Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In addition to historical information, this filing contains statements relating to future events or our future results. These statements are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and are subject to the safe harbor provisions created by statute. Such forward-looking statements include, but are not limited to, statements with respect to our future revenue, increasing, continuing or strengthening, or decreasing or weakening, demand for our products, replacement demand, our research and development efforts, our ability to identify and realize new growth opportunities, our ability to control costs and our operational flexibility as a result of (among other factors):
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projected growth rates in the overall semiconductor industry, the semiconductor assembly equipment market, and the market for semiconductor packaging materials; and
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projected demand for ball, wedge bonder, advanced packaging and electronic assembly equipment and for tools, spare parts and services.
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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 and our other reports and registration statements filed from time to time with the Securities and Exchange Commission.
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.
This section of this Form 10-K generally discusses 2019 and 2018 items and year-to-year comparisons between 2019 and 2018. Discussions of 2017 items and year-to-year comparisons between 2018 and 2017 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended September 29, 2018.
Our Management's Discussion and Analysis ("MD&A") is provided in addition to the accompanying consolidated financial statements and notes to assist readers in understanding our results of operations, financial condition, and cash flows. MD&A is organized as follows:
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Overview: Introduction of our operations, key events, business environment, technology leadership, products and services
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Critical Accounting Policies
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Recent Accounting Pronouncements
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Liquidity and Capital Resources
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Other Obligations and Contingent Payments
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Overview
For an overview of our business, see "Part I – Item 1. – Business"
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, income taxes, 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. 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:
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Right of Return: A large portion of our revenue comes from the sale of equipment 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.
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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.
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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.
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Service revenue is generally recognized over time as the services are performed.
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.
Allowance for Doubtful Accounts
We maintain allowances for doubtful accounts for estimated losses resulting from our customers' failure to make required payments. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. We are subject to concentrations of customers and sales to a few geographic locations, which could also impact the collectability of certain receivables. If global or regional economic conditions deteriorate or political conditions were to change in some of the countries where we do business, it could have a significant impact on our results of operations, and our ability to realize the full value of our accounts receivable.
Inventories
Inventories are stated at the lower of cost (on a first-in, first-out basis) or net realizable value. We generally provide reserves for obsolete inventory and for inventory considered to be in excess of demand. Demand is generally defined as 18 months forecasted future consumption for equipment, 24 months forecasted future consumption for spare parts, and 12 months forecasted future consumption for tools. Forecasted consumption is based upon internal projections, historical sales volumes, customer order activity and a review of consumable inventory levels at customers' facilities. We communicate forecasts of our future consumption to our suppliers and adjust commitments to those suppliers accordingly. If required, we reserve the difference between the carrying value of our inventory and the lower of cost or net realizable value, based upon projections about future consumption, and market conditions. If actual market conditions are less favorable than projections, additional inventory reserves may be required.
Inventory reserve provision for certain subsidiaries is determined based on management's estimate of future consumption for equipment and spare parts. This estimate is based on historical sales volumes, internal projections and market developments and trends.
Accounting for Impairment of Goodwill
ASC No. 350, Intangibles-Goodwill and Other ("ASC 350"), requires goodwill and intangible assets with indefinite lives to be reviewed for impairment annually, or more frequently if circumstances indicate a possible impairment. We assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If, after assessing the qualitative factors, a company determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying value, then performing the two-step impairment test is unnecessary. However, if a company concludes otherwise, then it is required to perform the first step of the two-step goodwill impairment test. If the carrying value of a reporting unit exceeds its fair value in the first step of the test, then a company is required to perform the second step of the goodwill impairment test to measure the amount of the reporting unit's goodwill impairment loss, if any.
As part of the annual evaluation, the Company performs an impairment assessment of its goodwill in the fourth quarter of each fiscal year to coincide with the completion of its annual forecasting and refreshing of its business outlook processes. On an ongoing basis, the Company monitors if a “triggering” event has occurred that may have the effect of reducing the fair value of a reporting unit below its respective carrying value. Adverse changes in expected operating results and/or unfavorable changes in other economic factors used to estimate fair values could result in a non-cash impairment charge in the future.
Impairment assessments inherently involve judgment as to the assumptions made about the expected future cash flows and the impact of market conditions on those assumptions. Future events and changing market conditions may impact the assumptions as to prices, costs, growth rates or other factors that may result in changes in the estimates of future cash flows. Although the Company believes the assumptions that it has used in testing for impairment are reasonable, significant changes in any one of the assumptions could produce a significantly different result. Indicators of potential impairment may lead the Company to perform interim goodwill impairment assessments, including significant and unforeseen customer losses, a significant adverse change in legal factors or in the business climate, a significant adverse action or assessment by a regulator, a significant stock price decline or unanticipated competition.
For further information on goodwill and intangible assets, see Note 3 to our consolidated financial statements in Item 8.
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 expected to be realized, on a more likely than not basis. While the Company has considered future taxable income and ongoing tax planning strategies in assessing the need for the valuation allowance, if it were to determine that it would be able to realize its deferred tax assets in the future in excess of its net recorded amount, an adjustment to the deferred tax asset would increase income in the period such determination is made. Likewise, should the Company determine that it would not be able to realize all or part of its deferred tax assets in the future, an adjustment to the deferred tax assets would decrease income in the period such determination is made.
The Company determines the amount of the unrecognized tax benefit with respect to uncertain tax positions taken or expected to be taken on its income tax returns in accordance with ASC No. 740 Topic 10, Income Taxes, General (“ASC 740 -10”). Under ASC 740 -10, the Company utilizes a two-step approach for evaluating uncertain tax positions. Step one, or recognition, requires a determination of whether the weight of available evidence indicates a tax position is more likely than not to be sustained upon examination solely based on its technical merit. Step two, or measurement, is based on the largest amount of benefit, which is more likely than not to be realized on settlement with the taxing authority, including resolution of related appeals or litigation process, if any.
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 are 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.
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.
RESULTS OF OPERATIONS
Results of Operations for fiscal 2019 and 2018
The following table reflects our income from operations for fiscal 2019 and 2018:
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Fiscal
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(dollar amounts in thousands)
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2019
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2018
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$ Change
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% Change
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Net revenue
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$
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540,052
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$
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889,121
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$
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(349,069
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)
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(39.3
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)%
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Cost of sales
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285,462
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479,680
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(194,218
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)
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(40.5
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)%
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Gross profit
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254,590
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409,441
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(154,851
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)
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(37.8
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)%
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Selling, general and administrative
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116,811
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123,188
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(6,377
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(5.2
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)%
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Research and development
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116,169
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119,621
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(3,452
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(2.9
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)%
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Operating expenses
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232,980
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242,809
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(9,829
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)
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(4.0
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)%
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Income from operations
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$
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21,610
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$
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166,632
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$
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(145,022
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)
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(87.0
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)%
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Bookings and Backlog
Our backlog consists of customer orders scheduled for shipment within the next twelve months. A booking is recorded when a customer order is reviewed and it is determined that all specifications can be met, production (or service) can be scheduled, a delivery date can be set, and the customer meets our credit requirements. We use bookings to evaluate the results of our operations, generate future operating plans and assess the performance of our company. While we believe that this measure is useful in evaluating our business, this information should be considered as supplemental in nature and is not meant as a substitute for revenue recognized in accordance with GAAP. In addition, other companies, including companies in our industry, may calculate bookings differently or not at all, which reduces its usefulness as a comparative measure. Reconciliation of bookings to net revenue is not practicable. A majority of our orders are subject to cancellation or deferral by our customers with limited or no penalties. Also, customer demand for our products can vary dramatically without prior notice. Because of the volatility of customer demand, possibility of customer changes in delivery schedules or cancellations and potential delays in product shipments, our backlog as of any particular date may not be indicative of net revenue for any succeeding period.
The following tables reflect our bookings and backlog for fiscal 2019 and 2018:
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Fiscal
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(in thousands)
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2019
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2018
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Bookings
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$
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503,098
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$
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840,083
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As of
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(in thousands)
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September 28, 2019
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September 29, 2018
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Backlog
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$
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104,711
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$
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141,665
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Our net revenues for fiscal 2019 decreased as compared to our net revenues for fiscal 2018 primarily due to lower volume as a result of lower demand from our customers, particularly in our Capital Equipment segment.
The semiconductor industry is volatile and our operating results 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 historical industry-wide volatility will persist.
The U.S. and several other countries have levied tariffs on certain goods. In particular, trade tensions between the U.S. and China have been escalating since 2018, with U.S. tariffs on Chinese goods and retaliatory Chinese tariffs on U.S. goods. These have resulted in uncertainties in the semiconductor, LED, memory and automotive markets. While the Company anticipates long-term growth in semiconductor consumption, the softening in demand, which began in the fourth quarter of fiscal 2018, is expected to continue through fiscal 2020.
Net Revenue
Approximately 93.3% and 92.3% of our net revenue for fiscal 2019 and 2018, respectively, was for shipments to customer locations outside of the U.S., primarily in the Asia/Pacific region. In the Asia/Pacific region, our customer base is also becoming more geographically concentrated as a result of economic and industry conditions. Approximately 46.7% and 46.0% of our net revenue for fiscal 2019 and 2018, respectively, was for shipments to customers located in China.
The following table reflects net revenue by business segment for fiscal 2019 and 2018:
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Fiscal
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(dollar amounts in thousands)
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2019
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2018
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$ Change
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% Change
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Capital Equipment
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$
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386,820
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$
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719,390
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$
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(332,570
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)
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(46.2
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)%
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APS
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153,232
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169,731
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(16,499
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)
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(9.7
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)%
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Total net revenue
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$
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540,052
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$
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889,121
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$
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(349,069
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)
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(39.3
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)%
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Capital Equipment
The following table reflects the components of Capital Equipment net revenue change between fiscal 2019 and 2018:
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Fiscal 2019 vs. 2018
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(in thousands)
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Price
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Volume
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$ Change
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Capital Equipment
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$
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(3,910
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)
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$
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(328,660
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)
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$
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(332,570
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)
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For fiscal 2019, the lower Capital Equipment net revenue as compared to the prior year period was primarily due to lower volume and unfavorable price variance. The lower volume was primarily due to a decrease in customer investments as a result of uncertainties in semiconductor, LED, memory and automotive markets. The unfavorable price variance was primarily due to competition in power module, power discrete, and battery application and unfavorable product mix.
APS
The following table reflects the components of APS net revenue change between fiscal 2019 and 2018:
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Fiscal 2019 vs. 2018
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(in thousands)
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Price
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Volume
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$ Change
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APS
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$
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(7,922
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)
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$
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(8,577
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)
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$
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(16,499
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)
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For fiscal 2019, the lower APS net revenue as compared to fiscal 2018 was due to lower sales volume and unfavorable price variance. The lower sales volume was due to lower utilization of our products and the unfavorable price was due to competition in consumable business and unfavorable product mix.
Gross Profit
The following table reflects gross profit by business segment for fiscal 2019 and 2018:
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Fiscal
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(dollar amounts in thousands)
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2019
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2018
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$ Change
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% Change
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Capital Equipment
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$
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168,683
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$
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315,939
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$
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(147,256
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)
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(46.6
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)%
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APS
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85,907
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93,502
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(7,595
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)
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(8.1
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)%
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Total gross profit
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$
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254,590
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$
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409,441
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$
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(154,851
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)
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(37.8
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)%
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The following table reflects gross profit as a percentage of net revenue by business segment for fiscal 2019 and 2018:
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Fiscal
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2019
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2018
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Basis point
change
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Capital Equipment
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43.6
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%
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43.9
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%
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(30
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)
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APS
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56.1
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%
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55.1
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%
|
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100
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Total gross margin
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47.1
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%
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|
46.1
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%
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|
100
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|
Capital Equipment
The following table reflects the components of Capital Equipment gross profit change between fiscal 2019 and 2018:
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|
Fiscal 2019 vs. 2018
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(in thousands)
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Price
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Cost
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Volume
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$ Change
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|
Capital Equipment
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|
$
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(3,910
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)
|
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$
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4,060
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|
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$
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(147,406
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)
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$
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(147,256
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)
|
For fiscal 2019, the lower Capital Equipment gross profit as compared to fiscal 2018 was primarily due to lower volume and unfavorable price variance. The lower volume was primarily due to decrease in customer investments as a result of uncertainties in semiconductor, LED, memory and automotive markets. The unfavorable price variance was primarily due to competition in power module, power discrete and battery application and unfavorable product mix. The lower volume and unfavorable price variance were partially offset by the lower cost. The lower cost was primarily due to change in product mix.
APS
The following table reflects the components of APS gross profit change between fiscal 2019 and 2018:
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|
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|
Fiscal 2019 vs. 2018
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(in thousands)
|
|
Price
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|
Cost
|
|
Volume
|
|
$ Change
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|
APS
|
|
$
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(7,922
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)
|
|
$
|
1,175
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|
|
$
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(848
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)
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$
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(7,595
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)
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For fiscal 2019, the lower APS gross profit as compared to fiscal 2018 was primarily due to price decreases as a result of competition in consumable business and unfavorable product mix.
Operating Expenses
The following table reflects operating expenses as a percentage of net revenue for fiscal 2019 and 2018:
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Fiscal
|
|
|
|
|
|
2019
|
|
2018
|
|
Basis point
change
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Selling, general and administrative
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|
21.6
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%
|
|
13.9
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%
|
|
770
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|
Research and development
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|
21.5
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%
|
|
13.5
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%
|
|
800
|
|
Total
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|
43.1
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%
|
|
27.4
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%
|
|
1,570
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Selling, General and Administrative (“SG&A”)
For fiscal 2019, lower SG&A expenses as compared to fiscal 2018 were primarily due to $10.7 million lower staff costs mainly as a result of decrease in incentive compensation and a $0.4 million decrease in amortization expenses. This was partially offset by $3.4 million net unfavorable variance in foreign exchange, $0.8 million lower net gain in disposal of fixed assets and a $0.6 million increase in professional fees.
Research and Development (“R&D”)
For fiscal 2019, lower R&D expenses as compared to fiscal 2018 were primarily due to lower staff costs mainly as a result of decrease in incentive compensation. This was partially offset by higher investment in the development of advanced packaging products.
Income from Operations
For fiscal 2019, total income from operations was lower by $145.0 million as compared to fiscal 2018. This was primarily due to decreased revenue in fiscal 2019, partially offset by lower operating expenses.
Interest Income and Expense
The following table reflects interest income and interest expense for fiscal 2019 and 2018:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
|
|
|
|
|
|
(dollar amounts in thousands)
|
|
2019
|
|
2018
|
|
$ Change
|
|
% Change
|
|
Interest income
|
|
$
|
15,132
|
|
|
$
|
11,971
|
|
|
$
|
3,161
|
|
|
26.4
|
%
|
|
Interest expense
|
|
$
|
(2,055
|
)
|
|
$
|
(1,054
|
)
|
|
$
|
(1,001
|
)
|
|
95.0
|
%
|
For fiscal 2019, interest income was higher as compared to fiscal 2018. This was primarily due to higher average interest rates.
For fiscal 2019, higher interest expense was due to interest on the Overdraft Facility (Refer to Note 8 of our consolidated financial statements included in Item 8 of this Annual Report), partially offset by a decrease in interest on financing obligations relating to the Building (as defined in Note 8), which were incurred subsequent to the completion of the Building in December 2013.
Provision for Income Taxes
The following table reflects the provision for income taxes and the effective tax rate for fiscal 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
|
|
(in thousands)
|
|
2019
|
|
2018
|
|
Provision for income taxes
|
|
$
|
22,910
|
|
|
$
|
120,744
|
|
|
Effective tax rate
|
|
66.0
|
%
|
|
68.0
|
%
|
For fiscal 2019, the effective tax rate differed from the U.S. federal statutory tax rate primarily due to tax expense related to adjustments to the U.S. one-time transition tax pursuant to newly issued TCJA regulations, valuation allowances recorded against certain deferred tax assets, remeasurement of certain deferred tax balances, undistributed foreign earnings, and deemed dividends, partially offset by tax benefit from foreign earnings subject to a lower statutory tax rate than the U.S. federal statutory tax rate, tax incentives, and tax credits generated during the fiscal year. For further information, refer to Note 14: Income Taxes of our consolidated financial statements.
For fiscal 2018, the effective tax rate differed from the U.S. federal statutory tax rate primarily due to tax expense related to the U.S. one-time transition tax and remeasurement of U.S. deferred tax balances pursuant to the enactment of the TCJA, valuation allowances recorded against certain deferred tax assets, undistributed foreign earnings, and deemed dividends, partially offset by tax benefit from foreign earnings subject to a lower statutory tax rate than the U.S. federal statutory tax rate, tax incentives, and tax credits generated during the fiscal year.
During fiscal 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 TCJA which generally allows U.S. corporations to make distributions without incurring additional U.S. income tax. As a result of this reassessment, a portion of the Company’s undistributed foreign earnings are no longer deemed to be indefinitely reinvested outside the U.S. The Company recorded $0.7 million of tax expense in the second quarter of fiscal 2019 as part of the initial change in assertion and $1.8 million of tax expense cumulatively by the end of fiscal 2019 primarily due to subsequent changes in foreign exchange rates.
LIQUIDITY AND CAPITAL RESOURCES
The following table reflects total cash and investments as of September 28, 2019 and September 29, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
(dollar amounts in thousands)
|
|
September 28, 2019
|
|
September 29, 2018
|
|
Change
|
|
Cash and cash equivalents
|
|
$
|
364,184
|
|
|
$
|
320,630
|
|
|
$
|
43,554
|
|
|
Restricted cash
|
|
—
|
|
|
518
|
|
|
(518
|
)
|
|
Short-term investments
|
|
229,000
|
|
|
293,000
|
|
|
(64,000
|
)
|
|
Total cash, cash equivalents, restricted cash and short-term investments
|
|
$
|
593,184
|
|
|
$
|
614,148
|
|
|
$
|
(20,964
|
)
|
|
Percentage of total assets
|
|
54.9
|
%
|
|
51.8
|
%
|
|
|
|
The following table reflects summary Consolidated Statement of Cash Flow information for fiscal 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
|
|
(in thousands)
|
|
2019
|
|
2018
|
|
Net cash provided by operating activities
|
|
$
|
65,967
|
|
|
$
|
123,499
|
|
|
Net cash provided by/(used in) investing activities
|
|
47,468
|
|
|
(96,871
|
)
|
|
Net cash used in financing activities
|
|
(71,318
|
)
|
|
(99,135
|
)
|
|
Effect of exchange rate changes on cash, cash equivalents and restricted cash
|
|
919
|
|
|
715
|
|
|
Changes in cash, cash equivalents and restricted cash
|
|
$
|
43,036
|
|
|
$
|
(71,792
|
)
|
|
Cash, cash equivalents and restricted cash, beginning of period
|
|
321,148
|
|
|
392,940
|
|
|
Cash, cash equivalents and restricted cash, end of period
|
|
$
|
364,184
|
|
|
$
|
321,148
|
|
Fiscal 2019
Net cash provided by operating activities was primarily the result of net income of $11.7 million, non-cash adjustments of $43.1 million and working capital changes of $11.2 million. The change in working capital was primarily driven by an decrease in accounts and notes receivable of $47.4 million and a decrease in inventories of $24.1 million. This was partially offset primarily by a decrease in accounts payable and accrued expenses and other current liabilities of $53.8 million and a decrease in income taxes payable of $7.8 million.
The decrease in accounts receivable was due to lower collections and sales in fiscal 2019. The decrease in inventories was due to decreased manufacturing activities in fiscal 2019 in response to decreased sales in fiscal 2019. The decrease in accounts payable and accrued expenses and other current liabilities was primarily due to lower accruals on incentive compensation and lower purchases due to lower manufacturing activities. The lower income taxes payable was primarily due to lower profit and payment of tax in fiscal 2019.
The increase in net cash provided by investing activities primarily relates to maturity of short-term investments of $683.0 million, partially offset by purchases of short-term investments of $619.0 million, capital expenditures of $11.7 million and an equity investment of $5.0 million.
Net cash used in financing activities primarily relates to the repurchase of common stock of $99.9 million, and dividends paid to common stockholders of $31.6 million, partially offset by an increase in net overdraft of $60.1 million under our overdraft line of credit.
Fiscal 2018
Net cash provided by operating activities was primarily the result of net income of $56.7 million, non-cash adjustments of $55.9 million and working capital changes of $10.9 million. The change in working capital was primarily driven by an increase in income tax payable of $78.0 million and a decrease in prepaid expenses and other current assets of $9.4 million. This was partially offset primarily by an increase in accounts and notes receivable of $45.2 million and a decrease in accounts payable and accrued expenses and other current liabilities of $30.9 million.
The increase in income tax payable was primarily due to additional tax payable for the U.S. one-time transition tax as a result of the enactment of the Tax Cuts and Jobs Act (the "TCJA"). The decrease in prepaid expenses and other current assets was primarily due to tax refunds received. The increase in accounts receivable was due to slower collections. The decrease in accounts payable
and accrued expenses and other current liabilities was primarily due to lower customer obligations such as customer credit and advances, and lower accrued incentive compensation.
Net cash used in investing activities was primarily due to purchases of short-term investments of $684.0 million and capital expenditures of $20.5 million, offset by maturity of short-term investments of $607.0 million.
Net cash used in financing activities primarily relates to the repurchase of common stock of $90.3 million and dividends paid to common stockholders of $8.2 million.
Fiscal 2020 Liquidity and Capital Resource Outlook
We expect our fiscal 2020 capital expenditures to be between $18.0 million and $22.0 million. The actual amounts for 2020 will vary depending on market conditions. Expenditures are anticipated to be primarily used for R&D projects, enhancements to our manufacturing operations in Asia, improvements to our information technology infrastructure and leasehold improvements for our facilities.
We believe that our existing cash and investments and anticipated cash flows from operations will be sufficient to meet our liquidity and capital requirements for at least the next twelve months. Our liquidity is affected by many factors, some based on normal operations of our business and others related to global economic conditions and industry uncertainties, which we cannot predict. We also cannot predict economic conditions and industry downturns or the timing, strength or duration of recoveries. We intend to continue to use our cash for working capital needs and for general corporate purposes.
We may seek, as we believe appropriate, additional debt or equity financing which would provide capital for corporate purposes, working capital funding, additional liquidity needs or to fund future growth opportunities, including possible acquisitions and investments. The timing and amount of potential capital requirements cannot be determined at this time and will depend on a number of factors, including our actual and projected demand for our products, semiconductor and semiconductor capital equipment industry conditions, competitive factors, and the condition of financial markets.
As of September 28, 2019 and September 29, 2018, approximately $591.3 million and $545.0 million of cash, cash equivalents, restricted cash and short-term investments were held by the Company's foreign subsidiaries, respectively. As a result of the TCJA, signed into law on December 22, 2017, a portion of the cash amounts as of September 28, 2019 are expected to be available for use in the U.S. without incurring additional U.S. income tax. Please refer to Note 13 of Item 8 for more details regarding the impact of the TCJA on our income taxes.
The Company’s international operations and capital requirements are funded primarily by cash generated by foreign operating activities and cash held by foreign subsidiaries. Most of the Company's operations and liquidity needs are outside the U.S. In fiscal 2019, the Company’s U.S. operations and capital requirements have been funded primarily by cash generated from U.S. operating activities, repatriation of cash generated by foreign operating activities, and by a Facility Agreement with MUFG Bank, Ltd. In the future, the Company may repatriate additional cash held by foreign subsidiaries that has already been subject to U.S. tax. We believe these future repatriations of cash and our U.S. sources of cash and liquidity are sufficient to meet our other business needs in the U.S. for the foreseeable future including funding of U.S. operations, capital expenditures, repayment of outstanding balances under the Facility Agreement with MUFG Bank, Ltd., dividend program, and the share repurchase program as approved by the Board of Directors. Should the Company’s U.S. cash needs exceed its funds generated by U.S. and foreign operations due to changing business conditions or transactions outside the ordinary course, such as acquisitions of large capital assets, businesses or any other capital appropriation in the U.S., the Company may require additional financing in the U.S. In this event, the Company could seek U.S. borrowing alternatives.
Share Repurchase Program
On August 15, 2017, the Company's Board of Directors authorized 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 Company's 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 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 fiscal year ended September 28, 2019, the Company repurchased a total of 4.7 million shares of common stock at a cost of $100.5 million. As of September 28, 2019, our remaining share repurchase authorization under the Program was approximately $97.1 million.
Dividends
On August 7, 2019, May 20, 2019, February 28, 2019 and December 12, 2018, the Board of Directors declared a quarterly dividend $0.12 per share of common stock. During the fiscal year ended September 28, 2019, the Company declared dividends of $0.48 per share of common stock. 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.
Other Obligations and Contingent Payments
In accordance with U.S. generally accepted accounting principles, certain obligations and commitments as of September 28, 2019 are appropriately not included in the Consolidated Balance Sheets and Statements of Operations in this Form 10-K. However, because these obligations and commitments are entered into in the normal course of business and because they may have a material impact on our liquidity, we have disclosed them in the table below.
Additionally, as of September 28, 2019, the Company had deferred tax liabilities of $32.1 million, unrecognized tax benefit within the income tax payable for uncertain tax positions of $11.7 million and related accrued interest of $1.4 million. These amounts are not included in the contractual obligation table below because we are unable to reasonably estimate the timing of these payments at this time.
The following table presents certain payments due by the Company under contractual obligations with minimum firm commitments as of September 28, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due in
|
|
(in thousands)
|
|
Total
|
|
Less than 1 year
|
|
1 - 3 years
|
|
3 - 5 years
|
|
More than 5 years
|
|
Inventory purchase obligations (1)
|
|
$
|
83,278
|
|
|
83,278
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Operating lease obligations (2)
|
|
16,273
|
|
|
4,089
|
|
|
4,758
|
|
|
3,789
|
|
|
3,637
|
|
|
U.S. One-time transition tax payable (3)
(reflected on our Balance Sheets)
|
|
72,401
|
|
|
5,175
|
|
|
12,213
|
|
|
18,607
|
|
|
36,406
|
|
|
Asset retirement obligations (reflected on our Balance Sheets)(4)
|
|
1,636
|
|
|
125
|
|
|
323
|
|
|
1,063
|
|
|
125
|
|
|
Total
|
|
$
|
173,588
|
|
|
$
|
92,667
|
|
|
$
|
17,294
|
|
|
$
|
23,459
|
|
|
$
|
40,168
|
|
|
|
|
|
(1)
|
We order inventory components in the normal course of our business. A portion of these orders are non-cancellable and a portion may have varying penalties and charges in the event of cancellation.
|
|
|
|
|
(2)
|
Represents minimum rental commitments under various leases (excluding taxes, insurance, maintenance and repairs, which are also paid by us) primarily for various facility and equipment leases, which expire periodically through 2027 (not including lease extension options, if applicable).
|
The annual rent and service charge for our corporate headquarters ranges from $4 million to $5 million Singapore dollars and is not included in the table above.
In accordance with ASC No. 840, Leases ("ASC 840"), the Company was considered to be the owner of its headquarters during the construction phase due to its involvement in the asset construction. As a result of the Company's continued involvement during the lease term, the Company did not fulfill the criteria to apply sale-leaseback accounting under ASC 840. Therefore, at completion, the building remained on the Consolidated Balance Sheet, and the corresponding financing obligation was reclassified to long-term liability. As of September 28, 2019, we recorded a financing obligation of $15.0 million. The financing obligation is not reflected in the table above.
|
|
|
|
(3)
|
Associated with the U.S. one-time transition tax on certain earnings and profits of our foreign subsidiaries in relation to the TCJA.
|
|
|
|
|
(4)
|
Asset retirement obligations are associated with commitments to return the property to its original condition upon lease termination at various sites.
|
Off-Balance Sheet Arrangements
Bank Guarantees
On November 22, 2013, the Company obtained a $5.0 million credit facility with Citibank in connection with the issuance of bank guarantees for operational purposes. As of September 28, 2019 and September 29, 2018, the outstanding amount was $3.1 million and $4.0 million respectively.
Credit Facilities
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 line of credit facility of up to $150.0 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 one of its subsidiaries (the "Subsidiary"), or encumber its assets with material security interests (including any pledge of monies in the Subsidiary’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 September 28, 2019, the outstanding amount under the Facility Agreements was $60.9 million.
As of September 28, 2019, we did not have any other off-balance sheet arrangements, such as contingent interests or obligations associated with variable interest entities.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of Kulicke and Soffa Industries, Inc. listed in the index appearing under Item 15(a)(1) herein are filed as part of this Report under this Item 8.
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Kulicke and Soffa Industries, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Kulicke and Soffa Industries, Inc. and its subsidiaries (the “Company”) as of September 28, 2019 and September 29, 2018, and the related consolidated statements of operations, comprehensive income, changes in shareholders’ equity and cash flows for each of the three years in the period ended September 28, 2019, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended September 28, 2019 appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of September 28, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of September 28, 2019 and September 29, 2018, and the results of its operations and its cash flows for each of the three years in the period ended September 28, 2019 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 28, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Income Taxes- Application of newly issued regulations and guidance on the computation of the U.S. one-time transition tax resulting from the US Tax Cuts and Jobs Act of 2017
As described in Note 13 to the consolidated financial statements, the Tax Cuts and Jobs Act (the “TCJA”), signed into law on December 22, 2017, made certain changes to the US Tax code and included a one-time transition tax on deemed repatriation of previously untaxed accumulated earnings and profits of certain foreign subsidiaries. The consolidated financial statements for the fiscal year ended September 29, 2018 reflect the income tax effects of the TCJA as required by Accounting Standards Codification Topic 740. In fiscal year 2019, the Company recorded an additional tax expense of $9.4 million due to newly issued TCJA regulations and guidance on the computation of the U.S. one-time transition tax.
The principal considerations for our determination that performing procedures relating to the application of newly issued regulations and guidance on the computation of the U.S. one-time transition tax resulting from the TCJA is a critical audit matter are (i) the significant judgments made by management when applying the newly issued regulations and guidance to the deemed repatriated previously untaxed accumulated earnings and profits of certain foreign subsidiaries; (ii) the high degree of auditor judgment and subjectivity in applying procedures to evaluate management’s application of these newly issued regulations and guidance to the deemed repatriated previously untaxed accumulated earnings and profits of certain foreign subsidiaries; and (iii) the nature of our effort included the use of professionals with specialized skill and knowledge to assist in evaluating the application of the newly issued regulations and guidance.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to income taxes, including control procedures over management’s methods and assumptions used in identifying, applying, and disclosing the impacts to the Company’s tax positions recorded as a result of newly issued TCJA regulations and guidance on the computation of the U.S. one-time transition tax. These procedures also included, among others, evaluating the appropriateness of management’s judgments when applying the newly issued regulations and guidance, evaluating management’s documentation regarding the newly issued regulations and guidance, assessing the impact of the newly issued regulations and guidance on the financial position of the Company, and testing the underlying data used in management’s assessment of the application of the newly issued regulations and guidance. When assessing the proper application of the newly issued regulations and guidance on the computation of the U.S. one-time transition tax resulting from the TCJA, we involved the use of professionals with specialized skill and knowledge.
/s/ PricewaterhouseCoopers LLP
Singapore
November 15, 2019
We have served as the Company’s auditor since 2011.
KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
September 28, 2019
|
|
September 29, 2018
|
|
ASSETS
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
364,184
|
|
|
$
|
320,630
|
|
|
Restricted cash
|
|
—
|
|
|
518
|
|
|
Short-term investments
|
|
229,000
|
|
|
293,000
|
|
|
Accounts and notes receivable, net of allowance for doubtful accounts of $597 and $385, respectively
|
|
195,830
|
|
|
243,373
|
|
|
Inventories, net
|
|
89,308
|
|
|
115,191
|
|
|
Prepaid expenses and other current assets
|
|
15,429
|
|
|
14,561
|
|
|
Total current assets
|
|
893,751
|
|
|
987,273
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
72,370
|
|
|
76,067
|
|
|
Goodwill
|
|
55,691
|
|
|
56,550
|
|
|
Intangible assets, net
|
|
42,651
|
|
|
52,871
|
|
|
Deferred tax assets
|
|
6,409
|
|
|
9,017
|
|
|
Equity investments
|
|
6,250
|
|
|
1,373
|
|
|
Other assets
|
|
2,494
|
|
|
2,589
|
|
|
TOTAL ASSETS
|
|
$
|
1,079,616
|
|
|
$
|
1,185,740
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
Short term debt
|
|
$
|
60,904
|
|
|
$
|
—
|
|
|
Accounts payable
|
|
36,711
|
|
|
48,527
|
|
|
Accrued expenses and other current liabilities
|
|
64,533
|
|
|
105,978
|
|
|
Income taxes payable
|
|
12,494
|
|
|
19,571
|
|
|
Total current liabilities
|
|
174,642
|
|
|
174,076
|
|
|
|
|
|
|
|
|
Financing obligation
|
|
14,207
|
|
|
15,187
|
|
|
Deferred tax liabilities
|
|
32,054
|
|
|
25,591
|
|
|
Income taxes payable
|
|
80,290
|
|
|
81,491
|
|
|
Other liabilities
|
|
9,360
|
|
|
9,188
|
|
|
TOTAL LIABILITIES
|
|
$
|
310,553
|
|
|
$
|
305,533
|
|
|
|
|
|
|
|
|
Commitments and contingent liabilities (Note 15)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS' EQUITY:
|
|
|
|
|
|
|
|
Preferred stock, without par value:
|
|
|
|
|
|
|
|
Authorized 5,000 shares; issued - none
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Common stock, no par value:
|
|
|
|
|
|
|
|
Authorized 200,000 shares; issued 85,364 and 84,659 respectively; outstanding 63,172 and 67,143 shares, respectively
|
|
533,590
|
|
|
519,244
|
|
|
Treasury stock, at cost, 22,192 and 17,516 shares, respectively
|
|
(349,212
|
)
|
|
(248,664
|
)
|
|
Retained earnings
|
|
594,625
|
|
|
613,529
|
|
|
Accumulated other comprehensive loss
|
|
(9,940
|
)
|
|
(3,902
|
)
|
|
TOTAL SHAREHOLDERS' EQUITY
|
|
$
|
769,063
|
|
|
$
|
880,207
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
$
|
1,079,616
|
|
|
$
|
1,185,740
|
|
The accompanying notes are an integral part of these consolidated financial statements.
KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
|
|
|
|
2019
|
|
2018
|
|
2017
|
|
Net revenue
|
|
$
|
540,052
|
|
|
$
|
889,121
|
|
|
$
|
809,041
|
|
|
Cost of sales
|
|
285,462
|
|
|
479,680
|
|
|
426,947
|
|
|
Gross profit
|
|
254,590
|
|
|
409,441
|
|
|
382,094
|
|
|
Selling, general and administrative
|
|
116,811
|
|
|
123,188
|
|
|
133,601
|
|
|
Research and development
|
|
116,169
|
|
|
119,621
|
|
|
100,203
|
|
|
Impairment charges
|
|
—
|
|
|
—
|
|
|
35,207
|
|
|
Operating expenses
|
|
232,980
|
|
|
242,809
|
|
|
269,011
|
|
|
Income from operations
|
|
21,610
|
|
|
166,632
|
|
|
113,083
|
|
|
Interest income
|
|
15,132
|
|
|
11,971
|
|
|
6,491
|
|
|
Interest expense
|
|
(2,055
|
)
|
|
(1,054
|
)
|
|
(1,059
|
)
|
|
Income before income taxes
|
|
34,687
|
|
|
177,549
|
|
|
118,515
|
|
|
Provision for (benefit from) income tax
|
|
22,910
|
|
|
120,744
|
|
|
(7,394
|
)
|
|
Share of results of equity-method investee, net of tax
|
|
124
|
|
|
129
|
|
|
(190
|
)
|
|
Net income
|
|
$
|
11,653
|
|
|
$
|
56,676
|
|
|
$
|
126,099
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.18
|
|
|
$
|
0.82
|
|
|
$
|
1.78
|
|
|
Diluted
|
|
$
|
0.18
|
|
|
$
|
0.80
|
|
|
$
|
1.75
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared per share
|
|
$
|
0.48
|
|
|
$
|
0.24
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
65,286
|
|
|
69,380
|
|
|
70,906
|
|
|
Diluted
|
|
65,948
|
|
|
70,419
|
|
|
72,063
|
|
The accompanying notes are an integral part of these consolidated financial statements.
KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
|
|
|
2019
|
|
2018
|
|
2017
|
|
Net income
|
$
|
11,653
|
|
|
$
|
56,676
|
|
|
$
|
126,099
|
|
|
Other comprehensive (loss) / income:
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
(6,534
|
)
|
|
(3,633
|
)
|
|
1,960
|
|
|
Unrecognized actuarial gain on pension plan, net of tax
|
22
|
|
|
116
|
|
|
990
|
|
|
|
(6,512
|
)
|
|
(3,517
|
)
|
|
2,950
|
|
|
|
|
|
|
|
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
Unrealized (loss) / gain on derivative instruments, net of tax
|
(741
|
)
|
|
(669
|
)
|
|
669
|
|
|
Reclassification adjustment for loss / (gain) on derivative instruments recognized, net of tax
|
1,215
|
|
|
(1,755
|
)
|
|
1,146
|
|
|
Net increase / (decrease) from derivatives designated as hedging instruments, net of tax
|
474
|
|
|
(2,424
|
)
|
|
1,815
|
|
|
|
|
|
|
|
|
|
Total other comprehensive (loss) / income
|
(6,038
|
)
|
|
(5,941
|
)
|
|
4,765
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
$
|
5,615
|
|
|
$
|
50,735
|
|
|
$
|
130,864
|
|
The accompanying notes are an integral part of these consolidated financial statements.
KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Treasury Stock
|
|
Retained earnings
|
|
Accumulated Other Comprehensive (loss) / income
|
|
Shareholders' Equity
|
|
|
Shares
|
|
Amount
|
|
|
|
|
|
Balances as of October 1, 2016
|
70,420
|
|
|
$
|
498,676
|
|
|
$
|
(139,407
|
)
|
|
$
|
442,981
|
|
|
$
|
(2,726
|
)
|
|
$
|
799,524
|
|
|
Issuance of stock for services rendered
|
45
|
|
|
750
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
750
|
|
|
Repurchase of common stock
|
(945
|
)
|
|
—
|
|
|
(18,197
|
)
|
|
—
|
|
|
—
|
|
|
(18,197
|
)
|
|
Exercise of stock options
|
61
|
|
|
509
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
509
|
|
|
Issuance of shares for equity-based compensation
|
616
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Excess tax benefits from equity based compensation
|
—
|
|
|
(4,392
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4,392
|
)
|
|
Equity-based compensation
|
—
|
|
|
10,972
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
10,972
|
|
|
Components of comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
126,099
|
|
|
—
|
|
|
126,099
|
|
|
Other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,765
|
|
|
4,765
|
|
|
Total comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
126,099
|
|
|
4,765
|
|
|
130,864
|
|
|
Balances as of September 30, 2017
|
70,197
|
|
|
$
|
506,515
|
|
|
$
|
(157,604
|
)
|
|
$
|
569,080
|
|
|
$
|
2,039
|
|
|
$
|
920,030
|
|
|
Issuance of stock for services rendered
|
33
|
|
|
780
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
780
|
|
|
Repurchase of common stock
|
(3,760
|
)
|
|
—
|
|
|
(91,060
|
)
|
|
—
|
|
|
—
|
|
|
(91,060
|
)
|
|
Exercise of stock options
|
6
|
|
|
55
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
55
|
|
|
Issuance of shares for equity-based compensation
|
667
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Equity-based compensation
|
—
|
|
|
10,480
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
10,480
|
|
|
Cumulative effect of accounting changes
|
—
|
|
|
1,414
|
|
|
—
|
|
|
4,006
|
|
|
—
|
|
|
5,420
|
|
|
Cash dividends declared
|
—
|
|
|
—
|
|
|
—
|
|
|
(16,233
|
)
|
|
—
|
|
|
(16,233
|
)
|
|
Components of comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
56,676
|
|
|
—
|
|
|
56,676
|
|
|
Other comprehensive loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,941
|
)
|
|
(5,941
|
)
|
|
Total comprehensive income/ (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
56,676
|
|
|
(5,941
|
)
|
|
50,735
|
|
|
Balances as of September 29, 2018
|
67,143
|
|
|
$
|
519,244
|
|
|
$
|
(248,664
|
)
|
|
$
|
613,529
|
|
|
$
|
(3,902
|
)
|
|
$
|
880,207
|
|
|
Issuance of stock for services rendered
|
37
|
|
|
834
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
834
|
|
|
Repurchase of common stock
|
(4,676
|
)
|
|
—
|
|
|
(100,548
|
)
|
|
—
|
|
|
—
|
|
|
(100,548
|
)
|
|
Exercise of stock options
|
2
|
|
|
14
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
14
|
|
|
Issuance of shares for equity-based compensation
|
667
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Equity-based compensation
|
—
|
|
|
13,498
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
13,498
|
|
|
Cumulative effect of accounting changes
|
—
|
|
|
—
|
|
|
—
|
|
|
534
|
|
|
—
|
|
|
534
|
|
|
Cash dividend declared
|
—
|
|
|
—
|
|
|
—
|
|
|
(31,091
|
)
|
|
—
|
|
|
(31,091
|
)
|
|
Components of comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
11,653
|
|
|
—
|
|
|
11,653
|
|
|
Other comprehensive loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(6,038
|
)
|
|
(6,038
|
)
|
|
Total comprehensive income / (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
11,653
|
|
|
(6,038
|
)
|
|
5,615
|
|
|
Balances as of September 28, 2019
|
63,173
|
|
|
$
|
533,590
|
|
|
$
|
(349,212
|
)
|
|
$
|
594,625
|
|
|
$
|
(9,940
|
)
|
|
$
|
769,063
|
|
The accompanying notes are an integral part of these consolidated financial statements.
KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
|
|
|
|
2019
|
|
2018
|
|
2017
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
11,653
|
|
|
$
|
56,676
|
|
|
$
|
126,099
|
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
20,304
|
|
|
19,015
|
|
|
16,257
|
|
|
Impairment charges
|
|
—
|
|
|
—
|
|
|
35,207
|
|
|
Equity-based compensation and employee benefits
|
|
14,332
|
|
|
11,685
|
|
|
11,722
|
|
|
(Excess tax benefits) / Reversal of excess tax benefits from stock based compensation
|
|
—
|
|
|
(50
|
)
|
|
4,392
|
|
|
Adjustment for doubtful accounts
|
|
212
|
|
|
383
|
|
|
(136
|
)
|
|
Adjustment for inventory valuation
|
|
2,657
|
|
|
4,897
|
|
|
10,925
|
|
|
Deferred taxes
|
|
8,825
|
|
|
22,519
|
|
|
(16,758
|
)
|
|
Gain/(loss) on disposal of property, plant and equipment
|
|
20
|
|
|
(676
|
)
|
|
(999
|
)
|
|
Unrealized foreign currency translation
|
|
(3,325
|
)
|
|
(2,002
|
)
|
|
1,362
|
|
|
Share of results of equity-method investee
|
|
124
|
|
|
129
|
|
|
(190
|
)
|
|
Changes in operating assets and liabilities, net of assets and liabilities assumed in businesses combinations:
|
|
|
|
|
|
|
|
Accounts and notes receivable
|
|
47,395
|
|
|
(45,154
|
)
|
|
(67,879
|
)
|
|
Inventory
|
|
24,105
|
|
|
1,631
|
|
|
(47,425
|
)
|
|
Prepaid expenses and other current assets
|
|
(490
|
)
|
|
9,405
|
|
|
(8,468
|
)
|
|
Accounts payable, accrued expenses and other current liabilities
|
|
(53,759
|
)
|
|
(30,868
|
)
|
|
63,425
|
|
|
Income taxes payable
|
|
(7,758
|
)
|
|
77,968
|
|
|
3,946
|
|
|
Other, net
|
|
1,672
|
|
|
(2,059
|
)
|
|
4,830
|
|
|
Net cash provided by operating activities
|
|
65,967
|
|
|
123,499
|
|
|
136,310
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Acquisition of business, net of cash acquired
|
|
—
|
|
|
—
|
|
|
(27,119
|
)
|
|
Purchases of property, plant and equipment
|
|
(11,742
|
)
|
|
(20,496
|
)
|
|
(25,590
|
)
|
|
Proceeds from sales of property, plant and equipment
|
|
210
|
|
|
625
|
|
|
1,352
|
|
|
Purchase of equity investments
|
|
(5,000
|
)
|
|
—
|
|
|
(1,312
|
)
|
|
Purchase of short term investments
|
|
(619,000
|
)
|
|
(684,000
|
)
|
|
(305,000
|
)
|
|
Maturity of short term investments
|
|
683,000
|
|
|
607,000
|
|
|
213,000
|
|
|
Net cash provided by / (used in) investing activities
|
|
47,468
|
|
|
(96,871
|
)
|
|
(144,669
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Payment on debts
|
|
(30,773
|
)
|
|
(704
|
)
|
|
(604
|
)
|
|
Proceeds from exercise of common stock options
|
|
14
|
|
|
55
|
|
|
509
|
|
|
Repurchase of common stock
|
|
(99,897
|
)
|
|
(90,310
|
)
|
|
(18,197
|
)
|
|
(Reversal of excess tax benefits) / Excess tax benefits from stock based compensation
|
|
—
|
|
|
—
|
|
|
(4,392
|
)
|
|
Proceeds from short term debt
|
|
90,904
|
|
|
—
|
|
|
—
|
|
|
Common stock cash dividends paid
|
|
(31,566
|
)
|
|
(8,176
|
)
|
|
—
|
|
|
Net cash used in financing activities
|
|
(71,318
|
)
|
|
(99,135
|
)
|
|
(22,684
|
)
|
|
Effect of exchange rate changes on cash, cash equivalents and restricted cash
|
|
919
|
|
|
715
|
|
|
76
|
|
|
Changes in cash, cash equivalents and restricted cash
|
|
43,036
|
|
|
(71,792
|
)
|
|
(30,967
|
)
|
|
Cash, cash equivalents and restricted cash at beginning of period
|
|
321,148
|
|
|
392,940
|
|
|
423,907
|
|
|
Cash, cash equivalents and restricted cash at end of period
|
|
$
|
364,184
|
|
|
$
|
321,148
|
|
|
$
|
392,940
|
|
|
|
|
|
|
|
|
|
|
CASH PAID FOR:
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
1,634
|
|
|
$
|
1,054
|
|
|
$
|
1,059
|
|
|
Income taxes
|
|
$
|
22,073
|
|
|
$
|
13,179
|
|
|
$
|
8,283
|
|
The accompanying notes are an integral part of these consolidated financial statements.
Table of Contents
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION
These consolidated financial statements include the accounts of Kulicke and Soffa Industries, Inc. and its subsidiaries (the “Company”), with appropriate elimination of intercompany balances and transactions.
Fiscal Year
Each of the Company's first three fiscal quarters ends on the Saturday that is 13 weeks after the end of the immediately preceding fiscal quarter. The fourth quarter of each fiscal year ends on the Saturday closest to September 30. In fiscal years consisting of 53 weeks, the fourth quarter will consist of 14 weeks. The 2019, 2018, and 2017 fiscal years ended on September 28, 2019, September 29, 2018 and September 30, 2017, respectively.
Nature of Business
The Company designs, manufactures and sells capital equipment and tools as well as services, maintains, repairs and upgrades equipment, all used to assemble semiconductor devices. The Company's operating results depend upon the capital and operating expenditures of semiconductor device manufacturers, integrated device manufacturers, outsourced semiconductor assembly and test providers (“OSATs”), and other electronics manufacturers, including automotive electronics suppliers, worldwide which, in turn, depend on the current and anticipated market demand for semiconductors and products utilizing semiconductors. The semiconductor industry is highly volatile and experiences downturns and slowdowns which can have a severe negative effect on the semiconductor industry's demand for semiconductor capital equipment, including assembly equipment manufactured and sold by the Company and, to a lesser extent, tools, including those sold by the Company. These downturns and slowdowns have in the past adversely affected the Company's operating results. The Company believes such volatility will continue to characterize the industry and the Company's operations in the future.
Use of Estimates
The preparation of consolidated financial statements requires management to make assumptions, estimates and judgments that affect the reported amounts of assets and liabilities, net revenue and expenses during the reporting periods, and disclosures of contingent assets and liabilities as of the date of the consolidated financial statements. On an ongoing basis, management evaluates estimates, including but not limited to, those related to accounts receivable, reserves for excess and obsolete inventory, carrying value and lives of fixed assets, goodwill and intangible assets, income taxes, equity-based compensation expense, and warranties. Management bases its estimates on historical experience and on various other assumptions believed to be reasonable. As a result, management makes judgments regarding the carrying values of the Company's assets and liabilities that are not readily apparent from other sources. Authoritative pronouncements, historical experience and assumptions are used as the basis for making estimates, and on an ongoing basis, management evaluates these estimates. Actual results may differ from these estimates.
Vulnerability to Certain Concentrations
Financial instruments which may subject the Company to concentrations of credit risk as of September 28, 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. 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.
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Foreign Currency Translation and Remeasurement
The majority of the Company's business is transacted in U.S. dollars; however, the functional currencies of some of the Company's subsidiaries are their local currencies. In accordance with ASC No. 830, Foreign Currency Matters (“ASC 830”), for a subsidiary of the Company that has a functional currency other than the U.S. dollar, gains and losses resulting from the translation of the functional currency into U.S. dollars for financial statement presentation are not included in determining net income, but are accumulated in the cumulative translation adjustment account as a separate component of shareholders' equity (accumulated other comprehensive income / (loss)). Under ASC 830, cumulative translation adjustments are not adjusted for income taxes as they relate to indefinite investments in non-U.S. subsidiaries. Gains and losses resulting from foreign currency transactions are included in the determination of net income.
The Company's operations are exposed to changes in foreign currency exchange rates due to transactions denominated in currencies other than the location's functional currency. The Company is also exposed to foreign currency fluctuations that impact the remeasurement of net monetary assets of those operations whose functional currency, the U.S. dollar, differs from their respective local currencies, most notably in Israel, 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 statement of operations as the impact of the hedged transaction. Derivatives that we designate as cash flow hedges are classified in the consolidated statement of cash flows in the same section as the underlying item, primarily within cash flows from operating activities.
The hedge effectiveness of these derivative instruments is evaluated by comparing the cumulative change in the fair value of the hedge contract with the cumulative change in the fair value of the forecasted cash flows of the hedged item.
If a cash flow hedge is discontinued because it is no longer probable that the original hedged transaction will occur as previously anticipated, the cumulative unrealized gain or loss on the related derivative is reclassified from accumulated other comprehensive income / (loss) into earnings. Subsequent gain / (loss) on the related derivative instrument is recognized into earnings in each period until the instrument matures, is terminated, is re-designated as a qualified cash flow hedge, or is sold. Ineffective portions of cash flow hedges, as well as amounts excluded from the assessment of effectiveness, are recognized in earnings.
Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less when purchased to be cash equivalents. Cash equivalents are measured at fair value based on level one measurement, or quoted market prices, as defined by ASC No. 820, Fair Value Measurements and Disclosures.
Equity Investments
The Company invests in equity securities in companies to promote business and strategic objectives. Equity investments are measured and recorded as follows:
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
|
|
|
|
•
|
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. The Company is also subject to concentrations of customers and sales to a few geographic locations, which could also impact the collectability of certain receivables. If global or regional economic conditions deteriorate or political conditions were to change in some of the countries where the Company does business, it could have a significant impact on the results of operations, and the Company's ability to realize the full value of its accounts receivable.
Inventories
Inventories are stated at the lower of cost (on a first-in, first-out basis) or net realizable value. The Company generally provides reserves for obsolete inventory and for inventory considered to be in excess of demand. Demand is generally defined as 18 months forecasted future consumption for equipment, 24 months forecasted future consumption for spare parts, and 12 months forecasted future consumption for tools. Forecasted consumption is based upon internal projections, historical sales volumes, customer order activity and a review of consumable inventory levels at customers' facilities. The Company communicates forecasts of its future consumption to its suppliers and adjusts commitments to those suppliers accordingly. If required, the Company reserves the difference between the carrying value of its inventory and the lower of cost or net realizable value, based upon projections about future consumption, and market conditions. If actual market conditions are less favorable than projections, additional inventory reserves may be required.
Inventory reserve provision for certain subsidiaries is determined based on management's estimate of future consumption for equipment and spare parts. This estimate is based on historical sales volumes, internal projections and market developments and trends.
Property, Plant and Equipment
Property, plant and equipment are carried at cost. The cost of additions and those improvements which increase the capacity or lengthen the useful lives of assets are capitalized while repair and maintenance costs are expensed as incurred. Depreciation and amortization are provided on a straight-line basis over the estimated useful lives as follows: buildings 25 years; machinery, equipment, furniture and fittings 3 to 10 years; 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.
ASC 360 requires that long-lived assets be tested for recoverability whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Such events include significant under-performance relative to historical internal forecasts or projected future operating results; significant changes in the manner of use of the assets; significant negative industry or economic trends; or significant changes in market capitalization. During the fiscal years ended September 28, 2019 and September 29, 2018, no "triggering" events occurred.
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 impairment test is unnecessary. However, if a company concludes otherwise, then it is required to perform the goodwill impairment test. Following the Company's early adoption of ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment in the third quarter of fiscal 2017, the requirement to perform a hypothetical purchase price allocation to measure goodwill impairment (i.e. step 2 of the goodwill impairment test) was eliminated. Accordingly, the Company's impairment test is performed by comparing the fair value of a reporting unit with its carrying amount, and recognizing an impairment charge for the amount by which the carrying amount of the reporting unit exceeds its fair value.
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 equipment 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 customers' facilities. 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, 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
|
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 fiscal year ended September 28, 2019, 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 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 expected, on a more likely than not basis, to be realized. While the Company has considered future taxable income and 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.
The Company determines the amount of unrecognized tax benefit with respect to uncertain tax positions taken or expected to be taken on its income tax returns in accordance with ASC No. 740 Topic 10, Income Taxes, General (“ASC 740.10”). 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.
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 consolidated financial statements from the acquisition date forward. The Company is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and results of operations during the reporting period. Estimates are used in accounting for, among other
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
things, the fair value of acquired net operating assets, property and equipment, deferred revenue, intangible assets and related deferred tax balances, useful lives of plant and equipment, and amortizable lives of acquired intangible assets. Any excess of the purchase consideration over the identified fair value of the assets and liabilities acquired is recognized as goodwill. The valuation of these tangible and identifiable intangible assets and liabilities is subject to further management review and may change materially between the preliminary allocation and end of the purchase price allocation period.
Restructuring Charges
Restructuring charges may consist of voluntary or involuntary severance-related charges, asset-related charges and other costs due to exit activities. We recognize voluntary termination benefits when an employee accepts the offered benefit arrangement. We recognize involuntary severance-related charges depending on whether the termination benefits are provided under an ongoing benefit arrangement or under a one-time benefit arrangement. If the former, we recognize the charges once they are probable and the amounts are estimable. If the latter, we recognize the charges once the benefits have been communicated to employees.
Recent Accounting Pronouncements
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 in the first quarter of 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 in prior years as an increase to retained earnings.
In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects From Accumulated Other Comprehensive Income, which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the TCJA and requires entities to provide certain disclosures regarding stranded tax effects, if any. The ASU is effective for us in the first quarter of 2020. However, we do not expect the adoption of this ASU to have a material impact on our financial statements.
Leases
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under current GAAP.
Subsequently in July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements, which 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.
The Company will adopt these ASUs utilizing the modified retrospective transition method through a cumulative-effect adjustment at the beginning of its first fiscal quarter of 2020 and not restate prior periods. In addition, we will elect the package of practical expedients permitted under the transition guidance that allowed us to apply prior conclusions related to lease definition, classification and initial direct costs. The adoption of these ASUs is expected to result in an increase to our consolidated balance sheet of approximately $23.8 million in operating lease liabilities and $22.2 million in right-of-use assets, decrease of approximately $14.5 million in financing obligation, decrease of approximately $15.3 million in property, plant and equipment, and an adjustment of $0.8 million to retained earnings.
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. Early adoption is permitted beginning in our first fiscal quarter of 2020. We do not expect the adoption of this ASU itself to have a material impact on our financial statements.
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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. We do not expect the adoption of this ASU to have a material impact on our financial statements.
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 to which 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 related ASUs) and its impact on the financial statements. This included identifying contracts and 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 fiscal 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.
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 2: BALANCE SHEET COMPONENTS
The following tables reflect the components of significant balance sheet accounts as of September 28, 2019 and September 29, 2018:
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As of
|
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(in thousands)
|
|
September 28, 2019
|
|
September 29, 2018
|
|
|
|
|
|
|
|
Short term investments, available-for-sale(1)
|
|
$
|
229,000
|
|
|
$
|
293,000
|
|
|
|
|
|
|
|
|
Inventories, net:
|
|
|
|
|
|
|
|
Raw materials and supplies
|
|
$
|
52,853
|
|
|
$
|
63,894
|
|
|
Work in process
|
|
32,026
|
|
|
37,829
|
|
|
Finished goods
|
|
33,742
|
|
|
40,357
|
|
|
|
|
118,621
|
|
|
142,080
|
|
|
Inventory reserves
|
|
(29,313
|
)
|
|
(26,889
|
)
|
|
|
|
$
|
89,308
|
|
|
$
|
115,191
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net:
|
|
|
|
|
|
|
|
Land
|
|
$
|
2,182
|
|
|
$
|
2,182
|
|
|
Buildings and building improvements (2)
|
|
41,961
|
|
|
41,616
|
|
|
Leasehold improvements (2)
|
|
24,441
|
|
|
23,561
|
|
|
Data processing equipment and software
|
|
36,302
|
|
|
35,469
|
|
|
Machinery, equipment, furniture and fixtures
|
|
71,465
|
|
|
68,666
|
|
|
Construction in progress
|
|
6,512
|
|
|
6,940
|
|
|
|
|
182,863
|
|
|
178,434
|
|
|
Accumulated depreciation
|
|
(110,493
|
)
|
|
(102,367
|
)
|
|
|
|
$
|
72,370
|
|
|
$
|
76,067
|
|
|
|
|
|
|
|
|
Accrued expenses and other current liabilities:
|
|
|
|
|
|
|
|
Accrued customer obligations (3)
|
|
$
|
26,292
|
|
|
$
|
34,918
|
|
|
Wages and benefits
|
|
18,188
|
|
|
44,505
|
|
|
Commissions and professional fees
|
|
2,024
|
|
|
5,549
|
|
|
Dividends payable
|
|
7,582
|
|
|
8,057
|
|
|
Deferred rent
|
|
1,721
|
|
|
1,847
|
|
|
Severance
|
|
1,500
|
|
|
1,415
|
|
|
Other
|
|
7,226
|
|
|
9,687
|
|
|
|
|
$
|
64,533
|
|
|
$
|
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 fiscal years ended 2019 and 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.
|
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 3: GOODWILL AND INTANGIBLE ASSETS
Goodwill
Intangible assets classified as goodwill are not amortized. The Company performs an annual impairment test of its goodwill during the fourth quarter of each fiscal year, which coincides with the completion of its annual forecasting and refreshing of business outlook process. The Company performed its annual assessment in the fourth quarter of fiscal 2019 and concluded that no impairment charge was required. During the fiscal year ended September 28, 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 by reportable segments as of September 28, 2019 and September 29, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Capital Equipment
|
|
APS
|
|
Balance at September 29, 2018
|
|
$
|
30,159
|
|
|
$
|
26,391
|
|
|
Other
|
|
(679
|
)
|
|
(180
|
)
|
|
Balance at September 28, 2019
|
|
$
|
29,480
|
|
|
$
|
26,211
|
|
Intangible Assets
Intangible assets with determinable lives are amortized over their estimated useful lives. The Company's intangible assets consist primarily of developed technology, customer relationships and trade and brand names.
The following table reflects net intangible assets as of September 28, 2019 and September 29, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
Average estimated
|
|
(dollar amounts in thousands)
|
|
September 28, 2019
|
|
September 29, 2018
|
|
useful lives (in years)
|
|
Developed technology
|
|
$
|
87,209
|
|
|
$
|
90,500
|
|
|
7.0 to 15.0
|
|
Accumulated amortization
|
|
(48,718
|
)
|
|
(45,229
|
)
|
|
|
|
Net developed technology
|
|
$
|
38,491
|
|
|
$
|
45,271
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
35,180
|
|
|
$
|
36,131
|
|
|
5.0 to 6.0
|
|
Accumulated amortization
|
|
(31,862
|
)
|
|
(29,820
|
)
|
|
|
|
Net customer relationships
|
|
$
|
3,318
|
|
|
$
|
6,311
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and brand names
|
|
$
|
7,219
|
|
|
$
|
7,377
|
|
|
7.0 to 8.0
|
|
Accumulated amortization
|
|
(6,377
|
)
|
|
(6,088
|
)
|
|
|
|
Net trade and brand names
|
|
$
|
842
|
|
|
$
|
1,289
|
|
|
|
|
|
|
|
|
|
|
|
|
Other intangible assets
|
|
$
|
2,500
|
|
|
$
|
2,500
|
|
|
1.9
|
|
Accumulated amortization
|
|
(2,500
|
)
|
|
(2,500
|
)
|
|
|
|
Net wedge bonder other intangible assets
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Net intangible assets
|
|
$
|
42,651
|
|
|
$
|
52,871
|
|
|
|
The following table reflects estimated annual amortization expense related to intangible assets as of September 28, 2019:
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
|
|
|
|
|
|
|
|
|
As of
|
|
(in thousands)
|
September 28, 2019
|
|
Fiscal 2020
|
$
|
7,196
|
|
|
Fiscal 2021
|
5,212
|
|
|
Fiscal 2022
|
4,271
|
|
|
Fiscal 2023
|
4,177
|
|
|
Fiscal 2024 and thereafter
|
21,795
|
|
|
Total amortization expense
|
$
|
42,651
|
|
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 September 28, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollar amounts in thousands)
|
Amortized
Cost
|
|
Unrealized
Gains
|
|
Unrealized
Losses
|
|
Estimated Fair Value
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash
|
$
|
201,005
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
201,005
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
Money market funds (1)
|
163,172
|
|
|
—
|
|
|
—
|
|
|
163,172
|
|
|
Time deposits (2)
|
7
|
|
|
—
|
|
|
—
|
|
|
7
|
|
|
Total cash and cash equivalents
|
$
|
364,184
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
364,184
|
|
|
Restricted Cash (2)
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Total restricted cash
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Short-term investments (2):
|
|
|
|
|
|
|
|
|
Time deposits
|
$
|
130,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
130,000
|
|
|
Deposits (3)
|
99,000
|
|
|
—
|
|
|
—
|
|
|
99,000
|
|
|
Total short-term investments
|
$
|
229,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
229,000
|
|
|
Total cash, cash equivalents, restricted cash and short-term investments
|
$
|
593,184
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
593,184
|
|
|
|
|
|
(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.
|
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Cash, cash equivalents, restricted cash and short-term investments consisted of the following as of September 29, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollar amounts 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 restricted cash
|
$
|
518
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
518
|
|
|
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 September 28, 2019 and September 29, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
(in thousands)
|
September 28, 2019
|
|
September 29, 2018
|
|
Non-marketable equity securities(1)
|
$
|
5,000
|
|
|
$
|
—
|
|
|
Equity method investments
|
1,250
|
|
|
1,373
|
|
|
Total
|
$
|
6,250
|
|
|
$
|
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 fiscal year ended September 28, 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 fiscal year ended September 28, 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.
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (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 is denominated in foreign 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 Statements of Operations as the impact of the hedged transaction.
The fair value of derivative instruments on our Consolidated Balance Sheet as of September 28, 2019 and September 29, 2018 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
(in thousands)
|
September 28, 2019
|
|
September 29, 2018
|
|
|
Notional Amount
|
|
Fair Value Liability Derivatives(1)
|
|
Notional Amount
|
Fair Value Liability Derivatives(1)
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
Foreign exchange forward contracts (2)
|
$
|
33,834
|
|
|
$
|
597
|
|
|
$
|
43,095
|
|
$
|
1,071
|
|
|
Total derivatives
|
$
|
33,834
|
|
|
$
|
597
|
|
|
$
|
43,095
|
|
$
|
1,071
|
|
|
|
|
|
(1)
|
The fair value of derivative liabilities is measured using level 2 fair value inputs and is included in accrued expenses and other current liabilities on our Consolidated Balance Sheet.
|
|
|
|
|
(2)
|
Hedged amounts expected to be recognized into earnings within the next twelve months.
|
The effect of derivative instruments designated as cash flow hedges in our Consolidated Statements of Operations for the fiscal year ended September 28, 2019 and September 29, 2018 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Fiscal
|
|
|
2019
|
|
2018
|
|
Foreign exchange forward contract in cash flow hedging relationships:
|
|
|
|
|
Net loss recognized in OCI, net of tax(1)
|
$
|
(741
|
)
|
|
$
|
(669
|
)
|
|
Net (loss) / gain reclassified from accumulated OCI into earnings, net of tax(2)
|
$
|
(1,215
|
)
|
|
$
|
1,755
|
|
|
|
|
|
(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, 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
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
to renew for 2 further 10-year terms. The annual rent and service charge for the initial term range from $4 million to $5 million Singapore dollars.
Pursuant to ASC No. 840, Leases ("ASC 840"), we have classified the Building on our balance sheet as Property, Plant and Equipment, which we are depreciating over its estimated useful life of 25 years. We concluded that the term of the financing obligation is 10 years. This is equal to the non-cancellable term of our lease agreement with the Landlord. At the inception of the lease, the asset and financing obligation recorded on the balance sheet was $20.0 million, which was based on an interest rate of 6.3% over the Initial Term. As of September 28, 2019, the financing obligation related to the Building is $15.0 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.
Bank Guarantees
On November 22, 2013, the Company obtained a $5.0 million credit facility with Citibank in connection with the issuance of bank guarantees for operational purposes. As of September 28, 2019 and September 29, 2018, the outstanding amount was $3.1 million and $4.0 million respectively.
Credit Facilities
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 line of credit facility of up to $150.0 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 one of its subsidiaries (the "Subsidiary"), or encumber its assets with material security interests (including any pledge of monies in the Subsidiary’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 September 28, 2019, the outstanding amount under the Facility Agreements is $60.9 million.
NOTE 9: SHAREHOLDERS’ EQUITY AND EMPLOYEE BENEFIT PLANS
Common Stock and 401(k) Retirement Income Plans
The Company has a 401(k) retirement plan (the “Plan”) for eligible U.S. employees. The Plan allows for employee contributions and matching Company contributions from 4% to 6% based upon terms and conditions of the 401(k) Plan.
The following table reflects the Company’s contributions to the Plan during fiscal 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
|
|
(in thousands)
|
|
2019
|
|
2018
|
|
Cash
|
|
$
|
1,648
|
|
|
$
|
1,610
|
|
Share 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 Company's 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 authorization 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 repurchased through open market and/or privately negotiated transactions at prices deemed appropriate by
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
management. The timing and amount of repurchase transactions under the Program depend on market conditions as well as corporate and regulatory considerations.
During the fiscal year ended September 28, 2019, the Company repurchased a total of 4.7 million shares of common stock at a cost of $100.5 million. The share repurchases were recorded in the periods they were delivered and accounted for as treasury stock in the Company’s Consolidated Balance Sheet. The Company records treasury stock purchases under the cost method using the first-in, first-out (FIFO) method. Upon reissuance of treasury stock, amounts in excess of the acquisition cost are credited to additional paid-in capital. If the Company reissues treasury stock at an amount below its acquisition cost and additional paid-in capital associated with prior treasury stock transactions is insufficient to cover the difference between acquisition cost and the reissue price, this difference is recorded against retained earnings. As of September 28, 2019, our remaining share repurchase authorization under the Program was approximately $97.1 million.
Dividends
On August 7, 2019, May 20, 2019, February 28, 2019 and December 12, 2018, the Board of Directors declared a quarterly dividend $0.12 per share of common stock. During the fiscal year ended September 28, 2019, the Company declared dividends of $0.48 per share of common stock. 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 income / (loss) reflected on the Consolidated Balance Sheets as of September 28, 2019 and September 29, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
(in thousands)
|
|
September 28, 2019
|
|
September 29, 2018
|
|
Loss from foreign currency translation adjustments
|
|
$
|
(7,745
|
)
|
|
$
|
(1,211
|
)
|
|
Unrecognized actuarial loss on pension plan, net of tax
|
|
(1,598
|
)
|
|
(1,620
|
)
|
|
Unrealized loss on hedging
|
|
(597
|
)
|
|
(1,071
|
)
|
|
Accumulated other comprehensive loss
|
|
$
|
(9,940
|
)
|
|
$
|
(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 September 28, 2019, 4.0 million shares of common stock are available for grant to the Company's employees and directors under the 2017 Equity Plan, including previously registered shares that have been carried forward for issuance under the 2009 Equity Plan.
|
|
|
|
•
|
Relative TSR Performance Share Units ("Relative TSR PSUs") entitle the employee to receive common shares of the Company on the award vesting date if market performance objectives which measure relative total shareholder return (“TSR”) are attained. Relative TSR is calculated based upon the 90-calendar day average price of the Company's stock as compared to specific peer companies that comprise the GICS (45301020) Semiconductor Index. TSR is measured for the Company and each peer company over a performance period, which is generally three years. Vesting percentages range from 0% to 200% of awards granted. The provisions of the 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.
|
|
|
|
|
•
|
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.
|
|
|
|
|
•
|
Special/Growth Performance Share Units (“Special/Growth PSUs”) entitle 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 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.
|
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
|
|
|
|
•
|
In general, 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 (“MDCC”) of the Board of Directors on the date of grant are met. If return on invested capital and revenue growth targets are not met, Performance-based Restricted Stock does not vest. Certain PSUs vest based on achievement of strategic goals over a certain time period or periods set by the MDCC. If the strategic goals are not achieved, the PSUs do not vest.
|
Equity-based compensation expense recognized in the Consolidated Statements of Operations for fiscal 2019, 2018, and 2017 was based upon awards ultimately expected to vest. Following the early adoption in the first quarter of fiscal 2018 of ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, forfeitures have been accounted for when they occur.
The following table reflects total equity-based compensation expense, which includes Relative TSR PSUs, Time-based RSUs, Special/Growth PSUs, Performance-based Restricted Stock and common stock, included in the Consolidated Statements of Operations for fiscal 2019, 2018, and 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
|
|
(in thousands)
|
|
2019
|
|
2018
|
|
2017
|
|
Cost of sales
|
|
$
|
632
|
|
|
$
|
515
|
|
|
$
|
463
|
|
|
Selling, general and administrative
|
|
10,503
|
|
|
8,548
|
|
|
9,015
|
|
|
Research and development
|
|
3,197
|
|
|
2,622
|
|
|
2,244
|
|
|
Total equity-based compensation expense
|
|
$
|
14,332
|
|
|
$
|
11,685
|
|
|
$
|
11,722
|
|
The following table reflects equity-based compensation expense, by type of award, for fiscal 2019, 2018, and 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
|
|
(in thousands)
|
|
2019
|
|
2018
|
|
2017
|
|
Relative TSR PSUs
|
|
$
|
4,220
|
|
|
$
|
3,583
|
|
|
$
|
3,480
|
|
|
Time-based RSUs
|
|
8,603
|
|
|
7,027
|
|
|
7,492
|
|
|
Special/Growth PSUs
|
|
675
|
|
|
295
|
|
|
—
|
|
|
Common stock
|
|
834
|
|
|
780
|
|
|
750
|
|
|
Total equity-based compensation expense
|
|
$
|
14,332
|
|
|
$
|
11,685
|
|
|
$
|
11,722
|
|
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Equity-Based Compensation: Relative TSR PSUs
The following table reflects Relative TSR PSUs activity for fiscal 2019, 2018, and 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares (in thousands)
|
|
Unrecognized compensation expense (in thousands)
|
|
Average remaining service period (in years)
|
|
Weighted average grant date fair value per share
|
|
Relative TSR PSUs outstanding as of October 1, 2016
|
484
|
|
|
$
|
2,924
|
|
|
1.0
|
|
|
|
Granted
|
388
|
|
|
|
|
|
|
$
|
13.47
|
|
|
Forfeited or expired
|
(3
|
)
|
|
|
|
|
|
|
|
Vested
|
(196
|
)
|
|
|
|
|
|
|
|
Relative TSR PSUs outstanding as of September 30, 2017
|
673
|
|
|
$
|
6,204
|
|
|
1.4
|
|
|
|
Granted
|
180
|
|
|
|
|
|
|
$
|
29.60
|
|
|
Forfeited or expired
|
(146
|
)
|
|
|
|
|
|
|
|
Vested
|
(168
|
)
|
|
|
|
|
|
|
|
Relative TSR PSUs outstanding as of September 29, 2018
|
539
|
|
|
$
|
4,629
|
|
|
1.1
|
|
|
|
Granted
|
166
|
|
|
|
|
|
|
$
|
23.15
|
|
|
Forfeited or expired
|
(27
|
)
|
|
|
|
|
|
|
|
Vested
|
(117
|
)
|
|
|
|
|
|
|
|
Relative TSR PSUs outstanding as of September 28, 2019
|
561
|
|
|
$
|
4,136
|
|
|
0.9
|
|
|
The following table reflects the assumptions used to calculate compensation expense related to the Company’s Relative TSR PSUs issued during fiscal 2019, 2018, and 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
|
|
|
2019
|
|
2018
|
|
2017
|
|
Grant Price
|
$
|
20.87
|
|
|
$
|
19.65
|
|
|
$
|
12.51
|
|
|
Expected dividend yield(1)
|
2.30
|
%
|
|
0.12
|
%
|
|
N/A
|
|
|
Expected stock price volatility
|
34.20
|
%
|
|
31.71
|
%
|
|
30.39
|
%
|
|
Risk-free interest rate
|
2.92
|
%
|
|
1.68
|
%
|
|
0.96
|
%
|
(1) The expected dividend yield for fiscal 2018 includes the effect of 10,511 grants which were issued in the quarter ended September 29, 2018 with an assumed dividend yield of 1.91%
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Equity-Based Compensation: Time-based RSUs
The following table reflects Time-based RSUs activity for fiscal 2019, 2018, and 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares (in thousands)
|
|
Unrecognized compensation expense (in thousands)
|
|
Average remaining service period (in years)
|
|
Weighted average grant date fair value per share
|
|
Time-based RSUs outstanding as of October 1, 2016
|
1,015
|
|
|
$
|
6,440
|
|
|
1.5
|
|
|
|
Granted
|
715
|
|
|
|
|
|
|
$
|
13.32
|
|
|
Forfeited or expired
|
(50
|
)
|
|
|
|
|
|
|
|
Vested
|
(600
|
)
|
|
|
|
|
|
|
|
Time-based RSUs outstanding as of September 30, 2017
|
1,080
|
|
|
$
|
7,770
|
|
|
1.5
|
|
|
|
Granted
|
459
|
|
|
|
|
|
|
$
|
22.32
|
|
|
Forfeited or expired
|
(87
|
)
|
|
|
|
|
|
|
|
Vested
|
(542
|
)
|
|
|
|
|
|
|
|
Time-based RSUs outstanding as of September 29, 2018
|
910
|
|
|
$
|
9,038
|
|
|
1.4
|
|
|
|
Granted
|
521
|
|
|
|
|
|
|
$
|
20.95
|
|
|
Forfeited or expired
|
(42
|
)
|
|
|
|
|
|
|
|
Vested
|
(442
|
)
|
|
|
|
|
|
|
|
Time-based RSUs outstanding as of September 28, 2019
|
947
|
|
|
$
|
10,555
|
|
|
1.4
|
|
|
Equity-Based Compensation: Special/Growth PSUs
The following table reflects Special/Growth PSUs activity for fiscal 2019, 2018, and 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares (in thousands)
|
|
Unrecognized compensation expense (in thousands)
|
|
Average remaining service period (in years)
|
|
Weighted average grant date fair value per share
|
|
Special/Growth PSUs outstanding as of September 30, 2017
|
—
|
|
|
|
|
|
|
|
|
Granted
|
60
|
|
|
|
|
|
|
$
|
22.57
|
|
|
Forfeited or expired
|
(14
|
)
|
|
|
|
|
|
|
|
Vested
|
—
|
|
|
|
|
|
|
|
|
Special/Growth PSUs outstanding as of September 29, 2018
|
46
|
|
|
$
|
702
|
|
|
2.1
|
|
|
|
Granted
|
$
|
55
|
|
|
|
|
|
|
$
|
21.07
|
|
|
Forfeited or expired
|
$
|
(4
|
)
|
|
|
|
|
|
|
|
Vested
|
$
|
—
|
|
|
|
|
|
|
|
|
Special/Growth PSUs outstanding as of September 28, 2019
|
$
|
97
|
|
|
$
|
1,128
|
|
|
1.6
|
|
|
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following table reflects employee stock option activity for fiscal 2019, 2018, and 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares (in thousands)
|
|
Weighted average exercise price
|
|
Average remaining contractual life (in years)
|
|
Aggregate intrinsic value (in thousands)
|
|
Options outstanding as of October 1, 2016
|
90
|
|
|
$
|
8.41
|
|
|
|
|
|
|
Exercised
|
(61
|
)
|
|
$
|
8.31
|
|
|
|
|
$
|
531
|
|
|
Forfeited or expired
|
(13
|
)
|
|
$
|
8.50
|
|
|
|
|
|
|
Options outstanding as of September 30, 2017
|
16
|
|
|
$
|
8.73
|
|
|
|
|
|
|
Exercised
|
(6
|
)
|
|
$
|
8.74
|
|
|
|
|
$
|
73
|
|
|
Forfeited or expired
|
(8
|
)
|
|
$
|
8.74
|
|
|
|
|
|
|
Options outstanding as of September 29, 2018
|
2
|
|
|
$
|
8.64
|
|
|
|
|
|
|
Exercised
|
(2
|
)
|
|
$
|
8.64
|
|
|
|
|
$
|
24
|
|
|
Forfeited or expired
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
Options outstanding as of September 28, 2019
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
Options vested and expected to vest as of September 28, 2019
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
Options exercisable as of September 28, 2019
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
|
|
In the money exercisable options as of September 28, 2019
|
—
|
|
|
|
|
|
|
$
|
—
|
|
Intrinsic value of stock options exercised is determined by calculating the difference between the market value of the Company's stock price at the time an option is exercised and the exercise price, multiplied by the number of shares.
As of September 28, 2019, there were no unvested employee stock options.
Equity-Based Compensation: Non-Employee Directors
The 2017 Equity Plan provides for the grant of common shares to each non-employee director upon initial election to the board and on the first business day of each calendar quarter while serving on the board. The grant to a non-employee director upon initial election to the board is that number of common shares closest in value to, without exceeding, $120,000. The quarterly grant to a non-employee director upon the first business day of each calendar quarter is that number of common shares closest in value to, without exceeding, $37,000.
The following table reflects shares of common stock issued to non-employee directors and the corresponding fair value for fiscal 2019, 2018, and 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
|
|
(in thousands)
|
2019
|
|
2018
|
|
2017
|
|
Number of common shares issued
|
37
|
|
|
33
|
|
|
45
|
|
|
Fair value based upon market price at time of issue
|
$
|
834
|
|
|
$
|
780
|
|
|
$
|
750
|
|
Pension Plan
The following table reflects the Company's defined benefits pension obligations, mainly in Switzerland and Taiwan, as of September 28, 2019 and September 29, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
(in thousands)
|
September 28, 2019
|
|
September 29, 2018
|
|
Switzerland pension obligation
|
$
|
1,962
|
|
|
$
|
1,980
|
|
|
Taiwan pension obligation
|
1,191
|
|
|
1,256
|
|
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Other Plans
Some of the Company's other foreign subsidiaries have retirement plans that are integrated with and supplement the benefits provided by laws of the various countries. These other plans are not required to report nor do they determine the actuarial present value of accumulated benefits or net assets available for plan benefits as they are defined contribution plans.
NOTE 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 fiscal years ended September 28, 2019, and September 29, 2018, service revenue is not material. Please refer to Note 1: Basis of Presentation- Revenue Recognition, for additional disclosure on the Company's revenue recognition policy.
The Company reports revenue based on our reportable segments. The Company believes that reporting revenue on this basis provides information about how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. Please refer to Note 14: Segment Information, for disclosure of revenue by segment.
Contract Liabilities
Our contract liabilities are primarily related to payments received 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 fiscal year ended September 28, 2019:
|
|
|
|
|
|
|
|
|
|
|
Fiscal
|
|
(in thousands)
|
|
2019
|
|
Contract liabilities, beginning of period
|
|
$
|
997
|
|
|
Revenue recognized
|
|
(7,935
|
)
|
|
Additions
|
|
8,834
|
|
|
Contract liabilities, end of period
|
|
$
|
1,896
|
|
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.
The following tables reflect a reconciliation of the shares used in the basic and diluted net income per share computation for fiscal 2019, 2018, and 2017:
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
|
|
(in thousands, except per share)
|
|
2019
|
|
2018
|
|
2017
|
|
|
|
Basic
|
|
Diluted
|
|
Basic
|
|
Diluted
|
|
Basic
|
|
Diluted
|
|
NUMERATOR:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
11,653
|
|
|
$
|
11,653
|
|
|
$
|
56,676
|
|
|
$
|
56,676
|
|
|
$
|
126,099
|
|
|
$
|
126,099
|
|
|
DENOMINATOR:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding - Basic
|
|
65,286
|
|
|
65,286
|
|
|
69,380
|
|
|
69,380
|
|
|
70,906
|
|
|
70,906
|
|
|
Dilutive effect of Equity Plans
|
|
|
|
662
|
|
|
|
|
1,039
|
|
|
|
|
1,157
|
|
|
Weighted average shares outstanding - Diluted
|
|
|
|
65,948
|
|
|
|
|
70,419
|
|
|
|
|
72,063
|
|
|
EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share - Basic
|
|
$
|
0.18
|
|
|
$
|
0.18
|
|
|
$
|
0.82
|
|
|
$
|
0.82
|
|
|
$
|
1.78
|
|
|
$
|
1.78
|
|
|
Effect of dilutive shares
|
|
|
|
$
|
—
|
|
|
|
|
$
|
(0.02
|
)
|
|
|
|
$
|
(0.03
|
)
|
|
Net income per share - Diluted
|
|
|
|
$
|
0.18
|
|
|
|
|
$
|
0.80
|
|
|
|
|
$
|
1.75
|
|
NOTE 12: OTHER FINANCIAL DATA
The following table reflects other financial data for fiscal 2019, 2018, and 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
|
|
(in thousands)
|
2019
|
|
2018
|
|
2017
|
|
Incentive compensation expense
|
$
|
423
|
|
|
$
|
25,607
|
|
|
$
|
29,612
|
|
|
Rent expense
|
4,889
|
|
|
4,914
|
|
|
5,071
|
|
|
Warranty and retrofit expense
|
13,030
|
|
|
13,110
|
|
|
13,740
|
|
NOTE 13: INCOME TAXES
The following table reflects U.S and foreign income before income taxes for fiscal 2019, 2018, and 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
|
|
(in thousands)
|
2019
|
|
2018
|
|
2017
|
|
United States
|
$
|
(14,125
|
)
|
|
$
|
25,211
|
|
|
$
|
(4,114
|
)
|
|
Foreign
|
48,812
|
|
|
152,338
|
|
|
122,629
|
|
|
Income before tax
|
$
|
34,687
|
|
|
$
|
177,549
|
|
|
$
|
118,515
|
|
The following table reflects the current and deferred components of provision for (benefit from) income taxes for fiscal 2019, 2018, and 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
|
|
(in thousands)
|
2019
|
|
2018
|
|
2017
|
|
Current:
|
|
|
|
|
|
|
Federal
|
$
|
6,580
|
|
|
$
|
83,159
|
|
|
$
|
(3,975
|
)
|
|
State
|
214
|
|
|
58
|
|
|
64
|
|
|
Foreign
|
6,384
|
|
|
16,980
|
|
|
13,290
|
|
|
Deferred:
|
|
|
|
|
|
|
Federal
|
2,959
|
|
|
23,346
|
|
|
(15,374
|
)
|
|
State
|
—
|
|
|
(2
|
)
|
|
40
|
|
|
Foreign
|
6,773
|
|
|
(2,797
|
)
|
|
(1,439
|
)
|
|
Provision for (benefit from) income taxes
|
$
|
22,910
|
|
|
$
|
120,744
|
|
|
$
|
(7,394
|
)
|
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following table reconciles the provision for (benefit from) income taxes with the expected income tax provision computed based on the applicable U.S. federal statutory tax rate for fiscal 2019, 2018, and 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
|
|
(dollar amounts in thousands)
|
2019
|
|
2018
|
|
2017
|
|
Expected income provision based on the U.S. federal statutory tax rate
|
$
|
7,284
|
|
|
$
|
43,568
|
|
|
$
|
41,358
|
|
|
Effect of earnings of foreign subsidiaries subject to different tax rates
|
(4,335
|
)
|
|
(12,947
|
)
|
|
(22,832
|
)
|
|
Benefit from tax incentives
|
(5,084
|
)
|
|
(20,429
|
)
|
|
(23,294
|
)
|
|
Benefit from research and development tax credits
|
(3,041
|
)
|
|
(2,785
|
)
|
|
(1,859
|
)
|
|
Benefit from foreign tax credits
|
(22,744
|
)
|
|
(3,939
|
)
|
|
(26,119
|
)
|
|
U.S. one-time transition tax
|
9,369
|
|
|
101,854
|
|
|
—
|
|
|
Remeasurement of deferred taxes
|
5,480
|
|
|
2,760
|
|
|
—
|
|
|
Non-deductible goodwill impairment
|
—
|
|
|
—
|
|
|
8,805
|
|
|
Valuation allowance
|
25,289
|
|
|
7,366
|
|
|
6,458
|
|
|
Foreign operations (withholding taxes, taxes on unrepatriated foreign earnings, and deemed dividends)
|
8,578
|
|
|
5,746
|
|
|
6,039
|
|
|
Unrecognized tax benefit
|
156
|
|
|
530
|
|
|
2,936
|
|
|
Non-deductible items
|
2,248
|
|
|
(758
|
)
|
|
778
|
|
|
Other, net
|
(290
|
)
|
|
(222
|
)
|
|
336
|
|
|
Provision for (benefit from) income taxes
|
$
|
22,910
|
|
|
$
|
120,744
|
|
|
$
|
(7,394
|
)
|
|
Effective tax rate
|
66.0
|
%
|
|
68.0
|
%
|
|
(6.2
|
)%
|
On December 22, 2017, the TCJA was signed into law. Among the many U.S. tax law changes, the TCJA reduced the U.S. federal statutory tax rate from 35% to 21%, imposed a one-time transition tax on deemed repatriation of previously untaxed accumulated earnings and profits of certain foreign subsidiaries, and created a new foreign minimum tax. In accordance with Staff Accounting Bulletin No. 118 ("SAB 118"), the accounting for the tax effects of the TCJA was completed in the first quarter of fiscal 2019.
In fiscal 2019, the Company recorded an additional tax expense of $9.4 million due to newly issued TCJA regulations and guidance on the computation of the U.S. one-time transition tax. The Company recognized an aggregate tax expense for fiscal 2018 and 2019 of $114.0 million, comprised primarily of $2.8 million from the re-measurement of U.S. deferred tax assets and liabilities to reflect the decrease in the U.S. federal statutory tax rate in fiscal 2018, and $111.2 million related to the U.S. one-time transition tax on deemed repatriation of previously untaxed accumulated earnings and profits of certain foreign subsidiaries, net of related foreign tax credits and unrecognized tax benefit in fiscal 2018 and 2019. The Company also recorded $5.5 million in fiscal 2019 to revalue certain foreign deferred assets and liabilities to reflect enacted foreign statutory tax rates in Singapore and the Netherlands.
During fiscal 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 TCJA which generally allows U.S. corporations to make distributions without incurring additional U.S. income tax. As a result of this reassessment, a portion of the Company’s undistributed foreign earnings are no longer deemed to be indefinitely reinvested outside the U.S. as of September 28, 2019. The Company recorded $0.7 million of tax expense in the second quarter of fiscal 2019 as part of the initial change in assertion and $1.8 million of tax expense cumulatively by the end of fiscal 2019 primarily due to subsequent changes in foreign exchange rates from the date of the initial change.
Further, we operate in a number of foreign jurisdictions, including Singapore, where we have a tax incentive that allows for a reduced tax rate on certain classes of income, provided the Company meets certain employment and investment conditions through the expiration date in fiscal 2020. This tax incentive arrangement may be renewed subject to the agreement of the Singapore government on additional requirements that must be satisfied. In fiscal 2019, 2018, and 2017, the tax incentive arrangement helped to reduce the Company’s provision for income taxes by $5.0 million or $0.08 per share, $20.4 million or $0.29 per share and $23.3 million or $0.33 per share, respectively.
The following table reflects deferred tax balances based on the tax effects of cumulative temporary differences for fiscal 2019 and 2018:
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
|
|
(in thousands)
|
2019
|
|
2018
|
|
Accruals and reserves
|
$
|
5,514
|
|
|
$
|
6,652
|
|
|
Tax credit carryforwards
|
23,448
|
|
|
4,532
|
|
|
Net operating loss carryforwards
|
36,050
|
|
|
39,856
|
|
|
Gross deferred tax assets
|
$
|
65,012
|
|
|
$
|
51,040
|
|
|
|
|
|
|
|
Valuation allowance
|
$
|
(58,411
|
)
|
|
$
|
(37,249
|
)
|
|
Deferred tax assets, net of valuation allowance
|
$
|
6,601
|
|
|
$
|
13,791
|
|
|
|
|
|
|
|
Taxes on undistributed foreign earnings
|
$
|
(24,542
|
)
|
|
$
|
(21,988
|
)
|
|
Fixed and intangible assets
|
(7,704
|
)
|
|
(8,377
|
)
|
|
Deferred tax liabilities
|
$
|
(32,246
|
)
|
|
$
|
(30,365
|
)
|
|
Net deferred tax liabilities
|
$
|
(25,645
|
)
|
|
$
|
(16,574
|
)
|
|
|
|
|
|
|
Reported as
|
|
|
|
|
Deferred tax assets
|
$
|
6,409
|
|
|
$
|
9,017
|
|
|
Deferred tax liabilities
|
(32,054
|
)
|
|
(25,591
|
)
|
|
Net deferred tax liabilities
|
$
|
(25,645
|
)
|
|
$
|
(16,574
|
)
|
As of September 28, 2019, the Company has foreign net operating loss carryforwards of $110.6 million, state net operating loss carryforwards of $146.5 million, and U.S. federal and state tax credit carryforwards of $7.8 million that can be used to offset future income tax obligations. These net operating loss and tax credit carryforwards can be utilized prior to their expiration dates in fiscal years 2020 through 2035, with the exception of certain credits and foreign net operating losses that can be carried forward indefinitely. The Company has recorded valuation allowances against certain foreign and state net operating loss carryforwards and state tax credits which are expected to expire unutilized.
The Company continues to evaluate the realizability of its net deferred tax assets at each reporting date and records a benefit for deferred tax assets to the extent it has projected future taxable income or deferred tax liabilities that provide a source of future income to benefit such deferred tax assets. As a result of this analysis, the Company continues to maintain a valuation allowance against certain state and foreign deferred tax assets as the realization of these assets is not more likely than not given uncertainty of future apportioned earnings in these jurisdictions.
The following table reconciles the beginning and ending balances of the Company's unrecognized tax benefit, excluding related accrued interest and penalties, for fiscal 2019, 2018, and 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
|
|
(in thousands)
|
|
2019
|
|
2018
|
|
2017
|
|
Unrecognized tax benefit, beginning of year
|
|
$
|
13,038
|
|
|
$
|
12,062
|
|
|
$
|
7,453
|
|
|
Additions for tax positions, current year
|
|
410
|
|
|
1,482
|
|
|
3,657
|
|
|
Additions for tax positions, prior year
|
|
—
|
|
|
—
|
|
|
1,834
|
|
|
Reductions for tax positions, prior year
|
|
(523
|
)
|
|
(506
|
)
|
|
(882
|
)
|
|
Unrecognized tax benefit, end of year
|
|
$
|
12,925
|
|
|
$
|
13,038
|
|
|
$
|
12,062
|
|
The Company recognizes interest and penalties related to potential income tax liabilities as a component of unrecognized tax benefit and in provision for income taxes. For the fiscal year ended September 28, 2019, the Company recognized $1.4 million of accrued interest and penalties related to unrecognized tax benefit. The amount of interest and penalties related to unrecognized tax benefit recorded in the provision for income taxes was not material for any period presented.
As of September 28, 2019, approximately $13.1 million of unrecognized tax benefit, including related interest and penalties, if recognized, would impact the Company's effective tax rate.
It is reasonably possible that the amount of the unrecognized tax benefit with respect to certain unrecognized tax positions will increase or decrease during the next 12 months due to the expected lapse of statutes of limitation and/or settlements of tax
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
examinations. Given the number of years and numerous matters that remain subject to examination in various tax jurisdictions, we cannot practicably estimate the financial outcomes of these examinations.
The Company files a U.S. federal income tax return, as well as income tax returns in various state and foreign jurisdictions. For U.S. federal income tax returns purposes, tax years following fiscal 2016 remain subject to examination. For most state tax returns, tax years following fiscal 2001 remain subject to examination as a result of the generation of net operating loss carry-forwards. In the foreign jurisdictions where the Company files income tax returns, the statutes of limitations with respect to these jurisdictions vary from jurisdiction to jurisdiction and range from 4 to 6 years. The Company's foreign tax returns are currently under examination by tax authorities in multiple foreign jurisdictions. The Company believes that adequate provisions have been made for any adjustments that may result from the examination.
NOTE 14: 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 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 following table reflects operating information by segment for fiscal 2019, 2018, and 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
|
|
(in thousands)
|
|
2019
|
|
2018
|
|
2017
|
|
Net revenue:
|
|
|
|
|
|
|
|
Capital Equipment
|
|
$
|
386,820
|
|
|
$
|
719,390
|
|
|
$
|
651,934
|
|
|
APS
|
|
153,232
|
|
|
169,731
|
|
|
157,107
|
|
|
Net revenue
|
|
540,052
|
|
|
889,121
|
|
|
809,041
|
|
|
Income from operations:
|
|
|
|
|
|
|
|
Capital Equipment
|
|
(12,577
|
)
|
|
132,563
|
|
|
107,115
|
|
|
APS
|
|
34,187
|
|
|
34,069
|
|
|
5,968
|
|
|
Income from operations
|
|
$
|
21,610
|
|
|
$
|
166,632
|
|
|
$
|
113,083
|
|
The following tables reflect capital expenditures, depreciation and amortization expense by segment for fiscal 2019, 2018, and 2017.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
|
|
(in thousands)
|
|
2019
|
|
2018
|
|
2017
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
Capital Equipment
|
|
$
|
5,380
|
|
|
$
|
7,029
|
|
|
$
|
14,415
|
|
|
APS
|
|
6,449
|
|
|
13,412
|
|
|
11,273
|
|
|
Capital expenditures
|
|
$
|
11,829
|
|
|
$
|
20,441
|
|
|
$
|
25,688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
|
|
(in thousands)
|
|
2019
|
|
2018
|
|
2017
|
|
Depreciation expense:
|
|
|
|
|
|
|
|
Capital Equipment
|
|
$
|
7,584
|
|
|
$
|
7,435
|
|
|
$
|
6,306
|
|
|
APS
|
|
5,308
|
|
|
3,754
|
|
|
3,397
|
|
|
Depreciation expense
|
|
$
|
12,892
|
|
|
$
|
11,189
|
|
|
$
|
9,703
|
|
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
|
|
(in thousands)
|
|
2019
|
|
2018
|
|
2017
|
|
Amortization expense:
|
|
|
|
|
|
|
|
Capital Equipment
|
|
$
|
3,977
|
|
|
$
|
4,203
|
|
|
$
|
2,841
|
|
|
APS
|
|
3,435
|
|
|
3,623
|
|
|
3,713
|
|
|
Amortization expense
|
|
$
|
7,412
|
|
|
$
|
7,826
|
|
|
$
|
6,554
|
|
Geographical information
The following tables reflect destination sales to unaffiliated customers by country and long-lived assets by country for fiscal 2019, 2018, and 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
|
|
(in thousands)
|
2019
|
|
2018
|
|
2017
|
|
China
|
$
|
252,179
|
|
|
$
|
408,567
|
|
|
$
|
323,803
|
|
|
Taiwan
|
63,440
|
|
|
126,676
|
|
|
100,738
|
|
|
Malaysia
|
41,568
|
|
|
65,354
|
|
|
72,329
|
|
|
United States
|
36,393
|
|
|
68,774
|
|
|
57,728
|
|
|
Singapore
|
25,680
|
|
|
19,648
|
|
|
7,119
|
|
|
Korea
|
15,236
|
|
|
38,551
|
|
|
73,410
|
|
|
Germany
|
13,594
|
|
|
19,018
|
|
|
18,754
|
|
|
Hong Kong
|
12,096
|
|
|
14,194
|
|
|
14,314
|
|
|
Philippines
|
12,057
|
|
|
26,372
|
|
|
25,165
|
|
|
Vietnam
|
10,978
|
|
|
20,864
|
|
|
29,330
|
|
|
All other
|
56,831
|
|
|
81,103
|
|
|
86,351
|
|
|
Total destination sales to unaffiliated customers
|
$
|
540,052
|
|
|
$
|
889,121
|
|
|
$
|
809,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
|
|
(in thousands)
|
2019
|
|
2018
|
|
2017
|
|
Long-lived assets:
|
|
|
|
|
|
|
Singapore
|
$
|
25,620
|
|
|
$
|
30,240
|
|
|
$
|
31,553
|
|
|
United States
|
27,665
|
|
|
23,696
|
|
|
43,440
|
|
|
China
|
18,969
|
|
|
18,333
|
|
|
11,148
|
|
|
Israel
|
8,288
|
|
|
8,460
|
|
|
4,549
|
|
|
All other
|
6,981
|
|
|
6,944
|
|
|
6,899
|
|
|
Total long-lived assets
|
$
|
87,523
|
|
|
$
|
87,673
|
|
|
$
|
97,589
|
|
NOTE 15: COMMITMENTS, CONTINGENCIES AND CONCENTRATIONS
Warranty Expense
The Company's equipment is generally shipped with a one-year warranty against manufacturing defects. The Company establishes reserves for estimated warranty expense when revenue for the related equipment is recognized. The reserve for estimated warranty expense is based upon historical experience and management's estimate of future warranty costs, including product part replacement, freight charges and related labor costs expected to be incurred to correct product failures during the warranty period.
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following table reflects the reserve for product warranty activity for fiscal 2019, 2018, and 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
|
|
(in thousands)
|
|
2019
|
|
2018
|
|
2017
|
|
Reserve for warranty, beginning of period
|
|
$
|
14,474
|
|
|
$
|
13,796
|
|
|
$
|
12,544
|
|
|
Provision for warranty
|
|
12,140
|
|
|
12,603
|
|
|
11,743
|
|
|
Utilization of reserve
|
|
(12,429
|
)
|
|
(11,925
|
)
|
|
(10,491
|
)
|
|
Reserve for warranty, end of period
|
|
$
|
14,185
|
|
|
$
|
14,474
|
|
|
$
|
13,796
|
|
Other Commitments and Contingencies
The following table reflects obligations not reflected on the Consolidated Balance Sheet as of September 28, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by fiscal year
|
|
(in thousands)
|
|
Total
|
|
2020
|
|
2021
|
|
2022
|
|
2023
|
|
thereafter
|
|
Inventory purchase obligation (1)
|
|
$
|
83,278
|
|
|
$
|
83,278
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Operating lease obligations (2)
|
|
16,273
|
|
|
4,089
|
|
|
2,576
|
|
|
2,182
|
|
|
1,967
|
|
|
5,459
|
|
|
Total
|
|
$
|
99,551
|
|
|
$
|
87,367
|
|
|
$
|
2,576
|
|
|
$
|
2,182
|
|
|
$
|
1,967
|
|
|
$
|
5,459
|
|
|
|
|
|
(1)
|
The Company orders inventory components in the normal course of its business. A portion of these orders are non-cancelable and a portion may have varying penalties and charges in the event of cancellation.
|
|
|
|
|
(2)
|
The Company has minimum rental commitments under various leases (excluding taxes, insurance, maintenance and repairs, which are also paid by the Company) primarily for various facility and equipment leases, which expire periodically through 2019 (not including lease extension options, if applicable).
|
Pursuant to ASC No. 840, Leases, for lessee's involvement in asset construction, the Company was considered the owner of the Building during the construction phase. The Building was completed on December 1, 2013 and Pte signed an agreement with the Landlord to lease from the Landlord approximately 198,000 square feet, representing approximately 70% of the Building. Following the completion of construction, we performed a sale-leaseback analysis pursuant to ASC 840 and determined that because of our continuing involvement, ASC 840 precluded us from derecognizing the asset and associated financing obligation. As such, we reclassified the asset from construction in progress to Property, Plant and Equipment and began to depreciate the building over its estimated useful life of 25 years. We concluded that the term of the financing obligation is 10 years. This is equal to the non-cancellable term of our lease agreement with the Landlord. As of September 28, 2019, we recorded a financing obligation related to the Building of $15.0 million (see Note 8 above). The financing obligation is not reflected in the table above.
Concentrations
The following tables reflect significant customer concentrations as a percentage of net revenue for fiscal 2019, 2018, and 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
|
|
|
|
2019
|
|
2018
|
|
2017
|
|
Haoseng Industrial Co., Ltd (1)
|
|
*
|
|
12.8
|
%
|
|
10.1
|
%
|
* Represents less than 10% of total net revenue
(1) Distributor of the Company's products
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following table reflects significant customer concentrations as a percentage of total accounts receivable as of September 28, 2019 and September 29, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
September 28, 2019
|
|
|
September 29, 2018
|
|
|
Xinye (HK) Electronics Co. (1)
|
|
16.0
|
%
|
|
*
|
|
|
Forehope Electronic (Ningbo) Co., Ltd
|
|
15.3
|
%
|
|
*
|
|
|
Super Power International Ltd. (1)
|
|
13.5
|
%
|
|
13.6
|
%
|
|
Haoseng Industrial Co., Ltd (1)
|
|
*
|
|
|
32.9
|
%
|
* Represents less than 10% of total accounts receivable
(1) Distributor of the Company's products
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 16: SELECTED QUARTERLY FINANCIAL DATA (unaudited)
Presented below is a summary of the unaudited quarterly financial information for fiscal 2019 and 2018 (in thousands, except per share amounts).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2019 for the Quarter Ended
|
|
|
|
(in thousands, except per share amounts)
|
December 29
|
|
March 30
|
|
June 29
|
|
September 28
|
|
Fiscal 2019
|
|
Net revenue
|
$
|
157,208
|
|
|
$
|
115,908
|
|
|
$
|
127,109
|
|
|
$
|
139,827
|
|
|
$
|
540,052
|
|
|
Gross profit
|
74,799
|
|
|
55,573
|
|
|
58,780
|
|
|
65,438
|
|
|
254,590
|
|
|
Income / (loss) from operations
|
14,555
|
|
|
(2,465
|
)
|
|
1,827
|
|
|
7,693
|
|
|
21,610
|
|
|
Provision for income taxes
|
10,570
|
|
|
4,672
|
|
|
3,864
|
|
|
3,804
|
|
|
22,910
|
|
|
Net income / (loss)
|
$
|
7,517
|
|
|
$
|
(3,555
|
)
|
|
$
|
1,287
|
|
|
$
|
6,404
|
|
|
$
|
11,653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income / (loss) per share (1):
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
0.11
|
|
|
$
|
(0.05
|
)
|
|
$
|
0.02
|
|
|
$
|
0.10
|
|
|
$
|
0.18
|
|
|
Diluted
|
$
|
0.11
|
|
|
$
|
(0.05
|
)
|
|
$
|
0.02
|
|
|
$
|
0.10
|
|
|
$
|
0.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
67,176
|
|
|
65,930
|
|
|
64,683
|
|
|
63,401
|
|
|
65,286
|
|
|
Diluted
|
67,851
|
|
|
65,930
|
|
|
65,431
|
|
|
64,251
|
|
|
65,948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2018 for the Quarter Ended
|
|
|
|
(in thousands, except per share amounts)
|
December 30
|
|
March 30
|
|
June 30
|
|
September 29
|
|
Fiscal 2018
|
|
Net revenue
|
$
|
213,691
|
|
|
$
|
221,772
|
|
|
$
|
268,834
|
|
|
$
|
184,824
|
|
|
$
|
889,121
|
|
|
Gross profit
|
97,202
|
|
|
99,447
|
|
|
126,969
|
|
|
85,823
|
|
|
409,441
|
|
|
Income from operations
|
39,159
|
|
|
38,436
|
|
|
64,463
|
|
|
24,574
|
|
|
166,632
|
|
|
Provision for (benefit from) income taxes
|
110,412
|
|
|
4,800
|
|
|
7,282
|
|
|
(1,750
|
)
|
|
120,744
|
|
|
Net (loss) / income
|
$
|
(69,528
|
)
|
|
$
|
36,313
|
|
|
$
|
60,256
|
|
|
$
|
29,635
|
|
|
$
|
56,676
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) / income per share (1):
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
(0.99
|
)
|
|
$
|
0.52
|
|
|
$
|
0.87
|
|
|
$
|
0.44
|
|
|
$
|
0.82
|
|
|
Diluted
|
$
|
(0.99
|
)
|
|
$
|
0.51
|
|
|
$
|
0.86
|
|
|
$
|
0.43
|
|
|
$
|
0.80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
70,577
|
|
|
70,361
|
|
|
69,125
|
|
|
67,462
|
|
|
69,380
|
|
|
Diluted
|
70,577
|
|
|
71,425
|
|
|
70,302
|
|
|
68,675
|
|
|
70,419
|
|
(1) EPS for the year may not equal the sum of quarterly EPS due to changes in weighted share calculations.
NOTE 17: SUBSEQUENT EVENTS
On October 24, 2019, the Company entered into foreign exchange forward contracts with notional amounts of $10.0 million. We entered into these foreign exchange forward contracts to hedge a portion of our forecasted foreign currency-denominated expenses in the normal course of business and, accordingly, they are not speculative in nature. These foreign exchange forward contracts have maturities of up to twelve months.