Company Quick10K Filing
AXT
Price3.72 EPS-0
Shares40 P/E-178
MCap150 P/FCF20
Net Debt-28 EBIT-0
TEV122 TEV/EBIT-1,874
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-06-30 Filed 2020-08-10
10-Q 2020-03-31 Filed 2020-05-08
10-K 2019-12-31 Filed 2020-03-12
10-Q 2019-09-30 Filed 2019-11-08
10-Q 2019-06-30 Filed 2019-08-08
10-Q 2019-03-31 Filed 2019-05-08
10-K 2018-12-31 Filed 2019-03-11
10-Q 2018-09-30 Filed 2018-11-07
10-Q 2018-06-30 Filed 2018-08-07
10-Q 2018-03-31 Filed 2018-05-04
10-K 2017-12-31 Filed 2018-03-09
10-Q 2017-09-30 Filed 2017-11-08
10-Q 2017-06-30 Filed 2017-08-04
10-Q 2017-03-31 Filed 2017-05-08
10-K 2016-12-31 Filed 2017-02-27
10-Q 2016-09-30 Filed 2016-11-04
10-Q 2016-06-30 Filed 2016-08-05
10-Q 2016-03-31 Filed 2016-05-06
10-K 2015-12-31 Filed 2016-03-11
10-Q 2015-09-30 Filed 2015-11-06
10-Q 2015-06-30 Filed 2015-08-07
10-Q 2015-03-31 Filed 2015-05-08
10-K 2014-12-31 Filed 2015-03-13
10-Q 2014-09-30 Filed 2014-11-06
10-Q 2014-06-30 Filed 2014-08-08
10-Q 2014-03-31 Filed 2014-05-09
10-K 2013-12-31 Filed 2014-03-14
10-Q 2013-09-30 Filed 2013-11-08
10-Q 2013-06-30 Filed 2013-08-09
10-Q 2013-03-31 Filed 2013-05-10
10-K 2012-12-31 Filed 2013-03-15
10-Q 2012-09-30 Filed 2012-11-09
10-Q 2012-06-30 Filed 2012-08-09
10-Q 2012-03-31 Filed 2012-05-10
10-K 2011-12-31 Filed 2012-03-15
10-Q 2011-09-30 Filed 2011-11-08
10-Q 2011-06-30 Filed 2011-08-09
10-Q 2011-03-31 Filed 2011-05-10
10-K 2010-12-31 Filed 2011-03-16
10-Q 2010-09-30 Filed 2010-11-09
10-Q 2010-06-30 Filed 2010-08-09
10-Q 2010-03-31 Filed 2010-05-17
10-K 2009-12-31 Filed 2010-03-22
8-K 2020-07-22 Earnings, Exhibits
8-K 2020-05-21
8-K 2020-04-22
8-K 2020-02-19
8-K 2019-12-23
8-K 2019-10-30
8-K 2019-10-02
8-K 2019-07-24
8-K 2019-05-23
8-K 2019-04-24
8-K 2019-02-20
8-K 2019-01-14
8-K 2018-11-06
8-K 2018-10-31
8-K 2018-07-25
8-K 2018-05-25
8-K 2018-04-25
8-K 2018-04-11
8-K 2018-02-21
8-K 2018-02-21

AXTI 10Q Quarterly Report

Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Note 1. Basis of Presentation
Note 2. Investments and Fair Value Measurements
Note 3. Inventories
Note 4. Property, Plant and Equipment, Net
Note 5. Accrued Liabilities
Note 6. Related Party Transactions
Note 7. Investments in Privately - Held Raw Material Companies
Note 8. Stockholders' Equity
Note 9. Stock - Based Compensation
Note 10. Net Income (Loss) per Share
Note 11. Segment Information and Foreign Operations
Note 12. Commitments and Contingencies
Note 13. Other Income (Expense), Net
Note 14. Income Taxes
Note 15. Revenue
Note 16. Bank Loans and Line of Credit
Note 17. Leases
Note 18. Recent Accounting Pronouncements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 axti-20200630ex311cb2890.htm
EX-31.2 axti-20200630ex312a3e96e.htm
EX-32.1 axti-20200630ex3210e28d3.htm
EX-32.2 axti-20200630ex3221d4319.htm

AXT Earnings 2020-06-30

Balance SheetIncome StatementCash Flow
225180135904502012201420172020
Assets, Equity
302317104-22012201420172020
Rev, G Profit, Net Income
3525155-5-152012201420172020
Ops, Inv, Fin

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0

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the quarterly period ended June 30, 2020

Or

Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the transition period from                 to

Commission File Number 000-24085

AXT, INC.

(Exact name of registrant as specified in its charter)

DELAWARE

94-3031310

(State or other jurisdiction of
Incorporation or organization)

(I.R.S. Employer
Identification No.)

4281 Technology Drive, Fremont, California 94538

(Address of principal executive offices) (Zip code)

(510) 438-4700

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:

    

Trading Symbol

    

Name of each exchange on which registered:

Common Stock, $0.001 par value

AXTI

The NASDAQ Stock Market LLC

Indicate by check-mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  No 

Indicate by check-mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes  No 

Indicate by check-mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer 

Non-accelerated filer

Smaller reporting company 

Emerging growth company 

If an emerging growth company, indicate by check-mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check-mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES  NO 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class

Outstanding at August 1, 2020

Common Stock, $0.001 par value

40,997,141

AXT, INC.

FORM 10-Q

TABLE OF CONTENTS

Page

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

Condensed Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019

3

Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2020 and 2019

4

Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2020 and 2019

5

Condensed Consolidated Statements of Cash Flows for the three and six months ended June 30, 2020 and 2019

6

Notes To Condensed Consolidated Financial Statements

7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

29

Item 3. Quantitative and Qualitative Disclosures About Market Risk

46

Item 4. Controls and Procedures

48

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

49

Item 1A. Risk Factors

49

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

71

Item 3. Defaults upon Senior Securities

71

Item 4. Mine Safety Disclosures

71

Item 5. Other Information

72

Item 6. Exhibits

72

Signatures

74

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

AXT, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited, in thousands, except per share data)

    

June 30, 

    

December 31, 

 

2020

2019

ASSETS

Current assets:

Cash and cash equivalents

$

26,515

$

26,892

Short-term investments

 

5,247

 

9,427

Accounts receivable, net of allowances of $77 and $34 as of June 30, 2020 and December 31, 2019

 

19,760

 

19,031

Inventories

 

49,586

 

49,152

Prepaid expenses and other current assets

 

9,621

 

8,703

Total current assets

 

110,729

 

113,205

Long-term investments

 

720

 

Property, plant and equipment, net

 

101,031

 

97,403

Operating lease right-of-use assets

2,722

2,938

Other assets

 

11,018

 

9,803

Total assets

$

226,220

$

223,349

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

$

11,540

$

10,098

Accrued liabilities

 

10,511

 

11,681

Bank loan

6,087

5,747

Total current liabilities

 

28,138

 

27,526

Long-term portion of royalty payments

 

1,177

 

Noncurrent operating lease liabilities

2,455

2,695

Other long-term liabilities

 

396

 

366

Total liabilities

 

32,166

 

30,587

Commitments and contingencies (Note 12)

Stockholders’ equity:

Preferred stock Series A, $0.001 par value; 2,000 shares authorized; 883 shares issued and outstanding as of June 30, 2020 and December 31, 2019 (Liquidation preference of $7,257 and $7,169 as of June 30, 2020 and December 31, 2019)

 

3,532

 

3,532

Common stock, $0.001 par value; 70,000 shares authorized; 40,889 and 40,632 shares issued and outstanding as of June 30, 2020 and December 31, 2019

 

41

 

41

Additional paid-in capital

 

238,754

 

236,957

Accumulated deficit

 

(47,600)

 

(47,783)

Accumulated other comprehensive loss

 

(6,365)

 

(4,862)

Total AXT, Inc. stockholders’ equity

 

188,362

 

187,885

Noncontrolling interests

 

5,692

 

4,877

Total stockholders’ equity

 

194,054

 

192,762

Total liabilities and stockholders’ equity

$

226,220

$

223,349

See accompanying notes to condensed consolidated financial statements.

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ub

AXT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, in thousands, except per share data)

    

Three Months Ended

    

Six Months Ended

June 30, 

June 30, 

2020

    

2019

2020

    

2019

Revenue

$

22,134

$

24,797

$

42,857

$

45,005

Cost of revenue

 

15,366

 

16,291

 

30,567

 

29,804

Gross profit

 

6,768

 

8,506

 

12,290

 

15,201

Operating expenses:

Selling, general and administrative

 

4,747

 

4,769

 

9,496

 

9,492

Research and development

 

1,543

 

1,399

 

2,950

 

2,745

Total operating expenses

 

6,290

 

6,168

 

12,446

 

12,237

Income (loss) from operations

 

478

 

2,338

 

(156)

 

2,964

Interest income (expense), net

 

(39)

 

79

 

(68)

 

174

Equity in income (loss) of unconsolidated joint ventures

 

(168)

 

8

 

(288)

 

(1,446)

Other income (expense), net

 

1,608

 

(90)

 

2,974

 

(224)

Income before provision for income taxes

 

1,879

 

2,335

 

2,462

 

1,468

Provision for income taxes

 

920

 

597

 

1,286

 

753

Net income

 

959

 

1,738

 

1,176

 

715

Less: Net income attributable to noncontrolling interests

 

(598)

 

(287)

 

(993)

 

(368)

Net income attributable to AXT, Inc.

$

361

$

1,451

$

183

$

347

Net income attributable to AXT, Inc. per common share:

Basic

$

0.01

$

0.04

$

0.00

$

0.01

Diluted

$

0.01

$

0.04

$

0.00

$

0.01

Weighted-average number of common shares outstanding:

Basic

 

39,973

 

39,447

 

39,891

 

39,399

Diluted

 

40,750

 

40,123

 

40,543

 

40,045

See accompanying notes to condensed consolidated financial statements.

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AXT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited, in thousands)

Three Months Ended

Six Months Ended

June 30, 

June 30, 

    

2020

    

2019

    

2020

    

2019

 

Net income

$

959

$

1,738

$

1,176

$

715

Other comprehensive income (loss), net of tax:

Change in foreign currency translation gain (loss), net of tax

 

261

 

(2,474)

 

(1,613)

 

Change in unrealized gain on available-for-sale debt investments, net of tax

 

20

 

23

 

21

 

80

Reclassification adjustment for gains included in net loss upon deconsolidation of a subsidiary

(617)

Total other comprehensive income (loss), net of tax

 

281

 

(2,451)

 

(1,592)

 

(537)

Comprehensive income (loss)

 

1,240

 

(713)

 

(416)

 

178

Less: Comprehensive income attributable to noncontrolling interests

 

(607)

 

(233)

 

(904)

 

(989)

Comprehensive income (loss) attributable to AXT, Inc.

$

633

$

(946)

$

(1,320)

$

(811)

See accompanying notes to condensed consolidated financial statements.

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AXT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)

Six Months Ended

June 30, 

    

2020

    

2019

Cash flows from operating activities:

Net income

$

1,176

$

715

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

 

1,968

 

2,830

Amortization of marketable securities premium

 

20

 

23

Impairment charge on equity investee

1,068

Stock-based compensation

 

1,284

 

1,126

Provision for doubtful accounts

 

43

 

Loss on disposal of equipment

 

 

30

Gain from deconsolidation of a subsidiary

(175)

Loss from equity method investments, net

 

288

 

553

Return on equity method investments

362

Changes in operating assets and liabilities:

Accounts receivable

 

(854)

 

1,304

Inventories

 

(902)

 

8,209

Prepaid expenses and other current assets

 

(996)

 

4,870

Other assets

 

(1,402)

 

(3,173)

Accounts payable

 

1,538

 

(7,330)

Accrued liabilities

 

(1,352)

 

(4,664)

Other long-term liabilities, including royalties

 

1,172

 

199

Net cash provided by operating activities

 

1,983

 

5,947

Cash flows from investing activities:

Purchases of property, plant and equipment

 

(6,465)

 

(8,226)

Purchases of available-for-sale debt securities

 

 

(2,514)

Proceeds from sales and maturities of available-for-sale debt securities

 

3,461

 

16,640

Net cash provided by (used in) investing activities

 

(3,004)

 

5,900

Cash flows from financing activities:

Proceeds from common stock options exercised

 

513

 

232

Proceeds from sale of previously consolidated subsidiary shares

366

Consideration paid to repurchase subsidiary shares from noncontrolling interests

(262)

Proceeds from short-term loan

 

395

 

Dividends paid by joint ventures to their minority shareholders

 

(89)

 

Net cash provided by financing activities

 

819

 

336

Effect of exchange rate changes on cash and cash equivalents

 

(175)

 

23

Net increase (decrease) in cash and cash equivalents

 

(377)

 

12,206

Cash and cash equivalents at the beginning of the year

 

26,892

 

16,526

Cash and cash equivalents at the end of the year

$

26,515

$

28,732

Supplemental disclosure of non-cash flow information:

Consideration payable to repurchase subsidiary shares from noncontrolling interests, included in accrued liabilities

$

$

151

Reduction of noncontrolling interests in excess (deficit) of total consideration paid and payable in connection with the repurchase of subsidiary shares from noncontrolling interests

$

$

(74)

See accompanying notes to condensed consolidated financial statements.

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AXT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Basis of Presentation

The accompanying condensed consolidated financial statements of AXT, Inc. (“AXT,” the “Company,” “we,” “us,” and “our” refer to AXT, Inc. and all of its consolidated subsidiaries) are unaudited, and have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, this interim quarterly financial report does not include all disclosures required by US GAAP. In the opinion of our management, the unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, considered necessary to present fairly the financial position, results of operations and cash flows of AXT and our consolidated subsidiaries for all periods presented.

Our management has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these condensed consolidated financial statements in conformity with US GAAP. Due to the COVID-19 pandemic, there has been uncertainty and disruption in the global economy and financial markets. These estimates and assumptions may change as new events occur and additional information is obtained. Actual results could differ materially from those estimates.

The results of operations for the three and six months ended June 30, 2020 are not necessarily indicative of the results to be expected in the future or for the full fiscal year. It is recommended that these condensed consolidated financial statements be read in conjunction with our consolidated financial statements and the notes thereto included in our 2019 Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 12, 2020 and our Quarterly Report on Form 10-Q for the three months ended March 31, 2020 filed with the SEC on May 8, 2020.

The condensed consolidated financial statements include the accounts of AXT, our wholly-owned subsidiaries, Beijing Tongmei Xtal Technology Co., Ltd. (“Tongmei”), Baoding Tongmei Xtal Technology Co., Ltd. (“Tongmei Baoding”), ChaoYang Tongmei Xtal Technology Co., Ltd. (“Tongmei ChaoYang”), ChaoYang LiMei Semiconductor Technology Co., Ltd. (“LiMei ChaoYang”), Nanjing JinMei Gallium Co., Ltd. (“JinMei”), ChaoYang JinMei Gallium Ltd. and MaAnShan JinMei Gallium Ltd., and, except as discussed below and in Note 7, our majority-owned subsidiary, Beijing BoYu Semiconductor Vessel Craftwork Technology Co., Ltd. (“BoYu”). Tongmei Baoding is located in the city of Dingxing, China. Each of Tongmei ChaoYang and LiMei ChaoYang is located in the city of Kazuo, China. All significant inter-company accounts and transactions have been eliminated. Investments in business entities in which we do not have controlling interests, but have the ability to exercise significant influence over operating and financial policies (generally 20-50% ownership), are accounted for by the equity method. As of June 30, 2020 and December 31, 2019, we have five companies accounted for by the equity method. For the majority-owned subsidiary that we consolidate, we reflect the portion we do not own as noncontrolling interests on our condensed consolidated balance sheets in stockholders' equity and in our condensed consolidated statements of operations.

When market conditions are warranted, we intend to construct facilities at the LiMei ChaoYang location to provide us with additional production capacity. For the three and six months ended June 30, 2020, expenses associated with LiMei ChaoYang had a de minimis impact on the condensed consolidated financial statements.

As discussed in Note 7, “Investments in Privately-Held Companies”, effective as of March 11, 2019 we reduced our ownership in Beijing JiYa Semiconductor Material Co., Ltd. (“JiYa”) from 46% to 39% by selling a portion of our JiYa shares to our investor partner, which is also JiYa’s landlord. As a result of this transaction, our investor partner became the largest shareholder of JiYa and assumed the right to appoint the general manager of JiYa and thereby exercised greater control over JiYa’s long-term strategic direction. Further, although our Chief Executive Officer remains on the board, as of March 11, 2019, he was no longer the chairman of JiYa’s board of directors and our Chief Financial Officer was no longer a member of JiYa’s board of financial supervisors. Therefore, we deconsolidated JiYa

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from our consolidated financial statements as of March 11, 2019 in accordance with Accounting Standards Codification (“ASC”) Topic 810 Consolidation (“ASC 810”). As of March 12, 2019, we accounted for our retained investment in JiYa under the equity method of accounting, as we continue to exercise significant influence.

Our condensed consolidated balance sheet as of December 31, 2019, as reported, does not include the assets and liabilities of JiYa since we deconsolidated JiYa as of March 11, 2019. Our unaudited condensed consolidated statement of operations for the six months ended June 30, 2019 includes JiYa’s results for the period through March 11, 2019.

As discussed in Note 7, in May 2019, we purchased the remaining 3% ownership interest of JinMei from retiring members of the JinMei management team for approximately $413,000. As a result, our ownership of JinMei increased from 97% to 100%. As of June 1, 2019, we referred to JinMei as a wholly-owned subsidiary instead of a significantly controlled subsidiary and reduced the carrying value of the corresponding noncontrolling interests to zero.

Note 2. Investments and Fair Value Measurements

Our cash and cash equivalents consist of cash and instruments with original maturities of less than three months. Our investments consist of instruments with original maturities of more than three months. As of June 30, 2020 and December 31, 2019, our cash, cash equivalents and debt investments are classified as follows (in thousands):

June 30, 2020

December 31, 2019

 

    

    

Gross

    

Gross

    

    

    

Gross

    

Gross

    

 

Amortized

Unrealized

Unrealized

Fair

Amortized

Unrealized

Unrealized

Fair

 

    

Cost

    

Gain

    

(Loss)

    

Value

    

Cost

    

Gain

    

(Loss)

    

Value

 

Classified as:

Cash

$

26,515

$

$

$

26,515

$

26,892

$

$

$

26,892

Cash equivalents:

Certificates of deposit 1

Total cash and cash equivalents

 

26,515

 

 

 

26,515

 

26,892

 

 

 

26,892

Investments (available-for-sale):

Certificates of deposit 2

 

1,440

 

 

1,440

 

2,400

 

2

 

2,402

Corporate bonds

 

4,509

 

18

 

 

4,527

 

7,030

 

4

 

(9)

 

7,025

Total investments

 

5,949

 

18

 

 

5,967

 

9,430

 

6

 

(9)

 

9,427

Total cash, cash equivalents and investments

$

32,464

$

18

$

$

32,482

$

36,322

$

6

$

(9)

$

36,319

Contractual maturities on investments:

Due within 1 year 3

$

5,229

$

5,247

$

9,430

$

9,427

Due after 1 through 5 years 4

 

720

 

720

 

 

$

5,949

$

5,967

$

9,430

$

9,427

1.Certificates of deposit with original maturities of less than three months.
2.Certificates of deposit with original maturities of more than three months.
3.Classified as “Short-term investments” in our condensed consolidated balance sheets.
4.Classified as “Long-term investments” in our condensed consolidated balance sheets.

We manage our debt investments as a single portfolio of highly marketable securities that is intended to be available to meet our current cash requirements. Certificates of deposit and corporate bonds are typically held until maturity.

Historically, the gross unrealized losses related to our portfolio of available-for-sale debt securities were immaterial, and primarily due to normal market fluctuations and not due to increased credit risk or other valuation concerns. There were no gross unrealized losses on our available-for-sale debt securities as of June 30, 2020, and

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historically, such gross unrealized losses have been temporary in nature and we believe that it is probable the principal and interest will be collected in accordance with the contractual terms. We review our debt investment portfolio at least quarterly, or when there are changes in credit risks or other potential valuation concerns, to identify and evaluate whether an allowance for credit losses or impairment would be necessary. Factors considered in determining whether a loss is temporary include the magnitude of the decline in market value, the length of time the market value has been below cost (or adjusted cost), credit quality, and our ability and intent to hold the securities for a period of time sufficient to allow for any anticipated recovery in market value.

None of our debt investments would generate a loss if we sold them on June 30, 2020.

The following table summarizes the fair value and gross unrealized losses related to available-for-sale debt securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of December 31, 2019 (in thousands):

In Loss Position

In Loss Position

Total In

 

< 12 months

> 12 months

Loss Position

 

    

    

    

Gross

    

    

    

Gross

    

    

    

Gross

 

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized

 

As of December 31, 2019

Value

(Loss)

Value

(Loss)

Value

(Loss)

 

Investments:

Corporate bonds

 

4,515

 

(9)

 

 

 

4,515

(9)

Total in loss position

$

4,515

$

(9)

$

$

$

4,515

$

(9)

Investments in Privately-held Raw Material Companies

We have made strategic investments in private companies located in China in order to gain access at a competitive cost to raw materials that are critical to our substrate business (see Note 7). The investment balances for the non-consolidated companies are accounted for under the equity method and included in “Other assets” in the condensed consolidated balance sheets and totaled $5.6 million and $6.0 million as of June 30, 2020 and December 31, 2019, respectively. As of June 30, 2020, there were five companies accounted for under the equity method. There were no impairment charges in the three and six months ended June 30, 2020. The six months ended June 30, 2019 include an impairment charge of $1.1 million for one of our minority investments (see Note 7). There were no impairment charges in the three months ended June 30, 2019.

Fair Value Measurements

We invest primarily in money market accounts, certificates of deposits, corporate bonds and notes, and government securities. We review our debt investment portfolio for credit loss at least quarterly or when there are changes in credit risk or other potential valuation concerns. As of June 30, 2020 and December 31, 2019, the total unrealized loss, net of tax, included in accumulated other comprehensive loss was immaterial. We believe it is probable the principal and interest will be collected in accordance with the contractual terms, and the unrealized loss on these securities was due to normal market fluctuations, and not due to increased credit risk or other valuation concerns. ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), establishes three levels of inputs that may be used to measure fair value. Level 1 instrument valuations are obtained from real-time quotes for transactions in active exchange markets of the asset or identical assets. Level 2 instrument valuations are obtained from readily-available, observable pricing sources for comparable instruments. Level 3 instrument valuations are obtained from unobservable inputs in which there is little or no market data, which require us to develop our own assumptions. On a recurring basis, we measure certain financial assets and liabilities at fair value, primarily consisting of our short-term and long-term debt investments.

The type of instrument valued based on quoted market prices in active markets include our money market funds, which are generally classified within Level 1 of the fair value hierarchy. We classify our available-for-sale debt securities including certificates of deposit and corporate bonds as having Level 2 inputs. The valuation techniques used to measure the fair value of these financial instruments having Level 2 inputs were derived from bank statements, quoted

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market prices, broker or dealer statements or quotations, or alternative pricing sources with reasonable levels of price transparency.

We place short-term foreign currency hedges that are intended to offset the potential cash exposure related to fluctuations in the exchange rate between the United States dollar and Japanese yen. We measure the fair value of these foreign currency hedges at each month end and quarter end using current exchange rates and in accordance with US GAAP. At quarter end, any foreign currency hedges not settled are netted in “Accrued liabilities” on the condensed consolidated balance sheet and classified as Level 3 assets and liabilities. As of June 30, 2020, the net change in fair value from the placement of the hedge to settlement at each month end during the quarter had a de minimis impact on the condensed consolidated results.

There were no changes in valuation techniques or related inputs in the three and six months ended June 30, 2020. There have been no transfers between fair value measurements levels during the three and six months ended June 30, 2020.

The following table summarizes our financial assets and liabilities measured at fair value on a recurring basis in accordance with ASC 820 as of June 30, 2020 (in thousands):

    

    

Quoted Prices in

    

Significant

 

Active Markets of

Significant Other

Unobservable

 

Balance as of

Identical Assets

Observable Inputs

Inputs

 

    

June 30, 2020

    

(Level 1)

    

(Level 2)

    

(Level 3)

 

Assets:

Cash equivalents and investments:

Certificates of deposit

$

1,440

$

$

1,440

$

Corporate bonds

 

4,527

 

 

4,527

 

Total

$

5,967

$

$

5,967

$

The following table summarizes our financial assets and liabilities measured at fair value on a recurring basis in accordance with ASC 820 as of December 31, 2019 (in thousands):