Kulicke and Soffa Industries
Annual Report 2016

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Plain-text annual report

THE KEY COMPONENTS FOR GROWTH 2016 ANNUAL REPORT OUR STRATEGY FOR SUSTAINED GROWTH OUR COMPANY (cid:85)(cid:410)(cid:300)(cid:284)(cid:207)(cid:297)(cid:229)(cid:3)(cid:188)(cid:3)(cid:132)(cid:325)(cid:253)(cid:177)(cid:3)(cid:352)(cid:99)(cid:101)(cid:132)(cid:37)(cid:101)(cid:125)(cid:215)(cid:3)(cid:85)(cid:88)(cid:70)(cid:26)(cid:353)(cid:3)(cid:284)(cid:376)(cid:3)(cid:177)(cid:3)(cid:300)(cid:229)(cid:177)(cid:218)(cid:284)(cid:313)(cid:269)(cid:3)(cid:350)(cid:371)(cid:325)(cid:436)(cid:284)(cid:218)(cid:229)(cid:371)(cid:3)(cid:325)(cid:252)(cid:3)(cid:376)(cid:229)(cid:309)(cid:284)(cid:207)(cid:325)(cid:313)(cid:218)(cid:410)(cid:207)(cid:395)(cid:325)(cid:371)(cid:3)(cid:350)(cid:177)(cid:207)(cid:297)(cid:177)(cid:269)(cid:284)(cid:313)(cid:269)(cid:3) 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(cid:177)(cid:376)(cid:376)(cid:229)(cid:309)(cid:198)(cid:300)(cid:284)(cid:313)(cid:269)(cid:3)(cid:395)(cid:280)(cid:229)(cid:3)(cid:313)(cid:229)(cid:443)(cid:395)(cid:3)(cid:269)(cid:229)(cid:313)(cid:229)(cid:371)(cid:177)(cid:395)(cid:284)(cid:325)(cid:313)(cid:3)(cid:325)(cid:252)(cid:3)(cid:229)(cid:300)(cid:229)(cid:207)(cid:395)(cid:371)(cid:325)(cid:313)(cid:284)(cid:207)(cid:3)(cid:218)(cid:229)(cid:436)(cid:284)(cid:207)(cid:229)(cid:376)(cid:355) OUR VISION (cid:137)(cid:325)(cid:3)(cid:198)(cid:229)(cid:3)(cid:395)(cid:280)(cid:229)(cid:3)(cid:300)(cid:229)(cid:177)(cid:218)(cid:284)(cid:313)(cid:269)(cid:3)(cid:376)(cid:309)(cid:177)(cid:371)(cid:395)(cid:3)(cid:309)(cid:177)(cid:313)(cid:410)(cid:252)(cid:177)(cid:207)(cid:395)(cid:410)(cid:371)(cid:284)(cid:313)(cid:269)(cid:3)(cid:376)(cid:325)(cid:300)(cid:410)(cid:395)(cid:284)(cid:325)(cid:313)(cid:376)(cid:3)(cid:350)(cid:371)(cid:325)(cid:436)(cid:284)(cid:218)(cid:229)(cid:371)(cid:3)(cid:218)(cid:229)(cid:300)(cid:284)(cid:436)(cid:229)(cid:371)(cid:284)(cid:313)(cid:269)(cid:3)(cid:229)(cid:443)(cid:207)(cid:229)(cid:350)(cid:395)(cid:284)(cid:325)(cid:313)(cid:177)(cid:300)(cid:3)(cid:436)(cid:177)(cid:300)(cid:410)(cid:229)(cid:3) (cid:395)(cid:325)(cid:3)(cid:325)(cid:410)(cid:371)(cid:3)(cid:207)(cid:410)(cid:376)(cid:395)(cid:325)(cid:309)(cid:229)(cid:371)(cid:376)(cid:355) OUR VALUE CREATION STRATEGY EXPANDING OUR SERVED MARKETS LEADING OUR CORE MARKETS CREATING SUSTAINABLE VALUE Market aligned and focused development. Executing on high growth and opportune markets. Served market expansion exceeds broader market growth. Over 90,000 current install base of K&S equipment. Technology-centric market drives ongoing replacement opportunities. Deep-rooted and widespread industry relationships. Proven ability to identify and execute on strategic acquisitions. Active deal sourcing, diligence & integration process. Employee and management incentives aligned with shareholder interests. AUTONOMOUS VEHICLE ELECTRONICS19% SEMI UNIT CAGR 2016–20 SYSTEM-IN-PACKAGE (SIP) 14% UNIT CAGR 2016–20 NAND FLASH SOLID-STATE DRIVES24% SEMI UNIT CAGR 2016–20 OUR SOLUTIONS TARGET GROWTH Through calendar 2020, a healthy 9% semiconductor unit CAGR provides a base-level of industry support as we look ahead. Our value creation strategy continues to facilitate market expansion while increasing exposure to high-growth opportunities. Our ability to target and execute on market driven (cid:325)(cid:350)(cid:350)(cid:325)(cid:371)(cid:395)(cid:410)(cid:313)(cid:284)(cid:395)(cid:284)(cid:229)(cid:376)(cid:3)(cid:284)(cid:313)(cid:207)(cid:371)(cid:229)(cid:177)(cid:376)(cid:229)(cid:376)(cid:3)(cid:325)(cid:410)(cid:371)(cid:3)(cid:207)(cid:325)(cid:313)(cid:256)(cid:218)(cid:229)(cid:313)(cid:207)(cid:229)(cid:3) to outperform industry growth. FAN-OUT WAFER LEVEL PACKAGING (FOWLP)27 % UNIT CAGR 2016–20 SOLID-STATE LIGHTING 37 % SEMI UNIT CAGR 2016–20 Sources: Gartner Semiconductor Forecast, Oct. 2016; Yole Développement, 2016; TechSearch International, 2016 2016 ANNUAL REPORT :: 1 HIGH-END SERVERS 14% SEMI UNIT CAGR 2016–20 FELLOW SHAREHOLDERS, 2016 MARKED THE 65TH ANNIVERSARY OF K&S, SYMBOLIZING OUR RELENTLESS PASSION FOR INNOVATION AND DEMONSTRATING OUR CONSISTENT ABILITY TO ADAPT AND FLOURISH IN A HIGHLY DYNAMIC MARKET SPACE. Over the past year, we have strengthened our market presence (cid:177)(cid:313)(cid:218)(cid:3)(cid:218)(cid:229)(cid:218)(cid:284)(cid:207)(cid:177)(cid:395)(cid:229)(cid:218)(cid:3)(cid:207)(cid:177)(cid:350)(cid:284)(cid:395)(cid:177)(cid:300)(cid:3)(cid:177)(cid:313)(cid:218)(cid:3)(cid:371)(cid:229)(cid:376)(cid:325)(cid:410)(cid:371)(cid:207)(cid:229)(cid:376)(cid:3)(cid:395)(cid:325)(cid:437)(cid:177)(cid:371)(cid:218)(cid:3)(cid:284)(cid:218)(cid:229)(cid:313)(cid:395)(cid:284)(cid:256)(cid:229)(cid:218)(cid:3)(cid:297)(cid:229)(cid:444)(cid:3)(cid:269)(cid:371)(cid:325)(cid:437)(cid:395)(cid:280)(cid:3) opportunities. As we move into 2017, we are even better positioned to (cid:309)(cid:177)(cid:443)(cid:284)(cid:309)(cid:284)(cid:452)(cid:229)(cid:3)(cid:229)(cid:436)(cid:325)(cid:300)(cid:436)(cid:284)(cid:313)(cid:269)(cid:3)(cid:325)(cid:350)(cid:350)(cid:325)(cid:371)(cid:395)(cid:410)(cid:313)(cid:284)(cid:395)(cid:284)(cid:229)(cid:376)(cid:3)(cid:284)(cid:313)(cid:3)(cid:177)(cid:3)(cid:207)(cid:325)(cid:313)(cid:207)(cid:229)(cid:371)(cid:395)(cid:229)(cid:218)(cid:3)(cid:229)(cid:253)(cid:325)(cid:371)(cid:395)(cid:3)(cid:395)(cid:325)(cid:3)(cid:325)(cid:410)(cid:395)(cid:350)(cid:229)(cid:371)(cid:252)(cid:325)(cid:371)(cid:309)(cid:3) industry growth and create long-term sustainable value. These applications are currently well positioned to replace conventional package types within the smartphone market and to accelerate growth within the internet of things space. For leading performance applications, the through-silicon via (TSV) (cid:350)(cid:371)(cid:325)(cid:207)(cid:229)(cid:376)(cid:376)(cid:3)(cid:350)(cid:371)(cid:325)(cid:436)(cid:284)(cid:218)(cid:229)(cid:376)(cid:3)(cid:376)(cid:284)(cid:269)(cid:313)(cid:284)(cid:256)(cid:207)(cid:177)(cid:313)(cid:395)(cid:300)(cid:444)(cid:3)(cid:284)(cid:309)(cid:350)(cid:371)(cid:325)(cid:436)(cid:229)(cid:218)(cid:3)(cid:198)(cid:177)(cid:313)(cid:218)(cid:437)(cid:284)(cid:218)(cid:395)(cid:280)(cid:3)(cid:177)(cid:313)(cid:218)(cid:3)(cid:284)(cid:376)(cid:3)(cid:269)(cid:177)(cid:284)(cid:313)(cid:284)(cid:313)(cid:269)(cid:3) traction in performance memory and logic applications in cloud At a high level, this positioning is largely related to an overriding computing, deep learning and autonomous vehicles. Collectively, industry theme, which is shifting focus and investment toward new demand for advanced packaging solutions, including FOWLP, and existing back-end processes. A key element of this theme refers SiP and TSV, in addition to others, is forecast to drive a nearly 18% to the historic node shrink trend, which has facilitated performance CAGR in equipment spending, outpacing growth in the broader (cid:284)(cid:309)(cid:350)(cid:371)(cid:325)(cid:436)(cid:229)(cid:309)(cid:229)(cid:313)(cid:395)(cid:376)(cid:3)(cid:177)(cid:313)(cid:218)(cid:3)(cid:280)(cid:177)(cid:376)(cid:3)(cid:218)(cid:371)(cid:284)(cid:436)(cid:229)(cid:313)(cid:3)(cid:376)(cid:284)(cid:269)(cid:313)(cid:284)(cid:256)(cid:207)(cid:177)(cid:313)(cid:395)(cid:3)(cid:177)(cid:313)(cid:218)(cid:3)(cid:207)(cid:325)(cid:313)(cid:376)(cid:284)(cid:376)(cid:395)(cid:229)(cid:313)(cid:395)(cid:3)(cid:207)(cid:325)(cid:376)(cid:395)(cid:3) semiconductor capital equipment market, from $450M today to just (cid:198)(cid:229)(cid:313)(cid:229)(cid:256)(cid:395)(cid:376)(cid:3)(cid:252)(cid:325)(cid:371)(cid:3)(cid:218)(cid:229)(cid:207)(cid:177)(cid:218)(cid:229)(cid:376)(cid:355)(cid:3)(cid:137)(cid:280)(cid:284)(cid:376)(cid:3)(cid:395)(cid:371)(cid:229)(cid:313)(cid:218)(cid:3)(cid:280)(cid:177)(cid:376)(cid:3)(cid:218)(cid:371)(cid:177)(cid:309)(cid:177)(cid:395)(cid:284)(cid:207)(cid:177)(cid:300)(cid:300)(cid:444)(cid:3)(cid:376)(cid:300)(cid:325)(cid:437)(cid:229)(cid:218)(cid:3)(cid:371)(cid:229)(cid:207)(cid:229)(cid:313)(cid:395)(cid:300)(cid:444)(cid:3) due to fundamental physical limitations and the requirement of over an $850M total available market in 2020. Looking ahead, with commercial solutions in place aggressively targeting all of these additional front-end production steps. In response to these changing emerging high-growth areas, we are very optimistic. fundamentals, an explosion of research and investment in back-end advanced packaging solutions, targeting both performance and cost- Prudent acquisitions, consistent R&D investments and meaningful sensitive applications, is presenting very interesting opportunities for customer engagement have increased our outlook in addressing the the Company. emerging, non-core advanced packaging opportunities. Correcting for the full year, our Advanced Packaging and Electronics Assembly Fan-out wafer level packaging (FOWLP) and system-in-package businesses – stemming from the January 2015 Assémbleon (SiP) solutions are supplementing node shrink challenges by (cid:218)(cid:371)(cid:284)(cid:436)(cid:284)(cid:313)(cid:269)(cid:3)(cid:376)(cid:284)(cid:269)(cid:313)(cid:284)(cid:256)(cid:207)(cid:177)(cid:313)(cid:395)(cid:3)(cid:252)(cid:325)(cid:371)(cid:309)(cid:3)(cid:252)(cid:177)(cid:207)(cid:395)(cid:325)(cid:371)(cid:3)(cid:371)(cid:229)(cid:218)(cid:410)(cid:207)(cid:395)(cid:284)(cid:325)(cid:313)(cid:376)(cid:3)(cid:177)(cid:395)(cid:3)(cid:395)(cid:280)(cid:229)(cid:3)(cid:350)(cid:177)(cid:207)(cid:297)(cid:177)(cid:269)(cid:229)(cid:3)(cid:300)(cid:229)(cid:436)(cid:229)(cid:300)(cid:355)(cid:3) (cid:177)(cid:207)(cid:359)(cid:410)(cid:284)(cid:376)(cid:284)(cid:395)(cid:284)(cid:325)(cid:313)(cid:3)(cid:244)(cid:3)(cid:269)(cid:371)(cid:229)(cid:437)(cid:3)(cid:400)(cid:384)(cid:354)(cid:3)(cid:284)(cid:313)(cid:3)(cid:256)(cid:376)(cid:207)(cid:177)(cid:300)(cid:3)(cid:406)(cid:456)(cid:334)(cid:389)(cid:3)(cid:325)(cid:436)(cid:229)(cid:371)(cid:3)(cid:256)(cid:376)(cid:207)(cid:177)(cid:300)(cid:3)(cid:406)(cid:456)(cid:334)(cid:258)(cid:355)(cid:3)(cid:137)(cid:280)(cid:229)(cid:376)(cid:229)(cid:3)(cid:437)(cid:284)(cid:313)(cid:376)(cid:3)(cid:437)(cid:229)(cid:371)(cid:229)(cid:3) largely driven by our collective global R&D strength and meaningful 2 :: Kulicke & Soffa Fusen E. Chen Jonathan H. Chou sales synergies through our broad customer relationships. resources to rapidly drive future growth. For example, during Furthermore, we continued development and dramatically 2016 we shifted our variable incentive program, in which nearly all progressed our APAMA thermocompression solution engagement professional full-time employees participate, from a very short- throughout the prior year, resulting in market acceptance and multiple APAMA purchase orders. This engagement is supported by (cid:325)(cid:410)(cid:371)(cid:3)(cid:269)(cid:300)(cid:325)(cid:198)(cid:177)(cid:300)(cid:3)(cid:395)(cid:229)(cid:177)(cid:309)(cid:3)(cid:325)(cid:252)(cid:3)(cid:256)(cid:229)(cid:300)(cid:218)(cid:3)(cid:376)(cid:229)(cid:371)(cid:436)(cid:284)(cid:207)(cid:229)(cid:3)(cid:229)(cid:313)(cid:269)(cid:284)(cid:313)(cid:229)(cid:229)(cid:371)(cid:376)(cid:3)(cid:177)(cid:313)(cid:218)(cid:3)(cid:252)(cid:177)(cid:207)(cid:284)(cid:300)(cid:284)(cid:395)(cid:177)(cid:395)(cid:229)(cid:218)(cid:3)(cid:395)(cid:280)(cid:371)(cid:325)(cid:410)(cid:269)(cid:280)(cid:3)(cid:325)(cid:410)(cid:371)(cid:3) active evaluation programs and sampling applications labs in Taiwan, Korea, China, Singapore and the United States. (cid:70)(cid:313)(cid:3)(cid:177)(cid:218)(cid:218)(cid:284)(cid:395)(cid:284)(cid:325)(cid:313)(cid:3)(cid:395)(cid:325)(cid:3)(cid:395)(cid:280)(cid:229)(cid:3)(cid:376)(cid:284)(cid:269)(cid:313)(cid:284)(cid:256)(cid:207)(cid:177)(cid:313)(cid:395)(cid:3)(cid:177)(cid:218)(cid:436)(cid:177)(cid:313)(cid:207)(cid:229)(cid:218)(cid:3)(cid:350)(cid:177)(cid:207)(cid:297)(cid:177)(cid:269)(cid:284)(cid:313)(cid:269)(cid:3)(cid:269)(cid:371)(cid:325)(cid:437)(cid:395)(cid:280)(cid:3)(cid:325)(cid:350)(cid:350)(cid:325)(cid:371)(cid:395)(cid:410)(cid:313)(cid:284)(cid:395)(cid:444)(cid:3) ahead, K&S is also well aligned with other meaningful near-term trends. After two years of below average industry unit growth, core opportunities within NAND memory, CMOS image sensors and connectivity devices are anticipated to drive semiconductor market expansion back to a more normalized rate. Through 2020, a 9% annual semiconductor unit growth rate is expected to provide a solid platform for our core businesses as it has done throughout our corporate history. Within our sizable and growing core business, we continue to expand our opportunities through feature developments aligned with market trends and our customers’ roadmaps. In addition to advanced packaging, we have executed this approach in two meaningful areas throughout the past year. First, we introduced a feature-rich memory bonder with complex looping and greater process capabilities (cid:218)(cid:229)(cid:376)(cid:284)(cid:269)(cid:313)(cid:229)(cid:218)(cid:3)(cid:252)(cid:325)(cid:371)(cid:3)(cid:376)(cid:395)(cid:177)(cid:207)(cid:297)(cid:229)(cid:218)(cid:283)(cid:309)(cid:229)(cid:309)(cid:325)(cid:371)(cid:444)(cid:3)(cid:177)(cid:350)(cid:350)(cid:300)(cid:284)(cid:207)(cid:177)(cid:395)(cid:284)(cid:325)(cid:313)(cid:376)(cid:3)(cid:376)(cid:350)(cid:229)(cid:207)(cid:284)(cid:256)(cid:207)(cid:177)(cid:300)(cid:300)(cid:444)(cid:3)(cid:269)(cid:229)(cid:177)(cid:371)(cid:229)(cid:218)(cid:3) term quarterly process to a more meaningful, longer-term and (cid:309)(cid:325)(cid:371)(cid:229)(cid:3)(cid:207)(cid:325)(cid:309)(cid:350)(cid:371)(cid:229)(cid:280)(cid:229)(cid:313)(cid:376)(cid:284)(cid:436)(cid:229)(cid:3)(cid:256)(cid:376)(cid:207)(cid:177)(cid:300)(cid:3)(cid:444)(cid:229)(cid:177)(cid:371)(cid:3)(cid:350)(cid:371)(cid:325)(cid:207)(cid:229)(cid:376)(cid:376)(cid:355)(cid:3)(cid:56)(cid:410)(cid:371)(cid:395)(cid:280)(cid:229)(cid:371)(cid:309)(cid:325)(cid:371)(cid:229)(cid:216)(cid:3)(cid:437)(cid:229)(cid:3)(cid:280)(cid:177)(cid:436)(cid:229)(cid:3) also streamlined and coordinated the marketing and management teams within our Electronics Assembly and our Wedge bonding organization to better leverage their complementary positions and served market. Lastly, we have initiated a high-impact strategic (cid:376)(cid:325)(cid:300)(cid:410)(cid:395)(cid:284)(cid:325)(cid:313)(cid:376)(cid:3)(cid:395)(cid:229)(cid:177)(cid:309)(cid:3)(cid:177)(cid:313)(cid:218)(cid:3)(cid:198)(cid:229)(cid:269)(cid:410)(cid:313)(cid:3)(cid:309)(cid:325)(cid:198)(cid:284)(cid:300)(cid:284)(cid:452)(cid:284)(cid:313)(cid:269)(cid:3)(cid:284)(cid:313)(cid:3)(cid:177)(cid:313)(cid:3)(cid:229)(cid:253)(cid:325)(cid:371)(cid:395)(cid:3)(cid:395)(cid:325)(cid:3)(cid:269)(cid:177)(cid:284)(cid:313)(cid:3)(cid:218)(cid:229)(cid:229)(cid:350)(cid:229)(cid:371)(cid:3) market intelligence and identify next-generation technology opportunities. Finally, in order to better support our customers, pursue new business development initiatives and deliver shareholder value, (cid:437)(cid:229)(cid:3)(cid:207)(cid:325)(cid:313)(cid:395)(cid:284)(cid:313)(cid:410)(cid:229)(cid:3)(cid:395)(cid:325)(cid:3)(cid:300)(cid:325)(cid:325)(cid:297)(cid:3)(cid:436)(cid:229)(cid:371)(cid:444)(cid:3)(cid:207)(cid:300)(cid:325)(cid:376)(cid:229)(cid:300)(cid:444)(cid:3)(cid:177)(cid:313)(cid:218)(cid:3)(cid:207)(cid:177)(cid:371)(cid:229)(cid:252)(cid:410)(cid:300)(cid:300)(cid:444)(cid:3)(cid:252)(cid:325)(cid:371)(cid:3)(cid:229)(cid:253)(cid:229)(cid:207)(cid:395)(cid:284)(cid:436)(cid:229)(cid:216)(cid:3) prudent opportunities to allocate capital. Throughout the year, we have examined many opportunities, and while some were more attractive than others, we ultimately walked away from many due to unfavorable valuations, unclear synergies and, to a lesser extent, lack of organizational compatibility. As we have demonstrated with the Assémbleon acquisition and $100 million share buyback program, we remain disciplined, focused and prepared to allocate capital where the dynamics are in our favor and shareholder value accretion is clearly evident and highly obtainable. (cid:395)(cid:325)(cid:437)(cid:177)(cid:371)(cid:218)(cid:3)(cid:395)(cid:280)(cid:229)(cid:3)(cid:280)(cid:284)(cid:269)(cid:280)(cid:283)(cid:218)(cid:229)(cid:313)(cid:376)(cid:284)(cid:395)(cid:444)(cid:3)(cid:99)(cid:101)(cid:99)(cid:37)(cid:3)(cid:257)(cid:177)(cid:376)(cid:280)(cid:3)(cid:309)(cid:177)(cid:371)(cid:297)(cid:229)(cid:395)(cid:3)(cid:395)(cid:325)(cid:3)(cid:376)(cid:177)(cid:395)(cid:284)(cid:376)(cid:252)(cid:444)(cid:3)(cid:395)(cid:280)(cid:229)(cid:3)(cid:269)(cid:371)(cid:325)(cid:437)(cid:284)(cid:313)(cid:269)(cid:3) solid-state drive market. This development initiative represents an incremental approach to innovation, has been well received and (cid:101)(cid:376)(cid:3)(cid:437)(cid:229)(cid:3)(cid:300)(cid:325)(cid:325)(cid:297)(cid:3)(cid:395)(cid:325)(cid:3)(cid:395)(cid:280)(cid:229)(cid:3)(cid:252)(cid:410)(cid:395)(cid:410)(cid:371)(cid:229)(cid:216)(cid:3)(cid:437)(cid:229)(cid:3)(cid:371)(cid:229)(cid:309)(cid:177)(cid:284)(cid:313)(cid:3)(cid:256)(cid:371)(cid:309)(cid:300)(cid:444)(cid:3)(cid:325)(cid:350)(cid:395)(cid:284)(cid:309)(cid:284)(cid:376)(cid:395)(cid:284)(cid:207)(cid:3)(cid:284)(cid:313)(cid:3)(cid:325)(cid:410)(cid:371)(cid:3)(cid:177)(cid:198)(cid:284)(cid:300)(cid:284)(cid:395)(cid:444)(cid:3) (cid:395)(cid:325)(cid:3)(cid:229)(cid:443)(cid:395)(cid:371)(cid:177)(cid:207)(cid:395)(cid:3)(cid:376)(cid:284)(cid:269)(cid:313)(cid:284)(cid:256)(cid:207)(cid:177)(cid:313)(cid:395)(cid:3)(cid:436)(cid:177)(cid:300)(cid:410)(cid:229)(cid:3)(cid:252)(cid:371)(cid:325)(cid:309)(cid:3)(cid:395)(cid:280)(cid:229)(cid:376)(cid:229)(cid:3)(cid:207)(cid:325)(cid:300)(cid:300)(cid:229)(cid:207)(cid:395)(cid:284)(cid:436)(cid:229)(cid:3)(cid:325)(cid:350)(cid:350)(cid:325)(cid:371)(cid:395)(cid:410)(cid:313)(cid:284)(cid:395)(cid:284)(cid:229)(cid:376)(cid:216)(cid:3) further optimize our business processes and operating model, and enhances our market position. Similarly, within the automotive space, we have extended our largely successful Asterion platform to serve (cid:229)(cid:254)(cid:207)(cid:284)(cid:229)(cid:313)(cid:395)(cid:300)(cid:444)(cid:3)(cid:218)(cid:229)(cid:350)(cid:300)(cid:325)(cid:444)(cid:3)(cid:207)(cid:177)(cid:350)(cid:284)(cid:395)(cid:177)(cid:300)(cid:3)(cid:284)(cid:313)(cid:395)(cid:325)(cid:3)(cid:436)(cid:177)(cid:300)(cid:410)(cid:229)(cid:283)(cid:177)(cid:218)(cid:218)(cid:229)(cid:218)(cid:3)(cid:376)(cid:395)(cid:371)(cid:177)(cid:395)(cid:229)(cid:269)(cid:284)(cid:207)(cid:3)(cid:284)(cid:313)(cid:284)(cid:395)(cid:284)(cid:177)(cid:395)(cid:284)(cid:436)(cid:229)(cid:376)(cid:355)(cid:3)(cid:56)(cid:371)(cid:325)(cid:309)(cid:3) all of us at K&S, we hope that you join us for this exciting period in (cid:177)(cid:3)(cid:436)(cid:229)(cid:371)(cid:444)(cid:3)(cid:350)(cid:371)(cid:325)(cid:309)(cid:284)(cid:376)(cid:284)(cid:313)(cid:269)(cid:3)(cid:350)(cid:325)(cid:437)(cid:229)(cid:371)(cid:3)(cid:376)(cid:395)(cid:325)(cid:371)(cid:177)(cid:269)(cid:229)(cid:3)(cid:177)(cid:350)(cid:350)(cid:300)(cid:284)(cid:207)(cid:177)(cid:395)(cid:284)(cid:325)(cid:313)(cid:355)(cid:3)(cid:137)(cid:280)(cid:284)(cid:376)(cid:3)(cid:376)(cid:350)(cid:229)(cid:207)(cid:284)(cid:256)(cid:207)(cid:3)(cid:177)(cid:350)(cid:350)(cid:300)(cid:284)(cid:207)(cid:177)(cid:395)(cid:284)(cid:325)(cid:313)(cid:3) our Company’s history as we drive toward high-caliber growth and (cid:280)(cid:177)(cid:376)(cid:3)(cid:376)(cid:284)(cid:269)(cid:313)(cid:284)(cid:256)(cid:207)(cid:177)(cid:313)(cid:395)(cid:3)(cid:350)(cid:325)(cid:395)(cid:229)(cid:313)(cid:395)(cid:284)(cid:177)(cid:300)(cid:3)(cid:395)(cid:325)(cid:3)(cid:376)(cid:229)(cid:371)(cid:436)(cid:229)(cid:3)(cid:325)(cid:395)(cid:280)(cid:229)(cid:371)(cid:3)(cid:376)(cid:229)(cid:269)(cid:309)(cid:229)(cid:313)(cid:395)(cid:376)(cid:3)(cid:252)(cid:177)(cid:371)(cid:3)(cid:198)(cid:229)(cid:444)(cid:325)(cid:313)(cid:218)(cid:3)(cid:395)(cid:280)(cid:229)(cid:3) automotive market. Within our core markets, we remain the dominant shareholder value creation. share leader and continue to seek out growth opportunities through Sincerely, focused R&D initiatives, capital deployment and operating model optimizations. Fusen E. Chen (cid:123)(cid:371)(cid:229)(cid:376)(cid:284)(cid:218)(cid:229)(cid:313)(cid:395)(cid:3)(cid:177)(cid:313)(cid:218)(cid:3)(cid:26)(cid:280)(cid:284)(cid:229)(cid:252)(cid:3)(cid:41)(cid:443)(cid:229)(cid:207)(cid:410)(cid:395)(cid:284)(cid:436)(cid:229)(cid:3)(cid:107)(cid:254)(cid:207)(cid:229)(cid:371) With all of these new and interesting opportunities, we have incrementally enhanced our broader business process development Jonathan H. Chou and execution. These changes included incentive plan redesign, (cid:41)(cid:443)(cid:229)(cid:207)(cid:410)(cid:395)(cid:284)(cid:436)(cid:229)(cid:3)(cid:154)(cid:284)(cid:207)(cid:229)(cid:3)(cid:123)(cid:371)(cid:229)(cid:376)(cid:284)(cid:218)(cid:229)(cid:313)(cid:395)(cid:3)(cid:177)(cid:313)(cid:218)(cid:3)(cid:26)(cid:280)(cid:284)(cid:229)(cid:252)(cid:3)(cid:56)(cid:284)(cid:313)(cid:177)(cid:313)(cid:207)(cid:284)(cid:177)(cid:300)(cid:3)(cid:107)(cid:254)(cid:207)(cid:229)(cid:371) market facing organizational structure and leveraging our global 2016 ANNUAL REPORT :: 3 627 92.4 8.38% 2014 2015 2016 2014 2015 2016 2014 2015 2016 REVENUE ($M) OPERATING MARGIN RESEARCH & DEVELOPMENT ($M) FINANCIAL HIGHLIGHTS Fiscal Year (in thousands, except per share amounts) 2012 2013 2014 2015 2016 STATEMENT OF OPERATIONS DATA: Net revenue Research and development Other operating expenses Other income (expense) $ 791,023 $ 534,938 $ 568,569 $ 536,471 $ 627,192 63,446 61,620 83,056 90,033 124,718 119,519 113,514 131,808 (4,975) 862 149 454 92,374 141,816 2,211 Income (loss) from continuing operations after income tax $ 160,580 $ 59,358 $ 62,988 $ 50,639 $ 47,112 Income (loss) per share from continuing operations, basic Income (loss) per share from continuing operations, diluted $2.17 $2.13 $0.79 $0.78 $0.82 $0.81 $ $ 0.67 0.67 $ $ 0.67 0.67 BALANCE SHEET DATA: Working capital excluding discontinued operations $ 589,947 $ 676,986 $ 756,340 $ 633,435 $ 662,345 Property, plant and equipment, net 28,441 47,541 52,755 53,234 Total assets excluding discontinued operations 815,609 862,994 944,448 904,466 Long-term debt and current portion of long-term debt — — — — 50,342 982,444 — Shareholders’ equity OTHER SELECTED DATA: Capital expenditures Depreciation and amortization expense $ 643,667 $ 716,665 $ 789,242 $ 771,891 $ 806,518 $ $ 6,902 $ 17,172 $ 12,401 17,265 $ 18,489 $ 13,520 $ $ 9,519 18,972 $ 6,301 $ 16,230 TARGETED QUARTERLY OPERATING MODEL $48M 4–6% QUARTERLY FIXED EXPENSE QUARTERLY VARIABLE EXPENSE AS A PERCENTAGE OF REVENUE 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 1, 2016 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 1, 2016 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. 4 :: Kulicke & Soffa THE KEY COMPONENTS FOR GROWTH 2016 FORM-10K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (cid:58)(cid:3) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended October 1, 2016 OR (cid:133)(cid:3) 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 (cid:58) No (cid:133) 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 (cid:133) No (cid:58) 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 (cid:58) No (cid:133) 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 (cid:58) No (cid:133) 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. (cid:133) 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 (cid:58) Accelerated filer(cid:3)(cid:133) Non-accelerated filer (cid:133) (Do not check if a smaller reporting company) Smaller reporting company (cid:133) Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes (cid:133) No (cid:58) As of April 1, 2016, the aggregate market value of the registrant's common stock held by non-affiliates of the registrant was approximately $791.7 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 15, 2016 there were 70,881,792 shares of the registrant's common stock, without par value, outstanding. Documents Incorporated by Reference Portions of the registrant's Proxy Statement for the 2017 Annual Meeting of Shareholders to be filed on or about January 27, 2017 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. 2016 Annual Report on Form 10-K October 1, 2016 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 22 22 22 23 24 38 39 74 74 74 75 75 75 75 76 77 81 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, 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): (cid:129) (cid:129) 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 electronic assembly 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 1, 2016 (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 statement. 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. ("We", 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, integrated device manufacturers (“IDMs”), 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 as a leader in the semiconductor assembly technology. We also remain focused on our cost structure through continuing improvement and optimization of operations. Cost reduction efforts are an important part of our normal ongoing operations and are expected to generate savings without compromising overall product quality and service levels. K&S was incorporated in Pennsylvania in 1956. Our principal offices are located at 23A Serangoon North Avenue 5, #01-01, Singapore 554369 and our telephone number in the United States is (215) 784-6000. 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 2016, 2015 and 2014 was October 1, 2016, October 3, 2015, and September 27, 2014, respectively. Business Environment The semiconductor business environment is highly volatile and is 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 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 has historically been 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 1, 2016, our total cash and cash equivalents were $547.9 million, a $49.3 million increase from the prior fiscal year end. We believe this strong cash position will allow us to continue to invest in product development and pursue 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 1, 2016, the Company repurchased a total of 1.4 million shares of common stock at a cost of $14.6 million under the Program. As of October 1, 2016, our remaining stock repurchase authorization under the Program was approximately $7.0 million. 2 Technology Leadership We compete largely by offering our customers advanced equipment and expendable tools available for the interconnect processes. 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” and “ELA”) configured machines. Both LA and ELA options are now available on all of our Power Series (“PS”) models and allow our customers to gain added efficiencies and to reduce the cost of packaging. We optimize our bonder platforms to deliver variants of our products to serve emerging high-growth markets. For example, we have developed extensions of our main ball bonding platforms (IConnPS MEM PLUS) to address opportunities in memory assembly, in particular for NAND Flash storage. 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, indexing accuracy and teach mode. 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 as it will 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 high 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 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 also enabled us to diversify our business while further expanding market reach into the automotive, LED lighting , medical and industrial segments with electronic assembly 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 2016, 2015, and 2014: 2016 Fiscal 2015 2014 (dollar amounts in thousands) Net revenues Equipment Expendable Tools $ $ 562,463 64,729 627,192 % of total net revenue Net revenues 472,002 64,469 89.7 % $ 10.3 % % of total net revenue Net revenues 503,049 65,520 88.0 % $ 12.0 % % of total net revenue 88.5 % 11.5 % 100.0% $ 536,471 100.0% $ 568,569 100.0 % See Note 15 to our Consolidated Financial Statements included in Item 8 of this report for our financial results by business segment. Equipment Segment In our equipment segment, we manufacture and sell a line of ball bonders, wafer level bonders, wedge bonders, advanced packaging and electronic assembly solutions that are sold to semiconductor device manufacturers, IDMs, OSATs, other electronics manufacturers and automotive electronics suppliers. Ball bonders are used to connect very fine wires, typically made of gold, silver alloy 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. 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. 4 Our principal Equipment segment products include: Business Unit Product Name (1) Typical Served Market Ball bonders IConnPS PLUS series (2) (3) (4) Advanced and ultra fine pitch applications IConnPS ProCu PLUS series (2) (3) (4) High-end copper wire applications demanding advanced process capability and high productivity IConnPS MEM PLUS series (2) (3) (4) Memory applications ConnXPS PLUS series (2) (3) (4) Bonder for low-to-medium pin count applications ConnXPS LED PLUS LED 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 Hybrid and automotive modules using thin aluminum wire PowerFusionPS TL PowerFusionPS HL AsterionTM AsterionTM EV Power semiconductors using either aluminum wire or PowerRibbon® Smaller power packages using either aluminum wire or PowerRibbon® Power hybrid and automotive modules with larger area using heavy and thin aluminum Extended area for battery bonding and dual lane hybrid module bonding Advanced Packaging APAMA C2S Thermo-compression for chip-to-substrate, chip-to-chip and high accuracy flip chip ("HA FC") bonding applications APAMA C2W Hybrid Series Thermo-compression for chip-to-wafer, 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, WLP, FOWLP, embedded die, SiP, package-on-package ("POP"), and modules (1) Power Series (“PS”) (2) Standard version (3) Large area version (4) Extended large area version 5 Business Unit Product Name (1) Typical Served Market Electronics Assembly iX Series Advanced Surface Mount Technology ("SMT") applications requiring extremely high output of passive and active components iFlex Series 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 portfolio of ball bonding products includes: (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) The IConnPS PLUS series: high-performance ball bonders which can be configured for either gold or copper wire. The IConnPS ProCu PLUS series: high-performance copper wire ball bonders for advanced wafer nodes at 28 nanometer and below. The IConnPS MEM PLUS series: ball bonders designed for the assembly of stacked memory devices. The ConnXPS PLUS series: cost-performance ball bonders which can be configured for either gold or copper wire. The ConnXPS LED PLUS: ball bonders targeted specifically at the fast growing LED market. 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 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. Wedge Bonders We design and manufacture wedge bonders for the power semiconductor and automotive power module markets. 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, our wedge bonder products can be used in the high reliability interconnections of rechargeable batteries in hybrid and electric automotive applications. Our portfolio of wedge bonding products includes: (cid:129) (cid:129) (cid:129) (cid:129) 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 PowerFusionPS Semiconductor Wedge Bonders - Configurable in single, dual and multi-head configurations using aluminum wire and PowerRibbon®: (cid:405) (cid:405) The PowerFusionPS TL: designed for single row leadframe and high volume power semiconductor applications. The PowerFusionPS HL and PowerFusionPS HLx: designed for advanced power semiconductor applications. The AsterionTM and AsterionTM EV: Hybrid wedge bonder designed for larger area, higher speed and accuracy wedge bonders for power modules, automotive packages, battery applications and other aluminum wedge interconnect applications. While wedge bonding traditionally utilizes aluminum wire, all of our 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. PowerFusionPS series improve the processing of high-density power packages, due to an expanded bondable area, wider leadframe capability, indexing accuracy and teach mode. 6 Advanced Packaging 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 ("TCB") 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 an 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 advanced packaging product offering with solutions for flip chip, WLP, FOWLP, POP, embedded die, SiP and modules markets. Electronics Assembly With the added portfolio of Assembléon, we have diversified our business with SMT placement technologies in addition to wire bond technologies while further expanding market reach into the automotive, LED lighting, medical and industrial segments with Electronic Assembly solutions. Other Equipment Products and Services We also offer spare parts, equipment repair, maintenance and servicing, training services, and upgrades for our equipment through our Support Services business unit. Our K&S Care service is designed to help customers operate their machines at an optimum level under the care of our trained specialists. K&S Care includes a range of programs, offering different levels of service depending on customer needs. Expendable Tools Segment We manufacture and sell a variety of expendable tools for a broad range of semiconductor packaging applications. Our principal Expendable Tools segment products include: (cid:129) (cid:129) (cid:129) 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. 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. Wedge tools are used for both wire and ribbon applications. 7 Customers Our major customers include IDMs and OSATs, industrial manufacturers and automotive electronics suppliers. Revenue from our customers may vary significantly from year-to-year based on their respective capital investments, operating expense budgets, and overall industry trends. The following table reflects our top ten customers, based on net revenue, for each of the last three fiscal years: Fiscal 2016 Fiscal 2015 Fiscal 2014 1 Haoseng Industrial Co., Ltd. *# 1 Amkor Technology Inc. 1 Haoseng Industrial Co., Ltd. # 2 Siliconware Precision Industries Ltd. 2 Haoseng Industrial Co., Ltd. # 2 Advanced Semiconductor Engineering 3 Advanced Semiconductor Engineering 3 Skyworks Solutions Incorporated 3 Amkor Technology Inc. 4 STATS Chippac Ltd 4 ST Microelectronics 4 Skyworks Solutions Incorporated 5 Powertech Technology Inc. 5 Renesas Semiconductor 5 Powertech Technology Inc. 6 Amkor Technology Inc. 6 First Technology China, Ltd. # 6 Orient Semiconductor Electronics, Ltd. 7 Orient Semiconductor Electronics, Ltd. 7 Orient Semiconductor Electronics, Ltd. 7 Texas Instruments, Inc. 8 First Technology China, Ltd. # 8 Texas Instruments, Inc. 8 Greatek Electronics Inc. 9 Samsung 10 Tesla Motors 9 Rohm Integrated Systems 9 Super Power International Ltd # 10 Xinye Electronics. Co # 10 Freescale Semiconductor, Inc. * # Represents more than 10% of our net revenue for the applicable fiscal year. Distributor of our products. Approximately 92.4%, 91.2%, and 94.4% of our net revenue for fiscal 2016, 2015, and 2014, 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 the majority of our future revenue. See Note 15 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, the U.S and the Netherlands. By establishing relationships with semiconductor manufacturers, OSATs, and vertically integrated manufacturers of electronic systems, we gain insight into our customers' future semiconductor packaging strategies. In addition, we also send our products and equipment to customers or potential customers for trial and evaluation. 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 1, 2016 and October 3, 2015: (in thousands) Backlog As of October 1, 2016 October 3, 2015 $ 87,200 $ 52,500 8 Manufacturing We believe excellence in manufacturing can create a competitive advantage, both by producing at lower costs and by providing superior responsiveness to changes in customer demand. To achieve these goals, we manage our manufacturing operations through a single organization and believe that fewer, larger factories allow us to capture economies of scale and generate cost savings through lower manufacturing costs. Equipment Our equipment manufacturing activities consist mainly of integrating outsourced parts and subassemblies and testing finished products to customer specifications. 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 Hybrid and Electronic Assembly 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 $92.4 million, $90.0 million, and $83.1 million during fiscal 2016, 2015, and 2014, 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. 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, innovation, quality and customer support, each of which contribute to lower the overall cost per package being manufactured. Our major equipment competitors include: (cid:129) Ball bonders: ASM Pacific Technology and Shinkawa Ltd. (cid:129) Wedge bonders: ASM Pacific Technology, Cho-Onpa, F&K Delvotec, and Hesse Mechatronics (cid:129) APAMA bonders: ASM Pacific Technology, BE Semiconductor Industries N.V., Shibaura Mechatronics Corporation, Shinkawa Ltd., and Toray Industries, Inc. (cid:129) Hybrid solutions: ASM Pacific Technology, BE Semiconductor Industries N.V., HANMI Semiconductor, and Shinkawa Ltd. (cid:129) Electronic Assembly 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: 9 (cid:129) Capillaries: Adamant Co., Ltd., PECO, and Small Precision Tools, Inc. (cid:129) Dicing blades: Disco Corporation and Zhengzhou Hongtuo Superabrasive Products Co. Ltd (cid:129) 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 1, 2016, we had approximately 2,389 regular full-time employees and 206 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' anticipated sales. Reductions or other fluctuations in their spending as a result of uncertain conditions in the macroeconomic environment, including from 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: (cid:129) market downturns; (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) industry inventory level; the mix of products we sell because, for example: (cid:405) (cid:405) 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 (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) 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: (cid:129) (cid:129) (cid:129) (cid:129) timing and extent of our research and development efforts; severance, restructuring, and other costs of relocating facilities; inventory write-offs due to obsolescence or other causes; 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 have been copper capable bonders. In fiscal 2016, 88% 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 92.4%, 91.2%, and 94.4% of our net revenue for fiscal 2016, 2015, and 2014, respectively, was for shipments to customers located outside of the U.S., primarily in the Asia/Pacific region. In the Asia/Pacific region, our customer base is also becoming more geographically concentrated as a result of economic and industry conditions. Approximately 33.7%, 31.6% and 25.4% of our net revenue for the fiscal 2016, 2015, and 2014 was for shipments to customers located in China. 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. 12 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 Hybrid and Electronic Assembly solutions in the Netherlands, our dicing blades, capillaries and bonding wedges in China and capillary blanks in 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: (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) 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 Euros, an increase in value of the U.S. dollar or the 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 the 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 13 currency, and remeasurement of our foreign subsidiaries' net monetary assets from the subsidiaries' local currency into the subsidiaries' functional currency. In general, an increase in the value of the U.S. dollar could require certain of our foreign subsidiaries to record translation and remeasurement gains. Conversely, a decrease in the value of the U.S. dollar could require certain of our foreign subsidiaries to record losses on translation and remeasurement. An increase in the value of the U.S. dollar could increase the cost to our customers of our products in those markets outside the U.S. where we sell in U.S. dollars, and a weakened U.S. dollar could increase the cost of local operating expenses and procurement of raw materials, both of which could have an adverse 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 or entities without incurring unanticipated costs and disruptions to our business. As part of our ongoing efforts to drive further efficiency, we may consolidate our manufacturing and other facilities or entities. 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 departure of our chief executive officer. 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 WLP. 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 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. 14 Because a small number of customers account for most of our sales, our net revenue could decline if we lose a significant customer. The semiconductor manufacturing industry is highly concentrated, with a relatively small number of large semiconductor manufacturers and their subcontract assemblers and vertically integrated manufacturers of electronic systems purchasing a substantial portion of our semiconductor assembly equipment and packaging materials. Sales to a relatively small number of customers have historically accounted for a significant percentage of our net revenue. Sales to our largest customers, defined as more than 10% of our net revenue, comprised 11.5% of our net revenue for fiscal 2016 and sales to our ten largest customers comprised 47.6% of our net revenue for fiscal 2016. 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. 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. We send products and equipment to customers or potential customers for trial, evaluation or other purposes which may result in retrofit charges, impairments or write-down of inventory value if the products and equipment are not subsequently purchased by the customers. From time to time we send certain products and equipment to customers or potential customers for testing, evaluation or other purposes in advance of receiving any confirmation of purchase or purchase orders. Such equipment may be at the customer location for an extended period of time per the agreements with these customers and potential customers. The customer may refuse to buy all or partial quantities of such product or equipment and return this back to us. As a result, we may incur charges to retrofit the machines or sell the machines as second hand at a lower price, and accordingly may have to record impairments on the returned inventory, all of which would adversely affect our operating results. 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: (cid:129) (cid:129) writing off the value of inventory; disposing of products that cannot be fixed; 15 (cid:129) (cid:129) (cid:129) 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: (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) decreased control over the manufacturing process for components and subassemblies; changes in our manufacturing processes in response to changes in the market, which may delay our shipments; our inadvertent use of defective or contaminated raw materials; the relatively small operations and limited manufacturing resources of some of our suppliers, which may limit their ability to manufacture and sell subassemblies, components or parts in the volumes we require and at acceptable quality levels and prices; the inability of suppliers to meet customer demand requirements during volatile cycles; reliability or quality issues with certain key subassemblies provided by single source suppliers as to which we may not have any short term alternative; 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. Recent 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 demands 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 16 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 price, speed/throughput, production yield, process control, delivery time, innovation, quality and customer support. In the semiconductor packaging materials industry, competitive factors include price, delivery and quality. In each of our markets, we face competition and the threat of competition from established competitors and potential new entrants. In addition, established competitors may combine to form larger, better capitalized companies. Some of our competitors have or may have significantly greater financial, engineering, manufacturing and marketing resources. Some of these competitors are Asian and European companies that have had, and may continue to have, an advantage over us in supplying products to local customers who appear to prefer to purchase from local suppliers, without regard to other considerations. We expect our competitors to improve their current products' performance, and to introduce new products and materials with improved price and performance characteristics. Our competitors may independently develop technology similar to or better than ours. New product and material introductions by existing competitors or by new market entrants could hurt our sales. If a 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: (cid:129) (cid:129) (cid:129) 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 17 intellectual property rights of others, we could be enjoined from continuing to manufacture, market or use the affected product, or be required to obtain a license to continue manufacturing or using the affected product. A license could be very expensive to obtain or may not be available at all. Similarly, changing or re-engineering our products or processes to avoid infringing the rights of others may be costly, impractical or time consuming. Occasionally, third parties assert that we are, or may be, infringing on or misappropriating their intellectual property rights. In these cases, we defend, and will continue to defend, against claims or negotiate licenses where we consider these actions appropriate. Intellectual property cases are uncertain and involve complex legal and factual questions. If we become involved in this type of litigation, it could consume significant resources and divert our attention from our business. We may be materially and adversely affected by environmental and safety laws and regulations. We are subject to various federal, state, local and foreign laws and regulations governing, among other things, the generation, storage, use, emission, discharge, transportation and disposal of hazardous material, investigation and remediation of contaminated sites and the health and safety of our employees. Increasingly, public attention has focused on the environmental impact of manufacturing operations and the risk to neighbors of chemical releases from such operations. Proper waste disposal plays an important role in the operation of our manufacturing plants. In many of our facilities we maintain wastewater treatment systems that remove metals and other contaminants from process wastewater. These facilities operate under permits that must be renewed periodically. A violation of those permits may lead to revocation of the permits, fines, penalties or the incurrence of capital or other costs to comply with the permits, including potential shutdown of operations. Compliance with existing or future, land use, environmental and health and safety laws and regulations may: (1) result in significant costs to us for additional capital equipment or other process requirements, (2) restrict our ability to expand our operations and/or (3) cause us to curtail our operations. We also could incur significant costs, including cleanup costs, fines or other sanctions and third-party claims for property damage or personal injury, as a result of violations of or liabilities under such laws and regulations. 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 70.4 million shares were outstanding as of October 1, 2016. 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 18 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 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: (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) 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: (cid:129) (cid:129) 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 19 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. (cid:129) 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. Certain foreign jurisdictions may also have rules that are similar to the U.S. on limiting utilization of tax attributes resulting from an ownership change. As of October 1, 2016, we have foreign net operating loss carryforwards of $97.0 million, domestic state net operating loss carryforwards of $176.9 million, domestic federal net operating loss carryforwards of $1.1 million, and tax credit carryforwards of $10.9 million that can 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: (cid:129) (cid:129) (cid:129) 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. 20 Terrorist attacks, or other acts of violence or war may affect the markets in which we operate and our profitability. Terrorist attacks may negatively affect our operations. There can be no assurance that there will not be further terrorist attacks against the U.S. or U.S. businesses. Terrorist attacks or armed conflicts may directly impact our physical facilities or those of our suppliers or customers. Our primary facilities include administrative, sales and research and development facilities in Singapore and the U.S. and manufacturing and research and development facilities in China, and Israel. Additional terrorist attacks may disrupt the global insurance and reinsurance industries with the result that we may not be able to obtain insurance at historical terms and levels for all of our facilities. Furthermore, additional attacks may make travel and the transportation of our supplies and products more difficult and more expensive and ultimately affect the sales of our products in the U.S. and overseas. Additional attacks or any broader conflict, could negatively impact our domestic and international sales, our supply chain, our production capability and our ability to deliver products to our customers. Political and economic instability in some regions of the world could negatively impact our business. The consequences of terrorist attacks or armed conflicts are unpredictable, and we may not be able to foresee events that could have an adverse effect on our business. Item 1B. UNRESOLVED STAFF COMMENTS None. Item 2. PROPERTIES The following table reflects our major facilities as of October 1, 2016: 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 Expendable Tools: capillaries, dicing blades and bonding wedges Owned Eindhoven, Netherlands 85,000 sq. ft. Manufacturing, technology, sales and service center Fort Washington, Pennsylvania Santa Ana, California 88,000 sq. ft. 65,000 sq. ft. Technology, sales and service center Technology, sales and service center Yokneam, Israel 21,000 sq. ft. Manufacturing and technology center Equipment: Advanced Packaging and Electronics Assembly September 2020 (3) Not applicable 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 to Eindhoven, Netherlands from Veldhoven, Netherlands in October 2015. (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 Asia, Europe and North America. The Company believes the facilities are generally in good condition and suitable to the extent of utilization needed. 21 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. PART II 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: First Quarter Second Quarter Third Quarter Fourth Quarter Fiscal 2016 Fiscal 2015 High Low High Low $ $ $ $ 12.39 $ 12.20 $ 12.98 $ 13.44 $ 9.13 $ 9.63 $ 10.62 $ 11.29 $ 14.84 $ 16.54 $ 16.08 $ 12.13 $ 12.14 13.81 12.16 8.80 On November 15, 2016, there were approximately 240 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 2017 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission on or about January 27, 2017. Recent Sales of Unregistered Securities and Use of Proceeds None. Purchases of Equity Securities by the Issuer and Affiliated Purchasers 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 quarter ended October 1, 2016, there were no shares repurchased by the Company. As of October 1, 2016, our remaining stock repurchase authorization under the Program was approximately $7.0 million. 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 2016, 2015, 2014, 2013, and 2012. 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 2016 2015 Fiscal 2014 2013 2012 627,192 52,539 2,211 536,471 37,251 454 568,569 76,984 149 534,938 65,806 791,023 179,226 862 (4,975) Income from continuing operations before income tax 54,750 37,705 77,133 66,668 174,251 Provision (Benefit) for income taxes from continuing operations (1) Net income 7,638 (12,934 ) 14,145 7,310 13,671 $ 47,112 $ 50,639 $ 62,988 $ 59,358 $ 160,580 (1) The following are the most significant factors that affected our provision for income taxes: 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 2016 2015 Fiscal 2014 2013 2012 $ $ 0.67 $ 0.67 $ 0.67 $ 0.67 $ 0.82 $ 0.81 $ 0.79 $ 0.78 $ 2.17 2.13 70,477 70,841 75,414 75,659 76,396 77,292 75,132 76,190 73,887 75,502 (1) For fiscal 2016, 2015, 2014, 2013 and 2012, the exercise of dilutive stock options and expected vesting of time-based and market-based restricted stock were included. (in thousands) Balance Sheet Data: Cash, cash equivalents, investments and restricted cash $ 2016 2015 (1) Fiscal 2014 2013 2012 547,907 $ 498,614 $ 597,086 $ 525,040 $ 440,244 Working capital excluding discontinued operations Total assets excluding discontinued operations Long-term debt and current portion of long-term debt 662,345 982,444 — 633,435 904,466 — 756,340 944,448 — 676,986 862,994 — Long-term and current portion of financing obligation 17,318 17,003 19,616 19,396 589,947 815,609 — — Shareholders' equity 806,518 769,249 789,242 716,665 643,667 (1) As described in Note 2 to Consolidated Financial Statements. 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, 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): (cid:129) (cid:129) 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 electronic assembly 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 (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. Our Management's Discussion and Analysis ("MD&A") is provided in addition to the accompanying consolidated financial statements and notes to assist readers in understanding our results of operations, financial condition, and cash flows. MD&A is organized as follows: (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) Overview: Introduction of our operations, business environment, technology leadership, products and services, and Segments- Equipment and Expendable Tools Critical Accounting Policies Recent Accounting Pronouncements Results of Operations Liquidity and Capital Resources Other Obligations and Contingent Payments Overview For an overview of our business, see "Part I – Item 1. – Business" 24 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: (cid:129) 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. (cid:129) 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. (cid:129) 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 is typically obtained after installation and testing, is received from the customer. Shipping and handling costs billed to customers are recognized in net revenue. Shipping and handling costs paid by us are included in cost of sales. Allowance for Doubtful Accounts We maintain allowances for doubtful accounts for estimated losses resulting from our customers' failure to make required payments. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. We are subject to concentrations of customers and sales to 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 net realizable 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 25 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 net realizable 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. Inventory reserve provision for certain subsidiaries 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. 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 B.V. ("Assembléon") in 2009 and 2015, respectively. ASC No. 350, Intangibles-Goodwill and Other ("ASC 350") requires goodwill and other intangible assets with indefinite lives to be reviewed for impairment annually, or more frequently if circumstances indicate a possible impairment. We 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 2016 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 1, 2016, 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 the 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 6 below. 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. 26 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. 27 RESULTS OF OPERATIONS Results of Operations for fiscal 2016 and 2015 The following table reflects our income from operations for fiscal 2016 and 2015: (dollar amounts in thousands) Net revenue Cost of sales Gross profit Selling, general and administrative Research and development Operating expenses Fiscal 2016 2015 $ Change % Change $ 627,192 $ 340,463 286,729 536,471 $ 277,379 259,092 141,816 92,374 234,190 131,808 90,033 221,841 90,721 63,084 27,637 10,008 2,341 12,349 16.9% 22.7% 10.7% 7.6% 2.6% 5.6% Income from operations $ 52,539 $ 37,251 $ 15,288 41.0% Bookings and Backlog A booking is recorded when a customer order is reviewed and it is determined that all specifications can be met, production (or service) can be scheduled, a delivery date can be set, and the customer meets our credit requirements. We use bookings to evaluate the results of our operations, generate future operating plans and assess the performance of our company. While we believe that this 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 2016 and 2015: (in thousands) Bookings (in thousands) Backlog Fiscal 2016 2015 661,931 $ 491,427 As of October 1, 2016 October 3, 2015 87,200 $ 52,500 $ $ Our net revenues for fiscal 2016 have increased as compared to our net revenues for fiscal 2015 due to strong customer demand. The semiconductor industry is volatile and our operating results have fluctuated significantly in the past. Customer demand for our products could weaken and lead to a decline in our net revenues. Net Revenue Approximately 92.4% and 91.2% of our net revenue for fiscal 2016 and 2015, respectively, was for shipments to customer locations outside of the U.S., primarily in the Asia/Pacific region. In the Asia/Pacific region, our customer base is also becoming more geographically concentrated as a result of economic and industry conditions. Approximately 33.7%, 31.6% and 25.4% of our net revenue for the fiscal 2016, 2015, and 2014 was for shipments to customers located in China. 28 The following table reflects net revenue by business segment for fiscal 2016 and 2015: (dollar amounts in thousands) Equipment Expendable Tools Total net revenue Equipment Fiscal 2016 2015 $ Change % Change $ $ 562,463 $ 64,729 627,192 $ 472,002 $ 64,469 536,471 $ 90,461 260 90,721 19.2% 0.4% 16.9% The following table reflects the components of Equipment net revenue change between fiscal 2016 and 2015: (in thousands) Equipment Price Fiscal 2016 vs. 2015 Volume $ Change $ (32,420 ) $ 122,881 $ 90,461 For fiscal 2016, the higher Equipment net revenue as compared to fiscal 2015 was primarily due to the higher volume driven by the strong demand from our customers and inclusion of the additional revenue resulting from the Assembléon acquisition. This was partially offset by the unfavorable price variance in our ball bonders and Advanced Packaging products. The unfavorable price variance was due to the unfavorable customer mix. Expendable Tools The following table reflects the components of Expendable Tools net revenue change between fiscal 2016 and 2015: (in thousands) Expendable Tools Fiscal 2016 vs. 2015 Price Volume $ Change $ (2,970 ) $ 3,230 $ 260 For fiscal 2016, the Expendable Tools net revenue has remained generally consistent as compared to fiscal 2015. The higher volume was primarily due to higher demand in wire bonding tools and wedge bonding tools. This was partially offset by a price reduction. Gross Profit The following table reflects gross profit by business segment for fiscal 2016 and 2015: (dollar amounts in thousands) Equipment Expendable Tools Total gross profit Fiscal 2016 2015 $ Change % Change $ $ 249,805 $ 36,924 286,729 $ 221,961 $ 37,131 259,092 $ 27,844 (207 ) 27,637 12.5 % (0.6)% 10.7 % The following table reflects gross profit as a percentage of net revenue by business segment for fiscal 2016 and 2015: Equipment Expendable Tools Total gross margin Equipment Fiscal 2016 2015 Basis Point Change 44.4% 57.0% 45.7% 47.0% 57.6% 48.3% (260) (60) (260) The following table reflects the components of Equipment gross profit change between fiscal 2016 and 2015: (in thousands) Equipment Price Fiscal 2016 vs. 2015 Cost Volume $ Change $ (32,420 ) $ 2,174 $ 58,090 $ 27,844 29 For fiscal 2016, the higher Equipment gross profit as compared to fiscal 2015 was primarily due to the higher volume described above and lower cost. The higher volume was driven by the strong demand from our customers and inclusion of the additional revenue resulting from the Assembléon acquisition. The lower cost was primarily due to product mix. Higher volume and lower cost were partially offset by the unfavorable price variance in our ball bonders and Advanced Packaging products. The unfavorable price variance was due to the unfavorable customer mix. Expendable Tools The following table reflects the components of Expendable Tools gross profit change between fiscal 2016 and 2015: (in thousands) Expendable Tools Price Cost Volume $ Change $ (2,970 ) $ 723 $ 2,040 $ (207) For fiscal 2016, the Expendable Tools gross profit has remained generally consistent as compared to fiscal 2015. The price reduction was partially offset by higher demand in wire bonding tools and wedge bonding tools. Fiscal 2016 vs. 2015 Operating Expenses The following table reflects operating expenses as a percentage of net revenue for fiscal 2016 and 2015: Selling, general & administrative Research & development Total Selling, General and Administrative (“SG&A”) Fiscal 2016 2015 Basis point change 22.6 % 14.7 % 37.3 % 24.6% 16.8% 41.4% (200) (210) (410) For fiscal 2016, higher SG&A as compared to fiscal 2015 was primarily due to $7.9 million of expenses relating to the restructuring program, $7.6 million increase due to inclusion of SG&A expenses resulting from the Assembléon acquisition, $3.2 million increase in incentive compensation due to better current fiscal year performance and a $2.6 million unfavorable net foreign exchange variance. These were partially offset by lower staff costs of $7.0 million due to streamlining of our international operations and functions, and lower amortization expenses of $4.7 million relating to the wedge bonder developed technology which were fully amortized in fiscal year 2015. Research and Development (“R&D”) For fiscal 2016, higher R&D expenses as compared to fiscal 2015 were primarily due to additional investment in the development of advanced packaging products. This was partially offset by lower staff costs. Income from Operations For fiscal 2016, total income from operations was higher by $15.3 million as compared to fiscal 2015. This was primarily due to higher revenue for equipment sales and partially offset by higher operating expenses as explained above. Interest Income and Expense The following table reflects interest income and interest expense for fiscal 2016 and 2015: Fiscal (dollar amounts in thousands) Interest income Interest expense 2016 2015 $ Change % Change $ $ 3,318 $ (1,107) $ 1,637 $ (1,183) $ 1,681 76 102.7 % (6.4)% For fiscal 2016, interest income was higher as compared to fiscal 2015. This was primarily due to higher returns and a larger cash and cash equivalent balance. Interest expense for fiscal 2016 and 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 10 of our Consolidated Financial Statements included in Item 8 of this report). 30 Provision for Income Taxes The following table reflects the provision for income taxes and the effective tax rate for fiscal 2016 and 2015: (in thousands) Income from operations before income taxes Provision for income taxes Net income Effective tax rate Fiscal 2016 54,750 7,638 47,112 $ $ 2015 37,705 (12,934) 50,639 $ $ 14.0% (34.3)% For fiscal 2016, the effective income tax rate increased from fiscal 2015 by 48.3% due primarily to a lower tax benefit of $9.7 million recorded in 2016 as compared to $19.7 million recorded in 2015 related to the reduction in deferred tax liabilities as a result of the change in permanent reinvestment assertion, a one-time tax expense of $4.9 million recorded in 2016 arising from a settlement reached with a foreign tax authority, and a restructuring related tax expense of $4.2 million. For fiscal 2015, the effective income tax rate differed from the federal statutory rate due primarily to tax benefits from the reduction in deferred tax liabilities on certain unremitted foreign earnings as a result of the change in permanent reinvestment assertion due to a business structure reorganization, tax benefits from research and development expenditures, profits from foreign operations subject to a lower statutory tax rate than the federal rate, and the impact of tax holidays, offset by an increase in valuation allowance against certain foreign deferred tax assets, foreign earnings not permanently reinvested, and foreign withholding taxes. 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. In fiscal 2016, the Company restructured its entities resulting in a change in its permanent reinvestment assertion outside the United States. During the year ended October 1, 2016, approximately $9.7 million in deferred tax liability was reversed and recorded as a tax benefit due to the change in the assertion. As part of the plan, the Company also recorded a restructuring related tax expense of $4.2 million for the transfers and exchanges of certain foreign subsidiaries. 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. 31 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 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 September 27, 2014 52,500 $ 79,100 $ $ Our net revenues for fiscal 2015 decreased as compared to our net revenues for fiscal 2014 due to reduced customer demand. 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. 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 additional revenue resulting from Assembléon acquisition. 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 32 The following table reflects the components of Expendable Tools net revenue change between fiscal 2015 and 2014: (in thousands) Expendable Tools Fiscal 2015 vs. 2014 Price 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) 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 additional revenue resulting from Assembléon acquisition. 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 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. Fiscal 2015 vs. 2014 33 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 resulting from Assembléon acquisition 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 fiscal 2015 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: cash 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 10 of our Consolidated Financial Statements included in Item 8 of this report). Provision for Income Taxes The following table reflects the provision for income taxes and the effective tax rate for fiscal 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. 34 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 executed 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. LIQUIDITY AND CAPITAL RESOURCES The following table reflects total cash and investments as of October 1, 2016 and October 3, 2015: (dollar amounts in thousands) Cash and cash equivalents Percentage of total assets As of October 1, 2016 October 3, 2015 Change $ 547,907 $ 498,614 $ 49,293 55.8 % 55.1% The following table reflects summary Consolidated Statement of Cash Flow information for fiscal 2016 and 2015: (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 2016 Fiscal 2016 2015 $ $ 68,407 $ (5,165) (14,486) 537 49,293 498,614 547,907 — 547,907 $ 87,875 (94,109) (84,459) 1,326 (89,367) 587,981 498,614 — 498,614 Net cash provided by operating activities was primarily the result of net income of $47.1 million, non-cash adjustments of $14.1 million and working capital changes of $7.2 million. The change in working capital was primarily driven by increase in accounts payable and accrued expenses and other current liabilities of $34.1 million and income tax payable of $10.5 million. This was partially offset by an increase in accounts and notes receivable of $22.1 million, an increase in net inventories of $16.3 million and others of $1.1 million. The increase in accounts payable and accrued expenses and other current liabilities and the increase in net inventories was primarily due to higher manufacturing activity in the fourth quarter of fiscal 2016 as compared to fourth quarter of fiscal 2015 in anticipation of higher sales in the first quarter of fiscal 2017. The higher income taxes payable was mainly due to additional tax liability arising from a settlement reached with a foreign tax authority. The increase in accounts receivables was due to higher sales in the fourth quarter of fiscal 2016 as compared to the fourth quarter of fiscal 2015. The lower sales in fourth quarter of fiscal 2015 was mainly attributable to lower equipment utilization rate due to the economic conditions, and therefore lower demand from our customers. Net cash used in investing activities was primarily due to capital expenditures of $6.2 million offset by proceeds from sales of property, plant and equipment of $1.1 million. Net cash used in financing relates to the repurchase of common stock of $14.6 million and repayment of loans of $0.5 million. This was offset by proceeds from the exercise of stock options of $0.4 million. 35 Fiscal 2015 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 partially offset by proceeds from short term loans of $0.8 million and proceeds from the exercise of stock options of $0.7 million. Fiscal 2017 Liquidity and Capital Resource Outlook We expect our fiscal 2017 capital expenditures to be approximately $16.0 million. Expenditures are anticipated to be primarily used for R&D projects, enhancements to our manufacturing operations in Asia, improvements to our information technology infrastructure and leasehold improvements for our facilities. 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, including possible acquisitions. 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. As of October 1, 2016 and October 3, 2015, approximately $479.7 million and $488.0 million of cash, cash equivalents and short- term investments were held by the Company's foreign subsidiaries, respectively. The cash amounts not available for use in the U.S. without incurring additional U.S. income tax as of October 1, 2016 and October 3, 2015, were approximately $428.4 million and $343.5 million, respectively. The Company’s international operations and capital requirements are funded primarily by cash generated by foreign operating activities and cash held by foreign subsidiaries. Most of the Company's operations and liquidity needs are outside the U.S. The Company’s U.S. operations and capital requirements are funded primarily by cash generated from U.S. operating activities. In addition, the Company has entered into an Uncommitted Revolving Credit Agreement with United Overseas Bank Limited, New York Agency ("UOB"), providing for a $25 million revolving credit facility (the "2016 Credit Facility"). The 2016 Credit Facility is an unsecured revolving credit facility of $25 million with a term of one year. The proceeds of the 2016 Credit Facility may be used for the Company's general corporate purposes and provide additional liquidity for any U.S. needs. We believe our U.S. sources of cash and liquidity are sufficient to meet our business needs in the U.S. for the foreseeable future including funding of U.S. operations, capital expenditures and the share repurchase program as approved by the Board of Directors. We currently do not expect that we will need to repatriate the funds we have designated as indefinitely reinvested outside the U.S. Should the Company’s U.S. cash needs exceed its funds generated by U.S. operations due to changing business conditions or transactions outside the ordinary course, such as acquisitions of large capital assets, businesses or any other capital appropriation in the U.S., the Company may require additional financing in the U.S. In this event, the Company could borrow under the 2016 Credit Facility, seek other U.S. borrowing alternatives, repatriate funds held by foreign subsidiaries that have already been subject to U.S. taxation without incurring additional income tax expense (i.e. earnings previously subject to U.S. income tax or U.S. deferred taxes already accrued on those respective earnings), or a combination thereof. 36 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 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 this program depend on market conditions as well as corporate and regulatory considerations. During the year ended October 1, 2016, the Company repurchased a total of 1.4 million shares of common stock at a cost of $14.6 million under the repurchase program. As of October 1, 2016, our remaining stock repurchase authorization under the repurchase program was approximately $7.0 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 1, 2016 are appropriately not included in the Consolidated Balance Sheets and Statements of Operations included in this Form 10-K; however, they have been disclosed in the table below for additional information. The following table reflects obligations and contingent payments under various arrangements as of October 1, 2016: (in thousands) Current and long-term liabilities: Pension plan obligations Severance (1) Operating lease retirement obligations (2) Long-term income taxes payable Total Obligations and Contingent Payments reflected on the Consolidated Financial Statements Contractual Obligations: Inventory purchase obligations (3) Operating lease obligations (4) 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 3,378 $ 2,773 1,720 4,891 — $ — 69 — — $ 721 433 — — $ — — — 3,378 2,052 1,218 4,891 12,762 $ 69 $ 1,154 $ — $ 11,539 102,423 27,316 102,423 $ 5,087 — $ — $ 7,163 5,876 — 9,190 $ $ $ $ 129,739 $ 107,510 $ 7,163 $ 5,876 $ 9,190 (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) Asset retirement obligations are associated with commitments to return the property to its original condition upon lease termination at various sites. (3) We order inventory components in the normal course of our business. A portion of these orders are non-cancellable and a portion may have varying penalties and charges in the event of cancellation. (4) 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. In accordance with ASC No. 840, Leases ("ASC 840"), the Company was considered to be the owner of its headquarters during the construction phase due to its involvement in the asset construction. As a result of the Company's continued involvement during the lease term, the Company did not fulfill the criteria to apply sale-leaseback accounting under ASC 840. Therefore, at completion, the building remained on the Consolidated Balance Sheet, and the corresponding financing obligation was reclassified to long-term liability. As of October 1, 2016, we recorded a financing obligation of $16.7 million. The financing obligation is not reflected in the table above. 37 Off-Balance Sheet Arrangements Credit facilities and Bank Guarantees On November 22, 2013, the Company obtained a $5.0 million credit facility with Citibank in connection with the issuance of a bank guarantee for operational purposes. As of October 1, 2016, the outstanding amount is $3.0 million. On March 21, 2016, the Company entered into an Uncommitted Revolving Credit Agreement with United Overseas Bank Limited, New York Agency ("UOB"), providing for a $25 million revolving credit facility (the "2016 Credit Facility"). The 2016 Credit Facility is an unsecured revolving credit facility of $25 million with a term of one year. The proceeds of the 2016 Credit Facility may be used for the Company's general corporate purposes. As of October 1, 2016, there was no outstanding amount under the 2016 Credit Facility and we were in compliance with the covenants described in the 2016 Credit Facility. As of October 1, 2016, we did not have any other off-balance sheet arrangements, such as contingent interests or obligations associated with variable interest entities. 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 1, 2016, 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 1, 2016, a 10.0% fluctuation could impact our financial position, results of operations or cash flows by $2.0 to $3.0 million. 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. During fiscal 2016, we entered into 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 twelve months. We have foreign exchange forward contracts with a notional amount of $29.0 million outstanding as of October 1, 2016. There were no foreign exchange forward contracts or other instruments as of October 3, 2015. 38 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 1, 2016 and October 3, 2015, and the results of their operations and their cash flows for each of the three years in the period ended October 1, 2016 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 1, 2016, 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 under Item 9A. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ PricewaterhouseCoopers LLP Singapore November 17, 2016 39 KULICKE AND SOFFA INDUSTRIES, INC. CONSOLIDATED BALANCE SHEETS (in thousands) As of October 1, 2016 October 3, 2015 $ 547,907 $ ASSETS Current assets: Cash and cash equivalents Accounts and notes receivable, net of allowance for doubtful accounts of $506 and $621, 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 16) SHAREHOLDERS' EQUITY: Preferred stock, without par value: Authorized 5,000 shares; issued - none Common stock, no par value: Authorized 200,000 shares; issued 83,231 and 82,643 respectively; outstanding 70,420 and 71,240 shares, respectively Treasury stock, at cost, 12,811 and 11,403 shares, respectively Retained earnings Accumulated other comprehensive loss TOTAL SHAREHOLDERS' EQUITY TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ $ $ $ $ $ 130,455 87,295 15,285 — 780,942 50,342 81,272 50,810 19,078 982,444 $ 41,813 $ 63,954 12,830 118,597 16,701 27,697 12,931 175,926 $ 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 33,958 10,842 135,217 — $ — 498,676 (139,407 ) 449,975 (2,726 ) 806,518 $ 492,339 (124,856) 402,863 (1,097) 769,249 982,444 $ 904,466 The accompanying notes are an integral part of these consolidated financial statements. 40 KULICKE AND SOFFA INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) 2016 Fiscal 2015 2014 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 expense / (benefit) Net income Net income per share: Basic Diluted Weighted average shares outstanding: Basic Diluted $ 627,192 $ 340,463 536,471 $ 277,379 286,729 141,816 92,374 234,190 52,539 3,318 (1,107) 259,092 131,808 90,033 221,841 37,251 1,637 (1,183) 54,750 7,638 47,112 $ 37,705 (12,934) 50,639 $ 568,569 295,015 273,554 113,514 83,056 196,570 76,984 1,197 (1,048) 77,133 14,145 62,988 0.67 $ 0.67 $ 0.67 $ 0.67 $ 0.82 0.81 70,477 70,841 75,414 75,659 76,396 77,292 $ $ $ The accompanying notes are an integral part of these consolidated financial statements. 41 KULICKE AND SOFFA INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands) Net income Other comprehensive income (loss): Foreign currency translation adjustment Unrecognized actuarial (loss), Switzerland pension plan, net of tax Derivatives designated as hedging instruments: Unrealized gain / (loss) on derivative instruments, net of tax Reclassification adjustment for (gain) / loss on derivative instruments recognized, net of tax Net decrease from derivatives designated as hedging instruments, net of tax 2016 Fiscal 2015 2014 $ 47,112 $ 50,639 $ 62,988 624 (1,791 ) (1,167) (566) 104 (462) (3,360 ) 19 (3,341 ) (1,008) 1,008 — (983) (391) (1,374) 114 (114) — Total other comprehensive loss (1,629) (3,341) (1,374) Comprehensive income $ 45,483 $ 47,298 $ 61,614 The accompanying notes are an integral part of these consolidated financial statements. 42 KULICKE AND SOFFA INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (in thousands) Issuance of shares for market-based restricted stock and time-based restricted stock 1,192 — Balances as of September 28, 2013 Issuance of stock for services rendered Repurchase of common stock Exercise of stock options 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 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 Unrealized loss on derivative instruments Unamortized pension costs Total comprehensive income Balances as of October 1, 2016 Common Stock Shares Amount Treasury Stock Retained earnings Accumulated Other Comprehensive Income Shareholders' Equity 75,283 $ 467,525 $ (46,356 ) $ 289,236 $ 3,618 $ 714,023 63 (43 ) 131 809 — 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 ) $ 352,224 $ 2,244 $ 786,600 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) $ 402,863 $ (1,097) $ 769,249 50 (1,408) 53 485 — — — — — — — 551 — 410 — 197 5,179 — — — — — — (14,551 ) — — — — — — — — — — — — — — — 47,112 — — — 47,112 — — — — — — — 624 (462) (1,791) (1,629) 551 (14,551 ) 410 — 197 5,179 47,112 624 (462 ) (1,791 ) 45,483 70,420 $ 498,676 $ (139,407) $ 449,975 $ (2,726) $ 806,518 The accompanying notes are an integral part of these consolidated financial statements. 43 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 Unrealized foreign currency translation 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 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 2016 Fiscal 2015 2014 $ 47,112 $ 50,639 $ 62,988 16,230 5,730 (197 ) (115 ) 6,676 (15,530 ) — (55 ) 1,318 (22,139) (16,340) 1,599 34,106 10,492 (480) 68,407 — (6,218) 1,053 — — (5,165) 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) (542 ) — 410 (14,551) 197 (14,486) 537 49,293 498,614 547,907 $ (10,815) 837 694 (75,715) 540 (84,459) 1,326 (89,367) 587,981 498,614 $ 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) — — 1,080 (419) (825) (164) (129) 66,193 521,788 587,981 1,107 $ 10,020 $ 1,183 $ 5,192 $ 1,048 4,603 $ $ $ The accompanying notes are an integral part of these consolidated financial statements. 44 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 30. In fiscal years consisting of 53 weeks, the fourth quarter will consist of 14 weeks. The 2016, 2015, and 2014 fiscal years ended on October 1, 2016, October 3, 2015 and September 27, 2014, 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 the Company's 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 1, 2016 and October 3, 2015 consisted primarily of 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 45 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 1, 2016 and October 3, 2015, 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 46 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 net realizable 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 net realizable 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. Inventory reserve provision for certain subsidiaries 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; or significant changes in market capitalization. During the fiscal years ended October 1, 2016 and October 3, 2015, 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 B.V. ("Assembléon") in 2009 and 2015, respectively. ASC No. 350, Intangibles-Goodwill and Other ("ASC 350") requires goodwill and other intangible assets with indefinite lives to be reviewed for impairment annually, or more frequently if circumstances indicate a possible impairment. We 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 47 KULICKE AND SOFFA INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 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 2016 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 1, 2016, 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 the 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 6 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 that 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 when such determination is 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 when such determination is made. In accordance with ASC No. 740 Topic 10, Income Taxes, General (“ASC 740.10”), the Company accounts for uncertain tax positions taken or expected to be taken in its income tax return. Under ASC 740.10, the Company utilizes a two-step approach for evaluating uncertain tax positions. Step one, or recognition, requires a company to determine if the weight of available evidence indicates a tax position is more likely than not to be sustained upon audit, including resolution of related appeals or litigation processes, if any. Step two, or measurement, is based on the largest amount of benefit, which is more likely than not to be realized on settlement with the taxing authority. Equity-Based Compensation 48 KULICKE AND SOFFA INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 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 include the weighted average number of common shares and the dilutive effect of stock options, restricted stock and share unit awards and other convertible instruments 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 Unaudited 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 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 August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606)- Deferral of the Effective Date, which defers the effective date of the new revenue standard by one year and permits early adoption as early as the original effective date of ASU 2014-09. Accordingly, the Company may adopt the standard in either our first quarter of 2018 or 2019. We are currently evaluating the impact of the adoption of this ASU on our financial statements. In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), to clarify the implementation guidance on principal versus agent considerations in Topic 606. The amendments are intended to improve the operability and lead to more consistent application of the implementation guidance. The effective date is the same as the effective date of ASU 2014-09. ASU 2015-14 defers the effective date by one year and permits early adoption as early as the original effective date of ASU 2014-09. Accordingly, the Company may 49 KULICKE AND SOFFA INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) adopt the standard in either our first quarter of 2018 or 2019. We are currently evaluating the impact of the adoption of this ASU on our financial statements. In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, to clarify the implementation guidance of Topic 606. The amendments do not change the guidance in Topic 606. The Company may adopt the standard in either our first quarter of 2018 or 2019. We are currently evaluating the impact of the adoption of this ASU on our financial statements. In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, to clarify the guidance on assessing collectability, presenting sales taxes, measuring noncash consideration, and certain transition matters. The amendments are expected to reduce the degree of judgment necessary to comply with Topic 606. The Company may adopt the standard in either our first quarter of 2018 or 2019. We are currently evaluating the impact of the adoption of this ASU on our financial statements. 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. The Company will adopt this guidance in the first quarter of 2017 after the effective date. The adoption of this guidance is not expected to have a significant impact 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. The Company will adopt this guidance in the first quarter of 2017 prospectively to all arrangements entered into or materially modified after the effective date. The adoption of this guidance is not expected to have a significant impact on our financial statements. In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740), to simplify the presentation of deferred income taxes. Under the new standard, both deferred tax liabilities and assets are required to be classified as noncurrent in a classified balance sheet. ASU 2015-17 will become effective for fiscal years, and the interim periods within those years, beginning after December 15, 2016 (our fiscal 2018), with early adoption allowed. As of October 3, 2015, we had deferred taxes that were classified as current and noncurrent. During the first quarter of fiscal 2016, we elected to prospectively adopt ASU 2015-17, thus reclassifying current deferred taxes to noncurrent on the accompanying consolidated balance sheet. The prior reporting period was not retrospectively adjusted. The adoption of this ASU had no impact on our consolidated results of income and comprehensive income. As of January 2, 2016, $1.3 million and $2.8 million of the net current deferred tax assets have been classified as long-term deferred tax assets and as an offset against long-term deferred tax liabilities, respectively. In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires the recognition of lease assets and lease liabilities by lessees for those lease classified as operating leases under current GAAP. This ASU will be effective for us beginning in our first quarter of fiscal 2019 and early adoption is permitted. We are currently evaluating the impact of the adoption of this ASU on our financial statements. In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. This ASU identifies areas for simplification involving several aspects of accounting for share- based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, an option to recognize gross stock compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the statement of cash flows. This ASU will be effective for us beginning in our first quarter of 2018 and early adoption is permitted. We are currently evaluating the impact of the adoption of this ASU on our financial statements. In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU replaces the impairment methodology in current GAAP, which delays recognition of credit losses until it is probable a loss has been incurred, with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. This ASU will be effective for us beginning in our first quarter of 2020. Early adoption is permitted beginning in our first quarter of 2019. We are currently evaluating the impact of the adoption of this ASU on our financial statements. 50 KULICKE AND SOFFA INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This ASU addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. The ASU will be effective for us beginning in our first quarter of 2018 and early adoption is permitted. The Company is currently evaluating the effect that the updated standard will have on our financial statements. 51 KULICKE AND SOFFA INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) NOTE 2: REVISION OF PREVIOUSLY REPORTED INCOME TAXES AND DEFERRED TAX LIABILITIES In the first quarter of fiscal 2016, the Company identified an error related to the income tax expense and related deferred income tax liabilities accounts that impacted the Company’s previously issued interim and annual consolidated financial statements. The adjustment relates to the local taxes in a foreign jurisdiction that resulted in an increased provision for income taxes expense and deferred income tax liabilities that should have been recorded prior to fiscal 2014. The Company determined that this error was not material to any of the Company’s prior annual and interim period consolidated financial statements and therefore, amendments of previously filed reports were not required. However, the Company determined that the impact of the correction may be considered material to the income for fiscal 2016. As such, a revision for the correction is reflected in the financial information of the applicable prior periods in this Form 10-K filing and disclosure of the revised amount on other prior periods will be reflected in future filings covering the applicable period. The error resulted in a cumulative correction to beginning retained earnings and deferred tax liabilities of $2.6 million on the Consolidated Balance Sheet as of October 3, 2015 and retained earnings as of September 28, 2013, September 27, 2014 and October 3, 2015 of $2.6 million on the Consolidated Statements of Changes in Shareholders' Equity. Since the error relates to financial periods prior to fiscal 2014, there was no impact to the Consolidated Statements of Operations, the Consolidated Statements of Comprehensive Income or the Consolidated Statements of Cash Flows for fiscal 2016 ended October 1, 2016. The impact of this revision for the period presented within this annual report on Form 10-K is shown in the table below: CONSOLIDATED BALANCE SHEET Deferred income taxes TOTAL LIABILITIES Retained earnings TOTAL SHAREHOLDERS' EQUITY As of October 3, 2015 As previously reported Adjustment As Revised 31,316 132,575 $ 405,505 771,891 $ $ $ 2,642 2,642 $ (2,642) (2,642) $ 33,958 135,217 402,863 769,249 STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY Balances as of September 28, 2013 Balances as of September 27, 2014 Balances as of October 3, 2015 NOTE 3: RESTRUCTURING Retained earnings As previously reported Adjustment As Revised 291,878 $ (2,642) $ 289,236 . 354,866 $ (2,642) $ 352,224 405,505 $ (2,642) $ 402,863 $ $ $ The Company has implemented a restructuring program to streamline its international operations and functions as well as consolidating its organization structure to achieve our cost-reduction, productivity and efficiency initiatives. As part of the plan, the Company recorded restructuring charges of $1.9 million and $0.7 million relating to the workforce reduction in 2015 and 2016, respectively. In 2016, we recorded a charge of $8.0 million primarily related to professional fees and statutory costs in conjunction with the restructuring of its entities. The costs accrued in fiscal 2016 will be paid between fiscal 2016 and fiscal 2018. 52 KULICKE AND SOFFA INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The following table is a summary of activity related to the Company’s restructuring and other charges for the fiscal years ended October 1, 2016 and October 3, 2015: (in thousands) Severance and benefits Other exit costs Beginning of period (1) $ 1,538 $ — 1,538 Fiscal Year 2016 Activity Expenses (2) Payments End of period (1) 661 $ 7,983 8,644 (2,162 ) $ (1,458 ) (2,841 ) 37 6,525 7,341 (in thousands) Severance and benefits Beginning of period (1) $ — $ Expenses (2) Payments End of period (1) 1,850 $ (312) $ 1,538 Fiscal Year 2015 Activity (1) Included within accrued expenses and other current liabilities on the Consolidated Balance Sheets. (2) Provision for severance and benefits and other exit costs are included within selling, general and administrative expenses on the Consolidated Statements of Operations. NOTE 4: BALANCE SHEET COMPONENTS The following tables reflect the components of significant balance sheet accounts as of October 1, 2016 and October 3, 2015: (in thousands) 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 (1) Commissions and professional fees Deferred rent Severance (2) Other 53 As of October 1, 2016 October 3, 2015 $ $ $ $ $ $ 16,376 $ 22,733 69,266 108,375 (21,080 ) 87,295 $ 34,472 $ 19,963 29,476 54,730 138,641 (88,299 ) 50,342 $ 24,248 $ 13,077 10,908 2,920 1,296 11,505 63,954 $ 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 KULICKE AND SOFFA INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (1) Represents customer advance payments, customer credit program, accrued warranty expense and accrued retrofit obligations. (2) Includes the restructuring plan discussed in Note 3, severance payable in connection with the October 2015 retirement of the Company's CEO of $0.8 million (As of Oct 3, 2015: nil), and other severance payments which are not part of the Company's plan to streamline its global operations and functions. NOTE 5: 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. On January 9, 2016, the Company finalized the valuation of the tangible and identifiable intangible assets and liabilities in connection with the acquisition of Assembléon and no further adjustment was recorded. On September 27, 2016, the escrow due date was extended until the conclusion of a legal proceeding which the Company was indemnified under the share purchase agreement. As of October 1, 2016, $8.7 million (EUR 7.7 million) was held in escrow. 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 is partially offset by the net amount of acquired net operating losses. The net amount of acquired net operating losses is 54 KULICKE AND SOFFA INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 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 6: 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 business outlook process. 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 1, 2016, the Company reviewed 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 2009, the Company recorded goodwill when it acquired Orthodyne and added wedge bonder products to its business. On January 9, 2015, KSH, the Company's wholly owned subsidiary, acquired all of the outstanding equity interests of Assembléon, 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 expanded the Company's presence in automotive, industrial and advanced packaging markets. The following table summarizes the Company's recorded goodwill as of October 1, 2016 and October 3, 2015: (in thousands) Goodwill As of October 1, 2016 October 3, 2015 $ 81,272 $ 81,272 55 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 1, 2016 and October 3, 2015: (dollar amounts in thousands) Developed technology Accumulated amortization $ Net developed technology $ Customer relationships Accumulated amortization $ Net customer relationships $ Trade and brand names Accumulated amortization $ Net trade and brand names $ Other intangible assets Accumulated amortization $ Net wedge bonder other intangible assets $ As of Average estimated October 1, 2016 October 3, 2015 useful lives (in years) 74,080 $ (37,969 ) 36,111 $ 36,968 $ (24,455 ) 12,513 $ 7,515 $ (5,329) 2,186 $ 2,500 $ (2,500) — $ 74,080 (35,244) 38,836 36,968 (21,509) 15,459 7,515 (4,339) 3,176 2,500 (2,500) — 7.0 to 15.0 5.0 to 6.0 7.0 to 8.0 1.9 Net intangible assets $ 50,810 $ 57,471 The following table reflects estimated annual amortization expense related to intangible assets as of October 1, 2016: (in thousands) Fiscal 2017 Fiscal 2018 Fiscal 2019 Fiscal 2020 Fiscal 2021 and thereafter Total amortization expense As of October 1, 2016 6,086 6,086 6,086 6,086 26,466 50,810 $ $ 56 KULICKE AND SOFFA INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) NOTE 7: CASH AND CASH EQUIVALENTS Cash equivalents consist of instruments with remaining maturities of three months or less at the date of purchase. In general, these investments are free of trading restrictions. We carry these investments at fair value, based on quoted market prices or other readily available market information. Cash and cash equivalents consisted of the following as of October 1, 2016: Total cash and cash equivalents $ 547,907 $ — $ — $ 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 Commercial paper (dollar amounts in thousands) Current assets: Cash Cash equivalents Money market funds Time deposits Amortized Cost Unrealized Gains Unrealized Losses Estimated Fair Value $ 118,335 $ — $ — $ 118,335 152,961 257,611 19,000 — — — — — — Amortized Cost Unrealized Gains Unrealized Losses Estimated Fair Value $ 105,617 $ — $ — $ 105,617 155,715 237,282 — — — — 152,961 257,611 19,000 547,907 155,715 237,282 498,614 Total cash and cash equivalents $ 498,614 $ — $ — $ NOTE 8: 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 were no transfers between fair value measurement levels during the year ended October 1, 2016. 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. 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. 57 KULICKE AND SOFFA INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) NOTE 9: 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 12 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. There were no outstanding derivative instruments as of October 3, 2015. The fair value of derivative instruments on our Consolidated Balance Sheet as of October 1, 2016 is as follows: (in thousands) Derivatives designated as hedging instruments: Foreign exchange forward contracts (2) Total derivatives As of October 1, 2016 Notional Amount Fair Value Liability Derivatives(1) $ $ 28,997 $ 28,997 $ 462 462 (1) The fair value of derivative liabilities is measured using level 2 fair value inputs and is included in accrued expenses and other current liabilities on our Consolidated Balance Sheet. (2) Hedged amounts expected to be recognized to income within the next twelve months. The effect of derivative instruments designated as cash flow hedges in our Consolidated Statements of Income for the year ended October 1, 2016 and October 3, 2015 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 2016 2015 $ $ $ (566) $ 104 $ — $ (1,008) (1,008) — (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 10: 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. 58 KULICKE AND SOFFA INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 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. As of October 1, 2016, the financing obligation related to the Building is $16.7 million, which approximate fair value (Level 2). 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 facilities and Bank Guarantees On November 22, 2013, the Company obtained a $5.0 million credit facility with Citibank in connection with the issuance of bank guarantees for operational purposes. As of October 1, 2016, the outstanding amount is $3.0 million. On March 21, 2016, the Company entered into an Uncommitted Revolving Credit Agreement with United Overseas Bank Limited, New York Agency ("UOB"), providing for a $25 million revolving credit facility (the "2016 Credit Facility"). The 2016 Credit Facility is an unsecured revolving credit facility of $25 million with a term of one year. The proceeds of the 2016 Credit Facility may be used for the Company's general corporate purposes. As of October 1, 2016, there was no outstanding amount under the 2016 Credit Facility. NOTE 11: SHAREHOLDERS’ EQUITY AND EMPLOYEE BENEFIT PLANS Common Stock and 401(k) Retirement Income Plans The Company has 401(k) retirement income plans (the “401(k) Plans”) for eligible U.S. employees. The 401(k) Plans allow for employee contributions and matching Company contributions up to 4% or 8% based upon terms and conditions of the 401(k) Plans in which they participate. 59 KULICKE AND SOFFA INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The following table reflects the Company’s contributions to the Plans during fiscal 2016 and 2015: (in thousands) Cash Stock Repurchase Program Fiscal 2016 2015 $ 1,544 $ 1,573 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 1, 2016, the Company repurchased a total of 1.4 million shares of common stock at a cost of $14.6 million. The stock repurchases were recorded in the periods they were delivered, and the payment of $14.6 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 transactions 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 1, 2016 and October 3, 2015: (in thousands) Gain/(Loss) from foreign currency translation adjustments Unrecognized actuarial loss, Switzerland pension plan, net of tax Switzerland pension plan curtailment Unrealized loss on hedging Accumulated other comprehensive income Equity-Based Compensation As of October 1, 2016 October 3, 2015 $ $ 462 $ (588 ) (2,138 ) (462 ) (2,726) $ (161) (590) (346) — (1,097) As of October 1, 2016, the Company had seven equity-based employee compensation plans (the “Employee Plans”) and three director compensation plans (the “Director Plans”) (collectively, the “Equity Plans”). Under these Equity 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 1, 2016, the Company’s one active plan, the 2009 Equity Plan, had 2.9 million shares of common stock available for grant to its employees and directors. (cid:129) 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 GICS (45301020) 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. (cid:129) 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. 60 KULICKE AND SOFFA INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (cid:129) In general, performance-based restricted stock (“PSU”) entitles the employee to receive common shares of the Company on the three-year anniversary of the grant date (if employed by the Company) if return on invested capital and revenue growth targets set by the Management Development and Compensation Committee (“MDCC”) of the Board of Directors on the date of grant are met. If return on invested capital and revenue growth targets are not met, performance-based restricted stock does not vest. Certain PSUs vest based on achievement of strategic goals over a certain time period or periods set by the MDCC. If the strategic goals are not achieved, the PSUs do not vest. Equity-based compensation expense recognized in the Consolidated Statements of Operations for fiscal 2016, 2015, and 2014 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 2016, 2015, and 2014: (in thousands) Cost of sales Selling, general and administrative (1) Research and development Total equity-based compensation expense 2016 Fiscal 2015 $ $ 421 $ 393 $ 3,244 2,065 9,127 2,469 5,730 $ 11,989 $ 2014 344 8,906 2,086 11,336 (1) The selling, general and administrative expense for fiscal 2016, includes the reversal of a $2.0 million expense due to the forfeiture of stock awards in connection with the October 2015 retirement of the Company's CEO. The following table reflects equity-based compensation expense, by type of award, for fiscal 2016, 2015, and 2014: (in thousands) Market-based restricted stock Time-based restricted stock Performance-based restricted stock Stock options Common stock Total equity-based compensation expense (1) 2016 Fiscal 2015 (33) $ 5,255 (43) — 551 4,677 $ 6,129 131 3 1,049 2014 4,960 5,419 131 17 809 5,730 $ 11,989 $ 11,336 $ $ (1) The equity-based compensation expense for fiscal 2016, includes the reversal of a $2.0 million expense due to the forfeiture of stock awards in connection with the October 2015 retirement of the Company's CEO. 61 KULICKE AND SOFFA INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Equity-Based Compensation: employee market-based restricted stock The following table reflects employee market-based restricted stock activity for fiscal 2016, 2015, and 2014: Market-based restricted stock outstanding as of September 28, 2013 Granted Forfeited or expired Vested Market-based restricted stock outstanding as of September 27, 2014 Granted Forfeited or expired Vested Market-based restricted stock outstanding as of October 3, 2015 Granted Forfeited or expired Vested Market-based restricted stock outstanding as of October 1, 2016 Number of shares (in thousands) Unrecognized compensation expense (in thousands) Average remaining service period (in years) Weighted average grant date fair value per share 1,085 $ 5,913 1.1 335 (19 ) (333) 1,068 $ 5,271 1.0 232 (48 ) (674) 578 172 (256) (10 ) 4,465 1.4 484 $ 2,924 1.0 $ $ $ 13.46 16.83 12.26 The following table reflects the assumptions used to calculate compensation expense related to the Company’s performance- based restricted stock issued during fiscal 2016, 2015, and 2014: Grant Price Expected dividend yield Expected stock price volatility Risk-free interest rate 2016 Fiscal 2015 $ 9.58 $ 14.02 $ N/A 30.85% 0.89% N/A 35.48% 0.89% 2014 11.29 N/A 44.88% 0.69% 62 KULICKE AND SOFFA INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Equity-Based Compensation: employee time-based restricted stock The following table reflects employee time-based restricted stock activity for fiscal 2016, 2015, and 2014: Time-based restricted stock outstanding as of September 28, 2013 Granted Forfeited or expired Vested Time-based restricted stock outstanding as of September 27, 2014 Granted Forfeited or expired Vested Time-based restricted stock outstanding as of October 3, 2015 Granted Forfeited or expired Vested Time-based restricted stock outstanding as of October 1, 2016 Number of shares (in thousands) Unrecognized compensation expense (in thousands) Average remaining service period (in years) Weighted average grant date fair value per share 1,216 $ 6,028 1.2 649 (52 ) (756) 1,057 $ 6,720 1.4 484 (29 ) (663) 849 $ 7,054 1.6 597 (85 ) (346) 1,015 $ 6,440 1.5 $ $ $ 11.48 14.06 9.66 Equity-Based Compensation: employee performance-based restricted stock The following table reflects employee performance-based restricted stock activity for fiscal 2016, 2015, and 2014: 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 Granted Forfeited or expired Vested Performance-based restricted stock outstanding as of October 1, 2016 Number of shares (in thousands) Unrecognized compensation expense (in thousands) Average remaining service period (in years) 57 — 57 — 57 — (29) (28) — 550 419 285 4.2 3.2 2.2 — — 63 KULICKE AND SOFFA INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The following table reflects employee stock option activity for fiscal 2016, 2015, and 2014: 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 Exercised Forfeited or expired Options outstanding as of October 1, 2016 Options vested and expected to vest as of October 1, 2016 Options exercisable as of October 1, 2016 In the money exercisable options as of October 1, 2016 Number of shares (in thousands) Weighted average exercise price 9.56 562 $ Average remaining contractual life (in years) Aggregate intrinsic value (in thousands) (121) $ (221 ) $ 220 $ (45 ) $ (28 ) $ 147 $ (53 ) $ (4 ) $ 90 $ 90 $ 90 $ 90 7.84 11.92 8.14 8.58 7.25 8.18 5.40 9.00 8.41 8.41 8.41 $ $ $ 1.2 $ 1.2 $ 1.2 $ 654 282 330 408 408 408 Since 2012, on average, 18% 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 2016 and the exercise price of in-the-money stock options, multiplied by the number of underlying shares. During fiscal 2016, the Company received $0.4 million in cash from the exercise of employee and non-employee director stock options. As of October 1, 2016, there were no unvested employee stock options. The following table reflects outstanding and exercisable employee stock options as of October 1, 2016: Range of exercise prices 3.06 - 7.08 8.43 - 9.64 Options Outstanding Options Exercisable Options outstanding (in thousands) Weighted average remaining contractual life (in years) Weighted average exercise price Options exercisable (in thousands) Weighted average exercise price 11 79 90 3.8 $ 0.9 1.2 $ 6.3 8.7 8.4 11 $ 79 90 $ 6.3 8.7 8.4 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. 64 KULICKE AND SOFFA INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The following table reflects shares of common stock issued to non-employee directors and the corresponding fair value for fiscal 2016, 2015, and 2014: (in thousands) Number of common shares issued Fair value based upon market price at time of issue $ 2016 Fiscal 2015 50 551 $ 83 1,049 $ 2014 63 810 The following table reflects non-employee director stock option activity for fiscal 2016, 2015, and 2014: Average remaining contractual life (in years) Weighted average exercise price 11.45 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 Forfeited or expired Options outstanding as of October 1, 2016 Options vested and expected to vest as of October 1, 2016 Options exercisable as of October 1, 2016 In the money exercisable options as of October 1, 2016 Number of shares (in thousands) 135 $ (10) $ (70) $ 55 $ (30) $ (5) $ 20 $ (20) $ — $ — $ — $ — 11.20 12.45 10.22 10.19 6.48 11.20 11.00 — — — $ $ $ Aggregate intrinsic value (in thousands) 614 225 225 — — — — $ — $ — $ No non-employee director stock options were granted during fiscal 2016, 2015, and 2014. Pension Plan The following table reflects the Company's defined benefits pension obligations as of October 1, 2016 and October 3, 2015: (in thousands) Switzerland pension obligation Taiwan pension obligation Total pension obligation Other Plans As of October 1, 2016 October 3, 2015 $ $ 2,393 $ 925 3,318 $ 689 1,196 1,885 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 12: 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. 65 KULICKE AND SOFFA INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The following tables reflect a reconciliation of the shares used in the basic and diluted net income per share computation for fiscal 2016, 2015, and 2014: (in thousands, except per share) 2016 Fiscal 2015 2014 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: Net income per share - Basic Effect of dilutive shares Net income per share - Diluted NOTE 13: INCOME TAXES $ 47,112 $ 47,112 $ 50,639 $ 50,639 $ 62,988 $ 62,988 — — — — — — $ 47,112 $ 47,112 $ 50,639 $ 50,639 $ 62,988 $ 62,988 70,477 70,477 75,414 75,414 76,396 76,396 32 274 58 70 175 — 117 398 381 70,841 75,659 77,292 $ 0.67 $ 0.67 $ 0.67 $ 0.67 $ 0.82 $ — 0.67 $ $ $ — 0.67 $ $ 0.82 (0.01) 0.81 The following table reflects income from continuing operations by location, the provision for income taxes and the effective tax rate for fiscal 2016, 2015, and 2014: (dollar amounts in thousands) United States operations Foreign operations Income from operations before tax Income tax expense/(benefit) Net income Effective tax rate 2016 (12,600 ) 67,350 $ 54,750 7,638 Fiscal 2015 $ 4,178 33,527 37,705 (12,934) 47,112 $ 50,639 $ $ $ 2014 7,700 69,433 77,133 14,145 62,988 14.0% (34.3)% 18.3% 66 KULICKE AND SOFFA INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The following table reflects the provision for income taxes from continuing operations for fiscal 2016, 2015, and 2014: (in thousands) Current: Federal State Foreign Deferred: Federal State Foreign 2016 Fiscal 2015 2014 $ 871 $ 53 21,841 1,459 $ 76 4,707 (13,423 ) 12 (1,716 ) (20,250 ) (10 ) 1,084 843 78 5,534 5,474 5 2,211 Provision for income taxes $ 7,638 $ (12,934 ) $ 14,145 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 2016, 2015, and 2014: (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 Tax impact on restructuring Tax audit settlement 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 2016 Fiscal 2015 2014 19,163 $ (7,330 ) (8,531 ) (2,839 ) (9,696 ) 4,238 4,889 — (2,274 ) 3,585 4,981 208 996 248 13,197 $ (6,103) (5,855) (4,090) (19,704) — — — 1,822 2,634 4,904 886 (1,543) 918 26,997 (9,763) (17,423) — — — — 8,190 (298) (1,820) 5,906 131 2,241 (16) Provision for income taxes $ 7,638 $ (12,934) $ 14,145 Income tax expense for the current year includes approximately $1.8 million, $1.0 million and $1.2 million of taxes payable for deemed distributions from earnings for the years ended October 1, 2016, October 3, 2015 and September 27, 2014, respectively. In fiscal 2016, the Company restructured its entities resulting in a change in its permanent reinvestment assertion outside the United States. During the year ended October 1, 2016, approximately $9.7 million of deferred tax liability was reversed and recorded as a tax benefit due to the change in its permanent reinvestment assertion. As part of the plan, the Company also recorded restructuring related tax expense of approximately $4.2 million for transfers and exchanges of certain foreign subsidiaries. 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 $570.9 million of undistributed earnings. Determination of the amount of unrecognized deferred tax liability related to these earnings is not practicable, with the exception of certain foreign subsidiaries where we continue to retain a deferred tax liability for foreign withholding taxes of approximately $20.0 million, as those earnings may be distributed to its foreign parent company. Undistributed earnings of approximately $0.4 million are not considered to be permanently reinvested outside the United States. As of October 1, 2016, the Company has provided a deferred tax liability of approximately $0.2 million for withholding taxes associated with future repatriation of earnings for certain subsidiaries to the United States. 67 KULICKE AND SOFFA INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The following table reflects the net deferred tax balance, composed of the tax effects of cumulative temporary differences for fiscal 2016 and 2015: (in thousands) Inventory reserves Stock options Other accruals and reserves Domestic tax credit carryforwards Net operating loss carryforwards Valuation allowance Total long-term deferred tax asset (1) Repatriation of foreign earnings, including foreign withholding taxes Depreciable assets Total long-term deferred tax liability Total net deferred tax liability Reported as Current deferred tax asset Deferred tax asset Current deferred tax liability Deferred tax liability Total net deferred tax liability Fiscal 2016 2015 546 $ 647 4,940 8,011 31,817 45,961 $ 641 525 3,797 5,035 32,983 42,981 (27,381 ) 18,580 $ (23,128) 19,853 20,119 $ 9,333 29,452 $ 10,872 $ — $ 16,825 — 27,697 10,872 $ 27,101 16,735 43,836 23,983 4,126 3,230 23 31,316 23,983 $ $ $ $ $ $ $ $ (1) Included in other assets on the Consolidated Balance Sheets are deferred tax assets of $16.8 million and $3.2 million as of October 1, 2016 and October 3, 2015, respectively. As of October 1, 2016, the Company has foreign net operating loss carryforwards of $97.0 million, domestic state net operating loss carryforwards of $176.9 million, domestic federal net operating loss carryforwards of $1.1 million, and tax credit carryforwards of $10.9 million that can reduce future taxable income. These carryforwards can be utilized in the future, prior to expiration of certain carryforwards in fiscal years 2016 through 2035 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 $5.0 million annually, but recent developments may change this amount in future years. The Company has recorded a valuation allowance against domestic state tax attributes and certain foreign tax attributes. 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 projected future income or deferred tax liabilities that provide a source of future 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. 68 KULICKE AND SOFFA INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The beginning and ending balances of the Company's unrecognized tax benefits are reconciled below for fiscal 2016, 2015, and 2014: (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 2016 Fiscal 2015 $ $ 7,101 $ 519 827 (994 ) 7,453 $ 7,192 $ — 5,140 (5,231) 7,101 $ 2014 6,869 — 717 (394) 7,192 Approximately $6.2 million of the $7.5 million of unrecognized tax benefit as of October 1, 2016, if recognized, would impact the Company's effective tax rate. The Company recognizes interest and penalties 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 2016 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.The U.S. Internal Revenue Service is currently examining the fiscal years 2011 and 2012, and all years prior to fiscal 2011 are closed. For 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. 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. The Company believes that adequate provisions have been made for any adjustments that may result from tax examinations. 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 2016, 2015, and 2014, the preferential rate reduced income tax expense by approximately $8.5 million or $0.12 per share, $5.9 million or $0.08 per share and $17.4 million or $0.23 per share, respectively. NOTE 14: OTHER FINANCIAL DATA The following table reflects other financial data for fiscal 2016, 2015, and 2014: (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. 69 2016 14,661 $ 5,901 $ 4,599 $ $ $ $ Fiscal 2015 10,768 $ 5,006 $ 2,808 $ 2014 17,596 4,608 3,261 KULICKE AND SOFFA INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) NOTE 15: SEGMENT INFORMATION The Company operates two reportable segments: Equipment and Expendable Tools. The Equipment segment manufactures and sells a line of ball bonders, wedge bonders, advanced packaging and electronic assembly solutions. The Company also services, maintains, repairs and upgrades its equipment. The Expendable Tools segment manufactures and sells a variety of expendable tools for a broad range of semiconductor packaging applications. The following table reflects operating information by segment for fiscal 2016, 2015, and 2014: (in thousands) Net revenue: Equipment Expendable Tools Net revenue Income from operations: Equipment Expendable Tools Income from operations 2016 Fiscal 2015 2014 $ $ 562,463 $ 64,729 627,192 35,750 16,789 52,539 $ 472,002 $ 64,469 536,471 21,618 15,633 37,251 $ 503,049 65,520 568,569 59,769 17,215 76,984 The following tables reflect assets, capital expenditures and depreciation expense by segment as of and for fiscal 2016, 2015, and 2014: (in thousands) Segment assets: Equipment Expendable Tools Total assets (in thousands) Capital expenditures: Equipment Expendable Tools Capital expenditures (in thousands) Depreciation expense: Equipment Expendable Tools Depreciation expense Geographic information October 1, 2016 October 3, 2015 September 27, 2014 As of 901,316 $ 81,128 982,444 $ 828,471 $ 75,995 904,466 $ 839,847 104,601 944,448 2016 Fiscal 2015 2014 4,400 $ 1,901 6,301 $ 7,288 $ 2,231 9,519 $ 2016 Fiscal 2015 2014 7,336 $ 2,233 9,569 $ 6,685 $ 2,404 9,089 $ 9,560 2,841 12,401 5,662 2,540 8,202 $ $ $ $ $ $ 70 KULICKE AND SOFFA INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The following tables reflect destination sales to unaffiliated customers by country and long-lived assets by country for fiscal 2016, 2015, and 2014: (in thousands) 2016 Fiscal 2015 2014 China Taiwan Korea United States Malaysia Japan Germany Thailand Singapore Hong Kong Philippines Hungary Vietnam All other $ 211,448 $ 129,128 70,593 47,806 42,368 28,256 13,043 11,782 8,770 8,625 8,272 5,436 3,785 37,880 627,192 $ 169,557 $ 56,610 40,687 47,220 48,825 31,413 11,580 13,852 17,430 15,482 42,575 4,350 4,354 32,536 144,134 140,586 31,284 31,645 46,033 34,480 8,496 9,386 21,934 23,709 31,371 1,235 11,355 32,921 536,471 $ 568,569 Total destination sales to unaffiliated customers $ (in thousands) Long-lived assets: Singapore United States China Israel Netherlands All other Total long-lived assets 2016 Fiscal 2015 2014 $ $ 33,286 $ 18,570 7,459 4,810 2,198 3,097 36,754 $ 7,429 7,386 3,701 1,421 1,663 69,420 $ 58,354 $ 37,169 8,537 7,295 4,668 — 1,651 59,320 NOTE 16: 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. 71 KULICKE AND SOFFA INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The following table reflects the reserve for product warranty activity for fiscal 2016, 2015, and 2014: (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 2016 1,856 $ — 4,816 (2,534 ) 4,138 $ $ $ Fiscal 2015 1,542 $ 547 2,614 (2,847) 1,856 $ 2014 1,194 — 2,099 (1,751) 1,542 The following table reflects obligations not reflected on the Consolidated Balance Sheet as of October 1, 2016: (in thousands) Inventory purchase obligation (1) Operating lease obligations (2) Total $ $ Total 102,423 $ 27,316 2016 102,423 $ 5,087 Payments due by fiscal year 2017 2018 2019 — $ 3,960 — $ 3,203 — $ 3,192 thereafter — 11,874 129,739 $ 107,510 $ 3,960 $ 3,203 $ 3,192 $ 11,874 (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. The Building was completed on December 1, 2013 and Pte signed an 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 1, 2016, the financing obligation related to the Building is $16.7 million (see Note 10 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 2016, 2015, and 2014: Haoseng Industrial Co., Ltd * Represents less than 10% of net revenue 2016 11.5 % Fiscal 2015 2014 * * The following table reflects significant customer concentrations as a percentage of total accounts receivable as of October 1, 2016 and October 3, 2015: Haoseng Industrial Co., Ltd As of October 1, 2016 20.8 % October 3, 2015 21.5 % 72 KULICKE AND SOFFA INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) NOTE 17: SELECTED QUARTERLY FINANCIAL DATA (unaudited) The following table reflects selected quarterly financial data for fiscal 2016 and 2015: Fiscal 2016 for the Quarter Ended (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 (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 $ $ $ $ $ $ $ $ January 2 April 2 July 2 October 1 Fiscal 2016 108,534 $ 156,400 $ 216,414 $ 145,844 $ 50,421 (1,705 ) (1,265 ) 69,647 11,709 7,045 100,040 38,622 7,519 66,621 3,913 (5,661 ) (91 ) $ 5,089 $ 31,785 $ 10,329 $ 627,192 286,729 52,539 7,638 47,112 — $ — $ 0.07 $ 0.07 $ 0.45 $ 0.45 $ 0.15 0.15 0.67 0.67 70,738 70,738 70,389 70,634 70,379 70,843 70,404 71,017 70,477 70,841 Fiscal 2015 for the Quarter Ended December 27 March 28 June 27 October 3 Fiscal 2015 107,438 $ 145,227 $ 164,634 $ 119,172 $ 54,734 9,726 1,843 68,570 9,791 1,997 77,571 16,086 (8,775 ) 58,217 1,648 (7,999 ) 7,842 $ 7,931 $ 25,039 $ 9,827 $ 536,471 259,092 37,251 (12,934) 50,639 0.10 $ 0.10 $ 0.10 $ 0.10 $ 0.33 $ 0.33 $ 0.14 $ 0.13 $ 0.67 0.67 Weighted average shares outstanding: Basic Diluted (1) EPS for the year may not equal the sum of quarterly EPS due to changes in weighted share calculations. 76,821 77,570 76,888 77,432 75,891 75,420 72,883 72,731 75,414 75,659 NOTE 18: SUBSEQUENT EVENTS On October 19, 2016, the Company entered into foreign exchange forward contracts with notional amount of $9.8 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 twelve months. 73 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. Item 9A. - CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of October 1, 2016. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of October 1, 2016 our disclosure controls and procedures were effective in providing reasonable assurance that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934, as amended, is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and (ii) accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure. Management's Report on Internal Control Over Financial Reporting The management of Kulicke and Soffa Industries, Inc. (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) and 15(d)-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 1, 2016. In making this assessment, management used the framework established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Management's assessment included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness of our internal control over financial reporting. Management reviewed the results of its assessment with the Audit Committee of the Company's Board of Directors. Based on that assessment and based on the criteria in the COSO framework, management has concluded that, as of October 1, 2016, the Company's internal control over financial reporting was effective. The effectiveness of the Company's internal control over financial reporting as of October 1, 2016 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in its report, which appears herein. Changes in internal control over financial reporting In connection with the evaluation by our management, including with the participation of our Chief Executive Officer and Chief Financial Officer, of our internal control over financial reporting, no changes during the three months ended October 1, 2016 were identified to have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Item 9B. OTHER INFORMATION None. 74 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 2017 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 2017 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 2017 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 2017 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 2017 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 2017 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 2017 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 2017 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 2017 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 GOVERNANCE - SECURITY OWNERSHIP OF DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS”, in the Company's Proxy Statement for the 2017 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 2017 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 2017 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 2017 Annual Meeting of Shareholders, which information is incorporated herein by reference. 75 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 2017 Annual Meeting of Shareholders, which information is incorporated herein by reference. 76 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 1, 2016 and October 3, 2015 Consolidated Statements of Operations for fiscal 2016, 2015 and 2014 Consolidated Statements of Comprehensive Income for fiscal 2016, 2015 and 2014 Consolidated Statements of Changes in Shareholders' Equity for fiscal 2016, 2015 and 2014 Consolidated Statements of Cash Flows for fiscal 2016, 2015 and 2014 Notes to Consolidated Financial Statements (2) 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. (3) Exhibits: Page 39 40 41 42 43 44 45 80 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.* 77 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 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. 78 10.27 10.28 10.29 10.3 10.31 10.32 10.33 10.34 10.35 10.36 10.37 21 23 31.1 31.2 32.1 32.2 101.INS 101.SCH 101.CAL 101.DEF 101.LAB 101.PRE 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, incorporated herein by reference to Exhibit 10.35 of the Company's Annual Report on Form 10-K for the year ended October 1, 2015.* Letter Agreement between the Company and Bruno Guilmart, dated December 3, 2015, incorporated herein by reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q for the quarterly period ended January 2, 2016.* Offer Letter between Kulicke and Soffa Industries, Inc. and Fusen Chen dated October 3, 2016, incorporated herein by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K filed on October 3, 2016.* Subsidiaries of the Company. Consent of PricewaterhouseCoopers LLP (Independent Registered Public Accounting Firm). Certification of Fusen Chen, 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 Fusen Chen, 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 ** Copies of certain instruments defining the rights of holders of certain of our long-term debt are not filed herewith. We hereby agree to furnish a copy of any such instrument to the SEC upon request. 79 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 $ $ $ $ $ $ $ $ $ 621 19,073 27,258 143 13,863 24,624 504 14,120 26,444 $ $ $ $ $ $ $ $ $ (115 ) 6,676 $ $ 3,585 (3) $ — — — 478 3,978 $ $ — 7,696 2,634 (3) $ — (320) 3,060 $ $ (1,820) (3) $ — — — $ $ $ $ $ $ $ $ $ — (1) $ 506 (4,669) (2) $ 21,080 — $ 30,843 — (1) $ 621 (6,464) (2) $ 19,073 — $ 27,258 (41) (1) $ 143 (3,317) (2) $ 13,863 — $ 24,624 Fiscal 2016: Allowance for doubtful accounts Inventory reserve Valuation allowance for deferred taxes 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 (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. 80 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/ FUSEN CHEN Fusen Chen President and Chief Executive Officer Dated: November 17, 2016 Signature Title Date /s/ FUSEN CHEN Fusen Chen President and Chief Executive Officer November 17, 2016 (principal executive officer) /s/ JONATHAN CHOU Executive Vice President and Chief Financial Officer November 17, 2016 Jonathan Chou (principal financial officer and principal accounting officer) /s/ GARRETT E. PIERCE Director November 17, 2016 Garrett E. Pierce /s/ BRIAN R. BACHMAN Director November 17, 2016 Brian R. Bachman /s/ CHIN HU LIM Chin Hu Lim Director November 17, 2016 /s/ GREGORY F. MILZCIK Director November 17, 2016 Gregory F. Milzcik /s/ MUI SUNG YEO Mui Sung Yeo /s/ PETER T. KONG Peter T. Kong Director Director November 17, 2016 November 17, 2016 81 EXHIBIT NUMBER 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 10.15 EXHIBIT INDEX ITEM The Company's Amended and Restated Articles of Incorporation, dated December 5, 2007, is incorporated herein by reference to Exhibit 3(i) to the Company's Annual Report on Form 10-K for the fiscal year ended September 29, 2007, SEC file number 000-00121. The Company's Amended and Restated By-Laws, dated 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.* 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.* 82 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 10.36 10.37 21 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, incorporated herein by reference to Exhibit 10.35 of the Company's Annual Report on Form 10-K for the year ended October 1, 2015.* Letter Agreement between the Company and Bruno Guilmart, dated December 3, 2015, incorporated herein by reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q for the quarterly period ended January 2, 2016.* Offer Letter between Kulicke and Soffa Industries, Inc. and Fusen Chen dated October 3, 2016, incorporated herein by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K filed on October 3, 2016.* Subsidiaries of the Company. 83 23 31.1 31.2 32.1 32.2 101.INS 101.SCH 101.CAL 101.DEF 101.LAB 101.PRE Consent of PricewaterhouseCoopers LLP (Independent Registered Public Accounting Firm). Certification of Fusen Chen, 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 Fusen Chen, 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. 84 Stock Performance Graph The graph set forth below compares, for fiscal years 2012 through 2016, 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 1, 2011 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 1, 2016 was $12.93. 85 Company Information December 2016 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 2016 Annual Report, Proxy Statement, SEC filings and supplemental investor information are available in the Investor section of the Company’s corporate website at investor.kns.com. For additional information please contact: Joseph Elgindy Investor Relations & Strategic Initiatives +1-215-784-7500 investor@kns.com 86 (cid:85)(cid:142)(cid:88)(cid:70)(cid:26)(cid:85)(cid:41)(cid:3)(cid:188)(cid:3)(cid:132)(cid:107)(cid:56)(cid:56)(cid:101) LEADERSHIP TEAM (cid:85)(cid:410)(cid:300)(cid:284)(cid:207)(cid:297)(cid:229)(cid:3)(cid:188)(cid:3)(cid:132)(cid:325)(cid:253)(cid:177)(cid:369)(cid:376)(cid:3)(cid:280)(cid:284)(cid:269)(cid:280)(cid:300)(cid:444)(cid:3)(cid:229)(cid:443)(cid:350)(cid:229)(cid:371)(cid:284)(cid:229)(cid:313)(cid:207)(cid:229)(cid:218)(cid:3)(cid:198)(cid:325)(cid:177)(cid:371)(cid:218)(cid:3)(cid:325)(cid:252)(cid:3)(cid:218)(cid:284)(cid:371)(cid:229)(cid:207)(cid:395)(cid:325)(cid:371)(cid:376)(cid:3)(cid:177)(cid:313)(cid:218)(cid:3)(cid:229)(cid:443)(cid:229)(cid:207)(cid:410)(cid:395)(cid:284)(cid:436)(cid:229)(cid:3)(cid:325)(cid:254)(cid:207)(cid:229)(cid:371)(cid:376)(cid:3)(cid:207)(cid:325)(cid:313)(cid:395)(cid:284)(cid:313)(cid:410)(cid:229)(cid:3)(cid:395)(cid:325)(cid:3)(cid:300)(cid:229)(cid:436)(cid:229)(cid:371)(cid:177)(cid:269)(cid:229)(cid:3)(cid:395)(cid:280)(cid:229)(cid:3)(cid:26)(cid:325)(cid:309)(cid:350)(cid:177)(cid:313)(cid:444)(cid:369)(cid:376)(cid:3)(cid:376)(cid:395)(cid:371)(cid:229)(cid:313)(cid:269)(cid:395)(cid:280)(cid:376)(cid:3) (cid:177)(cid:313)(cid:218)(cid:3)(cid:229)(cid:443)(cid:229)(cid:207)(cid:410)(cid:395)(cid:229)(cid:3)(cid:313)(cid:229)(cid:437)(cid:3)(cid:177)(cid:313)(cid:218)(cid:3)(cid:207)(cid:280)(cid:177)(cid:300)(cid:300)(cid:229)(cid:313)(cid:269)(cid:284)(cid:313)(cid:269)(cid:3)(cid:207)(cid:325)(cid:371)(cid:350)(cid:325)(cid:371)(cid:177)(cid:395)(cid:229)(cid:3)(cid:325)(cid:198)(cid:291)(cid:229)(cid:207)(cid:395)(cid:284)(cid:436)(cid:229)(cid:376)(cid:355)(cid:3)(cid:137)(cid:280)(cid:229)(cid:3)(cid:410)(cid:313)(cid:284)(cid:359)(cid:410)(cid:229)(cid:3)(cid:350)(cid:229)(cid:371)(cid:376)(cid:350)(cid:229)(cid:207)(cid:395)(cid:284)(cid:436)(cid:229)(cid:3)(cid:177)(cid:313)(cid:218)(cid:3)(cid:198)(cid:371)(cid:325)(cid:177)(cid:218)(cid:3)(cid:218)(cid:284)(cid:436)(cid:229)(cid:371)(cid:376)(cid:284)(cid:395)(cid:444)(cid:3)(cid:325)(cid:252)(cid:3)(cid:395)(cid:280)(cid:229)(cid:3)(cid:309)(cid:177)(cid:313)(cid:177)(cid:269)(cid:229)(cid:309)(cid:229)(cid:313)(cid:395)(cid:3)(cid:395)(cid:229)(cid:177)(cid:309)(cid:3) (cid:177)(cid:371)(cid:229)(cid:3)(cid:284)(cid:309)(cid:350)(cid:325)(cid:371)(cid:395)(cid:177)(cid:313)(cid:395)(cid:3)(cid:252)(cid:177)(cid:207)(cid:395)(cid:325)(cid:371)(cid:376)(cid:3)(cid:395)(cid:325)(cid:3)(cid:395)(cid:280)(cid:229)(cid:3)(cid:26)(cid:325)(cid:309)(cid:350)(cid:177)(cid:313)(cid:444)(cid:369)(cid:376)(cid:3)(cid:325)(cid:313)(cid:269)(cid:325)(cid:284)(cid:313)(cid:269)(cid:3)(cid:376)(cid:410)(cid:207)(cid:207)(cid:229)(cid:376)(cid:376)(cid:3)(cid:284)(cid:313)(cid:3)(cid:395)(cid:280)(cid:229)(cid:3)(cid:218)(cid:444)(cid:313)(cid:177)(cid:309)(cid:284)(cid:207)(cid:3)(cid:177)(cid:313)(cid:218)(cid:3)(cid:229)(cid:436)(cid:325)(cid:300)(cid:436)(cid:284)(cid:313)(cid:269)(cid:3)(cid:309)(cid:177)(cid:371)(cid:297)(cid:229)(cid:395)(cid:376)(cid:3)(cid:284)(cid:395)(cid:3)(cid:376)(cid:229)(cid:371)(cid:436)(cid:229)(cid:376)(cid:355) “THE BOARD AND MANAGEMENT TEAM REMAIN COMMITTED TO EFFICIENTLY DRIVING LONG-TERM AND SUSTAINABLE SHAREHOLDER RETURNS.” Fusen E. Chen (cid:123)(cid:371)(cid:229)(cid:376)(cid:284)(cid:218)(cid:229)(cid:313)(cid:395)(cid:3)(cid:177)(cid:313)(cid:218)(cid:3)(cid:26)(cid:280)(cid:284)(cid:229)(cid:252)(cid:3)(cid:41)(cid:443)(cid:229)(cid:207)(cid:410)(cid:395)(cid:284)(cid:436)(cid:229)(cid:3)(cid:107)(cid:254)(cid:207)(cid:229)(cid:371) EXECUTIVE OFFICERS Fusen E. Chen (cid:123)(cid:371)(cid:229)(cid:376)(cid:284)(cid:218)(cid:229)(cid:313)(cid:395)(cid:3)(cid:177)(cid:313)(cid:218)(cid:3)(cid:26)(cid:280)(cid:284)(cid:229)(cid:252)(cid:3) (cid:41)(cid:443)(cid:229)(cid:207)(cid:410)(cid:395)(cid:284)(cid:436)(cid:229)(cid:3)(cid:107)(cid:254)(cid:207)(cid:229)(cid:371) Jonathan H. Chou (cid:41)(cid:443)(cid:229)(cid:207)(cid:410)(cid:395)(cid:284)(cid:436)(cid:229)(cid:3)(cid:154)(cid:284)(cid:207)(cid:229)(cid:3)(cid:123)(cid:371)(cid:229)(cid:376)(cid:284)(cid:218)(cid:229)(cid:313)(cid:395)(cid:216)(cid:3) (cid:26)(cid:280)(cid:284)(cid:229)(cid:252)(cid:3)(cid:56)(cid:284)(cid:313)(cid:177)(cid:313)(cid:207)(cid:284)(cid:177)(cid:300)(cid:3)(cid:107)(cid:254)(cid:207)(cid:229)(cid:371) Lester Wong (cid:132)(cid:229)(cid:313)(cid:284)(cid:325)(cid:371)(cid:3)(cid:154)(cid:284)(cid:207)(cid:229)(cid:3)(cid:123)(cid:371)(cid:229)(cid:376)(cid:284)(cid:218)(cid:229)(cid:313)(cid:395)(cid:216)(cid:3)(cid:88)(cid:229)(cid:269)(cid:177)(cid:300)(cid:3)(cid:101)(cid:253)(cid:177)(cid:284)(cid:371)(cid:376)(cid:3) (cid:177)(cid:313)(cid:218)(cid:3)(cid:58)(cid:229)(cid:313)(cid:229)(cid:371)(cid:177)(cid:300)(cid:3)(cid:26)(cid:325)(cid:410)(cid:313)(cid:376)(cid:229)(cid:300)(cid:3) Irene Lee (cid:132)(cid:229)(cid:313)(cid:284)(cid:325)(cid:371)(cid:3)(cid:154)(cid:284)(cid:207)(cid:229)(cid:3)(cid:123)(cid:371)(cid:229)(cid:376)(cid:284)(cid:218)(cid:229)(cid:313)(cid:395)(cid:216)(cid:3)(cid:58)(cid:300)(cid:325)(cid:198)(cid:177)(cid:300)(cid:3) (cid:107)(cid:350)(cid:229)(cid:371)(cid:177)(cid:395)(cid:284)(cid:325)(cid:313)(cid:376)(cid:3)(cid:177)(cid:313)(cid:218)(cid:3)(cid:26)(cid:280)(cid:284)(cid:229)(cid:252)(cid:3)(cid:125)(cid:410)(cid:177)(cid:300)(cid:284)(cid:395)(cid:444)(cid:3)(cid:107)(cid:254)(cid:207)(cid:229)(cid:371) Chan Pin Chong (cid:132)(cid:229)(cid:313)(cid:284)(cid:325)(cid:371)(cid:3)(cid:154)(cid:284)(cid:207)(cid:229)(cid:3)(cid:123)(cid:371)(cid:229)(cid:376)(cid:284)(cid:218)(cid:229)(cid:313)(cid:395)(cid:216)(cid:3)(cid:101)(cid:218)(cid:436)(cid:177)(cid:313)(cid:207)(cid:229)(cid:218)(cid:3) (cid:123)(cid:177)(cid:207)(cid:297)(cid:177)(cid:269)(cid:284)(cid:313)(cid:269)(cid:216)(cid:3)(cid:156)(cid:229)(cid:218)(cid:269)(cid:229)(cid:3)(cid:24)(cid:325)(cid:313)(cid:218)(cid:229)(cid:371)(cid:3)(cid:177)(cid:313)(cid:218)(cid:3) (cid:26)(cid:325)(cid:313)(cid:376)(cid:410)(cid:309)(cid:177)(cid:198)(cid:300)(cid:229)(cid:3)(cid:137)(cid:325)(cid:325)(cid:300)(cid:376)(cid:3)(cid:24)(cid:410)(cid:376)(cid:284)(cid:313)(cid:229)(cid:376)(cid:376)(cid:3)(cid:88)(cid:284)(cid:313)(cid:229)(cid:376) Deepak Sood (cid:154)(cid:284)(cid:207)(cid:229)(cid:3)(cid:123)(cid:371)(cid:229)(cid:376)(cid:284)(cid:218)(cid:229)(cid:313)(cid:395)(cid:216)(cid:3)(cid:58)(cid:300)(cid:325)(cid:198)(cid:177)(cid:300)(cid:3)(cid:41)(cid:313)(cid:269)(cid:284)(cid:313)(cid:229)(cid:229)(cid:371)(cid:284)(cid:313)(cid:269) Yih-Neng Lee (cid:132)(cid:229)(cid:313)(cid:284)(cid:325)(cid:371)(cid:3)(cid:154)(cid:284)(cid:207)(cid:229)(cid:3)(cid:123)(cid:371)(cid:229)(cid:376)(cid:284)(cid:218)(cid:229)(cid:313)(cid:395)(cid:216)(cid:3) (cid:58)(cid:300)(cid:325)(cid:198)(cid:177)(cid:300)(cid:3)(cid:132)(cid:177)(cid:300)(cid:229)(cid:376)(cid:3)(cid:177)(cid:313)(cid:218)(cid:3)(cid:132)(cid:229)(cid:371)(cid:436)(cid:284)(cid:207)(cid:229)(cid:376)(cid:3) Nelson Wong (cid:154)(cid:284)(cid:207)(cid:229)(cid:3)(cid:123)(cid:371)(cid:229)(cid:376)(cid:284)(cid:218)(cid:229)(cid:313)(cid:395)(cid:216)(cid:3)(cid:24)(cid:177)(cid:300)(cid:300)(cid:3)(cid:24)(cid:325)(cid:313)(cid:218)(cid:229)(cid:371)(cid:3) (cid:24)(cid:410)(cid:376)(cid:284)(cid:313)(cid:229)(cid:376)(cid:376)(cid:3)(cid:88)(cid:284)(cid:313)(cid:229) BOARD OF DIRECTORS Garrett E. Pierce (cid:26)(cid:280)(cid:177)(cid:284)(cid:371)(cid:309)(cid:177)(cid:313)(cid:3)(cid:325)(cid:252)(cid:3)(cid:395)(cid:280)(cid:229)(cid:3)(cid:24)(cid:325)(cid:177)(cid:371)(cid:218) (cid:85)(cid:410)(cid:300)(cid:284)(cid:207)(cid:297)(cid:229)(cid:3)(cid:188)(cid:3)(cid:132)(cid:325)(cid:253)(cid:177)(cid:3)(cid:70)(cid:313)(cid:218)(cid:410)(cid:376)(cid:395)(cid:371)(cid:284)(cid:229)(cid:376)(cid:216)(cid:3)(cid:70)(cid:313)(cid:207)(cid:355) (cid:26)(cid:280)(cid:284)(cid:229)(cid:252)(cid:3)(cid:56)(cid:284)(cid:313)(cid:177)(cid:313)(cid:207)(cid:284)(cid:177)(cid:300)(cid:3)(cid:107)(cid:254)(cid:207)(cid:229)(cid:371) (cid:107)(cid:371)(cid:198)(cid:284)(cid:395)(cid:177)(cid:300)(cid:3)(cid:101)(cid:137)(cid:85)(cid:216)(cid:3)(cid:70)(cid:313)(cid:207)(cid:355) Brian R. Bachman (cid:123)(cid:371)(cid:284)(cid:436)(cid:177)(cid:395)(cid:229)(cid:3)(cid:70)(cid:313)(cid:436)(cid:229)(cid:376)(cid:395)(cid:325)(cid:371) Fusen E. Chen (cid:123)(cid:371)(cid:229)(cid:376)(cid:284)(cid:218)(cid:229)(cid:313)(cid:395)(cid:3)(cid:177)(cid:313)(cid:218)(cid:3)(cid:26)(cid:280)(cid:284)(cid:229)(cid:252)(cid:3) (cid:41)(cid:443)(cid:229)(cid:207)(cid:410)(cid:395)(cid:284)(cid:436)(cid:229)(cid:3)(cid:107)(cid:254)(cid:207)(cid:229)(cid:371) (cid:85)(cid:410)(cid:300)(cid:284)(cid:207)(cid:297)(cid:229)(cid:3)(cid:188)(cid:3)(cid:132)(cid:325)(cid:253)(cid:177)(cid:3)(cid:70)(cid:313)(cid:218)(cid:410)(cid:376)(cid:395)(cid:371)(cid:284)(cid:229)(cid:376)(cid:216)(cid:3)(cid:70)(cid:313)(cid:207)(cid:355) Lim Chin Hu Managing Partner (cid:132)(cid:395)(cid:371)(cid:229)(cid:177)(cid:309)(cid:3)(cid:58)(cid:300)(cid:325)(cid:198)(cid:177)(cid:300)(cid:3)(cid:123)(cid:395)(cid:229)(cid:355)(cid:3)(cid:88)(cid:395)(cid:218)(cid:355) (cid:70)(cid:313)(cid:218)(cid:229)(cid:350)(cid:229)(cid:313)(cid:218)(cid:229)(cid:313)(cid:395)(cid:3)(cid:37)(cid:284)(cid:371)(cid:229)(cid:207)(cid:395)(cid:325)(cid:371) (cid:26)(cid:284)(cid:395)(cid:284)(cid:198)(cid:177)(cid:313)(cid:297)(cid:3)(cid:132)(cid:284)(cid:313)(cid:269)(cid:177)(cid:350)(cid:325)(cid:371)(cid:229)(cid:3)(cid:88)(cid:284)(cid:309)(cid:284)(cid:395)(cid:229)(cid:218)(cid:3) (cid:70)(cid:313)(cid:218)(cid:229)(cid:350)(cid:229)(cid:313)(cid:218)(cid:229)(cid:313)(cid:395)(cid:3)(cid:37)(cid:284)(cid:371)(cid:229)(cid:207)(cid:395)(cid:325)(cid:371) (cid:85)(cid:229)(cid:350)(cid:350)(cid:229)(cid:300)(cid:3)(cid:37)(cid:26)(cid:3)(cid:127)(cid:229)(cid:284)(cid:395)(cid:3)(cid:88)(cid:284)(cid:309)(cid:284)(cid:395)(cid:229)(cid:218) Peter T. Kong (cid:127)(cid:229)(cid:395)(cid:284)(cid:371)(cid:229)(cid:218)(cid:3)(cid:123)(cid:371)(cid:229)(cid:376)(cid:284)(cid:218)(cid:229)(cid:313)(cid:395) (cid:58)(cid:300)(cid:325)(cid:198)(cid:177)(cid:300)(cid:3)(cid:26)(cid:325)(cid:309)(cid:350)(cid:325)(cid:313)(cid:229)(cid:313)(cid:395)(cid:376) (cid:101)(cid:371)(cid:371)(cid:325)(cid:437)(cid:3)(cid:41)(cid:300)(cid:229)(cid:207)(cid:395)(cid:371)(cid:325)(cid:313)(cid:284)(cid:207)(cid:376)(cid:216)(cid:3)(cid:70)(cid:313)(cid:207)(cid:355) Gregory F. Milzcik (cid:127)(cid:229)(cid:395)(cid:284)(cid:371)(cid:229)(cid:218)(cid:3)(cid:123)(cid:371)(cid:229)(cid:376)(cid:284)(cid:218)(cid:229)(cid:313)(cid:395)(cid:3)(cid:177)(cid:313)(cid:218)(cid:3) (cid:26)(cid:280)(cid:284)(cid:229)(cid:252)(cid:3)(cid:41)(cid:443)(cid:229)(cid:207)(cid:410)(cid:395)(cid:284)(cid:436)(cid:229)(cid:3)(cid:107)(cid:254)(cid:207)(cid:229)(cid:371) (cid:24)(cid:177)(cid:371)(cid:313)(cid:229)(cid:376)(cid:3)(cid:58)(cid:371)(cid:325)(cid:410)(cid:350)(cid:3)(cid:70)(cid:313)(cid:207)(cid:355) (cid:37)(cid:284)(cid:371)(cid:229)(cid:207)(cid:395)(cid:325)(cid:371) (cid:70)(cid:37)(cid:41)(cid:163)(cid:3)(cid:26)(cid:325)(cid:371)(cid:350)(cid:325)(cid:371)(cid:177)(cid:395)(cid:284)(cid:325)(cid:313) Yeo Mui Sung (cid:97)(cid:177)(cid:313)(cid:177)(cid:269)(cid:284)(cid:313)(cid:269)(cid:3)(cid:37)(cid:284)(cid:371)(cid:229)(cid:207)(cid:395)(cid:325)(cid:371) (cid:107)(cid:309)(cid:229)(cid:444)(cid:325)(cid:313)(cid:3)(cid:123)(cid:395)(cid:229)(cid:216)(cid:3)(cid:88)(cid:395)(cid:218)(cid:355) CORPORATE HEADQUARTERS: 23A Serangoon North Ave 5 #01-01, Singapore 554369 . (P) +65-6880-9600 . (F) +65-6880-9580

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