10-K 1 a10k2013.htm 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K

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

For the fiscal year ended September 28, 2013
OR

¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
| EXCHANGE ACT OF 1934

For the transition period from to .
Commission File No. 0-121
KULICKE AND SOFFA INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)

PENNSYLVANIA | 23-1498399
(State or other jurisdiction of incorporation) | (IRS Employer Identification No.)
6 Serangoon North Avenue 5, #03-16, Singapore | 554910
(Address of principal executive offices) | (Zip Code)

(215) 784-7518
(Registrants telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, WITHOUT PAR VALUE
(Title of each class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No ý
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ¨ No ý

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý
As of March 30, 2013, the aggregate market value of the registrant's common stock held by non-affiliates of the registrant was approximately $869.1 million based on the closing sale price as reported on The NASDAQ Global Market (reference is made to Part II, Item 5 herein for a statement of assumptions upon which this calculation is based).
As of November 9, 2013 there were 75,969,839 shares of the registrant's common stock, without par value, outstanding.
Documents Incorporated by Reference
Portions of the registrant's Proxy Statement for the 2014 Annual Meeting of Shareholders to be filed on or about January 7, 2014 are incorporated by reference into Part II, Item 5 and Part III, Items 10, 11, 12, 13 and 14 herein of this Report. Such Proxy Statement, except for the parts therein which have been specifically incorporated by reference, shall not be deemed “filed” for the purposes of this Report on Form 10-K.

Table of Contents
KULICKE AND SOFFA INDUSTRIES, INC.
2013 Annual Report on Form 10-K
September 28, 2013
Index

|  | Page Number
| Part I |
Item 1. | Business | 1
Item 1A. | Risks Related to Our Business and Industry | 10
Item 1B. | Unresolved Staff Comments | 18
Item 2. | Properties | 19
Item 3. | Legal Proceedings | 19
Item 4. | Mine Safety Disclosures | 19
| Part II |
Item 5. | Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 20
Item 6. | Selected Consolidated Financial Data | 21
Item 7. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 23
Item 7A. | Quantitative and Qualitative Disclosures about Market Risk | 42
Item 8. | Financial Statements and Supplementary Data | 43
Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | 75
Item 9A. | Controls and Procedures | 75
Item 9B. | Other Information | 75
| Part III |
Item 10. | Directors, Executive Officers and Corporate Governance | 76
Item 11. | Executive Compensation | 76
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 76
Item 13. | Certain Relationships and Related Transactions and Director Independence | 76
Item 14. | Principal Accounting Fees and Services | 77
| Part IV |
Item 15. | Exhibits and Financial Statement Schedules | 78
| Signatures | 82

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

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

• | projected demand for ball, wedge and for expendable tools.

Generally, words such as “may,” “will,” “should,” “could,” “anticipate,” “expect,” “intend,” “estimate,” “plan,” “continue,” “goal” and “believe,” or the negative of or other variations on these and other similar expressions identify forward-looking statements. These forward-looking statements are made only as of the date of this filing. We do not undertake to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise.
Forward-looking statements are based on current expectations and involve risks and uncertainties. Our future results could differ significantly from those expressed or implied by our forward-looking statements. These risks and uncertainties include, without limitation, those described below and under the heading “Risk Factors” within this Annual Report on Form 10-K for the fiscal year ended September 28, 2013 (the “Annual Report”) and our other reports and registration statements filed from time to time with the Securities and Exchange Commission. This discussion should be read in conjunction with the Consolidated Financial Statements and Notes included in this report, as well as our audited financial statements included in the Annual Report.
We operate in a rapidly changing and competitive environment. New risks emerge from time to time and it is not possible for us to predict all risks that may affect us. Future events and actual results, performance and achievements could differ materially from those set forth in, contemplated by or underlying the forward-looking statements, which speak only as of the date on which they were made. Except as required by law, we assume no obligation to update or revise any forward-looking statement to reflect actual results or changes in, or additions to, the factors affecting such forward-looking statements. Given those risks and uncertainties, investors should not place undue reliance on forward-looking statements as predictions of actual results.
Item 1. BUSINESS
Kulicke and Soffa Industries, Inc. (the "Company" or "K&S") designs, manufactures and sells capital equipment and expendable tools used to assemble semiconductor devices, including integrated circuits (“ICs”), high and low powered discrete devices, light-emitting diodes (“LEDs”), and power modules. We also service, maintain, repair and upgrade our equipment. Our customers primarily consist of semiconductor device manufacturers, outsourced semiconductor assembly and test providers (“OSATs”), other electronics manufacturers and automotive electronics suppliers.
We operate two main business segments, Equipment and Expendable Tools. Our goal is to be the technology leader and the most competitive supplier in terms of cost and performance in each of our major product lines. Accordingly, we invest in research and engineering projects intended to enhance our position at the leading edge of semiconductor assembly technology. We also remain focused on cost structure through continuing improvements and optimization of our operations. Cost reduction efforts remain an important part of our normal ongoing operations and are expected to generate savings without compromising overall product quality and service levels.
K&S was incorporated in Pennsylvania in 1956. Our principal offices are located at 6 Serangoon North Avenue 5, #03-16, Singapore 554910 and our telephone number in the United States is (215) 784-7518. We maintain a website with the address www.kns.com. We are not including the information contained on our website as a part of, or incorporating it by reference into, this filing. We make available free of charge (other than an investor's own Internet access charges) on or through our website our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to these reports, as soon as reasonably practicable after the material is electronically filed with or otherwise furnished to the Securities and Exchange Commission (“SEC”). Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports are also available on the SEC website at www.sec.gov and at the SEC's Public Reference Room at 100 F Street, NE, Washington, DC 20549 or by calling the SEC at 1-800-SEC-0330.
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Our year end for each of fiscal 2013, 2012 and 2011 was September 28, 2013, September 29, 2012, and October 1, 2011, respectively.
Business Environment
The semiconductor business environment is highly volatile, driven by internal dynamics, both cyclical and seasonal, in addition to macroeconomic forces. Over the long term, semiconductor consumption has historically grown, and is forecast to continue to grow. This growth is driven, in part, by regular advances in device performance and by price declines that result from improvements in manufacturing technology. In order to exploit these trends, semiconductor manufacturers, both integrated device manufacturers (“IDMs”) and OSATs, periodically invest aggressively in latest generation capital equipment. This buying pattern often leads to periods of excess supply and reduced capital spending - the so called semiconductor cycle. Within this broad semiconductor cycle there are also, generally weaker, seasonal effects that are specifically tied to annual, end-consumer purchasing patterns. Typically, semiconductor manufacturers prepare for heightened demand by adding or replacing equipment capacity by the end of the September quarter. Occasionally, this results in subsequent reductions in the December quarter. This annual seasonality can occasionally be overshadowed by effects of the broader semiconductor cycle. Macroeconomic factors also affect the industry, primarily through their effect on business and consumer demand for electronic devices, as well as other products that have significant electronic content such as automobiles, white goods, and telecommunication equipment.
Our Equipment segment is primarily affected by the industry's internal cyclical and seasonal dynamics in addition to broader macroeconomic factors that positively and negatively affect our financial performance. The sales mix of IDM and OSAT customers in any period also impacts financial performance, as this mix can affect our products' average selling prices and gross margins due to differences in volume purchases and machine configurations required by each customer type.
Our Expendable Tools segment is less volatile than our Equipment segment. Expendable Tools sales are more directly tied to semiconductor unit consumption rather than capacity requirements and production capability improvements.
We continue to position our business to leverage our research and development leadership and innovation and to focus our efforts on mitigating volatility, improving profitability and ensuring longer-term growth. We remain focused on operational excellence, expanding our product offerings and managing our business efficiently throughout the business cycles. Our visibility into future demand is generally limited, forecasting is difficult, and we may experience typical industry seasonality.
To limit potential adverse cyclical, seasonal and macroeconomic effects on our financial position, we have de-leveraged and strengthened our balance sheet. In fiscal 2012, we fully repaid our 0.875% Convertible Subordinated Notes (the “Notes”) with cash in the principal amount of $110.0 million at maturity. As of September 28, 2013, our total cash, cash equivalents and investments were $525.0 million, an $84.8 million increase from the prior fiscal year end. We believe this strong cash position will allow us to continue to invest in organic product development and non-organic opportunities.
Technology Leadership
We compete largely by offering our customers among the most advanced equipment and expendable tools available for the wire and wedge bonding processes. Our equipment is typically the most productive and has the highest levels of process capability, and as a result, has a lower cost of ownership compared to other equipment in its market. Our expendable tools are designed to optimize the performance of the equipment in which they are used. We believe our technology leadership contributes to the leading market share positions of our various wire bonders and expendable tools products. To maintain our competitive advantage, we invest in product development activities designed to produce a stream of improvements to existing products and to deliver next-generation products. These investments often focus as much on improvements in the semiconductor assembly process as on specific pieces of assembly equipment or expendable tools. In order to generate these improvements, we often work in close collaboration with customers, end users, and other industry members. In addition to producing technical advances, these collaborative development efforts strengthen customer relationships and enhance our reputation as a technology leader and solutions provider.
In addition to gold, silver alloy wire and aluminum wire, our leadership in the industry's use of copper wire for the bonding process is an example of the benefits of our collaborative efforts. By working with customers, material suppliers, and other equipment suppliers, we have developed a series of robust, high-yielding production processes that have made copper wire commercially viable, significantly reducing the cost of assembling an integrated circuit. During fiscal 2010, many of our customers began converting their bonding wire from gold to copper wire, and we believe the conversion was accelerated by fabless companies in the consumer segment. Gradually, the level of confidence and the reliability of data collected have enabled a larger segment of the customer base to increase copper capabilities. Since this initial conversion, a majority of our wire bonder sales are copper capable bonders. We expect this conversion process to continue throughout the industry for the next several years. Based on our industry leading copper bonding processes and the continued high price of gold, we believe the demand for copper configured wire bonders is likely to remain robust.
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Our leadership has allowed us to maintain a competitive position in the latest generations of gold and copper ball bonders, which enable our customers to handle the leading technologies in terms of bond pad pitch, silicon with the latest node and complex wire bonding requirement. We continue to see demand for our large bondable area (“LA”) configured machines. This LA option is now available on all of our Power Series (“PS”) models and allows our customers to gain added efficiencies and to reduce the cost of packaging.
We also leverage the technology leadership of our equipment by optimizing our bonder platforms, and we deliver variants of our products to serve emerging high-growth markets. For example, we have developed extensions of our main ball bonding platforms to address opportunities in LED assembly, for general lighting in particular. We expect the next wave of growth in the LED market to be high brightness LED for general lighting. We also see an opportunity in wire bonding at wafer level using our ATPremier Plus.
Furthermore, we gain synergies by leveraging technologies between our unique platforms. Our leading technology for wedge bonder equipment uses aluminum ribbon or heavy wire as opposed to fine gold and fine copper wire used in ball bonders. In March 2013, we launched a new line of high performance wedge bonder products, PowerFusion PS. The advanced interconnect capabilities of PowerFusion PS improve the processing of high-density power packages, due to an expanded bondable area, wider leadframe capability, superior indexing accuracy and teach mode. We also intend to initiate design of our next power module wedge bonder. In both cases, we are making a concerted effort to develop commonality of subsystems and design practices, in order to improve performance and design efficiencies. We believe this will benefit us in maintaining our leadership position in the wedge bonding market and increase synergies between the various engineering product groups. Furthermore, we continually research adjacent market segments where our technologies could be used. Many of these initiatives are in the early stages of development and may become business opportunities in the future.
Another example of our developing equipment for high-growth niche markets is our ATPremier Plus. This machine utilizes a modified wire bonding process to mechanically place bumps on devices in a wafer format, for variants of the flip chip assembly process. Typical applications include complementary metal-oxide semiconductor (“CMOS”) image sensors, surface acoustical wave (“SAW”) filters and high brightness LEDs. These applications are commonly used in most, if not all, smartphones available today in the market. We also expanded the use of ATPremier Plus for wafer level wire bonding for micro-electro-mechanical systems (“MEMS”) and other sensors.
Our technology leadership and bonding process know-how are enabling us to develop highly function-specific equipment with best-in-class throughput and accuracy. This forms the foundation for our advanced packaging equipment development. We have established a development team to develop advanced packaging bonders for the emerging three-dimensional integrated circuit (“3DIC”) market. 3DIC saves space and reduces form factor by stacking separate chips in a single package. It also improves performance while reducing power consumption. Mobile devices such as smartphones and tablets are the main drivers of this market.
We bring the same technology focus to our expendable tools business, driving tool design and manufacturing technology to optimize the performance and process capability of the equipment in which our tools are used. For all our equipment products, expendable tools are an integral part of their process capability. We believe our unique ability to simultaneously develop both equipment and tools is a core strength supporting our products' technological differentiation.
Products and Services
The Company operates two segments: Equipment and Expendable Tools. The following table reflects net revenue by business segment for fiscal 2013, 2012, and 2011:

|  | Fiscal
|  | 2013 |  | 2012 |  | 2011
(dollar amounts in thousands) |  | Net revenues |  | % of total net revenue |  | Net revenues |  | % of total net revenue |  | Net revenues |  | % of total net revenue
Equipment |  | 472,567 |  |  | 88.3 | % |  | $ | 727,082 |  |  | 91.9 | % |  | $ | 759,331 |  |  | 91.4 | %
Expendable Tools |  | 62,371 |  |  | 11.7 | % |  | 63,941 |  |  | 8.1 | % |  | 71,070 |  |  | 8.6 | %
|  | $ | 534,938 |  |  | 100.0 | % |  | $ | 791,023 |  |  | 100.0 | % |  | $ | 830,401 |  |  | 100.0 | %

See Note 11 to our Consolidated Financial Statements included in Item 8 of this report for our financial results by business segment.
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Equipment Segment
We manufacture and sell a line of ball bonders, heavy wire wedge bonders and wafer level bonders that are sold to semiconductor device manufacturers, OSATs, other electronics manufacturers and automotive electronics suppliers. Ball bonders are used to connect very fine wires, typically made of gold or copper, between the bond pads of the semiconductor device, or die, and the leads on its package. Heavy wire wedge bonders use either aluminum wire or ribbon to perform the same function in packages that cannot use gold or copper wire because of either high electrical current requirements or other package reliability issues. Wafer level bonders mechanically apply bumps to die, typically while still in the wafer format, for some variants of the flip chip assembly process. We believe our equipment offers competitive advantages by providing customers with high productivity/throughput, superior package quality/process control, and as a result, a lower cost of ownership.
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Our principal Equipment segment products include:

Business Unit |  | Product Name (1) |  | Typical Served Market
Ball bonders |  | IConn PS |  | Advanced and ultra fine pitch applications
|  | IConn PS ProCu |  | High-end copper wire applications demanding advanced process capability and high productivity
|  | IConn PS ProCu Plus |  | High-end copper wire applications demanding advanced process capability and high productivity
|  | IConn PS ProCu LA |  | Large area substrate and matrix applications for copper wire
|  | IConn PS ProCu Plus LA |  | Large area substrate and matrix applications for copper wire
|  | IConn PS LA |  | Large area substrate and matrix applications
|  | ConnX PS Plus |  | High productivity bonder for low-to-medium pin count applications
|  | ConnX PS LED |  | LED applications
|  | ConnX PS VLED |  | Vertical LED applications
|  | ConnX PS Plus LA |  | Cost performance large area substrate and matrix applications
|  | AT Premier Plus |  | Advanced wafer level bonding application
Wedge bonders |  | 3600Plus |  | Power hybrid and automotive modules using either heavy aluminum wire or PowerRibbon®
|  | 3700Plus |  | Hybrid and automotive modules using thin aluminum wire
|  | 7200Plus |  | Power semiconductors using either aluminum wire or PowerRibbon®
|  | 7200HD |  | Smaller power packages using either aluminum wire or PowerRibbon®
|  | PowerFusion PS TL |  | Power semiconductors using either aluminum wire or PowerRibbon®
|  | PowerFusion PS HL |  | Smaller power packages using either aluminum wire or PowerRibbon®

(1) Power Series (“PS”)
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Ball Bonders
Automatic ball bonders represent the largest portion of our semiconductor equipment business. Our main product platform for ball bonding is the Power Series - a family of assembly equipment that is setting new standards for performance, productivity, upgradeability, and ease of use. Our Power Series consists of our IConn PS high-performance ball bonders and our ConnX PS cost-performance ball bonders, both of which can be configured for either gold or copper wire. In addition, targeted specifically at the fast growing LED market, the Power Series includes our ConnX PS LED and our ConnX PS VLED. Targeted for large bondable area applications, the Power Series includes our IConn PS LA and ConnX PS LA. In August 2013, we introduced our next generation IConn PS ProCu Plus and IConn PS ProCu Plus LA, which further improved wire bonding production capability for advanced wafer nodes at 28 nanometer and below.

• | Our Power Series products are setting new standards in wire bonding.

• | Our ball bonders are capable of bonding advanced devices with very fine pitch, creating complex loop shapes needed in the assembly of advanced semiconductor packages as well as bonding on the latest 28 nanometer silicon node.

• | Our installed base of gold wire ball bonders can also be retrofitted for copper wire applications with kits, which we sell separately.

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

Heavy Wire Wedge Bonders
We are the leaders in the design and manufacture of heavy wire wedge bonders for the power semiconductor and automotive power module markets. Heavy wire wedge bonders may use either aluminum wire or aluminum ribbon to connect semiconductor chips in power packages, power hybrids and automotive modules for products such as motor control modules or inverters for hybrid cars. In addition, we see some potential use for our wedge bonder products in select solar applications.
Our portfolio of wedge bonding products includes:

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

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

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

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

While wedge bonding traditionally utilizes aluminum wire, all of our heavy wire wedge bonders are also available to be modified to bond aluminum ribbon using our proprietary PowerRibbon® process. Aluminum ribbon offers device makers performance advantages over traditional round wire and is being increasingly used for high current packages and automotive applications.
In March 2013, we introduced PowerFusion PS, which is driven by new powerful direct-drive motion systems and expanded pattern recognition capabilities. The advanced interconnect capabilities of PowerFusion PS improves the processing of high-density power packages, due to an expanded bondable area, wider leadframe capability and superior indexing accuracy and teach mode.
Other Equipment Products and Services
We also sell manual wire bonders, and we offer spare parts, equipment repair, training services, and upgrades for our equipment through our Support Services business unit.
In September 2012, we introduced a next-generation manual wire bonder series for use with gold, copper or aluminum wire.
In March 2013, we introduced K&S Care, a new professional service, designed to help customers operate their machines at an optimum level under the care our trained specialists. K&S Care includes a range of programs, offering different levels of service depending on customer needs.
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Expendable Tools Segment
We manufacture and sell a variety of expendable tools for a broad range of semiconductor packaging applications. Our principal Expendable Tools segment products include:

• | Capillaries: expendable tools used in ball bonders. Made of ceramic and other elements, a capillary guides the wire during the ball bonding process. Its features help control the bonding process. We design and build capillaries suitable for a broad range of applications, including for use on our competitors' equipment. In addition to capillaries used for gold wire bonding, we have developed capillaries for use with copper wire to achieve optimal performance in copper wire bonding.

• | Bonding wedges: expendable tools used in heavy wire wedge bonders. Like capillaries, their specific features are tailored to specific applications. We design and build bonding wedges for use both in our own equipment and in our competitors' equipment.

• | Dicing blades: expendable tools used by semiconductor manufacturers to cut silicon wafers into individual semiconductor die and to cut semiconductor devices that have been moulded in a matrix configuration into individual units.

In March 2013, we introduced the Opto ceramic and Opto PCB package singulation blades for the LED market. The blades enable an improvement on package singulation quality, precision and productivity by providing a significantly longer life blade, and improved stability.
In August 2013, we introduced ACS Pro Capillary, which is a new generation of copper capillary for advanced copper wire bonding applications.
Customers
Our major customers include IDMs and OSATs, industrial manufacturers and automotive electronics suppliers. Revenue from our customers may vary significantly from year-to-year based on their respective capital investments, operating expense budgets, and overall industry trends.
The following table reflects our top ten customers, based on net revenue, for each of the last three fiscal years:

| Fiscal 2013 |  | Fiscal 2012 |  | Fiscal 2011***
1 | Siliconware Precision Industries, Ltd. * | 1 | Advance Semiconductor Engineering * | 1 | Advance Semiconductor Engineering *
2 | Advance Semiconductor Engineering | 2 | Siliconware Precision Industries, Ltd. * | 2 | Siliconware Precision Industries, Ltd.
3 | STATS ChipPAC Ltd | 3 | Haoseng Industrial Co., Ltd. ** | 3 | STATS ChipPAC Ltd
4 | Haoseng Industrial Co., Ltd. ** | 4 | Rohm Intergrated Systems | 4 | First Technology China, Ltd. **
5 | Amkor Technology Inc. | 5 | Amkor Technology Inc. | 5 | Haoseng Industrial Co., Ltd. **
6 | Rohm Intergrated Systems | 6 | STATS ChipPAC Ltd | 6 | Samsung
7 | Orient Semiconductor Electronics, Ltd. | 7 | LG Innotek Co. Ltd. | 7 | ST Microelectronics
8 | Super Power International Ltd ** | 8 | First Technology China, Ltd. ** | 8 | Amkor Technology Inc.
9 | ST Microelectronics | 9 | Super Power International Ltd ** | 9 | Rohm Intergrated Systems
10 | First Technology China, Ltd. ** | 10 | ST Microelectronics | 10 | Super Power International Ltd **

* Represents more than 10% of our net revenue for the applicable fiscal year.
** Distributor of our products.
***Updated for finalized data for fiscal 2011.
Approximately 97.3%, 98.3%, and 97.8% of our net revenue for fiscal 2013, 2012, and 2011, respectively, were for shipments to customer locations outside of the U.S., primarily in the Asia/Pacific region, and we expect sales outside of the U.S. to continue to represent a substantial majority of our future net revenue.
See Note 11 to our Consolidated Financial Statements included in Item 8 of this report for sales to customers by geographic location.
Sales and Customer Support
We believe long-term customer relationships are critical to our success, and comprehensive sales and customer support are an important means of establishing those relationships. To maintain these relationships, we primarily utilize our direct sales force, as well as a number of distribution channels such as agents and distributors, depending on the product, region, or end-user application. In all cases, our goal is to position our sales and customer support resources near our customers' facilities so as to provide support for customers in their own language and consistent with local customs. Our sales and customer support resources are located
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primarily in Singapore, Taiwan, China, Korea, Malaysia, the Philippines, Japan, Thailand, the U.S., and Germany. Supporting these local resources, we have technology centers offering additional process expertise in Singapore, China, Israel, and the U.S.
By establishing relationships with semiconductor manufacturers, OSATs, and vertically integrated manufacturers of electronic systems, we gain insight into our customers' future semiconductor packaging strategies. These insights assist us in our efforts to develop products and processes that address our customers' future assembly requirements.
Backlog
Our backlog consists of customer orders scheduled for shipment within the next twelve months. A majority of our orders are subject to cancellation or deferral by our customers with limited or no penalties. Also, customer demand for our products can vary dramatically without prior notice. Because of the volatility of customer demand, possibility of customer changes in delivery schedules or cancellations and potential delays in product shipments, our backlog as of any particular date may not be indicative of net revenue for any succeeding period.
The following table reflects our backlog as of September 28, 2013 and September 29, 2012:

|  | As of
(in thousands) |  | September 28, 2013 |  |  | September 29, 2012 |
Backlog |  | $ | 52,100 |  |  | $ | 90,000 |

Our net revenues for fiscal 2013 decreased significantly as compared to our net revenues for fiscal 2012 due to reduced customer demand. The semiconductor industry is volatile and our operating results have fluctuated significantly in the past. Customer demand for our products could continue to remain weak and lead to a decline in our net revenues. If there is a significant slowdown of transition from gold to copper wire bonding by our customers, then our net revenues may continue to decline.
Manufacturing
We believe excellence in manufacturing can create a competitive advantage, both by producing at lower costs and by providing superior responsiveness to changes in customer demand. To achieve these goals, we manage our manufacturing operations through a single organization and believe that fewer, larger factories allow us to capture economies of scale and generate cost savings through lower manufacturing costs.
Equipment
Our equipment manufacturing activities consist mainly of integrating outsourced parts and subassemblies and testing finished products to customer specifications. While we largely utilize an outsource model, allowing us to minimize our fixed costs and capital expenditures, for certain low-volume, high customization parts, we manufacture subassemblies ourselves. Just-in-time inventory management has reduced our manufacturing cycle times and lowered our on-hand inventory requirements. Raw materials used in our equipment manufacturing are generally available from multiple sources; however, many outsourced parts and components are only available from a single or limited number of sources.
Our ball bonder and wedge bonder manufacturing and assembly is done at our facility in Singapore. We have ISO 9001 and ISO 14001 certifications for our equipment manufacturing facilities in Singapore.
Expendable Tools
We manufacture saw blades, capillaries and a portion of our bonding wedge inventory at our facility in Suzhou, China. The capillaries are made using blanks produced at our facility in Yokneam, Israel. We both produce and outsource the production of our bonding wedges. Both the Suzhou and Yokneam facilities are ISO 9001 certified. The Suzhou facility is also ISO 14001 and ISO 18001 certified.
Research and Product Development
Many of our customers generate technology roadmaps describing their projected packaging technology requirements. Our research and product development activities are focused on delivering robust production solutions to those projected requirements. We accomplish this by regularly introducing improved versions of existing products or by developing next-generation products. We follow this product development methodology in all our major product lines. Research and development expense was $61.6 million, $63.4 million, and $65.1 million during fiscal 2013, 2012, and 2011, respectively.
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Intellectual Property
Where circumstances warrant, we apply for patents on inventions governing new products and processes developed as part of our ongoing research, engineering, and manufacturing activities. We currently hold a number of U.S. patents, many of which have foreign counterparts. We believe the duration of our patents often exceeds the life cycles of the technologies disclosed and claimed in the patents. Additionally, we believe much of our important technology resides in our trade secrets and proprietary software.
Competition
The market for semiconductor equipment and packaging materials products is intensely competitive. Significant competitive factors in the semiconductor equipment market include price, speed/throughput, production yield, process control, delivery time and customer support, each of which contribute to lower the overall cost per package being manufactured. Our major equipment competitors include:

• | Ball bonders: ASM Pacific Technology and Shinkawa

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

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

• | Capillaries: PECO, Small Precision Tools, Inc., and Coorstek (formerly Gaiser)

• | Saw blades: Disco Corporation

• | Bonding wedges: Small Precision Tools, Inc.

In each of the markets we serve, we face competition and the threat of competition from established competitors and potential new entrants, some of which may have greater financial, engineering, manufacturing, and marketing resources.
Environmental Matters
We are subject to various federal, state, local and foreign laws and regulations governing, among other things, the generation, storage, use, emission, discharge, transportation and disposal of hazardous materials and the health and safety of our employees. In addition, we are subject to environmental laws which may require investigation and cleanup of any contamination at facilities we own or operate or at third-party waste disposal sites we use or have used.
We have incurred in the past, and expect in the future to incur costs to comply with environmental laws. We are not, however, currently aware of any material costs or liabilities relating to environmental matters, including any claims or actions under environmental laws or obligations to perform any cleanups at any of our facilities or any third-party waste disposal sites, that we expect to have a material adverse effect on our business, financial condition or operating results. However, it is possible that material environmental costs or liabilities may arise in the future.
Business Continuity Management Plan
We have developed and implemented a global Business Continuity Management Plan ("Plan") for our business operations. The Plan is designed to facilitate the prompt resumption of our business operations and functions arising from an event which impacts or potentially impacts our business operations. As the scale, timing, and impact of disasters and disruptions are unpredictable, the Plan has been designed to be flexible in responding to actual events as they occur. The Plan provides a structured framework for safeguarding our employees and property, making a financial and operational assessment, protecting our books and records, perpetuating critical business functions, and enabling the continuation of customer transactions.
Employees
As of September 28, 2013, we had approximately 1,914 regular full-time employees and 250 temporary workers worldwide.
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Item 1A. RISKS RELATED TO OUR BUSINESS AND INDUSTRY
Our operating results and financial condition are adversely impacted by volatile worldwide economic conditions.
Though the semiconductor industry's cycle can be independent of the general economy, global economic conditions may have direct impact on demand for semiconductor units and ultimately demand for semiconductor capital equipment and expendable tools. Accordingly, our business and financial performance is impacted, both positively and negatively, by fluctuations in the macroeconomic environment. Our visibility into future demand is generally limited and forecasting is difficult. There can be no assurances regarding levels of demand for our products and we believe historic industry-wide volatility will persist.
Unpredictable corporate spending 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 corporate spending. Reductions or other fluctuations in corporate spending as a result of uncertain conditions in the macroeconomic environment, such as government economic or fiscal instability, restricted global credit conditions, reduced demand, unbalanced inventory levels, fluctuations in interest rates, higher energy prices, or other conditions, could adversely affect our net revenue and profitability. The impact of general economic slowdowns could make our customers cautious and delay orders until the current economic environment becomes clearer.
The semiconductor industry is volatile with sharp periodic downturns and slowdowns. Cyclical industry downturns are made worse by volatile global economic conditions.
Our operating results are significantly affected by the capital expenditures of semiconductor manufacturers, both IDMs and OSATs. Expenditures by our customers depend on the current and anticipated market demand for semiconductors and products that use semiconductors, including mobile devices, personal computers, consumer electronics, telecommunications equipment, automotive goods and other industrial products. Significant downturns in the market for semiconductor devices or in general economic conditions reduce demand for our products and can materially and adversely affect our business, financial condition and operating results.
The semiconductor industry is volatile, with periods of rapid growth followed by industry-wide retrenchment. These periodic downturns and slowdowns have adversely affected our business, financial condition and operating results. Downturns have been characterized by, among other things, diminished product demand, excess production capacity, and accelerated erosion of selling prices. Historically these downturns have severely and negatively affected the industry's demand for capital equipment, including assembly equipment and, to a lesser extent, expendable tools. There can be no assurances regarding levels of demand for our products. In any case, we believe the historical volatility of our business, both upward and downward, will persist.
We may experience increasing price pressure.
Typically our average selling prices have declined over time. We seek to offset this decline by continually reducing our cost structure by consolidating operations in lower cost areas, reducing other operating costs, and by pursuing product strategies focused on product performance and customer service. These efforts may not be able to fully offset price declines; therefore, our financial condition and operating results may be materially and adversely affected.
Our quarterly operating results fluctuate significantly and may continue to do so in the future.
In the past, our quarterly operating results have fluctuated significantly. We expect quarterly results will continue to fluctuate. Although these fluctuations are partly due to the cyclical and volatile nature of the semiconductor industry, they also reflect other factors, many of which are outside of our control.
Some of the factors that may cause our net revenue and operating margins to fluctuate significantly from period to period are:

• | market downturns;

• | industry inventory level;

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

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

◦ | some sales arrangements have higher gross margins than others;

• | cancelled or deferred orders;

• | seasonality;

• | competitive pricing pressures may force us to reduce prices;

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

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

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

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

• | our competitors' introduction of new products.

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

• | timing and extent of our research and development efforts;

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

• | inventory write-offs due to obsolescence; and

• | an increase in the cost of labor or materials.

Because our net revenue and operating results are volatile and difficult to predict, we believe consecutive period-to-period comparisons of our operating results may not be a good indication of our future performance.
We may not be able to rapidly develop, manufacture and gain market acceptance of new and enhanced products required to maintain or expand our business.
We believe our continued success depends on our ability to continuously develop and manufacture new products and product enhancements on a timely and cost-effective basis. We must introduce these products and product enhancements into the market in a timely manner in response to customers' demands for higher performance assembly equipment and leading-edge materials customized to address rapid technological advances in integrated circuits, and capital equipment designs. Our competitors may develop new products or enhancements to their products that offer improved performance and features, or lower prices which may render our products less competitive. The development and commercialization of new products requires significant capital expenditures over an extended period of time, and some products we seek to develop may never become profitable. In addition, we may not be able to develop and introduce products incorporating new technologies in a timely manner that will satisfy our customers' future needs or achieve market acceptance.
The pace of transition from gold to copper wire bonding by our customers and the industry may slowdown.
Beginning in fiscal 2010, many of our customers began converting their bonding wire from gold to copper wire. Since this initial conversion, a majority of our wire bonder sales are copper capable bonders. In fiscal 2013, 78% of total ball bonders sold by the Company were copper capable bonders. If the pace of transition from gold to copper wire bonding by our customers slows down or customers transition away from copper wire bonding, there may be a reduced demand for our wire bonders and our financial condition and operating results may be materially and adversely affected.
Substantially all of our sales and manufacturing operations are located outside of the U.S., and we rely on independent foreign distribution channels for certain product lines, all of which subject us to risks, including risks from changes in trade regulations, currency fluctuations, political instability and war.
Approximately 97.3%, 98.3%, and 97.8% of our net revenue for fiscal 2013, 2012, and 2011, respectively, were for shipments to customers located outside of the U.S., primarily in the Asia/Pacific region. Our future performance will depend on our ability to continue to compete in foreign markets, particularly in the Asia/Pacific region. Some of these economies have been highly volatile, resulting in significant fluctuation in local currencies, and political and economic instability. These conditions may continue or worsen, which may materially and adversely affect our business, financial condition and operating results.
We also rely on non-U.S. suppliers for materials and components used in our products, and substantially all of our manufacturing operations are located in countries other than the U.S. We manufacture our ball and wedge bonders in Singapore, our saw blades, capillaries and bonding wedges in China and capillary blanks in Israel. In addition, our corporate headquarters is in Singapore and
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we have sales, service and support personnel in China, Israel, Japan, Korea, Malaysia, the Philippines, Singapore, Taiwan, Thailand, the U.S. and Germany. We also rely on independent foreign distribution channels for certain of our product lines. As a result, a major portion of our business is subject to the risks associated with international, and particularly Asia/Pacific, commerce, such as:

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

• | seizure of our foreign assets, including cash;

• | longer payment cycles in foreign markets;

• | foreign exchange restrictions and capital controls;

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

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

• | difficulties of staffing and managing dispersed international operations;

• | possible disagreements with tax authorities;

• | episodic events outside our control such as, for example, outbreaks of influenza;

• | natural disasters such as earthquakes, fires or floods;

• | tariff and currency fluctuations;

• | changing political conditions;

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

• | foreign governments' monetary policies and regulatory requirements;

• | less protective foreign intellectual property laws; and

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

In addition, there is a potential risk of conflict and instability in the relationship between Taiwan and China. Conflict or instability could disrupt the operations of our customers and/or suppliers in both Taiwan and China. Additionally, our manufacturing operations in China could be disrupted by any conflict.
Our international operations also depend upon favorable trade relations between the U.S. and those foreign countries in which our customers, subcontractors and materials suppliers have operations. A protectionist trade environment in either the U.S. or those foreign countries in which we do business, such as a change in the current tariff structures, export compliance or other trade policies, may materially and adversely affect our ability to sell our products in foreign markets.
Increased labor costs and competition for qualified personnel may reduce the efficiency of our flexible manufacturing model and adversely impact our operating results.
There is some uncertainty with respect to the pace of rising labor costs in the various countries in which we operate. In addition, there is substantial competition in China and Singapore 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 and Singapore facilities or if there are increases in labor costs that we are unable to recover in our pricing to our customers, we may experience increased manufacturing costs, which would adversely affect our operating results.
We are exposed to fluctuations in currency exchange rates that could negatively impact our financial results and cash flows.
Because most of our foreign sales are denominated in U.S. dollars, 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 foreign currencies could make our costs in non-U.S. locations more expensive to fund. Our ability to compete overseas may be materially and adversely affected by a strengthening of the U.S. dollar against foreign 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
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effect on our cash flows. Our primary exposures include the Singapore Dollar, Chinese Yuan, Japanese Yen, Malaysian Ringgit, Swiss Franc, Philippine Peso, Taiwan Dollar, South Korean Won, Israeli Shekel and Euro. We have not entered into foreign exchange forward contracts but may enter into foreign exchange forward contracts or other instruments in the future. 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 consolidate manufacturing and other facilities without incurring unanticipated costs and disruptions to our business.
As part of our ongoing efforts to drive further efficiency, we may consolidate other manufacturing facilities. Should we consolidate, we may experience unanticipated events, including the actions of governments, suppliers, employees or customers, which may result in unanticipated costs and disruptions to our business.
Our business depends on attracting and retaining management, marketing and technical employees as well as on the succession of senior management.
Our future success depends on our ability to hire and retain qualified management, marketing, finance, accounting and technical employees, including senior management. Experienced personnel with the relevant and necessary skill sets in our industry are in high demand and competition for their talents is intense, especially in Asia, where most of the Company’s key personnel are located. If we are unable to continue to attract and retain the managerial, marketing, finance, accounting and technical personnel we require, and if we are unable to effectively provide for the succession of senior management, our business, financial condition and operating results may be materially and 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. As a result, we sometimes experience inventory shortages or excesses. We generally order supplies and otherwise plan our production based on internal forecasts for demand. We have in the past failed, and may again in the future fail, to accurately forecast demand for our products. This has led to, and may in the future lead to, delays in product shipments or, alternatively, an increased risk of inventory obsolescence. If we fail to accurately forecast demand for our products, our business, financial condition and operating results may be materially and adversely affected.
Alternative packaging technologies may render some of our products obsolete and materially and adversely affect our overall business and financial results.
Alternative packaging technologies have emerged that may improve device performance or reduce the size of an integrated circuit package, as compared to traditional wire bonding. These technologies include flip chip and wafer level packaging. Some of these alternative technologies eliminate the need for wires to establish the electrical connection between a die and its package. The semiconductor industry may, in the future, shift a significant part of its volume into alternative packaging technologies, such as those discussed above, which do not employ our products. If a significant shift to alternative packaging technologies 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 account for a significant percentage of our net revenue. Sales to our largest customers, defined as more than 10% of our net revenue, was 11.0%, 37.3%, and 21.8%, for fiscal 2013, 2012, and 2011, 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, they may turn to other suppliers making it more difficult for us to retain their business. Similarly, if we are unable for any other reason to meet production or delivery schedules, particularly during a period of escalating demand, our relationships with our key customers could be adversely affected. If we lose orders from a significant customer, or if a significant customer reduces its orders substantially, these losses or reductions may materially and adversely affect our business, financial condition and operating results.
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We maintain a backlog of customer orders that is subject to cancellation, reduction or delay in delivery schedules, which may result in lower than expected revenues.
We manufacture products primarily pursuant to purchase orders for current delivery or to forecast, rather than pursuant to long-term supply contracts. The semiconductor industry is occasionally subject to double-booking and rapid changes in customer outlooks or unexpected build ups of inventory in the supply channel as a result of shifts in end market demand and macro-economic conditions. Accordingly, many of these purchase orders or forecasts may be revised or canceled without penalty. As a result, we must commit resources to the manufacture of products without binding purchase commitments from customers. Even in cases where our standard terms and conditions of sale or other contractual arrangements do not permit a customer to cancel an order without penalty, we may from time to time accept cancellations to maintain customer relationships or because of industry practice, custom or other factors. Our inability to sell products after we devote significant resources to them could have a material adverse effect on both our levels of inventory and revenues. While we currently believe our inventory levels are appropriate for the current economic environment, continued global economic uncertainty may result in lower than expected demand.
Undetected problems in our products could directly impair our financial results.
If flaws in design, production, assembly or testing of our products (by us or our suppliers) were to occur, we could experience a rate of failure in our products that would result in substantial repair, replacement or service costs and potential damage to our reputation. Continued improvement in manufacturing capabilities, control of material and manufacturing quality and costs and product testing are critical factors in our future growth. There can be no assurance that our efforts to monitor, develop, modify and implement appropriate tests and manufacturing processes for our products will be sufficient to permit us to avoid a rate of failure in our products that results in substantial delays in shipment, significant repair or replacement costs or potential damage to our reputation, any of which could have a material adverse effect on our business, results of operations or financial condition.
Costs related to product defect and errata may harm our results of operations and business.
Costs of product defects and errata (deviations from product specifications) due to, for example, problems in our design and manufacturing processes, could include:

• | writing off the value of inventory;

• | disposing of products that cannot be fixed;

• | retrofitting products that have been shipped;

• | providing product replacements or modifications; and

• | defending against litigation.

These costs could be large and may increase expenses and lower gross margin. Our reputation with customers or end users could be damaged as a result of product defects and errata, and product demand could be reduced. These factors could harm our business and financial results.
We depend on our suppliers, including sole source suppliers, for critical raw materials, components and subassemblies. If our suppliers do not deliver their products to us, we would be unable to deliver our products to our customers.
Our products are complex and require raw materials, components and subassemblies having a high degree of reliability, accuracy and performance. We rely on subcontractors to manufacture many of these components and subassemblies and we rely on sole source suppliers for many components and raw materials. As a result, we are exposed to a number of significant risks, including:

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

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

• | our inadvertent use of defective or contaminated raw materials;

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

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

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

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

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

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

• | loss of suppliers because of their bankruptcy or insolvency.

If we are unable to deliver products to our customers on time for these or any other reasons, or we are unable to meet customer expectations as to cycle time, or we are unable to maintain acceptable product quality or reliability, our business, financial condition and operating results may be materially and adversely affected.
New regulations related to “conflict minerals” may force us to incur additional expenses, may make our supply chain more complex and may result in damage to our reputation with customers.
On August 22, 2012, under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act, the SEC adopted new requirements for companies that use certain minerals and metals, known as conflict minerals, in their products, whether or not these products are manufactured by third parties. These requirements will require companies to conduct due diligence and disclose whether or not such minerals originate from the Democratic Republic of Congo and adjoining countries. The implementation of these new requirements could adversely affect the sourcing, availability and pricing of minerals used in the manufacture of semiconductor devices, including our products. In addition, we will incur additional costs to comply with the disclosure requirements, including costs related to determining the source of any of the relevant minerals and metals used in our products. Since our supply chain is complex, we may not be able to sufficiently verify the origins for these minerals and metals used in our products through the due diligence procedures that we implement, which may harm our reputation. In such event, we may also face difficulties in satisfying customers who require that all of the components of our products are certified as conflict mineral free.
We may acquire or divest businesses or enter into joint ventures or strategic alliances, which may materially affect our business, financial condition and operating results.
We continually evaluate our portfolio of businesses and may decide to buy or sell businesses or enter into joint ventures or other strategic alliances. We may be unable to successfully integrate acquired businesses with our existing businesses and successfully implement, improve and expand our systems, procedures and controls to accommodate these acquisitions. These transactions place additional constraints on our management and current labor force. Additionally, these transactions require significant resources from our legal, finance and business teams. In addition, we may divest existing businesses, which would cause a decline in revenue and may make our financial results more volatile. If we fail to integrate and manage acquired businesses successfully or to manage the risks associated with divestitures, joint ventures or other alliances, our business, financial condition and operating results may be materially and adversely affected.
The market price of our common shares and our earnings per share may decline as a result of any acquisitions or divestitures.
The market price of our common shares may decline as a result of any acquisitions or divestitures made by us if we do not achieve the perceived benefits of such acquisitions or divestitures as rapidly or to the extent anticipated by financial or industry analysts or if the effect on our financial results is not consistent with the expectations of financial or industry analysts. In addition, the failure to achieve expected benefits and unanticipated costs relating to our acquisitions could reduce our future earnings per share.
We may be unable to continue to compete successfully in the highly competitive semiconductor equipment and packaging materials industries.
The semiconductor equipment and packaging materials industries are very competitive. In the semiconductor equipment industry, significant competitive factors include performance, quality, customer support and price. In the semiconductor packaging materials industry, competitive factors include price, delivery and quality.
In each of our markets, we face competition and the threat of competition from established competitors and potential new entrants. In addition, established competitors may combine to form larger, better capitalized companies. Some of our competitors have or may have significantly greater financial, engineering, manufacturing and marketing resources. Some of these competitors are Asian and European companies that have had, and may continue to have, an advantage over us in supplying products to local customers who appear to prefer to purchase from local suppliers, without regard to other considerations.
We expect our competitors to improve their current products' performance, and to introduce new products and materials with improved price and performance characteristics. Our competitors may independently develop technology similar to or better than ours. New product and material introductions by our competitors or by new market entrants could hurt our sales. If a particular
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semiconductor manufacturer or subcontract assembler selects a competitor's product or materials for a particular assembly operation, we may not be able to sell products or materials to that manufacturer or assembler for a significant period of time. Manufacturers and assemblers sometimes develop lasting relationships with suppliers and assembly equipment providers in our industry and often go years without requiring replacement. In addition, we may have to lower our prices in response to price cuts by our competitors, which may materially and adversely affect our business, financial condition and operating results. If we cannot compete successfully, we could be forced to reduce prices and could lose customers and experience reduced margins and profitability.
Our success depends in part on our intellectual property, which we may be unable to protect.
Our success depends in part on our proprietary technology. To protect this technology, we rely principally on contractual restrictions (such as nondisclosure and confidentiality provisions) in our agreements with employees, subcontractors, vendors, consultants and customers and on the common law of trade secrets and proprietary “know-how.” We also rely, in some cases, on patent and copyright protection. We may not be successful in protecting our technology for a number of reasons, including the following:

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

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

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

In addition, our partners and alliances may have rights to technology developed by us. We may incur significant expense to protect or enforce our intellectual property rights. If we are unable to protect our intellectual property rights, our competitive position may be weakened.
Third parties may claim we are infringing on their intellectual property, which could cause us to incur significant litigation costs or other expenses, or prevent us from selling some of our products.
The semiconductor industry is characterized by rapid technological change, with frequent introductions of new products and technologies. Industry participants often develop products and features similar to those introduced by others, creating a risk that their products and processes may give rise to claims they infringe on the intellectual property of others. We may unknowingly infringe on the intellectual property rights of others and incur significant liability for that infringement. If we are found to have infringed on the intellectual property rights of others, we could be enjoined from continuing to manufacture, market or use the affected product, or be required to obtain a license to continue manufacturing or using the affected product. A license could be very expensive to obtain or may not be available at all. Similarly, changing or re-engineering our products or processes to avoid infringing the rights of others may be costly, impractical or time consuming.
Occasionally, third parties assert that we are, or may be, infringing on or misappropriating their intellectual property rights. In these cases, we defend, and will continue to defend, against claims or negotiate licenses where we consider these actions appropriate. Intellectual property cases are uncertain and involve complex legal and factual questions. If we become involved in this type of litigation, it could consume significant resources and divert our attention from our business.
We may be materially and adversely affected by environmental and safety laws and regulations.
We are subject to various federal, state, local and foreign laws and regulations governing, among other things, the generation, storage, use, emission, discharge, transportation and disposal of hazardous material, investigation and remediation of contaminated sites and the health and safety of our employees. Increasingly, public attention has focused on the environmental impact of manufacturing operations and the risk to neighbors of chemical releases from such operations.
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.
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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 75.3 million shares were outstanding as of September 28, 2013. We are also authorized to issue, without shareholder approval, securities convertible into either common shares or preferred shares.
Weaknesses in our internal controls and procedures could result in material misstatements in our financial statements.
Pursuant to the Sarbanes-Oxley Act, management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal controls over financial reporting are processes designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with U.S. generally accepted accounting principles. A material weakness is a control deficiency, or combination of control deficiencies, that results in a more than remote likelihood that a material misstatement of annual or interim financial statements will not be prevented or detected.
Our internal controls may not prevent all potential errors or fraud. Any control system, no matter how well designed and implemented, can only provide reasonable and not absolute assurance that the objectives of the control system will be achieved. We or our independent registered public accountants may identify material weaknesses in our internal controls which could adversely affect our ability to ensure proper financial reporting and could affect investor confidence in us and the price of our common shares.
We may be subject to disruptions or failures in our information technology systems and network infrastructures that could have a material adverse effect on us.
We maintain and rely extensively on information technology systems and network infrastructures for the effective operation of our business. We also hold large amounts of data in data center facilities around the world, primarily in Singapore and the U.S., which our business depends upon. A disruption, infiltration or failure of our information technology systems or any of our data centers as a result of software or hardware malfunctions, computer viruses, cyber-attacks, employee theft or misuse, power disruptions, natural disasters or accidents could cause breaches of data security and loss of critical data, which in turn could materially adversely affect our business. Our security procedures, such as virus protection software and our business continuity planning, such as our disaster recovery policies and back-up systems, may not be adequate or implemented properly to fully address the adverse effect of such events, which could adversely impact our operations. In addition, our business could be adversely affected to the extent we do not make the appropriate level of investment in our technology systems as our technology systems become out-of-date or obsolete and are not able to deliver the type of data integrity and reporting we need to run our business. Furthermore, when we implement new systems and or upgrade existing systems, we could be faced with temporary or prolonged disruptions that could adversely affect our business.
Other Risks
Our ability to recognize tax benefits on future domestic U.S. tax losses and our existing U.S. net operating loss position may be limited.
We have generated net operating loss carry-forwards and other tax attributes for U.S. tax purposes (“Tax Benefits”) that can be used to reduce our future federal income tax obligations. Under the Tax Reform Act of 1986, the potential future utilization of our Tax Benefits for U.S. tax purposes may be limited following an ownership change. An ownership change is generally defined as a greater than 50% point increase in equity ownership by 5% shareholders in any three-year period under Section 382 of the Internal Revenue Code. An ownership change may significantly limit our ability to fully utilize our net operating losses which could materially and adversely affect our financial condition and operating results. As of September 28, 2013, we have foreign net operating loss carryforwards of $80.6 million, domestic state net operating loss carryforwards of $200.2 million, and tax credit carryforwards of $1.6 million.
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Potential changes to U.S. and foreign tax laws could increase our income tax expense.
We are subject to income taxes in the U. S. and many foreign jurisdictions. There have been proposals to reform U.S. tax laws that would significantly impact how U.S. multinational corporations, such as us, are taxed on foreign earnings. It is unclear whether these proposed tax revisions will be enacted, or, if enacted, what the scope of the revisions will be. Changes in U.S. and foreign tax laws, if enacted, could materially and adversely affect our financial condition and operating results.
Anti-takeover provisions in our articles of incorporation and bylaws, and under Pennsylvania law may discourage other companies from attempting to acquire us.
Some provisions of our articles of incorporation and bylaws as well as Pennsylvania law may discourage some transactions where we would otherwise experience a fundamental change. For example, our articles of incorporation and bylaws contain provisions that:

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

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

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

Further, under the Pennsylvania Business Corporation Law, because our shareholders approved bylaw provisions that provide for a classified board of directors, shareholders may remove directors only for cause. These provisions and some other provisions of the Pennsylvania Business Corporation Law could delay, defer or prevent us from experiencing a fundamental change and may adversely affect our common shareholders' voting and other rights.
Terrorist attacks, or other acts of violence or war may affect the markets in which we operate and our profitability.
Terrorist attacks may negatively affect our operations. There can be no assurance that there will not be further terrorist attacks against the U.S. or U.S. businesses. Terrorist attacks or armed conflicts may directly impact our physical facilities or those of our suppliers or customers. Our primary facilities include administrative, sales and research and development facilities in Singapore and the U.S. and manufacturing and research and development facilities in China, and Israel. Additional terrorist attacks may disrupt the global insurance and reinsurance industries with the result that we may not be able to obtain insurance at historical terms and levels for all of our facilities. Furthermore, additional attacks may make travel and the transportation of our supplies and products more difficult and more expensive and ultimately affect the sales of our products in the U.S. and overseas. Additional attacks or any broader conflict, could negatively impact our domestic and international sales, our supply chain, our production capability and our ability to deliver products to our customers. Political and economic instability in some regions of the world could negatively impact our business. The consequences of terrorist attacks or armed conflicts are unpredictable, and we may not be able to foresee events that could have an adverse effect on our business.
Item 1B. UNRESOLVED STAFF COMMENTS
None.
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Item 2. PROPERTIES
The following table reflects our major facilities as of September 28, 2013:

Facility (1) |  | Approximate Size |  | Function |  | Business Segment and Products Manufactured |  | Lease Expiration Date
Singapore |  | 135,000 sq. ft. |  | Corporate headquarters, manufacturing, technology, sales and service center |  | Equipment: ball and wedge bonders |  | December 2013 (2)
Suzhou, China |  | 155,000 sq. ft. |  | Manufacturing and technology center |  | Expendable Tools: capillaries, dicing blades and bonding wedges |  | (3)
Fort Washington, Pennsylvania |  | 88,000 sq. ft. |  | Technology, sales and service center |  | Not applicable |  | September 2033 (4)
Santa Ana, California |  | 65,000 sq. ft. |  | Technology, sales and service center |  | Not applicable |  | August 2036 (5)
Yokneam, Israel |  | 21,000 sq. ft. |  | Manufacturing and technology center |  | Expendable Tools: capillary blanks (semi-finish) |  | January 2018 (6)
Damansara Uptown, Malaysia |  | 12,000 sq ft |  | Shared service, sales and service center |  | Not applicable |  | July 2017 (7)

(1) | Each of the facilities listed in this table is leased other than the facility in Suzhou, China - see (3) below.

(2) | The current lease is set to expire in December 2013, at which point the Company is planning to lease a new building from the same landlord, Mapletree Industrial Trust under the Agreement to Develop and Lease, as discussed in Item 7.

(3) | On July 11, 2012, the Company exercised the option to purchase the Suzhou building in accordance with the purchase option clause in the lease agreement that was in place at the time. On September 25, 2013, the Company completed the building purchase.

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

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

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

(7) | Includes lease extension periods at the Company's option. Initial lease expires in July 2015.

The Company owned a building in Berg, Switzerland of approximately 65,208 square feet that was used as a technology center. The building was sold on January 14, 2013.
In addition, the Company rents space for sales and service offices and administrative functions in Taiwan, China, Korea, Malaysia, the Philippines, Japan, Thailand, Germany and Switzerland. The Company believes the facilities are generally in good condition and suitable to the extent of utilization needed.

Item 3. | LEGAL PROCEEDINGS

From time to time, we may be a plaintiff or defendant in cases arising out of our business. We cannot be assured of the results of any pending or future litigation, but we do not believe resolution of these matters will materially or adversely affect our business, financial condition or operating results.
Item 4. MINE SAFETY DISCLOSURES
Not applicable.
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PART II

Item 5. | MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is traded on The Nasdaq Global Market (“Nasdaq”) under the symbol “KLIC.” The following table reflects the ranges of high and low sale prices for our common stock as reported on Nasdaq for the periods indicated:

| Fiscal 2013 |  | Fiscal 2012
| High |  | Low |  | High |  | Low
First Quarter | $ | 12.04 |  |  | $ | 9.41 |  |  | $ | 11.10 |  |  | $ | 6.71 |
Second Quarter | $ | 12.95 |  |  | $ | 10.58 |  |  | $ | 12.78 |  |  | $ | 9.32 |
Third Quarter | $ | 12.56 |  |  | $ | 10.08 |  |  | $ | 13.69 |  |  | $ | 8.30 |
Fourth Quarter | $ | 12.27 |  |  | $ | 10.91 |  |  | $ | 12.07 |  |  | $ | 8.05 |

On November 9, 2013, there were approximately 326 holders of record of the shares of outstanding common stock. The payment of dividends on our common stock is within the discretion of our board of directors; however, we have not historically paid any dividends on our common stock. In addition, we do not expect to declare dividends on our common stock in the near future, since we intend to retain earnings to finance our business.
For the purpose of calculating the aggregate market value of shares of our common stock held by non-affiliates, as shown on the cover page of this report, we have assumed all of our outstanding shares were held by non-affiliates except for shares held by our directors and executive officers. However, this does not necessarily mean that all directors and executive officers of the Company are, in fact, affiliates of the Company, or there are no other persons who may be deemed to be affiliates of the Company. Further information concerning the beneficial ownership of our executive officers, directors and principal shareholders will be included in our Proxy Statement for the 2014 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission on or about January 7, 2014.
Recent Sales of Unregistered Securities and Use of Proceeds
None.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
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Item 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following tables reflect selected historical consolidated financial data derived from the consolidated financial statements of Kulicke and Soffa Industries, Inc. and subsidiaries as of and for each of the five fiscal years ended 2013, 2012, 2011, 2010, and 2009.
As of October 4, 2009, we adopted Financial Accounting Standards Board, ASC No. 470.20, Debt, Debt With Conversion Options on a retrospective basis for all prior periods. Fiscal 2009 includes the assets of Orthodyne Electronics Corporation which were acquired on October 3, 2008.
This data should be read in conjunction with our consolidated financial statements, including notes and other financial information included elsewhere in this report or current reports on Form 8-K filed previously by us in respect of the fiscal years identified in the column headings of the tables below.

|  |  | Fiscal
(in thousands) | 2013 |  | 2012 |  | 2011 |  | 2010 |  | 2009
Statement of Operations Data: |  |  |  |  |  |  |  |  |
Net revenue: |  |  |  |  |  |  |  |  |
| Equipment | $ | 472,567 |  |  | $ | 727,082 |  |  | $ | 759,331 |  |  | $ | 691,988 |  |  | $ | 170,536 |
| Expendable Tools | 62,371 |  |  | 63,941 |  |  | 71,070 |  |  | 70,796 |  |  | 54,704 |
|  | Total net revenue | 534,938 |  |  | 791,023 |  |  | 830,401 |  |  | 762,784 |  |  | 225,240 |
Cost of sales: |  |  |  |  |  |  |  |  |
| Equipment | 261,270 |  |  | 397,210 |  |  | 412,914 |  |  | 399,042 |  |  | 111,103 |
| Expendable Tools | 26,723 |  |  | 26,423 |  |  | 29,578 |  |  | 28,069 |  |  | 25,294 |
|  | Total cost of sales | 287,993 |  |  | 423,633 |  |  | 442,492 |  |  | 427,111 |  |  | 136,397 |
Operating expenses: |  |  |  |  |  |  |  |  |
| Equipment | 158,306 |  |  | 164,081 |  |  | 189,631 |  |  | 155,625 |  |  | 135,465 |
| Expendable Tools | 22,833 |  |  | 24,083 |  |  | 28,218 |  |  | 32,013 |  |  | 24,193 |
| Impairment of goodwill: Equipment | — |  |  | — |  |  | — |  |  | — |  |  | 2,709 |
|  | Total operating expenses (1) | 181,139 |  |  | 188,164 |  |  | 217,849 |  |  | 187,638 |  |  | 162,367 |
Income (loss) from operations: |  |  |  |  |  |  |  |  |
| Equipment | 52,991 |  |  | 165,791 |  |  | 156,786 |  |  | 137,321 |  |  | (78,741 | )
| Expendable Tools | 12,815 |  |  | 13,435 |  |  | 13,274 |  |  | 10,714 |  |  | 5,217 |
Interest expense, net | 862 |  |  | (4,975 | ) |  | (7,632 | ) |  | (7,930 | ) |  | (7,082 | )
Gain on extinguishment of debt | — |  |  | — |  |  | — |  |  | — |  |  | 3,965 |
Income (loss) from continuing operations before income tax | 66,668 |  |  | 174,251 |  |  | 162,428 |  |  | 140,105 |  |  | (76,641 | )
Provision (benefit) for income taxes from continuing operations (2) | 7,310 |  |  | 13,671 |  |  | 34,818 |  |  | (2,037 | ) |  | (13,029 | )
Income (loss) from continuing operations | 59,358 |  |  | 160,580 |  |  | 127,610 |  |  | 142,142 |  |  | (63,612 | )
Income from discontinued operations, net of tax (3) | — |  |  | — |  |  | — |  |  | — |  |  | 22,011 |
Net income (loss) | $ | 59,358 |  |  | $ | 160,580 |  |  | $ | 127,610 |  |  | $ | 142,142 |  |  | $ | (41,601 | )

(1) | During fiscal 2013, 2012, 2011, 2010 and 2009, we recorded $1.9 million, $1.7 million, $2.5 million, $2.4 million and $7.4 million, respectively, in operating expense for restructuring-related severance.

During fiscal 2013, 2012, 2011, 2010, and 2009, we recorded $17.2 million, $22.0 million, $24.3 million, $17.4 million, and $2.7 million, respectively, in operating expense for incentive compensation.
(2) The following are the most significant factors that affected our provision for income taxes: implementation of our international restructuring plan in fiscal 2011 and 2010; volatility in our earnings each fiscal year and variation in earnings among various tax jurisdictions in which we operate; changes in assumptions regarding repatriation of earnings; changes in tax legislation;
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and our provision for various tax exposure items.

(3) | Reflects the operations of the Company's Wire business, which was sold in fiscal 2009.

|  | Fiscal
|  | 2013 |  | 2012 |  | 2011 |  | 2010 |  | 2009
Per Share Data: |  |  |  |  |  |  |  |  |  |
Income (loss) per share from continuing operations: (1) |  |  |  |  |  |  |  |  |  |
Basic |  | $ | 0.79 |  |  | $ | 2.17 |  |  | $ | 1.77 |  |  | $ | 2.01 |  |  | $ | (1.02 | )
Diluted |  | $ | 0.78 |  |  | $ | 2.13 |  |  | $ | 1.73 |  |  | $ | 1.92 |  |  | $ | (1.02 | )
Income per share from discontinued operations, net of tax: |  |  |  |  |  |  |  |  |  |
Basic |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 0.35 |
Diluted |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 0.35 |
Net income (loss) per share: (2) (3) |  |  |  |  |  |  |  |  |  |
Basic |  | $ | 0.79 |  |  | $ | 2.17 |  |  | $ | 1.77 |  |  | $ | 2.01 |  |  | $ | (0.67 | )
Diluted |  | $ | 0.78 |  |  | $ | 2.13 |  |  | $ | 1.73 |  |  | $ | 1.92 |  |  | $ | (0.67 | )
Weighted average shares outstanding: (2) (3) |  |  |  |  |  |  |  |  |  |
Basic |  | 75,132 |  |  | 73,887 |  |  | 71,820 |  |  | 70,012 |  |  | 62,188 |
Diluted |  | 76,190 |  |  | 75,502 |  |  | 73,341 |  |  | 73,548 |  |  | 62,188 |

(1) | For fiscal 2011 and 2010, $0.7 million and $1.5 million, respectively, of net income applicable to participating securities and the related participating securities were excluded from the computation of basic income per share.

(2) | For fiscal 2012, 2011 and 2010, the exercise of dilutive stock options and expected vesting of time-based and market-based restricted stock were included. Due to the Company's net loss from continuing operations for fiscal 2009, potentially dilutive shares were excluded since the effect would have been anti-dilutive.

(3) | For fiscal 2010, expected vesting of performance-based restricted stock and conversion of the 1% Convertible Subordinated Notes were included. For fiscal 2010, $0.3 million of after-tax interest expense related to our 1% Convertible Subordinated Notes was added to the Company's net income to determine diluted earnings per share.

| Fiscal
(in thousands) | 2013 |  | 2012 |  | 2011 |  | 2010 |  | 2009
Balance Sheet Data: |  |  |  |  |  |  |  |  |
Cash, cash equivalents, investments and restricted cash | $ | 525,040 |  |  | $ | 440,244 |  |  | $ | 384,552 |  |  | $ | 181,334 |  |  | $ | 144,841 |
Working capital excluding discontinued operations | 676,986 |  |  | 589,947 |  |  | 405,659 |  |  | 347,560 |  |  | 172,401 |
Total assets excluding discontinued operations | 862,994 |  |  | 815,609 |  |  | 728,391 |  |  | 580,169 |  |  | 412,635 |
Long-term debt and current portion of long-term debt | — |  |  | — |  |  | 105,224 |  |  | 98,475 |  |  | 92,217 |
Built-to-suit liability | 19,396 |  |  | — |  |  | — |  |  | — |  |  | — |
Shareholders' equity | $ | 716,665 |  |  | $ | 643,667 |  |  | $ | 469,877 |  |  | $ | 322,480 |  |  | $ | 170,803 |

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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, our future revenue, sustained, increasing, continuing or strengthening demand for our products, the continuing transition from gold to copper wire bonding, replacement demand, our research and development efforts, our ability to identify and realize new growth opportunities, our ability to control costs and our operational flexibility as a result of (among other factors):

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

• | projected demand for ball, wedge and for expendable tools.

Generally, words such as “may,” “will,” “should,” “could,” “anticipate,” “expect,” “intend,” “estimate,” “plan,” “continue,” “goal” and “believe,” or the negative of or other variations on these and other similar expressions identify forward-looking statements. These forward-looking statements are made only as of the date of this filing. We do not undertake to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise.
Forward-looking statements are based on current expectations and involve risks and uncertainties. Our future results could differ significantly from those expressed or implied by our forward-looking statements. These risks and uncertainties include, without limitation, those described below and under the heading “Risk Factors” within this Annual Report on Form 10-K for the fiscal year ended September 28, 2013 (the “Annual Report”) and our other reports and registration statements filed from time to time with the Securities and Exchange Commission. This discussion should be read in conjunction with the Consolidated Financial Statements and Notes included in this report, as well as our audited financial statements included in the Annual Report.
We operate in a rapidly changing and competitive environment. New risks emerge from time to time and it is not possible for us to predict all risks that may affect us. Future events and actual results, performance and achievements could differ materially from those set forth in, contemplated by or underlying the forward-looking statements, which speak only as of the date on which they were made. Except as required by law, we assume no obligation to update or revise any forward-looking statement to reflect actual results or changes in, or additions to, the factors affecting such forward-looking statements. Given those risks and uncertainties, investors should not place undue reliance on forward-looking statements as predictions of actual results.
Introduction
Kulicke and Soffa Industries, Inc. (the "Company" or "K&S") designs, manufactures and sells capital equipment and expendable tools used to assemble semiconductor devices, including integrated circuits (“ICs”), high and low powered discrete devices, light-emitting diodes (“LEDs”), and power modules. We also service, maintain, repair and upgrade our equipment. Our customers primarily consist of semiconductor device manufacturers, outsourced semiconductor assembly and test providers (“OSATs”), other electronics manufacturers and automotive electronics suppliers.
We operate two main business segments, Equipment and Expendable Tools. Our goal is to be the technology leader and the most competitive supplier in terms of cost and performance in each of our major product lines. Accordingly, we invest in research and engineering projects intended to enhance our position at the leading edge of semiconductor assembly technology. We also remain focused on our cost structure through continuing improvement and optimization of operation. Cost reduction efforts remain an important part of our normal ongoing operations and are expected to generate savings without compromising overall product quality and service levels.
Business Environment
The semiconductor business environment is highly volatile, driven by internal dynamics, both cyclical and seasonal, in addition to macroeconomic forces. Over the long term, semiconductor consumption has historically grown, and is forecast to continue to grow. This growth is driven, in part, by regular advances in device performance and by price declines that result from improvements in manufacturing technology. In order to exploit these trends, semiconductor manufacturers, both integrated device manufacturers (“IDMs”) and OSATs, periodically invest aggressively in latest generation capital equipment. This buying pattern often leads to periods of excess supply and reduced capital spending - the so called semiconductor cycle. Within this broad semiconductor cycle there are also, generally weaker, seasonal effects that are specifically tied to annual, end-consumer purchasing patterns. Typically, semiconductor manufacturers prepare for heightened demand by adding or replacing equipment capacity by the end of the September quarter. Occasionally, this results in subsequent reductions in the December quarter. This annual seasonality can occasionally be
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overshadowed by effects of the broader semiconductor cycle. Macroeconomic factors also affect the industry, primarily through their effect on business and consumer demand for electronic devices, as well as other products that have significant electronic content such as automobiles, white goods, and telecommunication equipment.
Our Equipment segment is primarily affected by the industry's internal cyclical and seasonal dynamics in addition to broader macroeconomic factors that positively and negatively affect our financial performance. The sales mix of IDM and OSAT customers in any period also impacts financial performance, as this mix can affect our products' average selling prices and gross margins due to differences in volume purchases and machine configurations required by each customer type.
Our Expendable Tools segment is less volatile than our Equipment segment. Expendable Tools sales are more directly tied to semiconductor unit consumption rather than capacity requirements and production capability improvements.
We continue to position our business to leverage our research and development leadership and innovation and to focus our efforts on mitigating volatility, improving profitability and ensuring longer-term growth. We remain focused on operational excellence, expanding our product offerings and managing our business efficiently throughout the business cycles. Our visibility into future demand is generally limited, forecasting is difficult, and we may experience typical industry seasonality.
To limit potential adverse cyclical, seasonal and macroeconomic effects on our financial position, we have de-leveraged and strengthened our balance sheet. In fiscal 2012, we fully repaid our 0.875% Convertible Subordinated Notes (the “Notes”) with cash in the principal amount of $110.0 million at maturity. As of September 28, 2013, our total cash, cash equivalents and investments were $525.0 million, a $84.8 million increase from the prior fiscal year end. We believe this strong cash position will allow us to continue to invest in product development and pursue organic and non-organic opportunities.
Technology Leadership
We compete largely by offering our customers among the most advanced equipment and expendable tools available for the wire and wedge bonding processes. Our equipment is typically the most productive and has the highest levels of process capability, and as a result, has a lower cost of ownership compared to other equipment in its market. Our expendable tools are designed to optimize the performance of the equipment in which they are used. We believe our technology leadership contributes to the leading market share positions of our various wire bonder and expendable tools products. To maintain our competitive advantage, we invest in product development activities designed to produce a stream of improvements to existing products and to deliver next-generation products. These investments often focus as much on improvements in the semiconductor assembly process as on specific pieces of assembly equipment or expendable tools. In order to generate these improvements, we often work in close collaboration with customers, end users, and other industry members. In addition to producing technical advances, these collaborative development efforts strengthen customer relationships and enhance our reputation as a technology leader and solutions provider.
In addition to gold, silver alloy wire and aluminum wire, our leadership in the industry's use of copper wire for the bonding process is an example of the benefits of our collaborative efforts. By working with customers, material suppliers, and other equipment suppliers, we have developed a series of robust, high-yielding production processes that have made copper wire commercially viable, significantly reducing the cost of assembling an integrated circuit. During fiscal 2010, many of our customers began converting their bonding wire from gold to copper wire, and we believe the conversion was accelerated by fabless companies in the consumer segment. Gradually, the level of confidence and the reliability of data collected have enabled a larger segment of the customer base to increase copper capabilities. Since this initial conversion, a majority of our wire bonder sales are copper capable bonders. We expect this conversion process to continue throughout the industry for the next several years. Based on our industry leading copper bonding processes and the continued high price of gold, we believe the demand for copper configured wire bonders is likely to remain robust.
Our leadership has allowed us to maintain a competitive position in the latest generations of gold and copper ball bonders, which enable our customers to handle the leading technologies in terms of Bond pad pitch, silicon with the latest node and complex wire bonding requirement. We continue to see demand for our large bondable area (“LA”) configured machines. This LA option is now available on all of our Power Series (“PS”) models and allows our customers to gain added efficiencies and to reduce the cost of packaging.
We also leverage the technology leadership of our equipment by optimizing our bonder platforms, and we deliver variants of our products to serve emerging high-growth markets. For example, we have developed extensions of our main ball bonding platforms to address opportunities in LED assembly, for general lighting in particular. We expect the next wave of growth in the LED market to be high brightness LED for general lighting. We also see an opportunity in wire bonding at wafer level using our ATPremier Plus.
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Furthermore, we gain synergies by leveraging technologies between our unique platforms. Our leading technology for wedge bonder equipment uses aluminum ribbon or heavy wire as opposed to fine gold and fine copper wire used in ball bonders. In March 2013, we launched a new line of high performance wedge bonder products, PowerFusion PS. The advanced interconnect capabilities of PowerFusion PS improve the processing of high-density power packages, due to an expanded bondable area, wider leadframe capability, superior indexing accuracy and teach mode. We also intend to initiate design of our next power module wedge bonder. In both cases, we are making a concerted effort to develop commonality of subsystems and design practices, in order to improve performance and design efficiencies. We believe this will benefit us in maintaining our leadership position in the wedge bonding market and increase synergies between the various engineering product groups. Furthermore, we continually research adjacent market segments where our technologies could be used. Many of these initiatives are in the early stages of development and may become business opportunities in the future.
Another example of our developing equipment for high-growth niche markets is our ATPremier Plus. This machine utilizes a modified wire bonding process to mechanically place bumps on devices in a wafer format, for variants of the flip chip assembly process. Typical applications include complementary metal-oxide semiconductor (“CMOS”) image sensors, surface acoustical wave (“SAW”) filters and high brightness LEDs. These applications are commonly used in most, if not all, smartphones available today in the market. We also expanded the use of ATPremier Plus for wafer level wire bonding for micro-electro-mechanical systems (“MEMS”) and other sensors.
Our technology leadership and bonding process know-how are enabling us to develop highly function-specific equipment with best-in-class throughput and accuracy. This forms the foundation for our advanced packaging equipment development. We have established a development team to develop advanced packaging bonders for the emerging three-dimensional integrated circuit (“3DIC”) market. 3DIC saves space and reduces form factor by stacking separate chips in a single package. It also improves performance while reducing power consumption. Mobile devices such as smartphones and tablets are the main drivers of this market.
We bring the same technology focus to our expendable tools business, driving tool design and manufacturing technology to optimize the performance and process capability of the equipment in which our tools are used. For all our equipment products, expendable tools are an integral part of their process capability. We believe our unique ability to simultaneously develop both equipment and tools is a core strength supporting our products' technological differentiation.
Products and Services
We supply a range of bonding equipment and expendable tools. The following tables reflect net revenue by business segment for fiscal 2013, 2012, and 2011:

|  | Fiscal
|  | 2013 |  | 2012 |  | 2011
(dollar amounts in thousands) |  | Net revenues |  | % of total net revenue |  | Net revenues |  | % of total net revenue |  | Net revenues |  | % of total net revenue
Equipment |  | $ | 472,567 |  |  | 88.3 | % |  | $ | 727,082 |  |  | 91.9 | % |  | $ | 759,331 |  |  | 91.4 | %
Expendable Tools |  | 62,371 |  |  | 11.7 | % |  | 63,941 |  |  | 8.1 | % |  | 71,070 |  |  | 8.6 | %
|  | $ | 534,938 |  |  | 100.0 | % |  | $ | 791,023 |  |  | 100.0 | % |  | $ | 830,401 |  |  | 100.0 | %

See Note 11 to our Consolidated Financial Statements included in Item 8 of this report for our financial results by business segment.
Equipment Segment
We manufacture and sell a line of ball bonders, heavy wire wedge bonders and wafer level bonders that are sold to semiconductor device manufacturers, OSATs, other electronics manufacturers and automotive electronics suppliers. Ball bonders are used to connect very fine wires, typically made of gold or copper, between the bond pads of the semiconductor device, or die, and the leads on its package. Heavy wire wedge bonders use either aluminum wire or ribbon to perform the same function in packages that cannot use gold or copper wire because of either high electrical current requirements or other package reliability issues. Wafer level bonders mechanically apply bumps to die, typically while still in the wafer format, for some variants of the flip chip assembly process. We believe our equipment offers competitive advantages by providing customers with high productivity/throughput, superior package quality/process control, and as a result, a lower cost of ownership.
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Our principal Equipment segment products include:

Business Unit |  | Product Name (1) |  | Typical Served Market
Ball bonders |  | IConn PS |  | Advanced and ultra fine pitch applications
|  | IConn PS ProCu |  | High-end copper wire applications demanding advanced process capability and high productivity
|  | IConn PS ProCu Plus |  | High-end copper wire applications demanding advanced process capability and high productivity
|  | IConn PS ProCu LA |  | Large area substrate and matrix applications for copper wire
|  | IConn PS ProCu Plus LA |  | Large area substrate and matrix applications for copper wire
|  | IConn PS LA |  | Large area substrate and matrix applications
|  | ConnX PS Plus |  | High productivity bonder for low-to-medium pin count applications
|  | ConnX PS LED |  | LED applications
|  | ConnX PS VLED |  | Vertical LED applications
|  | ConnX PS Plus LA |  | Cost performance large area substrate and matrix applications
|  | AT Premier Plus |  | Advanced wafer level bonding application
Wedge bonders |  | 3600Plus |  | Power hybrid and automotive modules using either heavy aluminum wire or PowerRibbon®
|  | 3700Plus |  | Hybrid and automotive modules using thin aluminum wire
|  | 7200Plus |  | Power semiconductors using either aluminum wire or PowerRibbon®
|  | 7200HD |  | Smaller power packages using either aluminum wire or PowerRibbon®
|  | PowerFusion PS TL |  | Power semiconductors using either aluminum wire or PowerRibbon®
|  | PowerFusion PS HL |  | Smaller power packages using either aluminum wire or PowerRibbon®

(1) Power Series (“PS”)
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Ball Bonders
Automatic ball bonders represent the largest portion of our semiconductor equipment business. Our main product platform for ball bonding is the Power Series - a family of assembly equipment that is setting new standards for performance, productivity, upgradeability, and ease of use. Our Power Series consists of our IConn PS high-performance ball bonders and our ConnX PS cost-performance ball bonders, both of which can be configured for either gold or copper wire. In addition, targeted specifically at the fast growing LED market, the Power Series includes our ConnX PS LED and our ConnX PS VLED. Targeted for large bondable area applications, the Power Series includes our IConn PS LA and ConnX PS LA. In August 2013, we introduced our next generation IConn PS ProCu Plus and IConn PS ProCu Plus LA, which further improved wire bonding production capability for advanced wafer nodes at 28 nanometer and below.

• | Our Power Series products are setting new standards in wire bonding.

• | Our ball bonders are capable of bonding advanced devices with very fine pitch, creating complex loop shapes needed in the assembly of advanced semiconductor packages as well as bonding on the latest 28 nanometer silicon node.

• | Our installed base of gold wire ball bonders can also be retrofitted for copper wire applications with kits, which we sell separately.

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

Heavy Wire Wedge Bonders
We are the leaders in the design and manufacture of heavy wire wedge bonders for the power semiconductor and automotive power module markets. Heavy wire wedge bonders may use either aluminum wire or aluminum ribbon to connect semiconductor chips in power packages, power hybrids and automotive modules for products such as motor control modules or inverters for hybrid cars. In addition, we see some potential use for our wedge bonder products in select solar applications.
Our portfolio of wedge bonding products includes:

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

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

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

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

While wedge bonding traditionally utilizes aluminum wire, all of our heavy wire wedge bonders are also available to be modified to bond aluminum ribbon using our proprietary PowerRibbon® process. Aluminum ribbon offers device makers performance advantages over traditional round wire and is being increasingly used for high current packages and automotive applications.
In March 2013, we introduced PowerFusion PS, which is driven by new powerful direct-drive motion systems and expanded pattern recognition capabilities. The advanced interconnect capabilities of PowerFusion PS improves the processing of high-density power packages, due to an expanded bondable area, wider leadframe capability and superior indexing accuracy and teach mode.
Other Equipment Products and Services
We also sell manual wire bonders, and we offer spare parts, equipment repair, training services, and upgrades for our equipment through our Support Services business unit. In September 2012, we introduced a next-generation manual wire bonder series for use with gold, copper or aluminum wire.
In March 2013, we introduced K&S Care, a new professional service, designed to help customers operate their machines at an optimum level under the care our trained specialists. K&S Care includes a range of programs, offering different levels of service depending on customer needs.
Expendable Tools Segment
We manufacture and sell a variety of expendable tools for a broad range of semiconductor packaging applications. Our principal Expendable Tools segment products include:

• | Capillaries: expendable tools used in ball bonders. Made of ceramic and other elements, a capillary guides the wire during the ball bonding process. Its features help control the bonding process. We design and build capillaries suitable for a broad

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range of applications, including for use on our competitors' equipment. In addition to capillaries used for gold wire bonding, we have developed capillaries for use with copper wire to achieve optimal performance in copper wire bonding.

• | Bonding wedges: expendable tools used in heavy wire wedge bonders. Like capillaries, their specific features are tailored to specific applications. We design and build bonding wedges for use both in our own equipment and in our competitors' equipment.

• | Dicing blades: expendable tools used by semiconductor manufacturers to cut silicon wafers into individual semiconductor die and to cut semiconductor devices that have been moulded in a matrix configuration into individual units.

In March 2013, we introduced the Opto ceramic and Opto PCB package singulation blades for the LED market. The blades enable an improvement on package singulation quality, precision and productivity by providing a significantly longer life blade, and improved stability.
In August 2013, we introduced ACS Pro Capillary, which is a new generation of copper capillary for advanced copper wire bonding applications.
Critical Accounting Policies
The preparation of consolidated financial statements requires us to make assumptions, estimates and judgments that affect the reported amounts of assets and liabilities, net revenue and expenses during the reporting periods, and disclosures of contingent assets and liabilities as of the date of the consolidated financial statements. On an on-going basis, we evaluate estimates, including but not limited to, those related to accounts receivable, reserves for excess and obsolete inventory, carrying value and lives of fixed assets, goodwill and intangible assets, valuation allowances for deferred tax assets and deferred tax liabilities, tax provisions, repatriation of un-remitted foreign subsidiary earnings, equity-based compensation expense, restructuring, 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. Actual results may differ from these estimates under different assumptions or conditions.
We believe the following critical accounting policies, which have been reviewed with the Audit Committee of our Board of Directors, affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.
Revenue Recognition
In accordance with ASC No. 605, Revenue Recognition, we recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable, the collectability is reasonably assured, and equipment installation obligations have been completed and customer acceptance, when applicable, has been received or otherwise released from installation or customer acceptance obligations. If terms of the sale provide for a customer acceptance period, revenue is recognized upon the expiration of the acceptance period or customer acceptance, whichever occurs first. Our standard terms are ex works (our factory), with title transferring to our customer at our loading dock or upon embarkation. We have a small percentage of sales with other terms, and revenue is recognized in accordance with the terms of the related customer purchase order. Revenue related to services is recognized upon performance of the services requested by a customer order. Revenue for extended maintenance service contracts with a term more than one month is recognized on a prorated straight-line basis over the term of the contract.
Our business is subject to contingencies related to customer orders as follows:

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

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

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

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Shipping and handling costs billed to customers are recognized in net revenue. Shipping and handling costs paid by us are included in cost of sales.
Allowance for Doubtful Accounts
We maintain allowances for doubtful accounts for estimated losses resulting from our customers' failure to make required payments. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. We are subject to concentrations of customers and sales to concentrated geographic locations, which could also impact the collectability of certain receivables. If global economic conditions deteriorate or political conditions were to change in some of the countries where we do business, it could have a significant impact on our results of operations, and our ability to realize the full value of our accounts receivable.
Inventories
Inventories are stated at the lower of cost (on a first-in first-out basis) or market value. We generally provide reserves for obsolete inventory and for inventory considered to be in excess of demand. Demand is generally defined as 18 months future consumption for equipment, 24 months consumption for all spare parts, and 12 months consumption for expendable tools. Forecasted demand is based upon internal projections, historical sales volumes, customer order activity and a review of consumable inventory levels at customers' facilities. We communicate forecasts of our future demand to our suppliers and adjust commitments to those suppliers accordingly. If required, we reserve the difference between the carrying value of our inventory and the lower of cost or market value, based upon assumptions about future demand, and market conditions. If actual market conditions are less favorable than projections, additional inventory reserves may be required.
Accounting for Impairment of Goodwill
The Company operates two reportable segments: Equipment and Expendable Tools. Goodwill was recorded in 2009 for the acquisition of Orthodyne Electronics Inc., which added wedge bonder products to the Equipment business.
Accounting Standard Update 2011-08, Testing Goodwill for Impairment provides companies with the option to assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If, after assessing the qualitative factors, a company determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying value, then performing the two-step impairment test is unnecessary. However, if a company concludes otherwise, then it is required to perform the first step of the two-step goodwill impairment test. If the carrying value of a reporting unit exceeds its fair value, then a company is required to perform the second step of the two-step goodwill impairment test.
We chose to skip the qualitative assessment and proceed directly to performing the quantitative evaluation of the fair value of the goodwill of the reporting unit, to compare against the carrying value of the goodwill recorded in the books. If the fair value exceeds the carrying value, there is no impairment. Any excess carrying value is equal to the goodwill impairment charge.
As part of the annual evaluation of the goodwill, we perform an impairment test of our goodwill in the fourth quarter of each fiscal year to coincide with the completion of our annual forecasting process and refreshing of our business outlook processes. On an ongoing basis, we monitor whether a "triggering" event has occurred that may have the effect of reducing the fair value of a reporting unit below its respective carrying value. Adverse changes in expected operating results and/or unfavorable changes in other economic factors used to estimate fair values could result in a non-cash impairment charge in the future.
Impairment assessments inherently involve judgment as to assumptions about expected future cash flows and the impact of market conditions on those assumptions. Future events and changing market conditions may impact our assumptions as to prices, costs, growth rates or other factors that may result in changes in our estimates of future cash flows. Although we believe the assumptions we have used in testing for impairment are reasonable, significant changes in any one of our assumptions could produce a significantly different result. Indicators of potential impairment may lead us to perform interim goodwill impairment assessments, including significant and unforeseen customer losses, a significant adverse change in legal factors or in the business climate, a significant adverse action or assessment by a regulator, a significant stock price decline or unanticipated competition.
For further information on goodwill and other intangible assets, see Note 3 of Item 8.
Income Taxes
In accordance with ASC No. 740, Income Taxes, deferred income taxes are determined using the liability method. We record a valuation allowance to reduce our deferred tax assets to the amount we expect is more likely than not to be realized. While we have considered future taxable income and our ongoing tax planning strategies in assessing the need for the valuation allowance, if we were to determine that we would be able to realize our deferred tax assets in the future in excess of our net recorded amount, an adjustment to the deferred tax asset would increase income in the period such determination was made. Likewise, should we
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determine that we would not be able to realize all or part of our net deferred tax assets in the future, an adjustment to the deferred tax asset would decrease income in the period such determination was made.
In accordance with ASC No. 740 Topic 10, Income Taxes, General (“ASC 740.10”), we account for uncertain tax positions taken or expected to be taken in the Company's income tax return. Under ASC 740.10, we utilize a two-step approach for evaluating uncertain tax positions. Step one, or recognition, requires us to determine if the weight of available evidence indicates a tax position is more likely than not to be sustained upon audit, including resolution of related appeals or litigation processes, if any. Step two, or measurement, is based on the largest amount of benefit, which is more likely than not to be realized on settlement with the taxing authority.
Equity-Based Compensation
We account for equity-based compensation under the provisions of ASC No. 718, Compensation, Stock Compensation (“ASC 718”). ASC 718 requires the recognition of the fair value of equity-based compensation in net income. Compensation expense associated with market-based restricted stock is determined using a Monte-Carlo valuation model, and compensation expense associated with time-based and performance-based restricted stock is determined based on the number of shares granted and the fair value on the date of grant. The fair value of our stock option awards are estimated using a Black-Scholes option valuation model.
The calculation of equity-based compensation costs requires us to estimate the number of awards that will be forfeited during the vesting period. We have estimated forfeitures at the time of grant based upon historical experience, and review the forfeiture rates periodically and make adjustments as necessary. In addition, the fair value of equity-based awards is amortized over the vesting period of the award and we have elected to use the straight-line method for awards granted after the adoption of ASC 718. In general, equity-based awards vest annually over a three year period. Our performance-based restricted stock entitles the employee to receive common shares of the Company on the three-year anniversary of the grant date (if employed by the Company) if return on invested capital and revenue growth targets set by the Management Development and Compensation Committee of the Board of Directors on the date of grant are met. If return on invested capital and revenue growth targets are not met, performance-based restricted stock does not vest. Estimated attainment percentages and the corresponding equity-based compensation expense reported may vary from period to period.
RECENT ACCOUNTING PRONOUNCEMENTS
See Note 1 to the 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 2013 and 2012
The following table reflects our income from operations for fiscal 2013 and 2012:

|  | Fiscal |  |  |  |
(dollar amounts in thousands) |  | 2013 |  | 2012 |  | $ Change |  | % Change
Net revenue |  | $ | 534,938 |  |  | $ | 791,023 |  |  | $ | (256,085 | ) |  | (32.4 | )%
Cost of sales |  | 287,993 |  |  | 423,633 |  |  | (135,640 | ) |  | (32.0 | )%
Gross profit |  | 246,945 |  |  | 367,390 |  |  | (120,445 | ) |  | (32.8 | )%
Selling, general and administrative |  | 119,519 |  |  | 124,718 |  |  | (5,199 | ) |  | (4.2 | )%
Research and development |  | 61,620 |  |  | 63,446 |  |  | (1,826 | ) |  | (2.9 | )%
Operating expenses |  | 181,139 |  |  | 188,164 |  |  | (7,025 | ) |  | (3.7 | )%
Income from operations |  | $ | 65,806 |  |  | $ | 179,226 |  |  | $ | (113,420 | ) |  | (63.3 | )%

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Bookings and Backlog
A booking is recorded when a customer order is reviewed and it is determined that all specifications can be met, production (or service) can be scheduled, a delivery date can be set, and the customer meets our credit requirements. Our backlog consists of customer orders scheduled for shipment within the next twelve months. A majority of our orders are subject to cancellation or deferral by our customers with limited or no penalties. Also, customer demand for our products can vary dramatically without prior notice. Because of the volatility of customer demand, possibility of customer changes in delivery schedules or cancellations and potential delays in product shipments, our backlog as of any particular date may not be indicative of net revenue for any succeeding period.
The following tables reflect our bookings and backlog for fiscal 2013 and 2012:

| Fiscal
(in thousands) | 2013 |  | 2012
Bookings | $ | 497,335 |  |  | $ | 778,000 |
| As of
(in thousands) | September 28, 2013 |  |  | September 29, 2012 |
Backlog | $ | 52,100 |  |  | $ | 90,000 |

Our net revenues for fiscal 2013 decreased significantly as compared to our net revenues for fiscal 2012 due to reduced customer demand. The semiconductor industry is volatile and our operating results have fluctuated significantly in the past. Customer demand for our products could continue to remain weak and lead to a decline in our net revenues. If there is a significant slowdown of transition from gold to copper wire bonding by our customers, then our net revenues may continue to decline.
Net Revenue
Approximately 97.3% and 98.3% of our net revenue for fiscal 2013 and 2012, respectively, was for shipments to customer locations outside of the U.S., primarily in the Asia/Pacific region, and we expect sales outside of the U.S. to continue to represent a substantial majority of our future revenue.
The following table reflects net revenue by business segment for fiscal 2013 and 2012:

|  | Fiscal |  |  |  |
(dollar amounts in thousands) |  | 2013 |  | 2012 |  | $ Change |  | % Change
Equipment |  | $ | 472,567 |  |  | $ | 727,082 |  |  | $ | (254,515 | ) |  | (35.0 | )%
Expendable Tools |  | 62,371 |  |  | 63,941 |  |  | (1,570 | ) |  | (2.5 | )%
Total net revenue |  | $ | 534,938 |  |  | $ | 791,023 |  |  | $ | (256,085 | ) |  | (32.4 | )%

Equipment
The following table reflects the components of Equipment net revenue change between fiscal 2013 and 2012:

|  | Fiscal 2013 vs. 2012
(in thousands) |  | Price |  | Volume |  | $ Change
Equipment |  | $ | (10,255 | ) |  | $ | (244,260 | ) |  | $ | (254,515 | )

For fiscal 2013, the lower Equipment net revenue as compared to fiscal 2012 was due primarily to the lower volume from our ball bonders and heavy wire wedge bonders. The volume reduction in ball bonders and heavy wire wedge bonders was mainly attributable to the lower demand in the market due to uncertainties around technology migration and the weakness in the discrete market. In addition to lower volume, pricing on our ball bonders was also lower due to change in customer and product mix.
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Expendable Tools
The following table reflects the components of Expendable Tools net revenue change between fiscal 2013 and 2012:

|  | Fiscal 2013 vs. 2012
(in thousands) |  | Price |  | Volume |  | $ Change
Expendable Tools |  | $ | 1,176 |  |  | $ | (2,746 | ) |  | $ | (1,570 | )

For fiscal 2013, the Expendable Tools net revenue decreased 2.5% as compared to the prior year. This was due primarily to the volume decrease in both our wire bonding tools business and wedge bonder tools businesses as a result of the lower demand in the market due to uncertainties around technology migration and the weakness in the discrete market. The lower volume was partially offset by favorable selling prices due to change in product mix.
Gross Profit
The following table reflects gross profit by business segment for fiscal 2013 and 2012:

|  | Fiscal |  |  |  |
(dollar amounts in thousands) |  | 2013 |  | 2012 |  | $ Change |  | % Change
Equipment |  | $ | 211,297 |  |  | $ | 329,872 |  |  | $ | (118,575 | ) |  | (35.9 | )%
Expendable Tools |  | 35,648 |  |  | 37,518 |  |  | (1,870 | ) |  | (5.0 | )%
Total gross profit |  | $ | 246,945 |  |  | $ | 367,390 |  |  | $ | (120,445 | ) |  | (32.8 | )%

The following table reflects gross profit as a percentage of net revenue by business segment for fiscal 2013 and 2012:

|  | Fiscal |  | Basis Point
|  | 2013 |  | 2012 |  | Change
Equipment |  | 44.7 | % |  | 45.4 | % |  | (70 | )
Expendable Tools |  | 57.2 | % |  | 58.7 | % |  | (150 | )
Total gross margin |  | 46.2 | % |  | 46.4 | % |  | (20 | )

Equipment
The following table reflects the components of Equipment gross profit change between fiscal 2013 and 2012:

|  | Fiscal 2013 vs. 2012
(in thousands) |  | Price |  | Cost |  | Volume |  | $ Change
Equipment |  | $ | (10,255 | ) |  | $ | 10,631 |  |  | $ | (118,951 | ) |  | $ | (118,575 | )

For fiscal 2013, the lower Equipment gross profit as compared to fiscal 2012 was due primarily to the lower volume from our ball bonders and heavy wire wedge bonders. The volume reduction in ball bonders and heavy wire wedge bonders was mainly attributable to lower demand in the market due to uncertainties around technology migration and the weakness in the discrete market. In addition to volume, pricing on our ball bonders was lower due to changes in customer and product mix.
The lower volume and less favorable pricing were offset partially by lower costs for our die bonders and heavy wire wedge bonders as compared to fiscal 2012. The manufacturing costs were lower due to the continued consolidation of our production facilities and die bonder costs were lower due to sales of certain die bonders that were previously reserved, which resulted in lower costs of goods sold. In addition, in 2012, we recorded a reserve for inventory relating to heavy wire wedge bonders legacy spares.
Expendable Tools
The following table reflects the components of Expendable Tools gross profit change between fiscal 2013 and 2012:

|  | Fiscal 2013 vs. 2012
(in thousands) |  | Price |  | Cost |  | Volume |  | $ Change
Expendable Tools |  | $ | 1,176 |  |  | $ | (1,317 | ) |  | $ | (1,729 | ) |  | $ | (1,870 | )

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For fiscal 2013, Expendable Tools gross profit decreased 5.0% as compared to the prior year was due primarily to lower volume in both our wire bonding tools business and wedge bonder tools business. The lower volume resulted in increased manufacturing costs due to lower absorption of the fixed manufacturing costs.
Operating Expenses
The following table reflects operating expenses as a percentage of net revenue for fiscal 2013 and 2012:

|  | Fiscal |  | Basis point
|  | 2013 |  | 2012 |  | change
Selling, general & administrative |  | 22.3 | % |  | 15.8 | % |  | 650
Research & development |  | 11.5 | % |  | 8.0 | % |  | 350
Total |  | 33.9 | % |  | 23.8 | % |  | 1,010

Selling, General and Administrative (“SG&A”)
SG&A decreased by $5.2 million during fiscal 2013 as compared to fiscal 2012, in which we experienced a $1.6 million gain in foreign exchange rates due to the strengthening of foreign currencies against the U.S. dollar and we recorded a favorable change in the accounts receivable reserve of $0.9 million as we were able to collect outstanding balances from customers that were previously reserved. In the twelve months ended September 28, 2013, sales commissions and incentive compensation decreased by $6.7 million driven by lower net revenue for the current fiscal year. We also experienced a favorable variance of $2.6 million for severance expenses relating to the our continued consolidation of our operations and a gain of $0.4 million relating to the curtailment of our Swiss pension plan. Offsetting this was a loss of $1.9 million in foreign exchange rates due to the strengthening of the U.S. dollar against foreign currencies.
Research and Development (“R&D”)
R&D expense decreased $1.8 million during fiscal 2013 as compared to fiscal 2012 due primarily to a $0.9 million reduction in staff costs as a result of consolidation and reduction of headcount to further streamline our R&D technology centers and release of a reserve of $0.8 million for a Research Incentive Scheme for Companies (“RISC”) grant relating to product development activities. The RISC grant reserve was released after receiving confirmation of the grant from the Economic Development Board, Singapore.
Income from Operations
For fiscal 2013, total income from operations was lower by $113.4 million. This was due primarily to lower revenue and margin for equipment sales as explained above.
Interest Income and Expense
The following table reflects interest income and interest expense for fiscal 2013 and 2012:

|  | Fiscal |  |  |  |
(dollar amounts in thousands) |  | 2013 |  | 2012 |  | $ Change |  | % Change
Interest income |  | $ | 883 |  |  | $ | 833 |  |  | $ | 50 |  |  | 6.0 | %
Interest expense: cash |  | $ | (21 | ) |  | $ | (633 | ) |  | $ | 612 |  |  | (96.7 | )%
Interest expense: non-cash |  | $ | — |  |  | $ | (5,175 | ) |  | $ | 5,175 |  |  | (100.0 | )%

The non-cash interest expense for fiscal 2012 was attributable to the amortization of the debt discount relating to the Notes, which matured on June 1, 2012. We repaid the entire principal balance of the Notes in cash in fiscal 2012. See Note 6 of Item 1 for additional details.
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Provision for Income Taxes
The following table reflects the provision for income taxes and the effective tax rate for fiscal 2013 and 2012:

|  | Fiscal
(in thousands) |  | 2013 |  | 2012
Income from operations before income taxes |  | $ | 66,668 |  |  | $ | 174,251 |
Provision for income taxes |  | 7,310 |  |  | 13,671 |
Net income |  | $ | 59,358 |  |  | $ | 160,580 |
Effective tax rate |  | 11.0 | % |  | 7.8 | %

For fiscal 2013, the effective income tax rate increased from fiscal 2012 by 3.2% due primarily to a shift in foreign earnings to tax jurisdictions with higher effective tax rates, certain changes in estimates that were recorded upon filing tax returns in foreign jurisdictions and the recording of a valuation allowance against certain deferred tax assets in foreign jurisdictions.
For fiscal 2012, the effective income tax rate differed from the federal statutory rate due primarily to tax from foreign operations at a lower effective tax rate than the U.S. statutory rate and the impact of tax holidays, offset by an increase for deferred taxes on un-remitted earnings as well as other U.S. current and deferred taxes. In addition, during the fourth quarter of fiscal 2012, we reached a favorable settlement with the tax authorities of a foreign jurisdiction and we reversed an accrual for an uncertain tax position of $7.5 million, recording it as an income tax benefit. This benefit was offset by additional taxes due to deemed distributions from certain foreign subsidiaries.
Our future effective tax rate would be affected if earnings were lower than anticipated in countries where we have lower statutory rates and higher than anticipated in countries where we have higher statutory rates, by changes in the valuation of our deferred tax assets and liabilities, or by changes in tax laws, regulations, accounting principles, or interpretations thereof. We regularly assess the effects resulting from these factors to determine the adequacy of our provision for income taxes.
Results of Operations for fiscal 2012 and 2011
The following table reflects our income from operations for fiscal 2012 and 2011:

|  | Fiscal |  |  |  |
(dollar amounts in thousands) |  | 2012 |  | 2011 |  | $ Change |  | % Change
Net revenue |  | $ | 791,023 |  |  | $ | 830,401 |  |  | $ | (39,378 | ) |  | (4.7 | )%
Cost of sales |  | 423,633 |  |  | 442,492 |  |  | (18,859 | ) |  | (4.3 | )%
Gross profit |  | 367,390 |  |  | 387,909 |  |  | (20,519 | ) |  | (5.3 | )%
Selling, general and administrative |  | 124,718 |  |  | 152,714 |  |  | (27,996 | ) |  | (18.3 | )%
Research and development |  | 63,446 |  |  | 65,135 |  |  | (1,689 | ) |  | (2.6 | )%
Operating expenses |  | 188,164 |  |  | 217,849 |  |  | (29,685 | ) |  | (13.6 | )%
Income from operations |  | $ | 179,226 |  |  | $ | 170,060 |  |  | $ | 9,166 |  |  | 5.4 | %

Bookings and Backlog
A booking is recorded when a customer order is reviewed and it is determined that all specifications can be met, production (or service) can be scheduled, a delivery date can be set, and the customer meets our credit requirements. Our backlog consists of customer orders scheduled for shipment within the next twelve months. A majority of our orders are subject to cancellation or deferral by our customers with limited or no penalties. Also, customer demand for our products can vary dramatically without prior notice. Because of the volatility of customer demand, possibility of customer changes in delivery schedules or cancellations and potential delays in product shipments, our backlog as of any particular date may not be indicative of net revenue for any succeeding period.
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The following tables reflect our bookings and backlog for fiscal 2012 and 2011:

|  | Fiscal
(in thousands) |  | 2012 |  | 2011
Bookings |  | $ | 778,000 |  |  | $ | 681,000 |
|  | As of
(in thousands) |  | September 29, 2012 |  | October 1, 2011
Backlog |  | $ | 90,000 |  |  | $ | 103,000 |

Net Revenue
Approximately 98.3% and 97.8% of our net revenue for fiscal 2012 and 2011, respectively, was for shipments to customer locations outside of the U.S., primarily in the Asia/Pacific region.
The following table reflects net revenue by business segment for fiscal 2012 and 2011:

|  | Fiscal |  |  |  |
(dollar amounts in thousands) |  | 2012 |  | 2011 |  | $ Change |  | % Change
Equipment |  | $ | 727,082 |  |  | $ | 759,331 |  |  | $ | (32,249 | ) |  | (4.2 | )%
Expendable Tools |  | 63,941 |  |  | 71,070 |  |  | (7,129 | ) |  | (10.0 | )%
Total net revenue |  | $ | 791,023 |  |  | $ | 830,401 |  |  | $ | (39,378 | ) |  | (4.7 | )%

Equipment
The following table reflects the components of Equipment net revenue change between fiscal 2012 and 2011:

|  | Fiscal 2012 vs. 2011
(in thousands) |  | Price |  | Volume |  | $ Change
Equipment |  | $ | (14,492 | ) |  | $ | (17,757 | ) |  | $ | (32,249 | )

For fiscal 2012, the lower equipment net revenue as compared to the prior year period was due primarily to the lower volume from our wedge bonders and less favorable pricing for our ball bonders.
The volume reduction in wedge bonders was attributable mainly to decreased demand from our key markets: power semiconductor, automotive power modules and industrial power hybrids. Slowing demand from the end users of our customers' devices resulted in our customers cutting back their production, reducing their need for new equipment. This volume reduction was partially offset by higher ATPremier volume driven by a change in technology used in smartphones and tablet applications.
In addition, pricing on our ball bonders was less favorable, as we sold higher volumes of our most popular ball bonder model to large OSAT customers.
Expendable Tools
The following table reflects the components of Expendable Tools net revenue change between fiscal 2012 and 2011:

|  | Fiscal 2012 vs. 2011
(in thousands) |  | Price |  | Volume |  | $ Change
Expendable Tools |  | $ | 479 |  |  | $ | (7,608 | ) |  | $ | (7,129 | )

Expendable Tools net revenue decreased 10.0% for fiscal 2012 as compared to fiscal 2011. The decrease was due primarily to the volume decrease in the overall Expendable Tools business. The decrease in volume was most concentrated in our wedge bonder tools business due to lower sales as a result of lower customer utilization.
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Gross Profit
The following tables reflect gross profit and gross profit as a percentage of net revenue by business segment for fiscal 2012 and 2011:

| Fiscal |  |  |  |
(dollar amounts in thousands) | 2012 |  | 2011 |  | $ Change |  | % Change
Equipment | $ | 329,872 |  |  | $ | 346,417 |  |  | $ | (16,545 | ) |  | (4.8 | )%
Expendable Tools | 37,518 |  |  | 41,492 |  |  | (3,974 | ) |  | (9.6 | )%
Total gross profit | $ | 367,390 |  |  | $ | 387,909 |  |  | $ | (20,519 | ) |  | (5.3 | )%

| Fiscal |  | Basis Point Change
| 2012 |  | 2011 |
Equipment | 45.4 | % |  | 45.6 | % |  | (20 | )
Expendable Tools | 58.7 | % |  | 58.4 | % |  | 30 |
Total gross margin | 46.4 | % |  | 46.7 | % |  | (30 | )

Equipment
The following table reflects the components of Equipment gross profit change between fiscal 2012 and 2011:

| Fiscal 2012 vs. 2011
(in thousands) | Price |  | Cost |  | Volume |  | $ Change
Equipment | $ | (14,490 | ) |  | $ | 518 |  |  | $ | (2,573 | ) |  | $ | (16,545 | )

For fiscal 2012, the lower Equipment gross profit as compared to the prior year period was due primarily to the lower pricing from our ball bonders. Pricing on our ball bonders was less favorable as we sold higher volumes of our most popular ball bonder model to large OSAT customers.
In addition, the volume in wedge bonders declined mainly as result of decreased demand from our key markets: power semiconductor, automotive power modules and industrial power hybrid. Slowing demand from the end users of our customers' devices resulted in our customers cutting back their production, reducing their need for new equipment. This volume reduction was partially offset by higher ATPremier volume driven by a change in technology used in smartphones and tablet applications, as well as favorable changes in product mix from our ball bonders.
Expendable Tools
The following table reflects the components of Expendable Tools gross profit change between fiscal 2012 and 2011:

| Fiscal 2012 vs. 2011
(in thousands) | Price |  | Cost |  | Volume |  | $ Change
Expendable Tools | $ | 479 |  |  | $ | (720 | ) |  | $ | (3,733 | ) |  | $ | (3,974 | )

Expendable Tools gross profit decreased 9.6% during fiscal 2012 as compared to the prior year period due primarily to lower volumes for our Expendable Tools business.
Operating Expenses
The following table reflects operating expenses as a percentage of net revenue for fiscal 2012 and 2011:

| Fiscal |  | Basis Point Change
| 2012 |  | 2011 |
Selling, general and administrative | 15.8 | % |  | 18.4 | % |  | (260 | )
Research and development | 8 | % |  | 7.8 | % |  | 20 |
Total | 23.8 | % |  | 26.2 | % |  | (240 | )

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Selling, General and Administrative (“SG&A”)
SG&A expenses decreased by $28.0 million during fiscal 2012 as compared to fiscal 2011, which was driven by a number of factors. Sales commissions and incentives decreased by $10.9 million due to lower net revenue for the fiscal year. We experienced a $5.2 million favorable variance in foreign exchange rates due to the strengthening of foreign currencies against the U.S. dollar. We also recorded a favorable variance of $2.8 million relating to the curtailment of our pension plan for our Switzerland operation. We also recorded a favorable change in the Accounts Receivable reserve of $2.5 million as we were able to collect outstanding balances from customers that were previously reserved. Depreciation and amortization expense was also lower by $2.1 million due mainly to less equipment being sent to customers for demonstration and evaluation. During fiscal 2011, we recorded a valuation loss of $3.0 million in connection with our Switzerland property.
Research and Development (“R&D”)
R&D expense decreased $1.7 million during fiscal 2012 as compared to fiscal 2011 due primarily to a decrease of $2.7 million in staff costs as a result of the consolidation and reduction of headcount to further streamline our R&D technology centers. The decrease was partially offset by $1.0 million higher project based professional services for products development.
Income from Operations
The following table reflects income from operations by business segment for fiscal 2012 and 2011:

| Fiscal |  |  |  |
(dollar amounts in thousands) | 2012 |  | 2011 |  | $ Change |  | % Change
Equipment | $ | 165,791 |  |  | $ | 156,786 |  |  | $ | 9,005 |  |  | 5.7 | %
Expendable Tools | 13,435 |  |  | 13,274 |  |  | 161 |  |  | 1.2 | %
Total income from operations | $ | 179,226 |  |  | $ | 170,060 |  |  | $ | 9,166 |  |  | 5.4 | %

Equipment
In fiscal 2012 our Equipment income from operations was higher as compared to the prior year due primarily to decreases in our operating expenses. Overall operating expense decreases were offset by the lower equipment gross profit as compared to the prior year as explained above.
Expendable Tools
Expendable Tools income from operations was comparable from fiscal 2011 to fiscal 2012. Gross profit was lower due to decreased volumes, but was offset by lower operating expenses in fiscal 2012 as compared to fiscal 2011, as explained above.
Interest Income and Interest Expense
The following table reflects interest income and interest expense for fiscal 2012 and 2011:

| Fiscal |  |  |  |
(dollar amounts in thousands) | 2012 |  | 2011 |  | $ Change |  | % Change
Interest income | $ | 833 |  |  | $ | 648 |  |  | $ | 185 |  |  | 28.5 | %
Interest expense | $ | (633 | ) |  | $ | (965 | ) |  | $ | 332 |  |  | 34.4 | %
Interest expense: non-cash | $ | (5,175 | ) |  | $ | (7,315 | ) |  | $ | 2,140 |  |  | 29.3 | %

Interest income for fiscal 2012 was higher as compared to the prior year period due to higher invested cash balances.
The decrease in interest expense for fiscal 2012 as compared to the prior year period was attributable to the repayment of our 0.875% Convertible Subordinated Notes in June 2012.
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Provision for Income Taxes for fiscal 2012 and 2011
The following table reflects the provision for income taxes and the effective tax rate for fiscal 2012 and 2011:

| Fiscal
(dollar amounts in thousands) | 2012 |  | 2011
Income from operations before income tax | $ | 174,251 |  |  | $ | 162,428 |
Provision for income taxes | 13,671 |  |  | 34,818 |
Income from operations | $ | 160,580 |  |  | $ | 127,610 |
Effective tax rate | 7.8 | % |  | 21.4 | %

For fiscal 2012, the effective income tax rate differed from the federal statutory rate primarily due to tax from foreign operations at a lower effective tax rate than the U.S. statutory rate and the impact of tax holidays, offset by an increase for deferred taxes on un-remitted earnings as well as other U.S. current and deferred taxes. In addition, during the fourth quarter of fiscal 2012, we reached a favorable settlement with the tax authorities of a foreign jurisdiction and we reversed an accrual for an uncertain tax position of $7.5 million, recording it as an income tax benefit. This benefit was offset by additional taxes due to deemed distributions from certain foreign subsidiaries.
For fiscal 2011, the effective income tax rate differed from the federal statutory rate primarily due to tax from foreign operations at a lower effective tax rate than the U.S. statutory rate, the impact of tax holidays, decreases in the valuation allowance offset by an increase for deferred taxes on un-remitted earnings as well as other U.S. current and deferred taxes. During the second quarter of fiscal 2011, negotiations with a foreign tax jurisdiction were finalized which resulted in a decreased effective tax rate of 5% in that jurisdiction until February 1, 2020. In addition, during the fourth quarter of fiscal 2011, a $7.5 million accrual related to a certain unrecognized tax position taken in past years was recorded based upon new information received from the tax authorities.
Our future effective tax rate would be affected if earnings were lower than anticipated in countries where we have lower statutory rates and higher than anticipated in countries where we have higher statutory rates, by changes in the valuation of our deferred tax assets and liabilities, or by changes in tax laws, regulations, accounting principles, or interpretations thereof. We regularly assess the effects resulting from these factors to determine the adequacy of our provision for income taxes.
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LIQUIDITY AND CAPITAL RESOURCES
The following table reflects total cash and investments as of September 28, 2013 and September 29, 2012:

|  | As of |  |
(dollar amounts in thousands) |  | September 28, 2013 |  | September 29, 2012 |  | Change
Cash and cash equivalents |  | $ | 521,788 |  |  | $ | 440,244 |  |  | $ | 81,544 |
Percentage of total assets |  | 60.5 | % |  | 54.0 | % |  |  |

The following table reflects summary Consolidated Statement of Cash Flow information for fiscal 2013 and 2012:

|  | Fiscal
(in thousands) |  | 2013 |  | 2012
Net cash provided by continuing operations |  | $ | 94,824 |  |  | $ | 183,969 |
Net cash used in discontinued operations |  | — |  |  | (1,498 | )
Net cash provided by operating activities |  | 94,824 |  |  | 182,471 |
Net cash used in investing activities |  | (15,114 | ) |  | (15,386 | )
Net cash provided by (used in) financing activities |  | 1,733 |  |  | (105,138 | )
Effect of exchange rate changes on cash and cash equivalents |  | 101 |  |  | 109 |
Changes in cash and cash equivalents |  | 81,544 |  |  | 62,056 |
Cash and cash equivalents, beginning of period |  | 440,244 |  |  | 378,188 |
Cash and cash equivalents, end of period |  | 521,788 |  |  | 440,244 |
Short-term investments |  | 3,252 |  |  | — |
Total cash and investments |  | $ | 525,040 |  |  | $ | 440,244 |

Fiscal 2013
Continuing Operations
Net cash provided by operating activities was due primarily to net income of $59.4 million plus non-cash adjustments of $35.5 million contributed to net cash provided by continuing operations.
Net cash used by investing activities was due primarily to capital expenditures of $17.2 million and purchase of short term investments of $3.2 million, offset by proceeds from a building disposal of $5.3 million.
Net cash provided by financing activities related to proceeds from the exercise of stock options.
Fiscal 2012
Continuing Operations
Net cash provided by operating activities was primarily the result of net income of $160.6 million plus non-cash adjustments of $36.7 million. The cash provided by net income and non-cash items was partially offset by working capital changes of $13.3 million driven by net increases in accounts and notes receivable and net income tax payable.
Net cash used in investing activities related to the expansion of our manufacturing operations and infrastructure in Asia. In the first quarter of 2012, we also paid $14.8 million in relation to the acquisition of Orthodyne Electronics Corporation, which we acquired in 2008. See Note 3 of Item 8 for further details.
Net cash used in financing activities was for the repayment of our 0.875% Convertible Subordinated Notes, partially offset by proceeds from the exercise of common stock options.
Discontinued Operations
Net cash used in operating activities related to facility payments for our former Test business.
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Fiscal 2014 Liquidity and Capital Resource Outlook
We expect our fiscal 2014 capital expenditures to be between $17.0 to $18.0 million, of which approximately $6.4 million is expected to relate to leasehold improvements for our Singapore facility under the ADL. Expenditures are anticipated to be used for R&D projects, enhancements to our manufacturing operations in Asia and improvements to our information technology infrastructure.
We believe that our existing cash and investments and anticipated cash flows from operations will be sufficient to meet our liquidity and capital requirements for at least the next twelve months. Our liquidity is affected by many factors, some based on normal operations of our business and others related to global economic conditions and industry uncertainties, which we cannot predict. We also cannot predict economic conditions and industry downturns or the timing, strength or duration of recoveries. We intend to continue to use our cash for working capital needs and for general corporate purposes.
We may seek, as we believe appropriate, additional debt or equity financing which would provide capital for corporate purposes, working capital funding, additional liquidity needs or to fund future growth opportunities. The timing and amount of potential capital requirements cannot be determined at this time and will depend on a number of factors, including our actual and projected demand for our products, semiconductor and semiconductor capital equipment industry conditions, competitive factors, and the condition of financial markets.
Other Obligations and Contingent Payments
Agreement to Develop and Lease
On May 7, 2012, Kulicke & Soffa Pte Ltd. (“Pte”), the Company's wholly owned subsidiary Pte entered into the ADL with DBS Trustee Limited as trustee of Mapletree Industrial Trust (the “Landlord”). Pursuant to the ADL, the Landlord agreed to develop a building at Lot 17622A Pt Mukim 18 at Serangoon North Avenue 5 (the “Building”) and Pte expects to lease from the Landlord 198,134 square feet (the “Initial Premises”), representing approximately 69% of the Building. The Building is estimated to be completed and ready for occupancy in the first quarter of 2014.
The facility is currently being constructed. In accordance with ASC No. 840, Leases, we are considered to be the owner of the building during the construction phase due to our involvement in the asset construction. The estimated construction costs incurred to date in relation to the relevant proportion of our lease are recognized on the Consolidated Balance Sheet as of September 28, 2013. The applicable ground lease expense was accrued. See Note 12 of Item 1 for additional details.
Other Obligations and Contingent Payments
In accordance with U.S. generally accepted accounting principles, certain obligations and commitments are not required to be included in the Consolidated Balance Sheets and Statements of Operations. These obligations and commitments, while entered into in the normal course of business, may have a material impact on our liquidity. Certain of the following commitments as of September 28, 2013 are appropriately not included in the Consolidated Balance Sheets and Statements of Operations included in this Form 10-K; however, they have been disclosed in the table below for additional information.
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The following table reflects obligations and contingent payments under various arrangements as of September 28, 2013:

|  |  |  | Payments due by fiscal period
(in thousands) |  | Total |  | Less than 1 year |  | 1 - 3 years |  | 3 - 5 years |  | More than 5 years
Current and long-term liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pension plan obligations |  | $ | 1,711 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 1,711 |
Severance (1) |  | 3,843 |  |  | 1,468 |  |  | 746 |  |  | — |  |  | 1,629 |
Obligations related to Chief Executive Officer transition (2) |  | 9 |  |  | 9 |  |  | — |  |  | — |  |  | — |
Operating lease retirement obligations |  | 1,967 |  |  | 1,167 |  |  | 315 |  |  | — |  |  | 485 |
Long-term income taxes payable |  | 2,547 |  |  | — |  |  | — |  |  | — |  |  | 2,547 |
Total Obligations and Contingent Payments reflected on the Consolidated Financial Statements |  | $ | 10,077 |  |  | $ | 2,644 |  |  | $ | 1,061 |  |  | $ | — |  |  | $ | 6,372 |
Contractual Obligations: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Inventory purchase obligations (3) |  | $ | 57,229 |  |  | 57,229 |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Operating lease obligations (4) |  | 31,211 |  |  | 3,700 |  |  | 6,141 |  |  | 4,713 |  |  | 16,657 |
Total Obligations and Contingent Payments not reflected on the Consolidated Financial Statements |  | $ | 88,440 |  |  | $ | 60,929 |  |  | $ | 6,141 |  |  | $ | 4,713 |  |  | $ | 16,657 |

(1) | In accordance with regulations in some of our foreign subsidiaries, we are required to provide for severance obligations that are payable when an employee leaves the Company.

(2) | In connection with the September 2010 retirement of our former Chief Executive Officer, we entered into a three year consulting arrangement with him.

(3) | We order inventory components in the normal course of our business. A portion of these orders are non-cancelable and a portion may have varying penalties and charges in the event of cancellation.

(4) | We have minimum rental commitments under various leases (excluding taxes, insurance, maintenance and repairs, which are also paid by us) primarily for various facility and equipment leases, which expire periodically through 2026 (not including lease extension options, if applicable).

Under the ADL, Pte expects to enter into a lease agreement (the “Lease Agreement”) with the Landlord. The term for the rental of the Initial Premises is expected to be 10 years, (the “Initial Term”). Pte will have the option to renew for two additional ten-year terms. The combined annual rent and service charge for the Initial Term will range between approximately $4.0 to $5.0 million Singapore dollars. Subject to renting a minimum amount of space, Pte will have a right of first refusal for all space that becomes available in the Building, and the Landlord has agreed to make available a certain amount of additional space for rental at Pte's option which may be exercised at certain points during the second half of the Initial Term. Subject to renting a minimum amount of space for a certain period, Pte will have partial surrender rights. In addition, Pte will have termination rights after renting the Initial Premises for a certain period of time. The Lease Agreement is not in effect as of the date of this report and is not reflected in the above table.
We are considered the owner of the building during the construction phase of the ADL. As of September 28, 2013, we recorded a financing obligation of $19.4 million relating to the building and we are expecting to record an additional $0.6 million over the construction term, which is expected to be completed in the first quarter of fiscal 2014. This financing obligation is not reflected in the table above.
Off-Balance Sheet Arrangements
On May 9, 2012, Pte obtained a Bank Guarantee from DBS Bank Ltd. in the amount of $3.4 million Singapore dollars. Pte furnished the Bank Guarantee to the Landlord in lieu of a cash deposit in connection with the building and leasing of a new facility in Singapore as discussed above. On May 9, 2013, the Bank Guarantee expired and Pte replaced the Bank Guarantee with a cash deposit of an equivalent amount, which is included in our Consolidated Balance Sheet as part of prepaid expenses and other current assets.
We currently do not have any other off-balance sheet arrangements, such as derivatives, contingent interests or obligations associated with variable interest entities.
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Item 7A. - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
Our available-for-sale securities, if applicable, may consist of short-term investments in highly rated debt instruments of the U.S. Government and its agencies, financial institutions, and corporations. We continually monitor our exposure to changes in interest rates and credit ratings of issuers with respect to any available-for-sale securities and target an average life to maturity of less than 18 months. Accordingly, we believe that the effects to us of changes in interest rates and credit ratings of issuers are limited and would not have a material impact on our financial condition or results of operations. As of September 28, 2013, we had no available-for-sale investments.
Foreign Currency Risk
Our international operations are exposed to changes in foreign currency exchange rates due to transactions denominated in currencies other than the location's functional currency. Our international operations are also exposed to foreign currency fluctuations that impact the remeasurement of net monetary assets of those operations whose functional currency, the U.S. dollar, differs from their respective local currencies, most notably in Israel, Malaysia, Singapore and Switzerland. In addition to net monetary remeasurement, we have exposures related to the translation of subsidiary financial statements from their functional currency, the local currency, into its reporting currency, the U.S. dollar, most notably in China, Taiwan, Japan and Germany. Our U.S. operations also have foreign currency exposure due to net monetary assets denominated in currencies other than the U.S. dollar.
Based on our foreign currency exposure as of September 28, 2013, a 10.0% fluctuation could impact our financial position, results of operations or cash flows by $3.0 to $4.0 million. We may enter into foreign exchange forward contracts and other instruments in the future; however, 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 flow. We had no foreign exchange forward contracts or other instruments as of September 28, 2013.
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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of Kulicke and Soffa Industries, Inc. listed in the index appearing under Item 15 (a)(1) herein are filed as part of this Report under this Item 8.
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Kulicke and Soffa Industries, Inc.:
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, comprehensive income, changes in shareholders’ equity, and cash flows present fairly, in all material respects, the financial position of Kulicke and Soffa Industries, Inc. and its subsidiaries at September 28, 2013 and September 29, 2012, and the results of their operations and their cash flows for each of the two years in the period ended September 28, 2013 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule for the two years ended September 28, 2013 listed in the index appearing under Item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 28, 2013, based on criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control over Financial Reporting included under Item 9A. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
Singapore
November 14, 2013
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Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Kulicke & Soffa Industries, Inc.:
In our opinion, the consolidated statements of operations, comprehensive income, changes in shareholders’ equity and cash flows for the year ended October 1, 2011, present fairly, in all material respects, the results of operations and cash flows of Kulicke & Soffa Industries, Inc. and its subsidiaries for the year ended October 1, 2011, in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule for the year ended October 1, 2011 listed in the index appearing under Item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
December 8, 2011
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KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)

|  | As of
|  | September 28, 2013 |  |  | September 29, 2012
ASSETS |  |  |  |
Current assets: |  |  |  |
Cash and cash equivalents |  | $ | 521,788 |  |  | $ | 440,244 |
Short-term investments |  | 3,252 |  |  | — |
Accounts and notes receivable, net of allowance for doubtful accounts of $504 and $937, respectively |  | 162,714 |  |  | 188,986 |
Inventories, net |  | 38,135 |  |  | 58,994 |
Prepaid expenses and other current assets |  | 24,012 |  |  | 21,577 |
Deferred income taxes |  | 4,487 |  |  | 3,515 |
Total current assets |  | 754,388 |  |  | 713,316 |
Property, plant and equipment, net |  | 47,541 |  |  | 28,441 |
Goodwill |  | 41,546 |  |  | 41,546 |
Intangible assets, net |  | 11,209 |  |  | 20,387 |
Other assets |  | 8,310 |  |  | 11,919 |
TOTAL ASSETS |  | $ | 862,994 |  |  | $ | 815,609 |
LIABILITIES AND SHAREHOLDERS' EQUITY |  |  |  |  |  |
Current liabilities: |  |  |  |  |  |
Accounts payable |  | $ | 37,030 |  |  | $ | 57,231 |
Accrued expenses and other current liabilities |  | 38,868 |  |  | 57,946 |
Income taxes payable |  | 1,504 |  |  | 8,192 |
Total current liabilities |  | 77,402 |  |  | 123,369 |
Built-to-suit liability |  | 19,396 |  |  | — |
Deferred income taxes |  | 40,709 |  |  | 37,875 |
Other liabilities |  | 8,822 |  |  | 10,698 |
TOTAL LIABILITIES |  | $ | 146,329 |  |  | $ | 171,942 |
Commitments and contingent liabilities (Note 12) |  |  |  |  |  |
SHAREHOLDERS' EQUITY: |  |  |  |  |  |
Preferred stock, without par value: |  |  |  |  |  |
Authorized 5,000 shares; issued - none |  | $ | — |  |  | $ | — |
Common stock, no par value: |  |  |  |  |  |
Authorized 200,000 shares; issued 80,237 and 79,099, respectively; outstanding 75,283 and 74,145 shares, respectively |  | 467,525 |  |  | 455,122 |
Treasury stock, at cost, 4,954 shares |  | (46,356 | ) |  | (46,356 | )
Accumulated income |  | 291,878 |  |  | 232,520 |
Accumulated other comprehensive income |  | 3,618 |  |  | 2,381 |
TOTAL SHAREHOLDERS' EQUITY |  | $ | 716,665 |  |  | $ | 643,667 |
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY |  | $ | 862,994 |  |  | $ | 815,609 |

The accompanying notes are an integral part of these consolidated financial statements.
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KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)

| Fiscal
| 2013 |  | 2012 |  | 2011
Net revenue | $ | 534,938 |  |  | $ | 791,023 |  |  | $ | 830,401 |
Cost of sales | 287,993 |  |  | 423,633 |  |  | 442,492 |
Gross profit | 246,945 |  |  | 367,390 |  |  | 387,909 |
Selling, general and administrative | 119,519 |  |  | 124,718 |  |  | 152,714 |
Research and development | 61,620 |  |  | 63,446 |  |  | 65,135 |
Operating expenses | 181,139 |  |  | 188,164 |  |  | 217,849 |
Income from operations | 65,806 |  |  | 179,226 |  |  | 170,060 |
Interest income | 883 |  |  | 833 |  |  | 648 |
Interest expense | (21 | ) |  | (5,808 | ) |  | (8,280 | )
Income from operations before income taxes | 66,668 |  |  | 174,251 |  |  | 162,428 |
Provision for income taxes | 7,310 |  |  | 13,671 |  |  | 34,818 |
Net income | $ | 59,358 |  |  | $ | 160,580 |  |  | $ | 127,610 |
Net income per share: |  |  |  |  |  |  |
Basic | $ | 0.79 |  |  | $ | 2.17 |  |  | $ | 1.77 |
Diluted | $ | 0.78 |  |  | $ | 2.13 |  |  | $ | 1.73 |
Weighted average shares outstanding: |  |  |  |  |  |  |
Basic | 75,132 |  |  | 73,887 |  |  | 71,820 |
Diluted | 76,190 |  |  | 75,502 |  |  | 73,341 |

The accompanying notes are an integral part of these consolidated financial statements.
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KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)

| Fiscal
| 2013 |  | 2012 |  | 2011
Net income | $ | 59,358 |  |  | $ | 160,580 |  |  | $ | 127,610 |
Other comprehensive income (loss): |  |  |  |  |
Foreign currency translation adjustment | 1,186 |  |  | 207 |  |  | 1,022 |
Unrecognized actuarial gain, Switzerland pension plan, net of tax | 51 |  |  | (370 | ) |  | 731 |
Total other comprehensive income (loss) | 1,237 |  |  | (163 | ) |  | 1,753 |
Comprehensive income | $ | 60,595 |  |  | $ | 160,417 |  |  | $ | 129,363 |

The accompanying notes are an integral part of these consolidated financial statements.
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KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(in thousands)

| Common Stock |  | Treasury Stock |  | Accumulated Income (Deficit) |  | Accumulated Other Comprehensive Income |  | Shareholders' Equity
| Shares |  | Amount |  |  |  |
Balances as of October 2, 2010 | 70,475 |  |  | $ | 423,715 |  |  | $ | (46,356 | ) |  | $ | (55,670 | ) |  | $ | 791 |  |  | $ | 322,480 |
Employer contribution to the Company's 401(k) plan | 42 |  |  | 279 |  |  | — |  |  | — |  |  | — |  |  | 279 |
Issuance of stock for services rendered | 90 |  |  | 720 |  |  | — |  |  | — |  |  | — |  |  | 720 |
Exercise of stock options | 1,245 |  |  | 9,296 |  |  | — |  |  | — |  |  | — |  |  | 9,296 |
Issuance of shares for time-based restricted stock | 927 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Excess tax benefits from stock based compensation | — |  |  | 2,099 |  |  | — |  |  | — |  |  | — |  |  | 2,099 |
Equity-based compensation expense | — |  |  | 5,640 |  |  | — |  |  | — |  |  | — |  |  | 5,640 |
Components of comprehensive income: |  |  |  |  |  |  |  |  |  |  |
Net income | — |  |  | — |  |  | — |  |  | 127,610 |  |  | — |  |  | 127,610 |
Translation adjustment | — |  |  | — |  |  | — |  |  | — |  |  | 1,022 |  |  | 1,022 |
Unamortized pension costs | — |  |  | — |  |  | — |  |  | — |  |  | 731 |  |  | 731 |
Total comprehensive income | — |  |  | — |  |  | — |  |  | 127,610 |  |  | 1,753 |  |  | 129,363 |
Balances as of October 1, 2011 | 72,779 |  |  | $ | 441,749 |  |  | $ | (46,356 | ) |  | $ | 71,940 |  |  | $ | 2,544 |  |  | $ | 469,877 |
Issuance of stock for services rendered | 78 |  |  | 720 |  |  | — |  |  | — |  |  | — |  |  | 720 |
Exercise of stock options | 436 |  |  | 3,325 |  |  | — |  |  | — |  |  | — |  |  | 3,325 |
Issuance of shares for market-based restricted stock and time-based restricted stock | 852 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Excess tax benefits from stock based compensation | — |  |  | 1,537 |  |  | — |  |  | — |  |  | — |  |  | 1,537 |
Equity-based compensation expense | — |  |  | 7,791 |  |  | — |  |  | — |  |  | — |  |  | 7,791 |
Components of comprehensive income: |  |  |  |  |  |  |  |  |  |  |
Net income | — |  |  | — |  |  | — |  |  | 160,580 |  |  | — |  |  | 160,580 |
Translation adjustment | — |  |  | — |  |  | — |  |  | — |  |  | 207 |  |  | 207 |
Unamortized pension costs | — |  |  | — |  |  | — |  |  | — |  |  | (370 | ) |  | (370 | )
Total comprehensive income | — |  |  | — |  |  | — |  |  | 160,580 |  |  | (163 | ) |  | 160,417 |
Balances as of September 29, 2012 | 74,145 |  |  | $ | 455,122 |  |  | $ | (46,356 | ) |  | $ | 232,520 |  |  | $ | 2,381 |  |  | $ | 643,667 |
Issuance of stock for services rendered | 74 |  |  | 840 |  |  | — |  |  | — |  |  | — |  |  | 840 |
Exercise of stock options | 101 |  |  | 908 |  |  | — |  |  | — |  |  | — |  |  | 908 |
Issuance of shares for market-based restricted stock and time-based restricted stock | 963 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Excess tax benefits from stock based compensation | — |  |  | 825 |  |  | — |  |  | — |  |  | — |  |  | 825 |
Equity-based compensation expense | — |  |  | 9,830 |  |  | — |  |  | — |  |  | — |  |  | 9,830 |
Components of comprehensive income: |  |  |  |  |  |  |  |  |  |  |
Net income | — |  |  | — |  |  | — |  |  | 59,358 |  |  | — |  |  | 59,358 |
Translation adjustment | — |  |  | — |  |  | — |  |  | — |  |  | 1,186 |  |  | 1,186 |
Unamortized pension costs | — |  |  | — |  |  | — |  |  | — |  |  | 51 |  |  | 51 |
Total comprehensive income | — |  |  | — |  |  | — |  |  | 59,358 |  |  | 1,237 |  |  | 60,595 |
Balances as of September 28, 2013 | 75,283 |  |  | $ | 467,525 |  |  | $ | (46,356 | ) |  | $ | 291,878 |  |  | $ | 3,618 |  |  | $ | 716,665 |

The accompanying notes are an integral part of these consolidated financial statements.
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KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

|  | Fiscal
|  | 2013 |  | 2012 |  | 2011
CASH FLOWS FROM OPERATING ACTIVITIES: |  |  |  |  |  |  |  |
Net income |  | $ | 59,358 |  |  | $ | 160,580 |  |  | $ | 127,610 |
Adjustments to reconcile net income to net cash provided by operating activities: |  |  |  |  |  |
Depreciation and amortization |  | 18,489 |  |  | 17,265 |  |  | 17,761 |
Amortization of debt discount and debt issuance costs |  | — |  |  | 5,174 |  |  | 7,315 |
Equity-based compensation |  | 10,670 |  |  | 8,511 |  |  | 7,496 |
Excess tax benefits from stock based compensation |  | (825 | ) |  | (1,537 | ) |  | — |
Adjustment for doubtful accounts |  | 371 |  |  | (1,239 | ) |  | 1,219 |
Adjustment for inventory valuation |  | 3,561 |  |  | 6,060 |  |  | 6,701 |
Deferred taxes |  | 5,901 |  |  | 3,964 |  |  | 19,773 |
Impairment of buildings and building improvements |  | — |  |  | 206 |  |  | 3,002 |
Switzerland pension plan curtailment gain |  | (2,100 | ) |  | (1,690 | ) |  | — |
Gain on disposal of building |  | (147 | ) |  | — |  |  | — |
Asset retirement obligation |  | (368 | ) |  | — |  |  | — |
Changes in operating assets and liabilities, net of businesses acquired or sold: |  |  |  |  |  |
Accounts and notes receivable |  | 26,408 |  |  | (49,111 | ) |  | 55,313 |
Inventory |  | 17,056 |  |  | 8,144 |  |  | (6,122 | )
Prepaid expenses and other current assets |  | (2,421 | ) |  | (46 | ) |  | (5,621 | )
Accounts payable, accrued expenses and other current liabilities |  | (36,066 | ) |  | 33,550 |  |  | (43,449 | )
Income taxes payable |  | (6,832 | ) |  | (6,071 | ) |  | 13,063 |
Other, net |  | 1,769 |  |  | 209 |  |  | (1,804 | )
Net cash provided by continuing operations |  | 94,824 |  |  | 183,969 |  |  | 202,257 |
Net cash used in discontinued operations |  | — |  |  | (1,498 | ) |  | (1,861 | )
Net cash provided by operating activities |  | 94,824 |  |  | 182,471 |  |  | 200,396 |
CASH FLOWS FROM INVESTING ACTIVITIES: |  |  |  |  |  |  |  |
Purchases of property, plant and equipment |  | (17,172 | ) |  | (6,902 | ) |  | (7,688 | )
Proceeds from sales of property, plant and equipment |  | 5,310 |  |  | — |  |  | — |
Purchases of short term investment |  | (3,252 | ) |  | — |  |  | — |
Sales (purchase) of investments classified as available-for-sale |  | — |  |  | 6,364 |  |  | (3,655 | )
Earnout payment related to prior acquisition |  | — |  |  | (14,848 | ) |  | — |
Changes in restricted cash, net |  | — |  |  | — |  |  | 237 |
Net cash used in investing activities |  | (15,114 | ) |  | (15,386 | ) |  | (11,106 | )
CASH FLOWS FROM FINANCING ACTIVITIES: |  |  |  |  |  |  |  |
Payments on debt |  | — |  |  | (110,000 | ) |  | — |
Proceeds from exercise of common stock options |  | 908 |  |  | 3,325 |  |  | 9,296 |
Excess tax benefits from stock-based compensation arrangements |  | 825 |  |  | 1,537 |  |  | — |
Net cash provided by(used in) financing activities |  | 1,733 |  |  | (105,138 | ) |  | 9,296 |
Effect of exchange rate changes on cash and cash equivalents |  | 101 |  |  | 109 |  |  | 1,490 |
Changes in cash and cash equivalents |  | 81,544 |  |  | 62,056 |  |  | 200,076 |
Cash and cash equivalents at beginning of period |  | 440,244 |  |  | 378,188 |  |  | 178,112 |
Cash and cash equivalents at end of period |  | $ | 521,788 |  |  | $ | 440,244 |  |  | $ | 378,188 |
CASH PAID FOR: |  |  |  |  |  |  |  |
Interest |  | $ | — |  |  | $ | 633 |  |  | $ | 963 |
Income taxes |  | $ | 8,382 |  |  | $ | 10,854 |  |  | $ | 11,466 |

The accompanying notes are an integral part of these consolidated financial statements.
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KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION
These consolidated financial statements include the accounts of Kulicke and Soffa Industries, Inc. and its subsidiaries (the “Company”), with appropriate elimination of intercompany balances and transactions.
Fiscal Year
Each of the Company's first three fiscal quarters ends on the Saturday that is 13 weeks after the end of the immediately preceding fiscal quarter. The fourth quarter of each fiscal year ends on the Saturday closest to September 30 th. In fiscal years consisting of 53 weeks, the fourth quarter will consist of 14 weeks. The fiscal year end for 2013, 2012, and 2011 ended on September 28, 2013, September 29, 2012 and October 1, 2011, respectively.
Nature of Business
The Company designs, manufactures and sells capital equipment and expendable tools as well as services, maintains, repairs and upgrades equipment, all used to assemble semiconductor devices. The Company's operating results depend upon the capital and operating expenditures of semiconductor manufacturers and outsourced semiconductor assembly and test providers (“OSATs”) worldwide which, in turn, depend on the current and anticipated market demand for semiconductors and products utilizing semiconductors. The semiconductor industry is highly volatile and experiences downturns and slowdowns which can have a severe negative effect on the semiconductor industry's demand for semiconductor capital equipment, including assembly equipment manufactured and sold by the Company and, to a lesser extent, expendable tools, including those sold by the Company. These downturns and slowdowns have in the past adversely affected the Company's operating results. The Company believes such volatility will continue to characterize the industry and the Company's operations in the future.
Use of Estimates
The preparation of consolidated financial statements requires management to make assumptions, estimates and judgments that affect the reported amounts of assets and liabilities, net revenue and expenses during the reporting periods, and disclosures of contingent assets and liabilities as of the date of the consolidated financial statements. On an ongoing basis, management evaluates estimates, including but not limited to, those related to accounts receivable, reserves for excess and obsolete inventory, carrying value and lives of fixed assets, goodwill and intangible assets, valuation allowances for deferred tax assets and deferred tax liabilities, repatriation of un-remitted foreign subsidiary earnings, equity-based compensation expense, restructuring, and warranties. Management bases its estimates on historical experience and on various other assumptions believed to be reasonable. As a result, management makes judgments regarding the carrying values of its assets and liabilities that are not readily apparent from other sources. Authoritative pronouncements, historical experience and assumptions are used as the basis for making estimates, and on an ongoing basis, management evaluates these estimates. Actual results may differ from these estimates under different assumptions or conditions.
Vulnerability to Certain Concentrations
Financial instruments which may subject the Company to concentrations of credit risk as of September 28, 2013 and September 29, 2012 consisted primarily of short-term investments and trade receivables. The Company manages credit risk associated with investments by investing its excess cash in highly rated debt instruments of the U.S. Government and its agencies, financial institutions, and corporations. The Company has established investment guidelines relative to diversification and maturities designed to maintain safety and liquidity. These guidelines are periodically reviewed and modified as appropriate. The Company does not have any exposure to sub-prime financial instruments or auction rate securities.
The Company's trade receivables result primarily from the sale of semiconductor equipment, related accessories and replacement parts, and expendable tools to a relatively small number of large manufacturers in a highly concentrated industry. Write-offs of uncollectible accounts have historically not been significant; however, the Company closely monitors its customers' financial strength to reduce the risk of loss.
The Company's products are complex and require raw materials, components and subassemblies having a high degree of reliability, accuracy and performance. The Company relies on subcontractors to manufacture many of these components and subassemblies and it relies on sole source suppliers for some important components and raw material inventory.
The Company's international operations are exposed to changes in foreign currency exchange rates due to transactions denominated in currencies other than the location's functional currency. The Company is also exposed to foreign currency fluctuations that impact the remeasurement of net monetary assets of those operations whose functional currency, the U.S. dollar, differs from their respective local currencies, most notably in Israel, Malaysia, Singapore and Switzerland. In addition to net monetary remeasurement,
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KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
the Company has exposures related to the translation of subsidiary financial statements from their functional currency, the local currency, into its reporting currency, the U.S. dollar, most notably in China, Taiwan, Japan and Germany. The Company's U.S. operations also have foreign currency exposure due to net monetary assets denominated in currencies other than the U.S. dollar.
Foreign Currency Translation
The majority of the Company's business is transacted in U.S. dollars; however, the functional currencies of some of the Company's subsidiaries are their local currencies. In accordance with ASC No. 830, Foreign Currency Matters (“ASC 830”), for a subsidiary of the Company that has a functional currency other than the U.S. dollar, gains and losses resulting from the translation of the functional currency into U.S. dollars for financial statement presentation are not included in determining net income, but are accumulated in the cumulative translation adjustment account as a separate component of shareholders' equity (accumulated other comprehensive income (loss)). Under ASC 830, cumulative translation adjustments are not adjusted for income taxes as they relate to indefinite investments in non-U.S. subsidiaries. Gains and losses resulting from foreign currency transactions are included in the determination of net income.
Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less when purchased to be cash equivalents. Cash equivalents are measured at fair value based on level one measurement, or quoted market prices, as defined by ASC No. 820, Fair Value Measurements and Disclosures. As of September 28, 2013 and September 29, 2012, fair value approximated the cost basis for cash equivalents.
Investments
Investments, other than cash equivalents, are classified as “trading,” “available-for-sale” or “held-to-maturity,” in accordance with ASC No. 320, Investments-Debt & Equity Securities, and depending upon the nature of the investment, its ultimate maturity date in the case of debt securities, and management's intentions with respect to holding the securities. Investments classified as “trading” are reported at fair market value, with unrealized gains or losses included in earnings. Investments classified as “available-for-sale” are reported at fair market value, with net unrealized gains or losses reflected as a separate component of shareholders' equity (accumulated other comprehensive income (loss)). The fair market value of trading and available-for-sale securities is determined using quoted market prices at the balance sheet date. Investments classified as held-to-maturity are reported at amortized cost. Realized gains and losses are determined on the basis of specific identification of the securities sold.
Allowance for Doubtful Accounts
The Company maintains allowances for doubtful accounts for estimated losses resulting from its customers' failure to make required payments. If the financial condition of the Company's customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. The Company is also subject to concentrations of customers and sales to a few geographic locations, which could also impact the collectability of certain receivables. If global economic conditions deteriorate or political conditions were to change in some of the countries where the Company does business, it could have a significant impact on the results of operations, and the Company's ability to realize the full value of its accounts receivable.
Inventories
Inventories are stated at the lower of cost (on a first-in first-out basis) or market value. The Company generally provides reserves for obsolete inventory and for inventory considered to be in excess of demand. Demand is generally defined as 18 months future consumption for equipment, 24 months consumption for all spare parts, and 12 months consumption for expendable tools. Forecasted demand is based upon internal projections, historical sales volumes, customer order activity and a review of consumable inventory levels at customers' facilities. The Company communicates forecasts of its future demand to its suppliers and adjusts commitments to those suppliers accordingly. If required, the Company reserves the difference between the carrying value of its inventory and the lower of cost or market value, based upon assumptions about future demand, and market conditions. If actual market conditions are less favorable than projections, additional inventory reserves may be required.
Property, Plant and Equipment
Property, plant and equipment are carried at cost. The cost of additions and those improvements which increase the capacity or lengthen the useful lives of assets are capitalized while repair and maintenance costs are expensed as incurred. Depreciation and amortization are provided on a straight-line basis over the estimated useful lives as follows: buildings 25 years; machinery and equipment 3 to 10 years; and leasehold improvements are based on the shorter of the life of lease or life of asset. Purchased computer software costs related to business and financial systems are amortized over a five-year period on a straight-line basis.
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KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Valuation of Long-Lived Assets
In accordance with ASC No. 360, Property, Plant & Equipment ("ASC 360"), the Company's property, plant and equipment is tested for impairment based on undiscounted cash flows when triggering events occur, and if impaired, written-down to fair value based on either discounted cash flows or appraised values. ASC 360 also provides a single accounting model for long-lived assets to be disposed of by sale and establishes additional criteria that would have to be met to classify an asset as held for sale. The carrying amount of an asset or asset group is not recoverable to the extent it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset or asset group. Estimates of future cash flows used to test the recoverability of a long-lived asset or asset group must incorporate the entity's own assumptions about its use of the asset or asset group and must factor in all available evidence.
ASC 360 requires that long-lived assets be tested for recoverability whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Such events include significant under-performance relative to the expected historical or projected future operating results; significant changes in the manner of use of the assets; significant negative industry or economic trends; and significant changes in market capitalization. During the fiscal year ended September 28, 2013, no triggering events occurred.
Accounting for Impairment of Goodwill
The Company operates two reportable segments: Equipment and Expendable Tools. Goodwill was recorded in 2009 for the acquisition of Orthodyne Electronics Corporation ("Orthodyne"), which added wedge bonder products (also known as "reporting unit") to the Equipment business.
Accounting Standard Update 2011-08, Testing Goodwill for Impairment (“ASU 2011-08”), provides companies with the option to assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If, after assessing the qualitative factors, a company determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying value, then performing the two-step impairment test is unnecessary. However, if a company concludes otherwise, then it is required to perform the first step of the two-step goodwill impairment test. If the carrying value of a reporting unit exceeds its fair value, then a company is required to perform the second step of the two-step goodwill impairment test.
The Company chose to skip the qualitative assessment and proceed directly to performing the quantitative evaluation of the fair value of the goodwill of the reporting unit, to compare against the carrying value of the goodwill recorded in the books. If the fair value exceeds the carrying value, there is no impairment. Any excess carrying value is equal to the goodwill impairment charge.
As part of the annual evaluation, the Company performs an impairment test of its goodwill in the fourth quarter of each fiscal year to coincide with the completion of its annual forecasting and refreshing of its business outlook processes. On an ongoing basis, the Company monitors if a “triggering” event has occurred that may have the effect of reducing the fair value of a reporting unit below its respective carrying value. Adverse changes in expected operating results and/or unfavorable changes in other economic factors used to estimate fair values could result in a non-cash impairment charge in the future.
As of September 28, 2013, the Company concluded that the fair value of the reporting unit exceeded book value, and management does not believe that an impairment is probable at this time. The near term profitability forecast of the wedge bonder business unit is expected to be higher than that experienced in the prior year, and the expected improvement in profitability in future periods will sustain its carrying value. However, if the performance of the business unit does not meet or exceed those expectations, a future impairment could result for a portion or all of the goodwill valued at $41.5 million as of September 28, 2013. The quantification of any impairment would be dependent on the performance of the business unit, which inherently involves judgment as to assumptions about 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 that may lead the Company to perform interim goodwill impairment assessments include significant and unforeseen customer losses, a significant adverse change in the business climate, unanticipated competition or unforeseen changes in technology.
For further information on goodwill and other intangible assets, see Note 3 below.
Revenue Recognition
In accordance with ASC No. 605, Revenue Recognition, the Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable, the collectability is
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KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
reasonably assured, and equipment installation obligations have been completed and customer acceptance, when applicable, has been received or otherwise released from installation or customer acceptance obligations. If terms of the sale provide for a customer acceptance period, revenue is recognized upon the expiration of the acceptance period or customer acceptance, whichever occurs first. The Company’s standard terms are ex works (the Company’s factory), with title transferring to its customer at the Company’s loading dock or upon embarkation. The Company has a small percentage of sales with other terms, and revenue is recognized in accordance with the terms of the related customer purchase order. Revenue related to services is recognized upon performance of the services requested by a customer order. Revenue for extended maintenance service contracts with a term more than one month is recognized on a prorated straight-line basis over the term of the contract.
Shipping and handling costs billed to customers are recognized in net revenue. Shipping and handling costs paid by the Company are included in cost of sales.
Research and Development
The Company charges research and development costs associated with the development of new products to expense when incurred. In certain circumstances, pre-production machines which the Company intends to sell are carried as inventory until sold.
Income Taxes
In accordance with ASC No. 740, Income Taxes, deferred income taxes are determined using the liability method. The Company records a valuation allowance to reduce its deferred tax assets to the amount it expects is more likely than not to be realized. While the Company has considered future taxable income and its ongoing tax planning strategies in assessing the need for the valuation allowance, if it were to determine that it would be able to realize its deferred tax assets in the future in excess of its net recorded amount, an adjustment to the deferred tax asset would increase income in the period such determination was made. Likewise, should the Company determine it would not be able to realize all or part of its net deferred tax assets in the future, an adjustment to the deferred tax asset would decrease income in the period such determination was made.
In accordance with ASC No. 740 Topic 10, Income Taxes, General (“ASC 740.10”), the Company accounts for uncertain tax positions taken or expected to be taken in its income tax return. Under ASC 740.10, the Company utilizes a two-step approach for evaluating uncertain tax positions. Step one, or recognition, requires a company to determine if the weight of available evidence indicates a tax position is more likely than not to be sustained upon audit, including resolution of related appeals or litigation processes, if any. Step two, or measurement, is based on the largest amount of benefit, which is more likely than not to be realized on settlement with the taxing authority.
Equity-Based Compensation
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 market-based restricted stock is determined using a Monte-Carlo valuation model, and compensation expense associated with time-based and performance-based restricted stock is determined based on the number of shares granted and the fair value on the date of grant. The fair value of the Company's stock option awards are estimated using a Black-Scholes option valuation model. In addition, the calculation of equity-based compensation costs requires that the Company estimate the number of awards that will be forfeited during the vesting period. The fair value of equity-based awards is amortized over the vesting period of the award and the Company elected to use the straight-line method for awards granted after the adoption of ASC 718.
Earnings per Share
Earnings per share (“EPS”) are calculated in accordance with ASC No. 260, Earnings per Share. Basic EPS include only the weighted average number of common shares outstanding during the period. Diluted EPS includes the weighted average number of common shares and the dilutive effect of stock options, restricted stock and share unit awards and convertible subordinated notes outstanding during the period, when such instruments are dilutive.
In accordance with ASC No. 260.10.55, Earnings per Share - Implementation & Guidance, the Company treats all outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends as participating in undistributed earnings with common shareholders. Awards of this nature are considered participating securities and the two-class method of computing basic and diluted EPS must be applied.
Prior Period Adjustment
During the three months ended December 29, 2012, the Company identified a prior period adjustment of $1.1 million relating to the recognition of government grants that resulted in increased R&D expenses and a reduction of grants receivable. This error was
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KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
corrected during the quarter ended December 29, 2012 and management deemed that the adjustment was not material to the previous fiscal year ended September 29, 2012. This amount impacted the operating results for the fiscal year ended September 28, 2013.
Recent Accounting Pronouncements
In January 2013, the Financial Accounting Standards Board (“FASB”) issued ASU 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities (“ASU 2013-01”). ASU 2013-01 contains no amendments to disclosure requirements. The amendments clarify that the scope of ASU 2011-11, Disclosures about Offsetting Assets and Liabilities, which introduced new disclosure requirements, applies to derivatives accounted for in accordance with Topic 815, Derivatives and Hedging, including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with Section 210-20-45 or Section 815-10-45 or subject to an enforceable master netting arrangement or similar agreement. ASU 2013-01 is effective for fiscal years beginning on or after January 1, 2013 and interim periods within those annual periods. The Company believes adoption of this new guidance will not have a material impact on the Company's financial statements as these updates have an impact on presentation only.
In February 2013, the FASB issued ASU 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (“ASU 2013-02”). ASU 2013-02 amended certain paragraphs in Comprehensive Income (Topic 220), the amendments require an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under GAAP that provide additional detail about those amounts. ASU 2013-02 is effective prospectively for reporting periods beginning after December 15, 2012. The Company believes adoption of this new guidance will not have a material impact on the Company’s financial statements as these updates have an impact on presentation only.
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KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 2: BALANCE SHEET COMPONENTS
The following tables reflect the components of significant balance sheet accounts as of September 28, 2013 and September 29, 2012:

|  | As of
(in thousands) |  | September 28, 2013 |  | September 29, 2012
Short term investments, available-for-sale: |  |  |  |
Deposits maturing within one year (1) |  | $ | 3,252 |  |  | $ | — |
Inventories, net: |  |  |  |  |  |
Raw materials and supplies |  | $ | 19,703 |  |  | $ | 26,660 |
Work in process |  | 12,219 |  |  | 23,352 |
Finished goods |  | 20,333 |  |  | 27,599 |
|  | 52,255 |  |  | 77,611 |
Inventory reserves |  | (14,120 | ) |  | (18,617 | )
|  | $ | 38,135 |  |  | $ | 58,994 |
Property, plant and equipment, net: |  |  |  |  |  |
Land |  | $ | — |  |  | $ | 2,086 |
Buildings and building improvements |  | 3,060 |  |  | 4,830 |
Leasehold improvements |  | 15,763 |  |  | 16,005 |
Data processing equipment and software |  | 24,549 |  |  | 23,819 |
Machinery, equipment, furniture and fixtures |  | 48,998 |  |  | 40,580 |
Construction in progress (2) |  | 19,396 |  |  | 3,219 |
|  | 111,766 |  |  | 90,539 |
Accumulated depreciation (3) |  | (64,225 | ) |  | (62,098 | )
|  | $ | 47,541 |  |  | $ | 28,441 |
Accrued expenses and other current liabilities: |  |  |  |  |  |
Wages and benefits |  | $ | 19,779 |  |  | $ | 18,734 |
Accrued customer obligations (4) |  | 8,270 |  |  | 22,984 |
Commissions and professional fees |  | 2,640 |  |  | 2,776 |
Severance |  | 1,468 |  |  | 2,840 |
Other |  | 6,711 |  |  | 10,612 |
|  | $ | 38,868 |  |  | $ | 57,946 |

(1) | All short-term investments were classified as available-for-sale and were measured at fair value based on level one measurement, or quoted market prices, as defined by ASC 820. As of September 28, 2013, fair value approximated the cost basis for short-term investments. The Company did not recognize any realized gains or losses on the sale of investments during fiscal 2013.

(2) | Pursuant to ASC No. 840, Leases, the Company is considered the owner of the building during the construction phase for the Agreement to Develop and Lease (the “ADL”) facility being developed by Mapletree Industrial Trust (the “Landlord”) in Singapore—see Note 12 below. The estimated construction costs incurred to date in relation to the relevant proportion of the Company's lease is recognized on the Consolidated Balance Sheet as at September 28, 2013 and September 29, 2012. Applicable ground lease expense of $0.5 million was accrued as of September 28, 2013.

(3) | The depreciation expense for the years ended September 28, 2013 and September 29, 2012 are $9.3 million and $8.1 million respectively.

(4) | Represents customer advance payments, customer credit program, accrued warranty expense and accrued retrofit costs.

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KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 3: GOODWILL AND INTANGIBLE ASSETS
Goodwill
Intangible assets classified as goodwill are not amortized. The Company performs an annual impairment test of its goodwill during the fourth quarter of each fiscal year, which coincides with the completion of its annual forecasting and refreshing of its business outlook processes. The Company performed its annual impairment test in the fourth quarter of fiscal 2013 and concluded that no impairment charge was required. The Company also tests for impairment if a “triggering” event occurs that may have the effect of reducing the fair value of a reporting unit below its respective carrying value.
On October 3, 2008, the Company completed the acquisition of Orthodyne and agreed to pay Orthodyne an additional amount in the future based upon the gross profit realized by the acquired business over a three year period from date of acquisition pursuant to an Earnout Agreement entered into in connection with the acquisition. At the end of fiscal 2011, the Company accrued $14.8 million as an earnout payment related to the Orthodyne acquisition to goodwill which was paid during the first quarter of fiscal 2012. Following the acquisition of Orthodyne, wedge bonder products were added to the Equipment business.
Intangible Assets
Intangible assets with determinable lives are amortized over their estimated useful lives. The Company's intangible assets consist primarily of wedge bonder developed technology and customer relationships.
The following table reflects net intangible assets as of September 28, 2013 and September 29, 2012:

|  | As of |  | Average estimated
(dollar amounts in thousands) |  | September 28, 2013 |  | September 29, 2012 |  | useful lives (in years)
Wedge bonder developed technology |  | $ | 33,200 |  |  | $ | 33,200 |  |  | 7.0
Accumulated amortization |  | (23,715 | ) |  | (18,973 | ) |  |
Net wedge bonder developed technology |  | 9,485 |  |  | 14,227 |  |  |
Wedge bonder customer relationships |  | 19,300 |  |  | 19,300 |  |  | 5.0
Accumulated amortization |  | (19,300 | ) |  | (15,440 | ) |  |
Net wedge bonder customer relationships |  | — |  |  | 3,860 |  |  |
Wedge bonder trade name |  | 4,600 |  |  | 4,600 |  |  | 8.0
Accumulated amortization |  | (2,876 | ) |  | (2,300 | ) |  |
Net wedge bonder trade name |  | 1,724 |  |  | 2,300 |  |  |
Wedge bonder other intangible assets |  | 2,500 |  |  | 2,500 |  |  | 1.9
Accumulated amortization |  | (2,500 | ) |  | (2,500 | ) |  |
Net wedge bonder other intangible assets |  | — |  |  | — |  |  |
Net intangible assets |  | $ | 11,209 |  |  | $ | 20,387 |  |  |

The following table reflects estimated annual amortization expense related to intangible assets as of September 28, 2013:

| As of
(in thousands) | September 28, 2013
Fiscal 2014 | $ | 5,318 |
Fiscal 2015 | 5,318 |
Fiscal 2016 | 573 |
Total amortization expense | $ | 11,209 |

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KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 4: CASH AND CASH EQUIVALENTS
Cash equivalents consist of instruments with remaining maturities of three months or less at the date of purchase. In general, these investments are free of trading restrictions. We carry these investments at fair value, based on quoted market prices or other readily available market information.
Cash and cash equivalents consisted of the following as of September 28, 2013:

(dollar amounts in thousands) | Amortized Cost |  | Unrealized Gains |  | Unrealized Losses |  | Estimated Fair Value
Current assets: |  |  |  |  |  |  |
Cash | $ | 113,295 |  |  | $ | — |  |  | $ | — |  |  | $ | 113,295 |
Cash equivalents |  |  |  |  |  |  |
Money market funds | 226,272 |  |  | — |  |  | — |  |  | 226,272 |
Time deposits | 182,221 |  |  | — |  |  | — |  |  | 182,221 |
Total cash and cash equivalents | 521,788 |  |  | — |  |  | — |  |  | 521,788 |
Short-term investments |  |  |  |  |  |  |
Time deposits | 3,252 |  |  | — |  |  | — |  |  | 3,252 |
Total short-term investments | 3,252 |  |  | — |  |  | — |  |  | 3,252 |
Total cash, cash equivalents and short-term investments | $ | 525,040 |  |  | $ | — |  |  | $ | — |  |  | $ | 525,040 |

Cash and cash equivalents consisted of the following as of September 29, 2012:

(dollar amounts in thousands) | Amortized Cost |  | Unrealized Gains |  | Unrealized Losses |  | Estimated Fair Value
Current assets: |  |  |  |  |  |  |
Cash | $ | 100,853 |  |  | $ | — |  |  | $ | — |  |  | $ | 100,853 |
Cash equivalents |  |  |  |  |  |  |
Money market funds | 279,940 |  |  | — |  |  | — |  |  | 279,940 |
Time deposits | 59,451 |  |  | — |  |  | — |  |  | 59,451 |
Total cash and cash equivalents | $ | 440,244 |  |  | $ | — |  |  | $ | — |  |  | $ | 440,244 |

NOTE 5: FAIR VALUE MEASURMENTS
Accounting standards establish three levels of inputs that may be used to measure fair value: quoted prices in active markets for identical assets or liabilities (referred to as Level 1), inputs other than Level 1 that are observable for the asset or liability either directly or indirectly (referred to as Level 2) and unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities (referred to as Level 3).
Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis
We measure certain financial assets and liabilities at fair value on a recurring basis. There have been no transfers between fair value measurement levels during the year ended September 28, 2013.
Fair Value Measurements on a Nonrecurring Basis
Our non-financial assets such as property and property, plant equipment are carried at cost unless impairment is deemed to have occurred.
Fair Value of Financial Instruments
Amounts reported as cash and equivalents, short-term investments receivables, accounts payable and accrued expenses approximate fair value.
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KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The fair value of our financial assets and liabilities at September 28, 2013 were determined using the following inputs:

(dollar amounts in thousands) | Fair Value Measurements at Reporting Date Using
|  |  | Quoted Prices in Active Markets for Identical Assets |  | Significant Other Observable Inputs |  | Significant Unobservable Inputs
| Total |  | (Level 1) |  | (Level 2) |  | (Level 3)
Assets: |  |  |  |  |  |  |
Cash | $ | 113,295 |  |  | $ | 113,295 |  |  | $ | — |  |  | $ | — |
Cash equivalents |  |  |  |  |  |  |
Money market funds | 226,272 |  |  | 226,272 |  |  | — |  |  | — |
Time deposits | 182,221 |  |  | 182,221 |  |  | — |  |  | — |
Short-term investments |  |  |  |  |  |  |
Time deposits | 3,252 |  |  | 3,252 |  |  | — |  |  | — |
Total assets | $ | 525,040 |  |  | $ | 525,040 |  |  | $ | — |  |  | $ | — |

The fair value of our financial assets and liabilities at September 29, 2012 were determined using the following inputs:

(dollar amounts in thousands) | Fair Value Measurements at Reporting Date Using
|  |  | Quoted Prices in Active Markets for Identical Assets |  | Significant Other Observable Inputs |  | Significant Unobservable Inputs
| Total |  | (Level 1) |  | (Level 2) |  | (Level 3)
Assets: |  |  |  |  |  |  |
Cash | $ | 100,853 |  |  | $ | 100,853 |  |  | $ | — |  |  | $ | — |
Cash equivalents |  |  |  |  |  |  |
Money market funds | 279,940 |  |  | 279,940 |  |  | — |  |  | — |
Time deposits | 59,451 |  |  | 59,451 |  |  | — |  |  | — |
Total assets | $ | 440,244 |  |  | $ | 440,244 |  |  | $ | — |  |  | $ | — |

NOTE 6: DEBT AND OTHER OBLIGATIONS
Bank Guarantee
On May 9, 2012, Kulicke & Soffa Pte Ltd. (“Pte”), the Company's wholly owned subsidiary, obtained a bank guarantee (“Bank Guarantee”) from DBS Bank Ltd. in the amount of $3.4 million Singapore dollars. Pte furnished the Bank Guarantee to the Landlord in lieu of a cash deposit in connection with building and leasing of a new facility in Singapore (See Note 12).
On May 9, 2013, the Bank Guarantee expired and Pte replaced the Bank Guarantee with a cash deposit to the landlord of an equivalent amount, which is included in the Consolidated Balance Sheet as part of prepaid expenses and other current assets.
0.875% Convertible Subordinated Notes
The Company previously held 0.875% Convertible Subordinated Notes (the “Notes”) which matured on June 1, 2012. Prior to maturity, holders of the Notes were entitled to convert their Notes based on an initial conversion rate of approximately 69.6621 shares per $1,000 principal amount of Notes (equal to an initial conversion price of approximately $14.355 per share, subject to adjustment for certain events) only under specific circumstances. The Company had the option to elect to satisfy the conversion obligations in cash, common stock or a combination thereof. The Company repaid the entire principal balance of the Notes of $110.0 million plus interest of $0.5 million in cash in fiscal 2012. No common shares were issued in connection with repayment of the Notes.
For the fiscal years ended September 29, 2012 and October 1, 2011, $0.4 million and $0.6 million of amortization expense was incurred, respectively, relating to the Notes. There was no amortization expense for the fiscal year ended September 28, 2013.
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KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The Company adopted ASC 470.20, Debt, Debt with Conversion Options, which requires that issuers of convertible debt that may be settled in cash upon conversion record the liability and equity components of the convertible debt separately. The liability component of the Company's Notes was classified as debt and the equity component of the Notes was classified as common stock on the Company's Consolidated Balance Sheets.
Agreement to Develop and Lease
On May 7, 2012, Kulicke & Soffa Pte Ltd. (“Pte”), the Company’s wholly owned subsidiary Pte entered into the ADL with DBS Trustee Limited as trustee of Mapletree Industrial Trust (the “Landlord”). Pursuant to the ADL, the Landlord agreed to develop a building at Lot 17622A Pt Mukim 18 at Serangoon North Avenue 5 (the “Building”) and Pte expects to lease from the Landlord 198,134 square feet (the “Initial Premises”), representing approximately 69% of the Building. The Building is estimated to be completed and ready for occupancy in the first quarter of 2014.
The facility is currently being constructed. In accordance with ASC No. 840, Leases ("ASC 840"), we are considered to be the owner of the building during the construction phase due to our involvement in the asset construction. Since the Company is considered the owner of the building during the construction period, a sale and leaseback of the building will occur when construction is completed and the lease term begins. As a result of the Company's continued involvement, the Company will be unable to use sale-leaseback accounting under ASC 840. Therefore, at completion, the building will remain on the Consolidated Balance Sheet, and the corresponding financing obligation will be reclassified to long-term liability.
The estimated construction costs incurred to date in relation to the relevant proportion of our lease recognized as of September 28, 2013 is $19.4 million.
NOTE 7: SHAREHOLDERS’ EQUITY AND EMPLOYEE BENEFIT PLANS
Common Stock and 401(k) Retirement Income Plan
The Company has a 401(k) retirement income plan (the “Plan”) for its employees. Historically, the Company's matching contributions to the Plan were made in the form of issued and contributed shares of Company common stock; however, beginning January 2, 2011, matching contributions to the Plan are made in cash instead of stock. The Plan allows for employee contributions and matching Company contributions up to 4% or 6% of the employee's contributed amount based upon years of service.
The following table reflects the Company’s matching contributions to the Plan during fiscal 2013 and 2012:

|  | Fiscal
(in thousands) |  | 2013 |  | 2012
Cash |  | $ | 1,478 |  |  | $ | 1,707 |

Accumulated Other Comprehensive Income
The following table reflects accumulated other comprehensive income reflected on the Consolidated Balance Sheets as of September 28, 2013 and September 29, 2012:

|  | As of
(in thousands) |  | September 28, 2013 |  | September 29, 2012
Gain from foreign currency translation adjustments |  | $ | 4,182 |  |  | $ | 2,996 |
Unrecognized actuarial gain, Switzerland pension plan, net of tax |  | (227 | ) |  | (227 | )
Switzerland pension plan curtailment |  | (337 | ) |  | (388 | )
Accumulated other comprehensive income |  | $ | 3,618 |  |  | $ | 2,381 |

Equity-Based Compensation
As of September 28, 2013, the Company had seven equity-based employee compensation plans (the “Employee Plans”) and three director compensation plans (the “Director Plans”) (collectively, the “Plans”). Under these Plans, market-based share awards (collectively, “market-based restricted stock”), time-based share awards (collectively, “time-based restricted stock”), performance-based share awards (collectively, “performance-based restricted stock”), stock options, or common stock have been granted at 100% of the market price of the Company's common stock on the date of grant. As of September 28, 2013, the Company’s one active plan, the 2009 Equity Plan, had 4.6 million shares of common stock available for grant to its employees and directors.
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KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

• | Market-based restricted stock entitles the employee to receive common shares of the Company on the award vesting date if market performance objectives which measure relative total shareholder return (“TSR”) are attained. Relative TSR is calculated based upon the 90-calendar day average price of the Company's stock as compared to specific peer companies that comprise the Philadelphia Semiconductor Index. TSR is measured for the Company and each peer company over a performance period, which is generally three years. Vesting percentages range from 0% to 200% of awards granted. The provisions of the market-based restricted stock are reflected in the grant date fair value of the award; therefore, compensation expense is recognized regardless of whether or not the market condition is ultimately satisfied. Compensation expense is reversed if the award is forfeited prior to the vesting date.

• | In general, stock options and time-based restricted stock awarded to employees vest annually over a three-year period provided the employee remains employed by the Company. The Company follows the non-substantive vesting method for stock options and recognizes compensation expense immediately for awards granted to retirement-eligible employees, or over the period from the grant date to the date retirement eligibility is achieved.

• | In general, performance-based restricted stock (“PSU”) entitles the employee to receive common shares of the Company on the three-year anniversary of the grant date (if employed by the Company) if return on invested capital and revenue growth targets set by the Management Development and Compensation Committee (“MDCC”) of the Board of Directors on the date of grant are met. If return on invested capital and revenue growth targets are not met, performance-based restricted stock does not vest. Certain PSUs vest based on achievement of strategic goals over a certain time period or periods set by the MDCC. If the strategic goals are not achieved, the PSUs do not vest.

Equity-based compensation expense recognized in the Consolidated Statements of Operations for fiscal 2013, 2012 and 2011 was based upon awards ultimately expected to vest. In accordance with ASC No. 718, Stock Based Compensation, forfeitures have been estimated at the time of grant and were based upon historical experience. The Company reviews the forfeiture rates periodically and makes adjustments as necessary.
The following table reflects total equity-based compensation expense, which includes restricted stock, stock options and common stock, included in the Consolidated Statements of Operations for fiscal 2013, 2012, and 2011:

|  | Fiscal
(in thousands) |  | 2013 |  | 2012 |  | 2011
Cost of sales |  | $ | 295 |  |  | $ | 312 |  |  | $ | 213 |
Selling, general and administrative |  | 8,457 |  |  | 6,602 |  |  | 5,671 |
Research and development |  | 1,918 |  |  | 1,777 |  |  | 1,328 |
Total equity-based compensation expense |  | $ | 10,670 |  |  | $ | 8,691 |  |  | $ | 7,212 |

The following table reflects equity-based compensation expense, by type of award, for fiscal 2013, 2012, and 2011:

|  | Fiscal
(in thousands) |  | 2013 |  | 2012 |  | 2011
Market-based restricted stock |  | $ | 4,135 |  |  | $ | 2,929 |  |  | $ | 1,961 |
Time-based restricted stock |  | 5,545 |  |  | 4,732 |  |  | 4,003 |
Performance-based restricted stock |  | 107 |  |  | 269 |  |  | 442 |
Stock options |  | 43 |  |  | 41 |  |  | 86 |
Common stock |  | 840 |  |  | 720 |  |  | 720 |
Total equity-based compensation expense |  | $ | 10,670 |  |  | $ | 8,691 |  |  | $ | 7,212 |

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KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Equity-Based Compensation: employee market-based restricted stock
The following table reflects employee market-based restricted stock activity for fiscal 2013, 2012, and 2011:

| Number of shares (in thousands) |  | Unrecognized compensation expense (in thousands) |  | Average remaining service period (in years) |  | Weighted average grant date fair value per share
Market-based restricted stock outstanding as of October 2, 2010 | 314 |  |  | $ | 667 |  |  | 1.3 |  |
Granted | 442 |  |  |  |  |  |  | $ | 11.32 |
Forfeited or expired | (165 | ) |  |  |  |  |  |
Vested | (104 | ) |  |  |  |  |  |
Market-based restricted stock outstanding as of October 2, 2011 | 487 |  |  | $ | 3,674 |  |  | 1.9 |  |
Granted | 437 |  |  |  |  |  |  | $ | 12.56 |
Forfeited or expired | (10 | ) |  |  |  |  |  |
Market-based restricted stock outstanding as of September 29, 2012 | 914 |  |  | 6,175 |  |  | 1.5 |  |
Granted | 344 |  |  |  |  |  |  | $ | 13.89 |
Forfeited or expired | (49 | ) |  |  |  |  |  |
Vested | (124 | ) |  |  |  |  |  |
Market-based restricted stock outstanding as of September 28, 2013 | 1,085 |  |  | $ | 5,913 |  |  | 1.1 |  |

Equity-Based Compensation: employee time-based restricted stock
The following table reflects employee time-based restricted stock activity for fiscal 2013, 2012, and 2011:

| Number of shares (in thousands) |  | Unrecognized compensation expense (in thousands) |  | Average remaining service period (in years) |  | Weighted average grant date fair value per share
Time-based restricted stock outstanding as of October 2, 2010 | 1,707 |  |  | $ | 5,683 |  |  | 1.4 |  |
Granted | 714 |  |  |  |  |  |  | $ | 6.56 |
Forfeited or expired | (259 | ) |  |  |  |  |  |
Vested | (563 | ) |  |  |  |  |  |
Time-based restricted stock outstanding as of October 1, 2011 | 1,599 |  |  | $ | 6,096 |  |  | 1.7 |  |
Granted | 695 |  |  |  |  |  |  | $ | 9.15 |
Forfeited or expired | (76 | ) |  |  |  |  |  |
Vested | (686 | ) |  |  |  |  |  |
Time-based restricted stock outstanding as of September 29, 2012 | 1,532 |  |  | $ | 7,070 |  |  | 1.4 |  |
Granted | 620 |  |  |  |  |  |  | $ | 10.59 |
Forfeited or expired | (132 | ) |  |  |  |  |  |
Vested | (804 | ) |  |  |  |  |  |
Time-based restricted stock outstanding as of September 28, 2013 | 1,216 |  |  | $ | 6,028 |  |  | 1.2 |  |

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KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Equity-Based Compensation: employee performance-based restricted stock
No performance-based restricted stock was issued during fiscal 2012 or 2011.
The following table reflects employee performance-based restricted stock activity for fiscal 2013, 2012, and 2011:

| Number of shares (in thousands) |  | Unrecognized compensation expense (in thousands) |  | Average remaining service period (in years)
Performance-based restricted stock outstanding as of October 2, 2010 | 626 |  |  | 228 |  |  | 0.2 |
Forfeited or expired | (275 | ) |  |  |  |
Vested | (182 | ) |  |  |  |
Performance-based restricted stock outstanding as of October 1, 2011 | 169 |  |  | — |  |  | — |
Vested | (169 | ) |  |  |  |
Performance-based restricted stock outstanding as of September 29, 2012 | — |  |  | — |  |  | — |
Granted | 57 |  |  |  |  |
Performance-based restricted stock outstanding as of September 28, 2013 | 57 |  |  | 550 |  |  | 2.2 |

The following table reflects employee stock option activity for fiscal 2013, 2012, and 2011:

| Number of shares (in thousands) |  | Weighted average exercise price |  | Average remaining contractual life (in years) |  | Aggregate intrinsic value (in thousands)
Options outstanding as of October 2, 2010 | 3,310 |  |  | 9.80 |  |  |  |  |
Granted | — |  |  | — |  |  |  |  |
Exercised | (1,216 | ) |  | 7.50 |  |  |  |  | 3,498 |
Forfeited or expired | (585 | ) |  | 13.79 |  |  |  |  |
Options outstanding as of October 1, 2011 | 1,509 |  |  | 10.11 |  |  |  |  |
Granted | — |  |  | — |  |  |  |  |
Exercised | (374 | ) |  | 7.70 |  |  |  |  | 829 |
Forfeited or expired | (432 | ) |  | 13.35 |  |  |  |  |
Options outstanding as of September 29, 2012 | 703 |  |  | $ | 9.40 |  |  |  |  |
Exercised | (101 | ) |  |  |  |  |  |  | 292 |
Forfeited or expired | (40 | ) |  |  |  |  |  |  |
Options outstanding as of September 28, 2013 | 562 |  |  |  |  |  |  |  |  |
Options vested and expected to vest as of September 28, 2013 | 560 |  |  | $ | 9.57 |  |  | 1.9 |  | 1,210 |
Options exercisable as of September 28, 2013 | 555 |  |  | $ | 9.60 |  |  | 1.9 |  |
In the money exercisable options as of September 28, 2013 | 339 |  |  |  |  |  |  | $ | 1,189 |

Since 2007, on average, 14.5% of stock options granted by the Company become vested each year, and on average, 21% of stock options granted by the Company are forfeited each year. Intrinsic value of stock options exercised is determined by calculating the difference between the market value of the Company's stock price at the time an option is exercised and the exercise price, multiplied by the number of shares. The intrinsic value of stock options outstanding and stock options exercisable is determined by calculating the difference between the Company's closing stock price on the last trading day of fiscal 2013 and the exercise price of in-the-money stock options, multiplied by the number of underlying shares. During fiscal 2013, the Company received
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KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
$0.9 million in cash from the exercise of employee and non-employee director stock options.
As of September 28, 2013, total unrecognized compensation cost related to unvested employee stock options was $20,600, which will be amortized over the weighted average remaining service period of approximately 1 year.
The following table reflects outstanding and exercisable employee stock options as of September 28, 2013:

|  | Options Outstanding |  | Options Exercisable
Range of exercise prices |  | Options outstanding (in thousands) |  | Weighted average remaining contractual life (in years) |  | Weighted average exercise price |  | Options exercisable (in thousands) |  | Weighted average exercise price
3.06 - 7.08 |  | 29 |  |  | 5.75 |  | $ | 5.48 |  |  | 24 |  |  | $ | 5.29 |
7.14 - 7.31 |  | 85 |  |  | 1.1 |  | 7.14 |  |  | 85 |  |  | 7.14 |
8.43 - 8.74 |  | 230 |  |  | 3.62 |  | 8.63 |  |  | 228 |  |  | 8.63 |
9.64 - 12.05 |  | 218 |  |  | 0.05 |  | 12.03 |  |  | 218 |  |  | 12.03 |
|  | 562 |  |  | 1.97 |  | $ | 9.56 |  |  | 555 |  |  | $ | 9.6 |

Equity-Based Compensation: non-employee directors
The 2009 Equity Plan provides for the grant of common shares to each non-employee director upon initial election to the board and on the first business day of each calendar quarter while serving on the board. The grant to a non-employee director upon initial election to the board is that number of common shares closest in value to, without exceeding, $120,000. The quarterly grant to a non-employee director upon the first business day of each calendar year quarter is that number of common shares closest in value to, without exceeding, $30,000.
The following table reflects shares of common stock issued to non-employee directors and the corresponding fair value for fiscal 2013, 2012, and 2011:

| Fiscal
(in thousands) | 2013 |  | 2012 |  | 2011
Number of commons shares issued | 74 |  |  | 78 |  |  | 89 |
Fair value based upon market price at time of issue | $ | 908 |  |  | $ | 720 |  |  | $ | 720 |

The following table reflects non-employee director stock option activity for fiscal 2013, 2012, and 2011:

| Number of shares (in thousands) |  | Weighted average exercise price |  | Average remaining contractual life (in years) |  | Aggregate intrinsic value (in thousands)
Options outstanding as of October 2, 2010 | 348 |  |  | 11.25 |  |  |  |  |
Exercised | (30 | ) |  | 6.16 |  |  |  |  | 170 |
Forfeited or expired | (60 | ) |  | 11.50 |  |  |  |  |
Options outstanding as of October 1, 2011 | 258 |  |  | 11.78 |  |  |  |  |
Exercised | (63 | ) |  | 6.89 |  |  |  |  | 300 |
Forfeited or expired | (60 | ) |  | 17.62 |  |  |  |  |
Options outstanding as of September 29, 2012 | 135 |  |  | $ | 11.45 |  |  |  |  |
Options outstanding as of September 28, 2013 | 135 |  |  | $ | 11.45 |  |  | 1.3 |  | $ | 76 |
Options vested and expected to vest as of September 28, 2013 | 135 |  |  | $ | 11.45 |  |  | 1.3 |  | $ | 76 |
Options exercisable as of September 28, 2013 | 135 |  |  | $ | 11.45 |  |  | 1.3 |  |
In the money exercisable options as of September 28, 2013 | 65 |  |  |  |  |  |  | 76 |

No non-employee director stock options were granted during fiscal 2013, 2012, and 2011.
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KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Pension Plan
The following table reflects the Company's defined benefits pension obligations as of September 28, 2013 and September 29, 2012 :

|  | As of
(in thousands) | September 28, 2013 |  |  | September 29, 2012 |
Switzerland pension obligation | $ | 388 |  |  | $ | 2,506 |
Taiwan pension obligation | 1,323 |  |  | 1,323 |
| Total pension obligation | $ | 1,711 |  |  | $ | 3,829 |

In accordance with regulations in Switzerland, the Company sponsors a Switzerland pension plan covering active employees whose minimum benefits are guaranteed. During fiscal 2012, the Company announced the intention to reduce its Switzerland workforce by approximately 41 employees, which triggered a further curtailment of the Switzerland pension plan under ASC No. 715, Topic 30, Compensation - Retirement Benefits, Defined Benefit Plans. As a result, the Company recognized a pretax curtailment and settlement gain of $1.7 million and $2.1 million in fiscal 2012 and 2013, respectively.
Other Plans
Some of the Company's other foreign subsidiaries have retirement plans that are integrated with and supplement the benefits provided by laws of the various countries. These other plans are not required to report nor do they determine the actuarial present value of accumulated benefits or net assets available for plan benefits as they are defined contribution plans.
NOTE 8: EARNINGS PER SHARE
Basic income (loss) per share is calculated using the weighted average number of shares of common stock outstanding during the period. In addition, net income applicable to participating securities and the related participating securities are excluded from the computation of basic income per share.
Diluted income per share is calculated using the weighted average number of shares of common stock outstanding during the period and, if there is net income during the period, the dilutive impact of common stock equivalents outstanding during the period. In computing diluted income per share, if convertible debt is assumed to be converted to common shares, the after-tax amount of interest expense recognized in the period associated with the convertible debt is added back to net income.
As of October 1, 2011, the Company determined that the Notes would not result in the issuance of any dilutive shares, since the conversion option was not “in the money” as of October 1, 2011. The Notes matured on June 1, 2012. The Company repaid the entire principal balance of the Notes of $110.0 million plus interest of $0.5 million in cash in fiscal 2012. No common shares were issued in connection with repayment of the Notes. Accordingly, diluted EPS excludes the effect of the conversion of the Notes.
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KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following tables reflect a reconciliation of the shares used in the basic and diluted net income per share computation for fiscal 2013, 2012, and 2011:

|  | Fiscal
(in thousands, except per share) |  | 2013 |  | 2012 |  | 2011
|  | Basic |  | Diluted |  | Basic |  | Diluted |  | Basic |  | Diluted
NUMERATOR: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net income |  | $ | 59,358 |  |  | $ | 59,358 |  |  | $ | 160,580 |  |  | $ | 160,580 |  |  | $ | 127,610 |  |  | $ | 127,610 |
Less: income applicable to participating securities |  | — |  |  | — |  |  | (5 | ) |  | (5 | ) |  | (716 | ) |  | (716 | )
Net income applicable to common shareholders |  | $ | 59,358 |  |  | $ | 59,358 |  |  | $ | 160,575 |  |  | $ | 160,575 |  |  | $ | 126,894 |  |  | $ | 126,894 |
DENOMINATOR: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Weighted average shares outstanding - Basic |  | 75,132 |  |  | 75,132 |  |  | 73,887 |  |  | 73,887 |  |  | 71,820 |  |  | 71,820 |
Stock options |  |  |  | 110 |  |  |  |  | 660 |  |  |  |  | 442 |
Time-based restricted stock |  |  |  | 512 |  |  |  |  | 813 |  |  |  |  | 846 |
Market-based restricted stock |  |  |  | 436 |  |  |  |  | 142 |  |  |  |  | 233 |
Weighted average shares outstanding - Diluted (1) |  |  |  | 76,190 |  |  |  |  | 75,502 |  |  |  |  | 73,341 |
EPS: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net income per share - Basic |  | $ | 0.79 |  |  | $ | 0.79 |  |  | $ | 2.17 |  |  | $ | 2.17 |  |  | $ | 1.77 |  |  | $ | 1.77 |
Effect of dilutive shares |  |  |  | (0.01 | ) |  |  |  | $ | (0.04 | ) |  |  |  | $ | (0.04 | )
Net income per share - Diluted |  |  |  | $ | 0.78 |  |  |  |  | $ | 2.13 |  |  |  |  | $ | 1.73 |

(1) | There were no potentially dilutive shares excluded for fiscal 2013. Fiscal 2012 and 2011 exclude 0.1 million and 0.4 million dilutive participating securities, respectively, as the income attributable to these shares was not included in EPS.

NOTE 9: INCOME TAXES
The following table reflects income from continuing operations by location, the provision (benefit) for income taxes and the effective tax rate for fiscal 2013, 2012, and 2011:

| Fiscal
(dollar amounts in thousands) | 2013 |  | 2012 |  | 2011
United States operations | $ | (4,340 | ) |  | $ | (6,111 | ) |  | $ | 33,531 |
Foreign operations | 71,008 |  |  | 180,362 |  |  | 128,897 |
Income from operations before tax | 66,668 |  |  | 174,251 |  |  | 162,428 |
Provision for income taxes | 7,310 |  |  | 13,671 |  |  | 34,818 |
Net income | $ | 59,358 |  |  | $ | 160,580 |  |  | $ | 127,610 |
Effective tax rate | 11.0 | % |  | 7.8 | % |  | 21.4 | %

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KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following table reflects the provision for income taxes from continuing operations for fiscal 2013, 2012, and 2011:

| Fiscal
(in thousands) | 2013 |  | 2012 |  | 2011
Current: |  |  |  |  |
Federal | $ | (212 | ) |  | $ | 4,103 |  |  | $ | (90 | )
State | 291 |  |  | 942 |  |  | 1,099 |
Foreign | 1,732 |  |  | 5,497 |  |  | 14,764 |
Deferred: |  |  |  |  |
Federal | 985 |  |  | 4,169 |  |  | 17,463 |
State | 5 |  |  | 48 |  |  | 8 |
Foreign | 4,509 |  |  | (1,088 | ) |  | 1,574 |
Provision for income taxes | $ | 7,310 |  |  | $ | 13,671 |  |  | $ | 34,818 |

The following table reflects the difference between the provision for income taxes and the amount computed by applying the statutory federal income tax rate for fiscal 2013, 2012, and 2011:

| Fiscal
(in thousands) | 2013 |  | 2012 |  | 2011
Computed income tax expense based on U.S. statutory rate | $ | 23,334 |  |  | $ | 60,988 |  |  | $ | 56,850 |
Effect of earnings of foreign subsidiaries subject to different tax rates | (11,193 | ) |  | (30,067 | ) |  | (17,300 | )
Benefits from foreign approved enterprise zones | (9,626 | ) |  | (22,138 | ) |  | (21,079 | )
Effect of permanent items | 664 |  |  | 152 |  |  | 669 |
Changes in valuation allowance | 1,429 |  |  | 1,261 |  |  | (962 | )
Foreign operations (withholding taxes, deferred taxes on unremitted earnings, US taxation of foreign earnings) | 1,789 |  |  | 12,604 |  |  | 6,917 |
Reserve for uncertain tax positions | 683 |  |  | (7,626 | ) |  | 7,406 |
State income tax expense | (734 | ) |  | (394 | ) |  | 1,230 |
Other, net | 964 |  |  | (1,109 | ) |  | 1,087 |
Provision for income taxes | $ | 7,310 |  |  | $ | 13,671 |  |  | $ | 34,818 |

Income tax expense for the current year includes approximately $0.3 million, $3.0 million and $4.4 million of taxes payable for deemed distributions from earnings for the years ended September 28, 2013, September 29, 2012 and October 1, 2011, respectively.
Undistributed earnings of certain foreign subsidiaries for which taxes have not been provided were approximately $411.4 million as of September 28, 2013. Such undistributed earnings are considered to be indefinitely reinvested in foreign operations. Determination of the amount of unrecognized deferred tax liability related to these earnings is not practicable.
Undistributed earnings of approximately $85.5 million are not considered to be indefinitely reinvested in foreign operations. As of September 28, 2013, the Company has provided a deferred tax liability of approximately $17.5 million for withholding taxes associated with future repatriation of earnings for certain subsidiaries.
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KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following table reflects the net deferred tax balance, composed of the tax effects of cumulative temporary differences for fiscal 2013 and 2012:

| Fiscal
(in thousands) | 2013 |  | 2012
Inventory reserves | $ | 1,127 |  |  | $ | 2,933 |
Other accruals and reserves | 3,349 |  |  | 3,343 |
Net operating loss carryforwards | 779 |  |  | — |
Valuation allowance | (768 | ) |  | (2,761 | )
Total short-term deferred tax asset | $ | 4,487 |  |  | $ | 3,515 |
Total short-term deferred tax liability | 221 |  |  | — |
Net short-term deferred tax asset | $ | 4,266 |  |  | $ | 3,515 |
Domestic tax credit carryforwards | $ | 1,611 |  |  | $ | 628 |
Net operating loss carryforwards | 28,138 |  |  | 29,384 |
Stock options | 1,299 |  |  | 1,322 |
Other | 926 |  |  | 769 |
| 31,974 |  |  | 32,103 |
Valuation allowance | (25,676 | ) |  | (22,254 | )
Total long-term deferred tax asset (1) | $ | 6,298 |  |  | $ | 9,849 |
Repatriation of foreign earnings, including foreign withholding taxes | $ | 41,322 |  |  | $ | 40,770 |
Depreciable assets | 1,887 |  |  | (58 | )
Prepaid expenses and other | — |  |  | — |
Total long-term deferred tax liability | $ | 43,209 |  |  | $ | 40,712 |
Net long-term deferred tax liability | $ | 36,911 |  |  | $ | 30,863 |
Total net deferred tax liability | $ | 32,645 |  |  | $ | 27,348 |

(1) | Included in other assets on the Consolidated Balance Sheets are deferred tax assets of $3.8 million and $7.0 million as of September 28, 2013 and September 29, 2012, respectively.

As of September 28, 2013, the Company has foreign net operating loss carryforwards of $80.6 million, domestic state net operating loss carryforwards of $200.2 million, and tax credit carryforwards of $1.6 million that will reduce future taxable income. These carryforwards can be utilized in the future, prior to expiration of certain carryforwards in fiscal years 2014 through 2033 with the exception of certain credits and foreign net operating losses that have no expiration date. Pennsylvania tax law limits the time during which carryforwards may be applied against future taxes and Pennsylvania tax law limits the utilization of domestic state net operating loss carryforwards to as little as $3.0 million annually, but recent tax law changes will increase this amount in future years.
As of September 28, 2013 and September 29, 2012, approximately $0.8 million and $1.5 million were recorded as common stock (additional paid in capital) in shareholders' equity on the Consolidated Balance Sheets attributable to stock option exercises and restricted stock vesting.
The Company continues to evaluate the realizability of all of its net deferred tax assets at each reporting date and records a benefit for deferred tax assets to the extent it has deferred tax liabilities that provide a source of income to benefit the deferred tax asset. As a result of this analysis, the Company continues to maintain a valuation allowance against a majority of its state deferred tax assets as the realization of these assets is not more likely than not given uncertainty of future earnings in these jurisdictions.
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KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The beginning and ending balances of the Company's unrecognized tax benefits are reconciled below for fiscal 2013, 2012, and 2011:

|  | Fiscal
(in thousands) |  | 2013 |  | 2012 |  | 2011
Unrecognized tax benefit, beginning of year |  | $ | 6,186 |  |  | $ | 13,702 |  |  | $ | 6,413 |
Additions for tax positions, current year |  | — |  |  | — |  |  | — |
Additions for tax positions, prior year |  | 2,485 |  |  | 110 |  |  | 7,585 |
Reductions for tax positions, prior year |  | (1,802 | ) |  | (7,626 | ) |  | (296 | )
Unrecognized tax benefit, end of year |  | $ | 6,869 |  |  | $ | 6,186 |  |  | $ | 13,702 |

If recognized, the $6.9 million of unrecognized tax benefit as of September 28, 2013 would impact the Company's effective tax rate.
In fiscal 2013, the Company recognized a benefit of $1.7 million related to the reversal of a reserve for uncertain tax positions based on administrative practices in a foreign jurisdiction and an additional $0.1 million related to a position effectively settled upon audit in a different foreign jurisdiction. The Company has also taken a position on a tax return in a foreign jurisdiction that does meet the recognition and measurement criteria under ASC 740 and as a result it has provided a reserve for uncertain tax position of $2.1 million.
In fiscal 2011, a tax application filed with a foreign jurisdiction was rejected by that country's tax authority and the Company filed an appeal. As a result of the rejection of the application, the Company reconsidered its position and determined the benefit taken on its previously filed tax returns no longer met the recognition standard required under ASC 740. Therefore, during fiscal 2011, the Company provided a current liability of $7.5 million related to this certain unrecognized tax position, including penalties. No interest was accrued, as it is not provided for under the tax laws of the foreign jurisdiction. During the fourth quarter of fiscal 2012, the Company reached a favorable settlement with the tax authorities of a foreign jurisdiction. As a result, the current liability of $7.5 million is no longer necessary and an income tax benefit was recorded to remove the liability in fiscal 2012.
The Company recognizes interest and penalties accrued related to unrecognized tax benefits as a component of income tax expense. There were no additional accruals of interest expense on various uncertain tax positions during fiscal 2013 for matters involving jurisdictions where interest is not assessed.
It is reasonably possible that the amount of the unrecognized tax benefit with respect to certain unrecognized tax positions will increase or decrease during the next 12 months; however, the Company does not expect the change to have a material effect on its results of operations or its financial position.
The Company files U.S. federal income tax return, as well as income tax returns in various state and foreign jurisdictions. For the U.S. federal income tax returns and most state tax returns, tax years following fiscal 2001 remain subject to examination as a result of the generation of net operating loss carry-forwards. The statutes of limitations with respect to the foreign jurisdictions in which the Company files vary from jurisdiction to jurisdiction and range from 4 to 6 years.
As a result of committing to certain capital investments and employment levels, income from operations in Singapore and Malaysia is subject to reduced tax rates, and in some cases income from operations in Malaysia is wholly exempt from taxes. Malaysia, is wholly tax exempt. In connection with Singapore operations, the Company has been granted a decreased effective tax rate of five percent in that jurisdiction until February 1, 2020 subject to the fulfillment of certain continuing conditions. In fiscal 2013, 2012, and 2011, the preferential rate reduced income tax expense by approximately $9.6 million or $0.13 per share, $22.1 million or $0.30 per share and $21.1 million or $0.29 per share, respectively.
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KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 10: OTHER FINANCIAL DATA
The following table reflects other financial data for fiscal 2013, 2012, and 2011:

| Fiscal
(in thousands) | 2013 |  | 2012 |  | 2011
Selling, general and administrative incentive compensation expense (1) | $ | 17,194 |  |  | $ | 21,988 |  |  | $ | 24,264 |
Rent expense | $ | 7,765 |  |  | $ | 7,202 |  |  | $ | 7,729 |
Warranty and retrofit expense | $ | 711 |  |  | $ | 3,726 |  |  | $ | 3,720 |

(1) Incentive compensation expense is based upon applicable fiscal year operating income.
NOTE 11: SEGMENT INFORMATION
The Company operates two reportable segments: Equipment and Expendable Tools. The Equipment segment manufactures and sells a line of ball bonders and heavy wire wedge bonders that are sold to semiconductor device manufacturers, their outsourced semiconductor assembly and test subcontractors, other electronics manufacturers and automotive electronics suppliers. The Company also services, maintains, repairs and upgrades its equipment. The Expendable Tools segment manufactures and sells a variety of expendable tools for a broad range of semiconductor packaging applications.
The following table reflects operating information by segment for fiscal 2013, 2012, and 2011:

|  | Fiscal
(in thousands) |  | 2013 |  | 2012 |  | 2011
Net revenue: |  |  |  |  |  |
Equipment |  | $ | 472,567 |  |  | $ | 727,082 |  |  | $ | 759,331 |
Expendable Tools |  | 62,371 |  |  | 63,941 |  |  | 71,070 |
Net revenue |  | 534,938 |  |  | 791,023 |  |  | 830,401 |
Cost of sales : |  |  |  |  |  |
Equipment |  | 261,270 |  |  | 397,210 |  |  | 412,914 |
Expendable Tools |  | 26,723 |  |  | 26,423 |  |  | 29,578 |
Cost of sales |  | 287,993 |  |  | 423,633 |  |  | 442,492 |
Gross profit : |  |  |  |  |  |
Equipment |  | 211,297 |  |  | 329,872 |  |  | 346,417 |
Expendable Tools |  | 35,648 |  |  | 37,518 |  |  | 41,492 |
Gross profit |  | 246,945 |  |  | 367,390 |  |  | 387,909 |
Operating expenses: |  |  |  |  |  |
Equipment |  | 158,306 |  |  | 164,081 |  |  | 189,631 |
Expendable Tools |  | 22,833 |  |  | 24,083 |  |  | 28,218 |
Operating expenses |  | 181,139 |  |  | 188,164 |  |  | 217,849 |
Income from operations: |  |  |  |  |  |
Equipment |  | 52,991 |  |  | 165,791 |  |  | 156,786 |
Expendable Tools |  | 12,815 |  |  | 13,435 |  |  | 13,274 |
Income from operations |  | $ | 65,806 |  |  | $ | 179,226 |  |  | $ | 170,060 |

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KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following tables reflect assets by segment, capital expenditures and depreciation expense as of and for fiscal 2013, 2012, and 2011:

|  | As of
(in thousands) |  | September 28, 2013 |  | September 29, 2012 |  | October 1, 2011
Segment assets: |  |  |  |  |  |
Equipment (1) |  | $ | 764,793 |  |  | $ | 746,636 |  |  | $ | 639,149 |
Expendable Tools (1) |  | 98,201 |  |  | 68,973 |  |  | 89,242 |
Total assets |  | $ | 862,994 |  |  | $ | 815,609 |  |  | $ | 728,391 |

(1) | Increase in the Company's Equipment segment and increase in Expendable Tools from fiscal 2012 to 2013 were due to allocation, based upon fiscal year net revenue, of non-segment specific corporate assets. Corporate assets include: cash, cash equivalents, restricted cash, short-term investments, deferred income tax assets and other assets.

|  | Fiscal
(in thousands) |  | 2013 |  | 2012 |  | 2011
Capital expenditures: |  |  |  |  |  |
Equipment |  | $ | 11,704 |  |  | $ | 5,318 |  |  | $ | 4,229 |
Expendable Tools |  | 5,468 |  |  | 1,584 |  |  | 3,459 |
Capital expenditures |  | $ | 17,172 |  |  | $ | 6,902 |  |  | $ | 7,688 |

|  | Fiscal
(in thousands) |  | 2013 |  | 2012 |  | 2011
Depreciation expense |  |  |  |  |  |
Equipment |  | $ | 6,936 |  |  | $ | 5,745 |  |  | $ | 5,955 |
Expendable Tools |  | 2,375 |  |  | 2,342 |  |  | 2,257 |
Depreciation expense |  | $ | 9,311 |  |  | $ | 8,087 |  |  | $ | 8,212 |

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KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Geographic information
The following tables reflect destination sales to unaffiliated customers by country and long-lived assets by country for fiscal 2013, 2012, and 2011:

| Fiscal
(in thousands) | 2013 |  | 2012 |  | 2011
Destination sales to unaffiliated customers: |  |  |  |  |
Taiwan | $ | 150,271 |  |  | $ | 251,128 |  |  | $ | 240,390 |
China | 124,272 |  |  | 160,573 |  |  | 132,933 |
Korea | 36,949 |  |  | 71,552 |  |  | 114,130 |
Singapore | 35,833 |  |  | 23,045 |  |  | 33,503 |
Philippines | 30,257 |  |  | 33,715 |  |  | 16,806 |
Hong Kong | 28,911 |  |  | 76,964 |  |  | 104,481 |
Malaysia | 23,799 |  |  | 39,447 |  |  | 46,831 |
Japan | 17,680 |  |  | 24,755 |  |  | 28,747 |
United States | 14,652 |  |  | 13,433 |  |  | 17,955 |
Malta | 9,552 |  |  | 6,089 |  |  | 10,009 |
Thailand | 9,143 |  |  | 21,828 |  |  | 19,539 |
Germany | 5,822 |  |  | 7,319 |  |  | 9,217 |
Vietnam | 4,639 |  |  | 10,019 |  |  | 5,715 |
All other | 43,158 |  |  | 51,156 |  |  | 50,145 |
Total destination sales to unaffiliated customers | $ | 534,938 |  |  | $ | 791,023 |  |  | $ | 830,401 |

| Fiscal
(in thousands) | 2013 |  | 2012 |  | 2011
Long-lived assets: |  |  |  |  |
Singapore | $ | 87,104 |  |  | $ | 67,060 |  |  | $ | 74,130 |
United States | 7,525 |  |  | 14,193 |  |  | 13,043 |
China | 6,718 |  |  | 4,438 |  |  | 4,470 |
Israel | 5,674 |  |  | 8,078 |  |  | 7,887 |
Switzerland | 252 |  |  | 6,101 |  |  | 6,522 |
All other | 1,333 |  |  | 2,423 |  |  | 2,498 |
Total long-lived assets | $ | 108,606 |  |  | $ | 102,293 |  |  | $ | 108,550 |

NOTE 12: COMMITMENTS, CONTINGENCIES AND CONCENTRATIONS
Agreement to Develop and Lease
On May 7, 2012, Pte entered into the ADL and a Lease Agreement with DBS Trustee Limited as trustee of the Landlord. Pursuant to the ADL, the Landlord agreed to develop a building at Lot 17622A Pt Mukim 18 at Serangoon North Avenue 5 (the “Building”) and Pte agreed to lease from the Landlord 198,134 square feet (the “Initial Premises”), representing approximately 69% of the Building. The Building is expected to be completed and ready for occupancy in the first quarter of fiscal 2014.
Warranty Expense
The Company's equipment is generally shipped with a one-year warranty against manufacturing defects. The Company establishes reserves for estimated warranty expense when revenue for the related equipment is recognized. The reserve for estimated warranty expense is based upon historical experience and management's estimate of future warranty costs.
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KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following table reflects the reserve for product warranty activity for fiscal 2013, 2012, and 2011:

|  | Fiscal
(in thousands) |  | 2013 |  | 2012 |  | 2011
Reserve for product warranty, beginning of period |  | $ | 2,412 |  |  | $ | 2,245 |  |  | $ | 2,657 |
Provision for product warranty |  | 1,093 |  |  | 3,521 |  |  | 2,914 |
Product warranty costs paid |  | (2,311 | ) |  | (3,354 | ) |  | (3,326 | )
Reserve for product warranty, end of period |  | $ | 1,194 |  |  | $ | 2,412 |  |  | $ | 2,245 |

Other Commitments and Contingencies
The following table reflects obligations not reflected on the Consolidated Balance Sheet as of September 28, 2013:

|  |  |  |  | Payments due by fiscal year
(in thousands) |  | Total |  | 2014 |  | 2015 |  | 2016 |  | 2017 |  | thereafter
Inventory purchase obligation (1) |  | $ | 57,229 |  |  | $ | 57,229 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Operating lease obligations (2) |  | 31,211 |  |  | 3,700 |  |  | 3,380 |  |  | 2,761 |  |  | 2,364 |  |  | 19,006 |
Total |  | $ | 88,440 |  |  | $ | 60,929 |  |  | $ | 3,380 |  |  | $ | 2,761 |  |  | $ | 2,364 |  |  | $ | 19,006 |

(1) | The Company orders inventory components in the normal course of its business. A portion of these orders are non-cancelable and a portion may have varying penalties and charges in the event of cancellation.

(2) | The Company has minimum rental commitments under various leases (excluding taxes, insurance, maintenance and repairs, which are also paid by the Company) primarily for various facility and equipment leases, which expire periodically through 2023 (not including lease extension options, if applicable).

Pursuant to ASC No. 840, Leases, for lessee's involvement in asset construction, the Company is considered the owner of the Building during the construction phase of the ADL. As of September 28, 2013, the Company has recorded a financing obligation of $19.4 million related to the Building and is expected to record an additional $0.6 million over the construction term, which is expected to be completed in the next twelve months. This financing obligation is not reflected in the table above.
Under the lease agreement contemplated by the ADL, (the “Lease Agreement”), the term for the rental of the Initial Premises is expected to be 10 years (the “Initial Term”). Pte will have the option to renew for two additional ten-year terms. The combined annual rent and service charge for the Initial Term will range between approximately $4.0 to $5.0 million Singapore dollars. Subject to renting a minimum amount of space, Pte will have a right of first refusal for all space that becomes available in the Building, and the Landlord has agreed to make available a certain amount of additional space for rental at Pte's option which may be exercised at certain points during the second half of the Initial Term. Subject to renting a minimum amount of space for a certain period, Pte will have partial surrender rights. In addition, Pte will have termination rights after renting the Initial Premises for a certain period of time. The Lease Agreement is not in effect as of the date of this report and is not reflected in the above table.
Concentrations
The following tables reflect significant customer concentrations as a percentage of net revenue for fiscal 2013, 2012, and 2011:

|  | Fiscal
|  | 2013 |  | 2012 |  | 2011
Siliconware Precision Industries Ltd. |  | 11.0 | % |  | 14.9 | % |  | * |
Advanced Semiconductor Engineering |  | * |  |  | 22.4 | % |  | 21.8 | %

* Represents less than 10% of net revenue
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KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following table reflects significant customer concentrations as a percentage of total accounts receivable as of September 28, 2013 and September 29, 2012:

|  | As of
|  | September 28, 2013 |  |  | September 29, 2012 |
Siliconware Precision Industries Ltd. |  | 19.5 | % |  | 31.0 | %
STATS ChipPAC Ltd |  | 14.5 | % |  | * |
Haoseng Industrial Co., Ltd |  | 11.9 | % |  | 15.0 | %

* Represents less than 10% of total accounts receivable
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KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 13: SELECTED QUARTERLY FINANCIAL DATA (unaudited)
The following table reflects selected quarterly financial data for fiscal 2013 and 2012:

| Fiscal 2013 for the Quarter Ended |  |
(in thousands, except per share amounts) | December 29 |  | March 30 |  | June 29 |  | September 28 |  | Fiscal 2013
Net revenue | $ | 114,039 |  |  | $ | 106,110 |  |  | $ | 141,181 |  |  | $ | 173,608 |  |  | $ | 534,938 |
Gross profit | 51,525 |  |  | 48,820 |  |  | 65,914 |  |  | 80,686 |  |  | 246,945 |
Income from operations | 4,205 |  |  | 8,190 |  |  | 18,867 |  |  | 34,544 |  |  | 65,806 |
Provision for income taxes | 775 |  |  | 1,041 |  |  | 247 |  |  | 5,247 |  |  | 7,310 |
Net income | $ | 3,604 |  |  | $ | 7,336 |  |  | $ | 18,887 |  |  | $ | 29,531 |  |  | $ | 59,358 |
Net income per share (1): |  |  |  |  |  |  |  |  |
Basic | $ | 0.05 |  |  | $ | 0.10 |  |  | $ | 0.25 |  |  | $ | 0.39 |  |  | $ | 0.79 |
Diluted | $ | 0.05 |  |  | $ | 0.10 |  |  | $ | 0.25 |  |  | $ | 0.39 |  |  | $ | 0.78 |
Weighted average shares outstanding: |  |  |  |  |  |  |  |  |
Basic | 74,852 |  |  | 75,166 |  |  | 75,231 |  |  | 75,279 |  |  | 75,132 |
Diluted | 76,209 |  |  | 76,553 |  |  | 76,473 |  |  | 76,565 |  |  | 76,190 |
| Fiscal 2012 for the Quarter Ended |  |
(in thousands, except per share amounts) | December 31 |  | March 31 |  | June 30 |  | September 29 (2) |  | Fiscal 2012
Net revenue | $ | 120,024 |  |  | $ | 146,308 |  |  | $ | 255,525 |  |  | $ | 269,166 |  |  | $ | 791,023 |
Gross profit | 55,276 |  |  | 66,687 |  |  | 122,443 |  |  | 122,984 |  |  | 367,390 |
Income from operations | 12,376 |  |  | 20,242 |  |  | 76,276 |  |  | 70,332 |  |  | 179,226 |
Provision for income taxes | 1,977 |  |  | 1,616 |  |  | 6,847 |  |  | 3,231 |  |  | 13,671 |
Net income | $ | 8,507 |  |  | $ | 16,617 |  |  | $ | 68,174 |  |  | $ | 67,282 |  |  | $ | 160,580 |
Net income per share (1): |  |  |  |  |  |  |  |  |
Basic | $ | 0.12 |  |  | $ | 0.23 |  |  | $ | 0.92 |  |  | $ | 0.91 |  |  | $ | 2.17 |
Diluted | $ | 0.11 |  |  | $ | 0.22 |  |  | $ | 0.90 |  |  | $ | 0.89 |  |  | $ | 2.13 |
Weighted average shares outstanding: |  |  |  |  |  |  |  |  |
Basic | 73,540 |  |  | 73,825 |  |  | 74,067 |  |  | 74,116 |  |  | 73,887 |
Diluted | 74,628 |  |  | 75,553 |  |  | 75,994 |  |  | 75,942 |  |  | 75,502 |

(1) | EPS for the year may not equal the sum of quarterly EPS due to changes in weighted share calculations.

(2) | Includes approximately $7.5 million of income tax expense associated with additional tax exposure in Asia which was subsequently reversed in September 2012.

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Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
Item 9A. - CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of September 28, 2013. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of September 28, 2013 our disclosure controls and procedures were effective in providing reasonable assurance the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934, as amended, is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and (ii) accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure.
Management's Report on Internal Control Over Financial Reporting
The management of Kulicke and Soffa Industries, Inc. (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934, as amended. The Company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company's internal control over financial reporting includes those policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, provide reasonable assurance that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management evaluated the Company's internal control over financial reporting as of September 28, 2013. In making this assessment, management used the framework established in Internal Control-Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Management's assessment included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness of our internal control over financial reporting. Management reviewed the results of its assessment with the Audit Committee of the Company's Board of Directors. Based on that assessment and based on the criteria in the COSO framework, management has concluded that, as of September 28, 2013, the Company's internal control over financial reporting was effective.
The effectiveness of the Company's internal control over financial reporting as of September 28, 2013 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in its report, which appears herein.
Changes in internal control over financial reporting
In connection with the evaluation by our management, including with the participation of our Chief Executive Officer and Chief Financial Officer, of our internal control over financial reporting, no changes during the three months ended September 28, 2013 were identified to have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. OTHER INFORMATION
None.
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PART III

Item 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information required by Item 401 of Regulation S-K with respect to the directors and executive officers will appear under the heading “ITEM 1 - ELECTION OF DIRECTORS” in the Company's Proxy Statement for the 2014 Annual Meeting of Shareholders, which information is incorporated herein by reference. The other information required by Item 401 of Regulation S-K will appear under the heading “CORPORATE GOVERNANCE” in the Company's Proxy Statement for the 2014 Annual Meeting of Shareholders, which information is incorporated herein by reference.
The information required by Item 405 of Regulation S-K will appear under the heading “CORPORATE GOVERNANCE - Section 16(a) Beneficial Ownership Reporting Compliance” in the Company's Proxy Statement for the 2014 Annual Meeting of Shareholders, which information is incorporated herein by reference.
The information required by Item 406 of Regulation S-K will appear under the heading “CORPORATE GOVERNANCE - Code of Ethics” in the Company's Proxy Statement for the 2014 Annual Meeting of Shareholders, which information is incorporated herein by reference.
The information required by Item 407(c)(3) of Regulation will appear under the headings “CORPORATE GOVERNANCE-Nominating and Governance Committee” and “Shareholder Proposals” in the Company's Proxy Statement for the 2014 Annual Meeting of Shareholders, which information is incorporated herein by reference.
The information required by Items 407(d)(4) and (d)(5) of Regulation S-K will appear under the heading “CORPORATE GOVERNANCE-Audit Committee” in the Company's Proxy Statement for the 2014 Annual Meeting of Shareholders, which information is incorporated herein by reference.
Item 11. EXECUTIVE COMPENSATION
The information required by Item 402 of Regulation S-K will appear under the heading “COMPENSATION OF EXECUTIVE OFFICERS,” in the Company's Proxy Statement for the 2014 Annual Meeting of Shareholders, which information is incorporated herein by reference.
The information required by Item 407(e)(4) of Regulation S-K will appear under the heading “CORPORATE GOVERNANCE- Management Development and Compensation Committee Interlocks and Insider Participation” in the Company's Proxy Statement for the 2014 Annual Meeting of Shareholders, which information is incorporated herein by reference.
The information required by Item 407(e)(5) of Regulation S-K will appear under the heading “MANAGEMENT DEVELOPMENT AND COMPENSATION COMMITTEE REPORT” in the Company's Proxy Statement for the 2014 Annual Meeting of Shareholders, which information is incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required hereunder concerning security ownership of certain beneficial owners and management will appear under the headings “CORPORATE GOVERNANCE - Security Ownership Of Certain Beneficial Owners” and “CORPORATE GOVERANCE - SECURITY OWNERSHIP OF DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS”, in the Company's Proxy Statement for the 2014 Annual Meeting of Shareholders, which information is incorporated herein by reference. The information required by this item relating to securities authorized for issuance under equity compensation plans is included under the heading “EQUITY COMPENSATION PLAN INFORMATION” in the Company's Proxy Statement for the 2014 Annual Meeting of Shareholders, which is incorporated herein by reference.

Item 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

The information required by Item 404 of Regulation S-K will appear under the heading “CORPORATE GOVERNANCE - Certain Relationships and Related Transactions” in the Company's Proxy Statement for the 2014 Annual Meeting of Shareholders, which information is incorporated herein by reference.
The information required by Section 407(a) of Regulation S-K will appear under the heading “CORPORATE GOVERNANCE - Board Matters” in the Company's Proxy Statement for the 2014 Annual Meeting of Shareholders, which information is incorporated herein by reference.
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Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required hereunder will appear under the heading “AUDIT AND RELATED FEES” in the Company's Proxy Statement for the 2014 Annual Meeting of Shareholders, which information is incorporated herein by reference.
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Part IV

Item 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) | The following documents are filed as part of this report:

|  | Page
(1) | Financial Statements - Kulicke and Soffa Industries, Inc.: |
| Report of Independent Registered Public Accounting Firm | 43
| Consolidated Balance Sheets as of September 28, 2013 and September 29, 2012 | 45
| Consolidated Statements of Operations for fiscal 2013, 2012, and 2011 | 46
| Consolidated Statements of Comprehensive Income for fiscal 2013, 2012, and 2011 | 47
| Consolidated Statements of Changes in Shareholders' Equity for fiscal 2013, 2012, and 2011 | 48
| Consolidated Statements of Cash Flows for fiscal 2013, 2012 and 2011 | 49
| Notes to Consolidated Financial Statements | 50
(2) | Financial Statements and Schedules: |
| Schedule II - Valuation and Qualifying Accounts | 81
| All other schedules are omitted because they are not applicable or the required information is shown in the Consolidated Financial Statements or notes thereto. |
(3) | Exhibits: |

EXHIBIT NUMBER |  | ITEM
2.1 |  | Master Sale and Purchase Agreement between W.C. Heraeus GmbH and the Company, dated July 31, 2008, incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on July 31, 2008, SEC file number 000-00121.
2.1.1 |  | Amendment No. 1 to the Master Sale and Purchase Agreement between W.C. Heraeus GmbH and the Company, dated as of September 5, 2008, is incorporated herein by reference to Exhibit 2.2 to the Company's Current Report on Form 8-K filed on October 2, 2008, SEC file number 000-00121.
2.2 |  | Asset Purchase Agreement between Orthodyne Electronics Corporation and the Company, dated July 31, 2008, is incorporated herein by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on July 31, 2008, SEC file number 000-00121.
2.2.1 |  | Amendment to the Asset Purchase Agreement between Orthodyne and the Company, dated as of October 3, 2008, is incorporated herein by reference to Exhibit 2.2 to the Company's Current Report on Form 8-K filed on October 8, 2008, SEC file number 000-00121.
2.2.2 |  | Earnout Agreement between the Company and Orthodyne Electronics Corporation, dated July 31, 2008, is incorporated herein by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K filed on July 31, 2008, SEC file number 000-00121.
3.1 |  | The Company's Amended and Restated Articles of Incorporation, dated December 5, 2007, is incorporated herein by reference to Exhibit 3(i) to the Company's Annual Report on Form 10-K for the fiscal year ended September 29, 2007, SEC file number 000-00121.
3.2 |  | The Company's Amended and Restated By-Laws, dated June 5, 2012, is incorporated herein by reference to Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2012.
4.1 |  | Specimen Common Share Certificate of Kulicke and Soffa Industries Inc., is incorporated herein by reference to Exhibit 4 to the Company's Form-8A12G/A dated September 11, 1995, SEC file number 000-00121.
4.2 |  | Indenture between the Company and Bank of New York, as Trustee, dated as of June 6, 2007, is incorporated herein by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated June 6, 2007, SEC File number 000-00121.
10.1 |  | 1997 Non-Qualified Stock Option Plan for Non-Employee Directors (as amended and restated effective March 21, 2003), is incorporated herein by reference to Exhibit 10(vi) to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2003, SEC file number 000-00121.*

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10.2 |  | 2004 Israeli Addendum to 1998 Employee Incentive Stock Option and Non-Qualified Stock Option Plan (as amended and restated effective March 21, 2003), is incorporated herein by reference to Exhibit 10(vii) to the Company's Post-Effective Amendment No.4 on Form S-1 to the Registration Statement on Form S-3 filed on December 14, 2004, SEC file number 333-111478.*
10.3 |  | Form of Nonqualified Stock Option Agreement regarding the 1998 Employee Incentive Stock Option and Non-Qualified Stock Option Plan, is incorporated herein by reference to Exhibit 99.1 to the Company's Current Report on Form 8-K dated October 8, 2008, SEC file number 000-00121.*
10.4 |  | Form of Incentive Stock Option Agreement regarding the Employee Incentive Stock Option and Non-Qualified Stock Option Plan, is incorporated herein by reference to Exhibit 99.2 to the Company's Current Report on Form 8-K dated October 8, 2008, SEC file number 000-00121.*
10.5 |  | 1999 Nonqualified Employee Stock Option Plan (as amended and restated effective March 21, 2003), is incorporated herein by reference to Exhibit 10(xv) to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2003, SEC file number 000-00121.*
10.6 |  | 2004 Israeli Addendum to the 1999 Non-Qualified Stock Option Plan (as amended and restated effective March 21, 2003), is incorporated herein by reference to Exhibit 10(ix) to the Company's Post-Effective Amendment No.4 on Form S-1 to the Registration Statement on Form S-3 filed on December 14, 2004, SEC file number 333-111478.*
10.7 |  | 2001 Employee Incentive Stock Option and Non-Qualified Stock Option Plan (as amended and restated effective March 21, 2003), is incorporated herein by reference to Exhibit 10(xix) to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2003, SEC file number 000-00121.*
10.8 |  | 2004 Israeli Addendum to the 2001 Employee Incentive Stock Option and Non-Qualified Stock Option Plan (as amended and restated effective March 21, 2003), is incorporated herein by reference to Exhibit 10(xii) to the Company's Post-Effective Amendment No.4 on Form S-1 to the Registration Statement on Form S-3 filed on December 14, 2004, SEC file number 333-111478.*
10.9 |  | Officer Incentive Compensation Plan, dated August 2, 2005, is incorporated herein by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2005, SEC file number 000-00121.*
10.10 |  | 2008 Equity Plan is incorporated herein by reference to Appendix A to the Company's Proxy Statement on Schedule 14A for the annual meeting of shareholders on February 12, 2008, SEC file number 000-00121.*
10.11 |  | 2009 Equity Plan is incorporated herein by reference to Appendix A to the Company's Proxy Statement on Schedule 14A for the annual meeting of shareholders on February 10, 2009.*
10.12 |  | Amendment No. 1 to the Kulicke and Soffa Industries, Inc. 2009 Equity Plan, effective September 15, 2009, is incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on September 18, 2009.*
10.13 |  | Amendment No. 2 to the Kulicke and Soffa Industries, Inc. 2009 Equity Plan, effective September 30, 2009, is incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on September 18, 2009.*
10.14 |  | Amendment No. 3 to the Kulicke and Soffa Industries, Inc. 2009 Equity Plan, effective September 21, 2012.*
10.15 |  | Form of Officer Performance Share Award Agreement regarding the 2009 Equity Plan, is incorporated herein by reference to Exhibit 10(xxxiii) to the Company's Annual Report on Form 10-K for the fiscal year ended October 3, 2009.*
10.16 |  | Form of Officer Performance Share Award Agreement regarding the 2009 Equity Plan, is incorporated herein by reference to Exhibit 10.4 to the Company's Current Report on Form 8-K dated December 9, 2010.*
10.17 |  | Form of Officer Restricted Share Award Agreement regarding the 2009 Equity Plan is incorporated herein by reference to Exhibit 10(xxxiv) to the Company's Annual Report on Form 10-K for the fiscal year ended October 3, 2009.*
10.18 |  | Form of Officer Restricted Share Unit Award Agreement regarding the 2009 Equity Plan, is incorporated herein by reference to Exhibit 10.5 to the Company's Current Report on Form 8-K dated December 9, 2010.*
10.19 |  | Form of Officer Restricted Share Unit Award Agreement regarding the 2009 Equity Plan.*
10.20 |  | Kulicke & Soffa Industries, Inc. Executive Severance Pay Plan, dated as of August 9, 2011, is incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on August 12, 2011.*

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10.21 |  | Kulicke & Soffa Industries, Inc. Officer Severance Pay Plan, dated as of August 9, 2011, is incorporated herein by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on August 12, 2011.*
10.22 |  | Form of Change of Control Agreement, dated as of March 25, 2009, is incorporated herein by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on March 31, 2009.*
10.23 |  | Form of Change of Control Agreement, is incorporated herein by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K filed on August 12, 2011.*
10.24 |  | Offer Letter between the Company and Bruno Guilmart dated August 6, 2010, is incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K dated August 6, 2010.*
10.25 |  | Offer Letter between the Company and Jonathan H. Chou, dated November 16, 2010, is incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K dated November 16, 2010.*
10.26 |  | Letter Agreement between the Company and Alan Schindler, dated March 9, 2011, is incorporated herein by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended April 2, 2011.*
10.27 |  | Employment Agreement between the Company and Christian Rheault, dated June 25, 2009, is incorporated herein by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 27, 2009.*
10.28 |  | Letter Agreement between the Company and Shay Torton, dated March 15, 2011, is incorporated herein by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended April 2, 2011.*
10.29 |  | Letter Agreement between the Company and Tek Chee Mak, as of October 26, 2011.*
10.30 |  | Facilities Agreement between Kulicke and Soffa Ptd. Ltd. and DBS Bank Ltd., dated April 4, 2011, is incorporated herein by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended April 2, 2011.
10.31 |  | Debenture between Kulicke and Soffa Pte. Ltd. and DBS Bank Ltd., dated April 4, 2011, is incorporated herein by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended April 2, 2011.
10.32 |  | Agreement to Develop and Lease between DBS Trustee Limited, as trustee of Mapletree Industrial Trust, and the Kulicke & Soffa Pte. Ltd, dated May 7, 2012, is incorporated herein by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2012. **
10.33 |  | Form of Indemnification Agreement, is incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 10, 2013.*
21 |  | Subsidiaries of the Company.
23 |  | Consent of PricewaterhouseCoopers LLP (Independent Registered Public Accounting Firm).
31.1 |  | Certification of Bruno Guilmart, Chief Executive Officer of Kulicke and Soffa Industries, Inc., pursuant to Rule 13a-14(a) or Rule 15d-14(a).
31.2 |  | Certification of Jonathan Chou, Chief Financial Officer of Kulicke and Soffa Industries, Inc., pursuant to Rule 13a-14(a) or Rule 15d-14(a).
32.1 |  | Certification of Bruno Guilmart, Chief Executive Officer of Kulicke and Soffa Industries, Inc., pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 |  | Certification of Jonathan Chou, Chief Financial Officer of Kulicke and Soffa Industries, Inc., pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS |  | XBRL Instance Document.
101.SCH |  | XBRL Taxonomy Extension Schema Document
101.CAL |  | XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB |  | XBRL Taxonomy Extension Label Linkbase Document.
101.PRE |  | XBRL Taxonomy Extension Presentation Linkbase Document.
* Indicates a management contract or compensatory plan or arrangement ** Portions of this exhibit have been omitted pursuant to an order granted confidential treatment under the Securities Exchange Act of 1934 issued by the Securities and Exchange Commission. |

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KULICKE AND SOFFA INDUSTRIES, INC.
Schedule II-Valuation and Qualifying Accounts

Fiscal 2013: | Beginning of period |  | Charged to Costs and Expenses |  | Other Additions |  | Other Deductions |  | End of period
Allowance for doubtful accounts | $ | 937 |  |  | $ | (371 | ) |  | $ | — |  |  | $ | (62 | ) | (1) | $ | 504 |
Inventory reserve | $ | 18,617 |  |  | $ | 3,561 |  |  | $ | — |  |  | $ | (8,058 | ) | (2) | $ | 14,120 |
Valuation allowance for deferred taxes | $ | 25,015 |  |  | $ | 1,429 |  | (3) | $ | — |  |  | $ | — |  |  | $ | 26,444 |
Fiscal 2012: |  |  |  |  |  |  |  |  |
Allowance for doubtful accounts | $ | 2,194 |  |  | $ | (1,239 | ) |  | $ | — |  |  | $ | (18 | ) | (1) | $ | 937 |
Inventory reserve | $ | 15,099 |  |  | $ | 6,060 |  |  | $ | — |  |  | $ | (2,542 | ) | (2) | $ | 18,617 |
Valuation allowance for deferred taxes | $ | 23,777 |  |  | $ | 1,261 |  |  | $ | — |  |  | $ | (23 | ) |  | $ | 25,015 |
Fiscal 2011: |  |  |  |  |  |  |  |  |
Allowance for doubtful accounts | $ | 980 |  |  | $ | 1,219 |  |  | $ | — |  |  | $ | (5 | ) | (1) | $ | 2,194 |
Inventory reserve | $ | 10,140 |  |  | $ | 6,701 |  |  | $ | — |  |  | $ | (1,742 | ) | (2) | $ | 15,099 |
Valuation allowance for deferred taxes | $ | 27,856 |  |  | $ | (1,980 | ) | (3) | $ | (2,099 | ) | (4) | — |  |  | $ | 23,777 |
(1) | Represents write-offs of specific accounts receivable.
(2) | Sale or scrap of previously reserved inventory.
(3) | Reflects increase/decrease in the valuation allowance primarily associated with the Company's U.S. and foreign net operating losses and other deferred tax assets.
(4) | Release of valuation allowance related to prior stock option exercises recorded to additional paid in capital.

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

|  | KULICKE AND SOFFA INDUSTRIES, INC.
| By: | /s/ BRUNO GUILMART
|  | Bruno Guilmart
|  | President and Chief Executive Officer
| Dated: | November 14, 2013

Signature | Title | Date
/s/ BRUNO GUILMART | President and Chief Executive Officer and Director | November 14, 2013
Bruno Guilmart | (principal executive officer) |
/s/ JONATHAN CHOU | Senior Vice President, Chief Financial Officer | November 14, 2013
Jonathan Chou | (principal accounting officer) |
/s/ BRIAN R. BACHMAN | Director | November 14, 2013
Brian R. Bachman |  |
/s/ JOHN A. O'STEEN | Director | November 14, 2013
John A. O'Steen |  |
/s/ GARRETT E. PIERCE | Director | November 14, 2013
Garrett E. Pierce |  |
/s/ MACDONELL ROEHM, JR. | Director | November 14, 2013
MacDonell Roehm, Jr. |  |
/s/ CHIN HU LIM | Director | November 14, 2013
Chin Hu Lim |  |
/s/ MUI SUNG YEO | Director | November 14, 2013
Mui Sung Yeo |  |
/s/ GREGORY F. MILZCIK | Director | November 14, 2013
Gregory F. Milzcik |  |

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EXHIBIT INDEX

EXHIBIT NUMBER |  | ITEM
2.1 |  | Master Sale and Purchase Agreement between W.C. Heraeus GmbH and the Company, dated July 31, 2008, incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on July 31, 2008, SEC file number 000-00121.
2.1.1 |  | Amendment No. 1 to the Master Sale and Purchase Agreement between W.C. Heraeus GmbH and the Company, dated as of September 5, 2008, is incorporated herein by reference to Exhibit 2.2 to the Company's Current Report on Form 8-K filed on October 2, 2008, SEC file number 000-00121.
2.2 |  | Asset Purchase Agreement between Orthodyne Electronics Corporation and the Company, dated July 31, 2008, is incorporated herein by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on July 31, 2008, SEC file number 000-00121.
2.2.1 |  | Amendment to the Asset Purchase Agreement between Orthodyne and the Company, dated as of October 3, 2008, is incorporated herein by reference to Exhibit 2.2 to the Company's Current Report on Form 8-K filed on October 8, 2008, SEC file number 000-00121.
2.2.2 |  | Earnout Agreement between the Company and Orthodyne Electronics Corporation, dated July 31, 2008, is incorporated herein by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K filed on July 31, 2008, SEC file number 000-00121.
3.1 |  | The Company's Amended and Restated Articles of Incorporation, dated December 5, 2007, is incorporated herein by reference to Exhibit 3(i) to the Company's Annual Report on Form 10-K for the fiscal year ended September 29, 2007, SEC file number 000-00121.
3.2 |  | The Company's Amended and Restated By-Laws, dated June 5, 2012, is incorporated herein by reference to Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2012.
4.1 |  | Specimen Common Share Certificate of Kulicke and Soffa Industries Inc., is incorporated herein by reference to Exhibit 4 to the Company's Form-8A12G/A dated September 11, 1995, SEC file number 000-00121.
4.2 |  | Indenture between the Company and Bank of New York, as Trustee, dated as of June 6, 2007, is incorporated herein by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated June 6, 2007, SEC File number 000-00121.
10.1 |  | 1997 Non-Qualified Stock Option Plan for Non-Employee Directors (as amended and restated effective March 21, 2003), is incorporated herein by reference to Exhibit 10(vi) to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2003, SEC file number 000-00121.*
10.2 |  | 2004 Israeli Addendum to 1998 Employee Incentive Stock Option and Non-Qualified Stock Option Plan (as amended and restated effective March 21, 2003), is incorporated herein by reference to Exhibit 10(vii) to the Company's Post-Effective Amendment No.4 on Form S-1 to the Registration Statement on Form S-3 filed on December 14, 2004, SEC file number 333-111478.*
10.3 |  | Form of Nonqualified Stock Option Agreement regarding the 1998 Employee Incentive Stock Option and Non-Qualified Stock Option Plan, is incorporated herein by reference to Exhibit 99.1 to the Company's Current Report on Form 8-K dated October 8, 2008, SEC file number 000-00121.*
10.4 |  | Form of Incentive Stock Option Agreement regarding the Employee Incentive Stock Option and Non-Qualified Stock Option Plan, is incorporated herein by reference to Exhibit 99.2 to the Company's Current Report on Form 8-K dated October 8, 2008, SEC file number 000-00121.*
10.5 |  | 1999 Nonqualified Employee Stock Option Plan (as amended and restated effective March 21, 2003), is incorporated herein by reference to Exhibit 10(xv) to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2003, SEC file number 000-00121.*
10.6 |  | 2004 Israeli Addendum to the 1999 Non-Qualified Stock Option Plan (as amended and restated effective March 21, 2003), is incorporated herein by reference to Exhibit 10(ix) to the Company's Post-Effective Amendment No.4 on Form S-1 to the Registration Statement on Form S-3 filed on December 14, 2004, SEC file number 333-111478.*
10.7 |  | 2001 Employee Incentive Stock Option and Non-Qualified Stock Option Plan (as amended and restated effective March 21, 2003), is incorporated herein by reference to Exhibit 10(xix) to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2003, SEC file number 000-00121.*

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10.8 |  | 2004 Israeli Addendum to the 2001 Employee Incentive Stock Option and Non-Qualified Stock Option Plan (as amended and restated effective March 21, 2003), is incorporated herein by reference to Exhibit 10(xii) to the Company's Post-Effective Amendment No.4 on Form S-1 to the Registration Statement on Form S-3 filed on December 14, 2004, SEC file number 333-111478.*
10.9 |  | Officer Incentive Compensation Plan, dated August 2, 2005, is incorporated herein by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2005, SEC file number 000-00121.*
10.10 |  | 2008 Equity Plan is incorporated herein by reference to Appendix A to the Company's Proxy Statement on Schedule 14A for the annual meeting of shareholders on February 12, 2008, SEC file number 000-00121.*
10.11 |  | 2009 Equity Plan is incorporated herein by reference to Appendix A to the Company's Proxy Statement on Schedule 14A for the annual meeting of shareholders on February 10, 2009.*
10.12 |  | Amendment No. 1 to the Kulicke and Soffa Industries, Inc. 2009 Equity Plan, effective September 15, 2009, is incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on September 18, 2009.*
10.13 |  | Amendment No. 2 to the Kulicke and Soffa Industries, Inc. 2009 Equity Plan, effective September 30, 2009, is incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on September 18, 2009.*
10.14 |  | Amendment No. 3 to the Kulicke and Soffa Industries, Inc. 2009 Equity Plan, effective September 21, 2012.*
10.15 |  | Form of Officer Performance Share Award Agreement regarding the 2009 Equity Plan, is incorporated herein by reference to Exhibit 10(xxxiii) to the Company's Annual Report on Form 10-K for the fiscal year ended October 3, 2009.*
10.16 |  | Form of Officer Performance Share Award Agreement regarding the 2009 Equity Plan, is incorporated herein by reference to Exhibit 10.4 to the Company's Current Report on Form 8-K dated December 9, 2010.*
10.17 |  | Form of Officer Restricted Share Award Agreement regarding the 2009 Equity Plan is incorporated herein by reference to Exhibit 10(xxxiv) to the Company's Annual Report on Form 10-K for the fiscal year ended October 3, 2009.*
10.18 |  | Form of Officer Restricted Share Unit Award Agreement regarding the 2009 Equity Plan, is incorporated herein by reference to Exhibit 10.5 to the Company's Current Report on Form 8-K dated December 9, 2010.*
10.19 |  | Form of Officer Restricted Share Unit Award Agreement regarding the 2009 Equity Plan.*
10.20 |  | Kulicke & Soffa Industries, Inc. Executive Severance Pay Plan, dated as of August 9, 2011, is incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on August 12, 2011.*
10.21 |  | Kulicke & Soffa Industries, Inc. Officer Severance Pay Plan, dated as of August 9, 2011, is incorporated herein by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on August 12, 2011.*
10.22 |  | Form of Change of Control Agreement, dated as of March 25, 2009, is incorporated herein by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on March 31, 2009.*
10.23 |  | Form of Change of Control Agreement, is incorporated herein by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K filed on August 12, 2011.*
10.24 |  | Offer Letter between the Company and Bruno Guilmart dated August 6, 2010, is incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K dated August 6, 2010.*
10.25 |  | Offer Letter between the Company and Jonathan H. Chou, dated November 16, 2010, is incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K dated November 16, 2010.*
10.26 |  | Letter Agreement between the Company and Alan Schindler, dated March 9, 2011, is incorporated herein by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended April 2, 2011.*
10.27 |  | Employment Agreement between the Company and Christian Rheault, dated June 25, 2009, is incorporated herein by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 27, 2009.*

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10.28 |  | Letter Agreement between the Company and Shay Torton, dated March 15, 2011, is incorporated herein by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended April 2, 2011.*
10.29 |  | Letter Agreement between the Company and Tek Chee Mak, as of October 26, 2011.*
10.30 |  | Facilities Agreement between Kulicke and Soffa Ptd. Ltd. and DBS Bank Ltd., dated April 4, 2011, is incorporated herein by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended April 2, 2011.
10.31 |  | Debenture between Kulicke and Soffa Pte. Ltd. and DBS Bank Ltd., dated April 4, 2011, is incorporated herein by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended April 2, 2011.
10.32 |  | Agreement to Develop and Lease between DBS Trustee Limited, as trustee of Mapletree Industrial Trust, and the Kulicke & Soffa Pte. Ltd, dated May 7, 2012, is incorporated herein by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2012. **
10.33 |  | Form of Indemnification Agreement, is incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 10, 2013.*
21 |  | Subsidiaries of the Company.
23 |  | Consent of PricewaterhouseCoopers LLP (Independent Registered Public Accounting Firm).
31.1 |  | Certification of Bruno Guilmart, Chief Executive Officer of Kulicke and Soffa Industries, Inc., pursuant to Rule 13a-14(a) or Rule 15d-14(a).
31.2 |  | Certification of Jonathan Chou, Chief Financial Officer of Kulicke and Soffa Industries, Inc., pursuant to Rule 13a-14(a) or Rule 15d-14(a).
32.1 |  | Certification of Bruno Guilmart, Chief Executive Officer of Kulicke and Soffa Industries, Inc., pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 |  | Certification of Jonathan Chou, Chief Financial Officer of Kulicke and Soffa Industries, Inc., pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS |  | XBRL Instance Document.
101.SCH |  | XBRL Taxonomy Extension Schema Document
101.CAL |  | XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB |  | XBRL Taxonomy Extension Label Linkbase Document.
101.PRE |  | XBRL Taxonomy Extension Presentation Linkbase Document.
* Indicates a management contract or compensatory plan or arrangement ** Portions of this exhibit have been omitted pursuant to an order granted confidential treatment under the Securities Exchange Act of 1934 issued by the Securities and Exchange Commission. |

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