Human Resource (“HR”) Practices
At K&S, we aim to recruit, develop and retain a high performing and diverse workforce while fostering a safe and productive work environment for employees to maximize individual and organizational potential. Our regional HR managers support the local leaders and managers, ensuring that our employment and labor practices adhere to regional and local regulations. We continually review these policies and benchmark them against market peers to help ensure that we implement leading practices on recruitment, onboarding and employee development. Our HR function also includes centers of excellence in Talent Management, Talent Acquisition, HR Management Information System, and Global Compensation and Benefits, ensuring best practices in these important areas.
Employee Development
We believe in investing in our employees’ professional growth by encouraging them to continually develop their functional and leadership skills and to gain different experiences across the Company as they progress along their career paths and grow within our organization. Our Learning and Development Framework which is based on identified professional and management competencies and the Company’s core values, is tailored to specific target groups such as new hires, professional and support staff levels, manager levels as well as identified key talents from our succession planning process. These development programs are also based on the 70/20/10 learning and development model under which individuals obtain 70% of their knowledge through experiential learning, 20% through social learning and 10% from formal educational events. We encourage our employees to not only participate actively in technical and soft skill training programs, but also to learn through peer coaching and mentoring, and to develop professionally through various stretch assignments and projects.
Compensation & Benefits
We strive to ensure fair, equitable and competitive pay for all employees within the locations where they work, and we obtain market knowledge about pay levels by participating in multiple globally recognized compensation surveys annually. The survey organizations pool our data together with all the responding companies to determine market relevant pay ranges for all our positions. Our analysis and programs also evaluate industry sector information most relevant to us. The Company also strives to ensure that our employee benefits are compliant in the cities, states and countries in which we operate, while annual benefits benchmarking ensures that our benefits are attractive in the markets where we compete for talent.
Employee Engagement
As part of our employee engagement initiatives, every two to three years, we conduct a global employee engagement survey, the “Voice of K&S”, to gather feedback from all our employees on various aspects of their work and on our corporate culture. Survey results are reviewed by management teams to identify improvement opportunity areas. Following employee feedback in the last survey, the Company has introduced a formalized career progression framework and associated tools to provide clarity and guidance to both managers and employees. The framework provides clarity and tools for employees in the Professional and Management Career tracks on the requisite competencies for advancement to the next career level within the Company. Employees are encouraged to enroll in the various training courses intended to support their development in the required competency stages as they chart their career progression with the Company.
Work flexibility, which had been critical to our success throughout the COVID-19 pandemic, has now become part of our culture. We have provided tools and infrastructure to enable employees the choice and flexibility of a range of flexible work arrangement options that best meet their needs while allowing them to continue to fulfill business objectives.
Open Door Policy
We maintain an open-door policy through our grievance and whistleblowing procedures and provide multiple avenues for employees to voice their concerns and raise suggestions. Employees may report any grievances to their immediate supervisor, local HR representatives or the Global Vice President of HR. Employees may also raise any concerns of legal violation, violation of the Company’s codes and policies, improper or unethical business practices, or concealment of any wrong-doing through the whistleblower hotline or website. We take every raised complaint seriously and prohibit any form of retaliation against any employee for lodging a complaint in good faith.
Item 1A. RISK FACTORS
Risks Related to Our BusinessSemiconductor Industry and IndustryMacroeconomic Risks
Our operating results and financial condition arecould be adversely impacted by volatile worldwide economic conditions.conditions and unpredictable spending by our customers due to uncertainties in the macroeconomic environment.
Though the semiconductor industry'sindustry’s cycle can be independent of the general economy, global economic conditions may have a direct impact on demand for semiconductor units and ultimately demand for semiconductor capital equipment and tools. Accordingly, our business and financial performance is impacted, both positively and negatively, by fluctuations in the macroeconomic environment. Our visibility into future demand is generally limited and forecasting is difficult. There can be no assurances regarding levels of demand for our products and we believe historic industry-wide volatility will persist.
Unpredictable spending by our customers due to uncertainties in the macroeconomic environment could adversely affect our net revenue and profitability.
We depend upon demand from our customers including IDMs and OSATs, industrial manufacturers and automotive electronics suppliers. Our net revenue and profitability is based upon our customers' anticipated sales. Reductions or other fluctuations in their spending as a result of uncertain conditions in the macroeconomic environment, including from government, economic or fiscal instability, restricted global credit conditions, reduced demand, unbalanced inventory levels, fluctuations in interest rates, higher energy prices, or other conditions, could adversely affect our net revenue and profitability. The impact of general economic slowdowns could make our customers cautious and delay orders until the economic environment becomes clearer.
The semiconductor industry is volatile with sharp periodic downturns and slowdowns. Cyclical industry downturns are made worse by volatile global economic conditions.
Our operating results are significantly affected by the capital expenditures of semiconductor manufacturers, both IDMs and OSATs. Expenditures by our customers depend on the current and anticipated market demand for semiconductors and products that use semiconductors, LEDs and batteries, including mobile devices, personal computers, consumer electronics, telecommunications equipment, automotive components, electric vehicles and other industrial products. Reductions or other fluctuations in our customers' spending as a result of uncertain conditions and volatility in the macroeconomic environment, including from government, economic or fiscal instability, economic recession, actual or potential inflation, rising interest rates, slower growth in certain geographic regions, global health crises and pandemics, restricted global credit conditions, reduced demand, excess inventory, higher energy prices, or other conditions, could adversely affect our business, financial condition and operating results. Further, our profitability can be affected by volatility because we incur a certain amount of fixed costs that we cannot modulate up and down to meet increases or decreases in demand. The impact of broad-based weakening in the global macroeconomic environment could make our customers cautious and delay orders until the economic outlook becomes clearer. Significant downturns in the market for semiconductor devices or in general economic conditions reduce demand for our products and can materially and adversely affect our business, financial condition and operating results. Our visibility into future demand is generally limited and forecasting is difficult, and we believe historic, industry-wide volatility will persist.
The COVID-19 pandemic has adversely affected our business, and may in the future materially and adversely affect our results of operations and financial condition.
The ongoing COVID-19 pandemic and resulting containment measures have significantly impacted the global economy, disrupted global supply chains, created significant volatility and disruption in financial markets, and affected unemployment levels. The global responses to the COVID-19 pandemic remain dynamic. Some countries continue to impose quarantines, containment measures or travel restrictions, and certain countries, such as China, continue to impose periodic lockdowns in response to rising case numbers. In certain jurisdictions, there has been a resurgence of illnesses or threat of emerging new variants of the virus, potentially leading to more severe restrictions in the future.
While we continue our normal operations in all of our manufacturing locations, work-from-home practices have been instituted or permitted from time-to-time across our offices worldwide, which have in some cases impacted our non-manufacturing productivity. We could experience further productivity disruptions in the event of an outage to systems and technologies critical to effect remote work, or from the increased data security and technology risks arising therefrom.
The COVID-19 pandemic continues to disrupt our supply chain, including materials, equipment, engineering support and services, especially to, from and within China. In addition, the costs of logistics have increased as a result of general inflationary pressures, and labor shortages have further contributed to rising costs across the supply chain, further exacerbating the impact the pandemic has had on the supply chain.
Other effects of the COVID-19 pandemic on our business will depend on future developments that cannot be accurately predicted at this time, but may include the following:
•a decrease in short-term and/or long-term demand for our products resulting from widespread business shutdowns and slowdowns, quarantines, travel and logistics restrictions and other actions taken by governments, businesses, and the general public in an effort to limit exposure to and spread of COVID-19;
•negative impacts to our operations, technology development, new product introduction and customer qualifications resulting from our efforts to mitigate the impact of COVID-19 through execution of our BCP;
•increased volatility in the semiconductor and electric vehicle industries due to heightened uncertainty, including our inability to keep pace relative to our competitors during a post-COVID-19 market recovery should that occur; and
•reduced sales volume to or loss of customers, or cancellation, delay or reduction of backlogged customer orders.
The ultimate impact of COVID-19 on our business will depend on, among other things:
•the extent and duration of the pandemic, the severity of the disease;
•the emergence of new variants of the virus;
•the distribution and effectiveness of available vaccines and boosters and the rates at which they are administered;
•the effects on the economy of the pandemic and of the measures taken by governmental authorities and other third parties restricting day-to-day life,
•international travel and border crossings, and the length of time that such measures remain in place; and
•governmental programs implemented to assist businesses impacted by the COVID-19 pandemic.
To the extent the COVID-19 pandemic adversely affects our business, results of operations and financial conditions, it may also exacerbate the other risks discussed in this section on “Risk Factors”.
We depend on our suppliers, including sole source suppliers, for raw materials, components and subassemblies. If our suppliers do not deliver their products to us, or deliver non-compliant or defective products, we would be unable to deliver our products to our customers.
Our products are complex and require raw materials, components and subassemblies having a high degree of reliability, accuracy and performance. We rely on subcontractors to manufacture many of these components and subassemblies and we rely on sole source suppliers for certain key technology parts and raw materials. As a result, we are exposed to a number of significant risks, including:
•decreased control over the manufacturing process for components and subassemblies;
•changes in our manufacturing processes in response to changes in the market, which may delay our shipments;
•our inadvertent use of defective or contaminated raw materials;
•the relatively small operations and limited manufacturing resources of some of our suppliers, which may limit their ability to manufacture and sell subassemblies, components or parts in the volumes we require and at acceptable quality levels and prices;
•restrictions on our ability to rely on suppliers due to changes in trade regulation as well as laws and regulations enacted in response to concerns related to climate change, conflict minerals, or responsible sourcing practices;
•the inability of suppliers to meet our or other customer demand requirements;
•reliability or quality issues with certain key subassemblies provided by single source suppliers as to which we may not have any short-term alternative;
•shortages caused by disruptions at our suppliers and subcontractors for a variety of reasons, including public health emergencies and associated containment measures (such as the COVID-19 pandemic), geopolitical tensions (such as the Ukraine/Russia conflict), significant natural disasters (including as a result of climate change) or significant price changes (including as a result of inflationary pressures);
•delays in the delivery of raw materials or subassemblies, which, in turn, may delay shipments to our customers;
•loss of suppliers as a result of consolidation of suppliers in the industry; and
•loss of suppliers because of their bankruptcy or insolvency.
If any of these risks were to materialize, we might be unable to deliver our products to our customers on time and at expected cost, or at all. While we observed some easing of the industry-wide supply constraints towards the end of fiscal 2022, we expect constraints to continue and the duration of such constraints or their long-term impact on our business cannot be predicted at this time.
As part of our supply chain management, we have increased our inventory levels in an effort to mitigate component shortages. These increases in our inventory levels may lead to an excess of materials in the future in the event that the demand for our products is lower than our expectations or if we otherwise fail to anticipate future customer demand properly. Excess inventory levels could result in inventory write-downs at discounted prices, which could adversely affect our cash flows or gross margins. As a result, our business, financial condition and operating results would be materially and adversely affected.
The semiconductor industry is volatile with sharp periodic downturns and slowdowns. Cyclical industry downturns are made worse by volatile global economic conditions.
The semiconductor industry is volatile, with periods of rapid growth followed by industry-wide retrenchment. These periodic downturns and slowdowns have in the past adversely affected our business, financial condition and operating results. Downturns have been characterized by, among other things, diminished product demand, excess production capacity, and accelerated erosion of selling prices. Historically these downturns have severely and negatively affected the industry'sindustry’s demand for capital equipment, including assembly equipment and, to a lesser extent, tools. There can be no assurances regarding levels of demand for our products. In any case, we believe the historical volatility of our business, both upward and downward, will persist. Consequently, our revenues may decline, and our results of operations and financial condition may be adversely affected.
Difficulties in forecasting demand for our product lines may lead to periodic inventory shortages or excesses.
We typically operate our business with limited visibility of future demand. We do not have long-term contracts with many of our customers. As a result, demand for our products in future periods is difficult to predict and we sometimes experience inventory shortages or excesses. We generally order supplies and otherwise plan our production based on internal forecasts for demand. We have in the past failed, and may experience increasing price pressure.
Typicallyagain in the future fail, to accurately forecast demand for our average selling pricesproducts. This has led to, and may in the future lead to, delays in product shipments or, alternatively, an increased risk of inventory obsolescence. As part of our supply chain management, we have declined over time. We seekincreased our inventory levels in an effort to offset this decline by continually reducingmitigate component shortages, which may increase the risk of inventory obsolescence. If we fail to accurately forecast demand for our cost structure by consolidating operations in lower cost areas, reducing other operating costs, and by pursuing product strategies focused on product performance and customer service. These efforts may not be able to fully offset price declines; therefore,products, our business, financial condition and operating results may be materially and adversely affected.
Our quarterly operating results fluctuate significantly and may continue to do so in the future.
In the past, our quarterly operating results have fluctuated significantly. We expect that our quarterly results will continue to fluctuate. Although these fluctuations are partly due to the cyclical and volatile nature of the semiconductor industry, they also reflect other factors, many of which are outside of our control.
Some of the factors that may cause our net revenue and operating margins to fluctuate significantly from period to period are:
•market downturns;
•industry inventory level;levels;
•the mix of products we sell because, for example:
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◦ | certain lines of equipment within our business segments are more profitable than others; and |
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◦ | some sales arrangements have higher gross margins than others; |
◦certain lines of equipment or certain aftermarket tools within our business segments are more profitable than others; and
◦some sales arrangements have higher gross margins than others;
•canceled or deferred orders;
seasonality;•variations in sales channel or mix of direct sales and indirect sales;
•competitive pricing pressures may force us to reduce prices;
•higher than anticipated costs of development, achieving customer acceptance or production of new equipment models;products;
•the availability and cost of the components for our products;
•delays in the development and manufacture of our new products and upgraded versions of our products and market acceptance of these products when introduced;
customers'•customers’ delay in purchasing our products due to anticipation that we or our competitors may introduce new or upgraded products; and
•our competitors'competitors’ introduction of new products.
Many of our expenses, such as research and development, selling, general and administrative expenses, and interest expense, do not vary directly with our net revenue. Our research and development efforts include long-term projects lasting a year or more, which require significant investments. In order to realize the benefits of these projects, we believe that we must continue to fund them even during periods when our revenue has declined. As a result, a decline in our net revenue would adversely affect our operating results as we continue to make these expenditures. In addition, if we were to incur additional expenses in a quarter in which we did not experience comparable increased net revenue, our operating results would decline. In a downturn, we may have excess inventory, which could be written off. Some of the other factors that may cause our expenses to fluctuate from period-to-period include:
•timing and extent of our research and development efforts;
•severance, restructuring, and other costs of relocating facilities;
•inventory write-offs due to obsolescence or other causes; and
•an increase in the cost of labor or materials.
Because our net revenue and operating results are volatile and difficult to predict, we believe consecutive period-to-period or year-over-year comparisons of our operating results may not be a good indication of our future performance.
Competitive Risks
Our average selling prices usually decline over time and may continue to do so.
Typically, our average selling prices have declined over time due to continuous price pressure from our customers and competitive cost reductions in our industry’s supply chains. We seek to offset this decline by continually reducing our cost structure by consolidating operations in lower cost areas, reducing other operating costs, by pursuing product strategies focused on product performance and customer service, and developing new products for which we are able to charge higher prices. These efforts may not enable us to fully offset price declines, and if they do not, our financial condition and operating results may be materially and adversely affected.
We may not be able to rapidly develop, manufacture and gain market acceptance of new and enhanced products required to maintain or expand our business.
We believe our continued success depends on our ability to continuously develop and manufacture new products and product enhancements on a timely and cost-effective basis. We must introduce these products and product enhancements into the market in a timely manner in response to customers'customers’ demands for higher performance assembly equipment and leading-edge materials customized to address rapid technological advances in integrated circuits, and capital equipment designs. Our competitors may develop new products or enhancements to their products that offer improved performance and features, or lower prices which may render our products less competitive. The development and commercialization of new products require significant capital expenditures over an extended period of time, and some products we seek to develop may never become profitable. In addition, we may not be able to develop and introduce products incorporating new technologies in a timely manner that will satisfy our customers'customers’ future needs or achieve market acceptance. If we are not able to develop and sell our products that meet the demands of our customers, it would result in lower net revenues and our operating results would be adversely affected.
We may be unable to continue to compete successfully in the highly competitive semiconductor equipment and packaging materials industries.
The semiconductor equipment and packaging materials industries are very competitive. In the semiconductor equipment industry, significant competitive factors include price, speed/throughput, production yield, process control, delivery time, innovation, quality and customer support. In the semiconductor packaging materials industry, significant competitive factors include price, delivery and quality.
In each of our markets, we face competition and the threat of competition from established competitors and potential new entrants. In addition, established competitors may combine to form larger, better-capitalized companies. Some of our competitors have or may have significantly greater financial, engineering, manufacturing and marketing resources than we do. Some of these competitors are Asian and European companies that have had, and may continue to have, an advantage over us in supplying products to local customers who appear to prefer to purchase from local suppliers. Some of these competitors compete across many of our product lines, while others are primarily focused in a specific product area, sometimes with government assistance or through the support of strategic alliances, all of which could result in lowering the barriers to entry.
We expect our competitors to improve their current products’ performance, and to introduce new products and materials with improved price and performance characteristics. Our competitors may independently develop technology similar to or better than ours. They may also appropriate our technology and our intellectual property to compete against us and we may not have adequate legal recourse. New product and material introductions by existing competitors or by new market entrants could hurt our sales. If a semiconductor manufacturer or subcontract assembler selects a competitor’s product or materials for a particular assembly operation, we may not be able to sell products or materials to that manufacturer or assembler for a significant period of time. Manufacturers and assemblers sometimes develop lasting relationships with suppliers and assembly equipment providers in our industry and often go years without requiring replacement. In addition, we may have to lower our prices in response to price cuts by our competitors, which may materially and adversely affect our business, financial condition and operating results. If we cannot compete successfully, we could lose customers and experience reduced margins and profitability.
Geographic, Trade and Customer Risks
Substantially all of our sales, distribution channels and manufacturing operations are located outside of the U.S., and we rely on independent foreign distribution channels for certain product lines, all of which subjectsubjects us to risks, including risks from changes in trade regulations, currency fluctuations, political instability and conflicts.
Approximately 93.3%, 92.3%, and 92.9%Over 90% of our net revenue for fiscal 2019, 2018, and 2017, respectively, was foris derived from shipments to customers located outside of the U.S., primarily in the Asia/Pacific region. In the Asia/Pacific region, our customer base is also becomingremains more geographically concentrated in China as a result of economic and industry conditions. Approximately 46.7%56.9%, 46.0%55.6% and 40.0%51.6% of our net revenue for the fiscal 2019, 2018,2022, 2021, and 2017 2020, respectively,was forderived from shipments to customers located inChina.
We expect our future performance to depend on our ability to continue to compete in foreign markets, particularly in the Asia/Pacific region. Some of these economies have been highly volatile, resulting in significant fluctuation in local currencies, and political and economic instability. Some of these economies may also increase trade protectionism, thereby increasing barriers to entry, amplifying supply chain risks and adversely affecting the demand for our products. These conditions may continue or worsen, which may materially and adversely affect our business, financial condition and operating results.
We also rely on non-U.S. suppliers for materials and components used in our products, and substantially all of our manufacturing operations are located in countries other than the U.S. We manufacture our ball, wedge and APAMA bonders in Singapore, our Hybrid and Electronic Assembly solutions in the Netherlands, our dicing blades, capillaries and bonding wedges in China, and our capillary blanks in Israel and China. In addition, our corporate headquarters is in Singapore and we have sales, service and support personnel in Singapore, Israel, Taiwan, China, Korea, Malaysia, the Philippines, Japan, Thailand, Vietnam, the U.S., Germany,
Mexico, Switzerland and the Netherlands. We also rely on independent foreign distribution channels for certain of our product lines. As a result, a major portion of our business is subject to the risks associated with international, and particularly Asia/Pacific, commerce, such as:
risks•stringent and frequently changing trade compliance regulations;
•less protective foreign intellectual property laws, and the enforcement of warpatent and civil disturbances or other events that may limit or disrupt manufacturing and markets;intellectual property rights;
seizure of our foreign assets, including cash;
•longer payment cycles in foreign markets;
•foreign exchange restrictions and capital controls;controls, monetary policies and regulatory requirements;
•restrictions or significant taxes on the repatriation of our assets, including cash;
•tariff and currency fluctuations;
•difficulties of staffing and managing dispersed international operations;
changes in our structure or tax incentive arrangements;
possible disagreements with tax authorities;
episodic events outside our control such as, for example, outbreaks of influenza or other illnesses;
natural disasters such as earthquakes, fires or floods;
tariff and currency fluctuations;
changing political conditions;
operations, including labor work stoppages and strikes in our factories or the factories of our suppliers;
•changes in our structure or tax incentive arrangements;
•possible disagreements with tax authorities;
•episodic events outside our control such as, for example, outbreaks of coronaviruses, influenza or other illnesses;
•natural disasters such as earthquakes, fires or floods, including as a result of climate change;
•risks of war and civil disturbances, including the Ukraine/Russia conflict, or other events that may limit or disrupt manufacturing, markets and international trade;
•act of terrorism that impact our operations, customers or supply chain or that target U.S. interests or U.S. companies;
•seizure of our foreign governments' monetary policiesassets, including cash;
•the imposition of sanctions of countries in which we do business;
•changing political conditions and regulatory requirements;rising geopolitical tensions; and
less protective foreign intellectual property laws;
new laws and regulations; and
•legal systems which are less developed and may be less predictable than those in the U.S.
In addition, there is a potential risk of conflict and instability in the relationship between Taiwan and China. Conflict or instabilityChina which could disrupt the operations of our customers and/or suppliers in both Taiwan and China. Additionally,China, our manufacturing operations in China, could be disrupted by any conflict.and our future plans in the region.
Our international operations also depend uponon favorable trade relations between the U.S. and those foreign countries in which our customers, subcontractors and materials suppliers have operations. A protectionist trade environment in either the U.S. or those foreign countries in which we do business, such as a change in the current tariff structures, export compliance or other trade policies, may materially and adversely affect our ability to sell our products in foreign markets.
Catastrophic events, such as pandemics and extreme weather events as a result of climate change, can have a material adverse effect on our operations and financial results.
Our operations and business, and those of our customers and suppliers, can be disrupted by natural disasters, public health issues (including the COVID-19 pandemic), cybersecurity incidents, interruptions of service from utilities, or other catastrophic events including as a result of climate change. For example, we have at times experienced temporary disruptions in our manufacturing processes as a result of power outages. In addition, global climate change can result in natural disasters occurring more frequently, with greater intensity and with less predictability. For example, in August 2022, China’s Sichuan province ordered all factories to shut down for an extended period to ease a power shortage in the region resulting from an unprecedented heat wave crossing 104-degree Fahrenheit in dozens of Chinese cities. As Sichuan is a key manufacturing location for the semiconductor and solar panel industries, such power rationing measures impacted factories and suppliers who operate there. The long-term effects of climate change on the global economy and the semiconductor industry in particular are unclear but could be severe, and could exacerbate the other risk factors described herein. Catastrophic events could make it difficult or impossible to manufacture or deliver products to our customers, receive materials from our suppliers, or perform critical functions, whether on a timely basis or at all, which could adversely affect our revenue and operations. Some of the systems we maintain as part of our business recovery plans cannot guarantee us protection from such disruptions. Furthermore, even if our operations are unaffected or recover quickly, if our customers or suppliers cannot timely resume their own operations due to a catastrophic event, we may be unable to fulfil our customers’ orders, and may experience reduced or cancelled orders or other disruptions to our supply chain that may adversely affect our results of operations.
We are subject to export restrictions that may limit our ability to sell to certain customers, and trade wars, in particular the U.S.-China trade war, could adversely affect our business.
The U.S. and several other countries have leviedlevy tariffs on certain goods and have introducedimpose other trade restrictions that may impact our customercustomers’ investment in manufacturing equipment, reduce the competitiveness of our products, or inhibit our ability to sell products or purchase necessary equipment and supplies. In particular, trade tensions between the U.S. and China have been escalating since 2018, with U.S. tariffs on Chinese goods and retaliatory Chinese tariffs on U.S. goods. We cannot predict what further actions may ultimately be taken with respect to tariffs or trade relations between the U.S. and other countries, what products may be subject to such actions, or what actions may be taken by other countries in response. Further changes in trade policy, tariffs, additional taxes, restrictions on exports or other trade barriers, or restrictions on supplies, equipment, and raw materials, may limit our ability to produce products, increase our selling and/or manufacturing costs, reduce the competitiveness of our products, or inhibit our ability to sell products or purchase necessary equipment and supplies, which could have a material adverse effect on our business, results of operations, or financial condition.
Increased labor costs and competition for qualified personnel may reduce the efficiency of our flexible manufacturing model and adversely impact our operating results.
There is some uncertainty with respect to the pace of rising labor costs in the various countries in which we operate. In addition, there is substantial competition in China, Singapore, Israel and the Netherlands for qualified and capable personnel, which may make it difficult for us to recruit and retain qualified employees. If we are unable to staff sufficient personnel at our China, Singapore, Israel and the Netherlands facilities or if there are increases in labor costs that we are unable to recover in our pricing to our customers, we may experience increased manufacturing costs, which would adversely affect our operating results.
We are exposed to fluctuations in currency exchange rates that could negatively impact our financial results and cash flows.
Because most of our foreign sales are denominated in U.S. dollar or Euro, an increase in value of the U.S. dollar or the Euro against foreign currencies will make our products more expensive than those offered by some of our foreign competitors. In addition, a weakening of the U.S. dollar against other currencies other than the Euro could make our costs in non-U.S. locations more expensive to fund. Our ability to compete overseas may therefore be materially and adversely affected by the fluctuations of the U.S. dollar or the Euro against other currencies.
BecauseThough nearly all of our business is conductedmanufacturing activities take place outside of the U.S., certain of our advanced packaging products are subject to the EAR because they are based on U.S. technology or contain more than a de minimis amount of controlled U.S. content. The EAR require licenses for, and sometimes prohibit, the export of certain products. The CCL sets forth the types of goods and services controlled by the EAR, including civilian science, technology, and engineering dual-use items. For products listed on the CCL, a license may be required as a condition to export depending on the end destination, end use or end user and any applicable license exceptions.
In 2020, the U.S. Department of Commerce Bureau of Industry and Security (“BIS”) amended the EAR to expand controls on certain foreign products based on U.S. technology and sold to Huawei and certain other companies. In October 2022, the BIS amended the EAR again to extend those foreign controls to numerous companies on BIS’ so-called Entity List. The 2020 and 2022 amendments impact some of our advanced packaging products, which are based on U.S. technology and are within the scope of the expanded EAR controls on Huawei and other Entity List companies. Therefore, these products cannot be sold to Huawei and other Entity List companies, and are subject to certain end-use restrictions. To date, these amendments to the EAR have not had a material direct impact on our business, financial condition or results of operations and we face exposuredo not expect that they will, although they could have indirect impacts, including increasing tensions in U.S. and Chinese trade relations, potentially leading to adverse movementsnegative sentiments towards U.S.-based companies among Chinese consumers. Additionally, some end users may prefer to avoid the U.S. supply chain to avoid the application of these regulations.
Future changes in, foreign currency exchange rates whichand responses to, U.S. trade policy could reduce the competitiveness of our products and cause our sales to decline, and therefore could have a material adverse impact on our financial results and cash flows. Historically, our primary exposures have related to net working capital exposures denominated in currencies other than the foreign subsidiaries' functional currency, and remeasurement of our foreign subsidiaries' net monetary assets from the subsidiaries' local currency into the subsidiaries' functional currency. In general, an increase in the value of the U.S. dollar could require certain of our foreign subsidiaries to record translation and remeasurement gains. Conversely, a decrease in the value of the U.S. dollar could require certain of our foreign subsidiaries to record losses on translation and remeasurement. An increase in the value of the U.S. dollar could increase the cost to our customers of our products in those markets outside the U.S. where we sell in U.S. dollars, and a weakened U.S. dollar could increase the cost of local operating expenses and procurement of raw materials, both of which could have an adverse effect on our cash flows. Our primary exposures include the Singapore Dollar, Chinese Yuan, Japanese Yen, Swiss Franc, Philippine Peso, Thai Baht, Taiwan Dollar, South Korean Won, Israeli Shekel and Euro. Although we from time to time have entered into foreign exchange forward contracts to hedge certain foreign currency exposure of our operating expenses, our attempts to hedge against these risks may not be successful and may result in a material adverse impact on our financial results and cash flows.
We may not be able to continue to consolidate manufacturing and other facilities or entities without incurring unanticipated costs and disruptions to our business.
As part of our ongoing efforts to drive further efficiency, we may consolidate our manufacturing and other facilities or entities. Should we consolidate, we may experience unanticipated events, including the actions of governments, suppliers, employees or customers, which may result in unanticipated costs and disruptions to our business.
Our business depends on attracting and retaining management, marketing and technical employees as well as on the succession of senior management.
Our future success depends on our ability to hire and retain qualified management, marketing, finance, accounting and technical employees, including senior management. Experienced personnel with the relevant and necessary skill sets in our industry are in high demand and competition for their talents is intense, especially in Asia, where most of the Company’s key personnel are located. If we are unable to continue to attract and retain the managerial, marketing, finance, accounting and technical personnel we require, our business, financial condition and operating results may be materially and adversely affected.
Effective succession planning is also important to our long-term success. Failure to ensure effective transfer of knowledge and smooth transitions involving senior management could hinder our strategic planning and execution. From time to time, senior management or other key employees may leave our company. While we strive to reduce the negative impact of such changes, the loss of any key employee could result in significant disruptions to our operations, including adversely affecting the timeliness of product releases, the successful implementation and completion of company initiatives, the effectiveness of our disclosure controls and procedures and our internal control over financial reporting, and the results of our operations. In addition, hiring, training, and successfully integrating replacement critical personnel could be time consuming, may cause additional disruptions to our operations, and may be unsuccessful, which could negatively impact future revenues.
Difficulties in forecasting demand for our product lines may lead to periodic inventory shortages or excesses.
We typically operate our business with limited visibility of future demand. As a result, we sometimes experience inventory shortages or excesses. We generally order supplies and otherwise plan our production based on internal forecasts for demand. We have in the past failed, and may again in the future fail, to accurately forecast demand for our products. This has led to, and may in the future lead to, delays in product shipments or, alternatively, an increased risk of inventory obsolescence. If we fail to accurately forecast demand for our products, our business, financial condition and operating results may be materially and adversely affected.
Alternative packaging technologies may render some of our products obsolete and materially and adversely affect our overall business and financial results.
Alternative packaging technologies have emerged that may improve device performance or reduce the size of an integrated circuit package, as compared to traditional wire bonding. These technologies include flip chip and WLP. Some of these alternative technologies eliminate the need for wires to establish the electrical connection between a die and its package. The semiconductor industry may, in the future, shift a significant part of its volume into alternative packaging technologies which do not employ our products. If a significant shift to alternative packaging technologies to a technology not offered by us were to occur, demand for our equipment and related packaging materials may be materially and adversely affected. Given the lack of a significant alternate revenue stream other than wire bonding, a reduced demand for our equipment could materially and adversely affect our financial results.
Because a small number of customers account for most of our sales, our net revenue could decline if we lose a significant customer.
The semiconductor manufacturing industry is highly concentrated, with a relatively small number of large semiconductor manufacturers and their subcontract assemblers and vertically integrated manufacturers of electronic systems purchasing a substantial portion of our semiconductor assembly equipment and packaging materials. Sales to a relatively small number of customers have historically accounted for a significant percentage of our net revenue. There was no customer with sales representing more than 10% of net revenue in fiscal 2019.2022. Sales to our ten largest customers comprised 53.8%49.1% and 53.4%62.0% of our net revenue for fiscal 20192022 and fiscal 2018,2021, respectively.
We expect a small number of customers will continue to account for a high percentage of our net revenue for the foreseeable future. Thus, our business success depends on our ability to maintain strong relationships with our customers. Any one of a number of factors could adversely affect these relationships. If, for example, during periods of escalating demand for our equipment, we were unable to add inventory and production capacity quickly enough to meet the needs of our customers, or if because of supply chain constraints we are not able to fulfil our customers' orders, they may turn to other suppliers making it more difficult for us to retain their business. We may also make commitments from time-to-time to our customers regarding minimum volumes and performance standards, and if we are unable to meet those commitments, we may incur liabilities to our customers. If we lose orders from a significant customer orthat we are not able to replace, if a significant customer reduces its orders substantially, or if we incur liabilities for not meeting customer commitments, these losses, reductions or reductionsliabilities may materially and adversely affect our business, financial condition and operating results.
We maintain a backlog of customer orders that is subject to cancellation, reduction or delay in delivery schedules, which may result in lower than expected revenues.
We manufacture products primarily pursuant to purchase orders for current delivery or to forecast, rather than pursuant to long-term supply contracts. As a result, we must commit resources to the manufacture of products without binding purchase commitments from customers. The semiconductor industry is occasionally subject to double-booking and rapid changes in customer outlooks or unexpected build ups of inventory in the supply channel as a result of shifts in end market demand and macro-economic conditions. Accordingly, many of these purchase orders or forecasts may be revised or canceled without penalty. Even in cases where our standard terms and conditions of sale or other contractual arrangements do not permit a customer to cancel an order without penalty, we may from time to time accept cancellations to maintain customer relationships or because of industry practice, custom or other factors. OurThe broad-based weakening in the global macroeconomic environment may result in lower than expected demand for our products, and our inability to sell products after we devote significant resources to them could have a material adverse effect on both our levels of inventory, revenues and revenues. Whileprofitability.
Human Capital Risks
Increased labor costs and competition for qualified personnel may reduce the efficiency of our flexible manufacturing model and adversely impact our operating results.
The labor costs in the various countries in which we currently believeoperate are rising. There is substantial competition in China and Singapore for qualified and capable manufacturing personnel, which may make it difficult for us to recruit and retain qualified employees. In addition, current or future immigration laws, policies or regulations may limit our inventory levelsability to attract, hire and retain qualified employees in Singapore. If we are appropriateunable to staff sufficient personnel at our China, Singapore, Israel and the Netherlands facilities or if there are increases in labor costs that we are unable to recover in our pricing to our customers, we may experience increased manufacturing costs, which would adversely affect our operating results.
Our business depends on attracting and retaining management, sales and technical employees as well as on the succession of senior management.
Our future success depends on our ability to hire and retain qualified management, sales, finance, accounting and technical employees, including senior management. Experienced personnel with the relevant and necessary skill sets in our industry are in high demand and competition for their talents is intense, especially in Asia, where most of the current economic environment, continued global economic uncertaintyCompany’s key personnel are located. If we are unable to continue to attract and retain the managerial, marketing, finance, accounting and technical personnel we require, our business, financial condition and operating results may be materially and adversely affected.
Effective succession planning is also important to our long-term success. Failure to ensure effective transfer of knowledge and smooth transitions involving senior management could hinder our strategic planning and execution. From time to time, senior management or other key employees may leave our company, and the loss of any key employee could result in lower than expected demand.significant disruptions to our operations, including adversely affecting the timeliness of product releases, the successful implementation and completion of company initiatives, the effectiveness of our disclosure controls and procedures and our internal control over financial reporting, and the results of our operations. Changes in immigration policies may also impair our ability to recruit and hire technical and professional talent. In addition, hiring, training, and successfully integrating replacement critical personnel could be time consuming, may cause additional disruptions to our operations, and may be unsuccessful, which could negatively impact future revenues.
Product Risks
Alternative packaging technologies may render some of our products obsolete and materially and adversely affect our overall business and financial results.
Alternative packaging technologies have emerged that may improve device performance or reduce the size of an integrated circuit package, as compared to traditional wire bonding. These technologies include flip chip and wafer-level packaging. Some of these alternative technologies eliminate the need for wires to establish the electrical connection between a die and its package. The semiconductor industry may, in the future, shift a significant part of its volume into alternative packaging technologies which do not employ our products. If a significant shift to alternative packaging technologies or to another technology not offered by us were to occur, demand for our equipment and related packaging materials may be materially and adversely affected. Given that a majority of our revenue comes from wire bonding, a reduced demand for our wire bonding equipment could materially and adversely affect our financial results.
We may send products and equipment to customers or potential customers for trial, evaluation or other purposes which may result in retrofit charges, impairments or write-down of inventory value if the products and equipment are not subsequently purchased by the customers.
From time to time we send certain products and equipment to customers or potential customers for testing, evaluation or other purposes in advance of receiving any confirmation of purchase or purchase orders. Such equipment may be at the customer location for an extended period of time per the agreements with these customers and potential customers. The customer or potential customer may refuse to buy all or partial quantities of such product or equipment and return this back to us. As a result, we may incur charges to retrofit the machines or sell the machines as second hand at a lower price, and accordingly may have to record impairments on the returned inventory, all of which would adversely affect our operating results.
Undetected problems in our products could directly impair our financial results.
If errata (deviations from product specifications) or flaws in design, production, assembly or testing of our products (by us or our suppliers) were to occur, we could experience a rate of failure in our products that would result in substantial repair, replacementmaterially adverse consequences, including:
•incurring warranty expenses;
•writing off the value of inventory;
•disposing of products that cannot be fixed;
•retrofitting products that have been shipped;
•providing product replacements or service costsmodifications; and potential damage to our reputation.
•defending against litigation.
Continued improvement in manufacturing capabilities, control of material and manufacturing quality and costs and product testing are critical factors in our future growth. There can be no assurance that ourOur efforts to monitor, develop, modify and implement appropriate tests and manufacturing processes for our products willmay not be sufficient to permit us to avoid a rate of failure in our products that results in substantial delays in shipment, significant repair or replacement costs, or potential damage to our reputation anyor general customer dissatisfaction with our products. We may also not be able to obtain product liability or other insurance to fully cover such risks. Any of whichthe foregoing risks, if they were to materialize, could have a material adverse effect on our business, results of operations or financial condition.
Costs relatedOperations and Supply Chain Risks
We may not be able to product defectcontinue to consolidate manufacturing and errata may harmother facilities or entities without incurring unanticipated costs and disruptions to our results of operations and business.
Costs of product defects and errata (deviations from product specifications) due to, for example, problems in our design and manufacturing processes, or thoseAs part of our ongoing efforts to drive further efficiency, we may consolidate our manufacturing and other facilities or entities. Should we consolidate, we may experience unanticipated events, including the actions of governments, suppliers, could include:
writing off the value of inventory;
disposing of products that cannot be fixed;
retrofitting products that have been shipped;
providing product replacementsemployees or modifications;customers, which may result in unanticipated costs and
defending against litigation.
These costs could be large and may increase expenses and lower our operating profits. Our reputation with customers or end users could be damaged as a result of product defects and errata, and product demand could be reduced. These factors could harm our business and financial results.
We depend on our suppliers, including sole source suppliers, for critical raw materials, components and subassemblies. If our suppliers do not deliver their products to us, we would be unable to deliver our products disruptions to our customers.
Our products are complex and require raw materials, components and subassemblies having a high degree of reliability, accuracy and performance.business. We rely on subcontractors to manufacture many of these components and subassemblies and we rely on sole source suppliers for certain key technology parts and raw materials. As a result, we are exposed to a number of significant risks, including:
decreased control over the manufacturing process for components and subassemblies;
changes in our manufacturing processes in response to changes in the market, which may delay our shipments;
our inadvertent use of defective or contaminated raw materials;
the relatively small operations and limited manufacturing resources of some of our suppliers, which may limit their ability to manufacture and sell subassemblies, components or parts in the volumes we require and at acceptable quality levels and prices;
restrictions on our ability to rely on suppliers due to changes in trade regulation;
the inability of suppliers to meet customer demand requirements during volatile cycles;
reliability or quality issues with certain key subassemblies provided by single source suppliers as to which we may not have any short term alternative;
shortages caused by disruptions at our suppliers and subcontractors for a variety of reasons, including work stoppage or fire, earthquake, flooding or other natural disasters;
delays in the delivery of raw materials or subassemblies, which, in turn, may delay shipments to our customers;
also incur restructuring charges, severance costs, asset impairments, loss of suppliers as a result of consolidation of suppliers in the industry;accumulated knowledge, inefficiency during transitional periods, employee attrition and
loss of suppliers because of their bankruptcy or insolvency.
If we are unable to deliver products to other effects that could negatively impact our customers on time and at expected cost for these or any other reasons, or we are unable to meet customer expectations as to cycle time, or we are unable to maintain acceptable product quality or reliability, our business, financial condition and operating results of operations.
We may be materially and adversely affected.affected by environmental and safety laws and regulations, including laws and regulations implemented in response to climate change.
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TableCompliance with existing or future land use, environmental, climate-related and health and safety laws and regulations may: (1) result in significant costs to us for additional capital equipment or other process requirements; (2) restrict our ability to expand our operations, and/or (3) cause us to curtail our operations. We also could incur significant costs, including cleanup costs, fines or other sanctions and third-party claims for property damage or personal injury, as a result of Contentsviolations of or liabilities under such laws and regulations.
Regulations relatedIncreasingly, various agencies and governmental bodies have expressed interest in promulgating rules relating to “conflict minerals”climate change. For example, in March 2022, the SEC published a proposed rule that would require companies to provide significantly expanded climate-related disclosures in their Form 10-K, which may forcerequire us to incur significant additional expenses, may makecosts to comply and impose increased oversight obligations on our supply chain more complexmanagement and may result in damageBoard of Directors. The cost of complying, or of failing to our reputationcomply, with customers.
In 2012, under the Dodd-Frank Wall Street Reformthese and Consumer Protection Act of 2010,other regulatory requirements or the Dodd-Frank Act, the SEC adopted requirements for companies that use certain minerals and metals, known as conflict minerals, in their products, regardless of whether these products are manufactured by third parties. These requirements require companies to conduct due diligence and disclose whether or not such minerals originate from the Democratic Republic of Congo and certain adjoining countries. These requirementscontractual obligations could adversely affect our operating results, financial condition and ability to conduct our business.
To the sourcing, availability and pricing of minerals usedextent that higher costs result in higher prices for our products, we may experience a reduction in the manufacturedemand for those products, which could negatively affect our results of semiconductor devices, including our products. In addition, since our supply chain is complex,operations. Conversely, we may not be able to sufficiently verifypass these increased costs onto our customers in the origins for these minerals and metals used inform of higher prices, as a result of which our products through the due diligence procedures that we implement, which may harm our reputation. In such event, weresults of operations may also face difficulties in satisfying customers who require that all of the components of our products are certified as conflict mineral free.be adversely affected.
We may acquire or divest businesses or enter into joint ventures or strategic alliances, which may materially affect our business, financial condition and operating results.
We continually evaluate our portfolio of businesses and may decide to buy or sell businesses or enter into joint ventures or other strategic alliances. We may not find suitable acquisition candidates, we may not be able to close such acquisitions, and the acquisitions we complete may not be successful. We may be unable to successfully integrate acquired businesses with our existing businesses and successfully implement, improve and expand our systems, procedures and controls to accommodate these acquisitions. If we are not able to successfully integrate any acquired businesses with ours, the anticipated benefits of the acquisitions may not be realized fully or may take longer than expected to be realized. We may also incur higher than expected costs as a result of any acquisitions or experience an overall post-completion process that takes longer than originally anticipated.
These transactions place additional demands on our management, our various functional teams and our current labor force. Additionally, these transactions require significant resources fromThe combination of businesses may result in the loss of key personnel or an interruption of, or loss of momentum in, our legal, finance and business teams.existing businesses and/or the acquired business. In addition, we may need to divest existing businesses, which would cause a decline in revenue or profitability and may make our financial results more volatile.If we fail to integrate and manage acquired businesses successfully or to mitigate the risks associated with divestitures, joint ventures or other alliances, or if the time and costs associated with integration exceeds our expectations, or if our acquired business were to perform poorly, our business, financial condition and operating results may be materially and adversely affected.
TheIncreasing attention to ESG matters, including any targets or other ESG initiatives, could result in additional costs or risks or adversely impact our business
Certain investors, shareholder advocacy groups, other market price of our common sharesparticipants, customers and our earnings per shareother stakeholder groups have focused increasingly on companies' environmental, social and governance (“ESG”) initiatives, including those concerning climate change, human rights, diversity and inclusion, and shareholder proxy access. This may decline as a result of any acquisitionsin increased costs, enhanced compliance or divestitures.
The market price of our common shares may decline as a result of any acquisitionsdisclosure obligations and costs, or divestitures made by us if we do not achieve the perceived benefits of such acquisitions or divestitures as rapidly or to the extent anticipated by financial or industry analysts or if the effectother adverse impacts on our financial results is not consistent with the expectations of financial or industry analysts. In addition, the failure to achieve expected benefits and unanticipated costs relating to our acquisitions could reduce our future earnings per share.
We may be unable to continue to compete successfully in the highly competitive semiconductor equipment and packaging materials industries.
The semiconductor equipment and packaging materials industries are very competitive. In the semiconductor equipment industry, significant competitive factors include price, speed/throughput, production yield, process control, delivery time, innovation, quality and customer support. In the semiconductor packaging materials industry, competitive factors include price, delivery and quality.
In each of our markets, we face competition and the threat of competition from established competitors and potential new entrants. In addition, established competitors may combine to form larger, better-capitalized companies. Some of our competitors have or may have significantly greater financial, engineering, manufacturing and marketing resources. Some of these competitors are Asian and European companies that have had, and may continue to have, an advantage over us in supplying products to local customers who appear to prefer to purchase from local suppliers.
We expect our competitors to improve their current products' performance, and to introduce new products and materials with improved price and performance characteristics. Our competitors may independently develop technology similar to or better than ours. New product and material introductions by existing competitors or by new market entrants could hurt our sales. If a semiconductor manufacturer or subcontract assembler selects a competitor's product or materials for a particular assembly operation, we may not be able to sell products or materials to that manufacturer or assembler for a significant period of time. Manufacturers and assemblers sometimes develop lasting relationships with suppliers and assembly equipment providers in our industry and often go years without requiring replacement. In addition, we may have to lower our prices in response to price cuts by our competitors, which may materially and adversely affect our business, financial condition or results of operations.
From time to time, we create and operating results. If we cannotpublish voluntary disclosures regarding ESG matters. Our sustainability report, currently in its sixth edition, continues to outline our Company’s strategies, initiatives and performance of ESG topics identified through a materiality assessment to be most relevant to the operations and stakeholders of our Company. The identification, assessment, and disclosure of such matters is complex. Many of the statements in such voluntary disclosures are based on our expectations and assumptions, which may require substantial discretion and forecasts about costs and future circumstances.
Additionally, ESG matters continue to evolve rapidly. Organizations that provide information to investors on ESG matters may develop more discrete rating matrices, benchmarks and processes on evaluating companies on their ESG approach. This may create opportunities for misalignment or perceived failure resulting in unfavorable ESG ratings. This could foster negative investor sentiment toward us, our customers, or our industry, which could negatively impact our business and operations. To the extent ESG matters negatively impact our reputation, it may also impede our ability to compete successfully, we could be forcedas effectively to reduce prices and could lose customers and experience reduced margins and profitability.recruit or retain employees, which may adversely affect our operations.
Our success depends in part on our intellectual property, which we may be unable to protect.
Our success depends in part on our proprietary technology. To protect this technology, we rely principally on contractual restrictions (such as nondisclosure and confidentiality provisions) in our agreements with employees, subcontractors, vendors, consultants and customers and on the common law of trade secrets and proprietary “know-how.”“know-how”. We also rely, in some cases, on patent and copyright protection, although this protection may in some cases be insufficient due to the rapid development of technology in our industry. We may not be successful in protecting our technology for a number of reasons, including the following:
•employees, subcontractors, vendors, consultants and customers may violate their contractual agreements, and the cost of enforcing those agreements may be prohibitive, or those agreements may be unenforceable or more limited than we anticipate;
•foreign intellectual property laws may not adequately protect our intellectual property rights; and
•our patent and copyright claims may not be sufficiently broad to effectively protect our technology; our patents or copyrights may be challenged, invalidated or circumvented; or we may otherwise be unable to obtain adequate protection for our technology.
Also, competitors may copy or misappropriate our trade secrets, products or designs either through lawful means of reverse engineering or through unlawful means that we are unable to prove, in either case eroding our market share. In addition, our partners and alliances may have rights to technology developed by us. We may incur significant expense to protect or enforce our intellectual property rights. If we are unable to protect our intellectual property rights, our competitive position may be weakened.
Third parties may claim we are infringing on their intellectual property, which could cause us to incur significant litigation costs or other expenses, or prevent us from selling some of our products.
The semiconductor industry is characterized by rapid technological change, with frequent introductions of new products and technologies. Industry participants often develop products and features similar to those introduced by others, creating a risk that their products and processes may give rise to claims they infringe on the intellectual property of others. We may unknowingly infringe on the intellectual property rights of others and incur significant liability for that infringement. If we are found to have infringed on the intellectual property rights of others, we could be enjoined from continuing to manufacture, market or use the affected product, or be required to obtain a license to continue manufacturing or using the affected product. A license could be very expensive to obtain or may not be available at all. Similarly, changing or re-engineering our products or processes to avoid infringing the rights of others may be costly, impractical or time consuming.
Occasionally, third parties assert that we are, or may be, infringing on or misappropriating their intellectual property rights. In these cases, we defend, and will continue to defend, against claims or negotiate licenses where we consider these actions appropriate. Intellectual property cases are uncertain and involve complex legal and factual questions. If we become involved in this type of litigation, it could consume significant resources and divert our attention from our business.
We may be materiallyInformation Technology and adversely affected by environmental and safety laws and regulations.
We are subject to various federal, state, local and foreign laws and regulations governing, among other things, the generation, storage, use, emission, discharge, transportation and disposal of hazardous material, investigation and remediation of contaminated sites and the health and safety of our employees. Increasingly, public attention has focused on the environmental impact of manufacturing operations and the risk to neighbors of chemical releases from such operations.
Proper waste disposal plays an important role in the operation of our manufacturing plants. In many of our facilities we maintain wastewater treatment systems that remove metals and other contaminants from process wastewater. These facilities operate under permits that must be renewed periodically. A violation of those permits may lead to revocation of the permits, fines, penalties or the incurrence of capital or other costs to comply with the permits, including potential shutdown of operations.
Compliance with existing or future land use, environmental and health and safety laws and regulations may: (1) result in significant costs to us for additional capital equipment or other process requirements, (2) restrict our ability to expand our operations and/or (3) cause us to curtail our operations. We also could incur significant costs, including cleanup costs, fines or other sanctions and third-party claims for property damage or personal injury, as a result of violations of or liabilities under such laws and regulations. Any costs or liabilities to comply with or imposed under these laws and regulations could materially and adversely affect our business, financial condition and operating results.
We have the ability to issue additional equity securities, which would lead to dilution of our issued and outstanding common shares.
The issuance of additional equity securities or securities convertible into equity securities will result in dilution of our existing shareholders' equity interests in us. Our board of directors has the authority to issue, without vote or action of shareholders, preferred shares in one or more series, and has the ability to fix the rights, preferences, privileges and restrictions of any such series. Any such series of preferred shares could contain dividend rights, conversion rights, voting rights, terms of redemption, redemption prices, liquidation preferences or other rights superior to the rights of holders of our common shares. In addition, we are authorized to issue, without shareholder approval, up to an aggregate of 200 million common shares, of which approximately 63.2 million shares were outstanding as of September 28, 2019. We are also authorized to issue, without shareholder approval (except as required by the rules of the Nasdaq stock market), securities convertible into either common shares or preferred shares.
Weaknesses in our internal controls and procedures could result in material misstatements in our financial statements.
Pursuant to the Sarbanes-Oxley Act, management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal controls over financial reporting are processes designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with U.S. generally accepted accounting principles. A material weakness is a control deficiency, or combination of control deficiencies, that results in a more than remote likelihood that a material misstatement of annual or interim financial statements will not be prevented or detected.
Our internal controls may not prevent all potential errors or fraud. Any control system, no matter how well designed and implemented, can only provide reasonable and not absolute assurance that the objectives of the control system will be achieved. We or our independent registered public accountants may identify material weaknesses in our internal controls which could adversely affect our ability to ensure proper financial reporting and could affect investor confidence in us and the price of our common shares. We previously disclosed in our Form 10-K/A for the fiscal year ended September 30, 2017, and in our Forms 10-Q and 10 Q/A (as applicable) for each interim period in fiscal 2018, material weaknesses in our internal control over financial reporting in respect of (i) recording and review of manual journal entries related to our warranty accrual and accounts payable and (ii) cash disbursements. Management implemented a number of remediation actions, and has concluded that the material weaknesses described above were remediated as of September 29, 2018.
Management investigations and restatement of financial statements may require significant management time and attention, result in significant legal expenses or damages and cause our business, financial condition, results of operations and cash flows to suffer.
In connection with an internal investigation related to an unauthorized transaction by a senior finance employee of the Company, which was discovered following our second fiscal quarter of 2018 and which, as discussed in the Form 10-K/A filed on May 31, 2018, has led to the restatement of our financial statements, we have incurred significant accounting and legal fees, as well as the diversion of management's time and attention. We are subject to legal action relating to these matters and may also become subject to regulatory investigations, stockholder demands or other legal actions, which would, regardless of the outcome, consume substantial resources (including management's time and attention) and result in additional legal, accounting, insurance and other costs. The restatement and related matters could also impair our reputation and our ability to comply with certain continued listing standards of NASDAQ. Each of these occurrences, individually or in the aggregate, could have a material adverse effect on our business, results of operations, financial condition, liquidity and stock price.Enterprise System Risks
We may be subject to disruptions or failures in our information technology systems and network infrastructures that could have a material adverse effect on us.
We maintain and rely extensively on information technology systems and network infrastructures for the effective operation of our business. We also hold large amounts of data in data center facilities around the world, primarily in Singapore and the U.S., uponon which our business depends. A disruption, infiltration or failure of our information technology systems or any of our data centers as a result of software or hardware malfunctions, computer viruses, cyber-attacks, employee theft or misuse, power disruptions, natural disasters or accidents could cause breaches of data security and loss of critical data, which in turn could materially adversely affect our business. Our security procedures, such as virus protection software, data loss protection and our business continuity planning, such as our disaster recovery policies and back-up systems, may not be adequate or implemented properly to fully address the adverse effect of such events, which could adversely impact our operations. In addition, our business could be adversely affected to the extent we do not make the appropriate level of investment in our technology systems as our technology systems become out-of-date or obsolete and are not able to deliver the type of data integrity and reporting we need to run our business. Furthermore, when we implement new systems and/or upgrade existing systems, we could be faced with temporary or prolonged disruptions that could adversely affect our business.
We have experienced, and expect to continue to be subject to, cybersecurity threats and incidents, ranging from employee error or misuse, to individual attempts to gain unauthorized access to information systems, to sophisticated and targeted measures known as advanced persistent threats, none of which have been material to the Company to date. We devote significant resources to network security and other measures to protect our systems and data from unauthorized access or misuse. However, depending on the nature and scope, cybersecurity incidents could result in business disruption; the misappropriation, corruption or loss of confidential information and critical data (of the Company or that ofbelonging to third parties); reputational damage; litigation with third parties; diminution in the value of our investment in research, development and engineering; data privacy issues; and increased cybersecurity protection and remediation costs.
We are implementing a new enterprise resource planning system. Our failure to implement it successfully, on time and on budget could have a material adverse effect on us.
In 2020 we began implementing a new enterprise resource planning (“ERP”) system, and will continue to implement the new system in phases across our various entities over the next two years. ERP implementations are complex, time-consuming, labor intensive, and involve substantial expenditures on system software and implementation activities. The ERP system is critical to our ability to provide important information to our management, obtain and deliver products, provide services and customer support, send invoices and track payments, fulfill contractual obligations, accurately maintain books and records, provide accurate, timely and reliable reports on our financial and operating results, and otherwise operate our business. ERP implementations also require transformation of business and financial processes in order to reap the benefits of the ERP system. Any such implementation involves risks inherent in the conversion to a new computer system, including loss of information and potential disruption to our normal operations. The implementation and maintenance of the new ERP system has required, and will continue to require, the investment of significant financial and human resources and the implementation may be subject to delays and cost overruns. In addition, we may not be able to successfully complete the implementation of the new ERP system without experiencing difficulties.
Any disruptions, delays or deficiencies in the design and implementation or the ongoing maintenance of the new ERP system could adversely affect our ability to process orders, ship products, provide services and customer support, send invoices and track payments, fulfill contractual obligations, accurately maintain books and records, provide accurate, timely and reliable reports on our financial and operating results, including reports required by the SEC such as the evaluation of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, andotherwise operate our business. Additionally, if we do not effectively implement the ERP system as planned or the system does not operate as intended, the effectiveness of our internal control over financial reporting could be adversely affected or our ability to assess it adequately could be delayed.
Currency and Tax Risks
We are exposed to fluctuations in currency exchange rates that could negatively impact our financial results and cash flows.
Because most of our foreign sales are denominated in U.S. dollar, an increase in value of the U.S. dollar against foreign currencies will make our products more expensive than those offered by some of our foreign competitors. In addition, a weakening of the U.S. dollar against other currencies could make our costs in non-U.S. locations more expensive to fund. Our ability to compete overseas may therefore be materially and adversely affected by the fluctuations of the U.S. dollar against other currencies.
Because nearly all of our business is conducted outside the U.S., we face exposure to adverse movements in foreign currency exchange rates which could have a material adverse impact on our financial results and cash flows. Historically, our primary exposures have related to net working capital exposures denominated in currencies other than the foreign subsidiaries’ functional currency, and remeasurement of our foreign subsidiaries’ net monetary assets from the subsidiaries’ local currency into the subsidiaries’ functional currency. In general, an increase in the value of the U.S. dollar could require certain of our foreign subsidiaries to record translation and remeasurement gains. Conversely, a decrease in the value of the U.S. dollar could require certain of our foreign subsidiaries to record losses on translation and remeasurement. An increase in the value of the U.S. dollar could increase the cost to our customers of our products in those markets outside the U.S. where we sell in U.S. dollars, and a weakened U.S. dollar could increase the cost of local operating expenses and procurement of raw materials, both of which could have an adverse effect on our cash flows. Our primary exposures include the Singapore Dollar, Chinese Yuan, Japanese Yen, Swiss Franc, Philippine Peso, Thai Baht, Taiwan Dollar, South Korean Won, Israeli Shekel, Malaysian Ringgit and Euro. Although we from time to time have entered into foreign exchange forward contracts to hedge certain foreign currency exposure of our operating expenses, our attempts to hedge against these risks may not be successful and may result in a material adverse impact on our financial results and cash flows.
Changes to our existing tax incentive in Singapore may materially reduce our reported results of operations in future periods.
We have obtained aOur existing tax incentive, which provides thatscheduled to expire in our fiscal 2025, allows certain classes of income areto be subject to reduced income tax rates in Singapore. In order to retain this tax benefit,Singapore provided we must meet certain employment and investment conditions. If we cannot, or elect not to, comply with these conditions, we could be required to refund material tax benefits previously realized with respect to this tax incentive. We are currently in discussions on the renewal of our tax incentive, which is presently scheduled to expire in our fiscal 2020. RenewalsSubsequent renewals are at the discretion of the Singapore government and we may not be able to extend the tax incentive arrangement beyond its current expiration date. Wedate or we may also elect not to renew this tax incentive arrangement. In the absence of the tax incentive, the income tax rate in Singapore that would otherwise apply is 17%, which would result in a significant increase in our provision for (benefit from) income taxes in future periods.
The phase-out of the London Interbank Offered Rate (“LIBOR”) could affect interest rates under our existing overdraft credit facility agreement.
LIBOR is the basic rate of interest used in lending between banks on the London interbank market. We use LIBOR as a reference rate to calculate interest rates under our overdraft line of credit facility (“Overdraft Facility”). In 2017, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, announced that it intends to phase out LIBOR by the end of 2021. It is unclear if LIBOR will cease to exist at that time or if new methods of calculating LIBOR will be established such that it continues to exist after 2021. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, is considering replacing U.S. dollar LIBOR with a new index, the Secured Overnight Financing Rate (“SOFR”), calculated using short-term repurchase agreements backed by Treasury securities. Whether or not SOFR, or another alternative reference rate, attains market traction as a LIBOR replacement tool remains in question. If LIBOR ceases to exist, we will need to agree upon a replacement index with the bank under our Overdraft Facility, and the interest rate under our Overdraft Facility may change. The new rate may not be as favorable to us as those in effect prior to any LIBOR phase-out. In addition, the transition process may involve, among other things, increased volatility or illiquidity in markets for instruments that currently rely on LIBOR. Any such effects of the transition away from LIBOR, as well as other unforeseen effects, may result in expenses, difficulties, complications or delays in connection with future financing efforts, which could have an adverse impact on our business, financial condition and results of operations.
Other Risks
Our ability to recognize tax benefits on our existing U.S. tax attributes may be limited.
As of September 28, 2019, we have generated state net operating loss carryforwards of $146.5 million and U.S federal and state tax credits of $7.8 million (“U.S. tax attributes”) that can be used to reduce our future U.S. federal and state income tax obligations. However, under the Tax Reform Act of 1986, the potential future utilization of our U.S. tax attributes may be limited following an ownership change, which is generally defined as a greater than 50% increase in equity ownership by 5% shareholders in any three-year period under Section 382 of the Internal Revenue Code. Should an ownership change be deemed to occur under Section 382, the resulting limitation in our ability to fully utilize our U.S. tax attributes could materially and adversely affect our financial condition and operating results.
Changes in tax legislation could adversely impact our future profitability.
We are subject to income taxes in the U.S. and many foreign jurisdictions. Tax laws and regulations are continuously evolving with corporate tax reform, and base-erosion efforts, global minimum tax, and increased transparency continuing to be high priorities in many tax jurisdictions in which we operate. Significant changes in tax legislation, or in the interpretation of existing legislation, could materially and adversely affect our financial condition and operating results. For example, on December 22, 2017, the Tax Cuts and Jobs Act (the “TCJA”) was signed into law, resulting in a material increase to our provision for income taxes in fiscal 2018 and 2019 due to the U.S. one-time transition tax and the need to revalue our U.S. deferred tax assets and liabilities based on the newly enacted U.S. federal statutory tax rate, while other TCJA provisions could impact our future effective tax rate depending on the amount of and geographic mix of our foreign earnings in future periods. Further changes in the tax laws of the U.S. and foreign jurisdictions could also arise as a result
of the base erosion and profit shifting (“BEPS”) project undertaken by the Organisation for Economic Co-operation and Development. Although the timing and methods of implementation may vary, many countries, including those in the Asia/Pacific region in which we have significant operations, have implemented, or are in the process of implementing, legislation or practices inspired by BEPS. Thethe base erosion and profit shifting project undertaken by the Organization for Economic Co-operation and Development (“OECD”). Unless repealed or otherwise modified, beginning in our fiscal 2023, the U.S. Tax Cuts and Jobs Act of 2017 (“TCJA”) enactment of IRC Section 174 will require the capitalization and amortization of R&D expenditures which will increase our effective tax rate and reduce our operating cash flows. Further, the increased scrutiny on international tax and continuous changes to countries’ tax legislation may also affect the policies and decisions of tax authorities with respect to certain income tax and transfer pricing positions taken by the Company in prior or future periods. We continue to monitor new tax legislation or other developments thatsince significant changes in tax legislation, or in the interpretation of existing legislation, could increasematerially and adversely affect our effective tax ratefinancial condition and impact our future profitability.operating results.
Other changes in taxation which could materially impact our future effective tax rate.
OurAdditionally, our future effective tax rate could be affected by numerous other factors including higher or lower than anticipated foreign earnings in various jurisdictions where we are subjected to tax rates that differ from the U.S. federal statutory tax rate, by failure to meet the conditions of or to renew our tax incentive arrangement, by changes in the valuation allowances recorded against certain deferred tax balances, or by changes in tax laws, regulations, accounting principles and reporting requirements, or interpretations and application thereof. Changes in our assertion for foreign earnings permanently or non-permanently reinvested as a result of changes in facts and circumstances and challenges by tax authorities to our historic or future tax positions and transfer pricing policies could also significantly adversely impact our future effective tax rate.
Risks Related to Our Shares and Corporate Law
We have the ability to issue additional equity securities, which would lead to dilution of our issued and outstanding common shares.
We may from time to time issue additional equity securities or securities convertible into equity securities, which would result in dilution of our existing shareholders’ equity interests in us. Our board of directors has the authority to issue, without vote or action of shareholders, preferred shares in one or more series, and has the ability to fix the rights, preferences, privileges and restrictions of any such series. Any such series of preferred shares could contain dividend rights, conversion rights, voting rights, terms of redemption, redemption prices, liquidation preferences or other rights superior to the rights of holders of our common shares. In addition, we are authorized to issue, without shareholder approval, up to an aggregate of 200 million common shares, of which approximately 57.1 million shares were outstanding as of October 1, 2022. We are also authorized to issue, without shareholder approval (except as required by the rules of the Nasdaq stock market), securities convertible into either common shares or preferred shares. We may issue such shares in connection with financing transactions, joint ventures, mergers and acquisitions or other purposes. In addition, our shareholders will experience additional dilution when performance or restricted share units vest and settle, when we issue equity awards to our employees under our equity incentive plans, or when we otherwise issue additional equity.
Anti-takeover provisions in our articles of incorporation and bylaws and under Pennsylvania law may discourage other companies from attempting to acquire us.
Some provisions of our articles of incorporation and bylaws as well as Pennsylvania law may discourage some transactions where we would otherwise experience a fundamental change. For example, our articles of incorporation and bylaws contain provisions that:
•classify our board of directors into four classes, with one class being elected each year;
•permit our board to issue “blank check” preferred shares without shareholder approval; and
•prohibit us from engaging in some types of business combinations with a holder of 20% or more of our voting securities without super-majority board or shareholder approval.
Further, under the Pennsylvania Business Corporation Law, because our shareholders approved bylaw provisions that provide for a classified board of directors, shareholders may remove directors only for cause. These provisions and some other provisions of the Pennsylvania Business Corporation Law could delay, defer or prevent us from experiencing a fundamental change and may adversely affect our common shareholders' voting and other rights.
Terrorist attacks, or other acts of violence or war, may affect the markets in which we operate and our profitability.
Terrorist attacks may negatively affect our operations. There can be no assurance that there will not be further terrorist attacks against the U.S. or U.S. businesses. Terrorist attacks or armed conflicts may directly impact our physical facilities or those of our suppliers or customers. Our primary facilities include administrative, manufacturing, sales and research and development facilities in Singapore, manufacturing and research and development facilities in the Netherlands, China, and Israel and sales and research and development facilities in the U.S. Additional terrorist attacks may disrupt the global insurance and reinsurance industries with the result that we may not be able to obtain insurance at historical terms and levels for all of our facilities. Furthermore, additional attacks may make travel and the transportation of our supplies and products more difficult and more expensive and ultimately affect the sales of our products in the U.S. and overseas. Additional attacks or any broader conflict could negatively impact our domestic and international sales, our supply chain, our production capability and our ability to deliver products to our customers. Political and economic instability in some regions of the world could negatively impact our business. The consequences of terrorist attacks or armed conflicts are unpredictable, and we may not be able to foresee events that could have an adverse effect on our business.
Item 1B. UNRESOLVED STAFF COMMENTS
None.
Item 2. PROPERTIES
The following table reflects our major facilities as of September 28, 2019:
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| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Country | | Facility (1) | | Approximate Size | | Function | | Business Segment and Products Manufactured | | Lease Expiration Date |
| Singapore | | 209,000Serangoon | | 221,000 sq. ft. | | Corporate headquarters, manufacturing, technology, sales and service center | | Capital Equipment: ball and wedge bonders, advanced packaging and AT PremierEquipment | | November 2043 (2) |
Suzhou, China | | 191,000Kranji | | 148,000 sq. ft. | | Manufacturing center | | Capital Equipment | | |
| China | | Suzhou | | 155,000 sq. ft. | | Manufacturing, technology and shared support services center | | APS: capillaries, dicing blades and bonding wedgesAPS | | Owned |
Eindhoven,The Netherlands | | 110,000Eindhoven | | 116,000 sq. ft. | | Manufacturing, technology, sales and service center | | Capital Equipment: Advanced Packaging and Electronics AssemblyEquipment | | September 2025 (3) |
| United States | | Fort Washington, Pennsylvania | | 88,000 sq. ft. | | Corporate headquarters, technology, sales and service center | | Capital Equipment | | |
| | Santa Ana, California | | 65,000 sq. ft. | | Technology, sales and service center | | Not applicableCapital Equipment | | Owned |
Santa Ana, California | | 65,000Horsham, Pennsylvania | | 28,000 sq. ft. | | Technology sales and service center | | Not applicableCapital Equipment | | August 2036 (4) |
Haifa, Israel | | Haifa | | 31,000 sq. ft. | | Manufacturing and technology center | | APS: capillary blanks (semi-finish)APS | | October 2037 (5) |
| |
(1) | Each of the facilities listed in this table is leased other than the facility in Suzhou, China and Fort Washington, Pennsylvania |
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(2) | Includes lease extension periods at the Company's option. Initial lease expires in November 2023. |
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(3) | Includes lease extension periods at the Company's option. Initial lease expires in September 2020. |
| |
(4) | Includes lease extension periods at the Company's option. Initial lease expires in September 2026. |
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(5) | Includes lease extension periods at the Company's option. Initial lease expires in October 2027. |
(1)Each of the facilities listed in this table is leased other than the facilities in Suzhou, China and Fort Washington, Pennsylvania.
In addition, the Company rents space for sales support, customer support, services and administrative functions in China, Germany, Japan, Malaysia, South Korea, Switzerland, Taiwan, Thailand, Vietnam and the Philippines. The Company believes the facilities are generally in good condition and suitable to the extent of utilization needed.
Item 3.LEGAL PROCEEDINGS
From time to time, we may be a plaintiff or defendant in caseslegal proceedings and claims arising out of our business. We are party to ordinary, routine litigation incidental to our business. We cannot be assured of the results of any pending or future litigation, but we do not believe resolution of theseany currently pending matters will materially or adversely affect our business, financial condition or operating results.
Item 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
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Item 5. | MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Item 5.MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is traded on The Nasdaq Global Market (“Nasdaq”) under the symbol “KLIC.” On November 8, 2019,14, 2022, there were approximately 200150 holders of record of the shares of outstanding common stock.
On August 7, 2019, May 20, 2019, February 28, 201930, 2022, June 8, 2022, March 3, 2022 and December 12, 2018,October 18, 2021, the Board of Directors declared a quarterly dividend $0.12$0.17 per share of common stock. During the fiscal year ended September 28, 2019,October 1, 2022, the Company declared dividends of $0.48$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'sCompany’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'sCompany’s stockholders.
For the purpose of calculating the aggregate market value of shares of our common stock held by non-affiliates, as shown on the cover page of this report, we have assumed all of our outstanding shares were held by non-affiliates except for shares held by our directors and executive officers. However, this does not necessarily mean that all directors and executive officers of the Company are, in fact, affiliates of the Company, or there are no other persons who may be deemed to be affiliates of the Company. Further information concerning the beneficial ownership of our executive officers, directors and principal shareholders will be included in our Proxy Statement for the 20202023 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission on or about January 4, 2020.Commission.
Recent Sales of Unregistered Securities and Use of Proceeds
None.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
The following table summarizes the repurchases of common stock during the three months ended September 28, 2019October 1, 2022 (in thousands, except per share amounts): |
| | | | | | | | | | | | | | |
| Period | | Total Number of Shares Purchased | | Average Price Paid Per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (1) |
| June 30, 2019 to July 27, 2019 | | 443 |
| | $ | 22.21 |
| | 443 |
| | $ | 102,273 |
|
| July 28, 2019 to August 31, 2019 | | 109 |
| | $ | 20.74 |
| | 109 |
| | $ | 100,004 |
|
| September 1, 2019 to September 28, 2019 | | 128 |
| | $ | 22.37 |
| | 128 |
| | $ | 97,145 |
|
| For the three months ended September 28, 2019 | | 680 |
| | | | 680 |
| | |
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(1) | On August 15, 2017, the Company's Board of Directors authorized a program (the "Program") to repurchase up to $100 million in total of the Company's common stock on or before August 1, 2020. On July 10, 2018, the Board of Directors increased the share repurchase authorization under the Program to $200 million. On January 31, 2019, the Board of Directors further increased the share repurchase under the Program to $300 million. The Company may purchase shares of its common stock through open market and privately negotiated transactions at prices deemed appropriate by management. The Company has entered into a written trading plan under Rule 10b5-1 of the Exchange Act to facilitate repurchases under the Program. The Program may be suspended or discontinued at any time and will be funded using the Company's available cash, cash equivalents and short-term investments. The timing and amount of repurchase transactions under the Program depend on market conditions as well as corporate and regulatory considerations. |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Period | | Total Number of Shares Purchased | | Average Price Paid Per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (1) |
| July 3, 2022 to July 30, 2022 | | 419 | | | $ | 44.92 | | | 419 | | | $ | 290,519 | |
| July 31, 2022 to September 3, 2022 | | 522 | | | $ | 46.49 | | | 522 | | | $ | 266,236 | |
| September 4, 2022 to October 1, 2022 | | 418 | | | $ | 40.82 | | | 418 | | | $ | 249,156 | |
| For the three months ended October 1, 2022 | | 1,359 | | | | | 1,359 | | | |
(1)On August 15, 2017, the Company’s Board of Directors authorized a program (the “Program”) to repurchase up to $100 million in total 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 May 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 may purchase shares of its common stock through open market and privately negotiated transactions at prices deemed appropriate by management. The Company has entered into a written trading plan under Rule 10b5-1 of the Exchange Act to facilitate repurchases under the Program. The Program may be suspended or discontinued at any time and will be funded using the Company’s available cash, cash equivalents and short-term investments. The timing and amount of repurchase transactions under the Program depend on market conditions as well as corporate and regulatory considerations.
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA[Reserved]
The following tables reflect selected historical consolidated financial data derived from the consolidated financial statements of Kulicke and Soffa Industries, Inc. and subsidiaries as of and for each of the fiscal years ended 2019, 2018, 2017, 2016, and 2015. As previously reported on the Annual Report on Form 10-K/A for the fiscal year ended September 30, 2017, the Company restated certain of its financial statements and related notes for the fiscal years ended September 30, 2017, October 1, 2016 and October 3, 2015. This annual report for the fiscal year ended September 28, 2019 reflects the restated numbers for those periods.Not applicable.
19
This data should be read in conjunction with our consolidated financial statements, including notes and other financial information included elsewhere in this report in respect of the fiscal years identified in the column headings of the tables below.
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| | | | | | | | | | | | | | | | | | | | | |
| | Fiscal |
| (in thousands) | 2019 | | 2018 | | 2017 | | 2016 | | 2015 |
| Statement of Operations Data: | | | | | | | | | |
| Net revenue | $ | 540,052 |
| | $ | 889,121 |
| | $ | 809,041 |
| | $ | 627,192 |
| | $ | 536,471 |
|
| Income from operations | 21,610 |
| | 166,632 |
| | 113,083 |
| | 53,953 |
| | 38,591 |
|
| Interest income, net | 13,077 |
| | 10,917 |
| | 5,432 |
| | 2,211 |
| | 454 |
|
| Income before income taxes | 34,687 |
| | 177,549 |
| | 118,515 |
| | 56,164 |
| | 39,045 |
|
Provision for (benefit from) income taxes(1) | 22,910 |
| | 120,744 |
| | (7,394 | ) | | 7,709 |
| | (12,867 | ) |
| Share of results of equity-method investee, net of tax | 124 |
| | 129 |
| | (190 | ) | | — |
| | — |
|
| Net income | $ | 11,653 |
| | $ | 56,676 |
| | $ | 126,099 |
| | $ | 48,455 |
| | $ | 51,912 |
|
|
| | | | | | | | | | | | | | | | | | | |
| | Fiscal |
| | 2019 | | 2018 | | 2017 | | 2016 | | 2015 |
| Per Share Data: | | | | | | | | | |
| Net income per share: | | | | | | | | | |
| Basic | $ | 0.18 |
| | $ | 0.82 |
| | $ | 1.78 |
| | $ | 0.69 |
| | $ | 0.69 |
|
| Diluted | $ | 0.18 |
| | $ | 0.80 |
| | $ | 1.75 |
| | $ | 0.68 |
| | $ | 0.69 |
|
| Cash dividends declared per share | $ | 0.48 |
| | $ | 0.24 |
| | $ | — |
| | $ | — |
| | $ | — |
|
| | | | | | | | | | |
| Weighted average shares outstanding: | | | | | | | | | |
| Basic | 65,286 |
| | 69,380 |
| | 70,906 |
| | 70,477 |
| | 75,414 |
|
| Diluted | 65,948 |
| | 70,419 |
| | 72,063 |
| | 70,841 |
| | 75,659 |
|
|
| | | | | | | | | | | | | | | | | | | |
| | Fiscal |
| (in thousands) | 2019 | | 2018 | | 2017 | | 2016 | | 2015 |
| Balance Sheet Data: | | | | | | | | | |
| Cash, cash equivalents and short-term investments | $ | 593,184 |
| | $ | 614,148 |
| | $ | 608,410 |
| | $ | 547,907 |
| | $ | 498,614 |
|
| Working capital | 719,109 |
| | 813,197 |
| | 760,401 |
| | 654,983 |
| | 624,659 |
|
| Total assets | 1,079,616 |
| | 1,185,740 |
| | 1,171,107 |
| | 982,444 |
| | 904,466 |
|
| Long-term and current portion of financing obligation | 15,032 |
| | 15,957 |
| | 16,769 |
| | 17,318 |
| | 17,003 |
|
| Shareholders' equity | 769,063 |
| | 880,207 |
| | 920,030 |
| | 799,524 |
| | 760,912 |
|
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(1) | The following are the most significant factors that affected our provision for (benefit from) income taxes: volatility in our earnings each fiscal year; variation in our earnings among the various tax jurisdictions in which we operate; changes in assumptions regarding repatriation of foreign earnings; changes in tax legislation; remeasurement of deferred taxes; and unrecognized tax benefit. |
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In addition to historical information, this filing contains statements relating to future events or our future results. These statements are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and are subject to the safe harbor provisions created by statute. Such forward-looking statements include, but are not limited to, statements with respect to our future revenue increasing, continuing or strengthening, or decreasing or weakening,weakening; our capital allocation strategies, including any share repurchases; demand for our products, including replacement demand,demand; our research and development efforts,efforts; our ability to identify and realize new growth opportunities,opportunities; our ability to control costscosts; and our operational flexibility as a result of (among other factors):
•our expectations regarding the potential impacts on our business of the novel coronavirus (“COVID-19”) pandemic, including supply chain disruptions, the economic and public health effects, and governmental and other responses to these impacts;
•our expectations regarding the potential impacts on our business of actual or potential inflationary pressures, interest rate and risk premium adjustments, falling consumer sentiment, or economic recession caused, directly or indirectly, by the prolonged Ukraine/Russia conflict, the COVID-19 pandemic, geopolitical tensions, catastrophic events including as a result of climate change and other macroeconomic factors;
•our expectations regarding our effective tax rate and our unrecognized tax benefit;
•our ability to operate our business in accordance with our business plan;
•risks inherent in doing business on an international level, including currency risks, regulatory requirements, political risks, export restrictions and other trade barriers;
•projected growth rates in the overall semiconductor industry, the semiconductor assembly equipment market, and the market for semiconductor packaging materials; and
•projected demand for ball, wedge bonder, advanced packagingour products and electronic assembly equipment and for tools, spare parts and services.
Generally, words such as “may,” “will,” “should,” “could,” “anticipate,” “expect,” “intend,” “estimate,” “plan,” “continue,” “goal” and “believe,” or the negative of or other variations on these and other similar expressions identify forward-looking statements. These forward-looking statements are made only as of the date of this filing. We do not undertake to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise.
Forward-looking statements are based on current expectations and involve risks and uncertainties. Our future results could differ significantly from those expressed or implied by our forward-looking statements. These risks and uncertainties include, without limitation, those described below and under the heading “Risk Factors” in this Annual Report on Form 10-K and our other reports and registration statements filed from time to time with the Securities and Exchange Commission. This discussion should be read in conjunction with our audited financial statements included in this Annual Report.
We operate in a rapidly changing and competitive environment. New risks emerge from time to time and it is not possible for us to predict all risks that may affect us. Future events and actual results, performance and achievements could differ materially from those set forth in, contemplated by or underlying the forward-looking statements, which speak only as of the date on which they were made. Except as required by law, we assume no obligation to update or revise any forward-looking statement to reflect actual results or changes in, or additions to, the factors affecting such forward-looking statements. Given those risks and uncertainties, investors should not place undue reliance on forward-looking statements as predictions of actual results.
This section of this Form 10-K generally discusses 2019fiscal 2022 and 20182021 items and year-to-year comparisons between 2019fiscal 2022 and 2018.2021. Discussions of 2017fiscal 2020 items and year-to-year comparisons between 2018fiscal 2021 and 20172020 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended September 29, 2018.October 2, 2021, which was filed with the SEC on November 18, 2021.
Our Management's Discussion and Analysis ("(“MD&A"&A”) is provided in addition to the accompanying consolidated financial statements and notes to assist readers in understanding our results of operations, financial condition, and cash flows. The MD&A is organized as follows:
•Overview: Introduction of our operations, key events, business environment, technology leadership, products and services
•Critical Accounting Policies and Estimates
•Recent Accounting Pronouncements
•Results of Operations
•Liquidity and Capital Resources
•Other Obligations and Contingent Payments
Overview
For an overview of our business, see "Part“Part I – Item 1. – Business"Business”.
Critical Accounting Policies and Estimates
The preparation of consolidated financial statements requires us to make assumptions, estimates and judgments that affect the reported amounts of assets and liabilities, net revenue and expenses during the reporting periods, and disclosures of contingent assets and liabilities as of the date of the consolidated financial statements. On an ongoing basis, we evaluate estimates, including, but not limited to, those related to accounts receivable, reserves for excess and obsolete inventory, carrying value and lives of fixed assets, goodwill and intangible assets, income taxes, equity-based compensation expense and warranties. We base our estimates
on historical experience and on various other assumptions that we believe to be reasonable. As a result, we make judgments regarding the carrying values of our assets and liabilities that are not readily apparent from other sources. Authoritative pronouncements, historical experience and assumptions are used as the basis for making estimates, and on an ongoing basis, we evaluate these estimates. Actual results may differ from these estimates.
We believe the following critical accounting policies, which have been reviewed with the Audit Committee of our Board of Directors, reflect our more significant judgments and estimates used in the preparation of our consolidated financial statements.
Revenue Recognition
In accordance with ASC No. 606, Revenue from Contracts with Customers, the Company recognizes revenue when we satisfy performance obligations as evidenced by the transfer of control of our products or services to customers. In general, the Company generates revenue from product sales, either directly to customers or to distributors. In determining whether a contract exists, we evaluate the terms of the agreement, the relationship with the customer or distributor and their ability to pay.
The Company recognizes revenue from sales of our products, including sales to our distributors, at a point in time, generally upon shipment or delivery to the customer or distributor, depending upon the terms of the sales order. Control is considered transferred when title and risk of loss pass, when the customer becomes obligated to pay and, where applicable, when the customer has accepted the products or upon expiration of the acceptance period. For sales to distributors, payment is due on our standard commercial terms and is not contingent upon resale of the products.
Our business is subject to contingencies related to customer orders, including:
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• | Right of Return: A large portion of our revenue comes from the sale of equipment used in the semiconductor assembly process. Other product sales relate to consumable products, which are sold in high-volume quantities, and are generally maintained at low stock levels at our customer's facility. Customer returns have historically represented a very small percentage of customer sales on an annual basis.
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• | Warranties: Our equipment is generally shipped with a one-year warranty against manufacturing defects. We establish reserves for estimated warranty expense when revenue for the related equipment is recognized. The reserve for estimated warranty expense is based upon historical experience and management's estimate of future expenses, including product parts replacement, freight charges and labor costs expected to be incurred to correct product failures during the warranty period.
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• | Conditions of Acceptance: Sales of our consumable products generally do not have customer acceptance terms. In certain cases, sales of our equipment have customer acceptance clauses which may require the equipment to perform in accordance with customer specifications or when installed at the customer's facility. In such cases, if the terms of acceptance are satisfied at our facility prior to shipment, the revenue for the equipment will be recognized upon shipment. If the terms of acceptance are satisfied at our customers'•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 customer’s facility. Customer returns have historically represented a very small percentage of customer sales on an annual basis. •Warranties: Our equipment is generally shipped with a one-year warranty against manufacturing defects. We establish reserves for estimated warranty expense when revenue for the related equipment is recognized. The reserve for estimated warranty expense is based upon historical experience and management’s estimate of future expenses, including product parts replacement, freight charges and labor costs expected to be incurred to correct product failures during the warranty period. •Conditions of Acceptance: Sales of our consumable products generally do not have customer acceptance terms. In certain cases, sales of our equipment have customer acceptance clauses which may require the equipment to perform in accordance with customer specifications or when installed at the customer’s facility. In such cases, if the terms of acceptance are satisfied at our facility prior to shipment, the revenue for the equipment will be recognized upon shipment. If the terms of acceptance are satisfied at our customers’ facilities, the revenue for the equipment will not be recognized until acceptance, which is typically obtained after installation and testing, is received from the customer. |
Service revenue is generally recognized over time as the services are performed.
The Company measures revenue based on the amount of consideration we expect to be entitled to in exchange for products or services. Any variable consideration such as sales incentives are recognized as a reduction of net revenue at the time of revenue recognition.
The length of time between invoicing and payment is not significant under any of our payment terms. In instances where the timing of revenue recognition differs from the timing of invoicing, we have determined our contracts generally do not include a significant financing component. Shipping and handling costs billed to customers are recognized in net revenue.
Shipping and handling costs paid by the Company are included in cost of sales.
Allowance for Doubtful Accounts
We maintain allowances for doubtful accounts for estimated losses resulting from our customers'customers’ failure to make required payments. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. We are subject to concentrations of customers and sales to a few geographic locations, which could also impact the collectability of certain receivables. If global or regional economic conditions deteriorate or political conditions were to change in some of the countries where we do business, it could have a significant impact on our results of operations, and our ability to realize the full value of our accounts receivable.
Inventories
Inventories are stated at the lower of cost (on a first-in, first-out basis) or net realizable value. We generally provide reserves for obsolete inventory and for inventory considered to be in excess of demand. Demand is generally defined as 18 months forecasted future consumption for equipment, 24 months forecasted future consumption for spare parts, and 12 months forecasted future consumption for tools. Forecasted consumption is based upon internal projections, historical sales volumes, customer order activity and a review of consumable inventory levels at customers'customers’ facilities. We communicate forecasts of our future consumption to our suppliers and adjust commitments to those suppliers accordingly. If required, we reserve the difference between the carrying value of our inventory and the lower of cost or net realizable value, based upon projections about future consumption, and market conditions. If actual market conditions are less favorable than projections, additional inventory reserves may be required.
Inventory reserve provision for certain subsidiaries is determined based on management'smanagement’s estimate of future consumption for equipment and spare parts. This estimate is based on historical sales volumes, internal projections and market developments and trends.
Accounting for Impairment of Goodwill
ASC No. 350, Intangibles-Goodwill and Other ("ASC 350"), requires goodwill and other intangible assets with indefinite lives to be reviewed for impairment annually, or more frequently if circumstances indicate a possible impairment. We assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If, after assessing the qualitative factors, a company determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying value, then performing the two-step impairment test is unnecessary. However, if a company concludes otherwise, then it is required to perform the first step of the two-step goodwill impairment test. IfThe Company’s impairment test is performed by comparing the carryingfair value of a reporting unit with its carrying value, and determining if the carrying amount exceeds its fair value in the first step of the test, then a company is required to perform the second step of the goodwill impairment test to measure the amount of the reporting unit's goodwill impairment loss, if any. value.
As part of the annual evaluation, the Company performs an impairment assessmenttest of its goodwill in the fourth quarter of each fiscal year to coincide with the completion of its annual forecasting and refreshing of its business outlook processes. On an ongoing basis, the Company monitors if a “triggering” event has occurred that may have the effect of reducing the fair value of a reporting unit below its respective carrying value. Adverse changes in expected operating results and/or unfavorable changes in other economic factors used to estimate fair values could result in a non-cash impairment charge in the future.
Impairment assessments inherently involve judgment as to the assumptions made about the expected future cash flows and the impact of market conditions on those assumptions. Future events and changing market conditions may impact the assumptions as to prices, costs, growth rates or other factors that may result in changes in the estimates of future cash flows. Although the Company believes the assumptions that it has used in testing for impairment are reasonable, significant changes in any one of the assumptions could produce a significantly different result. Indicators of potential impairment, may lead the Company to perform interim goodwill impairment assessments, including significant and unforeseen customer losses, a significant adverse change in legal factors or in the business climate, a significant adverse action or assessment by a regulator, a significant stock price decline or unanticipated competition.competition, may lead the Company to perform interim goodwill impairment assessments.
For further information on goodwill and other intangible assets, see Note 34 to our consolidated financial statements in Item 8.
Income Taxes
In accordance with ASC No. 740, Income Taxes, deferred income taxes are determined using the balance sheet method. The Company records a valuation allowance to reduce its deferred tax assets to the amount expected, to be realized, on a more likely than not basis.basis, to be realized. While the Company has considered future taxable income and ongoing tax planning strategies in assessing the need for the valuation allowance, if it were to determine that it would be able to realize its deferred tax assets in the future in excess of its net recorded amount, an adjustment to the deferred tax assetassets would increase income in the period when such determination is made. Likewise, should the Company determine that it would not be able to realize all or part of its deferred tax assets in the future, an adjustment to the deferred tax assets would decrease income in the period when such determination is made.
The Company determines the amount of the unrecognized tax benefit with respect to uncertain tax positions taken or expected to be taken on its income tax returns in accordance with ASC No. 740 Topic 10, Income Taxes, General (“ASC 740 -10”740.10”). Under ASC 740 -10,740.10, the Company utilizes a two-step approach for evaluating uncertain tax positions. Step one, or recognition, requires a determination of whethercompany to determine if the weight of available evidence indicates a tax position is more likely than not to be sustained upon examination solely based on its technical merit. Step two, or measurement, is based on the largest amount of benefit, which is more likely than not to be realized on settlement with the taxing authority, including resolution of related appeals or litigation process,processes, if any.
Equity-Based Compensation
The Company accounts for equity-based compensation under the provisions of ASC No. 718, Compensation - Stock Compensation (“ASC 718”). ASC 718 requires the recognition of the fair value of the equity-based compensation in net income. Compensation expense associated with Relative TSR Performance Share Units is determined using a Monte-Carlo valuation model, and compensation expense associated with time-based and Special/Growth Performance Share Units is determined based on the number of shares granted and the fair value on the date of grant. See Note 911 to our consolidated financial statements in Item 8 for a summary of the terms of these performance-based awards. The fair value of the Company's stock option awards are estimated using a Black-Scholes option valuation model. The fair value of equity-based awards is amortized over the vesting period of the award and the Company elected to use the straight-line method for awards granted after the adoption of ASC 718.
RECENT ACCOUNTING PRONOUNCEMENTS
See Note 1 to our consolidated financial statements in Item 8 for a description of certain recent accounting pronouncements, including the expected dates of adoption and effects on our consolidated results of operations and financial condition.
RESULTS OF OPERATIONS
Results of Operations for fiscal 20192022 and 20182021
The following table reflects our income from operations for fiscal 20192022 and 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Fiscal | | | | |
| (dollar amounts in thousands) | | 2022 | | 2021 | | $ Change | | % Change |
| Net revenue | | $ | 1,503,620 | | | $ | 1,517,664 | | | $ | (14,044) | | | (0.9) | % |
| Cost of sales | | 755,300 | | | 820,678 | | | (65,378) | | | (8.0) | % |
| Gross profit | | 748,320 | | | 696,986 | | | 51,334 | | | 7.4 | % |
| | | | | | | | |
| Selling, general and administrative | | 141,396 | | | 147,061 | | | (5,665) | | | (3.9) | % |
| Research and development | | 136,852 | | | 137,478 | | | (626) | | | (0.5) | % |
| | | | | | | | |
| Operating expenses | | 278,248 | | | 284,539 | | | (6,291) | | | (2.2) | % |
| | | | | | | | |
| Income from operations | | $ | 470,072 | | | $ | 412,447 | | | $ | 57,625 | | | 14.0 | % |
2018:
|
| | | | | | | | | | | | | | | |
| | | Fiscal | | | | |
| (dollar amounts in thousands) | | 2019 | | 2018 | | $ Change | | % Change |
| Net revenue | | $ | 540,052 |
| | $ | 889,121 |
| | $ | (349,069 | ) | | (39.3 | )% |
| Cost of sales | | 285,462 |
| | 479,680 |
| | (194,218 | ) | | (40.5 | )% |
| Gross profit | | 254,590 |
| | 409,441 |
| | (154,851 | ) | | (37.8 | )% |
| | | | | | | | | |
| Selling, general and administrative | | 116,811 |
| | 123,188 |
| | (6,377 | ) | | (5.2 | )% |
| Research and development | | 116,169 |
| | 119,621 |
| | (3,452 | ) | | (2.9 | )% |
| Operating expenses | | 232,980 |
| | 242,809 |
| | (9,829 | ) | | (4.0 | )% |
| | | | | | | | | |
| Income from operations | | $ | 21,610 |
| | $ | 166,632 |
| | $ | (145,022 | ) | | (87.0 | )% |
Bookings and Backlog
Our backlog consists of customer orders scheduled for shipment within the next twelve months. A booking is recorded when a customer order is reviewed and it is determined that all specifications can be met, production (or service) can be scheduled, a delivery date can be set, and the customer meets our credit requirements. We use bookings to evaluate the results of our operations, generate future operating plans and assess the performance of our company.Company. While we believe that this measure is useful in evaluating our business, this information should be considered as supplemental in nature and is not meant as a substitute for revenue recognized in accordance with GAAP. In addition, other companies, including companies in our industry, may calculate bookings differently or not at all, which reduces its usefulness as a comparative measure. Reconciliation of bookings to net revenue is not practicable. A majority of our orders are subject to cancellation or deferral by our customers with limited or no penalties. Also, customer demand for our products can vary dramatically without prior notice. Because of the volatility of customer demand, possibility of customer changes in delivery schedules or cancellations and potential delays in product shipments, our backlog as of any particular date may not be indicative of net revenue for any succeeding period.
The following tables reflect our bookings and backlog for fiscal 20192022 and 2018:2021:
|
| | | | | | | |
| | Fiscal |
| (in thousands) | 2019 | | 2018 |
| Bookings | $ | 503,098 |
| | $ | 840,083 |
|
| | | | |
| | As of |
| (in thousands) | September 28, 2019 | | September 29, 2018 |
| Backlog | $ | 104,711 |
| | $ | 141,665 |
|
Our net revenues for fiscal 2019 decreased as compared to our net revenues for fiscal 2018 primarily due to lower volume as a result of lower demand from our customers, particularly in our Capital Equipment segment. | | | | | | | | | | | |
| Fiscal |
| (in thousands) | 2022 | | 2021 |
| Bookings | $ | 1,226,524 | | | $ | 2,176,981 | |
| | | |
| As of |
| (in thousands) | October 1, 2022 | | October 2, 2021 |
| Backlog | $ | 510,145 | | | $ | 787,241 | |
The semiconductor industry is volatile and our operating results are adversely impacted by volatile worldwide economic conditions. Though the semiconductor industry'sindustry’s cycle can be independent of the general economy, global economic conditions may have a direct impact on demand for semiconductor units and ultimately demand for semiconductor capital equipment and expendable tools. Accordingly, our business and financial performance is impacted, both positively and negatively, by fluctuations in the macroeconomic environment. Our visibility into future demand is generally limited and forecasting is difficult. There can be no assurances regarding levels of demand for our products and we believe historical industry-wide volatility will persist.
The U.S. and several other countries have levied tariffs on certain goods. In particular, trade tensions between the U.S. and China have been escalating since 2018, with U.S. tariffs on Chinese goods and retaliatory Chinese tariffs on U.S. goods. These have resulted in uncertainties in the semiconductor, LED, memory and automotive markets. While the Company anticipates long-term growth in semiconductor consumption, the softeningwe observed trade-related adverse impacts in demand which began infrom China from the fourth quarter of fiscal 2018 is expected to continue through fiscal 2020.2022, and such impacts may increase in severity in fiscal 2023 and/or beyond.
Net Revenue
Approximately 93.3% and 92.3% ofOur net revenues for fiscal 2022 decreased as compared to our net revenuerevenues for fiscal 2019 and 2018, respectively, was for shipments to customer locations outside of the U.S., primarily2021. The decrease in the Asia/Pacific region. In the Asia/Pacific region, our customer base is also becoming more geographically concentrated as a result of economic and industry conditions. Approximately 46.7% and 46.0% of our net revenue for fiscal 2019is primarily due to lower volume in both Capital Equipment and 2018, respectively, was for shipments to customers located in China.APS.
The following table reflects net revenue by business segment for fiscal 20192022 and 2018:2021: | | | | | Fiscal | | | | | | | Fiscal | | | | |
| (dollar amounts in thousands) | | 2019 | | 2018 | | $ Change | | % Change | (dollar amounts in thousands) | | 2022 | | 2021 | | $ Change | | % Change |
| | | Net revenue | | % of total net revenue | | Net revenue | | % of total net revenue | | | | |
| Capital Equipment | | $ | 386,820 |
| | $ | 719,390 |
| | $ | (332,570 | ) | | (46.2 | )% | Capital Equipment | | $ | 1,306,468 | | | 86.9 | % | | $ | 1,312,576 | | | 86.5 | % | | $ | (6,108) | | | (0.5) | % |
| APS | | 153,232 |
| | 169,731 |
| | (16,499 | ) | | (9.7 | )% | APS | | 197,152 | | | 13.1 | % | | 205,088 | | | 13.5 | % | | (7,936) | | | (3.9) | % |
| Total net revenue | | $ | 540,052 |
| | $ | 889,121 |
| | $ | (349,069 | ) | | (39.3 | )% | Total net revenue | | $ | 1,503,620 | | | 100.0 | % | | $ | 1,517,664 | | | 100.0 | % | | $ | (14,044) | | | (0.9) | % |
Capital Equipment
The following table reflects the components of Capital Equipment net revenue change between fiscal 2019 and 2018:
|
| | | | | | | | | | | | |
| | | Fiscal 2019 vs. 2018 |
| (in thousands) | | Price | | Volume | | $ Change |
| Capital Equipment | | $ | (3,910 | ) | | $ | (328,660 | ) | | $ | (332,570 | ) |
For fiscal 2019,2022, the lower Capital Equipment net revenue as compared to the prior year periodfiscal 2021 was primarily due to lower volume and unfavorable price variance.volume. The lower volume was primarily due to a decrease in customer investments as a result of uncertainties in semiconductor, LED, memory and automotive markets. The unfavorablethe overall macroeconomic environment, partially offset by favorable price variance was primarily due to competition in power module, power discrete, and battery application and unfavorable product mix.
The following table reflects the components |
| | | | | | | | | | | | |
| | | Fiscal 2019 vs. 2018 |
| (in thousands) | | Price | | Volume | | $ Change |
| APS | | $ | (7,922 | ) | | $ | (8,577 | ) | | $ | (16,499 | ) |
APS
For fiscal 2019,2022, the lower APS net revenue as compared to fiscal 20182021 was primarily due to lower sales volume in spares, services and unfavorable price variance.bonding tools. The lower sales volume was due to lower utilization of our products and the unfavorable price was due to competitiona decrease in consumable business and unfavorable product mix.
Gross Profit
The following table reflects gross profit by business segment for fiscal 2019 and 2018:
|
| | | | | | | | | | | | | | | |
| | | Fiscal | | | | |
| (dollar amounts in thousands) | | 2019 | | 2018 | | $ Change | | % Change |
| Capital Equipment | | $ | 168,683 |
| | $ | 315,939 |
| | $ | (147,256 | ) | | (46.6 | )% |
| APS | | 85,907 |
| | 93,502 |
| | (7,595 | ) | | (8.1 | )% |
| Total gross profit | | $ | 254,590 |
| | $ | 409,441 |
| | $ | (154,851 | ) | | (37.8 | )% |
The following table reflects gross profit as a percentage of net revenue by business segment for fiscal 20192022 and 2018:2021:
| | | | | Fiscal | | | | | Fiscal | |
| | | 2019 | | 2018 | | Basis point change | | | 2022 | | 2021 | | Basis point
change |
| Capital Equipment | | 43.6 | % | | 43.9 | % | | (30 | ) | Capital Equipment | | 48.2 | % | | 44.0 | % | | 420 | |
| APS | | 56.1 | % | | 55.1 | % | | 100 |
| APS | | 60.4 | % | | 58.2 | % | | 220 | |
| Total gross margin | | 47.1 | % | | 46.1 | % | | 100 |
| Total gross margin | | 49.8 | % | | 45.9 | % | | 390 | |
Capital Equipment
The following table reflectsFor fiscal 2022, the components ofhigher Capital Equipment gross profit change between fiscal 2019 and 2018:
|
| | | | | | | | | | | | | | | | |
| | | Fiscal 2019 vs. 2018 |
| (in thousands) | | Price | | Cost | | Volume | | $ Change |
| Capital Equipment | | $ | (3,910 | ) | | $ | 4,060 |
| | $ | (147,406 | ) | | $ | (147,256 | ) |
For fiscal 2019, the lower Capital Equipment gross profitmargin as compared to fiscal 20182021 was primarily due to lower volume and unfavorable price variance. The lower volume was primarily due to decrease in customer investments as a result of uncertainties in semiconductor, LED, memory and automotive markets. The unfavorabledriven by favorable price variance was primarily due to competition in power module, power discrete and battery application and unfavorable product mix. The lower volume and unfavorable price variance were partially offset by the lower cost. The lower cost was primarily due to change in product mix.
APS
The following table reflectsFor fiscal 2022, the components ofhigher APS gross profit change between fiscal 2019 and 2018:
|
| | | | | | | | | | | | | | | | |
| | | Fiscal 2019 vs. 2018 |
| (in thousands) | | Price | | Cost | | Volume | | $ Change |
| APS | | $ | (7,922 | ) | | $ | 1,175 |
| | $ | (848 | ) | | $ | (7,595 | ) |
For fiscal 2019, the lower APS gross profitmargin as compared to fiscal 20182021 was primarily due todriven by favorable product mix in spares and services offset by less favorable price decreases as a result of competitionvariance in consumable business and unfavorable product mix.bonding tools.
Operating Expenses
The following table reflects operating expenses as a percentage of net revenue for fiscal 20192022 and 2018:2021:
|
| | | | | | | | |
| | | Fiscal | | |
| | | 2019 | | 2018 | | Basis point change |
| Selling, general and administrative | | 21.6 | % | | 13.9 | % | | 770 |
| Research and development | | 21.5 | % | | 13.5 | % | | 800 |
| Total | | 43.1 | % | | 27.4 | % | | 1,570 |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Fiscal | | | | |
| (dollar amounts in thousands) | | 2022 | | 2021 | | $ Change | | % Change |
| Selling, general and administrative | | $ | 141,396 | | | $ | 147,061 | | | $ | (5,665) | | | (3.9) | % |
| Research and development | | 136,852 | | | 137,478 | | | $ | (626) | | | (0.5) | % |
| Total | | $ | 278,248 | | | $ | 284,539 | | | $ | (6,291) | | | (2.2) | % |
Selling, General and Administrative (“SG&A”)
For fiscal 2019,2022, the lower SG&A expenses as compared to fiscal 2018 were2021 was primarily due to $10.7$7.1 million lower staff costs mainly as a result of decreasenet favorable variance in incentive compensation and a $0.4 million decrease in amortization expenses.foreign exchange. This was partially offset by $3.4a $2.0 million net unfavorable varianceCOVID-19 related grant received from the Singapore government in foreign exchange, $0.8 million lower net gain in disposal of fixed assets and a $0.6 million increase in professional fees.the prior year period.
Research and Development (“R&D”)
For fiscal 2019,2022, the lower R&D expenses as compared to fiscal 2018 were2021 was primarily due to lower staff costs mainly as a result of decrease inrelated to incentive compensation. This wasis partially offset by higher investment in the development of advanced packaging products.spending on prototype materials.
Income from Operations
For fiscal 2019,2022, total income from operations was lower by $145.0 millionhigher as compared to fiscal 2018.2021. This was primarily due to decreased revenuehigher gross profit and lower operating expenses in fiscal 2019, partially offset2022.
The following tables reflect income from operations by business segment for fiscal 2022 and 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Fiscal | | | | |
| (dollar amounts in thousands) | | 2022 | | 2021 | | $ Change | | % Change |
| Capital Equipment | | $ | 397,920 | | | $ | 355,982 | | | $ | 41,938 | | | 11.8 | % |
| APS | | 72,152 | | | 56,465 | | | 15,687 | | | 27.8 | % |
| Total income from operations | | $ | 470,072 | | | $ | 412,447 | | | $ | 57,625 | | | 14.0 | % |
Capital Equipment
For fiscal 2022, the higher Capital Equipment income from operations as compared to fiscal 2021 was primarily due to a higher gross profit as explained under “Gross Profit Margin” above.
APS
For fiscal 2022, the higher APS income from operations as compared to fiscal 2021 was primarily due to lower operating expenses.expenses as explained under “Operating Expenses” above.
Interest Income and Expense
The following table reflects interest income and interest expense for fiscal 20192022 and 2018:2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Fiscal | | | | |
| (dollar amounts in thousands) | | 2022 | | 2021 | | $ Change | | % Change |
| Interest income | | $ | 7,124 | | | $ | 2,321 | | | $ | 4,803 | | | 206.9 | % |
| Interest expense | | $ | (208) | | | $ | (218) | | | $ | 10 | | | (4.6) | % |
|
| | | | | | | | | | | | | | | |
| | | Fiscal | | | | |
| (dollar amounts in thousands) | | 2019 | | 2018 | | $ Change | | % Change |
| Interest income | | $ | 15,132 |
| | $ | 11,971 |
| | $ | 3,161 |
| | 26.4 | % |
| Interest expense | | $ | (2,055 | ) | | $ | (1,054 | ) | | $ | (1,001 | ) | | 95.0 | % |
For fiscal 2019,2022, the higher interest income was higher as compared to fiscal 2018. This2021 was primarily due to higher weighted average interest rates.rates on cash, cash equivalents and short-term investments.
Interest expense
For fiscal 2019, higher2022, the lower interest expense as compared to fiscal 2021 was primarily due to interest on the Overdraft Facility (Referlower levels of average short-term debt outstanding. Please refer to Note 8 of10: Debt and Other Obligations to our consolidated financial statements included in Item 8 of this Annual Report), partially offset byfor a decrease in interest on financing obligations relating to the Building (as defined in Note 8), which were incurred subsequent to the completiondiscussion of the Building in December 2013.Overdraft Facility.
Provision for Income Taxes
The following table reflects the provision for income taxes and the effective tax rate for fiscal 20192022 and 2018:2021:
| | | | | | | | | Fiscal | |
| (dollar amounts in thousands) | | (dollar amounts in thousands) | | 2022 | | 2021 | | Change |
| | | Fiscal | |
| (in thousands) | | 2019 | | 2018 | |
| Provision for income taxes | | $ | 22,910 |
| | $ | 120,744 |
| Provision for income taxes | | $ | 43,443 | | | $ | 47,295 | | | $ | (3,852) | |
| | Effective tax rate | | 66.0 | % | | 68.0 | % | Effective tax rate | | 9.1 | % | | 11.4 | % | | (2.3) | % |
The Company’s international operations and capital requirements are funded primarily by cash generated by foreign operating activities and cash held by foreign subsidiaries. Most of the Company's operations and liquidity needs are outside the U.S. In fiscal 2019,2022, the Company’s U.S. operations and capital requirements have been funded primarily by cash generated from U.S. operating activities, repatriation of cash generatedheld by U.S. entities, and cash previously held by foreign operating activities, and by a Facility Agreement with MUFG Bank, Ltd.subsidiaries that was repatriated to the U.S. entities during the fiscal year. In the future, the Company may repatriate additional cash held by foreign subsidiaries that has already been subject to U.S. tax.income tax or drawdown cash from our existing Facility Agreements. We believe these future repatriations of cash and our U.S. sources of cash and liquidity are sufficient to meet our other businessadditional liquidity needs in the U.S. for the foreseeable future including funding of U.S. operations, capital expenditures, repayment of outstanding balances under the Facility Agreement with MUFG Bank, Ltd., dividend program,Agreements, as well as payment of dividends, share repurchases and the share repurchase program as approved by the Board of Directors.income taxes. Should the Company’s U.S. cash needs exceed its funds generated by U.S. and foreign operations due to changing business conditions or transactions outside the ordinary course, such as acquisitions of large capital assets, businesses or any other capital appropriation in the U.S., the Company may require additional financing in the U.S. In this event, the Company could seek U.S. borrowing alternatives.
In accordance with U.S. generally accepted accounting principles, certain obligations and commitments as of September 28, 2019October 1, 2022 are appropriately not included in the Consolidated Balance Sheets and Statements of Operations in this Form 10-K. However, because these obligations and commitments are entered into in the normal course of business and because they may have a material impact on our liquidity, we have disclosed them in the table below.
The following table presents certain payments due by the Company under contractual obligations with minimum firm commitments as of September 28, 2019:October 1, 2022:
The accompanying notes are an integral part of these consolidated financial statements.