KULICKE & SOFFA INDUSTRIES INC 10-K

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 October 1, 2022 and October 2, 2021, and the related consolidated statements of operations, of comprehensive income, of changes in shareholders’ equity and of cash flows for each of the three years in the period ended October 1, 2022, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended October 1, 2022 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 October 1, 2022, 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 October 1, 2022 and October 2, 2021 , and the results of its operations and its cash flows for each of the three years in the period ended October 1, 2022 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 October 1, 2022, 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. 36 Table of Contents 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. Valuation of inventories - Reserves for excess and obsolete raw materials As described in Notes 1 and 2 to the consolidated financial statements, the Company’s consolidated net inventory balance was $185.0 million. The Company generally provides reserves for obsolete inventory and for inventory considered to be in excess of demand. Demand is generally defined as forecasted future consumption for inventories, and is based upon internal projections, historical sales volumes, customer order activity and a review of consumable inventory levels at customers’ facilities. The principal considerations for our determination that performing procedures relating to the valuation of inventories, specifically the reserves for excess and obsolete raw materials, is a critical audit matter are our assessment that this is an area of significant judgment by management when developing reserves for excess and obsolete raw materials, including developing the assumption related to forecasted future consumption for raw materials. This has in turn led to significant auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s assumptions over the reasonableness of the significant assumptions related to the forecasted future consumption for raw materials. 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 management’s reserves for excess and obsolete raw materials, including controls over management’s assumption related to forecasted future consumption for raw materials. These procedures also included, among others, testing management’s process for developing the reserves for excess or obsolete raw materials; evaluating the appropriateness of management’s approach; testing the completeness and accuracy of underlying data used in the approach; and evaluating the reasonableness of management’s assumption related to forecasted future consumption for raw materials. Evaluating management’s assumption related to forecasted future consumption for raw materials involved evaluating whether the assumption used by management was reasonable considering (i) current and past sales results, (ii) the consistency of sales with external market and industry data, and (iii) comparing prior year estimates of sales to actual sales results in the current year. /s/ PricewaterhouseCoopers LLP Singapore November 17, 2022 We have served as the Company’s auditor since 2011. 37 Table of Contents KULICKE AND SOFFA INDUSTRIES, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except per share amount) As of October 1, 2022 October 2, 2021 ASSETS Current assets: Cash and cash equivalents $ 555,537 $ 362,788 Short-term investments 220,000 377,000 Accounts and notes receivable, net of allowance for doubtful accounts of $ 0 and $ 687 , respectively 309,323 421,193 Inventories, net 184,986 167,323 Prepaid expenses and other current assets 62,200 23,586 Total current assets 1,332,046 1,351,890 Property, plant and equipment, net 80,908 67,982 Operating right-of-use assets 41,767 41,592 Goodwill 68,096 72,949 Intangible assets, net 31,939 42,752 Deferred tax assets 25,572 15,715 Equity investments 5,397 6,388 Other assets 2,874 2,363 TOTAL ASSETS $ 1,588,599 $ 1,601,631 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable 67,311 154,636 Operating lease liabilities 6,766 4,903 Accrued expenses and other current liabilities 134,541 161,570 Income taxes payable 40,063 30,766 Total current liabilities 248,681 351,875 Deferred tax liabilities 34,037 32,828 Income taxes payable 64,634 69,422 Operating lease liabilities 34,927 38,084 Other liabilities 11,670 14,185 TOTAL LIABILITIES $ 393,949 $ 506,394 Commitments and contingent liabilities (Note 17) SHAREHOLDERS' EQUITY: Preferred stock, without par value: Authorized 5,000 shares; issued - no ne $ — $ — Common stock, no par value: Authorized 200,000 shares; issued 85,364 and 85,364 respectively; outstanding 57,128 and 61,931 shares, respectively 561,684 550,117 Treasury stock, at cost, 28,237 and 23,433 shares, respectively ( 675,800 ) ( 400,412 ) Retained earnings 1,341,666 948,554 Accumulated other comprehensive loss ( 32,900 ) ( 3,022 ) TOTAL SHAREHOLDERS' EQUITY $ 1,194,650 $ 1,095,237 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,588,599 $ 1,601,631 The accompanying notes are an integral part of these consolidated financial statements. 38 Table of Contents KULICKE AND SOFFA INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) Fiscal 2022 2021 2020 Net revenue $ 1,503,620 $ 1,517,664 $ 623,176 Cost of sales 755,300 820,678 325,201 Gross profit 748,320 696,986 297,975 Selling, general and administrative 141,396 147,061 116,007 Research and development 136,852 137,478 123,459 Operating expenses 278,248 284,539 239,466 Income from operations 470,072 412,447 58,509 Interest income 7,124 2,321 7,541 Interest expense ( 208 ) ( 218 ) ( 1,716 ) Income before income taxes 476,988 414,550 64,334 Provision for income taxes 43,443 47,295 11,998 Share of results of equity-method investee, net of tax — 94 36 Net income $ 433,545 $ 367,161 $ 52,300 Net income per share: Basic $ 7.21 $ 5.92 $ 0.83 Diluted $ 7.09 $ 5.78 $ 0.83 Weighted average shares outstanding: Basic 60,164 62,009 62,828 Diluted 61,182 63,515 63,359 The accompanying notes are an integral part of these consolidated financial statements. 39 Table of Contents KULICKE AND SOFFA INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands) Fiscal 2022 2021 2020 Net income $ 433,545 $ 367,161 $ 52,300 Other comprehensive income / (loss): Foreign currency translation adjustment ( 30,536 ) 672 7,755 Unrecognized actuarial gain / (loss) on pension plan, net of tax 2,276 — ( 1,490 ) ( 28,260 ) 672 6,265 Derivatives designated as hedging instruments: Unrealized (loss) / gain on derivative instruments, net of tax ( 2,694 ) 24 358 Reclassification adjustment for loss / (gain) on derivative instruments recognized, net of tax 1,076 ( 1,197 ) 796 Net (decrease) / increase from derivatives designated as hedging instruments, net of tax ( 1,618 ) ( 1,173 ) 1,154 Total other comprehensive (loss) / income ( 29,878 ) ( 501 ) 7,419 Comprehensive income $ 403,667 $ 366,660 $ 59,719 The accompanying notes are an integral part of these consolidated financial statements. 40 Table of Contents 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 September 28, 2019 63,173 $ 533,590 $ ( 349,212 ) $ 594,625 $ ( 9,940 ) $ 769,063 Issuance of stock for services rendered 37 491 359 — — 850 Repurchase of common stock ( 2,486 ) — ( 55,001 ) — — ( 55,001 ) Issuance of shares for equity-based compensation 834 ( 9,037 ) 9,037 — — — Equity-based compensation — 14,169 — — — 14,169 Cumulative effect of accounting changes — — — ( 769 ) — ( 769 ) Cash dividend declared — — — ( 30,037 ) — ( 30,037 ) Components of comprehensive income: Net income — — — 52,300 — 52,300 Other comprehensive income — — — — 7,419 7,419 Total comprehensive income — — — 52,300 7,419 59,719 Balances as of October 3, 2020 61,558 $ 539,213 $ ( 394,817 ) $ 616,119 $ ( 2,521 ) $ 757,994 Issuance of stock for services rendered 23 616 202 — — 818 Repurchase of common stock ( 215 ) — ( 10,182 ) — — ( 10,182 ) Issuance of shares for equity-based compensation 565 ( 4,385 ) 4,385 — — — Equity-based compensation — 14,673 — — — 14,673 Cash dividend declared — — — ( 34,726 ) — ( 34,726 ) Components of comprehensive income: Net income — — — 367,161 — 367,161 Other comprehensive loss — — — — ( 501 ) ( 501 ) Total comprehensive income/(loss) — — — 367,161 ( 501 ) 366,660 Balances as of October 2, 2021 61,931 $ 550,117 $ ( 400,412 ) $ 948,554 $ ( 3,022 ) $ 1,095,237 Issuance of stock for services rendered 18 774 175 — — 949 Repurchase of common stock ( 5,576 ) — ( 282,807 ) — — ( 282,807 ) Issuance of shares for equity-based compensation 755 ( 7,244 ) 7,244 — — — Equity-based compensation — 18,037 — — 18,037 Cash dividend declared — — — ( 40,433 ) — ( 40,433 ) Components of comprehensive income: Net income — — — 433,545 — 433,545 Other comprehensive loss — — — — ( 29,878 ) ( 29,878 ) Total comprehensive income / (loss) — — — 433,545 ( 29,878 ) 403,667 Balances as of October 1, 2022 57,128 $ 561,684 $ ( 675,800 ) $ 1,341,666 $ ( 32,900 ) $ 1,194,650 The accompanying notes are an integral part of these consolidated financial statements. 41 Table of Contents KULICKE AND SOFFA INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Fiscal 2022 2021 2020 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 433,545 $ 367,161 $ 52,300 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 21,293 19,810 19,739 Impairment charges 1,346 — — Equity-based compensation and employee benefits 18,986 15,491 15,019 Adjustment for doubtful accounts ( 245 ) ( 248 ) 371 Adjustment for inventory valuation ( 2,613 ) ( 2,965 ) 4,170 Change in the estimation of warranty reserve — — ( 5,417 ) Deferred taxes ( 8,648 ) ( 9,818 ) ( 827 ) (Gain) / loss on disposal of property, plant and equipment ( 253 ) 259 953 Gain on disposal of equity-method investments — ( 1,046 ) — Unrealized foreign currency translation ( 7,278 ) ( 378 ) 874 Share of results of equity-method investee — 94 36 Changes in operating assets and liabilities: Accounts and notes receivable 113,340 ( 221,924 ) ( 1,928 ) Inventory ( 14,924 ) ( 52,719 ) ( 26,194 ) Prepaid expenses and other current assets ( 37,907 ) ( 4,573 ) ( 3,561 ) Accounts payable, accrued expenses and other current liabilities ( 128,734 ) 181,960 38,148 Income taxes payable 4,946 7,686 ( 291 ) Other, net ( 2,666 ) 1,242 1,020 Net cash provided by operating activities 390,188 300,032 94,412 CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of business, net of cash acquired — ( 26,338 ) — Purchases of property, plant and equipment ( 22,985 ) ( 22,775 ) ( 11,719 ) Proceeds from sales of property, plant and equipment 181 291 50 Purchase of equity investments ( 397 ) — ( 1,288 ) Purchase of short term investments ( 469,000 ) ( 507,000 ) ( 442,000 ) Maturity of short term investments 626,000 472,000 329,000 Disposal of equity-method investments — 2,115 — Net cash provided by / (used in) investing activities 133,799 ( 81,707 ) ( 125,957 ) CASH FLOWS FROM FINANCING ACTIVITIES: Payment on short term debt ( 54,500 ) ( 22,750 ) ( 147,143 ) Payment for finance leases ( 509 ) ( 379 ) ( 123 ) Repurchase of common stock ( 281,319 ) ( 10,426 ) ( 54,549 ) Proceeds from short term debt 54,500 22,750 86,239 Common stock cash dividends paid ( 39,363 ) ( 33,453 ) ( 30,233 ) Net cash used in financing activities ( 321,191 ) ( 44,258 ) ( 145,809 ) Effect of exchange rate changes on cash and cash equivalents ( 10,047 ) 594 1,297 Changes in cash and cash equivalents 192,749 174,661 ( 176,057 ) Cash and cash equivalents at beginning of period 362,788 188,127 364,184 Cash and cash equivalents at end of period $ 555,537 $ 362,788 $ 188,127 CASH PAID FOR: Interest $ 208 $ 218 $ 1,716 Income taxes $ 50,309 $ 51,856 $ 13,271 The accompanying notes are an integral part of these consolidated financial statements. 42 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 2022, 2021, and 2020 fiscal years ended on October 1, 2022, October 2, 2021 and October 3, 2020, 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 (“IDMs”), 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, the valuation estimates and assessment of impairment and observable price adjustments, 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. Due to the coronavirus (“COVID-19”) pandemic and macroeconomic headwinds, there has been uncertainty and disruption in the global economy and financial markets. The Company is not aware of any specific event or circumstance that would require an update to its estimates or judgments or a revision of the carrying value of its assets or liabilities as of October 1, 2022. While there was no material impact to our consolidated financial statements as of and for the year ended October 1, 2022, these estimates may change, as new events occur and additional information is obtained, as well as other factors related to COVID-19 and macroeconomic headwinds that could materially impact our consolidated financial statements in future reporting periods. The Company reviews its warranty reserve balances as part of its ongoing policy review. At the start of fiscal 2020, the Company determined there was a need to obtain granular data given uncertainty in sales demand. Accordingly , the Company commenced the collection of granular data over the four fiscal quarters in 2020 to establish a more precise estimate of its warranty reserve. This collection was finalized and the information incorporated in the fourth quarter of fiscal 2020. This resulted in a decrease to the reserve for warranty and an increase in net income by $ 5.4 million for the fiscal year 2020, as well as an increase to net income per share, basic and diluted, by $ 0.09 and $ 0.09 , respectively. For further information on warranty reserve, see Notes 14 and 17 below. 43 Table of Contents KULICKE AND SOFFA INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Vulnerability to Certain Concentrations Financial instruments which may subject the Company to concentrations of credit risk as of October 1, 2022 and October 2, 2021 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’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 material. The Company actively monitors its customers’ financial strength to reduce the risk of loss, including as a result of COVID-19 and macroeconomic headwinds. The Company’s products are complex and require raw materials, components and subassemblies having a high degree of reliability, accuracy and performance. The Company relies on subcontractors to manufacture many of these components and subassemblies and it relies on sole source suppliers for some important components and raw material inventory. Foreign Currency Translation and Remeasurement The majority of the Company’s business is transacted in U.S. dollars; however, the functional currencies of some of the Company’s subsidiaries are their local currencies. In accordance with ASC No. 830, Foreign Currency Matters (“ASC 830”), for a subsidiary of the Company that has a functional currency other than the U.S. dollar, gains and losses resulting from the translation of the functional currency into U.S. dollars for financial statement presentation are not included in determining net income, but are accumulated in the cumulative translation adjustment account as a separate component of shareholders’ equity (accumulated other comprehensive income / (loss)). The tax effect of currency translation adjustments related to unremitted foreign earnings no longer deemed to be indefinitely reinvested outside the U.S. is reflected in the determination of the Company's net income or other comprehensive income (“OCI”). 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. 44 Table of Contents KULICKE AND SOFFA INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 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 1 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: • 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, including as a result of COVID-19 and macroeconomic headwinds, additional allowances may be required. If global or regional economic conditions deteriorate or political conditions were to change in some of the countries where the Company does business, it could have a significant impact on the results of operations, and the Company’s ability to realize the full value of its accounts receivable. Inventories Inventories are stated at the lower of cost (on a first-in, first-out basis) or net realizable value. The Company generally provides reserves for obsolete inventory and for inventory considered to be in excess of demand. Demand is generally defined as 18 months forecasted future consumption for equipment, 24 months forecasted future consumption for spare parts, and 12 months forecasted future consumption for tools. Forecasted consumption is based upon internal projections, historical sales volumes, customer order activity and a review of consumable inventory levels at customers’ facilities. The Company communicates forecasts of its future consumption to its suppliers and adjusts commitments to those suppliers accordingly. If required, the Company reserves the difference between the carrying value of its inventory and the lower of cost or net realizable value, based upon projections about future consumption, and market conditions. If actual market conditions are less favorable than projections, additional inventory reserves may be required. Inventory reserve provision for certain subsidiaries is determined based on management’s estimate of future consumption for equipment and spare parts. This estimate is based on historical sales volumes, internal projections and market developments and trends. Property, Plant and Equipment Property, plant and equipment are carried at cost. The cost of additions and those improvements which increase the capacity or lengthen the useful lives of assets are capitalized while repair and maintenance costs are expensed as incurred. Depreciation and amortization are provided on a straight-line basis over the estimated useful lives as follows: buildings 25 years; machinery, equipment, furniture and fittings 3 to 10 years; toolings 1 year; and leasehold improvements are based on the shorter of the life of lease or life of asset. Purchased computer software costs related to business and financial systems are amortized over a five-year period on a straight-line basis. Land is not depreciated. 45 Table of Contents KULICKE AND SOFFA INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Valuation of Long-Lived Assets In accordance with ASC No. 360, Property, Plant & Equipment (“ASC 360”), the Company’s definite lived intangible assets and property, plant and equipment are tested for impairment based on undiscounted cash flows when triggering events occur, and if impaired, written-down to fair value based on either discounted cash flows or appraised values. ASC 360 also provides a single accounting model for long-lived assets to be disposed of by sale and establishes additional criteria that would have to be met to classify an asset as held for sale. The carrying amount of an asset or asset group is not recoverable to the extent it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset or asset group. Estimates of future cash flows used to test the recoverability of a long-lived asset or asset group must incorporate the entity’s own assumptions about its use of the asset or asset group and must factor in all available evidence. ASC 360 requires that long-lived assets be tested for recoverability whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Such events include significant under-performance relative to historical internal forecasts or projected future operating results; significant changes in the manner of use of the assets; significant negative industry or economic trends; or significant changes in market capitalization. During the fiscal years ended October 1, 2022 and October 2, 2021, no “triggering” events occurred. Accounting for Impairment of Goodwill ASC No. 350, Intangibles - Goodwill and Other 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. The Company’s impairment test is performed by comparing the fair value of a reporting unit with its carrying value, and determining if the carrying amount 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, 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 may lead the Company to perform interim goodwill impairment assessments. For further information on goodwill and other intangible assets, see Note 4 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 the distributors’ resale of the products. 46 Table of Contents KULICKE AND SOFFA INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 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 the customers’ facility. Customer returns have historically represented a very small percentage of customer sales on an annual basis. • Warranties : Our equipment is generally shipped with a one-year warranty against manufacturing defects. We establish reserves for estimated warranty expense when revenue for the related equipment is recognized. The reserve for estimated warranty expense is based upon historical experience and management’s estimate of future expenses, including product parts replacement, freight charges and labor costs expected to be incurred to correct manufacturing defects 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 agreed specifications, customer specifications or subject to satisfactory installation at the customer’s facility. In such cases, if the terms of acceptance are satisfied at our facility prior to shipment, the revenue for the equipment will be recognized upon shipment. If the terms of acceptance are satisfied at our customers’ facilities, the revenue for the equipment will not be recognized until acceptance, which is typically obtained after installation and testing, is received from the customer. Service revenue is generally recognized over time as the services are performed. For fiscal 2022 and 2021, 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. Contract Assets A contract asset is the Company’s right to consideration in exchange for goods or services that the Company has transferred to a customer. ASC 606, Revenue from Contracts with Customers , distinguishes between a contract asset and a receivable based on whether receipt of the consideration is conditional on something other than the passage of time. When the Company transfers control of goods or services to a customer before the customer pays consideration, the Company records either a contract asset or a receivable depending on the nature of the Company’s right to consideration for its performance. The point at which a contract asset becomes an account receivable may be earlier than the point at which an invoice is issued. The Company assesses a contract asset for impairment in accordance with ASC 310, Receivables . 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. 47 Table of Contents KULICKE AND SOFFA INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 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 deferred tax assets 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 deferred tax assets in the future, an adjustment to deferred tax assets 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 Growth Performance Share Units is determined based on the number of shares granted and the fair value on the date of grant. See Note 11 for a summary of the terms of these performance-based awards. 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. Accelerated Share Repurchase From time to time, the Company may enter into accelerated share repurchase (“ASR”) agreements with third-party financial institutions to repurchase shares of the Company’s common stock. Under an ASR agreement, in exchange for an up-front payment, the counterparty makes an initial delivery of shares of the Company’s common stock during the purchase period of the relevant ASR. This initial delivery of shares represents the minimum number of shares that the Company may receive under an ASR agreement. Upon settlement of an ASR agreement, the counterparty may deliver additional shares, with the final number of shares delivered determined based on the volume-weighted average price of the Company’s common stock over the term of such ASR agreement, less an agreed-upon discount. The transactions are accounted for as equity transactions and are included in Treasury Stock when the shares are received, at which time there is an immediate reduction in the weighted-average common shares calculation for basic and diluted earnings per share. Accounting for Business Acquisitions The Company accounts for business acquisitions in accordance with ASC No. 805, Business Combinations . The fair value of the net assets acquired and the results of operations of the acquired businesses are included in the consolidated financial statements from the acquisition date forward. The Company is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and results of operations during the reporting period. Estimates are used in accounting for, among other things, the fair value of acquired net operating assets, property, plant and equipment, deferred revenue, intangible assets and related deferred income taxes, useful lives of property, plant and equipment, and amortizable lives of acquired intangible assets. Any excess of the purchase consideration over the identified fair value of the assets and liabilities assumed 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. 48 Table of Contents KULICKE AND SOFFA INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 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 December 2019, the Financial Accounting Standards Board (“FASB”) issued ASU 2019-12, Income Taxes (Topic 740). The amendments in this ASU, among other changes, simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740, clarify and amend the existing guidance. We adopted this ASU in the first quarter of fiscal 2022. The adoption of this ASU did not have a material impact on our consolidated financial statements. Contracts in Entity’s Own Equity In August 2020, the FASB issued ASU 2020-06, Derivatives and Hedging - Contracts in Entity’s Own Equity (Topic 815). The amendments in this ASU, among other changes, remove current guidance that allows an entity to rebut the presumption that potential share settlement be included in the diluted earnings per share calculation when an instrument may be settled in cash or shares if the entity has a history or policy of cash settlement. These amendments affect any instrument that may be settled in cash or shares and, therefore, affects the diluted earnings per share calculation for both convertible instruments and contracts in an entity's own equity. We elected to early adopt this ASU in the second quarter of fiscal 2022. The adoption of this ASU did not have a material impact on our consolidated financial statements. Codification Improvements In October 2020, the FASB issued ASU 2020-10, Codification Improvements . The amendments in this ASU affect a wide variety of topics in the Codification and improve the consistency of the Codification by including all disclosure guidance in the appropriate disclosure sections (Section 50). We adopted this ASU in the first quarter of fiscal 2022. The adoption of this ASU did not have a material impact on our consolidated financial statements. Government Assistance In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832): Disclosure by Business Entities about Government Assistance which aims at increasing the transparency of government assistance received by most business entities. The standard requires business entities to make annual disclosures about the nature of the transactions and the related accounting policy used to account for the transactions, the line items and applicable amounts on the balance sheet and income statement that are affected by the transactions, and significant terms and conditions of the transactions, including commitments and contingencies. If an entity omits any required disclosures because it is legally prohibited, it must disclose that fact. This ASU is effective for fiscal years (and interim periods within those fiscal years) beginning after December 15, 2021, which for the Company is the first quarter of fiscal 2023. The Company is currently evaluating the impact the adoption of this standard will have on its consolidated financial statements. 49 Table of Contents 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 October 1, 2022 and October 2, 2021: As of (in thousands) October 1, 2022 October 2, 2021 Short term investments, available-for-sale (1) $ 220,000 $ 377,000 Inventories, net: Raw materials and supplies $ 118,833 $ 94,493 Work in process 40,114 55,866 Finished goods 45,277 40,006 204,224 190,365 Inventory reserves ( 19,238 ) ( 23,042 ) $ 184,986 $ 167,323 Property, plant and equipment, net: Land $ 2,182 $ 2,182 Buildings and building improvements 22,783 23,314 Leasehold improvements 32,400 30,054 Data processing equipment and software 38,223 40,945 Machinery, equipment, furniture and fixtures 90,151 87,994 Construction in progress 25,004 9,562 210,743 194,051 Accumulated depreciation ( 129,835 ) ( 126,069 ) $ 80,908 $ 67,982 Accrued expenses and other current liabilities: Accrued customer obligations (2) $ 58,916 $ 72,478 Wages and benefits 50,279 66,531 Commissions and professional fees 5,019 6,190 Dividends payable 9,743 8,673 Severance 19 31 Other 10,565 7,667 $ 134,541 $ 161,570 (1) All short-term investments were classified as available-for-sale and the fair value approximates cost basis. The Company did not recognize any realized gains or losses on the sale of investments during the fiscal years ended 2022 and 2021. (2) Represents customer advance payments, customer credit program, accrued warranty expense and accrued retrofit obligations. 50 Table of Contents KULICKE AND SOFFA INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) NOTE 3: BUSINESS COMBINATIONS Acquisition of Uniqarta On January 19, 2021, Kulicke and Soffa Industries, Inc. entered into a Stock Purchase Agreement with Uniqarta, Inc. (“Uniqarta”) and its equity holders to purchase all of Uniqarta’s outstanding equity interests. Upon the closing of the acquisition, Uniqarta became a wholly-owned subsidiary of the Company. Uniqarta is a developer of laser transfer technology and the acquisition expands the Company’s presence in the LED end market. The purchase price consisted of $ 26.5 million in cash paid at closing. The acquisition of Uniqarta was accounted for in accordance with ASC No. 805, Business Combinations , using the acquisition method. On January 19, 2022, the Company finalized the valuation of the tangible and identifiable intangible assets and liabilities in connection with the acquisition of Uniqarta and no further adjustment was recorded. On July 15, 2022, the Company released the escrow amount of $ 3.5 million to the seller in respect of Uniqarta’s completion of its post-closing obligations under the Agreement. The following table summarizes the allocation of the assets acquired and liabilities assumed based on the fair values as of the acquisition date: (in thousands) January 19, 2021 Accounts and other receivable $ 7 Prepaid expenses and other current assets 6 Property, plant and equipment, net 539 Goodwill 16,799 Intangible assets 11,200 Accounts payable ( 77 ) Accrued expenses and other current liabilities ( 98 ) Deferred tax liabilities ( 2,038 ) Total purchase price, net of cash acquired $ 26,338 Tangible net assets (liabilities) were valued at their respective carrying amounts, which the Company believes approximate their current fair values at the acquisition date. The valuation of identifiable intangible assets acquired, representing in-process research and development (“IPR&D”) and others, reflects management’s estimates based on, among other factors, the use of an established valuation method. The intangible assets are valued using a cost replacement method. As of October 2, 2021, the IPR&D intangible asset of $ 9.0 million is not amortized, but rather is reviewed for impairment on an annual basis or more frequently if indicators of impairment are present, until the project is completed, abandoned, or transferred to a third party. As of October 1, 2022, the IPR&D were transferred to developed technology (definite-lived intangible assets) as the research and development process was completed. The other intangible assets acquired of $ 2.2 million and the IPR&D are amortized over the period of estimated benefit using the straight-line method and the estimated useful life of six years . The straight-line method of amortization represents the Company’s best estimate of the distribution of the economic value of the identifiable intangible assets. Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired and includes the value of expected future cash flows of Uniqarta from expected synergies with our other affiliates and other unidentifiable intangible assets. No ne of the goodwill recorded as part of the acquisition will be deductible for income tax purposes. In connection with the acquisition of Uniqarta, the Company recorded deferred tax liabilities primarily relating to the acquired intangible assets, which are partially offset by the acquired tax attributes. The acquired tax attributes are comprised of net operating losses and research and development credits. For the year ended October 2, 2021, the acquired business contributed a net loss of $ 0.2 million. During fiscal 2021, the Company incurred $ 1.7 million of expenses related to the acquisition, which is included within selling, general and administrative expense in the Consolidated Statements of Operations. 51 Table of Contents KULICKE AND SOFFA INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The following unaudited pro forma information presents the combined results of operations as if the acquisition had been completed on September 29, 2019, the beginning of the comparable prior annual reporting period. The unaudited pro forma results include: (i) amortization associated with preliminary estimates for the acquired intangible assets; and (ii) the associated tax impact on the unaudited pro forma adjustments. The unaudited pro forma results do not reflect any cost saving synergies from operating efficiencies or the effect of the incremental costs incurred in integrating the two companies. Accordingly, these unaudited pro forma results are presented for informational purposes only and are not necessarily indicative of what the actual results of operations of the combined company would have been if the acquisition had occurred at the beginning of the periods presented, nor are they indicative of future results of operations: Fiscal (in thousands) 2021 2020 Net revenue $ 1,517,664 $ 623,176 Net income 368,546 49,766 NOTE 4: GOODWILL AND INTANGIBLE ASSETS Goodwill Intangible assets classified as goodwill are not amortized. The goodwill established in connection with our acquisitions represents the estimated future economic benefits arising from the assets we acquired that did not qualify to be identified and recognized individually. The goodwill also includes the value of expected future cash flows from the acquisitions, expected synergies with our other affiliates and other unidentifiable intangible assets. The Company performs an annual impairment test of its goodwill during the fourth quarter of each fiscal year, which coincides with the completion of its annual forecasting and refreshing of business outlook process. The Company performed its annual impairment test in the fourth quarter of fiscal 2022 and concluded that no impairment charge was required. Any future adverse changes in expected operating results and/or unfavorable changes in other economic factors used to estimate fair values could result in a noncash impairment in the future. During the fiscal year ended October 1, 2022, 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. While we have concluded that a triggering event did not occur during the fiscal year ended October 1, 2022, the prolonged COVID-19 pandemic and macroeconomic headwinds could impact the results of operations due to changes to assumptions utilized in the determination of the estimated fair values of the reporting units that could be significant enough to trigger an impairment. Net sales and earnings growth rates could be negatively impacted by reductions or changes in demand for our products. The discount rate utilized in our valuation model could also be impacted by changes in the underlying interest rates and risk premiums included in the determination of the cost of capital. The following table summarizes the Company’s recorded goodwill by reportable segments as of October 1, 2022 and October 2, 2021: (in thousands) Capital Equipment APS Total Balance at October 2, 2021 46,561 26,388 72,949 Other ( 4,372 ) ( 481 ) ( 4,853 ) Balance at October 1, 2022 42,189 25,907 68,096 52 Table of Contents KULICKE AND SOFFA INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Intangible Assets Intangible assets with determinable lives are amortized over their estimated useful lives. The Company’s intangible assets consist primarily of developed technology, customer relationships, in-process research and development, and trade and brand names. The following table reflects net intangible assets as of October 1, 2022 and October 2, 2021: As of Average estimated (dollar amounts in thousands) October 1, 2022 October 2, 2021 useful lives (in years) Developed technology $ 89,017 $ 90,427 6.0 to 15.0 Accumulated amortization $ ( 58,636 ) $ ( 58,494 ) Net developed technology $ 30,381 $ 31,933 Customer relationships $ 33,515 $ 36,114 5.0 to 6.0 Accumulated amortization $ ( 33,515 ) $ ( 36,114 ) Net customer relationships $ — $ — In-process research and development (1) $ — $ 8,795 N.A. Accumulated amortization $ — $ — Net in-process research and development $ — $ 8,795 Trade and brand name $ 6,945 $ 7,374 7.0 to 8.0 Accumulated amortization $ ( 6,945 ) $ ( 7,275 ) Net trade and brand name $ — $ 99 Other intangible assets $ 4,700 $ 4,700 1.9 to 6.0 Accumulated amortization $ ( 3,142 ) $ ( 2,775 ) Net other intangible assets $ 1,558 $ 1,925 Net intangible assets $ 31,939 $ 42,752 (1) During the year ended October 1, 2022, $ 7.9 million of in-process research and development assets were transferred to developed technology (definite-lived intangible assets) as the research and development process was completed, and are being amortized over the period of estimated benefit using the straight-line method and the estimated useful life of six years . The following table reflects estimated annual amortization expense related to intangible assets as of October 1, 2022: As of (in thousands) October 1, 2022 Fiscal 2023 $ 5,348 Fiscal 2024 $ 5,348 Fiscal 2025 $ 5,348 Fiscal 2026 $ 5,348 Fiscal 2027 $ 4,685 Fiscal 2028 and thereafter $ 5,862 Total amortization expense $ 31,939 53 Table of Contents KULICKE AND SOFFA INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) NOTE 5: CASH, CASH EQUIVALENTS, 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 and short-term investments consisted of the following as of October 1, 2022: (dollar amounts in thousands) Amortized Cost Unrealized Gains Unrealized Losses Estimated Fair Value Current assets: Cash $ 173,402 $ — $ — $ 173,402 Cash equivalents: Money market funds (1) 157,145 — ( 20 ) 157,125 Time deposits (2) 225,010 — — 225,010 Total cash and cash equivalents $ 555,557 $ — $ ( 20 ) $ 555,537 Short-term investments: Time deposits (2) $ 220,000 $ — $ — $ 220,000 Total short-term investments $ 220,000 $ — $ — $ 220,000 Total cash, cash equivalents, and short-term investments $ 775,557 $ — $ ( 20 ) $ 775,537 (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. Cash, cash equivalents, restricted cash and short-term investments consisted of the following as of October 2, 2021: (dollar amounts in thousands) Amortized Cost Unrealized Gains Unrealized Losses Estimated Fair Value Current assets: Cash $ 269,201 $ — $ — $ 269,201 Cash equivalents: Money market funds (1) 93,598 — ( 18 ) 93,580 Time deposits (2) 7 — — 7 Total cash and cash equivalents $ 362,806 $ — $ ( 18 ) $ 362,788 Short-term investments: Time deposits (2) 377,000 — — 377,000 Total short-term investments $ 377,000 $ — $ — $ 377,000 Total cash, cash equivalents, restricted cash and short-term investments $ 739,806 $ — $ ( 18 ) $ 739,788 (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. 54 Table of Contents KULICKE AND SOFFA INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) NOTE 6: EQUITY INVESTMENTS Equity investments consisted of the following as of October 1, 2022 and October 2, 2021: As of (in thousands) October 1, 2022 October 2, 2021 Non-marketable equity securities $ 5,397 $ 6,388 During the year ended October 1, 2022, the Company recorded an impairment of $ 1.3 million on a non-marketable equity security without a readily determinable fair value. The entire amount of the investment in the non-marketable equity security was impaired due to a significant deterioration in the earnings performance of the equity investee. The impairment amount is recorded within “Selling, general and administrative expense” in the Consolidated Statement of Operations. NOTE 7: 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 October 1, 2022. 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. 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 8: 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. 55 Table of Contents KULICKE AND SOFFA INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The fair value of derivative instruments on our Consolidated Balance Sheets as of October 1, 2022 and October 2, 2021 is as follows: As of (in thousands) October 1, 2022 October 2, 2021 Notional Amount Fair Value Liability Derivatives (1) Notional Amount Fair Value Liability Derivatives (1) Derivatives designated as hedging instruments: Foreign exchange forward contracts (2) $ 57,570 $ ( 2,234 ) $ 57,682 $ ( 616 ) Total derivatives $ 57,570 $ ( 2,234 ) $ 57,682 $ ( 616 ) (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 Sheets. (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 years ended October 1, 2022 and October 2, 2021 was as follows: (in thousands) Fiscal 2022 2021 Foreign exchange forward contract in cash flow hedging relationships: Net (loss)/gain recognized in OCI, net of tax (1) $ ( 2,694 ) $ 24 Net (loss)/gain reclassified from accumulated OCI into earnings, net of tax (2) $ ( 1,076 ) $ 1,197 (1) Net change in the fair value of the effective portion classified in OCI. (2) Effective portion classified as selling, general and administrative expense. NOTE 9: LEASES We have entered into various non-cancellable operating and finance lease agreements for certain of our offices, manufacturing, technology, sales support and service centers, equipment, and vehicles. We determine if an arrangement is a lease, or contains a lease, at inception and record the leases in our financial statements upon lease commencement, which is the date when the underlying asset is made available for use by the lessor. Our lease terms may include one or more options to extend the lease terms, for periods from one year to 20 years, when it is reasonably certain that we will exercise that option. As of October 1, 2022, one option to extend the lease were recognized as right-of-use (“ROU”) assets and lease liabilities. We have lease agreements with lease and non-lease components, and non-lease components are accounted for separately and not included in our leased assets and corresponding liabilities. We have elected not to present short-term leases on the Consolidated Balance Sheets as these leases have a lease term of 12 months or less at lease inception. Operating leases are included in operating ROU assets, current and non-current operating lease liabilities, and finance leases are included in property, plant and equipment, accrued expenses and other current liabilities, and other liabilities on the Consolidated Balance Sheets. As of October 1, 2022, our finance leases are not material. The following table shows the components of lease expense: (in thousands) Fiscal 2022 2021 Operating lease expense (1) $ 8,625 7,629 (1) Operating lease expense includes short-term lease expense, which is immaterial for the fiscal year ended October 1, 2022. 56 Table of Contents KULICKE AND SOFFA INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The following table shows the cash flows arising from lease transactions. Cash payments related to short-term leases are not included in the measurement of operating and finance lease liabilities, and, as such, are excluded from the amounts below: (in thousands) Fiscal 2022 2021 Cash paid for amounts included in the measurement of lease liabilities: Operating cash outflows from operating leases $ 7,908 $ 7,211 The following table shows the weighted-average lease terms and discount rates for operating leases: Fiscal 2022 2021 Operating leases: Weighted-average remaining lease term (in years): 8.0 9.6 Weighted-average discount rate: 5.8 % 5.8 % Future lease payments, excluding short-term leases, as of October 1, 2022, are detailed as follows: (in thousands) Operating leases Fiscal 2023 $ 8,748 Fiscal 2024 8,354 Fiscal 2025 7,649 Fiscal 2026 4,954 Fiscal 2027 3,195 Fiscal 2028 and thereafter 20,193 Total minimum lease payments 53,093 Less: Interest 11,400 Present value of lease obligations 41,693 Less: Current portion 6,766 Long-term portion of lease obligations $ 34,927 57 Table of Contents KULICKE AND SOFFA INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) NOTE 10: DEBT AND OTHER OBLIGATIONS Bank Guarantees On November 22, 2013, the Company obtained a $ 5.0 million credit facility with Citibank in connection with the issuance of bank guarantees for operational purposes. As of October 1, 2022 and October 2, 2021, the outstanding amount was $ 2.9 million and $ 3.0 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 and one of its subsidiaries with an overdraft facility of up to $ 150 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 secured overnight financing rate (“SOFR”) 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 two of its subsidiaries (the “Subsidiaries”), or encumber its assets with material security interests (including any pledge of monies in the Subsidiaries’ cash deposit account with the Bank). The Facility Agreements also contain customary events of default, including, without limitation, non-payment of financial obligations when due, cross defaults to other material indebtedness of the Company and any breach of a representation or warranty under the Facility Agreements. As of October 1, 2022, there were no outstanding amounts under the Overdraft Facility. NOTE 11: SHAREHOLDERS’ EQUITY AND EMPLOYEE BENEFIT PLANS 401(k) Retirement Income Plans The Company has a 401(k) retirement plan (the “401(k) Plan”) for eligible U.S. employees. The 401(k) 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 401(k) Plan during fiscal 2022 and 2021: Fiscal (in thousands) 2022 2021 Cash $ 1,973 $ 1,780 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. In 2018, 2019 and 2020, the Board of Directors increased the share repurchase authorization under the Program to $ 200 million, $ 300 million and $ 400 million, respectively. On March 3, 2022, the Board of Directors increased the share repurchase authorization under the Program by an additional $ 400 million to $ 800 million, and extended its duration through August 1, 2025. 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 October 1, 2022, the Company repurchased a total of approximately 2,782.1 thousand shares of common stock at a cost of approximately $ 132.8 million. The stock repurchases were recorded in the periods they were delivered and accounted for as treasury stock in the Company’s Consolidated Balance Sheets. 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. 58 Table of Contents KULICKE AND SOFFA INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Accelerated Share Repurchase (“ASR”) In addition to the 2,782.1 thousand shares of common stock repurchased under the Program during the fiscal year ended October 1, 2022, on March 9, 2022, the Company entered into an ASR agreement (the “March 2022 ASR Agreement”) with an investment bank counterparty (“Dealer”) to repurchase $ 150 million of the Company’s common stock. The March 2022 ASR Agreement was entered into pursuant to the Company’s current $ 800 million share repurchase authorization. Under the March 2022 ASR Agreement, the Company made an up-front payment of $ 150 million to the Dealer and received an initial delivery of 2,449.9 thousand shares of common stock at a cost of approximately $ 120 million on March 10, 2022. The final number of shares to be repurchased will be based on the volume-weighted average price of the Company’s common stock during the term of the transaction, less a discount and subject to adjustments pursuant to the terms and conditions of the March 2022 ASR Agreement. For accounting purposes, the March 2022 ASR Agreement is evaluated as an unsettled forward contract indexed to the Company’s own stock, with $ 30 million being classified within common stock. At settlement, the Dealer may be required to deliver additional shares of common stock to the Company, or, under certain circumstances, the Company may be required to deliver shares of its common stock or may elect to make a cash payment to the Dealer. The March 2022 ASR Agreement was settled between the Company and the Dealer on April 22, 2022 and the Company received an additional 344.5 thousand shares of common stock from the Dealer. In total, an aggregate of 2,794.4 thousand shares of common stock were delivered by the Dealer under the March 2022 ASR Agreement at an average price of $ 53.68 per share, which was then reclassified as treasury stock from common stock in shareholder’s equity. As of October 1, 2022, our remaining stock repurchase authorization under the Program was approximately $ 249.2 million. Dividends On August 30, 2022, June 8, 2022, March 3, 2022 and October 18, 2021, the Board of Directors declared a quarterly dividend $ 0.17 per share of common stock. During the fiscal year ended October 1, 2022, the Company declared dividends of $ 0.68 per share of common stock. The declaration of any future cash dividend is at the discretion of the Board of Directors, subject to applicable laws, and will depend on the Company’s financial condition, results of operations, capital requirements, business conditions and other factors, as well as a determination that such dividends are in the best interests of the Company’s stockholders. Accumulated Other Comprehensive Income The following table reflects accumulated other comprehensive loss reflected on the Consolidated Balance Sheets as of October 1, 2022 and October 2, 2021: As of (in thousands) October 1, 2022 October 2, 2021 (Loss) / gain from foreign currency translation adjustments $ ( 29,854 ) $ 682 Unrecognized actuarial loss on pension plan, net of tax ( 812 ) ( 3,088 ) Unrealized loss on hedging ( 2,234 ) ( 616 ) Accumulated other comprehensive loss $ ( 32,900 ) $ ( 3,022 ) 59 Table of Contents KULICKE AND SOFFA INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Equity-Based Compensation The Company has a stockholder-approved equity-based compensation plan, the 2021 Omnibus Incentive Plan (the “Plan”) from which employees and directors receive grants. As of October 1, 2022, 3.3 million shares of common stock are available for grant to the Company’s employees and directors under the Plan. • Relative TSR Performance Share Units (“Relative TSR PSUs”) entitle the employee to receive common shares of the Company on the award vesting date, typically the third anniversary of the grant date (or as soon as administratively practicable if later), 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 at the end of the performance period 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. • Revenue Growth Performance Share Units (“Growth PSUs”) entitle the employee to receive common shares of the Company on the award vesting date, typically the third anniversary of the grant date (or as soon as administratively practicable if later), based on organic revenue growth objectives and relative growth performance against named competitors as set by the Management Development and Compensation Committee (“MDCC”) of the Company’s Board of Directors. Organic revenue growth is calculated by averaging revenue growth (net of revenues from acquisitions) over a performance period, which is generally three years . Revenues from acquisitions will be included in the calculation after four fiscal quarters after acquisition. Any portion of the grant that does not meet the revenue growth objectives and relative growth performance is forfeited. Vesting percentages range from 0 % to 200 % of awards granted. • In general, stock options and Time-based Restricted Share Units (“Time-based RSUs”) awarded to employees vest ratably over a three-year period on the anniversary of the grant date 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. Equity-based compensation expense recognized in the Consolidated Statements of Operations for fiscal 2022, 2021, and 2020 was based upon awards ultimately expected to vest, with forfeiture accounted for when they occur. The following table reflects total equity-based compensation expense, which includes Relative TSR PSUs, Time-based RSUs, Growth PSUs, and common stock, included in the Consolidated Statements of Operations for fiscal 2022, 2021, and 2020: Fiscal (in thousands) 2022 2021 2020 Cost of sales $ 960 $ 828 $ 744 Selling, general and administrative 13,911 10,998 11,071 Research and development 4,115 3,676 3,204 Total equity-based compensation expense $ 18,986 $ 15,502 $ 15,019 The following table reflects equity-based compensation expense, by type of award, for fiscal 2022, 2021, and 2020: Fiscal (in thousands) 2022 2021 2020 Relative TSR PSUs 4,255 3,916 $ 3,266 Time-based RSUs 11,655 10,314 9,519 Growth PSUs 2,127 444 1,384 Common stock 949 828 850 Total equity-based compensation expense $ 18,986 $ 15,502 $ 15,019 60 Table of Contents 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 2022, 2021, and 2020: 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 September 28, 2019 561 $ 4,136 0.9 Granted 162 $ 28.80 Forfeited or expired ( 52 ) Vested ( 268 ) Relative TSR PSUs outstanding as of October 3, 2020 403 $ 4,198 1.1 Granted 155 $ 28.21 Forfeited or expired ( 6 ) Vested ( 108 ) Relative TSR PSUs outstanding as of October 2, 2021 444 $ 4,455 1.1 Granted 152 $ 52.18 Forfeited or expired ( 11 ) Vested ( 205 ) Relative TSR PSUs outstanding as of October 1, 2022 380 $ 4,619 0.9 61 Table of Contents KULICKE AND SOFFA INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The following table reflects the assumptions used to calculate compensation expense related to the Company’s Relative TSR PSUs issued during fiscal 2022, 2021, and 2020: Fiscal 2022 2021 2020 Grant price $ 49.20 $ 23.88 $ 22.95 Expected dividend yield 1.14 % 2.01 % 2.09 % Expected stock price volatility 48.50 % 45.15 % 36.29 % Risk-free interest rate 0.68 % 0.21 % 1.49 % Equity-Based Compensation: Time-based RSUs The following table reflects Time-based RSUs activity for fiscal 2022, 2021, and 2020: 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 September 28, 2019 947 $ 10,555 1.4 Granted 490 $ 22.93 Forfeited or expired ( 80 ) Vested ( 569 ) Time-based RSUs outstanding as of October 3, 2020 788 $ 10,480 1.6 Granted 486 $ 24.34 Forfeited or expired ( 24 ) Vested ( 333 ) Time-based RSUs outstanding as of October 2, 2021 917 $ 11,420 1.4 Granted 301 $ 49.47 Forfeited or expired ( 29 ) Vested ( 453 ) Time-based RSUs outstanding as of October 1, 2022 736 $ 13,752 1.2 62 Table of Contents KULICKE AND SOFFA INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Equity-Based Compensation: Growth PSUs The following table reflects Growth PSUs activity for fiscal 2022, 2021, and 2020: 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 28, 2019 97 $ 1,128 1.6 Granted 80 $ 23.65 Forfeited or expired ( 22 ) Vested ( 4 ) Special/Growth PSUs outstanding as of October 3, 2020 151 $ 1,252 1.1 Granted 52 $ 24.01 Forfeited or expired ( 34 ) Vested ( 17 ) Special/Growth PSUs outstanding as of October 2, 2021 152 $ 1,247 1.0 Granted 79 $ 49.26 Forfeited or expired ( 4 ) Vested ( 100 ) Special/Growth PSUs outstanding as of October 1, 2022 127 $ 1,405 0.9 As of October 1, 2022, there were no employee stock options. Equity-Based Compensation: Non-Employee Directors The 2021 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, $ 39,500 . The following table reflects shares of common stock issued to non-employee directors and the corresponding fair value for fiscal 2022, 2021, and 2020: Fiscal (in thousands) 2022 2021 2020 Number of common shares issued 18 22 37 Fair value based upon market price at time of issue $ 949 $ 828 $ 850 Pension Plan The following table reflects the Company’s defined benefits pension obligations, mainly in Switzerland and Taiwan, as of October 1, 2022 and October 2, 2021: As of (in thousands) October 1, 2022 October 2, 2021 Switzerland pension obligation $ 1,038 $ 3,534 Taiwan pension obligation 1,189 1,443 63 Table of Contents 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 12: REVENUE AND CONTRACT BALANCES 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 October 1, 2022, and October 2, 2021, 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 16: Segment Information, for disclosure of revenue by segment. Contract Balances Our contract assets relate to our rights to consideration for revenue with collection dependent on events other than the passage of time, such as the achievement of specified payment milestones. The contract assets will be transferred to net account receivables as our right to consideration for these contract assets become unconditional. Contracts assets are reported in the accompanying Consolidated Balance Sheets within prepaid expenses and other current assets. Our contract liabilities are primarily related to payments received in advance of satisfying performance obligations, and are reported in the accompanying Consolidated 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 product sales under advance payment arrangements upon satisfying the performance obligations. The following table shows the changes in contract asset balances during the fiscal years ended October 1, 2022 and October 2, 2021: Fiscal (in thousands) 2022 2021 Contract assets, beginning of period $ — $ — Additions 51,774 — Transferred to accounts receivable or collected ( 25,457 ) — Contract assets, end of period $ 26,317 $ — The following table shows the changes in contract liability balances during the fiscal years ended October 1, 2022 and October 2, 2021: Fiscal (in thousands) 2022 2021 Contract liabilities, beginning of period $ 15,596 $ 2,958 Revenue recognized ( 116,399 ) ( 59,368 ) Additions 103,963 72,006 Contract liabilities, end of period $ 3,160 $ 15,596 64 Table of Contents KULICKE AND SOFFA INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) NOTE 13: 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 table reflects a reconciliation of the shares used in the basic and diluted net income per share computation for fiscal 2022, 2021, and 2020: Fiscal (in thousands, except per share) 2022 2021 2020 Basic Diluted Basic Diluted Basic Diluted NUMERATOR: Net income $ 433,545 $ 433,545 $ 367,161 $ 367,161 $ 52,300 $ 52,300 DENOMINATOR: Weighted average shares outstanding - Basic 60,164 60,164 62,009 62,009 62,828 62,828 Dilutive effect of Equity Plans 1,018 1,506 531 Weighted average shares outstanding - Diluted 61,182 63,515 63,359 EPS: Net income per share - Basic $ 7.21 $ 7.21 $ 5.92 $ 5.92 $ 0.83 $ 0.83 Effect of dilutive shares $ ( 0.12 ) $ ( 0.14 ) $ — Net income per share - Diluted $ 7.09 $ 5.78 $ 0.83 Anti-dilutive shares (1) 1 2 40 (1) Represents the Relative TSR PSUs and Growth PSUs that are excluded from the calculation of diluted earnings per share for fiscal 2022, 2021, and 2020 as the effect would have been anti-dilutive. NOTE 14: OTHER FINANCIAL DATA The following table reflects other financial data for fiscal 2022, 2021, and 2020: Fiscal (in thousands) 2022 2021 2020 Incentive compensation expense $ 27,011 $ 39,779 $ 18,524 Warranty and retrofit expense 16,349 22,068 8,692 NOTE 15: INCOME TAXES The following table reflects U.S. and foreign income (loss) before income taxes for fiscal 2022, 2021, and 2020: Fiscal (in thousands) 2022 2021 2020 United States $ ( 11,415 ) $ ( 8,853 ) $ ( 14,909 ) Foreign 488,403 423,403 79,243 Income before income taxes $ 476,988 $ 414,550 $ 64,334 65 Table of Contents KULICKE AND SOFFA INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The following table reflects the current and deferred components of provision for (benefit from) income taxes for fiscal 2022, 2021, and 2020: Fiscal (in thousands) 2022 2021 2020 Current: Federal $ 14,975 $ 26,563 $ 5,129 State 246 261 89 Foreign 37,448 30,771 6,508 Deferred: Federal ( 5,809 ) ( 2,979 ) ( 690 ) State — — — Foreign ( 3,417 ) ( 7,321 ) 962 Provision for income taxes $ 43,443 $ 47,295 $ 11,998 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 2022, 2021, and 2020: Fiscal (dollar amounts in thousands) 2022 2021 2020 Expected income tax provision based on the U.S. federal statutory tax rate $ 100,212 $ 86,915 $ 13,510 Effect of earnings of foreign subsidiaries subject to different tax rates ( 17,936 ) ( 15,028 ) ( 1,634 ) Benefit from tax incentives ( 50,113 ) ( 45,501 ) ( 6,781 ) Benefit from research and development tax credits ( 2,995 ) ( 2,705 ) ( 2,915 ) Benefit from foreign tax credits ( 26,021 ) ( 20,281 ) ( 1,701 ) Valuation allowance ( 5,830 ) ( 11,620 ) 1,224 Foreign operations (Deemed income, taxes on undistributed foreign earnings, and withholding taxes) 45,421 52,414 8,886 Non-deductible items 267 113 1,232 Other, net (1) 438 2,988 177 Provision for income taxes $ 43,443 $ 47,295 $ 11,998 Effective tax rate 9.1 % 11.4 % 18.6 % (1) Certain balances in fiscal 2021 and 2020 have been reclassified to conform to the current period presentation. These reclassifications have no impact to the consolidated financial statements in fiscal 2021 and 2020. For fiscal 2022 and 2021, the effective tax rate differed from the U.S. federal statutory tax rate primarily due to tax benefits from tax incentives, foreign earnings subject to a lower statutory tax rate than the U.S. federal statutory tax rate, tax credits generated during the fiscal year, and the net release of valuation allowances recorded against certain loss and credit carryforwards, partially offset by tax expense related to deemed income and undistributed foreign earnings. As of October 2, 2022, a large portion of the Company’s undistributed foreign earnings are not considered to be indefinitely reinvested outside the U.S. and are expected to be available for use in the U.S. without incurring additional U.S. income tax. 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 2025. In fiscal 2022, 2021, and 2020, the tax incentive arrangement helped to reduce the Company’s provision for income taxes by $ 50.1 million or $ 0.82 per share, $ 45.5 million or $ 0.72 per share and $ 6.8 million or $ 0.11 per share, respectively. 66 Table of Contents KULICKE AND SOFFA INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The following table reflects deferred tax balances based on the tax effects of cumulative temporary differences for fiscal 2022 and 2021: Fiscal (in thousands) 2022 2021 Accruals and reserves $ 14,168 $ 11,890 Tax credit carryforwards 3,893 4,230 Fixed and intangible assets 5,963 465 Net operating loss carryforwards 15,329 28,913 Gross deferred tax assets $ 39,353 $ 45,498 Valuation allowance $ ( 21,750 ) $ ( 34,095 ) Deferred tax assets, net of valuation allowance $ 17,603 $ 11,403 Taxes on undistributed foreign earnings $ ( 26,068 ) $ ( 28,516 ) Deferred tax liabilities $ ( 26,068 ) $ ( 28,516 ) Net deferred tax liabilities $ ( 8,465 ) $ ( 17,113 ) Reported as Deferred tax assets $ 25,572 $ 15,715 Deferred tax liabilities ( 34,037 ) ( 32,828 ) Net deferred tax liabilities $ ( 8,465 ) $ ( 17,113 ) As of October 1, 2022, the Company has foreign net operating loss carryforwards of $ 37.9 million, state net operating loss carryforwards of $ 54.6 million, and U.S. federal and state tax credit carryforwards of $ 6.5 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 2023 through 2041, except for 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 following table reconciles the beginning and ending balances of the Company’s unrecognized tax benefit, excluding related accrued interest and penalties, for fiscal 2022, 2021, and 2020: Fiscal (in thousands) 2022 2021 2020 Unrecognized tax benefit, beginning of year $ 14,922 $ 13,064 $ 12,925 Additions for tax positions, current year 2,288 4,003 537 Reductions for tax positions, prior year ( 587 ) ( 2,145 ) ( 398 ) Unrecognized tax benefit, end of year $ 16,623 $ 14,922 $ 13,064 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. The amount of interest and penalties related to unrecognized tax benefit recorded in fiscal 2022 provision for income taxes is not material. As of October 1, 2022, the Company has recognized $ 2.0 million of accrued interest and penalties related to unrecognized tax benefit within the income tax payable for uncertain tax positions and approximately $ 17.1 million of unrecognized tax benefit, including related interest and penalties, that 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 uncertain tax positions will increase or decrease during the next 12 months due to the expected lapse of statutes of limitation and/or settlements of tax examinations. 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. 67 Table of Contents KULICKE AND SOFFA INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 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 from fiscal 2019 remain subject to examination. For most state tax returns, tax years following fiscal 2003 remain subject to examination as a result of the generation of net operating loss carryforwards. 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 tax returns are currently under examination by tax authorities in multiple state and foreign jurisdictions. The Company believes that adequate provisions have been made for any adjustments that may result from the examination. NOTE 16: 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 (the “CODM”) in deciding how to allocate resources and assess performance. The Company’s Chief Executive Officer is the CODM. The CODM does not review discrete asset information. The Company operates two reportable segments consisting of: (1) Capital Equipment; and (2) Aftermarket Products and Services (“APS”). The following table reflects operating information by segment for fiscal 2022, 2021, and 2020: Fiscal (in thousands) 2022 2021 2020 Net revenue: Capital Equipment $ 1,306,468 $ 1,312,576 $ 462,059 APS 197,152 205,088 161,117 Net revenue 1,503,620 1,517,664 623,176 Income from operations: Capital Equipment 397,920 355,982 22,069 APS 72,152 56,465 36,440 Income from operations $ 470,072 $ 412,447 $ 58,509 We have considered: (1) information that is regularly reviewed by our CODM as defined by the authoritative guidance on segment reporting, in evaluating financial performance and (2) other financial data, including information that we include in our earnings releases but which is not included in our financial statements, to disaggregate revenues by end markets served. The principal category we use to disaggregate revenues is by the end markets served in the Capital Equipment segment. The following table reflects net revenue by Capital Equipment end markets served for fiscal 2022, 2021, and 2020 Fiscal (in thousands) 2022 2021 2020 General Semiconductor $ 843,763 $ 928,259 $ 290,220 Automotive & Industrial 198,138 129,817 60,169 LED 137,077 187,568 76,574 Memory 127,490 66,932 35,096 Total Capital Equipment revenue $ 1,306,468 $ 1,312,576 $ 462,059 68 Table of Contents KULICKE AND SOFFA INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The following tables reflect capital expenditures, depreciation and amortization expense by segment for fiscal 2022, 2021, and 2020. Fiscal (in thousands) 2022 2021 2020 Capital expenditures: Capital Equipment $ 26,655 $ 15,257 $ 5,798 APS 5,578 7,298 8,716 Capital expenditures $ 32,233 $ 22,555 $ 14,514 Fiscal (in thousands) 2022 2021 2020 Depreciation expense: Capital Equipment $ 9,152 $ 6,938 $ 6,360 APS 7,224 6,898 6,008 Depreciation expense $ 16,376 $ 13,836 $ 12,368 Fiscal (in thousands) 2022 2021 2020 Amortization expense: Capital Equipment $ 3,873 $ 3,584 $ 4,255 APS 1,044 2,390 3,116 Amortization expense $ 4,917 $ 5,974 $ 7,371 Geographical information The following tables reflect destination sales to unaffiliated customers by country and long-lived assets by country for fiscal 2022, 2021, and 2020: Fiscal (in thousands) 2022 2021 2020 Destination sales to unaffiliated customers: China $ 855,345 $ 843,470 $ 321,294 Malaysia 126,520 70,253 40,641 Taiwan 123,995 275,251 64,373 Korea 87,647 58,308 30,848 United States 83,906 54,353 36,186 Hong Kong 27,216 82,436 43,288 All other (1) 198,991 133,593 86,546 Total destination sales to unaffiliated customers $ 1,503,620 $ 1,517,664 $ 623,176 (1) Certain balances in fiscal 2021 and 2020 have been reclassified to conform to the current period presentation. These reclassifications have no impact to the consolidated financial statements in fiscal 2021 and 2020. 69 Table of Contents KULICKE AND SOFFA INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Fiscal (in thousands) 2022 2021 Long-lived assets: Singapore $ 59,672 $ 40,470 United States 31,469 32,684 China 19,548 25,386 Israel 10,610 8,597 All other 9,647 11,187 Total long-lived assets $ 130,946 $ 118,324 NOTE 17: 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. The following table reflects the reserve for product warranty activity for fiscal 2022, 2021, and 2020: Fiscal (in thousands) 2022 2021 2020 Reserve for warranty, beginning of period $ 16,961 $ 9,576 $ 14,185 Provision for warranty 12,907 18,889 14,004 Changes in the estimation of warranty reserve — — ( 5,417 ) Utilization of reserve ( 16,425 ) ( 11,504 ) ( 13,196 ) Reserve for warranty, end of period $ 13,443 $ 16,961 $ 9,576 For the change in estimation of warranty reserve, see Note 1 for details. O ther Commitments and Contingencies The following table reflects obligations not reflected on the Consolidated Balance Sheets as of October 1, 2022: Payments due by fiscal year (in thousands) Total 2023 2024 2025 2026 Thereafter Inventory purchase obligation (1) $ 316,123 $ 316,123 $ — $ — $ — $ — (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. From time to time, the Company is party to or the target of lawsuits, claims, investigations and proceedings, including for personal injury, intellectual property, commercial, contract, and employment matters, which are handled and defended in the ordinary course of business. The Company accrues a contingent loss liability for such matters when it is probable that a liability has been incurred and the amount can be reasonably estimated. When a single amount cannot be reasonably estimated but the cost can be estimated within a range, the Company accrues the minimum amount. The Company expenses legal costs, including those expected to be incurred in connection with a loss contingency, as incurred. Unfunded Capital Commitments As of October 1, 2022, the Company also has an obligation to fund uncalled capital commitments of approximately $ 9.6 million, as and when required, in relation to its investment in a private equity fund. 70 Table of Contents KULICKE AND SOFFA INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Concentrations The following tables reflect significant customer concentrations as a percentage of net revenue for fiscal 2022, 2021, and 2020: Fiscal 2022 2021 2020 ASE Technology Holding * 17.4 % * * Represents less than 10% of total net revenue The following table reflects significant customer concentrations as a percentage of total accounts receivable as of October 1, 2022 and October 2, 2021: As of October 1, 2022 October 2, 2021 Tianshui Huatian Technology Co., Ltd. 16.7 % 18.2 % Haoseng Industrial Co., Ltd. (1) 12.6 % 14.3 % (1) Distributor of the Company's products 71 Table of Contents Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.