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RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS
 3 Months Ended
Dec. 30, 2017
Accounting Changes and Error Corrections [Abstract]  
RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS
RESTATEMENT OF CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
On May 10 and May 28, 2018, the Company’s Audit Committee, in consultation with the Board of Directors, concluded that the Company’s previously issued financial statements for the fiscal year ended September 30, 2017 and the three months ended December 30, 2017, respectively, could no longer be relied upon. This decision was reached after discussions with the Company’s senior management and outside advisers.
The above was a result of the Company’s determination that: i) the warranty expense and warranty accrual accounts had been misstated for the quarter ended December 30, 2017 as a result of inaccurate and unsupported journal entries recorded due to management override of controls, and ii) the cost of sales and account payable accounts were misstated for the quarter ended December 30, 2017 as a result of falsified accounting records due to management override of controls. The management overrides of controls were identified during an internal investigation related to an unauthorized disbursement by a senior finance employee that was discovered after the end of the second fiscal quarter of 2018.
With respect to the journal entries impacting warranty expense and warranty accrual accounts, we determined that the manual journal entries initiated by this employee were made to correct the Company's failure to properly include labor costs in our warranty accrual, described below, lacked supporting documentation and were accounted for incorrectly. As a result, the Company identified overstatements of specific warranty accruals of $2.8 million and $15.9 million for fiscal 2016 and fiscal 2017, respectively.
In addition, the Company also identified adjustments that were required to be made to retained earnings, warranty expense and accrual accounts to correct the inappropriate exclusion of the estimated labor costs related to warranty repairs from its historical warranty accounting. While the latter adjustments are not deemed material, the Company is adjusting retained earnings, warranty expense and warranty accrual accounts as part of the restatement. As a result, the Company identified an understatement of warranty accruals relating to fiscal 2014 and prior years of $10.1 million in the aggregate, as the actual labor costs had instead been expensed in the periods incurred.
In addition to the understatement of warranty accruals relating to fiscal 2014 and in prior years, the warranty expense had also been misstated from fiscal 2015 through fiscal 2017, resulting in a cumulative understatement of income from operations of approximately $17.6 million. Of this understatement, approximately $14.8 million, $1.4 million, and $1.4 million was related to the fiscal years ended September 30, 2017, October 1, 2016 and October 3, 2015, respectively. The labor costs relating to warranty expenses were also incorrectly reported in selling, general and administrative expense instead of cost of sales for the fiscal years ended September 30, 2017, October 1, 2016 and October 3, 2015. The Consolidated Balance Sheets were also misstated for the annual periods from 2015 through 2017.
The Company has also identified a misstatement in its previously reported consolidated condensed financial statements for the quarterly period ended December 30, 2017, relating to a reduction in the warranty accrual of $5.2 million. This reduction resulted in an understatement of cost of sales and provision for warranty. In addition, the labor costs relating to warranty expenses of $2.4 million were also incorrectly reported in selling, general and administrative expense instead of cost of sales.
In connection with the internal investigation, the Company identified an unauthorized payment that had been initiated by a senior finance employee to an unapproved vendor in the second fiscal quarter of fiscal 2018. The payment was made based on falsified accounting records where two manual journal entries totaling $5.8 million in the aggregate had been recorded in accounts payable and cost of sales. Management has determined this to be a misappropriation of the Company's assets. Accordingly, the previously reported consolidated condensed financial statements for the quarterly period ended December 30, 2017 were misstated, because accounts payable and cost of sales were each overstated by $5.8 million.
In addition, we have made related tax expense adjustments for the above matters.
The restated consolidated condensed financial statements for the three months ended December 30, 2017 have been amended to reflect in the proper periods the misstatements described above. Our Quarterly Reports on Form 10-Q for fiscal 2018 will include the restated fiscal 2017 comparable prior quarter and year to date periods.
KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
Unaudited
 
 
As of
 
 
December 30, 2017
 
 
As Previously Reported
 
Effect of Restatement
 
As Restated
Accounts payable
 
68,370

 
(5,802
)
 
62,568

Accrued expenses and other current liabilities
 
80,147

 
(2,253
)
 
77,894

Income taxes payable
 
18,137

 
105

 
18,242

Total current liabilities
 
166,654

 
(7,950
)
 
158,704

 
 
 
 
 
 
 
Deferred income taxes
 
26,940

 
373

 
27,313

Income taxes payable
 
89,491

 
674

 
90,165

TOTAL LIABILITIES
 
$
308,215

 
$
(6,903
)
 
$
301,312

 
 
 
 
 
 
 
Retained earnings
 
496,655

 
6,903

 
503,558

TOTAL SHAREHOLDERS' EQUITY
 
$
850,371

 
$
6,903

 
$
857,274

KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Unaudited

 
 
Three Months Ended
 
 
December 30, 2017
 
 
As Previously Reported
 
Effect of Restatement
 
As Restated
Cost of sales
 
114,652

 
1,837

 
116,489

Gross profit
 
99,039

 
(1,837
)
 
97,202

Selling, general and administrative
 
30,218

 
(2,425
)
 
27,793

Operating expenses
 
60,468

 
(2,425
)
 
58,043

Income from operations
 
38,571

 
588

 
39,159

Income from operations before income taxes
 
40,280

 
588

 
40,868

Income tax expense
 
109,633

 
779

 
110,412

Net loss
 
$
(69,337
)
 
$
(191
)
 
$
(69,528
)
 
 
 
 
 
 
 
Net loss per share:
 
 

 
 

 
 
Basic
 
$
(0.98
)
 
$
(0.01
)
 
$
(0.99
)
Diluted
 
$
(0.98
)
 
$
(0.01
)
 
$
(0.99
)

 
 
Three Months Ended
 
 
December 31, 2016
 
 
As Previously Reported
 
Effect of Restatement
 
As Restated
Cost of sales
 
81,321

 
(109
)
 
81,212

Gross profit
 
68,318

 
109

 
68,427

Selling, general and administrative
 
29,532

 
(1,669
)
 
27,863

Operating expenses
 
51,037

 
(1,669
)
 
49,368

Income from operations
 
17,281

 
1,778

 
19,059

Income from operations before income taxes
 
18,191

 
1,778

 
19,969

Income tax expense
 
2,608

 
(35
)
 
2,573

Net income
 
$
15,583

 
$
1,813

 
$
17,396

 
 
 
 
 
 
 
Net income per share:
 
 

 
 

 
 
Basic
 
$
0.22

 
$
0.03

 
$
0.25

Diluted
 
$
0.22

 
$
0.02

 
$
0.24

KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Unaudited

 
 
Three Months Ended
 
 
December 30, 2017
 
 
As Previously Reported
 
Effect of Restatement
 
As Restated
Net loss
 
$
(69,337
)
 
$
(191
)
 
$
(69,528
)
Comprehensive loss
 
$
(67,512
)
 
$
(191
)
 
$
(67,703
)

 
 
Three Months Ended
 
 
December 31, 2016
 
 
As Previously Reported
 
Effect of Restatement
 
As Restated
Net income
 
$
15,583

 
$
1,813

 
$
17,396

Comprehensive income
 
$
10,066

 
$
1,813

 
$
11,879

KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
Unaudited

 
 
Three Months Ended
 
 
December 30, 2017
 
 
As Previously Reported
 
Effect of Restatement
 
As Restated
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 

 
 

 
 
Net loss
 
$
(69,337
)
 
$
(191
)
 
(69,528
)
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
 
Accounts payable, accrued expenses and other current liabilities
 
(36,551
)
 
(588
)
 
(37,139
)
Income taxes payable
 
84,560

 
779

 
85,339

Net cash provided by operating activities
 
50,333

 
—

 
50,333


 
 
Three Months Ended
 
 
December 31, 2016
 
 
As Previously Reported
 
Effect of Restatement
 
As Restated
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 

 
 

 
 
Net income
 
$
15,583

 
$
1,813

 
17,396

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
 
Deferred taxes
 
840

 
(35
)
 
805

Accounts payable, accrued expenses and other current liabilities
 
(3,223
)
 
(1,778
)
 
(5,001
)
Net cash provided by operating activities
 
30,049

 
—

 
30,049