NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. COMPANY AND INDUSTRY INFORMATION
Nature of Operations
Ultratech, Inc. develops, manufactures and markets photolithography, laser thermal processing and inspection equipment for manufacturers of integrated circuits and nanotechnology components located throughout North America, Europe, Singapore, Japan, Taiwan, Korea and the rest of Asia.
We supply step-and-repeat photolithography systems based on one-to-one imaging technology. Within the integrated circuit industry, we target the market for advanced packaging applications. Within the nanotechnology industry, our target markets include laser diodes, high-brightness light emitting diodes (“HBLEDs”), Micro-Electro-Mechanical Systems (“MEMS”) and atomic layer deposition (“ALD”). Our laser thermal processing equipment is targeted at advanced annealing applications within the semiconductor industry.
Major Customers
In
2016
, Taiwan Semiconductor Manufacturing Co. Ltd. (“TSMC”), United Microelectronics Corporation, Powertech Technology, Inc. and Semiconductor Manufacturing North China (Beijing) Corporation (“SMNC”) accounted for
30%
,
13%
,
13%
and
11%
of our total systems sales, respectively. In
2015
, Siliconware Precision Industries Co. Ltd. (“SPIL”), TSMC and Intel Corporation (“Intel”) accounted for
21%
,
13%
and
10%
of our total system sales, respectively. In
2014
, Intel, Samsung and Global Foundries Incorporated (“GFI”) accounted for
18%
,
14%
and
13%
of our total system sales, respectively.
At
December 31, 2016
, TSMC, Powertech Technology, Inc., Flash Forward, Ltd., SMNC and United Microelectronics Corporation accounted for
22%
,
19%
,
12%
,
11%
and
11%
of our accounts receivable, respectively. At
December 31, 2015
, TSMC and Flash Forward, Ltd. accounted for
36%
and
19%
of our accounts receivable, respectively.
Business Segments
In evaluating our business, we give consideration to the Chief Executive Officer’s review of financial information and the organizational structure of our management. Based on this review, we concluded that, at the present time, resources are allocated and other financial decisions are made based on consolidated financial information. Accordingly, we have determined that we operate in
one
business segment, which is the manufacture and distribution of capital equipment to manufacturers of integrated circuits and nanotechnology components.
Enterprise-Wide Disclosures
Our products are manufactured in the United States and Singapore, and are sold worldwide. We market our products internationally through domestic and foreign-based sales and service offices. The following table presents enterprise-wide sales to external customers and long-lived assets by geographic region:
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
2016
|
|
2015
|
|
2014
|
Net sales:
|
|
|
|
|
|
United States
|
$
|
24,871
|
|
|
$
|
28,297
|
|
|
$
|
47,629
|
|
International:
|
|
|
|
|
|
Greater China
|
120,690
|
|
|
67,927
|
|
|
45,227
|
|
Rest of the world
|
17,730
|
|
|
19,365
|
|
|
9,208
|
|
Europe
|
14,578
|
|
|
15,639
|
|
|
17,688
|
|
Japan
|
9,577
|
|
|
13,528
|
|
|
5,036
|
|
Korea
|
6,605
|
|
|
4,420
|
|
|
25,752
|
|
Subtotal
|
169,180
|
|
|
120,879
|
|
|
102,911
|
|
Total
|
$
|
194,051
|
|
|
$
|
149,176
|
|
|
$
|
150,540
|
|
Long-lived assets:
|
|
|
|
|
|
United States
|
$
|
30,760
|
|
|
$
|
34,124
|
|
|
$
|
39,577
|
|
Singapore
|
3,836
|
|
|
5,049
|
|
|
5,367
|
|
Rest of the world
|
702
|
|
|
756
|
|
|
994
|
|
Total
|
$
|
35,298
|
|
|
$
|
39,929
|
|
|
$
|
45,938
|
|
The rest of the world is comprised of sales to customers and long-lived assets in countries that are individually insignificant.
With the exception of Japan, our operations in foreign countries are not currently subject to significant currency exchange rate fluctuations, principally because sales contracts for our systems are generally denominated in U.S. dollars. In Japan, we sell our products in both U.S. dollars and Japanese yen. However, we attempt to mitigate our currency exchange rate exposure through the use of currency forward contracts. (See “Derivative Instruments and Hedging” in Note 4.)
2. CONCENTRATIONS OF RISKS
Financial instruments that potentially subject us to concentrations of credit risk consist principally of cash equivalents, short-term investments and trade receivables. These credit risks include the potential inability of an issuer or customer to honor their obligations under the terms of the instrument or the sales agreement. We place our cash equivalents and investments with high credit-quality financial institutions. We invest our excess cash in commercial paper, readily marketable debt instruments and collateralized funds of United States and state government entities. We have established guidelines relative to credit ratings, diversification and maturities that seek to maintain principal balance and liquidity.
A majority of our trade receivables are derived from sales in various geographic areas, principally the United States, Europe, Korea, Japan, Taiwan and the rest of Asia, to large companies within the integrated circuit and nanotechnology industries. We perform ongoing credit evaluations of our customers’ financial condition and require collateral, whenever deemed necessary. As of
December 31, 2016
and
2015
, the recorded value of our accounts receivable approximated fair value due to the short-term nature of our accounts receivable.
Sole-source and single-source suppliers provide critical components and services for the manufacture of our products. The reliance on sole or limited groups of suppliers may subject us from time to time to quality, allocation and pricing constraints.
3. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of Ultratech and our subsidiaries, all of which are wholly owned. Intercompany balances and transactions have been eliminated.
The U.S. dollar is the functional currency for all foreign operations. Foreign exchange gains and losses which result from the process of remeasuring foreign currency financial statements into U.S. dollars or from foreign currency exchange transactions during the period, are included in interest and other income, net. Net foreign exchange losses during the years ended December 31,
2016
,
2015
and
2014
were
$0.5 million
,
$0.2 million
, and
$0.4 million
, respectively.
Our fiscal quarters in 2016 ended on April 2, 2016, July 2, 2016, October 1, 2016 and December 31, 2016. Our fiscal quarters in 2015 ended on April 4, 2015, July 4, 2015, October 3, 2015 and December 31, 2015.
We have evaluated subsequent events, as defined by Accounting Standard Codification (“ASC”) Topic 855, through
March 1, 2017
, which is the issuance date of our financial statements.
Use of Estimates
The preparation of the financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of the consolidated financial statements. By their nature, these estimates and judgments are subject to an inherent degree of uncertainty. On an ongoing basis, management evaluates its estimates, including those related to inventory valuation and purchase order commitments, warranty obligations, asset retirement obligations, bad debts, estimated useful lives of fixed assets, intangible assets, asset impairment, income taxes, deferred income tax valuation allowance, stock-based compensation, and contingencies and litigation. Management bases its estimates on historical experience and on various other analyses and assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash Equivalents
Cash equivalents consist of highly liquid investments with an original maturity date at acquisition of
three
months or less. The carrying value of cash equivalents approximates fair value.
Investments
Management determines the appropriate classification of its investments at the time of purchase and re-evaluates the classification at each balance sheet date. At
December 31, 2016
and
2015
, all investments and cash equivalents in our portfolio were classified as “available-for-sale” and are stated at fair value, with the unrealized gains and losses, net of tax, reported in accumulated other comprehensive income (loss), as a separate component of stockholders’ equity. The fair value of short-term investments are estimated based on quoted prices in active markets or significant other observable inputs as of
December 31, 2016
and
2015
.
The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization, as well as interest, dividends, realized gains and losses and declines in value judged to be other than temporary are included in interest and other income, net. The cost of securities sold is based on the specific identification method.
Allowance for Bad Debts
We maintain an allowance for uncollectible accounts receivable based upon expected collectability. This reserve is established based upon historical trends, current economic conditions, delinquency status based on contractual terms and an analysis of specific exposures.
Inventories
Inventories are stated at the lower of cost or market using standard costs that generally approximate actual costs on a first-in, first-out basis. We maintain a perpetual inventory system and continuously record the quantity on-hand and standard cost for each product, including purchased components, subassemblies, and finished goods. We maintain the integrity of perpetual inventory records through periodic physical counts of quantities on hand. The semiconductor industry is characterized by rapid technological change, changes in customer requirements and evolving industry standards. We perform a detailed
assessment of inventory at each balance sheet date, which includes a review of, among other factors, demand requirements and market conditions. Based on this analysis, we may record adjustments to the value of our inventory. During the years ended
December 31, 2016
and
2015
we have recorded
zero
in reserves and recorded no charges for excess and obsolete inventories and open purchase order commitments.
Long-lived Assets
Equipment and leasehold improvements are stated at cost, less accumulated depreciation and amortization. Equipment is depreciated on a straight-line basis over the estimated useful lives (i.e.
three
to
nine
years). Leasehold improvements are amortized on a straight-line basis over the life of the related assets or the lease term, whichever is shorter. Depreciation and amortization expense for the years ended December 31,
2016
,
2015
and
2014
was
$5.4 million
,
$6.5 million
and
$6.4 million
, respectively.
We review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. We assess these assets for impairment based on estimated future cash flows from these assets. No asset impairment charges have been recorded during the years ended
December 31, 2016
, 2015 and 2014.
Intangible Assets
Purchased technology, patents and other intangible assets are presented at cost, net of accumulated amortization, and are amortized over their estimated useful lives using the straight-line method. Amortization expense for each of the years ended December 31,
2016
, 2015 and 2014 was
$1.7 million
.
We review for impairment whenever events or changes in circumstances indicate that the carrying amount of the intangible asset may not be recoverable and the carrying amount exceeds its fair value. No intangible assets impairment charges have been recorded during the years ended
December 31, 2016
, 2015 and 2014.
Derivative Instruments and Hedging
The majority of our revenue, expense and capital purchasing activities are transacted in U.S. dollars. However, we also enter into these transactions in other currencies, primarily Japanese yen. Our policy is to minimize foreign currency denominated transaction and remeasurement exposures with derivative instruments, mainly forward contracts. The gains and losses on these derivatives are intended to at least partially offset the transaction and remeasurement gains and losses recognized in earnings. We do not enter into foreign exchange forward contracts for speculative purposes. Under ASC Topic 815,
Derivatives and Hedging
(“ASC 815”) all derivatives are recorded on the balance sheet at fair value. The gains and losses resulting from changes in fair value are accounted for depending on the use of the derivative and whether it is designated and qualifies for hedge accounting.
The fair value of derivative instruments recorded in our Consolidated Balance Sheets is as follows:
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Fair Value as of
|
(In thousands)
|
|
Balance Sheets Location
|
|
December 31,
2016
|
|
December 31,
2015
|
Foreign exchange contracts
|
|
Other current assets
|
|
$
|
5
|
|
|
$
|
43
|
|
|
|
Other current liabilities
|
|
$
|
(5
|
)
|
|
$
|
(4
|
)
|
Total derivatives
|
|
|
|
$
|
—
|
|
|
$
|
39
|
|
Our derivative financial instruments are subject to both credit and market risk. Credit risk is the risk of loss due to failure of a counter-party to perform its obligations in accordance with contractual terms. Market risk is the potential change in an investment’s value caused by fluctuations in interest and currency exchange rates, credit spreads or other variables. We monitor the credit-worthiness of the financial institutions that are counter-parties to our derivative financial instruments and do not consider the risks of counter-party nonperformance to be material. Credit and market risks, as a result of an offset by the underlying cash flow being hedged, related to derivative instruments were not considered material at
December 31, 2016
and
2015
.
Cash Flow Hedging
We designate and document as cash flow hedges foreign exchange forward contracts that are used by us to hedge the risk that forecasted revenue may be adversely affected by changes in foreign currency exchange rates. The effective portion of the contracts’ gains or losses is included in accumulated other comprehensive income (loss) (“OCI”) until the period in which the forecasted sale being hedged is recognized, at which time the amount in OCI is reclassified to earnings as a component of revenue. To the extent that any of these contracts are not considered to be effective in offsetting the change in the value of the forecasted sales being hedged, the ineffective portion of these contracts is immediately recognized in income as a component of interest and other income, net. We calculate hedge effectiveness at a minimum each fiscal quarter. We measure hedge effectiveness by comparing the cumulative change in the spot rate of the derivative with the cumulative change in the spot rate of the anticipated sales transactions. The maturity of these instruments is generally nine months or less. We record any excluded components of the hedge in interest and other income, net.
In the event the underlying forecasted transaction does not occur within the designated hedge period or it becomes probable that the forecasted transaction will not occur, the related gains and losses on the cash flow hedge are reclassified from OCI to interest and other income, net on the consolidated statement of operations.
At December 31, 2016, we had two currency forward contracts for the sale of Japanese yen of
697 million
. At December 31, 2015, we had one currency forward contract for the sale of Japanese yen of
661 million
. During the year ended December 31, 2016, and 2015, we reclassified into earnings an accumulated loss of $
0.1 million
and $
0.1 million
, respectively, that was recorded as a component of other comprehensive income (loss).
Balance Sheet Derivatives
We manage the foreign currency risk associated with yen-denominated assets and liabilities using foreign exchange forward contracts with maturities of less than nine months. The change in fair value of these derivatives is recognized as a component of interest and other income, net and is intended to offset the remeasurement gains and losses associated with the non-functional currency denominated assets and liabilities.
At
December 31, 2016
and
2015
, we had currency sell-forward contracts classified as fair value hedges for the sale of Japanese yen of
$0.4 million
and
$3.2 million
, respectively. At
December 31, 2016
and
2015
, we had buy-forward contracts for the purchase of Japanese yen of
$0.4 million
and
$0.3 million
, respectively. The fair value of derivatives at
December 31, 2016
and
2015
was insignificant.
The following sets forth the effect of the derivative instruments on our Consolidated Statements of Operations for the years ended:
|
|
|
|
|
|
|
|
|
|
Location of Gain/(Loss) Recognized in
Statement of Operations on Derivatives (In thousands)
|
|
December 31,
2016
|
|
December 31,
2015
|
Interest and other income (expense), net
|
|
|
($220
|
)
|
|
|
$110
|
|
Revenue Recognition
We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the arrangement consideration is fixed or determinable, and collectability is reasonably assured. We derive revenue from
four
sources: system sales, spare parts sales, service contracts and license fees.
Provided all other criteria are met, we recognize revenues on system sales when system acceptance provisions have been met in accordance with the terms and conditions of the arrangement. In the event that terms of the sale provide for a lapsing system acceptance period, we recognize revenue upon the expiration of the lapsing acceptance period or system acceptance, whichever occurs first. In these instances, which are infrequent, revenue is recorded only if the product has met product specifications prior to shipment and management deems that no significant uncertainties as to product performance exist.
Our transactions frequently include the sale of systems and services under multiple element arrangements. In transactions with multiple deliverables, revenue is recognized upon the delivery of the separate elements and when system acceptance has occurred or we are otherwise released from our system acceptance obligations.
For multiple element arrangements, the total consideration for an arrangement is allocated among the separate elements in the arrangement based on a selling price hierarchy. The selling price hierarchy for a deliverable is based on (i) vendor specific objective evidence (“VSOE”); if available; (ii) third party evidence of selling price if VSOE is not available; or (iii) an estimated selling price, if neither VSOE nor third party evidence is available. If we have not established VSOE and cannot obtain third party evidence of selling price, we determine our estimate of the relative selling price by considering our production costs and historical margins of similar products or services. We believe this best represents the price at which we would transact a sale if the product or service were sold on a stand-alone basis. We regularly review the method used to determine our relative selling price and update any estimates accordingly. We limit the amount of revenue recognized for delivered elements to the amount that is not contingent on the future delivery of products or services or other future performance obligations.
We generally recognize revenue from spare parts sales upon shipment, as our products are generally sold on terms that transfer title and risk of ownership when it leaves our site. We sell service contracts for which revenue is deferred and recognized ratably over the contract period (for time-based service contracts) or as service hours are delivered (for contracts based on a purchased quantity of hours). We recognize license revenue from transactions in which our systems are re-sold by our customers to third parties, as well as from royalty arrangements.
Costs related to deferred product revenues are capitalized (deferred) and recognized at the time of revenue recognition. Deferred product revenue and costs are netted on our balance sheet, under the caption “deferred product and services income.” The gross amount of deferred revenues and deferred costs at
December 31, 2016
was
$4.6 million
and
$0.2 million
, respectively. The gross amount of deferred revenues and deferred costs at
December 31, 2015
was
$5.3 million
and
$0.8 million
, respectively.
Costs incurred for shipping and handling are included in cost of sales.
Warranty Accrual
We generally warrant our products for material and labor to repair the product for a period of
12 months
for new products, or
three months
for refurbished products, from the date of system acceptance. Accordingly, an accrual for the estimated cost of the warranty is recorded at the time the product is shipped and the related charge is recorded in the statement of operations at the time revenue is recognized.
Research, Development and Engineering Expenses
We are actively engaged in basic technology and applied research programs designed to develop new products and product applications. In addition, substantial ongoing product and process improvement engineering and support programs relating to existing products are conducted within engineering departments and elsewhere. Research, development and engineering costs are charged to operations as incurred.
Stock-Based Compensation
Under the fair value recognition provisions of ASC Topic 718,
Compensation—Stock Compensation
(“ASC 718”), share-based compensation cost is measured at the grant date based on the value of the award and is recognized as expense over the vesting period. Determining the fair value of share-based awards at the grant date requires judgment, including estimating our stock price volatility, employee stock option exercise behaviors and employee option forfeiture rates. As stock-based compensation expense recognized in the Consolidated Statement of Operations is based on awards that ultimately are expected to vest, the amount of the expense has been reduced for estimated forfeitures. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures were estimated based on historical experience.
Deferred Income Taxes
Deferred income taxes are provided for the tax effect of temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements. ASC Topic 740,
Income Taxes
(“ASC 740”) provides for recognition of deferred tax assets if the realization of such deferred tax assets is more likely than not to occur. Realization of our net deferred tax assets is dependent upon our generation of sufficient taxable income in future years in appropriate tax jurisdictions to obtain the benefit of the reversal of temporary differences, net operating loss carry-forwards, and tax credit carry-forwards. The amount of deferred tax assets considered realizable is subject to adjustment in future periods if estimates of future taxable income are changed. With the exception of certain international jurisdictions (i.e. Japan and Taiwan), we have
determined that at this time it is more likely than not that deferred tax assets attributable to the remaining jurisdictions will not be realized, primarily due to uncertainties related to our ability to utilize the net operating loss and tax credit carry-forwards before they expire based on the fact that it is more likely than not we will not generate sufficient taxable income in the relevant jurisdictions. Accordingly, we have established a valuation allowance for such deferred tax assets. Management continues to monitor the relative weight of positive and negative evidence of future profitability in relevant jurisdictions. See Note 14 Income Taxes for further details.
Taxes Collected from Customers
We collect taxes from our customers for sales transactions as assessed by respective governmental authorities. On our consolidated statements of operations these taxes are presented on a net basis and are excluded from revenues and expenses.
Impact of Recently Issued Accounting Standards
In May 2014, the Financial Accounting Standards Board (“FASB”) issued a new standard to achieve a consistent application of revenue recognition within the U.S., resulting in a single revenue model to be applied by reporting companies under U.S. GAAP. Under the new model, recognition of revenue occurs when a customer obtains control of promised goods or services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, the new standard requires that reporting companies disclose the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. On July 9, 2015, the FASB agreed to delay the effective date by one year. As currently issued and amended and in accordance with the agreed upon delay, the new standard is effective for us beginning in the first quarter of 2018. Early adoption is permitted, but not before the original effective date of the standard. The new standard is required to be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying it recognized at the date of initial application. While we continue to assess all potential impacts of the standard, we currently believe the most significant impact will likely relate to systems revenue. Under the new standard we are evaluating whether our systems revenue would be recognized on shipment. We are planning to adopt the standard on January 1, 2018. We plan to adopt the standard retrospectively with the cumulative effect of initially applying it recognized at the date of initial application ("modified retrospective" approach).
In February 2016, the FASB issued ASU 2016-02, “Leases” (Topic 842) which supersedes Topic 840, Leases. The update requires companies to generally recognize on the balance sheet operating and financing lease liabilities and corresponding right-of-use assets. The new standard is effective for us in our first quarter of fiscal 2020 on a modified retrospective basis and earlier adoption is permitted. We are currently evaluating the impact of our pending adoption of ASU 2016-02 on our condensed consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, “Compensation - Stock Compensation” (Topic 718): Improvements to Employee Share-Based Payment Accounting. The update involves several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. It is effective for annual periods beginning after December 15, 2016. While we are continuing to assess all potential impacts of the standard, we currently believe it will not have a significant impact on our income tax provision, classification of awards and statement of cash flows.
5. STOCK-BASED COMPENSATION
The following table shows total stock-based compensation expense recognized under ASC Topic 718,
Compensation—Stock Compensation
(“ASC 718”), for employees and directors and the effect on the accompanying Consolidated Statement of Operations for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
2016
|
|
2015
|
|
2014
|
Cost of sales
|
$
|
750
|
|
|
$
|
833
|
|
|
$
|
800
|
|
Research, development, and engineering
|
3,016
|
|
|
3,230
|
|
|
2,875
|
|
Selling, general and administrative expenses
|
8,454
|
|
|
11,199
|
|
|
13,152
|
|
Total stock-based compensation expense
|
$
|
12,220
|
|
|
$
|
15,262
|
|
|
$
|
16,827
|
|
Compensation cost capitalized as part of inventory was
$0.5 million
,
$0.8 million
and
$0.5 million
during the years ended
December 31, 2016
,
2015
and
2014
, respectively.
The estimated fair value of our stock-based awards, less expected forfeitures, is amortized over the awards’ vesting period using a single grant approach on a ratable basis for awards granted after the adoption of ASC 718 and using a multiple grant approach on an accelerated basis for awards granted prior to the adoption of ASC 718.
The fair value of each option award is estimated on the date of grant using the Black-Scholes valuation model and the assumptions noted in the following table. The expected life of options is based on observed historical exercise patterns. Groups of employees that have similar historical exercise patterns have been considered separately for valuation purposes. The Black-Scholes valuation input for expected volatility used for our stock options for all years presented was based on the historical volatility of our common stock. The risk free interest rate is based on the implied yield on a U.S. Treasury zero-coupon issue with a remaining term equal to the expected term of the option. The dividend yield reflects that we have not paid any cash dividends since inception and do not intend to pay any cash dividends in the foreseeable future.
We used the following weighted-average assumptions to estimate the fair value of stock options at the date of grant using the Black-Scholes option-pricing model for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Expected life (in years)
|
N/A
|
|
5.9
|
|
|
5.9
|
|
Risk-free interest rate
|
N/A
|
|
1.7
|
%
|
|
1.7
|
%
|
Volatility factor
|
N/A
|
|
43
|
%
|
|
47
|
%
|
Dividend yield
|
N/A
|
|
—
|
|
|
—
|
|
During the year ended December 31,
2016
, we did not grant any stock options. The weighted- average fair value of stock options granted during the years ended December 31,
2015
and
2014
was
$7.19
, and
$10.40
respectively.
1993 Stock Option Plan/Stock Issuance Plan
On July 19, 2011, our stockholders approved amendments to our 1993 Stock Option/Stock Issuance Plan which increased the number of shares available for issuance pursuant to the 1993 Plan by
3.3 million
shares. The amendments, which were adopted by our Board of Directors on May 31, 2011, effective as of their approval by our stockholders, increased the share reserve, altered share-counting procedures, made changes to the non-employee director automatic grant program and enabled the granting of performance-based awards under the plan. These plans provide for the grant of stock-based awards to our eligible employees, consultants and advisers and non-employee directors.
Under our 1993 Stock Option Plan/Stock Issuance Plan, as amended and restated as of May 31, 2011, officers and other key employees, non-employee Board members and consultants may receive equity incentive awards in the form of stock options to purchase shares of common stock at no less than
100%
of fair value at the grant date or restricted stock or restricted stock units. Options historically have vested in equal monthly installments over a
fifty
-month period or one hundred-month period, with a minimum vesting period of
twelve
months from the grant date, and generally expire
ten years
from the date of grant or upon the expiration of a limited period following any earlier termination of employment. The plan was amended in January 2006 to allow the issuance of shares pursuant to restricted stock unit awards. These awards when granted generally vest in equal monthly installments over the vesting period but which defer the issuance of the vested shares until the end of the issuance period measured from the award date, subject to earlier issuance upon termination of employment under certain circumstances or a change in control. Awards under the plan may be subject to accelerated vesting under certain circumstances should a change in control occur. The plan terminates on the earlier of June 6, 2020 or the date on which all shares available for issuance under the plan have been issued. Under the plan, approximately
0.4 million
,
0.4 million
and
0.2 million
shares were available for issuance at
December 31, 2016
,
2015
and
2014
, respectively.
1998 Supplemental Stock Option/Stock Issuance Plan
Under our 1998 Supplemental Stock Option/Stock Issuance Plan, as amended, eligible employees (i.e. other than executive officers and employees holding the title of Vice President or General Manager) were able to receive options to purchase shares of common stock at not less than 100% of fair value on the grant date. These options generally vest in equal monthly installments over a
fifty
-month period, with a minimum vesting period of
twelve
months from grant date, and generally expire
ten years
from date of grant, subject to earlier termination following the optionee’s cessation of employee status. Direct stock issuances may also be made under the plan, subject to similar vesting provisions. The plan was amended in January 2008 to allow the issuance of shares pursuant to restricted stock unit awards. Since the plan terminated on October 19, 2008, there were
no
options available for issuance under the plan at
December 31, 2016
,
2015
and 2014.
Stock Option Activity
The following table is a summary of our stock option activity and related information for the year ended
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
Weighted-
Average
Exercise Price
|
|
Weighted Average
Remaining
Contractual Term
(Years)
|
|
Aggregate
Intrinsic Value
as of
December 31,
2016 (in thousands)
|
Outstanding at January 1, 2016
|
2,395,107
|
|
|
$
|
24.13
|
|
|
|
|
|
Granted
|
—
|
|
|
$
|
—
|
|
|
|
|
|
Exercised
|
(109,045
|
)
|
|
$
|
16.65
|
|
|
|
|
|
Forfeited and expired
|
(46,620
|
)
|
|
$
|
24.51
|
|
|
|
|
|
Outstanding at December 31, 2016
|
2,239,442
|
|
|
$
|
24.48
|
|
|
5.08
|
|
$
|
5,327
|
|
Exercisable at December 31, 2016
|
1,585,813
|
|
|
$
|
24.20
|
|
|
4.95
|
|
$
|
4,096
|
|
Vested and expected to vest as of December 31, 2016, net of anticipated forfeitures
|
2,174,579
|
|
|
$
|
24.43
|
|
|
5.08
|
|
$
|
5,237
|
|
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between our closing stock price on the last trading day of the year ended December 31,
2016
and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on
December 31, 2016
. Total intrinsic value of options exercised (selling price of the exercised stock less the option strike price multiplied by the share amount) in the year ended December 31,
2016
was
$0.7 million
as compared to
$0.1 million
and
$1.8 million
in
2015
and
2014
, respectively. Cash received from option exercises in the years ended December 31,
2016
and
2015
was
$1.9 million
and
$0.3 million
, respectively.
The following table is a summary of our option activity for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
2014
|
|
Options
|
|
Weighted-
Average
Exercise Price
|
|
Options
|
|
Weighted-
Average
Exercise Price
|
Outstanding at January 1
|
2,695,276
|
|
|
$
|
24.09
|
|
|
2,659,884
|
|
|
$
|
23.51
|
|
Granted
|
31,500
|
|
|
$
|
16.71
|
|
|
462,250
|
|
|
$
|
22.99
|
|
Exercised
|
(21,730
|
)
|
|
$
|
15.29
|
|
|
(274,551
|
)
|
|
$
|
15.46
|
|
Forfeited and expired
|
(309,939
|
)
|
|
$
|
23.63
|
|
|
(152,307
|
)
|
|
$
|
26.23
|
|
Outstanding at December 31
|
2,395,107
|
|
|
$
|
24.13
|
|
|
2,695,276
|
|
|
$
|
24.09
|
|
The following table shows the related information for options outstanding and options exercisable as of
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
Options Exercisable
|
Range of
Exercise Prices
|
|
Options
|
|
Weighted-
Average
Remaining
Contractual Life
(Years)
|
|
Weighted-
Average
Exercise Price
|
|
Options
|
|
Weighted-
Average
Exercise Price
|
$9.66 - $15.65
|
|
248,914
|
|
|
2.44
|
|
$
|
12.60
|
|
|
207,434
|
|
|
$
|
12.31
|
|
$15.68 - $18.65
|
|
233,231
|
|
|
6.27
|
|
$
|
17.71
|
|
|
151,036
|
|
|
$
|
17.86
|
|
$18.80 - $22.00
|
|
247,124
|
|
|
4.31
|
|
$
|
20.74
|
|
|
178,284
|
|
|
$
|
20.64
|
|
$22.53 - $24.10
|
|
263,740
|
|
|
5.47
|
|
$
|
23.16
|
|
|
181,485
|
|
|
$
|
23.17
|
|
$24.57 - $27.75
|
|
391,028
|
|
|
5.95
|
|
$
|
26.74
|
|
|
286,208
|
|
|
$
|
26.75
|
|
$28.92 - $29.54
|
|
275,626
|
|
|
5.57
|
|
$
|
29.10
|
|
|
199,898
|
|
|
$
|
29.17
|
|
$30.12 - $30.12
|
|
194,860
|
|
|
5.56
|
|
$
|
30.12
|
|
|
119,128
|
|
|
$
|
30.12
|
|
$30.91-$30.91
|
|
158,751
|
|
|
4.32
|
|
$
|
30.91
|
|
|
111,900
|
|
|
$
|
30.91
|
|
$31.24 - $31.24
|
|
211,168
|
|
|
5.19
|
|
$
|
31.24
|
|
|
135,440
|
|
|
$
|
31.24
|
|
$31.91 - $31.91
|
|
15,000
|
|
|
5.46
|
|
$
|
31.91
|
|
|
15,000
|
|
|
$
|
31.91
|
|
Outstanding at December 31
|
|
2,239,442
|
|
|
5.08
|
|
$
|
24.48
|
|
|
1,585,813
|
|
|
$
|
24.20
|
|
As of
December 31, 2016
,
$9.1 million
of total unrecognized compensation cost related to stock options is expected to be recognized over a weighted-average period of
2.17
years.
Restricted Stock Unit Activity
The following table is a summary of our restricted stock unit activity and related information as of December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
Shares
|
|
Weighted- Average
Grant Date
Fair Value
|
|
Shares
|
|
Weighted-Average
Grant Date
Fair Value
|
|
Shares
|
|
Weighted-Average
Grant Date
Fair Value
|
Nonvested stock at January 1
|
884,160
|
|
|
$
|
22.54
|
|
|
1,328,357
|
|
|
$
|
23.43
|
|
|
1,089,354
|
|
|
$
|
27.75
|
|
Granted
|
47,500
|
|
|
$
|
24.41
|
|
|
56,000
|
|
|
$
|
16.54
|
|
|
694,250
|
|
|
$
|
19.26
|
|
Vested
|
(346,651
|
)
|
|
$
|
22.86
|
|
|
(421,375
|
)
|
|
$
|
24.27
|
|
|
(403,116
|
)
|
|
$
|
27.55
|
|
Forfeited
|
(34,485
|
)
|
|
$
|
20.45
|
|
|
(78,822
|
)
|
|
$
|
24.00
|
|
|
(52,131
|
)
|
|
$
|
26.40
|
|
Nonvested stock at December 31
|
550,524
|
|
|
$
|
22.63
|
|
|
884,160
|
|
|
$
|
22.54
|
|
|
1,328,357
|
|
|
$
|
23.43
|
|
A total of
235,208
shares of our common stock subject to restricted stock units was vested but not yet distributed as of
December 31, 2016
. Stock-based compensation expense related to our restricted stock units for the year ended
December 31, 2016
was
$7.8 million
. As of
December 31, 2016
,
$12.3 million
of total unrecognized compensation cost related to unvested restricted stock units is expected to be recognized over a weighted-average period of
2.61
years. Total fair value of vested shares in the year ended December 31,
2016
was
$7.9 million
compared to
$10.2 million
and
$11.1 million
in
2015
and
2014
, respectively.
6. Common Stock Repurchase Program
On October 27, 2014, our Board of Directors authorized the repurchase of up to
$100 million
of the Company’s common stock. Any repurchases may be made through open market purchases, block trades, privately negotiated transactions and/or derivative transactions, subject to market conditions and managements’ ongoing determination that it is the best use of available cash on hand to fund any repurchases. The repurchase authorization does not obligate us to acquire any common stock.
During the year ended December 31, 2016, we did not repurchase any common stock under the stock repurchase plan.
7. BASIC AND DILUTED NET INCOME (LOSS) PER SHARE
The following sets forth the computation of basic and diluted net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
In thousands, except per share amounts
|
2016
|
|
2015
|
|
2014
|
Numerator:
|
|
|
|
|
|
Net income (loss)
|
$
|
11,237
|
|
|
$
|
(15,128
|
)
|
|
$
|
(19,111
|
)
|
Denominator:
|
|
|
|
|
|
Basic weighted-average shares outstanding
|
27,012
|
|
|
27,429
|
|
|
28,437
|
|
Effect of dilutive employee stock options and restricted stock units
|
321
|
|
|
—
|
|
|
—
|
|
Diluted weighted-average shares outstanding
|
27,333
|
|
|
27,429
|
|
|
28,437
|
|
Net income (loss) per share—basic
|
$
|
0.42
|
|
|
$
|
(0.55
|
)
|
|
$
|
(0.67
|
)
|
Net Income (loss) per share—diluted
|
$
|
0.41
|
|
|
$
|
(0.55
|
)
|
|
$
|
(0.67
|
)
|
The dilutive effect of outstanding options and restricted stock units is reflected in diluted net income per share, but not diluted net loss per share, by application of the treasury stock method, which includes consideration of stock-based compensation required by U.S. GAAP. As the Company reported net losses for each of the years ended December 31, 2015 and 2014, both basic and diluted net loss per share are the same.
For the year ended
December 31, 2016
, a total of
2.0 million
shares of common stock subject to options and restricted stock units was excluded from the computation of diluted net income per share as the resulting effect would have been anti-dilutive, compared to
3.0 million
shares and
2.7 million
shares for the years ended
December 31, 2015
and
2014
, respectively. Options and restricted stock units are anti-dilutive when we have a net loss or when the exercise price of the stock option and the average unrecognized compensation cost of the stock option or restricted stock unit are greater than the average market price of our common stock.
8. FAIR VALUE MEASUREMENTS
On January 1, 2008, we adopted ASC Topic 820,
Fair Value Measurements and Disclosures
(“ASC 820”) for financial assets and liabilities recognized at fair value on a recurring basis. On January 1, 2009, we adopted ASC 820 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis. These nonfinancial items include assets and liabilities such as reporting units measured at fair value in a goodwill impairment test and nonfinancial assets acquired and liabilities assumed in a business combination. The adoption of this deferred portion of ASC 820 did not have any impact on our results of operations or financial position.
Fair value is defined under ASC 820 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. ASC 820 describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:
|
|
•
|
Level 1—Quoted prices for identical assets or liabilities in active markets.
|
|
|
•
|
Level 2—Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.
|
|
|
•
|
Level 3—Model derived valuations in which one or more significant inputs or significant value drivers are unobservable.
|
We measure certain financial assets and liabilities at fair value on a recurring basis, including available-for-sale securities and foreign currency derivatives. There were no movements between levels one and two for any years presented.
The fair value of these certain financial assets and liabilities was determined at
December 31, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2016 Using
|
In thousands
|
Total
|
|
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
|
|
Significant Other
Observable
Inputs (Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
Available-for-sale securities
(1)
|
|
|
|
|
|
|
|
Commercial paper
|
$
|
23,684
|
|
|
$
|
—
|
|
|
$
|
23,684
|
|
|
$
|
—
|
|
Money market funds
|
2,266
|
|
|
2,266
|
|
|
—
|
|
|
—
|
|
U.S. treasury bills and notes
|
29,461
|
|
|
29,461
|
|
|
—
|
|
|
—
|
|
Securities and obligations of U.S. government agencies
|
127,704
|
|
|
—
|
|
|
127,704
|
|
|
—
|
|
|
183,115
|
|
|
31,727
|
|
|
151,388
|
|
|
—
|
|
Foreign currency derivatives
(2)
|
4
|
|
|
—
|
|
|
4
|
|
|
—
|
|
Foreign currency derivatives
(3)
|
(4
|
)
|
|
—
|
|
|
(4
|
)
|
|
—
|
|
|
$
|
183,115
|
|
|
$
|
31,727
|
|
|
$
|
151,388
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2015 Using
|
In thousands
|
Total
|
|
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
|
|
Significant Other
Observable
Inputs (Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
Available-for-sale securities
(1)
|
|
|
|
|
|
|
|
Commercial paper
|
$
|
9,996
|
|
|
$
|
—
|
|
|
$
|
9,996
|
|
|
$
|
—
|
|
Money market funds
|
9,074
|
|
|
9,074
|
|
|
—
|
|
|
—
|
|
U.S. treasury bills and notes
|
56,872
|
|
|
56,872
|
|
|
—
|
|
|
—
|
|
Securities and obligations of U.S. government agencies
|
128,023
|
|
|
—
|
|
|
128,023
|
|
|
—
|
|
|
203,965
|
|
|
65,946
|
|
|
138,019
|
|
|
—
|
|
Foreign currency derivatives
(2)
|
43
|
|
|
—
|
|
|
43
|
|
|
—
|
|
Foreign currency derivatives
(3)
|
(4
|
)
|
|
—
|
|
|
(4
|
)
|
|
—
|
|
|
$
|
204,004
|
|
|
$
|
65,946
|
|
|
$
|
138,058
|
|
|
$
|
—
|
|
___________________
|
|
(1)
|
Included in cash and cash equivalents and short-term investments on our consolidated balance sheet. Cash equivalents at
December 31, 2016
and
2015
were
$2.3 million
and
$15.1 million
, respectively.
|
|
|
(2)
|
Included in current assets on our consolidated balance sheet. Consisted of forward foreign exchange contracts for the Japanese yen. See Note 4 - Derivative Instruments and Hedging.
|
|
|
(3)
|
Included in current liabilities on our consolidated balance sheet. Consisted of forward foreign exchange contracts for the Japanese yen. See Note 4 - Derivative Instruments and Hedging.
|
9. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Accumulated other comprehensive income (loss) is comprised of the following items, net of tax:
|
|
|
|
|
|
|
|
|
In thousands
|
December 31, 2016
|
|
December 31, 2015
|
Unrealized gain (loss) on:
|
|
|
|
Available-for-sale investments
|
$
|
53
|
|
|
$
|
(377
|
)
|
Postretirement benefit obligation
|
527
|
|
|
317
|
|
Accumulated other comprehensive income (loss) at end of period
|
$
|
580
|
|
|
$
|
(60
|
)
|
The amount of gain on foreign exchange contracts reclassified to earnings was $
0.1 million
for the years ended
December 31, 2016
, and
2015
. Unrealized gains and losses on investments affect the short-term investment line on our consolidated balance sheet. Amounts in other comprehensive income for changes in the minimum post-retirement obligation are recorded on our consolidated balance sheets in other liabilities or expensed to our consolidated statement of operations in selling, general, and administrative expenses.
10. INVESTMENTS
We classified all of our investments as “available-for-sale” as of
December 31, 2016
and
2015
. Accordingly, we state our investments at estimated fair value. Fair values are determined based on quoted market prices or pricing models using current market rates. We deem all investments to be available to meet current working capital requirements.
The following is a summary of our investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
December 31, 2015
|
Cash equivalents and available-
for-sale investments,
In thousands
|
|
Amortized
Cost
|
|
Accumulated
Other
Comprehensive Income
|
|
Estimated
Fair Value
|
|
Amortized
Cost
|
|
Accumulated
Other
Comprehensive Income
|
|
Estimated
Fair Value
|
Gains
|
|
Losses
|
Gains
|
|
Losses
|
Commercial paper
|
|
$
|
23,744
|
|
|
$
|
—
|
|
|
$
|
60
|
|
|
$
|
23,684
|
|
|
$
|
9,996
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
9,996
|
|
Money market funds
|
|
2,266
|
|
|
—
|
|
|
—
|
|
|
2,266
|
|
|
9,074
|
|
|
—
|
|
|
—
|
|
|
9,074
|
|
U.S. treasury bills and notes
|
|
29,467
|
|
|
1
|
|
|
7
|
|
|
29,461
|
|
|
56,929
|
|
|
1
|
|
|
58
|
|
|
56,872
|
|
Securities and obligations of U.S. government agencies
|
|
127,961
|
|
|
8
|
|
|
265
|
|
|
127,704
|
|
|
128,343
|
|
|
3
|
|
|
323
|
|
|
128,023
|
|
Total
|
|
$
|
183,438
|
|
|
$
|
9
|
|
|
$
|
332
|
|
|
$
|
183,115
|
|
|
$
|
204,342
|
|
|
$
|
4
|
|
|
$
|
381
|
|
|
$
|
203,965
|
|
The following is a reconciliation of our investments to the balance sheet classifications at December 31,
2016
and 2015:
|
|
|
|
|
|
|
|
|
In thousands
|
2016
|
|
2015
|
Cash equivalents
|
$
|
2,266
|
|
|
$
|
15,072
|
|
Short-term investments
|
180,849
|
|
|
188,893
|
|
Investments, at estimated fair value
|
$
|
183,115
|
|
|
$
|
203,965
|
|
Gross realized gains and losses on sales of investments were
insignificant
in each of the years ended
December 31, 2016
,
2015
and
2014
.
The gross amortized cost and estimated fair value of our investments at
December 31, 2016
, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties.
|
|
|
|
|
|
|
|
|
In thousands
|
Gross
Amortized
Cost
|
|
Fair Value
|
Due in one year or less
|
$
|
112,164
|
|
|
$
|
112,058
|
|
Due after one year through five years
|
71,274
|
|
|
71,057
|
|
Total
|
$
|
183,438
|
|
|
$
|
183,115
|
|
The following table provides the breakdown of the cash equivalents and investments with unrealized losses at
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In Loss Position for
Less Than 12 Months
|
|
In Loss Position for
More Than 12 Months
|
|
Total
|
Investments,
In thousands
|
|
Fair
Value
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
|
Gross
Unrealized
Losses
|
Commercial paper
|
|
17,693
|
|
|
60
|
|
|
|
|
|
|
17,693
|
|
|
60
|
|
U.S. treasury bills and notes
|
|
$
|
18,463
|
|
|
$
|
7
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
18,463
|
|
|
$
|
7
|
|
Securities and obligations of U.S. government agencies
|
|
103,426
|
|
|
265
|
|
|
—
|
|
|
—
|
|
|
103,426
|
|
|
265
|
|
Total
|
|
$
|
139,582
|
|
|
$
|
332
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
139,582
|
|
|
$
|
332
|
|
The following table provides the breakdown of the cash equivalents and investments with unrealized losses at
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In Loss Position for
Less Than 12 Months
|
|
In Loss Position for
More Than 12 Months
|
|
Total
|
Investments,
In thousands
|
|
Fair
Value
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
|
Gross
Unrealized
Losses
|
U.S. corporate debt securities
|
|
$
|
51,872
|
|
|
$
|
58
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
51,872
|
|
|
$
|
58
|
|
Securities and obligations of U.S. government agencies
|
|
$
|
110,345
|
|
|
$
|
323
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
110,345
|
|
|
$
|
323
|
|
Total
|
|
$
|
162,217
|
|
|
$
|
381
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
162,217
|
|
|
$
|
381
|
|
We review our investment portfolio regularly for impairment. A security is considered impaired when its fair value is less than its cost basis. If we intend to sell an impaired debt security or it is more likely than not that we will be required to sell it prior to recovery of its amortized cost basis, and other-than-temporary-impairment (“OTTI”) is deemed to have occurred. In these instances, the OTTI loss is recognized in earnings equal to the entire difference between the debt security’s amortized cost basis and its fair value at the balance sheet date.
If we do not intend to sell an impaired debt security and it is not more likely than not that we will be required to sell it prior to recovery of its amortized cost basis, we must determine whether it will recover its amortized cost basis. If we conclude it will not, a credit loss exists and the resulting OTTI is separated into:
|
|
•
|
The amount representing the credit loss, which is recognized in earnings, and
|
|
|
•
|
The amount related to all other factors, which is recognized in other comprehensive income.
|
As part of this assessment we will consider the various characteristics of each security, including, but not limited to the following: the length of time and the extent to which the fair value has been less than the amortized cost basis; adverse conditions specifically related to the security, an industry, or a geographic area; the payment structure of the debt security; failure of the issuer of the security to make scheduled interest or principal payments; any changes to the rating of the security by a rating agency and related outlook or status; recoveries or additional declines in fair value subsequent to the balance sheet date. The relative importance of this information varies based on the facts and circumstances surrounding each security, as well as the economic environment at the time of assessment.
We have not recorded any OTTI on our investments for the years ended
December 31, 2016
,
2015
and
2014
.
11. BALANCE SHEET DETAIL
|
|
|
|
|
|
|
|
|
In thousands
|
December 31, 2016
|
|
December 31, 2015
|
Inventories, net:
|
|
|
|
Raw materials
|
$
|
17,273
|
|
|
$
|
24,898
|
|
Work-in-process
|
15,510
|
|
|
18,284
|
|
Finished products
|
17,692
|
|
|
22,216
|
|
Total (net of reserves)
|
$
|
50,475
|
|
|
$
|
65,398
|
|
Property, plant, and equipment, net
|
|
|
|
Machinery and equipment
|
$
|
46,581
|
|
|
$
|
46,369
|
|
Leasehold improvements
|
15,695
|
|
|
15,603
|
|
Office equipment and furniture
|
14,755
|
|
|
14,619
|
|
|
77,031
|
|
|
76,591
|
|
Accumulated depreciation and amortization
|
(63,162
|
)
|
|
(59,311
|
)
|
Total
|
$
|
13,869
|
|
|
$
|
17,280
|
|
Other assets:
|
|
|
|
Deferred compensation plan assets
|
5,062
|
|
|
4,341
|
|
Demonstration and laboratory equipment
|
4,540
|
|
|
5,022
|
|
Other
|
1,196
|
|
|
996
|
|
Total
|
$
|
10,798
|
|
|
$
|
10,359
|
|
Accrued expenses:
|
|
|
|
Accrued payroll-related liabilities
|
$
|
11,494
|
|
|
$
|
6,417
|
|
Warranty accrual
|
1,884
|
|
|
1,586
|
|
Capital lease, current portion
|
504
|
|
|
831
|
|
Advanced billings
|
583
|
|
|
543
|
|
Other
|
3,563
|
|
|
2,769
|
|
Total
|
$
|
18,028
|
|
|
$
|
12,146
|
|
Other Liabilities:
|
|
|
|
Deferred compensation plan liabilities
|
$
|
6,100
|
|
|
$
|
5,247
|
|
Income tax payable - long term
|
26
|
|
|
2,523
|
|
Asset retirement obligations
|
2,706
|
|
|
2,540
|
|
Postretirement benefits obligation
|
1,869
|
|
|
2,231
|
|
Capital lease - long term
|
—
|
|
|
575
|
|
Deferred service income - long term
|
1,145
|
|
|
49
|
|
Other
|
610
|
|
|
309
|
|
Total
|
$
|
12,456
|
|
|
$
|
13,474
|
|
Warranty Accrual
We generally warrant our products for a period of
12 months
for new products, or
three months
for refurbished products, from the date of system acceptance for material and labor to repair the product; accordingly, an accrual for the estimated cost of the warranty is recorded at the time the product is shipped. Extended warranty terms, if granted, result in deferral of revenue equating to our standard pricing for similar service contracts. Recognition of the related warranty cost is deferred until product revenue is recognized. Factors that affect our warranty liability include the number of installed units, historical and anticipated rates of warranty claims, and cost per claim. We periodically assess the adequacy of our recorded warranty liabilities and adjust the amounts as necessary.
Changes in our product liability are as follows:
|
|
|
|
|
|
|
|
|
In thousands
|
December 31, 2016
|
|
December 31, 2015
|
Balance, beginning of year
|
$
|
1,586
|
|
|
$
|
1,501
|
|
Liabilities accrued for warranties issued
|
2,529
|
|
|
1,896
|
|
Warranty claims paid and utilized
|
(2,137
|
)
|
|
(2,155
|
)
|
Changes in accrued warranty liabilities
|
(94
|
)
|
|
344
|
|
Balance, end of year
|
$
|
1,884
|
|
|
$
|
1,586
|
|
Deferred Service Income
We sell service contracts for which revenue is deferred and recognized ratably over the contract period (for time based service contracts) or as service hours are delivered (for contracts based on a purchased quantity of hours). Changes in our deferred service revenue are as follows:
|
|
|
|
|
|
|
|
|
In thousands
|
December 31, 2016
|
|
December 31, 2015
|
Balance, beginning of year
|
$
|
4,011
|
|
|
$
|
5,233
|
|
Service contracts billed during year
|
3,891
|
|
|
3,244
|
|
Service contract revenue recognized during year
|
(4,060
|
)
|
|
(4,466
|
)
|
Balance, end of year
|
$
|
3,842
|
|
|
$
|
4,011
|
|
|
|
|
|
Balance sheet classification
|
|
|
|
Service contracts classified as short-term
|
$
|
2,697
|
|
|
$
|
3,962
|
|
Service contracts classified as long-term
|
1,145
|
|
|
49
|
|
Balance, end of year
|
$
|
3,842
|
|
|
$
|
4,011
|
|
Asset Retirement Obligations
In accordance with ASC 410,
Asset Retirement and Environmental Obligations
, an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation (“ARO”) if the fair value of the liability can be reasonably estimated, even if conditional on a future event. The ARO liability is principally for estimable retirement obligations related to remediation costs, which we estimate will be incurred upon the expiration of certain operating leases.
The following table sets forth an analysis of the ARO activity for the years ended
December 31, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
In thousands
|
2016
|
|
2015
|
Balance as of January 1
|
$
|
2,540
|
|
|
$
|
2,397
|
|
Accretion expense
|
166
|
|
|
143
|
|
Liabilities incurred
|
—
|
|
|
—
|
|
Balance as of December 31
|
$
|
2,706
|
|
|
$
|
2,540
|
|
Advanced Billings
On occasion, we require, or our customers pay, a deposit in advance of order shipment. These amounts are classified as advanced billings until the related order ships. At
December 31, 2016
, we have received
$0.6 million
in advanced billings from our customers and
$0.5 million
at December 31,
2015
.
12. NOTES PAYABLE
In December 2004, we entered into a line of credit agreement with a brokerage firm. Under the terms of this agreement, we may borrow funds at a cost equal to the current federal funds rate plus
125
basis points (
1.91%
as of
December 31, 2016
). Certain of our cash, cash equivalents and short-term investments secure borrowings outstanding under this facility, but we are not restricted in the use of those assets. Funds are advanced to us under this facility based on pre-determined advance rates on the cash and securities held by us in this brokerage account. This agreement has no set expiration
date and there are no loan covenants, other than the aforementioned collateral requirement which does not legally restrict the cash and securities. At each of the years ended
December 31, 2016
and
2015
,
$1.5 million
and
$5.1 million
was outstanding under this facility, with a related collateral requirement of approximately of
$2.0 million
and
$6.8 million
of our cash, cash equivalents and short-term investments.
13. EMPLOYEE BENEFIT PLANS
Employee bonus plans
We currently sponsor an executive incentive bonus plan that distributes employee awards based on the achievement of predetermined targets. We recorded charges of
$6.3 million
,
$2.1 million
, and
$1.5 million
under this bonus plan for the years ended
December 31, 2016
,
2015
, and
2014
, respectively.
Employee Savings and Retirement Plans
We sponsor a 401(k) employee salary deferral plan that allows voluntary contributions by all full-time employees up to the Internal Revenue Service limits of their pretax earnings. We may also make matching contributions to this plan at our discretion. Employees are eligible for the matching plan if they contribute at least
2%
of their compensation. Our contributions, when made, are limited to a maximum of
3%
of the employee’s compensation if the company exceeds certain income levels. During the year ended
December 31, 2016
,
2015
and
2014
, we made
zero
contributions to the plan.
We also sponsor an executive non-qualified deferred compensation plan (the “Plan”) that allows qualifying executives to defer current cash compensation. At
December 31, 2016
Plan assets of
$5.1 million
, representing the cash surrender value of life insurance policies held by us, and liabilities of
$6.1 million
are included in our consolidated balance sheets under the captions “other assets” and “other liabilities,” respectively.
Postretirement Benefits
We have committed to providing lifetime postretirement medical and dental benefits to our Chief Executive Officer and Chief Financial Officer and their spouses, commencing after retirement. These medical and dental benefits are similar to the benefits provided to all full-time employees while employed by us, except that we are paying the entire cost of these benefits.
The following table sets forth the amounts of unrecognized prior service cost and unrecognized actuarial (gain) loss included in accumulated other comprehensive loss:
|
|
|
|
|
|
|
|
|
In thousands
|
December 31, 2016
|
|
December 31, 2015
|
Prior service cost
|
$
|
381
|
|
|
$
|
767
|
|
Net actuarial (gain) loss
|
(88
|
)
|
|
53
|
|
Amount included in accumulated other comprehensive income
|
$
|
293
|
|
|
$
|
820
|
|
The reconciliation of the beginning and ending balance of the accumulated postretirement benefit obligation and the fair value of plan assets is as follows:
|
|
|
|
|
|
|
|
|
In thousands
|
December 31, 2016
|
|
December 31, 2015
|
Benefit obligation at beginning of year
|
$
|
2,231
|
|
|
$
|
2,255
|
|
Interest cost
|
87
|
|
|
86
|
|
Actuarial gain
|
(448
|
)
|
|
(110
|
)
|
Benefit obligation at end of year
|
1,870
|
|
|
2,231
|
|
Funded status at end of year
|
$
|
(1,870
|
)
|
|
$
|
(2,231
|
)
|
Amounts recognized in the statement of financial position are included in noncurrent liabilities.
Weighted-average discount rates as of
December 31, 2016
were
3.8%
and
4.0%
for each of the Chief Executive Officer’s plan and the Chief Financial Officer’s plan, respectively, as compared to
4.0%
and
4.2%
, as of
December 31, 2015
.
For measurement purposes, a
5%
annual rate of increase in the per capita cost of covered health care benefits was assumed for the year ended December 31,
2016
and the rate was assumed to remain at
5%
thereafter.
Components of net periodic benefit cost and other amounts are recognized in selling, general, and administrative expense on our Consolidated Statements of Operations are as follows:
|
|
|
|
|
|
|
|
|
In thousands
|
December 31, 2016
|
|
December 31, 2015
|
Interest cost
|
$
|
87
|
|
|
$
|
86
|
|
Actuarial gain
|
$
|
(194
|
)
|
|
$
|
—
|
|
Net periodic benefit (gain) loss
|
$
|
(107
|
)
|
|
$
|
86
|
|
Other changes in plan benefit obligations from other comprehensive loss recognized in selling, general, and administrative expense on our Consolidated Statements of Operations are as follows:
|
|
|
|
|
|
|
|
|
In thousands
|
December 31, 2016
|
|
December 31, 2015
|
Amortization of net loss
|
—
|
|
|
15
|
|
Total recognized from other comprehensive loss
|
$
|
—
|
|
|
$
|
15
|
|
Total recognized net periodic benefit (gain) loss and changes in plan benefit obligations
|
$
|
(107
|
)
|
|
$
|
101
|
|
The expected benefit payments are as follows:
|
|
|
|
|
|
In thousands
|
2020 and thereafter
|
$
|
1,870
|
|
Total expected benefit payments
|
$
|
1,870
|
|
Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plan. A one-percentage-point change in assumed health care cost trend rates would have the following effects:
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
In thousands
|
1-Percentage-
Point Increase
|
|
1-Percentage-
Point Decrease
|
Effect on total of service and interest cost components
|
$
|
21.3
|
|
|
$
|
(21.3
|
)
|
Effect on postretirement benefit obligation
|
$
|
297
|
|
|
$
|
(245
|
)
|
14. INCOME TAXES
The domestic and foreign components of income (loss) before income taxes is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
In thousands
|
2016
|
|
2015
|
|
2014
|
Domestic
|
$
|
(31,061
|
)
|
|
$
|
(37,696
|
)
|
|
$
|
(16,027
|
)
|
Foreign
|
39,753
|
|
|
23,018
|
|
|
(2,840
|
)
|
Income (loss) before income taxes
|
$
|
8,692
|
|
|
$
|
(14,678
|
)
|
|
$
|
(18,867
|
)
|
The components of the provision (benefit) for income taxes were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
In thousands
|
2016
|
|
2015
|
|
2014
|
Federal:
|
|
|
|
|
|
Current
|
$
|
(2,405
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
Deferred
|
(212
|
)
|
|
—
|
|
|
—
|
|
|
(2,617
|
)
|
|
—
|
|
|
—
|
|
State:
|
|
|
|
|
|
Current
|
(131
|
)
|
|
(23
|
)
|
|
(18
|
)
|
Deferred
|
—
|
|
|
—
|
|
|
—
|
|
|
(131
|
)
|
|
(23
|
)
|
|
(18
|
)
|
Foreign:
|
|
|
|
|
|
Current
|
250
|
|
|
289
|
|
|
390
|
|
Deferred
|
(47
|
)
|
|
184
|
|
|
(128
|
)
|
|
203
|
|
|
473
|
|
|
262
|
|
Total income tax provision (benefit)
|
$
|
(2,545
|
)
|
|
$
|
450
|
|
|
$
|
244
|
|
The difference between the provision (benefit) for income taxes and the amount computed by applying the U.S. federal statutory rate of
35 percent
to income (loss) before income taxes is explained below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
In thousands
|
2016
|
|
2015
|
|
2014
|
Tax computed at statutory rate
|
$
|
3,042
|
|
|
$
|
(5,136
|
)
|
|
$
|
(6,602
|
)
|
Foreign taxes
|
(13,710
|
)
|
|
(7,583
|
)
|
|
1,256
|
|
Credits
|
(625
|
)
|
|
(169
|
)
|
|
(282
|
)
|
ASU 740-10 Release
|
(2,502
|
)
|
|
—
|
|
|
—
|
|
Change in valuation allowance
|
11,250
|
|
|
13,338
|
|
|
5,872
|
|
Income tax provision (benefit)
|
$
|
(2,545
|
)
|
|
$
|
450
|
|
|
$
|
244
|
|
To better align with the international nature of our business, we transitioned certain manufacturing processes to Singapore, thereby bringing these activities closer to our Asia-based customers. We have qualified for tax incentives that provide that certain income earned in Singapore is subject to a tax holiday and/or reduced tax rates for a limited period of time under the laws of Singapore. To realize these benefits, we must meet certain requirements relating to employment and investment activities. This exemption is expected to expire within
four
years. In 2016, the tax benefit attributable to tax holidays was approximately
$6.0 million
with a
$0.22
impact on diluted earnings per share. In 2015, the tax benefit attributable to tax holidays was approximately
$3.0 million
with a
$0.11
impact on diluted earnings per share. In 2014, the tax benefit attributable to tax holidays was approximately
$1 million
with a
$0.04
impact on diluted earnings per share. Our ability to realize benefits from these initiatives could be materially adversely affected if, among other things, applicable requirements are not met, the incentives are substantially modified, or if we incur losses for which we cannot take a deduction.
Significant components of deferred income tax assets and liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
2016
|
|
2015
|
|
2014
|
Deferred tax assets:
|
|
|
|
|
|
Net operating loss carry-forwards
|
$
|
30,702
|
|
|
$
|
21,550
|
|
|
$
|
20,661
|
|
Tax credit carry-forwards
|
17,654
|
|
|
16,127
|
|
|
16,050
|
|
Other non-deductible accruals and reserves
|
6,878
|
|
|
5,538
|
|
|
5,730
|
|
Stock-based compensation
|
6,340
|
|
|
6,515
|
|
|
6,440
|
|
Inventory valuation
|
3,101
|
|
|
3,838
|
|
|
4,101
|
|
Bad debt reserve
|
182
|
|
|
184
|
|
|
181
|
|
Warranty reserves
|
231
|
|
|
211
|
|
|
290
|
|
Deferred product and services income
|
3
|
|
|
411
|
|
|
328
|
|
Basis difference in assets
|
(69
|
)
|
|
44
|
|
|
133
|
|
Total deferred tax assets
|
65,022
|
|
|
54,418
|
|
|
53,914
|
|
Valuation allowance
|
(62,739
|
)
|
|
(52,380
|
)
|
|
(51,558
|
)
|
Net deferred tax assets
|
$
|
2,283
|
|
|
$
|
2,038
|
|
|
$
|
2,356
|
|
Deferred tax liabilities:
|
|
|
|
|
|
Other
|
(1,919
|
)
|
|
(1,854
|
)
|
|
(1,695
|
)
|
Total deferred tax liabilities
|
(1,919
|
)
|
|
(1,854
|
)
|
|
(1,695
|
)
|
Net deferred tax assets
|
$
|
364
|
|
|
$
|
184
|
|
|
$
|
661
|
|
We have not provided for U.S. income taxes and foreign withholding taxes on the undistributed earnings of foreign subsidiaries as of December 31, 2016 because we intend to permanently reinvest such earnings outside the United States given that we have moved certain manufacturing processes to Singapore and that our future U.S. cash flows are expected to meet our future U.S. cash needs. As of December 31, 2016, the cumulative amount of earnings for which U.S. income taxes have not been provided is approximately
$92.8 million
. Determination of the amount of unrecognized deferred tax liability related to these earnings is not practicable.
We currently have a full valuation allowance against our U.S. net deferred tax asset. Each quarter we assess the likelihood that we will be able to recover our deferred tax assets. As a result of our analysis, we concluded that it is more likely than not that, as of December 31, 2016, our net deferred tax assets will not be realized, with the exception of those in Japan and Taiwan. Therefore, we continue to provide a full valuation allowance against net deferred tax assets outside of Japan and Taiwan. Management continues to monitor the relative weight of positive and negative evidence of future profitability in relevant jurisdictions. However, as of December 31, 2016, we have determined that the following negative evidence outweighs the positive evidence such that it is not more likely than not we will generate sufficient taxable income in the relevant jurisdictions to utilize our deferred tax assets and release the associated valuation allowance:
|
|
•
|
Movement of certain product manufacturing to Singapore, resulting in U.S. taxable losses,
|
|
|
•
|
Cumulative three years U.S. taxable loss,
|
|
|
•
|
Inherent earnings volatility of our industry resulting in our inability to forecast long term earnings, and
|
|
|
•
|
Usage limitations resulting in a longer period being required to realize our deferred tax assets.
|
The net valuation allowance increased by
$10.4 million
during the year ended
December 31, 2016
, and increased by
$0.8 million
and
$3.7 million
during the years ended December 31, 2015 and
2014
, respectively. The increase in valuation allowance in 2016 was primarily due to an increase in net operating loss carry-forwards and tax credit carry-forwards.
Approximately
$4.5 million
of the valuation allowance as of
December 31, 2016
is attributable to pre-2006 windfall stock option deductions, the benefit of which will be credited to paid-in capital if and when realized through a reduction in income taxes payable. Beginning in 2006, we are tracking the windfall stock option deductions off balance sheet, as required by ASC 718. As of
December 31, 2016
, we have a previously recorded balance of
$41.6 million
of windfall stock option deductions that are being tracked off balance sheet. If and when realized, a tax benefit of
$15.2 million
associated with those deductions will be credited to additional paid-in capital. In 2016, no entry to paid-in capital was made to reflect the benefit from windfall stock option deductions, which is the excess of federal income tax liabilities expected on the tax return without windfall stock option deductions over federal income tax liabilities expected on the tax return with windfall stock option deductions, because we are in a loss position in this year. Prior to 2016, a tax benefit of
$9.9 million
associated with those deductions had been credited to additional paid-in capital.
As of
December 31, 2016
, we had net operating loss carry-forwards for federal and California tax purposes of
$80.0 million
and
$26.0 million
, respectively. We also had federal and California research and development tax credit carry-forwards of approximately
$6.5 million
and
$14.5 million
, respectively. The federal and state net operating loss carry-forwards will expire at various dates beginning in
2019
through
2037
, if not utilized. The federal tax credit carry-forwards will expire at various dates beginning in
2021
through
2035
, if not utilized. The California tax credit carry-forwards have no expiration date.
Utilization of our net operating loss and tax credit carry-forwards is subject to an annual limitation due to an ownership change, as defined by the IRS code section 382 that occurred in 2007. None of the net operating loss or tax credit carry-forwards is anticipated to expire as a result of the ownership change. Any future changes of ownership could result in the expiration of net operating losses or credits before utilization.
During the year ended
December 31, 2016
, our reserve for uncertain tax positions decreased by
$2.2 million
, primarily due to the release of
$2.4 million
of a federal tax reserve where the statute of limitations had lapsed. Interest and penalties related to the reserve for uncertain tax positions were insignificant in 2016 and 2015.
If we are able to eventually recognize these uncertain tax positions,
$17.4 million
of the unrecognized benefit on
January 1, 2016
and
$15.2 million
of the unrecognized benefit on
December 31, 2016
, would reduce our effective tax rate. We currently have a full valuation allowance against our U.S. net deferred tax asset which would impact the timing of the effective tax rate benefit should any of these uncertain tax positions be favorably settled in the future.
We are subject to federal and state tax examination for years 2000 forward and 1997 forward, respectively, by virtue of the tax attributes carrying forward from those years. We are also subject to audits in the foreign jurisdictions in which we operate for years 2003 and forward. There are no income tax examinations currently in progress.
A reconciliation of the change in the uncertain income tax benefits from
January 1, 2015
to
December 31, 2016
is as follows:
|
|
|
|
|
|
|
|
|
In thousands
|
2016
|
|
2015
|
Balance at January 1
|
$
|
17,402
|
|
|
$
|
8,146
|
|
Tax positions related to the current year:
|
|
|
|
Additions
|
228
|
|
|
9,336
|
|
Tax positions related to the prior years:
|
|
|
|
Additions
|
321
|
|
|
—
|
|
Reductions
|
(218
|
)
|
|
(78
|
)
|
Lapses in statutes of limitations
|
(2,502
|
)
|
|
(2
|
)
|
Balance at December 31
|
$
|
15,231
|
|
|
$
|
17,402
|
|
15. COMMITMENTS AND CONTINGENCIES
Commitments
We lease our facilities and certain equipment under operating leases. During 2015, we extended our lease in San Jose, California. Certain of our leasing arrangements subject us to letter of credit requirements to provide a
$2.4 million
bank letter of credit as security to the landlord. In addition, certain of our leases require us to restore the facilities back to the original condition at the end of lease terms. As such, we recorded asset retirement obligations related to remediation costs as disclosed in Note 11 herein.
On June 28, 2016, we renegotiated the August 15, 2012 lease for our Singapore operations and entered into a new lease that will expire in June 2023.
In March 2013, we entered into an operating lease agreement for facilities in Waltham, Massachusetts, for sales, research and development activities. The lease for this facility expires in February 2018.
In August 2014, we entered into a
thirty-six
month capital lease agreement for equipment valued at
$2.5 million
. At the end of the lease term, we have an option to purchase the leased equipment for a bargain purchase price. Accordingly, this lease is classified as a capital lease. The amortization of these leased assets is included with depreciation expense. As of December 31, 2016, the total amortization of the leased equipment is
$1.1 million
.
In July 2015, we entered into a lease amendment for our facilities in San Jose, California. The lease amendment is to extend the building lease for
five
years and will expire in January 2021. We account for this lease as an operating lease; any improvements to the leased property are capitalized and classified as leasehold improvements.
The table below summarizes our capital and operating lease commitments as of
December 31, 2016
:
|
|
|
|
|
|
|
|
|
In thousands
|
Capital
Leases
|
|
Operating
Leases
|
For the years:
|
|
|
|
2017
|
$
|
582
|
|
|
$
|
3,465
|
|
2018
|
—
|
|
|
3,140
|
|
2019
|
—
|
|
|
3,066
|
|
2020
|
—
|
|
|
3,135
|
|
2021
|
—
|
|
|
1,412
|
|
Total minimum lease payments
|
582
|
|
|
$
|
14,218
|
|
Interest component
|
(7
|
)
|
|
|
Present value of total capital lease payments
|
$
|
575
|
|
|
|
Rent expense was approximately
$3.4 million
,
$2.7 million
and
$2.7 million
for the years ended
December 31, 2016
,
2015
and
2014
, respectively.
Our open purchase order commitments, which primarily relate to purchases of inventories and equipment, were approximately
$16.6 million
as of
December 31, 2016
.
Legal Proceedings
We are subject to claims and litigation arising in the ordinary course of business. We do not believe any liability from any reasonably foreseeable disposition of such claims and litigation, individually or in the aggregate, would have a material adverse effect on our consolidated financial statements. At December 31, 2016, there were no significant outstanding legal matters.
16. INTANGIBLE ASSETS, NET
As of
December 31, 2016
, the gross carrying amount of all our intangible assets was
$18.1 million
and accumulated amortization was
$7.5 million
. The weighted average remaining life of all our intangible assets was
8.9
years as of
December 31, 2016
. Amortization expense for our intangibles was
$1.7 million
for each of the years ended
December 31, 2016
, 2015 and 2014.
The following table summarizes the balances and activity of our intangibles:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
At December 31, 2016
|
|
At December 31, 2015
|
Category
|
Weighted Average Years
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Book Value
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Book Value
|
|
Developed technology
|
6
|
|
$
|
1,080
|
|
|
$
|
(432
|
)
|
|
$
|
648
|
|
|
$
|
1,080
|
|
|
$
|
(324
|
)
|
|
$
|
756
|
|
|
Patents
|
9
|
|
15,946
|
|
|
(6,384
|
)
|
|
9,562
|
|
|
15,946
|
|
|
(5,000
|
)
|
|
10,946
|
|
|
Trade names
|
6
|
|
209
|
|
|
(82
|
)
|
|
127
|
|
|
209
|
|
|
(62
|
)
|
|
147
|
|
|
Customer relationships
|
2
|
|
878
|
|
|
(585
|
)
|
|
293
|
|
|
878
|
|
|
(439
|
)
|
|
439
|
|
|
Total
|
|
|
$
|
18,113
|
|
|
$
|
(7,483
|
)
|
|
$
|
10,630
|
|
|
$
|
18,113
|
|
|
$
|
(5,825
|
)
|
|
$
|
12,288
|
|
|
Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Based on the intangible assets recorded as of
December 31, 2016
, and assuming no subsequent additions to or impairment of the underlying assets, the remaining estimated annual amortization expense is expected to be as follows:
|
|
|
|
|
Year
|
(In thousands)
|
2017
|
1,602
|
|
2018
|
1,479
|
|
2019
|
1,222
|
|
2020
|
1,110
|
|
2021
|
1,049
|
|
Thereafter
|
4,168
|
|
Total
|
$
|
10,630
|
|
17. FINANCIAL GUARANTEES
Our off-balance sheet transactions consist of certain financial guarantees, both express and implied, related to indemnification for product liability, patent infringement and latent product defects. Other than liabilities recorded pursuant to known product defects, at
December 31, 2016
, we did not record a liability associated with these guarantees, as we have little or no history of costs associated with such indemnification requirements. Contingent liabilities associated with product liability may be mitigated by insurance coverage we maintain.
18. SUBSEQUENT EVENT
On February 2, 2017, the Company, Veeco Instruments Inc., a Delaware corporation (“Veeco”) and Ulysses Acquisition Subsidiary Corp., a Delaware corporation and a wholly owned subsidiary of Veeco (“Merger Subsidiary”), entered into an Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which, among other things, Merger Subsidiary will be merged with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly owned subsidiary of Veeco, subject to the terms and conditions of the Merger Agreement. The boards of directors of both Veeco and the Company have approved the transaction. The closing of the Merger is subject to the adoption of the Merger Agreement by the affirmative vote of the holders of at least a majority of the outstanding shares of our common stock and to various other customary conditions, including the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, (the “HSR Act”) (with respect to which the U.S. Federal Trade Commission granted early termination on February 17, 2017), the absence of any temporary restraining order, preliminary or permanent injunction or other judgment issued by any court of competent jurisdiction enjoining or otherwise prohibiting the consummation of the Merger and the SEC having declared effective a registration statement on Form S-4 with respect to the shares of Veeco common stock issuable in connection with the Merger. In addition, it is a condition to closing of the Merger that the Company and its subsidiaries, on a consolidated basis, have at least
$180 million
of cash on hand held in the United States. Pursuant to the Merger Agreement, and subject to the terms and conditions contained therein, upon the closing of the Merger, each share of our common stock outstanding immediately prior to the closing of the Merger (other than shares of our common stock owned by us as treasury shares or owned by Veeco, any of its subsidiaries, any of our subsidiaries or holders of our common stock, if any, who properly exercise their appraisal rights under the General Corporation Law of the State of Delaware) will be converted into the right to receive (i)
$21.75
in cash without interest and (ii)
0.2675
of a share of Veeco common stock.
On February 17, 2017, we received notice from the U.S. Federal Trade Commission that it had granted early termination, effective immediately, of the applicable waiting period under the HSR Act, for the Merger. The early termination of the waiting period under the HSR Act satisfies one of the conditions to the closing of the Merger, which remains subject to other closing conditions, including the adoption of the Merger Agreement by requisite vote of our stockholders.
.