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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

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

For the quarterly period ended July 2, 2022
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.)

23A Serangoon North Avenue 5, #01-01, Singapore 554369
1005 Virginia Dr., Fort Washington, PA 19034
(Address of principal executive offices and Zip Code)
(215) 784-6000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:

Title of each class | Trading Symbol(s) | Name of each exchange on which registered
Common Stock, Without Par Value | KLIC | The Nasdaq Global Market

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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer | ☒ | Accelerated filer | ☐
Non-accelerated filer | ☐ | Smaller reporting company | ☐
Emerging growth company | ☐ |  |

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of July 29, 2022, there were 58,067,945 shares of the Registrant's Common Stock, no par value, outstanding.

Table of Contents
KULICKE AND SOFFA INDUSTRIES, INC.
FORM 10 – Q
July 2, 2022
Index

|  | Page Number
PART I - FINANCIAL INFORMATION
Item 1. | FINANCIAL STATEMENTS (Unaudited) |
| Consolidated Condensed Balance Sheets as of July 2, 2022 and October 2, 2021 | 1
| Consolidated Condensed Statements of Operations for the three and nine months ended July 2, 2022 and July 3, 2021 | 2
| Consolidated Condensed Statements of Comprehensive Income for the three and nine months ended July 2, 2022 and July 3, 2021 | 3
| Consolidated Condensed Statements of Changes in Shareholders' Equity for the three and nine months ended July 2, 2022 and July 3, 2021 | 4
| Consolidated Condensed Statements of Cash Flows for the nine months ended July 2, 2022 and July 3, 2021 | 6
| Notes to Consolidated Condensed Financial Statements | 7
Item 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 25
Item 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 36
Item 4. | CONTROLS AND PROCEDURES | 37
PART II - OTHER INFORMATION
Item 1. | LEGAL PROCEEDINGS | 38
Item 1A. | RISK FACTORS | 38
Item 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | 38
Item 3. | DEFAULTS UPON SENIOR SECURITIES | 39
Item 4. | MINE SAFETY DISCLOSURES | 39
Item 5. | OTHER INFORMATION | 39
Item 6. | EXHIBITS | 40
| SIGNATURES | 41

Table of Contents
PART I. - FINANCIAL INFORMATION
Item 1. – FINANCIAL STATEMENTS
KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited)
(in thousands)

| As of
| July 2, 2022 |  | October 2, 2021
ASSETS |  |  |
Current assets: |  |  |
Cash and cash equivalents | $ | 445,781 |  |  | $ | 362,788 |
Short-term investments | 300,000 |  |  | 377,000 |
Accounts and other receivable, net of allowance for doubtful accounts of $0 and $687, respectively | 350,045 |  |  | 421,193 |
Inventories, net | 215,281 |  |  | 167,323 |
Prepaid expenses and other current assets | 75,011 |  |  | 23,586 |
Total current assets | 1,386,118 |  |  | 1,351,890 |
Property, plant and equipment, net | 66,510 |  |  | 67,982 |
Operating right-of-use assets | 41,160 |  |  | 41,592 |
Goodwill | 69,787 |  |  | 72,949 |
Intangible assets, net | 35,291 |  |  | 42,752 |
Deferred tax assets | 21,103 |  |  | 15,715 |
Equity investments | 5,397 |  |  | 6,388 |
Other assets | 2,911 |  |  | 2,363 |
TOTAL ASSETS | $ | 1,628,277 |  |  | $ | 1,601,631 |
LIABILITIES AND SHAREHOLDERS' EQUITY |  |  |
Current liabilities: |  |  |
Accounts payable | 98,572 |  |  | 154,636 |
Operating lease liabilities | 5,973 |  |  | 4,903 |
Income taxes payable | 31,060 |  |  | 30,766 |
Accrued expenses and other current liabilities | 138,434 |  |  | 161,570 |
Total current liabilities | 274,039 |  |  | 351,875 |
Deferred tax liabilities | 34,541 |  |  | 32,828 |
Income taxes payable | 62,468 |  |  | 69,422 |
Operating lease liabilities | 35,836 |  |  | 38,084 |
Other liabilities | 14,660 |  |  | 14,185 |
TOTAL LIABILITIES | $ | 421,544 |  |  | $ | 506,394 |
Commitments and contingent liabilities (Note 15) |  |  |
Shareholders' equity: |  |  |
Preferred stock, without par value: Authorized 5,000 shares; issued - none | $ | — |  |  | $ | — |
Common stock, without par value: Authorized 200,000 shares; issued 85,364 and 85,364, respectively; outstanding 58,480 and 61,931 shares, respectively | 557,236 |  |  | 550,117 |
Treasury stock, at cost, 26,884 and 23,433 shares, respectively | (615,689) |  |  | (400,412) |
Retained earnings | 1,286,505 |  |  | 948,554 |
Accumulated other comprehensive loss | (21,319) |  |  | (3,022) |
TOTAL SHAREHOLDERS' EQUITY | $ | 1,206,733 |  |  | $ | 1,095,237 |
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | 1,628,277 |  |  | $ | 1,601,631 |

The accompanying notes are an integral part of these consolidated condensed financial statements.
1

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

| Three months ended |  | Nine months ended
| July 2, 2022 |  | July 3, 2021 |  | July 2, 2022 |  | July 3, 2021
Net revenue | $ | 372,137 |  |  | $ | 424,318 |  |  | $ | 1,217,307 |  |  | $ | 1,032,338 |
Cost of sales | 181,452 |  |  | 228,623 |  |  | 601,674 |  |  | 566,667 |
Gross profit | 190,685 |  |  | 195,695 |  |  | 615,633 |  |  | 465,671 |
Selling, general and administrative | 34,562 |  |  | 39,103 |  |  | 108,609 |  |  | 105,511 |
Research and development | 34,046 |  |  | 36,137 |  |  | 104,496 |  |  | 102,549 |
Operating expenses | 68,608 |  |  | 75,240 |  |  | 213,105 |  |  | 208,060 |
Income from operations | 122,077 |  |  | 120,455 |  |  | 402,528 |  |  | 257,611 |
Interest income | 2,158 |  |  | 564 |  |  | 3,099 |  |  | 1,801 |
Interest expense | (36) |  |  | (41) |  |  | (173) |  |  | (146) |
Income before income taxes | 124,199 |  |  | 120,978 |  |  | 405,454 |  |  | 259,266 |
Provision for income taxes | 5,165 |  |  | 7,212 |  |  | 36,813 |  |  | 25,722 |
Share of results of equity-method investee, net of tax | — |  |  | — |  |  | — |  |  | 94 |
Net income | $ | 119,034 |  |  | $ | 113,766 |  |  | $ | 368,641 |  |  | $ | 233,450 |
Net income per share: |  |  |  |  |  |  |
Basic | $ | 2.02 |  |  | $ | 1.83 |  |  | $ | 6.05 |  |  | $ | 3.76 |
Diluted | $ | 1.99 |  |  | $ | 1.79 |  |  | $ | 5.95 |  |  | $ | 3.68 |
Weighted average shares outstanding: |  |  |  |  |  |  |
Basic | 58,985 |  |  | 62,023 |  |  | 60,951 |  |  | 62,023 |
Diluted | 59,955 |  |  | 63,485 |  |  | 61,940 |  |  | 63,364 |

The accompanying notes are an integral part of these consolidated condensed financial statements.
2

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

| Three months ended |  | Nine months ended
| July 2, 2022 |  | July 3, 2021 |  | July 2, 2022 |  | July 3, 2021
Net income | $ | 119,034 |  |  | $ | 113,766 |  |  | $ | 368,641 |  |  | $ | 233,450 |
Other comprehensive income: |  |  |  |  |  |  |
Foreign currency translation adjustment | (12,009) |  |  | 1,868 |  |  | (18,025) |  |  | 3,854 |
Unrecognized actuarial gain/(loss) on pension plan, net of tax | 122 |  |  | (79) |  |  | 103 |  |  | 1 |
| (11,887) |  |  | 1,789 |  |  | (17,922) |  |  | 3,855 |
Derivatives designated as hedging instruments: |  |  |  |  |  |  |
Unrealized (loss)/gain on derivative instruments, net of tax | (1,233) |  |  | (133) |  |  | (1,168) |  |  | 301 |
Reclassification adjustment for loss/(gain) on derivative instruments recognized, net of tax | 170 |  |  | (317) |  |  | 793 |  |  | (1,295) |
Net decrease from derivatives designated as hedging instruments, net of tax | (1,063) |  |  | (450) |  |  | (375) |  |  | (994) |
Total other comprehensive (loss)/gain | (12,950) |  |  | 1,339 |  |  | (18,297) |  |  | 2,861 |
Comprehensive income | $ | 106,084 |  |  | $ | 115,105 |  |  | $ | 350,344 |  |  | $ | 236,311 |

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

| Common Stock |  | Treasury Stock |  | Retained Earnings |  | Accumulated Other Comprehensive (Loss)/Income |  | Shareholders' Equity
| Shares |  | Amount |  |  |  |
Balances as of October 2, 2021 | 61,931 |  |  | $ | 550,117 |  |  | $ | (400,412) |  |  | $ | 948,554 |  |  | $ | (3,022) |  |  | $ | 1,095,237 |
Issuance of stock for services rendered | 4 |  |  | 197 |  |  | 41 |  |  | — |  |  | — |  |  | 238 |
Repurchase of common stock | (276) |  |  | — |  |  | (15,380) |  |  | — |  |  | — |  |  | (15,380) |
Issuance of shares for equity-based compensation | 725 |  |  | (6,963) |  |  | 6,963 |  |  | — |  |  | — |  |  | — |
Equity-based compensation | — |  |  | 5,074 |  |  | — |  |  | — |  |  | — |  |  | 5,074 |
Cash dividend declared | — |  |  | — |  |  | — |  |  | (10,610) |  |  | — |  |  | (10,610) |
Components of comprehensive income: |  |  |  |  |  |  |  |  |  |  |
Net income | — |  |  | — |  |  | — |  |  | 133,606 |  |  | — |  |  | 133,606 |
Other comprehensive loss | — |  |  | — |  |  | — |  |  | — |  |  | (989) |  |  | (989) |
Total comprehensive income/(loss) | — |  |  | — |  |  | — |  |  | 133,606 |  |  | (989) |  |  | 132,617 |
Balances as of January 1, 2022 | 62,384 |  |  | $ | 548,425 |  |  | $ | (408,788) |  |  | $ | 1,071,550 |  |  | $ | (4,011) |  |  | $ | 1,207,176 |
Issuance of stock for services rendered | 4 |  |  | 202 |  |  | 35 |  |  | — |  |  | — |  |  | 237 |
Repurchase of common stock | (2,944) |  |  | (30,000) |  |  | (146,153) |  |  | — |  |  | — |  |  | (176,153) |
Issuance of shares for equity-based compensation | 24 |  |  | (222) |  |  | 222 |  |  | — |  |  | — |  |  | — |
Equity-based compensation | — |  |  | 4,459 |  |  | — |  |  | — |  |  | — |  |  | 4,459 |
Cash dividend declared | — |  |  | — |  |  | — |  |  | (10,110) |  |  | — |  |  | (10,110) |
Components of comprehensive income: |  |  |  |  |  |  |  |  |  |  |
Net income | — |  |  | — |  |  | — |  |  | 116,001 |  |  | — |  |  | 116,001 |
Other comprehensive loss | — |  |  | — |  |  | — |  |  | — |  |  | (4,358) |  |  | (4,358) |
Total comprehensive income/(loss) | — |  |  | — |  |  | — |  |  | 116,001 |  |  | (4,358) |  |  | 111,643 |
Balances as of April 2, 2022 | 59,468 |  |  | $ | 522,864 |  |  | $ | (554,684) |  |  | $ | 1,177,441 |  |  | $ | (8,369) |  |  | $ | 1,137,252 |
Issuance of stock for services rendered | 4 |  |  | 196 |  |  | 41 |  |  | — |  |  | — |  |  | 237 |
Repurchase of common stock | (997) |  |  | 30,000 |  |  | (61,098) |  |  | — |  |  | — |  |  | (31,098) |
Issuance of shares for equity-based compensation | 5 |  |  | (52) |  |  | 52 |  |  | — |  |  | — |  |  | — |
Equity-based compensation | — |  |  | 4,228 |  |  | — |  |  | — |  |  | — |  |  | 4,228 |
Cash dividend declared | — |  |  | — |  |  | — |  |  | (9,970) |  |  | — |  |  | (9,970) |
Components of comprehensive income: |  |  |  |  |  |  |  |  |  |  |
Net income | — |  |  | — |  |  | — |  |  | 119,034 |  |  | — |  |  | 119,034 |
Other comprehensive loss | — |  |  | — |  |  | — |  |  | — |  |  | (12,950) |  |  | (12,950) |
Total comprehensive income/(loss) | — |  |  | — |  |  | — |  |  | 119,034 |  |  | (12,950) |  |  | 106,084 |
Balances as of July 2, 2022 | 58,480 |  |  | $ | 557,236 |  |  | $ | (615,689) |  |  | $ | 1,286,505 |  |  | $ | (21,319) |  |  | $ | 1,206,733 |

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| Common Stock |  | Treasury Stock |  | Retained Earnings |  | Accumulated Other Comprehensive (Loss)/Income |  | Shareholders' Equity
| Shares |  | Amount |  |  |  |
Balances as of October 3, 2020 | 61,558 |  |  | $ | 539,213 |  |  | $ | (394,817) |  |  | $ | 616,119 |  |  | $ | (2,521) |  |  | $ | 757,994 |
Issuance of stock for services rendered | 8 |  |  | 96 |  |  | 77 |  |  | — |  |  | — |  |  | 173 |
Repurchase of common stock | (48) |  |  | — |  |  | (1,206) |  |  | — |  |  | — |  |  | (1,206) |
Issuance of shares for equity-based compensation | 535 |  |  | (4,076) |  |  | 4,076 |  |  | — |  |  | — |  |  | — |
Equity-based compensation | — |  |  | 3,216 |  |  | — |  |  | — |  |  | — |  |  | 3,216 |
Cash dividend declared | — |  |  | — |  |  | — |  |  | (8,687) |  |  | — |  |  | (8,687) |
Components of comprehensive income: |  |  |  |  |  |  |  |  |  |  |
Net income | — |  |  | — |  |  | — |  |  | 48,363 |  |  | — |  |  | 48,363 |
Other comprehensive income | — |  |  | — |  |  | — |  |  | — |  |  | 7,763 |  |  | 7,763 |
Total comprehensive income | — |  |  | — |  |  | — |  |  | 48,363 |  |  | 7,763 |  |  | 56,126 |
Balances as of January 2, 2021 | 62,053 |  |  | $ | 538,449 |  |  | $ | (391,870) |  |  | $ | 655,795 |  |  | $ | 5,242 |  |  | $ | 807,616 |
Issuance of stock for services rendered | 7 |  |  | 130 |  |  | 55 |  |  | — |  |  | — |  |  | 185 |
Repurchase of common stock | (23) |  |  | — |  |  | (1,110) |  |  | — |  |  | — |  |  | (1,110) |
Issuance of shares for equity-based compensation | 24 |  |  | (245) |  |  | 245 |  |  | — |  |  | — |  |  | — |
Equity-based compensation | — |  |  | 3,778 |  |  | — |  |  | — |  |  | — |  |  | 3,778 |
Cash dividend declared | — |  |  | — |  |  | — |  |  | (8,688) |  |  | — |  |  | (8,688) |
Components of comprehensive income/(loss) |  |  |  |  |  |  |  |  |  |  |
Net income | — |  |  | — |  |  | — |  |  | 71,320 |  |  | — |  |  | 71,320 |
Other comprehensive loss | — |  |  | — |  |  | — |  |  | — |  |  | (6,241) |  |  | (6,241) |
Total comprehensive income/(loss) | — |  |  | — |  |  | — |  |  | 71,320 |  |  | (6,241) |  |  | 65,079 |
Balances as of April 3, 2021 | 62,061 |  |  | $ | 542,112 |  |  | $ | (392,680) |  |  | $ | 718,427 |  |  | $ | (999) |  |  | $ | 866,860 |
Issuance of stock for services rendered | 4 |  |  | 185 |  |  | 39 |  |  | — |  |  | — |  |  | 224 |
Repurchase of common stock | (82) |  |  | — |  |  | (4,087) |  |  | — |  |  | — |  |  | (4,087) |
Issuance of shares for equity-based compensation | 3 |  |  | (40) |  |  | 40 |  |  | — |  |  | — |  |  | — |
Equity-based compensation | — |  |  | 3,918 |  |  | — |  |  | — |  |  | — |  |  | 3,918 |
Cash dividend declared | — |  |  | — |  |  | — |  |  | (8,678) |  |  | — |  |  | (8,678) |
Components of comprehensive income: |  |  |  |  |  |  |  |  |  |  |
Net income | — |  |  | — |  |  | — |  |  | 113,766 |  |  | — |  |  | 113,766 |
Other comprehensive income | — |  |  | — |  |  | — |  |  | — |  |  | 1,339 |  |  | 1,339 |
Total comprehensive income | — |  |  | — |  |  | — |  |  | 113,766 |  |  | 1,339 |  |  | 115,105 |
Balances as of July 3, 2021 | 61,986 |  |  | $ | 546,175 |  |  | $ | (396,688) |  |  | $ | 823,515 |  |  | $ | 340 |  |  | $ | 973,342 |

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

| Nine months ended |
| July 2, 2022 |  | July 3, 2021 |
CASH FLOWS FROM OPERATING ACTIVITIES: |  |  |  |
Net income | $ | 368,641 |  |  | $ | 233,450 |  |
Adjustments to reconcile net income to net cash provided by operating activities: |  |  |  |
Depreciation and amortization | 15,773 |  |  | 14,552 |  |
Impairment of equity investment | 1,346 |  |  | — |  |
Equity-based compensation and employee benefits | 14,473 |  |  | 11,504 |  |
Gain on disposal of equity method investments | — |  |  | (1,046) |  |
Adjustment for doubtful accounts | (245) |  |  | (95) |  |
Adjustment for inventory valuation | 1,110 |  |  | (834) |  |
Deferred taxes | (3,675) |  |  | (10,587) |  |
Gain on disposal of property, plant and equipment | (129) |  |  | 25 |  |
Unrealized foreign currency translation | (3,806) |  |  | 719 |  |
Share of results of equity-method investee | — |  |  | 94 |  |
Changes in operating assets and liabilities, net of assets and liabilities assumed in businesses combinations: |  |  |  |
Accounts and other receivable | 71,825 |  |  | (170,403) |  |
Inventories | (49,230) |  |  | (40,771) |  |
Prepaid expenses and other current assets | (50,725) |  |  | (2,856) |  |
Accounts payable, accrued expenses and other current liabilities | (84,017) |  |  | 144,717 |  |
Income taxes payable | (6,663) |  |  | (2,670) |  |
Other, net | (1,053) |  |  | 857 |  |
Net cash provided by operating activities | 273,625 |  |  | 176,656 |  |
CASH FLOWS FROM INVESTING ACTIVITIES: |  |  |  |
Acquisition of business, net of cash acquired | — |  |  | (26,338) |  |
Purchases of property, plant and equipment | (10,380) |  |  | (16,747) |  |
Proceeds from sales of property, plant and equipment | 119 |  |  | 191 |  |
Investment in private equity fund | (397) |  |  | — |  |
Disposal of equity-method investments | — |  |  | 2,115 |  |
Purchase of short-term investments | (389,000) |  |  | (229,000) |  |
Maturity of short-term investments | 466,000 |  |  | 324,000 |  |
Net cash provided by investing activities | 66,342 |  |  | 54,221 |  |
CASH FLOWS FROM FINANCING ACTIVITIES: |  |  |  |
Payment on short-term debt | (54,500) |  |  | (22,750) |  |
Proceeds from short-term debt | 54,500 |  |  | 22,750 |  |
Payment for finance lease | (373) |  |  | (253) |  |
Repurchase of common stock/treasury stock | (221,139) |  |  | (6,953) |  |
Common stock cash dividends paid | (29,393) |  |  | (24,776) |  |
Net cash used in financing activities | (250,905) |  |  | (31,982) |  |
Effect of exchange rate changes on cash and cash equivalents | (6,069) |  |  | 977 |  |
Changes in cash and cash equivalents | 82,993 |  |  | 199,872 |  |
Cash and cash equivalents at beginning of period | 362,788 |  |  | 188,127 |  |
Cash and cash equivalents at end of period | $ | 445,781 |  |  | $ | 387,999 |  |
CASH PAID FOR: |  |  |  |
Interest | $ | 173 |  |  | $ | 146 |  |
Income taxes, net of refunds | $ | 50,059 |  |  | $ | 39,405 |  |

The accompanying notes are an integral part of these consolidated condensed financial statements.
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KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Unaudited
NOTE 1. BASIS OF PRESENTATION
These consolidated condensed financial statements include the accounts of Kulicke and Soffa Industries, Inc. and its subsidiaries (“we,” “us,” “our,” or the “Company”) with appropriate elimination of intercompany balances and transactions.
The interim consolidated condensed financial statements are unaudited and, in management's opinion, include all adjustments (consisting only of normal and recurring adjustments) necessary for a fair statement of results for these interim periods. The interim consolidated condensed financial statements do not include all of the information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended October 2, 2021, filed with the Securities and Exchange Commission, which includes Consolidated Balance Sheets as of October 2, 2021 and October 3, 2020, and the related Consolidated Statements of Operations, Statements of Comprehensive Income, Changes in Shareholders' Equity and Cash Flows for each of the years in the three-year period ended October 2, 2021. The results of operations for any interim period are not necessarily indicative of the results of operations for any other interim period or for a full year.
Fiscal Year
Each of the Company's first three fiscal quarters end 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. Fiscal 2022 quarters end on January 1, 2022, April 2, 2022, July 2, 2022 and October 1, 2022. In fiscal years consisting of 53 weeks, the fourth quarter will consist of 14 weeks. Fiscal 2021 quarters ended on January 2, 2021, April 3, 2021, July 3, 2021 and October 2, 2021.
Nature of Business
The Company designs, manufactures and sells capital equipment and tools as well as services, maintains, repairs and upgrades equipment, all used to assemble semiconductor devices. The Company's operating results depend upon the capital and operating expenditures of semiconductor device manufacturers, integrated device manufacturers (“IDMs”), outsourced semiconductor assembly and test providers (“OSATs”), and other electronics manufacturers including automotive electronics suppliers worldwide which, in turn, depend on the current and anticipated market demand for semiconductors and products utilizing semiconductors. The semiconductor industry is highly volatile and experiences downturns and slowdowns which can have a severe negative effect on the semiconductor industry's demand for semiconductor capital equipment, including assembly equipment manufactured and sold by the Company and, to a lesser extent, tools, including those sold by the Company. These downturns and slowdowns have in the past adversely affected the Company's operating results. The Company believes such volatility will continue to characterize the industry and the Company's operations in the future.
Use of Estimates
The preparation of consolidated condensed 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 condensed financial statements. On an ongoing basis, management evaluates estimates, including but not limited to, those related to accounts receivable, reserves for excess and obsolete inventory, carrying value and lives of fixed assets, goodwill and intangible assets, the valuation estimates and assessment of impairment and observable price adjustments, income taxes, equity-based compensation expense, and warranties. Management bases its estimates on historical experience and on various other assumptions believed to be reasonable. As a result, management makes judgments regarding the carrying values of the Company's assets and liabilities that are not readily apparent from other sources. Authoritative pronouncements, historical experience and assumptions are used as the basis for making estimates, and on an ongoing basis, management evaluates these estimates. Actual results may differ from these estimates.
Due to the coronavirus (“COVID-19”) pandemic and macroeconomic headwinds, there has been uncertainty and disruption in the global economy and financial markets. The Company is not aware of any specific event or circumstance that would require an update to its estimates or judgments or a revision of the carrying value of its assets or liabilities as of July 2, 2022. While there was no material impact to our consolidated condensed financial statements as of and for the quarter ended July 2, 2022, these estimates may change, as new events occur and additional information is obtained, as well as other factors related to COVID-19 and macroeconomic headwinds that could materially impact our consolidated condensed financial statements in future reporting periods.
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KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Unaudited (continued)
Significant Accounting Policies
Except for the accounting policies for contract assets and accelerated share repurchases described below, there have been no material changes to our significant accounting policies summarized in Note 1 "Basis of Presentation" to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended October 2, 2021.
Contract Assets
A contract asset is the Company’s right to consideration in exchange for goods or services that the Company has transferred to a customer. ASC 606, Revenue from Contracts with Customers, distinguishes between a contract asset and a receivable based on whether receipt of the consideration is conditional on something other than the passage of time. When the Company transfers control of goods or services to a customer before the customer pays consideration, the Company records either a contract asset or a receivable depending on the nature of the Company’s right to consideration for its performance. The point at which a contract asset becomes an account receivable may be earlier than the point at which an invoice is issued. The Company assesses a contract asset for impairment in accordance with ASC 310, Receivables.
Accelerated Share Repurchase
From time to time, the Company may enter into accelerated share repurchase (“ASR”) agreements with third-party financial institutions to repurchase shares of the Company’s common stock. Under an ASR agreement, in exchange for an up-front payment, the counterparty makes an initial delivery of shares of the Company's common stock during the purchase period of the relevant ASR. This initial delivery of shares represents the minimum number of shares that the Company may receive under an ASR agreement. Upon settlement of an ASR agreement, the counterparty may deliver additional shares, with the final number of shares delivered determined based on the volume-weighted average price of the Company’s common stock over the term of such ASR agreement, less an agreed-upon discount. The transactions are accounted for as equity transactions and are included in Treasury Stock when the shares are received, at which time there is an immediate reduction in the weighted-average common shares calculation for basic and diluted earnings per share.
Recent Accounting Pronouncements
Income Taxes
In December 2019, the Financial Accounting Standards Board (“FASB”) issued ASU 2019-12, Income Taxes (Topic 740). The amendments in this ASU, among other changes, simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740, clarify and amend the existing guidance. We adopted this ASU in the first quarter of fiscal 2022. The adoption of this ASU did not have a material impact on our consolidated condensed financial statements.
Contracts in Entity's Own Equity
In August 2020, the FASB issued ASU 2020-06, Derivatives and Hedging - Contracts in Entity's Own Equity (Topic 815). The amendments in this ASU, among other changes, remove current guidance that allows an entity to rebut the presumption that potential share settlement be included in the diluted earnings per share calculation when an instrument may be settled in cash or shares if the entity has a history or policy of cash settlement. These amendments affect any instrument that may be settled in cash or shares and, therefore, affects the diluted earnings per share calculation for both convertible instruments and contracts in an entity's own equity. We elected to early adopt this ASU in the second quarter of fiscal 2022. The adoption of this ASU did not have a material impact on our consolidated condensed financial statements.
Codification Improvements
In October 2020, the FASB issued ASU 2020-10, Codification Improvements. The amendments in this ASU affect a wide variety of topics in the Codification and improve the consistency of the Codification by including all disclosure guidance in the appropriate disclosure sections (Section 50). We adopted this ASU in the first quarter of fiscal 2022. The adoption of this ASU did not have a material impact on our consolidated condensed financial statements.
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KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Unaudited (continued)
NOTE 2. BALANCE SHEET COMPONENTS
The following tables reflect the components of significant balance sheet accounts as of July 2, 2022 and October 2, 2021:

| As of
(in thousands) | July 2, 2022 |  | October 2, 2021
Short-term investments, available-for-sale (1) | $ | 300,000 |  |  | $ | 377,000 |
Inventories, net: |  |  |
Raw materials and supplies | $ | 126,593 |  |  | $ | 94,493 |
Work in process | 69,426 |  |  | 55,866 |
Finished goods | 40,363 |  |  | 40,006 |
| 236,382 |  |  | 190,365 |
Inventory reserves | (21,101) |  |  | (23,042) |
| $ | 215,281 |  |  | $ | 167,323 |
Property, plant and equipment, net: |  |  |
Land | $ | 2,182 |  |  | $ | 2,182 |
Buildings and building improvements | 23,116 |  |  | 23,314 |
Leasehold improvements | 32,120 |  |  | 30,054 |
Data processing equipment and software | 40,836 |  |  | 40,945 |
Machinery, equipment, furniture and fixtures | 90,465 |  |  | 87,994 |
Construction in progress | 10,728 |  |  | 9,562 |
| 199,447 |  |  | 194,051 |
Accumulated depreciation | (132,937) |  |  | (126,069) |
| $ | 66,510 |  |  | $ | 67,982 |
Accrued expenses and other current liabilities: |  |  |
Accrued customer obligations (2) | $ | 67,063 |  |  | $ | 72,478 |
Wages and benefits | 47,833 |  |  | 66,531 |
Dividends payable | 9,970 |  |  | 8,673 |
Commissions and professional fees | 5,459 |  |  | 6,190 |
Severance | — |  |  | 31 |
Other | 8,109 |  |  | 7,667 |
| $ | 138,434 |  |  | $ | 161,570 |

(1)All short-term investments were classified as available-for-sale and the fair value approximates cost basis. The Company did not recognize any realized gains or losses on the sale of investments during the three and nine months ended July 2, 2022 and July 3, 2021.
(2)Represents customer advance payments, customer credit program, accrued warranty expense and accrued retrofit obligations.
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KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Unaudited (continued)
NOTE 3. GOODWILL AND INTANGIBLE ASSETS
Goodwill
Intangible assets classified as goodwill are not amortized. The goodwill established in connection with our acquisitions represents the estimated future economic benefits arising from the assets we acquired that did not qualify to be identified and recognized individually. The goodwill also includes the value of expected future cash flows from the acquisitions, expected synergies with our other affiliates and other unidentifiable intangible assets.
The Company performs an annual impairment test of its goodwill during the fourth quarter of each fiscal year, which coincides with the completion of its annual forecasting and refreshing of business outlook process.
The Company performed its annual impairment test in the fourth quarter of fiscal 2021 and concluded that no impairment charge was required. Any future adverse changes in expected operating results and/or unfavorable changes in other economic factors used to estimate fair values could result in a non-cash impairment in the future.
During the three and nine months ended July 2, 2022, the Company reviewed qualitative factors to ascertain if a "triggering" event may have taken place that may have the effect of reducing the fair value of the reporting unit below its carrying value and concluded that no triggering event had occurred. While we have concluded that a triggering event did not occur during the quarter ended July 2, 2022, a prolonged COVID-19 pandemic and macroeconomic headwinds could impact the results of operations due to changes to assumptions utilized in the determination of the estimated fair values of the reporting units that could be significant enough to trigger an impairment. Net sales and earnings growth rates could be negatively impacted by reductions or changes in demand for our products. The discount rate utilized in our valuation model could also be impacted by changes in the underlying interest rates and risk premiums included in the determination of the cost of capital.
The following table summarizes the Company's recorded goodwill by reportable segments (refer to Note 14) as of July 2, 2022 and October 2, 2021:

(in thousands) |  | Capital Equipment |  | APS |  | Total
Balance at October 2, 2021 |  | $ | 46,561 |  |  | $ | 26,388 |  |  | $ | 72,949 |
Other |  | (2,849) |  |  | (313) |  |  | $ | (3,162) |
Balance at July 2, 2022 |  | $ | 43,712 |  |  | $ | 26,075 |  |  | $ | 69,787 |

Intangible Assets
Intangible assets with determinable lives are amortized over their estimated useful lives. The Company's intangible assets consist primarily of developed technology, customer relationships, in-process research and development, and trade and brand names.
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KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Unaudited (continued)
The following table reflects net intangible assets as of July 2, 2022 and October 2, 2021:

| As of |  | Average estimated |
(dollar amounts in thousands) | July 2, 2022 |  | October 2, 2021 |  | useful lives (in years) |
Developed technology(1) | $ | 92,573 |  |  | $ | 90,427 |  |  | 6.0 to 15.0 |
Accumulated amortization | (58,932) |  |  | (58,494) |  |  |  |
Net developed technology | $ | 33,641 |  |  | $ | 31,933 |  |  |  |
Customer relationships | $ | 34,421 |  |  | $ | 36,114 |  |  | 5.0 to 6.0 |
Accumulated amortization | (34,421) |  |  | (36,114) |  |  |  |
Net customer relationships | $ | — |  |  | $ | — |  |  |  |
In-process research and development(1) | $ | — |  |  | $ | 8,795 |  |  | N.A |
Accumulated amortization | — |  |  | — |  |  |  |
Net in-process research and development | $ | — |  |  | $ | 8,795 |  |  |  |
Trade and brand name | $ | 7,095 |  |  | $ | 7,374 |  |  | 7.0 to 8.0 |
Accumulated amortization | (7,095) |  |  | (7,275) |  |  |  |
Net trade and brand name | — |  |  | 99 |  |  |  |
Other intangible assets | $ | 4,700 |  |  | $ | 4,700 |  |  | 1.9 to 6.0 |
Accumulated amortization | (3,050) |  |  | (2,775) |  |  |  |
Net other intangible assets | $ | 1,650 |  |  | $ | 1,925 |  |  |  |
| $ | 35,291 |  |  | $ | 42,752 |  |  |  |

(1) As of July 2, 2022, $7.9 million of in-process research and development assets were transferred to developed technology (definite-lived intangible assets) as the research and development process was completed, and are being amortized over their weighted-average useful lives of 6 years.
The following table reflects estimated annual amortization expense related to intangible assets as of July 2, 2022:

| As of
(in thousands) | July 2, 2022
Remaining fiscal 2022 | $ | 1,416 |
Fiscal 2023 | 5,665 |
Fiscal 2024 | 5,665 |
Fiscal 2025 | 5,665 |
Fiscal 2026 | 5,665 |
Thereafter | 11,215 |
Total amortization expense | $ | 35,291 |

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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Unaudited (continued)
NOTE 4. CASH, CASH EQUIVALENTS, AND SHORT-TERM INVESTMENTS
Cash equivalents consist of instruments with remaining maturities of three months or less at the date of purchase. In general, these investments are free of trading restrictions.
Cash, cash equivalents, and short-term investments consisted of the following as of July 2, 2022:

(in thousands) | Amortized Cost |  | Unrealized Gains |  | Unrealized Losses |  | Estimated Fair Value |  |  |  |  |
Current assets: |  |  |  |  |  |  |  |  |  |  |  |
Cash | $ | 164,458 |  |  | $ | — |  |  | $ | — |  |  | $ | 164,458 |  |  |  |  |  |
Cash equivalents: |  |  |  |  |  |  |  |  |  |  |  |
Money market funds (1) | 161,338 |  |  | — |  |  | (24) |  |  | 161,314 |  |  |  |  |  |
Time deposits (2) | 120,009 |  |  | — |  |  | — |  |  | 120,009 |  |  |  |  |  |
Total cash and cash equivalents | $ | 445,805 |  |  | $ | — |  |  | $ | (24) |  |  | $ | 445,781 |  |  |  |  |  |
Short-term investments: |  |  |  |  |  |  |  |  |  |  |  |
Time deposits (2) | 300,000 |  |  | — |  |  | — |  |  | 300,000 |  |  |  |  |  |
Total short-term investments | $ | 300,000 |  |  | $ | — |  |  | $ | — |  |  | $ | 300,000 |  |  |  |  |  |
Total cash, cash equivalents and short-term investments | $ | 745,805 |  |  | $ | — |  |  | $ | (24) |  |  | $ | 745,781 |  |  |  |  |  |

(1)The fair value was determined using unadjusted prices in active, accessible markets for identical assets, and as such they were classified as Level 1 assets in the fair value hierarchy.
(2)Fair value approximates cost basis.
Cash, cash equivalents and short-term investments consisted of the following as of October 2, 2021:

(in thousands) | Amortized Cost |  | Unrealized Gains |  | Unrealized Losses |  | Estimated Fair Value |  |  |  |  |
Current assets: |  |  |  |  |  |  |  |  |  |  |  |
Cash | $ | 269,201 |  |  | $ | — |  |  | $ | — |  |  | $ | 269,201 |  |  |  |  |  |
Cash equivalents: |  |  |  |  |  |  |  |  |  |  |  |
Money market funds (1) | 93,598 |  |  | — |  |  | (18) |  |  | 93,580 |  |  |  |  |  |
Time deposits (2) | 7 |  |  | — |  |  | — |  |  | 7 |  |  |  |  |  |
Total cash and cash equivalents | $ | 362,806 |  |  | $ | — |  |  | $ | (18) |  |  | $ | 362,788 |  |  |  |  |  |
Short-term investments: |  |  |  |  |  |  |  |  |  |  |  |
Time deposits (2) | 377,000 |  |  | — |  |  | — |  |  | 377,000 |  |  |  |  |  |
Total short-term investments | $ | 377,000 |  |  | $ | — |  |  | $ | — |  |  | $ | 377,000 |  |  |  |  |  |
Total cash, cash equivalents and short-term investments | $ | 739,806 |  |  | $ | — |  |  | $ | (18) |  |  | $ | 739,788 |  |  |  |  |  |

(1)The fair value was determined using unadjusted prices in active, accessible markets for identical assets, and as such they were classified as Level 1 assets in the fair value hierarchy.
(2)Fair value approximates cost basis.
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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Unaudited (continued)
NOTE 5. EQUITY INVESTMENTS
Equity investments consisted of the following as of July 2, 2022 and October 2, 2021:

| As of
(in thousands) | July 2, 2022 |  | October 2, 2021
Non-marketable equity securities | $ | 5,397 |  |  | $ | 6,388 |
Total equity investments | $ | 5,397 |  |  | $ | 6,388 |

During the three and nine months ended July 2, 2022, the Company recorded an impairment of $1.3 million on a non-marketable equity security without a readily determinable fair value. The entire amount of the investment in the non-marketable equity security was impaired due to a significant deterioration in the earnings performance of the equity investee. The impairment amount is recorded within “Selling, general and administrative expense” in the Consolidated Condensed Statement of Operations.
NOTE 6. FAIR VALUE MEASUREMENTS
Accounting standards establish three levels of inputs that may be used to measure fair value: quoted prices in active markets for identical assets or liabilities (referred to as Level 1), inputs other than Level 1 that are observable for the asset or liability either directly or indirectly (referred to as Level 2) and unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities (referred to as Level 3).
Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis
We measure certain financial assets and liabilities at fair value on a recurring basis. There were no transfers between fair value measurement levels during the three and nine months ended July 2, 2022.
Fair Value Measurements on a Nonrecurring Basis
Our non-financial assets such as intangible assets and property, plant and equipment are carried at cost unless impairment is deemed to have occurred.
Fair Value of Financial Instruments
Amounts reported as accounts receivables, prepaid expenses and other current assets, accounts payable and accrued expenses approximate fair value.
NOTE 7. DERIVATIVE FINANCIAL INSTRUMENTS
The Company’s international operations are exposed to changes in foreign exchange rates due to transactions denominated in currencies other than U.S. dollars. Most of the Company’s revenue and cost of materials are transacted in U.S. dollars. However, a significant amount of the Company’s operating expenses is denominated in local currencies, primarily in Singapore.
The foreign currency exposure of our operating expenses is generally hedged with foreign exchange forward contracts. The Company’s foreign exchange risk management programs include using foreign exchange forward contracts with cash flow hedge accounting designation to hedge exposures to the variability in the U.S. dollar equivalent of forecasted non-U.S. dollar-denominated operating expenses. These instruments generally mature within twelve months. For these derivatives, we report the after-tax gain or loss from the effective portion of the hedge as a component of accumulated other comprehensive income (loss), and we reclassify it into earnings in the same period or periods in which the hedged transaction affects earnings and in the same line item on the Consolidated Condensed Statements of Operations as the impact of the hedged transaction.
The fair value of derivative instruments on our Consolidated Condensed Balance Sheets as of July 2, 2022 and October 2, 2021 were as follows:
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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Unaudited (continued)

| As of
| July 2, 2022 |  | October 2, 2021
(in thousands) | Notional Amount |  |  | Fair Value Liability Derivatives(1) |  | Notional Amount |  |  | Fair Value Liability Derivatives(1)
Derivatives designated as hedging instruments: |  |  |  |  |  |  |  |  |
Foreign exchange forward contracts (2) | $ | 57,756 |  |  |  | $ | (991) |  |  | $ | 57,682 |  |  |  | $ | (616) |
Total derivatives | $ | 57,756 |  |  |  | $ | (991) |  |  | $ | 57,682 |  |  |  | $ | (616) |

(1)The fair value of derivative liabilities is measured using level 2 fair value inputs and is included in accrued expenses and other current liabilities on our Consolidated Condensed Balance Sheets.
(2)Hedged amounts expected to be recognized to income within the next twelve months.
The effects of derivative instruments designated as cash flow hedges in our Consolidated Condensed Statements of Comprehensive Income for the three and nine months ended July 2, 2022 and July 3, 2021 were as follows:

| Three months ended |  | Nine months ended
(in thousands) | July 2, 2022 |  | July 3, 2021 |  | July 2, 2022 |  |  | July 3, 2021
Foreign exchange forward contract in cash flow hedging relationships: |  |  |  |  |  |  |  |
Net (loss)/gain recognized in OCI, net of tax (1) | $ | (1,233) |  |  | $ | (133) |  |  | $ | (1,168) |  |  |  | $ | 301 |
Net (loss)/gain reclassified from accumulated OCI into income, net of tax (2) | $ | (170) |  |  | $ | 317 |  |  | $ | (793) |  |  |  | $ | 1,295 |

(1)Net change in the fair value of the effective portion classified in OCI.
(2)Effective portion classified as selling, general and administrative expense.
NOTE 8. LEASES
We have entered into various non-cancellable operating and finance lease agreements for certain of our offices, manufacturing, technology, sales support and service centers, equipment, and vehicles. We determine if an arrangement is a lease, or contains a lease, at inception and record the leases in our financial statements upon lease commencement, which is the date when the underlying asset is made available for use by the lessor. Our lease terms may include one or more options to extend the lease terms, for periods from one year to 20 years, when it is reasonably certain that we will exercise that option. As of July 2, 2022, there was no option to extend the lease which was recognized as a right-of-use ("ROU") asset, or a lease liability. We have lease agreements with lease and non-lease components, and non-lease components are accounted for separately and not included in our leased assets and corresponding liabilities. We have elected not to present short-term leases on the Consolidated Condensed Balance Sheets as these leases have a lease term of 12 months or less at lease inception.
Operating leases are included in operating ROU assets, current operating lease liabilities and non-current operating lease liabilities, and finance leases are included in property, plant and equipment, accrued expenses and other current liabilities, and other liabilities on the Consolidated Condensed Balance Sheets. As of July 2, 2022 and October 2, 2021, our finance leases are not material.
The following table shows the components of lease expense:

| Three months ended |  | Nine months ended
(in thousands) | July 2, 2022 |  | July 3, 2021 |  | July 2, 2022 |  | July 3, 2021
Operating lease expense (1) | $ | 2,173 |  |  | $ | 1,894 |  |  | $ | 6,217 |  |  | $ | 5,693 |

(1)Operating lease expense includes short-term lease expense, which is immaterial for the three and nine months ended July 2, 2022 and July 3, 2021.
The following table shows the cash flows arising from lease transactions. Cash payments related to short-term leases are not included in the measurement of operating lease liabilities, and, as such, are excluded from the amounts below:
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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Unaudited (continued)

| Nine months ended
(in thousands) | July 2, 2022 |  | July 3, 2021
Cash paid for amounts included in the measurement of lease liabilities: |  |  |
Operating cash outflows from operating leases | $ | 5,715 |  |  | $ | 5,364 |

The following table shows the weighted-average lease terms and discount rates for operating leases:

| As of |
| July 2, 2022 |  | October 2, 2021 |
Operating leases: |  |  |  |
Weighted-average remaining lease term (in years): | 8.5 |  | 9.6 |
Weighted-average discount rate: | 5.7 | % |  | 5.8 | % |

Future lease payments, excluding short-term leases are detailed as follows:

| As of |  |
(in thousands) | July 2, 2022 |  |
Remaining fiscal 2022 | $ | 2,095 |  |  |
Fiscal 2023 | 8,133 |  |  |
Fiscal 2024 | 7,680 |  |  |
Fiscal 2025 | 6,935 |  |  |
Fiscal 2026 | 5,006 |  |  |
Thereafter | 24,028 |  |  |
Total minimum lease payments | $ | 53,877 |  |  |
Less: Interest | $ | 12,068 |  |  |
Present value of lease obligations | $ | 41,809 |  |  |
Less: Current portion | $ | 5,973 |  |  |
Long-term portion of lease obligations | $ | 35,836 |  |  |

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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Unaudited (continued)
NOTE 9. DEBT AND OTHER OBLIGATIONS
Bank Guarantees
On November 22, 2013, the Company obtained a $5.0 million credit facility with Citibank in connection with the issuance of bank guarantees for operational purposes. As of July 2, 2022, the outstanding amount under this facility was $2.9 million.
Credit Facilities
On February 15, 2019, the Company entered into a Facility Letter and Overdraft Agreement (collectively, the “Facility Agreements”) with MUFG Bank, Ltd., Singapore Branch (the “Bank”). The Facility Agreements provide the Company and one of its subsidiaries with an overdraft facility of up to $150.0 million (the “Overdraft Facility”) for general corporate purposes. Amounts outstanding under the Overdraft Facility, including interest, are payable upon thirty days written demand by the Bank. Interest on the Overdraft Facility is calculated on a daily basis, and the applicable interest rate is calculated at the overnight U.S. Dollar LIBOR rate plus a margin of 1.5% per annum. The Overdraft Facility is an unsecured facility per the terms of the Facility Agreements. The Facility Agreements contain customary non-financial covenants, including, without limitation, covenants that restrict the Company’s ability to sell or dispose of its assets, cease owning at least 51% of two of its subsidiaries (the "Subsidiaries"), or encumber its assets with material security interests (including any pledge of monies in the Subsidiaries' cash deposit account with the Bank). The Facility Agreements also contain typical events of default, including, without limitation, non-payment of financial obligations when due, cross defaults to other material indebtedness of the Company and any breach of a representation or warranty under the Facility Agreements. As of July 2, 2022, there were no outstanding amounts under the Overdraft Facility.
NOTE 10. SHAREHOLDERS’ EQUITY AND EMPLOYEE BENEFIT PLANS
401(k) Retirement Income Plans
The Company has a 401(k) retirement plan (the “401(k) Plan”) for eligible U.S. employees. The 401(k) Plan allows for employee contributions and matching Company contributions from 4% to 6% based upon terms and conditions of the 401(k) Plan.
The following table reflects the Company’s contributions to the 401(k) Plan during the three and nine months ended July 2, 2022 and July 3, 2021:

| Three months ended |  | Nine months ended
(in thousands) | July 2, 2022 |  | July 3, 2021 |  | July 2, 2022 |  | July 3, 2021
Cash | $ | 419 |  |  | $ | 458 |  |  | $ | 1,423 |  |  | $ | 1,324 |

Share Repurchase Program
On August 15, 2017, the Company’s Board of Directors authorized a program (the "Program") to repurchase up to $100 million of the Company’s common stock on or before August 1, 2020. In 2018, 2019 and 2020, the Board of Directors increased the share repurchase authorization under the Program to $200 million, $300 million, and $400 million, respectively. On March 3, 2022, the Board of Directors further increased the share repurchase authorization under the Program by an additional $400 million to $800 million, and extended its duration through August 1, 2025. The Company has entered into a written trading plan under Rule 10b5-1 of the Exchange Act to facilitate repurchases under the Program. The Program may be suspended or discontinued at any time and is funded using the Company's available cash, cash equivalents and short-term investments. Under the Program, shares may be repurchased through open market and/or privately negotiated transactions at prices deemed appropriate by management. The timing and amount of repurchase transactions under the Program depend on market conditions as well as corporate and regulatory considerations. During the three and nine months ended July 2, 2022, the Company repurchased a total of approximately 653.0 thousand and 1,423.0 thousand shares of common stock under the Program at a cost of approximately $31.1 million and $72.6 million, respectively. The stock repurchases were recorded in the periods they were delivered and accounted for as treasury stock in the Company's Consolidated Condensed Balance Sheets. The Company records treasury stock purchases under the cost method using the first-in, first-out (FIFO) method. Upon re-issuance of treasury stock, amounts in excess of the acquisition cost are credited to additional paid-in capital.
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Unaudited (continued)
If the Company reissues treasury stock at an amount below its acquisition cost and additional paid-in capital associated with prior treasury stock transactions is insufficient to cover the difference between acquisition cost and the reissue price, this difference is recorded against retained earnings.
Accelerated Share Repurchase (“ASR”)
In addition to the 653.0 thousand shares of common stock repurchased under the Program during the three months ended July 2, 2022, on March 9, 2022, the Company entered into an ASR agreement (the “March 2022 ASR Agreement”) with an investment bank counterparty (“Dealer”) to repurchase $150 million of the Company's common stock. The March 2022 ASR Agreement was entered into pursuant to the Company's current $800 million share repurchase authorization.
Under the March 2022 ASR Agreement, the Company made an up-front payment of $150 million to the Dealer and received an initial delivery of 2,449.9 thousand shares of common stock at a cost of approximately $120 million on March 10, 2022. The final number of shares to be repurchased will be based on the volume-weighted average price of the Company's common stock during the term of the transaction, less a discount and subject to adjustments pursuant to the terms and conditions of the March 2022 ASR Agreement. For accounting purposes, the March 2022 ASR Agreement is evaluated as an unsettled forward contract indexed to the Company's own stock, with $30 million being classified within common stock. At settlement, the Dealer may be required to deliver additional shares of common stock to the Company, or, under certain circumstances, the Company may be required to deliver shares of its common stock or may elect to make a cash payment to the Dealer.
The March 2022 ASR Agreement was settled between the Company and the Dealer on April 22, 2022 and the Company received an additional 344.5 thousand shares of common stock from the Dealer. In total, an aggregate of 2,794.4 thousand shares of common stock were delivered by the Dealer under the March 2022 ASR Agreement at an average price of $53.68 per share, which was then reclassified as treasury stock from common stock in shareholder’s equity. As of July 2, 2022, our remaining stock repurchase authorization under the Program was approximately $309.3 million.
Dividends
On October 18, 2021, the Board of Directors declared a quarterly dividend of $0.17 per share of common stock. Dividends paid during the three and nine months ended July 2, 2022 totaled $10.1 million and $29.4 million, respectively. The declaration of any future cash dividend is at the discretion of the Board of Directors and will depend on the Company's financial condition, results of operations, capital requirements, business conditions and other factors, as well as a determination that such dividends are in the best interests of the Company's shareholders.
Accumulated Other Comprehensive Loss
The following table reflects accumulated other comprehensive loss reflected on the Consolidated Condensed Balance Sheets as of July 2, 2022 and October 2, 2021:

| As of
(in thousands) | July 2, 2022 |  | October 2, 2021
(Loss)/gain from foreign currency translation adjustments | $ | (17,343) |  |  | $ | 682 |
Unrecognized actuarial loss on pension plan, net of tax | (2,985) |  |  | (3,088) |
Unrealized loss on hedging | (991) |  |  | (616) |
Accumulated other comprehensive loss | $ | (21,319) |  |  | $ | (3,022) |

Equity-Based Compensation
The Company has a stockholder-approved equity-based compensation plan, the 2021 Omnibus Incentive Plan (the “Plan”) from which employees and directors receive grants. As of July 2, 2022, 3.3 million shares of common stock are available for grant to the Company's employees and directors under the Plan.
•Relative TSR Performance Share Units (“Relative TSR PSUs”) entitle the employee to receive common stock of the Company on the award vesting date, typically the third anniversary of the grant date (or as soon as administratively practicable if later), if market performance objectives which measure the relative total shareholder return (“TSR”) are attained. Relative TSR is calculated based upon the 90-calendar day average price at the end of the performance period of the Company's stock as compared to specific peer companies that comprise the GICS (45301020) Semiconductor Index. TSR is measured for the Company and each peer company over a performance period, which is generally three years. Vesting percentages range from 0% to 200% of awards granted. The provisions of the Relative TSR PSUs are
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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Unaudited (continued)
reflected in the grant date fair value of the award; therefore, compensation expense is recognized regardless of whether the market condition is ultimately satisfied. Compensation expense is reversed if the award is forfeited prior to the vesting date.
•Revenue Growth Performance Share Units (“Growth PSUs”) entitle the employee to receive common stock of the Company on the award vesting date, typically the third anniversary of the grant date (or as soon as administratively practicable if later), based on organic revenue growth objectives and relative growth performance against named competitors as set by the Management Development and Compensation Committee (“MDCC”) of the Company's Board of Directors. Organic revenue growth is calculated by averaging revenue growth (net of revenues from acquisitions) over a performance period, which is generally three years. Revenues from acquisitions will be included in the calculation after four fiscal quarters after acquisition. Any portion of the grant that does not meet the revenue growth objectives and relative growth performance is forfeited. Vesting percentages range from 0% to 200% of awards granted.
•In general, stock options and Time-based Restricted Share Units ("Time-based RSUs") awarded to employees vest ratably over a three-year period on the anniversary of the grant date provided the employee remains employed by the Company. The Company follows the non-substantive vesting method for stock options and recognizes compensation expense immediately for awards granted to retirement eligible employees, or over the period from the grant date to the date retirement eligibility is achieved.
Equity-based compensation expense recognized in the Consolidated Condensed Statements of Operations for the three and nine months ended July 2, 2022 and July 3, 2021 was based upon awards ultimately expected to vest, with forfeiture accounted for when they occur.
The following table reflects Time-based RSUs, Relative TSR PSUs, Growth PSUs and common stock granted during the three and nine months ended July 2, 2022 and July 3, 2021:

| Three months ended |  | Nine months ended
(shares in thousands) | July 2, 2022 |  | July 3, 2021 |  | July 2, 2022 |  | July 3, 2021
Time-based RSUs | 1 |  |  | — |  |  | 303 |  |  | 484 |
Relative TSR PSUs | — |  |  | — |  |  | 154 |  |  | 154 |
Growth PSUs | — |  |  | — |  |  | 77 |  |  | 51 |
Common stock | 4 |  |  | 4 |  |  | 12 |  |  | 19 |
Equity-based compensation in shares | 5 |  |  | 4 |  |  | 546 |  |  | 708 |

The following table reflects total equity-based compensation expense, which includes Time-based RSUs, Relative TSR PSUs, Growth PSUs and common stock, included in the Consolidated Condensed Statements of Operations during the three and nine months ended July 2, 2022 and July 3, 2021:

| Three months ended |  | Nine months ended
(in thousands) | July 2, 2022 |  | July 3, 2021 |  | July 2, 2022 |  | July 3, 2021
Cost of sales | $ | 193 |  |  | $ | 211 |  |  | $ | 727 |  |  | $ | 626 |
Selling, general and administrative | 3,233 |  |  | 3,008 |  |  | 10,485 |  |  | 8,111 |
Research and development | 1,039 |  |  | 921 |  |  | 3,261 |  |  | 2,767 |
Total equity-based compensation expense | $ | 4,465 |  |  | $ | 4,140 |  |  | $ | 14,473 |  |  | $ | 11,504 |

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KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Unaudited (continued)
The following table reflects equity-based compensation expense, by type of award, for the three and nine months ended July 2, 2022 and July 3, 2021:

| Three months ended |  | Nine months ended
(in thousands) | July 2, 2022 |  | July 3, 2021 |  | July 2, 2022 |  | July 3, 2021
Time-based RSUs | $ | 2,845 |  |  | $ | 2,571 |  |  | $ | 8,763 |  |  | $ | 7,772 |
Relative TSR PSUs | 1,073 |  |  | 988 |  |  | 3,060 |  |  | 3,019 |
Growth PSUs | 310 |  |  | 359 |  |  | 1,938 |  |  | 121 |
Common stock | 237 |  |  | 222 |  |  | 712 |  |  | 592 |
Total equity-based compensation expense | $ | 4,465 |  |  | $ | 4,140 |  |  | $ | 14,473 |  |  | $ | 11,504 |

NOTE 11. REVENUE AND CONTRACT BALANCES
The Company recognizes revenue when we satisfy performance obligations as evidenced by the transfer of control of our products or services to customers. In general, the Company generates revenue from product sales, either directly to customers or to distributors. In determining whether a contract exists, we evaluate the terms of the agreement, the relationship with the customer or distributor and their ability to pay. Service revenue is generally recognized over time as the services are performed. For the three and nine months ended July 2, 2022, and July 3, 2021, the service revenue was not material.
The Company reports revenue based on our reportable segments. The Company believes that reporting revenue on this basis provides information about how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. Please refer to Note 14: Segment Information, for disclosure of revenue by segment.
Contract Balances
Our contract assets relate to our rights to consideration for revenue with collection dependent on events other than the passage of time, such as the achievement of specified payment milestones. The contract assets will be transferred to net account receivables as our right to consideration for these contract assets become unconditional. Contracts assets are reported in the accompanying Consolidated Condensed Balance Sheets within prepaid expenses and other current assets.
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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Unaudited (continued)
Our contract liabilities are primarily related to payments received in advance of satisfying performance obligations, and are reported in the accompanying Consolidated Condensed Balance Sheets within accrued expenses and other current liabilities.
Contract liabilities increase as a result of receiving new advance payments from customers and decrease as revenue is recognized from product sales under advance payment arrangements upon satisfying the performance obligations.
The following table shows the changes in contract asset balances during the three and nine months ended July 2, 2022 and July 3, 2021:

| Three months ended |  | Nine months ended
(in thousands) | July 2, 2022 |  | July 3, 2021 |  | July 2, 2022 |  | July 3, 2021
Contract assets, beginning of period | $ | 26,721 |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Additions | 18,563 |  |  | — |  |  | 45,284 |  |  | — |
Contract assets, end of period | $ | 45,284 |  |  | $ | — |  |  | $ | 45,284 |  |  | $ | — |

The following table shows the changes in contract liability balances during the three and nine months ended July 2, 2022 and July 3, 2021:

| Three months ended |  | Nine months ended
(in thousands) | July 2, 2022 |  | July 3, 2021 |  | July 2, 2022 |  | July 3, 2021
Contract liabilities, beginning of period | $ | 17,300 |  |  | $ | 5,788 |  |  | $ | 15,596 |  |  | $ | 2,958 |
Revenue recognized | (29,612) |  |  | (23,725) |  |  | (104,796) |  |  | (43,993) |
Additions | 17,996 |  |  | 26,486 |  |  | 94,884 |  |  | 49,584 |
Contract liabilities, end of period | $ | 5,684 |  |  | $ | 8,549 |  |  | $ | 5,684 |  |  | $ | 8,549 |

NOTE 12. EARNINGS PER SHARE
Basic income per share is calculated using the weighted average number of shares of common stock outstanding during the period. Stock options and restricted stock are included in the calculation of diluted earnings per share, except when their effect would be anti-dilutive.
The following table reflects a reconciliation of the shares used in the basic and diluted net income per share computation for the three and nine months ended July 2, 2022 and July 3, 2021:

| Three months ended
(in thousands, except per share data) | July 2, 2022 |  | July 3, 2021
| Basic |  | Diluted |  | Basic |  | Diluted
NUMERATOR: |  |  |  |  |  |  |
Net income | $ | 119,034 |  |  | $ | 119,034 |  |  | $ | 113,766 |  |  | $ | 113,766 |
DENOMINATOR: |  |  |  |  |  |  |
Weighted average shares outstanding - Basic | 58,985 |  |  | 58,985 |  |  | 62,023 |  |  | 62,023 |
Dilutive effect of Equity Plans |  |  | 970 |  |  |  |  | 1,462 |
Weighted average shares outstanding - Diluted |  |  | 59,955 |  |  |  |  | 63,485 |
EPS: |  |  |  |  |  |  |
Net income per share - Basic | $ | 2.02 |  |  | $ | 2.02 |  |  | $ | 1.83 |  |  | $ | 1.83 |
Effect of dilutive shares |  |  | (0.03) |  |  |  |  | (0.04) |
Net income per share - Diluted |  |  | $ | 1.99 |  |  |  |  | $ | 1.79 |
Anti-dilutive shares(1) |  |  | 19 |  |  |  | 0

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KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Unaudited (continued)

| Nine months ended
(in thousands, except per share data) | July 2, 2022 |  | July 3, 2021
| Basic |  | Diluted |  | Basic |  | Diluted
NUMERATOR: |  |  |  |  |  |  |
Net income | $ | 368,641 |  |  | $ | 368,641 |  |  | $ | 233,450 |  |  | $ | 233,450 |
DENOMINATOR: |  |  |  |  |  |  |
Weighted average shares outstanding - Basic | 60,951 |  |  | 60,951 |  |  | 62,023 |  |  | 62,023 |
Dilutive effect of Equity Plans |  |  | 989 |  |  |  |  | 1,341 |
Weighted average shares outstanding - Diluted |  |  | 61,940 |  |  |  |  | 63,364 |
EPS: |  |  |  |  |  |  |
Net income per share - Basic | $ | 6.05 |  |  | $ | 6.05 |  |  | $ | 3.76 |  |  | $ | 3.76 |
Effect of dilutive shares |  |  | (0.10) |  |  |  |  | (0.08) |
Net income per share - Diluted |  |  | $ | 5.95 |  |  |  |  | $ | 3.68 |
Anti-dilutive shares(1) |  |  | 1 |  |  |  | 3

(1) Represents the Relative TSR PSUs and Growth PSUs that are excluded from the calculation of diluted earnings per share for the three and nine months ended July 2, 2022 and July 3, 2021 as the effect would have been anti-dilutive.
NOTE 13. INCOME TAXES
The following table reflects the provision for income taxes and the effective tax rate for the three and nine months ended July 2, 2022 and July 3, 2021:

| Three months ended |  | Nine months ended
(dollar amounts in thousands) | July 2, 2022 |  | July 3, 2021 |  | July 2, 2022 |  | July 3, 2021
Provision for income taxes | $ | 5,165 |  |  | $ | 7,212 |  |  | $ | 36,813 |  |  | $ | 25,722 |
Effective tax rate | 4.2 | % |  | 6.0 | % |  | 9.1 | % |  | 9.9 | %

The decrease in provision for income taxes for the three months ended July 2, 2022 as compared to the three months ended July 3, 2021 is primarily related to a decrease in foreign minimum tax, offset by an increase in tax expense due to jurisdictional mix of profitability and a decrease in tax benefit from the release of valuation allowance recorded against the net deferred tax assets. During the three months ended July 2, 2022 and July 3, 2021, the Company recorded a $4.9 million and $7.2 million tax benefit, respectively, from the release of valuation allowance recorded against the net deferred tax assets of a certain foreign jurisdiction due to a forecasted increase in future profitability in the corresponding jurisdiction. The increase in provision for income taxes for the nine months ended July 2, 2022 as compared to the nine months ended July 3, 2021 is primarily related to an overall increase in year-to-date profitability, principally earned in lower tax jurisdictions, and foreign minimum tax.
For the three and nine months ended July 2, 2022, the effective tax rate is lower than the U.S. federal statutory tax rate primarily due to foreign income earned in lower tax jurisdictions, tax incentives, tax credits, a release of valuation allowances on certain deferred tax assets and taxes on unrepatriated foreign earnings, partially offset by foreign minimum tax.
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KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Unaudited (continued)
NOTE 14. SEGMENT INFORMATION
Reportable segments are defined as components of an enterprise that engage in business activities for which discrete financial information is available and regularly reviewed by the chief operating decision maker (the “CODM”) in deciding how to allocate resources and assess performance. The Company's Chief Executive Officer is the CODM. The CODM does not review discrete asset information. The Company operates two reportable segments consisting of: (1) Capital Equipment; and (2) Aftermarket Products and Services ("APS").
The following table reflects operating information by segment for the three and nine months ended July 2, 2022 and July 3, 2021:

| Three months ended |  | Nine months ended
(in thousands) | July 2, 2022 |  | July 3, 2021 |  | July 2, 2022 |  | July 3, 2021
Net revenue: |  |  |  |  |  |  |
Capital Equipment | $ | 321,946 |  |  | $ | 370,187 |  |  | $ | 1,064,383 |  |  | $ | 881,722 |
APS | 50,191 |  |  | 54,131 |  |  | 152,924 |  |  | 150,616 |
Net revenue | 372,137 |  |  | 424,318 |  |  | 1,217,307 |  |  | 1,032,338 |
Income from operations: |  |  |  |  |  |  |
Capital Equipment | 102,467 |  |  | 107,016 |  |  | 345,686 |  |  | 218,010 |
APS | 19,610 |  |  | 13,439 |  |  | 56,842 |  |  | 39,601 |
Income from operations | $ | 122,077 |  |  | $ | 120,455 |  |  | $ | 402,528 |  |  | $ | 257,611 |

We have considered (1) information that is regularly reviewed by our CODM as defined by the authoritative guidance on segment reporting, in evaluating financial performance; and (2) other financial data, including information that we include in our earnings releases but which is not included in our financial statements, to disaggregate revenues by end markets served. The principal category we use to disaggregate revenues is by the end markets served in the Capital Equipment segment.
The following table reflects net revenue by Capital Equipment end markets served for the three and nine months ended July 2, 2022 and July 3, 2021:

| Three months ended |  | Nine months ended
(in thousands) | July 2, 2022 |  | July 3, 2021 |  | July 2, 2022 |  | July 3, 2021
General Semiconductor | $ | 223,034 |  |  | $ | 280,563 |  |  | $ | 670,251 |  |  | $ | 633,234 |
Automotive & Industrial | 51,018 |  |  | 38,488 |  |  | 160,366 |  |  | 103,416 |
LED | 20,203 |  |  | 31,951 |  |  | 128,394 |  |  | 115,071 |
Memory | 27,691 |  |  | 19,185 |  |  | 105,372 |  |  | 30,001 |
Total Capital Equipment revenue | $ | 321,946 |  |  | $ | 370,187 |  |  | $ | 1,064,383 |  |  | $ | 881,722 |

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KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Unaudited (continued)
The following table reflects capital expenditures, depreciation expense and amortization expense for the three and nine months ended July 2, 2022 and July 3, 2021:

| Three months ended |  | Nine months ended
(in thousands) | July 2, 2022 |  | July 3, 2021 |  | July 2, 2022 |  | July 3, 2021
Capital expenditures: |  |  |  |  |  |  |
Capital Equipment | $ | 3,670 |  |  | $ | 5,526 |  |  | $ | 8,103 |  |  | $ | 11,120 |
APS | 1,283 |  |  | 2,430 |  |  | 3,110 |  |  | 5,643 |
| $ | 4,953 |  |  | $ | 7,956 |  |  | $ | 11,213 |  |  | $ | 16,763 |
Depreciation expense: |  |  |  |  |  |  |
Capital Equipment | $ | 2,274 |  |  | $ | 1,668 |  |  | $ | 6,813 |  |  | $ | 4,850 |
APS | 1,827 |  |  | 1,797 |  |  | 5,417 |  |  | 5,049 |
| $ | 4,101 |  |  | $ | 3,465 |  |  | $ | 12,230 |  |  | $ | 9,899 |
Amortization expense: |  |  |  |  |  |  |
Capital Equipment | $ | 887 |  |  | $ | 845 |  |  | $ | 2,820 |  |  | $ | 2,751 |
APS | 222 |  |  | 495 |  |  | 723 |  |  | 1,902 |
| $ | 1,109 |  |  | $ | 1,340 |  |  | $ | 3,543 |  |  | $ | 4,653 |

NOTE 15. COMMITMENTS, CONTINGENCIES AND CONCENTRATIONS
Warranty Expense
The Company's equipment is generally shipped with a one-year warranty against manufacturing defects. The Company establishes reserves for estimated warranty expense when revenue for the related equipment is recognized. The reserve for estimated warranty expense is based upon historical experience and management's estimate of future warranty costs, including product part replacement, freight charges and related labor costs expected to be incurred in correcting manufacturing defects during the warranty period.
The following table reflects the reserve for warranty activity for the three and nine months ended July 2, 2022 and July 3, 2021:

| Three months ended |  | Nine months ended
(in thousands) | July 2, 2022 |  | July 3, 2021 |  | July 2, 2022 |  | July 3, 2021
Reserve for warranty, beginning of period | $ | 15,518 |  |  | $ | 15,574 |  |  | $ | 16,961 |  |  | $ | 9,576 |
Provision for warranty | 2,842 |  |  | 4,325 |  |  | 9,001 |  |  | 15,654 |
Utilization of reserve | (4,118) |  |  | (3,004) |  |  | (11,720) |  |  | (8,335) |
Reserve for warranty, end of period | $ | 14,242 |  |  | $ | 16,895 |  |  | $ | 14,242 |  |  | $ | 16,895 |

Other Commitments and Contingencies
The following table reflects obligations not reflected on the Consolidated Condensed Balance Sheet as of July 2, 2022:

|  |  | Payments due by fiscal year
(in thousands) | Total |  | 2022 |  | 2023 |  | 2024 |  | 2025 |  | 2026 |  | thereafter
Inventory purchase obligation (1) | $ | 347,900 |  |  | $ | 113,400 |  |  | $ | 234,500 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |

(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.
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KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Unaudited (continued)
From time to time, the Company is party to or the target of lawsuits, claims, investigations and proceedings, including for personal injury, intellectual property, commercial, contract, and employment matters, which are handled and defended in the ordinary course of business. The Company accrues a contingent loss liability for such matters when it is probable that a liability has been incurred and the amount can be reasonably estimated. When a single amount cannot be reasonably estimated but the cost can be estimated within a range, the Company accrues the minimum amount. The Company expenses legal costs, including those expected to be incurred in connection with a loss contingency, as incurred.
Unfunded Capital Commitments
As of July 2, 2022, the Company also has an obligation to fund uncalled capital commitments of approximately $9.6 million, as and when required, in relation to its investment in a private equity fund.
Concentrations
The following table reflects significant customer concentrations as a percentage of net revenue for the nine months ended July 2, 2022 and July 3, 2021:

| Nine months ended
| July 2, 2022 |  | July 3, 2021
ASE Technology Holding Co | * |  | 19.4 | %

* Represents less than 10% of total net revenue
The following table reflects significant customer concentrations as a percentage of total accounts receivable as of July 2, 2022 and July 3, 2021:

| As of
| July 2, 2022 |  | July 3, 2021
Tianshui Huatian Technology Co., Ltd. | 20.6 | % |  | 12.9 | %
Haoseng Industrial Co., Ltd. (1) | * |  | 16.1 | %

(1)Distributor of the Company's products.
* Represents less than 10% of total accounts receivable
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Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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, statements with respect to our future revenue increasing, continuing or strengthening, or decreasing or weakening; our capital allocation strategies, including any share repurchases; demand for our products, including replacement demand; our research and development effort; 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):
•our expectations regarding the potential impacts on our business of the novel coronavirus ("COVID-19") pandemic, including supply chain disruptions, the economic and public health effects, and governmental and other responses to these impacts;
•our expectations regarding the potential impacts on our business of actual or potential inflationary pressures, interest rate and risk premium adjustments, falling consumer sentiment, or economic recession caused, directly or indirectly, by the prolonged Ukraine/Russia conflict, the COVID-19 pandemic, geopolitical tensions and other macroeconomic factors;
•risks inherent in doing business on an international level, including currency risks, regulatory requirements, political risks, export restrictions and other trade barriers;
•projected growth rates in the overall semiconductor industry, the semiconductor assembly equipment market, and the market for semiconductor packaging materials; and
•projected demand for our products and services.
Generally, words such as “may,” “will,” “should,” “could,” “anticipate,” “expect,” “intend,” “estimate,” “plan,” “continue,” “goal” and “believe,” or the negative of or other variations on these and other similar expressions identify forward-looking statements. These forward-looking statements are made only as of the date of this filing. We do not undertake to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise.
Forward-looking statements are based on current expectations and involve risks and uncertainties. Our future results could differ significantly from those expressed or implied by our forward-looking statements. These risks and uncertainties include, without limitation, those described below and under the heading “Risk Factors” in this report and in our Annual Report on Form 10-K for the fiscal year ended October 2, 2021 (our “Annual Report”) and our other reports filed from time to time with the Securities and Exchange Commission. This discussion should be read in conjunction with the Consolidated Condensed Financial Statements and Notes included in this report, as well as our audited financial statements included in our 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. Given those risks and uncertainties, investors should not place undue reliance on forward-looking statements as predictions of actual results.
OVERVIEW
Kulicke and Soffa Industries, Inc. (“we,” “us,” “our,” or the “Company”) is a leading provider of semiconductor, light-emitting diode (“LED”) and electronic assembly solutions serving the global automotive, consumer, communications, computing and industrial markets. Founded in 1951, we pride ourselves on establishing foundations for technological advancement-creating, pioneering interconnect solutions that enable performance improvements, power efficiency, form-factor reductions and assembly excellence of current and next-generation semiconductor devices. Leveraging decades of development proficiency and extensive process technology expertise, our expanding portfolio provides equipment solutions, aftermarket products and services supporting a comprehensive set of interconnect technologies including wire bonding, advanced packaging, lithography, mini and micro LED transfer and electronics assembly. Dedicated to empowering technological discovery, always, we collaborate with customers and technology partners to push the boundaries of possibility, enabling a smarter future.
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We design, manufacture and sell capital equipment and tools used to assemble semiconductor devices, including integrated circuits, high and low powered discrete devices, LEDs, and power modules. In addition, we have a portfolio of equipment that is used to assemble components onto electronic circuit boards. We also service, maintain, repair and upgrade our equipment and sell consumable aftermarket tools for our and our peer companies' equipment. Our customers primarily consist of semiconductor device manufacturers, integrated device manufacturers (“IDMs”), outsourced semiconductor assembly and test providers (“OSATs”), other electronics manufacturers and automotive electronics suppliers.
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 as a leader in semiconductor assembly technology. We also remain focused on our cost structure through continuous improvement and optimization of operations. Cost reduction efforts are an important part of our normal ongoing operations and are intended to generate savings without compromising overall product quality and service.
We operate two reportable segments, consisting of Capital Equipment and Aftermarket Products and Services (“APS”). We have aggregated twelve operating segments as of July 2, 2022, with six operating segments within the Capital Equipment reportable segment and six operating segments within the APS reportable segment.
Our Capital Equipment segment engages in the manufacture and sale of ball bonders, wafer level bonders, wedge bonders, advanced packaging tools, mini and micro LED transfer solutions, hybrid and electronic assembly solutions to semiconductor device manufacturers, IDMs, foundries, OSATs, display manufacturers, other electronics manufacturers and automotive electronics suppliers. Our APS segment engages in the manufacture and sale of a variety of tools for a broad range of semiconductor packaging applications, spare parts, equipment repair, maintenance and servicing, training services, refurbishment and upgrades for our equipment.
Business Environment
The semiconductor business environment is highly volatile and is 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 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 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. There can be no assurances regarding levels of demand for our products and we believe historic industry-wide volatility will persist.
In the Asia/Pacific region, our customer base has also become more geographically concentrated as a result of economic and industry conditions. Approximately 90.9% and 95.8% of our net revenue for the three months ended July 2, 2022 and July 3, 2021, respectively, was for shipments to customer locations outside of the U.S., primarily in the Asia/Pacific region. Approximately 51.5% and 57.2% of our net revenue for the three months ended July 2, 2022 and July 3, 2021, respectively, was for shipments to customers located in China, which is subject to risks and uncertainties related to the respective policies of the governments of China and the U.S. Furthermore, there is a potential risk of conflict and instability in the relationship between Taiwan and China which could disrupt the operations of our customers and/or suppliers in both Taiwan and China and our manufacturing operations in China.
Similarly, approximately 94.4% and 96.6% of our net revenue for the nine months ended July 2, 2022 and July 3, 2021, respectively, was for shipments to customer locations outside of the U.S., primarily in the Asia/Pacific region. Approximately 58.3% and 53.9% of our net revenue for the nine months ended July 2, 2022 and July 3, 2021, respectively, was for shipments to customers located in China.
The U.S. and several other countries have levied tariffs on certain goods and have introduced other trade restrictions, which, together with the impact of the COVID-19 pandemic discussed below, has resulted in substantial uncertainties in the semiconductor, LED, memory and automotive markets.
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Our Capital Equipment segment is primarily affected by the industry's internal cyclical and seasonal dynamics in addition to broader macroeconomic factors that can positively or negatively affect our financial performance. The sales mix of IDM and OSAT customers in any period also impacts financial performance, as changes in 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 APS segment has historically been less volatile than our Capital Equipment segment. The APS 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 generally experience typical industry seasonality.
To limit potential adverse cyclical, seasonal and macroeconomic effects on our financial position, we have continued our efforts to maintain a strong balance sheet. As of July 2, 2022, our total cash, cash equivalents and short-term investments were $745.8 million, a $6.0 million increase from the prior fiscal year end. We believe our strong cash position will allow us to continue to invest in product development and pursue non-organic opportunities.
Key Events in Fiscal 2022 to Date
COVID-19 Pandemic and Macroeconomic Headwinds
The COVID-19 pandemic has significantly impacted the global economy, disrupted global supply chains, created volatility in equity market valuations, created significant volatility and disruption in financial markets, and significantly increased unemployment levels. In addition, the COVID-19 pandemic has resulted in temporary closures and failures of many businesses and the institution of social distancing and sheltering-in-place requirements in many jurisdictions. While some of these measures have been relaxed in certain jurisdictions, there has been a resurgence of illnesses or emergence of new variants of the virus in other jurisdictions, which has led to more severe restrictions.
In response to the COVID-19 pandemic, we temporarily closed certain offices in the United States, Europe and Asia as well as executed our Business Continuity Plan (“BCP”), which measures have disrupted how we operate our business. While we are currently operating at full capacity in all of our manufacturing locations, work-from-home practices were instituted across many offices worldwide, which have impacted our non-manufacturing productivity, including our research & development. At this point, our BCP has not included significant headcount reductions or changes in our overall liquidity position. As certain countries have relaxed the measures over the past few months, we have restarted certain activities in accordance with local guidelines.
We are impacted by the global shortage in electronic components and our supply chain is strained in some cases as the availability of materials, logistics and freight options continues to be challenging in many jurisdictions, especially in light of the emergence of new variants of the virus. As a result, we continue to expect some delays in fulfilling customer deliveries during the course of fiscal 2022. However, to date we have successfully managed our customers' expectations in most cases.
We believe semiconductor industry macroeconomics have not changed and we anticipate the industry’s long-term growth projections will normalize, but the sector is seeing short-term volatility and disruption due not only to the COVID-19 pandemic, but also due to actual or potential inflation, falling consumer sentiment, and economic recession caused, directly or indirectly, by various macroeconomic factors, including the prolonged Ukraine/Russia conflict.
Based on our current evaluation, neither the COVID-19 pandemic nor the prolonged Ukraine/Russia conflict has had a material direct impact on our financial condition and operating results in fiscal 2022 to date. We believe that our existing cash, cash equivalents, short-term investments, existing Facility Agreements, and anticipated cash flows from operations will be sufficient to meet our liquidity and capital requirements, notwithstanding the COVID-19 pandemic, prolonged Ukraine/Russia conflict or other macroeconomic factors, for at least the next twelve months from the date of filing. However, this is a highly dynamic situation. As the global COVID-19 pandemic response is dynamic, geopolitical posture by nations and governments is constantly developing and the macroeconomic situation remains highly volatile, creating uncertainty surrounding our business, our expectations regarding future demand or supply conditions and our near- and long-term liquidity, our financial condition and, consequentially, our operating results could deteriorate.
For a description of the risks to our business arising from or relating to the COVID-19 pandemic and general macroeconomic conditions, please see Part I, Item 1A, “Risk Factors” of our 2021 Annual Report on Form 10-K.
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RESULTS OF OPERATIONS
The following tables reflect our income from operations for the three and nine months ended July 2, 2022 and July 3, 2021:

| Three months ended |  |  |  |
(dollar amounts in thousands) | July 2, 2022 |  | July 3, 2021 |  | $ Change |  | % Change
Net revenue | $ | 372,137 |  |  | $ | 424,318 |  |  | $ | (52,181) |  |  | (12.3) | %
Cost of sales | 181,452 |  |  | 228,623 |  |  | (47,171) |  |  | (20.6) | %
Gross profit | 190,685 |  |  | 195,695 |  |  | (5,010) |  |  | (2.6) | %
Selling, general and administrative | 34,562 |  |  | 39,103 |  |  | (4,541) |  |  | (11.6) | %
Research and development | 34,046 |  |  | 36,137 |  |  | (2,091) |  |  | (5.8) | %
Operating expenses | 68,608 |  |  | 75,240 |  |  | (6,632) |  |  | (8.8) | %
Income from operations | $ | 122,077 |  |  | $ | 120,455 |  |  | $ | 1,622 |  |  | 1.3 | %

| Nine months ended |  |  |  |
(dollar amounts in thousands) | July 2, 2022 |  | July 3, 2021 |  | $ Change |  | % Change
Net revenue | $ | 1,217,307 |  |  | $ | 1,032,338 |  |  | $ | 184,969 |  |  | 17.9 | %
Cost of sales | 601,674 |  |  | 566,667 |  |  | 35,007 |  |  | 6.2 | %
Gross profit | 615,633 |  |  | 465,671 |  |  | 149,962 |  |  | 32.2 | %
Selling, general and administrative | 108,609 |  |  | 105,511 |  |  | 3,098 |  |  | 2.9 | %
Research and development | 104,496 |  |  | 102,549 |  |  | 1,947 |  |  | 1.9 | %
Operating expenses | 213,105 |  |  | 208,060 |  |  | 5,045 |  |  | 2.4 | %
Income from operations | $ | 402,528 |  |  | $ | 257,611 |  |  | $ | 144,917 |  |  | 56.3 | %

Net Revenue
Our net revenue for the three months ended July 2, 2022 decreased as compared to our net revenue for the three months ended July 3, 2021. The decrease in net revenue is primarily due to lower volume in Capital Equipment and APS. Our net revenue for the nine months ended July 2, 2022 increased as compared to our net revenue for the nine months ended July 3, 2021. The increase in net revenue is primarily due to favorable product mix in Capital Equipment.
The following tables reflect net revenue by reportable segments for the three and nine months ended July 2, 2022 and July 3, 2021:

| Three months ended |  |  |  |
(dollar amounts in thousands) | July 2, 2022 |  | July 3, 2021 |  | $ Change |  | % Change
| Net Revenue |  | % of total net revenue |  | Net Revenue |  | % of total net revenue |  |  |  |
Capital Equipment | $ | 321,946 |  |  | 86.5 | % |  | $ | 370,187 |  |  | 87.2 | % |  | $ | (48,241) |  |  | (13.0) | %
APS | 50,191 |  |  | 13.5 | % |  | 54,131 |  |  | 12.8 | % |  | (3,940) |  |  | (7.3) | %
Total net revenue | $ | 372,137 |  |  | 100.0 | % |  | $ | 424,318 |  |  | 100.0 | % |  | $ | (52,181) |  |  | (12.3) | %

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| Nine months ended |  |  |  |
(dollar amounts in thousands) | July 2, 2022 |  | July 3, 2021 |  | $ Change |  | % Change
| Net Revenue |  | % of total net revenue |  | Net Revenue |  | % of total net revenue |  |  |  |
Capital Equipment | $ | 1,064,383 |  |  | 87.4 | % |  | $ | 881,722 |  |  | 85.4 | % |  | $ | 182,661 |  |  | 20.7 | %
APS | 152,924 |  |  | 12.6 | % |  | 150,616 |  |  | 14.6 | % |  | 2,308 |  |  | 1.5 | %
Total net revenue | $ | 1,217,307 |  |  | 100.0 | % |  | $ | 1,032,338 |  |  | 100.0 | % |  | $ | 184,969 |  |  | 17.9 | %

Capital Equipment
For the three months ended July 2, 2022, the lower Capital Equipment net revenue as compared to the prior year period was primarily due to lower volume. The lower volume was due to a decrease in customer investments as a result of uncertainties in the overall macroeconomic environment, partially offset by favorable price variance due to product mix.
For the nine months ended July 2, 2022, the higher Capital Equipment net revenue as compared to the prior year period was primarily driven by favorable price variance due to product mix, partially offset by lower volume due to a decrease in customer investments as a result of uncertainties in the overall macroeconomic environment.
APS
For the three months ended July 2, 2022, the lower APS net revenue as compared to the prior year period was primarily due to lower volume in spares and services.
For the nine months ended July 2, 2022, the higher APS net revenue as compared to the prior year period was primarily due to higher volume in spares, services and bonding tools.
Gross Profit Margin
The following tables reflect gross profit margin as a percentage of net revenue by reportable segments for the three and nine months ended July 2, 2022 and July 3, 2021:

| Three months ended |  | Basis Point
| July 2, 2022 |  | July 3, 2021 |  | Change
Capital Equipment | 49.7 | % |  | 44.6 | % |  | 510 |
APS | 60.8 | % |  | 56.3 | % |  | 450 |
Total gross profit margin | 51.2 | % |  | 46.1 | % |  | 510 |

| Nine months ended |  | Basis Point
| July 2, 2022 |  | July 3, 2021 |  | Change
Capital Equipment | 49.1 | % |  | 42.9 | % |  | 620 |
APS | 60.8 | % |  | 57.9 | % |  | 290 |
Total gross profit margin | 50.6 | % |  | 45.1 | % |  | 550 |

Capital Equipment
For the three and nine months ended July 2, 2022, the higher Capital Equipment gross profit margin as compared to the prior year period was primarily driven by favorable price variance due to product mix.
APS
For the three and nine months ended July 2, 2022, the higher APS gross profit margin as compared to the prior year period was primarily driven by favorable product mix in spares and services.
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Operating Expenses
The following tables reflect operating expenses for the three and nine months ended July 2, 2022 and July 3, 2021:

| Three months ended |  |  |  |
(dollar amounts in thousands) | July 2, 2022 |  | July 3, 2021 |  | $ Change |  | % Change
Selling, general & administrative | $ | 34,562 |  |  | $ | 39,103 |  |  | $ | (4,541) |  |  | (11.6) | %
Research & development | 34,046 |  |  | 36,137 |  |  | (2,091) |  |  | (5.8) | %
Total | $ | 68,608 |  |  | $ | 75,240 |  |  | $ | (6,632) |  |  | (8.8) | %

| Nine months ended |  |  |  |
(dollar amounts in thousands) | July 2, 2022 |  | July 3, 2021 |  | $ Change |  | % Change
Selling, general & administrative | $ | 108,609 |  |  | $ | 105,511 |  |  | $ | 3,098 |  |  | 2.9 | %
Research & development | 104,496 |  |  | 102,549 |  |  | 1,947 |  |  | 1.9 | %
Total | $ | 213,105 |  |  | $ | 208,060 |  |  | $ | 5,045 |  |  | 2.4 | %

Selling, General and Administrative (“SG&A”)
For the three months ended July 2, 2022, the lower SG&A expenses as compared to the prior year period were primarily due to $4.8 million net favorable variance in foreign exchange and $1.8 million lower staff cost related to incentive compensation. These were partially offset by $1.3 million impairment of equity investment and $0.7 million higher sales representative commissions.
For the nine months ended July 2, 2022, the higher SG&A expenses as compared to the prior year period were primarily due to $4.8 million higher sales representative commissions, $1.3 million impairment of equity investment, and $1.3 million higher staff costs related to an increase in headcount. These were partially offset by $4.4 million net favorable variance in foreign exchange.
Research and Development (“R&D”)
For the three months ended July 2, 2022, the lower R&D expenses as compared to the prior year period were primarily due to lower staff costs related to incentive compensation and lower engineering services.
For the nine months ended July 2, 2022, the higher R&D expenses as compared to the prior year period were primarily due to higher staff costs related to increase in headcount.
Income from Operations
The following tables reflect income from operations by reportable segments for the three and nine months ended July 2, 2022 and July 3, 2021:

| Three months ended |  |  |  |
(dollar amounts in thousands) | July 2, 2022 |  | July 3, 2021 |  | $ Change |  | % Change
Capital Equipment | $ | 102,467 |  |  | $ | 107,016 |  |  | $ | (4,549) |  |  | (4.3) | %
APS | 19,610 |  |  | 13,439 |  |  | 6,171 |  |  | 45.9 | %
Total income from operations | $ | 122,077 |  |  | $ | 120,455 |  |  | $ | 1,622 |  |  | 1.3 | %

| Nine months ended |  |  |  |
(dollar amounts in thousands) | July 2, 2022 |  | July 3, 2021 |  | $ Change |  | % Change
Capital Equipment | $ | 345,686 |  |  | $ | 218,010 |  |  | $ | 127,676 |  |  | 58.6 | %
APS | 56,842 |  |  | 39,601 |  |  | 17,241 |  |  | 43.5 | %
Total income from operations | $ | 402,528 |  |  | $ | 257,611 |  |  | $ | 144,917 |  |  | 56.3 | %

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Capital Equipment and APS
For the three months ended July 2, 2022, the lower Capital Equipment income from operations as compared to the prior year period was primarily due to lower revenue as explained under 'Net Revenue' above. For the three months ended July 2, 2022, the higher APS income from operations as compared to prior year period was primarily due to higher decrease in operating expenses compared to the decrease in revenue as explained under 'Operating Expenses' above.
For the nine months ended July 2, 2022, the higher Capital Equipment and APS income from operations as compared to the prior year period was primarily due to higher revenue as explained under 'Net Revenue' above.
Interest Income and Expense
The following tables reflect interest income and interest expense for the three and nine months ended July 2, 2022 and July 3, 2021:

| Three months ended |  |  |  |
(dollar amounts in thousands) | July 2, 2022 |  | July 3, 2021 |  | $ Change |  | % Change
Interest income | $ | 2,158 |  |  | $ | 564 |  |  | $ | 1,594 |  |  | 282.6 | %
Interest expense | $ | (36) |  |  | $ | (41) |  |  | $ | 5 |  |  | (12.2) | %

| Nine months ended |  |  |  |
(dollar amounts in thousands) | July 2, 2022 |  | July 3, 2021 |  | $ Change |  | % Change
Interest income | $ | 3,099 |  |  | $ | 1,801 |  |  | $ | 1,298 |  |  | 72.1 | %
Interest expense | $ | (173) |  |  | $ | (146) |  |  | $ | (27) |  |  | 18.5 | %

Interest income
For the three and nine months ended July 2, 2022, the higher interest income as compared to the prior year period was primarily due to higher weighted average interest rate on cash, cash equivalents and short-term investments.
Interest expense
For the nine months ended July 2, 2022, the higher interest expense as compared to the prior year period was primarily due to higher average short-term debt. Please refer to Note 9 of Item 1 for discussion on the Overdraft Facility.
Provision for Income Taxes
The following table reflects the provision for income taxes and the effective tax rate for the three and nine months ended July 2, 2022 and July 3, 2021:

| Three months ended |  | Nine months ended
(dollar amounts in thousands) | July 2, 2022 |  | July 3, 2021 |  | Change |  | July 2, 2022 |  | July 3, 2021 |  | Change
Provision for income taxes | $ | 5,165 |  |  | $ | 7,212 |  |  | $ | (2,047) |  | $ | 36,813 |  |  | $ | 25,722 |  |  | $ | 11,091
Effective tax rate | 4.2 | % |  | 6.0 | % |  | (1.8) | % |  | 9.1 | % |  | 9.9 | % |  | (0.8) | %

Please refer to Note 13 of Item 1 for discussion on the provision for income taxes for the three and nine months ended July 2, 2022 as compared to the prior year period.
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LIQUIDITY AND CAPITAL RESOURCES
The following table reflects total cash, cash equivalents, and short-term investments as of July 2, 2022 and October 2, 2021:

| As of |  |
(dollar amounts in thousands) | July 2, 2022 |  | October 2, 2021 |  | $ Change
Cash and cash equivalents | $ | 445,781 |  | $ | 362,788 |  | $ | 82,993 |
Short-term investments | 300,000 |  | 377,000 |  | (77,000) |
Total cash, cash equivalents, and short-term investments | $ | 745,781 |  | $ | 739,788 |  | $ | 5,993 |
Percentage of total assets | 45.8% |  | 46.2% |  |

The following table reflects a summary of the Consolidated Condensed Statements of Cash Flow information for the nine months ended July 2, 2022 and July 3, 2021:

| Nine months ended
(in thousands) | July 2, 2022 |  | July 3, 2021
Net cash provided by operating activities | $ | 273,625 |  |  | $ | 176,656 |
Net cash provided by investing activities | 66,342 |  |  | 54,221 |
Net cash used in financing activities | (250,905) |  |  | (31,982) |
Effect of exchange rate changes on cash and cash equivalents | (6,069) |  |  | 977 |
Changes in cash and cash equivalents | $ | 82,993 |  |  | $ | 199,872 |
Cash and cash equivalents, beginning of period | 362,788 |  |  | 188,127 |
Cash and cash equivalents, end of period | $ | 445,781 |  |  | $ | 387,999 |

Nine months ended July 2, 2022
Net cash provided by operating activities was primarily due to net income of $368.6 million, non-cash adjustments to net income of $24.8 million and a net unfavorable change in operating assets and liabilities of $119.9 million. The net change in operating assets and liabilities was primarily driven by an increase in inventories of $49.2 million, prepaid expenses and other current assets of $50.7 million and a decrease in accounts payable and accrued expenses and other current liabilities of $84.0 million and income tax payable of $6.7 million. This was partially offset by a decrease in accounts and other receivable of $71.8 million.
The increase in inventories was due to higher manufacturing activities to meet higher demand in the first two quarters of fiscal 2022. The increase in prepaid expenses and other current assets was mainly due to the addition of contract assets in the period. The decrease in accounts payable and accrued expenses and other current liabilities was primarily due to higher payments to suppliers and lower accrued employee compensation that was paid out in the period. The decrease in accounts and other receivable in the nine months ended July 2, 2022 was mainly due to lower sales in the period and a change in customer mix of different credit terms.
Net cash provided by investing activities was due to net redemption of short-term investments of $77.0 million. This was partially offset by capital expenditures of $10.4 million.
Net cash used in financing activities was primarily due to common stock repurchases of $221.1 million and dividend payments of $29.4 million.
Nine months ended July 3, 2021
Net cash provided by operating activities was primarily due to net income of $233.5 million, non-cash adjustments to net income of $14.3 million and a net unfavorable change in operating assets and liabilities of $71.1 million. The net change in operating assets and liabilities was primarily driven by an increase in accounts and other receivable of $170.4 million, an increase in inventory of $40.8 million, and an increase in prepaid expenses and other current assets of $2.9 million. This was partially offset by an increase in accounts payable, accrued expenses and other current liabilities of $144.7 million.
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The increase in accounts and other receivable was due to increase in sales in the first three quarters of fiscal 2021. The increase in inventory was due to higher manufacturing activities during the third quarter of fiscal 2021 as compared to the fourth quarter of fiscal 2020 in anticipation of higher demand in subsequent periods. The higher accounts payable, accrued expenses and other current liabilities was primarily due to higher purchases, accruals on incentive compensation and other bonuses, and customer credits in the third quarter of fiscal 2021.
Net cash provided by investing activities was due to net redemption of short-term investments of $95.0 million and proceeds from sale of an equity-method investment of $2.1 million. This was partially offset by the cash outflow for the acquisition of Uniqarta, Inc. of $26.3 million and capital expenditures of $16.7 million.
Net cash used in financing activities was primarily due to common stock repurchases of $7.0 million and dividend payments of $24.8 million.
Fiscal 2022 Liquidity and Capital Resource Outlook
We expect our aggregate fiscal 2022 capital expenditures to be between approximately $30.0 million and $34.0 million, of which approximately $11.2 million has been incurred through the third quarter. Expenditures are anticipated to be primarily for research and development projects, enhancements to our manufacturing operations, improvements to our information technology security, implementation of an enterprise resource planning system and leasehold improvements for our facilities. Our ability to make these expenditures will depend, in part, on our future cash flows, which are determined by our future operating performance and, therefore, subject to prevailing macroeconomic conditions, including the impact from the COVID-19 pandemic, actual or potential inflationary pressures, geopolitical tensions including the prolonged Ukraine/Russia conflict and other factors, some of which are beyond our control.
As of July 2, 2022 and October 2, 2021, approximately $401.9 million and $724.5 million of cash, cash equivalents, and short-term investments were held by the Company's foreign subsidiaries, respectively, with a large portion of the cash amounts expected to be available for use in the U.S. without incurring additional U.S. income tax. The decrease is primarily due to the repatriation of cash held by the Company's foreign subsidiaries to the U.S.
The Company’s international operations and capital requirements are anticipated to be funded primarily by cash generated by foreign operating activities and cash held by foreign subsidiaries. The Company’s U.S. operations and capital requirements are anticipated to be funded primarily by cash generated from U.S. operating activities and cash held by U.S entities. In the future, the Company may repatriate additional cash held by foreign subsidiaries that has already been subject to U.S. income taxes or drawdown cash from our existing Facility Agreements. We believe these sources of cash and liquidity are sufficient to meet our additional liquidity needs for the foreseeable future including repayment of outstanding balances under the Facility Agreements, payment of dividends and share repurchases.
We believe that our existing cash, cash equivalents, short-term investments, existing Facility Agreements, and anticipated cash flows from operations will be sufficient to meet our liquidity and capital requirements, notwithstanding the COVID-19 pandemic, for at least the next twelve months from the date of filing. Our liquidity is affected by many factors, some based on normal operations of our business and others related to macroeconomic conditions including actual or potential inflationary pressures, industry-related uncertainties, effects arising from the prolonged Ukraine/Russia conflict, which we cannot predict. We also cannot predict economic conditions or 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.
In this unprecedented environment, as a result of the COVID-19 pandemic, the prolonged Ukraine/Russia conflict or for other reasons, we may seek, as we believe appropriate, additional debt or equity financing that would provide capital for general corporate purposes, working capital funding, additional liquidity needs or to fund future growth opportunities, including possible acquisitions. The timing and amount of potential capital requirements cannot be determined at this time and will depend on a number of factors, including the actual and projected demand for our products, semiconductor and semiconductor capital equipment industry conditions, competitive factors, the condition of financial markets and the global economic situation.
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Share Repurchase Program
On August 15, 2017, the Company’s Board of Directors authorized a program (the "Program") to repurchase up to $100 million of the Company’s common stock on or before August 1, 2020. In 2018, 2019 and 2020, the Board of Directors increased the share repurchase authorization under the Program to $200 million, $300 million, and $400 million, respectively. On March 3, 2022, the Board of Directors further increased the share repurchase authorization under the Program by an additional $400 million to $800 million, and extended its duration through August 1, 2025. The Company has entered into a written trading plan under Rule 10b5-1 of the Exchange Act to facilitate repurchases under the Program. The Program may be suspended or discontinued at any time and is funded using the Company's available cash, cash equivalents and short-term investments. Under the Program, shares may be repurchased through open market and/or privately negotiated transactions at prices deemed appropriate by management. The timing and amount of repurchase transactions under the Program depend on market conditions as well as corporate and regulatory considerations. During the three and nine months ended July 2, 2022, the Company repurchased a total of approximately 653.0 thousand and 1,423.0 thousand shares of common stock under the Program at a cost of approximately $31.1 million and $72.6 million. The stock repurchases were recorded in the periods in which the shares were delivered and accounted for as treasury stock in the Company's Consolidated Condensed Balance Sheets. The Company records treasury stock purchases under the cost method using the first-in, first-out (FIFO) method. Upon re-issuance of treasury stock, amounts in excess of the acquisition cost are credited to additional paid-in capital. If the Company reissues treasury stock at an amount below its acquisition cost and additional paid-in capital associated with prior treasury stock transactions is insufficient to cover the difference between acquisition cost and the reissue price, this difference is recorded against retained earnings.
Accelerated Share Repurchase
In addition to the 653.0 thousand shares of common stock repurchased under the Program during the three months ended July 2, 2022, on March 9, 2022, the Company entered into an ASR agreement (the “March 2022 ASR Agreement”) with an investment bank counterparty (“Dealer”) to repurchase $150 million of the Company's common stock. The March 2022 ASR Agreement was entered into pursuant to the Company's current $800 million share repurchase authorization.
Under the March 2022 ASR Agreement, the Company made an up-front payment of $150 million to the Dealer and received an initial delivery of 2,449.9 thousand shares of common stock at a cost of approximately $120 million on March 10, 2022. The final number of shares to be repurchased will be based on the volume-weighted average price of the Company's common stock during the term of the transaction, less a discount and subject to adjustments pursuant to the terms and conditions of the March 2022 ASR Agreement. This is evaluated as an unsettled forward contract indexed to the Company's own stock, with $30 million being classified within common stock. At settlement, the Dealer may be required to deliver additional shares of common stock to the Company, or, under certain circumstances, the Company may be required to deliver shares of its common stock or may elect to make a cash payment to the Dealer. The terms of the accelerated share repurchases under the March 2022 ASR Agreement are subject to adjustment if the Company enters into or announces certain types of transactions or corporate actions.
The March 2022 ASR Agreement was settled between the Company and the Dealer on April 22, 2022 and the Company received an additional 344.5 thousand shares of common stock from the Dealer. In total, an aggregate of 2,794.4 thousand shares of common stock were delivered by the Dealer under the March 2022 ASR Agreement at an average price of $53.68 per share, which was then reclassified as treasury stock from common stock in shareholder’s equity. As of July 2, 2022, our remaining stock repurchase authorization under the Program was approximately $309.3 million.
Dividends
On October 18, 2021, the Board of Directors declared a quarterly dividend of $0.17 per share of common stock. Dividends paid during the three and nine months ended July 2, 2022 totaled $10.1 million and $29.4 million, respectively. The declaration of any future cash dividend is at the discretion of the Board of Directors and will depend on the Company's financial condition, results of operations, capital requirements, business conditions and other factors, as well as a determination that such dividends are in the best interests of the Company's shareholders.
Other Obligations and Contingent Payments
In accordance with GAAP, certain obligations and commitments are not required to be included in the Consolidated Condensed 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 and are disclosed in the table below.
As of July 2, 2022, the Company had deferred tax liabilities of $34.5 million and unrecognized tax benefits within the income taxes payable for uncertain tax positions of $14.8 million, inclusive of accrued interest on uncertain tax positions of $2.1 million, substantially all of which would affect our effective tax rate in the future, if recognized.
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It is reasonably possible that the amount of the unrecognized tax benefit with respect to certain unrecognized tax positions will increase or decrease during the next 12 months due to the expected lapse of statutes of limitation and / or settlements of tax examinations. Given the number of years and numerous matters that remain subject to examination in various tax jurisdictions, we cannot practicably estimate the timing or financial outcomes of these examinations and, therefore, these amounts are excluded from the amounts below. When estimating its tax positions, the Company considers and evaluates numerous complex areas of taxation, which may require periodic adjustments and which may not reflect the final tax liabilities.
The following table presents certain payments due by the Company under contractual and statutory obligations with minimum firm commitments as of July 2, 2022:

|  |  | Payments due in
(in thousands) | Total |  | Less than 1 year |  | 1 - 3 years |  | 3 - 5 years |  | More than 5 years
Inventory purchase obligations (1) | $ | 347,900 |  |  | $ | 113,400 |  |  | $ | 234,500 |  |  | $ | — |  |  | $ | — |
U.S. one-time transition tax payable (2) (reflected on our Consolidated Condensed Balance Sheets) | $ | 54,408 |  |  | 6,723 |  |  | 29,414 |  |  | 18,271 |  |  | — |
Total | $ | 402,308 |  |  | $ | 120,123 |  |  | $ | 263,914 |  |  | $ | 18,271 |  |  | $ | — |

(1)The Company orders inventory components in the normal course of its business. A portion of these orders are non-cancellable and some orders impose varying penalties and charges in the event of cancellation.
(2)Associated with the U.S. one-time transition tax on certain earnings and profits of our foreign subsidiaries in relation to the U.S Tax Cuts and Job Act of 2017.
Off-Balance Sheet Arrangements
Credit facilities
On February 15, 2019, the Company entered into a Facility Letter and Overdraft Agreement (collectively, the “Facility Agreements”) with MUFG Bank, Ltd., Singapore Branch (the “Bank”). The Facility Agreements provide the Company and one of its subsidiaries with an overdraft facility of up to $150.0 million (the “Overdraft Facility”) for general corporate purposes. Amounts outstanding under the Overdraft Facility, including interest, are payable upon thirty days written demand by the Bank. Interest on the Overdraft Facility is calculated on a daily basis, and the applicable interest rate is calculated at the overnight U.S. Dollar LIBOR rate plus a margin of 1.5% per annum. The Overdraft Facility is an unsecured facility per the terms of the Facility Agreements. The Facility Agreements contain customary non-financial covenants, including, without limitation, covenants that restrict the Company’s ability to sell or dispose of its assets, cease owning at least 51% of two of its subsidiaries (the "Subsidiaries") or encumber its assets with material security interests (including any pledge of monies in the Subsidiaries’ cash deposit account with the Bank). The Facility Agreements also contain typical events of default, including, without limitation, non-payment of financial obligations when due, cross defaults to other material indebtedness of the Company, and breach of a representation or warranty under the Facility Agreements. As of July 2, 2022, there were no outstanding amounts under the Overdraft Facility.
As of July 2, 2022, other than the bank guarantee disclosed in Note 9 of Item 1, we did not have any other off-balance sheet arrangements, such as contingent interests or obligations associated with variable interest entities.
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Item 3. - 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 on 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.
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, Singapore and Switzerland. Our U.S. operations also have foreign currency exposure due to net monetary assets denominated in currencies other than the U.S. dollar. 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 the Netherlands, China, Taiwan, Japan and Germany.
Based on our foreign currency exposure as of July 2, 2022, a 10.0% fluctuation could impact our financial position, results of operations or cash flows by $4.0 to $5.0 million. 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 enter into foreign exchange forward contracts to hedge a portion of our forecasted foreign currency-denominated expenses in the normal course of business and, accordingly, they are not speculative in nature. These instruments generally mature within twelve months. We have foreign exchange forward contracts with a notional amount of $57.8 million outstanding as of July 2, 2022.
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Item 4. - 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 July 2, 2022. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of July 2, 2022 our disclosure controls and procedures were effective in providing reasonable assurance that 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.
Changes in Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Our 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 GAAP.
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 July 2, 2022 were identified to have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. - OTHER INFORMATION
Item 1. - LEGAL PROCEEDINGS
From time to time, we may be a plaintiff or defendant in cases arising out of our business. We are party to ordinary, routine litigation incidental to our business. We cannot be assured of the results of any pending or future litigation, but we do not believe resolution of any currently pending matters will have a material adverse effect on our business, financial condition or operating results.
Item 1A. - RISK FACTORS
Certain Risks Related to Our Business
There have been no material changes from the risk factors discussed in Part I, Item 1A, "Risk Factors," of our 2021 Annual Report on Form 10-K.
Item 2. - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
The following table summarizes the repurchases of common stock during the three months ended July 2, 2022 (in millions, except number of shares, which are reflected in thousands, and per share amounts):

Period | Total Number of Shares Repurchased |  | Average Price Paid Per Share |  | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |  | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs(1)
April 3, 2022 to April 30, 2022(2) |  | 345 |  |  | (2) |  | 345 |  |  | $ | 340.4 |
May 1, 2022 to June 4, 2022 |  | 308 |  |  | $ | 50.27 |  |  | 308 |  |  | $ | 325.0 |
June 5, 2022 to July 2, 2022 |  | 345 |  |  | $ | 45.33 |  |  | 345 |  |  | $ | 309.3 |
For the three months ended July 2, 2022 |  | 998 |  |  |  |  | 998 |  |  |

(1)On August 15, 2017, the Company's Board of Directors authorized the Program to repurchase up to $100 million in total of the Company's common stock on or before August 1, 2020. In 2018, 2019 and 2020, the Board of Directors increased the share repurchase authorization under the Program to $200 million, $300 million and $400 million, respectively. On May 3, 2022, the Board of Directors further increased the share repurchase authorization under the Company’s existing share repurchase program by an additional $400 million to $800 million, and extended its duration through August 1, 2025. The Company may repurchase shares of its common stock through open market and privately negotiated transactions at prices deemed appropriate by management. The Company has entered into a written trading plan under Rule 10b5-1 of the Exchange Act to facilitate repurchases under the Program. The Program may be suspended or discontinued at any time and will be funded using the Company's available cash, cash equivalents and short-term investments. The timing and amount of repurchase transactions under the Program depend on market conditions as well as corporate and regulatory considerations.
(2)On March 10, 2022, under the March 2022 ASR Agreement, the Company made an up-front payment of $150 million to the Dealer and received an initial delivery of 2,449.9 thousand shares of common stock worth approximately $120 million. On April 22, 2022, the remaining $30 million under the March 2022 ASR Agreement was settled and the Company received an additional 344.5 thousand shares of common stock from the Dealer. In total, an aggregate of 2,794.4 thousand shares of common stock were delivered by the Dealer under the ASR agreement at an average price of $53.68 per share, which was then reclassified as treasury stock from common stock in shareholder’s equity. Please refer to Note 10 of Item 1 for information on the ASR.
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Item 3. – Defaults Upon Senior Securities.
None.
Item 4. – Mine Safety Disclosures
None.
Item 5. – Other Information
None.
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Item 6. -

Exhibit No. |  | Description
3.1 |  | The Company's Amended and Restated Articles of Incorporation, dated December 5, 2007, are 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 October 22, 2015, are incorporated herein by reference to Exhibit 3(ii) to the Company's Current Report on Form 8-K dated October 22, 2015, SEC file number 000-00121.
31.1 |  | Certification of Fusen Chen, Chief Executive Officer of Kulicke and Soffa Industries, Inc., pursuant to Rule 13a-14(a) or Rule15d-14(a) of the Exchange Act as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.
31.2 |  | Certification of Lester Wong, Chief Financial Officer of Kulicke and Soffa Industries, Inc., pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.
32.1* |  | Certification of Fusen Chen, 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 Lester Wong, 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 |  | Inline XBRL Instance Document.
101.SCH |  | Inline XBRL Taxonomy Extension Schema Document.
101.CAL |  | Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF |  | Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB |  | Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE |  | Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104 |  | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101.INS).
* |  | This exhibit shall not be deemed "filed" for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that Section. Such exhibit shall not be deemed incorporated into any filing under the Securities Act or the Exchange Act.

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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.
Date: August 4, 2022 | By: | /s/ LESTER WONG
|  | Lester Wong
|  | Executive Vice President and Chief Financial Officer (principal financial officer and principal accounting officer)

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