Fei 10Q 2013 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_____________________________________________

FORM 10-Q

_____________________________________________



x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2013



o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File No. 000-22780

_____________________________________________

FEI COMPANY

(Exact name of registrant as specified in its charter)

_____________________________________________



Oregon		93-0621989
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

5350 NE Dawson Creek Drive, Hillsboro, Oregon		97124-5793
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: 503-726-7500

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 x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes x No o

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



Large accelerated filer	x		Accelerated filer	o

Non-accelerated filer	o	(Do not check if a smaller reporting company)	Smaller reporting company	o

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

The number of shares of common stock outstanding as of April 29, 2013 was 38,569,869.

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FEI COMPANY

FORM 10-Q QUARTERLY REPORT

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		Page

PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)

	Consolidated Balance Sheets as of March 31, 2013 and December 31, 2012	2

	Consolidated Statements of Operations for the thirteen weeks ended March 31, 2013 and April 1, 2012	3

	Consolidated Statements of Comprehensive Income for the thirteen weeks ended March 31, 2013 and April 1, 2012	4

	Consolidated Statements of Cash Flows for the thirteen weeks ended March 31, 2013 and April 1, 2012	5

	Condensed Notes to the Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25

Item 4.	Controls and Procedures	25

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	26

Item 1A.	Risk Factors	26

Item 6.	Exhibits	37

Signatures		38

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PART I - FINANCIAL INFORMATION


Item 1.	Financial Statements

FEI Company and Subsidiaries

Consolidated Balance Sheets

(In thousands)

(Unaudited)



	March 31, 2013		December 31, 2012
Assets
Current Assets:
Cash and cash equivalents	$	271,675	$	266,302
Short-term investments in marketable securities	97,590		79,532
Short-term restricted cash	14,257		14,522
Receivables, net of allowances for doubtful accounts of $2,497 and $2,718	215,833		211,160
Inventories	185,254		192,540
Deferred tax assets	11,760		12,245
Other current assets	31,004		29,332
Total current assets	827,373		805,633
Non-current investments in marketable securities	28,190		29,179
Long-term restricted cash	29,936		27,425
Property, plant and equipment, net of accumulated depreciation of $119,665 and $121,560	103,743		109,872
Intangible assets, net of accumulated amortization of $12,924 and $10,984	48,806		51,499
Goodwill	128,172		131,320
Deferred tax assets	829		5,092
Non-current inventories	63,564		65,116
Other assets, net	8,891		9,087
Total Assets	$	1,239,504	$	1,234,223
Liabilities and Shareholders’ Equity
Current Liabilities:
Accounts payable	$	55,390	$	54,847
Accrued payroll liabilities	30,966		39,100
Accrued warranty reserves	12,280		12,049
Accrued agent commissions	7,029		8,124
Short-term deferred revenue	83,699		74,736
Income taxes payable	1,952		1,343
Accrued restructuring, reorganization, relocation and severance	2,796		2,692
Convertible debt	89,010		89,010
Other current liabilities	36,527		36,902
Total current liabilities	319,649		318,803
Long-term deferred revenue	26,682		26,668
Deferred tax liabilities	11,391		17,588
Other liabilities	29,034		31,261
Commitments and contingencies
Shareholders’ Equity:
Preferred stock - 500 shares authorized; none issued and outstanding	—		—
Common stock - 70,000 shares authorized; 38,567 and 38,478 shares issued and outstanding, no par value	523,387		516,907
Retained earnings	308,130		284,440
Accumulated other comprehensive income	21,231		38,556
Total Shareholders’ Equity	852,748		839,903
Total Liabilities and Shareholders’ Equity	$	1,239,504	$	1,234,223

See accompanying Condensed Notes to the Consolidated Financial Statements.

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FEI Company and Subsidiaries

Consolidated Statements of Operations

(In thousands, except per share amounts)

(Unaudited)



	Thirteen Weeks Ended
	March 31, 2013			April 1, 2012
Net sales:
Products	$	169,495		$	169,344
Service	51,694			48,211
Total net sales	221,189			217,555
Cost of sales:
Products	85,183			87,338
Service	33,455			32,106
Total cost of sales	118,638			119,444
Gross profit	102,551			98,111
Operating expenses:
Research and development	24,809			22,722
Selling, general and administrative	43,524			41,323
Restructuring, reorganization, relocation and severance	695			—
Total operating expenses	69,028			64,045
Operating income	33,523			34,066
Other expense:
Interest income	116			571
Interest expense	(816		)	(1,084		)
Other, net	(805		)	(1,550		)
Total other expense, net	(1,505		)	(2,063		)
Income before income taxes	32,018			32,003
Income tax expense	5,217			6,336
Net income	$	26,801		$	25,667
Basic net income per share	$	0.70		$	0.68
Diluted net income per share	$	0.65		$	0.63
Cash dividends declared per share	$	0.08		$	—
Shares used in per share calculations:
Basic	38,522			37,886
Diluted	42,136			41,518

See accompanying Condensed Notes to the Consolidated Financial Statements.

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FEI Company and Subsidiaries

Consolidated Statements of Comprehensive Income

(In thousands)

(Unaudited)



	Thirteen Weeks Ended
	March 31, 2013			April 1, 2012
Net income	$	26,801		$	25,667
Other comprehensive income, net of taxes:
Change in cumulative translation adjustment	(15,714		)	12,744
Change in unrealized gain (loss) on available-for-sale securities	7			(12		)
Change in minimum pension liability	(15		)	—
Changes due to cash flow hedging instruments:
Net (loss) gain on hedge instruments	(1,925		)	3,512
Reclassification to net income of previously deferred losses related to hedge derivatives instruments	322			236
Comprehensive income	$	9,476		$	42,147

See accompanying Condensed Notes to the Consolidated Financial Statements.

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FEI Company and Subsidiaries

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)



	Thirteen Weeks Ended
	March 31, 2013			April 1, 2012
Cash flows from operating activities:
Net income	$	26,801		$	25,667
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation	5,810			5,204
Amortization	2,557			913
Stock-based compensation	4,364			3,613
Income taxes payable, net	600			1,357
Deferred income taxes	976			(3,282		)
(Increase) decrease, net of acquisitions, in:
Receivables	(9,284		)	(28,249		)
Inventories	(1,606		)	(11,247		)
Other assets	(512		)	(2,834		)
Increase (decrease), net of acquisitions, in:
Accounts payable	3,212			3,576
Accrued payroll liabilities	(9,645		)	(22,634		)
Accrued warranty reserves	421			(83		)
Deferred revenue	10,587			(148		)
Accrued restructuring, reorganization, relocation and severance	188			48
Other liabilities	341			(4,110		)
Net cash provided by (used in) operating activities	34,810			(32,209		)
Cash flows from investing activities:
(Increase) decrease in restricted cash	(3,462		)	16,957
Acquisition of property, plant and equipment	(5,043		)	(6,189		)
Payments for acquisitions, net of cash acquired	—			(30,171		)
Purchase of investments in marketable securities	(50,715		)	(50,012		)
Redemption of investments in marketable securities	34,030			26,638
Other	(293		)	(319		)
Net cash used in investing activities	(25,483		)	(43,096		)
Cash flows from financing activities:
Dividends paid on common stock	(3,078		)	—
Withholding taxes paid on issuance of vested restricted stock units	(363		)	(1,366		)
Proceeds from exercise of stock options and employee stock purchases	4,146			2,804
Excess tax benefit for share based payment arrangements	586			433
Repurchases of common stock	—			(818		)
Net cash provided by financing activities	1,291			1,053
Effect of exchange rate changes	(5,245		)	6,168
Increase (decrease) in cash and cash equivalents	5,373			(68,084		)
Cash and cash equivalents:
Beginning of period	266,302			320,361
End of period	$	271,675		$	252,277
Supplemental Cash Flow Information:
Cash paid for income taxes, net	$	2,656		$	7,807
Cash paid for interest	56			322
Increase in fixed assets related to transfers with inventories	1,664			8,839
Dividends declared but not paid	3,078			—

See accompanying Condensed Notes to the Consolidated Financial Statements.

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FEI COMPANY AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


NOTE 1.	ORGANIZATION AND BASIS OF PRESENTATION

Nature of Business

We are a leading supplier of scientific instruments for nanoscale applications and solutions for industry and science. We report our revenue based on a group structure organization: the Industry Group and the Science Group.

Our products include transmission electron microscopes, or TEMs; scanning electron microscopes, or SEMs; DualBeam^TM systems which combine a SEM and a focused ion beam system, or FIB, on a single platform; stand-alone FIBs; and high-performance optical microscopes. TEMs provide the highest resolution images of samples and their internal structure, down to the atomic level. SEMs provide detailed images of the surface and shape of samples. Optical microscopes provide a wider field of view than SEMs and TEMs. DualBeams and FIBs image, manipulate, mill and deposit material for a variety of purposes, including preparation of samples for TEMs. Substantially all of these product categories are sold into all of our market segments. Individual models of our products are increasingly designed to provide specific solutions and applications in each of our market segments.

Our DualBeam systems include models that have wafer handling capability and are purchased by semiconductor equipment manufacturers (“wafer-level DualBeam systems”) and models that have small stages and are sold to customers in several markets (“small-stage DualBeam systems”).

We have research and development and manufacturing operations in Hillsboro, Oregon; Eindhoven, The Netherlands; Brno, Czech Republic; Munich, Germany; and Delmont, Pennsylvania, and software development in Bordeaux, France and Brisbane, Australia. Our sales and service operations are conducted in the United States (U.S.) and approximately 50 other countries around the world. We also sell our products through independent agents, distributors and representatives in additional countries.

Basis of Presentation

The consolidated financial statements include the accounts of FEI Company and our wholly-owned subsidiaries (collectively, “FEI”). All significant intercompany balances and transactions have been eliminated in consolidation.

The accompanying consolidated financial statements and condensed footnotes have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the U.S. for complete financial statements. In the opinion of management, all adjustments considered necessary for fair presentation have been included. The results of operations for the thirteen week period ended March 31, 2013 are not necessarily indicative of the results to be expected for the full year. For further information, refer to the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2012, which was filed with the Securities and Exchange Commission (“SEC”) on February 20, 2013.

Use of Estimates in Financial Reporting

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period.

Significant accounting policies and estimates underlying the accompanying consolidated financial statements include:


•	the timing of revenue recognition;


•	the allowance for doubtful accounts;


•	valuations of excess and obsolete inventory;


•	the lives and recoverability of equipment and other long-lived assets such as goodwill;


•	the valuations of intangible assets;


•	restructuring, reorganization, relocation and severance costs;


•	tax valuation allowances and unrecognized tax benefits;


•	warranty liabilities;

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•	stock-based compensation; and


•	accounting for derivatives.

It is reasonably possible that management's estimates may change in the future.


NOTE 2.	EARNINGS PER SHARE

Following is a reconciliation of basic earnings per share (“EPS”) and diluted EPS (in thousands, except per share amounts):



	Thirteen Weeks Ended						Thirteen Weeks Ended
	March 31, 2013						April 1, 2012
	Net Income		Shares	Per Share Amount			Net Income		Shares	Per Share Amount
Basic EPS	$	26,801	38,522	$	0.70		$	25,667	37,886	$	0.68
Dilutive effect of 2.875% convertible debt	455		3,033	(0.04		)	455		3,033	(0.04		)
Dilutive effect of stock options, restricted stock units, and shares issuable to Philips	—		581	(0.01		)	—		599	(0.01		)
Diluted EPS	$	27,256	42,136	$	0.65		$	26,122	41,518	$	0.63

The following table sets forth the schedule of anti-dilutive securities excluded from the computation of diluted EPS (number of shares, in thousands):



	Thirteen Weeks Ended
	March 31, 2013	April 1, 2012
Stock options	222	279
Restricted stock units	2	—


NOTE 3.	STOCK-BASED COMPENSATION

1995 Stock Incentive Plan and 1995 Supplemental Stock Incentive Plan

Our 1995 Stock Incentive Plan, as amended (the “1995 Plan”), allows for the issuance of a maximum of 10,750,000 shares of our common stock and our 1995 Supplemental Stock Incentive Plan (the “1995 Supplemental Plan”) allows for the issuance of a maximum of 500,000 shares of our common stock.

The following table sets forth certain information regarding the 1995 Plan and the 1995 Supplemental Plan:



	March 31, 2013
Shares available for grant	2,056,369
Shares of common stock reserved for issuance	3,716,733

The following table sets forth certain information regarding all options outstanding and exercisable:



	March 31, 2013
	Options Outstanding		Options Exercisable
Number	800,790		196,163
Weighted average exercise price	$	37.93	$	26.31
Aggregate intrinsic value	$ 21.3 million		$ 7.5 million
Weighted average remaining contractual term	5.1 years		3.6 years

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The following table sets forth certain information regarding all RSUs nonvested and expected to vest:



	March 31, 2013
	RSUs Nonvested		RSUs Expected to Vest
Number	859,576		748,735
Weighted average grant date per share fair value	$	42.43	$	41.97
Aggregate intrinsic value	$ 55.5 million		$ 48.3 million
Weighted average remaining term to vest	1.6 years		1.6 years

As of March 31, 2013, unrecognized stock-based compensation related to outstanding, but unvested stock options and RSUs was $39.3 million, which will be recognized over the weighted average remaining vesting period of 2.0 years.

Stock-Based Compensation Expense

Our stock-based compensation expense was included in our Consolidated Statements of Operations as follows (in thousands):



	Thirteen Weeks Ended
	March 31, 2013		April 1, 2012
Cost of sales	$	595	$	499
Research and development	531		514
Selling, general and administrative	3,238		2,600
Total stock-based compensation	$	4,364	$	3,613


NOTE 4.	CREDIT FACILITIES AND RESTRICTED CASH

Multibank Credit Agreement

We have a multibank credit agreement (the “Credit Agreement”), which provides for a $100.0 million secured revolving credit facility, including a $50.0 million subfacility for the issuance of letters of credit. The credit agreement expires in April 2016. We may, upon notice to JPMorgan Chase Bank, N.A. (the “Agent”), request to increase the revolving loan commitments by an aggregate amount of up to $50.0 million with new or additional commitments subject only to the consent of the lender(s) providing the new or additional commitments, for a total secured credit facility of up to $150.0 million. As of March 31, 2013, there were no revolving loans or letters of credit outstanding under the Credit Agreement, we were in compliance with all covenants and we were not in default under the Credit Agreement.

Restricted Cash

As part of our contracts with certain customers, we are required to provide letters of credit or bank guarantees which these customers can draw against in the event we do not perform in accordance with our contractual obligations. Restricted cash balances securing bank guarantees that expire within 12 months of the balance sheet date are recorded as a current asset on our consolidated balance sheets. Restricted cash balances securing bank guarantees that expire beyond 12 months from the balance sheet date are recorded as long-term restricted cash on our consolidated balance sheets.

The following table sets forth information related to guarantees and letters of credit (in thousands):



	March 31, 2013
Guarantees and letters of credit outstanding	$	44,197
Amount secured by restricted cash deposits:
Current	$	14,257
Long-term	29,936
Total secured by restricted cash	$	44,193

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NOTE 5.	INVENTORIES

Inventories are stated at the lower of cost or market, with cost determined by standard cost methods, which approximate the first-in, first-out method. Inventory costs include material, labor and manufacturing overhead. Service inventories that exceed the estimated requirements for the next 12 months based on recent usage levels are reported as a long-term asset. Management has established inventory reserves based on estimates of excess and/or obsolete current and non-current inventory.

Inventories consisted of the following (in thousands):



	March 31, 2013		December 31, 2012
Raw materials and assembled parts	$	67,922	$	67,985
Service inventories, estimated current requirements	15,543		15,898
Work-in-process	74,942		81,104
Finished goods	26,847		27,553
Total current inventories	$	185,254	$	192,540
Non-current inventories	$	63,564	$	65,116


NOTE 6.	GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

The roll-forward of activity related to our goodwill was as follows (in thousands):



	Thirteen Weeks Ended
	March 31, 2013			April 1, 2012
Balance, beginning of period	$	131,320		$	58,053
Goodwill additions	—			21,989
Goodwill adjustments	(3,148		)	461
Balance, end of period	$	128,172		$	80,503

Additions to goodwill represent goodwill from acquisitions made during the period. Adjustments to goodwill include translation adjustments resulting from a portion of our goodwill being recorded on the books of our foreign subsidiaries as well as an adjustment related to the finalization of the purchase price allocation of the acquisition of ASPEX Corporation in 2012.

Other Intangible Assets

Patents, trademarks and other are amortized under the straight-line method over their estimated useful lives of 2 to 15 years. Customer relationships are amortized under the straight-line method over their estimated useful lives of 5 to 10 years. Developed technology is amortized under the straight-line method over the estimated useful life of the related technology, which ranges from 5.5 to 10 years. Note issuance costs are amortized over the life of the related debt, which is 7 years.

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The gross amount of our other intangible assets and the related accumulated amortization were as follows (in thousands):



	March 31, 2013			December 31, 2012
Patents, trademarks and other	$	22,222		$	22,047
Accumulated amortization	(6,567		)	(5,743		)
Net patents, trademarks and other	15,655			16,304
Customer relationships	19,709			20,305
Accumulated amortization	(1,676		)	(1,171		)
Net customer relationships	18,033			19,134
Developed technology	17,355			17,686
Accumulated amortization	(2,295		)	(1,771		)
Net developed technology	15,060			15,915
Note issuance costs	2,445			2,445
Accumulated amortization	(2,387		)	(2,299		)
Net note issuance costs	58			146
Total intangible assets included in other long-term assets	$	48,806		$	51,499

Amortization expense was as follows (in thousands):



	Thirteen Weeks Ended
	March 31, 2013		April 1, 2012
Patents, trademarks and other	$	919	$	427
Customer relationships	505		—
Developed technology	524		338
Note issuance costs	87		87
Total amortization expense	$	2,035	$	852

Expected amortization, without consideration for foreign currency effects, is as follows over the next five years and thereafter (in thousands):



	Patents, Trademarks and Other		Customer Relationships		Developed Technology		Note Issuance Costs		Total
Remainder of 2013	$	2,360	$	1,615	$	1,648	$	58	$	5,681
2014	2,797		2,153		2,197		—		7,147
2015	2,682		2,153		2,197		—		7,032
2016	2,497		2,153		2,197		—		6,847
2017	1,947		1,806		1,935		—		5,688
Thereafter	3,372		8,153		4,886		—		16,411
Total future amortization expense	$	15,655	$	18,033	$	15,060	$	58	$	48,806


NOTE 7.	WARRANTY RESERVES

Our products generally carry a one-year warranty. A reserve is established at the time of sale to cover estimated warranty costs and certain commitments for product upgrades as a component of cost of sales on our consolidated statements of operations. Our estimate of warranty cost is primarily based on our history of warranty repairs and maintenance, as applied to systems currently under warranty. For our new products without a history of known warranty costs, we estimate the expected costs based on our experience with similar product lines and technology. While most new products are extensions of existing technology, the estimate could change if new products require a significantly different level of repair and maintenance than similar products have required in the past. Our estimated warranty costs are reviewed and updated on a quarterly basis. Changes to the reserve occur as volume, product mix and warranty costs fluctuate.

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The following is a summary of warranty reserve activity (in thousands):



	Thirteen Weeks Ended
	March 31, 2013			April 1, 2012
Balance, beginning of period	$	12,049		$	11,683
Reductions for warranty costs incurred	(3,403		)	(2,531		)
Warranties issued	3,788			2,621
Translation and changes in estimates	(154		)	129
Balance, end of period	$	12,280		$	11,902


NOTE 8.	INCOME TAXES

Our tax provision for the thirteen week period ended March 31, 2013 consisted primarily of taxes accrued in the U.S. and foreign jurisdictions. The tax rate in the current quarter is lower due to U.S. research and experimentation tax credits generated in 2012 and recognized in conjunction with the extension of legislation enacted in January 2013. We continue to record a valuation allowance against a portion of our U.S. and foreign deferred tax assets as we do not believe it is more likely than not that we will be able to utilize the deferred tax assets in future periods.

Deferred Income Taxes

Net deferred tax assets (liabilities) were classified on the balance sheet as follows (in thousands):



	March 31, 2013			December 31, 2012
Deferred tax assets – current	$	11,760		$	12,245
Deferred tax assets – non-current	829			5,092
Other current liabilities	(71		)	(93		)
Deferred tax liabilities – non-current	(11,391		)	(17,588		)
Net deferred tax assets (liabilities)	$	1,127		$	(344	)
Valuation allowance	$	1,994		$	2,081

Unrecognized Tax Benefits

During the thirteen week period ended March 31, 2013, unrecognized tax benefits increased primarily due to uncertainty surrounding permanent establishment and tax credits. There were no increases or decreases in prior unrecognized tax benefits resulting from settlements with taxing authorities or lapses of statutes of limitations during the periods. We recognize interest and penalties related to unrecognized tax benefits in tax expense.

For our major tax jurisdictions, the following years were open for examination by the tax authorities as of March 31, 2013:



Jurisdiction		Open Tax Years
U.S.		2007 and forward
The Netherlands		2011 and forward
Czech Republic		2010 and forward

The IRS is currently examining our 2007-2009 U.S. tax returns.


NOTE 9.	RELATED-PARTY ACTIVITY

Related parties with which we had transactions during the thirteen week period ended March 31, 2013 were as follows:


•	one of the members of our Board of Directors serves on the Board of Directors of Applied Materials, Inc. and Lattice Semiconductor Corporation;


•	our Chief Financial Officer is on the Board of Directors of Cascade Microtech, Inc.;


•	one of the members of our Board of Directors serves on the Supervisory Board of TMC BV; and

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•	our Chief Executive Officer is on the Board of Trustees for the Oregon Health and Science University Foundation (effective January 2013).

Transactions with these related parties were as follows (in thousands):



	Thirteen Weeks Ended
Sales to Related Parties	March 31, 2013		April 1, 2012
Product sales:
Applied Materials, Inc.	$	3,492	$	48
Oregon Health & Science University	129		—
Total product sales to related parties	3,621		48
Service sales:
Applied Materials, Inc.	133		135
Lattice Semiconductor Corporation	3		—
Cascade Microtech, Inc.	8		8
Oregon Health & Science University	9		—
Total service sales to related parties	153		143
Total sales to related parties	$	3,774	$	191
Purchases from Related Parties
TMC BV	$	25	$	27
Total purchases from related parties	$	25	$	27

Amounts due from (to) related parties were as follows (in thousands):



	March 31, 2013
Applied Materials, Inc.	$	3,551
Cascade Microtech, Inc.	8
Oregon Health & Science University	6,963
TMC BV	(127		)
Due from related parties, net	$	10,395


NOTE 10.	COMMITMENTS AND CONTINGENCIES

From time to time, we may be a party to litigation arising in the ordinary course of business. Currently, we are not a party to any litigation that we believe would have a material adverse effect on our financial position, results of operations or cash flows.

Purchase Obligations

We have commitments under non-cancelable purchase orders, primarily relating to inventory, totaling $76.7 million at March 31, 2013. These commitments expire at various times through the second quarter of 2016.


NOTE 11.	SEGMENT INFORMATION

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance. Our chief operating decision maker is our Chief Executive Officer.

Beginning with the first quarter of 2013, we reorganized our corporate structure. We currently report our segments based on a group structure organization. Our segments are Industry and Science.

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The following tables summarize various financial amounts for each of our business segments (in thousands):



	Thirteen Weeks Ended
	March 31, 2013		April 1, 2012
Sales to External Customers:
Industry	$	99,064	$	111,686
Science	122,125		105,869
Total	$	221,189	$	217,555
Gross Profit:
Industry	$	50,514	$	56,588
Science	52,037		41,523
Total	$	102,551	$	98,111



	March 31, 2013		December 31, 2012
Goodwill:
Industry	$	52,096	$	53,572
Science	76,076		77,748
Total	$	128,172	$	131,320
Total Assets:
Industry	$	303,924	$	293,115
Science	380,699		401,795
Corporate and Eliminations	554,881		539,313
Total	$	1,239,504	$	1,234,223

Market segment disclosures are presented to the gross profit level as this is the primary performance measure for which the segment general managers are responsible. Selling, general and administrative, research and development and other operating expenses are managed and reported at the corporate level and, given allocation to the market segments would be arbitrary, have not been allocated to the market segments. See our Consolidated Statements of Operations for reconciliations from gross profit to income before income taxes. These reconciling items are not included in the measure of profit and loss for each reportable segment.


NOTE 12.	RESTRUCTURING, REORGANIZATION, RELOCATION AND SEVERANCE

Group Structure Reorganization

In January 2013, we announced our intention to reorganize the company into a group structure in order to enable us to efficiently execute our growth strategy. The reorganization was completed in the first quarter of 2013. The costs associated with the reorganization include primarily severance costs and resulted in the termination of certain positions throughout the company. In anticipation of this reorganization, we incurred $2.9 million of severance costs during the fourth quarter of 2012. During the first quarter of 2013, we recorded $0.7 million of severance costs and anticipate $0.6 million in additional charges in the second quarter of 2013. All of the costs related to this plan are expected to result in cash expenditures and we currently expect the total cost of the reorganization to be approximately $4.2 million.

Restructuring, Reorganization, Relocation and Severance Accrual

The following table summarizes the charges, expenditures, write-offs and adjustments related to our restructuring, reorganization, relocation and severance accrual (in thousands):



Thirteen Weeks Ended March 31, 2013	Group Structure Organization			Total
Beginning accrued liability	$	2,692		$	2,692
Charged to expense, net	695			695
Expenditures	(511		)	(511		)
Write-offs and adjustments	(80		)	(80		)
Ending accrued liability	$	2,796		$	2,796

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NOTE 13.	FAIR VALUE MEASUREMENTS OF ASSETS AND LIABILITIES

Factors used in determining the fair value of our financial assets and liabilities are summarized into three broad categories:


•	Level 1 – quoted prices in active markets for identical securities as of the reporting date;


•	Level 2 – other significant directly or indirectly observable inputs, including quoted prices for similar securities, interest rates, prepayment speeds and credit risk; and


•	Level 3 – significant inputs that are generally less observable than objective sources, including our own assumptions in determining fair value.

The factors or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

Following are the disclosures related to the fair value of our financial assets and (liabilities) (in thousands):



March 31, 2013	Level 1		Level 2			Level 3		Total
Available for sale marketable securities:
U.S. treasury notes	$	53,034	$	—		$	—	$	53,034
Agency bonds	—		35,608			—		35,608
Commercial paper	—		9,998			—		9,998
Certificates of deposit	—		6,271			—		6,271
Municipal bonds	—		16,958			—		16,958
Trading securities:
Equity securities – mutual funds	3,911		—			—		3,911
Derivative contracts, net	—		(2,332		)	—		(2,332		)
Total	$	56,945	$	66,503		$	—	$	123,448



December 31, 2012	Level 1		Level 2		Level 3		Total
Available for sale marketable securities:
U.S. treasury notes	$	60,786	$	—	$	—	$	60,786
Agency bonds	—		31,157		—		31,157
Commercial paper	—		5,000		—		5,000
Certificates of deposit	—		5,494		—		5,494
Municipal bonds	—		3,228		—		3,228
Trading securities:
Equity securities – mutual funds	3,046		—		—		3,046
Derivative contracts, net	—		1,655		—		1,655
Total	$	63,832	$	46,534	$	—	$	110,366

Agency bonds are securities backed by U.S. government-sponsored entities.

We use an income approach to value the assets and liabilities for outstanding derivative contracts using current market information as of the reporting date, such as spot rates, interest rate differentials and implied volatility.

There were no transfers between fair value categories or changes to our valuation techniques during the thirteen week period ended March 31, 2013.

We believe the carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and other current liabilities are a reasonable approximation of the fair value of those financial instruments because of the nature of the underlying transactions and the short-term maturities involved.

Our fixed rate convertible debt outstanding was as follows (in thousands):



	March 31, 2013
Fixed rate convertible debt on balance sheet	$	89,010
Fair value of fixed rate convertible debt	195,749

The fair value of our fixed rate convertible debt is based on open market trades and is classified as Level 2 in the fair value hierarchy.

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NOTE 14.	DERIVATIVE INSTRUMENTS

In the normal course of business, we are exposed to foreign currency risk and we use derivatives to mitigate financial exposure from movements in foreign currency exchange rates.

The aggregate notional amount of outstanding derivative contracts were as follows (in thousands):



	March 31, 2013		December 31, 2012
Cash flow hedges	$	134,000	$	165,000
Balance sheet hedges	70,978		225,924
Total outstanding derivative contracts	$	204,978	$	390,924

The outstanding contracts at March 31, 2013 have varying maturities through the second quarter of 2014. We do not enter into derivative financial instruments for speculative purposes.

We attempt to mitigate derivative credit risk by transacting with highly rated counterparties. We have evaluated the credit and nonperformance risks associated with our derivative counterparties and believe them to be insignificant and not warranting a credit adjustment at March 31, 2013. In addition, there are no credit contingent features in our derivative instruments.

Balance Sheet Related

In countries outside of the U.S., we transact business in U.S. dollars and in various other currencies. We attempt to mitigate our currency exposures for recorded transactions by using forward exchange contracts to reduce the risk that our future cash flows will be adversely affected by changes in exchange rates. We enter into forward sale or purchase contracts for foreign currencies to economically hedge specific cash, receivables or payables positions denominated in foreign currencies.

Changes in fair value of derivatives entered into to mitigate the foreign exchange risks related to these balance sheet items are recorded in other income (expense) together with the transaction gain or loss from the respective balance sheet position as follows (in thousands):



	Thirteen Weeks Ended
	March 31, 2013			April 1, 2012
Foreign currency loss, inclusive of the impact of derivatives	$	(599	)	$	(2,182	)

Cash Flow Hedges

We use zero cost collar contracts and option contracts to hedge certain anticipated foreign currency exchange transactions. The foreign exchange hedging structure is set up, generally, on a 24 month time horizon. The hedging transactions we undertake primarily limit our exposure to changes in the U.S. dollar/euro and the U.S. dollar/Czech koruna exchange rate. The zero cost collar contract hedges are designed to protect us as the U.S. dollar weakens, but also provide us with some flexibility if the dollar strengthens.

These derivatives meet the criteria to be designated as hedges and, accordingly, we record the change in fair value of the effective portion of these hedge contracts relating to anticipated transactions in other comprehensive income rather than net income until the underlying hedged transaction affects net income. Gains and losses resulting from the ineffective portion of the hedge contracts, if any, are recognized as a component of net income. Gains and losses related to cash flow derivative contracts not designated as hedging instruments are recorded as a component of net income.

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Summary

Our derivative instruments are subject to master netting arrangements and are presented net in our balance sheet. We do not have any financial collateral related to these netting arrangements. The effect of these netting arrangements on our balance sheet is as follows (in thousands):



	Offsetting of Derivative Assets							Offsetting of Derivative Liabilities
March 31, 2013	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Balance Sheet			Net Amounts Presented in Other Current Assets		Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Balance Sheet			Net Amounts Presented in Other Current Liabilities
Foreign exchange contracts designated as hedging instruments	$	—	$	—		$	—	$	2,081	$	(742	)	$	1,339
Foreign exchange contracts not designated as hedging instruments	1,556		(721		)	835		3,789		(1,961		)	1,828
Total	$	1,556	$	(721	)	$	835	$	5,870	$	(2,703	)	$	3,167



	Offsetting of Derivative Assets							Offsetting of Derivative Liabilities
December 31, 2012	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Balance Sheet			Net Amounts Presented in Other Current Assets		Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Balance Sheet			Net Amounts Presented in Other Current Liabilities
Foreign exchange contracts designated as hedging instruments	$	3,019	$	(1,492	)	$	1,527	$	—	$	—		$	—
Foreign exchange contracts not designated as hedging instruments	2,725		(1,589		)	1,136		4,289		(3,281		)	1,008
Total	$	5,744	$	(3,081	)	$	2,663	$	4,289	$	(3,281	)	$	1,008

The effect of derivative instruments was as follows (in thousands):



	Thirteen Weeks Ended
Foreign Exchange Contracts in Cash Flow Hedging Relationships	March 31, 2013			April 1, 2012
Amount of gain/(loss):
Recognized in OCI (effective portion)	$	(1,799	)	$	(1,215	)
Reclassified from accumulated OCI into cost of sales (effective portion)	(297		)	(270		)
Recognized in other, net (ineffective portion and amount excluded from effectiveness testing)	(25		)	34
Foreign Exchange Contracts Not in Cash Flow Hedging Relationships
Amount of gain/(loss):
Recognized in other, net	$	767		$	826

The unrealized losses at March 31, 2013 are expected to be reclassified to net income during the next 24 months as a result of the underlying hedged transactions also being recorded in net income.

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NOTE 15.	CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME BY COMPONENT

The following table illustrates the disclosure of changes in the balances of each component of accumulated other comprehensive income ("AOCI"), as well as details the effect of reclassifications out of AOCI on the line items in the Consolidated Statements of Operations by component (net of tax, in thousands):



	Thirteen Weeks Ended March 31, 2013
	Foreign Currency Items			Unrealized Gains and Losses on Available-for-Sale Securities		Defined Benefit Pension Items			Gains and Losses on Cash Flow Hedges			Total
Beginning Balance	$	38,890		$	4	$	(819	)	$	481		$	38,556
Other comprehensive income before reclassifications	(15,714		)	7		(15		)	(1,925		)	(17,647		)
Amounts reclassified from AOCI to:
Cost of goods sold	—			—		—			297			297
Other income (expense)	—			—		—			25			25
Total reclassifications out of AOCI	—			—		—			322			322
Net current period other comprehensive income	(15,714		)	7		(15		)	(1,603		)	(17,325		)
Ending balance	$	23,176		$	11	$	(834	)	$	(1,122	)	$	21,231


NOTE 16.	NEW ACCOUNTING PRONOUNCEMENTS

ASU 2011-05, ASU 2011-12 and ASU 2013-02

In June 2011, the FASB issued ASU No. 2011-05, “Presentation of Comprehensive Income” which revised the manner in which entities can present comprehensive income in their financial statements. The new guidance requires entities to present the components of net income and other comprehensive income in either (1) a single continuous statement of comprehensive income or (2) two separate but consecutive financial statements, consisting of an income statement followed by a separate statement of other comprehensive income. Under either method of presentation, entities are also required to present adjustments for items reclassified from other comprehensive income to net income in both net income and other comprehensive income.

In December 2011, the FASB issued ASU No. 2011-12, "Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05" which deferred the requirement within ASU 2011-05 to present reclassification adjustments from other comprehensive income to net income on the face of the financial statements pending further deliberation by the FASB.

In February 2013, the FASB issued ASU No. 2013-02, "Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income" which added new disclosure requirements for items reclassified out of accumulated other comprehensive income. ASU No. 2013-02 effectively replaced the requirements previously outlined in ASU 2011-05 and ASU 2011-12.

ASU 2013-02 was adopted prospectively beginning in 2013. As ASU 2013-02 relates to disclosure requirements only, the adoption of this guidance did not have an impact on our financial position, results of operations or cash flows.

ASU 2011-11 and ASU 2013-01

In December 2011, the FASB issued ASU No. 2011-11, “Disclosures About Offsetting Assets and Liabilities” which creates new disclosure requirements about the nature of an entity's rights of offset associated with its financial instruments and derivative instruments. In January 2013, the FASB issued ASU No. 2013-01, "Clarifying the Scope of Disclosures About Offsetting Assets and Liabilities" which limits the scope of the offsetting disclosures required by ASU No. 2011-11.

ASU No. 2011-11 and ASU 2013-01 were adopted retrospectively beginning in 2013. As the requirements of these ASUs relate only to disclosures, the adoption of this guidance did not have an impact on our financial position, results of operations or cash flows.

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

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. You can identify these statements by the fact that they do not relate strictly to historical or current facts and use words such as “anticipate,” “estimate,” “expect,” "will," "are expected," "is expected," “project,” “intend,” “plan,” “believe,” “appear,” “assume” and other words and terms of similar meaning. Such forward-looking statements include any statements regarding expectations of earnings, revenues, bookings, gross margins, operating and non-operating expenses, tax rates, net income, foreign currency rates, payment of dividends, or other financial items, as well as backlog, order levels and activity of our company as a whole or in particular markets; any statements of the plans, strategies and objectives of management for future operations, restructuring and corporate reorganization; any statements of factors that may affect our 2013 operating results; any statements concerning proposed new products, services, developments, changes to our restructuring reserves, our competitive position, hiring levels, sales and bookings or anticipated performance of products or services; any statements related to acquisitions of other companies; any statements related to future capital expenditures; any statements related to the needs or expected growth or spending of our target markets; any statements concerning our effective tax rates, the resolution of any tax positions or use of tax assets; any statements concerning the effect of new accounting pronouncements on our financial position, results of operations or cash flows; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing.

From time to time, we also may provide oral or written forward-looking statements in other materials we release to the public. The risks, uncertainties and assumptions referred to above include, but are not limited to, those discussed here and the risks discussed from time to time in our other public filings. All forward-looking statements included in this Quarterly Report on Form 10-Q are based on information available to us as of the date of this report, and we assume no obligation to update these forward-looking statements. You are advised, however, to consult any further disclosures we make on related subjects in our Forms 10-K, 10-Q and 8-K filed with, or furnished to, the SEC. You also should read the section titled “Risk Factors” included in Part II, Item 1A. of this Quarterly Report on Form 10-Q for factors that we believe could cause our actual results to differ materially from expected and historical results. Other factors could also adversely affect us.

Summary of Products and Segments

The Industry Group consists of customers in semiconductor integrated circuit manufacturing and related industries such as manufacturers of data storage equipment and other technologies, as well as customers in the natural resources industries including mining and oil and gas. Our industrial customers generally use our tools to improve their processes to increase overall yields whether in a factory or at a mine or oil and gas rig. For the semiconductor market, our growth is driven by shrinking line widths and process nodes of 45 nanometers and smaller, increasing complexity in their materials such as high-k metal gates and low-k dielectrics and increasing device complexity such as 3D transistor architectures. Our products are used primarily in laboratories or near the fabrication line to speed new product development and increase yields by enabling 3D wafer metrology, defect analysis, root cause failure analysis and circuit edit for modifying device functionality. For the natural resource market, our products are also used in mining for automated mineralogy and we have opportunities in oil and gas exploration and laboratory analysis. We also provide support for products and customers within this group for the entire life cycle of a tool from installation through the warranty period, and after the warranty period through contract coverage or on a time and materials basis.

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The Science market segment includes universities, public and private research laboratories and customers in a wide range of industries, including metals, automobiles, aerospace, and forensics. Our customers in the Science market generally use our tools for exploration and discovery of new materials and chemistries or to solve for causes and cures of diseases. The tools are used in a laboratory and are generally not used in industrial applications. It also includes universities, government laboratories and research institutes engaged in biotech and life sciences applications, as well as pharmaceutical, biotech and medical device companies and hospitals. Growth in these markets is driven by global corporate and government funding for research and development and by development of new products and processes based on innovations at the nanoscale. Our solutions enable scientific discovery and advancement for researchers and help manufacturers develop, analyze and produce advanced products. Our products are also used in root cause failure analysis and quality control applications across a range of industries. Our products’ ultra-high resolution imaging allows structural biologists to create detailed 3D reconstructions of complex biological structures such as proteins and viruses. Cellular biologists use our tools to correlate wide-field, lower resolution optical images with higher resolution electron microscope imaging. Our products are also used by drug researchers and in particle analysis and a range of pathology and quality control applications. We also provide support for products and customers within this group for the entire life cycle of a tool from installation through the warranty period, and after the warranty period through contract coverage or on a time and materials basis.

Overview - Orders and Backlog

Orders received in a particular period that cannot be built and shipped to the customer in that period represent backlog. We only recognize backlog for purchase commitments for which the terms of the sale have been agreed upon, including price, configuration, options and payment terms. Purchase commitments may include letters of intent. Product backlog consists of all open orders meeting these criteria. Service backlog consists of open orders for service, unearned revenue on service contracts and open orders for spare parts. U.S. government backlog is limited to contracted amounts. In addition, some of the U.S. government backlog represents uncommitted funds. At March 31, 2013, our total backlog was $434.2 million, compared to $424.8 million at December 31, 2012. At March 31, 2013, our backlog consisted of $332.2 million of products and $102.0 million related to service compared to product backlog of $327.9 million and service backlog of $96.9 million at December 31, 2012. Generally, at least 90% of our backlog is shippable within one year.

Customers may cancel or delay delivery on previously placed orders, although our standard terms and conditions include penalties for cancellations made close to the scheduled delivery date. As a result, the timing of the receipt of orders or the shipment of products could have a significant impact on our backlog at any date. Historically, cancellations have been low. However, in the last two years, this long-standing trend changed somewhat and, as a result, our cancellation rates may increase in the future. During the first thirteen weeks of 2013 and all of 2012, we experienced cancellations of $0.2 million and $4.0 million, respectively. From time to time, we have experienced difficulty in shipping our product from backlog due to single-sourcing issues and problems in securing electronic components from a certain vendor. In addition, product shipments have been extended due to delays in completing certain application development, by our customers pushing out shipments because their facilities are not ready to install our systems and by our own manufacturing delays due to the technical complexity of our products and supply chain issues. A significant portion of our backlog is denominated in currencies other than the U.S. dollar and, therefore, our reported backlog fluctuates, to an extent, as a result of foreign currency exchange rate movements. For these reasons, the amount of backlog at any date is not necessarily indicative of revenue to be recognized in future periods.

Critical Accounting Policies and the Use of Estimates

Preparation of our financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. We believe the most complex and sensitive judgments, because of their significance to the Consolidated Financial Statements, result primarily from the need to make estimates about the effects of matters that are inherently uncertain.

Management’s Discussion and Analysis and Note 1 to the Consolidated Financial Statements in our 2012 Annual Report on Form 10-K describe the significant accounting estimates and policies used in preparation of the Consolidated Financial Statements. Actual results in these areas could differ from management’s estimates. During the first thirteen weeks of 2013, there were no significant changes in our critical accounting policies or estimates from those reported in our Annual Report on Form 10-K for the year ended December 31, 2012, which was filed with the Securities and Exchange Commission on February 20, 2013.

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Results of Operations

The following table sets forth our statement of operations data, in absolute dollars and as a percentage⁽¹⁾ of consolidated net sales (dollars in thousands):



	Thirteen Weeks Ended					Thirteen Weeks Ended
	March 31, 2013					April 1, 2012
Net sales	$	221,189		100.0	%	$	217,555		100.0	%
Cost of sales	118,638			53.6		119,444			54.9
Gross profit	102,551			46.4		98,111			45.1
Research and development	24,809			11.2		22,722			10.4
Selling, general and administrative	43,524			19.7		41,323			19.0
Restructuring, reorganization, relocation and severance	695			0.3		—			—
Operating income	33,523			15.2		34,066			15.7
Other expense, net	(1,505		)	(0.7	)	(2,063		)	(0.9	)
Income before income taxes	32,018			14.5		32,003			14.7
Income tax expense	5,217			2.4		6,336			2.9
Net income	$	26,801		12.1	%	$	25,667		11.8	%

___________________________


⁽¹⁾	Percentages may not add due to rounding.

Net Sales

Net sales increased $3.6 million, or 1.7%, to $221.2 million in the thirteen week period ended March 31, 2013 (the first quarter of 2013) compared to $217.6 million in the thirteen week period ended April 1, 2012 (the first quarter of 2012). Inclusion of two acquisitions completed in the first quarter of 2012 accounted for 2.9% of growth while currency fluctuations reduced growth by 2.2% compared to a year ago. The factors affecting net sales are discussed in more detail in the Net Sales by Segment discussion below.

Currency fluctuations decreased net sales during the thirteen week period ended March 31, 2013 compared to the same period of 2012 as approximately 69% of our net sales were denominated in foreign currencies that fluctuated against the U.S. dollar. Strengthening of the U.S. dollar against these foreign currencies generally has the effect of decreasing net sales and backlog.

Net Sales by Segment

Net sales by market segment (in thousands) and as a percentage of net sales were as follows:



	Thirteen Weeks Ended
	March 31, 2013				April 1, 2012
Industry	$	99,064	44.8	%	$	111,686	51.3	%
Science	122,125		55.2		105,869		48.7
Consolidated net sales	$	221,189	100.0	%	$	217,555	100.0	%

Industry

The $12.6 million, or 11.3%, decrease in Industry sales in the thirteen week period ended March 31, 2013 compared to the same period of 2012 was primarily due to fewer large wafer-level DualBeam systems sold to the semiconductor industry resulting from the cyclical nature of the capital purchasing cycle. Currency fluctuations also decreased Industry revenue by 1% in the thirteen week period ended March 31, 2013 compared to the same period of 2012.

Science

The $16.3 million, or 15.4%, increase in Science sales in the thirteen week period ended March 31, 2013 compared to the same period of 2012 was primarily driven by increased global technology spending mainly in developing countries and the inclusion of product sales from Visualization Sciences Group ("VSG"), which we acquired on August 1, 2012. Currency fluctuations decreased Science revenue by 3.5% in the thirteen week period ended March 31, 2013 compared to the same period of 2012.

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Net Sales by Geographic Region

A significant portion of our net sales has been derived from customers outside of the U.S., which we expect to continue. The following table shows our net sales by geographic region (dollars in thousands):



	Thirteen Weeks Ended
	March 31, 2013				April 1, 2012
U.S. and Canada	$	68,709	31.1	%	$	69,073	31.7	%
Europe	65,673		29.7		63,006		29.0
Asia-Pacific Region and Rest of World	86,807		39.2		85,476		39.3
Consolidated net sales	$	221,189	100.0	%	$	217,555	100.0	%

U.S. and Canada

The $0.4 million, or 0.5%, decrease in sales to the U.S. and Canada in the thirteen week period ended March 31, 2013 compared to the same period of 2012 was primarily due to declines in sales to Science customers, partially offset by modest growth in sales to Industry customers.

Europe

Our European region also includes Central America, South America, Africa (excluding South Africa), the Middle East and Russia.

The $2.7 million, or 4.2%, increase in sales to Europe in the thirteen week period ended March 31, 2013 compared to the same period of 2012 was primarily due to the inclusion of revenue from VSG which was acquired on August 1, 2012. Currency fluctuations decreased revenue to Europe by 0.6% in the thirteen week period ended March 31, 2013 compared to the same period of 2012.

Asia-Pacific Region and Rest of World

The $1.3 million, or 1.6%, increase in sales to the Asia-Pacific Region and Rest of World in the thirteen week period ended March 31, 2013 compared to the same period of 2012 was primarily driven by growth of sales to our Science customers in Japan. Currency fluctuations decreased revenue to this region by 5.4% in the thirteen week period ended March 31, 2013 compared to the same period of 2012.

Cost of Sales and Gross Margin

Our gross margin (gross profit as a percentage of net sales) by segment was as follows:



	Thirteen Weeks Ended
	March 31, 2013		April 1, 2012
Industry	51.0	%	50.7	%
Science	42.6		39.2
Overall	46.4		45.1

Cost of sales includes manufacturing costs, such as materials, labor (both direct and indirect) and factory overhead, as well as all of the costs of our customer service function such as labor, materials, travel and overhead. The five primary drivers affecting gross margin include: product mix (including the effect of price competition), operational efficiencies, competitive pricing pressure and currency movements.

Cost of sales decreased $0.8 million, or 0.7%, to $118.6 million in the thirteen week period ended March 31, 2013 compared to $119.4 million in the comparable period of 2012 on slightly higher revenue, primarily due to improved operating efficiencies. Currency fluctuations decreased cost of sales by 0.6% in the thirteen week period ended March 31, 2013 compared to the same period of 2012.

Currency fluctuations, specifically the weakening of the yen compared to the dollar, reduced our gross margins by 0.7 percentage points during the thirteen week period ended March 31, 2013 compared to the same period of 2012.

Industry

The slight increase in Industry gross margin during the thirteen week period ended March 31, 2013 compared to the same period of 2012 was due primarily to the introduction of the next generation of our small-stage DualBeam systems which are more competitive in the market and also reflect the benefit of cost reduction efforts. This increase was partially offset by currency fluctuations which decreased Industry gross margin by 0.2 percentage points in the thirteen week period ended March 31, 2013 compared to the same period of 2012.

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Science

The increase in Science gross margin in the thirteen week period ended March 31, 2013 compared to the same period of 2012 was due primarily the introduction of the next generation of our small-stage DualBeam systems which are more competitive in the market and also reflect the benefit of cost reduction efforts. The acquisition of VSG, which has higher margin products, during the third quarter of 2012 also positively impacted margins for this segment. Further, we experienced improvement in our margins due to improved operational efficiencies. Currency fluctuations, notably the impact of the weakening yen, decreased Science gross margin by 1.2 percentage points in the thirteen week period ended March 31, 2013 compared to the same period of 2012.

Research and Development Costs

Research and Development (“R&D”) costs include labor, materials, overhead and payments to third parties for research and development of new products and new software or enhancements to existing products and software and are expensed as incurred. We periodically receive funds from various organizations to subsidize our research and development. These funds are reported as an offset to research and development expense. During the 2013 and 2012 periods, we received subsidies from European governments for technological developments for semiconductor and life sciences equipment.

R&D costs, net of subsidies, were as follows (in thousands):



	Thirteen Weeks Ended
	March 31, 2013			April 1, 2012
Gross spending	$	26,131		$	24,329
Less subsidies	(1,322		)	(1,607		)
Net expense	$	24,809		$	22,722

R&D costs increased in the thirteen week period ended March 31, 2013 compared to the same period of 2012 primarily due to increased headcount and project spending to support current growth opportunities, as well as the inclusion of the R&D expenses for VSG which was acquired on August 1, 2012. The impact of currency fluctuations on R&D costs was insignificant in the thirteen week period ended March 31, 2013 compared to the same period of 2012.

We anticipate that we will invest between 10% and 11% of revenue in R&D for the foreseeable future. Accordingly, as revenues increase, we currently anticipate that R&D expenditures will also increase. Actual future spending, however, will depend on market conditions.

Selling, General and Administrative Costs

Selling, general and administrative (“SG&A”) costs include labor, travel, outside services and overhead incurred in our sales, marketing, management and administrative support functions. SG&A costs also include sales commissions paid to our employees as well as to our agents.

SG&A costs increased $2.2 million, or 5.3%, to $43.5 million in the thirteen week period ended March 31, 2013 compared to $41.3 million in the thirteen week period ended April 1, 2012 primarily due to increased headcount and the inclusion of SG&A costs of our recently acquired companies, including amortization expense of the acquired intangibles, and the costs associated with integrating the acquisitions. The impact of currency fluctuations on SG&A costs was insignificant in thirteen week period ended March 31, 2013 compared to the same period in 2012.

Restructuring, Reorganization, Relocation and Severance

Group Structure Reorganization

In January 2013, we announced our intention to reorganize the company into a group structure in order to enable us to efficiently execute our growth strategy. The reorganization was completed in the first quarter of 2013. The costs associated with the reorganization include primarily severance costs and resulted in the termination of certain positions throughout the company. In anticipation of this reorganization, we incurred $2.9 million of severance costs during the fourth quarter of 2012 and $0.7 million of severance costs and anticipate $0.6 million in additional charges in the second quarter of 2013. All of the costs related to this plan are expected to result in cash expenditures and we currently expect the total cost of the reorganization to be approximately $4.2 million.

The reduction in positions as a result of the group structure reorganization is expected to reduce operating expenses by approximately $3 million per year when fully implemented.

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For information regarding the related accrued liability, see Note 12 of the Condensed Notes to the Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Other Expense, Net

Other expense, net includes interest income, interest expense, foreign currency gains and losses and other miscellaneous items.

Interest income represents interest earned on cash and cash equivalents and investments in marketable securities and totaled $0.1 million in the thirteen week period ended March 31, 2013 and $0.6 million in the comparable period of 2012. The decrease in the thirteen week period ended March 31, 2013 compared to the same period of 2012 was primarily due to lower investment balances and continued low interest rates.

Interest expense was $0.8 million in the thirteen week period ended March 31, 2013 and $1.1 million in the comparable period of 2012 and included interest expense related to our 2.875% convertible notes.

Other, net primarily consists of foreign currency gains and losses on transactions and realized and unrealized gains and losses on the changes in fair value of derivative contracts entered into to hedge these transactions. Other, net was a net expense of $0.8 million in the thirteen week period ended March 31, 2013 and was a net expense of $1.6 million in the comparable period of 2012.

Income Tax Expense

Our effective income tax rates for the thirteen week periods ended March 31, 2013 and April 1, 2012 were 16.3% and 19.8%, respectively, and reflected taxes accrued in the U.S. and foreign jurisdictions. The tax rate in the current quarter is lower due to U.S. research and experimentation tax credits generated in 2012 and recognized in conjunction with the extension of legislation enacted in January 2013.

Our effective tax rate may differ from the U.S. federal statutory tax rate primarily as a result of the effects of state and foreign income taxes, research and development tax credits earned in the U.S. and foreign jurisdictions, adjustments to our unrecognized tax benefits and our ability or inability to utilize various carry forward tax items. In addition, our effective income tax rate may be affected by changes in statutory tax rates and laws in the U.S. and foreign jurisdictions and other factors.

As of March 31, 2013, total unrecognized tax benefits were $25.5 million and related primarily to uncertainty surrounding tax credits and permanent establishment. All unrecognized tax benefits would decrease the effective tax rate if recognized.

Our net deferred tax assets (liabilities) totaled $1.1 million and ($0.3) million, respectively, at March 31, 2013 and December 31, 2012. Valuation allowances on deferred tax assets totaled $2.0 million and $2.1 million as of March 31, 2013 and December 31, 2012, respectively. We continue to record a valuation allowance against a portion of U.S. and foreign deferred tax assets, as we do not believe it is more likely than not that we will be able to utilize the deferred tax assets in future periods.

Liquidity and Capital Resources

Sources of Liquidity and Capital Resources

Our sources of liquidity and capital resources as of March 31, 2013 consisted of $383.5 million of cash, cash equivalents, short-term restricted cash and short-term investments, $28.2 million in non-current investments, $29.9 million of long-term restricted cash, $100.0 million available under revolving credit facilities, as well as potential future cash flows from operations. $179.3 million of our $441.6 million in total cash, cash equivalents, restricted cash and investments, are held outside of the United States. Although we do not intend to do so, repatriation of these funds would subject us to both U.S. income taxes (subject to an adjustment for foreign tax credits) and withholding taxes payable to the various foreign countries where funds are held. Restricted cash relates to deposits to secure bank guarantees for customer prepayments that expire through 2017.

We believe that we have sufficient cash resources and available credit lines to meet our expected operational and capital needs for at least the next twelve months from March 31, 2013.

In the thirteen week period ended March 31, 2013, cash and cash equivalents and short-term restricted cash increased $5.1 million to $285.9 million as of March 31, 2013 from $280.8 million as of December 31, 2012 primarily as a result of $34.8 million provided by operations, and $4.1 million of proceeds from the exercise of employee stock options. These factors were partially offset by $16.7 million for the net purchase of marketable securities, $5.0 million used for the purchase of property, plant and equipment, the $5.2 million unfavorable effect of exchange rate changes and dividends paid on common stock of $3.1 million.

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In the thirteen week period ended April 1, 2012, cash and cash equivalents and short-term restricted cash decreased $72.2 million to $270.7 million as of April 1, 2012 from $342.9 million as of December 31, 2011 primarily as a result of $32.2 million used in operations, $30.2 million used for acquisition-related activities, $23.4 million for the net purchase of marketable securities and $6.2 million used for the purchase of property, plant and equipment. These factors were partially offset by a $17.0 million decrease in restricted cash, a $6.2 million favorable effect of exchange rate changes and $2.8 million of proceeds from the exercise of employee stock options.

Accounts receivable increased $4.6 million to $215.8 million as of March 31, 2013 from $211.2 million as of December 31, 2012. This increase was primarily driven by the timing of shipments during the quarter. The March 31, 2013 balance also included a $4.3 million decrease related to fluctuations in currency exchange rates. Our days sales outstanding, calculated on a quarterly basis, was 89 days at March 31, 2013 and 83 days at December 31, 2012.

Inventories decreased $7.2 million to $185.3 million as of March 31, 2013 compared to $192.5 million as of December 31, 2012, due to the timing of purchases. The March 31, 2013 balance included a $7.2 million decrease related to fluctuations in currency exchange rates. Our annualized inventory turnover rate, calculated on a quarterly basis, was 1.9 times for the quarters ended March 31, 2013 and April 1, 2012.

Deferred tax assets (liabilities), current and long term, net of deferred tax liabilities increased $1.4 million to $1.1 million as of March 31, 2013 compared to ($0.3) million as of December 31, 2012 primarily due to an increase in deferred tax assets relating to additional U.S. net operating loss and research and experimentation credit carryforwards.

Expenditures for property, plant and equipment of $5.0 million and transfers to fixed assets from inventories of $1.7 million in the thirteen week period ended March 31, 2013 primarily consisted of expenditures for facilities improvements at our manufacturing sites and demonstration equipment. We expect to spend over $60 million for capital expenditures in 2013 primarily for leasehold improvements to our new facility in Brno, demonstration units, operations and R&D tools.

Accrued payroll liabilities decreased $8.1 million to $31.0 million as of March 31, 2013 compared to $39.1 million as of December 31, 2012, primarily due to the payment of 2012 employee incentive compensation.

Other Credit Facilities and Letters of Credit

We have a $100.0 million secured revolving credit facility, including a $50.0 million subfacility for the issuance of letters of credit. The credit agreement expires in April 2016. We may, upon notice to JPMorgan Chase Bank, N.A. (the “Agent”), request to increase the revolving loan commitments by an aggregate amount of up to $50.0 million with new or additional commitments subject only to the consent of the lender(s) providing the new or additional commitments, for a total secured credit facility of up to $150.0 million. There were no amounts outstanding under this facility as of March 31, 2013.

We mitigate credit risk by transacting with highly rated counterparties. We have evaluated the credit and non-performance risks associated with our lenders and believe them to be insignificant.

The following table sets forth information related to guarantees and letters of credit (in thousands):



	March 31, 2013
Guarantees and letters of credit outstanding	$	44,197
Amount secured by restricted cash deposits:
Current	$	14,257
Long-term	29,936
Total secured by restricted cash	$	44,193

Share Repurchase Plan

A plan to repurchase up to a total of 4.0 million shares of our common stock was approved by our Board of Directors in September 2010 and does not have an expiration date. The amount and timing of specific repurchases are subject to market conditions, applicable legal requirements and other factors. The purchases are funded from existing cash resources and may be suspended or discontinued at any time at our discretion without prior notice.

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We repurchased 18,900 shares during the first thirteen weeks of 2012 for a total of $0.8 million, or an average of $43.29 per share. We did not repurchase any shares during the first thirteen weeks of 2013. As of March 31, 2013, 2,119,800 shares remained available for purchase pursuant to this plan.

Dividends to Shareholders

In June 2012, the Company announced its plans to initiate a quarterly dividend of $0.08 per share of common stock. Our Board of Directors declared dividends of $0.08 per share of common stock for the past four quarters. Dividend payments during the first quarter of 2013 totaled $3.1 million. The declaration and payment of dividends to shareholders in the future is subject to the discretion of our Board of Directors.

New Accounting Pronouncements

See Note 16 of the Condensed Notes to the Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for a discussion of new accounting pronouncements.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.


Item 3.	Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in our reported market risks and risk management policies since the filing of our 2012 Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission on February 20, 2013.


Item 4.	Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management evaluated, with the participation and under the supervision of our President and Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our President and Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to our management, including our President and Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure and that such information is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting that occurred during our most recent fiscal quarter that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.

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PART II – OTHER INFORMATION


Item 1.	Legal Proceedings

We are involved in various legal proceedings and receive claims from time to time, arising in the normal course of our business activities, including claims for alleged infringement or violation of intellectual property rights.

Item 1A. Risk Factors

A description of the risks and uncertainties associated with our business is set forth below. You should carefully consider such risks and uncertainties, together with the other information contained in this Quarterly Report on Form 10-Q and in our other public filings. If any of such risks and uncertainties actually occurs, our business, financial condition or operating results could differ materially from the plans, projections and other forward-looking statements included in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Part I, Item 2 of this Quarterly Report on Form 10-Q and elsewhere in this Quarterly Report on Form 10-Q and in our other public filings and public disclosures. In addition, if any of the following risks and uncertainties, or if any other risks and uncertainties, actually occurs, our business, financial condition or operating results could be harmed substantially, which could cause the market price of our stock to decline, perhaps significantly.

We operate in highly competitive industries, and we cannot be certain that we will be able to compete successfully in such industries.

The industries in which we operate are intensely competitive. Established companies, both domestic and foreign, compete with us in each of our product lines. Some of our competitors have greater financial, engineering, manufacturing and marketing resources than we do and may price their products very aggressively. In addition, these competitors may be willing to operate at a less profitable level than at which we would expect to operate. Our significant competitors include, among others: JEOL Ltd., Carl Zeiss SMT A.G., Hitachi High Technologies Corporation and Tescan, a.s. In addition, some of our competitors have formed collaborative relationships and otherwise may cooperate with each other.

Our customers must make a substantial investment to install and integrate capital equipment into their laboratories and process applications. As a result, once a manufacturer has selected a particular vendor’s capital equipment, the manufacturer generally relies on that equipment for a specific production line or process control application and frequently will attempt to consolidate its other capital equipment requirements with the same vendor. Accordingly, if a particular customer selects a competitor’s capital equipment, we expect to experience difficulty selling to that customer for a significant period of time.

Our ability to compete successfully depends on a number of factors both within and outside of our control, including:


•	price;


•	product quality;


•	breadth of product line;


•	system performance;


•	ease of use;


•	type and breadth of product applications;


•	cost of ownership;


•	global technical service and support;


•	success in developing or otherwise introducing new products; and


•	foreign currency fluctuations.

We cannot be certain that we will be able to compete successfully on these or other factors, which could negatively impact our revenues, gross margins and net income in the future.

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Because many of our shipments occur in the last month of a quarter, we are at risk of one or more transactions not being delivered according to forecast.

We have historically shipped approximately 70%-80% of our products in the last month of each quarter. In addition, we rely on a significant amount of turns business in any given quarter. As any one sale may be significant to meeting our quarterly sales projection (as our average selling price for a tool is approximately $1 million), any slippage of shipments into a subsequent quarter may result in our not meeting our quarterly sales projection, which may adversely impact our results of operations for the quarter.

Because we have significant operations outside of the U.S., we are subject to political, economic and other international conditions that could result in increased operating expenses and regulation of our products and increased difficulty in maintaining operating and financial controls.

Because a significant portion of our operations occur outside of the U.S., our revenues and expenses are impacted by foreign economic and regulatory conditions. In the first thirteen weeks of 2013 and in each of the last three years, more than 66% of our sales came from outside of the U.S. Our sales to China have grown considerably in recent years. We have manufacturing facilities in Brno, Czech Republic, Eindhoven, The Netherlands and Munich, Germany and sales offices in many other countries. Over 80% of our products are manufactured in Europe.

Moreover, we operate in over 50 countries, including in 25 with a direct presence. Some of our global operations are geographically isolated, are distant from corporate headquarters and/or have little infrastructure support. Therefore, maintaining and enforcing operating and financial controls can be difficult. Failure to maintain or enforce controls could have a material adverse effect on our control over service inventories, quality of service, customer relationships and financial reporting.

Our exposure to the business risks presented by foreign economies will increase to the extent we continue to expand our global operations. International operations will continue to subject us to a number of risks, including:


•	longer sales cycles;


•	multiple, conflicting and changing governmental laws and regulations;


•	protectionist laws and business practices that favor local companies;


•	price and currency exchange rates and controls;


•	taxes and tariffs;


•	export restrictions;


•	difficulties in collecting accounts receivable;


•	travel and transportation difficulties resulting from actual or perceived health risks (e.g., avian or swine influenza);


•	changes in the regulatory environment in countries where we do business could lead to delays in the importation of products into those countries;


•	the implementation and administration of the Control of Electronic Information Products (often referred to as China RoHS) regulations could lead to delays in the importation of products into China;


•	European Union Regulation of Hazardous Substances (RoHS) which could create problems in manufacture and delivery of certain products in Europe;


•	political and economic instability (e.g. Mexican crimewave, unrest in Egypt, Greece and the Middle East);


•	risk of failure of internal controls and failure to detect unauthorized transactions; and


•	potential labor unrest.

The industries in which we sell our products are cyclical, which may cause our results of operations to fluctuate.

Our business depends in large part on the capital expenditures of customers within our Industry and Science market segments. See “Net Sales by Segment” included in Part I, Item 2 of this Quarterly Report on Form 10-Q for additional information.

The largest sub-parts of the Industry market segment are the semiconductor and data storage industries. These industries are cyclical and have experienced significant economic downturns at various times in the last decade. Such downturns have been characterized by diminished product demand, accelerated erosion of average selling prices and production overcapacity. A downturn in one or both of these industries, or the businesses of one or more of our customers, could have a material adverse effect on our business, prospects, financial condition and results of operations. We saw weakness in semiconductor equipment spending in the early part of 2012 and we expect this to continue in early to mid 2013. During downturns, our sales and gross profit margins generally decline.

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The Science market segment is also affected by overall economic conditions, but is not as cyclical as the Industry market segment.

The Life Sciences business is a smaller and still emerging market, and the tools we sell into that market often have average selling prices ranging from $0.1 million to over $5.0 million. Consequently, loss of demand among a relatively small group of potential customers can have a material impact on the overall demand for our products. As a result, movement of a small number of sales from one quarter to the next could cause significant variability in quarter-to-quarter growth rates, even as we believe that this market has the potential for long-term growth.

A significant portion of our Science Group revenue is dependent on government investments in research and development of new technology. To the extent that governments, especially in Europe or the U.S., reduce their spending in response to budget deficits and debt limitations, demand for our products could be affected. To date, we have not seen an impact from such actions, although the U.S. government has indicated that it plans to reduce funding for research. The funding cycles for our customers tend to extend over multiple quarters and several countries have reaffirmed their commitment to scientific research, but the longer-term impact of potential government fiscal austerity measures on our growth rate cannot be determined at this time. In addition, institutional endowments and philanthropy, which are a source of funding of some customer purchases, are threatened by the muted recovery from the 2008 recession.

As a capital equipment provider, our revenues depend in large part on the spending patterns of our customers, who could delay expenditures or cancel orders in reaction to variations in their businesses or general economic conditions. Because a high proportion of our costs are fixed, we have a limited ability to reduce expenses quickly in response to revenue shortfalls. In a prolonged economic downturn, we may not be able to reduce our significant fixed costs, such as manufacturing overhead, capital equipment or research and development costs, which may cause our gross margins to erode and our net loss to increase or earnings to decline.

Our acquisition and investment strategy subjects us to risks associated with evaluating and pursuing these opportunities and integrating these businesses.

In addition to our efforts to develop new technologies from internal sources, we may also seek to acquire new technologies or operations from external sources. On November 14, 2011 we acquired TILL Photonics of Munich, Germany to expand our Life Sciences business and on January 9, 2012 we acquired ASPEX Corporation of Delmont, Pennsylvania to expand our natural resources footprint. On July 9, 2012 we acquired certain assets of AP Tech, a sales and service agent in Korea, and on August 1, 2012 we acquired Visualization Sciences Group ("VSG") of Bordeaux, France, which provides high-performance 3D visualization software products and tools to a range of markets. We continue to work to integrate these new entities.

Acquisitions can involve numerous risks, including management issues and costs in connection with the integration of the operations and personnel, technologies and products of the acquired companies, failure to properly integrate acquisitions, the possible write-downs of impaired assets and the potential loss of key employees of the acquired companies. The inability to effectively manage any of these risks could seriously harm our business. Additionally, difficulties in integrating our acquisitions into our internal control structure could result in a failure of our internal control over financial reporting, which, in turn, could create a material weakness.

To the extent we make investments in entities that we control, or have significant influence in, our financial results will reflect our proportionate share of the financial results of the entity.

We may suffer manufacturing capacity limitations on occasion and are planning expansion.

Recently, demand for our product has accelerated and as orders increase, we may not be able to ramp our manufacturing capacity and supply chain fast enough to keep pace with order intake for every product line offered. We recently experienced challenges regarding manufacturing capacity for our TEM products driven by rapid growth. As a consequence, our ability to realize revenue on orders may be delayed or, in some cases, reduced and we may suffer cancellations. In addition, the quality of the products we ship may suffer, damaging our reputation and future sales. Further, we are planning expansion to address future capacity needs and failure to plan adequately or execute on those plans could constrain capacity in the future.

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If our customers cancel or reschedule orders or if an anticipated order for even one of our systems is not received in time to permit shipping during a certain fiscal period, our operating results for that fiscal period may fluctuate and our business and financial results for such period could be materially and adversely affected. Cancellation risks rise in periods of economic downturn.

Our customers are able to cancel or reschedule orders, generally with limited or no penalties, depending on the product’s stage of completion. The amount of purchase orders at any particular date, therefore, is not necessarily indicative of sales to be made in any given period. Our build cycle, or the time it takes us to build a product to customer specifications, typically ranges from one to six months. During this period, the customer may cancel the order, although generally we will be entitled to receive a cancellation fee based on the agreed-upon shipment schedule. The risks of cancellation are higher during times of economic downturn, such as the U.S. and global economies are presently experiencing. In addition, we derive a substantial portion of our net sales in any fiscal period from the sale of a relatively small number of high-priced systems, with a large portion in the last month of the quarter.

Further, in some cases, our customers have to make changes to their facilities to accommodate the site requirements for our systems and may reschedule their orders because of the time required to complete these facility changes. This is particularly true of our high-performance TEMs. As a result, the timing of revenue recognition for a single transaction could have a material effect on our revenue and results of operations for a particular fiscal period. During the first thirteen weeks of 2013 and all of 2012, we experienced cancellations of $0.2 million and $4.0 million, respectively.

Due to these and other factors, our net revenues and results of operations have fluctuated in the past and are likely to fluctuate significantly in the future on a quarterly and annual basis. It is possible that in some future quarter or quarters our results of operations will be below the expectations of public market analysts or investors. In such event, the market price of our common stock may decline significantly.

Due to our extensive international operations and sales, we are exposed to foreign currency exchange rate risks that could adversely affect our revenues, gross margins and results of operations.

A significant portion of our sales and expenses are denominated in currencies other than the U.S. dollar, principally the euro and Czech Koruna. For the first thirteen weeks of 2013, 2012 and 2011, approximately 25% to 35% of our revenue was denominated in euros, while more than half of our expenses were denominated in euros, Czech Koruna, or other foreign currencies. Particularly as a result of this imbalance, changes in the exchange rate between the U.S. dollar and foreign currencies, principally the euro, Czech Koruna and Japanese Yen, can impact our revenues, gross margins, results of operations and cash flows. We undertake hedging transactions to limit our exposure to changes in the dollar/euro exchange rate. The hedges are designed to protect us as the dollar weakens but also provide us with some flexibility if the dollar strengthens.

Achieving hedge designation is based on evaluating the effectiveness of the derivative contracts’ ability to mitigate the foreign currency exposure of the linked transaction. We are required to monitor the effectiveness of all new and open derivative contracts designated as hedges on a quarterly basis. Failure to meet the hedge accounting requirements could result in the requirement to record deferred and current realized and unrealized gains and losses into net income in the current period. This failure could result in significant fluctuations in operating results. In addition, we will continue to recognize unrealized gains and losses related to the changes in fair value of derivative contracts not designated as hedges in the current period net income. Accordingly, the related impact to operating results may be recognized in a different period than the foreign currency impact of the hedged transaction.

We also enter into foreign forward exchange contracts that are designed to partially mitigate the impact of specific cash, receivables or payables positions denominated in foreign currencies. See Note 14 of the Condensed Notes to the Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information.

The recent extreme volatility of dollar-euro exchange rates can make it more difficult for us to deploy our hedging program and create effective hedges.

Current economic conditions may adversely affect our industry, business and results of operations.

The global economy is suffering an extended slowdown with a high rate of unemployment and the future economic climate may continue to be less favorable than that of the past. This slowdown has, and could further lead to, reduced consumer and business spending in the foreseeable future, including by our customers, and the purchasers of their products and services. If such spending continues to slow down or decrease, our industry, business and results of operations may be adversely impacted. Also, in times of economic distress, hardship, bankruptcy and insolvency among our customers could increase. This may make it more difficult to collect on receivables.

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Gross margins on our products vary between product lines and markets and, accordingly, changes in product mix will affect our results of operations.

If a higher portion of our net sales in any given period have lower gross margins, our overall gross margins and earnings would be negatively affected. Our Electronics business, which ultimately depends on consumers who buy electronic devices, is volatile but contributes, on average, a higher proportion of our gross margin. Any significant downturn in the market would have a negative impact on our overall performance.

Our business is complex, and changes to the business may not achieve their desired benefits.

Our business is based on a myriad of technologies, encompassed in multiple different product lines, addressing various customers in a range of markets in different regions of the world. A business of our breadth and complexity requires significant management time, attention and resources. In addition, significant changes to our business, such as changes in manufacturing, operations, product lines, market focus or organizational structure or focus, can be distracting, time-consuming and expensive. These changes can have short-term adverse effects on our financial results. In addition, the complexity of product lines and diversity of our customer base creates manufacturing planning and control challenges that may lead to higher costs of materials and labor, increased service costs, delayed shipments and excessive inventory. Failure to effectively manage these manufacturing issues may materially impact our financial position, results of operations or cash flow.

A portion of our manufacturing operations will be moved to a new facility in 2014 which may involve significant costs and risks of operational interruption and product quality.

We are planning to move our operations in the Czech Republic to a new facility beginning in 2014. Moving product manufacturing includes, among others, the following risks:


•	unanticipated additional costs connected to such moves;


•	delay or failure in being able to build the transferred product at the new sites;


•	unanticipated additional labor and materials costs related to such moves;


•	logistical issues arising from the moves; and


•	product quality falling short of the product standard when manufactured at the prior location.

Any of these factors could cause us to miss product orders, cause a decline in product quality and completeness, damage our reputation, increase costs of goods sold or decrease revenue and gross margins.

We rely on a limited number of suppliers to provide parts and components. Failure of any of these suppliers to provide us with quality products in a timely manner could negatively affect our revenues and results of operations.

Failure of critical suppliers of parts, components and manufacturing equipment to deliver sufficient quantities to us in a timely and cost-effective manner could negatively affect our business, including our ability to convert backlog into revenue. Although we currently use numerous vendors to supply parts, components and subassemblies for the manufacture and support of our products, some key parts may only be obtained from a single supplier or a limited group of suppliers. In particular, we rely on: VDL Enabling Technologies Group, NTS Group, Frencken Mechatronics B.V., Keller Technology and AZD Praha SRO for our supply of mechanical parts and subassemblies; Gatan, Inc., Edax Inc. and Bruker Corp. for critical accessory products; and Neways Electronics, N.V. for some of our electronic subassemblies. A portion of the subcomponents that make up the components and sub-assemblies supplied to us are proprietary in nature and are provided to our suppliers only from single sources. We monitor those parts subject to single or a limited source supply to seek to minimize factory down time due to unavailability of such parts, which could impact our ability to meet manufacturing schedules. In addition, some of our suppliers rely on sole suppliers. As a result of this concentration of key suppliers, our results of operations may be materially and adversely affected if we do not timely and cost-effectively receive a sufficient quantity of quality parts to meet our production requirements or if we are required to find alternative suppliers for these supplies. We may not be able to expand our supplier group or to reduce our dependence on single suppliers. If our suppliers are not able to meet our supply requirements, constraints may affect our ability to deliver products to customers in a timely manner, which could have an adverse effect on our results of operations. In addition, restrictions regulating the use of certain hazardous substances in electrical and electronic equipment in various jurisdictions may impact parts and component availability or our electronics suppliers’ ability to source parts and components in a timely and cost-effective manner. Overall, because we only have a few equipment suppliers, we may be more exposed to future cost increases for this equipment.

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Our service business depends on our ability to reliably supply replacement parts and consumables to our customers and failure to deliver high quality parts and consumables in a timely manner could cause our service business to suffer.

Our service business addresses a large and diverse install base of nearly 9,000 tools involving diverse products of varying ages, configurations, use cases, condition, and customer requirements that are dispersed in approximately 50 countries around the globe. Providing logistical support for delivery of spare parts and consumables to these tools, particularly the older tools, can be difficult. We have attempted to address the complexity of our service requirements, in part, through a remote diagnostics system that allows us to remotely access tools through a virtual private network. If we are unable to effectively manage and support the supply and delivery of spare parts and consumables to our customers we may damage our reputation and service business.

We rely on the security and integrity of our electronic data systems and our business could be damaged by a security breach or other compromise of these systems.

If we are unable to safeguard our electronic data, our intellectual property could be compromised, which may harm our reputation and damage customer relationships. Further, we maintain personal information of our employees and a data breach that leads to the misuse or misappropriation of this information could cause the company to incur liability and damage our relationship with our employees and our reputation. Moreover, if we suffer an unauthorized intrusion into our own systems or the virtual private network providing for remote tool diagnostics at customer sites, we, or our customers, may suffer a loss of proprietary information that could create liability for us and undermine our business. Additionally, if our systems are inaccessible for a period of time, it may compromise our ability to perform business functions in a timely manner.

We depend on certain business processes for order entry and failure to adhere to those processes could impair our ability to properly book and fulfill orders.

We use business processes, including automated systems, to enter and track customer orders. Failure to adhere to these processes could result in errors in bookings, discounts on tool sales and failure to meet our global export compliance obligations. Further, inaccurate booking information could lead to delays in shipping and having to rework orders. These problems could, in turn, cause us to suffer reduced margins, delayed revenue and governmental fines and penalties.

Our sales contracts often require delivery of multiple elements with complex terms and conditions that may cause our quarterly results to fluctuate.

Our system sales contracts are complex and often include multiple elements such as delivery of more than one system, installation obligations (sometimes for multiple tools), accessories and/or service contracts, as well as provisions for customer acceptance. Typically, we recognize revenue as the various elements are delivered to the customer or the related services are provided. However, certain of these contracts have complex terms and conditions or technical specifications that require us to deliver most, or sometimes all, elements under the contract before revenue can be recognized. This could result in a significant delay between production and delivery of products and when revenue is recognized, which may cause volatility in, or adversely impact, our quarterly results of operations and cash flows.

The loss of one or more of our key customers would result in the loss of significant net revenues.

A relatively small number of customers account for a large percentage of our net revenues, although no customer has accounted for more than 10% of total annual net revenues in the recent past. Our business will be seriously harmed if we do not generate as much revenue as we expect from these key customers, if we experience a loss of any of our key customers or if we suffer a substantial reduction in orders from these customers. Our ability to continue to generate revenues from our key customers will depend on our ability to introduce new products that are desirable to these customers.

We may not be able to enforce our intellectual property rights, especially in foreign countries, which could have a material adverse affect on our business.

Our success depends in large part on the protection of our proprietary rights. We incur significant costs to obtain and maintain patents and defend our intellectual property. We also rely on the laws of the U.S. and other countries where we develop, manufacture or sell products to protect our proprietary rights. We may not be successful in protecting these proprietary rights, these rights may not provide the competitive advantages that we expect or other parties may challenge, invalidate or circumvent these rights. More specifically, we depend on trade secrets used in the development and manufacture of our products. We endeavor to protect these trade secrets but the measures taken to protect these trade secrets may be inadequate or ineffective.

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Further, our efforts to protect our intellectual property may be less effective in some countries where intellectual property rights are not as well protected as they are in the U.S. Many U.S. companies have encountered substantial problems in protecting their proprietary rights against infringement in foreign countries. For the first thirteen weeks of 2013 and in each of the last three years, we derived more than 66% of our sales from countries outside of the U.S. If we fail to adequately protect our intellectual property rights in these countries, our business may be materially adversely affected.

Infringement of our proprietary rights could result in weakened capacity to compete for sales and increased litigation costs, both of which could have a material adverse effect on our business, product gross margins, prospects, financial condition and results of operations.

If third parties assert that we violate their intellectual property rights, our business and results of operations may be materially adversely affected.

Several of our competitors hold patents covering a variety of technologies that may be included in some of our products. In addition, some of our customers may use our products for applications that are similar to those covered by these patents. From time to time, we, and our respective customers, have received correspondence from our competitors claiming that some of our products, as sold by us or used by our customers, may be infringing one or more of these patents. Any claim of infringement from a third party, even one without merit, could cause us to incur substantial costs defending against the claim, and could distract our management from running the business.

In addition, our competitors or other entities may assert infringement claims against us or our customers in the future with respect to current or future products or uses, and these assertions may result in costly litigation or require us to obtain a license to use intellectual property rights of others. Additionally, if claims of infringement are asserted against our customers, those customers may seek indemnification from us for damages or expenses they incur.

If we become subject to additional infringement claims, we will evaluate our position and consider the available alternatives, which may include seeking licenses to use the technology in question or defending our position. These licenses, however, may not be available on satisfactory terms or at all. If we are not able to negotiate the necessary licenses on commercially reasonable terms or successfully defend our position, these potential infringement claims could have a material adverse effect on our business, prospects, financial condition and results of operations.

We have fixed debt obligations, which could adversely affect our ability to adjust our business to respond to competitive pressures and to obtain sufficient funds to satisfy our future manufacturing capacity and research and development needs.

The degree to which we are leveraged could have important consequences, including our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, general corporate or other purposes may be limited. In addition our shareholders will be diluted if holders of all or a portion of our outstanding 2.875% subordinated convertible notes elect to convert their notes. Our ability to pay interest and principal on our debt securities, to satisfy our other debt obligations and to make planned expenditures will be dependent on our future operating performance, which could be affected by changes in economic conditions and other factors, some of which are beyond our control. A failure to comply with the covenants and other provisions of our debt instruments could result in events of default under such instruments, which could permit acceleration of the debt under such instruments and in some cases acceleration of debt under other instruments that contain cross-default or cross-acceleration provisions. If we are at any time unable to generate sufficient cash flow from operations to service our indebtedness, we may be required to attempt to renegotiate the terms of the instruments relating to the indebtedness, seek to refinance all or a portion of the indebtedness or obtain additional financing. We cannot guarantee that we will be able to successfully renegotiate such terms, that any such refinancing would be possible or that any additional financing could be obtained on terms that are favorable or acceptable to us. As a result, we may be more vulnerable to economic downturns, less able to withstand competitive pressures and less flexible in responding to changing business and economic conditions.

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If we are unable to pay quarterly dividends or repurchase our stock at intended levels, our reputation and stock price may be harmed.

In September 2010, our Board of Directors approved a plan to repurchase up to a total of 4.0 million shares of our common stock. In June 2012, our Board of Directors approved the initiation of quarterly cash dividends to holders of our common stock. The indicated quarterly cash dividend, subject to declaration by our Board of Directors and capital availability, is $0.08 per share of common stock. Dividends have been paid under this program each quarter since its inception in June 2012. The dividend and stock repurchase program may require the use of a significant portion of our cash earnings. As a result, we may not retain a sufficient amount of cash to fund our operations or finance future growth opportunities, new product development initiatives and unanticipated capital expenditures. Further, our Board of Directors may, at its discretion, decrease the intended level of dividends or entirely discontinue the payment of dividends at any time. The stock repurchase program does not have an expiration date and may be limited at any time. Our ability to pay dividends and repurchase stock will depend on our ability to generate sufficient cash flows from operations in the future. This ability may be subject to certain economic, financial, competitive and other factors that are beyond our control. Any failure to pay dividends or repurchase stock after we have announced our intention to do so may negatively impact our reputation and investor confidence in us and may negatively impact our stock price.

Restructuring activities may be disruptive to our business and financial performance. Any delay or failure by us to execute planned cost reductions could also be disruptive and could result in total costs and expenses that are greater than expected.

From time to time, we have engaged in various restructuring and infrastructure improvement programs in order to increase operational efficiency, reduce costs and balance the effects of currency fluctuations on our financial results. These actions have previously included reductions of work-force as well as the costs to migrate portions of our supply chain to dollar-linked contracts.

Restructuring has the potential to adversely affect our business, financial condition and results of operations in other respects as well. This includes potential disruption of manufacturing operations, our supply chain and other aspects of our business. Employee morale and productivity could also suffer and result in unintended employee attrition. Loss of sales, service and engineering talent, in particular, could damage our business. Restructuring requires substantial management time and attention and has the potential to divert management from other important work. Moreover, we could encounter delays in executing our plans, which could cause further disruption and additional unanticipated expense. Some of our employees work in areas, such as Europe and Asia, where workforce reductions are highly regulated, and this could slow the implementation of planned workforce reductions. Restructuring plans may also fail to achieve the stated aims for reasons similar to those described in the prior paragraph.

During the course of executing a restructuring, we could incur material non-cash charges such as write-downs of inventories or other tangible assets. We test our goodwill and other intangible assets for impairment annually or when an event occurs indicating the potential for impairment. If we record an impairment charge as a result of this analysis, it could have a material impact on our results of operations.

Because we do not have long-term contracts with our customers, our customers may stop purchasing our products at any time, which makes it difficult to forecast our results of operations and to plan expenditures accordingly.

We do not have long-term contracts with our customers. Accordingly:


•	customers can stop purchasing our products at any time without penalty;


•	customers may cancel orders that they previously placed;


•	customers may purchase products from our competitors;


•	we are exposed to competitive pricing pressure on each order; and


•	customers are not required to make minimum purchases.

If we do not succeed in obtaining new sales orders from new and existing customers, our results of operations will be negatively impacted.

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Many of our projects are funded under various government contracts and if we are found to have violated the terms of the government contracts or applicable statutes and regulations, we are subject to the risk of suspension or debarment from government contracting activities, which could have a material adverse effect on our business and results of operations.

Many of our projects are funded under various government contracts worldwide. Government contracts are subject to specific procurement regulations, contract provisions and requirements relating to the formation, administration, performance and accounting of these contracts. Many of these contracts include express or implied certifications of compliance with applicable laws and contract provisions. As a result of our government contracting, claims for civil or criminal fraud may be brought by the government for violations of these regulations, requirements or statutes. Further, if we fail to comply with any of these regulations, requirements or statutes, our existing government contracts could be terminated, we could be suspended or debarred from government contracting or subcontracting, including federally funded projects at the state level. If one or more of our government contracts are terminated for any reason, or if we are suspended from government work, we could suffer the loss of the contracts, which could have a material adverse effect on our business and results of operations.

Changes and fluctuations in government spending priorities could adversely affect our revenue.

Because a significant part of our overall business is generated either directly or indirectly as a result of worldwide federal and local government regulatory and infrastructure priorities, shifts in these priorities due to changes in policy imperatives or economic conditions or government administration, which are often unpredictable, may affect our revenues.

Political instability in key regions around the world, the U.S. government’s commitment to military related expenditures and current uncertainty around global sovereign debt put at risk federal discretionary spending, including spending on nanotechnology research programs and projects that are of particular importance to our business. Also, changes in U.S. Congressional appropriations practices could result in decreased funding for some of our customers. At the state and local levels, the need to compensate for reductions in federal matching funds, as well as financing of federal unfunded mandates, creates strong pressures to cut back on research expenditures as well. A potential reduction of federal funding may adversely affect our business. Moreover, due to the world-wide economic downturn, many state and national governments are seeing significant declines in tax revenue, while also seeing increased demand for services. This could reduce the money available to our potential customers from government funding sources that could be used to purchase our products and services.

We have long sales cycles for our systems, which may cause our results of operations to fluctuate.

Our sales cycle can be 18 months or longer and is unpredictable. Variations in the length of our sales cycle could cause our net sales and, therefore, our business, financial condition, results of operations, operating margins and cash flows, to fluctuate widely from period to period. These variations could be based on factors partially or completely outside of our control.

The length of time it takes us to complete a sale depends on many factors, including:


•	the efforts of our sales force and our independent sales representatives;


•	changes in the composition of our sales force, including the departure of senior sales personnel;


•	the history of previous sales to a customer;


•	the complexity of the customer’s manufacturing processes;


•	the introduction, or announced introduction, of new products by our competitors;


•	the economic environment;


•	the internal technical capabilities and sophistication of the customer; and


•	the capital expenditure budget cycle of the customer.

Our sales cycle also extends in situations where the sale involves developing new applications for a system or technology. As a result of these and a number of other factors that could influence sales cycles with particular customers, the period between initial contact with a potential customer and the time when we recognize revenue from that customer, if we ever do, may vary widely.

The loss of key management or our inability to attract and retain managerial, engineering and other technical personnel could have a material adverse effect on our business, financial condition and results of operations.

Attracting qualified personnel is difficult, and our recruiting efforts may not be successful. Specifically, our product generation efforts depend on hiring and retaining qualified engineers. The market for qualified engineers is very competitive. In addition, experienced management and technical, marketing and support personnel in the technology industry are in high demand, and competition for such talent is intense. The loss of key personnel, or our inability to attract key personnel, could have an adverse effect on our business, financial condition or results of operations.

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Our customers experience rapid technological changes, with which we must keep pace. We may be unable to properly ascertain new market needs, or introduce new products responsive to those needs, on a timely and cost-effective basis.

Customers in each of our market segments experience rapid technological change that requires new product introductions and enhancements. Our ability to remain competitive depends in large part on our ability to understand these changes and develop, in a timely and cost-effective manner, new and enhanced systems at competitive prices that respond to, and accurately predict, new market requirements. We may fail to ascertain and respond to the needs of our customers or fail to develop and introduce new and enhanced products that meet their needs, which could adversely affect our financial position. In addition, new product introductions or enhancements by competitors could cause a decline in our sales or a loss of market acceptance of our existing products. Increased competitive pressure also could lead to intensified price competition, resulting in lower margins, which could materially adversely affect our business, prospects, financial condition and results of operations.

Our success in developing, introducing and selling new and enhanced systems depends on a variety of factors, including:


•	selection and development of product offerings;


•	timely and efficient completion of product design and development;


•	timely and efficient implementation of manufacturing processes;


•	effective sales, service and marketing functions; and


•	product performance.

Because new product development commitments must be made well in advance of sales, new product decisions must anticipate both the future demand for products under development and the equipment required to produce such products. We cannot be certain that we will be successful in selecting, developing, manufacturing and marketing new products or in enhancing existing products. On occasion, certain product and application developments have taken longer than expected. These delays can have an adverse affect on product shipments and results of operations.

The process of developing new high technology capital equipment products and services is complex and uncertain, and failure to accurately anticipate customers’ changing needs and emerging technological trends, to complete engineering and development projects in a timely manner and to develop or obtain appropriate intellectual property could significantly harm our results of operations. We must make long-term investments and commit significant resources before knowing whether our predictions will result in products that the market will accept.

To the extent that a market does not develop for a new product, we may decide to discontinue or modify the product. These actions could involve significant costs and/or require us to take charges in future periods. If these products are accepted by the marketplace, sales of our new products may cannibalize sales of our existing products. Further, after a product is developed, we must be able to manufacture sufficient volume quickly and at low cost. To accomplish this objective, we must accurately forecast production volumes, mix of products and configurations that meet customer requirements. If we are not successful in making accurate forecasts, our business and results of operations could be significantly harmed.

We may have exposure to income tax rate fluctuations as well as to additional tax liabilities, which would impact our financial position.

As a corporation with operations both in the U.S. and abroad, we are subject to income taxes in both the U.S. and various foreign jurisdictions. Our effective tax rate is subject to significant fluctuation from one period to the next as the income tax rates for each year are a function of the following factors, among others:


•	the effects of a mix of profits or losses earned by us and our subsidiaries in numerous foreign tax jurisdictions with a broad range of income tax rates;


•	our ability to utilize recorded deferred tax assets;


•	changes in uncertain tax positions, interest or penalties resulting from tax audits; and


•	changes in tax rates and laws or the interpretation of such laws.

Changes in the mix of these items and other items may cause our effective tax rate to fluctuate between periods, which could have a material adverse effect on our financial results.

We are also subject to non-income taxes, such as payroll, sales, use, value-added, net worth, property and goods and services taxes, in both the U.S. and various foreign jurisdictions.

We are regularly under audit by tax authorities with respect to both income and non-income taxes and may have exposure to additional tax liabilities as a result of these audits.

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Significant judgment is required in determining our provision for income taxes and other tax liabilities. Although we believe that our tax estimates are reasonable, we cannot assure you that the final determination of tax audits or tax disputes will not be different from what is reflected in our historical income tax provisions and accruals.

Many of our current and planned products are highly complex and may contain defects or errors that can only be detected after installation, which may harm our reputation and damage our business.

Our products are highly complex, and our extensive product development, manufacturing and testing processes may not be adequate to detect all defects, errors, failures and quality issues that could impact customer satisfaction or result in claims against us. As a result, we could have to replace certain components and/or provide remediation in response to the discovery of defects in products after they are shipped. The occurrence of any defects, errors, failures or quality issues could result in cancellation of orders, product returns, diversion of our resources, legal actions by our customers and other losses to us or to our customers. These occurrences could also result in the loss of, or delay in, market acceptance of our products and loss of sales, which would harm our business and adversely affect our revenues and profitability.

Some of our systems use hazardous gases and high voltage power supplies as well as emit x-rays, which, if not properly contained, could result in property damage, bodily injury and death.

A product safety failure, such as a hazardous gas, high voltage power supply, x-ray leak or extreme pressure release, could result in substantial liability and could also significantly damage customer relationships and our reputation and disrupt future sales. Moreover, remediation could require redesign of the tools involved, creating additional expense, increasing tool costs and damaging sales. In addition, the matter could involve significant litigation that would divert management time and resources and cause unanticipated legal expense. Further, if such a leak or release involved violation of health and safety laws, we may suffer substantial fines and penalties in addition to the other damage suffered. Finally, failure to properly manage the regulatory requirements for shipment of dangerous products could cause delays in clearing customs and thereby cause delay or loss of revenue in any particular quarter.

Natural disasters, catastrophic events, terrorist acts and acts of war may seriously harm our business and revenues, costs and expenses and financial condition.

Our worldwide operations could be subject to earthquakes, volcanic eruptions, telecommunications failures, power interruptions, water shortages, closure of transport routes, tsunamis, floods, hurricanes, typhoons, fires, extreme weather conditions, medical epidemics or pandemics, terrorist acts, acts of war and other natural or manmade disasters or business interruptions. For many of these events we carry no insurance. The occurrence of any of these business disruptions could seriously harm our revenue and financial condition and increase our costs and expenses. The impact of such events could be disproportionately greater on us than on other companies as a result of our significant international presence. Our corporate headquarters, and a portion of our research and development activities, are located on the Pacific coast, and other critical business operations and some of our suppliers are located in Asia, near major earthquake faults. We rely on major logistics hubs, primarily in Europe, Asia and the U.S. to manufacture and distribute our products and to move products to customers in various regions. Our operations could be adversely affected if manufacturing, logistics or other operations in these locations are disrupted for any reason, including those described above. The ultimate impact on us, our significant suppliers and our general infrastructure of being consolidated in certain geographical areas is unknown, but our revenue, profitability and financial condition could suffer in the event of a catastrophic event.

Unforeseen health, safety and environmental costs could impact our future net earnings.

Some of our operations use substances that are regulated by various federal, state and international laws governing health, safety and the environment. We could be subject to liability if we do not handle these substances in compliance with safety standards for storage and transportation and applicable laws. We will record a liability for any costs related to health, safety or environmental remediation when we consider the costs to be probable and the amount of the costs can be reasonably estimated.

We may not be successful in obtaining the necessary export licenses to conduct operations abroad, and the U.S. Congress may prevent proposed sales to foreign customers.

We are subject to export control laws that limit which products we sell and where and to whom we sell our products. Moreover, export licenses are required from government agencies for some of our products and accessories in accordance with various statutory authorities, including U.S. statutes such as the Export Administration Act of 1979, the International Emergency Economic Powers Act of 1977, the Trading with the Enemy Act of 1917 and the Arms Export Control Act of 1976. Depending on the shipment, we are also subject to Dutch or Czech law regarding export controls and licensing requirements. We may not be successful in obtaining these necessary licenses in order to conduct business abroad. In addition, we may suffer from process failures that would cause us to violate export laws. Failure to comply with applicable export controls or the termination or significant limitation on our ability to export certain of our products would have an adverse effect on our business, results of operations and financial condition.

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Changes in accounting pronouncements or taxation rules or practices may affect how we conduct our business.

Changes in accounting pronouncements or taxation rules or practices can have a significant effect on our reported results. Other new accounting pronouncements or taxation rules and varying interpretations of accounting pronouncements or taxation practices have occurred and may occur in the future. New rules, changes to existing rules, if any, or the questioning of current practices may adversely affect our reported financial results or change the way we conduct our business.

Provisions of our charter documents, our shareholder rights plan and Oregon law could make it more difficult for a third party to acquire us, even if the offer may be considered beneficial by our shareholders.

Our articles of incorporation and bylaws contain provisions that could make it harder for a third party to acquire us without the consent of our Board of Directors. Our Board of Directors has also adopted a shareholder rights plan, or “poison pill,” which would significantly dilute the ownership of a hostile acquirer. In addition, the Oregon Control Share Act and the Oregon Business Combination Act limit the ability of parties who acquire a significant amount of voting stock to exercise control over us. These provisions may have the effect of lengthening the time required for a person to acquire control of us through a proxy contest or the election of a majority of our Board of Directors, may deter efforts to obtain control of us and may make it more difficult for a third party to acquire us without negotiation. These provisions may apply even if the offer may be considered beneficial by our shareholder.


Item 6.	Exhibits

The following exhibits are filed herewith or incorporated by reference hereto and this list is intended to constitute the exhibit index:



3.1		Third Amended and Restated Articles of Incorporation.⁽¹⁾

3.2		Articles of Amendment to the Third Amended and Restated Articles of Incorporation.⁽²⁾

3.3		Amended and Restated Bylaws, as amended on November 14, 2012. ⁽³⁾

31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of The Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of The Sarbanes-Oxley Act of 2002.

32.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.

32.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.

101.INS		XBRL Instance Document.

101.SCH		XBRL Taxonomy Extension Schema Document.

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB		XBRL Taxonomy Extension Label Linkbase Document.

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document.

_____________________________


(1)	Incorporated by reference to our Quarterly Report on Form 10-Q for the quarter ended September 28, 2003.


(2)	Incorporated by reference to our Current Report on Form 8-K filed with the Securities and Exchange Commission on July 27, 2005.


(3)	Incorporated by reference to our Current Report on Form 8-K filed with the Securities and Exchange Commission on November 15, 2012.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		FEI COMPANY

Dated:	May 2, 2013	/s/ DON R. KANIA
		Don R. Kania
		President and Chief Executive Officer
		(Principal Executive Officer)

		/s/ RAYMOND A. LINK
		Raymond A. Link
		Executive Vice President and
		Chief Financial Officer
		(Principal Financial Officer)

Positive
Negative
Uncertain
Constraining
Legalese
Litigous
Readability	H.S. freshman Good

Fei (FEIC) Inactive 10-Q2013 Q1 Quarterly report

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