2017 ANNUAL REPORT
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OUR COMPANY
OUR VISION
To be the leading technology and service
provider of innovative interconnect
solutions enabling a smart future.
As a pioneer in this industry, K&S has
provided customers with market-leading
packaging solutions for decades. In recent
years, K&S has expanded its product
offerings through strategic acquisitions
and organic development, adding advanced
packaging, electronics assembly, wedge
bonding and a broader range of expendable
tools to its core ball bonding products.
Combined with its extensive expertise in
process technology, K&S is well positioned
to help customers meet the challenges
of assembling the next-generation
semiconductor and LED devices.
FELLOW SHAREHOLDERS
DURING THE YEAR WE HAVE SIGNIFICANTLY OPTIMIZED
OUR BUSINESS, MATERIALLY EXPANDED OUR
MARKET-LEADING POSITIONS, AND SUCCESSFULLY
DELIVERED SOLID FINANCIAL PERFORMANCE.
OPTIMIZING OUR POSITION
I was very happy to join Kulicke & Soffa in early fiscal 2017. Previously, my focus was on front-end semiconductor
capital equipment and I viewed Kulicke & Soffa’s market leadership, management team, balance sheet and
especially its advanced packaging position as key enablers in delivering innovative solutions for customers and
value to investors.
Shortly after joining it became obvious there were several other untapped and very sizable opportunities within
the core business that were not specifically limited to advanced packaging. We immediately refined our approach
and defined a new strategy for the LED market and our recurring revenue opportunities while we continued
to pursue several new advanced packaging and automotive opportunities. By the end of the fiscal 2017 year,
LED shipments increased by nearly 160%, and we developed a plan to increase the Aftermarket Products and
Solutions (APS) revenue mix from 20% to 30% of over the coming three years.
To best enhance our success on these and future opportunities while increasing responsiveness, accountability
and overall execution, organizational improvements were necessary. The first improvement was to consolidate
and move ultimate P&L responsibility of all recurring revenue businesses to the sales organization. These
recurring revenue businesses consisted of our prior Expendable Tools segment in combination with our
spares and support services business, previously included within our Equipment segment. Collectively, these
recurring revenue businesses became the APS segment. This organizational change, in addition to the added
corporate-level focus, enhances our ability to grow this stable and higher margin business. Later in the year,
we decentralized the majority of our competency-based R&D team and reallocated a large portion of this
high-value organization under direct business line ownership. This direct business unit hierarchy inherently
drives accountability while better enabling our global development teams to pursue several parallel growth
opportunities. The revised R&D structure allows for more common centralized competencies in electrical
and software engineering and also provides a dedicated corporate team, which assists in broader corporate
initiatives such as new partnerships, M&A and emerging technology exploration.
KULICKE & SOFFA 2017 ANNUAL REPORT 1
A CLOSER LOOK AT OUR
LEADERSHIP
In October 2016, Dr. Fusen Chen was elected to the Company’s Board of Directors and
was subsequently appointed President and Chief Executive Officer.
Previously served as an
Executive Vice President
at Novellus Systems,
with the responsibility
for all semiconductor
business units. Prior to
this position, he was the
Chief Technology Officer
(CTO) at Novellus, with
the responsibility for
defining the company’s
technology strategy
and direction.
Prior to Novellus, Dr.
Chen spent 10 years
at Applied Materials,
most recently as the
Group Vice President
and General Manager
for the company’s
Copper Physical
Vapor Deposition and
Interconnect Product
Business Group.
Joined K&S from Mattson
Technology, Inc. where
he was the President
and CEO. Under his
leadership, the company
turned around years
of losses to generate
significant revenue
growth and achieved
sustained profitability.
Dr. Chen earned his
Ph.D. degree in Materials
Science and Engineering
from the State University
of New York and a B.S.
degree in Materials
Science and Engineering
from the Tsing Hua
University.
1 2 3
LEAD
Continues to optimize
sizable and consistent
market-leading positions in
high-growth areas such as
LED, IOT, automotive and
flash memory.
Leadership positions
critically support the
industry’s rapid expansion.
EXPAND
Immediate focus on
maximizing sizable
recurring revenue
businesses as well as
capturing share gains in
growing LED opportunities.
Recent organizational
changes and larger portfolio
of solutions greatly enhances
execution potential and
growth prospects.
TARGET
Shareholder capital continues
to be deployed prudently and
optimally through organic
and inorganic initiatives,
augmented by ongoing
returns to shareholders.
No shortage of opportunities
for continued, sustainable
and meaningful shareholder
value creation.
KULICKE & SOFFA 2017 ANNUAL REPORT 2
A PRECISE
STRATEGY
MAXIMIZING OUR POTENTIAL
As we look ahead, we are in a fortunate position for meaningful
Subsequently, in August of 2017, we received approval for an
and sustainable value creation. Our dominant core leadership
additional $100 million repurchase program. Through the
positions continue to be exposed to major industry trends and
remaining two months of fiscal 2017, we settled an additional $11.2
we have a clear plan to maximize the full potential of these
million in open market transactions under the new program.
opportunities. Additionally, we have the necessary resources to
optimize and expand our core semiconductor, advanced packaging
and automotive market positions, while we continue to allocate
resources for ongoing shareholder returns.
As we monitor and assess the evolving landscape of our industry,
we continue to optimize and maximize our unique positions to
execute new opportunities, increase profitability and create
meaningful shareholder value. I thoroughly appreciate the support
Over the coming three years, we anticipate global semiconductor
from the investment community and look forward to taking
production to increase at a rate of 8.9%, a strong improvement over
Kulicke & Soffa to a new level.
the prior several years. While this is very positive and anticipated
to drive steady growth for our solutions, several specific trends
Sincerely,
in automotive and general consumer electronics are driving
incremental growth, above industry expectations, for our LED,
flash memory, sensor and advanced packaging solutions.
FUSEN E. CHEN
President and Chief Executive Officer
In addition to our current offerings, organizational improvements
and ongoing development investments are anticipated to further
amplify these favorable market opportunities. Furthermore, our
renewed perspective and active approach to partnering with
industry leaders and peers has provided several additional and
compelling growth prospects.
Finally, we continue to leverage our strong balance sheet to
opportunistically return capital to investors. During fiscal
2017, we completed the first repurchase program in the
history of Kulicke & Soffa by repurchasing $100 million worth
of shares outstanding through open market transactions.
KULICKE & SOFFA 2017 ANNUAL REPORT 3
FINANCIAL HIGHLIGHTS
Fiscal Year (in thousands, except per share amounts)
2013
2014
2015
2016
2017
STATEMENT OF OPERATIONS DATA:
Net revenue
Research and development
Other operating expenses
Impairment charges
Other income (expense)
$ 534,938
$ 568,569
$ 536,471
$ 627,192
$ 809,041
61,620
83,056
90,033
92,374
100,203
119,519
113,514
131,808
141,816
141,382
—
862
—
149
—
454
—
2,211
35,207
5,432
47,112
$ 112,011
0.67
0.67
$
$
1.58
1.55
$
$
$
Income (loss) from continuing operations after income tax
$ 59,358
$ 62,988
$ 50,639
Income (loss) per share from continuing operations, basic
Income (loss) per share from continuing operations, diluted
$ 0.79
$ 0.82
$ 0.78
$ 0.81
$
$
0.67
0.67
BALANCE SHEET DATA:
Working capital excluding discontinued operations
$ 676,986
$ 756,340
$ 633,435
$ 662,345
$ 752,934
Property, plant and equipment, net
47,541
52,755
53,234
50,342
67,762
Total assets excluding discontinued operations
862,994
944,448
904,466
982,444
1,171,107
Long-term debt and current portion of long-term debt
—
—
—
—
—
Shareholders’ equity
OTHER SELECTED DATA:
Capital expenditures
$ 716,665
$ 789,242
$ 769,249
$ 806,518
$ 912,936
$
17,172
$ 12,401
$
9,519
$
6,301
$ 25,688
Depreciation and amortization expense
$ 18,489
$ 13,520
$ 18,972
$ 16,230
$ 16,257
$809.0
12.1%
$100.2
2015
2016
2017
2015
2016
2017
2015
2016
2017
REVENUE
(IN MILLIONS)
OPERATING MARGIN
(PERCENT)
RESEARCH & DEVELOPMENT
(IN MILLIONS)
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 September
30, 2017 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 September 30, 2017 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.
revenue
operating margin
research & development
KULICKE & SOFFA 2017 ANNUAL REPORT 4
2017 FORM 10-K
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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 September 30, 2017
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 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, a non-accelerated filer, a smaller
reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller
reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer (cid:95)
Non-accelerated filer (cid:133)
Accelerated filer (cid:133)
(Do not check if a smaller reporting company)
Smaller reporting company (cid:133)
Emerging growth company (cid:133)
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. (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 March 31, 2017, the aggregate market value of the registrant's common stock held by non-affiliates of the registrant was
approximately $1,442.2 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 14, 2017 there were 70,603,793 shares of the registrant's common stock, without par value, outstanding.
Documents Incorporated by Reference
Portions of the registrant's Proxy Statement for the 2018 Annual Meeting of Shareholders to be filed on or about January 25,
2018 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.
2017 Annual Report on Form 10-K
September 30, 2017
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
12
22
22
23
23
23
24
26
40
41
78
78
79
80
80
80
80
81
82
86
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,
replacement demand, our research and development efforts, our ability to identify and realize new growth opportunities, our ability
to control costs and our operational flexibility as a result of (among other factors):
• projected growth rates in the overall semiconductor industry, the semiconductor assembly equipment
market, and the market for semiconductor packaging materials; and
• projected demand for ball, wedge bonder, advanced packaging and electronic assembly equipment and for
tools, spares and services.
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 September 30, 2017 (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 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.
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
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 2017, 2016 and 2015 was September 30, 2017, October 1, 2016, and October 3, 2015, respectively.
1
Key Events in Fiscal 2017
Impairment Charges
During the third quarter of fiscal 2017, the Company concluded that a triggering event had occurred in connection with the
EA/APMR reporting unit (the former Assembléon) based on the results of an updated long-term financial outlook for that business
that was conducted as part of the Company’s strategic review due to lower demand as compared to forecast. The projection used in
the fiscal 2016 annual impairment test had been developed based on the fiscal 2016 actual results, where the actual revenue had
exceeded the forecast. This updated outlook projected that the near-term projected cash flows are expected to be lower than
previously forecasted due to softer near-term demand in the System-in-package market. Under ASC 350, the Company is required
to test its goodwill and intangible assets for impairment annually or when a triggering event has occurred that would indicate it is
more likely than not that the fair value of the reporting unit is less than its carrying value including goodwill and intangible assets.
Accordingly, the Company has performed the first step of the goodwill impairment test for the EA/APMR reporting unit.
The Company used a discounted cash flow model to determine the fair value of the EA/APMR reporting unit. The cash flow
projections used in the discounted cash flow model were prepared using the forecasted financial results of the reporting unit, which
was based upon underlying estimates of the total market size using independent third party industry reports, and market share data
developed using the combination of independent third party data and our internal data. Significant assumptions used to determine
fair value of the EA/APMR reporting unit include terminal growth rate of 2.5%, cost reduction initiatives including restructuring,
working capital, tax rate and a weighted average cost of capital (discount rate) of 10.45%. Our calculation of the estimated fair value
of goodwill was based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable. Any
changes in the assumptions may result in additional impairment.
Following the Company's early adoption in the third quarter of fiscal 2017 of ASU 2017-04, Intangibles-Goodwill and Other (Topic
350): Simplifying the Test for Goodwill Impairment, the requirement to perform a hypothetical purchase price allocation to measure
goodwill impairment (i.e. Step 2 of the goodwill impairment test) was eliminated. Accordingly, the Company's impairment test is
performed by comparing the fair value of a reporting unit with its carrying amount, and recognizing an impairment charge for the
amount by which the carrying amount of the reporting unit exceeds its fair value. Based on the calculation, the Company determined
that the carrying amount of the EA/APMR reporting unit exceeded its fair value by $35.2 million as of July 1, 2017, requiring an
impairment charge of this amount. The goodwill impairment charge, which is a non-cash charge, has been reflected in the
Company’s Consolidated Statements of Operations for fiscal 2017.
In connection with the evaluation of the goodwill impairment in the EA/APMR reporting unit, the Company assessed tangible and
intangible assets for impairment prior to performing the first step of the goodwill impairment test. As a result of this analysis, it was
determined that there were no impairment charges to record relating to these assets.
Business Combinations
On July 2, 2017, Kulicke and Soffa Holland Holdings B.V. (“KSHH”), the Company's wholly owned subsidiary, entered into a Share
Sale and Purchase Agreement (the “Agreement”) with the shareholders of Liteq to purchase all of the outstanding equity interests of
Liteq. Liteq is a lithography solutions provider for advanced packaging.
The purchase price consisted of EUR 25.0 million (approximately $28.6 million) cash paid at closing and additional potential earn-
out payments based on Liteq's cumulative pre-tax earnings and cumulative engineering expenses for 2018 to 2022. The acquisition
expands the Company's presence in the advanced packaging market.
Share Repurchase Program
On August 15, 2017, the Company announced that it fully executed its $100 million share repurchase program (the "Program"),
originally announced on August 27, 2014. In addition, the Company announced that its Board of Directors approved a new share
repurchase program (the "New Program") that authorizes the repurchase of up to $100 million of the Company's common shares,
from time to time over the three year period ending August 1, 2020. The Company may purchase shares of its common stock
through open market and privately negotiated transactions at prices deemed appropriate by management. The Company has entered
into a written trading plan under Rule 10b5-1 of the Exchange Act to facilitate repurchases under the New Program. The New
Program is effective immediately, may be suspended or discontinued at any time and will be funded using the Company's available
cash, cash equivalents and short-term investments. The timing and amount of repurchase transactions under the New Program
depend on market conditions as well as corporate and regulatory considerations. During the year ended September 30, 2017, the
Company repurchased a total of 0.9 million shares of common stock at a cost of $18.2 million. As of September 30, 2017, our
remaining share repurchase authorization under the New Program was approximately $88.8 million.
2
Segments
During the fourth quarter of fiscal 2017, we reorganized our reporting structure into two reportable segments consisting of: (i)
Capital Equipment; and (ii) Aftermarket Products and Services ("APS"). Subsequently, we recasted financial results for fiscal years
2017, 2016 and 2015 based on the revised segment structure. The change in the segments was a result of changes to our
organizational structure effected during the fourth quarter of fiscal 2017 to streamline business operations to improve profitability
and competitiveness and reflects a change in the manner in which our chief operating decision maker reviews information to assess
our performance and make decisions about resource allocation. As part of these actions, we transitioned to a new internal
management structure whereby the operating management responsible for tools used to assemble semiconductor devices, including
integrated circuits (“ICs”), high and low powered discrete devices, light-emitting diodes (“LEDs”) and power modules, services,
spares, maintenance, repair and upgrading operating segments, was brought under common leadership in the APS segment.
Subsequent to the reorganization, the Capital Equipment segment comprises of the manufacturing and selling of ball bonders, wafer
level bonders, wedge bonders, advanced packaging and electronic assembly solutions to semiconductor device manufacturers,
IDMs, OSATs, other electronics manufacturers and automotive electronics suppliers.
For further information on our operating segments and the reorganization actions, please refer to Note 15, "Segment Information," to
our Consolidated Financial Statements included under "Item 8, Financial Statements and Supplementary Data" of this Form 10-K.
Our prior period reportable segment information has been recasted to reflect the current segment structure and conform to the current
period presentation.
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 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 Capital 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 APS segment is less volatile than our Capital Equipment segment. APS 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 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 September 30, 2017, our total cash, cash equivalents, restricted cash and short-term
investments were $608.9 million, a $61.0 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.
Technology Leadership
We compete largely by offering our customers advanced equipment and tools available for the interconnect processes. We believe
our technology leadership contributes to the strong market positions of our ball bonder, wedge bonder and tools products. To
maintain our competitive advantage, we invest in product development activities designed to produce 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 tools. In order to generate these improvements, we typically work
3
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.
We have also 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"). These
solutions enable 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 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, 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.
4
Products and Services
The Company operates two segments: Capital Equipment and APS. The following table reflects net revenue by segment for fiscal
2017, 2016, and 2015:
2017
Fiscal
2016
2015
(dollar amounts in thousands)
Capital Equipment
APS
$
Net revenues
651,934
157,107
809,041
$
% of total
net revenue
Net revenues
488,925
138,267
627,192
80.6 % $
19.4 %
100.0 % $
% of total
net revenue Net revenues
411,099
125,372
536,471
78.0 % $
22.0 %
100.0 % $
% of total
net revenue
76.6 %
23.4 %
100.0 %
See Note 15 to our Consolidated Financial Statements included in Item 8 of this report for our financial results by segment.
Capital Equipment Segment
In our Capital 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.
5
Our principal Capital 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
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 AT Premier PLUS
Advanced wafer level bonding application
APAMA C2S
APAMA C2W
APAMA DA
LITEQ 500A
LITEQ 500B
Hybrid Series
Thermo-compression for chip-to-substrate, chip-to-chip and
high accuracy flip chip ("HA FC") bonding applications
Thermo-compression for chip-to-wafer, HA FC and high
density fan-out wafer level packaging ("HD FOWLP")
bonding applications
High performance and productivity die attach bonder for
single or stack die bonding
Lithographic stepper for the formation of redistribution layer
("RDL") in FOWLP, fan-in wafer level packaging
("FIWLP") and flip chip ("FC")
Lithographic stepper for the formation of RDL in FOWLP,
FIWLP and FC with higher throughput
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
6
Business Unit
Product Name (1)
Typical Served Market
Electronics Assembly iX Series
iFlex Series
Ball Bonders
Advanced Surface Mount Technology ("SMT") applications
requiring extremely high output of passive and active
components
Advanced SMT applications requiring multi-lane or line
balancing solutions for standard or oddform passive and
active components
Automatic ball bonders represent the largest portion of our semiconductor equipment business. Our portfolio of ball bonding
products includes:
• 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.
• 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.
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. 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 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:
• 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®:
◦ 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 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.
7
Advanced Packaging
Our AT Premier PLUS 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 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.
Our APAMA Chip-to-Wafer (“C2W”) bonder 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.
Our APAMA DA provides high-accuracy and high-throughput die attach targeting advanced single and multi-die applications
supporting the image sensor, memory as well as other advanced packaging markets.
With the acquisition of Liteq, we have broadened our product offering with Lithographic stepper typically used for the formation of
RDL in FOWLP, FIWLP and FC.
Electronic Assembly
Our iX and iFlex series machines enable us to diversify our business with SMT placement technologies, thereby expanding market
reach into the automotive, LED lighting, medical and industrial segments with Electronic Assembly solutions.
APS Segment
In our APS segment, we manufacture and sell a variety of tools for a broad range of semiconductor packaging applications. Our
principal APS segment products include:
• Capillaries: expendable tools used in ball bonders. Made of ceramic and other elements, a capillary guides the wire during
the ball bonding process. Its features help control the bonding process. We design and build capillaries suitable for a broad
range of applications, including for use on our competitors' equipment. In addition to capillaries used for gold wire bonding,
we have developed capillaries for use with copper wire to achieve optimal performance in copper wire bonding.
• 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.
We also offer spare parts, equipment repair, maintenance and servicing, training services, and upgrades for our equipment.
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.
8
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 2017
Fiscal 2016
Fiscal 2015
1 Haoseng Industrial Co., Ltd. *#
1 Haoseng Industrial Co., Ltd. *#
1 Amkor Technology Inc.
2 Siliconware Precision Industries Ltd.
2 Siliconware Precision Industries Ltd.
2 Haoseng Industrial Co., Ltd. #
3 Advanced Semiconductor Engineering
3 Advanced Semiconductor Engineering
3 Skyworks Solutions Incorporated
4 Amkor Technology Inc.
4 STATS Chippac Ltd
4 ST Microelectronics
5 Super Power International Ltd #
5 Powertech Technology Inc.
5 Renesas Semiconductor
6 Samsung
6 Amkor Technology Inc.
6 First Technology China, Ltd. #
7 First Technology China, Ltd. #
7 Orient Semiconductor Electronics, Ltd.
7 Orient Semiconductor Electronics, Ltd.
8 LG Innotek Co. Ltd.
9 Texas Instruments, Inc.
10 Xinye Electronics. Co #
8 First Technology China, Ltd. #
8 Texas Instruments, Inc.
9 Samsung
10 Tesla Motors
9 Rohm Integrated Systems
10 Xinye Electronics. Co #
* Represents more than 10% of our net revenue for the applicable fiscal year.
# Distributor of our products.
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 September 30, 2017 and October 1, 2016:
(in thousands)
Backlog
As of
September 30, 2017
$
190,702 $
October 1, 2016
87,200
9
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.
Capital 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.
Aftermarket Products and Services
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.
Spares are manufactured at our facilities in Singapore and Netherlands.
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 $100.2
million, $92.4 million, and $90.0 million during fiscal 2017, 2016, and 2015, 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:
• Ball bonders: ASM Pacific Technology, Shinkawa Ltd and Kaijo Corporation
• Wedge bonders: ASM Pacific Technology, Cho-Onpa, F&K Delvotec, and Hesse Mechatronics
• AT Premier bonders: ASM Pacific Technology, Shinkawa Ltd and Kaijo Corporation
• APAMA bonders: ASM Pacific Technology, BE Semiconductor Industries N.V., Shibaura Mechatronics Corporation,
Shinkawa Ltd., Toray Industries, Inc, and Hanmi semiconductor Co., Ltd.
• APAMA DA bonders: ASM Pacific Technology, BE Semiconductor Industries N.V., Fasford Technology Co., Ltd, Shinkawa
Ltd and Canon Semiconductor Equipment Inc.
10
• Lithographic stepper: Ultratech, Inc., Shanghai Micro Electronics Equipment (Group) Co., Ltd., SÜSS MicroTec AG, and
Canon Semiconductor Equipment Inc.
• Hybrid solutions: ASM Pacific Technology, BE Semiconductor Industries N.V., , Fuji Machine Mfg. Co., Ltd., and Yamaha
Motor Co., Ltd.
• 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 tools competitors include:
• Capillaries: PECO, and Small Precision Tools, Inc.
• Dicing blades: Disco Corporation and Zhengzhou Shine More Superabrasive Products Co. Ltd
• Bonding wedges: Small Precision Tools, Inc. and DeWeyl 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 September 30, 2017, we had approximately 2,778 regular full-time employees and 277 temporary workers worldwide.
11
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 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
components 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, 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 our quarterly results will continue to fluctuate.
Although these fluctuations are partly due to the cyclical and volatile nature of the semiconductor industry, they also reflect other
factors, many of which are outside of our control.
Some of the factors that may cause our net revenue and operating margins to fluctuate significantly from period to period are:
• market downturns;
•
•
industry inventory level;
the mix of products we sell because, for example:
◦
◦
certain lines of equipment within our business segments are more profitable than others; and
some sales arrangements have higher gross margins than others;
•
•
•
cancelled or deferred orders;
seasonality;
competitive pricing pressures may force us to reduce prices;
12
• higher than anticipated costs of development or production of new equipment models;
•
• delays in the development and manufacture of our new products and upgraded versions of our products and market
the availability and cost of the components for our products;
acceptance of these products when introduced;
•
customers' delay in purchasing our products due to anticipation that we or our competitors may introduce new or upgraded
products; and
• our competitors' introduction of new products.
Many of our expenses, such as research and development, selling, general and administrative expenses, and interest expense, do not
vary directly with our net revenue. Our research and development efforts include long-term projects lasting a year or more, which
require significant investments. In order to realize the benefits of these projects, we believe that we must continue to fund them even
during periods when our revenue has declined. As a result, a decline in our net revenue would adversely affect our operating results
as we continue to make these expenditures. In addition, if we were to incur additional expenses in a quarter in which we did not
experience comparable increased net revenue, our operating results would decline. In a downturn, we may have excess inventory,
which could be written off. Some of the other factors that may cause our expenses to fluctuate from period-to-period include:
•
•
•
•
timing and extent of our research and development efforts;
severance, restructuring, and other costs of relocating facilities;
inventory write-offs due to obsolescence 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 has substantially completed.
Our customers have substantially completed the transition from gold to copper wire bonding. In fiscal 2017, 84% of total ball
bonders sold by the Company were copper capable bonders. If our 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 92.9%, 92.4%, and 91.2% of our net revenue for fiscal 2017, 2016, and 2015, 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 40.0%, 33.7% and
31.6% of our net revenue for the fiscal 2017, 2016, and 2015 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.
13
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:
•
•
•
•
•
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;
episodic events outside our control such as, for example, outbreaks of influenza or other illnesses;
significant foreign and U.S. taxes on repatriated cash;
•
• difficulties of staffing and managing dispersed international operations;
• possible disagreements with tax authorities;
•
• natural disasters such as earthquakes, fires or floods;
•
•
•
•
•
foreign governments' monetary policies and regulatory requirements;
less protective foreign intellectual property laws;
tariff and currency fluctuations;
changing political conditions;
labor work stoppages and strikes in our factories or the factories of our suppliers;
• new laws and regulations; 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
14
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 or other key employees may leave our company. 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.
Because a small number of customers account for most of our sales, our net revenue could decline if we lose a significant
customer.
15
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, which we
define as representing more than 10% of our net revenue, comprised 10.1% and 11.5% of our net revenue for fiscal 2017 and fiscal
2016, respectively, and sales to our ten largest customers comprised 47.3% and 47.6% of our net revenue for fiscal 2017 and fiscal
2016, respectively.
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. As a result, we must commit resources to the manufacture of products without binding purchase commitments from
customers. 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. 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:
• writing off the value of inventory;
•
•
disposing of products that cannot be fixed;
retrofitting products that have been shipped;
16
•
•
providing product replacements or modifications; and
defending against litigation.
These costs could be large and may increase expenses and lower our operating profits. Our reputation with customers or end users
could be damaged as a result of product defects and errata, and product demand could be reduced. These factors could harm our
business and financial results.
We depend on our suppliers, including sole source suppliers, for critical raw materials, components and subassemblies. If our
suppliers do not deliver their products to us, we would be unable to deliver our products to our customers.
Our products are complex and require raw materials, components and subassemblies having a high degree of reliability, accuracy
and performance. We rely on subcontractors to manufacture many of these components and subassemblies and we rely on sole
source suppliers for many components and raw materials. As a result, we are exposed to a number of significant risks, including:
•
•
•
•
•
•
•
•
•
•
decreased control over the manufacturing process for components and subassemblies;
changes in our manufacturing processes in response to changes in the market, which may delay our shipments;
our inadvertent use of defective or contaminated raw materials;
the relatively small operations and limited manufacturing resources of some of our suppliers, which may limit their ability
to manufacture and sell subassemblies, components or parts in the volumes we require and at acceptable quality levels and
prices;
the inability of suppliers to meet customer demand requirements during volatile cycles;
reliability or quality issues with certain key subassemblies provided by single source suppliers as to which we may not
have any short term alternative;
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.
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
risks associated with divestitures, joint ventures or other alliances, our business, financial condition and operating results may be
materially and adversely affected.
17
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:
•
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
18
the intellectual property rights of others and incur significant liability for that infringement. If we are found to have infringed on the
intellectual property rights of others, we could be enjoined from continuing to manufacture, market or use the affected product, or be
required to obtain a license to continue manufacturing or using the affected product. A license could be very expensive to obtain or
may not be available at all. Similarly, changing or re-engineering our products or processes to avoid infringing the rights of others
may be costly, impractical or time consuming.
Occasionally, third parties assert that we are, or may be, infringing on or misappropriating their intellectual property rights. In these
cases, we defend, and will continue to defend, against claims or negotiate licenses where we consider these actions appropriate.
Intellectual property cases are uncertain and involve complex legal and factual questions. If we become involved in this type of
litigation, it could consume significant resources and divert our attention from our business.
We may be materially and adversely affected by environmental and safety laws and regulations.
We are subject to various federal, state, local and foreign laws and regulations governing, among other things, the generation,
storage, use, emission, discharge, transportation and disposal of hazardous material, investigation and remediation of contaminated
sites and the health and safety of our employees. Increasingly, public attention has focused on the environmental impact of
manufacturing operations and the risk to neighbors of chemical releases from such operations.
Proper waste disposal plays an important role in the operation of our manufacturing plants. In many of our facilities we maintain
wastewater treatment systems that remove metals and other contaminants from process wastewater. These facilities operate under
permits that must be renewed periodically. A violation of those permits may lead to revocation of the permits, fines, penalties or the
incurrence of capital or other costs to comply with the permits, including potential shutdown of operations.
Compliance with existing or future, land use, environmental and health and safety laws and regulations may: (1) result in significant
costs to us for additional capital equipment or other process requirements, (2) restrict our ability to expand our operations and/or
(3) cause us to curtail our operations. We also could incur significant costs, including cleanup costs, fines or other sanctions and
third-party claims for property damage or personal injury, as a result of violations of or liabilities under such laws and regulations.
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 70.2 million shares were
outstanding as of September 30, 2017. 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
19
result of software or hardware malfunctions, computer viruses, cyber-attacks, employee theft or misuse, power disruptions, natural
disasters or accidents could cause breaches of data security and loss of critical data, which in turn could materially adversely affect
our business. Our security procedures, such as virus protection software and our business continuity planning, such as our disaster
recovery policies and back-up systems, may not be adequate or implemented properly to fully address the adverse effect of such
events, which could adversely impact our operations. In addition, our business could be adversely affected to the extent we do not
make the appropriate level of investment in our technology systems as our technology systems become out-of-date or obsolete and
are not able to deliver the type of data integrity and reporting we need to run our business. Furthermore, when we implement new
systems and or upgrade existing systems, we could be faced with temporary or prolonged disruptions that could adversely affect our
business.
We have experienced, and expect to continue to be subject to, cybersecurity threats and incidents, ranging from employee error or
misuse to individual attempts to gain unauthorized access to information systems to sophisticated and targeted measures known as
advanced persistent threats, none of which have been material to the Company to date. We devote significant resources to network
security and other measures to protect our systems and data from unauthorized access or misuse. However, depending on the nature
and scope, cybersecurity incidents could result in business disruption; the misappropriation, corruption or loss of confidential
information and critical data (of the Company or that of third parties); reputational damage; litigation with third parties; diminution
in the value of our investment in research, development and engineering; data privacy issues; and increased cybersecurity protection
and remediation costs.
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 Liteq Acquisition
We face risks associated with integrating Liteq into the Company.
The successful expansion of our business and operations resulting from the Liteq acquisition will require significant time, effort,
attention and dedication of management and may strain our operational and financial resources. It is possible that integrating Liteq
and its businesses into the Company could result in changes to or pressure on compliance with standards, controls, procedures and
policies. This process could expose us to risks and challenges, including:
• unanticipated issues in coordinating information, communication and other systems;
• unexpected loss of key employees;
• distraction of management attention from our other businesses;
•
•
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 Liteq’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.
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We may fail to realize the anticipated benefits of the Liteq acquisition.
The Liteq acquisition is intended to expand our presence in the advanced packaging market. The success of the Liteq acquisition
will depend on, among other things, our ability to integrate Liteq and its businesses into the Company. Liteq's businesses are also
subject to certain risks that may negatively affect the financial results for our Capital Equipment business segment, including, among
others, the following:
• Liteq’s business is largely dependent on the introduction and adoption by customers of our lithography solutions for
advanced packaging. There is no assurance that the new products or technology introduction will be successful in
demonstrating functionality and performance or will be accepted in the market with customers in commercial applications.
• The goodwill established in connection with our acquisition of Liteq represents the estimated future economic benefits
arising from the assets we have acquired that did not qualify to be identified and recognized individually. The goodwill also
includes the value of expected future cash flows of Liteq, 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.
• 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.
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 September 30, 2017, we have foreign net
operating loss carryforwards of $95.8 million, domestic state net operating loss carryforwards of $165.8 million, federal tax credit
carryforwards of $24.3 million, and state tax credit carryforwards of $4.9 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. Tax authorities in some of the jurisdictions in which we
do business, including the U.S., have proposed or announced that they are reviewing tax changes that could potentially increase
taxes, and other revenue-raising laws and regulations. It is unclear whether these proposed tax revisions will be enacted, or, if
enacted, what the scope of the revisions will be. Changes in U.S. and foreign tax laws, if enacted, could materially and adversely
affect our financial condition and operating results.
Anti-takeover provisions in our articles of incorporation and bylaws, and under Pennsylvania law may discourage other
companies from attempting to acquire us.
Some provisions of our articles of incorporation and bylaws as well as Pennsylvania law may discourage some transactions where
we would otherwise experience a fundamental change. For example, our articles of incorporation and bylaws contain provisions that:
•
classify our board of directors into four classes, with one class being elected each year;
• permit our board to issue “blank check” preferred shares without shareholder approval; and
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• prohibit us from engaging in some types of business combinations with a holder of 20% or more of our voting securities
without super-majority board or shareholder approval.
Further, under the Pennsylvania Business Corporation Law, because our shareholders approved bylaw provisions that provide for a
classified board of directors, shareholders may remove directors only for cause. These provisions and some other provisions of the
Pennsylvania Business Corporation Law could delay, defer or prevent us from experiencing a fundamental change and may
adversely affect our common shareholders' voting and other rights.
Terrorist attacks, or other acts of violence or war may affect the markets in which we operate and our profitability.
Terrorist attacks may negatively affect our operations. There can be no assurance that there will not be further terrorist attacks
against the U.S. or U.S. businesses. Terrorist attacks or armed conflicts may directly impact our physical facilities or those of our
suppliers or customers. Our primary facilities include administrative, manufacturing, sales and research and development facilities in
Singapore, manufacturing and research and development facilities in the Netherlands, China, and Israel and sales and research and
development facilities in the U.S. 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 September 30, 2017:
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
Capital Equipment: ball
and wedge bonders,
advanced packaging and
AT Premier
November 2043 (2)
Suzhou, China
155,000 sq. ft.
Manufacturing, technology and
shared support services center
Eindhoven,
Netherlands
100,000 sq. ft.
Manufacturing, technology, sales
and service center
APS: capillaries, dicing
blades and bonding
wedges
Owned
Capital Equipment:
Advanced Packaging
and Electronics
Assembly
September 2025 (3)
Fort Washington,
Pennsylvania
Santa Ana,
California
88,000 sq. ft.
65,000 sq. ft.
Technology, sales and service
center
Technology, sales and service
center
Not applicable
Owned
Not applicable
August 2036 (4)
Yokneam, Israel
21,000 sq. ft.
Manufacturing and technology
center
APS: capillary blanks
(semi-finish)
January 2018 (5)
(1) Each of the facilities listed in this table is leased other than the facility in Suzhou, China and Fort Washington,
Pennsylvania
(2) Includes lease extension periods at the Company's option. Initial lease expires in November 2023.
(3) Includes lease extension periods at the Company's option. Initial lease expires in September 2020.
(4) Includes lease extension periods at the Company's option. Initial lease expires in September 2023.
22
(5) At the expiry of the lease, the Israel operations will relocate to a 29,000 sq. ft. facility in Haifa, Israel with an initial lease
period of 10 years and a lease extension period of 10 years at the Company's option.
In addition, the Company rents space for sales and service offices and administrative functions in China, Germany, Japan, Malaysia,
South Korea, Switzerland, Taiwan, Thailand and the Philippines. The Company believes the facilities are generally in good condition
and suitable to the extent of utilization needed.
Item 3. LEGAL PROCEEDINGS
From time to time, we may be a plaintiff or defendant in cases arising out of our business. We cannot be assured of the results of any
pending or future litigation, but we do not believe resolution of these matters will materially or adversely affect our business,
financial condition or operating results.
Item 4. MINE SAFETY DISCLOSURES
Not applicable.
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 2017
Fiscal 2016
High
Low
High
Low
$
$
$
$
16.88 $
21.23 $
23.00 $
22.71 $
12.64 $
15.95 $
18.80 $
18.22 $
12.39 $
12.20 $
12.98 $
13.44 $
9.13
9.63
10.62
11.29
On November 14, 2017, there were approximately 226 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 2018 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission on or
about January 25, 2018.
Recent Sales of Unregistered Securities and Use of Proceeds
None.
23
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
The following table summarizes the repurchases of common stock during the three months ended September 30, 2017 (in
thousands, except per share amounts):
Period
July 2, 2017 to July 29, 2017
July 30, 2017 to September 2, 2017
September 3, 2017 to September 30, 2017
For the three months ended September 30, 2017
7 $
566 $
362 $
935
18.98
19.30
19.21
Total
Number of
Shares
Purchased
Average
Price Paid
Per Share
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
Approximate Dollar
Value of Shares That
May Yet Be
Purchased Under the
Plans or Programs (1)
6,634
95,708
88,753
7 $
566 $
362 $
935
(1)
On August 15, 2017, the Company announced that it fully executed its $100 million share repurchase program (the
"Program"), originally announced on August 27, 2014. In addition, the Company announced that its Board of Directors has
approved a new share repurchase program (the "New Program") that authorizes the repurchase of up to $100 million of the
Company's common shares, from time to time over the three year period ending August 1, 2020. The Company may
purchase shares of its common stock through open market and privately negotiated transactions at prices deemed
appropriate by management. The Company has entered into a written trading plan under Rule 10b5-1 of the Exchange Act
to facilitate repurchases under the New Program. The New Program is effective immediately, may be suspended or
discontinued at any time and will be funded using the Company's available cash, cash equivalents and short-term
investments. The timing and amount of repurchase transactions under the New Program depend on market conditions as
well as corporate and regulatory considerations.
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 2017, 2016, 2015, 2014, and
2013.
This data should be read in conjunction with our consolidated financial statements, including notes and other financial information
included elsewhere in this report or other reports filed previously by us in respect of the fiscal years identified in the column
headings of the tables below.
(in thousands)
Statement of Operations Data:
Net revenue
Income from operations
Interest income (expense), net
Income before income tax
Income tax (benefit) / expense(1)
Share of results of equity-method investee, net of tax
Net income
2017
2016
Fiscal
2015
2014
2013
809,041
98,254
5,432
103,686
(8,135 )
(190 )
112,011 $
$
627,192
52,539
2,211
536,471
37,251
454
568,569
76,984
149
534,938
65,806
862
54,750
7,638
—
47,112 $
37,705
(12,934 )
—
50,639 $
77,133
14,145
—
62,988 $
66,668
7,310
—
59,358
(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.
24
Per Share Data:
Net income per share:
Basic
Diluted
Weighted average shares outstanding:
Basic
Diluted
2017
2016
Fiscal
2015
2014
2013
$
$
1.58 $
1.55 $
0.67 $
0.67 $
0.67 $
0.67 $
0.82 $
0.81 $
0.79
0.78
70,906
72,063
70,477
70,841
75,414
75,659
76,396
77,292
75,132
76,190
(in thousands)
2017
2016
Fiscal
2015
2014
2013
Balance Sheet Data:
Cash, cash equivalents and short-term investments
$
Working capital
Total assets
Long-term and current portion of financing obligation
Shareholders' equity
608,410 $ 547,907 $ 498,614 $ 597,086 $ 525,040
676,986
633,435
752,934
862,994
904,466
1,171,107
19,396
17,003
16,769
716,665
769,249
912,936
756,340
944,448
19,616
789,242
662,345
982,444
17,318
806,518
25
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,
replacement demand, our research and development efforts, our ability to identify and realize new growth opportunities, our ability
to control costs and our operational flexibility as a result of (among other factors):
• projected growth rates in the overall semiconductor industry, the semiconductor assembly equipment
market, and the market for semiconductor packaging materials; and
• projected demand for ball, wedge bonder, advanced packaging and electronic assembly equipment and for
tools, spares and services.
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:
• Overview: Introduction of our operations, key events, business environment, technology leadership, products and
services
• 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"
Segment Realignment
During the fourth quarter of fiscal 2017, we reorganized our reporting structure into two reportable segments consisting of: (i)
Capital Equipment; and (ii) APS. As a result of this re-alignment, the Company has aggregated twelve operating segments as of
September 30, 2017, with six operating segments within the Capital Equipment reportable segment and six operating segments in the
APS reportable segment. Subsequently, we have recasted financial results for fiscal years 2017, 2016 and 2015 based on the revised
segment structure. The change in the segments was a result of changes to our organizational structure initiated during the fourth
quarter of fiscal 2017 to streamline business operations to improve profitability and competitiveness and reflects a change in the
manner in which our chief operating decision maker reviews information to assess our performance and make decisions about
26
resource allocation. As part of these actions, we transitioned to a new internal management structure whereby the operating
management responsible for tools used to assemble semiconductor devices, including integrated circuits (“ICs”), high and low
powered discrete devices, light-emitting diodes (“LEDs”) and power modules, services, spares, maintenance, repair and upgrading
operating segments was brought under common leadership in the APS segment. The restructuring actions were completed during the
fourth quarter of fiscal year 2017. Subsequent to the reorganization, the Capital Equipment segment comprises of the manufacturing
and selling of ball bonders, wafer level bonders, wedge bonders, advanced packaging and electronic assembly solutions to
semiconductor device manufacturers, IDMs, OSATs, other electronics manufacturers and automotive electronics suppliers.
For further information on our operating segments and the reorganization actions, please refer to Note 15, "Segment Information," to
our Consolidated Financial Statements included under "Item 8, Financial Statements and Supplementary Data" of this Form 10-K.
Our prior period reportable segment information has been recasted to reflect the current segment structure and conform to the current
period presentation.
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. Services revenue is generally recognized over the period that the
services are provided.
Our business is subject to contingencies related to customer orders, including:
• Right of Return: A large portion of our revenue comes from the sale of machines used in the semiconductor assembly
process. Other product sales relate to consumable products, which are sold in high-volume quantities, and are generally
maintained at low stock levels at our customer's facility. Customer returns have historically represented a very small
percentage of customer sales on an annual basis.
• Warranties: Our equipment is generally shipped with a one-year warranty against manufacturing defects. We establish
reserves for estimated warranty expense when revenue for the related equipment is recognized. The reserve for estimated
warranty expense is based upon historical experience and management's estimate of future expenses.
• Conditions of Acceptance: Sales of our consumable products generally do not have customer acceptance terms. In certain
cases, sales of our equipment have customer acceptance clauses which may require the equipment to perform in accordance
with customer specifications or when installed at the customer's facility. In such cases, if the terms of acceptance are
satisfied at our facility prior to shipment, the revenue for the equipment will be recognized upon shipment. If the terms of
acceptance are satisfied at our customers' facilities, the revenue for the equipment will not be recognized until acceptance,
which 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.
27
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 tools. Forecasted consumption is based upon internal projections, historical sales volumes, customer order activity
and a review of consumable inventory levels at customers' facilities. We communicate forecasts of our future consumption to our
suppliers and adjust commitments to those suppliers accordingly. If required, we reserve the difference between the carrying value of
our inventory and the lower of cost or 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: Capital Equipment and Aftermarket Products and Services ("APS"). Goodwill was
recorded for the acquisitions of Orthodyne Electronics Corporation ("Orthodyne"), Assembléon B.V. ("Assembléon") and Liteq B.V.
in fiscal 2009, 2015 and 2017, respectively.
ASC No. 350, Intangibles-Goodwill and Other ("ASC 350") requires goodwill and 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 January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill
Impairment. The new guidance eliminates the requirement to perform a hypothetical purchase price allocation to measure goodwill
impairment. Under the new guidance the goodwill impairment test is performed by comparing the fair value of a reporting unit with
its carrying amount, and recognizing an impairment charge for the amount by which the carrying amount of the reporting unit
exceeds its fair value, although it cannot exceed the total amount of goodwill allocated to that reporting unit. During the third
quarter of 2017, we elected to prospectively adopt ASU2017-04. This eliminates the requirement to perform step 2 of the goodwill
impairment test.
In fiscal 2017 and 2016, 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.
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
28
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 intangible assets, see Note 5 below.
Income Taxes
In accordance with ASC No. 740, Income Taxes, deferred income taxes are determined using the balance sheet 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 examination solely based on its technical merit. 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, including
resolution of related appeals or litigation process, if any.
The Financial Accounting Standards Board ("FASB") has issued Accounting Standard Update ("ASU") 2015-17, Income Taxes
(Topic 740), regarding 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. 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.
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.
29
RESULTS OF OPERATIONS
Results of Operations for fiscal 2017 and 2016
The following table reflects our income from operations for fiscal 2017 and 2016:
(dollar amounts in thousands)
Net revenue
Cost of sales
Gross profit
Selling, general and administrative
Research and development
Impairment charges
Operating expenses
Income from operations
Bookings and Backlog
Fiscal
2017
2016
$ Change
% Change
$
809,041 $
433,995
375,046
627,192 $
340,463
286,729
141,382
100,203
35,207
276,792
141,816
92,374
—
234,190
181,849
93,532
88,317
(434 )
7,829
35,207
42,602
$
98,254 $
52,539 $
45,715
29.0 %
27.5 %
30.8 %
(0.3)%
8.5 %
N/A
18.2 %
87.0 %
Our backlog consists of customer orders scheduled for shipment within the next twelve months. 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. 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 2017 and 2016:
(in thousands)
Bookings
(in thousands)
Backlog
Fiscal
2017
2016
$
912,549 $
661,931
As of
September 30, 2017
October 1, 2016
$
190,702 $
87,200
Our net revenues for fiscal 2017 increased as compared to our net revenues for fiscal 2016 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 92.9% and 92.4% of our net revenue for fiscal 2017 and 2016, 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 40.0% and 33.7% of our net revenue for
fiscal 2017 and 2016, respectively, was for shipments to customers located in China.
30
The following table reflects net revenue by business segment for fiscal 2017 and 2016:
(dollar amounts in thousands)
Capital Equipment
APS
Total net revenue
Capital Equipment
Fiscal
2017
2016
$ Change
% Change
$
$
651,934 $
157,107
809,041 $
488,925 $
138,267
627,192 $
163,009
18,840
181,849
33.3%
13.6%
29.0%
The following table reflects the components of Capital Equipment net revenue change between fiscal 2017 and 2016:
(in thousands)
Capital Equipment
Price
Fiscal 2017 vs. 2016
Volume
$ Change
$
(11,337 ) $
174,346 $
163,009
For fiscal 2017, the higher Capital Equipment net revenue as compared to fiscal 2016 was primarily due to higher volume. The
higher sales volume was primarily due to growing market demand in consumer, enterprise, automotive and industrial applications
partially offset by lower demand for our Hybrid products in the SiP market. The higher sales volume was partially offset by
unfavorable price variance due to price reduction.
APS
The following table reflects the components of APS net revenue change between fiscal 2017 and 2016:
(in thousands)
APS
Fiscal 2017 vs. 2016
Price
Volume
$ Change
$
(4,385 ) $
23,225 $
18,840
For fiscal 2017, the higher APS net revenue as compared to fiscal 2016 was primarily due to higher sales in tools. This was partially
offset by price reduction.
Gross Profit
The following table reflects gross profit by business segment for fiscal 2017 and 2016:
(dollar amounts in thousands)
Capital Equipment
APS
Total gross profit
Fiscal
2017
2016
$ Change
% Change
$
$
284,118 $
90,928
375,046 $
203,991 $
82,738
286,729 $
80,127
8,190
88,317
39.3%
9.9%
30.8%
The following table reflects gross profit as a percentage of net revenue by business segment for fiscal 2017 and 2016:
Capital Equipment
APS
Total gross margin
Capital Equipment
Fiscal
2017
2016
Basis Point
Change
43.6%
57.9%
46.4%
41.7 %
59.8 %
45.7 %
190
(190)
70
The following table reflects the components of Capital Equipment gross profit change between fiscal 2017 and 2016:
(in thousands)
Capital Equipment
Price
Fiscal 2017 vs. 2016
Cost
Volume
$ Change
$
(11,337 ) $
7,586 $
83,878 $
80,127
31
For fiscal 2017, the higher Capital Equipment gross profit as compared to fiscal 2016 was primarily due to higher volume and lower
cost. The higher sales volume was primarily due to growing market demand in consumer, enterprise, automotive and industrial
applications partially offset by lower demand for our Hybrid products in the SiP market. The lower cost was due to better absorption
from higher manufacturing volume. The higher sales volume and lower cost were partially offset by unfavorable price variance due
to price reduction.
APS
The following table reflects the components of APS gross profit change between fiscal 2017 and 2016:
(in thousands)
APS
Fiscal 2017 vs. 2016
Price
Cost
Volume
$ Change
$
(4,385 ) $
7 $
12,568 $
8,190
For fiscal 2017, the higher APS gross profit as compared to fiscal 2016 was primarily due to higher sales in tools. This was partially
offset by price reduction.
Operating Expenses
The following table reflects operating expenses as a percentage of net revenue for fiscal 2017 and 2016:
Selling, general & administrative
Research & development
Impairment charges
Total
Selling, General and Administrative (“SG&A”)
Fiscal
2017
2016
Basis point
change
17.5 %
12.4 %
4.4 %
34.3 %
22.6 %
14.7 %
— %
37.3 %
(510)
(230)
440
(300)
For fiscal 2017, lower SG&A as compared to fiscal 2016 was primarily due to net decrease of $5.2 million of expenses relating to
the restructuring programs and $1.4 million relating to other severance payments. These were partially offset by $3.4 million
increase in incentive compensation due to better current fiscal year performance and $2.8 million increase in executive staff costs.
Research and Development (“R&D”)
For fiscal 2017, higher R&D expenses as compared to fiscal 2016 was primarily due to higher staff costs. This was partially offset
by lower prototype material costs for advanced packaging products.
Impairment Charges
In fiscal 2017, the Company recognized a non-cash impairment charge related to goodwill in the EA/APMR (former Assembléon)
reporting unit. See Note 5 “Goodwill and Intangible Assets” of the accompanying consolidated financial statements for further
information.
Income from Operations
For fiscal 2017, total income from operations was higher by $45.7 million as compared to fiscal 2016. This was primarily due to
higher revenue for Capital 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 2017 and 2016:
(dollar amounts in thousands)
Interest income
Interest expense
2017
2016
$ Change
% Change
$
$
6,491 $
(1,059 ) $
3,318 $
(1,107) $
3,173
48
95.6 %
(4.3)%
For fiscal 2017, interest income was higher as compared to fiscal 2016. This was primarily due to higher returns and a larger cash,
cash equivalent and short-term investment balances.
Fiscal
32
Interest expense for fiscal 2017 and 2016 was attributable to the interest on financing obligation relating to the building, which was
incurred subsequent to the completion of the 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 2017 and 2016:
(in thousands)
Income tax (benefit) / expense
Effective tax rate
Fiscal
2017
2016
(8,135 )
(7.8 )%
7,638
14.0%
During fiscal 2017, the Company elected to adopt the foreign tax credit for its U.S. federal tax return filings. As a result of this
election, the Company has amended its U.S. tax returns from 2006 through 2015, filed its 2016 return on the same basis, and accrued
the benefit for 2017. Due to this tax position, the Company recorded foreign tax credits of approximately $26.1 million which
resulted in a decrease of our effective tax rate from fiscal 2016.
For fiscal 2017, the effective tax rate differed from the federal statutory tax rate primarily due to tax benefits from foreign tax
credits, profits generated in foreign operations subject to a lower statutory tax rate than the U.S. federal rate, domestic research tax
credit, and the impact of tax holidays, partially offset by an increase for deferred taxes on unremitted earnings, deemed dividends,
foreign withholding taxes, tax liabilities from foreign operations, and non-deductible goodwill impairment.
For fiscal 2016, the effective tax rate differed from the federal statutory tax rate primarily due to tax benefits from profits in foreign
operations subject to a lower statutory tax rate than the federal rate, tax benefits from the change in permanent reinvestment assertion
from the restructuring implementation, tax benefits from domestic research expenditures, and the impact of tax holidays, partially
offset by a tax liability arising from a settlement with a foreign tax authority, an increase for deferred taxes on unremitted earnings,
foreign withholding taxes, and an increase in valuation allowance against certain foreign deferred tax assets.
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.
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.
33
Results of Operations for fiscal 2016 and 2015
The following table reflects our income from operations for fiscal 2016 and 2015:
Fiscal
(dollar amounts in thousands)
2016
2015
$ Change
% Change
Net revenue
Cost of sales
Gross profit
Selling, general and administrative
Research and development
Operating expenses
$
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
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
87,200 $
October 3, 2015
52,500
$
$
Our net revenues for fiscal 2016 increased as compared to our net revenues for fiscal 2015 due to strong customer demand and
additional revenue resulting from the Assembléon acquisition. 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% and 31.6% of our net revenue for
fiscal 2016 and 2015 was for shipments to customers located in China.
The following table reflects net revenue by business segment for fiscal 2016 and 2015:
(dollar amounts in thousands)
2016
2015
$ Change
% Change
Fiscal
Capital Equipment
APS
Total net revenue
Capital Equipment
$
$
488,925
138,267
627,192 $
411,099 $
125,372
536,471 $
77,826
12,895
90,721
18.9%
10.3%
16.9%
The following table reflects the components of Capital Equipment net revenue change between fiscal 2016 and 2015:
(in thousands)
Capital Equipment
Price
Fiscal 2016 vs. 2015
Volume
$ Change
$
(28,567 ) $
106,393 $
77,826
34
For fiscal 2016, the higher Capital 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.
APS
The following table reflects the components of APS net revenue change between fiscal 2016 and 2015:
(in thousands)
APS
Fiscal 2016 vs. 2015
Price
Volume
$ Change
$
(2,970 ) $
15,865 $
12,895
For fiscal 2016, the higher APS net revenue as compared to fiscal 2015 was primarily due to the higher volume. The higher volume
was primarily due to higher demand in wire bonding tools and inclusion of the additional revenue resulting from the Assembléon
acquisition. 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)
Capital Equipment
APS
Total gross profit
Fiscal
2016
2015
$ Change
% Change
$
$
203,991 $
82,738
286,729 $
183,295 $
75,797
259,092 $
20,696
6,941
27,637
11.3%
9.2%
10.7%
The following table reflects gross profit as a percentage of net revenue by business segment for fiscal 2016 and 2015:
Capital Equipment
APS
Total gross margin
Capital Equipment
Fiscal
2016
2015
Basis Point
Change
41.7%
59.8%
45.7%
44.6 %
60.5 %
48.3 %
(290)
(70)
(260)
The following table reflects the components of Equipment gross profit change between fiscal 2016 and 2015:
(in thousands)
Capital Equipment
Price
Fiscal 2016 vs. 2015
Cost
Volume
$ Change
$
(28,567 ) $
3,273 $
45,990 $
20,696
For fiscal 2016, the higher Capital 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.
APS
The following table reflects the components of APS gross profit change between fiscal 2016 and 2015:
(in thousands)
APS
Fiscal 2016 vs. 2015
Price
Cost
Volume
$ Change
$
(2,970 ) $
(151 ) $
10,062 $
6,941
35
For fiscal 2016, the higher APS gross profit as compared to fiscal 2015 was primarily due to the higher volume. The higher volume
was primarily due to higher demand in wire bonding tools and wedge bonding tools and inclusion of the additional revenue resulting
from the Assembléon acquisition. This was partially offset by a price reduction.
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 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:
(dollar amounts in thousands)
Interest income
Interest expense
Fiscal
2016
2015
$ Change
% Change
3,318
(1,107 )
1,637 $
(1,183) $
1,681
76
102.7 %
(6.4)%
For fiscal 2016, higher interest income was derived from a higher cash, cash equivalent and short-term investment balances.
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).
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 tax expense / (benefit)
Effective tax rate
Fiscal
2016
7,638
14.0 %
2015
(12,934)
(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.
36
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.
LIQUIDITY AND CAPITAL RESOURCES
The following table reflects total cash and investments as of September 30, 2017 and October 1, 2016:
As of
(dollar amounts in thousands)
Cash and cash equivalents
Restricted cash
Short-term investments
$
September 30, 2017 October 1, 2016
423,907
—
124,000
392,410
530
216,000
$
$
Change
(31,497)
530
92,000
Total cash, cash equivalents, restricted cash and short-term
investments
Percentage of total assets
$
608,940
$
547,907
$
61,033
52.0 %
55.8 %
The following table reflects summary Consolidated Statement of Cash Flow information for fiscal 2017 and 2016:
(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 $
Fiscal
2017
2016
136,310 $
(145,199 )
(22,684 )
76
(31,497 ) $
423,907
392,410 $
68,407
(129,165)
(14,486)
537
(74,707)
498,614
423,907
Fiscal 2017
Net cash provided by operating activities was primarily the result of net income of $112.0 million, non-cash adjustments of $61.0
million and working capital changes of $(36.7) million. The change in working capital was primarily driven by an increase in
accounts and notes receivable of $67.9 million and an increase in net inventories of $47.4 million. This was partially offset by an
increase in accounts payable and accrued expenses and other current liabilities of $78.3 million.
The increase in accounts receivable was due to higher sales in fiscal 2017 as compared to fiscal 2016. The increase in net inventories
was primarily due to higher manufacturing activity in the fourth quarter of fiscal 2017 as compared to fourth quarter of fiscal 2016.
The increase in accounts payable and accrued expenses and other current liabilities was primarily due to an increase in
manufacturing activity, higher accrued incentive compensation due to better performance, and higher customer obligations.
37
Net cash used in investing activities was primarily due to net cash outflow for the Liteq acquisition of $27.1 million, purchases of
short-term investments of $305.0 million and capital expenditures of $25.6 million, offset by maturity of short-term investments of
$213.0 million.
Net cash used in financing relates to the repurchase of common stock of $18.2 million, reversal of excess tax benefits of $4.4 million
and repayment of loans of $0.6 million. This was offset by proceeds from the exercise of stock options of $0.5 million.
Fiscal 2016
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.
Fiscal 2018 Liquidity and Capital Resource Outlook
We expect our fiscal 2018 capital expenditures to be between $26.0 million and $28.0 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 and
investments. 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 September 30, 2017 and October 1, 2016, approximately $565.0 million and $479.7 million of cash, cash equivalents,
restricted cash 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 September 30, 2017 and October 1, 2016, were
approximately $505.5 million and $428.4 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 an initial maturity date of March 20, 2017, which has been extended on the
same terms until March 20, 2018. 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 repatriate the funds we have
38
designated as indefinitely reinvested outside the U.S., but may do so in the future. 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.
On August 15, 2017, the Company announced that it fully executed its $100 million share repurchase program (the "Program"),
originally announced on August 27, 2014. In addition, the Company announced that its Board of Directors approved a new share
repurchase program (the "New Program") that authorizes the repurchase of up to $100 million of the Company's common shares,
from time to time over the three year period ending August 1, 2020. The Company may purchase shares of its common stock
through open market and privately negotiated transactions at prices deemed appropriate by management. The Company has entered
into a written trading plan under Rule 10b5-1 of the Exchange Act to facilitate repurchases under the New Program. The New
Program is effective immediately, may be suspended or discontinued at any time and will be funded using the Company's available
cash, cash equivalents and short-term investments. The timing and amount of repurchase transactions under the New Program
depend on market conditions as well as corporate and regulatory considerations. During the year ended September 30, 2017, the
Company repurchased a total of 0.9 million shares of common stock at a cost of $18.2 million. As of September 30, 2017, our
remaining share repurchase authorization under the New Program was approximately $88.8 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
September 30, 2017 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 Company’s other non-current liabilities in the Consolidated Balance Sheets consist primarily of deferred tax liabilities, gross
long-term tax payable and retirement obligations. As of September 30, 2017, the Company had deferred tax liabilities of $26.8
million and long-term tax payable of $6.4 million. At this time, the Company is unable to make a reasonably reliable estimate of the
timing of payments due to uncertainties in the timing of tax audit outcomes; therefore, such amounts are not included in the above
contractual obligation table. In addition, the Company has retirement obligations and other severances of $6.4 million which are
payable on employee departure.
The following table presents certain payments due by the Company under contractual obligations with minimum firm commitments
as of September 30, 2017:
Payments due in
(in thousands)
Inventory purchase obligations (1)
Operating lease obligations (2)
Asset retirement obligations (reflected on our Balance
Sheets)(3)
Total Obligations and Contingent Payments not
reflected on the Consolidated Financial Statements
Total
$ 106,084
19,958
Less than 1
year
106,084 $
3,781
1 - 3 years 3 - 5 years
— $
— $
5,435
3,585
More than
5 years
—
7,157
1,423
436
39
—
948
$ 127,465
$ 110,301
$
5,474
$
3,585
$
8,105
(1) 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.
(2) Represents 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 2023 (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
39
during the lease term, the Company did not fulfill the criteria to apply sale-leaseback accounting under ASC 840. Therefore, at
completion, the building remained on the Consolidated Balance Sheet, and the corresponding financing obligation was
reclassified to long-term liability. As of September 30, 2017, we recorded a financing obligation of $16.8 million. The financing
obligation is not reflected in the table above.
(3) Asset retirement obligations are associated with commitments to return the property to its original condition upon lease
termination at various sites.
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 September 30, 2017, the outstanding amount was $3.2 million. In addition, the Company
has other bank guarantees for operational purposes which are secured with corresponding deposits placed with the issuer banks.
These amounts are shown as restricted cash in the Consolidated Balance Sheets.
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 an initial term of one year, and has been extended by another
year until March 20, 2018. All other material terms and conditions of the 2016 Credit Facility remain in force and effect. The
proceeds of the 2016 Credit Facility may be used for the Company's general corporate purposes. As of September 30, 2017, there
were no outstanding amounts under the 2016 Credit Facility and we were in compliance with the covenants described in the 2016
Credit Facility.
As of September 30, 2017, 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.
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, 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 September 30, 2017, 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.
We enter 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 notional amounts of $36.4 million outstanding
as of September 30, 2017. On October 12, 2017, the Company entered into foreign exchange forward contracts with notional
amounts of $12.7 million.
40
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 statements 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 as of September 30, 2017 and October 1, 2016, and the results of their operations and their
cash flows for each of the three years in the period ended September 30, 2017 in conformity with accounting principles generally
accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing
under Item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the
related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of September 30, 2017, 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.
As described in Management’s Report on Internal Control over Financial Reporting included under Item 9A, management has
excluded Liteq B.V (“Liteq”) from its assessment of internal control over financial reporting as of September 30, 2017, because it
was acquired by the Company in a purchase business combination during the year ended September 30, 2017. We have also
excluded Liteq from our audit of internal control over financial reporting. Liteq is a wholly-owned subsidiary of the Company whose
total assets excluded from management’s assessment and our audit of internal control over financial reporting represent 2.5% of the
related consolidated financial statement amounts as of September 30, 2017. No revenue was contributed by Liteq for the year ended
September 30, 2017.
/s/ PricewaterhouseCoopers LLP
Singapore
November 16, 2017
41
KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
As of
September 30, 2017 October 1, 2016
ASSETS
Current assets:
Cash and cash equivalents
Restricted cash
Short-term investments
Accounts and notes receivable, net of allowance for doubtful accounts of $79 and
$506, respectively
Inventories, net
Prepaid expenses and other current assets
Total current assets
Property, plant and equipment, net
Goodwill
Intangible assets, net
Deferred income taxes
Equity investments
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 83,953 and 83,231 respectively; outstanding
70,197 and 70,420 shares, respectively
Treasury stock, at cost, 13,756 and 12,811 shares, respectively
Retained earnings
Accumulated other comprehensive gain / (loss)
TOTAL SHAREHOLDERS' EQUITY
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$
$
$
$
$
$
$
392,410 $
530
216,000
198,480
122,023
23,939
953,382
67,762
56,318
62,316
27,771
1,502
2,056
1,171,107 $
51,354 $
132,314
16,780
200,448
16,074
26,779
14,870
258,171 $
423,907
—
124,000
130,455
87,295
15,285
780,942
50,342
81,272
50,810
16,822
—
2,256
982,444
41,813
63,954
12,830
118,597
16,701
27,697
12,931
175,926
— $
—
506,515
(157,604)
561,986
2,039
912,936 $
1,171,107 $
498,676
(139,407)
449,975
(2,726)
806,518
982,444
The accompanying notes are an integral part of these consolidated financial statements.
42
KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Net revenue
Cost of sales
Gross profit
Selling, general and administrative
Research and development
Impairment charges
Operating expenses
Income from operations
Interest income
Interest expense
Income from operations before income taxes
Income tax (benefit) / expense
Share of results of equity-method investee, net of tax
Net income
Net income per share:
Basic
Diluted
Weighted average shares outstanding:
Basic
Diluted
$
$
$
$
2017
Fiscal
2016
2015
809,041 $
433,995
375,046
141,382
100,203
35,207
276,792
98,254
6,491
(1,059 )
103,686
(8,135 )
(190 )
112,011 $
627,192 $
340,463
286,729
141,816
92,374
—
234,190
52,539
3,318
(1,107 )
54,750
7,638
—
47,112 $
536,471
277,379
259,092
131,808
90,033
—
221,841
37,251
1,637
(1,183)
37,705
(12,934)
—
50,639
1.58 $
1.55 $
0.67 $
0.67 $
0.67
0.67
70,906
72,063
70,477
70,841
75,414
75,659
The accompanying notes are an integral part of these consolidated financial statements.
43
KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Net income
Other comprehensive income (loss):
Foreign currency translation adjustment
Unrecognized actuarial gain / (loss) on pension plan, net of tax
Derivatives designated as hedging instruments:
Unrealized gain / (loss) on derivative instruments, net of tax
Reclassification adjustment for loss on derivative instruments
recognized, net of tax
Net increase/ (decrease) from derivatives designated as hedging
instruments, net of tax
2017
Fiscal
2016
2015
$
112,011 $
47,112 $
50,639
1,960
990
2,950
669
1,146
1,815
624
(1,791 )
(1,167 )
(3,360)
19
(3,341)
(566 )
(1,008)
104
1,008
(462 )
—
Total other comprehensive income / (loss)
4,765
(1,629 )
(3,341)
Comprehensive income
$
116,776 $
45,483 $
47,298
The accompanying notes are an integral part of these consolidated financial statements.
44
KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(in thousands)
Common Stock
Amount
Shares
76,626 $ 479,116 $ (46,984 ) $ 352,224 $
Treasury
Stock
Retained
earnings
Accumulated Other
Comprehensive
Income
Shareholders'
Equity
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
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
Unrealized gain on derivative instruments
Unamortized pension costs
Total comprehensive income
Balances as of September 30, 2017
83
(6,405 )
75
1,049
—
694
—
(77,872)
—
861
—
—
—
540
10,940
—
—
—
—
—
—
—
—
—
—
—
—
—
50,639
—
—
50,639
71,240 $ 492,339 $ (124,856 ) $ 402,863 $
—
—
—
—
—
—
—
—
50
(1,408 )
53
551
—
410
—
(14,551)
—
485
—
—
—
197
5,179
—
—
—
—
—
—
—
—
—
—
—
—
—
—
47,112
—
—
—
47,112
70,420 $ 498,676 $ (139,407 ) $ 449,975 $
—
—
—
—
—
—
—
—
—
—
45
(945 )
61
750
—
509
—
(18,197)
—
—
—
(4,392 )
10,972
—
—
—
—
—
—
—
112,011
—
—
—
112,011
70,197 $ 506,515 $ (157,604 ) $ 561,986 $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Issuance of shares for market-based restricted stock and
time-based restricted stock
616
—
—
2,244 $
—
—
—
—
—
—
—
(3,360)
19
(3,341)
(1,097 ) $
—
—
—
—
—
—
—
624
(462)
(1,791)
(1,629)
(2,726 ) $
—
—
—
—
—
—
—
1,960
1,815
990
4,765
2,039 $
786,600
1,049
(77,872)
694
—
540
10,940
50,639
(3,360)
19
47,298
769,249
551
(14,551)
410
—
197
5,179
47,112
624
(462)
(1,791)
45,483
806,518
750
(18,197)
509
—
(4,392)
10,972
112,011
1,960
1,815
990
116,776
912,936
The accompanying notes are an integral part of these consolidated financial statements.
45
KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
2017
Fiscal
2016
2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Impairment charges
Equity-based compensation and employee benefits
Reversal of excess tax benefits (Excess tax benefits from stock based compensation)
Adjustment for doubtful accounts
Adjustment for inventory valuation
Deferred taxes
Gain on disposal of property, plant and equipment
Unrealized foreign currency translation
Share of results of equity-method investee
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 equity investments
Purchase of short term investments
Maturity of short term investments
Changes in restricted cash
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
(Reversal of excess tax benefits) Excess tax benefits from stock based compensation
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
$ 112,011 $
47,112 $
50,639
16,257
35,207
11,722
4,392
(136 )
10,925
(17,499 )
(999 )
1,362
(190 )
(67,879 )
(47,425 )
(8,468 )
78,254
3,946
4,830
136,310
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
(27,119 )
(25,590 )
1,352
(1,312 )
(305,000 )
213,000
(530 )
(145,199 )
—
(6,218 )
1,053
—
(124,000 )
—
—
(129,165 )
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)
(604 )
—
509
(18,197 )
(4,392 )
(22,684 )
76
(31,497 )
423,907
(10,815)
837
694
(75,715)
540
(84,459)
1,326
(89,367)
587,981
$ 392,410 $ 423,907 $ 498,614
(542 )
—
410
(14,551 )
197
(14,486 )
537
(74,707 )
498,614
$
$
1,059 $
8,283 $
1,107 $
10,020 $
1,183
5,192
The accompanying notes are an integral part of these consolidated financial statements.
46
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 2017, 2016, and 2015 fiscal years ended on September 30, 2017, October 1,
2016 and October 3, 2015, respectively.
Nature of Business
The Company designs, manufactures and sells capital equipment and 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, integrated 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, 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 September 30, 2017 and October 1,
2016 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 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.
47
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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
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 twelve months, are recorded at fair value and are included in prepaid expenses and
other current assets, or 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 operations as the impact of the hedged transaction. Derivatives
that we designate as cash flow hedges are classified in the consolidated statement of cash flows in the same section as the underlying
item, primarily within cash flows from operating activities.
The hedge effectiveness of these derivative instruments is evaluated by comparing the cumulative change in the fair value of the
hedge contract with the cumulative change in the fair value of the forecasted cash flows of the hedged item.
If a cash flow hedge is discontinued because it is no longer probable that the original hedged transaction will occur as previously
anticipated, the cumulative unrealized gain or loss on the related derivative is reclassified from accumulated other comprehensive
income / (loss) into earnings. Subsequent gain / (loss) on the related derivative instrument is recognized into earnings in each period
until the instrument matures, is terminated, is re-designated as a qualified cash flow hedge, or is sold. Ineffective portions of cash
flow hedges, as well as amounts excluded from the assessment of effectiveness, are recognized in earnings.
Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less when purchased to be cash
equivalents. Cash equivalents are measured at fair value based on level one measurement, or quoted market prices, as defined by
ASC No. 820, Fair Value Measurements and Disclosures. As of September 30, 2017 and October 1, 2016, 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
48
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
the case of debt securities, and management's intentions with respect to holding the securities. Investments classified as “trading” are
reported at fair market value, with unrealized gains or losses included in earnings. Investments classified as “available-for-sale” are
reported at fair market value, with net unrealized gains or losses reflected as a separate component of shareholders' equity
(accumulated other comprehensive income (loss)). The fair market value of trading and available-for-sale securities is determined
using quoted market prices at the balance sheet date. Investments classified as held-to-maturity are reported at amortized cost.
Realized gains and losses are determined on the basis of specific identification of the securities sold.
Equity Investments
The Company applies the equity method of accounting to investments that provide it with ability to exercise significant influence
over the entities in which it lacks controlling financial interest and is not a primary beneficiary. Our proportionate share of the
income or loss is recognized on a one-quarter lag and is recorded as share of results of equity-method investee, net of tax.
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 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,
equipment, furniture and fittings 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. Land is not depreciated.
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
49
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
trends; or significant changes in market capitalization. During the fiscal years ended September 30, 2017 and October 1, 2016, no
"triggering" events occurred.
Accounting for Impairment of Goodwill
The Company operates two reportable segments: Capital Equipment and APS. Goodwill was recorded for the acquisitions of
Orthodyne Electronics Corporation ("Orthodyne"), Assembléon B.V. ("Assembléon") and Liteq B.V. ("Liteq") in fiscal 2009, 2015
and 2017, respectively.
ASC No. 350, Intangibles-Goodwill and Other ("ASC 350") requires goodwill and 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 January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill
Impairment. The new guidance eliminates the requirement to perform a hypothetical purchase price allocation to measure goodwill
impairment. Under the new guidance the goodwill impairment test is performed by comparing the fair value of a reporting unit with
its carrying amount, and recognizing an impairment charge for the amount by which the carrying amount of the reporting unit
exceeds its fair value, although it cannot exceed the total amount of goodwill allocated to that reporting unit. This ASU will be
effective for us beginning in our first quarter of 2021 and early adoption is permitted. During the third quarter of 2017, we elected to
prospectively adopt ASU2017-04. This eliminates the requirement to perform step 2 of the goodwill impairment test.
In fiscal 2017 and 2016, 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.
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 intangible assets, see Note 5 below.
Revenue Recognition
In accordance with ASC No. 605, Revenue Recognition, the Company recognizes revenue when persuasive evidence of an
arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable, the collectability is
reasonably assured, and customer acceptance, when applicable, has been received or we otherwise have been released from customer
acceptance obligations. If terms of the sale provide for a customer acceptance period, revenue is recognized upon the expiration of
the acceptance period or customer acceptance, whichever occurs first. Services revenue is generally recognized over the period that
the services are provided.
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.
50
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 balance sheet 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 examination solely based on its technical merit. 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, including resolution of related appeals or litigation processes, if any.
The Financial Accounting Standards Board ("FASB") has issued Accounting Standard Update ("ASU") 2015-17, Income Taxes
(Topic 740), regarding 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. 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.
Equity-Based Compensation
The Company accounts for equity-based compensation under the provisions of ASC No. 718, Compensation - Stock Compensation
(“ASC 718”). ASC 718 requires the recognition of the fair value of the equity-based compensation in net income. Compensation
expense associated with market-based restricted stock is determined using a Monte-Carlo valuation model, and compensation
expense associated with time-based and performance-based restricted stock is determined based on the number of shares granted and
the fair value on the date of grant. The fair value of the Company's stock option awards are estimated using a Black-Scholes option
valuation model. In addition, the calculation of equity-based compensation costs requires that the Company estimate the number of
awards that will be forfeited during the vesting period. The fair value of equity-based awards is amortized over the vesting period of
the award and the Company elected to use the straight-line method for awards granted after the adoption of ASC 718.
Earnings per Share
Earnings per share (“EPS”) are calculated in accordance with ASC No. 260, Earnings per Share. Basic EPS include only the
weighted average number of common shares outstanding during the period. Diluted EPS 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 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
51
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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
Restricted Cash
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the
FASB Emerging Issues Task Force). This update requires that a statement of cash flows explain the change during the period in the
total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. This ASU will be
effective for us beginning in our first quarter of 2019. Early adoption is permitted beginning in our first quarter of fiscal 2018. We do
not expect the adoption of the ASU itself to have a material impact on our financial statements. We are currently evaluating the
timing of the adoption of this ASU.
Income Taxes
In October 2016, the FASB issued ASU 2016-16, Accounting for Income Taxes: Intra-Entity Asset Transfers of Assets Other than
Inventory. The new guidance requires the tax effects of intercompany transactions (other than transfers of inventory) to be
recognized currently. The new guidance will be effective for public business entities in fiscal years beginning after December 15,
2017 (our fiscal 2019), including interim periods within those years, with an option to early adopt. The modified retrospective
approach will be required for transition to the new guidance, with a cumulative-effect adjustment recorded in retained earnings as of
the beginning of the period of adoption. We do not expect the adoption of this ASU itself to have a material impact on our financial
statements. However, the ultimate impact of adopting this ASU will depend on the balance of intellectual property transferred
between our subsidiaries as of the adoption date. We are currently evaluating the timing of the adoption of this ASU.
Stock Compensation
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 fiscal 2018. In the year of adoption,
the Company anticipates we will recognize unrealized excess tax benefits of $5.4 million in retained earnings.
In May 2017, the FASB issued ASU No. 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification
Accounting. This ASU specifies the modification accounting applicable to any entity which changes the terms or conditions of a
share-based payment award. This ASU will be effective for us beginning in our first quarter of fiscal 2019. Early adoption is
permitted. We do not expect the adoption of this ASU itself to have a material impact on our financial statements.
Leases
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 leases classified as operating leases under current GAAP. This ASU will be effective for us beginning
in our first quarter of fiscal 2020 and early adoption is permitted. The adoption of this ASU will result in an increase to our
consolidated balance sheets for these right of use assets and corresponding liabilities. However, the ultimate impact of adopting this
ASU will depend on the Company's lease portfolio as of the adoption date. We are currently evaluating the timing and other effects
of the adoption of this ASU on our financial statements.
Financial Instruments
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and
Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”), which updates certain aspects of recognition,
measurement, presentation and disclosure of financial instruments.
52
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 fiscal 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.
Derivatives and Hedging
In August 2017, the FASB issued ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities (Topic 815). The new
guidance expands and refines hedge accounting for both financial and non-financial risks. The new guidance also modifies
disclosure requirements for hedging activities. The new guidance will be effective for us beginning in our first quarter of fiscal 2020,
and early adoption is permitted in any interim period. The Company is currently evaluating the impact of the new guidance on its
consolidated financial statements as well as whether to adopt the new guidance early.
Business Combinations
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. The
new guidance provides a new framework for determining whether business development transactions should be accounted for as
acquisitions (or disposals) of assets or businesses. This ASU will be effective for us beginning in our first quarter of 2019. Earlier
application is permitted for acquisition or derecognition events that occurred prior to issuance date or effective date of the guidance
only when the transaction has not been reported in financial statements that have been issued or made available for issuance. We do
not expect the adoption of this ASU itself to have a material impact on our financial statements. We are currently evaluating the
timing of the adoption of this ASU.
Intangibles—Goodwill and Other
In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill
Impairment. The new guidance eliminates the requirement to perform a hypothetical purchase price allocation to measure goodwill
impairment. Under the new guidance the goodwill impairment test is performed by comparing the fair value of a reporting unit with
its carrying amount, and recognizing an impairment charge for the amount by which the carrying amount of the reporting unit
exceeds its fair value, although it cannot exceed the total amount of goodwill allocated to that reporting unit. During the third
quarter of 2017, we elected to prospectively adopt ASU2017-04.
Statement of Cash Flows
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 the classification of certain specific cash flow issues including debt prepayment or
extinguishment costs, settlement of certain debt instruments, contingent consideration payments made after a business combination,
proceeds from the settlement of certain insurance claims and distributions received from equity method investees. This ASU will be
effective for us beginning in our first quarter of 2019 and early adoption is permitted. We do not expect the adoption of this ASU
itself to have a material impact on our financial statements.
Revenue Recognition
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which
amends the existing accounting standards for revenue recognition. ASU 2014-09 is based on principles that govern the recognition of
revenue at an amount an entity expects to be entitled when products are transferred to customers.
Subsequently, the FASB has issued the following standards related to ASU 2014-09: ASU No. 2016-08, Revenue from Contracts
with Customers (Topic 606): Principal versus Agent Considerations (“ASU 2016-08”); ASU No. 2016-10, Revenue from Contracts
with Customers (Topic 606): Identifying Performance Obligations and Licensing (“ASU 2016-10”); ASU No. 2016-12, Revenue
from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients (“ASU 2016-12”); and ASU
No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers (“ASU 2016-20”).
The Company must adopt ASU 2016-08, ASU 2016-10, ASU 2016-12 and ASU 2016-20 with ASU 2014-09 (collectively, the “new
revenue standards”).
The new revenue standards may be applied retrospectively to each prior period presented or retrospectively with the cumulative
effect recognized as of the date of adoption. The new standard is effective for annual reporting periods beginning after December 15,
2017. The new standard permits companies to early adopt the new standard, but not before annual reporting periods beginning after
December 15, 2016. The Company will not early adopt the new standard and therefore the new standard will be effective for the
Company in the first quarter of its fiscal 2019. We have made progress in our review of the impact of this guidance on revenue
53
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
related activities, and are monitoring additional changes, modifications, clarifications or interpretations undertaken by the FASB.
We do not expect the adoption of this ASU itself to have a material impact on our financial statements. However, the ultimate impact
of adopting this ASU will depend on the Company's revenue portfolio as of the adoption date.
NOTE 2: RESTRUCTURING
In fiscal 2016, the Company implemented a restructuring program to streamline its international operations and functions as well as
to consolidate its organization structure to achieve our cost-reduction, productivity and efficiency initiatives.
In fiscal 2017, the Company implemented a restructuring program to reallocate resources with respect to the EA/APMR business
unit. As part of this plan, $3.8 million of restructuring related costs, consisting of $3.3 million of severance and $0.5 million of other
exit costs have been reflected in the Company’s consolidated financial statements as of and for fiscal 2017.
The following table is a summary of activity related to the Company’s restructuring and other charges for fiscal 2017, 2016, and
2015:
(in thousands)
Severance and benefits
Other exit costs
(in thousands)
Severance and benefits
Other exit costs
Beginning of period (1)
$
37 $
6,525
6,562
Fiscal Year 2017 Activity
Expenses (2)
Payments
End of period (1)
3,273 $
38
3,311
(418 ) $
(4,827 )
(5,245 )
2,892
1,736
4,628
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 )
(3,620 )
37
6,525
6,562
(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.
54
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 3: BALANCE SHEET COMPONENTS
The following tables reflect the components of significant balance sheet accounts as of September 30, 2017 and October 1, 2016:
(in thousands)
Short term investments, available-for-sale(1)
Inventories, net:
Raw materials and supplies (2)
Work in process (2)
Finished goods (2)
Inventory reserves
Property, plant and equipment, net:
Land
Buildings and building improvements
Leasehold improvements
Data processing equipment and software (2)
Machinery, equipment, furniture and fixtures
Accumulated depreciation(2)
Accrued expenses and other current liabilities:
Wages and benefits
Accrued customer obligations (3)
Commissions and professional fees
Deferred rent
Severance (4)
Other
As of
September 30, 2017 October 1, 2016
$
$
$
$
$
$
$
216,000 $
124,000
44,239 $
40,827
61,596
146,662
(24,639 )
122,023 $
2,182 $
50,910
9,882
34,700
68,143
165,817
(98,055 )
67,762 $
47,411 $
50,497
8,555
1,930
3,828
20,093
132,314 $
26,876
24,333
57,166
108,375
(21,080)
87,295
—
34,472
19,963
32,975
54,730
142,140
(91,798)
50,342
24,248
13,077
10,908
2,920
1,296
11,505
63,954
(1) All short-term investments were classified as available-for-sale and were measured at fair value based on level one measurement,
or quoted market prices, as defined by ASC 820. As of September 30, 2017 and October 1, 2016, fair value approximated the cost
basis for short-term investments. The Company did not recognize any realized gains or losses on the sale of investments during
the years ended 2017 and 2016.
(2) Certain balances as at October 1, 2016 relating to Inventories and Property, plant and equipment have been reclassified for
comparative purposes. These reclassifications have no impact to the Consolidated Balance Sheets as at October 1, 2016.
(3) Represents customer advance payments, customer credit program, accrued warranty expense and accrued retrofit obligations.
(4) Includes the restructuring plan discussed in Note 2, severance payable in connection with the October 2015 retirement of the
Company's CEO of $0.2 million (as of Oct 1, 2016: $0.8 million), and other severance payments which are not part of the
Company's plan to streamline its global operations and functions.
55
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 4: BUSINESS COMBINATIONS
Acquisition of Liteq
On July 2, 2017, Kulicke and Soffa Holland Holdings B.V. (“KSHH”), the Company's wholly owned subsidiary, entered into a Share
Sale and Purchase Agreement (the “Agreement”) with the shareholders of Liteq to purchase all of the outstanding equity interests of
Liteq. Liteq is a lithography solutions provider for advanced packaging.
The purchase price consists of EUR 25.0 million (approximately $28.6 million) cash paid at closing and additional potential earn-out
payments based on Liteq's cumulative pre-tax earnings and cumulative engineering expenses for fiscal 2018 to 2022. The acquisition
expands the Company's presence in the advanced packaging market.
The acquisition of Liteq was accounted for in accordance with ASC No. 805, Business Combinations, using the acquisition method.
The Company has estimated the preliminary fair value of acquired assets and liabilities as of the date of acquisition based on
information available. 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
of July 2, 2018. Any changes in these estimates may have a material impact on our Consolidated Results of Operations or
Consolidated Balance Sheets.
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)
Prepaid expenses and other current assets
Property, plant and equipment
Intangibles
Goodwill
Accounts payable
Accrued expenses and other current liabilities
Deferred tax liabilities
Total purchase price, net of cash acquired
July 2, 2017
199
107
18,060
10,253
(157)
(103)
(1,240)
27,119
$
$
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, representing developed technology, reflects management’s estimates based
on, among other factors, use of established valuation methods. The developed technology was determined using the relief from
royalty method, and is amortized over the period of estimated benefit using the straight-line method and the estimated useful lives of
ten 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 and includes the value of expected future cash flows of Liteq from expected synergies with
our other affiliates and other unidentifiable intangible assets. None of the goodwill recorded as part of the acquisition will be
deductible for income tax purposes.
In connection with the acquisition of Liteq, the Company recorded deferred tax liabilities relating to the acquired intangible assets,
which are partially offset by the net amount of acquired net operating losses. The net amount of acquired net operating losses is
comprised of net operating losses less the tax reserves and valuation allowance.
For the year ended September 30, 2017, the acquired business contributed a net loss of $1.4 million.
During fiscal 2017, the Company incurred $0.3 million of expenses related to the acquisition, which is included within selling,
general and administrative expense in the consolidated statements of operations.
The following unaudited pro forma information presents the combined results of operations as if the acquisition had been completed
on October 3, 2015, 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.
56
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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, except for per share information)
Revenue
Net income / (loss)
Basic income per common share
Diluted income per common share
Acquisition of Assembléon
Fiscal
2017
2016
809,041 $
105,966
1.49
1.47 $
627,192
41,186
0.58
0.58
$
$
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
57
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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
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
562,754
45,303
0.60
0.60
NOTE 5: GOODWILL AND INTANGIBLE ASSETS
Goodwill
Intangible assets classified as goodwill are not amortized. During fourth quarter of fiscal 2017, the Company recorded goodwill
relating to the acquisition of Liteq. For further information on the acquisition of Liteq, please see Note 4.
The goodwill established in connection with our acquisitions of Assembléon, Orthodyne and Liteq represents the estimated future
economic benefits arising from the assets we acquired that did not qualify to be identified and recognized individually. The goodwill
also includes the value of expected future cash flows of Assembléon, Orthodyne and Liteq, expected synergies with our other
affiliates and other unidentifiable intangible assets. 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.
During the third quarter of the fiscal year ended September 30, 2017, the Company concluded that a triggering event had occurred in
connection with the EA/APMR reporting unit (the former Assembléon) based on the results of an updated long-term financial
outlook for the EA/APMR business that was conducted as part of the Company’s strategic review during the third quarter due to the
lower demand as compared to forecast. The projection used in the fiscal 2016 annual impairment test had been developed based on
the fiscal 2016 actual results, where the actual revenue had exceeded the forecast. This updated outlook projected that the near-term
projected cash flows are expected to be lower than previously forecasted due to softer near-term demand in the System-in-package
market. Under ASC 350, the Company is required to test its goodwill and intangible assets for impairment annually or when a
triggering event has occurred that would indicate it is more likely than not that the fair value of the reporting unit is less than the
carrying value including goodwill and intangible assets. Accordingly, the Company performed the first step of the goodwill
impairment test for the EA/APMR reporting unit.
The Company used a discounted cash flow model to determine the fair value of the EA/APMR reporting unit. The cash flow
projections used within the discounted cash flow model were prepared using the forecasted financial results of the reporting unit,
58
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
which was based upon underlying estimates of the total market size using independent third party industry reports, and market share
data developed using the combination of independent third party data and our internal data. Significant assumptions used to
determine fair value of the EA/APMR reporting unit include terminal growth rate of 2.5%, cost reduction initiatives including
restructuring, working capital, tax rate and a weighted average cost of capital (discount rate) of 10.45%.
Following the Company's early adoption of ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for
Goodwill Impairment in the third quarter of fiscal 2017, the requirement to perform a hypothetical purchase price allocation to
measure goodwill impairment (i.e. Step 2 of the goodwill impairment test) was eliminated. Accordingly, the Company's impairment
test is performed by comparing the fair value of a reporting unit with its carrying amount, and recognizing an impairment charge for
the amount by which the carrying amount of the reporting unit exceeds its fair value. Based on the calculation, the Company
determined that the carrying amount of the EA/APMR reporting unit exceeded its fair value by $35.2 million, requiring an
impairment charge of this amount in the third quarter of fiscal 2017. The goodwill impairment charge, which is a non-cash charge,
has been reflected in the Company’s Consolidated Statements of Operations for the fiscal year ended September 30, 2017.
In connection with the evaluation of the goodwill impairment in the EA/APMR reporting unit, the Company assessed tangible and
intangible assets for impairment prior to performing the first step of the goodwill impairment test. As a result of this analysis, it was
determined that there were no impairment charges to record related to these assets for the nine months ended September 30, 2017.
No triggering event had occurred for the wedge bonder reporting unit (the former Orthodyne).
During the fourth quarter of fiscal 2017, the Company reorganized its reportable segments into (i) Capital Equipment and (ii)
Aftermarket Products and Services ("APS") and realigned our reporting units to reflect the revised reporting structure. As a result of
this re-alignment, the Company has five reporting units as of September 30, 2017, with two reporting units within the Capital
Equipment reportable segment and three reporting units in the APS reportable segment. Please refer to Note 15, "Segment
Information" for additional information on the operating and reportable segments realignment. The Company evaluated goodwill for
potential impairment before and after this realignment and determined that the fair value of each component individually and in
aggregate exceeded their carrying values.
The following table summarizes the Company's recorded goodwill by reportable segments as of September 30, 2017 and October 1,
2016:
(in thousands)
Balance at October 3, 2015 and October 1, 2016 (1)
Acquired in business combination
Goodwill impairment
Balance at September 30, 2017
Capital
Equipment
$
$
33,453 $
10,253
(13,731 )
29,975 $
APS
Total
47,819 $
—
(21,476 )
26,343 $
81,272
10,253
(35,207)
56,318
(1) Balances have been recasted due to the operating and reportable segments realignment.
59
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 September 30, 2017 and October 1, 2016:
(dollar amounts in thousands)
Developed technology
Acquired in business combination
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
September 30, 2017 October 1, 2016
useful lives (in years)
$
74,080 $
18,060
(41,162 )
50,978 $
36,968 $
(27,398 )
9,570 $
7,515 $
(5,747 )
1,768 $
2,500 $
(2,500 )
— $
74,080
—
(37,969)
36,111
36,968
(24,455)
12,513
7,515
(5,329)
2,186
2,500
(2,500)
—
7.0 to 15.0
5.0 to 6.0
7.0 to 8.0
1.9
Net intangible assets $
62,316 $
50,810
The following table reflects estimated annual amortization expense related to intangible assets as of September 30, 2017:
As of
(in thousands)
Fiscal 2018
Fiscal 2019
Fiscal 2020
Fiscal 2021
Fiscal 2022 and thereafter
Total amortization expense
September 30, 2017
7,892
7,892
7,892
5,684
32,956
62,316
$
$
NOTE 6: CASH, CASH EQUIVALENTS, RESTRICTED CASH AND SHORT-TERM INVESTMENTS
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.
60
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Cash, cash equivalents, restricted cash and short-term investments consisted of the following as of September 30, 2017:
(dollar amounts in thousands)
Current assets:
Cash
Cash equivalents (1):
Money market funds
Time deposits (3)
Commercial paper
Total cash and cash equivalents
Restricted Cash (1)
Total restricted cash
Short-term investments (1):
Time deposits (3)
Deposits (2)
Total short-term investments
Total cash, cash equivalents, restricted cash and short-term investments
As of
September 30, 2017 October 1, 2016
$
$
$
$
$
$
$
65,759 $
118,335
232,069
89,087
5,495
392,410 $
530 $
530 $
120,000 $
96,000
216,000 $
608,940 $
152,961
133,611
19,000
423,907
—
—
124,000
—
124,000
547,907
(1) Fair value approximates cost basis.
(2) Represents deposits that require a notice period of three months for withdrawal.
(3) Certain time deposits as at October 1, 2016 have been corrected from cash equivalents to short-term investments for comparative
purposes.
NOTE 7: EQUITY INVESTMENTS
Equity investments consisted of the following as of September 30, 2017 and October 1, 2016:
(in thousands)
Equity method investment
As of
September 30, 2017 October 1, 2016
—
1,502 $
$
In March 2017, the Company made an investment in one of our strategic suppliers which provides the Company with the ability to
exercise significant influence over the investment vehicle, in which it lacks controlling financial interest and is not a primary
beneficiary. Our share of gains and losses in the equity method investment is recognized on a one-quarter lag, and is reflected as
share of results of equity-method investee, net of tax, in the accompanying Consolidated Statements of Operations. During the fiscal
year ended September 30, 2017, the Company recognized $0.2 million gain on equity investment.
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 September 30, 2017.
61
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 equivalents, short-term investments, accounts receivables, prepaid expenses and other current assets,
accounts payable and accrued expenses approximate fair value.
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 twelve 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 Operations as the impact of the hedged transaction.
The fair value of derivative instruments on our Consolidated Balance Sheet as of September 30, 2017 and October 1, 2016 is as
follows:
(in thousands)
As of
September 30, 2017
October 1, 2016
Notional
Amount
Fair Value
Asset
Derivatives(1)
Notional
Amount
Fair Value
Liability
Derivatives(2)
Derivatives designated as hedging instruments:
Foreign exchange forward contracts (2)
Total derivatives
$
$
36,404 $
36,404 $
1,353 $
1,353 $
28,997 $
28,997 $
462
462
(1) The fair value of derivative assets is measured using level 2 fair value inputs and is included in prepaid expenses and other
current assets on our Consolidated Balance Sheet.
(2) 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.
(3) 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 Operations for the year ended
September 30, 2017 and October 1, 2016 was as follows:
(in thousands)
Foreign exchange forward contract in cash flow hedging relationships:
Net gain / (loss) 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
2017
2016
$
$
$
669 $
(1,146) $
— $
(566)
(104)
—
(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.
62
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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.
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 September 30, 2017, the financing obligation related to the Building is $16.8 million, which
approximates 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 September 30, 2017, the outstanding amount is $3.2 million. In addition, the Company
has other bank guarantees for operational purposes which are secured with corresponding deposits placed with the issuer banks.
These amounts are shown as restricted cash in the Consolidated Balance Sheets.
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 an initial term of one year, and has been extended on the same
terms by another year until March 20, 2018. The proceeds of the 2016 Credit Facility may be used for the Company's general
corporate purposes. As of September 30, 2017, there was no outstanding amount under the 2016 Credit Facility and we were in
compliance with the covenants described in the 2016 Credit Facility.
NOTE 11: SHAREHOLDERS’ EQUITY AND EMPLOYEE BENEFIT PLANS
Common Stock and 401(k) Retirement Income Plans
The Company has a 401(k) retirement plan (the “Plan”) for eligible U.S. employees. The Plan allows for employee contributions and
matching Company contributions from 4% to 6% based upon terms and conditions of the 401(k) Plan.
The following table reflects the Company’s contributions to the Plans during fiscal 2017 and 2016:
(in thousands)
Cash
Share Repurchase Program
Fiscal
2017
2016
$
1,645 $
1,544
On August 15, 2017, the Company announced that it fully executed its $100 million share repurchase program (the "Program"),
originally announced on August 27, 2014. In addition, the Company announced that its Board of Directors approved a new share
repurchase program (the "New Program") that authorizes the repurchase of up to $100 million of the Company’s common shares,
from time to time over the three year period ending August 1, 2020. The Company may purchase shares of its common stock
through open market and privately negotiated transactions at prices deemed appropriate by management. The Company has entered
into a written trading plan under Rule 10b5-1 of the Exchange Act to facilitate repurchases under the New Program. The New
Program is effective immediately, may be suspended or discontinued at any time and will be funded using the Company's available
63
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
cash, cash equivalents and short-term investments. The timing and amount of repurchase transactions under the New Program
depend on market conditions as well as corporate and regulatory considerations.
During the year ended September 30, 2017, the Company repurchased a total of 0.9 million shares of common stock at a cost of
$18.2 million. The share repurchases were recorded in the periods they were delivered, and the payment of $18.2 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 the 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. As of September 30, 2017, our remaining share
repurchase authorization under the New Program was approximately $88.8 million.
Accumulated Other Comprehensive Income
The following table reflects accumulated other comprehensive (loss) / income reflected on the Consolidated Balance Sheets as of
September 30, 2017 and October 1, 2016:
As of
(in thousands)
Gain from foreign currency translation adjustments
Unrecognized actuarial loss on pension plan, net of tax
Unrealized gain / (loss) on hedging
Accumulated other comprehensive income/(loss)
Equity-Based Compensation
September 30, 2017 October 1, 2016
2,422 $
$
(1,736 )
1,353
2,039 $
462
(2,726)
(462)
(2,726 )
$
The Company has stockholder-approved equity-based employee compensation plans (the “Employee Plans”) and 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 September 30, 2017, 5.1 million shares of common
stock are available for grant to its employees and directors under the 2017 Equity Plan, including previously registered shares that
have been carried forward for issuance under the 2009 Equity Plan.
• 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.
•
•
In general, stock options and time-based restricted stock awarded to employees vest annually over a three-year period
provided the employee remains employed by the Company. The Company follows the non-substantive vesting method for
stock options and recognizes compensation expense immediately for awards granted to retirement-eligible employees, or
over the period from the grant date to the date retirement eligibility is achieved.
In general, performance-based restricted stock (“PSU”) entitles the employee to receive common shares of the Company on
the three-year anniversary of the grant date (if employed by the Company) if return on invested capital and revenue growth
targets set by the Management Development and Compensation Committee (“MDCC”) of the Board of Directors on the
date of grant are met. If return on invested capital and revenue growth targets are not met, performance-based restricted
stock does not vest. Certain PSUs vest based on achievement of strategic goals over a certain time period or periods set by
the MDCC. If the strategic goals are not achieved, the PSUs do not vest.
Equity-based compensation expense recognized in the Consolidated Statements of Operations for fiscal 2017, 2016, and 2015 was
based upon awards ultimately expected to vest. In accordance with ASC No. 718, Stock Based Compensation, forfeitures have been
64
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 2017, 2016, and 2015:
(in thousands)
Cost of sales
Selling, general and administrative (1)
Research and development
Total equity-based compensation expense
2017
463 $
9,015
2,244
11,722 $
$
$
Fiscal
2016
421 $
3,244
2,065
5,730 $
2015
393
9,127
2,469
11,989
(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 2017, 2016, and 2015:
(in thousands)
Market-based restricted stock
Time-based restricted stock
Performance-based restricted stock
Stock options
Common stock
Total equity-based compensation expense (1)
2017
Fiscal
2016
$
$
3,480 $
7,492
—
—
750
11,722 $
(33) $
5,255
(43)
—
551
5,730 $
2015
4,677
6,129
131
3
1,049
11,989
(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.
Equity-Based Compensation: employee market-based restricted stock
The following table reflects employee market-based restricted stock activity for fiscal 2017, 2016, and 2015:
Number of shares
(in thousands)
Unrecognized
compensation
expense (in
thousands)
Average remaining
service period (in
years)
Weighted average
grant date fair
value per share
Market-based restricted stock
outstanding as of 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
Granted
Forfeited or expired
Vested
Market-based restricted stock
outstanding as of September 30, 2017
5,271
4,465
2,924
1,068
$
232
(48 )
(674 )
$
578
172
(256 )
(10 )
484
$
388
(3 )
(196 )
1.0
$
1.4
$
1.0
$
16.83
12.26
13.47
673
$
6,204
1.4
65
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following table reflects the assumptions used to calculate compensation expense related to the Company’s market-based
restricted stock issued during fiscal 2017, 2016, and 2015:
Grant Price
Expected dividend yield
Expected stock price volatility
Risk-free interest rate
2017
Fiscal
2016
$
12.51
$
9.58
$
N/A
30.39 %
0.96 %
N/A
30.85 %
0.89 %
2015
14.02
N/A
35.48%
0.89%
Equity-Based Compensation: employee time-based restricted stock
The following table reflects employee time-based restricted stock activity for fiscal 2017, 2016, and 2015:
Number of shares
(in thousands)
Unrecognized
compensation
expense (in
thousands)
Average remaining
service period (in
years)
Weighted average
grant date fair
value per share
Time-based restricted stock
outstanding as of September 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
Granted
Forfeited or expired
Vested
Time-based restricted stock
outstanding as of 30 September 2017
6,720
7,054
6,440
1,057
$
484
(29 )
(663 )
$
849
597
(85 )
(346 )
1,015
$
715
(50 )
(600 )
1.4
$
1.6
$
1.5
$
14.06
9.66
13.32
1,080
$
7,770
1.5
66
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Equity-Based Compensation: employee performance-based restricted stock
The following table reflects employee performance-based restricted stock activity for fiscal 2017, 2016, and 2015:
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
Granted
Forfeited or expired
Vested
Performance-based restricted stock outstanding as of
September 30, 2017
Number of shares
(in thousands)
Unrecognized
compensation
expense (in
thousands)
Average remaining
service period (in
years)
$
57
—
57
$
—
(29)
(28)
—
—
—
—
—
$
419
285
3.2
2.2
—
0
—
—
The following table reflects employee stock option activity for fiscal 2017, 2016, and 2015:
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
Exercised
Forfeited or expired
Options outstanding as of September 30, 2017
Options vested and expected to vest as of September 30, 2017
Options exercisable as of September 30, 2017
In the money exercisable options as of September 30, 2017
Number of
shares (in
thousands)
Average
remaining
contractual
life (in years)
Aggregate
intrinsic value
(in thousands)
Weighted
average
exercise price
8.14
8.58
7.25
8.18
5.40
9.00
8.41
8.31
8.50
8.73
8.73
8.73
220 $
(45 ) $
(28 ) $
147 $
(53 ) $
(4 ) $
90 $
(61 ) $
(13 ) $
16 $
16 $
16 $
16
$
$
$
0.3 $
0.3 $
0.3
$
282
330
531
200
200
200
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 2017 and the exercise price of in-the-money stock options, multiplied by the number of
underlying shares. During fiscal 2017, the Company received $0.5 million in cash from the exercise of employee and non-employee
director stock options.
As of September 30, 2017, there were no unvested employee stock options.
67
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following table reflects outstanding and exercisable employee stock options as of September 30, 2017:
Options Outstanding
Options Exercisable
Range of
exercise prices
Options outstanding
(in thousands)
Weighted average
remaining contractual
life (in years)
Weighted
average exercise
price
Options exercisable
(in thousands)
Weighted
average exercise
price
8.64 - 8.74
16
0.3 $
8.73
16 $
8.73
Equity-Based Compensation: non-employee directors
The 2017 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, $32,500.
The following table reflects shares of common stock issued to non-employee directors and the corresponding fair value for fiscal
2017, 2016, and 2015:
(in thousands)
Number of common shares issued
Fair value based upon market price at time of issue
$
2017
45
750 $
Fiscal
2016
50
551 $
2015
83
1,049
The following table reflects non-employee director stock option activity for fiscal 2017, 2016, and 2015:
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
Exercised
Forfeited or expired
Options outstanding as of September 30, 2017
Options vested and expected to vest as of
September 30, 2017
Options exercisable as of September 30, 2017
In the money exercisable options as of
September 30, 2017
Number of shares
(in thousands)
Weighted
average
exercise price
Average
remaining
contractual life
(in years)
10.22
10.19
6.48
11.20
—
11.00
—
—
—
—
—
—
55 $
(30) $
(5) $
20 $
— $
(20) $
— $
— $
— $
— $
$
—
— $
—
$
$
— $
— $
$
—
—
$
Aggregate
intrinsic value
(in thousands)
225
225
—
—
—
—
No non-employee director stock options were granted during fiscal 2017, 2016, and 2015.
68
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Pension Plan
The following table reflects the Company's defined benefits pension obligations as of September 30, 2017 and October 1, 2016:
(in thousands)
Switzerland pension obligation
Taiwan pension obligation
Total pension obligation
Other Plans
As of
September 30, 2017
October 1, 2016
$
$
1,951 $
967
2,918 $
2,393
925
3,318
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.
The following tables reflect a reconciliation of the shares used in the basic and diluted net income per share computation for fiscal
2017, 2016, and 2015:
(in thousands, except per share)
2017
Fiscal
2016
2015
Basic
Diluted
Basic
Diluted
Basic
Diluted
NUMERATOR:
Net income
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
$
112,011 $
112,011 $
47,112 $
47,112 $
50,639 $
50,639
70,906
70,906
70,477
70,477
75,414
19
592
546
32
274
58
72,063
70,841
$
1.58 $
$
$
1.58 $
(0.03 )
1.55
0.67 $
$
$
0.67 $
—
0.67
0.67 $
$
$
75,414
70
175
—
75,659
0.67
—
0.67
69
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 13: INCOME TAXES
The following table reflects income or losses from continuing operations by location, the provision for income taxes and the
effective tax rate for fiscal 2017, 2016, and 2015:
(dollar amounts in thousands)
United States operations
Foreign operations
Income from operations before tax
Income tax (benefit) / expenses
2017
(4,114 )
107,800
103,686
(8,135 )
$
$
$
$
Fiscal
2016
(12,600 ) $
67,350
54,750
7,638
$
2015
4,178
33,527
37,705
(12,934)
Effective tax rate
(7.8 )%
14.0 %
(34.3)%
The following table reflects the provision for income taxes from continuing operations for fiscal 2017, 2016, and 2015:
(in thousands)
Current:
Federal
State
Foreign
Deferred:
Federal
State
Foreign
Provision for income taxes
2017
Fiscal
2016
2015
$
$
(3,975 ) $
64
13,290
(15,374 )
40
(2,180 )
(8,135 ) $
871 $
53
21,841
(13,423 )
12
(1,716 )
7,638 $
1,459
76
4,707
(20,250)
(10)
1,084
(12,934)
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 2017, 2016, and 2015:
(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
Benefits from foreign tax credits
Change in permanent reinvestment assertion
Tax impact on restructuring
Tax audit settlement
Effect of permanent items
Non-deductible goodwill impairment
Deferred taxes not benefited
Foreign operations (withholding taxes, deferred taxes on unremitted
earnings, US taxation of foreign earnings)
Reserve for uncertain tax positions
State income tax expense (net of federal benefit)
Other, net
Provision for income taxes
70
2017
Fiscal
2016
2015
$
$
36,290 $
(20,226 )
(21,556 )
(1,859 )
(26,119 )
—
—
—
778
8,805
6,458
6,039
2,936
60
259
(8,135 ) $
19,163 $
(7,330 )
(8,531 )
(2,839 )
—
(9,696 )
4,238
4,889
(2,274 )
—
3,585
4,981
208
996
248
7,638 $
13,197
(6,103)
(5,855)
(4,090)
—
(19,704)
—
—
1,822
—
2,634
4,904
886
(1,543)
918
(12,934)
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
During fiscal 2017, the Company elected to adopt the foreign tax credit for its U.S. federal tax return filings. As a result of this
election, the Company has amended its U.S. tax returns from 2006 through 2015, filed its 2016 return on the same basis, and accrued
the benefit for 2017.
In fiscal 2015, the Company implemented a restructuring plan to streamline its international operations and functions resulting in a
change in its permanent reinvestment assertion outside the United States. In fiscal 2016, the Company continued to execute on the
restructuring plan and 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 in an effort to streamline its international
operations and functions.
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 $619.9 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 $21.0
million, as those earnings may be distributed to its foreign parent company.
Undistributed earnings of approximately $0.5 million are not considered to be permanently reinvested outside the United States. As
of September 30, 2017, 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.
The following table reflects the net deferred tax balance, composed of the tax effects of cumulative temporary differences for fiscal
2017 and 2016:
(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
Foreign withholding tax on undistributed earnings
Fixed and intangible assets
Total long-term deferred tax liability
Total net deferred tax asset / (liability)
Reported as
Deferred tax asset
Deferred tax liability
Total net deferred tax asset / (liability)
Fiscal
2017
2016
589 $
422
8,230
17,635
35,937
62,813 $
(29,614 ) $
33,199 $
20,945 $
11,262
32,207 $
992 $
27,771 $
26,779
992 $
546
647
4,937
8,011
31,817
45,958
(27,381)
18,577
20,119
9,333
29,452
(10,875)
16,822
27,697
(10,875)
$
$
$
$
$
$
$
$
$
As of September 30, 2017, the Company has foreign net operating loss carryforwards of $95.8 million, domestic state net operating
loss carryforwards of $165.8 million, federal tax credit carryforwards of $24.3 million, and state tax credit carryforwards of $4.9
million that can reduce future taxable income. These carryforwards can be utilized in the future, prior to expiration of certain
carryforwards in fiscal years 2017 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.
71
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The Company continues to evaluate the realizability of all of its net deferred tax assets at each reporting date and records a benefit
for deferred tax assets to the extent it has projected future taxable 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 apportioned earnings in these jurisdictions.
The beginning and ending balances of the Company's unrecognized tax benefits are reconciled below for fiscal 2017, 2016, and
2015:
(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
2017
7,453 $
3,657
1,834
(882 )
12,062 $
$
$
Fiscal
2016
7,101 $
519
827
(994 )
7,453 $
2015
7,192
—
5,140
(5,231)
7,101
Approximately $11.2 million of the $12.1 million of unrecognized tax benefit as of September 30, 2017, 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.
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 2006 and 2015, and all years prior to fiscal 2006 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 2017,
2016, and 2015, the preferential rate reduced income tax expense by approximately $21.6 million or $0.30 per share, $8.5 million or
$0.12 per share and $5.9 million or $0.08 per share, respectively.
NOTE 14: OTHER FINANCIAL DATA
The following table reflects other financial data for fiscal 2017, 2016, and 2015:
(in thousands)
Incentive compensation expense
Rent expense
Warranty and retrofit expense
2017
29,612 $
5,071 $
12,219 $
$
$
$
Fiscal
2016
14,661 $
5,901 $
4,599 $
2015
10,768
5,006
2,808
72
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 15: SEGMENT INFORMATION
Reportable segments are defined as components of an enterprise that engage in business activities for which discrete financial
information is available and regularly reviewed by the chief operating decision maker in deciding how to allocate resources and to
assess performance. The Company's Chief Executive Officer is the Company's chief operating decision maker. The chief operating
decision-maker does not review discrete asset information.
During the fourth quarter of fiscal 2017, we reorganized our reporting structure into two reportable segments consisting of: (i)
Capital Equipment; and (ii) APS. As a result of this re-alignment, the Company has aggregated twelve operating segments as of
September 30, 2017, with six operating segments within the Capital Equipment reportable segment and six operating segments in the
APS reportable segment. Subsequently, we have recasted financial results for fiscal years 2017, 2016 and 2015 based on the revised
segment structure. The change in the segments was a result of changes to our organizational structure initiated during the fourth
quarter of fiscal 2017 to streamline business operations to improve profitability and competitiveness and reflects a change in the
manner in which our chief operating decision maker reviews information to assess our performance and make decisions about
resource allocation. As part of these actions, we transitioned to a new internal management structure whereby the operating
management responsible for tools used to assemble semiconductor devices, including integrated circuits (“ICs”), high and low
powered discrete devices, light-emitting diodes (“LEDs”) and power modules, services, spares, maintenance, repair and upgrading
operating segments was brought under common leadership in the APS segment. The restructuring actions were completed during the
fourth quarter of fiscal year 2017. Subsequent to the reorganization, the Capital Equipment segment comprises of the manufacturing
and selling of ball bonders, wafer level bonders, wedge bonders, advanced packaging and electronic assembly solutions to
semiconductor device manufacturers, IDMs, OSATs, other electronics manufacturers and automotive electronics suppliers. Our prior
period reportable segment information has been recasted to reflect the current segment structure and conform to the current period
presentation.
The following table reflects operating information by segment for fiscal 2017, 2016, and 2015:
(in thousands)
Net revenue:
Capital Equipment
APS
Net revenue
Income from operations:
Capital Equipment(1)
APS(2)
Income from operations
2017
Fiscal
2016
2015
$
$
651,934 $
157,107
809,041
92,286
5,968
98,254 $
488,925 $
138,267
627,192
32,070
20,469
52,539 $
411,099
125,372
536,471
11,114
26,137
37,251
(1) Includes the restructuring expenses as discussed in Note 2, of $2.4 million, $6.2 million and $1.5 million for the years ended
2017, 2016 and 2015 respectively.
(2) Includes the restructuring expenses as discussed in Note 2, of $0.9 million, $2.4 million and $0.4 million for the years ended
2017, 2016 and 2015 respectively
The following tables reflect capital expenditures ,depreciation and amortization expense by segment for fiscal 2017, 2016 and
2015.
(in thousands)
Capital expenditures:
Capital Equipment
APS
Capital expenditures
2017
Fiscal
2016
2015
14,415 $
11,273
25,688 $
3,111 $
3,190
6,301 $
6,592
2,927
9,519
$
$
73
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(in thousands)
Depreciation expense:
Capital Equipment
APS
Depreciation expense
(in thousands)
Amortization expense:
Capital Equipment
APS
Amortization expense
Geographical information
2017
Fiscal
2016
2015
6,306 $
3,397
9,703 $
6,012 $
3,557
9,569 $
2017
Fiscal
2016
2015
2,841 $
3,713
6,554 $
2,760 $
3,901
6,661 $
6,075
3,014
9,089
4,291
5,592
9,883
$
$
$
$
The following tables reflect destination sales to unaffiliated customers by country and long-lived assets by country for fiscal
2017, 2016, and 2015:
$
(in thousands)
China
Taiwan
Korea
Malaysia
United States
Philippines
Japan
All other
Total destination sales to unaffiliated customers
$
2017
Fiscal
2016
2015
323,803 $
100,738
73,410
72,329
57,728
25,165
21,224
134,644
809,041 $
211,448 $
129,128
70,593
42,368
47,806
8,272
28,256
89,321
627,192 $
169,557
56,610
40,687
48,825
47,220
42,575
31,413
99,584
536,471
(in thousands)
Long-lived assets:
United States
Singapore
China
Israel
All other
Total long-lived assets
2017
Fiscal
2016
2015
$
$
43,440 $
31,553
11,148
4,549
6,899
97,589 $
18,570 $
33,286
7,459
4,810
5,295
69,420 $
7,429
36,754
7,386
3,701
3,084
58,354
74
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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.
The following table reflects the reserve for product warranty activity for fiscal 2017, 2016, and 2015:
(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
2017
4,138 $
—
10,404
(2,709 )
11,833 $
$
$
Fiscal
2016
1,856 $
—
4,816
(2,534 )
4,138 $
2015
1,542
547
2,614
(2,847)
1,856
The following table reflects obligations not reflected on the Consolidated Balance Sheet as of September 30, 2017:
(in thousands)
Inventory purchase obligation (1)
Operating lease obligations (2)
Total
Total
106,084 $
19,958
126,042 $
2018
106,084 $
3,781
109,865 $
$
$
Payments due by fiscal year
2019
2020
2021
— $
2,879
2,879 $
— $
2,556
2,556 $
— $
1,841
1,841 $
thereafter
—
8,901
8,901
(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 September 30, 2017, we recorded a financing obligation related to the Building of $16.8 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 2017, 2016, and 2015:
Haoseng Industrial Co., Ltd
10.1 %
11.5 %
*
* Represents less than 10% of net revenue
2017
Fiscal
2016
2015
75
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following table reflects significant customer concentrations as a percentage of total accounts receivable as of
September 30, 2017 and October 1, 2016:
Haoseng Industrial Co., Ltd
As of
September 30, 2017
26.2 %
October 1, 2016
20.8 %
NOTE 17: SELECTED QUARTERLY FINANCIAL DATA (unaudited)
The following table reflects selected quarterly financial data for fiscal 2017 and 2016:
Fiscal 2017 for the Quarter Ended
(in thousands, except per share
amounts)
Net revenue
Gross profit
Income from operations
Income tax expense / (benefit)
Net income
Net income per share (1):
Basic
Diluted
Weighted average shares
outstanding:
Basic
Diluted
(in thousands, except per share
amounts)
Net revenue
Gross profit
Income from operations
Income tax (benefit) / expense
Net income
Net income per share (1):
Basic
Diluted
Weighted average shares
outstanding:
Basic
Diluted
$
$
$
$
$
$
$
$
December 31
April 1
July 1
September 30
Fiscal 2017
149,639 $
68,318
17,281
2,608
15,583 $
199,613 $
90,291
32,605
4,882
29,041 $
243,897 $
111,698
11,464
(17,867 )
30,811 $
215,892 $
104,739
36,904
2,242
36,576 $
809,041
375,046
98,254
(8,135)
112,011
0.22 $
0.22 $
0.41 $
0.40 $
0.43 $
0.43 $
0.52 $
0.51 $
1.58
1.55
70,854
71,763
70,964
72,270
71,063
72,483
70,742
72,071
70,906
72,063
Fiscal 2016 for the Quarter Ended
January 2
April 2
July 2
October 1
Fiscal 2016
108,534 $
50,421
(1,705 )
(1,265 )
(91 ) $
156,400 $
69,647
11,709
7,045
5,089 $
216,414 $
100,040
38,622
7,519
31,785 $
145,844 $
66,621
3,913
(5,661 )
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
(1) EPS for the year may not equal the sum of quarterly EPS due to changes in weighted share calculations.
76
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 18: SUBSEQUENT EVENTS
On October 12, 2017, the Company entered into foreign exchange forward contracts with notional amounts of $12.7 million. We
entered into these foreign exchange forward contracts to hedge a portion of our forecasted foreign currency-denominated expenses in
the normal course of business and, accordingly, they are not speculative in nature. These foreign exchange forward contracts have
maturities of up to twelve months.
77
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
Item 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of
our disclosure controls and procedures as of September 30, 2017. Based on that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that, as of September 30, 2017 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 September 30, 2017. In making this assessment,
management used the framework established in Internal Control-Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (“COSO”). Management's assessment included an evaluation of the design
of our internal control over financial reporting and testing of the operational effectiveness of our internal control over financial
reporting. Management reviewed the results of its assessment with the Audit Committee of the Company's Board of Directors.
Management's evaluation of internal control over financial reporting as of September 30, 2017 has excluded the evaluation of the
effectiveness of internal control over financial reporting related to Liteq B.V ("Liteq") because it was acquired in a business
combination during the year ended September 30, 2017. As of September 30, 2017, Liteq represented approximately 2.5% of our
consolidated assets. No revenue was contributed by Liteq for the year ended September 30, 2017. See Note 4 of our Notes to
Consolidated Financial Statements for more information.
Based on that assessment and based on the criteria in the COSO framework, management has concluded that, as of September 30,
2017, the Company's internal control over financial reporting was effective.
The effectiveness of the Company's internal control over financial reporting as of September 30, 2017 has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in its report, which appears herein.
Changes in internal control over financial reporting
In connection with the evaluation by our management, including with the participation of our Chief Executive Officer and Chief
Financial Officer, of our internal control over financial reporting, no changes during the three months ended September 30, 2017
were identified to have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
78
Item 9B. OTHER INFORMATION
None.
79
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 2018 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 2018 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 2018 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 2018 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 2018 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 2018 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 2018 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 2018 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 2018 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 2018 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 2018 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 2018 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 2018 Annual Meeting of Shareholders, which information is incorporated
herein by reference.
80
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 2018 Annual Meeting of Shareholders, which information is incorporated herein by reference.
81
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as part of this report:
Part IV
(1)
Financial Statements - Kulicke and Soffa Industries, Inc.:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of September 30, 2017 and October 1, 2016
Consolidated Statements of Operations for fiscal 2017, 2016 and 2015
Consolidated Statements of Comprehensive Income for fiscal 2017, 2016 and 2015
Consolidated Statements of Changes in Shareholders' Equity for fiscal 2017, 2016 and 2015
Consolidated Statements of Cash Flows for fiscal 2017, 2016 and 2015
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
41
42
43
44
45
46
47
85
EXHIBIT
NUMBER
3.1
3.2
4.1
10.1
10.2
10.3
10.4
10.5
10.6
10.7
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.
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.*
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.*
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.*
82
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
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, in incorporated herein by reference to Exhibit 10.4 of the Company's Current Report on Form 8-K
filed on December 7, 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, is incorporated
herein by reference to Exhibit 10.5 to the Company's Current Report on Form 8-K dated December 7,
2012.*
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 10.2 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 10.3 of the Company's Quarterly Report on Form 10-Q for the quarterly period
ended December 27, 2014.*
83
10.29
10.30
10.31
10.32
10.33
10.34
10.35
21
23
31.1
31.2
32.1
32.2
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
Offer Letter between the Company and Irene Lee, dated January 28, 2014, incorporated herein by
reference to Exhibit 10.4 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 10.2 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.*
Agreement For Purchase and Sale of Real Property, dated January 11, 2017, between the Company
and ARC KSFTWPA001, LLC, incorporated herein by reference to Exhibit 10.2 of the Company's
Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2016.
2017 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 March 14, 2017.*
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.
84
KULICKE AND SOFFA INDUSTRIES, INC.
Schedule II-Valuation and Qualifying Accounts
Fiscal 2017:
Allowance for doubtful
accounts
Inventory reserve
Beginning
of period
$
$
506
21,080
Valuation allowance for
deferred taxes
$
27,381
Fiscal 2016:
Allowance for doubtful
accounts
Inventory reserve
$
$
621
19,073
Valuation allowance for
deferred taxes
$
23,128
Fiscal 2015:
Allowance for doubtful
accounts
Inventory reserve
$
$
143
13,863
Valuation allowance for
deferred taxes
$
24,624
Charged to
Costs and
Expenses
Other
Additions
Other
Deductions
End of
period
$
$
$
$
$
$
$
$
$
(136 )
10,925
$
$
—
—
—
(3) $
2,233
(115 )
6,676
$
$
—
—
563
(3) $
3,690
478
3,978
$
$
—
7,696
$
$
$
$
$
$
$
$
(291 ) (1) $
79
(7,366 ) (2) $
24,639
—
$
29,614
—
(1) $
506
(4,669 ) (2) $
21,080
—
$
27,381
—
(1) $
621
(6,464 ) (2) $
19,073
—
(3) $
—
$
(1,496 )
$
23,128
(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.
85
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 16, 2017
Signature
Title
Date
/s/ FUSEN CHEN
Fusen Chen
President and Chief Executive Officer
November 16, 2017
(principal executive officer)
/s/ JONATHAN CHOU
Executive Vice President and Chief Financial Officer
November 16, 2017
Jonathan Chou
(principal financial officer and principal accounting officer)
/s/ GARRETT E. PIERCE
Director
November 16, 2017
Garrett E. Pierce
/s/ BRIAN R. BACHMAN
Director
November 16, 2017
Brian R. Bachman
/s/ CHIN HU LIM
Chin Hu Lim
Director
November 16, 2017
/s/ GREGORY F. MILZCIK
Director
November 16, 2017
Gregory F. Milzcik
/s/ MUI SUNG YEO
Mui Sung Yeo
/s/ PETER T. KONG
Peter T. Kong
Director
Director
November 16, 2017
November 16, 2017
86
STOCK PERFORMANCE GRAPH
The graph set forth below compares, for fiscal years 2013 through 2017, 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 September 29, 2012 and that all dividends
were reinvested. Total returns are calculated based on the Kulicke & Soffa Industries, Inc. fiscal year calendar. For purposes of
the peer group index, the peer group companies have been weighted based upon their relative market capitalization. The closing
sale price of the Company’s common shares as of September 30, 2017 was $21.57.
87
COMPANY INFORMATION
As of December 2017
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
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 2017 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:
Expendable Tools Manufacturing Facilities
Suzhou, China
Yokneam Elite, Israel
Investor Relations
+1-215-784-7500
investor@kns.com
88
KULICKE & SOFFA
LEADERSHIP TEAM
Kulicke & Soffa’s highly experienced board of directors and executive officers continue to leverage the Company’s strengths
and execute new and challenging corporate objectives. The unique perspective and broad diversity of the management
team are important factors to the Company’s ongoing success in the dynamic and evolving markets it serves.
EXECUTIVE OFFICERS
Fusen E. Chen
President & Chief
Executive Officer
Chan Pin Chong
Senior Vice President,
EA/APMR & Wedge Bonder
Business Units
Hoang Huy Hoang
Senior Vice President,
Global Sales, Aftermarket
Products & Services Business Unit
Irene Lee
Senior Vice President, Global
Operations & Chief Quality Officer
Lester Wong
Interim CFO (Finance, IT & Facilities),
General Counsel & Senior Vice
President, Legal Affairs
Nelson Wong
Senior Vice President, Ball Bonder
Business Unit
Shubneesh Batra
Vice President, Advanced Packaging
Business Unit
Gerrit van der Beek
Vice President, Lithography
Business Unit
Tong Liang Cheam
Vice President, Corporate Strategy
Joyce Lim
Vice President, Global Supply Chain
& Customer Operations
Lisa Lim
Vice President, Global
Human Resources
Deepak Sood
Vice President,
Central Engineering
BOARD OF DIRECTORS
Garrett E. Pierce
Chairman of the Board
Kulicke & Soffa Industries, Inc.
Chief Financial Officer
Orbital ATK, Inc.
Brian R. Bachman
Private Investor
Fusen Chen
President & Chief
Executive Officer
Kulicke & Soffa Industries, Inc.
Lim Chin Hu
Managing Partner
Stream Global Pte. Ltd.
Independent Director
Citibank Singapore Limited
Peter T. Kong
Retired President
Global Components
Arrow Electronics, Inc.
Gregory F. Milzcik
Retired President &
Chief Executive Officer
Barnes Group Inc.
Yeo Mui Sung
Managing Director
Omeyon Pte, Ltd.
Singapore (Corporate Headquarters)
China Germany Israel Japan Korea Malaysia Netherlands Philippines Switzerland Taiwan Thailand United States