---

---

---

---

---

---

---

---

---

These consolidated condensed 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 condensed financial statements are unaudited and, in management's opinion, include all adjustments (consisting only of normal and recurring adjustments) necessary for a fair statement of results for these interim periods. The interim consolidated condensed financial statements do not include all of the information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended September 28, 2019, filed with the Securities and Exchange Commission, which includes Consolidated Balance Sheets as of September 28, 2019 and September 29, 2018, 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, 2019. The results of operations for any interim period are not necessarily indicative of the results of operations for any other interim period or for a full year.

Fiscal Year    

Each of the Company's first three fiscal quarters end on the Saturday that is 13 weeks after the end of the immediately preceding fiscal quarter. The fourth quarter of each fiscal year ends on the Saturday closest to September 30. Fiscal 2020 quarters end on December 28, 2019, March 28, 2020, June 27, 2020 and October 3, 2020. In fiscal years consisting of 53 weeks, the fourth quarter will consist of 14 weeks. Fiscal 2019 quarters ended on December 29, 2018, March 30, 2019, June 29, 2019 and September 28, 2019.

Nature of Business

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

Use of Estimates

The preparation of consolidated condensed financial statements requires management to make assumptions, estimates and judgments that affect the reported amounts of assets and liabilities, net revenue and expenses during the reporting periods, and disclosures of contingent assets and liabilities as of the date of the consolidated condensed financial statements. On an ongoing basis, management evaluates estimates, including but not limited to, those related to accounts receivable, reserves for excess and obsolete inventory, carrying value and lives of fixed assets, goodwill and intangible assets, the valuation estimates and assessment of impairment and observable price adjustments, income taxes, equity-based compensation expense, and warranties. Management bases its estimates on historical experience and on various other assumptions believed to be reasonable. As a result, management makes judgments regarding the carrying values of the Company's assets and liabilities that are not readily apparent from other sources. Authoritative pronouncements, historical experience and assumptions also are used as the basis for making estimates, and on an ongoing basis, management evaluates these estimates. Actual results may differ from these estimates.

Due to the Coronavirus (“COVID-19”) pandemic, there has been uncertainty and disruption in the global economy and financial markets. The Company is not aware of any specific event or circumstance that would require an update to its estimates or judgments or a revision of the carrying value of its assets or liabilities as of March 28, 2020. While there was not a material impact to our consolidated financial statements as of and for the quarter ended March 28, 2020, these estimates may change, as new events occur and additional information is obtained, as well as other factors related to COVID-19 that could result in material impacts to our consolidated financial statements in future reporting periods.

---

Vulnerability to Certain Concentrations

Financial instruments which may subject the Company to concentrations of credit risk as of March 28, 2020 and September 28, 2019 consisted primarily of trade receivables. The Company manages credit risk associated with investments by investing its excess cash in highly rated debt instruments of the U.S. government and its agencies, financial institutions, and corporations. The Company has established investment guidelines relative to diversification and maturities designed to maintain safety and liquidity. These guidelines are periodically reviewed and modified as appropriate. The Company does not have any exposure to sub-prime financial instruments or auction rate securities.

The Company's trade receivables result primarily from the sale of semiconductor equipment, related accessories and replacement parts, and tools to a relatively small number of large manufacturers in a highly concentrated industry. Write-offs of uncollectible accounts have historically not been significant. The Company actively 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.

Foreign Currency Translation and Remeasurement

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.

The Company's 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, 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 the Netherlands, 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.

Derivative Financial Instruments

The Company’s primary objective for holding derivative financial instruments is to manage the fluctuation in foreign exchange rates and accordingly is not speculative in nature. The Company’s international operations are exposed to changes in foreign exchange rates as described above. The Company has established a program to monitor the forecasted transaction currency risk to protect against foreign exchange rate volatility. Generally, the Company uses foreign exchange forward contracts in these hedging programs. These instruments, which have maturities of up to twelve months, are recorded at fair value and are included in prepaid expenses and other current assets, or accrued expenses and other current liabilities.

Our accounting policy for derivative financial instruments is based on whether they meet the criteria for designation as a cash flow hedge. A designated hedge with exposure to variability in the functional currency equivalent of the future foreign currency cash flows of a forecasted transaction is referred to as a cash flow hedge. The criteria for designating a derivative as a cash flow hedge include the assessment of the instrument’s effectiveness in risk reduction, matching of the derivative instrument to its underlying transaction, and the assessment of the probability that the underlying transaction will occur. For derivatives with cash flow hedge accounting designation, we report the after-tax gain / (loss) from the effective portion of the hedge as a component of accumulated other comprehensive income / (loss) and reclassify it into earnings in the same period in which the hedged transaction affects earnings and in the same line item on the Consolidated Condensed Statement of Operations as the impact of the hedged transaction. Derivatives that we designate as cash flow hedges are classified in the Consolidated Condensed Statement of Cash Flows in the same section as the underlying item, primarily within cash flows from operating activities.

The hedge effectiveness of these derivative instruments is evaluated by comparing the cumulative change in the fair value of the hedge contract with the cumulative change in the fair value of the forecasted cash flows of the hedged item.

---

If a cash flow hedge is discontinued because it is no longer probable that the original hedged transaction will occur as previously anticipated, the cumulative unrealized gain or loss on the related derivative is reclassified from accumulated other comprehensive income / (loss) into earnings. Subsequent gain / (loss) on the related derivative instrument is recognized into earnings in each period until the instrument matures, is terminated, is re-designated as a qualified cash flow hedge, or is sold. Ineffective portions of cash flow hedges, as well as amounts excluded from the assessment of effectiveness, are recognized in earnings.

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.

Equity Investments

The Company invests in equity securities in companies to promote business and strategic objectives. Equity investments are measured and recorded as follows:

•	Equity method investments are equity securities in investees that provide the Company with the ability to exercise significant influence in which it lacks a controlling financial interest. Our proportionate share of the income or loss is recognized on a one-quarter lag and is recorded as share of results of equity-method investee, net of tax.

•	Non-marketable equity securities are equity securities without readily determinable fair value that are measured and recorded using a measurement alternative that measures the securities at cost minus impairment, if any, plus or minus changes resulting from qualifying observable price changes.

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. If global or regional economic conditions deteriorate or political conditions were to change in some of the countries where the Company does business, it could have a significant impact on the results of operations, and the Company's ability to realize the full value of its accounts receivable.

Inventories

Inventories are stated at the lower of cost (on a first-in first-out basis) or net realizable 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 forecasted future consumption for spare parts, and 12 months forecasted future consumption for tools. Forecasted consumption is based upon internal projections, historical sales volumes, customer order activity and a review of consumable inventory levels at customers' 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 net realizable value, based upon projections about future consumption, and market conditions. If actual market conditions are less favorable than projections, additional inventory reserves may be required.

Inventory reserve provision for certain subsidiaries is determined based on management's estimate of future consumption for equipment and spare parts. This estimate is based on historical sales volumes, internal projections and market developments and trends.

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, equipment, furniture and fittings 3 to 10 years; toolings 1 year; 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. Land is not depreciated.

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 historical internal forecasts or projected future operating results; significant changes in the manner of use of the assets; significant negative industry or economic trends; or significant changes in market capitalization. During the three and six months ended March 28, 2020, no "triggering" events occurred.

Accounting for Impairment of Goodwill

ASC No. 350, Intangibles-Goodwill and Other ("ASC 350") requires goodwill and other intangible assets with indefinite lives to be reviewed for impairment annually, or more frequently if circumstances indicate a possible impairment. We assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If, after assessing the qualitative factors, a company determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying value, then performing the impairment test is unnecessary. However, if a company concludes otherwise, then it is required to perform the goodwill impairment test. Following the Company's early adoption of ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment in the third quarter of fiscal 2017, the requirement to perform a hypothetical purchase price allocation to measure goodwill impairment (i.e. step 2 of the goodwill impairment test) was eliminated. Accordingly, the Company's impairment test is performed by comparing the fair value of a reporting unit with its carrying value, and determining if the carrying amount exceeds its fair value.

As part of the annual evaluation, the Company performs an impairment test of its goodwill in the fourth quarter of each fiscal year to coincide with the completion of its annual forecasting and refreshing of its business outlook processes. On an ongoing basis, the Company monitors if a “triggering” event has occurred that may have the effect of reducing the fair value of a reporting unit below its respective carrying value. Adverse changes in expected operating results and/or unfavorable changes in other economic factors used to estimate fair values could result in a non-cash impairment charge in the future.

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

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

Revenue Recognition

In accordance with ASC No. 606, Revenue from Contracts with Customers, the Company recognizes revenue when we satisfy performance obligations as evidenced by the transfer of control of our products or services to customers. In general, the Company generates revenue from product sales, either directly to customers or to distributors. In determining whether a contract exists, we evaluate the terms of the agreement, the relationship with the customer or distributor and their ability to pay.

The Company recognizes revenue from sales of our products, including sales to our distributors, at a point in time, generally upon shipment or delivery to the customer or distributor, depending upon the terms of the sales order. Control is considered transferred when title and risk of loss pass, when the customer becomes obligated to pay and, where applicable, when the customer has accepted the products or upon expiration of the acceptance period. For sales to distributors, payment is due on our standard commercial terms and is not contingent upon resale of the products.

Our business is subject to contingencies related to customer orders, including:

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

---

•

Warranties: Our equipment is generally shipped with a one-year warranty against manufacturing defects. We establish reserves for estimated warranty expense when revenue for the related equipment is recognized. The reserve for estimated warranty expense is based upon historical experience and management's estimate of future expenses, including product parts replacement, freight charges and labor costs expected to be incurred to correct product failures during the warranty period.

•

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

Service revenue is generally recognized over time as the services are performed. For the three and six months ended March 28, 2020, and March 30, 2019, the service revenue is not material.

The Company measures revenue based on the amount of consideration we expect to be entitled to in exchange for products or services. Any variable consideration such as sales incentives are recognized as a reduction of net revenue at the time of revenue recognition.

The length of time between invoicing and payment is not significant under our payment terms. In instances where the timing of revenue recognition differs from the timing of invoicing, we have determined our contracts generally do not include a significant financing component.

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

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 that 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 balance sheet method. The Company records a valuation allowance to reduce its deferred tax assets to the amount expected, on a more likely than not basis, to be realized. While the Company has considered future taxable income and ongoing tax planning strategies in assessing the need for the valuation allowance, if it were to determine that it would be able to realize its deferred tax assets in the future in excess of its net recorded amount, an adjustment to deferred tax assets would increase income in the period when such determination is made. Likewise, should the Company determine it would not be able to realize all or part of its deferred tax assets in the future, an adjustment to deferred tax assets would decrease income in the period when such determination is made.

The Company determines the amount of unrecognized tax benefit with respect to uncertain tax positions taken or expected to be

taken on its income tax returns in accordance with ASC No. 740 Topic 10, Income Taxes, General (“ASC 740.10”). 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 examination solely based on its technical merit. Step two, or measurement, is based on the largest amount of benefit, which is more likely than not to be realized on settlement with the taxing authority, including resolution of related appeals or litigation processes, if any.

Equity-Based Compensation

The Company accounts for equity-based compensation under the provisions of ASC No. 718, Compensation - Stock Compensation (“ASC 718”). ASC 718 requires the recognition of the fair value of the equity-based compensation in net income. Compensation expense associated with Relative TSR Performance Share Units is determined using a Monte-Carlo valuation model, and compensation expense associated with time-based and Special/Growth Performance Share Units is determined based on the number of shares granted and the fair value on the date of grant. See Note 10 for a summary of the terms of these performance-based awards. The fair value of the Company's stock option awards is estimated using a Black-Scholes option valuation model. The fair value of equity-based awards is amortized over the vesting period of the award and the Company elected to use the straight-line method for awards granted after the adoption of ASC 718.

---

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 awards, performance share units and restricted share units outstanding during the period, when such instruments are dilutive.

Accounting for Business Acquisitions

The Company accounts for business acquisitions in accordance with ASC No. 805, Business Combinations. The fair value of the net assets acquired and the results of operations of the acquired businesses are included in the Unaudited Consolidated Condensed Financial Statements from the acquisition date forward. The Company is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and results of operations during the reporting period. Estimates are used in accounting for, among other things, the fair value of acquired net operating assets, property, plant and equipment, deferred revenue, intangible assets and related deferred income taxes, useful lives of property, plant and equipment, and amortizable lives of acquired intangible assets. Any excess of the purchase consideration over the identified fair value of the assets and liabilities acquired is recognized as goodwill. The valuation of these tangible and identifiable intangible assets and liabilities is subject to further management review and may change materially between the preliminary allocation and end of the purchase price allocation period.

Restructuring Charges

Restructuring charges may consist of voluntary or involuntary severance-related charges, asset-related charges and other costs due to exit activities. We recognize voluntary termination benefits when an employee accepts the offered benefit arrangement. We recognize involuntary severance-related charges depending on whether the termination benefits are provided under an ongoing benefit arrangement or under a one-time benefit arrangement. If the former, we recognize the charges once they are probable and the amounts are estimable. If the latter, we recognize the charges once the benefits have been communicated to employees.

Recent Accounting Pronouncements

Leases

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under current GAAP.

Subsequently in July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements, provides additional information concerning the new leases standard in ASU 2016-02, Leases (Topic 842). The targeted improvements provide entities with additional and optional transition methods.

In November 2018, the FASB issued ASU 2018-20, Leases (Topic 842): Narrow-Scope Improvements for Lessors. This ASU provides guidance in several areas, including the accounting policy election for sales taxes and other similar taxes collected from lessees, accounting for certain lessor costs and accounting for variable payments for contracts with lease and nonlease components.

We adopted these ASUs utilizing the modified retrospective transition method through a cumulative-effect adjustment at the beginning of the first quarter of fiscal 2020. In addition, we elected the package of practical expedients permitted under the transition guidance that allowed us to apply prior conclusions related to lease definition, classification and initial direct costs. Additionally, the lease previously identified as build-to-suit leasing arrangement under legacy lease accounting (ASC 840), was derecognized pursuant to the transition guidance provided for build-to-suit leases in ASC 842 (see Note 9 below). Accordingly, the lease has been reassessed as an operating lease as of the adoption date under ASC 842, and is included on the Consolidated Condensed Balance Sheets. The adoption of these ASUs has resulted in an increase of approximately $23.8 million in operating lease liabilities and $22.2 million in right-of-use assets, decrease of approximately $14.5 million in financing obligation, decrease of approximately $15.3 million in property, plant and equipment, and an adjustment of $0.8 million to retained earnings after income tax effects on our Consolidated Condensed Balance Sheets.

Financial Instruments

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU replaces the impairment methodology in current GAAP, which delays recognition of credit losses until it is probable a loss has been incurred, with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. This ASU will be effective for us beginning in our first quarter of fiscal 2021. We are currently evaluating the impact of the adoption of this ASU on our consolidated condensed financial statements.

---

Derivatives and Hedging

In August 2017, the FASB issued ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities (Topic 815). The new guidance expands and refines hedge accounting for both financial and non-financial risks. The new guidance also modifies disclosure requirements for hedging activities. We adopted this ASU as of the beginning of the first quarter of 2020. The adoption of this ASU did not have a material impact on our consolidated condensed financial statements.

Collaborative Arrangements

In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808). This ASU clarifies that certain transactions between collaborative arrangement participants should be accounted for as revenue when the collaborative arrangement participant is a customer in the context of a unit of account and precludes recognizing as revenue consideration received from a collaborative arrangement participant if the participant is not a customer. This ASU will be effective for us in the first quarter of 2021 with early adoption permitted. This ASU requires retrospective adoption to the date we adopted ASC 606 by recognizing a cumulative-effect adjustment to the opening balance of retained earnings of the earliest annual period presented. We are currently evaluating the timing and the effects of the adoption of this ASU on our consolidated condensed financial statements.

Income Taxes

In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects From Accumulated Other Comprehensive Income, which allows for a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the U.S. Tax Cuts and Jobs Act (the “TCJA”) and requires entities to provide certain disclosures regarding these stranded tax effects, if any. We adopted this ASU in the first quarter of 2020. The adoption did not have a material impact on our consolidated condensed financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740). The amendments in this ASU simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and clarify and amend existing guidance. This ASU will be effective for us in the first quarter of 2022 with early adoption permitted. We are currently evaluating the timing and the effects of the adoption of this ASU on our consolidated condensed financial statements.

---

The following tables reflect the components of significant balance sheet accounts as of March 28, 2020 and September 28, 2019:

	As of
(in thousands)	March 28, 2020				September 28, 2019
Short-term investments, available-for-sale(1)	$	248,000			$	229,000
Inventories, net:
Raw materials and supplies	$	60,181			$	52,853
Work in process	33,798				32,026
Finished goods	42,764				33,742
	136,743				118,621
Inventory reserves	(30,565		)		(29,313		)
	$	106,178			$	89,308
Property, plant and equipment, net:
Land	$	2,182			$	2,182
Buildings and building improvements	22,284				41,961
Leasehold improvements	22,712				24,441
Data processing equipment and software	37,082				36,302
Machinery, equipment, furniture and fixtures	73,957				71,465
Construction in progress	7,082				6,512
	165,299				182,863
Accumulated depreciation	(109,652		)		(110,493		)
	$	55,647			$	72,370
Accrued expenses and other current liabilities:
Accrued customer obligations (2)	$	33,766			$	26,292
Wages and benefits	23,419				18,188
Dividend payable	7,557				7,582
Commissions and professional fees	2,606				2,024
Deferred rent	—				1,721
Severance	880				1,500
Other	10,068				7,226
	$	78,296			$	64,533

(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. The Company did not recognize any realized gains or losses on the sale of investments during the three and six months ended March 28, 2020 and March 30, 2019.

(2)	Represents customer advance payments, customer credit program, accrued warranty expense and accrued retrofit obligations.

Goodwill

Intangible assets classified as goodwill are not amortized. The goodwill established in connection with our acquisitions represents the estimated future economic benefits arising from the assets we acquired that did not qualify to be identified and recognized individually. The goodwill also includes the value of expected future cash flows from the acquisitions, expected synergies with our other affiliates and other unidentifiable intangible assets. The Company performs an annual impairment test of its goodwill

---

during the fourth quarter of each fiscal year, which coincides with the completion of its annual forecasting and refreshing of business outlook process.

The Company performed its annual impairment test in the fourth quarter of fiscal 2019 and concluded that no impairment charge was required. Any future adverse changes in expected operating results and/or unfavorable changes in other economic factors used to estimate fair values could result in a noncash impairment in the future.

During the three and six months ended March 28, 2020, the Company reviewed qualitative factors to ascertain if a "triggering" event may have taken place that may have the effect of reducing the fair value of the reporting unit below its carrying value and concluded that no triggering event had occurred. While we have concluded that a triggering event did not occur during the quarter ended March 28, 2020, a prolonged COVID-19 pandemic could impact the results of operations due to changes to assumptions utilized in the determination of the estimated fair values of the reporting units that could be significant enough to trigger an impairment. Net sales and earnings growth rates could be negatively impacted by reductions or changes in demand for our products. The discount rate utilized in our valuation model could also be impacted by changes in the underlying interest rates and risk premiums included in the determination of the cost of capital.

The following table summarizes the Company's recorded goodwill by reporting segments as of March 28, 2020 and September 28, 2019:

	As of
(in thousands)	March 28, 2020				September 28, 2019
Capital Equipment	$	29,681			$	29,480
Aftermarket Products and Services ("APS")	26,265				26,211
Total goodwill	$	55,946			$	55,691

Intangible Assets

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

The following table reflects net intangible assets as of March 28, 2020 and September 28, 2019: 

	As of								Average estimated
(dollar amounts in thousands)	March 28, 2020				September 28, 2019				useful lives (in years)
Developed technology	$	88,184			$	87,209			7.0 to 15.0
Accumulated amortization	(51,124		)		(48,718		)
Net developed technology	$	37,060			$	38,491
Customer relationships	$	35,466			$	35,180			5.0 to 6.0
Accumulated amortization	(33,435		)		(31,862		)
Net customer relationships	$	2,031			$	3,318
Trade and brand names	$	7,265			$	7,219			7.0 to 8.0
Accumulated amortization	(6,599		)		(6,377		)
Net trade and brand names	$	666			$	842
Other intangible assets	$	2,500			$	2,500			1.9
Accumulated amortization	(2,500		)		(2,500		)
Net other intangible assets	$	—			$	—
Net intangible assets	$	39,757			$	42,651

---

The following table reflects estimated annual amortization expense related to intangible assets as of March 28, 2020:

	As of
(in thousands)	March 28, 2020
Remaining fiscal 2020	$	3,663
Fiscal 2021	5,306
Fiscal 2022	4,348
Fiscal 2023	4,252
Fiscal 2024	4,252
Thereafter	17,936
Total amortization expense	$	39,757

 

Cash equivalents consist of instruments with remaining maturities of three months or less at the date of purchase. In general, these investments are free of trading restrictions.

Cash, cash equivalents, and short-term investments consisted of the following as of March 28, 2020:

(in thousands)	Amortized Cost				Unrealized Gains				Unrealized Losses				Estimated Fair Value
Current assets:
Cash	$	225,849			$	—			$	—			$	225,849
Cash equivalents:
Money market funds (1)	166,451				—				—				166,451
Time deposits (2)	7				—				—				7
Total cash and cash equivalents	$	392,307			$	—			$	—			$	392,307
Short-term investments (2):
Time deposits	149,000				—				—				149,000
Deposits (3)	99,000				—				—				99,000
Total short-term investments	$	248,000			$	—			$	—			$	248,000
Total cash, cash equivalents, and short-term investments	$	640,307			$	—			$	—			$	640,307

(1)	The fair value was determined using unadjusted prices in active, accessible markets for identical assets, and as such they were classified as Level 1 assets in the fair value hierarchy.

(2)	Fair value approximates cost basis.

(3)	Represents deposits that require a notice period of three months for withdrawal.

---

Cash, cash equivalents, restricted cash and short-term investments consisted of the following as of September 28, 2019:

(in thousands)	Amortized Cost				Unrealized Gains				Unrealized Losses				Estimated Fair Value
Current assets:
Cash	$	201,005			$	—			$	—			$	201,005
Cash equivalents:
Money market funds (1)	163,172				—				—				163,172
Time deposits (2)	7				—				—				7
Total cash and cash equivalents	$	364,184			$	—			$	—			$	364,184
Short-term investments (2):
Time deposits	130,000				—				—				130,000
Deposits (3)	99,000				—				—				99,000
Total short-term investments	$	229,000			$	—			$	—			$	229,000
Total cash, cash equivalents, restricted cash and short-term investments	$	593,184			$	—			$	—			$	593,184

(1)	The fair value was determined using unadjusted prices in active, accessible markets for identical assets, and as such they were classified as Level 1 assets in the fair value hierarchy.

(2)	Fair value approximates cost basis.

(3)	Represents deposits that require a notice period of three months for withdrawal.

Equity investments consisted of the following as of March 28, 2020 and September 28, 2019:

	As of
(in thousands)	March 28, 2020				September 28, 2019
Non-marketable equity securities(1)	$	6,278			$	5,000
Equity method investments	1,149				1,250
Total equity investments	$	7,427			$	6,250

(1)	On January 30, 2019, the Company made a $5.0 million investment in one of our collaborative partners, over which the Company does not have significant influence. During the three and six months ended March 28, 2020, there was no impairment or adjustment to the observable price.

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

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

We measure certain financial assets and liabilities at fair value on a recurring basis. There were no transfers between fair value measurement levels during the three and six months ended March 28, 2020.

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. Our equity method investments are recorded at fair value only if an impairment is recognized.

Fair Value of Financial Instruments

---

Amounts reported as accounts receivables, prepaid expenses and other current assets, accounts payable and accrued expenses approximate fair value.

The Company’s international operations are exposed to changes in foreign exchange rates due to transactions denominated in currencies other than U.S. dollars. Most of the Company’s revenue and cost of materials are transacted in U.S. dollars. However, a significant amount of the Company’s operating expenses is denominated in local currencies, primarily in Singapore.

The foreign currency exposure of our operating expenses is generally hedged with foreign exchange forward contracts. The Company’s foreign exchange risk management programs include using foreign exchange forward contracts with cash flow hedge accounting designation to hedge exposures to the variability in the U.S. dollar equivalent of forecasted non-U.S. dollar-denominated operating expenses. These instruments generally mature within twelve months. For these derivatives, we report the after-tax gain or loss from the effective portion of the hedge as a component of accumulated other comprehensive income (loss), and we reclassify it into earnings in the same period or periods in which the hedged transaction affects earnings and in the same line item on the Consolidated Condensed Statements of Operations as the impact of the hedged transaction.

The fair value of derivative instruments on our Consolidated Condensed Balance Sheet as of March 28, 2020 and September 28, 2019 was as follows:

	As of
	March 28, 2020								September 28, 2019
(in thousands)	Notional Amount				Fair Value (Liability) Derivatives(1)				Notional Amount				Fair Value (Liability) Derivatives(1)
Derivatives designated as hedging instruments:
Foreign exchange forward contracts (2)	$	32,818			$	(1,702	)		$	33,834			$	(597	)
Total derivatives	$	32,818			$	(1,702	)		$	33,834			$	(597	)

(1)	The fair value of derivative liabilities is measured using level 2 fair value inputs and is included in accrued expenses and other current liabilities on our Consolidated Condensed Balance Sheet.

(2)	Hedged amounts expected to be recognized to income within the next twelve months.

The effects of derivative instruments designated as cash flow hedges in our Consolidated Condensed Statements of Comprehensive Income for the three and six months ended March 28, 2020 and March 30, 2019 are as follows:

	Three months ended								Six months ended
(in thousands)	March 28, 2020				March 30, 2019				March 28, 2020				March 30, 2019
Foreign exchange forward contract in cash flow hedging relationships:
Net (loss)/gain recognized in OCI, net of tax(1)	$	(1,981	)		$	161			$	(1,374	)		$	88
Net loss reclassified from accumulated OCI into income, net of tax(2)	$	(72	)		$	(267	)		$	(269	)		$	(1,132	)

(1)	Net change in the fair value of the effective portion classified in other comprehensive income (“OCI”).

(2)	Effective portion classified as selling, general and administrative expense.

We have entered into various non-cancellable operating and finance lease agreements for certain of our offices, manufacturing, technology, sales support and service centers, equipment, and vehicles. We determine if an arrangement is a lease, or contains a lease, at inception and record the leases in our financial statements upon lease commencement, which is the date when the underlying asset is made available for use by the lessor. Our lease terms may include one or more options to extend the lease terms, for periods from one year to 20 years, when it is reasonably certain that we will exercise that option. As of March 28, 2020, one option to extend the lease was recognized as a right-of-use ("ROU") asset, and a lease liability. We have lease agreements with lease and non-lease components, and non-lease components are accounted for separately and not included in our leased assets and corresponding liabilities. We have elected not to present short-term leases on the Consolidated Condensed Balance Sheet as these leases have a lease term of 12 months or less at lease inception.

---

Operating leases are included in operating ROU assets, current operating lease liabilities and non current operating lease liabilities, and finance leases are in included in property, plant and equipment, accrued expenses and other current liabilities, and other liabilities on the Consolidated Condensed Balance Sheet. As of March 28, 2020, our finance leases are not material.

The following table shows the components of lease expense:

	Three months ended				Six months ended
(in thousands)	March 28, 2020				March 28, 2020
Operating lease expense  (1)	$	(1,668	)		$	(3,384	)

(1)	Operating lease expense includes short-term lease expense, which is immaterial for the three and six months ended March 28, 2020.

The following table shows the cash flows arising from lease transactions. Cash payments related to short-term leases are not included in the measurement of operating and finance lease liabilities, and, as such, are excluded from the amounts below:

	Six months ended
(in thousands)	March 28, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows from operating leases	$	3,131

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

	As of
	March 28, 2020
Operating leases:
Weighted-average remaining lease term (in years):	4.9
Weighted-average discount rate:	4.5	%

Future lease payments, excluding short-term leases, as of March 28, 2020, are detailed as follows:

(in thousands)	Operating leases
Remainder of 2020	$	3,776
2021	5,810
2022	5,299
2023	5,194
2024	2,944
Thereafter	3,639
Total minimum lease payments	26,662
Less: Interest	2,876
Present value of lease obligations	23,786
Less: Current portion	5,236
Long-term portion of lease obligations	$	18,550

Future lease payments under operating leases prior to adoption ASC 842 were as follows:

					Payments due by fiscal year
(in thousands)	Total				2020				2021				2022				2023				2024				Thereafter
Operating lease obligations (1)	$	16,273			$	4,089			$	2,576			$	2,182			$	1,967			$	1,822			$	3,637

---

(1)

Pursuant to ASC No. 840, Leases ("ASC 840"), for lessee's involvement in asset construction, the Company was considered to be the owner of the Building (as defined in Note 9 below) 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 of construction, the Building remained on the Consolidated Condensed Balance Sheet, and the corresponding financing obligation was reclassified to long-term liability. As of September 28, 2019, we recorded a financing obligation related to the Building of $15.0 million (see Note 9 below). The financing obligation is not reflected in the table above.

Financing Obligation

On December 1, 2013, Kulicke & Soffa Pte Ltd. (“Pte”), the Company's wholly owned subsidiary, signed a lease with DBS Trustee Limited as trustee of Mapletree Industrial Trust (the “Landlord”) to lease from the Landlord approximately 198,000 square feet, representing approximately 70% of a building in Singapore as our corporate headquarters, as well as a manufacturing, technology, sales and service center (the “Building”). The lease has a 10-year non-cancellable term (the "Initial Term") and contains options to renew for two further 10-year terms. The annual rent and service charge for the Initial Term range from $4 million to $5 million Singapore dollars.

Pursuant to legacy ASC No. 840, Leases ("ASC 840"), we have classified the Building (build-to-suit leasing arrangement) on our Consolidated Condensed Balance Sheet as property, plant and equipment, which we are depreciating over its estimated useful life of 25 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 Consolidated Condensed Balance Sheet was $20.0 million, which was based on an interest rate of 6.3% over the Initial Term. As of September 28, 2019, the financing obligation related to the Building was $15.0 million, which approximates fair value (Level 2). 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.

The build-to-suit leasing arrangement was derecognized pursuant to the transition guidance provided in ASC 842, which was effective beginning with the first quarter of 2020. Accordingly, the lease has been reassessed as an operating lease as of the adoption date under ASC 842, and is included on the Consolidated Condensed Balance Sheet. The adoption has resulted in a decrease of approximately $14.5 million in financing obligation, decrease of approximately $15.3 million in property, plant and equipment, and an adjustment of $0.8 million to retained earnings after income tax effects on our Consolidated Condensed Balance Sheet.

Bank Guarantees

On November 22, 2013, the Company obtained a $5.0 million credit facility with Citibank in connection with the issuance of bank guarantees for operational purposes. As of March 28, 2020, the outstanding amount under this facility was $3.5 million.

Credit Facilities

On February 15, 2019, the Company entered into a Facility Letter and Overdraft Agreement (collectively, the “Facility Agreements”) with MUFG Bank, Ltd., Singapore Branch (the “Bank”). The Facility Agreements provide the Company with an overdraft facility of up to $150.0 million (the “Overdraft Facility”) for general corporate purposes. Amounts outstanding under the Overdraft Facility, including interest, are payable upon thirty days written demand by the Bank. Interest on the Overdraft Facility is calculated on a daily basis, and the applicable interest rate is calculated at the overnight U.S. Dollar LIBOR rate plus a margin of 1.5% per annum. The Overdraft Facility is an unsecured facility per the terms of the Facility Agreements. The Facility Agreements contain customary non-financial covenants, including, without limitation, covenants that restrict the Company’s ability to sell or dispose of its assets, cease owning at least 51% of one of its subsidiaries (the "Subsidiary"), or encumber its assets with material security interests (including any pledge of monies in the Subsidiary’s cash deposit account with the Bank). The Facility Agreements also contain typical events of default, including, without limitation, non-payment of financial obligations when due, cross defaults to other material indebtedness of the Company or any breach of a representation or warranty under the Facility Agreements. As of March 28, 2020, the outstanding amount under the Facility Agreements was $115.6 million.

---

Common Stock and 401(k) Retirement Plan

The Company has a 401(k) retirement plan (the “Plan”) for eligible U.S. employees. The Plan allows for employee contributions and matching Company contributions from 4% to 6% based upon terms and conditions of the 401(k) Plan.

The following table reflects the Company’s contributions to the Plan during the three and six months ended March 28, 2020 and March 30, 2019:

	Three months ended								Six months ended
(in thousands)	March 28, 2020				March 30, 2019				March 28, 2020				March 30, 2019
Cash	$	352			$	369			$	709			$	863

Stock Repurchase Program

On August 15, 2017, the Company’s Board of Directors authorized a program (the "Program") to repurchase up to $100 million of the Company’s common stock on or before August 1, 2020. On July 10, 2018, the Board of Directors increased the share repurchase authorization under the Program to $200 million. On January 31, 2019, the Board of Directors further increased the share repurchase authorization under the Program to $300 million. The Company has entered into a written trading plan under Rule 10b5-1 of the Exchange Act to facilitate repurchases under the Program. The Program may be suspended or discontinued at any time and is funded using the Company's available cash, cash equivalents and short-term investments. Under the Program, shares may be repurchased through open market and/or privately negotiated transactions at prices deemed appropriate by management. The timing and amount of repurchase transactions under the Program depend on market conditions as well as corporate and regulatory considerations. During the three and six months ended March 28, 2020, the Company repurchased a total of 0.9 million and 1.1 million shares of common stock under the Program at a cost of $18.5 million and $23.9 million, respectively. The stock repurchases were recorded in the periods they were delivered and accounted for as treasury stock in the Company's Consolidated Condensed Balance Sheet. The Company records treasury stock purchases under the cost method using the first-in, first-out (FIFO) method. Upon reissuance of treasury stock, amounts in excess of the acquisition cost are credited to additional paid-in capital. If the Company reissues treasury stock at an amount below its acquisition cost and additional paid-in capital associated with prior treasury stock transactions is insufficient to cover the difference between acquisition cost and the reissue price, this difference is recorded against retained earnings. As of March 28, 2020, our remaining stock repurchase authorization under the Program was approximately $73.3 million.

Dividends

On February 20, 2020 and December 12, 2019, the Board of Directors declared a quarterly dividend of $0.12 per share of common stock. Dividends paid during the three and six months ended March 28, 2020 totaled $7.7 million and $15.2 million, respectively. The declaration of any future cash dividend is at the discretion of the Board of Directors and will depend on the Company's financial condition, results of operations, capital requirements, business conditions and other factors, as well as a determination that such dividends are in the best interests of the Company's shareholders.

Accumulated Other Comprehensive Income

The following table reflects accumulated other comprehensive loss reflected on the Consolidated Condensed Balance Sheets as of March 28, 2020 and September 28, 2019: 

	As of
(in thousands)	March 28, 2020				September 28, 2019
Loss from foreign currency translation adjustments	$	(6,066	)		$	(7,745	)
Unrecognized actuarial loss on pension plan, net of tax	(1,664		)		(1,598		)
Unrealized loss on hedging	(1,702		)		(597		)
Accumulated other comprehensive loss	$	(9,432	)		$	(9,940	)

Equity-Based Compensation

The Company has stockholder-approved equity-based employee compensation plans (the “Employee Plans”) and director compensation plans (the “Director Plans”) (collectively, the “Equity Plans”). As of March 28, 2020, 3.4 million shares of common

---

stock are available for grant to its employees and directors under the 2017 Equity Plan, including previously registered shares that have been carried forward for issuance from the 2009 Equity Plan.

•

Relative TSR Performance Share Units ("Relative TSR PSUs") entitle the employee to receive common shares of the Company on the award vesting date, if market performance objectives that 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 GICS (45301020) Semiconductor Index. TSR is measured for the Company and each peer company over a performance period, which is generally three years. Vesting percentages range from 0% to 200% of awards granted. The provisions of the Relative TSR PSUs are reflected in the grant date fair value of the award; therefore, compensation expense is recognized regardless of whether the market condition is ultimately satisfied. Compensation expense is reversed if the award is forfeited prior to the vesting date.

•

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

•

Special/Growth Performance Share Units (“Special/Growth PSUs”) entitle the employee to receive common shares of the Company on the three-year anniversary of the grant date (if employed by the Company) if 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 revenue growth targets are not met, the Special/Growth PSUs do not vest. Certain Special/Growth 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 Special/Growth PSUs do not vest.

Equity-based compensation expense recognized in the Consolidated Condensed Statements of Operations for the three and six months ended March 28, 2020 and March 30, 2019 was based upon awards ultimately expected to vest, with forfeitures accounted for when they occur.

The following table reflects Time-based RSUs, Relative TSR PSUs, Special/Growth PSUs and common stock granted during the three and six months ended March 28, 2020 and March 30, 2019:

	Three months ended						Six months ended
(shares in thousands)	March 28, 2020			March 30, 2019			March 28, 2020			March 30, 2019
Time-based RSUs	2			12			477			519
Relative TSR PSUs	1			8			158			165
Special/Growth PSUs	—			3			73			55
Common stock	8			10			17			18
Equity-based compensation in shares	11			33			725			757

The following table reflects total equity-based compensation expense, which includes Time-based RSUs, Relative TSR PSUs, Special/Growth PSUs and common stock, included in the Consolidated Condensed Statements of Operations during the three and six months ended March 28, 2020 and March 30, 2019: 

	Three months ended								Six months ended
(in thousands)	March 28, 2020				March 30, 2019				March 28, 2020				March 30, 2019
Cost of sales	$	183			$	160			$	415			$	310
Selling, general and administrative	2,695				2,330				5,430				5,255
Research and development	844				811				1,486				1,609
Total equity-based compensation expense	$	3,722			$	3,301			$	7,331			$	7,174

---

The following table reflects equity-based compensation expense, by type of award, for the three and six months ended March 28, 2020 and March 30, 2019:  

	Three months ended								Six months ended
(in thousands)	March 28, 2020				March 30, 2019				March 28, 2020				March 30, 2019
Time-based RSUs	$	2,349			$	2,131			$	4,764			$	4,272
Relative TSR PSUs	896				818				1,302				2,193
Special/Growth PSUs	255				157				821				319
Common stock	222				195				444				390
Total equity-based compensation expense	$	3,722			$	3,301			$	7,331			$	7,174

The Company recognizes revenue when we satisfy performance obligations as evidenced by the transfer of control of our products or services to customers. In general, the Company generates revenue from product sales, either directly to customers or to distributors. In determining whether a contract exists, we evaluate the terms of the agreement, the relationship with the customer or distributor and their ability to pay. Service revenue is generally recognized over time as the services are performed. For the three and six months ended March 28, 2020, and March 30, 2019, the service revenue is not material. Please refer to Note 1: Basis of Presentation- Revenue Recognition, for disclosure on the Company's revenue recognition, and Note 14: Segment information for disclosure of revenue by reportable segment and disaggregated revenue.

Contract Liabilities

Our contract liabilities are primarily related to advance payments received from customers to secure product in future periods where we have received amounts in advance of satisfying performance obligations and are reported in the accompanying Consolidated Condensed Balance Sheets within accrued expenses and other current liabilities.

Contract liabilities increase as a result of receiving new advance payments from customers and decrease as revenue is recognized from customers purchasing product under advance payment arrangements upon meeting the performance obligations.

The following table shows the changes in contract liability balances during the three and six months ended March 28, 2020 and March 30, 2019:

	Three months ended								Six months ended
(in thousands)	March 28, 2020				March 30, 2019				March 28, 2020				March 30, 2019
Contract liabilities, beginning of period	$	2,588			$	548			$	1,896			$	997
Revenue recognized	(2,459		)		(2,339		)		(5,817		)		(5,517		)
Additions	10,229				2,372				14,279				5,101
Contract liabilities, end of period	$	10,358			$	581			$	10,358			$	581

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. For the three months ended March 30, 2019, 0.8 million shares of restricted stock units and stock options were excluded due to the Company's net loss.

---

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 28, 2020 and March 30, 2019: 

	Three months ended
(in thousands, except per share data)	March 28, 2020								March 30, 2019
	Basic				Diluted				Basic				Diluted
NUMERATOR:
Net income/(loss)	$	11,888			$	11,888			$	(3,555	)		$	(3,555	)
DENOMINATOR:
Weighted average shares outstanding - Basic	63,679				63,679				65,930				65,930
Dilutive effect of Equity Plans					540								—
Weighted average shares outstanding - Diluted					64,219								65,930
EPS:
Net income/(loss) per share - Basic	$	0.19			$	0.19			$	(0.05	)		$	(0.05	)
Effect of dilutive shares					—								—
Net income/(loss) per share - Diluted					$	0.19							$	(0.05	)

  

	Six months ended
(in thousands, except per share data)	March 28, 2020								March 30, 2019
	Basic				Diluted				Basic				Diluted
NUMERATOR:
Net income	$	25,365			$	25,365			$	3,962			$	3,962
DENOMINATOR:
Weighted average shares outstanding - Basic	63,675				63,675				66,530				66,530
Dilutive effect of Equity Plans					591								814
Weighted average shares outstanding - Diluted					64,266								67,344
EPS:
Net income per share - Basic	$	0.40			$	0.40			$	0.06			$	0.06
Effect of dilutive shares					(0.01		)						—
Net income per share - Diluted					$	0.39							$	0.06

The following table reflects the provision for income taxes and the effective tax rate for the three and six months ended March 28, 2020 and March 30, 2019: 

	Three months ended								Six months ended
(dollar amounts in thousands)	March 28, 2020				March 30, 2019				March 28, 2020				March 30, 2019
Provision for income taxes	$	1,162			$	4,672			$	3,295			$	15,242
Effective tax rate	8.9		%		407.7		%		11.5		%		79.1		%

The decrease in provision for income taxes and in effective tax rate for the three months ended March 28, 2020 as compared to the three months ended March 30, 2019 is primarily related to $2.5 million of provision for income taxes recorded in the second quarter of fiscal 2019 as an adjustment to the U.S. one-time transition tax. The decrease in provision for income taxes and in effective rate for the six months ended March 28, 2020 as compared to the six months ended March 30, 2019 is primarily related to $10.2 million of provision for income taxes recorded in the first and second quarter of fiscal 2019 as an adjustment to the U.S. one-time transition tax.

---

For the six months ended March 28, 2020, the effective tax rate is lower than the U.S. federal statutory tax rate primarily due to tax benefits from foreign income earned in lower tax jurisdictions, tax incentives, and tax credits, partially offset by the foreign minimum tax, deemed dividends, valuation allowances recorded against certain loss carryforwards, foreign withholding taxes, and tax liabilities from foreign operations.

It is reasonably possible that the amount of the unrecognized tax benefit with respect to certain unrecognized tax positions will increase or decrease during the next 12 months due to the expected lapse of statutes of limitation and / or settlements of tax examinations. Given the number of years and numerous matters that remain subject to examination in various tax jurisdictions, we cannot practicably estimate the timing or financial outcomes of these examinations.

Reportable segments are defined as components of an enterprise that engage in business activities for which discrete financial information is available and regularly reviewed by the chief operating decision maker in deciding how to allocate resources and to assess performance. The Company's Chief Executive Officer is the Company's chief operating decision maker. The chief operating decision maker does not review discrete asset information. The Company operates two reportable segments consisting of: (i) Capital Equipment; and (ii) Aftermarket Products and Services ("APS").

The following table reflects operating information by segment for the three and six months ended March 28, 2020 and March 30, 2019: 

	Three months ended								Six months ended
(in thousands)	March 28, 2020				March 30, 2019				March 28, 2020				March 30, 2019
Net revenue:
Capital Equipment	$	113,222			$	80,567			$	215,546			$	196,505
APS	37,519				35,341				79,492				76,611
Net revenue	150,741				115,908				295,038				273,116
Income/(loss) from operations:
Capital Equipment	4,062				(9,244		)		6,770				(4,114		)
APS	7,014				6,779				17,720				16,204
Income/(loss) from operations	$	11,076			$	(2,465	)		$	24,490			$	12,090

The following table reflects net revenue by Capital Equipment end markets served for the three and six months ended March 28, 2020 and March 30, 2019:

	Three months ended								Six months ended
(in thousands)	March 28, 2020				March 30, 2019				March 28, 2020				March 30, 2019
General Semiconductor	$	67,369			$	30,985			$	117,835			$	70,655
Automotive & Industrial	19,846				18,967				38,770				45,476
LED	10,167				7,091				22,058				24,536
Memory	8,950				11,697				19,853				39,312
Advanced Packaging	6,890				11,827				17,030				16,526
Total Capital Equipment revenue	$	113,222			$	80,567			$	215,546			$	196,505

---

The following table reflects capital expenditures, depreciation expense and amortization expense for the three and six months ended March 28, 2020 and March 30, 2019.

	Three months ended								Six months ended
(in thousands)	March 28, 2020				March 30, 2019				March 28, 2020				March 30, 2019
Capital expenditures:
Capital Equipment	$	812			$	1,288			$	1,886			$	3,472
APS	1,963				946				3,213				3,704
	$	2,775			$	2,234			$	5,099			$	7,176
Depreciation expense:
Capital Equipment	$	1,491			$	2,002			$	3,034			$	3,740
APS	1,458				1,366				2,857				2,520
	$	2,949			$	3,368			$	5,891			$	6,260
Amortization expense:
Capital Equipment	$	977			$	1,003			$	1,952			$	2,010
APS	843				866				1,685				1,736
	$	1,820			$	1,869			$	3,637			$	3,746

Warranty Expense

The Company's equipment is generally shipped with a one-year warranty against manufacturing defects. The Company establishes reserves for estimated warranty expense when revenue for the related equipment is recognized. The reserve for estimated warranty expense is based upon historical experience and management's estimate of future warranty costs, including product part replacement, freight charges and labor costs incurred in correcting product failures during the warranty period.

The following table reflects the reserve for warranty activity for the three and six months ended March 28, 2020 and March 30, 2019: 

	Three months ended								Six months ended
(in thousands)	March 28, 2020				March 30, 2019				March 28, 2020				March 30, 2019
Reserve for warranty, beginning of period	$	14,714			$	14,401			$	14,185			$	14,475
Provision for warranty	2,923				2,645				6,418				5,731
Utilization of reserve	(3,269		)		(3,161		)		(6,235		)		(6,321		)
Reserve for warranty, end of period	$	14,368			$	13,885			$	14,368			$	13,885

Other Commitments and Contingencies

The following table reflects obligations not reflected on the Consolidated Condensed Balance Sheet as of March 28, 2020:

					Payments due by fiscal year
(in thousands)	Total				2020				2021				2022				2023				2024				thereafter
Inventory purchase obligation (1)	$	148,892			$	148,892			$	—			$	—			$	—			$	—			$	—

(1)	The Company orders inventory components in the normal course of its business. A portion of these orders are non-cancellable, however, some orders impose varying penalties and charges in the event of cancellation.

---

Concentrations

The following table reflects significant customer concentrations as a percentage of net revenue for the six months ended March 28, 2020 and March 30, 2019.

	Six months ended
	March 28, 2020			March 30, 2019
Xinye (HK) Electronics. Co (1)	10.6	%		*
Micron Technology, Inc	*			15.3	%

* Represented less than 10% of total net revenue

The following table reflects significant customer concentrations as a percentage of total accounts receivable as of March 28, 2020 and March 30, 2019:

	As of
	March 28, 2020			March 30, 2019
Xinye (HK) Electronics. Co (1)	17.3	%		*
Haoseng Industrial Company Limited (1)	12.3	%		*
Micron Technology, Inc	*			19.4	%
Super Power International (1)	*			12.5	%

(1) Distributor of the Company's products.

* Represented less than 10% of total accounts receivable

On April 24, 2020, the Company entered into foreign exchange forward contracts with notional amount of $14.5 million. The Company 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 twelve months.

---

•	our expectations regarding the potential impacts on our business of the COVID-19 pandemic and of governmental and other responses to the pandemic;

•	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 bonder, wedge bonder, advanced packaging and electronic assembly equipment and for tools, spare parts and services.

---

---

---

---

---

---

---

---

---

---

---

(1)	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.

(2)	Associated with the U.S. one-time transition tax on certain earnings and profits of our foreign subsidiaries in relation to the TCJA.

(3)	Asset retirement obligations are associated with commitments to return the property to its original condition upon lease termination at various sites.

---

---

---

•	a decrease in short-term and/or long-term demand for our products resulting from widespread business shutdowns and slowdowns, quarantines, travel and logistics restrictions and other actions taken by governments, businesses, and the general public in an effort to limit exposure to and spread of COVID-19;

•	negative impacts to our operations, technology development, new product introduction and customer qualifications resulting from our efforts to mitigate the impact of COVID-19 through execution of our BCP;

•	disruptions to our supply chain, including materials, equipment, engineering support and services, due to efforts to contain the spread of COVID-19;

•	more difficult and more expensive travel and transportation of our supplies and products, ultimately affecting the sales of our products;

•	increased volatility in the semiconductor industry due to heightened uncertainty, including our inability to keep pace relative to our competitors during a post-COVID-19 market recovery should that occur; and

•	reduced sales volume to or loss of significant customers, or cancellation, delay or reduction of backlogged customer orders.

---

---

---

---