VEECO INSTRUMENTS INC, 10-Q filed on 11/4/2013
Quarterly Report
Document and Entity Information
6 Months Ended
Jun. 30, 2013
Oct. 24, 2013
Document and Entity Information
 
 
Entity Registrant Name
VEECO INSTRUMENTS INC 
 
Entity Central Index Key
0000103145 
 
Document Type
10-Q 
 
Document Period End Date
Jun. 30, 2013 
 
Amendment Flag
false 
 
Current Fiscal Year End Date
--12-31 
 
Entity Current Reporting Status
Yes 
 
Entity Filer Category
Large Accelerated Filer 
 
Entity Common Stock, Shares Outstanding
 
39,246,279 
Document Fiscal Year Focus
2013 
 
Document Fiscal Period Focus
Q2 
 
Condensed Consolidated Statements of Operations (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2013
Jun. 30, 2012
Jun. 30, 2013
Jun. 30, 2012
Condensed Consolidated Statements of Operations
 
 
 
 
Net sales
$ 97,435 
$ 136,547 
$ 159,216 
$ 276,456 
Cost of sales
62,795 
75,293 
102,024 
149,934 
Gross profit
34,640 
61,254 
57,192 
126,522 
Operating expenses (income):
 
 
 
 
Selling, general and administrative
19,779 
20,893 
39,427 
40,666 
Research and development
20,870 
23,910 
41,607 
47,216 
Amortization
855 
1,185 
1,711 
2,400 
Restructuring
 
 
531 
63 
Other, net
(52)
146 
352 
111 
Total operating expenses
41,452 
46,134 
83,628 
90,456 
Operating (loss) income
(6,812)
15,120 
(26,436)
36,066 
Interest income, net
236 
329 
428 
532 
Income (loss) from continuing operations before income taxes
(6,576)
15,449 
(26,008)
36,598 
Income tax (benefit) provision
(2,495)
4,438 
(11,856)
9,125 
(Loss) income from continuing operations
(4,081)
11,011 
(14,152)
27,473 
Discontinued operations:
 
 
 
 
Income from discontinued operations before income taxes
 
1,219 
 
1,138 
Income tax provision
 
412 
 
381 
Income from discontinued operations
 
807 
 
757 
Net (loss) income
$ (4,081)
$ 11,818 
$ (14,152)
$ 28,230 
Basic:
 
 
 
 
Continuing operations (in dollars per share)
$ (0.11)
$ 0.29 
$ (0.37)
$ 0.72 
Discontinued operations (in dollars per share)
 
$ 0.02 
 
$ 0.02 
(Loss) income (in dollars per share)
$ (0.11)
$ 0.31 
$ (0.37)
$ 0.74 
Diluted :
 
 
 
 
Continuing operations (in dollars per share)
$ (0.11)
$ 0.28 
$ (0.37)
$ 0.71 
Discontinued operations (in dollars per share)
 
$ 0.02 
 
$ 0.02 
(Loss) income (in dollars per share)
$ (0.11)
$ 0.30 
$ (0.37)
$ 0.73 
Weighted average shares outstanding:
 
 
 
 
Basic (in shares)
38,764 
38,370 
38,740 
38,315 
Diluted (in shares)
38,764 
38,988 
38,740 
38,925 
Condensed Consolidated Statements of Comprehensive (Loss) Income (USD $)
In Thousands, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2013
Jun. 30, 2012
Jun. 30, 2013
Jun. 30, 2012
Condensed Consolidated Statements of Comprehensive (Loss) Income
 
 
 
 
Net (loss) income
$ (4,081)
$ 11,818 
$ (14,152)
$ 28,230 
Available-for-sale securities
 
 
 
 
Unrealized loss on available-for-sale securities (net of taxes of $63, $(24), $79 and $(67))
(183)
(66)
(162)
(184)
Less: Reclassification adjustments for (gains) losses included in net (loss) income
(13)
(50)
(9)
Net unrealized loss on available-for-sale securities
(196)
(65)
(212)
(193)
Foreign currency translation (net of taxes of $(176), $(37), $(189) and $(30))
(499)
244 
(1,262)
(245)
Comprehensive (loss) income
$ (4,776)
$ 11,997 
$ (15,626)
$ 27,792 
Condensed Consolidated Statements of Comprehensive (Loss) Income (Parenthetical) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2013
Jun. 30, 2012
Jun. 30, 2013
Jun. 30, 2012
Condensed Consolidated Statements of Comprehensive (Loss) Income
 
 
 
 
Unrealized loss on available-for-sale securities, tax
$ 63 
$ (24)
$ 79 
$ (67)
Foreign currency translation, tax
$ (176)
$ (37)
$ (189)
$ (30)
Condensed Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Jun. 30, 2013
Dec. 31, 2012
Current assets:
 
 
Cash and cash equivalents
$ 241,548 
$ 384,557 
Short-term investments
340,332 
192,234 
Restricted cash
3,448 
2,017 
Accounts receivable, net
44,736 
63,169 
Inventories
64,107 
59,807 
Prepaid expenses and other current assets
32,895 
32,155 
Deferred income taxes
16,918 
10,545 
Total current assets
743,984 
744,484 
Property, plant and equipment at cost, net
96,949 
98,302 
Goodwill
55,828 
55,828 
Deferred income taxes
5,136 
935 
Intangible assets, net
19,263 
20,974 
Other assets
16,908 
16,781 
Total assets
938,068 
937,304 
Current liabilities:
 
 
Accounts payable
46,948 
26,087 
Accrued expenses and other current liabilities
59,176 
74,260 
Deferred revenue
17,294 
9,380 
Income taxes payable
112 
2,292 
Current portion of long-term debt
279 
268 
Total current liabilities
123,809 
112,287 
Deferred income taxes
7,168 
7,137 
Long-term debt
1,995 
2,138 
Other liabilities
4,779 
4,530 
Total liabilities
137,751 
126,092 
Equity:
 
 
Preferred stock, 500,000 shares authorized; no shares issued and outstanding
   
   
Common stock; $.01 par value; authorized 120,000,000 shares; 39,254,671 and 39,328,503 shares issued and outstanding in 2013 and 2012, respectively
393 
393 
Additional paid-in-capital
713,454 
708,723 
Retained earnings
81,971 
96,123 
Accumulated other comprehensive income
4,499 
5,973 
Total equity
800,317 
811,212 
Total liabilities and equity
$ 938,068 
$ 937,304 
Condensed Consolidated Balance Sheets (Parenthetical) (USD $)
Jun. 30, 2013
Dec. 31, 2012
Condensed Consolidated Balance Sheets
 
 
Preferred stock, shares authorized
500,000 
500,000 
Preferred stock, shares issued
Preferred stock, shares outstanding
Common stock, par value (in dollars per share)
$ 0.01 
$ 0.01 
Common stock, authorized shares
120,000,000 
120,000,000 
Common stock, shares issued
39,254,671 
39,328,503 
Common stock, shares outstanding
39,254,671 
39,328,503 
Condensed Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
6 Months Ended
Jun. 30, 2013
Jun. 30, 2012
Cash Flows from Operating Activities
 
 
Net (loss) income
$ (14,152)
$ 28,230 
Adjustments to reconcile net (loss) income to net cash provided by operating
 
 
Depreciation and amortization
7,985 
7,834 
Deferred income taxes
(10,571)
587 
Non-cash equity-based compensation
6,292 
7,144 
Excess tax benefits from stock option exercises
(461)
(978)
Non-cash items from discontinued operations
 
(1,285)
Other, net
26 
 
Changes in operating assets and liabilities:
 
 
Accounts receivable
18,099 
Inventories
(4,211)
22,888 
Accounts payable
20,912 
(7,756)
Accrued expenses, deferred revenue and other current liabilities
(7,095)
(12,476)
Income taxes payable
(1,708)
(1,205)
Other, net
(1,365)
17,286 
Net cash provided by operating activities
13,751 
60,276 
Cash Flows from Investing Activities
 
 
Capital expenditures
(5,999)
(16,601)
Proceeds from sales of short-term investments
272,449 
99,533 
Payments for purchases of short-term investments
(420,767)
(49,014)
Proceeds from sale of assets from discontinued segment
 
3,758 
Other
(718)
 
Net cash (used in) provided by investing activities
(155,035)
37,676 
Cash Flows from Financing Activities
 
 
Proceeds from stock option exercises
313 
2,161 
Restricted stock tax withholdings
(2,335)
(1,330)
Excess tax benefits from stock option exercises
461 
978 
Repayments of long-term debt
(132)
(121)
Net cash (used in) provided by financing activities
(1,693)
1,688 
Effect of exchange rate changes on cash and cash equivalents
(32)
(515)
Net (decrease) increase in cash and cash equivalents
(143,009)
99,125 
Cash and cash equivalents at beginning of period
384,557 
217,922 
Cash and cash equivalents at end of period
241,548 
317,047 
Non-cash investing and financing activities
 
 
Transfers from property, plant and equipment to inventory
2,224 
 
Transfers from inventory to property, plant and equipment
$ 1,144 
 
Basis of Presentation
Basis of Presentation

Note 1—Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements of Veeco Instruments Inc. (together with its consolidated subsidiaries, “Veeco”, the “Company”, “we”, “us”, and “our”, unless the context indicates otherwise) have been prepared in accordance with accounting principles generally accepted in the United States (“U.S.”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S generally accepted accounting principles (“U.S. GAAP”) for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation (consisting of normal recurring accruals) have been included. Operating results for the three and six months ended June 30, 2013, are not necessarily indicative of the results that may be expected for the year ending December 31, 2013. For further information, refer to the consolidated financial statements and footnotes thereto included in our annual report on Form 10-K for the year ended December 31, 2012.

 

Consistent with prior years, we report interim quarters, other than fourth quarters which always end on December 31, on a 13-week basis ending on the last Sunday of each period. The interim quarter ends are determined at the beginning of each year based on the 13-week quarters. The 2013 interim quarter ends are March 31, June 30 and September 29. The 2012 interim quarter ends were April 1, July 1 and September 30. For ease of reference, we report these interim quarter ends as March 31, June 30 and September 30 in our interim condensed consolidated financial statements. We have reclassified certain amounts previously reported in our financial statements to conform to the current presentation, including amounts related to discontinued operations.

 

Accounting Review

 

During 2012, the Company commenced an internal investigation in response to information it received concerning certain issues, including contract documentation issues, related to a limited number of customer transactions in South Korea.  During the review of information in connection with the internal investigation, questions were raised that prompted the Company to conduct a comprehensive and extensive review of its revenue recognition accounting for certain multiple element arrangements.  The Company retained experienced counsel, assisted by an experienced outside accounting consulting firm, to oversee the accounting review undertaken by the Company.  The Company completed that review in October 2013.

 

The delay in filing our periodic reports began with an announcement, on November 15, 2012, regarding our accounting review of our application of accounting principles related to the Company’s sales of multiple element arrangements of Metal Organic Chemical Vapor Deposition (“MOCVD”) systems in certain transactions originating in 2009 and 2010.  We conducted examinations of our MOCVD transactions to determine whether the revenue and related expenses were recognized in the appropriate accounting period.  Subsequently, we expanded our accounting review to other relevant transactions of similar multiple element arrangements arising since 2009.  In the course of our accounting review, we have examined more than 100 multiple element arrangements.

 

The primary focus of the Company’s accounting review concerned whether the Company correctly interpreted and applied generally accepted accounting principles relating to revenue recognition for multiple element arrangements as set forth in Securities and Exchange Commission Staff Accounting Bulletin No. 104: Revenue Recognition, and ASC 605-25 - Revenue Recognition:  Multiple Element Arrangements (formerly known as EITF 00-21 and EITF 08-01), to certain sales of Veeco products.

 

We often enter into large orders with our customers consisting of several elements.  For accounting purposes, these are called multiple element arrangements, and can include systems, upgrades, spare parts, services, as well as certain other items.  Our accounting review examined the selected sales transactions to determine whether the Company appropriately: (1) identified all of the elements in its arrangements with customers; (2) determined the proper units of accounting as part of the arrangements; and (3) allocated the arrangements’ consideration to each of the units of accounting under the applicable accounting standards.  As a result of our accounting review we identified errors in the consolidated financial statements related to prior periods. The errors were primarily attributable to the misapplication of U.S. GAAP for recognizing revenue and related costs under multiple element arrangements and accounting for warranties. We assessed the materiality of these errors, both quantitatively and qualitatively, and concluded that these errors were not material, individually or in the aggregate, to our consolidated financial statements in 2012 or any other prior periods.

 

Notwithstanding the material weaknesses discussed in “Part I. Item 4. Controls and Procedures” and based upon the accounting review discussed above, our management has concluded that our consolidated financial statements are fairly stated in all material respects in accordance with U.S. GAAP for interim financial statements.

 

Use of Estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates made by management include: the best estimate of selling price for our products and services; allowance for doubtful accounts; inventory valuation; recoverability and useful lives of property, plant and equipment and identifiable intangible assets; investment valuations; fair value of derivatives; recoverability of goodwill and long-lived assets; recoverability of deferred tax assets; liabilities for product warranty; accruals for contingencies; equity-based payments, including forfeitures and performance based vesting; and liabilities for tax uncertainties. Actual results could differ from those estimates.

 

(Loss) Income Per Common Share

 

The following table sets forth the reconciliation of basic weighted average shares outstanding and diluted weighted average shares outstanding (in thousands):

 

 

 

Three months ended

 

Six months ended

 

 

 

June 30,

 

June 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

Basic weighted average shares outstanding

 

38,764

 

38,370

 

38,740

 

38,315

 

Dilutive effect of stock options and restricted stock

 

 

618

 

 

610

 

Diluted weighted average shares outstanding

 

38,764

 

38,988

 

38,740

 

38,925

 

 

Basic (loss) income per common share is computed using the weighted average number of common shares outstanding during the period. Diluted (loss) income per common share is computed using the weighted average number of common shares and common equivalent shares outstanding during the period.

 

Potentially dilutive securities attributable to outstanding stock options and restricted stock were approximately 0.9 million and 1.2 million common equivalent shares during the three and six months ended June 30, 2013, respectively. Potentially dilutive securities attributable to outstanding stock options and restricted stock were approximately 1.5 million and 1.3 million common equivalent shares during the three and six months ended June 30, 2012, respectively.

 

Approximately 0.7 million and 0.6 million common equivalent shares were excluded from the calculation of diluted net loss per share during the three and six months ended June 30, 2013, respectively, because their effect on loss per share was anti-dilutive due to the net loss sustained during the respective periods.

 

Revenue Recognition

 

We recognize revenue when all of the following criteria have been met: persuasive evidence of an arrangement exists with a customer; delivery of the specified products has occurred or services have been rendered; prices are contractually fixed or determinable; and collectability is reasonably assured. Revenue is recorded including shipping and handling costs and excluding applicable taxes related to sales. A significant portion of our revenue is derived from contractual arrangements with customers that have multiple elements, such as systems, upgrades, components, spare parts, maintenance and service plans. For sales arrangements that contain multiple elements, we split the arrangement into separate units of accounting if the individually delivered elements have value to the customer on a standalone basis. We also evaluate whether multiple transactions with the same customer or related party should be considered part of a multiple element arrangement, whereby we assess, among other factors, whether the contracts or agreements are negotiated or executed within a short time frame of each other or if there are indicators that the contracts are negotiated in contemplation of each other. When we have separate units of accounting, we allocate revenue to each element based on the following selling price hierarchy: vendor-specific objective evidence (“VSOE”) if available; third party evidence (“TPE”) if VSOE is not available; or our best estimate of selling price (“BESP”) if neither VSOE nor TPE is available.  For the majority of the elements in our arrangements we utilize BESP. The accounting guidance for selling price hierarchy did not include BESP for arrangements entered into prior to January 1, 2011, and as such we recognized revenue for those arrangements as described below.

 

We consider many facts when evaluating each of our sales arrangements to determine the timing of revenue recognition, including the contractual obligations, the customer’s creditworthiness and the nature of the customer’s post-delivery acceptance provisions. Our system sales arrangements, including certain upgrades, generally include field acceptance provisions that may include functional or mechanical test procedures. For the majority of our arrangements, a customer source inspection of the system is performed in our facility or test data is sent to the customer documenting that the system is functioning to the agreed upon specifications prior to delivery. Historically, such source inspection or test data replicates the field acceptance provisions that will be performed at the customer’s site prior to final acceptance of the system. As such, we objectively demonstrate that the criteria specified in the contractual acceptance provisions are achieved prior to delivery and, therefore, we recognize revenue upon delivery since there is no substantive contingency remaining related to the acceptance provisions as of that date, subject to the retention amount constraint described below. For new products, new applications of existing products or for products with substantive customer acceptance provisions where we cannot objectively demonstrate that the criteria specified in the contractual acceptance provisions have been achieved prior to delivery, revenue and the associated costs are deferred and fully recognized upon the receipt of final customer acceptance, assuming all other revenue recognition criteria have been met.

 

Our system sales arrangements, including certain upgrades, generally do not contain provisions for right of return or forfeiture, refund, or other purchase price concessions.  In the rare instances where such provisions are included, we defer all revenue until such rights expire.  In many cases our products are sold with a billing retention, typically 10% of the sales price (the “retention amount”), which is typically payable by the customer when field acceptance provisions are completed.  The amount of revenue recognized upon delivery of a system or upgrade is limited to the lower of i) the amount that is not contingent upon acceptance provisions or ii) the value allocated to the delivered elements, if such sale is part of a multiple-element arrangement.

 

For transactions entered into prior to January 1, 2011, under the accounting rules for multiple-element arrangements in place at that time, we deferred the greater of the retention amount or the relative fair value of the undelivered elements based on VSOE.  When we could not establish VSOE or TPE for all undelivered elements of an arrangement, revenue on the entire arrangement was deferred until the earlier of the point when we did have VSOE for all undelivered elements or the delivery of all elements of the arrangement.

 

Our sales arrangements, including certain upgrades, generally include installation.  The installation process is not deemed essential to the functionality of the equipment since it is not complex; that is, it does not require significant changes to the features or capabilities of the equipment or involve building elaborate interfaces or connections subsequent to factory acceptance. We have a demonstrated history of consistently completing installations in a timely manner and can reliably estimate the costs of such activities. Most customers engage us to perform the installation services, although there are other third-party providers with sufficient knowledge who could complete these services. Based on these factors, we deem the installation of our systems to be inconsequential and perfunctory relative to the system as a whole, and as a result, do not consider such services to be a separate element of the arrangement. As such, we accrue the cost of the installation at the time of revenue recognition for the system.

 

In Japan, where our contractual terms with customers generally specify title and risk and rewards of ownership transfer upon customer acceptance, revenue is recognized and the customer is billed upon the receipt of written customer acceptance.

 

Revenue related to maintenance and service contracts is recognized ratably over the applicable contract term.  Component and spare part revenue are recognized at the time of delivery in accordance with the terms of the applicable sales arrangement.

Discontinued Operations
Discontinued Operations

Note 2 — Discontinued Operations

 

There was $0.8 million in income from discontinued operations with no sales recorded for the three and six months ended June 30, 2012.

Balance Sheet Information
Balance Sheet Information

Note 3—Balance Sheet Information

 

Cash and Cash Equivalents

 

Cash and cash equivalents include cash and certain highly liquid investments. Highly liquid investments with maturities of three months or less when purchased may be classified as cash equivalents. Such items may include liquid money market accounts, treasury bills, government agency securities and corporate debt. The investments that are classified as cash equivalents are carried at cost, which approximates fair value.

 

Short-Term Investments

 

Available-for-sale securities consist of the following (in thousands):

 

 

 

June 30, 2013

 

 

 

Amortized
Cost

 

Gains in
Accumulated
Other
Comprehensive
Income

 

Losses in
Accumulated
Other
Comprehensive
Income

 

Estimated Fair
Value

 

United States treasuries

 

$

196,063

 

$

27

 

$

(28

)

$

196,062

 

Corporate bonds

 

75,837

 

4

 

(213

)

75,628

 

Goverment agency securities

 

64,647

 

8

 

(13

)

64,642

 

Commercial paper

 

4,000

 

 

 

4,000

 

Total available-for-sale securities

 

$

340,547

 

$

39

 

$

(254

)

$

340,332

 

 

During the three and six months ended June 30, 2013, available-for-sale securities were liquidated for total proceeds of $171.2 million and $272.4 million, respectively. There were minimal gross realized gains on these sales for the three and six months ended June 30, 2013.

 

 

 

December 31, 2012

 

 

 

Amortized
Cost

 

Gains in
Accumulated
Other
Comprehensive
Income

 

Losses in
Accumulated
Other
Comprehensive
Income

 

Estimated Fair
Value

 

United States treasuries

 

$

184,102

 

$

76

 

$

 

$

184,178

 

Government agency securities

 

8,056

 

 

 

8,056

 

Total available-for-sale securities

 

$

192,158

 

$

76

 

$

 

$

192,234

 

 

During the three and six months ended June 30, 2012, available-for-sale securities were liquidated for total proceeds of $55.9 million and $99.5 million, respectively. There were minimal gross realized gains on these sales for the three and six months ended June 30, 2012.

 

The table below shows the fair value of short-term investments that have been in an unrealized loss position for less than 12 months (in thousands):

 

 

 

June 30, 2013

 

 

 

Less than 12 months

 

Total

 

 

 

Estimated
Fair Value

 

Gross Unrealized
Losses

 

Estimated Fair
Value

 

Gross Unrealized
Losses

 

Corporate bonds

 

$

66,351

 

$

(213

)

$

66,351

 

$

(213

)

United States treasuries

 

44,881

 

(28

)

44,881

 

(28

)

Government agency securities

 

7,987

 

(13

)

7,987

 

(13

)

Total

 

$

119,219

 

$

(254

)

$

119,219

 

$

(254

)

 

As of December 31, 2012 we did not hold any short-term investments that were in a loss position. We did not hold any short-term investments that have been in an unrealized loss position for 12 months or longer for the periods noted in the table above.

 

The Company regularly reviews its investment portfolio to identify and evaluate investments that have indications of possible impairment. Factors considered in determining whether an unrealized loss was considered to be temporary or other-than-temporary and therefore impaired include: the length of time and extent to which fair value has been lower than the cost basis; the financial condition and near-term prospects of the investee; and whether it is more likely than not that the Company will be required to sell the security prior to recovery. The Company believes the gross unrealized losses on the Company’s short-term investments as of June 30, 2013 were temporary in nature and therefore did not recognize any impairment.

 

Contractual maturities of available-for-sale debt securities are as follows (in thousands):

 

 

 

June 30, 2013

 

 

Estimated Fair Value

 

Due in one year or less

 

$

247,937

 

Due in 1—2 years

 

32,271

 

Due in 2—3 years

 

60,124

 

Total available-for-sale securities

 

$

340,332

 

 

Actual maturities may differ from contractual maturities because some borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

 

Restricted Cash

 

As of June 30, 2013 and December 31, 2012, restricted cash consisted of $3.4 million and $2.0 million, respectively, which serves as collateral for bank guarantees that provide financial assurance that the Company will fulfill certain customer obligations. This cash is held in custody by the issuing bank and is restricted as to withdrawal or use while the related bank guarantees are outstanding.

 

Accounts Receivable, Net

 

Accounts receivable are shown net of the allowance for doubtful accounts of $0.5 million as of June 30, 2013 and December 31, 2012.

 

Inventories

 

Inventories are stated at the lower of cost (principally first-in, first-out) or market. Inventories consist of (in thousands):

 

 

 

June 30,

 

December 31,

 

 

 

2013

 

2012

 

Materials

 

$

36,499

 

$

36,523

 

Work in process

 

19,815

 

13,363

 

Finished goods

 

7,793

 

9,921

 

 

 

$

64,107

 

$

59,807

 

 

Cost Method Investment

 

As of June 30, 2013 and December 31, 2012 we have recorded a total investment of $15.3 million and $14.5 million, respectively, in a rapidly developing organic light emitting diode (“OLED”) equipment company (the “Investment”). Our ownership in the Investment is approximately 15.3% of the preferred shares and a 12.0% interest in the total of the company. Since we do not exert significant influence on the Investment, this investment is treated under the cost method in accordance with applicable accounting guidance. The fair value of this investment is not estimated because there are no identified events or changes in circumstances that may indicate an other-than-temporary decline in the fair value of the investment, and we are exempt from estimating interim fair values because the investment does not meet the definition of a publicly traded company. This investment is recorded in other assets in our Condensed Consolidated Balance Sheets. Subsequently, during the third quarter of 2013, we invested an additional $0.8 million in the Investment.

 

Customer Deposits

 

As of June 30, 2013 and December 31, 2012, we had customer deposits of $27.4 million and $32.7 million, respectively, which are recorded as a component of accrued expenses and other current liabilities.

 

Accrued Warranty

 

We estimate the costs that may be incurred under the warranties we provide and record a liability in the amount of such costs at the time the related revenue is recognized. Factors that affect our warranty liability include product failure rates, material usage and labor costs incurred in correcting product failures during the warranty period. This accrual is recorded in accrued expenses and other current liabilities in our Condensed Consolidated Balance Sheets.  We periodically assess the adequacy of our recognized warranty liability and adjust the amount as necessary.  Changes in our warranty liability during the period are as follows (in thousands):

 

 

 

June 30,

 

 

 

2013

 

2012

 

Balance as of the beginning of period

 

$

4,942

 

$

8,731

 

Warranties issued during the period

 

1,806

 

1,547

 

Settlements made during the period

 

(2,540

)

(3,625

)

Changes in estimate during the period

 

 

25

 

Balance as of the end of period

 

$

4,208

 

$

6,678

 

 

In the current year’s presentation we no longer include installation in the accrued warranty balance; therefore, in order to conform the balance to current year presentation, we have reclassified $1.047 million from the beginning balance of 2012 accrued warranty to accrued installation which, along with accrued warranty, is also a component of accrued expenses and other current liabilities.

 

Mortgage Payable

 

We have a mortgage payable with approximately $2.3 million outstanding as of June 30, 2013 and $2.4 million outstanding as of December 31, 2012. The mortgage accrues interest at an annual rate of 7.91%, and the final payment is due on January 1, 2020. The fair value of the mortgage as of June 30, 2013 was approximately $2.4 million and $2.6 million as of December 31, 2012.

 

Accumulated Other Comprehensive Income

 

The components of accumulated other comprehensive income are (in thousands):

 

As of June 30, 2013

 

Gross

 

Taxes

 

Net

 

Translation adjustments

 

$

5,967

 

$

(528

)

$

5,439

 

Minimum pension liability

 

(1,285

)

510

 

(775

)

Unrealized loss on available-for-sale securities

 

(215

)

50

 

(165

)

Accumulated other comprehensive income

 

$

4,467

 

$

32

 

$

4,499

 

 

As of December 31, 2012

 

Gross

 

Taxes

 

Net

 

Translation adjustments

 

$

7,040

 

$

(339

)

$

6,701

 

Minimum pension liability

 

(1,285

)

510

 

(775

)

Unrealized gain on available-for-sale securities

 

76

 

(29

)

47

 

Accumulated other comprehensive income

 

$

5,831

 

$

142

 

$

5,973

 

Segment Information
Segment Information

Note 4—Segment Information

 

We manage the business, review operating results and assess performance, as well as allocate resources, based upon four reporting units that are aggregated into two segments: the VIBE and Mechanical reporting units which are reported in our Data Storage segment; and the MOCVD and molecular beam epitaxy (“MBE”) reporting units which are reported in our Light Emitting Diode (“LED”) and Solar segment. In identifying the reporting units, management considered the economic characteristics of operating segments including the products and services provided, production processes, types or classes of customer and product distribution.  Our LED & Solar segment consists of MOCVD systems, MBE systems and thermal deposition sources. These systems are primarily sold to customers in the LED, wireless devices and solar industries, as well as to scientific research customers. This segment has manufacturing, product development and marketing sites in Somerset, New Jersey; Poughkeepsie, New York; and St. Paul, Minnesota. Our Data Storage segment consists of the ion beam etch, ion beam deposition, diamond-like carbon, physical vapor deposition and dicing and slicing products sold primarily to customers in the data storage industry. This segment has manufacturing, product development and marketing sites in Plainview, New York; Camarillo, California; and Ft. Collins, Colorado.

 

We evaluate the performance of our reportable segments based on income (loss) from continuing operations before interest, income taxes, amortization and certain items (in the aggregate “segment profit (loss)”), which is the primary indicator used to plan and forecast future periods. The presentation of this financial measure facilitates meaningful comparison with prior periods, as management believes segment profit (loss) reports baseline performance and thus provides useful information. Certain items include restructuring charges and equity-based compensation expense. The accounting policies of the reportable segments are the same as those described in the summary of critical accounting policies.

 

The following tables present certain data pertaining to our reportable segments and a reconciliation of segment profit (loss) to income (loss) from continuing operations before income taxes for the three and six months ended June 30, 2013 and 2012, respectively, and goodwill and total assets as of June 30, 2013 and December 31, 2012 (in thousands):

 

 

 

LED & Solar

 

Data Storage

 

Unallocated
Corporate

 

Total

 

Three months ended June 30, 2013

 

 

 

 

 

 

 

 

 

Net sales

 

$

75,933

 

$

21,502

 

$

 

$

97,435

 

Segment profit (loss)

 

$

3,124

 

$

(121

)

$

(5,247

)

$

(2,244

)

Interest income, net

 

 

 

236

 

236

 

Amortization

 

(532

)

(323

)

 

(855

)

Equity-based compensation

 

(1,316

)

(488

)

(1,909

)

(3,713

)

Income (loss) from continuing operations before income taxes

 

$

1,276

 

$

(932

)

$

(6,920

)

$

(6,576

)

Three months ended June 30, 2012

 

 

 

 

 

 

 

 

 

Net sales

 

$

86,778

 

$

49,769

 

$

 

$

136,547

 

Segment profit (loss)

 

$

9,587

 

$

12,136

 

$

(1,404

)

$

20,319

 

Interest income, net

 

 

 

329

 

329

 

Amortization

 

(861

)

(324

)

 

(1,185

)

Equity-based compensation

 

(1,096

)

(440

)

(2,478

)

(4,014

)

Income (loss) from continuing operations before income taxes

 

$

7,630

 

$

11,372

 

$

(3,553

)

$

15,449

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30, 2013

 

 

 

 

 

 

 

 

 

Net sales

 

$

118,240

 

$

40,976

 

$

 

$

159,216

 

Segment (loss) profit

 

$

(8,098

)

$

254

 

$

(10,058

)

$

(17,902

)

Interest income, net

 

 

 

428

 

428

 

Amortization

 

(1,064

)

(647

)

 

(1,711

)

Equity-based compensation

 

(2,026

)

(618

)

(3,648

)

(6,292

)

Restructuring

 

(423

)

(50

)

(58

)

(531

)

Loss from continuing operations before income taxes

 

$

(11,611

)

$

(1,061

)

$

(13,336

)

$

(26,008

)

Six months ended June 30, 2012

 

 

 

 

 

 

 

 

 

Net sales

 

$

182,352

 

$

94,104

 

$

 

$

276,456

 

Segment profit (loss)

 

$

27,073

 

$

21,089

 

$

(2,489

)

$

45,673

 

Interest income, net

 

 

 

532

 

532

 

Amortization

 

(1,724

)

(676

)

 

(2,400

)

Equity-based compensation

 

(2,102

)

(851

)

(4,191

)

(7,144

)

Restructuring

 

(58

)

(5

)

 

(63

)

Income (loss) from continuing operations before income taxes

 

$

23,189

 

$

19,557

 

$

(6,148

)

$

36,598

 

 

As of June 30, 2013

 

LED & Solar

 

Data Storage

 

Unallocated
Corporate

 

Total

 

Goodwill

 

$

55,828

 

$

 

$

 

$

55,828

 

Total assets

 

$

257,030

 

$

39,275

 

$

641,763

 

$

938,068

 

 

As of December 31, 2012

 

 

 

 

 

 

 

 

 

Goodwill

 

$

55,828

 

$

 

$

 

$

55,828

 

Total assets

 

$

276,352

 

$

38,664

 

$

622,288

 

$

937,304

 

Fair Value Measurements
Fair Value Measurements

Note 5— Fair Value Measurements

 

We have categorized our assets and liabilities recorded at fair value based upon the fair value hierarchy. The levels of fair value hierarchy are as follows:

 

·                  Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access.

·                  Level 2 inputs utilize other-than-quoted prices that are observable, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs such as interest rates and yield curves that are observable at commonly quoted intervals.

·                  Level 3 inputs are unobservable and are typically based on our own assumptions, including situations where there is little, if any, market activity.

 

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, we categorize such assets or liabilities based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset.

 

Both observable and unobservable inputs may be used to determine the fair value of positions that are classified within the Level 3 category. As a result, the unrealized gains and losses for assets within the Level 3 category may include changes in fair value that were attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in historical company data) inputs.

 

The major categories of assets and liabilities measured on a recurring basis, at fair value, as of June 30, 2013 and December 31, 2012, are as follows (in thousands):

 

 

 

June 30, 2013

 

 

 

Level 1

 

Level 2

 

Level 3

 

Total

 

United States treasuries

 

$

206,061

 

$

 

$

 

$

206,061

 

Commercial paper

 

 

4,000

 

 

4,000

 

Corporate bonds

 

 

75,628

 

 

75,628

 

Government agency securities

 

 

86,440

 

 

86,440

 

Total

 

$

206,061

 

$

166,068

 

$

 

$

372,129

 

 

 

 

December 31, 2012

 

 

 

Level 1

 

Level 2

 

Level 3

 

Total

 

United States treasuries

 

$

278,698

 

$

 

$

 

$

278,698

 

Government agency securities

 

 

123,054

 

 

123,054

 

Total

 

$

278,698

 

$

123,054

 

$

 

$

401,752

 

 

Consistent with Level 1 measurement principles, treasury bills and treasury notes are priced using active market prices of identical securities. Consistent with Level 2 measurement principles, commercial paper, corporate bonds and government agency securities are priced with matrix pricing.

 

Government agency securities and treasury bills that are classified as cash equivalents are carried at cost, which approximates market value. Accordingly, no gains or losses (realized/unrealized) have been incurred for cash equivalents. All investments classified as available-for-sale are recorded at fair value within short-term investments in the Condensed Consolidated Balance Sheets.

 

In determining the fair value of its investments and levels, the Company uses pricing information from pricing services that value securities based on quoted market prices in active markets and matrix pricing. Matrix pricing is a mathematical valuation technique that does not rely exclusively on quoted prices of specific investments, but on the investment’s relationship to other benchmarked quoted securities. The Company has a challenge process in place for investment valuations to facilitate identification and resolution of potentially erroneous prices. The Company reviews the information provided by the third-party service provider to record the fair value of its portfolio.

Derivative Financial Instruments
Derivative Financial Instruments

Note 6 — Derivative Financial Instruments

 

We use derivative financial instruments to minimize the impact of foreign currency exchange rate changes on earnings and cash flows. In the normal course of business, our operations are exposed to fluctuations in foreign currency exchange rates. In order to reduce the effect of fluctuating foreign currencies on short-term foreign currency-denominated intercompany transactions and other known foreign currency exposures, we enter into monthly forward contracts. We do not use derivative financial instruments for trading or speculative purposes. Our forward contracts are not expected to subject us to material risks due to exchange rate movements because gains and losses on these contracts are intended to offset exchange gains and losses on the underlying assets and liabilities. We have not designated these economic hedges as accounting hedges pursuant to the accounting guidance. The forward contracts are marked-to-market through earnings. We conduct our derivative transactions with highly rated financial institutions in an effort to mitigate any material counterparty risk. The following tables are in thousands:

 

June 30, 2013

 

Not Designated as Hedges under ASC 815 

 

Component of

 

Maturity
 Dates

 

Notional
Amount

 

Fair
Value

 

Foreign currency exchange forwards

 

Prepaid expenses and other current assets

 

July 2013

 

3,300

 

32

 

Total Derivative Instruments

 

 

 

 

 

$

3,300

 

$

32

 

 

December 31, 2012

 

Not Designated as Hedges under ASC 815 

 

Component of

 

Maturity
 Dates

 

Notional
Amount

 

Fair
Value

 

Foreign currency exchange forwards

 

Prepaid expenses and other current assets

 

January 2013

 

9,590

 

244

 

Total Derivative Instruments

 

 

 

 

 

$

9,590

 

$

244

 

 

 

 

Location of Realized Net
(Loss) Gain and Changes in

 

For the three months
ended June 30,

 

For the six months
ended June 30,

 

Derivative 

 

the Fair Value of Derivatives

 

2013

 

2012

 

2013

 

2012

 

Foreign currency exchange forwards

 

Other, net

 

$

(71

)

$

(158

)

$

157

 

$

(78

)

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average notional amount of derivatives outstanding

 

 

 

$

1,360

 

$

2,560

 

$

1,994

 

$

2,501

 

Commitments, Contingencies and Other Matters
Commitments, Contingencies and Other Matters

Note 7— Commitments, Contingencies and Other Matters

 

Restructuring and Other Charges

 

During the six months ended June 30, 2013 and 2012, we took measures to improve profitability, including a reduction of discretionary expenses, realignment of our senior management team and consolidation of certain sales, business and administrative functions. As a result of these actions, we recorded a restructuring charge of $0.5 million and $0.1 million, respectively. We did not record any restructuring charges during the three months ended June 30, 2013 and 2012.

 

 

 

For the six months ended

 

 

 

June 30,

 

 

 

2013

 

2012

 

Personnel severance and related costs

 

$

435

 

$

63

 

Other associated costs

 

96

 

 

 

 

$

531

 

$

63

 

 

Restructuring Liability

 

The following is a reconciliation of the restructuring liability through June 30, 2013 (in thousands):

 

 

 

LED & Solar

 

Data Storage

 

Unallocated
Corporate

 

Total

 

Short-term liability

 

 

 

 

 

 

 

 

 

Balance as of January 1, 2013

 

$

448

 

$

1,308

 

$

119

 

$

1,875

 

Restructuring

 

422

 

51

 

58

 

531

 

Cash payments

 

(805

)

(926

)

(166

)

(1,897

)

Balance as of June 30, 2013

 

$

65

 

$

433

 

$

11

 

$

509

 

 

The balance of the short-term liability will be paid over the next 12 months.

 

The following is a reconciliation of the restructuring liability through December 31, 2012 (in thousands):

 

 

 

LED & Solar

 

Data Storage

 

Unallocated
Corporate

 

Total

 

Short-term liability

 

 

 

 

 

 

 

 

 

Balance as of January 1, 2012

 

$

534

 

$

128

 

$

294

 

$

956

 

Restructuring

 

874

 

1,684

 

135

 

2,693

 

Cash payments

 

(960

)

(504

)

(310

)

(1,774

)

Balance as of December 31, 2012

 

$

448

 

$

1,308

 

$

119

 

$

1,875

 

Subsequent Events
Subsequent Events

Note 8— Subsequent Events

 

Notice of Potential De-Listing: During our internal control evaluation and accounting review, we were unable to timely file our periodic statements with the SEC and, as of the date of this Report, have yet to become current with all our required filings. We have been notified by the NASDAQ Stock Market that our common stock listing will be suspended if we have not filed all of our outstanding periodic reports with the SEC on or before November 4, 2013. If our stock is delisted, then it will no longer be traded on the NASDAQ Global Select Market, however, it would continue to trade in the over-the-counter market, which may have an adverse effect on the trading price of our stock.

 

Acquisition of Synos Technology, Inc. (“Synos”): On October 1, 2013, we acquired Synos, which designs and manufactures Fast Array Scanning™ Atomic Layer Deposition systems (“ALD”) that are enabling the production of flexible organic light-emitting diode (“OLED”) displays for mobile devices. The initial purchase price is $70 million. The agreement also includes an earn-out feature that would require an additional payment of up to $115 million if future performance milestones are achieved prior to December 31, 2014. With the earn-out feature, the total maximum potential purchase price is $185 million. Synos is headquartered in Fremont, California and has approximately 50 employees. Preliminary purchase accounting allocations for Synos are not yet available.

Basis of Presentation (Policies)

Use of Estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates made by management include: the best estimate of selling price for our products and services; allowance for doubtful accounts; inventory valuation; recoverability and useful lives of property, plant and equipment and identifiable intangible assets; investment valuations; fair value of derivatives; recoverability of goodwill and long-lived assets; recoverability of deferred tax assets; liabilities for product warranty; accruals for contingencies; equity-based payments, including forfeitures and performance based vesting; and liabilities for tax uncertainties. Actual results could differ from those estimates.

(Loss) Income Per Common Share

 

The following table sets forth the reconciliation of basic weighted average shares outstanding and diluted weighted average shares outstanding (in thousands):

 

 

 

Three months ended

 

Six months ended

 

 

 

June 30,

 

June 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

Basic weighted average shares outstanding

 

38,764

 

38,370

 

38,740

 

38,315

 

Dilutive effect of stock options and restricted stock

 

 

618

 

 

610

 

Diluted weighted average shares outstanding

 

38,764

 

38,988

 

38,740

 

38,925

 

 

Basic (loss) income per common share is computed using the weighted average number of common shares outstanding during the period. Diluted (loss) income per common share is computed using the weighted average number of common shares and common equivalent shares outstanding during the period.

 

Potentially dilutive securities attributable to outstanding stock options and restricted stock were approximately 0.9 million and 1.2 million common equivalent shares during the three and six months ended June 30, 2013, respectively. Potentially dilutive securities attributable to outstanding stock options and restricted stock were approximately 1.5 million and 1.3 million common equivalent shares during the three and six months ended June 30, 2012, respectively.

 

Approximately 0.7 million and 0.6 million common equivalent shares were excluded from the calculation of diluted net loss per share during the three and six months ended June 30, 2013, respectively, because their effect on loss per share was anti-dilutive due to the net loss sustained during the respective periods.

Revenue Recognition

 

We recognize revenue when all of the following criteria have been met: persuasive evidence of an arrangement exists with a customer; delivery of the specified products has occurred or services have been rendered; prices are contractually fixed or determinable; and collectability is reasonably assured. Revenue is recorded including shipping and handling costs and excluding applicable taxes related to sales. A significant portion of our revenue is derived from contractual arrangements with customers that have multiple elements, such as systems, upgrades, components, spare parts, maintenance and service plans. For sales arrangements that contain multiple elements, we split the arrangement into separate units of accounting if the individually delivered elements have value to the customer on a standalone basis. We also evaluate whether multiple transactions with the same customer or related party should be considered part of a multiple element arrangement, whereby we assess, among other factors, whether the contracts or agreements are negotiated or executed within a short time frame of each other or if there are indicators that the contracts are negotiated in contemplation of each other. When we have separate units of accounting, we allocate revenue to each element based on the following selling price hierarchy: vendor-specific objective evidence (“VSOE”) if available; third party evidence (“TPE”) if VSOE is not available; or our best estimate of selling price (“BESP”) if neither VSOE nor TPE is available.  For the majority of the elements in our arrangements we utilize BESP. The accounting guidance for selling price hierarchy did not include BESP for arrangements entered into prior to January 1, 2011, and as such we recognized revenue for those arrangements as described below.

 

We consider many facts when evaluating each of our sales arrangements to determine the timing of revenue recognition, including the contractual obligations, the customer’s creditworthiness and the nature of the customer’s post-delivery acceptance provisions. Our system sales arrangements, including certain upgrades, generally include field acceptance provisions that may include functional or mechanical test procedures. For the majority of our arrangements, a customer source inspection of the system is performed in our facility or test data is sent to the customer documenting that the system is functioning to the agreed upon specifications prior to delivery. Historically, such source inspection or test data replicates the field acceptance provisions that will be performed at the customer’s site prior to final acceptance of the system. As such, we objectively demonstrate that the criteria specified in the contractual acceptance provisions are achieved prior to delivery and, therefore, we recognize revenue upon delivery since there is no substantive contingency remaining related to the acceptance provisions as of that date, subject to the retention amount constraint described below. For new products, new applications of existing products or for products with substantive customer acceptance provisions where we cannot objectively demonstrate that the criteria specified in the contractual acceptance provisions have been achieved prior to delivery, revenue and the associated costs are deferred and fully recognized upon the receipt of final customer acceptance, assuming all other revenue recognition criteria have been met.

 

Our system sales arrangements, including certain upgrades, generally do not contain provisions for right of return or forfeiture, refund, or other purchase price concessions.  In the rare instances where such provisions are included, we defer all revenue until such rights expire.  In many cases our products are sold with a billing retention, typically 10% of the sales price (the “retention amount”), which is typically payable by the customer when field acceptance provisions are completed.  The amount of revenue recognized upon delivery of a system or upgrade is limited to the lower of i) the amount that is not contingent upon acceptance provisions or ii) the value allocated to the delivered elements, if such sale is part of a multiple-element arrangement.

 

For transactions entered into prior to January 1, 2011, under the accounting rules for multiple-element arrangements in place at that time, we deferred the greater of the retention amount or the relative fair value of the undelivered elements based on VSOE.  When we could not establish VSOE or TPE for all undelivered elements of an arrangement, revenue on the entire arrangement was deferred until the earlier of the point when we did have VSOE for all undelivered elements or the delivery of all elements of the arrangement.

 

Our sales arrangements, including certain upgrades, generally include installation.  The installation process is not deemed essential to the functionality of the equipment since it is not complex; that is, it does not require significant changes to the features or capabilities of the equipment or involve building elaborate interfaces or connections subsequent to factory acceptance. We have a demonstrated history of consistently completing installations in a timely manner and can reliably estimate the costs of such activities. Most customers engage us to perform the installation services, although there are other third-party providers with sufficient knowledge who could complete these services. Based on these factors, we deem the installation of our systems to be inconsequential and perfunctory relative to the system as a whole, and as a result, do not consider such services to be a separate element of the arrangement. As such, we accrue the cost of the installation at the time of revenue recognition for the system.

 

In Japan, where our contractual terms with customers generally specify title and risk and rewards of ownership transfer upon customer acceptance, revenue is recognized and the customer is billed upon the receipt of written customer acceptance.

 

Revenue related to maintenance and service contracts is recognized ratably over the applicable contract term.  Component and spare part revenue are recognized at the time of delivery in accordance with the terms of the applicable sales arrangement.

Basis of Presentation (Tables)
Reconciliation of basic weighted average shares outstanding and diluted weighted average shares outstanding

The following table sets forth the reconciliation of basic weighted average shares outstanding and diluted weighted average shares outstanding (in thousands):

 

 

 

Three months ended

 

Six months ended

 

 

 

June 30,

 

June 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

Basic weighted average shares outstanding

 

38,764

 

38,370

 

38,740

 

38,315

 

Dilutive effect of stock options and restricted stock

 

 

618

 

 

610

 

Diluted weighted average shares outstanding

 

38,764

 

38,988

 

38,740

 

38,925

 

Balance Sheet Information (Tables)

Available-for-sale securities consist of the following (in thousands):

 

 

 

June 30, 2013

 

 

 

Amortized
Cost

 

Gains in
Accumulated
Other
Comprehensive
Income

 

Losses in
Accumulated
Other
Comprehensive
Income

 

Estimated Fair
Value

 

United States treasuries

 

$

196,063

 

$

27

 

$

(28

)

$

196,062

 

Corporate bonds

 

75,837

 

4

 

(213

)

75,628

 

Goverment agency securities

 

64,647

 

8

 

(13

)

64,642

 

Commercial paper

 

4,000

 

 

 

4,000

 

Total available-for-sale securities

 

$

340,547

 

$

39

 

$

(254

)

$

340,332

 

 

 

 

 

 

December 31, 2012

 

 

 

Amortized
Cost

 

Gains in
Accumulated
Other
Comprehensive
Income

 

Losses in
Accumulated
Other
Comprehensive
Income

 

Estimated Fair
Value

 

United States treasuries

 

$

184,102

 

$

76

 

$

 

$

184,178

 

Government agency securities

 

8,056

 

 

 

8,056

 

Total available-for-sale securities

 

$

192,158

 

$

76

 

$

 

$

192,234

 

The table below shows the fair value of short-term investments that have been in an unrealized loss position for less than 12 months (in thousands):

 

 

 

June 30, 2013

 

 

 

Less than 12 months

 

Total

 

 

 

Estimated
Fair Value

 

Gross Unrealized
Losses

 

Estimated Fair
Value

 

Gross Unrealized
Losses

 

Corporate bonds

 

$

66,351

 

$

(213

)

$

66,351

 

$

(213

)

United States treasuries

 

44,881

 

(28

)

44,881

 

(28

)

Government agency securities

 

7,987

 

(13

)

7,987

 

(13

)

Total

 

$

119,219

 

$

(254

)

$

119,219

 

$

(254

)

Contractual maturities of available-for-sale debt securities are as follows (in thousands):

 

 

 

June 30, 2013

 

 

Estimated Fair Value

 

Due in one year or less

 

$

247,937

 

Due in 1—2 years

 

32,271

 

Due in 2—3 years

 

60,124

 

Total available-for-sale securities

 

$

340,332

 

Inventories are stated at the lower of cost (principally first-in, first-out) or market. Inventories consist of (in thousands):

 

 

 

June 30,

 

December 31,

 

 

 

2013

 

2012

 

Materials

 

$

36,499

 

$

36,523

 

Work in process

 

19,815

 

13,363

 

Finished goods

 

7,793

 

9,921

 

 

 

$

64,107

 

$

59,807

 

Changes in our warranty liability during the period are as follows (in thousands):

 

 

 

June 30,

 

 

 

2013

 

2012

 

Balance as of the beginning of period

 

$

4,942

 

$

8,731

 

Warranties issued during the period

 

1,806

 

1,547

 

Settlements made during the period

 

(2,540

)

(3,625

)

Changes in estimate during the period

 

 

25

 

Balance as of the end of period

 

$

4,208

 

$

6,678

 

The components of accumulated other comprehensive income are (in thousands):

 

As of June 30, 2013

 

Gross

 

Taxes

 

Net

 

Translation adjustments

 

$

5,967

 

$

(528

)

$

5,439

 

Minimum pension liability

 

(1,285

)

510

 

(775

)

Unrealized loss on available-for-sale securities

 

(215

)

50

 

(165

)

Accumulated other comprehensive income

 

$

4,467

 

$

32

 

$

4,499

 

 

As of December 31, 2012

 

Gross

 

Taxes

 

Net

 

Translation adjustments

 

$

7,040

 

$

(339

)

$

6,701

 

Minimum pension liability

 

(1,285

)

510

 

(775

)

Unrealized gain on available-for-sale securities

 

76

 

(29

)

47

 

Accumulated other comprehensive income

 

$

5,831

 

$

142

 

$

5,973

 

Segment Information (Tables)

The following tables present certain data pertaining to our reportable segments and a reconciliation of segment profit (loss) to income (loss) from continuing operations before income taxes for the three and six months ended June 30, 2013 and 2012, respectively, and goodwill and total assets as of June 30, 2013 and December 31, 2012 (in thousands):

 

 

 

LED & Solar

 

Data Storage

 

Unallocated
Corporate

 

Total

 

Three months ended June 30, 2013

 

 

 

 

 

 

 

 

 

Net sales

 

$

75,933

 

$

21,502

 

$

 

$

97,435

 

Segment profit (loss)

 

$

3,124

 

$

(121

)

$

(5,247

)

$

(2,244

)

Interest income, net

 

 

 

236

 

236

 

Amortization

 

(532

)

(323

)

 

(855

)

Equity-based compensation

 

(1,316

)

(488

)

(1,909

)

(3,713

)

Income (loss) from continuing operations before income taxes

 

$

1,276

 

$

(932

)

$

(6,920

)

$

(6,576

)

Three months ended June 30, 2012

 

 

 

 

 

 

 

 

 

Net sales

 

$

86,778

 

$

49,769

 

$

 

$

136,547

 

Segment profit (loss)

 

$

9,587

 

$

12,136

 

$

(1,404

)

$

20,319

 

Interest income, net

 

 

 

329

 

329

 

Amortization

 

(861

)

(324

)

 

(1,185

)

Equity-based compensation

 

(1,096

)

(440

)

(2,478

)

(4,014

)

Income (loss) from continuing operations before income taxes

 

$

7,630

 

$

11,372

 

$

(3,553

)

$

15,449

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30, 2013

 

 

 

 

 

 

 

 

 

Net sales

 

$

118,240

 

$

40,976

 

$

 

$

159,216

 

Segment (loss) profit

 

$

(8,098

)

$

254

 

$

(10,058

)

$

(17,902

)

Interest income, net

 

 

 

428

 

428

 

Amortization

 

(1,064

)

(647

)

 

(1,711

)

Equity-based compensation

 

(2,026

)

(618

)

(3,648

)

(6,292

)

Restructuring

 

(423

)

(50

)

(58

)

(531

)

Loss from continuing operations before income taxes

 

$

(11,611

)

$

(1,061

)

$

(13,336

)

$

(26,008

)

Six months ended June 30, 2012

 

 

 

 

 

 

 

 

 

Net sales

 

$

182,352

 

$

94,104

 

$

 

$

276,456

 

Segment profit (loss)

 

$

27,073

 

$

21,089

 

$

(2,489

)

$

45,673

 

Interest income, net

 

 

 

532

 

532

 

Amortization

 

(1,724

)

(676

)

 

(2,400

)

Equity-based compensation

 

(2,102

)

(851

)

(4,191

)

(7,144

)

Restructuring

 

(58

)

(5

)

 

(63

)

Income (loss) from continuing operations before income taxes

 

$

23,189

 

$

19,557

 

$

(6,148

)

$

36,598

 

 

As of June 30, 2013

 

LED & Solar

 

Data Storage

 

Unallocated
Corporate

 

Total

 

Goodwill

 

$

55,828

 

$

 

$

 

$

55,828

 

Total assets

 

$

257,030

 

$

39,275

 

$

641,763

 

$

938,068

 

 

As of December 31, 2012

 

 

 

 

 

 

 

 

 

Goodwill

 

$

55,828

 

$

 

$

 

$

55,828

 

Total assets

 

$

276,352

 

$

38,664

 

$

622,288

 

$

937,304

 

 

Fair Value Measurements (Tables)
Schedule of assets and liabilities measured on a recurring basis, at fair value

The major categories of assets and liabilities measured on a recurring basis, at fair value, as of June 30, 2013 and December 31, 2012, are as follows (in thousands):

 

 

 

June 30, 2013

 

 

 

Level 1

 

Level 2

 

Level 3

 

Total

 

United States treasuries

 

$

206,061

 

$

 

$

 

$

206,061

 

Commercial paper

 

 

4,000

 

 

4,000

 

Corporate bonds

 

 

75,628

 

 

75,628

 

Government agency securities

 

 

86,440

 

 

86,440

 

Total

 

$

206,061

 

$

166,068

 

$

 

$

372,129

 

 

 

 

December 31, 2012

 

 

 

Level 1

 

Level 2

 

Level 3

 

Total

 

United States treasuries

 

$

278,698

 

$

 

$

 

$

278,698

 

Government agency securities

 

 

123,054

 

 

123,054

 

Total

 

$

278,698

 

$

123,054

 

$

 

$

401,752

 

Derivative Financial Instruments (Tables)

The following tables are in thousands:

 

June 30, 2013

 

Not Designated as Hedges under ASC 815 

 

Component of

 

Maturity
 Dates

 

Notional
Amount

 

Fair
Value

 

Foreign currency exchange forwards

 

Prepaid expenses and other current assets

 

July 2013

 

3,300

 

32

 

Total Derivative Instruments

 

 

 

 

 

$

3,300

 

$

32

 

 

December 31, 2012

 

Not Designated as Hedges under ASC 815 

 

Component of

 

Maturity
 Dates

 

Notional
Amount

 

Fair
Value

 

Foreign currency exchange forwards

 

Prepaid expenses and other current assets

 

January 2013

 

9,590

 

244

 

Total Derivative Instruments

 

 

 

 

 

$

9,590

 

$

244

 

 

 

 

Location of Realized Net
(Loss) Gain and Changes in

 

For the three months
ended June 30,

 

For the six months
ended June 30,

 

Derivative 

 

the Fair Value of Derivatives

 

2013

 

2012

 

2013

 

2012

 

Foreign currency exchange forwards

 

Other, net

 

$

(71

)

$

(158

)

$

157

 

$

(78

)

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average notional amount of derivatives outstanding

 

 

 

$

1,360

 

$

2,560

 

$

1,994

 

$

2,501

 

Commitments, Contingencies and Other Matters (Tables)

 

 

 

 

For the six months ended

 

 

 

June 30,

 

 

 

2013

 

2012

 

Personnel severance and related costs

 

$

435

 

$

63

 

Other associated costs

 

96

 

 

 

 

$

531

 

$

63

 

The following is a reconciliation of the restructuring liability through June 30, 2013 (in thousands):

 

 

 

LED & Solar

 

Data Storage

 

Unallocated
Corporate

 

Total