VEECO INSTRUMENTS INC, 10-Q filed on 10/29/2014
Quarterly Report
Document and Entity Information
9 Months Ended
Sep. 30, 2014
Oct. 24, 2014
Document and Entity Information
 
 
Entity Registrant Name
VEECO INSTRUMENTS INC 
 
Entity Central Index Key
0000103145 
 
Document Type
10-Q 
 
Document Period End Date
Sep. 30, 2014 
 
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
 
40,217,447 
Document Fiscal Year Focus
2014 
 
Document Fiscal Period Focus
Q3 
 
Condensed Consolidated Statements of Operations (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2014
Sep. 30, 2013
Sep. 30, 2014
Sep. 30, 2013
Condensed Consolidated Statements of Operations
 
 
 
 
Net sales
$ 93,341 
$ 99,324 
$ 279,304 
$ 258,540 
Cost of sales
60,783 
69,016 
182,296 
171,040 
Gross profit
32,558 
30,308 
97,008 
87,500 
Operating expenses:
 
 
 
 
Selling, general and administrative
21,712 
19,650 
65,270 
59,077 
Research and development
19,968 
18,993 
60,747 
60,600 
Amortization
3,149 
855 
8,951 
2,566 
Restructuring
2,317 
1,240 
3,510 
1,771 
Asset impairment
2,864 
 
2,864 
 
Total operating expenses
50,010 
40,738 
141,342 
124,014 
Other operating, net
36 
(493)
(334)
(141)
Changes in contingent consideration
 
 
(29,368)
 
Operating income (loss)
(17,488)
(9,937)
(14,632)
(36,373)
Interest income (expense), net
305 
192 
541 
620 
Income (loss) before income taxes
(17,183)
(9,745)
(14,091)
(35,753)
Income tax provision (benefit)
(3,206)
(3,719)
(4,063)
(15,575)
Net income (loss)
$ (13,977)
$ (6,026)
$ (10,028)
$ (20,178)
Basic:
 
 
 
 
Income (loss) (in dollars per share)
$ (0.35)
$ (0.16)
$ (0.26)
$ (0.52)
Diluted :
 
 
 
 
Income (loss) (in dollars per share)
$ (0.35)
$ (0.16)
$ (0.26)
$ (0.52)
Weighted average shares outstanding:
 
 
 
 
Basic (in shares)
39,401 
38,841 
39,317 
38,774 
Diluted (in shares)
39,401 
38,841 
39,317 
38,774 
Condensed Consolidated Statements of Comprehensive Income (Loss) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2014
Sep. 30, 2013
Sep. 30, 2014
Sep. 30, 2013
Condensed Consolidated Statements of Comprehensive Income (Loss)
 
 
 
 
Net income (loss)
$ (13,977)
$ (6,026)
$ (10,028)
$ (20,178)
Available-for-sale securities
 
 
 
 
Unrealized gain (loss) on available-for-sale securities
225 
127 
(15)
Benefit (provision) for income taxes
 
(54)
 
25 
Less: Reclassification adjustments for gains included in net income (loss)
 
(1)
(45)
(52)
Net unrealized gain (loss) on available-for-sale securities
170 
82 
(42)
Foreign currency translation
 
 
 
 
Foreign currency translation
(138)
(273)
(29)
(1,346)
Benefit (provision) for income taxes
 
176 
 
(13)
Net foreign currency translation
(138)
(97)
(29)
(1,359)
Other comprehensive income (loss), net of tax
(132)
73 
53 
(1,401)
Comprehensive income (loss)
$ (14,109)
$ (5,953)
$ (9,975)
$ (21,579)
Condensed Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Sep. 30, 2014
Dec. 31, 2013
Current assets:
 
 
Cash and cash equivalents
$ 264,008 
$ 210,799 
Short-term investments
222,954 
281,538 
Restricted cash
487 
2,738 
Accounts receivable, net
61,588 
23,823 
Inventories
46,594 
59,726 
Deferred cost of sales
7,434 
724 
Prepaid expenses and other current assets
43,898 
22,579 
Assets held for sale
2,653 
 
Deferred income taxes
8,384 
11,716 
Total current assets
658,000 
613,643 
Property, plant and equipment at cost, net
80,720 
89,139 
Goodwill
91,521 
91,348 
Deferred income taxes
397 
397 
Intangible assets, net
106,015 
114,716 
Other assets
19,745 
38,726 
Total assets
956,398 
947,969 
Current liabilities:
 
 
Accounts payable
26,113 
35,755 
Accrued expenses and other current liabilities
40,468 
51,084 
Customer deposits and deferred revenue
65,553 
34,754 
Income taxes payable
6,840 
6,149 
Deferred income taxes
159 
159 
Current portion of long-term debt
308 
290 
Total current liabilities
139,441 
128,191 
Deferred income taxes
19,741 
28,052 
Long-term debt
1,614 
1,847 
Other liabilities
3,484 
9,649 
Total liabilities
164,280 
167,739 
Equity:
 
 
Preferred stock, 500,000 shares authorized; no shares issued and outstanding
   
   
Common stock; $.01 par value; authorized 120,000,000 shares; 40,232,642 and 39,666,195 shares issued and outstanding in 2014 and 2013, respectively
402 
397 
Additional paid-in capital
743,210 
721,352 
Retained earnings
43,832 
53,860 
Accumulated other comprehensive income
4,674 
4,621 
Total equity
792,118 
780,230 
Total liabilities and equity
$ 956,398 
$ 947,969 
Condensed Consolidated Balance Sheets (Parenthetical) (USD $)
Sep. 30, 2014
Dec. 31, 2013
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
40,232,642 
39,666,195 
Common stock, shares outstanding
40,232,642 
39,666,195 
Condensed Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
9 Months Ended
Sep. 30, 2014
Sep. 30, 2013
Cash Flows from Operating Activities
 
 
Net income (loss)
$ (10,028)
$ (20,178)
Adjustments to reconcile net income (loss) to net cash from operating activities:
 
 
Depreciation and amortization
17,649 
12,080 
Deferred income taxes
(4,973)
(5,196)
Non-cash asset impairment
2,864 
 
Non-cash equity-based compensation
14,303 
9,054 
Provision (recovery) for bad debt
(1,833)
Gross profit from sales of lab tools
(2,435)
 
Change in contingent consideration
(29,368)
 
Excess tax benefits from equity-based compensation
 
(485)
Other, net
 
15 
Changes in operating assets and liabilities:
 
 
Accounts receivable
(36,149)
25,095 
Inventories
13,650 
2,165 
Prepaid expenses and other current assets
(3,046)
(4,801)
Accounts payable
(9,679)
2,307 
Accrued expenses, customer deposits, deferred revenue and other current liabilities
41,630 
(15,235)
Income taxes payable
691 
(821)
Other, net
124 
605 
Net cash provided by (used in) operating activities
(6,600)
4,610 
Cash Flows from Investing Activities
 
 
Capital expenditures
(10,476)
(7,976)
Proceeds from the liquidation of short-term investments
216,050 
422,903 
Payments for purchases of short-term investments
(157,733)
(553,217)
Payments for purchase of cost method investment
(2,388)
(1,594)
Proceeds from sale of lab tools
7,034 
 
Other
126 
25 
Net cash provided by (used in) investing activities
52,613 
(139,859)
Cash Flows from Financing Activities
 
 
Proceeds from stock option exercises
9,485 
313 
Restricted stock tax withholdings
(1,925)
(2,358)
Excess tax benefits from equity-based compensation
 
485 
Repayments of long-term debt
(215)
(199)
Net cash provided by (used in) financing activities
7,345 
(1,759)
Effect of exchange rate changes on cash and cash equivalents
(149)
117 
Net increase (decrease) in cash and cash equivalents
53,209 
(136,891)
Cash and cash equivalents as of beginning of period
210,799 
384,557 
Cash and cash equivalents as of end of period
264,008 
247,666 
Non-cash investing and financing activities
 
 
Settlement of stock option exercise (shares withheld)
$ 1,334 
 
Basis of Presentation
Basis of Presentation

Note 1—Basis of Presentation

 

The accompanying unaudited 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 nine months ended September 30, 2014, are not necessarily indicative of the results that may be expected for the year ending December 31, 2014. 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, 2013.

 

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 2014 interim quarter ends are March 30, June 29 and September 28. The 2013 interim quarter ends were March 31, June 30 and September 29. For ease of reference, we report these interim quarter ends as March 31, June 30 and September 30 in our interim consolidated financial statements. We have reclassified certain amounts previously reported in our financial statements to conform to the current presentation.

 

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 at 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 obsolescence; 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; accounting for acquisitions; accruals for contingencies; equity-based payments, including forfeitures and performance based vesting; and liabilities for tax uncertainties. Actual results could differ from those estimates.

 

Income (Loss) 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
September 30,

 

Nine months ended
September 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

Basic weighted average shares outstanding

 

39,401 

 

38,841 

 

39,317 

 

38,774 

 

Dilutive effect of stock options and restricted stock

 

 

 

 

 

Diluted weighted average shares outstanding

 

39,401 

 

38,841 

 

39,317 

 

38,774 

 

 

Basic income (loss) per common share is computed using the basic weighted average number of common shares outstanding during the period. Diluted income (loss) per common share is computed using the diluted weighted average number of common shares which include any common equivalent shares calculated to be outstanding during the period. For the three months and nine months ended September 30, 2014 and 2013, we reported a net loss, and accordingly, the basic and diluted weighted average shares outstanding are equal because any increase to basic weighted average shares outstanding would be antidilutive. As a result, for the three and nine months ended September 30, 2014, we excluded 0.6 million and 0.7 million common equivalent shares and for both the three and nine months ended September 30, 2013, we excluded 0.6 million common equivalent shares.

 

Additionally, not included above were additional stock options and restricted stock outstanding that had exercise or grant prices in excess of the average market value of our common stock during the period and are therefore antidilutive. There were 1.8 million and 1.5 million of such underlying shares for the three and nine months ended September 30, 2014, respectively. There were 1.0 million and 1.1 million of such underlying shares for the three and nine months ended September 30, 2013, respectively.

 

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. We utilize BESP for the majority of the elements in our arrangements. The accounting guidance for selling price hierarchy did not include BESP for arrangements entered into prior to January 1, 2011; 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 at 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, if any, is limited to the lower of i) the amount billed that is not contingent upon acceptance provisions or ii) the value of the arrangement consideration 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 or 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 upon the receipt of written customer acceptance. During the fourth quarter of fiscal 2013, we began using a distributor for almost all of our product and service sales to customers in Japan. Title passes to the distributor upon shipment, however, due to customary local business practices, the risk and rewards of ownership of our system sales transfer to the end-customers upon their acceptance.  As such, we recognize revenue upon receipt of written acceptance from the end customer.

 

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

 

Recent Accounting Pronouncements

 

Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern: In August 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-15, “Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.” The amendments in this ASU apply to all entities and provide guidance on management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern or to provide related footnote disclosures. The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2016; early application is permitted. We do not expect the application of this guidance to have a material impact on our consolidated financial statements.

 

Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period: In June 2014, the FASB issued ASU No. 2014-12, “Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period” (Topic 718).  The amendments in this ASU require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015; earlier adoption is permitted. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.

 

Revenue from Contracts with Customers: In May 2014, the FASB issued Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers” (Topic 606).  ASU No. 2014-09 requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard outlines a five-step model to be used to make the revenue recognition determination and requires new financial statement disclosures. The standard is effective for interim and annual periods beginning after December 15, 2016 and allows entities to choose among different transition alternatives. We are evaluating the impact of adopting the standard on our consolidated financial statements and related financial statement disclosures and we have not yet determined which method of adoption will be selected.

 

Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity: In April 2014, the FASB issued ASU No. 2014-08 that changes the threshold for reporting discontinued operations and adds new disclosures. The new guidance defines a discontinued operation as a disposal of a component or group of components that is disposed of or is classified as held for sale and “represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results.” For disposals of individually significant components that do not qualify as discontinued operations, an entity must disclose pre-tax earnings of the disposed component. For public business entities, this guidance is effective prospectively for all disposals (or classifications as held for sale) of components of an entity that occur within annual periods beginning on or after December 15, 2014, and interim periods within those years. Early adoption is permitted, but only for disposals (or classifications as held for sale) that have not been reported in financial statements previously issued or available for issuance. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.

 

Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or Tax Credit Carryforward Exists: In July 2013, the FASB issued ASU No. 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or Tax Credit Carryforward Exists.” ASU 2013-11 requires entities to present an unrecognized tax benefit, or a portion of an unrecognized tax benefit, as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward when settlement in this manner is available under the tax law. This ASU is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013. We adopted this as of January 1, 2014 and it did not have a material impact on our consolidated financial statements.

 

Presentation of Financial Statements: In April 2013, the FASB issued ASU No. 2013-07, “Presentation of Financial Statements (Topic 205): Liquidation Basis of Accounting.” The objective of ASU 2013-07 is to clarify when an entity should apply the liquidation basis of accounting. The update provides principles for the recognition and measurement of assets and liabilities and requirements for financial statements prepared using the liquidation basis of accounting. This ASU is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013. We adopted this as of January 1, 2014 and will evaluate the materiality of its impact on our consolidated financial statements when there are any indications that liquidation is imminent.

 

Parent’s Accounting for the Cumulative Translation Adjustment: In March 2013, the FASB issued ASU No. 2013-05, “Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity.” This new standard is intended to resolve diversity in practice regarding the release into net income of a cumulative translation adjustment (“CTA”) upon derecognition of a subsidiary or group of assets within a foreign entity. ASU No. 2013-05 is effective prospectively for fiscal years (and interim reporting periods within those years) beginning after December 15, 2013. We have adopted this as of January 1, 2014 and currently anticipate that it could have an impact on our consolidated financial statements, in the event of derecognition of a foreign subsidiary in 2014 or thereafter. During the second quarter of 2014, the Company began executing a plan to liquidate our foreign subsidiary in Japan. Please see note Commitments, Contingencies and Other Matters for additional information.

Business Combinations
Business Combinations

Note 2 — Business Combinations

 

On October 1, 2013 (“the Acquisition Date”), Veeco acquired 100% of the outstanding common shares and voting interest of Synos Technology, Inc. (“Synos”). The results of Synos’ operations have been included in the consolidated financial statements since that date. Synos is an early stage manufacturer of fast array scanning atomic layer deposition (“FAST-ALD”) systems for Organic LED (“OLED”) and other applications.

 

As part of Veeco’s acquisition agreement with Synos, there were certain contingent payments due to the selling shareholders of Synos dependent on the achievement of certain milestones. The aggregate fair value of the contingent consideration arrangement as of December 31, 2013 was $29.4 million.

 

We estimate the fair value of acquisition-related contingent consideration based on management’s probability-weighted present value of the consideration expected to be transferred during the remainder of the earn-out period, based on the forecast related to the milestones. The fair value of the contingent consideration is reassessed by us on a quarterly basis using additional information as it becomes available. Any change in the fair value of an acquisition’s contingent consideration liability results in a gain or loss that is recorded in the earnings of that period. As of March 31, 2014, we determined that the agreed upon post-closing milestones were not met or are not expected to be achieved and therefore reversed the remaining $29.4 million fair value of the liability of the contingent consideration and recorded it as a change in contingent consideration in the Consolidated Statement of Operations.

 

The post-closing milestones are divided into two contingencies. The first, tied to receipt of certain purchase orders, had an evaluation date of March 31, 2014, which was not met and accounted for $20.2 million of the fair value of the reversed liability. The second is based on achieving certain full year 2014 revenue and gross margin thresholds, which are unlikely to be met and accounted for $9.2 million of the fair value of the reversed liability. As of September 30, 2014 the second contingency, with a maximum potential value of $75.0 million, remains contractually outstanding. We currently do not expect this contingency to be met.

 

During the second quarter of 2014, we finalized the working capital adjustment under the purchase agreement. Upon acquisition, the working capital adjustment was estimated to be $2.7 million. Based on the final adjustment, the working capital adjustment was reduced to $1.3 million. As a result, a $1.4 million adjustment was made that increased goodwill by $0.2 million and reduced accrued expenses by $1.2 million for the relief of a potential liability that the former shareholders have retained. During the third quarter of 2014, we received payment of the $1.3 million working capital adjustment from the former shareholders.

Income Taxes
Income Taxes

Note 3—Income Taxes

 

At the end of each interim reporting period, we estimate the effective tax rate expected to be applicable for the full year. This estimate is used to determine the income tax provision or benefit on a year-to-date basis and may change in subsequent interim periods.

 

Our effective tax rate for the three months ended September 30, 2014 was a benefit of 18.7% compared to a benefit of 38.2% during the three months ended September 30, 2013. Our effective tax rate for the nine months ended September 30, 2014 was a benefit of 28.8% compared to a benefit of 43.6% during the nine months ended September 30, 2013. A tax benefit for each period was provided to the extent of future reversals of taxable temporary differences which relate primarily to non-tax deductible intangibles.

 

Our effective tax rate for 2014 differed from the U.S. federal statutory rate of 35% primarily related to our ability to recognize only a portion of the deferred tax assets on a more likely than not basis with respect to current year pre-tax operating losses. The effective tax rate for the nine months ended September 30, 2014 was also impacted by a discrete tax benefit in connection with the settlement of our 2010 IRS examination and because we did not provide a tax provision on the gain from the settlement of the contingent consideration related to the Synos acquisition.

 

Our effective tax rate for 2013 differed from the U.S. federal statutory rate as a result of the jurisdictional mix of earnings in our foreign locations, an income tax benefit related to the generation of current year research and development tax credits, and legislation enacted in the first quarter of 2013 which extended the Federal Research & Development Credit for both the 2012 and 2013 tax years.

 

We recently settled our 2010 IRS examination, resulting in the release of $2.3 million of liabilities relating to uncertain tax positions. We were also notified that the IRS will commence an examination of our 2011 tax year beginning in the quarter ending December 31, 2014.

Balance Sheet Information
Balance Sheet Information

Note 4—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, U.S. treasuries, 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

 

Total available-for-sale securities and gains and losses in Accumulated Other Comprehensive Income (Loss) consist of the following (in thousands):

 

 

 

September 30, 2014

 

 

 

Amortized
Cost

 

Gains in
Accumulated
Other
Comprehensive
Income

 

Losses in
Accumulated
Other
Comprehensive
Income

 

Estimated Fair
Value

 

U.S. treasuries

 

$

90,523

 

$

35

 

$

(1

)

$

90,557

 

Corporate debt

 

69,109

 

93

 

(4

)

69,198

 

Government agency securities

 

63,191

 

8

 

 

63,199

 

Total available-for-sale securities

 

$

222,823

 

$

136

 

$

(5

)

$

222,954

 

 

During the three and nine months ended September 30, 2014, available-for-sale securities were liquidated for total proceeds of $94.8 million and $216.1 million, respectively. For the three and nine months ended September 30, 2014 there were minimal realized gains on these liquidations. During the three and nine months ended September 30, 2013, available-for-sale securities were liquidated for total proceeds of $150.5 million and $422.9 million, respectively. There were minimal gross realized gains on these sales for the three months ended September 30, 2013 and $0.1 million of gross realized gains on these sales for the nine months ended September 30, 2013. The cost of securities liquidated is based on specific identification.

 

 

 

December 31, 2013

 

 

 

Amortized
Cost

 

Gains in
Accumulated
Other
Comprehensive
Income

 

Losses in
Accumulated
Other
Comprehensive
Income

 

Estimated Fair
Value

 

U.S. treasuries

 

$

130,956

 

$

22

 

$

(1

)

$

130,977

 

Corporate debt

 

77,582

 

55

 

(36

)

77,601

 

Government agency securities

 

61,004

 

9

 

 

61,013

 

Commercial paper

 

11,947

 

 

 

11,947

 

Total available-for-sale securities

 

$

281,489

 

$

86

 

$

(37

)

$

281,538

 

 

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):

 

 

 

September 30, 2014

 

 

 

Less than 12 months

 

 

 

Estimated Fair
Value

 

Gross Unrealized
Losses

 

U.S. treasuries

 

$

15,006

 

$

(1

)

Corporate debt

 

7,221

 

(4

)

Total

 

$

22,227

 

$

(5

)

 

 

 

December 31, 2013

 

 

 

Less than 12 months

 

 

 

Estimated Fair
Value

 

Gross Unrealized
Losses

 

Corporate debt

 

$

37,654

 

$

(36

)

U. S. treasuries

 

29,068

 

(1

)

Total

 

$

66,722

 

$

(37

)

 

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 tables 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 September 30, 2014 and December 31, 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):

 

 

 

September 30, 2014

 

 

 

Estimated Fair Value

 

Due in one year or less

 

$

135,948 

 

Due in 1–2 years

 

87,006 

 

Total available-for-sale securities

 

$

222,954 

 

 

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 September 30, 2014 and December 31, 2013, restricted cash was $0.5 million and $2.7 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 presented net of allowance for doubtful accounts of $0.9 million and $2.4 million as of September 30, 2014 and December 31, 2013, respectively. We evaluate the collectability of accounts receivable based on a combination of factors. In cases where we become aware of circumstances that may impair a customer’s ability to meet its financial obligations subsequent to the original sale, we will record an allowance against amounts due, and thereby reduce the net recognized receivable to the amount the we reasonably believe will be collected. For all other customers, we recognize an allowance for doubtful accounts based on the length of time the receivables are past due and consideration of other factors such as industry conditions, the current business environment and its historical experience.

 

During the nine months ended September 30, 2014, we collected $1.9 million of previously reserved accounts. As a result, we reversed the related allowance and bad debt expense associated with this receivable.

 

Inventories

 

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

 

 

 

September 30,

 

December 31,

 

 

 

2014

 

2013

 

Materials

 

$

26,305 

 

$

34,301 

 

Work in process

 

15,169 

 

12,900 

 

Finished goods

 

5,120 

 

12,525 

 

 

 

$

46,594 

 

$

59,726 

 

 

Assets Held for Sale and Property, Plant and Equipment, Net

 

During the three and nine months ended September 30, 2014, we transferred $2.7 million of assets from property, plant and equipment, net to assets held for sale. In conjunction with the transfer, these assets were evaluated for impairment in accordance with the accounting guidance. As a result, during the three and nine months ended September 30, 2014, we recognized an asset impairment charge of $2.4 million and a corresponding reduction to property, plant and equipment of $5.1 million. The $2.4 million impairment charge consisted of $1.6 million relating to our research and demonstration labs in Asia and $0.8 million relating to vacant land in our LED and Solar segment. During the three and nine months ended September 30, 2014, we recognized an additional asset impairment charge of $0.4 million relating to assets in our LED and Solar segment that we abandoned during the quarter.

 

As of September 30, 2014, we are holding $2.9 million of tools that were previously used in our laboratories, for sale. These tools are carried in machinery and equipment, as a component of property, plant and equipment, net in our Consolidated Balance Sheets. These tools are the same type of tools we sell to our customers in the ordinary course of our business. During the nine months ended September 30, 2014, we converted and sold $4.6 million of tools that we had previously used in our laboratories as Veeco Certified Equipment at an aggregate selling price of $7.0 million which is included in revenue in our Consolidated Statements of Operations. We did not sell any of these tools during the three months ended September 30, 2014.

 

Intangible Assets, Net

 

During the three months ended September 30, 2014, we completed the $5.1 million of in-process research and development acquired with our ALD business (see Note Business Combinations). No impairment was required, and as such, we will amortize this asset over a useful life of 13 years. During the three months ended September 30, 2014 we recognized amortization expense of approximately $0.1 million relating to this asset.

 

Goodwill

 

Changes in our goodwill are as follows (in thousands):

 

Beginning balance as of December 31, 2013

 

$

91,348 

 

Purchase price adjustment (see Business Combinations)

 

173 

 

Ending balance as of September 30, 2014

 

$

91,521 

 

 

Cost Method Investment

 

We maintain certain investments in support of our strategic business objectives, including a non-marketable cost method investment. Our ownership interest is less than 20% of the investee’s voting stock and we do not exert significant influence, therefore the investment is recorded at cost. The carrying value of the investment was $19.4 million and $16.9 million at September 30, 2014 and December 31, 2013, respectively and is included in “Other assets” on the Consolidated Balance Sheet. The investment is subject to a periodic impairment review; however, there are no open-market valuations, and the impairment analysis requires significant judgment. This analysis includes assessment of the investee’s financial condition, the business outlook for its products and technology, its projected results and cash flow, the likelihood of obtaining subsequent rounds of financing, and the impact of any relevant contractual equity preferences held by us or others. Fair value of the investment is not estimated unless there are identified events or changes in circumstances that could have a significant adverse effect on the fair value of the investment. No such events or circumstances are present.

 

Customer Deposits and Deferred Revenue

 

As of September 30, 2014 and December 31, 2013, we had customer deposits of $35.8 million and $27.5 million, respectively recorded as a component of customer deposits and deferred revenue.

 

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 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):

 

 

 

September 30,

 

 

 

2014

 

2013

 

Balance as of the beginning of period

 

$

5,662

 

$

4,942

 

Warranties issued during the period

 

2,536

 

2,778

 

Settlements made during the period

 

(3,160

)

(3,315

)

Changes in estimate during the period

 

259

 

 

Balance as of the end of period

 

$

5,297

 

$

4,405

 

 

Mortgage Payable

 

We have a mortgage payable with approximately $1.9 million and $2.1 million outstanding as of September 30, 2014 and December 31, 2013, respectively. The mortgage accrues interest at an annual rate of 7.91%, and the final payment is due on January 1, 2020. Our estimate of the fair value of the mortgage as of September 30, 2014 and December 31, 2013 was approximately $2.0 million and $2.3 million, respectively. We believe the mortgage is a Level 3 liability in the fair-value hierarchy.

 

Accumulated Other Comprehensive Income

 

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

 

 

 

Gross

 

Taxes

 

Net

 

As of September 30, 2014

 

 

 

 

 

 

 

 

 

 

Translation adjustments

 

$

5,689

 

$

(392

)

$

5,297

 

Minimum pension liability

 

(1,160

)

424

 

(736

)

Unrealized gain on available-for-sale securities

 

131

 

(18

)

113

 

Accumulated other comprehensive income

 

$

4,660

 

$

14

 

$

4,674

 

 

 

 

Gross

 

Taxes

 

Net

 

As of December 31, 2013

 

 

 

 

 

 

 

Translation adjustments

 

$

5,718

 

$

(392

)

$

5,326

 

Minimum pension liability

 

(1,160

)

424

 

(736

)

Unrealized gain on available-for-sale securities

 

49

 

(18

)

31

 

Accumulated other comprehensive income

 

$

4,607

 

$

14

 

$

4,621

 

 

Equity

 

Summary share activities impacting our common stock and additional paid-in capital balances are as follows (in thousands):

 

 

 

For the nine months ended
September 30, 2014

 

 

 

Shares

 

Restricted Stock

 

 

 

Grants

 

221

 

 

 

 

 

Gross Vesting

 

173

 

Shares Withheld to Cover Taxes & Cancelled

 

(57

)

Net Shares Vested

 

116

 

 

 

 

 

Stock Options

 

 

 

Exercised

 

402

 

 

Segment Information
Segment Information

Note 5—Segment Information

 

We have five identified operating segments that we aggregate into two reportable segments: the VIBE and Mechanical operating segments which are reported in our Data Storage segment; and the metal organic chemical vapor deposition (“MOCVD”), molecular beam epitaxy (“MBE”) and atomic layer deposition (“ALD”) operating segments are reported in our LED & Solar segment. We manage the business, review operating results and assess performance, as well as allocate resources, based upon our operating segments that reflect the market focus of each business. The LED & Solar segment consists of MOCVD systems, MBE systems, thermal deposition sources, ALD technology and other types of deposition systems. These systems are primarily sold to customers in the LED, OLED and solar industries, as well as to scientific research customers. This segment has product development and marketing sites in Somerset, New Jersey, Poughkeepsie, New York, St. Paul, Minnesota, Fremont, California, and Korea. The 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 product development and marketing sites in Plainview, New York, Ft. Collins, Colorado and Camarillo, California. As of September 30, 2014, we are continuing the consolidation of our Ft. Collins, Colorado facility into our Plainview, New York facility and have begun consolidation of our Camarillo, California facility into the Plainview, New York facility.

 

We evaluate the performance of our reportable segments based on income (loss) from operations before interest, income taxes, amortization and other items (“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. Other items include restructuring expenses, asset impairment charges, equity-based compensation expense and other non-recurring items. The accounting policies of the reportable segments are the same as those described in the summary of critical accounting policies. Beginning in the third quarter of 2014, we began evaluating our reportable segments using segment profit (loss) before depreciation. Prior period segment profit (loss) reported below reflect this change for comparability.

 

The following table presents certain data pertaining to our reportable segments and a reconciliation of segment profit (loss) to income (loss) before income taxes for the three months ended September 30, 2014 and 2013, respectively (in thousands):

 

 

 

LED & Solar

 

Data Storage

 

Unallocated

 

Total

 

Three months ended September 30, 2014

 

 

 

 

 

 

 

 

 

Net sales

 

$

76,850

 

$

16,491

 

$

 

$

93,341

 

Segment profit (loss)

 

$

3,767

 

$

(1,417

)

$

(4,118

)

$

(1,768

)

Interest income (expense), net

 

 

 

305

 

305

 

Depreciation

 

(2,267

)

(417

)

(216

)

(2,900

)

Amortization

 

(2,825

)

(324

)

 

(3,149

)

Equity-based compensation

 

(2,083

)

(647

)

(1,760

)

(4,490

)

Restructuring

 

(557

)

(1,403

)

(357

)

(2,317

)

Asset impairment

 

(2,799

)

(65

)

 

(2,864

)

Income (loss) before income taxes

 

$

(6,764

)

$

(4,273

)

$

(6,146

)

$

(17,183

)

Three months ended September 30, 2013

 

 

 

 

 

 

 

 

 

Net sales

 

$

75,001

 

$

24,323

 

$

 

$

99,324

 

Segment profit (loss)

 

$

801

 

$

2,570

 

$

(5,210

)

$

(1,839

)

Interest income (expense), net

 

 

 

192

 

192

 

Depreciation

 

(2,524

)

(435

)

(281

)

(3,240

)

Amortization

 

(531

)

(324

)

 

(855

)

Equity-based compensation

 

(1,016

)

(439

)

(1,308

)

(2,763

)

Restructuring

 

(793

)

(447

)

 

(1,240

)

Income (loss) before income taxes

 

$

(4,063

)

$

925

 

$

(6,607

)

$

(9,745

)

 

The following table presents certain data pertaining to our reportable segments and a reconciliation of segment profit (loss) to income (loss) before income taxes for the nine months ended September 30, 2014 and 2013, respectively (in thousands):

 

 

 

LED & Solar

 

Data Storage

 

Unallocated

 

Total

 

Nine months ended September 30, 2014

 

 

 

 

 

 

 

 

 

Net sales

 

$

224,759

 

$

54,545

 

$

 

$

279,304

 

Segment profit (loss)

 

$

8,768

 

$

(1,634

)

$

(12,808

)

$

(5,674

)

Interest income (expense), net

 

 

 

541

 

541

 

Depreciation

 

(6,760

)

(1,191

)

(747

)

(8,698

)

Amortization

 

(7,980

)

(971

)

 

(8,951

)

Equity-based compensation

 

(6,595

)

(2,029

)

(5,679

)

(14,303

)

Restructuring

 

(794

)

(2,359

)

(357

)

(3,510

)

Changes in contingent consideration

 

29,368

 

 

 

29,368

 

Asset impairment

 

(2,799

)

(65

)

 

(2,864

)

Income (loss) before income taxes

 

$

13,208

 

$

(8,249

)

$

(19,050

)

$

(14,091

)

Nine months ended September 30, 2013

 

 

 

 

 

 

 

 

 

Net sales

 

$

193,241

 

$

65,299

 

$

 

$

258,540

 

Segment profit (loss)

 

$

(2,327

)

$

3,531

 

$

(14,671

)

$

(13,467

)

Interest income (expense), net

 

 

 

620

 

620

 

Depreciation

 

(7,494

)

(1,142

)

(878

)

(9,514

)

Amortization

 

(1,595

)

(971

)

 

(2,566

)

Equity-based compensation

 

(3,042

)

(1,057

)

(4,956

)

(9,055

)

Restructuring

 

(1,216

)

(497

)

(58

)

(1,771

)

Income (loss) before income taxes

 

$

(15,674

)

$

(136

)

$

(19,943

)

$

(35,753

)

 

 

 

 

 

 

 

 

 

 

 

The following table presents goodwill and total assets as of September 30, 2014 and December 31, 2013 (in thousands):

 

 

 

LED & Solar

 

Data Storage

 

Unallocated

 

Total

 

As of September 30, 2014

 

 

 

 

 

 

 

 

 

Goodwill

 

$

91,521 

 

$

 

$

 

$

91,521 

 

Total assets

 

$

388,745 

 

$

33,936 

 

$

533,717 

 

$

956,398 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2013

 

 

 

 

 

 

 

 

 

Goodwill

 

$

91,348 

 

$

 

$

 

$

91,348 

 

Total assets

 

$

359,464 

 

$

37,910 

 

$

550,595 

 

$

947,969 

 

 

As of September 30, 2014 and December 31, 2013 unallocated assets were comprised principally of cash and cash equivalents, restricted cash and short-term investments.

Fair Value Measurements
Fair Value Measurements

Note 6— 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 September 30, 2014 and December 31, 2013, are as follows (in thousands):

 

 

 

September 30, 2014

 

 

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Cash and cash equivalents

 

 

 

 

 

 

 

 

 

U.S. treasuries

 

$

25,000 

 

$

 

$

 

$

25,000 

 

Commercial paper

 

 

3,999 

 

 

3,999 

 

Short-term investments

 

 

 

 

 

 

 

 

 

U.S. treasuries

 

90,558 

 

 

 

90,558 

 

Corporate debt

 

 

69,198 

 

 

69,198 

 

Government agency securities

 

 

63,198 

 

 

63,198 

 

 

 

 

December 31, 2013

 

 

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Short-term investments

 

 

 

 

 

 

 

 

 

U.S. treasuries

 

$

130,977

 

$

 

$

 

$

130,977

 

Corporate debt

 

 

77,601

 

 

77,601

 

Government agency securities

 

 

61,013

 

 

61,013

 

Commercial paper

 

 

11,947

 

 

11,947

 

Derivative instrument

 

 

907

 

 

907

 

Contingent consideration

 

 

 

(29,368

)

(29,368

)

 

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, U.S. treasuries, government agency securities and corporate debt. The investments that are classified as cash equivalents are carried at cost, which approximates fair 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 Consolidated Balance Sheets.

 

In determining the fair value of our investments and levels, through a third-party service provider, we use 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. We have a process in place for investment valuations to facilitate identification and resolution of potentially erroneous prices. We review the information provided by the third-party service provider to record the fair value of our portfolio.

 

Consistent with Level 1 measurement principles, U.S. treasuries are priced using active market prices of identical securities. Consistent with Level 2 measurement principles, corporate debt, government agency securities, commercial paper, and derivative instruments are priced with matrix pricing.

 

We estimate the fair value of acquisition-related contingent consideration based on management’s probability-weighted present value of the consideration expected to be transferred during the remainder of the earn-out period, based on the forecast related to the milestones. The fair value of the contingent consideration is reassessed by us on a quarterly basis using additional information as it becomes available. Any change in the fair value of an acquisition’s contingent consideration liability results in a gain or loss that is recorded in the earnings of that period. This fair value measure is based on significant inputs not observed in the market and thus represents a Level 3 measurement. Fair value measurements characterized within Level 3 of the fair value hierarchy are measured based on unobservable inputs that are supported by little or no market activity and reflect our own assumptions in measuring fair value.

 

The significant unobservable inputs used in the fair value measurements of our acquisition-related contingent consideration include our measures of the probability of the achievement of certain agreed upon milestones and may include future profitability and related cash flows of the acquired business or assets, impacted by appropriate discount rates. Significant increases (decreases) in any of these inputs in isolation would result in a significantly lower (higher) fair value measurement. Generally, a change in the assumptions used for the discount rates is accompanied by a directionally opposite change in the fair value measurement and a change in the assumptions used for the future cash flows is accompanied by a directionally similar change in the fair value measurement.

 

A reconciliation of the amount in Level 3 is as follows (in thousands):

 

 

 

Level 3

 

Balance as of December 31, 2013

 

$

(29,368

)

Addition of contingent consideration

 

 

Payment on contingent consideration, net of adjustment

 

 

Fair value adjustment of contingent consideration

 

29,368

 

Balance as of September 30, 2014

 

$

 

 

Derivative Financial Instruments
Derivative Financial Instruments

Note 7 — Derivative Financial Instruments

 

We use derivative financial instruments to minimize the impact of foreign exchange rate changes on earnings and cash flows. In the normal course of business, our operations are exposed to fluctuations in foreign 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. 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.

 

During the three months ended December 31, 2013, we entered into an economic hedge in the form of Japanese Yen collars to minimize our exposure to changes in foreign currency exchange rates related to a particular receivable. The net fair value of these collars as of December 31, 2013 was approximately $0.9 million. During the second quarter of 2014, the collars were closed and resulted in a realized gain of $0.5 million. As of September 30, 2014, there were no outstanding derivative instruments.

 

 

 

As of December 31, 2013

 

(in thousands)

 

Component of

 

Fair
Value

 

Maturity
Dates

 

Notional
Amount

 

Not Designated as Hedges under ASC 815

 

 

 

 

 

 

 

 

 

Foreign currency exchange forwards

 

Prepaid and other current assets

 

$

 

January 2014

 

$

4,700 

 

Foreign currency collar

 

Prepaid and other current assets

 

906 

 

October 2014

 

34,069 

 

Total Derivative Instruments

 

 

 

$

907 

 

 

 

$

38,769 

 

 

 

 

 

 

Amount of realized net gain (loss) and changes in the fair
value of derivatives

 

 

 

Location of realized net gain (loss) and

 

For the three months ended
September 30,

 

For the nine months ended
September 30,

 

(in thousands)

 

changes in the fair value of derivatives

 

2014

 

2013

 

2014

 

2013

 

Foreign currency exchange forwards

 

Other operating, net

 

$

 

$

(11

)

$

(89

)

$

146

 

Foreign currency collar

 

Other operating, net

 

 

 

(457

)

 

 

These contracts were valued using market quotes in the secondary market for similar instruments (fair value Level 2, please see our footnote Fair Value Measurements).

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

Note 8— Commitments, Contingencies and Other Matters

 

Restructuring and Other Charges

 

During the first quarter of 2014, we announced the consolidation of our Ft. Collins, Colorado facility into our Plainview, New York facility and took additional measures to improve profitability in a challenging business environment. We expect to substantially complete the consolidation by the end of 2014. As a result of these actions we notified 49 employees of their termination from the Company. During the three and nine months ended September 30, 2014, we recorded restructuring charges relating to these actions of $0.7 million and $1.9 million, consisting of personnel severance and related costs. We expect to incur approximately $0.2 million and $0.1 million of additional personnel severance and related costs in our Data Storage segment in the fourth quarter of 2014 and 2015, respectively, and a lease charge of approximately $0.9 million in the fourth quarter of 2014, related to these actions. The reductions in headcount principally related to our Data Storage and MBE businesses.

 

During the three months ended September 30, 2014 the Company undertook additional restructuring activities, including the consolidation of our Camarillo, CA facility into our Plainview, New York facility and additional headcount reductions to help contain costs and further improve profitability. We expect to substantially complete the consolidation by the end of 2014. As a result of these actions we notified 44 additional employees of their termination from the Company. During the three and nine months ended September 30, 2014, we recorded restructuring charges relating to these actions of $1.6 million, consisting of personnel severance and related costs. We expect to incur approximately $2.1 million of additional personnel severance and related costs and a lease charge of approximately $0.2 million, all of which are expected to be incurred in the fourth quarter of 2014. The reductions in head count principally related to our Data Storage businesses.

 

During the three and nine months ended September 30, 2013, we took measures to improve profitability, including the restructuring of one of our international sales offices and consolidation of certain sales, business and administrative functions. As a result of these actions, we recorded restructuring charges of $1.2 million and $1.8 million, respectively.

 

Restructuring Liability

 

The following is a reconciliation of the restructuring liability through September 30, 2014 (in thousands):

 

 

 

Rollforward of Restructuring Liability

 

 

 

Balance as of

 

For the nine months ended September 30, 2014

 

Balance as of

 

Short-term

 

 

 

January 1, 2014

 

Expense Incurred

 

Cash Payments

 

Adjustments

 

September 30, 2014

 

portion

 

2012 Restructuring

 

$

195

 

$

 

$

(195

)

$

 

$

 

$

 

2013 Restructuring

 

338

 

 

(338

)

 

 

 

2014 Restructuring

 

 

3,510

 

(1,538

)

 

1,972

 

1,972

 

Total

 

$

533

 

$

3,510

 

$

(2,071

)

$

 

$

1,972

 

$

1,972

 

 

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, 2013 (in thousands):

 

 

 

Rollforward of Restructuring Liability

 

 

 

Balance as of

 

For the year ended December 31, 2013

 

Balance as of

 

Short-term

 

 

 

January 1, 2013

 

Expense Incurred

 

Cash Payments

 

Adjustments

 

December 31, 2013

 

portion

 

2012 Restructuring

 

$

1,875

 

$

 

$

(1,680

)

$

 

$

195

 

$

195

 

2013 Restructuring

 

 

1,485

 

(1,147

)

 

338

 

338

 

Total

 

$

1,875

 

$

1,485

 

$

(2,827

)

$

 

$

533

 

$

533

 

 

Cumulative Translation Adjustment

 

During the second quarter of 2014, the Company began executing a plan to liquidate our foreign subsidiary in Japan. Subsequent to third quarter end, in October 2014, the liquidation was completed. As a result of this liquidation we expect to realize into income the balance of the CTA at the time of liquidation. The balance in the CTA account as of September 30, 2014 was approximately $3.3 million. Upon liquidation during the three months ended December 31, 2014, we expect to record a gain of approximately $3.1 million, inclusive of the gain from the CTA.

 

Legal Proceedings

 

We are involved in various legal proceedings arising in the normal course of our business. We do not believe that the ultimate resolution of these matters will have a material adverse effect on our consolidated financial position, results of operations or cash flows.

Basis of Presentation (Policies)

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 at 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 obsolescence; 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; accounting for acquisitions; accruals for contingencies; equity-based payments, including forfeitures and performance based vesting; and liabilities for tax uncertainties. Actual results could differ from those estimates.

Income (Loss) 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
September 30,

 

Nine months ended
September 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

Basic weighted average shares outstanding

 

39,401 

 

38,841 

 

39,317 

 

38,774 

 

Dilutive effect of stock options and restricted stock

 

 

 

 

 

Diluted weighted average shares outstanding

 

39,401 

 

38,841 

 

39,317 

 

38,774 

 

 

Basic income (loss) per common share is computed using the basic weighted average number of common shares outstanding during the period. Diluted income (loss) per common share is computed using the diluted weighted average number of common shares which include any common equivalent shares calculated to be outstanding during the period. For the three months and nine months ended September 30, 2014 and 2013, we reported a net loss, and accordingly, the basic and diluted weighted average shares outstanding are equal because any increase to basic weighted average shares outstanding would be antidilutive. As a result, for the three and nine months ended September 30, 2014, we excluded 0.6 million and 0.7 million common equivalent shares and for both the three and nine months ended September 30, 2013, we excluded 0.6 million common equivalent shares.

 

Additionally, not included above were additional stock options and restricted stock outstanding that had exercise or grant prices in excess of the average market value of our common stock during the period and are therefore antidilutive. There were 1.8 million and 1.5 million of such underlying shares for the three and nine months ended September 30, 2014, respectively. There were 1.0 million and 1.1 million of such underlying shares for the three and nine months ended September 30, 2013, respectively.

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. We utilize BESP for the majority of the elements in our arrangements. The accounting guidance for selling price hierarchy did not include BESP for arrangements entered into prior to January 1, 2011; 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 at 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, if any, is limited to the lower of i) the amount billed that is not contingent upon acceptance provisions or ii) the value of the arrangement consideration 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 or 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 upon the receipt of written customer acceptance. During the fourth quarter of fiscal 2013, we began using a distributor for almost all of our product and service sales to customers in Japan. Title passes to the distributor upon shipment, however, due to customary local business practices, the risk and rewards of ownership of our system sales transfer to the end-customers upon their acceptance.  As such, we recognize revenue upon receipt of written acceptance from the end customer.

 

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

Recent Accounting Pronouncements

 

Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern: In August 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-15, “Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.” The amendments in this ASU apply to all entities and provide guidance on management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern or to provide related footnote disclosures. The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2016; early application is permitted. We do not expect the application of this guidance to have a material impact on our consolidated financial statements.

 

Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period: In June 2014, the FASB issued ASU No. 2014-12, “Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period” (Topic 718).  The amendments in this ASU require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015; earlier adoption is permitted. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.

 

Revenue from Contracts with Customers: In May 2014, the FASB issued Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers” (Topic 606).  ASU No. 2014-09 requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard outlines a five-step model to be used to make the revenue recognition determination and requires new financial statement disclosures. The standard is effective for interim and annual periods beginning after December 15, 2016 and allows entities to choose among different transition alternatives. We are evaluating the impact of adopting the standard on our consolidated financial statements and related financial statement disclosures and we have not yet determined which method of adoption will be selected.

 

Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity: In April 2014, the FASB issued ASU No. 2014-08 that changes the threshold for reporting discontinued operations and adds new disclosures. The new guidance defines a discontinued operation as a disposal of a component or group of components that is disposed of or is classified as held for sale and “represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results.” For disposals of individually significant components that do not qualify as discontinued operations, an entity must disclose pre-tax earnings of the disposed component. For public business entities, this guidance is effective prospectively for all disposals (or classifications as held for sale) of components of an entity that occur within annual periods beginning on or after December 15, 2014, and interim periods within those years. Early adoption is permitted, but only for disposals (or classifications as held for sale) that have not been reported in financial statements previously issued or available for issuance. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.

 

Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or Tax Credit Carryforward Exists: In July 2013, the FASB issued ASU No. 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or Tax Credit Carryforward Exists.” ASU 2013-11 requires entities to present an unrecognized tax benefit, or a portion of an unrecognized tax benefit, as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward when settlement in this manner is available under the tax law. This ASU is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013. We adopted this as of January 1, 2014 and it did not have a material impact on our consolidated financial statements.

 

Presentation of Financial Statements: In April 2013, the FASB issued ASU No. 2013-07, “Presentation of Financial Statements (Topic 205): Liquidation Basis of Accounting.” The objective of ASU 2013-07 is to clarify when an entity should apply the liquidation basis of accounting. The update provides principles for the recognition and measurement of assets and liabilities and requirements for financial statements prepared using the liquidation basis of accounting. This ASU is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013. We adopted this as of January 1, 2014 and will evaluate the materiality of its impact on our consolidated financial statements when there are any indications that liquidation is imminent.

 

Parent’s Accounting for the Cumulative Translation Adjustment: In March 2013, the FASB issued ASU No. 2013-05, “Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity.” This new standard is intended to resolve diversity in practice regarding the release into net income of a cumulative translation adjustment (“CTA”) upon derecognition of a subsidiary or group of assets within a foreign entity. ASU No. 2013-05 is effective prospectively for fiscal years (and interim reporting periods within those years) beginning after December 15, 2013. We have adopted this as of January 1, 2014 and currently anticipate that it could have an impact on our consolidated financial statements, in the event of derecognition of a foreign subsidiary in 2014 or thereafter. During the second quarter of 2014, the Company began executing a plan to liquidate our foreign subsidiary in Japan. Please see note Commitments, Contingencies and Other Matters for additional information.

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
September 30,

 

Nine months ended
September 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

Basic weighted average shares outstanding

 

39,401 

 

38,841 

 

39,317 

 

38,774 

 

Dilutive effect of stock options and restricted stock

 

 

 

 

 

Diluted weighted average shares outstanding

 

39,401 

 

38,841 

 

39,317 

 

38,774 

 

 

Balance Sheet Information (Tables)

Total available-for-sale securities and gains and losses in Accumulated Other Comprehensive Income (Loss) consist of the following (in thousands):

                                                                                                                                                                                        

 

 

September 30, 2014

 

 

 

Amortized
Cost

 

Gains in
Accumulated
Other
Comprehensive
Income

 

Losses in
Accumulated
Other
Comprehensive
Income

 

Estimated Fair
Value

 

U.S. treasuries

 

$

90,523

 

$

35

 

$

(1

)

$

90,557

 

Corporate debt

 

69,109

 

93

 

(4

)

69,198

 

Government agency securities

 

63,191

 

8

 

 

63,199

 

Total available-for-sale securities

 

$

222,823

 

$

136

 

$

(5

)

$

222,954

 

 

                                                                                                                                                                                        

                                                                                                                                                                                     

 

 

December 31, 2013

 

 

 

Amortized
Cost

 

Gains in
Accumulated
Other
Comprehensive
Income

 

Losses in
Accumulated
Other
Comprehensive
Income

 

Estimated Fair
Value

 

U.S. treasuries

 

$

130,956

 

$

22

 

$

(1

)

$

130,977

 

Corporate debt

 

77,582

 

55

 

(36

)

77,601

 

Government agency securities

 

61,004

 

9

 

 

61,013

 

Commercial paper

 

11,947

 

 

 

11,947

 

Total available-for-sale securities

 

$

281,489

 

$

86

 

$

(37

)

$

281,538

 

 

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):

                                                                                                                                                                                        

 

 

September 30, 2014

 

 

 

Less than 12 months

 

 

 

Estimated Fair
Value

 

Gross Unrealized
Losses

 

U.S. treasuries

 

$

15,006

 

$

(1

)

Corporate debt

 

7,221

 

(4

)

Total

 

$

22,227

 

$

(5

)

                                                                                                                                                                           

 

 

December 31, 2013

 

 

 

Less than 12 months

 

 

 

Estimated Fair
Value

 

Gross Unrealized
Losses

 

Corporate debt

 

$

37,654

 

$

(36

)

U. S. treasuries

 

29,068

 

(1

)

Total

 

$

66,722

 

$

(37

)

 

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

 

 

 

September 30, 2014

 

 

 

Estimated Fair Value

 

Due in one year or less

 

$

135,948 

 

Due in 1–2 years

 

87,006 

 

Total available-for-sale securities

 

$

222,954 

 

 

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

 

 

 

September 30,

 

December 31,

 

 

 

2014

 

2013

 

Materials

 

$

26,305 

 

$

34,301 

 

Work in process

 

15,169 

 

12,900 

 

Finished goods

 

5,120 

 

12,525 

 

 

 

$

46,594 

 

$

59,726 

 

 

Changes in our goodwill are as follows (in thousands):

 

Beginning balance as of December 31, 2013

 

$

91,348 

 

Purchase price adjustment (see Business Combinations)

 

173 

 

Ending balance as of September 30, 2014

 

$

91,521 

 

 

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

 

 

 

September 30,

 

 

 

2014

 

2013

 

Balance as of the beginning of period

 

$

5,662

 

$

4,942

 

Warranties issued during the period

 

2,536

 

2,778

 

Settlements made during the period

 

(3,160

)

(3,315

)

Changes in estimate during the period

 

259

 

 

Balance as of the end of period

 

$

5,297

 

$

4,405

 

 

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

 

 

 

Gross

 

Taxes

 

Net

 

As of September 30, 2014

 

 

 

 

 

 

 

 

 

 

Translation adjustments

 

$

5,689

 

$

(392

)

$

5,297

 

Minimum pension liability

 

(1,160

)

424

 

(736

)

Unrealized gain on available-for-sale securities

 

131

 

(18

)

113

 

Accumulated other comprehensive income

 

$

4,660

 

$

14

 

$

4,674

 

 

 

 

Gross

 

Taxes

 

Net

 

As of December 31, 2013

 

 

 

 

 

 

 

Translation adjustments

 

$

5,718

 

$

(392

)

$

5,326

 

Minimum pension liability

 

(1,160

)

424

 

(736

)

Unrealized gain on available-for-sale securities

 

49

 

(18

)

31

 

Accumulated other comprehensive income

 

$

4,607

 

$

14

 

$

4,621

 

 

Summary share activities impacting our common stock and additional paid-in capital balances are as follows (in thousands):

 

 

 

For the nine months ended
September 30, 2014

 

 

 

Shares

 

Restricted Stock

 

 

 

Grants

 

221

 

 

 

 

 

Gross Vesting

 

173

 

Shares Withheld to Cover Taxes & Cancelled

 

(57

)

Net Shares Vested

 

116

 

 

 

 

 

Stock Options

 

 

 

Exercised

 

402

 

 

Segment Information (Tables)

The following table presents certain data pertaining to our reportable segments and a reconciliation of segment profit (loss) to income (loss) before income taxes for the three months ended September 30, 2014 and 2013, respectively (in thousands):

 

 

 

LED & Solar

 

Data Storage

 

Unallocated

 

Total

 

Three months ended September 30, 2014

 

 

 

 

 

 

 

 

 

Net sales

 

$

76,850

 

$

16,491

 

$

 

$

93,341

 

Segment profit (loss)

 

$

3,767

 

$

(1,417

)

$

(4,118

)

$

(1,768

)

Interest income (expense), net

 

 

 

305

 

305

 

Depreciation

 

(2,267

)

(417

)

(216

)

(2,900

)

Amortization

 

(2,825

)

(324

)

 

(3,149

)

Equity-based compensation

 

(2,083

)

(647

)

(1,760

)

(4,490

)

Restructuring

 

(557

)

(1,403

)

(357

)

(2,317

)

Asset impairment

 

(2,799

)

(65

)

 

(2,864

)

Income (loss) before income taxes

 

$

(6,764

)

$

(4,273

)

$

(6,146

)

$

(17,183

)

Three months ended September 30, 2013

 

 

 

 

 

 

 

 

 

Net sales

 

$

75,001

 

$

24,323

 

$

 

$

99,324

 

Segment profit (loss)

 

$

801

 

$

2,570

 

$

(5,210

)

$

(1,839

)

Interest income (expense), net

 

 

 

192

 

192

 

Depreciation

 

(2,524

)

(435

)

(281

)

(3,240

)

Amortization

 

(531

)

(324

)

 

(855

)

Equity-based compensation

 

(1,016

)

(439

)

(1,308

)

(2,763

)

Restructuring

 

(793

)

(447

)

 

(1,240

)

Income (loss) before income taxes

 

$

(4,063

)

$

925

 

$

(6,607

)

$

(9,745

)

 

The following table presents certain data pertaining to our reportable segments and a reconciliation of segment profit (loss) to income (loss) before income taxes for the nine months ended September 30, 2014 and 2013, respectively (in thousands):

 

 

 

LED & Solar

 

Data Storage

 

Unallocated

 

Total

 

Nine months ended September 30, 2014

 

 

 

 

 

 

 

 

 

Net sales

 

$

224,759

 

$

54,545

 

$

 

$

279,304

 

Segment profit (loss)

 

$

8,768

 

$

(1,634

)

$

(12,808

)

$

(5,674

)

Interest income (expense), net

 

 

 

541

 

541

 

Depreciation

 

(6,760

)

(1,191

)

(747

)

(8,698

)

Amortization

 

(7,980

)

(971

)

 

(8,951

)

Equity-based compensation

 

(6,595

)

(2,029

)

(5,679

)

(14,303

)

Restructuring

 

(794

)

(2,359

)

(357

)

(3,510

)

Changes in contingent consideration

 

29,368

 

 

 

29,368

 

Asset impairment

 

(2,799

)

(65

)

 

(2,864

)

Income (loss) before income taxes

 

$

13,208

 

$

(8,249

)

$

(19,050

)

$

(14,091

)

Nine months ended September 30, 2013

 

 

 

 

 

 

 

 

 

Net sales

 

$

193,241

 

$

65,299

 

$

 

$

258,540

 

Segment profit (loss)

 

$

(2,327

)

$

3,531

 

$

(14,671

)

$

(13,467

)

Interest income (expense), net

 

 

 

620

 

620

 

Depreciation

 

(7,494

)

(1,142

)

(878

)

(9,514

)

Amortization

 

(1,595

)

(971

)

 

(2,566

)

Equity-based compensation

 

(3,042

)

(1,057

)

(4,956

)

(9,055

)

Restructuring

 

(1,216

)

(497

)

(58

)

(1,771

)

Income (loss) before income taxes

 

$

(15,674

)

$

(136

)

$

(19,943

)

$

(35,753

)

 

 

 

 

 

 

 

 

 

 

 

The following table presents goodwill and total assets as of September 30, 2014 and December 31, 2013 (in thousands):

 

 

 

LED & Solar

 

Data Storage

 

Unallocated

 

Total

 

As of September 30, 2014

 

 

 

 

 

 

 

 

 

Goodwill

 

$

91,521 

 

$

 

$

 

$

91,521 

 

Total assets

 

$

388,745 

 

$

33,936 

 

$

533,717 

 

$

956,398 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2013

 

 

 

 

 

 

 

 

 

Goodwill

 

$

91,348 

 

$

 

$

 

$

91,348 

 

Total assets

 

$

359,464 

 

$

37,910 

 

$

550,595 

 

$

947,969 

 

 

Fair Value Measurements (Tables)

The major categories of assets and liabilities measured on a recurring basis, at fair value, as of September 30, 2014 and December 31, 2013, are as follows (in thousands):

 

 

 

September 30, 2014

 

 

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Cash and cash equivalents

 

 

 

 

 

 

 

 

 

U.S. treasuries

 

$

25,000 

 

$

 

$

 

$

25,000 

 

Commercial paper

 

 

3,999 

 

 

3,999 

 

Short-term investments

 

 

 

 

 

 

 

 

 

U.S. treasuries

 

90,558 

 

 

 

90,558 

 

Corporate debt

 

 

69,198 

 

 

69,198 

 

Government agency securities

 

 

63,198 

 

 

63,198