Edgar Filing: KULICKE & SOFFA INDUSTRIES INC

10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K



ý	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
	EXCHANGE ACT OF 1934

For the fiscal year ended October 3, 2015



¨	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	23-1498399
(State or other jurisdiction of incorporation)	(IRS Employer Identification No.)

23A Serangoon North, Avenue 5, #01-01 K&S Corporate Headquarters, Singapore	554369
(Address of principal executive offices)	(Zip Code)



(215) 784-6000
(Registrants telephone number, including area code)

N/A
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:

COMMON STOCK, WITHOUT PAR VALUE
(Title of each class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ¨ No ý

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 ý No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer ý	Accelerated filer ¨	Non-accelerated filer ¨	Smaller reporting company ¨
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý

As of March 27, 2015, the aggregate market value of the registrant's common stock held by non-affiliates of the registrant was approximately $1,283.1 million based on the closing sale price as reported on The NASDAQ Global Market (reference is made to Part II, Item 5 herein for a statement of assumptions upon which this calculation is based).

As of November 16, 2015 there were 70,694,772 shares of the registrant's common stock, without par value, outstanding.

Documents Incorporated by Reference

Portions of the registrant's Proxy Statement for the 2016 Annual Meeting of Shareholders to be filed on or about January 4, 2016 are incorporated by reference into Part II, Item 5 and Part III, Items 10, 11, 12, 13 and 14 herein of this Report. Such Proxy Statement, except for the parts therein which have been specifically incorporated by reference, shall not be deemed “filed” for the purposes of this Report on Form 10-K.

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KULICKE AND SOFFA INDUSTRIES, INC.

2015 Annual Report on Form 10-K

October 3, 2015

Index



		Page Number
	Part I
Item 1.	Business	1

Item 1A.	Risks Related to Our Business and Industry	11

Item 1B.	Unresolved Staff Comments	21

Item 2.	Properties	21

Item 3.	Legal Proceedings	21

Item 4.	Mine Safety Disclosures	21
	Part II
Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	22

Item 6.	Selected Consolidated Financial Data	23

Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	24

Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	45

Item 8.	Financial Statements and Supplementary Data	46

Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	79

Item 9A.	Controls and Procedures	79

Item 9B.	Other Information	80
	Part III
Item 10.	Directors, Executive Officers and Corporate Governance	81

Item 11.	Executive Compensation	81

Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	81

Item 13.	Certain Relationships and Related Transactions and Director Independence	81

Item 14.	Principal Accounting Fees and Services	82
	Part IV
Item 15.	Exhibits and Financial Statement Schedules	83

	Signatures	87

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PART I

Forward-Looking Statements

In addition to historical information, this filing contains statements relating to future events or our future results. These statements are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and are subject to the safe harbor provisions created by statute. Such forward-looking statements include, but are not limited to, our future revenue, sustained, increasing, continuing or strengthening, or decreasing or weakening, demand for our products, the continuing transition from gold to copper wire bonding, replacement demand, our research and development efforts, our ability to identify and realize new growth opportunities, our ability to control costs and our operational flexibility as a result of (among other factors):


•	projected growth rates in the overall semiconductor industry, the semiconductor assembly equipment market, and the market for semiconductor packaging materials; and


•	projected demand for ball, wedge bonder, advanced packaging and surface mount technology equipment and for expendable tools.

Generally, words such as “may,” “will,” “should,” “could,” “anticipate,” “expect,” “intend,” “estimate,” “plan,” “continue,” “goal” and “believe,” or the negative of or other variations on these and other similar expressions identify forward-looking statements. These forward-looking statements are made only as of the date of this filing. We do not undertake to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise.

Forward-looking statements are based on current expectations and involve risks and uncertainties. Our future results could differ significantly from those expressed or implied by our forward-looking statements. These risks and uncertainties include, without limitation, those described below and under the heading “Risk Factors” in this Annual Report on Form 10-K for the fiscal year ended October 3, 2015 (the “Annual Report”) and our other reports and registration statements filed from time to time with the Securities and Exchange Commission. This discussion should be read in conjunction with the Consolidated Financial Statements and Notes included in this report, as well as our audited financial statements included in the Annual Report.

We operate in a rapidly changing and competitive environment. New risks emerge from time to time and it is not possible for us to predict all risks that may affect us. Future events and actual results, performance and achievements could differ materially from those set forth in, contemplated by or underlying the forward-looking statements, which speak only as of the date on which they were made. Except as required by law, we assume no obligation to update or revise any forward-looking statement to reflect actual results or changes in, or additions to, the factors affecting such forward-looking statements. Given those risks and uncertainties, investors should not place undue reliance on forward-looking statements as predictions of actual results.

Item 1. BUSINESS

Kulicke and Soffa Industries, Inc. (the "Company" or "K&S") designs, manufactures and sells capital equipment and expendable tools used to assemble semiconductor devices, including integrated circuits (“ICs”), high and low powered discrete devices, light-emitting diodes (“LEDs”), and power modules. We also service, maintain, repair and upgrade our equipment. Our customers primarily consist of semiconductor device manufacturers, outsourced semiconductor assembly and test providers (“OSATs”), other electronics manufacturers and automotive electronics suppliers.

We operate two main business segments, Equipment and Expendable Tools. Our goal is to be the technology leader and the most competitive supplier in terms of cost and performance in each of our major product lines. Accordingly, we invest in research and engineering projects intended to enhance our position at the leading edge of semiconductor assembly technology. We also remain focused on our cost structure through continuous improvement and optimization of operations. Cost reduction efforts remain an important part of our normal ongoing operations and are intended to generate savings without compromising overall product quality and service levels.

K&S was incorporated in Pennsylvania in 1956. Our principal offices are located at 23A Serangoon North Avenue 5, #01-01, Singapore 554369 and our telephone number in the United States is (215) 784-6000. We maintain a website with the address www.kns.com. We are not including the information contained on our website as a part of, or incorporating it by reference into, this filing. We make available free of charge (other than an investor's own Internet access charges) on or through our website our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to these reports, as soon as reasonably practicable after the material is electronically filed with or otherwise furnished to the Securities and Exchange Commission (“SEC”). Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and

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amendments to those reports are also available on the SEC website at www.sec.gov and at the SEC's Public Reference Room at 100 F Street, NE, Washington, DC 20549 or by calling the SEC at 1-800-SEC-0330.

Our year end for each of fiscal 2015, 2014 and 2013 was October 3, 2015, September 27, 2014, and September 28, 2013, respectively.

Business Environment

The semiconductor business environment is highly volatile, driven by internal dynamics, both cyclical and seasonal, in addition to macroeconomic forces. Over the long term, semiconductor consumption has historically grown, and is forecast to continue to grow. This growth is driven, in part, by regular advances in device performance and by price declines that result from improvements in manufacturing technology. In order to exploit these trends, semiconductor manufacturers, both integrated device manufacturers (“IDMs”) and OSATs, periodically invest aggressively in latest generation capital equipment. This buying pattern often leads to periods of excess supply and reduced capital spending—the so-called semiconductor cycle. Within this broad semiconductor cycle there are also, generally weaker, seasonal effects that are specifically tied to annual, end-consumer purchasing patterns. Typically, semiconductor manufacturers prepare for heightened demand by adding or replacing equipment capacity by the end of the September quarter. Occasionally, this results in subsequent reductions in the December quarter. This annual seasonality can occasionally be overshadowed by effects of the broader semiconductor cycle. Macroeconomic factors also affect the industry, primarily through their effect on business and consumer demand for electronic devices, as well as other products that have significant electronic content such as automobiles, white goods, and telecommunication equipment.

Our Equipment segment is primarily affected by the industry's internal cyclical and seasonal dynamics in addition to broader macroeconomic factors that can positively and negatively affect our financial performance. The sales mix of IDM and OSAT customers in any period also impacts financial performance, as changes in this mix can affect our products' average selling prices and gross margins due to differences in volume purchases and machine configurations required by each customer type.

Our Expendable Tools segment is less volatile than our Equipment segment. Expendable Tools sales are more directly tied to semiconductor unit consumption rather than capacity requirements and production capability improvements.

We continue to position our business to leverage our research and development leadership and innovation and to focus our efforts on mitigating volatility, improving profitability and ensuring longer-term growth. We remain focused on operational excellence, expanding our product offerings and managing our business efficiently throughout the business cycles. Our visibility into future demand is generally limited, forecasting is difficult, and we generally experience typical industry seasonality.

To limit potential adverse cyclical, seasonal and macroeconomic effects on our financial position, we have continued our efforts to maintain a strong balance sheet. As of October 3, 2015, our total cash, cash equivalents and short-term investments were $498.6 million, a $98.5 million decrease from the prior fiscal year end (related primarily to our share repurchase program and our Assembléon acquisition, offset in part by earnings). We believe this strong cash position will allow us to continue to invest in product development and pursue non-organic opportunities.

On August 14, 2014, the Company’s Board of Directors authorized a program (the "Program") to repurchase up to $100 million of the Company’s common stock on or before August 14, 2017. The Company has entered into a written trading plan under Rule 10b5-1 of the Exchange Act to facilitate repurchases under the Program. The Program may be suspended or discontinued at any time and is funded using the Company's available cash. Under the Program, shares may be repurchased through open market and/or privately negotiated transactions at prices deemed appropriate by management. The timing and amount of repurchase transactions under the Program depend on market conditions as well as corporate and regulatory considerations. During the year ended October 3, 2015, the Company repurchased a total of 6.4 million shares of common stock at a cost of $77.9 million under the Program. As of October 3, 2015, our remaining stock repurchase authorization under the Program was approximately $21.5 million.

On January 9, 2015, Kulicke & Soffa Holdings B.V. (“KSH”), the Company's wholly owned subsidiary, acquired Assembléon B.V. (“Assembléon”), a subsidiary of Assembléon Holding B.V. The cash purchase price of approximately $97.4 million (EUR80 million) consisted of $72.5 million for the equity of Assembléon and $24.9 million which was used by Assembléon to settle intercompany loans with its parent company.

Assembléon is a leading technology solutions provider that, together with its subsidiaries, offers assembly equipment, processes and services for the automotive, industrial, and advanced packaging markets. The acquisition has expanded the Company's presence in automotive, industrial and advanced packaging markets.

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Technology Leadership

We compete largely by offering our customers among the most advanced equipment and expendable tools available for the wire and wedge bonding processes. Our equipment is typically the most productive and has the highest levels of process capability, and as a result, we believe it has a lower cost of ownership compared to other equipment in the market. Our expendable tools are designed to optimize the performance of the equipment in which they are used. We believe our technology leadership contributes to the strong market positions of our ball bonder, wedge bonder and expendable tools products. To maintain our competitive advantage, we invest in product development activities designed to produce a stream of improvements to existing products and to deliver next-generation products. These investments often focus as much on improvements in the semiconductor assembly process as on specific pieces of assembly equipment or expendable tools. In order to generate these improvements, we often work in close collaboration with customers, end users, and other industry members. In addition to producing technical advances, these collaborative development efforts strengthen customer relationships and enhance our reputation as a technology leader and solutions provider.

In addition to gold, silver alloy wire and aluminum wire, our leadership in the industry's use of copper wire for the bonding process is an example of the benefits of our collaborative efforts. By working with customers, material suppliers, and other equipment suppliers, we have developed a series of robust, high-yielding production processes, which have made copper wire widely accepted and significantly reduced the cost of assembling an integrated circuit.

Our leadership also has allowed us to maintain a competitive position in the latest generations of gold and copper ball bonders, which enables our customers to handle the leading technologies in terms of bond pad pitch, silicon with the latest node and complex wire bonding requirement. We continue to see demand for our large bondable area (“LA”) configured machines. This LA option is now available on all of our Power Series (^“^PS^”) models and allows our customers to gain added efficiencies and to reduce the cost of packaging.

We also leverage the technology leadership of our equipment by optimizing our bonder platforms, and we deliver variants of our products to serve emerging high-growth markets. For example, we have developed extensions of our main ball bonding platforms to address opportunities in LED assembly, in particular for general lighting. We expect the next wave of growth in the LED market to be high brightness LED for general lighting. We also believe there is an opportunity for growth in wire bonding sales at wafer level using our AT Premier PLUS.

Our leading technology for wedge bonder equipment uses ribbon or heavy wire for different applications such as power electronics, automotive and semiconductor applications. The advanced interconnect capabilities of PowerFusion^PSimprove the processing of high-density power packages, due to an expanded bondable area, wider leadframe capability, superior indexing accuracy and teach mode. We have also completed the design and development of our next generation hybrid wedge bonder, Asterion, which was launched in March 2015. In all cases, we are making a concerted effort to develop commonality of subsystems and design practices, in order to improve performance and design efficiencies. We believe this will benefit us in maintaining our leadership position in the wedge bonding market and increase synergies between the various engineering product groups. Furthermore, we continually research adjacent market segments where our technologies could be used. Many of these initiatives are in the early stages of development and some have yielded results.

Another example of our developing equipment for high-growth niche markets is our AT Premier PLUS. This machine utilizes a modified wire bonding process to mechanically place bumps on devices in a wafer format, for variants of the flip chip assembly process. Typical applications include complementary metal-oxide semiconductor (“CMOS”) image sensors, surface acoustical wave (“SAW”) filters and high brightness LEDs. These applications are commonly used in most, if not all, smartphones available today in the market. We also have expanded the use of AT Premier PLUS for wafer level wire bonding for micro-electro-mechanical systems (“MEMS”) and other sensors.

Our technology leadership and bonding process know-how have enabled us to develop highly function-specific equipment with best-in-class throughput and accuracy. This forms the foundation for our advanced packaging equipment development. We established a dedicated team to develop and manufacture advanced packaging bonders for the emerging 2.5 dimensional integrated circuit (“2.5D IC”) and 3 dimensional integrated circuit (“3D IC”) markets. By reducing the interconnect dimensions, 2.5D ICs and 3D ICs are expected to provide form factor, performance and power efficiency enhancements over traditional flip-chip packages in production today. High-performance processing and memory applications, in addition to mobile devices such as smartphones and tablets, are anticipated to be earlier adopters of this new packaging technology.

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With the acquisition of Assembléon, we broadened our advanced packaging solutions for mass reflow ("APMR") to include flip chip, wafer level packaging ("WLP"), fan-out wafer level packaging ("FOWLP"), advanced package-on-package, embedded die, and System-in-Package ("SiP"). The acquisition has also enabled us to diversify our business into the automotive, medical and industrial markets with advanced surface-mount technology ("SMT") pick and place solutions.

We bring the same technology focus to our expendable tools business, driving tool design and manufacturing technology to optimize the performance and process capability of the equipment in which our tools are used. For all our equipment products, expendable tools are an integral part of their process capability. We believe our unique ability to simultaneously develop both equipment and tools is a core strength supporting our products' technological differentiation.

Products and Services

The Company operates two segments: Equipment and Expendable Tools. The following table reflects net revenue by business segment for fiscal 2015, 2014, and 2013:



	Fiscal
	2015				2014				2013
(dollar amounts in thousands)	Net revenues		% of total net revenue		Net revenues		% of total net revenue		Net revenues		% of total net revenue
Equipment	$	472,002	88.0	%	$	503,049	88.5	%	$	472,567	88.3	%
Expendable Tools	64,469		12.0	%	65,520		11.5	%	62,371		11.7	%
	$	536,471	100.0	%	$	568,569	100.0	%	$	534,938	100.0	%

See Note 14 to our Consolidated Financial Statements included in Item 8 of this report for our financial results by business segment.

Equipment Segment

We manufacture and sell a line of ball bonders, wafer level bonders and heavy wire wedge bonders that are sold to semiconductor device manufacturers, OSATs, other electronics manufacturers and automotive electronics suppliers. Ball bonders are used to connect very fine wires, typically made of gold or copper, between the bond pads of the semiconductor device, or die, and the leads on its package. Wafer level bonders mechanically apply bumps to die, typically while still in the wafer format, for some variants of the flip chip assembly process. Heavy wire wedge bonders use either aluminum wire or ribbon to perform the same function in packages that cannot use gold or copper wire because of either high electrical current requirements or other package reliability issues. We believe our equipment offers competitive advantages by providing customers with high productivity/throughput, superior package quality/process control, and, as a result, a lower cost of ownership.

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Our principal Equipment segment products include:



Business Unit	Product Name (1)	Typical Served Market

Ball bonders	IConn^PSPLUS	Advanced and ultra fine pitch applications

	IConn^PS PLUS LA	Large area substrate and matrix applications

	IConn^PS PLUS ELA	Extended large area substrate and matrix applications

	IConn^PS ProCu	High-end copper wire applications demanding advanced process capability and high productivity

	IConn^PS ProCu PLUS	High-end copper wire applications demanding advanced process capability and high productivity

	IConn^PS ProCu LA	Large area substrate and matrix applications for copper wire

	IConn^PS ProCu PLUS LA	Large area substrate and matrix applications for copper wire

	IConn^PS ProCu PLUS ELA	Extended large area substrate and matrix applications for copper wire

	ConnX^PS PLUS	High productivity bonder for low-to-medium pin count applications

	ConnX^PS LED	LED applications

	ConnX^PS LED PLUS	LED applications

	ConnX^PS PLUS LA	Cost performance large area substrate and matrix applications

	ConnX^PS PLUS ELA	Cost performance extended large area substrate and matrix applications

	AT Premier PLUS	Advanced wafer level bonding application

Wedge bonders	3600PLUS	Power hybrid and automotive modules using either heavy aluminum wire or PowerRibbon®

	3700PLUS	Hybrid and automotive modules using thin aluminum wire

	7200PLUS	Power semiconductors using either aluminum wire or PowerRibbon®

	7200HD	Smaller power packages using either aluminum wire or PowerRibbon®

	PowerFusion^PS TL	Power semiconductors using either aluminum wire or PowerRibbon®

	PowerFusion^PS HL	Smaller power packages using either aluminum wire or PowerRibbon®

	Asterion^TM	Power hybrid and automotive modules with extended area using heavy and thin aluminum

(1) Power Series (“PS”)

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Business Unit	Product Name (1)	Typical Served Market

Advanced Packaging and Surface Mount Technology (SMT)	APAMA C2S	Thermo-compression for chip-to-substrate, chip-to-chip and high accuracy flip chip ("HA FC") bonding applications

	APAMA C2W	Thermo-compression for chip-to-wafer, high accuracy flip chip ("HA FC") and high density fan-out wafer level packaging ("HD FOWLP") bonding applications

	Hybrid Series	Advanced packages assembly applications requiring high throughput such as flip chip, wafer level packaging ("WLP"), fan-out WLP ("FOWLP"), embedded die, system-in-package ("SiP"), package-on-package ("POP"), and modules

	iX Series	Advanced Surface Mount Technology ("SMT") applications requiring extremely high output of passive and active components

	iFlex Series	Advanced SMT applications requiring multi-lane or line balancing solutions for standard or oddform passive and active components

Ball Bonders

Automatic ball bonders represent the largest portion of our semiconductor equipment business. Our main product platform for ball bonding is the Power Series - a family of assembly equipment that is setting new standards for performance, productivity, upgradeability, and ease of use.

Our portfolio of ball bonding products includes:


•	The IConn^PS PLUS: high-performance ball bonders which can be configured for either gold or copper wire.


•	The IConn^PS PLUS LA: high-performance large area ball bonders which can be configured for either gold or copper wire.


•	The IConn^PS PLUS ELA: high-performance extended large area ball bonders which can be configured for either gold or copper wire.


•	The ConnX^PSPLUS: cost-performance ball bonders which can be configured for either gold or copper wire.


•	The ConnX^PS PLUS LA: cost-performance large area ball bonders which can be configured for either gold or copper wire.


•	The ConnX^PS PLUS ELA: cost-performance extended large area ball bonders which can be configured for either gold or copper wire.


•	The ConnX^PS LED and ConnX^PS LED PLUS: ball bonders targeted specifically at the fast growing LED market.


•	The IConn^PS ProCu and IConn^PS ProCu PLUS: high-performance copper wire ball bonders for advanced wafer nodes at 28 nanometer and below.


•	The IConn^PS ProCu LA and IConn^PS ProCu PLUS LA: high-performance large area copper wire ball bonders for advanced wafer nodes at 28 nanometer and below.


•	The IConn^PS ProCu PLUS ELA: high-performance extended large area copper wire ball bonders for advanced wafer nodes at 28 nanometer and below.


•	The AT Premier PLUS: ball bonders which utilize a modified wire bonding process to mechanically place bumps on devices, while still in a wafer format for variants of the flip chip assembly process. Typical applications include CMOS image sensors, SAW filters, MEMS and high brightness LEDs. These applications are commonly used in most, if not all, smartphones available today in the market.

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on the latest silicon node-28 nanometer. Most of our installed base of gold wire bonders can also be retrofitted for copper applications through kits we sell separately.

Heavy Wire Wedge Bonders

We are the leaders in the design and manufacture of heavy wire wedge bonders for the power semiconductor and automotive power module markets. Heavy wire wedge bonders may use either aluminum wire or aluminum ribbon to connect semiconductor chips in power packages, power hybrids and automotive modules for products such as motor control modules or inverters for hybrid cars. In addition, we see some potential use for our wedge bonder products in high reliability interconnections of rechargeable batteries in hybrid and electric automotive applications.

Our portfolio of wedge bonding products includes:


•	The 3600PLUS: high speed, high accuracy wire bonders designed for power modules, automotive packages and other heavy wire multi-chip module applications.


•	The 3700PLUS: wire bonders designed for hybrid and automotive modules using thin aluminum wire.


•	The 7200PLUS: dual head wedge bonders designed specifically for power semiconductor applications.


•	The 7200HD: heavy wire wedge bonders designed for smaller power packages using either aluminum wire or ribbon.


•	The PowerFusion^PS Semiconductor Wedge Bonders - Configurable in single, dual and multi-head configurations using aluminum wire and PowerRibbon^TM:


◦	The PowerFusion^PSTL: designed for low-cost, high volume power semiconductor applications.


◦	The PowerFusion^PSHL and PowerFusion^PS HLx: designed for advanced power semiconductor applications.


•	The Asterion^TM: latest generation hybrid wedge bonder. Larger area, higher speed and accuracy wedge bonders for power modules, automotive packages, battery applications and other aluminium wedge interconnect applications.

While wedge bonding traditionally utilizes aluminum wire, all of our heavy wire wedge bonders may be modified to bond aluminum ribbon using our proprietary PowerRibbon^® process. Aluminum ribbon offers device makers performance advantages over traditional round wire and is being increasingly used for high current packages and automotive applications.

Our PowerFusion^PSseries are driven by new powerful direct-drive motion systems and expanded pattern recognition capabilities. The advanced interconnect capabilities of PowerFusion^PSimproves the processing of high-density power packages, due to an expanded bondable area, wider leadframe capability, superior indexing accuracy and teach mode.

In March 2015, we introduced Asterion^TM, a hybrid wedge bonder that has the capabilities to handle a multitude of interconnect materials including large and small aluminum, copper wire, PowerRibbon®, as well as aluminum copper-clad ribbon.

Advanced Packaging and Surface Mount Technology

Our APAMA (Advanced Packaging with Adaptive Machine Analytics) C2S (chip-to-substrate) bonder is designed for high accuracy and high throughput flip chip, thermo-compression bonding applications. It delivers die-stacking solutions for 2.5D and 3D or through silicon via ("TSV") ICs.

In September 2015, we introduced the APAMA Chip-to-Wafer (“C2W”) bonder. The C2W system enables APAMA's high throughput architecture to be applied to 2.5D and 3D packages using silicon or glass interposers. The C2W dual head system also provides a highly adaptable manufacturing platform addressing future applications, which require highly accurate die placement such as High Density FOWLP. The C2W platform, combined with the capacity of the C2S platform, enables the APAMA TCB systems to support assembly for the full range of stacked TSV products.

With the acquisition of Assembléon, we have broadened our product offering with APMR solutions to address flip chip, WLP, FOWLP, POP, embedded die, SiP and modules markets. The acquisition also enables us to diversify our business while further expanding market reach into the automotive, medical and industrial segments with SMT pick and place solutions.

Other Equipment Products and Services

We also sell manual wire bonders, and we offer spare parts, equipment repair, maintenance and servicing, training services, and upgrades for our equipment through our Support Services business unit.

Our K&S Care service is designed to help customers operate their machines at an optimum level under the care of our trained specialists. K&S Care includes a range of programs, offering different levels of service depending on customer needs.

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Expendable Tools Segment

We manufacture and sell a variety of expendable tools for a broad range of semiconductor packaging applications. Our principal Expendable Tools segment products include:

•

Capillaries: expendable tools used in ball bonders. Made of ceramic and other materials, a capillary guides the wire during the ball bonding process. Its features help control the bonding process. We design and build capillaries suitable for a broad range of applications, including for use on our competitors' equipment. In addition to capillaries used for gold wire bonding, we have developed capillaries for use with copper wire to achieve optimal performance in copper wire bonding. In January 2015, we introduced Quantis^TM QFN Capillary, our latest copper wire bonding capillary designed for QFN (Quad Flat No-lead) application.


•	Dicing blades: expendable tools used by semiconductor manufacturers to cut silicon wafers into individual semiconductor die or to cut packaged semiconductor units into individual units.


•	Bonding wedges: expendable tools used in heavy wire wedge bonders. Heavy wire wedge tools are used for both wire and ribbon applications.

Customers

Our major customers include IDMs and OSATs, industrial manufacturers and automotive electronics suppliers. Revenue from our customers may vary significantly from year-to-year based on their respective capital investments, operating expense budgets, and overall industry trends.

The following table reflects our top ten customers, based on net revenue, for each of the last three fiscal years:



	Fiscal 2015		Fiscal 2014		Fiscal 2013
1	Amkor Technology Inc.	1	Haoseng Industrial Co., Ltd. **	1	Siliconware Precision Industries, Ltd. *
2	Haoseng Industrial Co., Ltd. **	2	Advance Semiconductor Engineering	2	Advance Semiconductor Engineering
3	Skyworks Solutions Incorporated	3	Amkor Technology Inc.	3	STATS ChipPAC Ltd
4	ST Microelectronics	4	Skyworks Solutions Incorporated	4	Haoseng Industrial Co., Ltd. **
5	Renesas Semiconductor	5	Powertech Technology Inc.	5	Amkor Technology Inc.
6	First Technology China, Ltd. **	6	Orient Semiconductor Electronics, Ltd.	6	Rohm Intergrated Systems
7	Orient Semiconductor Electronics, Ltd.	7	Texas Instruments, Inc.	7	Orient Semiconductor Electronics, Ltd.
8	Texas Instruments, Inc.	8	Greatek Electronics Inc.	8	Super Power International Ltd **
9	Rohm Integrated Systems	9	Super Power International Ltd **	9	ST Microelectronics
10	Xinye Electronics. Co **	10	Freescale Semiconductor, Inc.	10	First Technology China, Ltd. **

* Represents more than 10% of our net revenue for the applicable fiscal year.

** Distributor of our products.

Approximately 91.2%, 94.4%, and 97.3% of our net revenue for fiscal 2015, 2014, and 2013, respectively, were for shipments to customer locations outside of the U.S., primarily in the Asia/Pacific region, and we expect sales outside of the U.S. to continue to represent a substantial majority of our future net revenue.

See Note 14 to our Consolidated Financial Statements included in Item 8 of this report for sales to customers by geographic location.

Sales and Customer Support

We believe long-term customer relationships are critical to our success, and comprehensive sales and customer support are an important means of establishing those relationships. To maintain these relationships, we primarily utilize our direct sales force, as well as distribution channels such as agents and distributors, depending on the product, region, or end-user application. In all cases, our goal is to position our sales and customer support resources near our customers' facilities so as to provide support for customers in their own language and consistent with local customs. Our sales and customer support resources are located primarily in Singapore, Taiwan, China, Korea, Malaysia, the Philippines, Japan, Thailand, the U.S., Germany, Mexico and the Netherlands. Supporting these local resources, we have technology centers offering additional process expertise in Singapore, China, Israel, and the U.S.

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By establishing relationships with semiconductor manufacturers, OSATs, and vertically integrated manufacturers of electronic systems, we gain insight into our customers' future semiconductor packaging strategies. These insights assist us in our efforts to develop products and processes that address our customers' future assembly requirements.

Backlog

Our backlog consists of customer orders scheduled for shipment within the next twelve months. A majority of our orders are subject to cancellation or deferral by our customers with limited or no penalties. Also, customer demand for our products can vary dramatically without prior notice. Because of the volatility of customer demand, possibility of customer changes in delivery schedules or cancellations and potential delays in product shipments, our backlog as of any particular date may not be indicative of net revenue for any succeeding period.

The following table reflects our backlog as of October 3, 2015 and September 27, 2014:



	As of
(in thousands)	October 3, 2015		September 27, 2014
Backlog	$	52,500	$	79,100

Manufacturing

We believe excellence in manufacturing can create a competitive advantage, both by producing at lower costs and by providing superior responsiveness to changes in customer demand. To achieve these goals, we manage our manufacturing operations through a single organization and believe that fewer, larger factories allow us to capture economies of scale and generate cost savings through lower manufacturing costs.

Equipment

Our equipment manufacturing activities consist mainly of integrating outsourced parts and subassemblies and testing finished products to customer specifications. We largely utilize an outsource model, allowing us to minimize our fixed costs and capital expenditures. For certain low-volume, high customization parts, we manufacture subassemblies ourselves. Just-in-time inventory management has reduced our manufacturing cycle times and lowered our on-hand inventory requirements. Raw materials used in our equipment manufacturing are generally available from multiple sources; however, many outsourced parts and components are only available from a single or limited number of sources.

Our ball bonder, wedge bonder and APAMA bonder manufacturing and assembly is done at our facility in Singapore. Our APMR and SMT solutions manufacturing and assembly is done at our facility in the Netherlands. We have ISO 9001 and ISO 14001 certifications for our equipment manufacturing facilities in Singapore and the Netherlands.

Expendable Tools

We manufacture dicing blades, capillaries and a portion of our bonding wedge inventory at our facility in Suzhou, China. The capillaries are made using blanks produced at our facility in Yokneam, Israel. We both produce and outsource the production of our bonding wedges. Both the Suzhou and Yokneam facilities are ISO 9001 certified. The Suzhou facility is also ISO 14001 and ISO 18001 certified.

Research and Product Development

Many of our customers generate technology roadmaps describing their projected packaging technology requirements. Our research and product development activities are focused on delivering robust production solutions to those projected requirements. We accomplish this by regularly introducing improved versions of existing products or by developing next-generation products. We follow this product development methodology in all our major product lines. Research and development expense was $90.0 million, $83.1 million, and $61.6 million during fiscal 2015, 2014, and 2013, respectively.

Intellectual Property

Where circumstances warrant, we apply for patents on inventions governing new products and processes developed as part of our ongoing research, engineering, and manufacturing activities. We currently hold a number of U.S. patents, many of which have foreign counterparts. We believe the duration of our patents often exceeds the commercial life cycles of the technologies disclosed and claimed in the patents. Additionally, we believe much of our important technology resides in our trade secrets and proprietary software.

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Competition

The market for semiconductor equipment and packaging materials products is intensely competitive. Significant competitive factors in the semiconductor equipment market include price, speed/throughput, production yield, process control, delivery time and customer support, each of which contribute to lower the overall cost per package being manufactured. Our major equipment competitors include:


•	Ball bonders: ASM Pacific Technology and Shinkawa Ltd.


•	Wedge bonders: ASM Pacific Technology, Cho-Onpa, F&K Delvotec, and Hesse Mechatronics


•	APAMA bonders: ASM Pacific Technology, BE Semiconductor Industries N.V., Shibaura Mechatronics Corporation, Shinkawa Ltd., and Toray Industries, Inc.


•	APMR solutions: ASM Pacific Technology, BE Semiconductor Industries N.V., HANMI Semiconductor, and Shinkawa Ltd.


•	SMT solutions: ASM Pacific Technology, Fuji Machine Mfg. Co., Ltd., Panasonic Factory Solutions Co., Ltd., and Yamaha Motor Co., Ltd.

Significant competitive factors in the semiconductor packaging materials industry include performance, price, delivery, product life, and quality. Our significant expendable tools competitors include:


•	Capillaries: Adamant Co., Ltd., PECO, and Small Precision Tools, Inc.


•	Dicing blades: Disco Corporation and Zhengzhou Hongtuo Superabrasive Products Co. Ltd


•	Bonding wedges: Small Precision Tools, Inc.

In each of the markets we serve, we face competition and the threat of competition from established competitors and potential new entrants, some of which may have greater financial, engineering, manufacturing, and marketing resources.

Environmental Matters

We are subject to various federal, state, local and foreign laws and regulations governing, among other things, the generation, storage, use, emission, discharge, transportation and disposal of hazardous materials and the health and safety of our employees. In addition, we are subject to environmental laws which may require investigation and cleanup of any contamination at facilities we own or operate or at third-party waste disposal sites we use or have used.

We have incurred in the past, and expect in the future to incur costs to comply with environmental laws. We are not, however, currently aware of any material costs or liabilities relating to environmental matters, including any claims or actions under environmental laws or obligations to perform any cleanups at any of our facilities or any third-party waste disposal sites, that we expect to have a material adverse effect on our business, financial condition or operating results. However, it is possible that material environmental costs or liabilities may arise in the future.

Business Continuity Management Plan

We have developed and implemented a global Business Continuity Management Plan ("Plan") for our business operations. The Plan is designed to facilitate the prompt resumption of our business operations and functions arising from an event which impacts or potentially impacts our business operations. As the scale, timing, and impact of disasters and disruptions are unpredictable, the Plan has been designed to be flexible in responding to actual events as they occur. The Plan provides a structured framework for safeguarding our employees and property, making a financial and operational assessment, protecting our books and records, perpetuating critical business functions, and enabling the continuation of customer transactions.

Employees

As of October 3, 2015, we had approximately 2,373 regular full-time employees and 118 temporary workers worldwide.

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Item 1A. RISKS RELATED TO OUR BUSINESS AND INDUSTRY

Our operating results and financial condition are adversely impacted by volatile worldwide economic conditions.

Though the semiconductor industry's cycle can be independent of the general economy, global economic conditions may have a direct impact on demand for semiconductor units and ultimately demand for semiconductor capital equipment and expendable tools. Accordingly, our business and financial performance is impacted, both positively and negatively, by fluctuations in the macroeconomic environment. Our visibility into future demand is generally limited and forecasting is difficult. There can be no assurances regarding levels of demand for our products and we believe historic industry-wide volatility will persist.

Unpredictable spending by our customers due to uncertainties in the macroeconomic environment could adversely affect our net revenue and profitability.

We depend upon demand from our customers including IDMs and OSATs, industrial manufacturers and automotive electronics suppliers. Our net revenue and profitability is based upon our customers' level of anticipated sales. Reductions or other fluctuations in their spending as a result of uncertain conditions in the macroeconomic environment, such as government, economic or fiscal instability, restricted global credit conditions, reduced demand, unbalanced inventory levels, fluctuations in interest rates, higher energy prices, or other conditions, could adversely affect our net revenue and profitability. The impact of general economic slowdowns could make our customers cautious and delay orders until the economic environment becomes clearer.

The semiconductor industry is volatile with sharp periodic downturns and slowdowns. Cyclical industry downturns are made worse by volatile global economic conditions.

Our operating results are significantly affected by the capital expenditures of semiconductor manufacturers, both IDMs and OSATs. Expenditures by our customers depend on the current and anticipated market demand for semiconductors and products that use semiconductors, including mobile devices, personal computers, consumer electronics, telecommunications equipment, automotive goods and other industrial products. Significant downturns in the market for semiconductor devices or in general economic conditions reduce demand for our products and can materially and adversely affect our business, financial condition and operating results.

The semiconductor industry is volatile, with periods of rapid growth followed by industry-wide retrenchment. These periodic downturns and slowdowns have adversely affected our business, financial condition and operating results. Downturns have been characterized by, among other things, diminished product demand, excess production capacity, and accelerated erosion of selling prices. Historically these downturns have severely and negatively affected the industry's demand for capital equipment, including assembly equipment and, to a lesser extent, expendable tools. There can be no assurances regarding levels of demand for our products. In any case, we believe the historical volatility of our business, both upward and downward, will persist.

We may experience increasing price pressure.

Typically our average selling prices have declined over time. We seek to offset this decline by continually reducing our cost structure by consolidating operations in lower cost areas, reducing other operating costs, and by pursuing product strategies focused on product performance and customer service. These efforts may not be able to fully offset price declines; therefore, our financial condition and operating results may be materially and adversely affected.

Our quarterly operating results fluctuate significantly and may continue to do so in the future.

In the past, our quarterly operating results have fluctuated significantly. We expect quarterly results will continue to fluctuate. Although these fluctuations are partly due to the cyclical and volatile nature of the semiconductor industry, they also reflect other factors, many of which are outside of our control.

Some of the factors that may cause our net revenue and operating margins to fluctuate significantly from period to period are:


•	market downturns;


•	industry inventory level;


•	the mix of products we sell because, for example:


◦	certain lines of equipment within our business segments are more profitable than others; and


◦	some sales arrangements have higher gross margins than others;


•	cancelled or deferred orders;


•	seasonality;


•	competitive pricing pressures may force us to reduce prices;

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•	higher than anticipated costs of development or production of new equipment models;


•	the availability and cost of the components for our products;


•	delays in the development and manufacture of our new products and upgraded versions of our products and market acceptance of these products when introduced;


•	customers' delay in purchasing our products due to anticipation that we or our competitors may introduce new or upgraded products; and


•	our competitors' introduction of new products.

Many of our expenses, such as research and development, selling, general and administrative expenses, and interest expense, do not vary directly with our net revenue. Our research and development efforts include long-term projects lasting a year or more, which require significant investments. In order to realize the benefits of these projects, we believe that we must continue to fund them even during periods when our revenue has declined. As a result, a decline in our net revenue would adversely affect our operating results as we continue to make these expenditures. In addition, if we were to incur additional expenses in a quarter in which we did not experience comparable increased net revenue, our operating results would decline. In a downturn, we may have excess inventory, which could be written off. Some of the other factors that may cause our expenses to fluctuate from period-to-period include:


•	timing and extent of our research and development efforts;


•	severance, restructuring, and other costs of relocating facilities;


•	inventory write-offs due to obsolescence; and


•	an increase in the cost of labor or materials.

Because our net revenue and operating results are volatile and difficult to predict, we believe consecutive period-to-period comparisons of our operating results may not be a good indication of our future performance.

We may not be able to rapidly develop, manufacture and gain market acceptance of new and enhanced products required to maintain or expand our business.

We believe our continued success depends on our ability to continuously develop and manufacture new products and product enhancements on a timely and cost-effective basis. We must introduce these products and product enhancements into the market in a timely manner in response to customers' demands for higher performance assembly equipment and leading-edge materials customized to address rapid technological advances in integrated circuits, and capital equipment designs. Our competitors may develop new products or enhancements to their products that offer improved performance and features, or lower prices which may render our products less competitive. The development and commercialization of new products require significant capital expenditures over an extended period of time, and some products we seek to develop may never become profitable. In addition, we may not be able to develop and introduce products incorporating new technologies in a timely manner that will satisfy our customers' future needs or achieve market acceptance.

The transition from gold to copper wire bonding by our customers and the industry may be substantially completed.

Since fiscal 2010, many of our customers have converted their bonding wire from gold to copper wire. Since this initial conversion, a majority of our wire bonder sales are copper capable bonders. In fiscal 2015, 70% of total ball bonders sold by the Company were copper capable bonders. If the transition from gold to copper wire bonding by our customers is substantially completed or customers transition away from copper wire bonding, there may be a reduced demand for our wire bonders and our financial condition and operating results may be materially and adversely affected.

Substantially all of our sales and manufacturing operations are located outside of the U.S., and we rely on independent foreign distribution channels for certain product lines, all of which subject us to risks, including risks from changes in trade regulations, currency fluctuations, political instability and conflicts.

Approximately 91.2%, 94.4%, and 97.3% of our net revenue for fiscal 2015, 2014, and 2013, respectively, was for shipments to customers located outside of the U.S., primarily in the Asia/Pacific region. We expect our future performance to depend on our ability to continue to compete in foreign markets, particularly in the Asia/Pacific region. Some of these economies have been highly volatile, resulting in significant fluctuation in local currencies, and political and economic instability. These conditions may continue or worsen, which may materially and adversely affect our business, financial condition and operating results.

We also rely on non-U.S. suppliers for materials and components used in our products, and substantially all of our manufacturing operations are located in countries other than the U.S. We manufacture our ball, wedge and APAMA bonders in Singapore, our APMR and SMT solutions in the Netherlands, our dicing blades, capillaries and bonding wedges in China and capillary blanks in

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Israel. In addition, our corporate headquarters is in Singapore and we have sales, service and support personnel in China, Israel, Japan, Korea, Malaysia, the Philippines, Singapore, Taiwan, Thailand, the U.S., Germany, Mexico and the Netherlands. We also rely on independent foreign distribution channels for certain of our product lines. As a result, a major portion of our business is subject to the risks associated with international, and particularly Asia/Pacific, commerce, such as:


•	risks of war and civil disturbances or other events that may limit or disrupt manufacturing and markets;


•	seizure of our foreign assets, including cash;


•	longer payment cycles in foreign markets;


•	foreign exchange restrictions and capital controls;


•	restrictions on the repatriation of our assets, including cash;


•	significant foreign and U.S. taxes on repatriated cash;


•	difficulties of staffing and managing dispersed international operations;


•	possible disagreements with tax authorities;


•	episodic events outside our control such as, for example, outbreaks of influenza or other illnesses;


•	natural disasters such as earthquakes, fires or floods;


•	tariff and currency fluctuations;


•	changing political conditions;


•	labor work stoppages and strikes in our factories or the factories of our suppliers;


•	foreign governments' monetary policies and regulatory requirements;


•	less protective foreign intellectual property laws;


•	new laws and regulations, such as Trans-Pacific Partnership Agreement (TPP); and


•	legal systems which are less developed and may be less predictable than those in the U.S.

In addition, there is a potential risk of conflict and instability in the relationship between Taiwan and China. Conflict or instability could disrupt the operations of our customers and/or suppliers in both Taiwan and China. Additionally, our manufacturing operations in China could be disrupted by any conflict.

Our international operations also depend upon favorable trade relations between the U.S. and those foreign countries in which our customers, subcontractors and materials suppliers have operations. A protectionist trade environment in either the U.S. or those foreign countries in which we do business, such as a change in the current tariff structures, export compliance or other trade policies, may materially and adversely affect our ability to sell our products in foreign markets.

Increased labor costs and competition for qualified personnel may reduce the efficiency of our flexible manufacturing model and adversely impact our operating results.

There is some uncertainty with respect to the pace of rising labor costs in the various countries in which we operate. In addition, there is substantial competition in China, Singapore, Israel and the Netherlands for qualified and capable personnel, which may make it difficult for us to recruit and retain qualified employees. If we are unable to staff sufficient personnel at our China, Singapore, Israel and the Netherlands facilities or if there are increases in labor costs that we are unable to recover in our pricing to our customers, we may experience increased manufacturing costs, which would adversely affect our operating results.

We are exposed to fluctuations in currency exchange rates that could negatively impact our financial results and cash flows.

Because most of our foreign sales are denominated in U.S. dollars or Euro, an increase in value of the U.S. dollar or Euro against foreign currencies will make our products more expensive than those offered by some of our foreign competitors. In addition, a weakening of the U.S. dollar against other currencies other than Euro could make our costs in non-U.S. locations more expensive to fund. Our ability to compete overseas may therefore be materially and adversely affected by the fluctuations of the U.S. dollar or the Euro against other currencies.

Because nearly all of our business is conducted outside the U.S., we face exposure to adverse movements in foreign currency exchange rates which could have a material adverse impact on our financial results and cash flows. Historically, our primary exposures have related to net working capital exposures denominated in currencies other than the foreign subsidiaries' functional currency, and remeasurement of our foreign subsidiaries' net monetary assets from the subsidiaries' local currency into the subsidiaries' functional currency. In general, an increase in the value of the U.S. dollar could require certain of our foreign subsidiaries to record translation and remeasurement gains. Conversely, a decrease in the value of the U.S. dollar could require certain of our foreign subsidiaries to record losses on translation and remeasurement. An increase in the value of the U.S. dollar could increase

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the cost to our customers of our products in those markets outside the U.S. where we sell in U.S. dollars, and a weakened U.S. dollar could increase the cost of local operating expenses and procurement of raw materials, both of which could have an adverse effect on our cash flows. Our primary exposures include the Singapore Dollar, Chinese Yuan, Japanese Yen, Malaysian Ringgit, Swiss Franc, Philippine Peso, Thai Baht, Taiwan Dollar, South Korean Won, Israeli Shekel and Euro. Although we from time to time have entered into foreign exchange forward contracts to hedge certain foreign currency exposure of our operating expenses, our attempts to hedge against these risks may not be successful and may result in a material adverse impact on our financial results and cash flows.

We may not be able to continue to consolidate manufacturing and other facilities without incurring unanticipated costs and disruptions to our business.

As part of our ongoing efforts to drive further efficiency, we may consolidate our manufacturing facilities. Should we consolidate, we may experience unanticipated events, including the actions of governments, suppliers, employees or customers, which may result in unanticipated costs and disruptions to our business.

Our business depends on attracting and retaining management, marketing and technical employees as well as on the succession of senior management.

Our future success depends on our ability to hire and retain qualified management, marketing, finance, accounting and technical employees, including senior management. Experienced personnel with the relevant and necessary skill sets in our industry are in high demand and competition for their talents is intense, especially in Asia, where most of the Company’s key personnel are located. If we are unable to continue to attract and retain the managerial, marketing, finance, accounting and technical personnel we require, our business, financial condition and operating results may be materially and adversely affected.

Effective succession planning is also important to our long-term success. Failure to ensure effective transfer of knowledge and smooth transitions involving senior management could hinder our strategic planning and execution. From time to time, senior management may leave our company, such as the recent departure of our chief executive officer on October 5, 2015. While we strive to reduce the negative impact of such changes, the loss of any key employee could result in significant disruptions to our operations, including adversely affecting the timeliness of product releases, the successful implementation and completion of company initiatives, the effectiveness of our disclosure controls and procedures and our internal control over financial reporting, and the results of our operations. In addition, hiring, training, and successfully integrating replacement critical personnel could be time consuming, may cause additional disruptions to our operations, and may be unsuccessful, which could negatively impact future revenues.

Difficulties in forecasting demand for our product lines may lead to periodic inventory shortages or excesses.

We typically operate our business with limited visibility of future demand. As a result, we sometimes experience inventory shortages or excesses. We generally order supplies and otherwise plan our production based on internal forecasts for demand. We have in the past failed, and may again in the future fail, to accurately forecast demand for our products. This has led to, and may in the future lead to, delays in product shipments or, alternatively, an increased risk of inventory obsolescence. If we fail to accurately forecast demand for our products, our business, financial condition and operating results may be materially and adversely affected.

Alternative packaging technologies may render some of our products obsolete and materially and adversely affect our overall business and financial results.

Alternative packaging technologies have emerged that may improve device performance or reduce the size of an integrated circuit package, as compared to traditional wire bonding. These technologies include flip chip and wafer level packaging. Some of these alternative technologies eliminate the need for wires to establish the electrical connection between a die and its package. The semiconductor industry may, in the future, shift a significant part of its volume into alternative packaging technologies, such as those discussed above, which do not employ our products. If a significant shift to alternative packaging technologies to a technology not offered by us were to occur, demand for our equipment and related packaging materials may be materially and adversely affected. Given the lack of a significant alternate revenue stream other than wire bonding, a reduced demand for our equipment could materially and adversely affect our financial results.

Because a small number of customers account for most of our sales, our net revenue could decline if we lose a significant customer.

The semiconductor manufacturing industry is highly concentrated, with a relatively small number of large semiconductor manufacturers and their subcontract assemblers and vertically integrated manufacturers of electronic systems purchasing a substantial portion of our semiconductor assembly equipment and packaging materials. Sales to a relatively small number of customers have historically accounted for a significant percentage of our net revenue. Sales to our largest customers, defined as

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more than 10% of our net revenue, comprised 11.0% of our net revenue for fiscal 2013, and in the future could again represent a significant percentage of our sales. No customer accounted for more than 10% of our net revenue in either fiscal 2014 or 2015.

We expect a small number of customers will continue to account for a high percentage of our net revenue for the foreseeable future. Thus, our business success depends on our ability to maintain strong relationships with our customers. Any one of a number of factors could adversely affect these relationships. If, for example, during periods of escalating demand for our equipment, we were unable to add inventory and production capacity quickly enough to meet the needs of our customers, they may turn to other suppliers making it more difficult for us to retain their business. Similarly, if we are unable for any other reason to meet production or delivery schedules, particularly during a period of escalating demand, our relationships with our key customers could be adversely affected. If we lose orders from a significant customer, or if a significant customer reduces its orders substantially, these losses or reductions may materially and adversely affect our business, financial condition and operating results.

We maintain a backlog of customer orders that is subject to cancellation, reduction or delay in delivery schedules, which may result in lower than expected revenues.

We manufacture products primarily pursuant to purchase orders for current delivery or to forecast, rather than pursuant to long-term supply contracts. The semiconductor industry is occasionally subject to double-booking and rapid changes in customer outlooks or unexpected build ups of inventory in the supply channel as a result of shifts in end market demand and macro-economic conditions. Accordingly, many of these purchase orders or forecasts may be revised or canceled without penalty. As a result, we must commit resources to the manufacture of products without binding purchase commitments from customers. Even in cases where our standard terms and conditions of sale or other contractual arrangements do not permit a customer to cancel an order without penalty, we may from time to time accept cancellations to maintain customer relationships or because of industry practice, custom or other factors. Our inability to sell products after we devote significant resources to them could have a material adverse effect on both our levels of inventory and revenues. While we currently believe our inventory levels are appropriate for the current economic environment, continued global economic uncertainty may result in lower than expected demand.

Undetected problems in our products could directly impair our financial results.

If flaws in design, production, assembly or testing of our products (by us or our suppliers) were to occur, we could experience a rate of failure in our products that would result in substantial repair, replacement or service costs and potential damage to our reputation. Continued improvement in manufacturing capabilities, control of material and manufacturing quality and costs and product testing are critical factors in our future growth. There can be no assurance that our efforts to monitor, develop, modify and implement appropriate tests and manufacturing processes for our products will be sufficient to permit us to avoid a rate of failure in our products that results in substantial delays in shipment, significant repair or replacement costs or potential damage to our reputation, any of which could have a material adverse effect on our business, results of operations or financial condition.

Costs related to product defect and errata may harm our results of operations and business.

Costs of product defects and errata (deviations from product specifications) due to, for example, problems in our design and manufacturing processes, or those of our suppliers, could include:


•	writing off the value of inventory;


•	disposing of products that cannot be fixed;


•	retrofitting products that have been shipped;


•	providing product replacements or modifications; and


•	defending against litigation.

These costs could be large and may increase expenses and lower our operating profits. Our reputation with customers or end users could be damaged as a result of product defects and errata, and product demand could be reduced. These factors could harm our business and financial results.

We depend on our suppliers, including sole source suppliers, for critical raw materials, components and subassemblies. If our suppliers do not deliver their products to us, we would be unable to deliver our products to our customers.

Our products are complex and require raw materials, components and subassemblies having a high degree of reliability, accuracy and performance. We rely on subcontractors to manufacture many of these components and subassemblies and we rely on sole source suppliers for many components and raw materials. As a result, we are exposed to a number of significant risks, including:


•	decreased control over the manufacturing process for components and subassemblies;


•	changes in our manufacturing processes in response to changes in the market, which may delay our shipments;

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•	our inadvertent use of defective or contaminated raw materials;


•	the relatively small operations and limited manufacturing resources of some of our suppliers, which may limit their ability to manufacture and sell subassemblies, components or parts in the volumes we require and at acceptable quality levels and prices;


•	the inability of suppliers to meet customer demand requirements during volatile cycles;


•	reliability or quality issues with certain key subassemblies provided by single source suppliers as to which we may not have any short term alternative;


•	shortages caused by disruptions at our suppliers and subcontractors for a variety of reasons, including work stoppage or fire, earthquake, flooding or other natural disasters;


•	delays in the delivery of raw materials or subassemblies, which, in turn, may delay shipments to our customers;


•	loss of suppliers as a result of consolidation of suppliers in the industry; and


•	loss of suppliers because of their bankruptcy or insolvency.

If we are unable to deliver products to our customers on time and at expected cost for these or any other reasons, or we are unable to meet customer expectations as to cycle time, or we are unable to maintain acceptable product quality or reliability, our business, financial condition and operating results may be materially and adversely affected.

New regulations related to “conflict minerals” may force us to incur additional expenses, may make our supply chain more complex and may result in damage to our reputation with customers.

In 2012, under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act, the SEC adopted requirements for companies that use certain minerals and metals, known as conflict minerals, in their products, regardless of whether these products are manufactured by third parties. These requirements require companies to conduct due diligence and disclose whether or not such minerals originate from the Democratic Republic of Congo and certain adjoining countries. These requirements could adversely affect the sourcing, availability and pricing of minerals used in the manufacture of semiconductor devices, including our products. In addition, since our supply chain is complex, we may not be able to sufficiently verify the origins for these minerals and metals used in our products through the due diligence procedures that we implement, which may harm our reputation. In such event, we may also face difficulties in satisfying customers who require that all of the components of our products are certified as conflict mineral free.

We may acquire or divest businesses or enter into joint ventures or strategic alliances, which may materially affect our business, financial condition and operating results.

We continually evaluate our portfolio of businesses and may decide to buy or sell businesses or enter into joint ventures or other strategic alliances. We may be unable to successfully integrate acquired businesses with our existing businesses and successfully implement, improve and expand our systems, procedures and controls to accommodate these acquisitions. These transactions place additional constraints on our management and current labor force. Additionally, these transactions require significant resources from our legal, finance and business teams. In addition, we may divest existing businesses, which would cause a decline in revenue and may make our financial results more volatile. If we fail to integrate and manage acquired businesses successfully or to manage the risks associated with divestitures, joint ventures or other alliances, our business, financial condition and operating results may be materially and adversely affected.

The market price of our common shares and our earnings per share may decline as a result of any acquisitions or divestitures.

The market price of our common shares may decline as a result of any acquisitions or divestitures made by us if we do not achieve the perceived benefits of such acquisitions or divestitures as rapidly or to the extent anticipated by financial or industry analysts or if the effect on our financial results is not consistent with the expectations of financial or industry analysts. In addition, the failure to achieve expected benefits and unanticipated costs relating to our acquisitions could reduce our future earnings per share.

We may be unable to continue to compete successfully in the highly competitive semiconductor equipment and packaging materials industries.

The semiconductor equipment and packaging materials industries are very competitive. In the semiconductor equipment industry, significant competitive factors include performance, quality, customer support and price. In the semiconductor packaging materials industry, competitive factors include price, delivery and quality.

In each of our markets, we face competition and the threat of competition from established competitors and potential new entrants. In addition, established competitors may combine to form larger, better capitalized companies. Some of our competitors have or may have significantly greater financial, engineering, manufacturing and marketing resources. Some of these competitors are Asian

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and European companies that have had, and may continue to have, an advantage over us in supplying products to local customers who appear to prefer to purchase from local suppliers, without regard to other considerations.

We expect our competitors to improve their current products' performance, and to introduce new products and materials with improved price and performance characteristics. Our competitors may independently develop technology similar to or better than ours. New product and material introductions by our competitors or by new market entrants could hurt our sales. If a particular semiconductor manufacturer or subcontract assembler selects a competitor's product or materials for a particular assembly operation, we may not be able to sell products or materials to that manufacturer or assembler for a significant period of time. Manufacturers and assemblers sometimes develop lasting relationships with suppliers and assembly equipment providers in our industry and often go years without requiring replacement. In addition, we may have to lower our prices in response to price cuts by our competitors, which may materially and adversely affect our business, financial condition and operating results. If we cannot compete successfully, we could be forced to reduce prices and could lose customers and experience reduced margins and profitability.

Our success depends in part on our intellectual property, which we may be unable to protect.

Our success depends in part on our proprietary technology. To protect this technology, we rely principally on contractual restrictions (such as nondisclosure and confidentiality provisions) in our agreements with employees, subcontractors, vendors, consultants and customers and on the common law of trade secrets and proprietary “know-how.” We also rely, in some cases, on patent and copyright protection, although this protection may in some cases be insufficient as the duration of our patents often exceeds the commercial life cycles of the technologies disclosed and claimed in the patents due to the rapid development of technology in our industry. We may not be successful in protecting our technology for a number of reasons, including the following:


•	employees, subcontractors, vendors, consultants and customers may violate their contractual agreements, and the cost of enforcing those agreements may be prohibitive, or those agreements may be unenforceable or more limited than we anticipate;


•	foreign intellectual property laws may not adequately protect our intellectual property rights; and


•	our patent and copyright claims may not be sufficiently broad to effectively protect our technology; our patents or copyrights may be challenged, invalidated or circumvented; or we may otherwise be unable to obtain adequate protection for our technology.

In addition, our partners and alliances may have rights to technology developed by us. We may incur significant expense to protect or enforce our intellectual property rights. If we are unable to protect our intellectual property rights, our competitive position may be weakened.

Third parties may claim we are infringing on their intellectual property, which could cause us to incur significant litigation costs or other expenses, or prevent us from selling some of our products.

The semiconductor industry is characterized by rapid technological change, with frequent introductions of new products and technologies. Industry participants often develop products and features similar to those introduced by others, creating a risk that their products and processes may give rise to claims they infringe on the intellectual property of others. We may unknowingly infringe on the intellectual property rights of others and incur significant liability for that infringement. If we are found to have infringed on the intellectual property rights of others, we could be enjoined from continuing to manufacture, market or use the affected product, or be required to obtain a license to continue manufacturing or using the affected product. A license could be very expensive to obtain or may not be available at all. Similarly, changing or re-engineering our products or processes to avoid infringing the rights of others may be costly, impractical or time consuming.

Occasionally, third parties assert that we are, or may be, infringing on or misappropriating their intellectual property rights. In these cases, we defend, and will continue to defend, against claims or negotiate licenses where we consider these actions appropriate. Intellectual property cases are uncertain and involve complex legal and factual questions. If we become involved in this type of litigation, it could consume significant resources and divert our attention from our business.

We may be materially and adversely affected by environmental and safety laws and regulations.

We are subject to various federal, state, local and foreign laws and regulations governing, among other things, the generation, storage, use, emission, discharge, transportation and disposal of hazardous material, investigation and remediation of contaminated sites and the health and safety of our employees. Increasingly, public attention has focused on the environmental impact of manufacturing operations and the risk to neighbors of chemical releases from such operations.

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Proper waste disposal plays an important role in the operation of our manufacturing plants. In many of our facilities we maintain wastewater treatment systems that remove metals and other contaminants from process wastewater. These facilities operate under permits that must be renewed periodically. A violation of those permits may lead to revocation of the permits, fines, penalties or the incurrence of capital or other costs to comply with the permits, including potential shutdown of operations.

Compliance with existing or future, land use, environmental and health and safety laws and regulations may: (1) result in significant costs to us for additional capital equipment or other process requirements, (2) restrict our ability to expand our operations and/or (3) cause us to curtail our operations. We also could incur significant costs, including cleanup costs, fines or other sanctions and third-party claims for property damage or personal injury, as a result of violations of or liabilities under such laws and regulations. Any costs or liabilities to comply with or imposed under these laws and regulations could materially and adversely affect our business, financial condition and operating results.

We have the ability to issue additional equity securities, which would lead to dilution of our issued and outstanding common shares.

The issuance of additional equity securities or securities convertible into equity securities will result in dilution of our existing shareholders' equity interests in us. Our board of directors has the authority to issue, without vote or action of shareholders, preferred shares in one or more series, and has the ability to fix the rights, preferences, privileges and restrictions of any such series. Any such series of preferred shares could contain dividend rights, conversion rights, voting rights, terms of redemption, redemption prices, liquidation preferences or other rights superior to the rights of holders of our common shares. In addition, we are authorized to issue, without shareholder approval, up to an aggregate of 200 million common shares, of which approximately 71.2 million shares were outstanding as of October 3, 2015. We are also authorized to issue, without shareholder approval, securities convertible into either common shares or preferred shares.

Weaknesses in our internal controls and procedures could result in material misstatements in our financial statements.

Pursuant to the Sarbanes-Oxley Act, management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal controls over financial reporting are processes designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with U.S. generally accepted accounting principles. A material weakness is a control deficiency, or combination of control deficiencies, that results in a more than remote likelihood that a material misstatement of annual or interim financial statements will not be prevented or detected.

Our internal controls may not prevent all potential errors or fraud. Any control system, no matter how well designed and implemented, can only provide reasonable and not absolute assurance that the objectives of the control system will be achieved. We or our independent registered public accountants may identify material weaknesses in our internal controls which could adversely affect our ability to ensure proper financial reporting and could affect investor confidence in us and the price of our common shares.

We may be subject to disruptions or failures in our information technology systems and network infrastructures that could have a material adverse effect on us.

We maintain and rely extensively on information technology systems and network infrastructures for the effective operation of our business. We also hold large amounts of data in data center facilities around the world, primarily in Singapore and the U.S., which our business depends upon. A disruption, infiltration or failure of our information technology systems or any of our data centers as a result of software or hardware malfunctions, computer viruses, cyber-attacks, employee theft or misuse, power disruptions, natural disasters or accidents could cause breaches of data security and loss of critical data, which in turn could materially adversely affect our business. Our security procedures, such as virus protection software and our business continuity planning, such as our disaster recovery policies and back-up systems, may not be adequate or implemented properly to fully address the adverse effect of such events, which could adversely impact our operations. In addition, our business could be adversely affected to the extent we do not make the appropriate level of investment in our technology systems as our technology systems become out-of-date or obsolete and are not able to deliver the type of data integrity and reporting we need to run our business. Furthermore, when we implement new systems and or upgrade existing systems, we could be faced with temporary or prolonged disruptions that could adversely affect our business.

If the tax holiday arrangements we have negotiated in Singapore change or cease to be in effect or applicable, in part or in whole, for any reason, the amount of corporate income taxes we have to pay could significantly increase.

We have structured our operations to maximize the benefit from tax holidays extended to us in Singapore to encourage investment or employment. We have the Development and Expansion Incentive (“DEI”) from Singapore Economic Development Board, an agency of the Government of Singapore, which provides that certain classes of income we earn in Singapore are subject to reduced

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rates of Singapore income tax. In order to retain the tax benefit, we must meet certain operating conditions, among other things, maintenance of certain global headquarters functions, specified IP activities and specified manufacturing activities in Singapore. The DEI is presently scheduled to expire in 2020. Renewals and extensions of the DEI are at the discretion of the Singapore government, and we may not be able to extend the tax incentive arrangement after its expiration on similar terms or at all. We may also elect not to renew or extend this tax incentive arrangement. In the absence of DEI, the corporate income tax rate in Singapore that would otherwise apply would be 17%. The tax incentive is also subject to our compliance with various operating and other conditions. If we cannot, or elect not to, comply with the operating conditions included in the tax incentive, we will lose the related tax benefits. In such event, we could be required to refund material tax benefits previously realized by us with respect to that incentive.

Risks Related to the Assembléon Acquisition

We face risks associated with integrating Assembléon into the Company.

The successful expansion of our business and operations resulting from the Assembléon acquisition will require significant time, effort, attention and dedication of management and may strain our operational and financial resources. It is possible that integrating Assembléon and its businesses into the Company could result in changes to or pressure on compliance with standards, controls, procedures and policies. This process could expose us to risks and challenges, including:


•	unanticipated issues in coordinating information, communication and other systems;


•	unexpected loss of key employees;


•	distraction of management attention from our other businesses;


•	failure to retain key customers;


•	the need to modify operating and accounting controls and procedures; and


•	foreign currency fluctuation that could negatively impact our financial results and cash flows.

In addition, it is possible that our exposure to potential liabilities resulting from Assembléon’s business, some of which may be material or unknown, could exceed amounts we can recover through indemnification claims.

These types of challenges and uncertainties could have a material adverse effect on our business, cash flows, results of operations and financial condition.

We may fail to realize the anticipated benefits of the Assembléon acquisition.

The Assembléon acquisition is intended to expand our presence in the automotive, industrial and advanced packaging markets. The success of the Assembléon acquisition will depend on, among other things, our ability to integrate Assembléon and its businesses into the Company in a manner that permits growth opportunities and does not disrupt existing client relationships or result in decreased revenues due to customer attrition or other factors. Assembléon’s businesses are also subject to certain risks that may negatively affect the financial results for our Equipment and Expendable Tools business segments, including, among others, the following:


•	Assembléon’s businesses are largely dependent on the health of the industries in which it participates. These industries may be impacted by market and regulatory factors, and there can be no assurance that we will realize the potential growth opportunities from these industries.

•

The goodwill established in connection with our acquisition of Assembléon represents the estimated future economic benefits arising from the assets we have acquired that did not qualify to be identified and recognized individually. The goodwill also includes the value of expected future cash flows of Assembléon, expected synergies with our other affiliates and other unidentifiable intangible assets. Goodwill is deemed to have an indefinite useful life and is subject to review for impairment annually, or more frequently, whenever circumstances indicate potential impairment. The value of goodwill is supported by revenue, which is driven primarily by transaction volume. Intangible assets other than goodwill primarily consist of developed technology, customer relationships and trade and brand name.

•

The calculation of the estimated fair value of goodwill and other intangibles requires the use of significant estimates and assumptions that are highly subjective in nature, such as attrition rates, discount rates, future expected cash flows and market conditions. Our estimates are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable. If actual results differ from our assumptions, we may not realize the full value of our intangible assets and goodwill.

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For these and other reasons there can be no assurance that the anticipated synergies and benefits from the transaction will be realized fully or at all. If we fail to realize the full value of our intangible assets and goodwill related to the acquisition, we may be required to write down or write off all such intangible assets or goodwill. Such an impairment of our goodwill or intangible assets could have a material adverse effect on our results of operations.

Other Risks

Our ability to recognize tax benefits on future domestic U.S. tax losses and our existing U.S. net operating loss position may be limited.

We have generated net operating loss carry-forwards and other tax attributes for U.S. tax purposes (“Tax Benefits”) that can be used to reduce our future federal income tax obligations. Under the Tax Reform Act of 1986, the potential future utilization of our Tax Benefits for U.S. tax purposes may be limited following an ownership change. An ownership change is generally defined as a greater than 50% point increase in equity ownership by 5% shareholders in any three-year period under Section 382 of the Internal Revenue Code. An ownership change may significantly limit our ability to fully utilize our net operating losses which could materially and adversely affect our financial condition and operating results. As of October 3, 2015, we have foreign net operating loss carryforwards of $102.5 million, domestic state net operating loss carryforwards of $186.0 million, domestic federal net operating loss carryforwards of $3.2 million, and tax credit carryforwards of $7.4 million that will reduce future taxable income.

Potential changes to U.S. and foreign tax laws could increase our income tax expense.

We are subject to income taxes in the U.S. and many foreign jurisdictions. Officials in some of the jurisdictions in which we do business have proposed, or announced that they are reviewing, tax changes that could potentially increase taxes, and other revenue-raising laws and regulations. It is unclear whether these proposed tax revisions will be enacted, or, if enacted, what the scope of the revisions will be. Changes in U.S. and foreign tax laws, if enacted, could materially and adversely affect our financial condition and operating results.

Anti-takeover provisions in our articles of incorporation and bylaws, and under Pennsylvania law may discourage other companies from attempting to acquire us.

Some provisions of our articles of incorporation and bylaws as well as Pennsylvania law may discourage some transactions where we would otherwise experience a fundamental change. For example, our articles of incorporation and bylaws contain provisions that:


•	classify our board of directors into four classes, with one class being elected each year;


•	permit our board to issue “blank check” preferred shares without shareholder approval; and


•	prohibit us from engaging in some types of business combinations with a holder of 20% or more of our voting securities without super-majority board or shareholder approval.

Further, under the Pennsylvania Business Corporation Law, because our shareholders approved bylaw provisions that provide for a classified board of directors, shareholders may remove directors only for cause. These provisions and some other provisions of the Pennsylvania Business Corporation Law could delay, defer or prevent us from experiencing a fundamental change and may adversely affect our common shareholders' voting and other rights.

Terrorist attacks, or other acts of violence or war may affect the markets in which we operate and our profitability.

Terrorist attacks may negatively affect our operations. There can be no assurance that there will not be further terrorist attacks against the U.S. or U.S. businesses. Terrorist attacks or armed conflicts may directly impact our physical facilities or those of our suppliers or customers. Our primary facilities include administrative, sales and research and development facilities in Singapore and the U.S. and manufacturing and research and development facilities in China, and Israel. Additional terrorist attacks may disrupt the global insurance and reinsurance industries with the result that we may not be able to obtain insurance at historical terms and levels for all of our facilities. Furthermore, additional attacks may make travel and the transportation of our supplies and products more difficult and more expensive and ultimately affect the sales of our products in the U.S. and overseas. Additional attacks or any broader conflict, could negatively impact our domestic and international sales, our supply chain, our production capability and our ability to deliver products to our customers. Political and economic instability in some regions of the world could negatively impact our business. The consequences of terrorist attacks or armed conflicts are unpredictable, and we may not be able to foresee events that could have an adverse effect on our business.

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Item 1B. UNRESOLVED STAFF COMMENTS

None.

Item 2. PROPERTIES

The following table reflects our major facilities as of October 3, 2015:



Facility (1)	Approximate Size	Function	Business Segment and Products Manufactured	Lease Expiration Date
Singapore	198,000 sq. ft.	Corporate headquarters, manufacturing, technology, sales and service center	Equipment: ball and wedge bonders, advanced packaging	November 2043 (2)
Suzhou, China	155,000 sq. ft.	Manufacturing, technology and shared support services center	Expendable Tools: capillaries, dicing blades and bonding wedges	Owned
Veldhoven, Netherlands	126,000 sq. ft.	Manufacturing, technology, sales and service center	Equipment: Advanced Packaging and Surface Mount Technology (SMT)	October 2015 (3)
Fort Washington, Pennsylvania	88,000 sq. ft.	Technology, sales and service center	Not applicable	September 2033 (4)
Santa Ana, California	65,000 sq. ft.	Technology, sales and service center	Not applicable	August 2036 (5)
Yokneam, Israel	21,000 sq. ft.	Manufacturing and technology center	Expendable Tools: capillary blanks (semi-finish)	January 2018 (6)


(1)	Each of the facilities listed in this table is leased other than the facility in Suzhou, China.


(2)	Includes lease extension periods at the Company's option. Initial lease expires in November 2023.


(3)	Company relocated from this property to Eindhoven, Netherlands from current location in October 2015. The new lease will expire in September 2020.


(4)	Includes lease extension periods at the Company's option. Initial lease expires in September 2023.


(5)	Includes lease extension periods at the Company's option. Initial lease expires in August 2026.


(6)	Includes lease extension periods at the Company's option. Initial lease expired in January 2015.

In addition, the Company rents space for sales and service offices and administrative functions in China, Germany, Japan, Malaysia, South Korea, Switzerland, Taiwan, Thailand and the Philippines. The Company believes the facilities are generally in good condition and suitable to the extent of utilization needed.


Item 3.	LEGAL PROCEEDINGS

From time to time, we may be a plaintiff or defendant in cases arising out of our business. We cannot be assured of the results of any pending or future litigation, but we do not believe resolution of these matters will materially or adversely affect our business, financial condition or operating results.

Item 4. MINE SAFETY DISCLOSURES

Not applicable.

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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:



	Fiscal 2015				Fiscal 2014
	High		Low		High		Low
First Quarter	$	14.84	$	12.14	$	13.70	$	11.19
Second Quarter	$	16.54	$	13.81	$	13.30	$	10.73
Third Quarter	$	16.08	$	12.16	$	15.10	$	11.74
Fourth Quarter	$	12.13	$	8.80	$	15.23	$	13.44

On November 16, 2015, there were approximately 253 holders of record of the shares of outstanding common stock. The payment of dividends on our common stock is within the discretion of our board of directors; however, we have not historically paid any dividends on our common stock. In addition, we do not expect to declare dividends on our common stock in the near future, since we intend to retain earnings to finance our business.

For the purpose of calculating the aggregate market value of shares of our common stock held by non-affiliates, as shown on the cover page of this report, we have assumed all of our outstanding shares were held by non-affiliates except for shares held by our directors and executive officers. However, this does not necessarily mean that all directors and executive officers of the Company are, in fact, affiliates of the Company, or there are no other persons who may be deemed to be affiliates of the Company. Further information concerning the beneficial ownership of our executive officers, directors and principal shareholders will be included in our Proxy Statement for the 2016 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission on or about January 4, 2016.

Recent Sales of Unregistered Securities and Use of Proceeds

None.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

Share repurchase activity during the quarter ended October 3, 2015 was as follows (in millions, except number of shares, which are reflected in thousands, and per share amounts):



Periods	Total Number of Shares Purchased	Average Price Paid Per Share	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares That May Yet Be Purchase Under the Plans or Programs (1)
26 July, 2015 to 29 August, 2015	220	10.29	220	$	36.50
30 August, 2015 to 3 October, 2015	1,609	9.28	1,609	$	21.50
Total	1,829		1,829

(1)

On August 14, 2014, the Company’s Board of Directors authorized a program (the "Program") to repurchase up to $100 million of the Company’s common stock on or before August 14, 2017. The Company has entered into a written trading plan under Rule 10b5-1 of the Exchange Act to facilitate repurchases under the Program. The Program may be suspended or discontinued at any time and will be funded using the Company's available cash. Under the Program, shares may be repurchased through open market and/or privately negotiated transactions at prices deemed appropriate by management. The timing and amount of repurchase transactions under the program will depend on market conditions as well as corporate and regulatory considerations. The $21.5 million represents the remaining amount available to repurchase shares under the Program.

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Item 6. SELECTED CONSOLIDATED FINANCIAL DATA

The following tables reflect selected historical consolidated financial data derived from the consolidated financial statements of Kulicke and Soffa Industries, Inc. and subsidiaries as of and for each of the five fiscal years ended 2015, 2014, 2013, 2012, and 2011.

This data should be read in conjunction with our consolidated financial statements, including notes and other financial information included elsewhere in this report or other reports filed previously by us in respect of the fiscal years identified in the column headings of the tables below.



	Fiscal
(in thousands)	2015			2014		2013		2012			2011
Statement of Operations Data:
Net revenue	536,471			568,569		534,938		791,023			830,401
Income from operations	37,251			76,984		65,806		179,226			170,060
Interest income (expense), net	454			149		862		(4,975		)	(7,632		)
Income from continuing operations before income tax	37,705			77,133		66,668		174,251			162,428
(Benefit) Provision for income taxes from continuing operations (1)	(12,934		)	14,145		7,310		13,671			34,818
Net income	$	50,639		$	62,988	$	59,358	$	160,580		$	127,610

(1)

The following are the most significant factors that affected our provision for income taxes: implementation of our international restructuring plan which was approved in fiscal 2011; volatility in our earnings each fiscal year and variation in earnings among various tax jurisdictions in which we operate; changes in assumptions regarding repatriation of earnings; changes in tax legislation; and our provision for various tax exposure items.



	Fiscal
	2015		2014		2013		2012		2011
Per Share Data:
Net income per share: (1)
Basic	$	0.67	$	0.82	$	0.79	$	2.17	$	1.77
Diluted	$	0.67	$	0.81	$	0.78	$	2.13	$	1.73

Weighted average shares outstanding: (1)
Basic	75,414		76,396		75,132		73,887		71,820
Diluted	75,659		77,292		76,190		75,502		73,341

(1) For fiscal 2015, 2014, 2013, 2012 and 2011, the exercise of dilutive stock options and expected vesting of time-based and market-based restricted stock were included.



	Fiscal
(in thousands)	2015		2014		2013		2012		2011
Balance Sheet Data:
Cash, cash equivalents, investments and restricted cash	$	498,614	$	597,086	$	525,040	$	440,244	$	384,522
Working capital excluding discontinued operations	633,435		756,340		676,986		589,947		405,659
Total assets excluding discontinued operations	904,466		944,448		862,994		815,609		728,391
Long-term debt and current portion of long-term debt	—		—		—		—		105,224
Long-term and current portion of financing obligation	17,003		19,616		19,396		—		—
Shareholders' equity	771,891		789,242		716,665		643,667		469,877

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Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


•	projected growth rates in the overall semiconductor industry, the semiconductor assembly equipment market, and the market for semiconductor packaging materials; and


•	projected demand for ball, wedge bonder, advanced packaging and surface mount technology equipment and for expendable tools.

Introduction

Business Environment

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semiconductor manufacturers prepare for heightened demand by adding or replacing equipment capacity by the end of the September quarter. Occasionally, this results in subsequent reductions in the December quarter. This annual seasonality can occasionally be overshadowed by effects of the broader semiconductor cycle. Macroeconomic factors also affect the industry, primarily through their effect on business and consumer demand for electronic devices, as well as other products that have significant electronic content such as automobiles, white goods, and telecommunication equipment.

On August 14, 2014, the Company’s Board of Directors authorized a program (the "Program") to repurchase up to $100 million of the Company’s common stock on or before August 14, 2017. The Company has entered into a written trading plan under Rule 10b5-1 of the Exchange Act, to facilitate repurchases under the Program. The Program may be suspended or discontinued at any time and is funded using the Company's available cash. Under the Program, shares may be repurchased through open market and/or privately negotiated transactions at prices deemed appropriate by management. The timing and amount of repurchase transactions under the Program will depend on market conditions as well as corporate and regulatory considerations. During the year ended October 3, 2015, the Company repurchased a total of 6.4 million shares of common stock at a cost of $77.9 million under the Program. As of October 3, 2015, our remaining stock repurchase authorization under the Program was approximately $21.5 million.

On January 9, 2015, Kulicke & Soffa Holdings B.V. (“KSH”), the Company's wholly owned subsidiary, acquired all of the outstanding equity interests of Assembléon B.V. (“Assembléon”), a subsidiary of Assembléon Holding B.V. The cash purchase price of approximately $97.4 million (EUR80 million) consisted of $72.5 million for 100% of the equity of Assembléon and $24.9 million which was used by Assembléon to settle intercompany loans with its parent company.

Assembléon is a leading technology solutions provider that, together with its subsidiaries, offers assembly equipment, processes and services for the automotive, industrial, and advanced packaging markets. The acquisition expands the Company's presence in automotive, industrial and advanced packaging markets.

Technology Leadership

We compete largely by offering our customers among the most advanced equipment and expendable tools available for the wire and wedge bonding processes. Our equipment is typically the most productive and has the highest levels of process capability, and as a result, we believe it has a lower cost of ownership compared to other equipment in its market. Our expendable tools are designed to optimize the performance of the equipment in which they are used. We believe our technology leadership contributes to the strong market positions of our ball bonder, wedge bonder and expendable tools products. To maintain our competitive advantage, we invest in product development activities designed to produce a stream of improvements to existing products and to deliver next-generation products. These investments often focus as much on improvements in the semiconductor assembly process as on specific pieces of assembly equipment or expendable tools. In order to generate these improvements, we often work in close collaboration with customers, end users, and other industry members. In addition to producing technical advances, these collaborative development efforts strengthen customer relationships and enhance our reputation as a technology leader and solutions provider.

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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.

With the acquisition of Assembléon, we broadened our advanced packaging solutions for mass reflow ("APMR") to include flip chip, wafer level packaging ("WLP"), fan-out wafer level packaging ("FOWLP"), advanced package-on-package, embedded die, and System-in-Package ("SiP"). The acquisition has enabled us to diversify our business into the automotive, medical and industrial markets with advanced surface-mount technology ("SMT") pick and place solutions.

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Products and Services

We supply a range of bonding equipment and expendable tools. The following tables reflect net revenue by business segment for fiscal 2015, 2014, and 2013:



	Fiscal
	2015				2014				2013
(dollar amounts in thousands)	Net revenues		% of total net revenue		Net revenues		% of total net revenue		Net revenues		% of total net revenue
Equipment	$	472,002	88.0	%	$	503,049	88.5	%	$	472,567	88.3	%
Expendable Tools	64,469		12.0	%	65,520		11.5	%	62,371		11.7	%
	$	536,471	100.0	%	$	568,569	100.0	%	$	534,938	100.0	%

See Note 14 to our Consolidated Financial Statements included in Item 8 of this report for our financial results by business segment.

Equipment Segment

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Our principal Equipment segment products include:



Business Unit	Product Name (1)	Typical Served Market

Ball bonders	IConn^PSPLUS	Advanced and ultra fine pitch applications

	IConn^PS PLUS LA	Large area substrate and matrix applications

	IConn^PS PLUS ELA	Extended large area substrate and matrix applications

	IConn^PS ProCu	High-end copper wire applications demanding advanced process capability and high productivity

	IConn^PS ProCu PLUS	High-end copper wire applications demanding advanced process capability and high productivity

	IConn^PS ProCu LA	Large area substrate and matrix applications for copper wire

	IConn^PS ProCu PLUS LA	Large area substrate and matrix applications for copper wire

	IConn^PS ProCu PLUS ELA	Extended large area substrate and matrix applications for copper wire

	ConnX^PS PLUS	High productivity bonder for low-to-medium pin count applications

	ConnX^PS LED	LED applications

	ConnX^PS LED PLUS	LED applications

	ConnX^PS PLUS LA	Cost performance large area substrate and matrix applications

	ConnX^PS PLUS ELA	Cost performance extended large area substrate and matrix applications

	AT Premier PLUS	Advanced wafer level bonding application

Wedge bonders	3600PLUS	Power hybrid and automotive modules using either heavy aluminum wire or PowerRibbon®

	3700PLUS	Hybrid and automotive modules using thin aluminum wire

	7200PLUS	Power semiconductors using either aluminum wire or PowerRibbon®

	7200HD	Smaller power packages using either aluminum wire or PowerRibbon®

	PowerFusion^PS TL	Power semiconductors using either aluminum wire or PowerRibbon®

	PowerFusion^PS HL	Smaller power packages using either aluminum wire or PowerRibbon®

	Asterion^TM	Power hybrid and automotive modules with extended area using heavy and thin aluminum

(1) Power Series (“PS”)

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Business Unit	Product Name (1)	Typical Served Market

Advanced Packaging and Surface Mount Technology (SMT)	APAMA C2S	Thermo-compression for chip-to-substrate, chip-to-chip and high accuracy flip chip ("HA FC") bonding applications

	APAMA C2W	Thermo-compression for chip-to-wafer, high accuracy flip chip ("HA FC") and high density fan-out wafer level packaging ("HD FOWLP") bonding applications

	Hybrid Series	Advanced packages assembly applications requiring high throughput such as flip chip, wafer level packaging ("WLP"), fan-out WLP ("FOWLP"), embedded die, system-in-package ("SiP"), package-on-package ("POP"), and modules

	iX Series	Advanced Surface Mount Technology ("SMT") applications requiring extremely high output of passive and active components

	iFlex Series	Advanced SMT applications requiring multi-lane or line balancing solutions for standard or oddform passive and active components

Ball Bonders

Our portfolio of ball bonding products includes:


•	The IConn^PS PLUS: high-performance ball bonders which can be configured for either gold or copper wire.


•	The IConn^PS PLUS LA: high-performance large area ball bonders which can be configured for either gold or copper wire.


•	The IConn^PS PLUS ELA: high-performance extended large area ball bonders which can be configured for either gold or copper wire.


•	The ConnX^PSPLUS: cost-performance ball bonders which can be configured for either gold or copper wire.


•	The ConnX^PS PLUS LA: cost-performance large area ball bonders which can be configured for either gold or copper wire.


•	The ConnX^PS PLUS ELA: cost-performance extended large area ball bonders which can be configured for either gold or copper wire.


•	The ConnX^PS LED and ConnX^PS LED PLUS: ball bonders targeted specifically at the fast growing LED market.


•	The IConn^PS ProCu and IConn^PS ProCu PLUS: high-performance copper wire ball bonders for advanced wafer nodes at 28 nanometer and below.


•	The IConn^PS ProCu LA and IConn^PS ProCu PLUS LA: high-performance large area copper wire ball bonders for advanced wafer nodes at 28 nanometer and below.


•	The IConn^PS ProCu PLUS ELA: high-performance extended large area copper wire ball bonders for advanced wafer nodes at 28 nanometer and below.


•	The AT Premier PLUS: ball bonders which utilize a modified wire bonding process to mechanically place bumps on devices, while still in a wafer format for variants of the flip chip assembly process. Typical applications include CMOS image sensors, SAW filters, MEMS and high brightness LEDs. These applications are commonly used in most, if not all, smartphones available today in the market.

Our Power Series products are setting new standards in wire bonding. Our ball bonders are capable of performing very fine pitch bonding, as well as creating the complex loop shapes needed in the assembly of advanced semiconductor packages and bonding on the latest silicon node-28 nanometer. Most of our installed base of gold wire bonders can also be retrofitted for copper applications through kits we sell separately.

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Heavy Wire Wedge Bonders

Our portfolio of wedge bonding products includes:


•	The 3600PLUS: high speed, high accuracy wire bonders designed for power modules, automotive packages and other heavy wire multi-chip module applications.


•	The 3700PLUS: wire bonders designed for hybrid and automotive modules using thin aluminum wire.


•	The 7200PLUS: dual head wedge bonders designed specifically for power semiconductor applications.


•	The 7200HD: heavy wire wedge bonders designed for smaller power packages using either aluminum wire or ribbon.


•	The PowerFusion^PS Semiconductor Wedge Bonders - Configurable in single, dual and multi-head configurations using aluminum wire and PowerRibbon^TM:


◦	The PowerFusion^PSTL: designed for low-cost, high volume power semiconductor applications.


◦	The PowerFusion^PSHL and PowerFusion^PS HLx: designed for advanced power semiconductor applications.


•	The Asterion^TM: latest generation hybrid wedge bonder. Larger area, higher speed and accuracy wedge bonders for power modules, automotive packages, battery applications and other aluminium wedge interconnect applications.

Advanced Packaging and Surface Mount Technology

In September 2015, we introduced the APAMA Chip-to-Wafer (“C2W”) bonder. The C2W system enables APAMA's high throughput architecture to be applied to 2.5D and 3D packages using silicon or glass interposers. The C2W dual head system also provides a highly adaptable manufacturing platform addressing applications, which require highly accurate die placement such as High Density FOWLP. The C2W platform, combined with the capacity of the C2S platform, enables the APAMA TCB systems to support assembly for the full range of stacked TSV products.

Other Equipment Products and Services

We also sell manual wire bonders, and we offer spare parts, equipment repair, maintenance and servicing, training services, and upgrades for our equipment through our Support Services business unit.

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Expendable Tools Segment

We manufacture and sell a variety of expendable tools for a broad range of semiconductor packaging applications. Our principal Expendable Tools segment products include:

•


•	Dicing blades: expendable tools used by semiconductor manufacturers to cut silicon wafers into individual semiconductor die or to cut packaged semiconductor units into individual units.


•	Bonding wedges: expendable tools used in heavy wire wedge bonders. Heavy wire wedge tools are used for both wire and ribbon applications.

Critical Accounting Policies

The preparation of consolidated financial statements requires us to make assumptions, estimates and judgments that affect the reported amounts of assets and liabilities, net revenue and expenses during the reporting periods, and disclosures of contingent assets and liabilities as of the date of the consolidated financial statements. On an ongoing basis, we evaluate estimates, including but not limited to, those related to accounts receivable, reserves for excess and obsolete inventory, carrying value and lives of fixed assets, goodwill and intangible assets, valuation allowances for deferred tax assets and deferred tax liabilities, repatriation of un-remitted foreign subsidiary earnings, equity-based compensation expense and warranties. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable. As a result, we make judgments regarding the carrying values of our assets and liabilities that are not readily apparent from other sources. Authoritative pronouncements, historical experience and assumptions are used as the basis for making estimates, and on an ongoing basis, we evaluate these estimates. Actual results may differ from these estimates.

We believe the following critical accounting policies, which have been reviewed with the Audit Committee of our Board of Directors, reflect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

Revenue Recognition

In accordance with ASC No. 605, Revenue Recognition, we recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable, the collectability is reasonably assured, and customer acceptance, when applicable, has been received or we otherwise have been released from customer acceptance obligations. If terms of the sale provide for a customer acceptance period, revenue is recognized upon the expiration of the acceptance period or customer acceptance, whichever occurs first. Our standard terms are ex works (our factory), with title transferring to our customer at our loading dock or upon embarkation. We have a small percentage of sales with other terms, and revenue is recognized in accordance with the terms of the related customer purchase order.

Our business is subject to contingencies related to customer orders, including:

•

Right of Return: A large portion of our revenue comes from the sale of machines used in the semiconductor assembly process. Other product sales relate to consumable products, which are sold in high-volume quantities, and are generally maintained at low stock levels at our customer's facility. Customer returns have historically represented a very small percentage of customer sales on an annual basis.


•	Warranties: Our equipment is generally shipped with a one-year warranty against manufacturing defects. We establish reserves for estimated warranty expense when revenue for the related equipment is recognized. The reserve for estimated warranty expense is based upon historical experience and management's estimate of future expenses.

•

Conditions of Acceptance: Sales of our consumable products generally do not have customer acceptance terms. In certain cases, sales of our equipment have customer acceptance clauses which may require the equipment to perform in accordance with customer specifications or when installed at the customer's facility. In such cases, if the terms of acceptance are satisfied at our facility prior to shipment, the revenue for the equipment will be recognized upon shipment. If the terms of acceptance are satisfied at our customers' facilities, the revenue for the equipment will not be recognized until acceptance, which typically consists of installation and testing, is received from the customer.

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Shipping and handling costs billed to customers are recognized in net revenue. Shipping and handling costs paid by us are included in cost of sales.

Allowance for Doubtful Accounts

We maintain allowances for doubtful accounts for estimated losses resulting from our customers' failure to make required payments. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. We are subject to concentrations of customers and sales to a few geographic locations, which could also impact the collectability of certain receivables. If global or regional economic conditions deteriorate or political conditions were to change in some of the countries where we do business, it could have a significant impact on our results of operations, and our ability to realize the full value of our accounts receivable.

Inventories

Inventories are stated at the lower of cost (on a first-in first-out basis) or market value. We generally provide reserves for obsolete inventory and for inventory considered to be in excess of demand. Demand is generally defined as 18 months forecasted future consumption for equipment, 24 months forecasted future consumption for spare parts, and 12 months forecasted future consumption for expendable tools. Forecasted consumption is based upon internal projections, historical sales volumes, customer order activity and a review of consumable inventory levels at customers' facilities. We communicate forecasts of our future consumption to our suppliers and adjust commitments to those suppliers accordingly. If required, we reserve the difference between the carrying value of our inventory and the lower of cost or market value, based upon projections about future consumption, and market conditions. If actual market conditions are less favorable than projections, additional inventory reserves may be required.

The inventory reserve provision for Assembléon is determined based on our best estimate of future consumption for equipment and spare parts. This estimate is based on historical sales volumes, internal projections and market developments and trends.

Accounting for Impairment of Goodwill

The Company operates two reportable segments: Equipment and Expendable Tools. Goodwill was recorded for the acquisitions of Orthodyne Electronics Corporation ("Orthodyne") and Assembléon in 2009 and 2015, respectively.

Accounting Standard Update 2011-08, Testing Goodwill for Impairment (“ASU 2011-08”),provides companies with the option to assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If, after assessing the qualitative factors, a company determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying value, then performing the two-step impairment test is unnecessary. However, if a company concludes otherwise, then it is required to perform the first step of the two-step goodwill impairment test. If the carrying value of a reporting unit exceeds its fair value in the first step of the test, then a company is required to perform the second step of the goodwill impairment test to measure the amount of the reporting unit's goodwill impairment loss, if any.

In fiscal 2015, we chose to bypass the qualitative assessment and proceed directly to performing the quantitative evaluation of the fair value of the reporting unit, to compare against the carrying value of the reporting unit.

As part of our annual evaluation of the goodwill, we perform an impairment test of our goodwill in the fourth quarter of each fiscal year to coincide with the completion of our annual forecasting and refreshing of our business outlook processes. On an ongoing basis, we monitor whether a "triggering" event has occurred that may have the effect of reducing the fair value of a reporting unit below its respective carrying value. Adverse changes in expected operating results and/or unfavorable changes in other economic factors used to estimate fair values could result in a non-cash impairment charge in the future. During the year ended October 3, 2015, no triggering events occurred.

Impairment assessments inherently involve judgment as to assumptions made about the expected future cash flows and the impact of market conditions on those assumptions. Future events and changing market conditions may impact our assumptions as to prices, costs, growth rates or other factors that may result in changes in our estimates of future cash flows. Although we believe the assumptions we have used in testing for impairment are reasonable, significant changes in any one of our assumptions could produce a significantly different result. Indicators of potential impairment may lead us to perform interim goodwill impairment assessments, including significant and unforeseen customer losses, a significant adverse change in legal factors or in the business climate, a significant adverse action or assessment by a regulator, a significant stock price decline or unanticipated competition.

For further information on goodwill and other intangible assets, see Note 5 to our Consolidated Financial Statements included in Item 8.

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Income Taxes

In accordance with ASC No. 740, Income Taxes, deferred income taxes are determined using the liability method. We record a valuation allowance to reduce our deferred tax assets to the amount we expect is more likely than not to be realized. While we have considered future taxable income and our ongoing tax planning strategies in assessing the need for the valuation allowance, if we were to determine that we would be able to realize our deferred tax assets in the future in excess of our net recorded amount, an adjustment to the deferred tax asset would increase income in the period such determination was made. Likewise, should we determine that we would not be able to realize all or part of our net deferred tax assets in the future, an adjustment to the deferred tax asset would decrease income in the period such determination was made.

In accordance with ASC No. 740 Topic 10, Income Taxes, General (“ASC 740.10”), we account for uncertain tax positions taken or expected to be taken in the Company's income tax return. Under ASC 740.10, we utilize a two-step approach for evaluating uncertain tax positions. Step one, or recognition, requires us to determine if the weight of available evidence indicates a tax position is more likely than not to be sustained upon audit, including resolution of related appeals or litigation processes, if any. Step two, or measurement, is based on the largest amount of benefit, which is more likely than not to be realized on settlement with the taxing authority.

Equity-Based Compensation

We account for equity-based compensation under the provisions of ASC No. 718, Compensation-Stock Compensation (“ASC 718”). ASC 718 requires the recognition of the fair value of equity-based compensation in net income. Compensation expense associated with market-based restricted stock is determined using a Monte-Carlo valuation model, and compensation expense associated with time-based and performance-based restricted stock is determined based on the number of shares granted and the fair value on the date of grant. The fair value of our stock option awards are estimated using a Black-Scholes option valuation model.

The calculation of equity-based compensation costs requires us to estimate the number of awards that will be forfeited during the vesting period. We have estimated forfeitures at the time of grant based upon historical experience, and review the forfeiture rates periodically and make adjustments as necessary. In addition, the fair value of equity-based awards is amortized over the vesting period of the award and we have elected to use the straight-line method for awards granted after the adoption of ASC 718. In general, equity-based awards vest annually over a three year period. Our performance-based restricted stock entitles the employee to receive common shares of the Company on the three-year anniversary of the grant date (if employed by the Company) if return on invested capital and revenue growth targets set by the Management Development and Compensation Committee of the Board of Directors on the date of grant are met. If return on invested capital and revenue growth targets are not met, performance-based restricted stock does not vest. Estimated attainment percentages and the corresponding equity-based compensation expense reported may vary from period to period.

RECENT ACCOUNTING PRONOUNCEMENTS

See Note 1 to our consolidated financial statements in Item 8 for a description of certain recent accounting pronouncements including the expected dates of adoption and effects on our consolidated results of operations and financial condition.

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RESULTS OF OPERATIONS

Results of Operations for fiscal 2015 and 2014

The following table reflects our income from operations for fiscal 2015 and 2014:



	Fiscal
(dollar amounts in thousands)	2015		2014		$ Change			% Change
Net revenue	$	536,471	$	568,569	$	(32,098	)	(5.6	)%
Cost of sales	277,379		295,015		(17,636		)	(6.0	)%
Gross profit	259,092		273,554		(14,462		)	(5.3	)%

Selling, general and administrative	131,808		113,514		18,294			16.1	%
Research and development	90,033		83,056		6,977			8.4	%
Operating expenses	221,841		196,570		25,271			12.9	%

Income from operations	$	37,251	$	76,984	$	(39,733	)	(51.6	)%

Bookings and Backlog

A booking is recorded when a customer order is reviewed and it is determined that all specifications can be met, production (or service) can be scheduled, a delivery date can be set, and the customer meets our credit requirements. We use bookings to evaluate the results of our operations, generate future operating plans and assess the performance of our company. While we believe that this non-GAAP financial measure is useful in evaluating our business, this information should be considered as supplemental in nature and is not meant as a substitute for revenue recognized in accordance with GAAP. In addition, other companies, including companies in our industry, may calculate bookings differently or not at all, which reduces its usefulness as a comparative measure. Reconciliation of bookings to net revenue is not practicable. Our backlog consists of customer orders scheduled for shipment within the next twelve months. A majority of our orders are subject to cancellation or deferral by our customers with limited or no penalties. Also, customer demand for our products can vary dramatically without prior notice. Because of the volatility of customer demand, possibility of customer changes in delivery schedules or cancellations and potential delays in product shipments, our backlog as of any particular date may not be indicative of net revenue for any succeeding period.

The following tables reflect our bookings and backlog for fiscal 2015 and 2014:



	Fiscal
(in thousands)	2015		2014
Bookings	$	491,427	$	595,565

	As of
(in thousands)	October 3, 2015		September 27, 2014
Backlog	$	52,500	$	79,100

Our net revenues for fiscal 2015 have decreased as compared to our net revenues for fiscal 2014 due to reduced customer demand. The semiconductor industry is volatile and our operating results have fluctuated significantly in the past. Customer demand for our products could continue to remain weak and lead to a decline in our net revenues.

Net Revenue

Approximately 91.2% and 94.4% of our net revenue for fiscal 2015 and 2014, respectively, was for shipments to customer locations outside of the U.S., primarily in the Asia/Pacific region, and we expect sales outside of the U.S. to continue to represent the majority of our future revenue.

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The following table reflects net revenue by business segment for fiscal 2015 and 2014:



	Fiscal
(dollar amounts in thousands)	2015		2014		$ Change			% Change
Equipment	$	472,002	$	503,049	$	(31,047	)	(6.2	)%
Expendable Tools	64,469		65,520		(1,051		)	(1.6	)%
Total net revenue	$	536,471	$	568,569	$	(32,098	)	(5.6	)%

Equipment

The following table reflects the components of Equipment net revenue change between fiscal 2015 and 2014:



	Fiscal 2015 vs. 2014
(in thousands)	Price		Volume			$ Change
Equipment	$	2,341	$	(33,388	)	$	(31,047	)

For fiscal 2015, the lower Equipment net revenue as compared to fiscal 2014 was primarily due to lower volume of our ball bonders sales. This was partially offset by higher volume in our wedge bonders and our new APMR and SMT products. The lower volume for ball bonders sales was mainly attributable to the lower equipment utilization rate, and therefore lower demand from our customers. The lower volume was partially offset by the better pricing due to favorable customer mix.

Expendable Tools

The following table reflects the components of Expendable Tools net revenue change between fiscal 2015 and 2014:



	Fiscal 2015 vs. 2014
(in thousands)	Price			Volume			$ Change
Expendable Tools	$	(538	)	$	(513	)	$	(1,051	)

For fiscal 2015, the lower Expendable Tools net revenue as compared to fiscal 2014 was primarily due to lower volume in wedge bonding tools business and a price reduction in our wire bonding tools business.

Gross Profit

The following table reflects gross profit by business segment for fiscal 2015 and 2014:



	Fiscal
(dollar amounts in thousands)	2015		2014		$ Change			% Change
Equipment	$	221,961	$	234,115	$	(12,154	)	(5.2	)%
Expendable Tools	37,131		39,439		(2,308		)	(5.9	)%
Total gross profit	$	259,092	$	273,554	$	(14,462	)	(5.3	)%

The following table reflects gross profit as a percentage of net revenue by business segment for fiscal 2015 and 2014:



	Fiscal				Basis Point
	2015		2014		Change
Equipment	47.0	%	46.5	%	50
Expendable Tools	57.6	%	60.2	%	(260	)
Total gross margin	48.3	%	48.1	%	20

Equipment

The following table reflects the components of Equipment gross profit change between fiscal 2015 and 2014:



	Fiscal 2015 vs. 2014
(in thousands)	Price		Cost			Volume			$ Change
Equipment	$	2,341	$	(1,825	)	$	(12,670	)	$	(12,154	)

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For fiscal 2015, the lower Equipment gross profit as compared to fiscal 2014 was primarily due to the lower volume of equipment sales and higher costs. The lower volume was mainly due to lower sales of ball bonders offset by higher volume in our wedge bonders and our new APMR and SMT products. The lower volume in ball bonders was attributable to the lower equipment utilization rate, and therefore lower demand from our customers. The higher costs were due to changes in the product mix on our ball bonders. The lower volume and higher costs were partially offset by better pricing due to favorable customer mix.

Expendable Tools

The following table reflects the components of Expendable Tools gross profit change between fiscal 2015 and 2014:



	Fiscal 2015 vs. 2014
(in thousands)	Price			Cost			Volume			$ Change
Expendable Tools	$	(538	)	$	(682	)	$	(1,088	)	$	(2,308	)

For fiscal 2015, the lower Expendable Tools gross profit as compared to fiscal 2014 was primarily due to lower volume from our wedge bonding business.

Operating Expenses

The following table reflects operating expenses as a percentage of net revenue for fiscal 2015 and 2014:



	Fiscal				Basis point
	2015		2014		change
Selling, general & administrative	24.6	%	20.0	%	460
Research & development	16.8	%	14.6	%	220
Total	41.4	%	34.6	%	680

Selling, General and Administrative (“SG&A”)

For fiscal 2015, higher SG&A as compared to fiscal 2014 was primarily due to additional SG&A expenses of $24.6 million from our new APMR and SMT products and net unfavorable $0.5 million of restructuring cost and other severance expenses. This was partially offset by a decrease in incentive compensation of $6.8 million as a result of lower current fiscal year profit.

Research and Development (“R&D”)

For fiscal 2015, higher R&D expenses as compared to fiscal 2014 was primarily due to additional investment in the development of advanced packaging products.

Income from Operations

For fiscal 2015, total income from operations was lower by $39.7 million as compared to fiscal 2014. This was due primarily to lower revenue for equipment sales and higher operating expenses as explained above.

Interest Income and Expense

The following table reflects interest income and interest expense for fiscal 2015 and 2014:



	Fiscal
(dollar amounts in thousands)	2015			2014			$ Change			% Change
Interest income	$	1,637		$	1,197		$	440		36.8	%
Interest expense	$	(1,183	)	$	(1,048	)	$	(135	)	12.9	%

Interest income in fiscal 2015 was derived from short term investments and cash and cash equivalents balance.

The higher interest expense for fiscal 2015 was attributable to the interest on financing obligation relating to the new building, which was incurred subsequent to the completion of the new building in December 2013 (Refer to Note 9 of our Consolidated Financial Statements included in Item 8 of this report).

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Provision for Income Taxes

The following table reflects the provision for income taxes and the effective tax rate for fiscal 2015 and 2014:



	Fiscal
(in thousands)	2015			2014
Income from operations before income taxes	$	37,705		$	77,133
Provision for income taxes	(12,934		)	14,145
Net income	$	50,639		$	62,988

Effective tax rate	(34.3		)%	18.3		%

For fiscal 2015, the effective income tax rate decreased from fiscal 2014 by 52.6% due primarily to a net $19.7 million decrease of deferred tax liabilities on certain unremitted foreign earnings as a result of the change in permanent reinvestment assertion, and $4.0 million tax benefits from research and development expenditures, offset by lower profits in foreign jurisdictions and an increase in valuation allowance against certain foreign deferred tax assets.

For fiscal 2014, the effective income tax rate differed from the federal statutory rate due primarily to a shift in earnings to tax jurisdictions with higher effective tax rates than the U.S. statutory rate and the impact of tax holidays, offset by an increase in deferred tax liabilities on unremitted earnings and additional domestic and foreign expenses or benefits related to returns filed in the period.

Our future effective tax rate would be affected if earnings were lower than anticipated in countries where we are subjected to lower statutory rates and higher than anticipated in countries where we are subjected to higher statutory rates, by changes in the valuation of our deferred tax assets and liabilities, or by changes in tax laws, regulations, accounting principles, or interpretations thereof. In addition, changes in assertion for foreign earnings permanently or non-permanently reinvested as a result of changes in facts and circumstances could significantly impact the effective tax rate. During the year ended October 3, 2015, the Company is executing a business structure reorganization resulting in a change in its permanent reinvestment assertion outside the United States. Approximately $19.7 million of deferred tax liability was reversed and recorded as a tax benefit. We regularly assess the effects resulting from these factors to determine the adequacy of our provision for income taxes.

It is reasonably possible that the amount of the unrecognized tax benefit with respect to certain unrecognized tax positions will increase or decrease during the next 12 months due to the expected lapse of statutes of limitation and/or settlements of tax examinations. We cannot practicably estimate the financial outcomes of these examinations.

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Results of Operations for fiscal 2014 and 2013

The following table reflects our income from operations for fiscal 2014 and 2013:



	Fiscal
(dollar amounts in thousands)	2014		2013		$ Change			% Change
Net revenue	$	568,569	$	534,938	$	33,631		6.3	%
Cost of sales	295,015		287,993		7,022			2.4	%
Gross profit	273,554		246,945		26,609			10.8	%

Selling, general and administrative	113,514		119,519		(6,005		)	(5.0	)%
Research and development	83,056		61,620		21,436			34.8	%
Operating expenses	196,570		181,139		15,431			8.5	%

Income from operations	$	76,984	$	65,806	$	11,178		17.0	%

Bookings and Backlog

A booking is recorded when a customer order is reviewed and it is determined that all specifications can be met, production (or service) can be scheduled, a delivery date can be set, and the customer meets our credit requirements. Our backlog consists of customer orders scheduled for shipment within the next twelve months. A majority of our orders are subject to cancellation or deferral by our customers with limited or no penalties. Also, customer demand for our products can vary dramatically without prior notice. Because of the volatility of customer demand, possibility of customer changes in delivery schedules or cancellations and potential delays in product shipments, our backlog as of any particular date may not be indicative of net revenue for any succeeding period.

The following tables reflect our bookings and backlog for fiscal 2014 and 2013:



	Fiscal
(in thousands)	2014		2013
Bookings	$	595,565	$	497,335

	As of
(in thousands)	September 27, 2014		September 28, 2013
Backlog	$	79,100	$	52,100

Net Revenue

Approximately 94.4% and 97.3% of our net revenue for fiscal 2014 and 2013, respectively, was for shipments to customer locations outside of the U.S., primarily in the Asia/Pacific region, and we expect sales outside of the U.S. to continue to represent a substantial majority of our future revenue.

The following table reflects net revenue by business segment for fiscal 2014 and 2013:



	Fiscal
(dollar amounts in thousands)	2014		2013		$ Change		% Change
Equipment	$	503,049	472,567		$	30,482	6.5	%
Expendable Tools	65,520		62,371		3,149		5.0	%
Total net revenue	$	568,569	$	534,938	$	33,631	6.3	%

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Equipment

The following table reflects the components of Equipment net revenue change between fiscal 2014 and 2013:



	Fiscal 2014 vs. 2013
(in thousands)	Price		Volume		$ Change
Equipment	$	9,224	$	21,258	$	30,482

For fiscal 2014, the higher Equipment net revenue as compared to fiscal 2013 was primarily due to the higher volume of both ball bonder and wedge bonder sales and a favorable product mix. The higher volume on ball bonders was driven primarily by higher demand for mobile devices. The higher volume on wedge bonders was driven primarily by sales of the new product family which was introduced in the third quarter of fiscal 2013.

Expendable Tools

The following table reflects the components of Expendable Tools net revenue change between fiscal 2014 and 2013:



	Fiscal 2014 vs. 2013
(in thousands)	Price			Volume		$ Change
Expendable Tools	$	(1,017	)	$	4,166	$	3,149

For fiscal 2014, the higher Expendable Tools net revenue as compared to fiscal 2013 was primarily due to higher volume. This was partially offset by price reduction in wire bonding tools business and wedge bonder tools business. The price reduction in wedge bonder tools business was primarily due to an adjustment of the pricing discounts given to certain distributors, which resulted in the decrease in the selling, general and administrative ("SG&A") expense and the revenue in our wedge bonder tools business, partially offset by favorable product mix.

Gross Profit

The following table reflects gross profit by business segment for fiscal 2014 and 2013:



	Fiscal
(dollar amounts in thousands)	2014		2013		$ Change		% Change
Equipment	$	234,115	$	211,297	$	22,818	10.8	%
Expendable Tools	39,439		35,648		3,791		10.6	%
Total gross profit	$	273,554	$	246,945	$	26,609	10.8	%

The following table reflects gross profit as a percentage of net revenue by business segment for fiscal 2014 and 2013:



	Fiscal				Basis Point
	2014		2013		Change
Equipment	46.5	%	44.7	%	180
Expendable Tools	60.2	%	57.2	%	300
Total gross margin	48.1	%	46.2	%	190

Equipment

The following table reflects the components of Equipment gross profit change between fiscal 2014 and 2013:



	Fiscal 2014 vs. 2013
(in thousands)	Price		Cost			Volume		$ Change
Equipment	$	9,224	$	(5,062	)	$	18,656	$	22,818

For fiscal 2014, the higher Equipment gross profit as compared to fiscal 2013 was primarily due to the higher volume of both ball bonder and wedge bonder sales and a favorable product mix as described above. This was partially offset by higher production costs for our ball bonders and wedge bonders, which was primarily due to product mix.

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Expendable Tools

The following table reflects the components of Expendable Tools gross profit change between fiscal 2014 and 2013:



	Fiscal 2014 vs. 2013
(in thousands)	Price			Cost		Volume		$ Change
Expendable Tools	$	(1,017	)	$	2,333	$	2,475	$	3,791

For fiscal 2014, the higher Expendable Tools gross profit as compared to fiscal 2013 was primarily due to the higher volume and lower cost. This was partially offset by price reduction in wire bonding tools business and wedge bonder tools business. The price reduction in wedge bonder tools business was primarily due to an adjustment of the pricing discounts given to certain distributors, which resulted in the decrease in the SG&A expense and the revenue in our wedge bonder tools business, partially offset by favorable product mix.

Operating Expenses

The following table reflects operating expenses as a percentage of net revenue for fiscal 2014 and 2013:



	Fiscal				Basis point
	2014		2013		change
Selling, general & administrative	20.0	%	22.3	%	(230	)
Research & development	14.6	%	11.5	%	310
Total	34.6	%	33.8	%	80

Selling, General and Administrative (“SG&A”)

SG&A expense decreased $6.0 million during fiscal 2014 as compared to fiscal 2013 primarily due to a decrease in amortization expenses of $3.9 million as the intangible assets relating to the Orthodyne customer relationships have been fully amortized, net favorable variance of $2.8 million in foreign exchange rates due to strengthening of the U.S dollar against foreign currency denominated liabilities which increased in the current period, and net impact of adjustment of the pricing discounts given to certain distributors of $1.5 million that resulted in a decrease in the SG&A expense and revenue. These decreases were partially offset by a gain of $2.1 million related to the curtailment of our Swiss pension plan in fiscal 2013.

Research and Development (“R&D”)

R&D expense increased $21.4 million during fiscal 2014 as compared to fiscal 2013, during which we recognized a Research Incentive Scheme for Companies grant of $0.7 million. In fiscal 2014, we invested an additional $20.7 million of materials and other expenses in the development of new products.

Income from Operations

For fiscal 2014, total income from operations was higher by $11.2 million. This was due primarily to higher revenue and margin for equipment sales as explained above.

Interest Income and Expense

The following table reflects interest income and interest expense for fiscal 2014 and 2013:



	Fiscal
(dollar amounts in thousands)	2014			2013			$ Change			% Change
Interest income	$	1,197		$	883		$	314		35.6	%
Interest expense: cash	$	(1,048	)	$	(21	)	$	(1,027	)	100.0	%

Interest income in fiscal 2014 was higher as compared to fiscal 2013 due to higher interest income derived from short term investments and a larger cash and cash equivalents balance.

The higher interest expense for fiscal 2014 was attributable to the interest on financing obligation relating to the new building.

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Provision for Income Taxes

The following table reflects the provision for income taxes and the effective tax rate for fiscal 2014 and 2013:



	Fiscal
(in thousands)	2014			2013
Income from operations before income taxes	$	77,133		$	66,668
Provision for income taxes	14,145			7,310
Net income	$	62,988		$	59,358

Effective tax rate	18.3		%	11.0		%

For fiscal 2014, the effective income tax rate increased from fiscal 2013 by 7.3% due primarily to a shift in earnings to tax jurisdictions with higher effective tax rates, certain changes in estimates that were recorded upon filing tax returns in foreign jurisdictions and the release of a reserve in fiscal 2013.

For fiscal 2013, the effective income tax rate differed from the federal statutory rate due primarily to tax from foreign operations at a lower effective tax rate than the U.S. statutory rate and the impact of tax holidays, release of tax reserves, offset by an increase for deferred taxes on un-remitted earnings as well as other U.S. current and deferred taxes.

Table of Contents

LIQUIDITY AND CAPITAL RESOURCES

The following table reflects total cash and investments as of October 3, 2015 and September 27, 2014:



	As of
(dollar amounts in thousands)	October 3, 2015			September 27, 2014			Change
Cash and cash equivalents	$	498,614		$	587,981		$	(89,367	)
Percentage of total assets	55.1		%	62.3		%

The following table reflects summary Consolidated Statement of Cash Flow information for fiscal 2015 and 2014:



	Fiscal
(in thousands)	2015			2014
Net cash provided by operating activities	$	87,875		$	82,460
Net cash used in investing activities	(94,109		)	(15,974		)
Net cash used in financing activities	(84,459		)	(164		)
Effect of exchange rate changes on cash and cash equivalents	1,326			(129		)
Changes in cash and cash equivalents	(89,367		)	66,193
Cash and cash equivalents, beginning of period	587,981			521,788
Cash and cash equivalents, end of period	498,614			587,981
Short-term investments	—			9,105
Total cash and investments	$	498,614		$	597,086

Fiscal 2015

Net cash provided by operating activities was primarily the result of net income of $50.6 million, non-cash adjustments of $11.4 million and working capital changes of $25.8 million. The change in working capital was primarily driven by a decrease in accounts receivable of $72.3 million. This was partially offset by decreases in accounts payable and accrued expenses and other current liabilities of $32.8 million and an increase in inventories of $14.5 million.

The lower revenues in the fourth quarter of fiscal 2015 as compared to fourth quarter of fiscal 2014 resulted in a reduction of accounts receivable and lower accounts payable, accrued expenses and other current liabilities. The increase in inventories was due to higher inventories held at year-end in anticipation of a scheduled scale down of manufacturing activity in the first quarter of fiscal 2016 and the lower revenues in the fourth quarter of fiscal 2015 as compared to fourth quarter of fiscal 2014.

Net cash used in investing activities was primarily due to net cash outflow for the Assembléon acquisition of $93.2 million, purchase of short-term investments of $1.6 million and capital expenditures of $10.3 million. This was offset by the maturity of short-term investments of $10.8 million and proceeds from sales of property, plant and equipment of $0.2 million.

Net cash used in financing relates to the repurchase of common stock of $75.7 million and repayment of loans of $10.8 million related to the acquired business. This was offset by proceeds from the short term loans of $0.8 million and proceeds from the exercise of stock options of $0.7 million.

Fiscal 2014

Net cash provided by operating activities was primarily the result of net income of $63.0 million, non-cash adjustments of $33.6 million and offset by the working capital changes of $14.1 million. The change in working capital was primarily driven by an increase in inventories of $14.6 million and an increase in accounts receivable of $9.3 million. This was partially offset by a decrease in prepaid expenses and other current assets of $8.9 million and a decrease in accounts payable of $1.0 million.

The increase in inventories was due to higher inventories held at year-end in anticipation of a scheduled scale down of manufacturing activity in the first quarter of fiscal 2015. The higher accounts receivable was due to higher sales in the fourth quarter of fiscal 2014. The reduction in prepaid expenses and other current assets was due