Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 30, 2019
 
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                  to                    .
 
Commission File No. 0-121
KULICKE AND SOFFA INDUSTRIES, INC.
(Exact name of registrant as specified in its charter) 
PENNSYLVANIA
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 and Zip Code)
(215) 784-6000
(Registrant's telephone number, including area code) 

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 x No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of large accelerated filer, accelerated filer, smaller reporting company, and emerging growth company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer x
Accelerated filer ¨
Non-accelerated filer ¨
Smaller reporting company ¨
Emerging growth company ¨
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
 
Securities registered pursuant to Section 12(b) of the Act:


Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, Without Par Value
KLIC
The Nasdaq Global Market

As of April 30, 2019, there were 65,019,529 shares of the Registrant's Common Stock, no par value, outstanding.

Table of Contents

KULICKE AND SOFFA INDUSTRIES, INC.
 
FORM 10 – Q
 
March 30, 2019
 Index
 
 
 
Page Number
 
 
 
PART I - FINANCIAL INFORMATION
 
 
 
Item 1.
FINANCIAL STATEMENTS (Unaudited)
 
 
 
 
 
Consolidated Condensed Balance Sheets as of March 30, 2019 and September 29, 2018
 
 
 
 
Consolidated Condensed Statements of Operations for the three and six months ended March 30, 2019 and March 31, 2018
 
 
 
 
Consolidated Condensed Statements of Comprehensive Income (Loss) for the three and six months ended March 30, 2019 and March 31, 2018
 
 
 
 
Consolidated Condensed Statements of Shareholders' Equity for the three and six months ended March 30, 2019 and March 31, 2018
 
 
 
 
Consolidated Condensed Statements of Cash Flows for the six months ended March 30, 2019 and March 31, 2018
 
 
 
 
Notes to Consolidated Condensed Financial Statements
 
 
 
Item 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
 
 
Item 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
 
 
Item 4.
CONTROLS AND PROCEDURES
 
 
 
PART II - OTHER INFORMATION
 
 
 
Item 1A.
RISK FACTORS
 
 
 
Item 2.
UNREGISTERED SALES OF EQUITY SECURITIES
 
 
 
Item 6.
EXHIBITS
 
 
 
 
SIGNATURES



Table of Contents

PART I. - FINANCIAL INFORMATION
Item 1. – FINANCIAL STATEMENTS
KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
Unaudited
 
As of
 
March 30, 2019
 
September 29, 2018
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
418,872

 
$
320,630

Restricted cash
465

 
518

Short-term investments
208,000

 
293,000

Accounts and other receivable, net of allowance for doubtful accounts of $0 and $385, respectively
138,844

 
243,373

Inventories, net
102,549

 
115,191

Prepaid expenses and other current assets
13,638

 
14,561

     Total current assets
882,368

 
987,273

Property, plant and equipment, net
76,343

 
76,067

Goodwill
56,050

 
56,550

Intangible assets, net
47,421

 
52,871

Deferred income taxes
9,232

 
9,017

Equity investments
6,301

 
1,373

Other assets
2,430

 
2,589

     TOTAL ASSETS
$
1,080,145

 
$
1,185,740

 
 
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 

 
 

Current liabilities:
 

 
 

Short term debt
$
10,004

 
$
—

Accounts payable
33,378

 
48,527

Accrued expenses and other current liabilities
64,813

 
105,978

Income taxes payable
14,553

 
19,571

     Total current liabilities
122,748

 
174,076

Financing obligation
14,893

 
15,187

Deferred income taxes
25,263

 
25,591

Income taxes payable
84,627

 
81,491

Other liabilities
9,400

 
9,188

     TOTAL LIABILITIES
$
256,931

 
$
305,533

 
 
 
 
Commitments and contingent liabilities (Note 14)


 


 
 
 
 
SHAREHOLDERS' EQUITY:
 

 
 

Preferred stock, without par value:
 

 
 

Authorized 5,000 shares; issued - none
$
—

 
$
—

Common stock, no par value:
 

 
 

Authorized 200,000 shares; issued 85,323 and 84,659, respectively; outstanding 65,349 and 67,143 shares, respectively
526,419

 
519,244

Treasury stock, at cost, 19,974 and 17,516 shares, respectively
(301,071
)
 
(248,664
)
Retained earnings
601,913

 
613,529

Accumulated other comprehensive loss
(4,047
)
 
(3,902
)
     TOTAL SHAREHOLDERS' EQUITY
$
823,214

 
$
880,207

 
 
 
 
     TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$
1,080,145

 
$
1,185,740

The accompanying notes are an integral part of these consolidated condensed financial statements.


1
Table of Contents

KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Unaudited
 
Three months ended
 
Six months ended
 
March 30, 2019
 
March 31, 2018
 
March 30, 2019
 
March 31, 2018
Net revenue
$
115,908

 
$
221,772

 
$
273,116

 
$
435,463

Cost of sales
60,335

 
122,325

 
142,744

 
238,814

Gross profit
55,573

 
99,447

 
130,372

 
196,649

Selling, general and administrative
28,461

 
32,354

 
58,902

 
60,147

Research and development
29,577

 
28,657

 
59,380

 
58,907

Operating expenses
58,038

 
61,011

 
118,282

 
119,054

(Loss)/income from operations
(2,465
)
 
38,436

 
12,090

 
77,595

Interest income
3,865

 
2,986

 
7,691

 
4,961

Interest expense
(254
)
 
(270
)
 
(505
)
 
(536
)
Income before income taxes
1,146

 
41,152

 
19,276

 
82,020

Income tax expense
4,672

 
4,800

 
15,242

 
115,212

Share of results of equity-method investee, net of tax
29

 
39

 
72

 
23

Net (loss)/income
$
(3,555
)
 
$
36,313

 
$
3,962

 
$
(33,215
)
 
 
 
 
 
 
 
 
Net (loss)/income per share:
 

 
 

 
 

 
 

Basic
$
(0.05
)
 
$
0.52

 
$
0.06

 
$
(0.47
)
Diluted
$
(0.05
)
 
$
0.51

 
$
0.06

 
$
(0.47
)
 
 
 
 
 
 
 
 
Weighted average shares outstanding:
 

 
 

 
 

 
 

Basic
65,930

 
70,361

 
66,530

 
70,467

Diluted
65,930

 
71,425

 
67,344

 
70,467

 The accompanying notes are an integral part of these consolidated condensed financial statements.
 


2
Table of Contents

KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
Unaudited
 
Three months ended
 
Six months ended
 
March 30, 2019
 
March 31, 2018
 
March 30, 2019
 
March 31, 2018
Net (loss)/income
$
(3,555
)
 
$
36,313

 
$
3,962

 
$
(33,215
)
Other comprehensive (loss)/income:
 
 
 
 
 
 
 
Foreign currency translation adjustment
(409
)
 
5,222

 
(1,388
)
 
7,592

Unrecognized actuarial gain/(loss) on pension plan, net of tax
18

 
(37
)
 
22

 
(25
)
 
(391
)
 
5,185

 
(1,366
)
 
7,567

 
 
 
 
 
 
 
 
Derivatives designated as hedging instruments:
 
 
 
 
 
 
 
Unrealized gain on derivative instruments, net of tax
161

 
540

 
88

 
1,029

Reclassification adjustment for loss/(gain) on derivative instruments recognized, net of tax
267

 
(494
)
 
1,132

 
(1,540
)
Net decrease/(increase) from derivatives designated as hedging instruments, net of tax
428

 
46

 
1,220

 
(511
)
 
 
 
 
 
 
 
 
Total other comprehensive income/(loss)
37

 
5,231

 
(146
)
 
7,056

 
 
 
 
 
 
 
 
Comprehensive (loss)/income
$
(3,518
)
 
$
41,544

 
$
3,816

 
$
(26,159
)
The accompanying notes are an integral part of these consolidated condensed financial statements.













3
Table of Contents

KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(in thousands)
Unaudited
 
 Common Stock
 
Treasury Stock
 
Retained earnings
 
Accumulated Other Comprehensive loss
 
Shareholders' Equity
 
Shares
 
Amount
 
 
 
 
Balances as of September 29, 2018
67,143

 
$
519,244

 
$
(248,664
)
 
$
613,529

 
$
(3,902
)
 
$
880,207

Issuance of stock for services rendered
8

 
195

 
—

 
—

 
—

 
195

Repurchase of common stock
(1,233
)
 
—

 
(25,485
)
 
—

 
—

 
(25,485
)
Issuance of shares for market-based restricted stock and time-based restricted stock
642

 
—

 
—

 
—

 
—

 
—

Equity-based compensation
—

 
3,678

 
—

 
—

 
—

 
3,678

Cumulative effect of accounting changes
—

 
—

 
—

 
534

 
—

 
534

Cash dividend declared
—

 
—

 
—

 
(8,055
)
 
—

 
(8,055
)
Components of comprehensive income/(loss):
 
 
 
 
 
 
 
 
 
 

Net income
—

 
—

 
—

 
7,517

 
—

 
7,517

Other comprehensive loss
—

 
—

 
—

 
—

 
(182
)
 
(182
)
Total comprehensive income/(loss)
—

 
—

 
—

 
7,517

 
(182
)
 
7,335

Balances as of December 29, 2018
66,560

 
$
523,117

 
$
(274,149
)
 
$
613,525

 
$
(4,084
)
 
$
858,409

Issuance of stock for services rendered
10

 
195

 
—

 
—

 
—

 
195

Repurchase of common stock
(1,225
)
 
—

 
(26,922
)
 
—

 
—

 
(26,922
)
Issuance of shares for market-based restricted stock and time-based restricted stock
4

 
—

 
—

 
—

 
—

 
—

Equity-based compensation
—

 
3,107

 
—

 
—

 
—

 
3,107

Cash dividend declared
—

 
—

 
—

 
(8,057
)
 
—

 
(8,057
)
Components of comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
Net loss
—

 
—

 
—

 
(3,555
)
 
—

 
(3,555
)
Other comprehensive income
—

 
—

 
—

 
—

 
37

 
37

Total comprehensive (loss)/income
—

 
—

 
—

 
(3,555
)
 
37

 
(3,518
)
Balances as of March 30, 2019
65,349

 
$
526,419

 
$
(301,071
)
 
$
601,913

 
$
(4,047
)
 
$
823,214



4
Table of Contents


KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(in thousands)
Unaudited

 
 Common Stock
 
Treasury Stock
 
Retained earnings
 
Accumulated Other Comprehensive income
 
Shareholders' Equity
 
Shares
 
Amount
 
 
 
 
Balances as of September 30, 2017
70,197

 
$
506,515

 
$
(157,604
)
 
$
569,080

 
$
2,039

 
$
920,030

Issuance of stock for services rendered
9

 
195

 
—

 
—

 
—

 
195

Repurchase of common stock
(148
)
 
—

 
(3,280
)
 
—

 
—

 
(3,280
)
Exercise of stock options
6

 
55

 
—

 
—

 
—

 
55

Issuance of shares for market-based restricted stock and time-based restricted stock
540

 
—

 
—

 
—

 
—

 
—

Equity-based compensation
—

 
2,557

 
—

 
—

 
—

 
2,557

Cumulative effect of accounting changes
—

 
1,414

 
—

 
4,006

 
—

 
5,420

Components of comprehensive (loss)/income:
 
 
 
 
 
 
 
 
 
 
 
Net loss
—

 
—

 
—

 
(69,528
)
 
—

 
(69,528
)
Other comprehensive income
—

 
—

 
—

 
—

 
1,825

 
1,825

Total comprehensive (loss)/income
—

 
—

 
—

 
(69,528
)
 
1,825

 
(67,703
)
Balances as of December 30, 2017
70,604

 
$
510,736

 
$
(160,884
)
 
$
503,558

 
$
3,864

 
$
857,274

Issuance of stock for services rendered
8

 
195

 
—

 
—

 
—

 
195

Repurchase of common stock
(898
)
 
—

 
(21,470
)
 
—

 
—

 
(21,470
)
Issuance of shares for market-based restricted stock and time-based restricted stock
73

 
—

 
—

 
—

 
—

 
—

Equity-based compensation
—

 
2,384

 
—

 
—

 
—

 
2,384

Components of comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
Net income
—

 
—

 
—

 
36,313

 
—

 
36,313

Other comprehensive income
—

 
—

 
—

 
—

 
5,231

 
5,231

Total comprehensive income
—

 
—

 
—

 
36,313

 
5,231

 
41,544

Balances as of March 31, 2018
69,787

 
$
513,315

 
$
(182,354
)
 
$
539,871

 
$
9,095

 
$
879,927


 The accompanying notes are an integral part of these consolidated condensed financial statements.



5
Table of Contents

KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
Unaudited
 
Six months ended
 
March 30, 2019
 
March 31, 2018
CASH FLOWS FROM OPERATING ACTIVITIES:
 

 
 

Net income/(loss)
$
3,962

 
$
(33,215
)
Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 

Depreciation and amortization
10,006

 
9,212

Equity-based compensation and employee benefits
7,175

 
5,331

Excess tax benefits from stock-based compensation
—

 
(50
)
Adjustment for doubtful accounts
(385
)
 
678

Adjustment for inventory valuation
1,164

 
2,822

Deferred income taxes
(665
)
 
22,823

Loss/(gain) on disposal of property, plant and equipment
4

 
(425
)
Unrealized foreign currency translation
270

 
6,046

Share of results of equity-method investee
72

 
23

Changes in operating assets and liabilities:
 

 
 

Accounts and other receivable
104,898

 
(26,328
)
Inventory
11,421

 
157

Prepaid expenses and other current assets
1,235

 
160

Accounts payable, accrued expenses and other current liabilities
(54,850
)
 
(9,793
)
Income taxes payable
(1,341
)
 
79,908

Other, net
369

 
(276
)
Net cash provided by operating activities
83,335

 
57,073

 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 

 
 

Purchases of property, plant and equipment
(6,311
)
 
(11,700
)
Proceeds from sales of property, plant and equipment
—

 
244

Purchase of equity investments
(5,000
)
 
—

Purchase of short-term investments
(340,000
)
 
(325,000
)
Maturity of short-term investments
425,000

 
253,000

Net cash provided by /(used in) investing activities
73,689

 
(83,456
)
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES:
 

 
 

Payment on debts
(378
)
 
(346
)
Proceeds from exercise of common stock options
—

 
55

Repurchase of common stock
(52,606
)
 
(23,950
)
Dividend payment
(16,112
)
 
—

Proceeds from short term debt
10,004

 
—

Net cash used in financing activities
(59,092
)
 
(24,241
)
Effect of exchange rate changes on cash, cash equivalents and restricted cash
257

 
(1,630
)
Changes in cash, cash equivalents and restricted cash
98,189

 
(52,254
)
Cash, cash equivalents and restricted cash at beginning of period
321,148

 
392,940

Cash, cash equivalents and restricted cash at end of period
$
419,337

 
$
340,686

 
 
 
 
CASH PAID FOR:
 

 
 

Interest
$
505

 
$
536

Income taxes, net of refunds
$
16,689

 
$
10,728

The accompanying notes are an integral part of these consolidated condensed financial statements. 


6
Table of Contents
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Unaudited



NOTE 1: BASIS OF PRESENTATION
These consolidated condensed financial statements include the accounts of Kulicke and Soffa Industries, Inc. and its subsidiaries (the “Company”), with appropriate elimination of intercompany balances and transactions.
The interim consolidated condensed financial statements are unaudited and, in management's opinion, include all adjustments (consisting only of normal and recurring adjustments) necessary for a fair statement of results for these interim periods. The interim consolidated condensed financial statements do not include all of the information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended September 29, 2018, filed with the Securities and Exchange Commission, which includes Consolidated Balance Sheets as of September 29, 2018 and September 30, 2017, and the related Consolidated Statements of Operations, Statements of Other Comprehensive Income, Changes in Shareholders' Equity and Cash Flows for each of the years in the three-year period ended September 29, 2018. The results of operations for any interim period are not necessarily indicative of the results of operations for any other interim period or for a full year.
Fiscal Year    
Each of the Company's first three fiscal quarters end on the Saturday that is 13 weeks after the end of the immediately preceding fiscal quarter. The fourth quarter of each fiscal year ends on the Saturday closest to September 30. Fiscal 2019 quarters end on December 29, 2018, March 30, 2019, June 29, 2019 and September 28, 2019. In fiscal years consisting of 53 weeks, the fourth quarter will consist of 14 weeks. Fiscal 2018 quarters ended on December 30, 2017, March 31, 2018, June 30, 2018 and September 29, 2018.
Nature of Business
The Company designs, manufactures and sells capital equipment and tools as well as services, maintains, repairs and upgrades equipment, all used to assemble semiconductor devices. The Company's operating results depend upon the capital and operating expenditures of semiconductor device manufacturers, integrated device manufacturers, outsourced semiconductor assembly and test providers (“OSATs”), and other electronics manufacturers including automotive electronics suppliers, worldwide which, in turn, depend on the current and anticipated market demand for semiconductors and products utilizing semiconductors. The semiconductor industry is highly volatile and experiences downturns and slowdowns which can have a severe negative effect on the semiconductor industry's demand for semiconductor capital equipment, including assembly equipment manufactured and sold by the Company and, to a lesser extent, tools, including those sold by the Company. These downturns and slowdowns have in the past adversely affected the Company's operating results. The Company believes such volatility will continue to characterize the industry and the Company's operations in the future.
Use of Estimates
The preparation of consolidated condensed financial statements requires management to make assumptions, estimates and judgments that affect the reported amounts of assets and liabilities, net revenue and expenses during the reporting periods, and disclosures of contingent assets and liabilities as of the date of the consolidated condensed financial statements. On an ongoing basis, management evaluates estimates, including but not limited to, those related to accounts receivable, reserves for excess and obsolete inventory, carrying value and lives of fixed assets, goodwill and intangible assets, the valuation estimates and assessment of impairment and observable price adjustments, valuation allowances for deferred tax assets and deferred tax liabilities, repatriation of un-remitted foreign subsidiary earnings, equity-based compensation expense, and warranties. Management bases its estimates on historical experience and on various other assumptions believed to be reasonable. As a result, management makes judgments regarding the carrying values of the Company's assets and liabilities that are not readily apparent from other sources. Authoritative pronouncements, historical experience and assumptions also are used as the basis for making estimates, and on an ongoing basis, management evaluates these estimates. Actual results may differ from these estimates.
Vulnerability to Certain Concentrations
Financial instruments which may subject the Company to concentrations of credit risk as of March 30, 2019 and September 29, 2018 consisted primarily of trade receivables. The Company manages credit risk associated with investments by investing its excess cash in highly rated debt instruments of the U.S. Government and its agencies, financial institutions, and corporations. The Company has established investment guidelines relative to diversification and maturities designed to maintain safety and liquidity.


7
Table of Contents
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Unaudited (continued)


These guidelines are periodically reviewed and modified as appropriate. The Company does not have any exposure to sub-prime financial instruments or auction rate securities.
The Company's trade receivables result primarily from the sale of semiconductor equipment, related accessories and replacement parts, and tools to a relatively small number of large manufacturers in a highly concentrated industry. Write-offs of uncollectible accounts have historically not been significant. The Company actively monitors its customers' financial strength to reduce the risk of loss.
The Company's products are complex and require raw materials, components and subassemblies having a high degree of reliability, accuracy and performance. The Company relies on subcontractors to manufacture many of these components and subassemblies and it relies on sole source suppliers for some important components and raw material inventory.
Foreign Currency Translation and Remeasurement
The majority of the Company's business is transacted in U.S. dollars; however, the functional currencies of some of the Company's subsidiaries are their local currencies. In accordance with ASC No. 830, Foreign Currency Matters (“ASC 830”), for a subsidiary of the Company that has a functional currency other than the U.S. dollar, gains and losses resulting from the translation of the functional currency into U.S. dollars for financial statement presentation are not included in determining net income, but are accumulated in the cumulative translation adjustment account as a separate component of shareholders' equity (accumulated other comprehensive income / (loss)). Under ASC 830, cumulative translation adjustments are not adjusted for income taxes as they relate to indefinite investments in non-U.S. subsidiaries. Gains and losses resulting from foreign currency transactions are included in the determination of net income.
The Company's operations are exposed to changes in foreign currency exchange rates due to transactions denominated in currencies other than the location's functional currency. The Company is also exposed to foreign currency fluctuations that impact the remeasurement of net monetary assets of those operations whose functional currency, the U.S. dollar, differs from their respective local currencies, most notably in Israel, Malaysia, Singapore and Switzerland. In addition to net monetary remeasurement, the Company has exposures related to the translation of subsidiary financial statements from their functional currency, the local currency, into its reporting currency, the U.S. dollar, most notably in the Netherlands, China, Taiwan, Japan and Germany. The Company's U.S. operations also have foreign currency exposure due to net monetary assets denominated in currencies other than the U.S. dollar.
Derivative Financial Instruments
The Company’s primary objective for holding derivative financial instruments is to manage the fluctuation in foreign exchange rates and accordingly is not speculative in nature. The Company’s international operations are exposed to changes in foreign exchange rates as described above. The Company has established a program to monitor the forecasted transaction currency risk to protect against foreign exchange rate volatility. Generally, the Company uses foreign exchange forward contracts in these hedging programs. These instruments, which have maturities of up to twelve months, are recorded at fair value and are included in prepaid expenses and other current assets, or accrued expenses and other current liabilities.
Our accounting policy for derivative financial instruments is based on whether they meet the criteria for designation as a cash flow hedge. A designated hedge with exposure to variability in the functional currency equivalent of the future foreign currency cash flows of a forecasted transaction is referred to as a cash flow hedge. The criteria for designating a derivative as a cash flow hedge include the assessment of the instrument’s effectiveness in risk reduction, matching of the derivative instrument to its underlying transaction, and the assessment of the probability that the underlying transaction will occur. For derivatives with cash flow hedge accounting designation, we report the after-tax gain / (loss) from the effective portion of the hedge as a component of accumulated other comprehensive income / (loss) and reclassify it into earnings in the same period in which the hedged transaction affects earnings and in the same line item on the Consolidated Condensed Statement of Operations as the impact of the hedged transaction. Derivatives that we designate as cash flow hedges are classified in the Consolidated Condensed Statement of Cash Flows in the same section as the underlying item, primarily within cash flows from operating activities.
The hedge effectiveness of these derivative instruments is evaluated by comparing the cumulative change in the fair value of the hedge contract with the cumulative change in the fair value of the forecasted cash flows of the hedged item.
If a cash flow hedge is discontinued because it is no longer probable that the original hedged transaction will occur as previously anticipated, the cumulative unrealized gain or loss on the related derivative is reclassified from accumulated other comprehensive income / (loss) into earnings. Subsequent gain / (loss) on the related derivative instrument is recognized into earnings in each period until the instrument matures, is terminated, is re-designated as a qualified cash flow hedge, or is sold. Ineffective portions of cash flow hedges, as well as amounts excluded from the assessment of effectiveness, are recognized in earnings.


8
Table of Contents
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Unaudited (continued)


Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less when purchased to be cash equivalents. Cash equivalents are measured at fair value based on level one measurement, or quoted market prices, as defined by ASC No. 820, Fair Value Measurements and Disclosures.
Equity Investments
The Company invests in equity securities in companies to promote business and strategic objectives. Equity investments are measured and recorded as follows:
•
Equity method investments are equity securities in investees that provide the Company with the ability to exercise significant influence in which it lacks a controlling financial interest. Our proportionate share of the income or loss is recognized on a one-quarter lag and is recorded as share of results of equity-method investee, net of tax.
•
Non-marketable equity securities are equity securities without readily determinable fair value that are measured and recorded using a measurement alternative that measures the securities at cost minus impairment, if any, plus or minus changes resulting from qualifying observable price changes.
Allowance for Doubtful Accounts
The Company maintains allowances for doubtful accounts for estimated losses resulting from its customers' failure to make required payments. If the financial condition of the Company's customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. If global or regional economic conditions deteriorate or political conditions were to change in some of the countries where the Company does business, it could have a significant impact on the results of operations, and the Company's ability to realize the full value of its accounts receivable.
Inventories
Inventories are stated at the lower of cost (on a first-in first-out basis) or net realizable value. The Company generally provides reserves for obsolete inventory and for inventory considered to be in excess of demand. Demand is generally defined as 18 months forecasted future consumption for equipment, 24 months forecasted future consumption for spare parts, and 12 months forecasted future consumption for tools. Forecasted consumption is based upon internal projections, historical sales volumes, customer order activity and a review of consumable inventory levels at customers' facilities. The Company communicates forecasts of its future consumption to its suppliers and adjusts commitments to those suppliers accordingly. If required, the Company reserves the difference between the carrying value of its inventory and the lower of cost or net realizable value, based upon projections about future consumption, and market conditions. If actual market conditions are less favorable than projections, additional inventory reserves may be required.
Inventory reserve provision for certain subsidiaries is determined based on management's estimate of future consumption for equipment and spare parts. This estimate is based on historical sales volumes, internal projections and market developments and trends.
Property, Plant and Equipment
Property, plant and equipment are carried at cost. The cost of additions and those improvements which increase the capacity or lengthen the useful lives of assets are capitalized, while repair and maintenance costs are expensed as incurred. Depreciation and amortization are provided on a straight-line basis over the estimated useful lives as follows: buildings 25 years; machinery, equipment, furniture and fittings 3 to 10 years; toolings 1 year; and leasehold improvements are based on the shorter of the life of lease or life of asset. Purchased computer software costs related to business and financial systems are amortized over a five-year period on a straight-line basis. Land is not depreciated.
Valuation of Long-Lived Assets
In accordance with ASC No. 360, Property, Plant & Equipment ("ASC 360"), the Company's property, plant and equipment is tested for impairment based on undiscounted cash flows when triggering events occur, and if impaired, written-down to fair value based on either discounted cash flows or appraised values. ASC 360 also provides a single accounting model for long-lived assets to be disposed of by sale and establishes additional criteria that would have to be met to classify an asset as held for sale. The carrying amount of an asset or asset group is not recoverable to the extent it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset or asset group. Estimates of future cash flows used to test the recoverability of a long-lived asset or asset group must incorporate the entity's own assumptions about its use of the asset or asset group and must factor in all available evidence.


9
Table of Contents
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Unaudited (continued)


ASC 360 requires that long-lived assets be tested for recoverability whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Such events include significant under-performance relative to historical internal forecasts or projected future operating results; significant changes in the manner of use of the assets; significant negative industry or economic trends; or significant changes in market capitalization. During the three and six months ended March 30, 2019, no "triggering" events occurred.
Accounting for Impairment of Goodwill
ASC No. 350, Intangibles-Goodwill and Other ("ASC 350") requires goodwill and other intangible assets with indefinite lives to be reviewed for impairment annually, or more frequently if circumstances indicate a possible impairment. We assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If, after assessing the qualitative factors, a company determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying value, then performing the two-step impairment test is unnecessary. However, if a company concludes otherwise, then it is required to perform the first step of the two-step goodwill impairment test. If the carrying value of a reporting unit exceeds its fair value in the first step of the test, then a company is required to perform the second step of the goodwill impairment test to measure the amount of the reporting unit's goodwill impairment loss, if any. 
In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which eliminates the requirement to perform a hypothetical purchase price allocation to measure goodwill impairment. Under this guidance, the goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount, and recognizing an impairment charge for the amount by which the carrying amount of the reporting unit exceeds its fair value, although it cannot exceed the total amount of goodwill allocated to that reporting unit. This ASU will be effective for us beginning in our first quarter of 2021 and early adoption is permitted. During the third quarter of 2017, we elected to prospectively adopt ASU2017-04. This eliminates the requirement to perform step 2 of the goodwill impairment test.
As part of the annual evaluation, the Company performs an impairment test of its goodwill in the fourth quarter of each fiscal year to coincide with the completion of its annual forecasting and refreshing of its business outlook processes. On an ongoing basis, the Company monitors if a “triggering” event has occurred that may have the effect of reducing the fair value of a reporting unit below its respective carrying value. Adverse changes in expected operating results and/or unfavorable changes in other economic factors used to estimate fair values could result in a non-cash impairment charge in the future.
Impairment assessments inherently involve judgment as to the assumptions made about the expected future cash flows and the impact of market conditions on those assumptions. Future events and changing market conditions may impact the assumptions as to prices, costs, growth rates or other factors that may result in changes in the estimates of future cash flows. Although the Company believes the assumptions that it has used in testing for impairment are reasonable, significant changes in any one of the assumptions could produce a significantly different result. Indicators of potential impairment may lead the Company to perform interim goodwill impairment assessments, including significant and unforeseen customer losses, a significant adverse change in legal factors or in the business climate, a significant adverse action or assessment by a regulator, a significant stock price decline or unanticipated competition.
For further information on goodwill and other intangible assets, see Note 3 below.
Revenue Recognition
In accordance with ASC No. 606, Revenue from Contracts with Customers, the Company recognizes revenue when we satisfy performance obligations as evidenced by the transfer of control of our products or services to customers. In general, the Company generates revenue from product sales, either directly to customers or to distributors. In determining whether a contract exists, we evaluate the terms of the agreement, the relationship with the customer or distributor and their ability to pay.
The Company recognizes revenue from sales of our products, including sales to our distributors, at a point in time, generally upon shipment or delivery to the customer or distributor, depending upon the terms of the sales order. Control is considered transferred when title and risk of loss pass, when the customer becomes obligated to pay and, where applicable, when the customer has accepted the products or upon expiration of the acceptance period. For sales to distributors, payment is due on our standard commercial terms and is not contingent upon resale of the products.
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 equipments 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.


10
Table of Contents
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Unaudited (continued)


•
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, including product parts replacement, freight charges and labor costs expected to be incurred to correct product failures during the warranty period.
•
Conditions of Acceptance: Sales of our consumable products generally do not have customer acceptance terms. In certain cases, sales of our equipment have customer acceptance clauses which may require the equipment to perform in accordance with customer specifications or when installed at the customer's facility. In such cases, if the terms of acceptance are satisfied at our facility prior to shipment, the revenue for the equipment will be recognized upon shipment. If the terms of acceptance are satisfied at our customers' facilities, the revenue for the equipment will not be recognized until acceptance, which is typically obtained after installation and testing, is received from the customer.
Service revenue is generally recognized over time as the services are performed. For the three and six months ended March 30, 2019, and March 31, 2018, the service revenue is not material.
The Company measures revenue based on the amount of consideration we expect to be entitled to in exchange for products or services. Any variable consideration such as sales incentives are recognized as a reduction of net revenue at the time of revenue recognition.
The length of time between invoicing and payment is not significant under any of our payment terms. In instances where the timing of revenue recognition differs from the timing of invoicing, we have determined our contracts generally do not include a significant financing component.
Shipping and handling costs billed to customers are recognized in net revenue. Shipping and handling costs paid by the Company are included in cost of sales.
Research and Development
The Company charges research and development costs associated with the development of new products to expense when incurred. In certain circumstances, pre-production machines that the Company intends to sell are carried as inventory until sold.
Income Taxes
In accordance with ASC No. 740, Income Taxes, deferred income taxes are determined using the balance sheet method. The Company records a valuation allowance to reduce its deferred tax assets to the amount it expects is more likely than not to be realized. While the Company has considered future taxable income and its ongoing tax planning strategies in assessing the need for the valuation allowance, if it were to determine that it would be able to realize its deferred tax assets in the future in excess of its net recorded amount, an adjustment to the deferred tax asset would increase income in the period when such determination is made. Likewise, should the Company determine it would not be able to realize all or part of its net deferred tax assets in the future, an adjustment to the deferred tax asset would decrease income in the period when such determination is made.
In accordance with ASC No. 740 Topic 10, Income Taxes, General (“ASC 740.10”), the Company accounts for uncertain tax positions taken or expected to be taken in its income tax return. Under ASC 740.10, the Company utilizes a two-step approach for evaluating uncertain tax positions. Step one, or recognition, requires a company to determine if the weight of available evidence indicates a tax position is more likely than not to be sustained upon examination solely based on its technical merit. Step two, or measurement, is based on the largest amount of benefit, which is more likely than not to be realized on settlement with the taxing authority, including resolution of related appeals or litigation processes, if any.


11
Table of Contents
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Unaudited (continued)


Equity-Based Compensation
The Company accounts for equity-based compensation under the provisions of ASC No. 718, Compensation - Stock Compensation (“ASC 718”). ASC 718 requires the recognition of the fair value of the equity-based compensation in net income. Compensation expense associated with Relative TSR Performance Share Units is determined using a Monte-Carlo valuation model, and compensation expense associated with time-based and Special/Growth Performance Share Units is determined based on the number of shares granted and the fair value on the date of grant. See Note 9 for a summary of the terms of these performance-based awards. The fair value of the Company's stock option awards is estimated using a Black-Scholes option valuation model. The fair value of equity-based awards is amortized over the vesting period of the award and the Company elected to use the straight-line method for awards granted after the adoption of ASC 718.
Earnings per Share
Earnings per share (“EPS”) are calculated in accordance with ASC No. 260, Earnings per Share. Basic EPS include only the weighted average number of common shares outstanding during the period. Diluted EPS include the weighted average number of common shares and the dilutive effect of stock options, restricted stock awards, performance share units and restricted share units outstanding during the period, when such instruments are dilutive.
Accounting for Business Acquisitions
The Company accounts for business acquisitions in accordance with ASC No. 805, Business Combinations. The fair value of the net assets acquired and the results of operations of the acquired businesses are included in the Unaudited Consolidated Condensed Financial Statements from the acquisition date forward. The Company is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and results of operations during the reporting period. Estimates are used in accounting for, among other things, the fair value of acquired net operating assets, property, plant and equipment, deferred revenue, intangible assets and related deferred tax liabilities, useful lives of property, plant and equipment, and amortizable lives of acquired intangible assets. Any excess of the purchase consideration over the identified fair value of the assets and liabilities acquired is recognized as goodwill. The valuation of these tangible and identifiable intangible assets and liabilities is subject to further management review and may change materially between the preliminary allocation and end of the purchase price allocation period.
Restructuring charges
Restructuring charges may consist of voluntary or involuntary severance-related charges, asset-related charges and other costs due to exit activities. We recognize voluntary termination benefits when an employee accepts the offered benefit arrangement. We recognize involuntary severance-related charges depending on whether the termination benefits are provided under an ongoing benefit arrangement or under a one-time benefit arrangement. If the former, we recognize the charges once they are probable and the amounts are estimable. If the latter, we recognize the charges once the benefits have been communicated to employees.
Recent Accounting Pronouncements
Income Taxes
In October 2016, the FASB issued ASU 2016-16, Accounting for Income Taxes: Intra-Entity Asset Transfers of Assets Other than Inventory. The new guidance is effective for the Company beginning fiscal 2019 and requires the tax effects of intercompany transactions (other than transfers of inventory) to be recognized currently. The Company has adopted the modified retrospective approach for the transition based on the new guidance and, as of the beginning of the period of adoption, has recorded the cumulative effect of adjustments related to intra-entity transfers of intangible and fixed assets of $0.5 million prior years as an increase to retained earnings.
Leases
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under current GAAP.
Subsequently in July 2018, the FASB issued ASU 2018-11 -Leases (Topic 842): Targeted Improvements, provides additional information concerning the new leases standard in ASU 2016-02, Leases (Topic 842). The targeted improvements provide entities with additional and optional transition methods.
In November 2018, the FASB issued ASU 2018-20 – Leases (Topic 842): Narrow-Scope Improvements for Lessors. This ASU provides guidance in several areas, including the accounting policy election for sales taxes and other similar taxes collected from lessees, accounting for certain lessor costs and accounting for variable payments for contracts with lease and nonlease components.


12
Table of Contents
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Unaudited (continued)


These ASUs will be effective for us beginning in our first quarter of fiscal 2020. The adoption of these ASUs will result in an increase in our consolidated balance sheets for these right of use assets and corresponding liabilities. However, the ultimate impact of adopting these ASUs will depend on the Company's lease portfolio as of the adoption date. We are currently evaluating the effects of the adoption of these ASUs on our financial statements.
Financial Instruments
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU replaces the impairment methodology in current GAAP, which delays recognition of credit losses until it is probable a loss has been incurred, with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. This ASU will be effective for us beginning in our first quarter of fiscal 2021. We are currently evaluating the impact of the adoption of this ASU on our financial statements.
Derivatives and Hedging
In August 2017, the FASB issued ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities (Topic 815). The new guidance expands and refines hedge accounting for both financial and non-financial risks. The new guidance also modifies disclosure requirements for hedging activities. The new guidance will be effective for us beginning in our first quarter of fiscal 2020, and early adoption is permitted in any interim period. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements as well as whether to adopt the new guidance early.
Revenue Recognition
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which amends the accounting standards for revenue recognition. ASU 2014-09 is based on principles that govern the recognition of revenue at an amount an entity expects to be entitled when products are transferred to customers.
Subsequently, the FASB has issued the following standards related to ASU 2014-09: ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (“ASU 2016-08”); ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing (“ASU 2016-10”); ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients (“ASU 2016-12”); and ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers (“ASU 2016-20” and collectively, the “new revenue standards”).
The Company has performed an evaluation of this ASU and its impact on the financial statements. This included tasks such as identifying contracts, performance obligations and reviewing the applicable revenue streams. We have completed our assessment and implemented policies, processes, and controls to support the standard's measurement and disclosure requirements. The new standard was adopted in the first quarter of fiscal 2019 using a modified retrospective approach.
Based on our review of all our customer agreements for the affected periods, our revenue from sales of our products, such as equipment and spare parts, will continue to be recognized at a point in time, generally upon shipment or delivery to customers or distributors, depending upon the terms of the sales order, consistent with our current revenue recognition model. Revenue related to the sale of services will generally continue to be recognized over time as the services are performed. In certain instances, where collection of consideration is not probable, recognition of revenue may occur later under the new model after we have completed all of our obligations under the contract. However, when adopting the new standard, we did not identify any balances where collection of consideration is not probable. This ASU did not have a material impact on the amount and timing of revenue recognized in the Company’s consolidated financial statements.
Collaborative Arrangements
In November 2018, the FASB issued ASU 2018-18 – Collaborative Arrangements (Topic 808). This ASU clarifies that certain transactions between collaborative arrangement participants should be accounted for as revenue when the collaborative arrangement participant is a customer in the context of a unit of account and precludes recognizing as revenue consideration received from a collaborative arrangement participant if the participant is not a customer. This ASU will be effective for us in the first quarter of 2021 with early adoption permitted. This ASU requires retrospective adoption to the date we adopted ASC 606 by recognizing a cumulative-effect adjustment to the opening balance of retained earnings of the earliest annual period presented. We are currently evaluating the timing and the effects of the adoption of this ASU on our financial statements.



13
Table of Contents
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Unaudited (continued)


NOTE 2: BALANCE SHEET COMPONENTS
The following tables reflect the components of significant balance sheet accounts as of March 30, 2019 and September 29, 2018:
 
As of
(in thousands)
March 30, 2019
 
September 29, 2018
 
 
 
 
Short term investments, available-for-sale(1)
$
208,000

 
$
293,000

 
 
 
 
Inventories, net:
 

 
 

Raw materials and supplies
$
58,629

 
$
63,894

Work in process
34,405

 
37,829

Finished goods
36,951

 
40,357

 
129,985

 
142,080

Inventory reserves
(27,436
)
 
(26,889
)
 
$
102,549

 
$
115,191

Property, plant and equipment, net:
 

 
 

Land
$
2,182

 
$
2,182

Buildings and building improvements (2)
42,083

 
41,616

Leasehold improvements (2)
23,913

 
23,561

Data processing equipment and software
36,157

 
35,469

Machinery, equipment, furniture and fixtures
73,671

 
68,666

Construction in progress
6,327

 
6,940

 
184,333

 
178,434

Accumulated depreciation
(107,990
)
 
(102,367
)
 
$
76,343

 
$
76,067

Accrued expenses and other current liabilities:
 

 
 

Accrued customer obligations (3)
$
28,091

 
$
34,918

Wages and benefits
15,796

 
44,505

Dividend payable
8,056

 
8,057

Commissions and professional fees
2,879

 
5,549

Deferred rent
1,794

 
1,847

Severance
647

 
1,415

Other
7,550

 
9,687

 
$
64,813

 
$
105,978

(1)
All short-term investments were classified as available-for-sale and were measured at fair value based on level one measurement, or quoted market prices, as defined by ASC 820. The Company did not recognize any realized gains or losses on the sale of investments during the three and six months ended March 30, 2019 and March 31, 2018.
(2)
Certain balances as at September 29, 2018 relating to Property, plant and equipment have been reclassified. These reclassifications have no impact to the Consolidated Balance Sheet as at September 29, 2018.
(3)
Represents customer advance payments, customer credit program, accrued warranty expense and accrued retrofit obligations.

NOTE 3: GOODWILL AND INTANGIBLE ASSETS
Goodwill
Intangible assets classified as goodwill are not amortized. The goodwill established in connection with our acquisitions represents the estimated future economic benefits arising from the assets we acquired that did not qualify to be identified and recognized


14
Table of Contents
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Unaudited (continued)


individually. The goodwill also includes the value of expected future cash flows of the acquisitions, expected synergies with our other affiliates and other unidentifiable intangible assets. The Company performs an annual impairment test of its goodwill during the fourth quarter of each fiscal year, which coincides with the completion of its annual forecasting and refreshing of business outlook process.
The Company performed its annual impairment test in the fourth quarter of fiscal 2018 and concluded that no impairment charge was required. Any future adverse changes in expected operating results and/or unfavorable changes in other economic factors used to estimate fair values could result in a noncash impairment in the future.
During the three and six months ended March 30, 2019, the Company reviewed qualitative factors to ascertain if a "triggering" event may have taken place that may have the effect of reducing the fair value of the reporting unit below its carrying value and concluded that no triggering event had occurred.
The following table summarizes the Company's recorded goodwill as of March 30, 2019 and September 29, 2018:
 
As of
(in thousands)
March 30, 2019
 
September 29, 2018
Capital Equipment
$
29,763

 
$
30,159

APS
26,287

 
26,391

Total goodwill
$
56,050

 
$
56,550

 
 
 
 
 



15
Table of Contents
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Unaudited (continued)


Intangible Assets
Intangible assets with determinable lives are amortized over their estimated useful lives. The Company's intangible assets consist primarily of developed technology, customer relationships and trade and brand names.
The following table reflects net intangible assets as of March 30, 2019 and September 29, 2018: 
 
As of
 
Average estimated
(dollar amounts in thousands)
March 30, 2019
 
September 29, 2018
 
useful lives (in years)
Developed technology
$
88,578

 
$
90,500

 
7.0 to 15.0
Accumulated amortization
(46,969
)
 
(45,229
)
 
 
Net developed technology
$
41,609

 
$
45,271

 
 
 
 
 
 
 
 
Customer relationships
$
35,583

 
$
36,131

 
5.0 to 6.0
Accumulated amortization
(30,825
)
 
(29,820
)
 
 
Net customer relationships
$
4,758

 
$
6,311

 
 
 
 
 
 
 
 
Trade and brand names
$
7,284

 
$
7,377

 
7.0 to 8.0
Accumulated amortization
(6,230
)
 
(6,088
)
 
 
Net trade and brand names
$
1,054

 
$
1,289

 
 
 
 
 
 
 
 
Other intangible assets
$
2,500

 
$
2,500

 
1.9
Accumulated amortization
(2,500
)
 
(2,500
)
 
 
Net other intangible assets
$
—

 
$
—

 
 
 
 
 
 
 
 
Net intangible assets
$
47,421

 
$
52,871

 
 


16
Table of Contents
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Unaudited (continued)


The following table reflects estimated annual amortization expense related to intangible assets as of March 30, 2019:
 
As of
(in thousands)
March 30, 2019
Remaining fiscal 2019
$
3,689

Fiscal 2020
7,378

Fiscal 2021
5,344

Fiscal 2022
4,379

Fiscal 2023 and onwards
26,631

Total amortization expense
$
47,421

 

NOTE 4: CASH, CASH EQUIVALENTS, RESTRICTED CASH AND SHORT-TERM INVESTMENTS
Cash equivalents consist of instruments with remaining maturities of three months or less at the date of purchase. In general, these investments are free of trading restrictions.
Cash, cash equivalents, restricted cash and short-term investments consisted of the following as of March 30, 2019:
(in thousands)
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Estimated
Fair Value
Current assets:
 
 
 
 
 
 
 
Cash
$
223,814

 
$
—

 
$
—

 
$
223,814

Cash equivalents:
 
 
 
 
 
 
 
Money market funds (1)
125,043

 
—

 
(2
)
 
125,041

Time deposits (2)
70,017

 
—

 
—

 
70,017

Total cash and cash equivalents
$
418,874

 
$
—

 
$
(2
)
 
$
418,872

Restricted Cash (2)
465

 
—

 
—

 
465

Total cash, cash equivalents, and restricted cash
$
419,339

 
$
—

 
$
(2
)
 
$
419,337

Short-term investments (2):
 
 
 
 
 
 
 
Time deposits
109,000

 
—

 
—

 
109,000

Deposits (3)
99,000

 
—

 
—

 
99,000

Total short-term investments
$
208,000

 
$
—

 
$
—

 
$
208,000

Total cash, cash equivalents, restricted cash and short-term investments
$
627,339

 
$
—

 
$
(2
)
 
$
627,337

(1)
The fair value was determined using unadjusted prices in active, accessible markets for identical assets, and as such they were classified as Level 1 assets in the fair value hierarchy.
(2)
Fair value approximates cost basis.
(3)
Represents deposits that require a notice period of three months for withdrawal.


17
Table of Contents
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Unaudited (continued)


Cash, cash equivalents, restricted cash and short-term investments consisted of the following as of September 29, 2018:
(in thousands)
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Estimated
Fair Value
Current assets:
 
 
 
 
 
 
 
Cash
$
42,446

 
$
—

 
$
—

 
$
42,446

Cash equivalents:
 
 
 
 
 
 
 
Money market funds (1)
209,172

 
—

 
(5
)
 
209,167

Time deposits (2)
69,017

 
—

 
—

 
69,017

Total cash and cash equivalents
$
320,635

 
$
—

 
$
(5
)
 
$
320,630

Restricted Cash (2)
518

 
—

 
—

 
518

Total cash, cash equivalents, and restricted cash
$
321,153

 
$
—

 
$
(5
)
 
$
321,148

Short-term investments (2):
 
 
 
 
 
 
 
Time deposits
197,000

 
—

 
—

 
197,000

Deposits (3)
96,000

 
—

 
—

 
96,000

Total short-term investments
$
293,000

 
$
—

 
$
—

 
$
293,000

Total cash, cash equivalents, restricted cash and short-term investments
$
614,153

 
$
—

 
$
(5
)
 
$
614,148

(1)
The fair value was determined using unadjusted prices in active, accessible markets for identical assets, and as such they were classified as Level 1 assets in the fair value hierarchy.
(2)
Fair value approximates cost basis.
(3)
Represents deposits that require a notice period of three months for withdrawal.

NOTE 5: EQUITY INVESTMENTS
Equity investments consisted of the following as of March 30, 2019 and September 29, 2018:
 
As of
(in thousands)
March 30, 2019
 
September 29, 2018
Non-marketable equity securities(1)
$
5,000

 
$
—

Equity method investments
1,301

 
1,373

Total
$
6,301

 
$
1,373

(1)
On January 30, 2019, the Company made a $5.0 million investment in one of our collaborative partners, over which the Company does not have significant influence. During the three and six months ended March 30, 2019, there was no impairment or adjustment to the observable price.

NOTE 6: FAIR VALUE MEASUREMENTS
Accounting standards establish three levels of inputs that may be used to measure fair value: quoted prices in active markets for identical assets or liabilities (referred to as Level 1), inputs other than Level 1 that are observable for the asset or liability either directly or indirectly (referred to as Level 2) and unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities (referred to as Level 3).
Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis 
We measure certain financial assets and liabilities at fair value on a recurring basis. There were no transfers between fair value measurement levels during the three and six months ended March 30, 2019.
Fair Value Measurements on a Nonrecurring Basis
Our non-financial assets such as intangible assets and property, plant and equipment are carried at cost unless impairment is deemed to have occurred. Our equity method investments are recorded at fair value only if an impairment is recognized.


18
Table of Contents
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Unaudited (continued)


Fair Value of Financial Instruments
Amounts reported as accounts receivables, prepaid expenses and other current assets, accounts payable and accrued expenses approximate fair value.

NOTE 7: DERIVATIVE FINANCIAL INSTRUMENTS
The Company’s international operations are exposed to changes in foreign exchange rates due to transactions denominated in currencies other than U.S. dollars. Most of the Company’s revenue and cost of materials are transacted in U.S. dollars. However, a significant amount of the Company’s operating expenses are denominated in local currencies, primarily in Singapore.
The foreign currency exposure of our operating expenses is generally hedged with foreign exchange forward contracts. The Company’s foreign exchange risk management programs include using foreign exchange forward contracts with cash flow hedge accounting designation to hedge exposures to the variability in the U.S. dollar equivalent of forecasted non-U.S. dollar-denominated operating expenses. These instruments generally mature within twelve months. For these derivatives, we report the after-tax gain or loss from the effective portion of the hedge as a component of accumulated other comprehensive income (loss), and we reclassify it into earnings in the same period or periods in which the hedged transaction affects earnings and in the same line item on the Consolidated Condensed Statements of Operations as the impact of the hedged transaction.
The fair value of derivative instruments on our Consolidated Condensed Balance Sheet as of March 30, 2019 and September 29, 2018 was as follows:
 
As of
(in thousands)
March 30, 2019
 
September 29, 2018
 
Notional Amount
 
Fair Value Asset Derivatives(1)
 
Notional Amount
 
Fair Value (Liability) Derivatives(2)
Derivatives designated as hedging instruments:
 
 
 
 
 
 
 
Foreign exchange forward contracts (3)
$
35,511

 
$
150

 
$
43,095

 
$
(1,071
)
Total derivatives
$
35,511

 
$
150

 
$
43,095

 
$
(1,071
)
(1)
The fair value of derivative assets is measured using level 2 fair value inputs and is included in prepaid expenses and other current assets on our Consolidated Condensed Balance Sheet.
(2)
The fair value of derivative liabilities is measured using level 2 fair value inputs and is included in accrued expenses and other current liabilities on our Consolidated Condensed Balance Sheet.
(3)
Hedged amounts expected to be recognized to income within the next twelve months.

The effects of derivative instruments designated as cash flow hedges in our Consolidated Condensed Statements of Comprehensive Income for the three and six months ended March 30, 2019 and March 31, 2018 are as follows:
(in thousands)
Three months ended
 
Six months ended
 
March 30, 2019
 
March 31, 2018
 
March 30, 2019
 
March 31, 2018
Foreign exchange forward contract in cash flow hedging relationships:
 
 
 
 
 
 
 
Net gain recognized in OCI, net of tax(1)
$
161

 
$
540

 
$
88

 
$
1,029

Net (loss)/gain reclassified from accumulated OCI into income, net of tax(2)
$
(267
)
 
$
494

 
$
(1,132
)
 
$
1,540

(1)
Net change in the fair value of the effective portion classified in other comprehensive income (“OCI”).
(2)
Effective portion classified as selling, general and administrative expense.

NOTE 8: DEBT AND OTHER OBLIGATIONS
Financing Obligation
On December 1, 2013, Kulicke & Soffa Pte Ltd. (“Pte”), the Company's wholly owned subsidiary, signed a lease with DBS Trustee Limited as trustee of Mapletree Industrial Trust (the “Landlord”) to lease from the Landlord approximately 198,000 square feet,


19
Table of Contents
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Unaudited (continued)


representing approximately 70% of a building in Singapore as our corporate headquarters, as well as a manufacturing, technology, sales and service center (the “Building”). The lease has a 10-year non-cancellable term (the "Initial Term") and contains options to renew for 2 further 10-year terms. The annual rent and service charge for the Initial Term range from $4 million to $5 million Singapore dollars.
Pursuant to ASC No. 840, Leases ("ASC 840"), we have classified the Building on our balance sheet as property, plant and equipment, which we are depreciating over its estimated useful life of 25 years. We concluded that the term of the financing obligation is 10 years. This is equal to the non-cancellable term of our lease agreement with the Landlord. At the inception of the lease, the asset and financing obligation recorded on the balance sheet was $20.0 million, which was based on an interest rate of 6.3% over the Initial Term.  As of March 30, 2019, the financing obligation related to the Building is $15.7 million, which approximates fair value (Level 2). The financing obligation will be settled through a combination of periodic cash rental payments and the return of the leased property at the expiration of the lease. We do not report rent expense for the property, which is deemed owned for accounting purposes. Rather, rental payments required under the lease are considered debt service and applied to the deemed landlord financing obligation and interest expense. The Building and financing obligation are being amortized in a manner that will not generate a gain or loss upon lease termination.
Credit Facilities and Bank Guarantees
On November 22, 2013, the Company obtained a $5.0 million credit facility with Citibank in connection with the issuance of bank guarantees for operational purposes. As of March 30, 2019, the outstanding amount is $3.1 million.
On February 15, 2019, the Company entered into a Facility Letter and Overdraft Agreement (collectively, the “Facility Agreements”) with MUFG Bank, Ltd., Singapore Branch (the “Bank”). The Facility Agreements provide the Company with an overdraft facility of up to $100.0 million (the “Overdraft Facility”) for general corporate purposes. Amounts outstanding under the Overdraft Facility, including interest, are payable upon thirty days written demand by the Bank. Interest on the Overdraft Facility is calculated on a daily basis, and the applicable interest rate is calculated at the overnight U.S. Dollar LIBOR rate plus a margin of 1.5% per annum. The Overdraft Facility is an unsecured facility per the terms of the Facility Agreements. The Facility Agreements contain customary non-financial covenants, including, without limitation, covenants that restrict the Company’s ability to sell or dispose of its assets, cease owning at least 51% of Kulicke and Soffa Pte Ltd. or encumber its assets with material security interests (including any pledge of monies in Kulicke and Soffa Pte Ltd.’s cash deposit account with the Bank). The Facility Agreements also contain typical events of default, including, without limitation, non-payment of financial obligations when due, cross defaults to other material indebtedness of the Company or any breach of a representation or warranty under the Facility Agreements. As of March 30, 2019, the outstanding amount under the Facility Agreements is $10.0 million.
In addition, the Company has other bank guarantees for operational purposes which are secured with corresponding deposits placed with the issuer banks. These amounts are shown as restricted cash in the Consolidated Condensed Balance Sheets.

NOTE 9: SHAREHOLDERS’ EQUITY AND EMPLOYEE BENEFIT PLANS
Common Stock and 401(k) Retirement Plan
The Company has a 401(k) retirement plan (the “Plan”) for eligible U.S. employees. The Plan allows for employee contributions and matching Company contributions from 4% to 6% based upon terms and conditions of the 401(k) Plan.
The following table reflects the Company’s contributions to the Plan during the three and six months ended March 30, 2019 and March 31, 2018:
 
Three months ended
 
Six months ended
(in thousands)
March 30, 2019
 
March 31, 2018
 
March 30, 2019
 
March 31, 2018
Cash
$
369

 
$
352

 
$
863

 
$
853

Stock Repurchase Program
On August 15, 2017, 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 1, 2020. On July 10, 2018, the Board of Directors increased the share repurchase authorization under the Program to $200 million. On January 31, 2019, the Board of Directors further increased the share repurchase under the Program to $300 million. 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, cash equivalents and short-term investments. Under the Program, shares may be


20
Table of Contents
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Unaudited (continued)


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 three and six months ended March 30, 2019, the Company repurchased a total of 1.2 million and 2.5 million shares of common stock under the Program at a cost of $26.9 million and $52.4 million, respectively. The stock repurchases were recorded in the periods they were delivered and accounted for as treasury stock in the Company's Consolidated Condensed Balance Sheet. The Company records treasury stock purchases under the cost method using the first-in, first-out (FIFO) method. Upon reissuance of treasury stock, amounts in excess of the acquisition cost are credited to additional paid-in capital. If the Company reissues treasury stock at an amount below its acquisition cost and additional paid-in capital associated with prior treasury stock transactions is insufficient to cover the difference between acquisition cost and the reissue price, this difference is recorded against retained earnings. As of March 30, 2019, our remaining stock repurchase authorization under the Program was approximately $145.3 million.
Dividends
On February 28, 2019 and December 12, 2018, the Board of Directors declared a quarterly dividend of $0.12 per share of common stock. Dividends paid during the three and six months ended March 30, 2019 totaled $8.1 million and$16.1 million, respectively. The declaration of any future cash dividend is at the discretion of the Board of Directors and will depend on the Company's financial condition, results of operations, capital requirements, business conditions and other factors, as well as a determination that such dividends are in the best interests of the Company's stockholders.
Accumulated Other Comprehensive Income
The following table reflects accumulated other comprehensive loss reflected on the Consolidated Condensed Balance Sheets as of March 30, 2019 and September 29, 2018: 
 
As of
(in thousands)
March 30, 2019
 
September 29, 2018
Loss from foreign currency translation adjustments
$
(2,598
)
 
$
(1,211
)
Unrecognized actuarial loss on pension plan, net of tax
(1,599
)
 
(1,620
)
Unrealized gain/(loss) on hedging
150

 
(1,071
)
Accumulated other comprehensive loss
$
(4,047
)
 
$
(3,902
)
Equity-Based Compensation
The Company has stockholder-approved equity-based employee compensation plans (the “Employee Plans”) and director compensation plans (the “Director Plans”) (collectively, the “Equity Plans”). As of March 30, 2019, 4.0 million shares of common stock are available for grant to its employees and directors under the 2017 Equity Plan, including previously registered shares that have been carried forward for issuance from the 2009 Equity Plan.
•
In general, stock options and Time-based Restricted Share Units ("Time-based RSUs") awarded to employees vest annually over a three-year period provided the employee remains employed by the Company. The Company follows the non-substantive vesting method for stock options and recognizes compensation expense immediately for awards granted to retirement eligible employees, or over the period from the grant date to the date retirement eligibility is achieved.
•
Relative TSR Performance Share Units ("Relative TSR PSUs") entitles the employee to receive common shares of the Company on the award vesting date, if market performance objectives that measure relative total shareholder return (“TSR”) are attained. Relative TSR is calculated based upon the 90-calendar day average price of the Company's stock as compared to specific peer companies that comprise the GICS (45301020) Semiconductor Index. TSR is measured for the Company and each peer company over a performance period, which is generally three years. Vesting percentages range from 0% to 200% of awards granted. The provisions of the Relative TSR PSUs are reflected in the grant date fair value of the award; therefore, compensation expense is recognized regardless of whether the market condition is ultimately satisfied. Compensation expense is reversed if the award is forfeited prior to the vesting date.
•
Special/Growth Performance Share Units (“Special/Growth PSUs”) 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 revenue growth targets set by the Management Development and Compensation Committee (“MDCC”) of the Board of Directors on the date of grant are met. If revenue growth targets are not met, the Special/Growth PSUs do not vest. Certain Special/Growth PSUs


21
Table of Contents
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Unaudited (continued)


vest based on achievement of strategic goals over a certain time period or periods set by the MDCC. If the strategic goals are not achieved, the Special/Growth PSUs do not vest.
Equity-based compensation expense recognized in the Consolidated Condensed Statements of Operations for the three and six months ended March 30, 2019 and March 31, 2018 was based upon awards ultimately expected to vest, forfeitures have been accounted for when they occur.
The following table reflects Time-based RSUs, Relative TSR PSUs, Special/Growth PSUs and common stock granted during the three and six months ended March 30, 2019 and March 31, 2018:
 
Three months ended
 
Six months ended
(shares in thousands)
March 30, 2019
 
March 31, 2018
 
March 30, 2019
 
March 31, 2018
Time-based RSUs
12

 
19

 
519

 
449

Relative TSR PSUs
8

 
—

 
165

 
153

Special/Growth PSUs
3

 
—

 
55

 
59

Common stock
10

 
8

 
18

 
17

Equity-based compensation in shares
33

 
27

 
757

 
678

The following table reflects total equity-based compensation expense, which includes Time-based RSUs, Relative TSR PSUs, Special/Growth PSUs and common stock, included in the Consolidated Condensed Statements of Operations during the three and six months ended March 30, 2019 and March 31, 2018: 
 
Three months ended
 
Six months ended
(in thousands)
March 30, 2019
 
March 31, 2018
 
March 30, 2019
 
March 31, 2018
Cost of sales
$
160

 
$
126

 
$
310

 
$
258

Selling, general and administrative
2,330

 
1,443

 
5,255

 
3,766

Research and development
811

 
653

 
1,609

 
1,307

Total equity-based compensation expense
$
3,301

 
$
2,222

 
$
7,174

 
$
5,331

The following table reflects equity-based compensation expense, by type of award, for the three and six months ended March 30, 2019 and March 31, 2018:  
 
Three months ended
 
Six months ended
(in thousands)
March 30, 2019
 
March 31, 2018
 
March 30, 2019
 
March 31, 2018
Time-based RSUs
$
2,131

 
$
1,678

 
$
4,272

 
$
3,813

Relative TSR PSUs
818

 
252

 
2,193

 
975

Special/Growth PSUs
157

 
97

 
319

 
153

Common stock
195

 
195

 
390

 
390

Total equity-based compensation expense
$
3,301

 
$
2,222

 
$
7,174

 
$
5,331


NOTE 10: REVENUE AND CONTRACT LIABILITIES
The Company recognizes revenue when we satisfy performance obligations as evidenced by the transfer of control of our products or services to customers. In general, the Company generates revenue from product sales, either directly to customers or to distributors. In determining whether a contract exists, we evaluate the terms of the agreement, the relationship with the customer or distributor and their ability to pay. Service revenue is generally recognized over time as the services are performed. For the three and six months ended March 30, 2019, and March 31, 2018, the service revenue is not material. Please refer to Note 1: Basis of Presentation- Revenue Recognition, for disclosure on the Company's revenue recognition.
The Company disaggregates revenue based on our reportable segments. The Company believes that disaggregating revenue into these categories achieves the disclosure objective to depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. Please refer to Note 13: Segment information, for disclosure of disaggregated revenue.
Contract Liabilities


22
Table of Contents
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Unaudited (continued)


Our contract liabilities are primarily related to advance payments received from customers to secure product in future periods where we have received amounts in advance of satisfying performance obligations and are reported in the accompanying consolidated condensed balance sheets within accrued expenses and other current liabilities.
Contract liabilities increase as a result of receiving new advance payments from customers and decrease as revenue is recognized from customers purchasing product under advance payment arrangements upon meeting the performance obligations.
The following table shows the changes in contract liability balances during the three and six months ended March 30, 2019:
 
 
Three months ended
 
Six months ended
(in thousands)
 
March 30, 2019
 
March 30, 2019
Contract liabilities, beginning of period
 
$
548

 
$
997

Revenue recognized
 
(2,339
)
 
(5,517
)
Additions
 
2,372

 
5,101

Contract liabilities, end of period
 
$
581

 
$
581


NOTE 11: EARNINGS PER SHARE
Basic income per share is calculated using the weighted average number of shares of common stock outstanding during the period. Stock options and restricted stock are included in the calculation of diluted earnings per share, except when their effect would be anti-dilutive. For the three months ended March 30, 2019 and six months ended March 31, 2018, 0.8 million and 1.0 million stock options and shares of restricted stock, respectively, were excluded due to the Company's net loss.
The following tables reflect a reconciliation of the shares used in the basic and diluted net income per share computation for the three and six months ended March 30, 2019 and March 31, 2018: 
 
Three months ended
(in thousands, except per share data)
March 30, 2019
 
March 31, 2018
 
Basic
 
Diluted
 
Basic
 
Diluted
NUMERATOR:
 

 
 

 
 

 
 

Net (loss)/income
$
(3,555
)
 
$
(3,555
)
 
$
36,313

 
$
36,313

DENOMINATOR:
 

 
 

 
 

 
 

Weighted average shares outstanding - Basic
65,930

 
65,930

 
70,361

 
70,361

Dilutive effect of Equity Plans
 
 
—

 
 
 
1,064

Weighted average shares outstanding - Diluted
 

 
65,930

 
 

 
71,425

EPS:
 

 
 

 
 

 
 

Net (loss)/income per share - Basic
$
(0.05
)
 
$
(0.05
)
 
$
0.52

 
$
0.52

Effect of dilutive shares
 

 
—

 
 

 
(0.01
)
Net (loss)/income per share - Diluted
 

 
$
(0.05
)
 
 

 
$
0.51

  


23
Table of Contents
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Unaudited (continued)


 
Six months ended
(in thousands, except per share data)
March 30, 2019
 
March 31, 2018
 
Basic
 
Diluted
 
Basic
 
Diluted
NUMERATOR:
 

 
 

 
 

 
 

Net income/(loss)
$
3,962

 
$
3,962

 
$
(33,215
)
 
$
(33,215
)
DENOMINATOR:
 

 
 

 
 

 
 

Weighted average shares outstanding - Basic
66,530

 
66,530

 
70,467

 
70,467

Dilutive effect of Equity Plans
 
 
814

 
 

 
—

Weighted average shares outstanding - Diluted
 

 
67,344

 
 

 
70,467

EPS:
 

 
 

 
 

 
 

Net income/(loss) per share - Basic
$
0.06

 
$
0.06

 
$
(0.47
)
 
$
(0.47
)
Effect of dilutive shares
 

 
—

 
 

 
—

Net income/(loss) per share - Diluted
 

 
$
0.06

 
 

 
$
(0.47
)

NOTE 12: INCOME TAXES
The following table reflects the provision for income taxes and the effective tax rate for the three and six months ended March 30, 2019 and March 31, 2018: 
 
Three months ended
 
Six months ended
(dollar amounts in thousands)
March 30, 2019
 
March 31, 2018
 
March 30, 2019
 
March 31, 2018
Income tax expense
$
4,672

 
$
4,800

 
$
15,242

 
$
115,212

Effective tax rate
407.7
%
 
11.6
%
 
79.1
%
 
140.5
%
For the six months ended March 30, 2019, the effective income tax rate differed from the federal statutory tax rate primarily due to tax expense related to adjustments to the one-time transition tax, valuation allowances recorded against certain tax credits and loss carryforwards, foreign withholding taxes, and tax liabilities from foreign operations, partially offset by tax benefits from profits generated in foreign operations subject to a lower statutory tax rate than the federal rate, tax credits, and the impact of tax holidays.
For the six months ended March 31, 2018, the effective income tax rate differed from the federal statutory tax rate primarily due to tax expense related to the enactment of the Tax Cuts and Jobs Act of 2017 (the "Act"), valuation allowances recorded against certain tax loss carryforwards, foreign withholding taxes, and tax liabilities from foreign operations, partially offset by tax benefits from profits generated in foreign operations subject to a lower statutory tax rate than the federal rate, tax credits, and the impact of tax holidays.
The decrease in tax expense for the three months ended March 30, 2019 of $4.7 million from the tax expense for the three months ended March 31, 2018 of $4.8 million was primarily related to a decrease in profits in fiscal 2019, partially offset by $2.5 million of tax expense related to an adjustment to the one-time transition tax as a result of final regulations published on February 5, 2019. The decrease in tax expense for the six months ended March 30, 2019 of $15.2 million from the tax expense for the six months ended March 31, 2018 of $115.2 million was primarily related to the enactment of the Act in fiscal 2018 and a decrease in profits in fiscal 2019, partially offset by $10.2 million of tax expense related to adjustments to the one-time transition tax. The Company's future effective tax rate would be affected by the decrease in earnings in countries where it has lower statutory rates or increase in earnings in countries where it has higher statutory rates, by changes in the valuation of its deferred tax assets and liabilities, or by changes in tax laws, regulations, accounting principles, or interpretations thereof.
As of March 30, 2019, the Company completed its evaluation of the future cash needs of its U.S. and foreign operations, the alignment of cash balances with the Company’s long term capital allocation strategy, and the impact of the Act which generally allows U.S. corporations to make distributions without incurring additional U.S income tax. As a result of this reassessment, the Company’s undistributed foreign earnings are no longer deemed to be indefinitely reinvested outside the U.S. and the Company recorded $0.7 million of tax expense in the second quarter of fiscal 2019.


24
Table of Contents
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Unaudited (continued)


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. The Company is under income tax examination by tax authorities in certain foreign jurisdictions.
In accordance with Staff Accounting Bulletin No. 118 ("SAB 118"), the accounting for the tax effects for the Act was completed in the first quarter of fiscal 2019. In addition, the Company has made an accounting policy election to record tax effects of its global intangible low-taxed income as a period cost in the period the tax is incurred.

NOTE 13: SEGMENT INFORMATION
Reportable segments are defined as components of an enterprise that engage in business activities for which discrete financial information is available and regularly reviewed by the chief operating decision maker in deciding how to allocate resources and to assess performance. The Company's Chief Executive Officer is the Company's chief operating decision maker. The chief operating decision maker does not review discrete asset information. The Company operates two reportable segments consisting of: (i) Capital Equipment; and (ii) Aftermarket Products and Services ("APS").
The following table reflects operating information by segment for the three and six months ended March 30, 2019 and March 31, 2018: 
 
Three months ended
 
Six months ended
(in thousands)
March 30, 2019
 
March 31, 2018
 
March 30, 2019
 
March 31, 2018
Net revenue:
 

 
 

 
 

 
 

      Capital Equipment
$
80,567

 
$
177,132

 
$
196,505

 
$
348,735

      APS
35,341

 
44,640

 
76,611

 
86,728

              Net revenue
115,908

 
221,772

 
273,116

 
435,463

(Loss)/income from operations:
 

 
 

 
 

 
 

      Capital Equipment
(9,244
)
 
28,863

 
(4,114
)
 
58,844

      APS
6,779

 
9,573

 
16,204

 
18,751

              (Loss)/income from operations
$
(2,465
)
 
$
38,436

 
$
12,090

 
$
77,595



25
Table of Contents
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Unaudited (continued)


The following tables reflect capital expenditures, depreciation expense and amortization expense for the three and six months ended March 30, 2019 and March 31, 2018.
 
Three months ended
 
Six months ended
(in thousands)
March 30, 2019
 
March 31, 2018
 
March 30, 2019
 
March 31, 2018
Capital expenditures:
 
 
 
 
 

 
 

      Capital Equipment
$
1,288

 
$
2,044

 
$
3,472

 
$
3,879

      APS
946

 
4,109

 
3,704

 
8,531

 
$
2,234

 
$
6,153

 
$
7,176

 
$
12,410

 
Three months ended
 
Six months ended
(in thousands)
March 30, 2019
 
March 31, 2018
 
March 30, 2019
 
March 31, 2018
Depreciation expense:
 

 
 

 
 

 
 

      Capital Equipment
$
2,002

 
$
1,887

 
$
3,740

 
$
3,675

      APS
1,366

 
835

 
2,520

 
1,572

 
$
3,368<