applications ConnXPS PLUS LA Cost performance large area substrate and matrix applications ConnXPS PLUS ELA Cost performance extended 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® AsterionTM Power hybrid and automotive modules with extended area using heavy and thin aluminum (1) Power Series (“PS”) 5 Business Unit Product Name (1) Typical Served Market Advanced Packaging and Surface Mount Technology (SMT) APAMA C2S Thermo-compression for chip-to-substrate, chip-to-chip and high accuracy flip chip ("HA FC") bonding applications APAMA C2W Hybrid Series iX Series iFlex Series Thermo-compression for chip-to-wafer, high accuracy flip chip ("HA FC") and high density fan-out wafer level packaging ("HD FOWLP") bonding applications Advanced packages assembly applications requiring high throughput such as flip chip, wafer level packaging ("WLP"), fan-out WLP ("FOWLP"), embedded die, system-in-package ("SiP"), package-on- package ("POP"), and modules Advanced Surface Mount Technology ("SMT") applications requiring extremely high output of passive and active components Advanced SMT applications requiring multi-lane or line balancing solutions for standard or oddform passive and active components 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 PLUS: high-performance ball bonders which can be configured for either gold or copper wire. • The IConnPS PLUS LA: high-performance large area ball bonders which can be configured for either gold or copper wire. • The IConnPS PLUS ELA: high-performance extended 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 PLUS ELA: cost-performance extended large area ball bonders which can be configured for either gold or copper wire. • The ConnXPS LED and ConnXPS LED PLUS: ball bonders targeted specifically at the fast growing LED market. • The IConnPS ProCu and IConnPS ProCu PLUS: high-performance copper wire ball bonders for advanced wafer nodes at 28 nanometer and below. • The IConnPS ProCu LA and IConnPS ProCu PLUS LA: high-performance large area copper wire ball bonders for advanced wafer nodes at 28 nanometer and below. • The IConnPS ProCu PLUS ELA: high-performance extended 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. 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 6 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 and PowerFusionPS HLx: designed for advanced power semiconductor applications. • The AsterionTM: latest generation hybrid wedge bonder. Larger area, higher speed and accuracy wedge bonders for power modules, automotive packages, battery applications and other aluminium wedge interconnect applications. While wedge bonding traditionally utilizes aluminum wire, all of our heavy wire wedge bonders may 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. 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 March 2015, we introduced AsterionTM, a hybrid wedge bonder that has the capabilities to handle a multitude of interconnect materials including large and small aluminum, copper wire, PowerRibbon®, as well as aluminum copper-clad ribbon. Advanced Packaging and Surface Mount Technology Our APAMA (Advanced Packaging with Adaptive Machine Analytics) C2S (chip-to-substrate) bonder is designed for high accuracy and high throughput flip chip, thermo-compression bonding applications. It delivers die-stacking solutions for 2.5D and 3D or through silicon via ("TSV") ICs. In September 2015, we introduced the APAMA Chip-to-Wafer (“C2W”) bonder. The C2W system enables APAMA's high throughput architecture to be applied to 2.5D and 3D packages using silicon or glass interposers. The C2W dual head system also provides a highly adaptable manufacturing platform addressing future applications, which require highly accurate die placement such as High Density FOWLP. The C2W platform, combined with the capacity of the C2S platform, enables the APAMA TCB systems to support assembly for the full range of stacked TSV products. With the acquisition of Assembléon, we have broadened our product offering with APMR solutions to address flip chip, WLP, FOWLP, POP, embedded die, SiP and modules markets. The acquisition also enables us to diversify our business while further expanding market reach into the automotive, medical and industrial segments with SMT pick and place solutions. 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. 7 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 materials, 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. In January 2015, we introduced QuantisTM QFN Capillary, our latest copper wire bonding capillary designed for QFN (Quad Flat No- lead) application. • Dicing blades: expendable tools used by semiconductor manufacturers to cut silicon wafers into individual semiconductor die or to cut packaged semiconductor units into individual units. • Bonding wedges: expendable tools used in heavy wire wedge bonders. Heavy wire wedge tools are used for both wire and ribbon applications. 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 2015 Fiscal 2014 Fiscal 2013 1 Amkor Technology Inc. 1 Haoseng Industrial Co., Ltd. ** 1 Siliconware Precision Industries, Ltd. * 2 Haoseng Industrial Co., Ltd. ** 2 Advance Semiconductor Engineering 2 Advance Semiconductor Engineering 3 Skyworks Solutions Incorporated 3 Amkor Technology Inc. 3 STATS ChipPAC Ltd 4 ST Microelectronics 5 Renesas Semiconductor 4 Skyworks Solutions Incorporated 4 Haoseng Industrial Co., Ltd. ** 5 Powertech Technology Inc. 5 Amkor Technology Inc. 6 First Technology China, Ltd. ** 6 Orient Semiconductor Electronics, Ltd. 6 Rohm Intergrated Systems 7 Orient Semiconductor Electronics, Ltd. 7 Texas Instruments, Inc. 7 Orient Semiconductor Electronics, Ltd. 8 Texas Instruments, Inc. 9 Rohm Integrated Systems 8 Greatek Electronics Inc. 8 Super Power International Ltd ** 9 Super Power International Ltd ** 9 ST Microelectronics 10 Xinye Electronics. Co ** 10 Freescale Semiconductor, Inc. 10 First Technology China, Ltd. ** * Represents more than 10% of our net revenue for the applicable fiscal year. ** Distributor of our products. Approximately 91.2%, 94.4%, and 97.3% of our net revenue for fiscal 2015, 2014, and 2013, 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 14 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., Germany, Mexico and the Netherlands. Supporting these local resources, we have technology centers offering additional process expertise in Singapore, China, Israel, and the U.S. 8 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 October 3, 2015 and September 27, 2014: (in thousands) Backlog Manufacturing As of October 3, 2015 52,500 September 27, 2014 79,100 $ $ 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. 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, wedge bonder and APAMA bonder manufacturing and assembly is done at our facility in Singapore. Our APMR and SMT solutions manufacturing and assembly is done at our facility in the Netherlands. We have ISO 9001 and ISO 14001 certifications for our equipment manufacturing facilities in Singapore and the Netherlands. 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 $90.0 million, $83.1 million, and $61.6 million during fiscal 2015, 2014, and 2013, respectively. 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. 9 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 Ltd. • Wedge bonders: ASM Pacific Technology, Cho-Onpa, F&K Delvotec, and Hesse Mechatronics • APAMA bonders: ASM Pacific Technology, BE Semiconductor Industries N.V., Shibaura Mechatronics Corporation, Shinkawa Ltd., and Toray Industries, Inc. • APMR solutions: ASM Pacific Technology, BE Semiconductor Industries N.V., HANMI Semiconductor, and Shinkawa Ltd. • SMT solutions: ASM Pacific Technology, Fuji Machine Mfg. Co., Ltd., Panasonic Factory Solutions Co., Ltd., and Yamaha Motor Co., Ltd. Significant competitive factors in the semiconductor packaging materials industry include performance, price, delivery, product life, and quality. Our significant expendable tools competitors include: • Capillaries: Adamant Co., Ltd., PECO, and Small Precision Tools, Inc. • Dicing blades: Disco Corporation and Zhengzhou Hongtuo Superabrasive Products Co. Ltd • 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. 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 October 3, 2015, we had approximately 2,373 regular full-time employees and 118 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; • • • • • 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 • • • • • 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: • • • • 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 transition from gold to copper wire bonding by our customers and the industry may be substantially completed. 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 2015, 70% of total ball bonders sold by the Company were copper capable bonders. If the transition from gold to copper wire bonding by our customers is substantially completed 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 91.2%, 94.4%, and 97.3% of our net revenue for fiscal 2015, 2014, and 2013, respectively, was 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, wedge and APAMA bonders in Singapore, our APMR and SMT solutions in the Netherlands, our dicing blades, capillaries and bonding wedges in China and capillary blanks in 12 Israel. In addition, our corporate headquarters is in Singapore and we have sales, service and support personnel in China, Israel, Japan, Korea, Malaysia, the Philippines, Singapore, Taiwan, Thailand, the U.S., Germany, Mexico and the Netherlands. 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: • • • • • • • • • • • • • • • • • 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; new laws and regulations, such as Trans-Pacific Partnership Agreement (TPP); 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, Singapore, Israel and the Netherlands 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, Singapore, Israel and the Netherlands 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 or Euro, an increase in value of the U.S. dollar or Euro 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 other currencies other than Euro 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 or the Euro against other 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 13 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 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 our 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, our business, financial condition and operating results may be materially and adversely affected. Effective succession planning is also important to our long-term success. Failure to ensure effective transfer of knowledge and smooth transitions involving senior management could hinder our strategic planning and execution. From time to time, senior management may leave our company, such as the recent departure of our chief executive officer on October 5, 2015. While we strive to reduce the negative impact of such changes, the loss of any key employee could result in significant disruptions to our operations, including adversely affecting the timeliness of product releases, the successful implementation and completion of company initiatives, the effectiveness of our disclosure controls and procedures and our internal control over financial reporting, and the results of our operations. In addition, hiring, training, and successfully integrating replacement critical personnel could be time consuming, may cause additional disruptions to our operations, and may be unsuccessful, which could negatively impact future revenues. 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 14 more than 10% of our net revenue, comprised 11.0% of our net revenue for fiscal 2013, 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 either fiscal 2014 or 2015. 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 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; 15 • • • • • • • • 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; 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 16 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 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. 17 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. 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 71.2 million shares were outstanding as of October 3, 2015. 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. If the tax holiday arrangements we have negotiated in Singapore change or cease to be in effect or applicable, in part or in whole, for any reason, the amount of corporate income taxes we have to pay could significantly increase. We have structured our operations to maximize the benefit from tax holidays extended to us in Singapore to encourage investment or employment. We have the Development and Expansion Incentive (“DEI”) from Singapore Economic Development Board, an agency of the Government of Singapore, which provides that certain classes of income we earn in Singapore are subject to reduced 18 rates of Singapore income tax. In order to retain the tax benefit, we must meet certain operating conditions, among other things, maintenance of certain global headquarters functions, specified IP activities and specified manufacturing activities in Singapore. The DEI is presently scheduled to expire in 2020. Renewals and extensions of the DEI are at the discretion of the Singapore government, and we may not be able to extend the tax incentive arrangement after its expiration on similar terms or at all. We may also elect not to renew or extend this tax incentive arrangement. In the absence of DEI, the corporate income tax rate in Singapore that would otherwise apply would be 17%. The tax incentive is also subject to our compliance with various operating and other conditions. If we cannot, or elect not to, comply with the operating conditions included in the tax incentive, we will lose the related tax benefits. In such event, we could be required to refund material tax benefits previously realized by us with respect to that incentive. Risks Related to the Assembléon Acquisition We face risks associated with integrating Assembléon into the Company. The successful expansion of our business and operations resulting from the Assembléon acquisition will require significant time, effort, attention and dedication of management and may strain our operational and financial resources. It is possible that integrating Assembléon and its businesses into the Company could result in changes to or pressure on compliance with standards, controls, procedures and policies. This process could expose us to risks and challenges, including: • • • • • • unanticipated issues in coordinating information, communication and other systems; unexpected loss of key employees; distraction of management attention from our other businesses; failure to retain key customers; the need to modify operating and accounting controls and procedures; and foreign currency fluctuation that could negatively impact our financial results and cash flows. In addition, it is possible that our exposure to potential liabilities resulting from Assembléon’s business, some of which may be material or unknown, could exceed amounts we can recover through indemnification claims. These types of challenges and uncertainties could have a material adverse effect on our business, cash flows, results of operations and financial condition. We may fail to realize the anticipated benefits of the Assembléon acquisition. The Assembléon acquisition is intended to expand our presence in the automotive, industrial and advanced packaging markets. The success of the Assembléon acquisition will depend on, among other things, our ability to integrate Assembléon and its businesses into the Company in a manner that permits growth opportunities and does not disrupt existing client relationships or result in decreased revenues due to customer attrition or other factors. Assembléon’s businesses are also subject to certain risks that may negatively affect the financial results for our Equipment and Expendable Tools business segments, including, among others, the following: • Assembléon’s businesses are largely dependent on the health of the industries in which it participates. These industries may be impacted by market and regulatory factors, and there can be no assurance that we will realize the potential growth opportunities from these industries. • The goodwill established in connection with our acquisition of Assembléon represents the estimated future economic benefits arising from the assets we have acquired that did not qualify to be identified and recognized individually. The goodwill also includes the value of expected future cash flows of Assembléon, expected synergies with our other affiliates and other unidentifiable intangible assets. Goodwill is deemed to have an indefinite useful life and is subject to review for impairment annually, or more frequently, whenever circumstances indicate potential impairment. The value of goodwill is supported by revenue, which is driven primarily by transaction volume. Intangible assets other than goodwill primarily consist of developed technology, customer relationships and trade and brand name. • The calculation of the estimated fair value of goodwill and other intangibles requires the use of significant estimates and assumptions that are highly subjective in nature, such as attrition rates, discount rates, future expected cash flows and market conditions. Our estimates are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable. If actual results differ from our assumptions, we may not realize the full value of our intangible assets and goodwill. 19 For these and other reasons there can be no assurance that the anticipated synergies and benefits from the transaction will be realized fully or at all. If we fail to realize the full value of our intangible assets and goodwill related to the acquisition, we may be required to write down or write off all such intangible assets or goodwill. Such an impairment of our goodwill or intangible assets could have a material adverse effect on our results of operations. 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 October 3, 2015, we have foreign net operating loss carryforwards of $102.5 million, domestic state net operating loss carryforwards of $186.0 million, domestic federal net operating loss carryforwards of $3.2 million, and tax credit carryforwards of $7.4 million that will reduce future taxable income. 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. 20 Item 1B. UNRESOLVED STAFF COMMENTS None. Item 2. PROPERTIES The following table reflects our major facilities as of October 3, 2015: Facility (1) Approximate Size Function Business Segment and Products Manufactured Lease Expiration Date Singapore 198,000 sq. ft. Corporate headquarters, manufacturing, technology, sales and service center Equipment: ball and wedge bonders, advanced packaging November 2043 (2) Suzhou, China 155,000 sq. ft. Manufacturing, technology and shared support services center Veldhoven, Netherlands 126,000 sq. ft. Manufacturing, technology, sales and service center Fort Washington, Pennsylvania Santa Ana, California 88,000 sq. ft. 65,000 sq. ft. Yokneam, Israel 21,000 sq. ft. Technology, sales and service center Technology, sales and service center Manufacturing and technology center Expendable Tools: capillaries, dicing blades and bonding wedges Owned Equipment: Advanced Packaging and Surface Mount Technology (SMT) Not applicable October 2015 (3) September 2033 (4) Not applicable August 2036 (5) Expendable Tools: capillary blanks (semi- finish) January 2018 (6) (1) Each of the facilities listed in this table is leased other than the facility in Suzhou, China. (2) Includes lease extension periods at the Company's option. Initial lease expires in November 2023. (3) Company relocated from this property to Eindhoven, Netherlands from current location in October 2015. The new lease will expire in September 2020. (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 expired in January 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. 21 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 2015 Fiscal 2014 High Low High Low $ $ $ $ 14.84 16.54 16.08 12.13 $ $ $ $ 12.14 13.81 12.16 8.80 $ $ $ $ 13.70 13.30 15.10 15.23 $ $ $ $ 11.19 10.73 11.74 13.44 On November 16, 2015, there were approximately 253 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 2016 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission on or about January 4, 2016. 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 quarter ended October 3, 2015 was as follows (in millions, except number of shares, which are reflected in thousands, and per share amounts): Periods 26 July, 2015 to 29 August, 2015 30 August, 2015 to 3 October, 2015 Total Total Number of Shares Purchased 220 1,609 1,829 Average Price Paid Per Share 10.29 9.28 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) $ $ 220 1,609 1,829 36.50 21.50 (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 the program will depend on market conditions as well as corporate and regulatory considerations. The $21.5 million represents the remaining amount available to repurchase shares under the Program. 22 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 2015, 2014, 2013, 2012, and 2011. 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 Income from operations Interest income (expense), net Income from continuing operations before income tax (Benefit) Provision for income taxes from continuing operations (1) Net income 2015 2014 Fiscal 2013 2012 2011 536,471 37,251 454 568,569 76,984 149 534,938 65,806 862 791,023 179,226 (4,975) 830,401 170,060 (7,632) 37,705 77,133 66,668 174,251 162,428 (12,934) 50,639 $ 14,145 7,310 13,671 34,818 $ 62,988 $ 59,358 $ 160,580 $ 127,610 (1) The following are the most significant factors that affected our provision for income taxes: implementation of our international restructuring plan which was approved in fiscal 2011; 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. Per Share Data: Net income per share: (1) Basic Diluted Weighted average shares outstanding: (1) Basic Diluted 2015 2014 Fiscal 2013 2012 2011 $ $ 0.67 0.67 $ $ 0.82 0.81 $ $ 0.79 0.78 $ $ 2.17 2.13 $ $ 1.77 1.73 75,414 75,659 76,396 77,292 75,132 76,190 73,887 75,502 71,820 73,341 (1) For fiscal 2015, 2014, 2013, 2012 and 2011, the exercise of dilutive stock options and expected vesting of time-based and market-based restricted stock were included. (in thousands) Balance Sheet Data: 2015 2014 Fiscal 2013 2012 2011 Cash, cash equivalents, investments and restricted cash $ 498,614 $ 597,086 $ 525,040 $ 440,244 $ 384,522 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 633,435 904,466 — 17,003 771,891 756,340 944,448 — 19,616 789,242 676,986 862,994 — 19,396 716,665 589,947 815,609 — — 405,659 728,391 105,224 — 643,667 469,877 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, or decreasing or weakening, 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, wedge bonder, advanced packaging and surface mount technology 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” in this Annual Report on Form 10-K for the fiscal year ended October 3, 2015 (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 continuous improvement and optimization of operations. Cost reduction efforts remain an important part of our normal ongoing operations and are intended 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, 24 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 can 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 continued our efforts to maintain a strong balance sheet. As of October 3, 2015, our total cash, cash equivalents and short-term investments were $498.6 million, a $98.5 million decrease from the prior fiscal year end (related primarily to our share repurchase program and our Assembléon acquisition, offset in part by earnings). We believe this strong cash position will allow us to continue to invest in product development and pursue 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 is 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 October 3, 2015, the Company repurchased a total of 6.4 million shares of common stock at a cost of $77.9 million under the Program. As of October 3, 2015, our remaining stock repurchase authorization under the Program was approximately $21.5 million. On January 9, 2015, Kulicke & Soffa Holdings B.V. (“KSH”), the Company's wholly owned subsidiary, acquired all of the outstanding equity interests of Assembléon B.V. (“Assembléon”), a subsidiary of Assembléon Holding B.V. The cash purchase price of approximately $97.4 million (EUR80 million) consisted of $72.5 million for 100% of the equity of Assembléon and $24.9 million which was used by Assembléon to settle intercompany loans with its parent company. Assembléon is a leading technology solutions provider that, together with its subsidiaries, offers assembly equipment, processes and services for the automotive, industrial, and advanced packaging markets. The acquisition expands the Company's presence in automotive, industrial and advanced packaging markets. 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, we believe it 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 25 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. Our leadership also has allowed us to maintain a competitive position in the latest generations of gold and copper ball bonders, which enables 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. Our leading technology for wedge bonder equipment uses ribbon or heavy wire for different applications such as power electronics, automotive and semiconductor applications. 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 completed the design and development of our next generation hybrid wedge bonder, Asterion, which was launched in March 2015. In all 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 some have yielded results. 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 integrated circuit (“2.5D IC”) and 3 dimensional integrated circuit (“3D IC”) markets. By reducing the interconnect dimensions, 2.5D ICs 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. With the acquisition of Assembléon, we broadened our advanced packaging solutions for mass reflow ("APMR") to include flip chip, wafer level packaging ("WLP"), fan-out wafer level packaging ("FOWLP"), advanced package-on-package, embedded die, and System-in-Package ("SiP"). The acquisition has enabled us to diversify our business into the automotive, medical and industrial markets with advanced surface-mount technology ("SMT") pick and place solutions. 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. 26 Products and Services We supply a range of bonding equipment and expendable tools. The following tables reflect net revenue by business segment for fiscal 2015, 2014, and 2013: 2015 Fiscal 2014 2013 (dollar amounts in thousands) Net revenues 472,002 Equipment 64,469 Expendable Tools 536,471 $ $ % of total net revenue Net revenues 503,049 65,520 568,569 88.0% $ 12.0% 100.0% $ % of total net revenue Net revenues 472,567 62,371 534,938 88.5% $ 11.5% 100.0% $ % of total net revenue 88.3% 11.7% 100.0% See Note 14 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. 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 PLUS Advanced and ultra fine pitch applications IConnPS PLUS LA Large area substrate and matrix applications IConnPS PLUS ELA Extended 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 IConnPS ProCu PLUS ELA Extended 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 LED PLUS LED applications ConnXPS PLUS LA Cost performance large area substrate and matrix applications ConnXPS PLUS ELA Cost performance extended 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® AsterionTM Power hybrid and automotive modules with extended area using heavy and thin aluminum (1) Power Series (“PS”) 28 Business Unit Product Name (1) Typical Served Market Advanced Packaging and Surface Mount Technology (SMT) APAMA C2S Thermo-compression for chip-to-substrate, chip-to-chip and high accuracy flip chip ("HA FC") bonding applications APAMA C2W Hybrid Series iX Series iFlex Series Thermo-compression for chip-to-wafer, high accuracy flip chip ("HA FC") and high density fan-out wafer level packaging ("HD FOWLP") bonding applications Advanced packages assembly applications requiring high throughput such as flip chip, wafer level packaging ("WLP"), fan-out WLP ("FOWLP"), embedded die, system-in-package ("SiP"), package-on- package ("POP"), and modules Advanced Surface Mount Technology ("SMT") applications requiring extremely high output of passive and active components Advanced SMT applications requiring multi-lane or line balancing solutions for standard or oddform passive and active components 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 PLUS: high-performance ball bonders which can be configured for either gold or copper wire. • The IConnPS PLUS LA: high-performance large area ball bonders which can be configured for either gold or copper wire. • The IConnPS PLUS ELA: high-performance extended 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 PLUS ELA: cost-performance extended large area ball bonders which can be configured for either gold or copper wire. • The ConnXPS LED and ConnXPS LED PLUS: ball bonders targeted specifically at the fast growing LED market. • The IConnPS ProCu and IConnPS ProCu PLUS: high-performance copper wire ball bonders for advanced wafer nodes at 28 nanometer and below. • The IConnPS ProCu LA and IConnPS ProCu PLUS LA: high-performance large area copper wire ball bonders for advanced wafer nodes at 28 nanometer and below. • The IConnPS ProCu PLUS ELA: high-performance extended 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. 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. 29 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 and PowerFusionPS HLx: designed for advanced power semiconductor applications. • The AsterionTM: latest generation hybrid wedge bonder. Larger area, higher speed and accuracy wedge bonders for power modules, automotive packages, battery applications and other aluminium wedge interconnect applications. While wedge bonding traditionally utilizes aluminum wire, all of our heavy wire wedge bonders may 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. 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 March 2015, we introduced AsterionTM, a hybrid wedge bonder that has the capabilities to handle a multitude of interconnect materials including large and small aluminum, copper wire, PowerRibbon®, as well as aluminum copper-clad ribbon. Advanced Packaging and Surface Mount Technology Our APAMA (Advanced Packaging with Adaptive Machine Analytics) C2S (chip-to-substrate) bonder is designed for high accuracy and high throughput flip chip, thermo-compression bonding applications. It delivers die-stacking solutions for 2.5D and 3D or through silicon via ("TSV") ICs. In September 2015, we introduced the APAMA Chip-to-Wafer (“C2W”) bonder. The C2W system enables APAMA's high throughput architecture to be applied to 2.5D and 3D packages using silicon or glass interposers. The C2W dual head system also provides a highly adaptable manufacturing platform addressing applications, which require highly accurate die placement such as High Density FOWLP. The C2W platform, combined with the capacity of the C2S platform, enables the APAMA TCB systems to support assembly for the full range of stacked TSV products. With the acquisition of Assembléon, we have broadened our product offering with APMR solutions to address flip chip, WLP, FOWLP, POP, embedded die, SiP and modules markets. The acquisition also enables us to diversify our business while further expanding market reach into the automotive, medical and industrial segments with SMT pick and place solutions. 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. 30 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 materials, 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. In January 2015, we introduced QuantisTM QFN Capillary, our latest copper wire bonding capillary designed for QFN (Quad Flat No- lead) application. • Dicing blades: expendable tools used by semiconductor manufacturers to cut silicon wafers into individual semiconductor die or to cut packaged semiconductor units into individual units. • Bonding wedges: expendable tools used in heavy wire wedge bonders. Heavy wire wedge tools are used for both wire and ribbon 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 ongoing 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, repatriation of un- remitted foreign subsidiary earnings, equity-based compensation expense 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. Authoritative pronouncements, historical experience and assumptions are used as the basis for making estimates, and on an ongoing basis, we evaluate these estimates. Actual results may differ from these estimates. 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. 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. 31 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 a few geographic locations, which could also impact the collectability of certain receivables. If global or regional 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 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 projections about future consumption, and market conditions. If actual market conditions are less favorable than projections, additional inventory reserves may be required. The inventory reserve provision for Assembléon is determined based on our best estimate of future consumption for equipment and spare parts. This estimate is based on historical sales volumes, internal projections and market developments and trends. Accounting for Impairment of Goodwill The Company operates two reportable segments: Equipment and Expendable Tools. Goodwill was recorded for the acquisitions of Orthodyne Electronics Corporation ("Orthodyne") and Assembléon in 2009 and 2015, respectively. 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. In fiscal 2015, 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 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. During the year ended October 3, 2015, no triggering events occurred. Impairment assessments inherently involve judgment as to assumptions made about the 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 or unanticipated competition. For further information on goodwill and other intangible assets, see Note 5 to our Consolidated Financial Statements included in Item 8. 32 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. 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. 33 RESULTS OF OPERATIONS Results of Operations for fiscal 2015 and 2014 The following table reflects our income from operations for fiscal 2015 and 2014: (dollar amounts in thousands) Net revenue Cost of sales Gross profit Selling, general and administrative Research and development Operating expenses Fiscal 2015 2014 $ Change % Change $ $ 536,471 277,379 259,092 $ 568,569 295,015 273,554 131,808 90,033 221,841 113,514 83,056 196,570 (32,098) (17,636) (14,462) 18,294 6,977 25,271 (5.6)% (6.0)% (5.3)% 16.1 % 8.4 % 12.9 % Income from operations $ 37,251 $ 76,984 $ (39,733) (51.6)% 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 2015 and 2014: (in thousands) Bookings (in thousands) Backlog Fiscal 2015 2014 491,427 $ 595,565 As of October 3, 2015 52,500 September 27, 2014 79,100 $ $ $ Our net revenues for fiscal 2015 have decreased as compared to our net revenues for fiscal 2014 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. Net Revenue Approximately 91.2% and 94.4% of our net revenue for fiscal 2015 and 2014, 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. 34 The following table reflects net revenue by business segment for fiscal 2015 and 2014: (dollar amounts in thousands) Equipment Expendable Tools Total net revenue Equipment Fiscal 2015 2014 $ Change % Change $ $ 472,002 64,469 536,471 $ $ 503,049 65,520 568,569 $ $ (31,047) (1,051) (32,098) (6.2)% (1.6)% (5.6)% The following table reflects the components of Equipment net revenue change between fiscal 2015 and 2014: (in thousands) Equipment Price Fiscal 2015 vs. 2014 Volume $ Change $ 2,341 $ (33,388) $ (31,047) For fiscal 2015, the lower Equipment net revenue as compared to fiscal 2014 was primarily due to lower volume of our ball bonders sales. This was partially offset by higher volume in our wedge bonders and our new APMR and SMT products. The lower volume for ball bonders sales was mainly attributable to the lower equipment utilization rate, and therefore lower demand from our customers. The lower volume was partially offset by the better pricing due to favorable customer mix. Expendable Tools The following table reflects the components of Expendable Tools net revenue change between fiscal 2015 and 2014: (in thousands) Expendable Tools Price Fiscal 2015 vs. 2014 Volume $ Change $ (538) $ (513) $ (1,051) For fiscal 2015, the lower Expendable Tools net revenue as compared to fiscal 2014 was primarily due to lower volume in wedge bonding tools business and a price reduction in our wire bonding tools business. Gross Profit The following table reflects gross profit by business segment for fiscal 2015 and 2014: (dollar amounts in thousands) Equipment Expendable Tools Total gross profit Fiscal 2015 2014 $ Change % Change $ $ 221,961 37,131 259,092 $ $ 234,115 39,439 273,554 $ $ (12,154) (2,308) (14,462) (5.2)% (5.9)% (5.3)% The following table reflects gross profit as a percentage of net revenue by business segment for fiscal 2015 and 2014: Equipment Expendable Tools Total gross margin Equipment Fiscal 2015 2014 Basis Point Change 47.0% 57.6% 48.3% 46.5% 60.2% 48.1% 50 (260) 20 The following table reflects the components of Equipment gross profit change between fiscal 2015 and 2014: (in thousands) Equipment Price Fiscal 2015 vs. 2014 Cost Volume $ Change $ 2,341 $ (1,825) $ (12,670) $ (12,154) 35 For fiscal 2015, the lower Equipment gross profit as compared to fiscal 2014 was primarily due to the lower volume of equipment sales and higher costs. The lower volume was mainly due to lower sales of ball bonders offset by higher volume in our wedge bonders and our new APMR and SMT products. The lower volume in ball bonders was attributable to the lower equipment utilization rate, and therefore lower demand from our customers. The higher costs were due to changes in the product mix on our ball bonders. The lower volume and higher costs were partially offset by better pricing due to favorable customer mix. Expendable Tools The following table reflects the components of Expendable Tools gross profit change between fiscal 2015 and 2014: (in thousands) Expendable Tools Price Fiscal 2015 vs. 2014 Cost Volume $ Change $ (538) $ (682) $ (1,088) $ (2,308) For fiscal 2015, the lower Expendable Tools gross profit as compared to fiscal 2014 was primarily due to lower volume from our wedge bonding business. Operating Expenses The following table reflects operating expenses as a percentage of net revenue for fiscal 2015 and 2014: Selling, general & administrative Research & development Total Selling, General and Administrative (“SG&A”) Fiscal 2015 2014 Basis point change 24.6% 16.8% 41.4% 20.0% 14.6% 34.6% 460 220 680 For fiscal 2015, higher SG&A as compared to fiscal 2014 was primarily due to additional SG&A expenses of $24.6 million from our new APMR and SMT products and net unfavorable $0.5 million of restructuring cost and other severance expenses. This was partially offset by a decrease in incentive compensation of $6.8 million as a result of lower current fiscal year profit. Research and Development (“R&D”) For fiscal 2015, higher R&D expenses as compared to fiscal 2014 was primarily due to additional investment in the development of advanced packaging products. Income from Operations For fiscal 2015, total income from operations was lower by $39.7 million as compared to fiscal 2014. This was due primarily to lower revenue for equipment sales and higher operating expenses as explained above. Interest Income and Expense The following table reflects interest income and interest expense for fiscal 2015 and 2014: (dollar amounts in thousands) Interest income Interest expense Fiscal 2015 2014 $ Change % Change $ $ 1,637 $ (1,183) $ 1,197 $ (1,048) $ 440 (135) 36.8% 12.9% Interest income in fiscal 2015 was derived from short term investments and cash and cash equivalents balance. The higher interest expense for fiscal 2015 was attributable to the interest on financing obligation relating to the new building, which was incurred subsequent to the completion of the new building in December 2013 (Refer to Note 9 of our Consolidated Financial Statements included in Item 8 of this report). 36 Provision for Income Taxes The following table reflects the provision for income taxes and the effective tax rate for fiscal 2015 and 2014: (in thousands) Income from operations before income taxes Provision for income taxes Net income Effective tax rate Fiscal 2015 37,705 (12,934) 50,639 $ $ $ $ 2014 77,133 14,145 62,988 (34.3)% 18.3% For fiscal 2015, the effective income tax rate decreased from fiscal 2014 by 52.6% due primarily to a net $19.7 million decrease of deferred tax liabilities on certain unremitted foreign earnings as a result of the change in permanent reinvestment assertion, and $4.0 million tax benefits from research and development expenditures, offset by lower profits in foreign jurisdictions and an increase in valuation allowance against certain foreign deferred tax assets. For fiscal 2014, the effective income tax rate differed from the federal statutory rate due primarily to a shift in earnings to tax jurisdictions with higher effective tax rates than the U.S. statutory rate and the impact of tax holidays, offset by an increase in deferred tax liabilities on unremitted earnings and additional domestic and foreign expenses or benefits related to returns filed in the period. Our future effective tax rate would be affected if earnings were lower than anticipated in countries where we are subjected to lower statutory rates and higher than anticipated in countries where we are subjected to 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. In addition, changes in assertion for foreign earnings permanently or non-permanently reinvested as a result of changes in facts and circumstances could significantly impact the effective tax rate. During the year ended October 3, 2015, the Company is executing a business structure reorganization resulting in a change in its permanent reinvestment assertion outside the United States. Approximately $19.7 million of deferred tax liability was reversed and recorded as a tax benefit. We regularly assess the effects resulting from these factors to determine the adequacy of our provision for income taxes. 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 due to the expected lapse of statutes of limitation and/or settlements of tax examinations. We cannot practicably estimate the financial outcomes of these examinations. 37 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. 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 a substantial majority of our future revenue. The following table reflects net revenue by business segment for fiscal 2014 and 2013: (dollar amounts in thousands) Equipment Expendable Tools Total net revenue 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% 38 Equipment 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 Equipment Fiscal 2014 2013 Basis Point Change 46.5% 60.2% 48.1% 44.7% 57.2% 46.2% 180 300 190 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. 39 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 $ (1,017) $ 2,333 $ 2,475 $ $ Change 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. 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: cash 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. 40 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. 41 LIQUIDITY AND CAPITAL RESOURCES The following table reflects total cash and investments as of October 3, 2015 and September 27, 2014: (dollar amounts in thousands) Cash and cash equivalents Percentage of total assets As of October 3, 2015 498,614 $ September 27, 2014 587,981 $ Change $ (89,367) 55.1% 62.3% The following table reflects summary Consolidated Statement of Cash Flow information for fiscal 2015 and 2014: (in thousands) Net cash provided by operating activities Net cash used in investing activities Net cash used in 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 2015 Fiscal 2015 2014 $ $ 87,875 (94,109) (84,459) 1,326 (89,367) 587,981 498,614 — 498,614 $ $ 82,460 (15,974) (164) (129) 66,193 521,788 587,981 9,105 597,086 Net cash provided by operating activities was primarily the result of net income of $50.6 million, non-cash adjustments of $11.4 million and working capital changes of $25.8 million. The change in working capital was primarily driven by a decrease in accounts receivable of $72.3 million. This was partially offset by decreases in accounts payable and accrued expenses and other current liabilities of $32.8 million and an increase in inventories of $14.5 million. The lower revenues in the fourth quarter of fiscal 2015 as compared to fourth quarter of fiscal 2014 resulted in a reduction of accounts receivable and lower accounts payable, accrued expenses and other current liabilities. 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 2016 and the lower revenues in the fourth quarter of fiscal 2015 as compared to fourth quarter of fiscal 2014. Net cash used in investing activities was primarily due to net cash outflow for the Assembléon acquisition of $93.2 million, purchase of short-term investments of $1.6 million and capital expenditures of $10.3 million. This was offset by the maturity of short-term investments of $10.8 million and proceeds from sales of property, plant and equipment of $0.2 million. Net cash used in financing relates to the repurchase of common stock of $75.7 million and repayment of loans of $10.8 million related to the acquired business. This was offset by proceeds from the short term loans of $0.8 million and proceeds from the exercise of stock options of $0.7 million. Fiscal 2014 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 was 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. 42 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 2016 Liquidity and Capital Resource Outlook We expect our fiscal 2016 capital expenditures to be between $10.0 and $11.0 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. In 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 October 3, 2015, the Company repurchased a total of 6.4 million shares of common stock at a cost of $77.9 million under the repurchase program. As of October 3, 2015, our remaining stock repurchase authorization under the repurchase program was approximately $21.5 million. In January 2015, KSH, the Company's wholly owned subsidiary, acquired Assembléon, a subsidiary of Assembléon Holding B.V., in an all cash transaction for approximately $97.4 million (EUR80 million). 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 October 3, 2015 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. 43 The following table reflects obligations and contingent payments under various arrangements as of October 3, 2015: (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 $ $ $ $ 1,914 2,575 1,496 3,388 — $ — 74 — — $ 750 287 — — $ — — — 1,914 1,825 1,135 3,388 9,373 $ 74 80,600 30,195 80,600 4,874 $ $ 1,037 $ — $ 8,262 — $ — $ 7,678 5,908 — 11,735 $ 110,795 $ 85,474 $ 7,678 $ 5,908 $ 11,735 (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 our corporate headquarters range from $4 million to $5 million Singapore dollars and is not included in the table above. Off-Balance Sheet Arrangements Credit facility and bank guarantee 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 in connection with the lease agreement for our corporate headquarters. The bank guarantee is effective from December 1, 2013 to November 30, 2014. On November 19, 2014, the Company extended the expiration date of the bank guarantee to November 30, 2015 and increased the amount to $3.5 million Singapore dollars. As of October 3, 2015, we did not have any other off-balance sheet arrangements, such as 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 October 3, 2015, 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 Netherlands, 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 October 3, 2015, 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 October 3, 2015. 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 October 3, 2015 and September 27, 2014, and the results of their operations and their cash flows for each of the three years in the period ended October 3, 2015 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 October 3, 2015, 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 under 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. As described in Management's Report on Internal Control over Financial Reporting included under Item 9A of this report, management has excluded Assembléon B.V. and its subsidiaries from its assessment of internal control over financial reporting as of October 3, 2015 because it was acquired by the Company in a purchase business combination in January 2015. We have also excluded Assembléon B.V. and its subsidiaries from our audit of internal control over financial reporting. Assembléon B.V. and its subsidiaries are wholly-owned subsidiaries of the Company whose total assets and total revenues represent 4.9% and 11.0%, respectively, of the related consolidated financial statement amounts as of and for the year ended October 3, 2015. /s/ PricewaterhouseCoopers LLP Singapore November 18, 2015 46  KULICKE AND SOFFA INDUSTRIES, INC. CONSOLIDATED BALANCE SHEETS (in thousands) As of October 3, 2015 September 27, 2014 ASSETS Current assets: Cash and cash equivalents Short-term investments Accounts and notes receivable, net of allowance for doubtful accounts of $621 and $143, 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 15) SHAREHOLDERS' EQUITY: Preferred stock, without par value: Authorized 5,000 shares; issued - none Common stock, no par value: Authorized 200,000 shares; issued 82,643 and 81,624 respectively; outstanding 71,240 and 76,626 shares, respectively Treasury stock, at cost, 11,403 and 4,998 shares, respectively Retained earnings Accumulated other comprehensive (loss) income TOTAL SHAREHOLDERS' EQUITY TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ $ $ $ $ $ $ 498,614 — $ 108,596 79,096 16,937 4,126 707,369 53,234 81,272 57,471 5,120 904,466 25,521 45,971 2,442 73,934 16,483 31,316 10,842 132,575 $ $ $ 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 — $ — 492,339 (124,856) 405,505 (1,097) 771,891 904,466 $ $ 479,116 (46,984) 354,866 2,244 789,242 944,448 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 Income tax (benefit)/ expense Net income Net income per share: Basic Diluted Weighted average shares outstanding: Basic Diluted 2015 Fiscal 2014 2013 $ $ $ $ 536,471 277,379 259,092 131,808 90,033 221,841 37,251 1,637 (1,183) 37,705 (12,934) 50,639 0.67 0.67 $ $ $ $ 568,569 295,015 273,554 113,514 83,056 196,570 76,984 1,197 (1,048) 77,133 14,145 62,988 0.82 0.81 $ $ $ $ 534,938 287,993 246,945 119,519 61,620 181,139 65,806 883 (21) 66,668 7,310 59,358 0.79 0.78 75,414 75,659 76,396 77,292 75,132 76,190 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) 2015 Fiscal 2014 2013 $ 50,639 $ 62,988 $ 59,358 (3,360) 19 (983) (391) 1,186 51 1,237 60,595 Net income Other comprehensive income (loss): Foreign currency translation adjustment Unrecognized actuarial loss/ (gain), Switzerland pension plan, net of tax Total other comprehensive (loss)/ income Comprehensive income (3,341) 47,298 $ (1,374) 61,614 $ $ 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 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 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 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 October 3, 2015 Common Stock Shares Amount Treasury Stock Retained earnings Accumulated Other Comprehensive Income Shareholders' Equity 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 83 (6,405) 75 861 — — — — — — 1,049 — 694 — 540 10,940 — — — — — (77,872) — — — — — — — — — — — — — — 50,639 — — 50,639 — — — — — — — (3,360) 19 (3,341) 1,049 (77,872) 694 — 540 10,940 50,639 (3,360) 19 47,298 71,240 $ 492,339 $ (124,856) $ 405,505 $ (1,097) $ 771,891 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 Equity-based compensation and employee benefits (Excess tax benefits from stock based compensation) Reversal of excess tax benefits Adjustment for doubtful accounts Adjustment for inventory valuation Deferred taxes Switzerland pension plan curtailment gain (Gain) Loss on disposal of property, plant and equipment Asset retirement obligation Unrealized foreign currency transactions Changes in operating assets and liabilities, net of assets and liabilities assumed in businesses combinations: 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 operating activities CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of business, net of cash acquired Purchases of property, plant and equipment Proceeds from sales of property, plant and equipment Purchase of short term investments Maturity of short term investments Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES: Payment on debts Proceeds from short term loans Proceeds from exercise of common stock options Repurchase of common stock Excess tax benefits from stock based compensation (Reversal of excess tax benefits) 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 2015 Fiscal 2014 2013 $ 50,639 $ 62,988 $ 59,358 18,972 11,989 (540) 478 3,978 (16,738) — (71) — (6,631) 72,304 (14,471) 493 (32,766) (1,968) 2,207 87,875 (93,153) (10,269) 180 (1,630) 10,763 (94,109) 13,520 11,336 825 320 3,060 4,494 (84) 90 — (1,122) (9,294) (14,618) 8,866 (1,269) 1,030 2,318 82,460 — (10,138) 44 (18,236) 12,356 (15,974) 18,489 10,670 (825) 371 3,561 5,901 (2,100) (147) (368) 620 26,408 17,056 (2,421) (36,066) (6,832) 1,149 94,824 — (17,172) 5,310 (3,252) — (15,114) (10,815) 837 694 (75,715) 540 (84,459) 1,326 (89,367) 587,981 $ 498,614 — — 1,080 (419) (825) (164) (129) 66,193 521,788 $ 587,981 — — 908 — 825 1,733 101 81,544 440,244 $ 521,788 $ $ 1,183 5,192 $ $ 1,048 4,603 $ $ — 8,382 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 2015, 2014, and 2013 fiscal years ended on October 3, 2015, September 27, 2014 and September 28, 2013, 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 device manufacturers, outsourced semiconductor assembly and test providers (“OSATs”), and other electronics manufacturers, including automotive electronics suppliers, 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, 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 October 3, 2015 and September 27, 2014 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. Foreign Currency Translation and Remeasurement 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 52 KULICKE AND SOFFA INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 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. The Company's operations are exposed to changes in foreign currency exchange rates due to transactions denominated in currencies other than the location's functional currency. The Company is also exposed to foreign currency fluctuations that impact the remeasurement of net monetary assets of those operations whose functional currency, the U.S. dollar, differs from their respective local currencies, most notably in Israel, Malaysia, Singapore and Switzerland. In addition to net monetary remeasurement, the Company has exposures related to the translation of subsidiary financial statements from their functional currency, the local currency, into its reporting currency, the U.S. dollar, most notably in Netherlands, 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. 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 October 3, 2015 and September 27, 2014, 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 53 KULICKE AND SOFFA INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) using quoted market prices at the balance sheet date. Investments classified as held-to-maturity are reported at amortized cost. Realized gains and losses are determined on the basis of specific identification of the securities sold. Allowance for Doubtful Accounts The Company maintains allowances for doubtful accounts for estimated losses resulting from its customers' failure to make required payments. If the financial condition of the Company's customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. The Company is also subject to concentrations of customers and sales to a few geographic locations, which could also impact the collectability of certain receivables. If global or regional 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 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. The inventory reserve provision for the acquired business, Assembléon B.V. (“Assembléon”), is determined based on management's estimate of future consumption for equipment and spare parts. This estimate is based on historical sales volumes, internal projections and market developments and trends. 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 October 3, 2015 and September 27, 2014, no triggering events occurred. Accounting for Impairment of Goodwill The Company operates two reportable segments: Equipment and Expendable Tools. Goodwill was recorded for the acquisitions of Orthodyne Electronics Corporation ("Orthodyne") and Assembléon in 2009 and 2015, respectively. 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 54 KULICKE AND SOFFA INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 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. In fiscal 2014 and 2015, 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 the 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 October 3, 2015, no triggering events have occurred. Impairment assessments inherently involve judgment as to the assumptions made about the expected future cash flows and the impact of market conditions on those assumptions. Future events and changing market conditions may impact the assumptions as to prices, costs, growth rates or other factors that may result in changes in our estimates of future cash flows. Although the Company believes the assumptions that it has used in testing for impairment are reasonable, significant changes in any one of the assumptions could produce a significantly different result. Indicators of potential impairment may lead the Company to perform interim goodwill impairment assessments, including significant and unforeseen customer losses, a significant adverse change in legal factors or in the business climate, a significant adverse action or assessment by a regulator, a significant stock price decline or unanticipated competition. For further information on goodwill and other intangible assets, see Note 5 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. 55 KULICKE AND SOFFA INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Equity-Based Compensation The Company accounts for equity-based compensation under the provisions of ASC No. 718, Compensation - Stock Compensation (“ASC 718”). ASC 718 requires the recognition of the fair value of the equity-based compensation in net income. Compensation expense associated with market-based restricted stock is determined using a Monte-Carlo valuation model, and compensation expense associated with time-based and performance-based restricted stock is determined based on the number of shares granted and the fair value on the date of grant. The fair value of the Company's stock option awards are estimated using a Black-Scholes option valuation model. In addition, the calculation of equity-based compensation costs requires that the Company estimate the number of awards that will be forfeited during the vesting period. The fair value of equity-based awards is amortized over the vesting period of the award and the Company elected to use the straight-line method for awards granted after the adoption of ASC 718. Earnings per Share Earnings per share (“EPS”) are calculated in accordance with ASC No. 260, Earnings per Share. Basic EPS include only the weighted average number of common shares outstanding during the period. Diluted EPS includes the weighted average number of common shares and the dilutive effect of stock options, restricted stock and share unit awards and convertible subordinated notes outstanding during the period, when such instruments are dilutive. In accordance with ASC No. 260.10.55, Earnings per Share - Implementation & Guidance, 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. Accounting for Business Acquisitions The Company accounts for business acquisitions in accordance with ASC No. 805, Business Combinations. The fair value of the net assets acquired and the results of operations of the acquired businesses are included in the Company's Consolidated Financial Statements from the acquisition date forward. The Company is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and results of operations during the reporting period. Estimates are used in accounting for, among other things, the fair value of acquired net operating assets, property, plant and equipment, deferred revenue, intangible assets and related deferred tax liabilities, useful lives of plant and equipment, and amortizable lives of acquired intangible assets. Any excess of the purchase consideration over the identified fair value of the assets and liabilities acquired is recognized as goodwill. The valuation of these tangible and identifiable intangible assets and liabilities is subject to further management review and may change materially between the preliminary allocation and end of the purchase price allocation period. Restructuring charges Restructuring charges may consist of voluntary or involuntary severance-related charges, asset-related charges and other costs due to exit activities. We recognize voluntary termination benefits when an employee accepts the offered benefit arrangement. We recognize involuntary severance-related charges depending on whether the termination benefits are provided under an ongoing benefit arrangement or under a one-time benefit arrangement. If the former, we recognize the charges once they are probable and the amounts are estimable. If the latter, we recognize the charges once the benefits have been communicated to employees. Recent Accounting Pronouncements In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("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 standard provides for a single five-step model to be applied to all revenue contracts with customers. The new standard also requires additional financial statement disclosures that will enable users to understand the nature, amount, timing and uncertainty of revenue and cash flows relating to customer contracts. Companies have an option to use either a retrospective approach or cumulative effect adjustment approach to implement the standard. There is no option for early adoption. In July 2015, the FASB decided to delay the effective date of the new revenue standard by one year. Under the proposal, the new guidance will be effective as of the beginning of our 2018 fiscal year. We are currently evaluating the impact of the new guidance on our financial statements and have not yet selected a transition approach to implement the standard. 56 KULICKE AND SOFFA INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) In February 2015, the FASB issued ASU 2015-02 – Amendments to the Consolidation Analysis, which amends the consolidation requirements in ASC 810 Consolidation. ASU 2015-02 makes targeted amendments to the current consolidation guidance for VIEs, which could change consolidation conclusions. This ASU will be effective for us beginning in our first quarter of 2017 and early adoption is permitted. We are evaluating the effects of the adoption of this ASU on our financial statements. In April 2015, the FASB issued ASU 2015-05, which provides additional guidance to customers about whether a cloud computing arrangement includes a software license. Under ASU 2015-05, if a software cloud computing arrangement contains a software license, customers should account for the license element of the arrangement in a manner consistent with the acquisition of other software licenses. If the arrangement does not contain a software license, customers should account for the arrangement as a service contract. ASU 2015-05 also removes the requirement to analogize to ASC 840-10 – Leases to determine the asset acquired in a software licensing arrangement. This ASU will be effective for us beginning in our first quarter of 2017 and early adoption is permitted. We are evaluating the effects of the adoption of this ASU on our financial statements. In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory, which requires that inventory be measured at the lower of cost or net realizable value rather than the lower of cost or market. This standard must be applied on a prospective basis, and is effective for annual and interim reporting periods beginning January 1, 2017. Since early adoption is permitted, we adopted this standard in the fourth quarter of 2015. The adoption of this standard did not have a material impact on our financial statements. 57 KULICKE AND SOFFA INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) NOTE 2: RESTRUCTURING On September 29, 2015, the Company implemented a plan to streamline its global operations and functions. As part of this plan, we expect that our workforce will be reduced by 45 employees over a period of approximately 3 months. The following table reflects severance activity during fiscal 2015: (in thousands) Provision for severance and benefits (1) Payment of severance and benefits Accrual for estimated severance and benefits, end of period (2) Fiscal 2015 1,850 (312) 1,538 (1) Provision for severance and benefits is the total amount expected to be incurred and is included within selling, general and administrative expenses on the Consolidated Statements of Operations. (2) Included within accrued expenses and other current liabilities on the Consolidated Balance Sheets. NOTE 3: BALANCE SHEET COMPONENTS The following tables reflect the components of significant balance sheet accounts as of October 3, 2015 and September 27, 2014: (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 Accumulated depreciation Accrued expenses and other current liabilities: Wages and benefits Accrued customer obligations (2) Commissions and professional fees Deferred Rent Severance Other 58 As of October 3, 2015 September 27, 2014 — $ 9,105 23,541 24,110 50,518 98,169 (19,073) 79,096 33,760 19,512 28,861 52,106 134,239 (81,005) 53,234 19,166 9,215 3,880 2,450 1,645 9,615 45,971 $ $ $ $ $ $ 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 $ $ $ $ $ $ $ KULICKE AND SOFFA INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (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. (2) Represents customer advance payments, customer credit program, accrued warranty expense and accrued retrofit obligations. NOTE 4: BUSINESS COMBINATIONS On January 9, 2015, Kulicke & Soffa Holdings B.V. (“KSH”), the Company's wholly owned subsidiary, acquired all of the outstanding equity interests of Assembléon. The cash purchase price of approximately $97.4 million (EUR 80 million) consisted of $72.5 million for 100% of the equity of Assembléon and $24.9 million which was used by Assembléon to settle intercompany loans with its parent company. The acquisition of Assembléon was accounted for in accordance with ASC No. 805, Business Combinations, using the acquisition method. The Company has estimated the preliminary fair value of acquired assets and liabilities as of the date of acquisition based on information available at that time. The valuation of these tangible and identifiable intangible assets and liabilities is subject to further management review and may change materially between the preliminary allocation and end of the purchase price allocation period on January 9, 2016. Any changes in these estimates may have a material impact on our Consolidated Results of Operations or Consolidated Balance Sheets. As of October 3, 2015, $13.5 million (EUR 12 million) was held in escrow for a period of eighteen months from the acquisition date as security pending the completion of Assembleon Holding B.V.'s obligations as seller under the Agreement. The following table summarizes the allocation of the assets acquired and liabilities assumed based on the fair values as of the acquisition date and related useful lives of the finite-lived intangible assets acquired: (in thousands) Accounts receivable Inventories Prepaid expenses and other current assets Deferred tax asset Property, plant and equipment Intangibles Goodwill Deferred income taxes Accounts payable Borrowings financial institutions Accrued expenses and other current liabilities Income taxes payable Deferred tax liabilities Total purchase price, net of cash acquired January 9, 2015 9,941 19,861 2,322 157 531 61,463 39,726 638 (14,386) (9,491) (10,561) (1,933) (5,115) 93,153 $ Tangible net assets (liabilities) were valued at their respective carrying amounts, which the Company believes approximate their current fair values at the acquisition date. The valuation of identifiable intangible assets acquired reflects management’s estimates based on, among other factors, use of established valuation methods. The technology/software and product brand name was determined using the relief from royalty method. Customer relationships were valued by using multi-period excess earnings method. Identifiable intangible assets with definite lives are amortized over the period of estimated benefit using the straight-line method and the estimated useful lives of six to fifteen years. The straight-line method of amortization represents the Company’s best estimate of the distribution of the economic value of the identifiable intangible assets. Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired. None of the goodwill recorded as part of the acquisition will be deductible for income tax purposes. In connection with the acquisition of Assembléon, the Company recorded deferred tax liabilities relating to the acquired intangible assets, which are partially offset by the net amount of acquired net operating losses. The net amount of acquired net operating 59 KULICKE AND SOFFA INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) losses is comprised of net operating losses less the tax reserves and valuation allowance. The Company has recorded long-term income tax payable due to uncertain tax positions with respect to certain Assembléon entities. For the year ended October 3, 2015, the acquired business contributed revenue of $59.3 million and net loss of $2.0 million. During fiscal 2015, the Company incurred $0.9 million of expenses related to the acquisition, which is included within selling, general and administrative expense in the consolidated statements of income. The following unaudited pro forma information presents the combined results of operations as if the acquisition had been completed on September 29, 2013, the beginning of the comparable prior annual reporting period. The unaudited pro forma results include: (i) amortization associated with preliminary estimates for the acquired intangible assets; (ii) recognition of the post-acquisition share-based compensation and other compensation expense; and (iii) the associated tax impact on these unaudited pro forma adjustments. The unaudited pro forma results do not reflect any cost saving synergies from operating efficiencies or the effect of the incremental costs incurred in integrating the two companies. Accordingly, these unaudited pro forma results are presented for informational purposes only and are not necessarily indicative of what the actual results of operations of the combined company would have been if the acquisition had occurred at the beginning of the periods presented, nor are they indicative of future results of operations: (in thousands) Revenue Net income / (loss) Basic income per common share Diluted income per common share Fiscal 2015 2014 $ 562,754 $ 45,303 0.60 0.60 590,080 60,920 0.80 0.79 NOTE 5: GOODWILL AND INTANGIBLE ASSETS Goodwill Intangible assets classified as goodwill are not amortized. The Company performs an annual impairment test of its goodwill 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 2015 and concluded that no impairment charge was required. During the year ended October 3, 2015, the Company reviewed the qualitative factors to ascertain if a “triggering” event may have taken place that may have the effect of reducing the fair value of the reporting unit below its carrying value and concluded that no triggering event had occurred in fiscal 2015. In 2009, the Company recorded goodwill when it acquired Orthodyne and added wedge bonder products to its business. On December 29, 2014, KSH, the Company's wholly owned subsidiary, entered into an agreement with Assembléon Holding B.V. Pursuant to the agreement, KSH purchased all of the outstanding equity interests of Assembléon, a subsidiary of Assembléon Holding B.V., in an all cash transaction for approximately $97.4 million (EUR 80 million). Assembléon, together with its subsidiaries, offers assembly equipment, processes and services for the automotive, industrial, and advanced packaging markets. The acquisition expands the Company presence in automotive, industrial and advanced packaging markets. The acquisition was completed on January 9, 2015. Upon acquisition, Assembléon became a wholly owned subsidiary of the Company. The following table summarizes the Company's recorded goodwill as of October 3, 2015: (in thousands) Balance at September 27, 2014 Acquired in business combination Balance at October 3, 2015 As of October 3, 2015 $ $ 41,546 39,726 81,272 60 KULICKE AND SOFFA INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Intangible Assets Intangible assets with determinable lives are amortized over their estimated useful lives. The Company's intangible assets consist primarily of developed technology, customer relationships and trade and brand names. The following table reflects net intangible assets as of October 3, 2015 and September 27, 2014: (dollar amounts in thousands) Developed technology Acquired in business combination Accumulated amortization Net developed technology Customer relationships Acquired in business combination Accumulated amortization $ $ $ Net customer relationships $ Trade and brand names Acquired in business combination Accumulated amortization Net trade and brand names Other intangible assets Accumulated amortization Net wedge bonder other intangible assets Net intangible assets $ $ $ $ $ As of October 3, 2015 33,200 40,880 (35,244) 38,836 19,300 17,668 (21,509) 15,459 4,600 2,915 (4,339) 3,176 2,500 (2,500) $ $ $ $ $ — $ Average estimated useful lives (in years) 7.0 to 15.0 September 27, 2014 33,200 $ — (28,458) 4,742 $ 19,300 — (19,300) — 4,600 — (3,451) 1,149 2,500 (2,500) — 5.0 to 6.0 7.0 to 8.0 1.9 57,471 $ 5,891 The following table reflects estimated annual amortization expense related to intangible assets as of October 3, 2015: (in thousands) Fiscal 2016 Fiscal 2017 Fiscal 2018 Fiscal 2019 Fiscal 2020 and thereafter Total amortization expense As of October 3, 2015 $ $ 6,660 6,086 6,086 6,086 32,553 57,471 61 KULICKE AND SOFFA INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) NOTE 6: CASH AND CASH EQUIVALENTS Cash equivalents and short-term investments 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 October 3, 2015: (dollar amounts in thousands) Current assets: Cash Cash equivalents Money market funds Time deposits Amortized Cost Unrealized Gains Unrealized Losses Estimated Fair Value $ 105,617 $ — $ — $ 105,617 155,715 237,282 — — — — 155,715 237,282 498,614 Total cash and cash equivalents $ 498,614 $ — $ — $ 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 — — — — — — 295,529 132,284 29,500 $ 587,981 $ — $ — $ 587,981 9,105 9,105 — — — — 9,105 9,105 Total cash, cash equivalents and short-term investments $ 597,086 $ — $ — $ 597,086 NOTE 7: FAIR VALUE MEASUREMENTS 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 October 3, 2015. 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. 62 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 October 3, 2015 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 Total assets Quoted Prices in Active Markets for Identical Assets Significant Other Observable Inputs Significant Unobservable Inputs Total (Level 1) (Level 2) (Level 3) $ 105,617 $ 105,617 $ — $ 155,715 237,282 155,715 237,282 — — $ 498,614 $ 498,614 $ — $ — — — — 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 $ — $ — — — — — — NOTE 8: 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. 63 KULICKE AND SOFFA INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) There were no outstanding derivative instruments as of October 3, 2015 and September 27, 2014. The effect of derivative instruments designated as cash flow hedges in our Consolidated Statements of Income for the year ended October 3, 2015 and September 27, 2014 was as follows: (in thousands) Foreign exchange forward contract in cash flow hedging relationships: Net (loss)/ gain recognized in OCI, net of tax(1) Net (loss)/ gain reclassified from accumulated OCI into income, net of tax(2) Net gain recognized in income(3) Fiscal 2015 2014 $ $ $ (1,008) $ (1,008) $ — $ 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 9: DEBT AND OTHER OBLIGATIONS Financing Obligation On December 1, 2013, Kulicke & Soffa Pte Ltd. (“Pte”), the Company's wholly owned subsidiary, signed a lease with DBS Trustee Limited as trustee of Mapletree Industrial Trust (the “Landlord”) to lease from the Landlord approximately 198,000 square feet, representing approximately 70% of a building in Singapore as our corporate headquarters, as well as a manufacturing, technology, sales and service center (the “Building”). The lease has a 10 year non-cancellable term (the "Initial Term") and contains options to renew for 2 further 10 -year terms. The annual rent and service charge for the initial term range from $4 million to $5 million Singapore dollars. Pursuant to ASC No. 840, Leases ("ASC 840"), we have classified the Building on our balance sheet as Property, Plant and Equipment, which we are depreciating over its estimated useful life of 25 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. At the inception of the lease, the asset and financing obligation recorded on the balance sheet was $20.0 million, which was based on 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. Credit facility and bank guarantee 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. The bank guarantee was effective from December 1, 2013 to November 30, 2014. On November 19, 2014, the Company extended the expiration date of the bank guarantee to November 30, 2015 and increased the amount to $3.5 million Singapore dollars. NOTE 10: 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. Since 2011, matching contributions to the Plan have been made in cash. 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 2015 and 2014: (in thousands) Cash Fiscal 2015 2014 $ 1,573 $ 1,278 64 KULICKE AND SOFFA INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Stock Repurchase Program 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 is 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 depend on market conditions as well as corporate and regulatory considerations. During the year ended October 3, 2015, the Company repurchased a total of 6.4 million shares of common stock at a cost of $77.9 million. The stock repurchases were recorded in the periods they were delivered, and the payment of $75.7 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, amounts 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 October 3, 2015 and September 27, 2014: As of (in thousands) (Loss)/Gain from foreign currency translation adjustments Unrecognized actuarial loss, Switzerland pension plan, net of tax Switzerland pension plan curtailment Accumulated other comprehensive income $ $ Equity-Based Compensation October 3, 2015 September 27, 2014 3,199 (609) (346) 2,244 (161) $ (590) (346) (1,097) $ As of October 3, 2015, 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 October 3, 2015, the Company’s one active plan, the 2009 Equity Plan, had 3.4 million shares of new common stock available for grant to its employees and directors. • Market-based restricted stock entitles the employee to receive common shares of the Company on the award vesting date if market performance objectives which measure relative total shareholder return (“TSR”) are attained. Relative TSR is calculated based upon the 90-calendar day average price of the Company's stock as compared to specific peer companies that comprise the Philadelphia Semiconductor Index. TSR is measured for the Company and each peer company over a performance period, which is generally three years. Vesting percentages range from 0% to 200% of awards granted. The provisions of the market-based restricted stock are reflected in the grant date fair value of the award; therefore, compensation expense is recognized regardless of whether 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. 65 KULICKE AND SOFFA INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Equity-based compensation expense recognized in the Consolidated Statements of Operations for fiscal 2015, 2014, and 2013 was based upon awards ultimately expected to vest. In accordance with ASC No. 718, Stock Based Compensation, forfeitures have been estimated at the time of grant and were based upon historical experience. The Company reviews the forfeiture rates periodically and makes adjustments as necessary. The following table reflects total equity-based compensation expense, which includes restricted stock, stock options and common stock, included in the Consolidated Statements of Operations for fiscal 2015, 2014, and 2013: (in thousands) Cost of sales Selling, general and administrative Research and development Total equity-based compensation expense 2015 393 9,127 2,469 11,989 $ $ $ $ Fiscal 2014 344 8,906 2,086 11,336 $ $ 2013 295 8,457 1,918 10,670 The following table reflects equity-based compensation expense, by type of award, for fiscal 2015, 2014, and 2013: (in thousands) Market-based restricted stock Time-based restricted stock Performance-based restricted stock Stock options Common stock Total equity-based compensation expense 2015 Fiscal 2014 $ $ 4,677 6,129 131 3 1,049 11,989 $ $ 4,960 5,419 131 17 809 11,336 $ $ 2013 4,135 5,545 107 43 840 10,670 Equity-Based Compensation: employee market-based restricted stock The following table reflects employee market-based restricted stock activity for fiscal 2015, 2014, and 2013: Market-based restricted stock outstanding as of September 29, 2012 Granted Forfeited or expired Vested Number of shares (in thousands) 914 344 (49) (124) Unrecognized compensation expense (in thousands) $ 6,175 Market-based restricted stock outstanding as of September 28, 2013 1,085 $ 5,913 Granted Forfeited or expired Vested Market-based restricted stock outstanding as of September 27, 2014 Granted Forfeited or expired Vested 335 (19) (333) 1,068 232 (48) (674) 5,271 Market-based restricted stock outstanding as of October 3, 2015 578 $ 4,465 Average remaining service period (in years) Weighted average grant date fair value per share 13.89 13.46 16.83 $ $ $ 1.5 1.1 1.0 1.4 66 KULICKE AND SOFFA INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The following table reflects the assumptions used to calculate compensation expense related to the Company’s performance- based restricted stock issued during fiscal 2015, 2014, and 2013: Grant Price Expected dividend yield Expected stock price volatility Risk-free interest rate 2015 Fiscal 2014 $ 14.02 $ 11.29 $ N/A 35.48% 0.89% N/A 44.88% 0.69% 2013 10.49 N/A 57.74% 0.31% Equity-Based Compensation: employee time-based restricted stock The following table reflects employee time-based restricted stock activity for fiscal 2015, 2014, and 2013: 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 September 29, 2012 1,532 $ 7,070 Granted Forfeited or expired Vested 620 (132) (804) Time-based restricted stock outstanding as of September 28, 2013 1,216 $ 6,028 Granted Forfeited or expired Vested 649 (52) (756) Time-based restricted stock outstanding as of September 27, 2014 1,057 $ 6,720 Granted Forfeited or expired Vested 484 (29) (663) Time-based restricted stock outstanding as of October 3, 2015 849 $ 7,054 10.59 11.48 14.06 $ $ $ 1.4 1.2 1.4 1.6 67 KULICKE AND SOFFA INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Equity-Based Compensation: employee performance-based restricted stock The following table reflects employee performance-based restricted stock activity for fiscal 2015, 2014, and 2013: 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 Granted Performance-based restricted stock outstanding as of October 3, 2015 Number of shares (in thousands) Unrecognized compensation expense (in thousands) Average remaining service period (in years) — 57 57 — 57 — 57 — 550 419 285 0 4.2 3.2 2.2 The following table reflects employee stock option activity for fiscal 2015, 2014, and 2013: Number of shares (in thousands) Weighted average exercise price Average remaining contractual life (in years) Aggregate intrinsic value (in thousands) Options outstanding as of September 29, 2012 Exercised Forfeited or expired Options outstanding as of September 28, 2013 Exercised Forfeited or expired Options outstanding as of September 27, 2014 Exercised Forfeited or expired Options outstanding as of October 3, 2015 Options vested and expected to vest as of October 3, 2015 Options exercisable as of October 3, 2015 In the money exercisable options as of October 3, 2015 $ 703 (101) $ (40) $ $ 562 (121) $ (221) $ 220 $ (45) $ (28) $ $ 147 $ $ 147 147 145 9.40 8.96 9.59 9.56 7.84 11.92 8.14 8.58 7.25 8.18 8.18 8.18 $ $ $ $ $ $ 2.0 2.0 2.0 292 654 282 154 154 154 Since 2011, on average, 6.7% of stock options granted by the Company become vested each year, and on average, 21% 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 2015 and the exercise price of in-the-money stock options, multiplied by the number of underlying shares. During fiscal 2015, the Company received $0.7 million in cash from the exercise of employee and non-employee director stock options. As of October 3, 2015, there were no unvested employee stock options. 68 KULICKE AND SOFFA INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The following table reflects outstanding and exercisable employee stock options as of October 3, 2015: Range of exercise prices 3.06 - 7.08 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 19 128 147 4.1 1.7 2.0 $ $ 4.94 8.65 8.18 19 128 147 $ $ 4.94 8.65 8.17 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. The following table reflects shares of common stock issued to non-employee directors and the corresponding fair value for fiscal 2015, 2014, and 2013: (in thousands) Number of common shares issued Fair value based upon market price at time of issue 2015 $ 83 1,049 $ Fiscal 2014 63 810 $ 2013 74 908 The following table reflects non-employee director stock option activity for fiscal 2015, 2014, and 2013: Number of shares (in thousands) Weighted average exercise price Average remaining contractual life (in years) Aggregate intrinsic value (in thousands) Options outstanding as of September 29, 2012 and September 28, 2013 Exercised Forfeited or expired Options outstanding as of September 27, 2014 Exercised Forfeited or expired Options outstanding as of October 3, 2015 Options vested and expected to vest as of October 3, 2015 Options exercisable as of October 3, 2015 In the money exercisable options as of October 3, 2015 11.45 11.2 12.45 10.22 10.19 6.48 11.2 11.2 11.2 135 $ (10) $ (70) $ 55 $ (30) $ (5) $ $ 20 $ $ 20 20 — $ $ $ $ $ 0.4 0.4 0.4 614 225 — — — No non-employee director stock options were granted during fiscal 2015, 2014, and 2013. Pension Plan The following table reflects the Company's defined benefits pension obligations as of October 3, 2015 and September 27, 2014: 69 KULICKE AND SOFFA INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (in thousands) Switzerland pension obligation Taiwan pension obligation Total pension obligation Other Plans As of October 3, 2015 September 27, 2014 689 1,196 1,885 $ $ 703 1,323 2,026 $ $ 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 11: EARNINGS PER SHARE Basic income per share is calculated using the weighted average number of shares of common stock outstanding during the period. Stock options and restricted stock are included in the calculation of diluted earnings per share, except when their effect would be anti-dilutive. 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. The following tables reflect a reconciliation of the shares used in the basic and diluted net income per share computation for fiscal 2015, 2014, and 2013: (in thousands, except per share) 2015 Fiscal 2014 2013 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 EPS: $ 50,639 $ 50,639 $ 62,988 $ 62,988 $ 59,358 $ 59,358 — — — — — — $ 50,639 $ 50,639 $ 62,988 $ 62,988 $ 59,358 $ 59,358 75,414 75,414 76,396 76,396 75,132 75,132 70 175 — 75,659 117 398 381 110 512 436 77,292 76,190 Net income per share - Basic $ 0.67 Effect of dilutive shares Net income per share - Diluted $ $ 0.67 $ 0.82 — 0.67 $ 0.79 $ $ $ 0.82 (0.01) 0.81 $ $ $ 0.79 (0.01) 0.78 70 KULICKE AND SOFFA INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) NOTE 12: INCOME TAXES The following table reflects income from continuing operations by location, the provision for income taxes and the effective tax rate for fiscal 2015, 2014, and 2013: (dollar amounts in thousands) United States operations Foreign operations Income from operations before tax Income tax (benefit)/expense Net income 2015 4,178 33,527 37,705 (12,934) 50,639 $ $ $ $ Fiscal 2014 7,700 69,433 77,133 14,145 62,988 $ $ 2013 (4,340) 71,008 66,668 7,310 59,358 Effective tax rate (34.3)% 18.3% 11.0% The following table reflects the provision for income taxes from continuing operations for fiscal 2015, 2014, and 2013: (in thousands) Current: Federal State Foreign Deferred: Federal State Foreign Provision for income taxes 2015 Fiscal 2014 2013 $ $ $ 1,459 76 4,707 (20,250) (10) 1,084 (12,934) $ 843 78 5,534 5,474 5 2,211 14,145 $ $ (212) 291 1,732 985 5 4,509 7,310 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 2015, 2014, and 2013: (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 Benefits from research and development tax credits (including prior years) Change in Permanent Reinvestment Assertion 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 $ 2015 13,197 (6,103) (5,855) (4,090) (19,704) — 1,822 2,634 4,904 886 (1,543) 918 (12,934) $ $ $ Fiscal 2014 2013 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 Income tax expense for the current year includes approximately $1.0 million, $1.2 million and $0.3 million of taxes payable for deemed distributions from earnings for the years ended October 3, 2015, September 27, 2014 and September 28, 2013, respectively. 71 KULICKE AND SOFFA INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) During the year ended October 3, 2015, the Company began executing a business structure reorganization for two groups of its foreign subsidiaries resulting in a change in its permanent reinvestment assertion outside the United States. Approximately $19.7 million of deferred tax liability was reversed and recorded as a tax benefit due to the change in the assertion. We consider the earnings of certain foreign subsidiaries to be permanently reinvested outside the United States. We have not recorded a deferred tax liability for U.S. federal income taxes of approximately $530.5 million of undistributed earnings. Determination of the amount of unrecognized deferred tax liability related to these earnings is not practicable, with the exception of a foreign subsidiary where we continue to retain a deferred tax liability for foreign withholding taxes of approximately $14.5 million, as those earnings may be distributed to its immediate foreign parent company. Undistributed earnings of approximately $27.2 million are not considered to be permanently reinvested outside the United States. As of October 3, 2015, the Company has provided a deferred tax liability of approximately $12.6 million for withholding taxes associated with future repatriation of earnings for certain subsidiaries to the United States. The following table reflects the net deferred tax balance, composed of the tax effects of cumulative temporary differences for fiscal 2015 and 2014: (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 2015 2014 641 3,470 628 (613) 4,126 23 4,103 5,035 32,355 525 337 38,252 (22,502) 15,750 27,101 16,735 — 43,836 28,086 23,983 $ $ $ $ $ $ $ $ $ 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) Included in other assets on the Consolidated Balance Sheets are deferred tax assets of $3.2 million and $3.8 million as of October 3, 2015 and September 27, 2014, respectively. As of October 3, 2015, the Company has foreign net operating loss carryforwards of $102.5 million, domestic state net operating loss carryforwards of $186.0 million, domestic federal net operating loss carryforwards of $3.2 million, and tax credit carryforwards of $7.4 million that will reduce future taxable income. These carryforwards can be utilized in the future, prior to expiration of certain carryforwards in fiscal years 2016 through 2034 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 $4.0 million annually, but recent tax law changes may increase this amount in future years. The Company has recorded a valuation allowance against domestic state tax attributes and certain foreign tax attributes, including additional valuation allowance relating to the tax attributes of acquired Assembléon entities. 72 KULICKE AND SOFFA INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 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. The beginning and ending balances of the Company's unrecognized tax benefits are reconciled below for fiscal 2015, 2014, and 2013: (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 2015 7,192 — 5,140 (5,231) 7,101 $ $ $ $ Fiscal 2014 6,869 — 717 (394) 7,192 $ $ 2013 6,186 — 2,485 (1,802) 6,869 If recognized, the $6.0 million of unrecognized tax benefit as of October 3, 2015 would impact the Company's effective tax rate. In fiscal 2015, the Company recorded reserves relating to uncertain tax positions with respect to the acquired business of Assembléon, and has also released tax reserves for research tax credits resulting from a write off of research tax credits carryforwards that had no impact to the statement of operations. 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. 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 2015 for matters involving jurisdictions where interest is not assessed. The Company's future effective tax rate would be affected if earnings were lower than anticipated in countries where it is subjected to lower statutory rates and higher than anticipated in countries where it is subjected to higher statutory rates, by changes in the valuation of its deferred tax assets and liabilities, or by changes in tax laws, regulations, accounting principles, or interpretations thereof. In addition, changes in assertion for foreign earnings permanently or non-permanently reinvested as a result of changes in facts and circumstances could significantly impact the effective tax rate. The Company regularly assesses the effects resulting from these factors to determine the adequacy of its provision for income taxes. 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 due to the expected lapse of statutes of limitation and/ or settlements of tax examinations. We cannot practicably estimate the financial outcomes of these examinations. 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. Currently, the Company is not under any income tax examinations by any U.S. tax authority. In the foreign jurisdictions where the Company files income tax returns, the statutes of limitations with respect to these jurisdictions vary from jurisdiction to jurisdiction and range from 4 to 6 years. The Company is currently under income tax examination by tax authorities in certain foreign jurisdictions. 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. 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 2015, 2014, and 2013, the preferential rate reduced income tax expense by approximately $5.9 million or $0.08 per share, $17.4 million or $0.23 per share and $9.6 million or $0.13 per share, respectively. 73 KULICKE AND SOFFA INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) NOTE 13: OTHER FINANCIAL DATA The following table reflects other financial data for fiscal 2015, 2014, and 2013: (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 14: SEGMENT INFORMATION 2015 Fiscal 2014 $ $ $ 10,768 5,006 2,808 $ $ $ 17,596 4,608 3,261 $ $ $ 2013 17,194 7,765 711 The Company operates two reportable segments: Equipment and Expendable Tools. The Equipment segment manufactures and sells a line of ball bonders, heavy wire wedge bonders, advanced packaging and surface mount technology solutions. The Company also services, maintains, repairs and upgrades its equipment. The financial performance of the acquired business has been included in the Equipment segment from January 9, 2015. 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 2015, 2014, and 2013: (in thousands) Net revenue: Equipment Expendable Tools Net revenue Income from operations: Equipment Expendable Tools Income from operations 2015 Fiscal 2014 2013 $ $ 472,002 64,469 536,471 21,618 15,633 37,251 $ $ 503,049 65,520 568,569 59,769 17,215 76,984 $ $ 472,567 62,371 534,938 52,991 12,815 65,806 The following tables reflect assets, capital expenditures and depreciation expense by segment as of and for fiscal 2015, 2014, and 2013: (in thousands) Segment assets: Equipment Expendable Tools Total assets (in thousands) Capital expenditures: Equipment Expendable Tools Capital expenditures October 3, 2015 As of September 27, 2014 September 28, 2013 828,471 75,995 904,466 $ $ 839,847 104,601 944,448 $ $ 764,793 98,201 862,994 2015 Fiscal 2014 2013 7,288 2,231 9,519 $ $ 9,560 2,841 12,401 $ $ 11,704 5,468 17,172 $ $ $ $ 74 KULICKE AND SOFFA INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (in thousands) Depreciation expense: Equipment Expendable Tools Depreciation expense Geographic information 2015 Fiscal 2014 2013 $ $ 6,685 2,404 9,089 $ $ 5,662 2,540 8,202 $ $ 6,936 2,375 9,311 The following tables reflect destination sales to unaffiliated customers by country and long-lived assets by country for fiscal 2015, 2014, and 2013: (in thousands) 2015 Fiscal 2014 2013 $ China Taiwan Malaysia Japan United States Philippines Korea Hong Kong Singapore Vietnam Thailand Germany All other Total destination sales to unaffiliated customers $ 169,557 $ 56,610 48,825 31,413 47,220 42,575 40,687 15,482 17,430 4,354 13,852 11,580 144,134 $ 140,586 46,033 34,480 31,645 31,371 31,284 23,709 21,934 11,355 9,386 8,496 36,886 536,471 $ 34,156 568,569 $ 124,272 150,271 23,799 17,680 14,652 30,257 36,949 28,911 35,833 4,639 9,143 5,822 52,710 534,938 (in thousands) Long-lived assets: Singapore United States China Israel Netherlands Taiwan All other Total long-lived assets 2015 Fiscal 2014 2013 $ $ 36,754 $ 7,429 7,386 3,701 1,421 794 870 58,355 $ 37,169 $ 8,537 7,295 4,668 — 678 974 59,321 $ 32,876 8,999 6,718 5,674 — 607 977 55,851 75 KULICKE AND SOFFA INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) NOTE 15: COMMITMENTS, CONTINGENCIES AND CONCENTRATIONS 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 2015, 2014, and 2013: (in thousands) Reserve for product warranty, beginning of period Addition from business combination Provision for product warranty Product warranty costs paid Reserve for product warranty, end of period Other Commitments and Contingencies 2015 1,542 547 2,614 (2,847) 1,856 $ $ $ $ Fiscal 2014 1,194 — 2,099 (1,751) 1,542 $ $ 2013 2,412 — 1,093 (2,311) 1,194 The following table reflects obligations not reflected on the Consolidated Balance Sheet as of October 3, 2015: (in thousands) Inventory purchase obligation (1) Operating lease obligations (2) Total Total 80,600 30,195 110,795 $ $ $ $ 2015 80,600 4,874 85,474 $ $ Payments due by fiscal year 2017 2016 2018 thereafter — $ 4,180 4,180 $ — $ 3,498 3,498 $ — $ 2,956 2,956 $ — 14,687 14,687 (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 2018 (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 25 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 October 3, 2015, we recorded a financing obligation related to the Building of $16.5 million (see Note 9 above). 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 2015, 2014, and 2013: Siliconware Precision Industries Ltd. * * 11.0% 2015 Fiscal 2014 2013 * Represents less than 10% of net revenue 76 KULICKE AND SOFFA INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The following table reflects significant customer concentrations as a percentage of total accounts receivable as of October 3, 2015 and September 27, 2014: Haoseng Industrial Co., Ltd * Represents less than 10% of total accounts receivable As of October 3, 2015 * September 27, 2014 21.5% NOTE 16: SELECTED QUARTERLY FINANCIAL DATA (unaudited) The following table reflects selected quarterly financial data for fiscal 2015 and 2014: Fiscal 2015 for the Quarter Ended (in thousands, except per share amounts) Net revenue Gross profit Income from operations Income tax expense/(benefit) 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 Income tax (benefit)/expense Net income Net income per share (1): Basic Diluted Weighted average shares outstanding: Basic Diluted $ $ $ $ $ $ $ $ December 27 March 28 June 27 October 3 Fiscal 2015 $ 107,438 54,734 $ 145,227 68,570 9,726 1,843 9,791 1,997 7,842 $ 7,931 $ 164,634 77,571 16,086 (8,775) 25,039 0.10 0.10 $ $ 0.10 0.10 $ $ 0.33 0.33 $ $ $ $ 119,172 58,217 1,648 (7,999) 9,827 $ $ 536,471 259,092 37,251 (12,934) 50,639 0.14 0.13 0.67 0.67 76,888 77,432 76,821 77,570 75,420 75,891 72,731 72,883 75,414 75,659 Fiscal 2014 for the Quarter Ended December 28 March 29 June 28 September 27 Fiscal 2014 $ 79,113 38,365 (2,208) (91) $ 114,206 57,672 10,111 1,087 $ 180,517 85,157 31,584 4,908 $ 194,733 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 (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 17: SUBSEQUENT EVENTS On October 14, 2015, the Company entered into foreign exchange forward contracts with notional amount of $18.7 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. 78 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 interim Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of October 3, 2015. Based on that evaluation, the interim Chief Executive Officer and Chief Financial Officer concluded that, as of October 3, 2015 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 interim 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 October 3, 2015. 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. Management's evaluation of internal control over financial reporting as of October 3, 2015 has excluded the evaluation of the effectiveness of internal control over financial reporting related to Assembléon B.V ("Assembléon") because it was acquired in a business combination during the year ended October 3, 2015. As of October 3, 2015, Assembléon represented approximately 4.9% of our consolidated assets. The revenue from Assembléon represented 11.0% of our consolidated revenues for the year ended October 3, 2015. See Note 4 of our Notes to Consolidated Financial Statements for more information. Based on that assessment and based on the criteria in the COSO framework, management has concluded that, as of October 3, 2015, the Company's internal control over financial reporting was effective. The effectiveness of the Company's internal control over financial reporting as of October 3, 2015 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 interim Chief Executive Officer and Chief Financial Officer, of our internal control over financial reporting, no changes during the three months ended October 3, 2015 were identified to have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 79 Item 9B. OTHER INFORMATION None. 80 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 2016 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 2016 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 2016 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 2016 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 2016 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 2016 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 2016 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 2016 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 2016 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 2016 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 2016 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 2016 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 2016 Annual Meeting of Shareholders, which information is incorporated herein by reference. 81 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 2016 Annual Meeting of Shareholders, which information is incorporated herein by reference. 82 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 October 3, 2015 and September 27, 2014 Consolidated Statements of Operations for fiscal 2015, 2014 and 2013 Consolidated Statements of Comprehensive Income for fiscal 2015, 2014 and 2013 Consolidated Statements of Changes in Shareholders' Equity for fiscal 2015, 2014 and 2013 Consolidated Statements of Cash Flows for fiscal 2015, 2014 and 2013 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 86 EXHIBIT NUMBER 3.1 3.2 4.1 10.1 10.2 10.3 10.4 10.5 10.6 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. ITEM The Company's Amended and Restated By-Laws, dated October 22, 2015, is incorporated herein by reference to Exhibit 3(ii) to the Company's Current Report on Form 8-K dated October 22, 2015. 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.* 83 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 10.23 10.25 10.26 10.27 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 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.* 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.* 84 10.28 10.29 10.3 10.31 10.32 10.33 10.34 10.35 21 23 31.1 31.2 32.1 32.2 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.* Share Sale and Purchase Agreement between Kulicke & Soffa Holdings, B.V. and Assembléon Holding B.V., dated December 29, 2014, incorporated herein by reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q for the quarterly period ended December 27, 2014. Offer Letter between the Company and Deepak Sood, dated October 25, 2012, incorporated herein by reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q for the quarterly period ended December 27, 2014.* Offer Letter between the Company and Yih Neng Lee, dated June 21, 2013, incorporated herein by reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q for the quarterly period ended December 27, 2014.* Offer Letter between the Company and Irene Lee, dated January 28, 2014, incorporated herein by reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q for the quarterly period ended December 27, 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 25, 2015.* Kulicke & Soffa Industries, Inc. 2009 Equity Plan Restricted Share Unit Award Agreement.* Subsidiaries of the Company. Consent of PricewaterhouseCoopers LLP (Independent Registered Public Accounting Firm). Certification of Jonathan Chou, interim 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 Jonathan Chou, interim 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.DEF 101.LAB 101.PRE XBRL Instance Document. XBRL Taxonomy Extension Schema Document XBRL Taxonomy Extension Calculation Linkbase Document. XBRL Taxonomy Extension Definition 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. 85 Fiscal 2015: Allowance for doubtful accounts Inventory reserve Valuation allowance for deferred taxes Fiscal 2014: Allowance for doubtful accounts Inventory reserve Valuation allowance for deferred taxes Fiscal 2013: 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 $ $ $ $ $ $ $ $ 143 13,863 24,624 504 14,120 26,444 937 18,617 $ $ $ $ $ $ $ $ $ 478 3,978 $ $ — 7,696 2,634 (3) $ — (320) 3,060 $ $ (1,820) (3) $ (371) 3,561 $ $ — — — — — 1,429 (3) $ — $ $ $ $ $ $ $ $ $ — (1) $ 621 (6,464) (2) $ 19,073 — $ 27,258 (41) (1) $ 143 (3,317) (2) $ 13,863 — $ 24,624 (62) (1) $ 504 (8,058) (2) $ 14,120 — $ 26,444 Valuation allowance for deferred taxes $ 25,015 (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. 86 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/ JONATHAN CHOU Jonathan Chou Interim Chief Executive Officer Dated: November 18, 2015 Signature Title Date /s/ JONATHAN CHOU Jonathan Chou Senior Vice President, Interim Chief Executive Officer, and Chief Financial Officer November 18, 2015 (principal executive officer, principal financial officer and principal accounting officer) /s/ GARRETT E. PIERCE Director November 18, 2015 Garrett E. Pierce /s/ BRIAN R. BACHMAN Director November 18, 2015 Brian R. Bachman /s/ CHIN HU LIM Chin Hu Lim Director November 18, 2015 /s/ GREGORY F. MILZCIK Director November 18, 2015 Gregory F. Milzcik /s/ MUI SUNG YEO Mui Sung Yeo /s/ PETER T. KONG Peter T. Kong Director Director November 18, 2015 November 18, 2015 87 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 October 22, 2015, is incorporated herein by reference to Exhibit 3(ii) to the Company's Current Report on Form 8-K dated October 22, 2015. 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.* 88 10.15 10.16 10.17 10.18 10.19 10.2 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 10.35 21 23 31.1 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.* 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.* Share Sale and Purchase Agreement between Kulicke & Soffa Holdings, B.V. and Assembléon Holding B.V., dated December 29, 2014, incorporated herein by reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q for the quarterly period ended December 27, 2014. Offer Letter between the Company and Deepak Sood, dated October 25, 2012, incorporated herein by reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q for the quarterly period ended December 27, 2014.* Offer Letter between the Company and Yih Neng Lee, dated June 21, 2013, incorporated herein by reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q for the quarterly period ended December 27, 2014.* Offer Letter between the Company and Irene Lee, dated January 28, 2014, incorporated herein by reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q for the quarterly period ended December 27, 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 25, 2015.* Kulicke & Soffa Industries, Inc. 2009 Equity Plan Restricted Share Unit Award Agreement.* Subsidiaries of the Company. Consent of PricewaterhouseCoopers LLP (Independent Registered Public Accounting Firm). Certification of Jonathan Chou, interim Chief Executive Officer of Kulicke and Soffa Industries, Inc., pursuant to Rule 13a-14(a) or Rule 15d-14(a). 89 31.2 32.1 32.2 101.INS 101.SCH 101.CAL 101.DEF 101.LAB 101.PRE 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 Jonathan Chou, interim 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. XBRL Instance Document. XBRL Taxonomy Extension Schema Document XBRL Taxonomy Extension Calculation Linkbase Document. XBRL Taxonomy Extension Definition 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. 90 Stock Performance Graph The graph set forth below compares, for fiscal years 2011 through 2015, 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 2, 2010 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 October 3, 2015 was $9.22. Company Information December 2015 Corporate Locations Additional Information Corporate Headquarters Kulicke and Soffa Industries, Inc. 23A Serangoon North Avenue 5 #01-01 Singapore 554369 Technology Centers Berg, Switzerland Eindhoven, the Netherlands Fort Washington, Pennsylvania Santa Ana, California Singapore Suzhou, China Yokneam Elite, Israel Equipment Manufacturing Facilities Eindhoven, the Netherlands Singapore Santa Ana, California Expendable Tools Manufacturing Facilities Suzhou, China Yokneam Elite, Israel Independent Accountants PricewaterhouseCoopers, LLP Singapore Registrar and Transfer Agent American Stock Transfer & Trust 6201 15th Avenue Brooklyn, New York 11219 800-937-5449 NASDAQ Symbol: KLIC Supplemental Investor Information An electronic copy of the 2015 Annual Report, Proxy Statement, SEC filings and supplemental investor information are available the Investor section of the Company’s corporate website at investor.kns.com. in For additional information please contact: Joseph Elgindy Investor Relations & Strategic Initiatives +1-215-784-7500 investor@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 challenging 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 Jonathan H. Chou Chief Financial Officer and Interim Chief Executive Officer Lester Wong Senior Vice President, Legal Affairs and General Counsel Yih-Neng Lee Senior Vice President, Global Sales and Services 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 Garrett E. Pierce Chairman of the Board Kulicke & Soffa Industries, Inc. Chief Financial Officer Orbital ATK, Inc. Brian R. Bachman Private Investor Lim Chin Hu Managing Partner Stream Global Pte. Ltd. Independent Director Telstra Corporation Ltd. Peter T. Kong Retired President Arrow Global Components Director Ferro Corporation Director Global Advanced Metals 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 & Director Singapore Media Academy Private Limited Executive Chairman & Director MediaCorp VizPro International Pte. Ltd. Director MediaCorp TV Holdings Pte. Ltd. m o c . s r o n n o c - n a r r u c . w w w / . c n I , s r o n n o C & n a r r u C y b n g i s e D t r o p e R l a u n n A “The Board and management team continue to maintain an updated and relevant capital allocation policy in an effort to optimally drive long-term and sustainable shareholder returns.” Garrett E. Pierce Chairman of the Board CORPORATE HEADQUARTERS: 23A Serangoon North Ave 5 #01-01, Singapore 554369 :: (P) +65-6880-9600 :: (F) +65-6880-9580 

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