KULICKE & SOFFA INDUSTRIES INC - Quarter Report: 2014 March (Form 10-Q)

March 29, 2014

March 30, 2013

Haoseng Industrial Co., Ltd

STATS ChipPAC Ltd

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



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

For the quarterly period ended March 29, 2014



¨	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 K&S Corporate Headquarters, Singapore 554369

(Address of principal executive offices and Zip Code)

(215) 784-7518

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):



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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý

As of April 25, 2014, there were 76,584,483 shares of the Registrant's Common Stock, no par value, outstanding.

Table of Contents

KULICKE AND SOFFA INDUSTRIES, INC.

FORM 10 – Q

March 29, 2014

Index



		Page Number

PART I - FINANCIAL INFORMATION

Item 1.	FINANCIAL STATEMENTS (Unaudited)

	Consolidated Balance Sheets as of March 29, 2014 and September 28, 2013	1

	Consolidated Statements of Operations for the three and six months ended March 29, 2014 and March 30, 2013	2

	Consolidated Statements of Comprehensive Income for the three and six months ended March 29, 2014 and March 30, 2013	3

	Consolidated Statements of Cash Flows for the six months ended March 29, 2014 and March 30, 2013	4

	Notes to Consolidated Financial Statements	5

Item 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	21

Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	35

Item 4.	CONTROLS AND PROCEDURES	35

PART II - OTHER INFORMATION

Item 1A.	RISK FACTORS	36

Item 6.	EXHIBITS	37

	SIGNATURES	38

Table of Contents

PART I. - FINANCIAL INFORMATION

Item 1. – FINANCIAL STATEMENTS

KULICKE AND SOFFA INDUSTRIES, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands)

Unaudited



	As of
	March 29, 2014			September 28, 2013
ASSETS
Current assets:
Cash and cash equivalents	$	587,110		$	521,788
Short-term investments	9,152			3,252
Accounts and notes receivable, net of allowance for doubtful accounts of $318 and $504 respectively	97,342			162,714
Inventories, net	43,617			38,135
Prepaid expenses and other current assets	18,488			24,012
Deferred income taxes	4,475			4,487
Total current assets	760,184			754,388

Property, plant and equipment, net	53,432			47,541
Goodwill	41,546			41,546
Intangible assets	8,550			11,209
Other assets	8,321			8,310
TOTAL ASSETS	$	872,033		$	862,994

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	38,288		$	37,030
Accrued expenses and other current liabilities	32,187			38,868
Income taxes payable	1,771			1,504
Total current liabilities	72,246			77,402

Financing obligation	19,615			19,396
Deferred income taxes	41,220			40,709
Other liabilities	8,830			8,822
TOTAL LIABILITIES	$	141,911		$	146,329

Commitments and contingent liabilities (Note 11)

SHAREHOLDERS' EQUITY:
Preferred stock, without par value:
Authorized 5,000 shares; issued - none	$	—		$	—
Common stock, no par value:
Authorized 200,000 shares; issued 81,378 and 80,237 respectively; outstanding 76,424 and 75,283 shares, respectively	474,195			467,525
Treasury stock, at cost, 4,954 shares	(46,356		)	(46,356		)
Accumulated income	298,991			291,878
Accumulated other comprehensive income	3,292			3,618
TOTAL SHAREHOLDERS' EQUITY	$	730,122		$	716,665

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	872,033		$	862,994

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

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KULICKE AND SOFFA INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

Unaudited



	Three months ended						Six months ended
	March 29, 2014			March 30, 2013			March 29, 2014			March 30, 2013
Net revenue	$	114,206		$	106,110		$	193,319		$	220,149
Cost of sales	56,534			57,290			97,282			119,804
Gross profit	57,672			48,820			96,037			100,345
Selling, general and administrative	28,235			28,423			51,337			57,490
Research and development	19,326			12,207			36,797			30,460
Operating expenses	47,561			40,630			88,134			87,950
Income from operations	10,111			8,190			7,903			12,395
Interest income	343			188			622			362
Interest expense	(297		)	(1		)	(416		)	(1		)
Income from operations before income taxes	10,157			8,377			8,109			12,756
Provision for income taxes	1,087			1,041			996			1,816
Net income	$	9,070		$	7,336		$	7,113		$	10,940

Net income per share:
Basic	$	0.12		$	0.10		$	0.09		$	0.15
Diluted	$	0.12		$	0.10		$	0.09		$	0.14

Weighted average shares outstanding:
Basic	76,404			75,166			76,163			75,009
Diluted	77,021			76,553			76,777			76,332

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

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KULICKE AND SOFFA INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

Unaudited



	Three months ended					Six months ended
	March 29, 2014		March 30, 2013			March 29, 2014		March 30, 2013

Net income	$	9,070	$	7,336		$	7,113	$	10,940
Other comprehensive income (loss):
Foreign currency translation adjustment	204		(113		)	314		598
Unrecognized actuarial gain (loss), Switzerland pension plan, net of tax	12		(20		)	12		(37		)
Total other comprehensive income (loss)	216		(133		)	326		561
Comprehensive income	$	9,286	$	7,203		$	7,439	$	11,501

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

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KULICKE AND SOFFA INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

Unaudited



	Six months ended
	March 29, 2014			March 30, 2013
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	7,113		$	10,940
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	6,486			9,504
Equity-based compensation and employee benefits	6,082			5,492
Adjustment for doubtful accounts	(185		)	(74		)
Adjustment for inventory valuation	1,894			1,056
Deferred taxes	143			764
Loss (Gain) on disposal of property, plant and equipment	30			(147		)
Changes in operating assets and liabilities:
Accounts and notes receivable	65,502			70,913
Inventory	(7,374		)	12,258
Prepaid expenses and other current assets	5,551			3,009
Accounts payable, accrued expenses and other current liabilities	(7,450		)	(55,340		)
Income taxes payable	263			(2,610		)
Other, net	215			1,067
Net cash provided by operating activities	78,270			56,832

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment	(7,417		)	(3,403		)
Proceeds from sales of property, plant and equipment	—			5,310
Purchase of short-term investments	(9,173		)	—
Maturity of short-term investments	3,261			—
Net cash (used in) provided by investing activities	(13,329		)	1,907

CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on financing obligation	(109		)	—
Proceeds from exercise of common stock options	588			540
Net cash provided by financing activities	479			540
Effect of exchange rate changes on cash and cash equivalents	(98		)	(904		)
Changes in cash and cash equivalents	65,322			58,375
Cash and cash equivalents at beginning of period	521,788			440,244
Cash and cash equivalents at end of period	$	587,110		$	498,619

CASH PAID FOR:
Interest	$	416		$	1
Income taxes	$	1,710		$	4,567

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

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KULICKE AND SOFFA INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Unaudited

NOTE 1: BASIS OF PRESENTATION

These consolidated financial statements include the accounts of Kulicke and Soffa Industries, Inc. and its subsidiaries (the “Company”), with appropriate elimination of intercompany balances and transactions.

The interim consolidated financial statements are unaudited and, in management's opinion, include all adjustments (consisting only of normal and recurring adjustments) necessary for a fair presentation of results for these interim periods. The interim consolidated 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 Annual Report on Form 10-K for the fiscal year ended September 28, 2013, filed with the Securities and Exchange Commission, which includes Consolidated Balance Sheets as of September 28, 2013 and September 29, 2012, and the related Consolidated Statements of Operations, Statements of Other Comprehensive Income, Changes in Shareholders' Equity and Cash Flows for each of the years in the three-year period ended September 28, 2013. 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^th. Fiscal 2014 quarters end on December 28, 2013, March 29, 2014, June 28, 2014 and September 27, 2014. Fiscal 2013 quarters ended on December 29, 2012, March 30, 2013, June 29, 2013 and September 28, 2013. In fiscal years consisting of 53 weeks, the fourth quarter will consist of 14 weeks.

Nature of Business

The Company designs, manufactures and sells capital equipment and expendable tools as well as services, maintains, repairs and upgrades equipment, all used to assemble semiconductor devices. The Company's operating results depend upon the capital and operating expenditures of semiconductor manufacturers and outsourced semiconductor assembly and test providers (“OSATs”) worldwide which, in turn, depend on the current and anticipated market demand for semiconductors and products utilizing semiconductors. The semiconductor industry is highly volatile and experiences downturns and slowdowns which have a severe negative effect on the semiconductor industry's demand for semiconductor capital equipment, including assembly equipment manufactured and sold by the Company and, to a lesser extent, expendable tools, including those sold by the Company. These downturns and slowdowns have in the past adversely affected the Company's operating results. The Company believes such volatility will continue to characterize the industry and the Company's operations in the future.

Use of Estimates

The preparation of consolidated financial statements requires management to make assumptions, estimates and judgments that affect the reported amounts of assets and liabilities, net revenue and expenses during the reporting periods, and disclosures of contingent assets and liabilities as of the date of the consolidated financial statements. On an ongoing basis, management evaluates estimates, including but not limited to, those related to accounts receivable, reserves for excess and obsolete inventory, carrying value and lives of fixed assets, goodwill and intangible assets, valuation allowances for deferred tax assets and deferred tax liabilities, repatriation of un-remitted foreign subsidiary earnings, equity-based compensation expense, restructuring, and warranties. Management bases its estimates on historical experience and on various other assumptions believed to be reasonable. As a result, management makes judgments regarding the carrying values of its assets and liabilities that are not readily apparent from other sources. Authoritative pronouncements, historical experience and assumptions are used as the basis for making estimates, and on an ongoing basis, management evaluates these estimates. Actual results may differ from these estimates under different assumptions or conditions.

Vulnerability to Certain Concentrations

Financial instruments which may subject the Company to concentrations of credit risk as of March 29, 2014 and September 28, 2013 consisted primarily of short-term investments and trade receivables. The Company manages credit risk associated with investments by investing its excess cash in highly rated debt instruments of the U.S. Government and its agencies, financial institutions, and corporations. The Company has established investment guidelines relative to diversification and maturities designed to maintain safety and liquidity. These guidelines are periodically reviewed and modified as appropriate. The Company does not have any exposure to sub-prime financial instruments or auction rate securities.

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KULICKE AND SOFFA INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Unaudited (continued)

The Company's trade receivables result primarily from the sale of semiconductor equipment, related accessories and replacement parts, and expendable tools to a relatively small number of large manufacturers in a highly concentrated industry. Write-offs of uncollectible accounts have historically not been significant; however, the Company closely monitors its customers' financial strength to reduce the risk of loss.

The Company's products are complex and require raw materials, components and subassemblies having a high degree of reliability, accuracy and performance. The Company relies on subcontractors to manufacture many of these components and subassemblies and it relies on sole source suppliers for some important components and raw material inventory.

The Company's international operations are exposed to changes in foreign currency exchange rates due to transactions denominated in currencies other than the location's functional currency. The Company is also exposed to foreign currency fluctuations that impact the remeasurement of net monetary assets of those operations whose functional currency, the U.S. dollar, differs from their respective local currencies, most notably in Israel, Malaysia, Singapore and Switzerland. In addition to net monetary remeasurement, the Company has exposures related to the translation of subsidiary financial statements from their functional currency, the local currency, into its reporting currency, the U.S. dollar, most notably in China, Taiwan, Japan and Germany. The Company's U.S. operations also have foreign currency exposure due to net monetary assets denominated in currencies other than the U.S. dollar.

Foreign Currency Translation

The majority of the Company's business is transacted in U.S. dollars; however, the functional currencies of some of the Company's subsidiaries are their local currencies. In accordance with ASC No. 830, Foreign Currency Matters (“ASC 830”), for a subsidiary of the Company that has a functional currency other than the U.S. dollar, gains and losses resulting from the translation of the functional currency into U.S. dollars for financial statement presentation are not included in determining net income, but are accumulated in the cumulative translation adjustment account as a separate component of shareholders' equity (accumulated other comprehensive income (loss)). Under ASC 830, cumulative translation adjustments are not adjusted for income taxes as they relate to indefinite investments in non-U.S. subsidiaries. Gains and losses resulting from foreign currency transactions are included in the determination of net income.

Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less when purchased to be cash equivalents. Cash equivalents are measured at fair value based on level one measurement, or quoted market prices, as defined by ASC No. 820, Fair Value Measurements and Disclosures. As of March 29, 2014 and September 28, 2013, fair value approximated the cost basis for cash equivalents.

Investments

Investments, other than cash equivalents, are classified as “trading,” “available-for-sale” or “held-to-maturity,” in accordance with ASC No. 320, Investments-Debt & Equity Securities, and depending upon the nature of the investment, its ultimate maturity date in the case of debt securities, and management's intentions with respect to holding the securities. Investments classified as “trading” are reported at fair market value, with unrealized gains or losses included in earnings. Investments classified as “available-for-sale” are reported at fair market value, with net unrealized gains or losses reflected as a separate component of shareholders' equity (accumulated other comprehensive income (loss)). The fair market value of trading and available-for-sale securities is determined using quoted market prices at the balance sheet date. Investments classified as held-to-maturity are reported at amortized cost. Realized gains and losses are determined on the basis of specific identification of the securities sold.

Allowance for Doubtful Accounts

The Company maintains allowances for doubtful accounts for estimated losses resulting from its customers' failure to make required payments. If the financial condition of the Company's customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. The Company is also subject to concentrations of customers and sales to a few geographic locations, which could also impact the collectability of certain receivables. If global economic conditions deteriorate or political conditions were to change in some of the countries where the Company does business, it could have a significant impact on the results of operations and the Company's ability to realize the full value of its accounts receivable.

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KULICKE AND SOFFA INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Unaudited (continued)

Inventories

Inventories are stated at the lower of cost (on a first-in first-out basis) or market value. The Company generally provides reserves for obsolete inventory and for inventory considered to be in excess of demand. Demand is generally defined as 18 months forecasted future consumption for equipment, 24 months consumption for all spare parts, and 12 months forecasted future consumption for expendable tools. Forecasted consumption is based upon internal projections, historical sales volumes, customer order activity and a review of consumable inventory levels at customers' facilities. The Company communicates forecasts of its future consumption to its suppliers and adjusts commitments to those suppliers accordingly. If required, the Company reserves the difference between the carrying value of its inventory and the lower of cost or market value, based upon assumptions about future consumption, and market conditions. If actual market conditions are less favorable than projections, additional inventory reserves may be required.

Property, Plant and Equipment

Property, plant and equipment are carried at cost. The cost of additions and those improvements which increase the capacity or lengthen the useful lives of assets are capitalized, while repair and maintenance costs are expensed as incurred. Depreciation and amortization are provided on a straight-line basis over the estimated useful lives as follows: buildings 25 years; machinery and equipment 3 to 10 years; and leasehold improvements are based on the shorter of the life of lease or life of asset. Purchased computer software costs related to business and financial systems are amortized over a five-year period on a straight-line basis.

Valuation of Long-Lived Assets

In accordance with ASC No. 360, Property, Plant & Equipment ("ASC 360"), the Company's property, plant and equipment is tested for impairment based on undiscounted cash flows when triggering events occur, and if impaired, written-down to fair value based on either discounted cash flows or appraised values. ASC 360 also provides a single accounting model for long-lived assets to be disposed of by sale and establishes additional criteria that would have to be met to classify an asset as held for sale. The carrying amount of an asset or asset group is not recoverable to the extent it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset or asset group. Estimates of future cash flows used to test the recoverability of a long-lived asset or asset group must incorporate the entity's own assumptions about its use of the asset or asset group and must factor in all available evidence.

ASC 360 requires that long-lived assets be tested for recoverability whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Such events include significant under-performance relative to the expected historical or projected future operating results, significant changes in the manner of use of the assets, significant negative industry or economic trends and significant changes in market capitalization. During the three and six months ended March 29, 2014, no triggering events occurred.

Accounting for Impairment of Goodwill

The Company operates two reportable segments: Equipment and Expendable Tools. Goodwill was recorded in 2009 for the acquisition of Orthodyne Electronics Corporation ("Orthodyne"), which added wedge bonder products (also known as "reporting unit") to the Equipment business.

Accounting Standard Update 2011-08, Testing Goodwill for Impairment (“ASU 2011-08”), provides companies with the option to assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If, after assessing the qualitative factors, a company determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying value, then performing the two-step impairment test is unnecessary. However, if a company concludes otherwise, then it is required to perform the first step of the two-step goodwill impairment test. If the carrying value of a reporting unit exceeds its fair value, then a company is required to perform the second step of the two-step goodwill impairment test.

As part of the annual evaluation, the Company performs an impairment test of its goodwill in the fourth quarter of each fiscal year to coincide with the completion of its annual forecasting and refreshing of its business outlook process. On an ongoing basis, the Company monitors if a “triggering” event has occurred that may have the effect of reducing the fair value of a reporting unit below its respective carrying value. Adverse changes in expected operating results and/or unfavorable changes in other economic factors used to estimate fair values could result in a non-cash impairment charge in the future. During the three and six months ended March 29, 2014, no triggering events occurred.

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KULICKE AND SOFFA INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Unaudited (continued)

Impairment assessments inherently involve judgment as to assumptions about expected future cash flows and the impact of market conditions on those assumptions. Future events and changing market conditions may impact the assumptions as to prices, costs, growth rates or other factors that may result in changes in the estimates of future cash flows. Although the Company believes the assumptions that it has used in testing for impairment are reasonable, significant changes in any one of the assumptions could produce a significantly different result. Indicators of potential impairment may lead the Company to perform interim goodwill impairment assessments, including significant and unforeseen customer losses, a significant adverse change in legal factors or in the business climate, a significant adverse action or assessment by a regulator, a significant stock price decline or unanticipated competition.

For further information on goodwill and other intangible assets, see Note 3 below.

Revenue Recognition

In accordance with ASC No. 605, Revenue Recognition, the Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable, the collectability is reasonably assured, and equipment installation obligations have been completed and customer acceptance, when applicable, has been received or otherwise released from installation or customer acceptance obligations. If terms of the sale provide for a customer acceptance period, revenue is recognized upon the expiration of the acceptance period or customer acceptance, whichever occurs first. The Company’s standard terms are ex works (the Company’s factory), with title transferring to its customer at the Company’s loading dock or upon embarkation. The Company has a small percentage of sales with other terms, and revenue is recognized in accordance with the terms of the related customer purchase order. Revenue related to services is recognized upon performance of the services requested by a customer order. Revenue for extended maintenance service contracts with a term more than one month is recognized on a prorated straight-line basis over the term of the contract.

Shipping and handling costs billed to customers are recognized in net revenue. Shipping and handling costs paid by the Company are included in cost of sales.

Research and Development

The Company charges research and development costs associated with the development of new products to expense when incurred. In certain circumstances, pre-production machines which the Company intends to sell are carried as inventory until sold.

Income Taxes

In accordance with ASC No. 740, Income Taxes, deferred income taxes are determined using the liability method. The Company records a valuation allowance to reduce its deferred tax assets to the amount it expects is more likely than not to be realized. While the Company has considered future taxable income and its ongoing tax planning strategies in assessing the need for the valuation allowance, if it were to determine that it would be able to realize its deferred tax assets in the future in excess of its net recorded amount, an adjustment to the deferred tax asset would increase income in the period such determination was made. Likewise, should the Company determine it would not be able to realize all or part of its net deferred tax assets in the future, an adjustment to the deferred tax asset would decrease income in the period such determination was made.

In accordance with ASC No. 740 Topic 10, Income Taxes, General (“ASC 740.10”), the Company accounts for uncertain tax positions taken or expected to be taken in its income tax return. Under ASC 740.10, the Company utilizes a two-step approach for evaluating uncertain tax positions. Step one, or recognition, requires a company to determine if the weight of available evidence indicates a tax position is more likely than not to be sustained upon audit, including resolution of related appeals or litigation processes, if any. Step two, or measurement, is based on the largest amount of benefit, which is more likely than not to be realized on settlement with the taxing authority.

Equity-Based Compensation

The Company accounts for equity-based compensation under the provisions of ASC No. 718, Compensation - Stock Compensation (“ASC 718”). ASC 718 requires the recognition of the fair value of the equity-based compensation in net income. Compensation expense associated with market-based restricted stock is determined using a Monte-Carlo valuation model, and compensation expense associated with time-based and performance-based restricted stock is determined based on the number of shares granted and the fair value on the date of grant. The fair value of the Company's stock option awards are estimated using a Black-Scholes option valuation model. In addition, the calculation of equity-based compensation costs requires that the Company estimate the number of awards that will be forfeited during the vesting period. The fair value of equity-based awards is amortized over the vesting period of the award and the Company elected to use the straight-line method for awards granted after the adoption of ASC 718.

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KULICKE AND SOFFA INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Unaudited (continued)

Earnings per Share

Earnings per share (“EPS”) are calculated in accordance with ASC No. 260, Earnings per Share. Basic EPS include only the weighted average number of common shares outstanding during the period. Diluted EPS include the weighted average number of common shares and the dilutive effect of stock options, restricted stock and share unit awards and convertible subordinated notes outstanding during the period, when such instruments are dilutive.

In accordance with ASC No. 260.10.55, Earnings per Share - Implementation & Guidance, the Company treats all outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends as participating in undistributed earnings with common shareholders. Awards of this nature are considered participating securities and the two-class method of computing basic and diluted EPS must be applied.

Prior Period Adjustment

During the three months ended December 28, 2013, the Company identified a prior period adjustment of $0.8 million relating to the provision of input tax receivables that resulted in increased selling, general and administrative expense and a reduction of input tax receivable that should have been recorded during the three months ended September 28, 2013. This error was corrected during the quarter ended December 28, 2013 and management has deemed that the adjustment was not material to the previous quarter ended September 28, 2013, the fiscal year ended September 28, 2013, and the expected full year results of the current year ending September 27, 2014.

Recent Accounting Pronouncements

There were no new accounting pronouncements during the six months ended March 29, 2014.

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KULICKE AND SOFFA INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Unaudited (continued)

NOTE 2: BALANCE SHEET COMPONENTS

The following tables reflect the components of significant balance sheet accounts as of March 29, 2014 and September 28, 2013:



	As of
(in thousands)	March 29, 2014			September 28, 2013
Short term investments, available-for-sale:
Deposits maturing within one year (1)	$	9,152		$	3,252

Inventories, net:
Raw materials and supplies	$	25,363		$	19,703
Work in process	17,918			12,219
Finished goods	14,856			20,333
	58,137			52,255
Inventory reserves	(14,520		)	(14,120		)
	$	43,617		$	38,135
Property, plant and equipment, net:
Buildings and building improvements (2)	$	31,284		$	3,060
Leasehold improvements	14,407			15,763
Data processing equipment and software	27,763			24,549
Machinery, equipment, furniture and fixtures	43,589			48,998
Construction in progress (2)	—			19,396
	117,043			111,766
Accumulated depreciation	(63,611		)	(64,225		)
	$	53,432		$	47,541
Accrued expenses and other current liabilities:
Wages and benefits	$	12,606		$	19,779
Accrued customer obligations (3)	7,655			8,270
Commissions and professional fees	2,380			2,640
Severance	1,490			1,468
Other	8,056			6,711
	$	32,187		$	38,868

(1)

All short-term investments were classified as available-for-sale and were measured at fair value based on level one measurement, or quoted market prices, as defined by ASC 820. As of March 29, 2014 and September 28, 2013, fair value approximated the cost basis for short-term investments. The Company did not recognize any realized gains or losses on the sale of investments during the three and six months ended March 29, 2014 and March 30, 2013.

(2)

Pursuant to ASC No. 840, Leases, the Company was considered to be the owner of the building during the construction phase for the Agreement to Develop and Lease (the “ADL”) facility being developed by Mapletree Industrial Trust (the “Landlord”) in Singapore—see Notes 6 and 11 below. The building was completed on December 1, 2013 and the construction costs incurred in relation to the relevant proportion of the Company's lease were recognized on the Consolidated Balance Sheet as of March 29, 2014.


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

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KULICKE AND SOFFA INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Unaudited (continued)

NOTE 3: GOODWILL AND INTANGIBLE ASSETS

Goodwill

Intangible assets classified as goodwill are not amortized. The Company performs an annual impairment test of its goodwill during the fourth quarter of each fiscal year, which coincides with the completion of its annual forecasting and refreshing of business outlook process. The Company performed its annual impairment test in the fourth quarter of fiscal 2013 and concluded that no impairment charge was required. During the six months ended March 29, 2014, the Company reviewed the 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.

In 2008, the Company acquired Orthodyne and added wedge bonder products to the business.

Intangible Assets

Intangible assets with determinable lives are amortized over their estimated useful lives. The Company's intangible assets consist primarily of wedge bonder developed technology and customer relationships.

The following table reflects net intangible assets as of March 29, 2014 and September 28, 2013:



	As of						Average estimated
(dollar amounts in thousands)	March 29, 2014			September 28, 2013			useful lives (in years)
Wedge bonder developed technology	$	33,200		$	33,200		7.0
Accumulated amortization	(26,087		)	(23,715		)
Net wedge bonder developed technology	$	7,113		$	9,485

Wedge bonder customer relationships	$	19,300		$	19,300		5.0
Accumulated amortization	(19,300		)	(19,300		)
Net wedge bonder customer relationships	$	—		$	—

Wedge bonder trade name	$	4,600		$	4,600		8.0
Accumulated amortization	(3,163		)	(2,876		)
Net wedge bonder trade name	$	1,437		$	1,724

Wedge bonder other intangible assets	$	2,500		$	2,500		1.9
Accumulated amortization	(2,500		)	(2,500		)
Net wedge bonder other intangible assets	$	—		$	—
Net intangible assets	$	8,550		$	11,209

The following table reflects estimated annual amortization expense related to intangible assets as of March 29, 2014:



	As of
(in thousands)	March 29, 2014
Remaining fiscal 2014	$	2,659
Fiscal 2015	5,318
Fiscal 2016	573
Total amortization expense	$	8,550

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KULICKE AND SOFFA INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Unaudited (continued)

NOTE 4: CASH AND CASH EQUIVALENTS

Cash equivalents consist of instruments with remaining maturities of three months or less at the date of purchase. In general, these investments are free of trading restrictions. We carry these investments at fair value, based on quoted market prices or other readily available market information.

Cash and cash equivalents consisted of the following as of March 29, 2014:



(dollar amounts in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
Current assets:
Cash	$	132,069	$	—	$	—	$	132,069
Cash equivalents:
Money market funds	262,816		—		—		262,816
Time deposits	192,225		—		—		192,225
Total cash and cash equivalents	$	587,110	$	—	$	—	$	587,110
Short-term investments:
Time deposits	9,152		—		—		9,152
Total short-term investments	$	9,152	$	—	$	—	$	9,152
Total cash, cash equivalents and short-term investments	$	596,262	$	—	$	—	$	596,262

Cash and cash equivalents consisted of the following as of September 28, 2013:



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

NOTE 5: FAIR VALUE MEASURMENTS

Accounting standards establish three levels of inputs that may be used to measure fair value: quoted prices in active markets for identical assets or liabilities (referred to as Level 1), inputs other than Level 1 that are observable for the asset or liability either directly or indirectly (referred to as Level 2) and unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities (referred to as Level 3).

Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis

We measure certain financial assets and liabilities at fair value on a recurring basis. There were no transfers between fair value measurement levels during the three months and six months ended March 29, 2014.

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.

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KULICKE AND SOFFA INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Unaudited (continued)

Fair Value of Financial Instruments

Amounts reported as cash and equivalents, short-term investments, accounts receivables, prepaid expenses and other current assets, accounts payable and accrued expenses approximate fair value.

The fair value of our financial assets and liabilities at March 29, 2014 were determined using the following inputs:



(dollar amounts in thousands)	Fair Value Measurements at Reporting Date Using
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
Assets:
Cash	$	132,069	$	132,069	$	—	$	—
Cash equivalents:
Money market funds	262,816		262,816		—		—
Time deposits	192,225		192,225		—		—
Short-term investments:
Time deposits	9,152		9,152		—		—
Total assets	$	596,262	$	596,262	$	—	$	—

The fair value of our financial assets and liabilities at September 28, 2013 were determined using the following inputs:



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

NOTE 6: DEBT AND OTHER OBLIGATIONS

Agreement to Develop and Lease and Lease Agreement

The lease has a ten year non-cancellable term (the "Initial Term") and contains options to renew for a further two 10-year terms. The annual rent and service charge for the Initial Term range from approximately $4 million to approximately $5 million Singapore dollars. The Tenant has a right of first refusal for all space that becomes available in the Building and the Landlord has agreed to make available a certain amount of additional space for rental by the Tenant at the Tenant’s option which may be exercised at certain points during the second half of the Initial Term. Subject to the Tenant renting a minimum amount of space for a certain period, the Tenant has partial surrender rights. In addition, the Tenant has termination rights after renting the Initial Premises for a certain period of time.

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KULICKE AND SOFFA INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Unaudited (continued)

The Building was completed on December 1, 2013 and Pte signed a Lease Agreement with the Landlord to lease from the Landlord approximately 198,000 square feet (the “Initial Premises”), representing approximately 70% of the Building. In accordance with ASC No. 840, Leases ("ASC 840"), the Company was considered to be the owner of the Building during the construction phase due to its involvement in the asset construction. Following the completion of construction, we were required to perform a sale-leaseback analysis pursuant to ASC 840-40 to determine if we could remove the Landlord’s asset and associated financing obligation from the consolidated balance sheet. Our lease contained collateral, considered a prohibited form of continuing involvement under ASC 840-40 and therefore involvement that precluded us from derecognizing the asset and associated financing obligation.

As such, we reclassified the asset from construction in progress to Property, Plant and Equipment and began to depreciate the building over its estimated useful life of twenty-five years. We concluded that the term of the financing obligation is 10 years. This is equal to the non-cancellable term of our lease agreement with the Landlord. At the inception of the lease, the asset and financing obligation recorded on the balance sheet was $20.0 million, which was based on using an interest rate of 6.3% over the Initial Term. The financing obligation will be settled through a combination of periodic cash rental payments and the return of the leased property at the expiration of the lease. We do not report rent expense for the property which is deemed owned for accounting purposes. Rather, rental payments required under the lease are considered debt service and applied to the deemed landlord financing obligation and interest expense. The Building and financing obligation are being amortized in a manner that will not generate a gain or loss upon lease termination.

Bank Guarantee

On May 7, 2012, Pte obtained a bank guarantee from DBS Bank Ltd., which was furnished to the Landlord and expired on May 9, 2013, at which time Pte replaced the bank guarantee with a cash deposit of an equivalent amount. The cash deposit was refunded on December 6, 2013.

Credit facility

On November 22, 2013, the Company obtained a $5.0 million credit facility with Citibank in connection with the issuance of a bank guarantee of $3.4 million Singapore dollars to the Landlord in connection with the Lease Agreement. The bank guarantee is effective from December 1, 2013.

NOTE 7: SHAREHOLDERS’ EQUITY AND EMPLOYEE BENEFIT PLANS

Common Stock and 401(k) Retirement Income Plan

The Company has a 401(k) retirement income plan (the “Plan”) for its employees. Historically, the Company's matching contributions to the Plan were made in the form of issued and contributed shares of Company common stock; however, beginning January 2, 2011, matching contributions to the Plan were made in cash instead of stock. The Plan allows for employee contributions and matching Company contributions up to 4% or 6% of the employee's contributed amount based upon years of service.

The following table reflects the Company’s matching contributions to the Plan during the three and six months ended March 29, 2014 and March 30, 2013:



	Three months ended				Six months ended
(in thousands)	March 29, 2014		March 30, 2013		March 29, 2014		March 30, 2013
Cash	$	328	$	498	$	609	$	759

Accumulated Other Comprehensive Income

The following table reflects accumulated other comprehensive income reflected on the Consolidated Balance Sheets as of March 29, 2014 and September 28, 2013:



	As of
(in thousands)	March 29, 2014			September 28, 2013
Gain from foreign currency translation adjustments	$	3,868		$	4,182
Unrecognized actuarial gain, Switzerland pension plan, net of tax	(227		)	(227		)
Switzerland pension plan curtailment	(349		)	(337		)
Accumulated other comprehensive income	$	3,292		$	3,618

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KULICKE AND SOFFA INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Unaudited (continued)

Equity-Based Compensation

As of March 29, 2014, the Company had seven equity-based employee compensation plans (the “Employee Plans”) and three director compensation plans (the “Director Plans”) (collectively, the “Plans”). Under these Plans, market-based share awards (collectively, “market-based restricted stock”), time-based share awards (collectively, “time-based restricted stock”), performance-based share awards (collectively, “performance-based restricted stock”), stock options, or common stock have been granted at 100% of the market price of the Company's common stock on the date of grant. As of March 29, 2014, the Company’s one active plan, the 2009 Equity Plan, had 3.8 million shares of common stock available for grant to its employees and directors.

•

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

•

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

•

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

Equity-based compensation expense recognized in the Consolidated Statements of Operations for the three and six months ended March 29, 2014 and March 30, 2013 was based upon awards ultimately expected to vest. In accordance with ASC No. 718, Stock Based Compensation, forfeitures have been estimated at the time of grant and were based upon historical experience. The Company reviews the forfeiture rates periodically and makes adjustments as necessary.

The following table reflects restricted stock and common stock granted during the three and six months ended March 29, 2014 and March 30, 2013:



	Three months ended		Six months ended
(shares in thousands)	March 29, 2014	March 30, 2013	March 29, 2014	March 30, 2013
Market-based restricted stock	—	—	324	343
Time-based restricted stock	26	11	607	539
Performance-based restricted stock	—	—	—	57
Common stock	17	17	32	37
Equity-based compensation in shares	43	28	963	976

The following table reflects total equity-based compensation expense, which includes restricted stock, stock options and common stock, included in the Consolidated Statements of Operations during the three and six months ended March 29, 2014 and March 30, 2013:



	Three months ended				Six months ended
(in thousands)	March 29, 2014		March 30, 2013		March 29, 2014		March 30, 2013
Cost of sales	$	82	$	74	$	187	$	222
Selling, general and administrative	2,126		1,924		4,742		4,250
Research and development	478		293		1,153		1,020
Total equity-based compensation expense	$	2,686	$	2,291	$	6,082	$	5,492

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KULICKE AND SOFFA INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Unaudited (continued)

The following table reflects equity-based compensation expense, by type of award, for the three and six months ended March 29, 2014 and March 30, 2013:



	Three months ended				Six months ended
(in thousands)	March 29, 2014		March 30, 2013		March 29, 2014		March 30, 2013
Market-based restricted stock	$	1,170	$	908	$	2,642	$	2,133
Time-based restricted stock	1,270		1,136		2,975		2,868
Performance-based restricted stock	33		33		66		42
Stock options	3		4		9		29
Common stock	210		210		390		420
Total equity-based compensation expense	$	2,686	$	2,291	$	6,082	$	5,492

NOTE 8: 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. Anti-dilutive potential common shares that could dilute basic earnings per share in the future were 0.4 million for both three and six months ended March 29, 2014, and 0.1 million for both three and six months ended March 30, 2013.

Diluted income per share is calculated using the weighted average number of shares of common stock outstanding during the period and, if there is net income during the period, the dilutive impact of common stock equivalents outstanding during the period.

The following tables reflect a reconciliation of the shares used in the basic and diluted net income per share computation for the three and six months ended March 29, 2014 and March 30, 2013:



	Three months ended
(in thousands, except per share)	March 29, 2014				March 30, 2013
	Basic		Diluted		Basic		Diluted
NUMERATOR:
Net income	$	9,070	$	9,070	$	7,336	$	7,336
DENOMINATOR:
Weighted average shares outstanding - Basic	76,404		76,404		75,166		75,166
Stock options			100				120
Time-based restricted stock			289				463
Market-based restricted stock			228				804
Weighted average shares outstanding - Diluted			77,021				76,553
EPS:
Net income per share - Basic	$	0.12	$	0.12	$	0.10	$	0.10
Effect of dilutive shares			—				$	—
Net income per share - Diluted			$	0.12			$	0.10

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KULICKE AND SOFFA INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Unaudited (continued)



	Six months ended
(in thousands, except per share)	March 29, 2014				March 30, 2013
	Basic		Diluted		Basic		Diluted
NUMERATOR:
Net income	$	7,113	$	7,113	$	10,940	$	10,940
DENOMINATOR:
Weighted average shares outstanding - Basic	76,163		76,163		75,009		75,009
Stock options			109				112
Time-based restricted stock			293				446
Market-based restricted stock			212				765
Weighted average shares outstanding - Diluted			76,777				76,332
EPS:
Net income per share - Basic	$	0.09	$	0.09	$	0.15	$	0.15
Effect of dilutive shares			—				(0.01		)
Net income per share - Diluted			$	0.09			$	0.14

NOTE 9: INCOME TAXES

The following table reflects the provision for income taxes and the effective tax rate for the six months ended March 29, 2014 and March 30, 2013:



	Six months ended
(dollar amounts in thousands)	March 29, 2014			March 30, 2013
Income from operations before income taxes	$	8,109		$	12,756
Provision for income taxes	996			1,816
Net income	$	7,113		$	10,940

Effective tax rate	12.3		%	14.2		%

For the six months ended March 29, 2014 and March 30, 2013, the effective income tax rate differed from the federal statutory rate primarily due to tax from foreign operations at a lower effective tax rate than the U.S. statutory rate, and the impact of tax holidays, offset by an increase for deferred taxes on un-remitted earnings, and certain changes in estimates that were recorded upon filing tax returns in foreign jurisdictions.

The effective tax rate for the period ended March 29, 2014 of 12.3% increased from the effective rate for the fiscal period ended September 28, 2013 of 11.0% primarily due to increased earnings in countries with higher statutory rates.

The Company's future effective tax rate would be affected if earnings were lower than anticipated in countries where it has lower statutory rates and higher than anticipated in countries where it has higher statutory rates, by changes in the valuation of its deferred tax assets and liabilities, or by changes in tax laws, regulations, accounting principles, or interpretations thereof. The Company regularly assesses the effects resulting from these factors to determine the adequacy of its provision for income taxes.

NOTE 10: SEGMENT INFORMATION

The Company operates two reportable segments: Equipment and Expendable Tools. The Equipment segment manufactures and sells a line of ball bonders and heavy wire wedge bonders that are sold to semiconductor device manufacturers, their outsourced semiconductor assembly and test subcontractors, other electronics manufacturers and automotive electronics suppliers. The Company also services, maintains, repairs and upgrades its equipment. The Expendable Tools segment manufactures and sells a variety of expendable tools for a broad range of semiconductor packaging applications.

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KULICKE AND SOFFA INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Unaudited (continued)

The following table reflects operating information by segment for the three and six months ended March 29, 2014 and March 30, 2013:



	Three months ended				Six months ended
(in thousands)	March 29, 2014		March 30, 2013		March 29, 2014			March 30, 2013
Net revenue:
Equipment	$	97,612	$	91,083	$	160,757		$	190,985
Expendable Tools	16,594		15,027		32,562			29,164
Net revenue	114,206		106,110		193,319			220,149
Cost of sales :
Equipment	50,711		51,140		85,184			107,572
Expendable Tools	5,823		6,150		12,098			12,232
Cost of sales	56,534		57,290		97,282			119,804
Gross profit :
Equipment	46,901		39,943		75,573			83,413
Expendable Tools	10,771		8,877		20,464			16,932
Gross profit	57,672		48,820		96,037			100,345
Operating expenses:
Equipment	41,608		35,515		77,160			77,240
Expendable Tools	5,953		5,115		10,974			10,710
Operating expenses	47,561		40,630		88,134			87,950
Income from operations:
Equipment	5,293		4,428		(1,587		)	6,173
Expendable Tools	4,818		3,762		9,490			6,222
Income from operations	$	10,111	$	8,190	$	7,903		$	12,395

The following table reflects assets by segment as of March 29, 2014 and September 28, 2013:



	As of
(in thousands)	March 29, 2014		September 28, 2013
Segment assets:
Equipment	$	750,155	$	764,793
Expendable Tools	121,878		98,201
Total assets	$	872,033	$	862,994

The following tables reflect capital expenditures for the six months ended March 29, 2014 and March 30, 2013, and depreciation expense for the three and six months ended March 29, 2014 and March 30, 2013:



	Six months ended
(in thousands)	March 29, 2014		March 30, 2013
Capital expenditures:
Equipment	$	6,591	$	2,349
Expendable Tools	1,983		1,054
Capital expenditures	$	8,574	$	3,403

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KULICKE AND SOFFA INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Unaudited (continued)



	Three months ended				Six months ended
(in thousands)	March 29, 2014		March 30, 2013		March 29, 2014		March 30, 2013
Depreciation expense
Equipment	$	1,514	$	1,805	$	2,612	$	3,701
Expendable Tools	650		603		1,215		1,214
Depreciation expense	$	2,164	$	2,408	$	3,827	$	4,915

NOTE 11: COMMITMENTS, CONTINGENCIES AND CONCENTRATIONS

Agreement to Develop and Lease

On May 7, 2012, Pte entered into the ADL and a Lease Agreement with DBS Trustee Limited as trustee of the Landlord. Pursuant to the ADL, the Landlord agreed to develop a building at 23A Serangoon North Avenue 5, #01-01 K&S Corporate Headquarters, Singapore 554369 and Pte agreed to lease from the Landlord approximately 198,000 square feet (the “Initial Premises”) representing approximately 70% of the Building. The Building was completed on December 1, 2013.

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.

The following table reflects the reserve for product warranty activity for the three and six months ended March 29, 2014 and March 30, 2013:



	Three months ended						Six months ended
(in thousands)	March 29, 2014			March 30, 2013			March 29, 2014			March 30, 2013
Reserve for product warranty, beginning of period	$	887		$	1,684		$	1,194		$	2,412
Provision for product warranty	352			(1		)	500			64
Product warranty costs paid	(354		)	(520		)	(809		)	(1,313		)
Reserve for product warranty, end of period	$	885		$	1,163		$	885		$	1,163

Other Commitments and Contingencies

The following table reflects obligations not reflected on the Consolidated Balance Sheet as of March 29, 2014:



			Payments due by fiscal year
(in thousands)	Total		2014		2015		2016		2017		thereafter
Inventory purchase obligation (1)	$	88,347	$	88,347	$	—	$	—	$	—	$	—
Operating lease obligations (2)	30,347		1,793		3,240		3,151		2,908		19,255
Total	$	118,694	$	90,140	$	3,240	$	3,151	$	2,908	$	19,255


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


(2)	The Company has minimum rental commitments under various leases (excluding taxes, insurance, maintenance and repairs, which are also paid by the Company) primarily for various facility and equipment leases, which expire periodically through 2018 (not including lease extension options, if applicable).

Pursuant to ASC No. 840, Leases, for lessee's involvement in asset construction, the Company was considered the owner of the Building during the construction phase of the ADL. This financing obligation is not reflected in the table above. The Company has recorded a financing obligation of $19.6 million on the balance sheet as at March 29, 2014.

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KULICKE AND SOFFA INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Unaudited (continued)

Concentrations

There is no significant customer that represents 10% or more of our net revenue for the six months ended March 29, 2014 and March 30, 2013.

The following table reflects significant customer concentrations as a percentage of total accounts receivable as of March 29, 2014 and March 30, 2013:

* Represents less than 10% of total accounts receivable

NOTE 12: SUBSEQUENT EVENTS

On March 31, 2014 and April 3, 2014, the Company entered into foreign exchange forward contracts of $7.5 million and $7.9 million respectively. We entered into these 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 foreign exchange forward contracts have maturities of up to six months.

Table of Contents

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


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


•	projected demand for ball, wedge and die bonder equipment and for expendable tools.

Generally, words such as “may,” “will,” “should,” “could,” “anticipate,” “expect,” “intend,” “estimate,” “plan,” “continue,” “goal” and “believe,” or the negative of or other variations on these and other similar expressions identify forward-looking statements. These forward-looking statements are made only as of the date of this filing. We do not undertake to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise.

Forward-looking statements are based on current expectations and involve risks and uncertainties. Our future results could differ significantly from those expressed or implied by our forward-looking statements. These risks and uncertainties include, without limitation, those described below and under the heading “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 28, 2013 (the “Annual Report”) and our other reports and registration statements filed from time to time with the Securities and Exchange Commission. This discussion should be read in conjunction with the Consolidated Financial Statements and Notes included in this report, as well as our audited financial statements included in the Annual Report.

We operate in a rapidly changing and competitive environment. New risks emerge from time to time and it is not possible for us to predict all risks that may affect us. Future events and actual results, performance and achievements could differ materially from those set forth in, contemplated by or underlying the forward-looking statements, which speak only as of the date on which they were made. Except as required by law, we assume no obligation to update or revise any forward-looking statement to reflect actual results or changes in, or additions to, the factors affecting such forward-looking statements. Given those risks and uncertainties, investors should not place undue reliance on forward-looking statements as predictions of actual results.

OVERVIEW

Kulicke and Soffa Industries, Inc. (the "Company" or "K&S") designs, manufactures and sells capital equipment and expendable tools used to assemble semiconductor devices, including integrated circuits (“ICs”), high and low powered discrete devices, light-emitting diodes (“LEDs”), and power modules. We also service, maintain, repair and upgrade our equipment. Our customers primarily consist of semiconductor device manufacturers, outsourced semiconductor assembly and test providers (“OSATs”), other electronics manufacturers and automotive electronics suppliers.

We operate two main business segments, Equipment and Expendable Tools. Our goal is to be the technology leader and the most competitive supplier in terms of cost and performance in each of our major product lines. Accordingly, we invest in research and engineering projects intended to enhance our position at the leading edge of semiconductor assembly technology. We also remain focused on our cost structure, through consolidating our manufacturing facilities. Cost reduction efforts remain an important part of our normal ongoing operations, and are expected to generate savings without compromising overall product quality and service levels.

Business Environment

The semiconductor business environment is highly volatile, driven by internal dynamics, both cyclical and seasonal, in addition to macroeconomic forces. Over the long term, semiconductor consumption has historically grown and is forecast to continue to grow. This growth is driven, in part, by regular advances in device performance and by price declines that result from improvements in manufacturing technology. In order to exploit these trends, semiconductor manufacturers, both integrated device manufacturers (“IDMs”) and OSATs, periodically invest aggressively in latest generation capital equipment. This buying pattern often leads to periods of excess supply and reduced capital spending - the so called semiconductor cycle. Within this broad semiconductor cycle there are also, generally weaker, seasonal effects that are specifically tied to annual, end-consumer purchasing patterns. Typically, semiconductor manufacturers prepare for heightened demand by adding or replacing equipment capacity by the end of the September

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quarter. Occasionally, this results in subsequent reductions in the December quarter. This annual seasonality can occasionally be overshadowed by effects of the broader semiconductor cycle. Macroeconomic factors also affect the industry, primarily through their effect on business and consumer demand for electronic devices, as well as other products that have significant electronic content such as automobiles, white goods, and telecommunication equipment.

Our Equipment segment is primarily affected by the industry's internal cyclical and seasonal dynamics in addition to broader macroeconomic factors that positively 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 Expendable Tools segment is less volatile than our Equipment segment. Expendable Tools sales are more directly tied to semiconductor unit consumption rather than capacity requirements and production capability improvements.

We continue to position our business to leverage our research and development leadership and innovation and to focus our efforts on mitigating volatility, improving profitability and ensuring longer-term growth. We remain focused on operational excellence, expanding our product offerings and managing our business efficiently throughout the business cycles. Our visibility into future demand is generally limited, forecasting is difficult, and we may experience typical industry seasonality.

To limit potential adverse cyclical, seasonal and macroeconomic effects on our financial position, we have de-leveraged and strengthened our balance sheet. As of March 29, 2014, our total cash, cash equivalents and short-term investments were $596.3 million, a $71.2 million increase from the prior fiscal year end. We believe this strong cash position will allow us to continue to invest in organic product development and non-organic opportunities.

Technology Leadership

We compete largely by offering our customers among the most advanced equipment and expendable tools available for the wire and wedge bonding processes. Our equipment is typically the most productive and has the highest levels of process capability, and as a result, has a lower cost of ownership compared to other equipment in its market. Our expendable tools are designed to optimize the performance of the equipment in which they are used. We believe our technology leadership contributes to the strong market positions of our various wire bonder and expendable tools products. To maintain our competitive advantage, we invest in product development activities designed to produce a stream of improvements to existing products and to deliver next-generation products. These investments often focus as much on improvements in the semiconductor assembly process as on specific pieces of assembly equipment or expendable tools. In order to generate these improvements, we often work in close collaboration with customers, end users, and other industry members. In addition to producing technical advances, these collaborative development efforts strengthen customer relationships and enhance our reputation as a technology leader and solutions provider.

In addition to gold, silver alloy wire and aluminum wire, our leadership in the industry's use of copper wire for the bonding process is an example of the benefits of our collaborative efforts. By working with customers, material suppliers, and other equipment suppliers, we have developed a series of robust, high-yielding production processes, which have made copper wire widely accepted and significantly reduced the cost of assembling an integrated circuit. Based on our industry leading copper bonding processes and the continued high price of gold, we believe the demand for copper configured wire bonders is likely to remain solid.

Our leadership has allowed us to maintain a competitive position in the latest generations of gold and copper ball bonders, which enable our customers to handle the leading technologies in terms of bond pad pitch, silicon with the latest node and complex wire bonding requirement. We continue to see demand for our large bondable area (“LA”) configured machines. This LA option is now available on all of our Power Series (^“^PS^”) models and allows our customers to gain added efficiencies and to reduce the cost of packaging.

We also leverage the technology leadership of our equipment by optimizing our bonder platforms, and we deliver variants of our products to serve emerging high-growth markets. For example, we have developed extensions of our main ball bonding platforms to address opportunities in LED assembly, in particular for general lighting. We expect the next wave of growth in the LED market to be high brightness LED for general lighting. We also believe there is an opportunity for growth in wire bonding sales at wafer level using our ATPremier Plus.

Furthermore, we gain synergies by leveraging technologies between our unique platforms. Our leading technology for wedge bonder equipment uses aluminum ribbon or heavy wire as opposed to fine gold and fine copper wire used in ball bonders. In 2013, we launched a new line of high performance wedge bonder products, PowerFusion^PS. The advanced interconnect capabilities of PowerFusion^PSimprove the processing of high-density power packages, due to an expanded bondable area, wider leadframe capability, superior indexing accuracy and teach mode. We have also initiated the design and development of our next generation hybrid wedge bonder which is due to be released in 2015. In both cases, we are making a concerted effort to develop commonality of subsystems and design practices, in order to improve performance and design efficiencies. We believe this will benefit us in

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maintaining our leadership position in the wedge bonding market and increase synergies between the various engineering product groups. Furthermore, we continually research adjacent market segments where our technologies could be used. Many of these initiatives are in the early stages of development and may become business opportunities in the future.

Another example of our developing equipment for high-growth niche markets is our ATPremier Plus. This machine utilizes a modified wire bonding process to mechanically place bumps on devices in a wafer format, for variants of the flip chip assembly process. Typical applications include complementary metal-oxide semiconductor (“CMOS”) image sensors, surface acoustical wave (“SAW”) filters and high brightness LEDs. These applications are commonly used in most, if not all, smartphones available today in the market. We also have expanded the use of ATPremier Plus for wafer level wire bonding for micro-electro-mechanical systems (“MEMS”) and other sensors.

Our technology leadership and bonding process know-how enable us to develop highly function-specific equipment with best-in-class throughput and accuracy. This forms the foundation for our advanced packaging equipment development. We have established a dedicated team to develop advanced packaging bonders for the emerging three-dimensional integrated circuit (“3DIC”) market, and in November 2013, we shipped the first C2S (Chip-to-Substrate) alpha machine to a strategic customer. 3DIC saves space and reduces form factor by stacking separate chips in a single package. It also improves performance while reducing power consumption. Mobile devices such as smartphones and tablets are the main drivers of this market.

We bring the same technology focus to our expendable tools business, driving tool design and manufacturing technology to optimize the performance and process capability of the equipment in which our tools are used. For all our equipment products, expendable tools are an integral part of their process capability. We believe our unique ability to simultaneously develop both equipment and tools is a core strength supporting our products' technological differentiation.

Products and Services

We supply a range of bonding equipment and expendable tools. The following tables reflect net revenue by business segment for the three and six months ended March 29, 2014 and March 30, 2013, respectively:



	Three months ended
	March 29, 2014				March 30, 2013
(dollar amounts in thousands)	Net revenues		% of total net revenue		Net revenues		% of total net revenue
Equipment	$	97,612	85.5	%	$	91,083	85.8	%
Expendable Tools	16,594		14.5	%	15,027		14.2	%
	$	114,206	100.0	%	$	106,110	100.0	%



	Six months ended
	March 29, 2014				March 30, 2013
(dollar amounts in thousands)	Net revenues		% of total net revenue		Net revenues		% of total net revenue
Equipment	$	160,757	83.2	%	$	190,985	86.8	%
Expendable Tools	32,562		16.8	%	29,164		13.2	%
	$	193,319	100.0	%	$	220,149	100.0	%

Equipment Segment

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

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Our principal Equipment segment products include:



Business Unit	Product Name (1)	Typical Served Market

Ball bonders	IConn^PS	Advanced and ultra fine pitch applications

	IConn^PS Plus	Advanced and ultra fine pitch applications

	IConn^PS LA	Large area substrate and matrix applications

	IConn^PS Plus LA	Large area substrate and matrix applications

	IConn^PS ProCu	High-end copper wire applications demanding advanced process capability and high productivity

	IConn^PS ProCu Plus	High-end copper wire applications demanding advanced process capability and high productivity

	IConn^PS ProCu LA	Large area substrate and matrix applications for copper wire

	IConn^PS ProCu Plus LA	Large area substrate and matrix applications for copper wire

	ConnX^PS Plus	High productivity bonder for low-to-medium pin count applications

	ConnX^PS LED	LED applications

	ConnX^PS VLED	Vertical LED applications

	ConnX^PS Plus LA	Cost performance large area substrate and matrix applications

	AT Premier Plus	Advanced wafer level bonding application

Wedge bonders	3600Plus	Power hybrid and automotive modules using either heavy aluminum wire or PowerRibbon®

	3700Plus	Hybrid and automotive modules using thin aluminum wire

	7200Plus	Power semiconductors using either aluminum wire or PowerRibbon®

	7200HD	Smaller power packages using either aluminum wire or PowerRibbon®

	PowerFusion^PS TL	Power semiconductors using either aluminum wire or PowerRibbon®

	PowerFusion^PS HL	Advanced power packages using either aluminum wire or PowerRibbon®

(1) Power Series (“PS”)

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Ball Bonders

Automatic ball bonders represent the largest portion of our semiconductor equipment business. Our main product platform for ball bonding is the Power Series - a family of assembly equipment that is setting new standards for performance, productivity, upgradeability, and ease of use.

Our portfolio of ball bonding products includes:


•	The IConn^PS: high-performance ball bonders which can be configured for either gold or copper wire.


•	The IConn^PS LA: high-performance large area ball bonders which can be configured for either gold or copper wire.


•	The ConnX^PSPlus: cost-performance ball bonders which can be configured for either gold or copper wire.


•	The ConnX^PS Plus LA: cost-performance large area ball bonders which can be configured for either gold or copper wire.


•	The ConnX^PS LED and ConnX^PS VLED: ball bonders targeted specifically at the fast growing LED market.


•	The IConn^PS ProCu Plus: high-performance copper wire ball bonders for advanced wafer nodes at 28 nanometer and below.


•	The IConn^PS ProCu Plus LA: high-performance large area copper wire ball bonders for advanced wafer nodes at 28 nanometer and below.


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

In March 2014, we introduced the IConn^PS Plus and IConn^PS Plus LA, which offer new capabilities and enhanced features. IConn^PS Plus LA is the large area version which extends the bondable width up to 87 millimeter.

Our Power Series products are setting new standards in wire bonding. Our ball bonders are capable of performing very fine pitch bonding, as well as creating the complex loop shapes needed in the assembly of advanced semiconductor packages and bonding on the latest silicon node-28 nanometer. Most of our installed base of gold wire bonders can also be retrofitted for copper applications through kits we sell separately.

Heavy Wire Wedge Bonders

We are the leaders in the design and manufacture of heavy wire wedge bonders for the power semiconductor and automotive power module markets. Heavy wire wedge bonders may use either aluminum wire or aluminum ribbon to connect semiconductor chips in power packages, power hybrids and automotive modules for products such as motor control modules or inverters for hybrid cars. In addition, we see some potential use for our wedge bonder products in high reliability interconnections of rechargeable batteries in hybrid and electric automotive applications.

Our portfolio of wedge bonding products includes:


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


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


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


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


•	The PowerFusion^PS Semiconductor Wedge Bonders - Configurable in single, dual and multi-head configurations using aluminum wire and PowerRibbon^TM:


◦	The PowerFusion^PSTL: designed for low-cost, high volume power semiconductor applications.


◦	The PowerFusion^PSHL: designed for advanced power semiconductor applications.

While wedge bonding traditionally utilizes aluminum wire, all of our heavy wire wedge bonders are also available to be modified to bond aluminum ribbon using our proprietary PowerRibbon^® process. Aluminum ribbon offers device makers performance advantages over traditional round wire and is being increasingly used for high current packages and automotive applications.

Our PowerFusion^PSseries are driven by new powerful direct-drive motion systems and expanded pattern recognition capabilities. The advanced interconnect capabilities of PowerFusion^PSimproves the processing of high-density power packages, due to an expanded bondable area, wider leadframe capability and superior indexing accuracy and teach mode.

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Other Equipment Products and Services

We also sell manual wire bonders, and we offer spare parts, equipment repair, maintenance and servicing, training services, and upgrades for our equipment through our Support Services business unit.

Our K&S Care, a new professional service, is designed to help customers operate their machines at an optimum level under the care of our trained specialists. K&S Care includes a range of programs, offering different levels of service depending on customer needs.

Expendable Tools Segment

We manufacture and sell a variety of expendable tools for a broad range of semiconductor packaging applications. Our principal Expendable Tools segment products include:

•

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


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


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

The Opto_ceramic and Opto_PCB package singulation blades for the LED market enable an improvement on package singulation quality, precision and productivity by providing a significantly longer life blade, and improved stability. We also introduced ACS Pro Capillary, which is a new generation of copper capillary for advanced copper wire bonding applications.

In March 2014, we expanded the ACS series capillaries through the introduction of ACS Max and ACS Lite. ACS Max Capillary and ACS Lite are the new generation of copper capillary for medium-pin count and low-pin count copper wire applications.

RESULTS OF OPERATIONS

The following tables reflect our income from operations for the three and six months ended March 29, 2014 and March 30, 2013:



	Three months ended
(dollar amounts in thousands)	March 29, 2014		March 30, 2013		$ Change			% Change
Net revenue	$	114,206	$	106,110	$	8,096		7.6	%
Cost of sales	56,534		57,290		(756		)	(1.3	)%
Gross profit	57,672		48,820		8,852			18.1	%
Selling, general and administrative	28,235		28,423		(188		)	(0.7	)%
Research and development	19,326		12,207		7,119			58.3	%
Operating expenses	47,561		40,630		6,931			17.1	%
Income from operations	$	10,111	$	8,190	$	1,921		23.5	%



	Six months ended
(dollar amounts in thousands)	March 29, 2014		March 30, 2013		$ Change			% Change
Net revenue	$	193,319	$	220,149	$	(26,830	)	(12.2	)%
Cost of sales	97,282		119,804		(22,522		)	(18.8	)%
Gross profit	96,037		100,345		(4,308		)	(4.3	)%
Selling, general and administrative	51,337		57,490		(6,153		)	(10.7	)%
Research and development	36,797		30,460		6,337			20.8	%
Operating expenses	88,134		87,950		184			0.2	%
Income from operations	$	7,903	$	12,395	$	(4,492	)	(36.2	)%

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Our net revenues for the six months ended March 29, 2014 decreased significantly as compared to our net revenues for the six months ended March 30, 2013 due to reduced customer demand. The semiconductor industry is volatile and our operating results have fluctuated significantly in the past. Customer demand for our products could continue to remain weak and lead to a decline in our net revenues. If there is a significant slowdown of transition from gold to copper wire bonding by our customers, then our net revenues may continue to decline.

Net Revenue

Approximately 90.7% and 95.8% of our net revenue for the three months ended March 29, 2014 and March 30, 2013, respectively, was for shipments to customer locations outside of the U.S., primarily in the Asia/Pacific region. Likewise, approximately 92.1% and 96.5% of our net revenue for the six months ended March 29, 2014 and March 30, 2013, respectively, was for shipments to customer locations outside of the U.S. We expect sales outside of the U.S. to continue to represent a substantial majority of our future revenue.

The following tables reflect net revenue by business segment for the three and six months ended March 29, 2014 and March 30, 2013:



	Three months ended
(dollar amounts in thousands)	March 29, 2014		March 30, 2013		$ Change		% Change
Equipment	$	97,612	$	91,083	$	6,529	7.2	%
Expendable Tools	16,594		15,027		1,567		10.4	%
Total net revenue	$	114,206	$	106,110	$	8,096	7.6	%



	Six months ended
(dollar amounts in thousands)	March 29, 2014		March 30, 2013		$ Change			% Change
Equipment	$	160,757	$	190,985	$	(30,228	)	(15.8	)%
Expendable Tools	32,562		29,164		3,398			11.7	%
Total net revenue	$	193,319	$	220,149	$	(26,830	)	(12.2	)%

Equipment

The following table reflects the components of Equipment net revenue change between the three and six months ended March 29, 2014 and March 30, 2013:



	March 29, 2014 vs. March 30, 2013
	Three months ended						Six months ended
(in thousands)	Price		Volume		$ Change		Price		Volume			$ Change
Equipment	$	5,145	$	1,384	$	6,529	$	7,505	$	(37,733	)	$	(30,228	)

For the three months ended March 29, 2014, the higher Equipment net revenue as compared to the prior year period was primarily due to the favorable customer and product mix for ball bonders and heavy wire wedge bonders.

For the six months ended March 29, 2014, the lower Equipment net revenue as compared to the prior year period was primarily due to the lower sales volume from ball bonders. The sales volume reduction in ball bonders was mainly attributable to the lower equipment utilization rate, therefore lower demand from our customers. The lower volume was partially offset by favorable customer and product mix.

Expendable Tools

The following table reflects the components of Expendable Tools net revenue change between the three and six months ended March 29, 2014 and March 30, 2013:



	March 29, 2014 vs. March 30, 2013
	Three months ended						Six months ended
(in thousands)	Price		Volume		$ Change		Price		Volume		$ Change
Expendable Tools	$	54	$	1,513	$	1,567	$	432	$	2,966	$	3,398

For the three and six months ended March 29, 2014, the higher Expendable Tools net revenue as compared to the prior year period was primarily due to higher sales volume and favorable product mix from wedge bonder tools.

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Gross Profit

The following tables reflect gross profit by business segment for the three and six months ended March 29, 2014 and March 30, 2013:



	Three months ended
(dollar amounts in thousands)	March 29, 2014		March 30, 2013		$ Change		% Change
Equipment	$	46,901	$	39,943	$	6,958	17.4	%
Expendable Tools	10,771		8,877		1,894		21.3	%
Total gross profit	$	57,672	$	48,820	$	8,852	18.1	%



	Six months ended
(dollar amounts in thousands)	March 29, 2014		March 30, 2013		$ Change			% Change
Equipment	$	75,573	$	83,413	$	(7,840	)	(9.4	)%
Expendable Tools	20,464		16,932		3,532			20.9	%
Total gross profit	$	96,037	$	100,345	$	(4,308	)	(4.3	)%

The following tables reflect gross profit as a percentage of net revenue by business segment for the three and six months ended March 29, 2014 and March 30, 2013:



	Three months ended				Basis Point
	March 29, 2014		March 30, 2013		Change
Equipment	48.0	%	43.9	%	410
Expendable Tools	64.9	%	59.1	%	580
Total gross margin	50.5	%	46.0	%	450



	Six months ended				Basis Point
	March 29, 2014		March 30, 2013		Change
Equipment	47.0	%	43.7	%	330
Expendable Tools	62.8	%	58.1	%	470
Total gross margin	49.7	%	45.6	%	410

Equipment

The following table reflects the components of Equipment gross profit change between the three and six months ended March 29, 2014 and March 30, 2013:



	March 29, 2014 vs. March 30, 2013
	Three months ended								Six months ended
(in thousands)	Price		Cost		Volume		$ Change		Price		Cost		Volume			$ Change
Equipment	$	5,145	$	1,025	$	788	$	6,958	$	7,505	$	1,135	$	(16,480	)	$	(7,840	)

For the three months ended March 29, 2014, the higher Equipment gross profit as compared to the prior year period was primarily due to favorable customer and product mix for ball bonders and wedge bonders. In addition, the manufacturing costs were lower due to the efficiency gain from the continued consolidation of our production facilities.

For the six months ended March 29, 2014, the lower Equipment gross profit as compared to the prior year period was primarily due to lower sales volume on ball bonders. The sales volume reduction on ball bonders was mainly attributable to the lower equipment utilization rate, therefore lower demand from our customers. The lower volume was partially offset by the favorable customer and product mix and lower manufacturing costs on ball bonders and wedge bonders. The lower manufacturing costs were due to the efficiency gain from the continued consolidation of our production facilities.

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Expendable Tools

The following table reflects the components of Expendable Tools gross profit change between the three and six months ended March 29, 2014 and March 30, 2013:



	March 29, 2014 vs. March 30, 2013
	Three months ended								Six months ended
(in thousands)	Price		Cost		Volume		$ Change		Price		Cost		Volume		$ Change
Expendable Tools	$	54	$	822	$	1,018	$	1,894	$	432	$	1,315	$	1,785	$	3,532

For the three and six months ended March 29, 2014, the higher Expendable Tools gross profit as compared to the prior year period was primarily due to higher volume from wedge bonder tools business. The higher sales volume resulted in decreased manufacturing costs due to higher absorption of the fixed manufacturing costs. In addition to sales volume increase, we experienced a more favorable product mix.

Operating Expenses

The following tables reflect operating expenses as a percentage of net revenue for the three and six months ended March 29, 2014 and March 30, 2013:



	Three months ended				Basis point
	March 29, 2014		March 30, 2013		change
Selling, general & administrative	24.7	%	26.8	%	(210	)
Research & development	16.9	%	11.5	%	540
Total	41.6	%	38.3	%	330



	Six months ended				Basis point
	March 29, 2014		March 30, 2013		change
Selling, general & administrative	26.6	%	26.1	%	50
Research & development	19.0	%	13.8	%	520
Total	45.6	%	39.9	%	570

Selling, General and Administrative (“SG&A”)

SG&A for the three months ended March 29, 2014 has stayed in-line as compared to the three months ended March 30, 2013.

SG&A decreased $6.2 million for the six months ended March 29, 2014 as compared to the six months ended March 30, 2013 due primarily to net favorable variance of $1.9 million in foreign exchange rates due to the strengthening of the U.S dollar against the foreign currency denominated liabilities which have increased in the current period, decrease in amortization expenses of $1.9 million due to the intangible assets relating to the Orthodyne customer relationships being fully amortized, decrease in incentive compensation of $1.4 million as a result of the lower net income, and decrease in staff costs of $0.9 million due to lower headcount.

Research and Development (“R&D”)

R&D expense increased $7.1 million for the three months ended March 29, 2014 as compared to the three months ended March 30, 2013, during which we recorded $3.0 million for a Research Incentive Scheme for Companies ("RISC") grant. The RISC grant was recognized after receiving confirmation from the Economic Development Board of Singapore that we will be awarded the grant. In the second quarter of 2014, we invested an additional $4.0 million in the development of new products.

R&D expense increased $6.3 million for the six months ended March 29, 2014 as compared to the six months ended March 30, 2013, during which we recognized a RISC grant of $0.7 million. In the six months ended March 29, 2014, we invested an additional $5.6 million in the development of new products.

Income from Operations

For the three months ended March 29, 2014, total income from operations was higher by $1.9 million. This was primarily due to higher revenue and margin for equipment sales as explained above.

For the six months ended March 29, 2014, total income from operations was lower by $4.5 million. This was primarily due to lower revenue and margin for equipment sales as explained above.

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Interest Income and Expense

The following tables reflect interest income and interest expense for the three and six months ended March 29, 2014 and March 30, 2013:



	Three months ended
(dollar amounts in thousands)	March 29, 2014			March 30, 2013			$ Change			% Change
Interest income	$	343		$	188		$	155		82.4	%
Interest expense	$	(297	)	$	(1	)	$	(296	)



	Six months ended
(dollar amounts in thousands)	March 29, 2014			March 30, 2013			$ Change			% Change
Interest income	$	622		$	362		$	260		71.8	%
Interest expense	(416		)	$	(1	)	$	(415	)

Interest income for the three months and six months ended March 29, 2014 was higher as compared to the three months and six months ended March 30, 2013 due to higher interest income derived from short term investments and a larger cash balance. Interest expense for the three months and six months ended March 29, 2014 was attributable to the interest on financing obligation relating to the new building. (Refer to Note 6 of Item 1)

Provision for Income Taxes

The following table reflects the provision for income taxes and the effective tax rate for the six months ended March 29, 2014 and March 30, 2013:



	Six months ended
(in thousands)	March 29, 2014			March 30, 2013
Income from operations before income taxes	$	8,109		$	12,756
Provision for income taxes	996			1,816
Net income	$	7,113		$	10,940
Effective tax rate	12.3		%	14.2		%

The effective tax rate for the six months ended March 29, 2014 of 12.3% increased from the effective rate for the fiscal period ended September 28, 2013 of 11.0% primarily due to increased earnings in countries with higher statutory rates.

LIQUIDITY AND CAPITAL RESOURCES

The following table reflects total cash and investments as of March 29, 2014 and September 28, 2013:



	As of
(dollar amounts in thousands)	March 29, 2014			September 28, 2013			Change
Cash and cash equivalents	$	587,110		$	521,788		$	65,322
Percentage of total assets	67.3		%	60.5		%

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The following table reflects summary Consolidated Statement of Cash Flow information for the six months ended March 29, 2014 and March 30, 2013:



	Six months ended
(in thousands)	March 29, 2014			March 30, 2013
Net cash provided by operating activities	$	78,270		$	56,832
Net cash (used in) provided by investing activities	(13,329		)	1,907
Net cash (used in) provided by financing activities	479			540
Effect of exchange rate changes on cash and cash equivalents	(98		)	(904		)
Changes in cash and cash equivalents	$	65,322		$	58,375
Cash and cash equivalents, beginning of period	521,788			440,244
Cash and cash equivalents, end of period	$	587,110		$	498,619

Six months ended March 29, 2014

Continuing Operations

Net cash provided by operating activities was primarily the result of working capital changes, which provided $78.3 million driven by decreases in accounts receivables of $65.5 million due to cash collections and a lower level of sales and decreases in prepaid expenses and other current assets of $5.6 million. This was partially offset by a increase in inventories of $7.4 million and a increase in accounts payable of $7.5 million. In addition, net income of $7.1 million plus non-cash adjustments of $14.5 million contributed to net cash provided by operating activities.

The decrease in accounts receivables is in line with lower sales in the first half of fiscal 2014 compared to the fourth quarter of fiscal 2013 due to variations in the timing of our customer orders within the seasonal cycle, as customers tend to add or replace equipment capacity by the end of the September quarter. The reduction in prepaid expenses and other current assets is due to net refunds of $1.7 million of income taxes and $1.6 million of goods and services tax and the refund of cash deposit of $2.7 million in relation to the Agreement to Develop and Lease (the “ADL”) following the execution of the Lease Agreement. The increase in inventories and accounts payable is due to higher purchases during the second quarter of fiscal 2014 in anticipation of increase in production in the second half of fiscal 2014.

Net cash used by investing activities was primarily due to capital expenditures of $7.4 million and purchase of short-term investments of $9.2 million offset by the maturity of short-term investments of $3.3 million.

Net cash provided by financing activities relates to proceeds from the exercise of stock options of $0.6 million offset by repayment of financing obligation of $0.1 million.

Six months ended March 30, 2013 Continuing Operations

Net cash provided by operating activities was primarily the result of working capital changes, which provided $29.3 million driven by decreases in accounts receivables of $70.9 million due to cash collections in line with higher sales in the fourth quarter of fiscal 2012 primarily due to variations in the timing of our customer orders within the seasonal cycle, as customers tend to add or replace equipment capacity by the end of the September quarter. Prepaid expenses and other current assets reduced by $3.0 million and a reduction in inventories of $12.3 million was partially offset by a decrease in accounts payable of $55.3 million due to lower purchases and global shutdown in the first six months of fiscal 2013. In addition, net income of $10.9 million plus non-cash adjustments of $16.6 million contributed to net cash provided by operating activities.

Net cash provided by investing activities was primarily due to the disposal of a building of $5.3 million offset by capital expenditures of $3.4 million.

Net cash provided by financing activities relates to proceeds from the exercise of stock options.

Fiscal 2014 Liquidity and Capital Resource Outlook

We expect our fiscal 2014 capital expenditures to be from $17.0 to $18.0 million, of which approximately $6.4 million is expected to relate to leasehold improvements for our Singapore facility under the ADL. Other expenditures are anticipated to be used for R&D projects, enhancements to our manufacturing operations in Asia and improvements to our information technology infrastructure. We also consider strategic business opportunities from time to time which could require substantial capital outlays, including possible acquisitions, joint ventures, alliances or other business arrangements.

We believe that our existing cash and investments and anticipated cash flows from operations will be sufficient to meet our liquidity and capital requirements for at least the next twelve months. Our liquidity is affected by many factors, some based on normal

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operations of our business and others related to global economic conditions and industry uncertainties, which we cannot predict. We also cannot predict economic conditions and industry downturns or the timing, strength or duration of recoveries. We intend to continue to use our cash for working capital needs and for general corporate purposes.

We may seek, as we believe appropriate, additional debt or equity financing which would provide capital for corporate purposes, working capital funding, additional liquidity needs or to fund future growth opportunities. The timing and amount of potential capital requirements cannot be determined at this time and will depend on a number of factors, including our actual and projected demand for our products, semiconductor and semiconductor capital equipment industry conditions, competitive factors, and the condition of financial markets.

Other Obligations and Contingent Payments

Agreement to Develop and Lease and Lease Agreement

On May 7, 2012, Kulicke & Soffa Pte Ltd. (“Pte” or the "Tenant"), the Company's wholly owned subsidiary, entered into the ADL with DBS Trustee Limited as trustee of Mapletree Industrial Trust (the “Landlord”). Pursuant to the ADL, the Landlord agreed to develop a building at 23A Serangoon North Avenue 5, #01-01 K&S Corporate Headquarters, Singapore 554369 (the “Building”). The lease has a ten-year non-cancellable initial term (the "Initial Term") and contains options to renew for a further two ten-year terms. The annual rent and service charge for the Initial Term range between approximately $4 million to approximately $5 million Singapore dollars. The Tenant has a right of first refusal for all space that becomes available in the Building, and the Landlord has agreed to make available a certain amount of additional space for rental by the Tenant at the Tenant’s option, which may be exercised at certain points during the second half of the Initial Term. Subject to the Tenant renting a minimum amount of space for a certain period, the Tenant has partial surrender rights. In addition, the Tenant has termination rights after renting the Initial Premises (as defined below) for a certain period of time.

The Building was completed on December 1, 2013 and Pte signed a Lease Agreement with the Landlord to lease from the Landlord approximately 198,000 square feet (the “Initial Premises”), representing approximately 70% of the Building. In accordance with ASC No. 840, Leases ("ASC 840"), the Company was considered to be the owner of the Building during the construction phase due to its involvement in the asset construction. Following the completion of construction, we were required to perform a sale-leaseback analysis pursuant to ASC 840-40 to determine if we could remove the Landlord’s asset and associated financing obligation from the consolidated balance sheet. Our lease contained collateral, considered a prohibited form of continuing involvement under ASC 840-40, which therefore precluded us from derecognizing the asset and associated financing obligation.

As such, we reclassified the asset from construction in progress to Property Plant and Equipment and began to depreciate the building over its estimated useful life of twenty five years. We concluded that the term of the financing obligation is 10 years. This is equal to the non-cancellable term of our lease agreement with the Landlord. At the inception of the lease, the asset and financing obligation recorded on the balance sheet was $20.0 million, which was based on using an interest rate of 6.33% over the initial term. The financing obligation will be settled through a combination of periodic cash rental payments and the return of the leased property at the expiration of the lease. We do not report rent expense for the property which is deemed owned for accounting purposes. Rather, rental payments required under the lease are considered debt service and applied to the deemed landlord financing obligation and interest expense. The Building and financing obligation are being amortized in a manner that will not generate a gain or loss upon lease termination.

Other Obligations and Contingent Payments

In accordance with U.S. generally accepted accounting principles, certain obligations and commitments are not required to be included in the Consolidated Balance Sheets and Statements of Operations. These obligations and commitments, while entered into in the normal course of business, may have a material impact on our liquidity. Certain of the following commitments as of March 29, 2014 are appropriately not included in the Consolidated Balance Sheets and Statements of Operations included in this Form 10-Q; however, they have been disclosed in the table below for additional information.

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The following table reflects obligations and contingent payments under various arrangements as of March 29, 2014:



			Payments due by fiscal period
(in thousands)	Total		Less than 1 year		1 - 3 years		3 - 5 years		More than 5 years
Current and long-term liabilities:
Pension plan obligations	$	1,952	$	—	$	—	$	—	$	1,952
Severance (1)	4,048		1,490		801				1,757
Operating lease retirement obligations	1,460		92		301		—		1,067
Long-term income taxes payable	2,694		—		—		—		2,694
Total Obligations and Contingent Payments reflected on the Consolidated Financial Statements	$	10,154	$	1,582	$	1,102	$	—	$	7,470
Contractual Obligations:
Inventory purchase obligations (2)	$	88,347	$	88,347	$	—	$	—	$	—
Operating lease obligations (3)	30,347		3,186		6,506		5,213		15,442
Total Obligations and Contingent Payments not reflected on the Consolidated Financial Statements	$	118,694	$	91,533	$	6,506	$	5,213	$	15,442


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


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


(3)	We have minimum rental commitments under various leases (excluding taxes, insurance, maintenance and repairs, which are also paid by us) primarily for various facility and equipment leases, which expire periodically through 2018 (not including lease extension options, if applicable).

On May 7, 2012, Pte entered into the ADL with the Landlord. Pursuant to the ADL, the Landlord agreed to develop a Building. The Building was completed on December 1, 2013 and Pte signed a Lease Agreement with the Landlord to lease from the Landlord approximately 198,000 square feet Initial Premises, representing approximately 70% of the Building. The term for the rental of the Initial Premises is 10 years. The Tenant has the option to renew for two additional ten-year terms. The annual rent and service charge for the Initial Term range from approximately $4 million to approximately $5 million Singapore dollars. The Tenant has a right of first refusal for all space that becomes available in the Building and the Landlord has agreed to make available a certain amount of additional space for rental by the Tenant at the Tenant’s option which may be exercised at certain points during the second half of the Initial Term. Subject to the Tenant renting a minimum amount of space for a certain period, the Tenant has partial surrender rights. In addition, the Tenant has termination rights after renting the Initial Premises for a certain period of time.

In accordance with ASC No. 840, Leases ("ASC 840"), the Company was considered to be the owner of the Building during the construction phase due to its involvement in the asset construction. As a result of the Company's continued involvement during the lease term, the Company did not fulfill the criteria to apply sale-leaseback accounting under ASC 840. Therefore, at completion, the building remained on the Consolidated Balance Sheet, and the corresponding financing obligation was reclassified to long-term liability. As of March 29, 2014, we recorded a financing obligation of $19.6 million. The financing obligation is not reflected in the table above.

Off-Balance Sheet Arrangements

Bank Guarantee

Credit facility

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We currently do not have any other off-balance sheet arrangements, such as derivatives, contingent interests or obligations associated with variable interest entities.

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Item 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 to us of changes in interest rates and credit ratings of issuers are limited and would not have a material impact on our financial condition or results of operations. As of March 29, 2014, we had deposits maturing within one year of $9.2 million.

Foreign Currency Risk

Our international operations are exposed to changes in foreign currency exchange rates due to transactions denominated in currencies other than the location's functional currency. Our international operations are also exposed to foreign currency fluctuations that impact the remeasurement of net monetary assets of those operations whose functional currency, the U.S. dollar, differs from their respective local currencies, most notably in Israel, Malaysia, Singapore and Switzerland. In addition to net monetary remeasurement, we have exposures related to the translation of subsidiary financial statements from their functional currency, the local currency, into its reporting currency, the U.S. dollar, most notably in China, Japan, Germany and Taiwan. Our U.S. operations also have foreign currency exposure due to net monetary assets denominated in currencies other than the U.S. dollar.

Based on our foreign currency exposure as of March 29, 2014, a 10.0% fluctuation could impact our financial position, results of operations or cash flows by $3.0 to $4.0 million. We may enter into foreign exchange forward contracts and other instruments in the future; however, our attempts to hedge against these risks may not be successful and may result in a material adverse impact on our financial results and cash flow. We had no foreign exchange forward contracts or other instruments as of March 29, 2014.

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 March 29, 2014. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of March 29, 2014 our disclosure controls and procedures were effective in providing reasonable assurance the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934, as amended, is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and (ii) accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure.

Changes in internal control over financial reporting

In connection with the evaluation by our management, including with the participation of our Chief Executive Officer and Chief Financial Officer, of our internal control over financial reporting, no changes during the three months ended March 29, 2014 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 1A. - RISK FACTORS

Certain Risks Related to Our Business

Risks related to our business are detailed in our Annual Report on Form 10-K for the year ended September 28, 2013 filed with the Securities and Exchange Commission.

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Item 6. - EXHIBITS



Exhibit No.		Description

31.1		Certification of Bruno Guilmart, Chief Executive Officer of Kulicke and Soffa Industries, Inc., pursuant to Rule 13a-14(a) or Rule15d-14(a).

31.2		Certification of Jonathan Chou, Chief Financial Officer of Kulicke and Soffa Industries, Inc., pursuant to Rule 13a-14(a) or Rule 15d-14(a).

32.1		Certification of Bruno Guilmart, Chief Executive Officer of Kulicke and Soffa Industries, Inc., pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Jonathan Chou, Chief Financial Officer of Kulicke and Soffa Industries, Inc., pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		XBRL Instance Document.

101.SCH		XBRL Taxonomy Extension Schema Document.

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB		XBRL Taxonomy Extension Label Linkbase Document.

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document.

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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: April 30, 2014	By:	/s/ JONATHAN CHOU
	Jonathan Chou
	Senior Vice President, Chief Financial Officer and Principal Accounting Officer

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EXHIBIT INDEX




Exhibit No.	Description

31.1	Certification of Bruno Guilmart, Chief Executive Officer of Kulicke and Soffa Industries, Inc., pursuant to Rule 13a-14(a) or Rule15d-14(a).

31.2	Certification of Jonathan Chou, Chief Financial Officer of Kulicke and Soffa Industries, Inc., pursuant to Rule 13a-14(a) or Rule 15d-14(a).

32.1	Certification of Bruno Guilmart, Chief Executive Officer of Kulicke and Soffa Industries, Inc., pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2	Certification of Jonathan Chou, Chief Financial Officer of Kulicke and Soffa Industries, Inc., pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS	XBRL Instance Document.

101.SCH	XBRL Taxonomy Extension Schema Document.

101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF	XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB	XBRL Taxonomy Extension Label Linkbase Document.

101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document.