# KULICKE & SOFFA INDUSTRIES INC (KLIC) FY 2021 MD&A

Verbatim Item 7 Management's Discussion and Analysis from KULICKE & SOFFA INDUSTRIES INC's 10-K for fiscal year 2021.

SEC filing source: https://www.sec.gov/Archives/edgar/data/56978/000005697821000153/klic-20211002.htm
Accession: 0000056978-21-000153
Filing date: 2021-11-18
Report date: 2021-10-02
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/KLIC/
All MD&A years: /company/KLIC/mda/
Next year: /company/KLIC/mda/fy2022/ (FY 2022)

Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

In addition to historical information, this filing contains statements relating to future events or our future results. These statements are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and are subject to the safe harbor provisions created by statute. Such forward-looking statements include, but are not limited to, statements with respect to our future revenue, increasing, continuing or strengthening, or decreasing or weakening, demand for our products, 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):

•our expectations regarding the potential impacts on our business of the COVID-19 pandemic, including supply chain disruptions, the economic and public health effects, and of governmental and other responses to these impacts;

•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.

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

Forward-looking statements are based on current expectations and involve risks and uncertainties. Our future results could differ significantly from those expressed or implied by our forward-looking statements. These risks and uncertainties include, without limitation, those described below and under the heading “Risk Factors” in this Annual Report on Form 10-K 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 our audited financial statements included in this 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.

This section of this Form 10-K generally discusses fiscal 2021 and 2020 items and year-to-year comparisons between fiscal 2021 and 2020. Discussions of fiscal 2019 items and year-to-year comparisons between fiscal 2020 and 2019 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended October 3, 2020.

Our Management's Discussion and Analysis ("MD&A") is provided in addition to the accompanying consolidated financial statements and notes to assist readers in understanding our results of operations, financial condition, and cash flows. The MD&A is organized as follows:

•Overview:  Introduction of our operations, key events, business environment, technology leadership, products and services

•Critical Accounting Policies

•Recent Accounting Pronouncements

•Results of Operations

•Liquidity and Capital Resources

•Other Obligations and Contingent Payments

Overview

For an overview of our business, see "Part I – Item 1. – Business".

24

Table of Contents

Critical Accounting Policies

The preparation of consolidated financial statements requires us to make assumptions, estimates and judgments that affect the reported amounts of assets and liabilities, net revenue and expenses during the reporting periods, and disclosures of contingent assets and liabilities as of the date of the consolidated financial statements. On an ongoing basis, we evaluate estimates, including, but not limited to, those related to accounts receivable, reserves for excess and obsolete inventory, carrying value and lives of fixed assets, goodwill and intangible assets, income taxes, equity-based compensation expense and warranties. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable. As a result, we make judgments regarding the carrying values of our assets and liabilities that are not readily apparent from other sources. Authoritative pronouncements, historical experience and assumptions are used as the basis for making estimates, and on an ongoing basis, we evaluate these estimates. Actual results may differ from these estimates.

We believe the following critical accounting policies, which have been reviewed with the Audit Committee of our Board of Directors, reflect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

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 the 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.

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.

Allowance for Doubtful Accounts

We maintain allowances for doubtful accounts for estimated losses resulting from our customers' failure to make required payments. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make

25

Table of Contents

payments, additional allowances may be required. We are subject to concentrations of customers and sales to a few geographic locations, which could also impact the collectability of certain receivables. If global or regional economic conditions deteriorate or political conditions were to change in some of the countries where we do business, it could have a significant impact on our results of operations, and our ability to realize the full value of our accounts receivable.

Inventories

Inventories are stated at the lower of cost (on a first-in, first-out basis) or net realizable value. We generally provide reserves for obsolete inventory and for inventory considered to be in excess of demand. Demand is generally defined as 18 months 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. We communicate forecasts of our future consumption to our suppliers and adjust commitments to those suppliers accordingly. If required, we reserve the difference between the carrying value of our inventory and the lower of cost or 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.

Accounting for Impairment of Goodwill

ASC No. 350, Intangibles-Goodwill and Other 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. 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, 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, may lead the Company to perform interim goodwill impairment assessments.

For further information on goodwill and other intangible assets, see Note 4 to our consolidated financial statements in Item 8.

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 that 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,

26

Table of Contents

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 Growth Performance Share Units is determined based on the number of shares granted and the fair value on the date of grant. See Note 11 to our consolidated financial statements in Item 8 for a summary of the terms of these performance-based awards. The fair value of the Company's stock option awards are 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.

RECENT ACCOUNTING PRONOUNCEMENTS

See Note 1 to our consolidated financial statements in Item 8 for a description of certain recent accounting pronouncements, including the expected dates of adoption and effects on our consolidated results of operations and financial condition.

RESULTS OF OPERATIONS

Results of Operations for fiscal 2021 and 2020

The following table reflects our income from operations for fiscal 2021 and 2020:

[[GREPCENT_TABLE]]
[["","","Fiscal"],["(dollar amounts in thousands)","","2021","","2020","","$ Change","","% Change"],["Net revenue","","$","1,517,664","","","$","623,176","","","$","894,488","","","143.5","%"],["Cost of sales","","820,678","","","325,201","","","495,477","","","152.4","%"],["Gross profit","","696,986","","","297,975","","","399,011","","","133.9","%"],["Selling, general and administrative","","147,061","","","116,007","","","31,054","","","26.8","%"],["Research and development","","137,478","","","123,459","","","14,019","","","11.4","%"],["Operating expenses","","284,539","","","239,466","","","45,073","","","18.8","%"],["Income from operations","","$","412,447","","","$","58,509","","","$","353,938","","","604.9","%"]]
[[/GREPCENT_TABLE]]

Bookings and Backlog

Our backlog consists of customer orders scheduled for shipment within the next twelve months. A booking is recorded when a customer order is reviewed and it is determined that all specifications can be met, production (or service) can be scheduled, a delivery date can be set, and the customer meets our credit requirements. We use bookings to evaluate the results of our operations, generate future operating plans and assess the performance of our company. While we believe that this measure is useful in evaluating our business, this information should be considered as supplemental in nature and is not meant as a substitute for revenue recognized in accordance with GAAP. In addition, other companies, including companies in our industry, may calculate bookings differently or not at all, which reduces its usefulness as a comparative measure. Reconciliation of bookings to net revenue is not practicable. A majority of our orders are subject to cancellation or deferral by our customers with limited or no penalties. Also, customer demand for our products can vary dramatically without prior notice. Because of the volatility of customer demand, possibility of customer changes in delivery schedules or cancellations and potential delays in product shipments, our backlog as of any particular date may not be indicative of net revenue for any succeeding period.

27

Table of Contents

The following tables reflect our bookings and backlog for fiscal 2021 and 2020:

[[GREPCENT_TABLE]]
[["","Fiscal"],["(in thousands)","2021","","2020"],["Bookings","$","2,176,981","","","$","646,389"],["","As of"],["(in thousands)","October 2, 2021","","October 3, 2020"],["Backlog","$","787,241","","","$","127,924"]]
[[/GREPCENT_TABLE]]

The semiconductor industry is volatile and our operating results are adversely impacted by volatile worldwide economic conditions. Though the semiconductor industry's cycle can be independent of the general economy, global economic conditions may have a direct impact on demand for semiconductor units and ultimately demand for semiconductor capital equipment and expendable tools. Accordingly, our business and financial performance is impacted, both positively and negatively, by fluctuations in the macroeconomic environment. Our visibility into future demand is generally limited and forecasting is difficult. There can be no assurances regarding levels of demand for our products and we believe historical industry-wide volatility will persist.

The U.S. and several other countries have levied tariffs on certain goods. In particular, trade tensions between the U.S. and China have been escalating since 2018, with U.S. tariffs on Chinese goods and retaliatory Chinese tariffs on U.S. goods. These have resulted in uncertainties in the semiconductor, LED, memory and automotive markets. While the Company anticipates long-term growth in semiconductor consumption, we observed trade-related adverse impacts in demand from China from the fourth quarter of fiscal 2018 through fiscal 2020, and such impacts may arise again in fiscal 2022 and/or beyond.

Net Revenue

Our net revenues for fiscal 2021 increased as compared to our net revenues for fiscal 2020. The increase in net revenue is primarily due to higher volume in both Capital Equipment and APS.

The following table reflects net revenue by business segment for fiscal 2021 and 2020:

[[GREPCENT_TABLE]]
[["","","Fiscal"],["(dollar amounts in thousands)","","2021","","2020","","$ Change","","% Change"],["","","Net revenue","","% of total net revenue","","Net revenue","","% of total net revenue"],["Capital Equipment","","$","1,312,576","","","86.5","%","","$","462,059","","","74.1","%","","$","850,517","","","184.1","%"],["APS","","205,088","","","13.5","%","","161,117","","","25.9","%","","43,971","","","27.3","%"],["Total net revenue","","$","1,517,664","","","100.0","%","","$","623,176","","","100.0","%","","$","894,488","","","143.5","%"]]
[[/GREPCENT_TABLE]]

Capital Equipment

For fiscal 2021, the higher Capital Equipment net revenue as compared to fiscal 2020 was driven by growing demand in the general semiconductor end market for consumer applications and 5G transition, automotive end market, memory end market and in the LED end market for both the adoption of the advanced LED display and sequential improvements for general lighting LED.

APS

For fiscal 2021, the higher APS net revenue as compared to fiscal 2020 was primarily due to higher volume in spares, services and bonding tools.

28

Table of Contents

Gross Profit Margin

 The following table reflects gross profit as a percentage of net revenue by business segment for fiscal 2021 and 2020: 

[[GREPCENT_TABLE]]
[["","","Fiscal"],["","","2021","","2020","","Basis point change"],["Capital Equipment","","44.0","%","","44.7","%","","(70)"],["APS","","58.2","%","","56.7","%","","150"],["Total gross margin","","45.9","%","","47.8","%","","(190)"]]
[[/GREPCENT_TABLE]]

Capital Equipment

For fiscal 2021, the lower Capital Equipment gross profit margin as compared to fiscal 2020 was primarily driven by an increased gross margin in fiscal 2020 due to a warranty reserve revision, partially offset by more favorable product mix.

APS

For fiscal 2021, the higher APS gross profit margin as compared to fiscal 2020 was primarily driven by favorable product mix in spares and services.

Income from Operations

For fiscal 2021, total income from operations was higher as compared to fiscal 2020. This was primarily due to increased revenue in fiscal 2021, partially offset by higher operating expenses.

The following tables reflect income from operations by business segment for fiscal 2021 and 2020:

[[GREPCENT_TABLE]]
[["","","Fiscal"],["(dollar amounts in thousands)","","2021","","2020","","$ Change","","% Change"],["Capital Equipment","","$","355,982","","","$","22,069","","","$","333,913","","","1,513.0","%"],["APS","","56,465","","","36,440","","","20,025","","","55.0","%"],["Total income from operations","","$","412,447","","","$","58,509","","","$","353,938","","","604.9","%"]]
[[/GREPCENT_TABLE]]

Capital Equipment

For fiscal 2021, the higher Capital Equipment income from operations as compared to fiscal 2020 was primarily due to higher demand as explained under 'Net Revenue' above. This was partially offset by higher operating expenses as explained under 'Operating Expenses' below.

APS

For fiscal 2021, the higher APS income from operations as compared to fiscal 2020 was primarily due to higher demand as explained under 'Net Revenue' above. This was partially offset by higher operating expenses as explained under 'Operating Expenses' below.

Operating Expenses

The following table reflects operating expenses for fiscal 2021 and 2020:

[[GREPCENT_TABLE]]
[["","","Fiscal"],["(dollar amounts in thousands)","","2021","","2020","","$ Change","","% Change"],["Selling, general and administrative","","$","147,061","","","$","116,007","","","$","31,054","","","26.8","%"],["Research and development","","137,478","","","123,459","","","$","14,019","","","11.4","%"],["Total","","$","284,539","","","$","239,466","","","$","45,073","","","18.8","%"]]
[[/GREPCENT_TABLE]]

29

Table of Contents

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

For fiscal 2021, the higher SG&A expenses as compared to fiscal 2020 were primarily due to $22.1 million higher staff costs related to an increase in incentive compensation and headcount, and $9.5 million in sales representative commissions.

Research and Development (“R&D”)

For fiscal 2021, the higher R&D expenses as compared to fiscal 2020 were primarily due to higher staff costs related to an increase in incentive compensation and headcount, and increased engineering services. These were partially offset by lower spending on prototype materials.

Interest Income and Expense

The following table reflects interest income and interest expense for fiscal 2021 and 2020: 

[[GREPCENT_TABLE]]
[["","","Fiscal"],["(dollar amounts in thousands)","","2021","","2020","","$ Change","","% Change"],["Interest income","","$","2,321","","","$","7,541","","","$","(5,220)","","","(69.2)","%"],["Interest expense","","$","(218)","","","$","(1,716)","","","$","1,498","","","(87.3)","%"]]
[[/GREPCENT_TABLE]]

Interest income

For fiscal 2021, the lower interest income as compared to fiscal 2020 was primarily due to lower weighted average interest rates on cash, cash equivalents and short-term investments.

Interest expense

For fiscal 2021, the lower interest expense as compared to fiscal 2020 was primarily due to lower levels of average short-term debt outstanding. Please refer to Note 10: Debt and Other Obligations to our consolidated financial statements in Item 8 for a discussion of the Overdraft Facility.

Provision for Income Taxes

The following table reflects the provision for income taxes and the effective tax rate for fiscal 2021 and 2020: 

[[GREPCENT_TABLE]]
[["","","Fiscal"],["(dollar amounts in thousands)","","2021","","2020","","Change"],["Provision for income taxes","","$","47,295","","","$","11,998","","","$","35,297"],["Effective tax rate","","11.4","%","","18.6","%","","(7.2)","%"]]
[[/GREPCENT_TABLE]]

For fiscal 2021, the effective tax rate differed from the U.S. federal statutory tax rate primarily due to tax benefits from tax incentives, foreign earnings subject to a lower statutory tax rate than the U.S. federal statutory tax rate, tax credits generated during the fiscal year, and the net release of valuation allowances recorded against certain loss and credit carryforwards, partially offset by tax expense related to deemed income and undistributed foreign earnings.

For fiscal 2020, the effective tax rate differed from the U.S. federal statutory tax rate primarily due to tax benefits from tax incentives, foreign earnings subject to a lower statutory tax rate than the U.S. federal statutory tax rate, and tax credits generated during the fiscal year net of a $3.5 million out of period adjustment, partially offset by tax expense related to deemed income, net increase of valuation allowances recorded against certain deferred tax assets, undistributed foreign earnings, and other non-deductible items. The $3.5 million out of period adjustment was to correct previously unrecorded income tax expense related to prior years jurisdictional adjustments. The Company determined that the out of period adjustment to the provision of income taxes and income taxes payable was not material to its fiscal 2020 or prior period consolidated financial statements.

Please refer to Note 15: Income Taxes to our consolidated financial statements in Item 8.

30

Table of Contents

LIQUIDITY AND CAPITAL RESOURCES

The following table reflects total cash, cash equivalents and short-term investments as of October 2, 2021 and October 3, 2020:

[[GREPCENT_TABLE]]
[["","","As of"],["(dollar amounts in thousands)","","October 2, 2021","","October 3, 2020","","Change"],["Cash and cash equivalents","","$","362,788","","","$","188,127","","","$","174,661"],["Short-term investments","","377,000","","","342,000","","","35,000"],["Total cash, cash equivalents, and short-term investments","","$","739,788","","","$","530,127","","","$","209,661"],["Percentage of total assets","","46.2","%","","50.3","%"]]
[[/GREPCENT_TABLE]]

The following table reflects summary Consolidated Statement of Cash Flow information for fiscal 2021 and 2020:

[[GREPCENT_TABLE]]
[["","","Fiscal"],["(in thousands)","","2021","","2020"],["Net cash provided by operating activities","","$","300,032","","","$","94,412"],["Net cash used in investing activities","","(81,707)","","","(125,957)"],["Net cash used in financing activities","","(44,258)","","","(145,809)"],["Effect of exchange rate changes on cash and cash equivalents","","594","","","1,297"],["Changes in cash, and cash equivalents","","$","174,661","","","$","(176,057)"],["Cash and cash equivalents, beginning of period","","188,127","","","364,184"],["Cash and cash equivalents, end of period","","$","362,788","","","$","188,127"]]
[[/GREPCENT_TABLE]]

Fiscal 2021

Net cash provided by operating activities consisted of net income of $367.2 million, non-cash adjustments of $21.2 million and a net unfavorable change in operating assets and liabilities of $88.3 million. The net change in operating assets and liabilities was primarily driven by an increase in accounts and notes receivable of $221.9 million, inventories of $52.7 million, and prepaid expenses and other current assets of $4.6 million. This was partially offset by an increase in accounts payable and accrued expenses and other current liabilities of $182.0 million, and income tax payable of $7.7 million.

The increase in accounts payable and accrued expenses and other current liabilities was primarily due to higher purchases due to higher manufacturing activities. The increase in inventories was due to increased manufacturing activities in fiscal 2021 in response to increased sales. The increase in accounts receivable was due to higher sales.

The net cash used in investing activities was primarily due to net purchases of short-term investments of $35.0 million, the Uniqarta acquisition of $26.3 million, and capital expenditures of $22.8 million, partially offset by proceeds from the sale of an equity-method investment of $2.1 million.

The net cash used in financing activities was primarily due to dividend payments of $33.5 million, and common stock repurchases of $10.4 million.

Fiscal 2020

Net cash provided by operating activities consisted of net income of $52.3 million, non-cash adjustments of $34.9 million and a net favorable change in operating assets and liabilities of $7.2 million. The net change in operating assets and liabilities was primarily driven by an increase in accounts payable and accrued expenses and other current liabilities of $38.1 million. This was partially offset by an increase in inventories of $26.2 million, and prepaid expenses and other current assets of $3.6 million, and an increase in accounts and notes receivable of $1.9 million.

The increase in accounts payable and accrued expenses and other current liabilities was primarily due to higher purchases due to higher manufacturing activities. The increase in inventories was due to increased manufacturing activities in fiscal 2020 in response to increased sales. The increase in accounts receivable was due to higher sales.

The net cash used in investing activities was primarily due to net purchases of short-term investments of $113.0 million, capital expenditures of $11.7 million and an equity investment of $1.3 million.

The net cash used in financing activities was primarily due to a net repayment of short-term debt of $60.9 million, common stock repurchases of $54.5 million, and dividend payments of $30.2 million.

31

Table of Contents

Fiscal 2022 Liquidity and Capital Resource Outlook

We expect our fiscal 2022 capital expenditures to be between $38.0 million and $42.0 million. The actual amounts for fiscal 2022 will vary depending on market conditions. Expenditures are anticipated to be primarily used for R&D projects, enhancements to our manufacturing operations, improvements to our information technology security, implementation of an enterprise resource planning system and leasehold improvements for our facilities.

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 from the date of filing. Our liquidity is affected by many factors, some based on normal operations of our business and others related to global economic conditions and industry uncertainties, which we cannot predict. We also cannot predict economic conditions and industry downturns or the timing, strength or duration of recoveries. We intend to continue to use our cash for working capital needs and for general corporate purposes.

We may seek, as we believe appropriate, additional debt or equity financing which would provide capital for corporate purposes, working capital funding, additional liquidity needs or to fund future growth opportunities, including possible acquisitions and investments. 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.

As of October 2, 2021 and October 3, 2020, approximately $724.5 million and $492.0 million of cash, cash equivalents, and short-term investments were held by the Company's foreign subsidiaries, respectively, with a large portion of the cash amounts expected to be available for use in the U.S. without incurring additional U.S. income tax.

The Company’s international operations and capital requirements are funded primarily by cash generated by foreign operating activities and cash held by foreign subsidiaries. Most of the Company's operations and liquidity needs are outside the U.S. In fiscal 2021, the Company’s U.S. operations and capital requirements have been funded primarily by cash generated from U.S. operating activities, repatriation of cash generated by foreign operating activities, and by a Facility Agreement with MUFG Bank, Ltd. In the future, the Company may repatriate additional cash held by foreign subsidiaries that has already been subject to U.S. tax. We believe these future repatriations of cash and our U.S. sources of cash and liquidity are sufficient to meet our other business needs in the U.S. for the foreseeable future including funding of U.S. operations, capital expenditures, repayment of outstanding balances under the Facility Agreement with MUFG Bank, Ltd., dividend program, and the share repurchase program as approved by the Board of Directors. Should the Company’s U.S. cash needs exceed its funds generated by U.S. and foreign operations due to changing business conditions or transactions outside the ordinary course, such as acquisitions of large capital assets, businesses or any other capital appropriation in the U.S., the Company may require additional financing in the U.S. In this event, the Company could seek U.S. borrowing alternatives.

Share Repurchase Program

On August 15, 2017, the Company's Board of Directors authorized the Program to repurchase up to $100 million of the Company’s common stock on or before August 1, 2020. In 2018 and 2019, the Board of Directors increased the share repurchase authorization under the Program to $200 million and $300 million, respectively. On July 3, 2020, the Board of Directors increased the share repurchase authorization under the Company's existing share repurchase program by an additional $100 million to $400 million, and extended its duration through August 1, 2022. 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 fiscal year ended October 2, 2021, the Company repurchased a total of approximately 215.0 thousand shares of common stock at a cost of approximately $10.2 million. As of October 2, 2021, our remaining share repurchase authorization under the Program was approximately $132.0 million.

Dividends

On August 26, 2021, May 28, 2021, March 5, 2021 and December 10, 2020, the Board of Directors declared a quarterly dividend $0.14 per share of common stock. During the fiscal year ended October 2, 2021, the Company declared dividends of $0.56 per share of common stock. 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 stockholders.

32

Table of Contents

Other Obligations and Contingent Payments

In accordance with U.S. generally accepted accounting principles, certain obligations and commitments as of October 2, 2021 are appropriately not included in the Consolidated Balance Sheets and Statements of Operations in this Form 10-K. However, because these obligations and commitments are entered into in the normal course of business and because they may have a material impact on our liquidity, we have disclosed them in the table below.

Additionally, as of October 2, 2021, the Company had deferred tax liabilities of $32.8 million and unrecognized tax benefit recorded within the income tax payable for uncertain tax positions of $15.0 million, including related accrued interest of $1.7 million. These amounts are not included in the contractual obligation table below because we are unable to reasonably estimate the timing of these payments at this time.

The following table presents certain payments due by the Company under contractual obligations with minimum firm commitments as of October 2, 2021:

[[GREPCENT_TABLE]]
[["","","","","Payments due in"],["(in thousands)","","Total","","Less than 1 year","","1 - 3 years","","3 - 5 years","","More than 5 years"],["Inventory purchase obligations (1)","","$","591,845","","","591,845","","","$","\u2014","","","$","\u2014","","","$","\u2014"],["U.S. one-time transition tax payable (2)(reflected on our Balance Sheets)","","60,870","","","6,461","","","19,329","","","35,080","","","\u2014"],["Total","","$","652,715","","","$","598,306","","","$","19,329","","","$","35,080","","","$","\u2014"]]
[[/GREPCENT_TABLE]]

(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 U.S. Tax Cuts and Jobs Act of 2017.

Off-Balance Sheet Arrangements

Credit Facilities

On February 15, 2019, the Company entered into a Facility Letter and Overdraft Agreement (collectively, the “Facility Agreements”) with MUFG Bank, Ltd., Singapore Branch (the “Bank”). The Facility Agreements provide the Company and one of its subsidiaries with an overdraft facility of up to $150.0 million (the “Overdraft Facility”) for general corporate purposes. Amounts outstanding under the Overdraft Facility, including interest, are payable upon thirty days written demand by the Bank. Interest on the Overdraft Facility is calculated on a daily basis, and the applicable interest rate is calculated at the overnight U.S. Dollar LIBOR rate plus a margin of 1.5% per annum. The Overdraft Facility is an unsecured facility per the terms of the Facility Agreements. The Facility Agreements contain customary non-financial covenants, including, without limitation, covenants that restrict the Company’s ability to sell or dispose of its assets, cease owning at least 51% of two of its subsidiaries (the "Subsidiaries"), or encumber its assets with material security interests (including any pledge of monies in the Subsidiaries' cash deposit account with the Bank). The Facility Agreements also contain typical events of default, including, without limitation, non-payment of financial obligations when due, cross defaults to other material indebtedness of the Company and any breach of a representation or warranty under the Facility Agreements. As of October 2, 2021, there were no outstanding amounts under the Overdraft Facility.

As of October 2, 2021, other than the bank guarantee disclosed in Note 10, we did not have any other off-balance sheet arrangements, such as contingent interests or obligations associated with variable interest entities.