VEECO INSTRUMENTS INC, 10-Q filed on 5/9/2012
Quarterly Report
Document and Entity Information
3 Months Ended
Mar. 31, 2012
May 7, 2012
Document and Entity Information
 
 
Entity Registrant Name
VEECO INSTRUMENTS INC 
 
Entity Central Index Key
0000103145 
 
Document Type
10-Q 
 
Document Period End Date
Mar. 31, 2012 
 
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
 
38,857,528 
Document Fiscal Year Focus
2012 
 
Document Fiscal Period Focus
Q1 
 
Condensed Consolidated Statements of Income (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2012
Mar. 31, 2011
Net sales
$ 139,909 
$ 254,676 
Cost of sales
74,641 
123,713 
Gross profit
65,268 
130,963 
Operating expenses (income):
 
 
Selling, general and administrative
19,773 
22,936 
Research and development
23,306 
19,871 
Amortization
1,215 
908 
Restructuring
63 
 
Other, net
(35)
40 
Total operating expenses
44,322 
43,755 
Operating income
20,946 
87,208 
Interest (income) expense, net
(203)
1,299 
Loss on extinguishment of debt
 
304 
Income from continuing operations before income taxes
21,149 
85,605 
Income tax provision
4,687 
27,626 
Income from continuing operations
16,462 
57,979 
Discontinued operations:
 
 
Loss from discontinued operations before income taxes
(81)
(8,037)
Income tax benefit
(31)
(2,700)
Loss from discontinued operations
(50)
(5,337)
Net income
$ 16,412 
$ 52,642 
Basic:
 
 
Continuing operations (in dollars per share)
$ 0.43 
$ 1.46 
Discontinued operations (in dollars per share)
 
$ (0.14)
Income (in dollars per share)
$ 0.43 
$ 1.32 
Diluted:
 
 
Continuing operations (in dollars per share)
$ 0.42 
$ 1.36 
Discontinued operations (in dollars per share)
 
$ (0.12)
Income (in dollars per share)
$ 0.42 
$ 1.24 
Weighted average shares outstanding:
 
 
Basic (in shares)
38,261 
39,842 
Diluted (in shares)
38,863 
42,531 
Condensed Consolidated Statements of Comprehensive Income (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2012
Mar. 31, 2011
Net income
$ 16,412 
$ 52,642 
Other comprehensive income (loss), net of tax
 
 
Unrealized (loss) gain on available-for-sale securities
(118)
63 
Less: Reclassification adjustments for gains included in net income
(10)
(37)
Net unrealized (loss) gain on available-for-sale securities
(128)
26 
Foreign currency translation
(489)
471 
Comprehensive income
$ 15,795 
$ 53,139 
Condensed Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Mar. 31, 2012
Dec. 31, 2011
Current assets:
 
 
Cash and cash equivalents
$ 275,332 
$ 217,922 
Short-term investments
247,826 
273,591 
Restricted cash
852 
577 
Accounts receivable, net
90,341 
95,038 
Inventories
103,276 
113,434 
Prepaid expenses and other current assets
27,948 
40,756 
Assets held for sale
2,341 
2,341 
Deferred income taxes
10,222 
10,885 
Total current assets
758,138 
754,544 
Property, plant and equipment at cost, net
91,998 
86,067 
Goodwill
55,828 
55,828 
Intangible assets, net
24,668 
25,882 
Other assets
13,720 
13,742 
Total assets
944,352 
936,063 
Current liabilities:
 
 
Accounts payable
38,243 
40,398 
Accrued expenses and other current liabilities
103,219 
107,656 
Deferred profit
7,612 
10,275 
Income taxes payable
1,888 
3,532 
Liabilities of discontinued segment held for sale
5,359 
5,359 
Current portion of long-term debt
253 
248 
Total current liabilities
156,574 
167,468 
Deferred income taxes
5,023 
5,029 
Long-term debt
2,341 
2,406 
Other liabilities
436 
640 
Equity:
 
 
Preferred stock, 500,000 shares authorized; no shares issued and outstanding
   
   
Common stock; $.01 par value; authorized 120,000,000 shares; 38,787,631 and 38,768,436 shares issued and outstanding in 2012 and 2011, respectively
436 
435 
Additional paid-in-capital
692,015 
688,353 
Retained earnings
281,729 
265,317 
Accumulated other comprehensive income
5,973 
6,590 
Less: treasury stock, at cost; 5,278,828 shares in 2012 and 2011
(200,175)
(200,175)
Total equity
779,978 
760,520 
Total liabilities and equity
$ 944,352 
$ 936,063 
Condensed Consolidated Balance Sheets (Parenthetical) (USD $)
Mar. 31, 2012
Dec. 31, 2011
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
38,787,631 
38,768,436 
Common stock, shares outstanding
38,787,631 
38,768,436 
Treasury stock, shares
5,278,828 
5,278,828 
Condensed Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2012
Mar. 31, 2011
Operating activities
 
 
Net income
$ 16,412 
$ 52,642 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Depreciation and amortization
3,715 
2,661 
Amortization of debt discount
 
769 
Non-cash equity-based compensation
3,130 
2,800 
Loss on extinguishment of debt
 
304 
Deferred income taxes
674 
7,988 
Excess tax benefits from stock option exercises
(91)
(2,188)
Other, net
14 
42 
Non-cash items from discontinued operations
 
1,041 
Changes in operating assets and liabilities:
 
 
Accounts receivable
5,079 
55,888 
Inventories
10,599 
(12,843)
Accounts payable
(2,179)
6,478 
Accrued expenses, deferred profit and other current liabilities
(7,169)
(11,142)
Income taxes payable
(1,556)
(32,743)
Other, net
13,282 
3,190 
Net cash provided by operating activities
41,910 
74,887 
Investing activities
 
 
Capital expenditures
(8,455)
(9,402)
Transfers to restricted cash
(275)
 
Proceeds from sales of short-term investments
43,569 
122,148 
Payments for purchases of short-term investments
(18,503)
(154,339)
Other
 
Net cash provided by (used in) investing activities
16,336 
(41,592)
Financing activities
 
 
Proceeds from stock option exercises
537 
2,951 
Restricted stock tax withholdings
(95)
(13)
Excess tax benefits from stock option exercises
91 
2,188 
Repayments of long-term debt
(60)
(7,514)
Other
 
Net cash provided by (used in) financing activities
473 
(2,382)
Effect of exchange rate changes on cash and cash equivalents
(1,309)
792 
Net increase in cash and cash equivalents
57,410 
31,705 
Cash and cash equivalents at beginning of year
217,922 
245,132 
Cash and cash equivalents at end of year
$ 275,332 
$ 276,837 
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” or “we”) 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 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 months ended March 31, 2012, are not necessarily indicative of the results that may be expected for the year ending December 31, 2012. 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, 2011.

 

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 2012 interim quarter ends are April 1, July 1 and September 30. The 2011 interim quarter ends were April 3, July 3 and October 2. 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.

 

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

 

 

 

March 31,

 

 

 

2012

 

2011

 

Basic weighted average shares outstanding

 

38,261

 

39,842

 

Dilutive effect of stock options and restricted stock

 

602

 

1,149

 

Dilutive effect of convertible notes

 

 

1,540

 

Diluted weighted average shares outstanding

 

38,863

 

42,531

 

 

Basic income per common share is computed using the weighted average number of common shares outstanding during the period. Diluted income per common share is computed using the weighted average number of common shares and common equivalent shares outstanding during the period. For the three months ended March 31, 2012 and 2011, no shares were excluded from the computation of diluted weighted average shares outstanding.

 

During the second quarter of 2011, the entire outstanding principal balance of our convertible debt was converted, with the principal amount paid in cash and the conversion premium paid in shares. The convertible notes met the criteria for determining the effect of the assumed conversion using the treasury stock method of accounting, since we had settled the principal amount of the notes in cash. Using the treasury stock method, it was determined that the impact of the assumed conversion for the three months ended March 31, 2011, had a dilutive effect of 1.5 million common equivalent shares.

 

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 credit risk.

 

The aggregate foreign currency exchange loss included in the accompanying Condensed Consolidated Statements of Income was approximately ($0.1) million and ($0.3) million during the three months ended March 31, 2012  and 2011, respectively. Included in the aggregate foreign currency exchange loss were gains related to forward contracts of $0.1 million and $0.5 million during the three months ended March 31, 2012 and 2011, respectively. These amounts were recognized and are included in Other, net in the accompanying Condensed Consolidated Statements of Income.

 

As of March 31, 2012, approximately $0.1 million of gains related to forward contracts were included in prepaid expenses and other current assets and were subsequently received in April 2012. As of December 31, 2011, there were no gains or losses related to forward contracts included in prepaid expenses and other current assets or accrued expenses and other current liabilities. Monthly forward contracts with a notional amount of $3.3 million, entered into in March 2012 for April 2012, will be settled in April 2012.

 

The weighted average notional amount of derivative contracts outstanding during the three months ended March 31, 2012 was approximately $2.4 million.

 

Discontinued Operations
Discontinued Operations

Note 2 — Discontinued Operations

 

CIGS Solar Systems Business

 

On July 28, 2011, we announced a plan to discontinue our CIGS solar systems business. The action, which was completed on September 27, 2011, was in response to the dramatically reduced cost of mainstream solar technologies driven by significant reductions in prices, large industry investment, a lower than expected end market acceptance for CIGS technology and technical barriers in scaling CIGS. This business was previously included as part of our LED & Solar segment. Accordingly, the results of operations for the CIGS solar systems business have been recorded as discontinued operations in the accompanying condensed consolidated statements of income for all periods presented.

 

Metrology

 

On August 15, 2010, we signed a definitive agreement to sell our Metrology business to Bruker Corporation (“Bruker”) comprising our entire Metrology reporting segment for $229.4 million. Accordingly, Metrology’s operating results were accounted for as discontinued operations and the related assets and liabilities were classified as held for sale. The sales transaction closed on October 7, 2010, except for assets located in China due to local restrictions. Total proceeds, which included a working capital adjustment of $1 million, totaled $230.4 million of which $7.2 million relates to the net assets in China. The Company recorded a liability to defer the gain of $5.4 million on disposal related to the assets in China.

 

Summary information related to discontinued operations is as follows (in thousands):

 

 

 

Three months ended March 31, 2012

 

Three months ended March 31, 2011

 

 

 

Solar Systems

 

Metrology

 

Total

 

Solar Systems

 

Metrology

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

 

$

 

$

 

$

 

$

 

$

 

Cost of sales

 

 

 

 

1,631

 

 

1,631

 

Gross profit

 

 

 

 

(1,631

)

 

(1,631

)

Total operating expenses

 

 

81

 

81

 

5,908

 

498

 

6,406

 

Operating loss

 

$

 

$

(81

)

$

(81

)

$

(7,539

)

$

(498

)

$

(8,037

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss from discontinued operations, net of tax

 

$

 

$

(50

)

$

(50

)

$

(4,896

)

$

(441

)

$

(5,337

)

 

Liabilities of discontinued segment held for sale, totaling $5.4 million, as of March 31, 2012 and December 31, 2011, consist of the deferred gain related to the net assets of the former Metrology business in China.

 

Equity
Equity

Note 3— Equity

 

Equity-based Compensation

 

Equity-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as expense over each employee’s requisite service period. The following compensation expense was included in the Condensed Consolidated Statements of Income for the three months ended March 31, 2012 and 2011 (in thousands):

 

 

 

Three months ended

 

 

 

March 31,

 

 

 

2012

 

2011

 

Equity-based compensation expense

 

$

3,130

 

$

2,800

 

 

As a result of the discontinuance of our CIGS solar systems business, equity-based compensation expense related to the business totaling $0.3 million has been classified as discontinued operations in determining the Condensed Consolidated Statements of Income for the three months ended March 31, 2011.

 

As of March 31, 2012, the total unrecognized compensation costs related to nonvested stock and stock option awards was $13.8 million and $10.5 million, respectively. The related weighted average period over which we expect that such unrecognized compensation costs will be recognized is approximately 2.9 years for nonvested stock awards and 1.7 years for option awards.

 

Stock Option and Restricted Stock Activity

 

A summary of our restricted stock awards including restricted stock units for the three months ended March 31, 2012, is presented below:

 

 

 

Shares
(000’s)

 

Weighted-
Average
Grant-Date
Fair Value

 

Nonvested at December 31, 2011

 

618

 

$

33.61

 

Granted

 

9

 

25.87

 

Vested

 

(10

)

30.88

 

Forfeited (including cancelled awards)

 

(25

)

31.54

 

Nonvested at March 31, 2012

 

592

 

$

33.63

 

 

A summary of our stock option awards for the three months ended March 31, 2012, is presented below:

 

 

 

Shares
(000s)

 

Weighted-
Average
Exercise
Price

 

Aggregate
Intrinsic
Value
(000s)

 

Weighted-
Average
Remaining
Contractual
Life
(in years)

 

Outstanding at December 31, 2011

 

2,106

 

$

25.58

 

 

 

 

 

Granted

 

10

 

23.58

 

 

 

 

 

Exercised

 

(38

)

14.11

 

 

 

 

 

Forfeited (including cancelled options)

 

(40

)

29.42

 

 

 

 

 

Outstanding at March 31, 2012

 

2,038

 

$

25.71

 

$

16,662

 

5.8

 

Options exercisable at March 31, 2012

 

967

 

$

18.47

 

$

10,841

 

4.3

 

 

Treasury Stock

 

On August 24, 2010, our Board of Directors authorized the repurchase of up to $200 million of our common stock. The Company had no share repurchase activity for the three months ended March 31, 2011. All funds for this repurchase program were exhausted as of August 19, 2011. Repurchases were made from time to time on the open market in accordance with applicable federal securities laws.

 

Balance Sheet Information
Balance Sheet Information

Note 4—Balance Sheet Information

 

Short-term Investments

 

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

 

 

 

March 31, 2012

 

 

 

Amortized
Cost

 

Gains in
Accumulated
Other
Comprehensive
Income

 

Losses in
Accumulated
Other
Comprehensive
Income

 

Estimated
Fair Value

 

Government Agency Securities

 

$

54,782

 

$

44

 

$

 

$

54,826

 

 

 

 

 

 

 

 

 

 

 

FDIC insured corporate bonds

 

106,331

 

45

 

 

106,376

 

 

 

 

 

 

 

 

 

 

 

Treasury bills

 

86,626

 

 

(2

)

86,624

 

 

 

 

 

 

 

 

 

 

 

Total available-for-sale securities

 

$

247,739

 

$

89

 

$

(2

)

$

247,826

 

 

 

 

December 31, 2011

 

 

 

Amortized
Cost

 

Gains in
Accumulated
Other
Comprehensive
Income

 

Losses in
Accumulated
Other
Comprehensive
Income

 

Estimated
Fair Value

 

Government Agency Securities

 

$

88,585

 

$

119

 

$

 

$

88,704

 

 

 

 

 

 

 

 

 

 

 

FDIC insured corporate bonds

 

114,640

 

56

 

 

114,696

 

 

 

 

 

 

 

 

 

 

 

Treasury bills

 

70,147

 

44

 

 

70,191

 

 

 

 

 

 

 

 

 

 

 

Total available-for-sale securities

 

$

273,372

 

$

219

 

$

 

$

273,591

 

 

During the three months ended March 31, 2012, available-for-sale securities were sold for total proceeds of $43.6 million. The gross realized gains on these sales were minimal for the three months ended March 31, 2012. For purpose of determining gross realized gains, the cost of securities sold is based on specific identification. Net unrealized holding losses on available-for-sale securities of $0.1 million for the three months ended March 31, 2012, have been included in accumulated other comprehensive income. During the three months ended March 31, 2011, available-for-sale securities were sold for total proceeds of $122.1 million. The gross realized gains on these sales were minimal for the three months ended March 31, 2011. Net unrealized holding gains on available-for-sale securities of less than $0.1 million for the three months ended March 31, 2011, have been included in accumulated other comprehensive income.

 

Contractual maturities of available-for-sale debt securities at March 31, 2012, are as follows (in thousands):

 

 

 

Estimated Fair Value

 

Due in one year or less

 

$

33,272

 

 

 

 

 

Due in 1—2 years

 

214,554

 

 

 

GRAPHICGRAPHIC

 

Total investments in debt securities

 

$

247,826

 

 

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 March 31, 2012 and December 31, 2011, restricted cash consisted of $0.9 million and $0.6 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 March 31, 2012 and December 31, 2011.

 

Inventories

 

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

 

 

 

March 31,

 

December 31,

 

 

 

2012

 

2011

 

Raw materials

 

$

60,786

 

$

57,169

 

Work in process

 

25,714

 

20,118

 

Finished goods

 

16,776

 

36,147

 

 

 

$

103,276

 

$

113,434

 

 

Accrued Warranty

 

We estimate the costs that may be incurred under the warranty 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.  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):

 

 

 

March 31,

 

 

 

2012

 

2011

 

Balance as of the beginning of period

 

$

9,778

 

$

9,238

 

Warranties issued during the period

 

1,007

 

3,014

 

Settlements made during the period

 

(1,951

)

(2,121

)

Balance as of the end of period

 

$

8,834

 

$

10,131

 

 

Segment Information
Segment Information

Note 5—Segment Information

 

We manage the business, review operating results and assess performance, as well as allocate resources, based upon two separate reporting segments that reflect the market focus of each business. The Light Emitting Diode (“LED”) & Solar segment consists of metal organic chemical vapor deposition (“MOCVD”) systems, molecular beam epitaxy (“MBE”) systems and thermal deposition sources. These systems are primarily sold to customers in the high-brightness LED (“HB LED”) 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. 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 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 (“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 credits, equity-based compensation expense and loss on extinguishment of debt. 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 product segments and a reconciliation of segment profit (loss) to income (loss) from continuing operations before income taxes for the three months ended March 31, 2012 and 2011, respectively, and goodwill and total assets as of March 31, 2012 and December 31, 2011 (in thousands):

 

 

 

LED & Solar

 

Data Storage

 

Unallocated
Corporate
Amount

 

Total

 

Three months ended March 31, 2012

 

 

 

 

 

 

 

 

 

Net sales

 

$

95,574

 

$

44,335

 

$

 

$

139,909

 

Segment profit (loss)

 

$

17,486

 

$

8,953

 

$

(1,085

)

$

25,354

 

Interest, net

 

 

 

(203

)

(203

)

Amortization

 

863

 

352

 

 

1,215

 

Equity-based compensation

 

1,006

 

411

 

1,713

 

3,130

 

Restructuring

 

58

 

5

 

 

63

 

Income (loss) from continuing operations before income taxes

 

$

15,559

 

$

8,185

 

$

(2,595

)

$

21,149

 

Three months ended March 31, 2011

 

 

 

 

 

 

 

 

 

Net sales

 

$

214,698

 

$

39,978

 

$

 

$

254,676

 

Segment profit (loss)

 

$

80,977

 

$

12,231

 

$

(2,292

)

$

90,916

 

Interest, net

 

 

 

1,299

 

1,299

 

Amortization

 

487

 

363

 

58

 

908

 

Equity-based compensation

 

679

 

308

 

1,813

 

2,800

 

Loss on extinguishment of debt

 

 

 

304

 

304

 

Income (loss) from continuing operations before income taxes

 

$

79,811

 

$

11,560

 

$

(5,766

)

$

85,605

 

 

 

 

LED & Solar

 

Data Storage

 

Unallocated
Corporate
Amount

 

Total

 

As of March 31, 2012

 

 

 

 

 

 

 

 

 

Goodwill

 

$

55,828

 

$

 

$

 

$

55,828

 

Total assets

 

$

288,835

 

$

73,450

 

$

582,067

 

$

944,352

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2011

 

 

 

 

 

 

 

 

 

Goodwill

 

$

55,828

 

$

 

$

 

$

55,828

 

Total assets

 

$

319,457

 

$

57,203

 

$

559,403

 

$

936,063

 

 

As of March 31, 2012 and December 31, 2011 corporate total assets were comprised principally of cash and cash equivalents and short-term investments.

 

Debt
Debt

Note 6—Debt

 

Mortgage Payable

 

We have a mortgage payable, with approximately $2.6 million outstanding as of March 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 March 31, 2012 was approximately $2.8 million.

 

Convertible Notes

 

During the first quarter of 2011, at the option of the holders, $7.5 million of our convertible notes were tendered for conversion at a price of $45.95 per share in a net share settlement. We paid the principal amount of $7.5 million in cash and issued 111,318 shares of our common stock. We recorded a loss on extinguishment totaling $0.3 million related to these transactions.

 

During the second quarter of 2011, we issued a notice of redemption on the remaining outstanding principal balance of notes outstanding. As a result, at the option of the holders, the notes were tendered for conversion at a price of $50.59 per share, calculated as defined in the indenture relating to the notes, in a net share settlement. As a result, we paid the principal amount of $98.1 million in cash and issued 1,660,095 shares of our common stock. We recorded a loss on extinguishment totaling $3.0 million related to these transactions.

 

Fair Value Measurements
Fair Value Measurements

Note 7— 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 presented below 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 March 31, 2012 and December 31, 2011, are as follows (in millions):

 

 

 

March 31, 2012

 

 

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Treasury bills

 

$

86.6

 

$

51.0

 

$

 

$

137.6

 

FDIC insured corporate bonds

 

106.4

 

 

 

106.4

 

Government Agency Securities

 

54.8

 

68.0

 

 

122.8

 

Derivative instrument

 

 

0.1

 

 

0.1

 

Total

 

$

247.8

 

$

119.1

 

$

 

$

366.9

 

 

 

 

December 31, 2011

 

 

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Treasury bills

 

$

70.2

 

$

20.0

 

$

 

$

90.2

 

FDIC insured corporate bonds

 

114.8

 

 

 

114.8

 

Government Agency Securities

 

88.6

 

81.2

 

 

169.8

 

Money market instruments

 

 

0.2

 

 

0.2

 

Total

 

$

273.6

 

$

101.4

 

$

 

$

375.0

 

 

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 contain quoted prices in active markets.

 

Derivative instruments include foreign currency forward contracts to hedge certain foreign currency transactions. Derivative instruments are valued using standard calculations/models that are primarily based on observable inputs, including foreign currency exchange rates, volatilities and interest rates.

 

The major categories of assets and liabilities measured on a nonrecurring basis, at fair value, as of March 31, 2012 and December 31, 2011, are as follows (in millions):

 

 

 

March 31, 2012

 

 

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Property,plant and equipment, net

 

$

 

$

 

$

92.0

 

$

92.0

 

Goodwill

 

 

 

55.8

 

55.8

 

Intangible assets, net

 

 

 

24.7

 

24.7

 

Total

 

$

 

$

 

$

172.5

 

$

172.5

 

 

 

 

December 31, 2011

 

 

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Property,plant and equipment, net

 

$

 

$

 

$

86.1

 

$

86.1

 

Goodwill

 

 

 

55.8

 

55.8

 

Intangible assets, net

 

 

 

25.9

 

25.9

 

Total

 

$

 

$

 

$

167.8

 

$

167.8

 

 

Basis of Presentation (Policies)

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

 

 

 

March 31,

 

 

 

2012

 

2011

 

Basic weighted average shares outstanding

 

38,261

 

39,842

 

Dilutive effect of stock options and restricted stock

 

602

 

1,149

 

Dilutive effect of convertible notes

 

 

1,540

 

Diluted weighted average shares outstanding

 

38,863

 

42,531

 

 

Basic income per common share is computed using the weighted average number of common shares outstanding during the period. Diluted income per common share is computed using the weighted average number of common shares and common equivalent shares outstanding during the period. For the three months ended March 31, 2012 and 2011, no shares were excluded from the computation of diluted weighted average shares outstanding.

 

During the second quarter of 2011, the entire outstanding principal balance of our convertible debt was converted, with the principal amount paid in cash and the conversion premium paid in shares. The convertible notes met the criteria for determining the effect of the assumed conversion using the treasury stock method of accounting, since we had settled the principal amount of the notes in cash. Using the treasury stock method, it was determined that the impact of the assumed conversion for the three months ended March 31, 2011, had a dilutive effect of 1.5 million common equivalent shares.

 

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 credit risk.

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

 

 

 

 

Three months ended

 

 

 

March 31,

 

 

 

2012

 

2011

 

Basic weighted average shares outstanding

 

38,261

 

39,842

 

Dilutive effect of stock options and restricted stock

 

602

 

1,149

 

Dilutive effect of convertible notes

 

 

1,540

 

Diluted weighted average shares outstanding

 

38,863

 

42,531

 

Discontinued Operations (Tables)
Summary of information related to discontinued operations

 

 

 

 

Three months ended March 31, 2012

 

Three months ended March 31, 2011

 

 

 

Solar Systems

 

Metrology

 

Total

 

Solar Systems

 

Metrology

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

 

$

 

$

 

$

 

$

 

$

 

Cost of sales

 

 

 

 

1,631

 

 

1,631

 

Gross profit

 

 

 

 

(1,631

)

 

(1,631

)

Total operating expenses

 

 

81

 

81

 

5,908

 

498

 

6,406

 

Operating loss

 

$

 

$

(81

)

$

(81

)

$

(7,539

)

$

(498

)

$

(8,037

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss from discontinued operations, net of tax

 

$

 

$

(50

)

$

(50

)

$

(4,896

)

$

(441

)

$

(5,337

)

Equity (Tables)

 

 

 

 

Three months ended

 

 

 

March 31,

 

 

 

2012

 

2011

 

Equity-based compensation expense

 

$

3,130

 

$

2,800

 

 

 

 

 

Shares
(000’s)

 

Weighted-
Average
Grant-Date
Fair Value

 

Nonvested at December 31, 2011

 

618

 

$

33.61

 

Granted

 

9

 

25.87

 

Vested

 

(10

)

30.88

 

Forfeited (including cancelled awards)

 

(25

)

31.54

 

Nonvested at March 31, 2012

 

592

 

$

33.63

 

 

 

 

Shares
(000s)

 

Weighted-
Average
Exercise
Price

 

Aggregate
Intrinsic
Value
(000s)

 

Weighted-
Average
Remaining
Contractual
Life
(in years)

 

Outstanding at December 31, 2011

 

2,106

 

$

25.58

 

 

 

 

 

Granted

 

10

 

23.58

 

 

 

 

 

Exercised

 

(38

)

14.11

 

 

 

 

 

Forfeited (including cancelled options)

 

(40

)

29.42

 

 

 

 

 

Outstanding at March 31, 2012

 

2,038

 

$

25.71

 

$

16,662

 

5.8

 

Options exercisable at March 31, 2012

 

967

 

$

18.47

 

$

10,841

 

4.3

 

 

Balance Sheet Information (Tables)

 

 

 

 

March 31, 2012

 

 

 

Amortized
Cost

 

Gains in
Accumulated
Other
Comprehensive
Income

 

Losses in
Accumulated
Other
Comprehensive
Income

 

Estimated
Fair Value

 

Government Agency Securities

 

$

54,782

 

$

44

 

$

 

$

54,826

 

 

 

 

 

 

 

 

 

 

 

FDIC insured corporate bonds

 

106,331

 

45

 

 

106,376

 

 

 

 

 

 

 

 

 

 

 

Treasury bills

 

86,626

 

 

(2

)

86,624

 

 

 

 

 

 

 

 

 

 

 

Total available-for-sale securities

 

$

247,739

 

$

89

 

$

(2

)

$

247,826

 

 

 

 

December 31, 2011

 

 

 

Amortized
Cost

 

Gains in
Accumulated
Other
Comprehensive
Income

 

Losses in
Accumulated
Other
Comprehensive
Income

 

Estimated
Fair Value

 

Government Agency Securities

 

$

88,585

 

$

119

 

$

 

$

88,704

 

 

 

 

 

 

 

 

 

 

 

FDIC insured corporate bonds

 

114,640

 

56

 

 

114,696

 

 

 

 

 

 

 

 

 

 

 

Treasury bills

 

70,147

 

44

 

 

70,191

 

 

 

 

 

 

 

 

 

 

 

Total available-for-sale securities

 

$

273,372

 

$

219

 

$

 

$

273,591

 

 

 

 

 

Estimated Fair Value

 

Due in one year or less

 

$

33,272

 

 

 

 

 

Due in 1—2 years

 

214,554

 

 

 

GRAPHICGRAPHIC

 

Total investments in debt securities

 

$

247,826

 

 

 

 

 

March 31,

 

December 31,

 

 

 

2012

 

2011

 

Raw materials

 

$

60,786

 

$

57,169

 

Work in process

 

25,714

 

20,118

 

Finished goods

 

16,776

 

36,147

 

 

 

$

103,276

 

$

113,434

 

 

 

 

 

March 31,

 

 

 

2012

 

2011

 

Balance as of the beginning of period

 

$

9,778

 

$

9,238

 

Warranties issued during the period

 

1,007

 

3,014

 

Settlements made during the period

 

(1,951

)

(2,121

)

Balance as of the end of period

 

$

8,834

 

$

10,131

 

Segment Information (Tables)

 

 

 

 

LED & Solar

 

Data Storage

 

Unallocated
Corporate
Amount

 

Total

 

Three months ended March 31, 2012

 

 

 

 

 

 

 

 

 

Net sales

 

$

95,574

 

$

44,335

 

$

 

$

139,909

 

Segment profit (loss)

 

$

17,486

 

$

8,953

 

$

(1,085

)

$

25,354

 

Interest, net

 

 

 

(203

)

(203

)

Amortization

 

863

 

352

 

 

1,215

 

Equity-based compensation

 

1,006

 

411

 

1,713

 

3,130

 

Restructuring

 

58

 

5

 

 

63

 

Income (loss) from continuing operations before income taxes

 

$

15,559

 

$

8,185

 

$

(2,595

)

$

21,149

 

Three months ended March 31, 2011

 

 

 

 

 

 

 

 

 

Net sales

 

$

214,698

 

$

39,978

 

$

 

$

254,676

 

Segment profit (loss)

 

$

80,977

 

$

12,231

 

$

(2,292

)

$

90,916

 

Interest, net

 

 

 

1,299

 

1,299

 

Amortization

 

487

 

363

 

58

 

908

 

Equity-based compensation

 

679

 

308

 

1,813

 

2,800

 

Loss on extinguishment of debt

 

 

 

304

 

304

 

Income (loss) from continuing operations before income taxes

 

$

79,811

 

$

11,560

 

$

(5,766

)

$

85,605

 

 

 

 

LED & Solar

 

Data Storage

 

Unallocated
Corporate
Amount

 

Total

 

As of March 31, 2012

 

 

 

 

 

 

 

 

 

Goodwill

 

$

55,828

 

$

 

$

 

$

55,828

 

Total assets

 

$

288,835

 

$

73,450

 

$

582,067

 

$

944,352

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2011

 

 

 

 

 

 

 

 

 

Goodwill

 

$

55,828

 

$

 

$

 

$

55,828

 

Total assets

 

$

319,457

 

$

57,203

 

$

559,403

 

$

936,063

 

 

Fair Value Measurements (Tables)

 

 

 

 

March 31, 2012

 

 

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Treasury bills

 

$

86.6

 

$

51.0

 

$

 

$

137.6

 

FDIC insured corporate bonds

 

106.4

 

 

 

106.4

 

Government Agency Securities

 

54.8

 

68.0

 

 

122.8

 

Derivative instrument

 

 

0.1

 

 

0.1

 

Total

 

$

247.8

 

$

119.1

 

$

 

$

366.9

 

 

 

 

December 31, 2011

 

 

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Treasury bills

 

$

70.2

 

$

20.0

 

$

 

$

90.2

 

FDIC insured corporate bonds

 

114.8

 

 

 

114.8

 

Government Agency Securities

 

88.6

 

81.2

 

 

169.8

 

Money market instruments

 

 

0.2

 

 

0.2

 

Total

 

$

273.6

 

$

101.4

 

$

 

$

375.0

 

 

 

 

 

March 31, 2012

 

 

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Property,plant and equipment, net

 

$

 

$

 

$

92.0

 

$

92.0

 

Goodwill

 

 

 

55.8

 

55.8

 

Intangible assets, net

 

 

 

24.7

 

24.7

 

Total

 

$

 

$

 

$

172.5

 

$

172.5

 

 

 

 

December 31, 2011

 

 

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Property,plant and equipment, net

 

$

 

$

 

$

86.1

 

$

86.1

 

Goodwill

 

 

 

55.8

 

55.8

 

Intangible assets, net

 

 

 

25.9

 

25.9

 

Total

 

$

 

$

 

$

167.8

 

$

167.8

 

 

Basis of Presentation (Details) (USD $)
In Millions, except Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2012
W
Mar. 31, 2011
Basis of Presentation
 
 
Number of weeks in each fiscal quarter for 52-week fiscal year
13 
 
Income Per Common Share
 
 
Basic (in shares)
38,261,000 
39,842,000 
Dilutive effect of stock options and restricted stock (in shares)
602,000 
1,149,000 
Dilutive effect of convertible notes (in shares)
 
1,540,000 
Diluted weighted average shares outstanding (in shares)
38,863,000 
42,531,000 
Dilutive effect of assumed conversion of convertible debt (in shares)
 
1,500,000 
Derivative Financial Instruments
 
 
Aggregate foreign currency exchange gain (loss)
$ (0.1)
$ (0.3)
Forward contracts gains included in aggregate foreign currency exchange gain
0.1 
0.5 
Gains related to forward contracts were included in prepaid expenses and other current assets
0.1 
 
Notional amount of monthly forward contracts
3.3 
 
Weighted average notional amount of derivative contracts
$ 2.4 
 
Discontinued Operations (Details) (USD $)
3 Months Ended 12 Months Ended 3 Months Ended 1 Months Ended 3 Months Ended
Mar. 31, 2012
Mar. 31, 2011
Dec. 31, 2010
Mar. 31, 2011
CIGS Solar Systems Abandonment
Oct. 31, 2010
Metrology Segment Disposal
Mar. 31, 2012
Metrology Segment Disposal
Mar. 31, 2011
Metrology Segment Disposal
Dec. 31, 2011
Metrology Segment Disposal
Oct. 7, 2010
Metrology Segment Disposal
Aug. 15, 2010
Metrology Segment Disposal
Information related to discontinued operations
 
 
 
 
 
 
 
 
 
 
Sale amount of discontinued operations as per the agreement
 
 
 
 
 
 
 
 
 
$ 229,400,000 
Working capital adjustment which is included in total proceeds
 
 
 
 
 
 
 
 
1,000,000 
 
Proceeds from divestiture of businesses
 
 
 
 
230,400,000 
 
 
 
 
 
Pre-tax deferred gain related to net assets in China
 
 
 
 
 
5,400,000 
 
5,400,000 
 
 
Cost of sales
 
1,631,000 
 
1,631,000 
 
 
 
 
 
 
Gross profit
 
(1,631,000)
 
(1,631,000)
 
 
 
 
 
 
Total operating expenses
81,000 
6,406,000 
 
5,908,000 
 
81,000 
498,000 
 
 
 
Operating loss
(81,000)
(8,037,000)
 
(7,539,000)
 
(81,000)
(498,000)
 
 
 
Net loss from discontinued operations, net of tax
(50,000)
(5,337,000)
 
(4,896,000)
 
(50,000)
(441,000)