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Summary of Significant Accounting Policies | 12 Months Ended
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Sep. 30, 2011
Accounting Policies [Abstract] |
Summary of Significant Accounting Policies | Summary of Significant Accounting Policies Nature of Operations and Basis of Presentation – Amtech Systems, Inc. (the “Company”) designs, assembles, sells and installs capital equipment and related consumables used in the manufacture of wafers, primarily for the solar and semiconductor industries. The Company sells these products to manufacturers of solar cells, silicon wafers, and semiconductors worldwide, particularly in Asia, United States and Europe. The Company serves niche markets in industries that are experiencing rapid technological advances and which historically have been very cyclical. Therefore, future profitability and growth depend on the Company’s ability to develop or acquire and market profitable new products and on its ability to adapt to cyclical trends. Principles of Consolidation – The consolidated financial statements include the accounts of Amtech and its wholly owned subsidiaries and subsidiaries in which it has a controlling interest. The Company reports noncontrolling interests in consolidated entities as a component of equity separate from the Company’s equity. All material intercompany accounts and transactions have been eliminated in consolidation. Use of Estimates - The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Revenue Recognition – We review product and service sales contracts with multiple deliverables to determine if separate units of accounting are present in the arrangements. Where separate units of accounting exist, revenue is allocated to delivered items equal to the total sales price less the greater of (1) the relative fair value of the undelivered items, and (2) all contingent portions of the sales arrangement. We recognize revenue when persuasive evidence of an arrangement exists; the product has been delivered and title has transferred, or services have been rendered; the seller’s price to the buyer is fixed or determinable and collectability is reasonably assured. For us, this policy generally results in revenue recognition at the following points:
(1) | For our equipment business, transactions where legal title passes to the customer upon shipment, we recognize revenue upon shipment for those products where the customer’s defined specifications have been met with at least two similarly configured systems and processes for a comparably situated customer. However, a portion of the revenue associated with certain installation-related tasks, equal to the greater of the relative fair value of those tasks or the portion of the contract price contingent upon their completion, generally 10%-20% of the system’s selling price (the “holdback”), and directly related costs, if any, are deferred and recognized into income when the tasks are completed. Since we defer only those costs directly related to installation or other unit of accounting not yet delivered and the portion of the contract price is often considerably greater than the fair market value of those items, our policy at times will result in deferral of profit that is disproportionate in relation to the deferred revenue. When this is the case, the gross margin recognized in one period will be lower and the gross margin reported in a subsequent period will improve.
(2) | For products where the customer’s defined specifications have not been met with at least two similarly configured systems and processes, the revenue and directly related costs are deferred at the time of shipment and later recognized at the time of customer acceptance or when this criterion has been met. We have, on occasion, experienced longer than expected delays in receiving cash from certain customers pending final installation or system acceptance. If some of our customers refuse to pay the final payment, or otherwise delay final acceptance or installation, the deferred revenue would not be recognized, adversely affecting our future cash flows and operating results.
(3) | Sales of polishing supplies generally do not include process guarantees, acceptance criteria or holdbacks; therefore, the related revenue is generally recorded upon transfer of title which is generally at the time of shipment.
(4) | Sales of spare parts and consumables are recognized upon shipment, as there are no post shipment obligations other than standard warranties.
(5) | Service revenue is recognized upon performance of the services requested by the customer. Revenue related to service contracts is recognized ratably over the period of the contract or in accordance with the terms of the contract, which generally coincides with the performance of the services requested by the customer.
Deferred Profit – Revenue deferred pursuant to our revenue policy, net of the related deferred costs, if any, is recorded as deferred profit in current liabilities. The components of deferred profit are as follows:
| September 30,
| 2011 |  | 2010 |  | 2009
| (dollars in thousands)
Deferred revenues | $ | 29,666 |  |  | $ | 12,577 |  |  | $ | 6,904 |
Deferred costs | 2,058 |  |  | 1,138 |  |  | 2,177 |
Deferred profit | $ | 27,608 |  |  | $ | 11,439 |  |  | $ | 4,727 |
Cash Equivalents – Cash equivalents in the United States consist of money market mutual funds invested in securities issued by the U.S. Government and its agencies and time deposits. In Europe cash equivalents consist of money market mutual funds and time deposits. Restricted Cash – Restricted cash of $6.6 million and $6.2 million as of September 30, 2011 and 2010, respectively, includes collateral for bank guarantees required by certain customers from whom deposits have been received in advance of shipment. Restricted cash as of September 30, 2011, also includes $4.3 million in an escrow account related to the acquisition of Kingstone Technology Hong Kong Limited (Kingstone). See Note 10 “Acquisition,” for additional information regarding the Kingstone acquisition. Accounts receivable and allowance for doubtful accounts – Accounts receivable are recorded at the gross sales price of products sold to customers on trade credit terms. Accounts receivable are considered past due when payment has not been received from the customer within the normal credit terms extended to that customer. A valuation allowance is established for accounts when collection is no longer probable. Accounts are written off against the allowance when the probability of collection is remote. The following is a summary of the activity in the Company’s allowance for doubtful accounts:
| Years Ended September 30,
| 2011 |  | 2010 |  | 2009
| (dollars in thousands)
Balance at beginning of year | $ | 181 |  |  | $ | 465 |  |  | $ | 588 |
Provision / (adjustment) | 115 |  |  | (56 | ) |  | (57 | )
Write offs | (50 | ) |  | (228 | ) |  | (66 | )
Balance at end of year | $ | 246 |  |  | $ | 181 |  |  | $ | 465 |
Accounts Receivable - Unbilled and Other – Unbilled and other accounts receivable consist mainly of the contingent portion of the sales price that is not collectible until successful installation of the product. These amounts are generally billed upon final customer acceptance. The majority of these amounts are offset by balances included in deferred profit. As of September 30, 2011, the unbilled and other includes $1.9 million of Value Added Tax (VAT) receivables at our European operations. These are taxes that we have paid to our vendors that will be refunded to the Company by the government. Concentrations of Credit Risk – Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and trade accounts receivable. The Company’s customers consist of manufacturers of solar cells, semiconductors, semiconductor wafers, and MEMS located throughout the world. Credit risk is managed by performing ongoing credit evaluations of the customers’ financial condition, by requiring significant deposits where appropriate, and by actively monitoring collections. Letters of credit are required of certain customers depending on the size of the order, type of customer or its creditworthiness, and its country of domicile. Reserves for potentially uncollectible receivables are maintained based on an assessment of collectability. The Company maintains its cash, cash equivalents and restricted cash in multiple financial institutions. Balances in the United States (approximately 30% of total cash balances) are primarily invested in US Treasuries or are in financial institutions insured by the Federal Deposit Insurance Corporation (FDIC). The remainder of the Company’s cash is maintained in banks in The Netherlands, France and China that are uninsured. As of September 30, 2011 one customer represented 33% of accounts receivable. As of September 30, 2010 three customers individually represented 25%, 11% and 11% of accounts receivable. Accounts receivable from Yingli Green Energy (Yingli) were 33% and 25% in fiscal 2011 and 2010, respectively. Refer to Note 7, Geographic Regions, for information regarding revenue and assets in other countries subject to fluctuation in foreign currency exchange rates. Inventories – We value our inventory at the lower of cost or net realizable value. Costs for approximately 90% of inventory are determined on an average cost basis with the remainder determined on a first-in, first-out (FIFO) basis. The components of inventories are as follows:
| September 30, 2011 |  | September 30, 2010
| (dollars in thousands)
Purchased parts and raw materials | $ | 24,925 |  |  | $ | 12,894 |
Work-in-process | 8,257 |  |  | 9,497 |
Finished goods | 3,980 |  |  | 1,926 |
| $ | 37,162 |  |  | $ | 24,317 |
Property, Plant and Equipment - Property plant, and equipment are recorded at cost. Maintenance and repairs are charged to expense as incurred. The cost of property retired or sold and the related accumulated depreciation and amortization are removed from the applicable accounts when disposition occurs and any gain or loss is recognized. Depreciation and amortization is computed using the straight-line method. Depreciation expense was $2.1 million, $1.3 million and $1.1 million in fiscal 2011, 2010 and 2009, respectively. Useful lives for equipment, machinery and leasehold improvements range from three to seven years; for furniture and fixtures from five to ten years; and for buildings twenty years. The following is a summary of property, plant and equipment:
| September 30, 2011 |  | September 30, 2010
| (dollars in thousands)
Land, building and leasehold improvements | $ | 10,636 |  |  | $ | 8,099 |
Equipment and machinery | 6,003 |  |  | 4,918 |
Furniture and fixtures | 5,434 |  |  | 3,991 |
| 22,073 |  |  | 17,008 |
Accumulated depreciation and amortization | (9,393 | ) |  | (7,431 | )
| $ | 12,680 |  |  | $ | 9,577 |
Goodwill - Goodwill and intangible assets with indefinite lives are not subject to amortization, but are tested for impairment when it is determined that is it more likely than not that the fair value of a reporting unit or the indefinite-lived intangible asset is less than its carrying amount, typically at the end of the fiscal year, or more frequently if circumstances dictate. Circumstances in the quarter ended March 31, 2009 required the Company to test long-lived assets for recoverability and impairment. See Note 9, “Impairment and Restructuring Charge” for a description of the facts and circumstances leading to the interim impairment test and the amount and method of calculating the impairment charge.
| Years Ended September 30,
| 2011 |  | 2010
| (dollars in thousands)
Balance at beginning of year | $ | 4,839 |  |  | $ | 5,136 |
Goodwill recognized due to acquisition | 8,479 |  |  | — |
Net exchange differences | (5 | ) |  | (297 | )
Balance at end of year | $ | 13,313 |  |  | $ | 4,839 |
Intangibles - Intangible assets are capitalized and amortized over their useful life if the life is determinable. If the life is not determinable, amortization is not recorded. Amortization expense related to intangible assets was $0.8 million, $0.4 million and $0.5 million in fiscal 2011, 2010 and 2009, respectively. The aggregate amortization expense for the intangible assets for each of the five succeeding fiscal years is estimated to be $0.7 million, $0.7 million, $0.7 million, $0.6 million and $0.4 million in 2012, 2013, 2014, 2015 and 2016 and $0.3 million, thereafter. Long-lived assets are reviewed for impairment when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Circumstances in the quarter ended June 30, 2010 and March 31, 2009 required the Company to test long-lived assets for recoverability and impairment. See Note 9, “Impairment and Restructuring Charge” for a description of the facts and circumstances leading to the interim impairment test and the amount and method of calculating the impairment charge. In the second quarter of fiscal 2011, the Company acquired a 55% ownership of Kingstone, a Hong Kong-based holding company that owns 100% of Kingstone Semiconductor Company Ltd, a Shanghai-based technology company specializing in ion implant solutions for the solar and semiconductor industries. The intangible assets of Kingstone consist of in-process research and development, non-compete agreements, technology and the trade name totaling $3.2 million. The fair value of the intangible assets was determined by a valuation approach that estimates the future economic benefit stream of the asset determined with the assistance of an independent third-party consultant. The benefit stream was then discounted to present value with an appropriate risk-adjusted discount rate. See Note 10, “Acquisition,” for detail of the intangible assets acquired. The following is a summary of intangibles:
| Useful Life |  | September 30, 2011 |  | September 30, 2010
|  |  | (dollars in thousands)
Non-compete agreements | 4-8 years |  | $ | 1,066 |  |  | $ | 166 |
Customer lists | 10 years |  | 876 |  |  | 876 |
Technology | 5-10 years |  | 2,436 |  |  | 1,737 |
Licenses | 10 years |  | 500 |  |  | 890 |
In-process research and development | (1) |  | 1,600 |  |  | — |
Other | 2-10 years |  | 97 |  |  | 90 |
|  |  | 6,575 |  |  | 3,759 |
Accumulated amortization |  |  | (1,554 | ) |  | (1,188 | )
|  |  | $ | 5,021 |  |  | $ | 2,571 |
(1) The in-process research and development will be amortized over its useful life when it has reached technological feasibility. Warranty – A limited warranty is provided free of charge, generally for periods of 12 to 24 months to all purchasers of the Company’s new products and systems. Accruals are recorded for estimated warranty costs at the time revenue is recognized. The following is a summary of activity in accrued warranty expense:
| Years Ended September 30,
| 2011 |  | 2010 |  | 2009
| (dollars in thousands)
Beginning balance | $ | 1,843 |  |  | $ | 1,429 |  |  | $ | 1,155 |
Warranty expenditures | (1,199 | ) |  | (622 | ) |  | (942 | )
Reserve provision | 1,621 |  |  | 1,036 |  |  | 1,216 |
Ending balance | $ | 2,265 |  |  | $ | 1,843 |  |  | $ | 1,429 |
Research and Development Expenses - Research and development expenses consist of the cost of employees, consultants and contractors who design, engineer and develop new products and processes; materials and supplies used in those activities; and product prototyping. The Company receives reimbursements through governmental research and development grants which are netted against these expenses. The table below shows gross research and development expenses and grants earned:
| Years Ended September 30,
| 2011 |  | 2010 |  | 2009
| (dollars in thousands)
Research and development | $ | 7,362 |  |  | $ | 2,986 |  |  | $ | 1,169 |
Grants earned | (1,578 | ) |  | (868 | ) |  | (660 | )
Net research and development | $ | 5,784 |  |  | $ | 2,118 |  |  | $ | 509 |
Shipping expense – Shipping expenses of $5.9 million, $2.5 million and $0.7million for fiscal 2011, 2010 and 2009 are included in selling, general and administrative expenses. Foreign Currency Transactions and Translation – The functional currency of the Company’s European operations is the Euro. Net income includes pretax net losses from foreign currency transactions of $0.2 million, $0.4 million and $0.1 million in fiscal 2011, 2010 and 2009, respectively. The gains or losses resulting from the translation of foreign financial statements have been included in other comprehensive income (loss). Income Taxes – The Company files consolidated federal income tax returns in the United States for all subsidiaries except those in France, Hong Kong and China, where separate returns are filed. The Netherlands operations also file separate returns in that country and will be excluded from the United States consolidated return beginning in fiscal 2012. The Company computes deferred income tax assets and liabilities based upon cumulative temporary differences between financial reporting and taxable income, carryforwards available and enacted tax laws. The Company also accrues a liability for uncertain tax positions when it is more likely than not that such tax will be incurred. Deferred tax assets reflect the tax effects of temporary differences between the carrying value of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management and based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax asset will not be realized. Each quarter the valuation allowance is re-evaluated. Stock-Based Compensation - The Company measures compensation costs relating to share-based payment transactions based upon the grant-date fair value of the award. Those costs are recognized as expense over the requisite service period, which is generally the vesting period. The benefits of tax deductions in excess of recognized compensation cost are reported as cash flow from financing activities rather than as cash flow from operating activities. Stock-based compensation expense for the fiscal years ended September 30, 2011, 2010 and 2009 reduced the Company’s results of operations as follows:
| Years Ended September 30,
| 2011 |  | 2010 |  | 2009
| (dollars in thousands, except per share amounts)
Effect on income before income taxes (1) | $ | (1,470 | ) |  | $ | (987 | ) |  | $ | (711 | )
Effect on income taxes | $ | 495 |  |  | $ | 429 |  |  | $ | 164 |
Effect on net income | $ | (975 | ) |  | $ | (558 | ) |  | $ | (547 | )
(1) Stock-based compensation expense is included in selling, general and administrative expense The Company awards restricted shares under the existing share-based compensation plans. Our restricted share-awards vest in equal annual installments over a two or four-year period. The total value of these awards is expensed on a ratable basis over the service period of the employees receiving the grants. The “service period” is the time during which the employees receiving grants must remain employed for the shares granted to fully vest. Qualified stock options issued under the terms of the plans have, or will have, an exercise price equal to, or greater than, the fair market value of the common stock at the date of the option grant, and expire no later than ten years from the date of grant, with the most recent grant expiring in 2021. Options vest over 1 to 4 years. The Company estimates the fair value of stock option awards on the date of grant using the Black-Scholes option pricing model using the following assumptions:
| Years Ended September 30,
| 2011 |  | 2010 |  | 2009
Risk free interest rate | 2% |  | 2% |  | 2%
Expected life | 6 years |  | 6 years |  | 6 years
Dividend rate | —% |  | —% |  | —%
Volatility | 70% |  | 69% |  | 66%
Forfeiture rate | 4% |  | 4% |  | 6%
To estimate expected lives for this valuation, it was assumed that options will be exercised at varying schedules after becoming fully vested. Forfeitures have been estimated at the time of grant and will be revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures were estimated based upon historical experience. Fair value computations are highly sensitive to the volatility factor assumed; the greater the volatility, the higher the computed fair value of the options granted. The Company uses historical stock prices to determine the volatility factor. Fair Value of Financial Instruments – Cash, Cash Equivalents and Restricted Cash - The carrying amount of these assets on the Company’s Consolidated Balance Sheets approximates their fair value because of the short maturities of these instruments. Receivables, Payables and Accruals—The recorded amounts of financial instruments, including Accounts Receivable, Accounts Payable, and Accrued Liabilities, approximate their fair value because of the short maturities of these instruments. Pensions—The Company has retirement plans covering substantially all employees. The principal plans are defined contribution plans, except for the plans of the Company’s operations in the Netherlands and France and the plan for hourly union employees in Pennsylvania. The Company’s employees in the Netherlands, France and hourly union employees in Pennsylvania participate in multi-employer plans. Payments to the plans are recognized as an expense in the Consolidated Statement of Operations as they become due. Impact of Recently Issued Accounting Pronouncements In September 2011, the FASB issued ASU No. 2011-09, “Compensation-Retirement Benefits-Multiemployer Plans (Subtopic 715-80): Disclosures about an Employer's Participation in a Multiemployer Plan (September 2011)" The amendments in this Update require that employers provide additional separate disclosures for multiemployer pension plans and multiemployer other postretirement benefit plans. The amendment is effective for fiscal years and interim periods within those years, beginning after December 15, 2011. Upon adoption, the Company will provide the additional disclosures required by this amendment. In September 2011, the FASB issued ASU No. 2011-08, “Intangibles - Goodwill and Other (Topic 350): Testing Goodwill for Impairment (September 2011)" Under the amendments in this Update, an entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The amendment is effective for fiscal years and interim periods within those years, beginning after December 15, 2011. The Company early adopted this amendment for the fiscal year ended 2011. In June 2011, the FASB issued ASU No. 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income (June 2011). ”The amendments require that all non-owner changes in stockholders' equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present total other comprehensive income, the components of other comprehensive income, and the total of comprehensive income. The amendment is effective for fiscal years and interim periods within those years, beginning after December 15, 2011. The Company will adopt the two-statement approach. In May 2011, the FASB issued ASU No. 2011-04, "Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IRFSs (May 2011). "The amendments in this Update explain how to measure fair value. They do not require additional fair value measurements and are not intended to establish valuation standards or affect valuation practices outside of financial reporting. The amendment is effective during interim and annual periods beginning after December 15, 2011. The Company is evaluating the impact of this amendment. In December 2010, the FASB issued ASU No. 2010-29, “Business Combinations: Disclosure for Supplementary Pro Forma Information for Business Combinations.” If a public entity presents financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combinations that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. It requires expanded supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The Update is effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. The Company will evaluate the impact of this update on future acquisitions as they occur.

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